CONFORMED
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22720
CYCLO3PSS CORPORATION
(Name of Small Business Issuer as specified in its charter)
Delaware 87-0455642
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3646 West 2100 South
Salt Lake City, U h 84120-1202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (801) 972-9090
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 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 .
Common Stock outstanding at January 14th, 1997- 12,423,524 shares of $.001 par
value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
FORM 10-QSB
Financial Statements and Schedules
Cyclo3pss Corporation
For Three and Nine Months Ended November 30, 1996
The following financial statements and schedules of the registrant and
its consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
Item 1. Financial Statements
Consolidated Balance Sheets -November 30, 1996 and February 29, 1996
Consolidated Statements of Operations -- ...................3
for the three and nine months ended November 30, 1996 and 1995
Consolidated Statements of Cash Flow -- ....................5
for the nine months ended November 30, 1996 and 1995.....7
Notes to Consolidated Financial Statements..................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .........................................16
Item 2 Changes in Securities.................................16
Item 3 Defaults Upon Senior Securities.......................16
Item 4 Submission of Matters to a Vote of Security Holders...16
Item 5 Other Information.....................................16
Item 6(a) Exhibits..............................................16
Item 6(b) Reports on Form 8-K...................................16
Item 6(c) Reports on Form S-8...................................16
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<PAGE>
CYCLO3PSS CORPORATION
Consolidated Balance Sheets
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November 30, February 29,
1996 1996
---------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $568,313 $252,113
Marketable securities 1,306,815 ---
Accounts receivable, less allowance for
doubtful accounts of $40,000 at
November 30, 1996 and February 29, 1996 76,622 77,130
Inventories, net 257,465 408,889
Prepaid expenses 60,191 37,474
___________ __________
Total current assets 2,269,406 775,606
Property and equipment, net 450,629 570,237
Other assets:
Goodwill, net 597,496 768,862
Acquired patents, net 421,750 453,456
Developed patents and other, net 110,236 110,457
----------- -----------
$3,849,517 $2,678,618
=========== ===========
See accompanying notes to consolidated financial statements
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CYCLO3PSS CORPORATION
Consolidated Balance Sheets (continued)
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<TABLE>
<CAPTION>
November 30, February 29,
1996 1996
_____________________________
(Unaudited)
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 78,987 162,414
Accrued liabilities 101,437 120,122
Deferred revenue 262,749 142,749
Current portion of capital lease obligations 6,549 16,351
________________________
Total current liabilities 449,722 441,636
Long-term debt obligations 1,348,930 889,663
Long-term portion of capital lease obligation 62,975 54,626
Commitments and contingencies
Stockholders' equity:
Series "A" preferred stock, par value $.01; 4,500,000
shares authorized; 35,638 shares issued and outstanding 356 356
Series "B" preferred stock, par value $.01;
30,000 shares authorized; 3,170 issued and outstanding 21 ---
Class "A: preferred stock, par value $.01; 500,000
shares authorized; none issued and outstanding
Common stock, par value $.001; 55,000,000 shares --- ---
authorized; 12,681,196 shares issued at November 30,
1996, 10,169,932 shares issued at February 29, 1996 12,390 10,170
Additional paid-in capital 13,131,854 10,305,955
Accumulated deficit (10,655,186) (8,522,243)
Less treasury stock, 264,000 common shares at cost (501,545) (501,545)
Total stockholders' equity ----------------------------
1,987,890 1,292,693
----------------------------
$3,849,517 2,678,618
============================
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Consolidated Statements of Operations
(UNAUDITED)
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For the three months ended
November 30, November 30,
1996 1995
Net revenues $ 48,101 $109,474
Costs and expenses:
Cost of sales 47,524 52,703
Research and development 236,850 214,301
Selling and marketing 50,631 132,775
General and administrative 330,330 495,917
Depreciation and amortization 115,845 124,676
Total expenses ------------------------------
781,180 967,669
Loss from operations (733,079) (910,898)
Interest income 18,540 5,079
Interest expense (95,993) -----
-----------------------------
Net loss $(810,532 $(905,819)
Net loss per common share (.07) $(.09)
============================
Weighted average number of common shares
outstanding 12,243,607 10,164,866
============================
See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Consolidated Statements of Operations
(UNAUDITED)
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For the nine months ended
November 30, November 30,
1996 1995
Net revenues $264,080 $382,122
Costs and expenses:
Cost of sales 213,329 163,468
