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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------
For the quarterly period ended December 31, 1997
Commission File Number: 0-20376
XXSYS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0161808
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4619 Viewridge Avenue
San Diego, California 92123
(Address of principal executive offices)
(619) 974-8200
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes X
No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock, no par value
- - 9,836,556 shares outstanding on February 13, 1998.
Transitional Small Business Disclosure Format (check one): Yes X No
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XXSYS TECHNOLOGIES, INC.
INDEX
PART I -- FINANCIAL INFORMATION
PAGE
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 102,907 $ 33,846
Restricted certificates of deposit 551,000 551,000
Accounts receivable 283,970 504,644
Stock subscription receivable (Note 2) 187,000 366,000
Inventory 102,663 80,496
Prepaid expenses and other 101,092 130,289
------------ ------------
Total current assets 1,328,632 1,666,275
Machinery, equipment and furniture, net of
accumulated depreciation of $860,864 and $787,878 1,526,658 1,587,246
Deferred costs 4,219 12,661
Patents, net of amortization of $136,028 and $128,956 181,164 142,340
------------ ------------
Total assets $ 3,040,673 $ 3,408,522
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 449,887 $ 613,811
Accrued compensation 116,442 68,382
Accrued liabilities 142,223 283,687
Related party accrued expenses 69,867 49,247
Current portion, long-term debt 59,001 94,763
------------ ------------
Total current liabilities 837,420 1,109,890
Long-term debt, less current portion 73,238 70,668
Commitments and contingencies (Note 3)
Shareholders' equity:
Preferred stock, par value $100
Shares authorized -- 2,000,000;
Issued and outstanding -- 4,500
(liquidation preference -- $450,000) 450,000 450,000
Common stock, no par value
Shares authorized -- 20,000,000;
Issued and outstanding -- 9,836,556 / 9,362,371 19,479,052 19,262,052
Accumulated deficit (17,455,748) (17,148,248)
Note receivable for preferred stock (343,289) (335,840)
Deferred compensation -- --
------------ ------------
Total shareholders' equity 2,130,015 2,227,964
------------ ------------
Total liabilities and shareholders' equity $ 3,040,673 $ 3,408,522
============ ============
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
=========== ===========
<S> <C> <C>
Revenues:
Sales $ -- $ --
Contract revenues 308,370 103,918
=========== ===========
Total revenues 308,370 103,918
Operating expenses:
Cost of equipment -- --
Cost of services 261,316 151,357
Selling, general and administrative 685,286 927,743
Research and development 58,131 25,203
----------- -----------
Total operating expenses 1,004,733 1,104,303
Operating loss (696,363) (1,000,385)
Interest income 16,598 13,571
Other income (5 ) 374,995 169,498
Interest expense (2,755) (3,049)
----------- -----------
Net loss $ (307,525) $ (820,365)
=========== ===========
Net loss per share $ (.03) $ (.11)
=========== ===========
Weighted average number of shares
outstanding 9,222,587 7,297,819
=========== ===========
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (307,525) $ (820,365)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 88,500 54,711
Non-cash compensation -- --
Accrued interest income (7,449) (11,884)
Changes in assets and liabilities:
Investments -- --
Accounts receivable 220,674 (20,596)
Cash in escrow -- (139,498)
Inventories (22,167) --
Prepaid expenses and other 29,197 14,972
Accounts payable (163,924) 2,842
Accrued liabilities (93,379) 147,200
Related party accrued expenses 20,620 30,585
----------- -----------
Net cash used in operating activities (235,453) (742,033)
Cash flows from investing activities:
Purchase of machinery and equipment (12,398) (363,702)
Deferred costs -- (17,083)
Other assets 45,896 --
----------- -----------
Net cash used in investing activities (58,294) (380,785)
Cash flows from financing activities:
Sale of common stock 396,000 1,149,933
Warrant redemption costs -- --
Exercise of warrants -- 25,000
Issuance of convertible notes -- --
Issuance of other notes payable -- --
Repayment of notes payable (33,192) (22,078)
Payments of related party debt -- --
----------- -----------
Net cash from financing activities 362,808 1,152,855
Net increase (decrease) in cash 69,061 30,037
Cash and cash equivalents -- beginning of period 33,846 184,489
----------- -----------
Cash and cash equivalents at end of period $ 102,907 $ 214,526
=========== ===========
</TABLE>
See accompanying notes.
