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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 AUGUST 31, 1997
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, UTAH 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 October 14, 1997 - 13,930,437 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 Six Months Ended August 31, 1997
The following financial statements of the registrant and its consolidated
subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-Q
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets -
August 31, 1997 and February 28, 1997.....................3
Consolidated Statements of Operations --
for the three months and six months ended August 31, 1997
and 1996................................................. 5
Consolidated Statements of Cash Flows --
for the six months ended August 31, 1997 and 1996 ........7
Notes to Consolidated Financial Statements..................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .......................................15
Item 2. Changes in Securities....................................15
Item 3. Defaults Upon Senior Securities..........................15
Item 4. Submission of Matters to a Vote of Security Holders......15
Item 5. Other Information........................................15
Item 6. Exhibits.................................................15
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CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
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August 31 February 28
1997 1997
------------ --------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $554,015 $1,275,636
Accounts receivable, less allowance for
doubtful accounts of $2,000 at
August 31, 1997 and February 28, 1997 83,387 97,605
Inventories 129,253 100,584
Prepaid expenses 64,750 102,815
____________ ____________
Total current assets 831,405 1,576,640
Property and equipment, net 299,352 370,994
Other assets:
Goodwill, net 426,131 540,375
Acquired patents, net 390,065 411,187
Developed patents and other, net 124,780 125,650
$2,071,733 $3,024,846
============ =============
See accompanying notes to consolidated financial statements
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CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
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August 31, February 28
1997 1997
------------ --------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $93,154 $108,619
Accrued liabilities 84,883 135,190
Current portion of capital lease obligations 26,986 26,120
Total current liabilities 205,023 269,929
Long-term debt obligations 240,000 1,156,000
Interest payable on long-term debt obligations 46,660 151,730
Long-term portion of capital lease obligations 25,055 37,356
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Preferred stock issuable in series: par
value $.01, 4,500,000 authorized:
Series "A" convertible preferred stock;
356,638 shares authorized; 356,638
shares issued and outstanding 356 356
Series "B" convertible preferred stock;
30,000 shares authorized; 1,932 shares
issued and outstanding 19 19
Class "A" preferred stock, par value $.01;
500,000 shares authorized; none issued or
outstanding -- --
Common stock, par value $.001; 55,000,000 shares
authorized; 13,888,770 issued at August 31,
1997, 12,793,340 shares issued at
February 28, 1997 13,889 12,793
Additional paid-in capital 14,662,909 13,546,195
Accumulated deficit (12,620,633) (11,479,987)
Deferred compensation -- (168,000)
Less treasury stock, 264,000 common shares
atcost (501,545) (501,545)
____________________________
Total stockholders' equity 1,554,995 1,409,831
____________________________
$2,071,733 $3,024,846
============================
See accompanying notes to consolidated financial statements
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CYCLO3PSS CORPORATION
Consolidated Statements of Operations
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(UNAUDITED)
For the three months ended
August 31,
1997 1996
-------------- --------------
Net Revenues $249,228 $122,925
Costs and expenses:
Cost of sales 178,184 51,311
Research and development 74,159 166,676
Selling and marketing 116,822 33,384
General and administrative 386,760 257,028
Depreciation and amortization 108,328 116,883
-----------------------------
Total expenses 864,253 625,282
Loss from operations (615,025) (502,357)
Interest income 9,279 9,520
Interest expense (42,852) (39,449)
Net loss (648,598) (532,286)
Preferred stock dividends
Net loss applicable to common stock (38,958) -
____________________________
$(687,556) $(532,286)
============================
Net loss per common share (.05) (.05)
============================
Weighted average number of common shares
issued and outstanding 13,192,193 10,961,666
============================
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 six months ended
August 31, nded
1997 1996
6 -------------- --------------
Net Revenues $551,619 $215,980
Costs and expenses:
Cost of sales 423,374 165,587
Research and development 152,023 400,947
Selling and marketing 164,274 84,621
General and administrative 657,867 571,191
Depreciation and amortization 217,159 234,377
Total expenses 1,614,697 1,456,723
Loss from operations (1,063,078) (1,240,743)
Interest income 23,490 11,623
Interest expense (101,059) (93,292)
Net loss (1,140,647) (1,322,412)
Preferred stock dividends -
Net loss applicable to common stock (77,916) $(1,322,412)
$(1,218,563)
Net loss per common share (.09) (.12)
Weighted average number of common shares
issued and outstanding 13,027,136 10,727,593
-----------------------------
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See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Consolidated Statements of Cash Flow
(UNAUDITED)
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For the six months ended
August 31,
1997 1996
-------------------------------
Cash flows from operating activities
Net loss $(1,140,646) $(1,322,412)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 217,159 234,377
Accrued interest on convertible debt issuance 69,360 71,487
Accretion of convertible debt warrant 27,380 16,400
Common stock issued for services 168,000 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 14,218 (31,320)
(Increase) decrease in inventories (28,669) 112,916
Decrease in prepaid expense 38,065 24,417
Decrease in accounts payable and accrued
liabilities (65,772) (82,602)
Increase in deferred revenue - 87,500
--------------------------
Net cash used in operating activities (700,905) (889,237)
--------------------------
Cash flows from investing activities
Purchase of property and equipment and other
assets (9,281) (12,028)
--------------------------
Net cash used in investing activities (9,281) (12,028)
--------------------------
Cash flows from financing activities
Proceeds from issuance of common stock - 354
Proceeds from issuance of preferred stock - 2,755,000
Proceeds from issuance of convertible debt
Obligations - 351,000
Principal payments under capital lease
obligations (11,435) (4,039)
--------------------------
Net cash used in (provided by) financing
activities (11,435) 3,102,315
--------------------------
Net increase in cash (721,621) 2,201,050
Cash and cash equivalents at beginning of period 1,275,636 252,113
--------------------------
Cash and cash equivalents at end of period $554,015 $2,453,163
===========================
Supplemental schedule of non-cash financing
activities
Conversion of long term debt obligations
to common stock $916,000 -
Conversion of interest payable on long term
obligations to common stock $174,430 -
===========================
See accompanying notes to consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
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1. Summary of Significant Accounting Policies
Financial Statements
The accompanying unaudited condensed consolidated financial statements
include the accounts of CyclO3PSS Corporation ("Company") and its
subsidiaries, and, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) necessary to fairly state
the Company's consolidated financial position, results of operations and cash
flows for the periods stated. The condensed consolidated balance sheet as of
February 28, 1997 has been prepared from the audited consolidated financial
statements of the Company.
This report on Form 10-QSB should be read in conjunction with the Company's
audited consolidated financial statements for the year ended February 28,
1997 and notes included therein. The results of operations for the quarter
and six months ended August 31, 1997 are not necessarily indicative of
results for the entire fiscal year ending February 28, 1998.
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 manufacture, sale and installation of ozone washing and laundry sorting
and counting systems for commercial and institutional laundries, the
manufacture and sale of specialty compounds and chemicals, and research and
development of technologies for the sterilization and/or disinfection of
surgical and medical instruments.
New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued three new
Statements, Statement No. 128, Earnings per Share, Statement No. 130,
Reporting Comprehensive income and Statement No. 131, Disclosures about
segments of an Enterprise and Related Information. As of August 31, 1997,
these standards were either not effective or not yet adopted by the
Company. Upon adoption of these standards, the impact is not expected to be
material.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
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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 Company has sustained significant net losses which have resulted in an
accumulated deficit at February 28, 1997 and August 31, 1997 of $11,479,987
and $12,620,633 and periodic cash flow difficulties, all of which raise
substantial doubt of the Company's ability to continue as a going concern.