Research and development 637,798 648,933
Selling and marketing 135,034 378,475
General and administrative 901,514 1,477,450
Depreciation and amortization 350,217 322,837
-------------------------------
Total expenses 2,237,892 2,827,695
-------------------------------
Loss from operations (1,973,812) (2,609,041)
Interest income 30,154 24,101
Interest expense (189,285)
-------------------------------
Net loss $(2,132,943) $(2,584,940)
===============================
Net loss per common share (.19) $(.26)
===============================
Weighted average number of common shares
outstanding 11,232,931 9,936,574
===============================
See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Consolidated Statements of Cash Flow
(UNAUDITED)
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<TABLE>
<CAPTION>
For the nine months ended
November 30, 1996 November 30,1995
Cash flows from operating activities: ------------------------------------------
<S> <C>
Net loss $(2,132,943) $(2,584,940)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 350,217 322,836
Interest on convertible debt issuance 108,267 --
Issuance of warrants with convertible debt 72,873 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 508 (23,310)
(Increase) decrease in inventories 151,424 (180,541)
(Increase) decrease in prepaid expense, developed
patents, other (31,211) (20,241)
Decrease in accounts payable and accrued liabilities (102,112) (13,642)
Increase in deferred revenue 120,000 52,928
------------------------------------
Net cash used in operating activities (1,462,977) (2,446,910)
------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (10,483) (212,575)
Purchase of Marketable Securities (1,459,027)
Proceeds from sale of Marketable Securities 152,212 1,192,849
Net cash provided by (used in) financing activities ------------------------------------
(1,317,298) 980,274
------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 277 1,460,410
Proceeds from issuance of preferred stock 2,755,000 --
Proceeds from issuance of convertible debt obligation 351,000 --
Principal payments under capital lease obligations (9,802) (10,093)
-----------------------------------
Net cash provided by financing activities 3,096,475 1,450,317
-----------------------------------
Net increase in cash 316,200 (16,319)
Cash and cash equivelants at beginning of period 252,113 123,086
-----------------------------------
Cash and cash eqvilelants at end of period $568,313 $106,767
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for acquisition of
property and equipment 8,350 84,245
===================================
Acquisitions
Fair value of assets acquired ---- $175,000
Issuance of common stock ---- (175,000)
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements
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1. Summary of Significant Accounting Policies
Financial Statements
The accompanying interim consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. The balance sheet at February 29, 1996 represents the Company's audited
consolidated balance sheet at that date.
In the opinion of management, the accompanying consolidated financial
statements contain all normal recurring adjustments necessary to present
fairly the financial position of Cyclo3pss Corporation ("Company") as of
November 30, 1996 and the results of its operations and cash flows for the
three and nine month periods ended November 30, 1996 and November 30, 1995.
The operating results for the interim periods are not necessarily indicative
of the results for a full year. These financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
included in the Company's Annual Report to Shareholders and Annual Report for
10-KSB for the year ended February 29, 1996.
Organization
The Corporation was formed in Delaware in 1927. In 1990, the Corporation was
reorganized as Cyclo3pss Medical Systems, Inc. In 1995, the Company changed
its name to Cyclo3pss Corporation (the Company). The Company is engaged in
the research and development of technologies for the sterilization and/or
disinfection of surgical and medical instruments, the manufacture, sale and
installation of ozone washing and laundry sorting and counting systems for
commercial and institutional laundries, and the manufacture and sale of
specialty chemicals.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with minimal
interest rate risk and original maturities of three months or less at date of
acquisition.
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115)
which requires investment securities to be classified as either held to
maturity, trading or available for sale. The Company classifies its
short-term investments as available-for-sale. Available-for-sale securities
are carried at fair value, with unrealized gains and losses, net of
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CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements
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tax, reported in a separate component of stockholders' equity. Realized
gains or losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in the statement of operations.
The cost of securities sold is based on the specific identification method.
Interest on securities classified as available-for-sale are included in
interest income.