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XXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the information contained therein. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended September 30, 1997, contained
in the Company's Form 10-KSB. The results of operations for the three-month
period ended December 31, 1997, are not necessarily indicative of results for
the entire year.
2. STOCK SUBSCRIPTIONS RECEIVABLE
The stock subscriptions receivable at December 31, 1997, of $187,000
represent cash received by the Company in January and February 1998 as partial
payment for stock purchased under a stock purchase agreement under Regulation D
that the Company signed on December 30, 1997, and a stock purchase agreement
under Regulation S signed on June 16, 1997. The stock subscription receivable at
September 30, 1997, of $366,000 represents $190,000 in cash received by the
Company from October 1, 1997, to December 31, 1997, as payment for restricted
stock purchased under a stock purchase agreement under Regulation S that the
Company signed on June 16, 1997, and payment of $176,000 in October 1997, for
the balance due the Company under a note payable and stock purchase agreement
signed on September 1, 1995. The stock subscriptions receivable are shown as
current assets because the amounts were received prior to the issuance of the
financial statements for each of the periods ended September 30, 1997, and
December 31, 1997.
3. COMMITMENTS
At December 31, 1997, the Company had a commitment to complete the
construction of a column wrapping machine designated for wrapping columns up to
six feet in diameter. The cost to complete the machine, Robo 2.2(TM), was
approximately $160,000, and delivery is expected to be in the third fiscal
quarter 1998.
4. SHAREHOLDERS' EQUITY
Common Stock:
During the period from October 1, 1997, to December 31, 1997, the
Company received cash in the amount of $220,000 from one individual for 274,714
shares of restricted Common Stock under Regulation S. Of the total received,
$190,000 was reported as a subscription receivable at September 30, 1997. The
average share price of Common Stock issued to this individual during this period
was $0.80.
In January and February 1998 the Company received $95,000 for 222,784
shares of restricted common stock as part of a $1,000,000 private placement
under Regulation S, signed on June 16, 1997, and $92,000 for 202,832 shares of
restricted common stock as part of a $1,500,000 private placement agreement
under Regulation D signed on December 30, 1997. The amounts received are shown
as a subscriptions receivable at December 31, 1997. The average price per share
of the Common Stock issued was $0.44.
5. OTHER INCOME
Other income of $374,995 in fiscal 1998 represents the net effect of
the Company's receipt of payment of a final consulting fee from a composite
materials company.
Other income of $169,498 in fiscal 1997 represents the net effect of
the Company's receipt of payment of a consulting fee from a composite materials
company, less an amount paid to the company's former president in settlement of
a prior dispute with the former president over rights to the consulting fee, and
other matters.
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RESULTS OF OPERATIONS
First Quarter of Fiscal 1998 Compared to First Quarter of 1997
Revenues of $308,370 were recorded in the fiscal quarter ended December
31, 1997, the first quarter of the Company's 1998 fiscal year, representing an
increase of $204,452, or almost a 200% increase over the first quarter of fiscal
1997. Approximately 55% of revenues were from public sector demonstration
projects, and 45% from private sector retrofit projects. During the quarter, the
Company completed the retrofit of four one-story building structures in Anaheim,
California and a subcontract to retrofit a bridge at the interchange of I-5 and
I-90 in Seattle, Washington.