The net loss for the year ended February 28, 1997 and for the six months
ended August 31, 1997 was $2,957,744 and $1,140,647 respectively. To date,
the Company has funded its operations through the issuances of common and
preferred stock. The Company's ability to accomplish its business strategy
and to ultimately achieve profitable operations is dependent upon its ability
to raise additional financing.
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 attempting to improve these conditions by way of financial
assistance through collaborative partnering agreements, issuances of
additional equity, 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 through the next fiscal year.
3. Long-Term Debt
During the year ended February 29, 1996, the Company's Board of Directors
authorized 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
Company 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.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
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3. Long-Term Debt (continued)
On August 29, 1997 the Company gave all holders of the Company's Convertible
Promisory Notes an option to convert their current outstanding principal and
interest into the Company's restricted common stock at a conversion price
which is the higher of a) $1.00 per share or b) the average closing price for
the ten days prior to date of conversion. Note holders continue to own the
options which were received as part of the original purchase, but the
exercise price was reduced to $2.00 per share for the Note Holders that
converted. As of August 31, 1997, $916,000 of the long term debt obligations
and $174,430 of the interest payable on long term debt obligations have been
converted to 1,090,430 of the Company's restricted common stock which is
restricted from sale for a period of 120 days from the date of conversion.
4. Stockholders' Equity
Preferred Stock
During the six months ended August 31, 1997, 3 shares of Series "B"
convertible preferred stock were converted to approximately 4,900 common
shares. Deferred compensation of $168,000 for the year ended February 28,
1997 was recorded to general and administrative expense in the statement of
operations for the six months ended August 31, 1997 for consulting fees.
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 28, 1997.
6. Subsequent Events
Effective September 1, 1997 the Company entered into an Agreement and Plan of
Merger with Textile Strategies, Inc. (TSI), a Florida Corporation and with
its sole shareholder James A. Gross wherein TSI became a wholly-owned
subsidiary of the Company. Pursuant to the Agreement the Company issued
41,667 of its newly issued and restricted common stock to Gross in exchange
for 100% of the issued and outstanding shares of TSI.
On October 2, 1997 the Company's wholly owned subsidiary, Cyclo3pss
Biochemical Corporation and Foster Miller, Inc. a technology development firm
based in Waltham, Massachusetts entered into an operating agreement and
formed a Massachusetts Limited Liability Corporation ("LLC"), named Pyrogonn,
Inc. to commercialize a proprietary high performance polymer system, which is
a new, lightweight material that can be economically processed and is
extremely strong and heat resistant. The partners believe the material will
have applications in the aerospace industry.
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<PAGE>
PART I - ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has been involved in research and development and marketing
several products since 1987, including the Ozo3-CleanTM System 2000 ozone
washing system, VAC Soil Counting System, specialty organic chemicals and
custom synthesis. From the period since reactivation (March 2, 1987) to
August 31, 1997, the Company had incurred a cumulative net loss of
$12,620,633. The Company expects to continue to incur losses into the next
fiscal year. The Company's current cash assets may not be sufficient to fund
its long term operations accordingly and the Company will need to either
generate positive cash flow from operations or raise additional debt or
equity capital in order to fund its operation in future and to meet the
requirements to maintain its listing on NASAQ Small Cap market. There can be
no assurance that the Company will be able to obtain additional capital to
fund operations or maintain its NASDAQ listing in the future. The Company's
financial position is discussed further below.
The Company's future operating results will depend on many factors, including
acceptance of the Company's laundry technologies, systems, equipment and
attendant products in the various markets for the Company's products and the
timing of FDA marketing clearance, if received, for the Company's medical
sterilization and disinfection products, which require such clearance, and
the demand for such products at that time. Additional factors include the
Company's ability to manufacture and market its products on a cost-effective
basis, the level of competition which it encounters in its various
marketplaces, the ability of the Company to develop product enhancements and
new products in order to achieve and maintain market share, and its ability
to obtain adequate financing.