Inventories
Inventories consist of raw materials and work-in-process and are stated at
the lower of cost or market, cost being determined using the first-in,
first-out method. An inventory reserve has been established as an estimate of
the cost of possible design changes in review for the STER-O3-ZONETM 100.
Inventories consists of the following:
November 30, February 29,
1996 1996
Raw materials, net $214,080 $288,450
Work-in-process 43,385 120,439
------------------------------------
$257,465 $408,889
====================================
Other Assets
Other assets consist primarily of goodwill and acquired patents which are
recorded at the lower of cost or their net realizable value. Goodwill is
amortized over five years. Acquired and developed patents are amortized on a
straight-line basis over the shorter of their estimated useful lives or the
remaining life of the patent. The Company periodically reviews the
recoverability of these intangible assets in order to record them at their
net realizable value.
Revenue Recognition
Revenue is recognized upon shipment, or in the case of washing and laundry
systems, upon installation and customer acceptance. Payments received from
customers prior to installation and customer acceptance are recorded as
deferred revenue.
Net Loss per Common Share
Net loss per common share is calculated based on the weighted average number
of shares of common stock outstanding during the period. Common stock
equivalents are not included in the computation as their effect would be
anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements
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2. Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business.
The net loss for the year ended February 29, 1996 was $3,449,994. In the past
the Company has been able to receive funding necessary for its operations
through the issuance of common stock and preferred stock and other financing.
The Company anticipates a net loss for the year ended February 28, 1997.
The Company believes that these conditions have resulted from the inherent
risks associated with small technology companies. Such risks include, but are
not limited to, the ability to (a) generate sales of its product at levels
sufficient to cover its costs and provide a return for investors, (b) attract
additional capital in order to finance growth, (c) further develop and
successfully market commercial products and (d) successfully compete with
other technology companies having financial, production and marketing
resources significantly greater than those of the Company.
The Company is trying to improve these conditions by way of financial
assistance through collaborative partnering agreements, closely held common
stock issuances, debt arrangements, and product sales. Management is
confident that appropriate funding will be generated and future product sales
will result from these opportunities and that the Company will continue
operations over the next fiscal year.
The Company has engaged in an offering of Series "B" Preferred Stock. This
Series "B" Preferred Stock was designated by the Board of Directors on May
30, 1996. As of November 30, 1996, net proceeds of $2,755,000 had been
received in cash by the Company, and the offering was closed.
3. Long-Term Debt
During the year ended February 29, 1996, the Company's Board of Directors
approved the issuance of $3,000,000 in convertible debt to individual
investors. Principal and interest are payable in full three years from the
date of execution of each note. Interest accrues at 12% per year on the
principal balance. The debt is secured by all the assets of the Company. The
lender can convert all or a portion of its outstanding principal and interest
into shares of common stock at $3.50 per share. Under the terms of the loan
agreements, the Company will issue each lender a warrant to purchase 1,000
shares of the Company's common stock at a price of $4.00 per share for each
$3,500 principal amount loaned to the Company. Each warrant is exercisable
for a period of 5 years from the date of the closing of each loan. The Board
of Directors has reserved 2,022,714 shares of the Company's common stock for
the conversion of debt and exercise of warrants offered with the convertible
debt. As of November 30, 1996, the Company had issued $1,226,000 in
convertible debt (described above) to the Company's directors or major
stockholders, with maturities between December 1998 and February 1999.
Interest expense of $108,267 was recorded for the nine months ended November
30, 1996.
The carrying amount of long-term debt approximates fair value. The fair value
of the Company's long-term debt was estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for
similar types of debt arrangements.
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CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements
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4. Stockholders' Equity
On May 30, 1996 the Board of Directors designated series "B" preferred stock
which consists of 30,000 shares of non-voting stock with a par value of $.01.
The stated value is $1,000 per share. As of November 30, 1996, 3,170 shares
of series "B" preferred stock had been issued with net proceeds of $2,755,000
and issuance cost of $415,000. As of November 30, 1996, 1,235 shares of
series "B" preferred stock has been converted into 1,981,236 shares of common
stock. These conversions were made at 70% of the "Average Stock Price" as
designated by the Board of Directors and further defined as the average daily
closing bid prices of common shares for the period of five consecutive
trading days immediately proceeding the date of conversion of the series "B"
shares. As of November 30, 1996, 85,698 shares of common stock are to be
issued for dividends on all series "B" preferred stocks issued and
outstanding. Dividends are accrued at the rate of 8% percent per annum,
commencing on the date of issuance thereof.