Total operating expenses of $1,004,733 in the first quarter 1998
decreased by $99,570, or 9%, from the first quarter of fiscal 1997. The cost of
services of $261,316 represented 85% of contract revenues, for a 15% gross
margin, compared with a negative margin in the first quarter of fiscal 1997. The
improved margin is due to an increase in private sector work which has more
favorable margins than small demonstration projects and government research
programs. Selling, general and administrative expenses decreased by $242,457, or
26%, to $685,286, as the Company cut administrative costs and reduced its
government marketing and sales activity. Research and development (R&D) expense
increased by $32,928, to $58,131, as the Company continued to fund more of its
own R&D programs.
Interest income during the first quarter increased to $16,598, compared
to $13,571 in the first quarter of the prior year. Other income of $374,995 is
primarily the result of consulting fees received from a composite materials
company (see Note 5, Other Income).
The net loss for the first quarter of fiscal 1998 of $307,525
represents a decrease of $512,840 from the net loss of $820,365 in the first
quarter of 1997. On a per share basis, the net loss was $0.03 in the first
quarter 1998, compared to $0.11 in the first quarter of 1997. Other income from
consulting fees (See Note 5, Other Income), and lower administrative expense are
the primary reasons for the lower loss.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1998, the Company continued to incur
high operating costs in pursuing the commercialization of its composite retrofit
business. The cost of small demonstration projects, seminars, and research work
now being performed in five states, California, Washington, Utah, Wyoming, and
Illinois, as well as continued high marketing and sales expense of introducing
the technology in these and other states continues to contribute to high costs.
The Company believes that the commercialization of the retrofit business
throughout the United States will come from such demonstration projects and
seminars, which are expected to continue to be conducted throughout 1998. The
Company has now completed three public sector projects and three private sector
projects, all of which were performed in three states, Washington, Utah and
California.
The sale of Common Stock continues to be the Company's supplemental
source of funds while the Company continues to commercialize its retrofit
business. The Company reported at the beginning of its fiscal year that
approximately $5 million in capital will be necessary to sustain operations and
capital equipment purchases throughout the 1998 fiscal year. During the first
quarter ended December 31, 1997, the Company received $220,000 from the sale of
restricted Common Stock through the private placement under Regulation S signed
on June 16, 1997. An additional $187,000 was received in January and early
February 1998 as part of the sale of restricted Common Stock. The remaining
funds to be received under private placements as of February 12, 1998, are
$284,067 for the private placement under Regulation S signed on June 16, 1997,
and $2,908,000 for the private placements under Regulation D signed on December
30, 1997.
IMPACT OF INFLATION
Inflation has not had any significant effect on the Company's operating
costs.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is currently subject to certain claims and legal actions
arising in the ordinary course of its business. In the opinion of management,
all such matters are adequately covered by insurance or will not have a material
adverse effect on the Company's financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
XXSYS TECHNOLOGIES, INC.
February 13, 1998
By: /s/ Gregory P. Hanson
---------------------------------
Gregory P. Hanson
Chief Financial Officer (Principal
Financial and Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 102,907
<SECURITIES> 0
<RECEIVABLES> 470,970<F1>
<ALLOWANCES> 0
<INVENTORY> 102,663
<CURRENT-ASSETS> 1,328,632
<PP&E> 2,387,522
<DEPRECIATION> 860,864
<TOTAL-ASSETS> 3,040,673
<CURRENT-LIABILITIES> 837,420
<BONDS> 0
0
450,000
<COMMON> 19,479,052
<OTHER-SE> (343,289)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 3,040,673
<SALES> 308,370
<TOTAL-REVENUES> 308,370
<CGS> 261,316
<TOTAL-COSTS> 261,316
<OTHER-EXPENSES> 685,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,755
<INCOME-PRETAX> (307,525)
<INCOME-TAX> 0
<INCOME-CONTINUING> (307,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (307,525)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES STOCK SUBSCRIPTION RECEIVABLE $187,000
<F2>NOTE RECEIVABLE FOR PREFERRED STOCK OF $343,289 IS SHOWN AS CONTRA - EQUITY
ACCOUNT.
</FN>
</TABLE>