Results of Operations
The Company's revenues were $551,619 for the six months ended August 31,
1997, and $215,980 for the six months ended August 31, 1996. The revenues for
the three months ended August 31, 1997 were $249,228 compared to $122,925 for
the three months ended August 31, 1996. 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 six months ended August 31, 1997 was
$128,245 compared to $50,393 for the six months ended August 31, 1996. This
significant increase in gross margin is attributable to increased sales of
CTS due to increasing acceptance of its technologies by its customers, and
increased sales of CBC due to increasing interest in and use of its products
and services by medical researchers and chemical suppliers and CBC's
reputation for quality. .
Research and development expenditures were $152,023 for the six months ended
August 31, 1997, and $400,947 for the six months ended August 31, 1996.
Research and development expenditures were $74,159 for the three months ended
August 31, 1997, and $166,676 for the three months ended August 31, 1996.
Although research and development expenses have been reduced, management
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<PAGE>
sees no continued overall reduction of these expenses over the next fiscal
year. Research and development costs are expected to increase due to
anticipated redesign efforts on the Company's laundry products and medical
sterilization and disinfection products.
The Company incurred general and administrative expenses of $657,867 for the
six months ended August 31, 1997, compared to $571,191 for the six months
ended August 31, 1996. General and administrative expenses for the three
months ended August 31, 1997 were $386,760 and $257,028 for the three months
ended August 31, 1996. This increase is due primarily to the recognition of
$168,000 in deferred compensation expense for consulting fees for the six
months ended August 31, 1997. At quarter end August 31, 1997, the Company had
24 full time employees, compared to 19 full time employees at quarter end
August 31, 1996. As the Company completes development on certain products and
prepares for commercialization, the human resource requirements of the
Company will increase.
The Company incurred selling and marketing expenses of $164,274 for the six
months ended August 31, 1997, compared to $84,621 for the six months ended
August 31, 1996. The selling and marketing expenses for the three months
ended August 31, 1997 were $116,822 compared to $33,384 for the three months
ended August 31, 1996. This increased expense is due to additional marketing
and sales efforts for the textiles operations (CTS) and the attendant costs
related to trade shows such as the Clean Show 97 for the textile industry and
AAMI for medical and healthcare industries.
For the six months ended August 31, 1997, the Company had interest income of
$23,490 compared to interest income for the six months ended August 31, 1996,
of $11,623. The interest income for the three months ended August 31, 1997
was $9,279 compared to $9,520 for the three months ended August 31, 1996.
This increase was due to an increase in the amount of cash on hand for the
six months ended August 31, 1997 compared to 1996. The Company incurred
$101,059 in interest expense for the six months ended August 31, 1997
including $4,319 attributable to equipment leasing arrangements, $69,360 in
interest accrued on long-term debt, and $27,380 in interest on warrants
accrued, in conjunction with the convertible debt offering (see discussion
below under Liquidity and Capital Resources in regards to this debt
offering). The Company anticipates that interest expense will decrease due to
the conversion of most of the convertible debt to common stock as of August
31, 1997.
The Company's net loss for the six months ended August 31, 1997 was
$1,140,647, as compared to $1,322,412 for the six months ended August 31,
1996. The Company's net loss for the three months ended August 31, 1997 was
$648,598 as compared to $532,286 for the three months ended August 31, 1996.
The Company anticipates that it will operate at a loss for the year ended
February 28, 1998. However, it is anticipated that the losses will continue
to decrease as the revenues of CTS and CBC continue to increase.
Liquidity and Capital Resources
Management is aggressively exploring additional financing for the ongoing
operations of the Company and has entered into an engagement agreement with
First Financial Investment Securities, Inc., a registered broker dealer firm
with headquarters in Austin, Texas and an affiliate and correspondent to
Southwest Securities Group. There are no assurances that the efforts to
locate
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<PAGE>
and secure additional financing will be successful, and the failure to secure
this financing would substantially alter the management's assumptions as
presented heretofore and in the remainder of this section.