5. Contingencies
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes, based on advice of legal
counsel, that such litigation and claims will be resolved without material
effect on the Company's consolidated financial position, results of
operations or cash flows. These matters are described in the Company's Form
10-KSB for the year ended February 29, 1996.
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<PAGE>
PART I - ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was an inactive corporation from the 1930's to 1987. From the
commencement of operations in 1987 until July of 1994, the Company was in the
development stage engaged primarily in the research and development of its
products. From the period since reactivation (March 2, 1987) to November 30,
1996, the Company has incurred cumulative net losses of approximately
$10,655,186. The Company expects to continue to incur losses into next year.
The Company's future operating results will depend on many factors, including
the timing of the FDA marketing clearance, the demand for the Company's
medical sterilization products at that time, and industry acceptance of the
Company's laundry technologies, system equipment and attendant products.
Additional factors include the Company's ability to manufacture and market
its products on a cost-effective basis, the level of competition and the
ability of the Company to develop product enhancements and new products and
to obtain the required financing.
Results of Operations
The Company's revenues were $264,080 for the nine months ended November 30,
1996, and $382,122 for the nine months ended November 30, 1995. The revenue
for the three months ended November 30, 1996, were $48,101 compared to
$109,474 for the three months ended November 30, 1995. Only two of the
Company's wholly owned subsidiaries are currently contributing to the
Company's revenues, Cyclo3pss Textile Systems, Inc. ("CTS") and Cyclo3pss
Biochemical Corporation ("CBC"). The Company's gross margin for the nine
months ended November 30, 1996 was $50,751 compared to $218,654 for the nine
months ended November 30, 1995. The gross margin for the three months ended
November 30, 1996, was $577 compared to $56,771 for the three months ended
November 30, 1995. This decrease in gross margin is primarily attributable to
the reduction of CTS sales as the result of the Company's decision to
interrupt the direct sale of systems until the redesign effort was completed
and dependable systems could be reintroduced to the market.
The Company incurred research and development expenses of $637,798 for the
nine months ended November 30, 1996 and $648,933 for the nine months ended
November 30, 1995. Research and development expenditures were $236,850 for
the three months ended November 30, 1996, and $214,301 for the three months
ended November 30, 1995. Management sees no continued overall reduction of
research and development expenses. These costs will continue to be expended
as certain products complete the development process and are commercialized.
The Company incurred general and administrative expenses of $901,514 for the
nine months ended November 30, 1996, compared to $1,477,450 for the nine
months ended November 30, 1995. General and administrative expenses for the
three months ended November 30, 1996 were $330,330 and $495,917 for the three
months ended November 30, 1995. This decrease is due generally to decrease in
staffing. Also, Management has taken aggressive steps to reduce current
monthly expenses. As the Company completes development on certain products
and prepares for commercialization, the human resource requirements of the
Company will change.
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<PAGE>
The Company incurred selling and marketing expenses of $135,034 for the nine
months ended November 30, 1996, compared to $378,475 for the nine months
ended November 30, 1995. The selling and marketing expenses for the three
months ended November 30, 1996 were $50,631 compared to $132,775 for the
three months ended November 30, 1995. This decrease is mainly due to higher
marketing staff and advertising expenses during the quarter ended November
30, 1995 for Cyclo3pss Textile Systems, Inc. The Company anticipates
marketing expenses to increase slightly in the fiscal year 1997 due to the
hiring and training of additional marketing personnel and the attendant costs
related to their endeavors. The Company will also increase marketing activity
and incur additional expenses should it receive positive indications from the
FDA as to marketing clearance for its medical sterilization systems during
the year 1997.
For the nine months ended November 30, 1996, the Company had interest income
of $30,163 as compared to interest income for the nine months ended November
30, 1995, of $24,101. The interest income for the three months ended November
30, 1996 was $18,540 compared to interest income of $5,079 for the three
months ended November 30, 1995. The Company anticipates that this amount will
continue to increase due to the increase in the company's cash resources
which earn interest. New funds received by the Company generally will be
allocated to short term investments.
The Company's net loss for the nine months ended November 30, 1996 was
$2,132,943, as compared to the nine months ended November 30, 1995 of
$2,584,940. The Company's net loss for three months ended November 30, 1996
was $810,532, as compared to the three months ended November 30, 1995 of
$905,819. The Company anticipates that it will operate at a loss for the year
ended February 28, 1997. However, it is anticipated that the losses should
begin to diminish if and when the revenues of Cyclo3pss Textile Systems, Inc.
and Cyclo3pss BioChemical Corporation begin to accelerate.
Liquidity and Capital Resources
The Company has offered its series "B" preferred stock, as designated by the
Board of Directors on May 30, 1996. As a result, $2,755,000 has been received
in cash by the Company, net of issuance cost of $415,000. The offering was
closed on August 16, 1996. There are no assurances that future efforts to
locate and secure additional financing will be successful. The failure to
secure additional financing could substantially alter the management's
assumptions as presented in the remainder of this section.
During the quarter ended November 30, 1996, the Company has invested
$1,459,027 in short-term government backed securities. Proceeds from sale of
marketable securities for the quarter ended November 30, 1996 , was $152,212
compared to $1,192,849 for November 30, 1995, which was when all previous
marketable securities were sold.
Cash used in operating activities was $1,462,977 for the nine months ended
November 30, 1996, compared to $2,446,910 for the nine months ended November
30, 1995. Cash used for the nine months ended November 30, 1996 was comprised
of cash on hand and collections of accounts receivable, which is comprised of
service and part sales from Cyclo3pss Textile Systems, Inc. and contract
development and chemical compound sales from Cyclo3pss Biochemical
Corporation.
Total assets increased to $3,849,517 for nine months ended November 30, 1996
from $2,678,618 for the year ended February 29, 1996, primarily due to the
increase in the Company's cash as a result of net proceeds of $2,755,000 from
the issuance of series B preferred stock.
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<PAGE>
As of November 30, 1996, the current liabilities total was $449,722 which is
a slight increase over total current liabilities of $441,636 for the year
ended February 29, 1996. All of the Company's current liabilities at November
30, 1996 were attributed to accounts payable, accruals and deferred revenues,
and the current portion of certain capital equipment leases. As of November
30, 1996 long term liabilities were $1,411,905 compared to $944,289 for the
year ended February 29, 1996. Of the November 30, 1996 $1,348,930 represents
the principal and interest owed pursuant to the Company's offering of
convertible debt instruments, compared to $889,663 for the year ended
February 29, 1996. The additional $62,975 represents the long term portion of
leases payable for certain leased equipment as of November 30, 1996, compared
to $54,626 for the year ended February 29, 1996.
On October 17, 1995 the Board of Directors approved the issuance of a up to
$3,000,000 of Convertible Secured Promissory Notes to investors. The
Convertible Notes which include warrants to purchase shares of the Company's
restricted common stock at $4.00 per share, also bear interest at a rate of
12% per annum. Both the interest and principal are convertible to shares of
the Company's restricted common stock at $3.50 per share. The conversion
shares and warrants carry certain registration rights and requirements. These
notes are secured by all assets of the Company. As of May 31, 1996,
$1,226,000 had been received from this offering and it was closed.
Plan of Operation
The anticipated plan of operation during the next twelve (12) months is to
complete the following:
1. The continued review of the engineering and design elements of the
STER-O3-ZONETM ozone gas sterilizer in order to determine an
efficient and cost effective manner in which to correct certain
process controls of the system.
2. Evaluate and determine the time line required to execute the design
changes to the STER- O3-ZONETM ozone gas sterilizer. Determine what
action to take with the FDA in respect to the current pending
application of the Company's 510(k) Premarket Notification for the
STER-O3- ZONETM 100. The Company will not engage in any pre-approval
sales under the Investigational Device Exemption (IDE) of the
STER-O3-ZONETM 100 until the design changes have been fully
resolved.
3. Continuation of validation testing of the Company's liquid chemical
sterilant, SterOxTM, preparatory to submission of the 510(k)
Premarket Notification to the FDA. To be determined is whether this
will be completed by the Company or with an existing market leader
of liquid disinfectants resulting in a possible licensing agreement
to complete the testing on this product as well as formalization of
the application and presentation of SterOxTM to the FDA.
4. Continued development of products and enhancements for the Company's
textiles subsidiary which include:
(1) Completion of validation testing for the application for cold
water ozone disinfection of health care textiles, both domestically
and abroad.
(2) Reintroduction and sales of the Company's revised and modified
Vacuum Soils Counting System (VAC) and ozone washing systems.
(3) Aggressive marketing of the revised and modified textile
products. Additional plans to market through proposed strategic
alliances with parties currently in negotiation.
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<PAGE>
5. Continuation of contract research and development within the
Biochemical subsidiary and the ongoing manufacture and sales of its
existing and future speciality chemicals product line.
6. With appropriate financing in place, there may be additional
diversification of the Company's business activities through future
acquisitions.
Although the Company will be primarily engaged in the aggressive sales and
support of its completed products, it anticipates that research and
development expenses will be ongoing, and could range from $800,000 to
$1,000,000 during the next twelve months in support of the completion of key
future products. Based on current manufacturing assumptions, the estimate on
the equipment expenditures will range from $200,000 - $400,000 for the next
twelve months. Management has taken aggressive steps to reduce current
monthly expenses by reducing personnel and other expenses. The Company
anticipates that no more than six additional employees will be hired during
the next twelve months, unless: (i) the market acceptance of the textile
systems is accelerated ; and (ii) the sterilizer products are approved by the
FDA in a more timely manner than management predicts. It is anticipated that
general and administrative expenses would not increase by more than $600,000
on an annualized basis as a result of any such increase in employees.
However, these estimates are forward looking statements that are inherently
uncertain. Actual expenditures could differ materially from those projected.
All of these forward looking statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore,
undue reliance should not be placed upon such estimates. There can be no
assurance that the expenditures anticipated in these forward looking
statements will be realized. The following important factors, among others,
could cause the Company not to attain the expenditures contemplated herein or
otherwise cause the Company's results of operations to be adversely affected
in future periods: (i) the FDA review process; (ii) the availability of new
technologies; (iii) the success of the marketing efforts for existing
products; (iv) continued or increased competitive pressures from existing and
new competitors and new entrants; (v) loss or retirement of key members of
management; (vi) increases in interest rates or the Company's cost of
borrowing; (vii) deterioration in general or regional economic conditions;
(viii) adverse state or federal legislation or regulation that increases the
costs of compliance, or adverse findings by a regulator with respect to
existing operations; (ix) adverse determinations in connection with pending
or future litigations or other material claims against the Company; and (x)
the unavailability of funds for capital expenditures. Many of such factors
are beyond the control of the Company. In addition, there can be no assurance
that unforeseen expenses or other factors will not alter the projected
expenditures in whole or in part.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Hold None.
Item 5. Other Information. None
Item 6(a). Exhibits. None.
Item 6(b). Reports on Forms 8 - K. None
Item 6(c). Reports on Form S 8. None
- 16 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CYCLO3PSS CORPORATION
Date: January 14, 1997 By/s/ John M. Williams
--------------------
John M. Williams
Chief Executive Officer
Chairman
Principal Executive Officer
Date: January 14, 1997 By/s/ William R. Stoddard
-----------------------
William R. Stoddard
President
Principal Financial Officer
- 17 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CLCLO3PSS
CORPORATION NOVEMBER 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 568,313
<SECURITIES> 1,306,815
<RECEIVABLES> 76,622
<ALLOWANCES> 40,000
<INVENTORY> 257,465
<CURRENT-ASSETS> 2,269,406
<PP&E> 450,629
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,849,517
<CURRENT-LIABILITIES> 449,722
<BONDS> 0
0
377
<COMMON> 1,975,123
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,849,517
<SALES> 0
<TOTAL-REVENUES> 48,101
<CGS> 47,524
<TOTAL-COSTS> 781,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 733,079
<INTEREST-EXPENSE> 95,993
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 810,532
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