Cash used in operating activities was $700,905 for the six months ended
August 31, 1997, compared to $889,237 for the six months ended August 31,
1996. Cash used for the six months ended August 31, 1997 was comprised of
cash on hand and collections of accounts receivable, which is comprised of
VAC soil counting sales, healthcare washing systems sales and service from
CyclO3PSS Textile Systems, Inc. and contract development and chemical
compound sales from CyclO3PSS Biochemical Corporation.
No cash was provided from issuance of common stock, preferred stock or
convertible debt for the six months ended August 31, 1997, compared to $354
from issuance of common stock, $2,755,000 from issuance of preferred stock
and $351,000 from issuance of convertible debt for the six months ended
August 31, 1996.
Total assets decreased to $2,071,733 at August 31, 1997 from $3,024,846 at
February 28, 1997, primarily due to the decrease in the Company's cash, which
was the result of continued losses from operations.
Plan of Operation
The plan of operation during the next twelve (12) months includes the
following:
1. Aggressively market the Company's Ozone Laundry Systems to the
Health care market and the commercial and Industrial Laundry
marketplaces.
2. Continue research and development, testing and implementation of
ozone systems for the food processing industries. Ozone was recently
given the status of "generally regarded as safe" or "GRAS" by FDA.
3. Continue testing and validation and initiate sales and installation
of the Company's Health care Ozone Laundry Systems with Health care
providers in the United States and Internationally.
4. Complete design and development and embark upon marketing of the
Company's Ozone Laundry Systems for institutional users such as
hotels, resorts, prisons, etc.
5. Continue to increase marketing, sales and installation of the
Company's VAC laundry counting and sorting systems to commercial,
industrial, institutional and Health care customers.
6. Complete validation testing of the Company's liquid chemical
sterilant, SterOxTM, preparatory to completion of a licensing
agreement with an
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<PAGE>
established medical product manufacturing/marketing company and/or
preparation and submission of a 510(k) Premarket Notification to the
FDA.
7. Produce data and design elements in support of desired labeling
claims for FDA officials reviewing the Company's 510(k) Premarket
Notification for the STER- O3-ZONE 100TM.
8. Continued development of products and enhancements for the Company's
textile operations.
9. Increased marketing and continued growth of contract research and
development within the BioChemical group and the ongoing manufacture
and sales of their current and future products.
10. Engage brokerage firms to assist the Company in more effectively
marketing its shares to the investing public, including the
preparation of an analyst report on the Company and its
technologies.
11 Seek additional capital. With additional financing in place, there
may be additional diversification of the Company's business
activities through future acquisitions or product development.
Company has entered into an engagement agreement with First
Financial Investment Securities, Inc., a registered broker dealer
firm with headquarters in Austin, Texas.
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 and completion of key
future products.
The Company currently anticipates that its expenditures on equipment will
range from $200,000 - $400,000 during the next twelve months based upon
current manufacturing assumptions, assuming that the required financing is
obtained and available.
The Company had 24 full time and 2 part-time employees as of August 31,
1997. The Company anticipates that no more than six additional employees will
be hired during the next twelve months, and then, only as the market
acceptance of the Company's textile systems accelerates. It is anticipated
that general and administrative expenses would not increase by more than
$200,000 on an annualized basis as a result of any such increase in
employees.
The information set forth herein as to anticipated research and
development costs, equipment purchases and increase in employees are
management's best estimate based upon current plans. Actual expenditures may
be greater or less than such estimates depending on many factors including,
but not limited to the availability of new technologies, the completion or
lack of completion of certain strategic alliances, and the timing and
successful completion of the Company's stated requirement to acquire
additional operating and growth capital.
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<PAGE>
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The private Securities litigation Reform Act
of 1995 provides a safe harbor for forward looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the
Company's business include, but are not limited to, the following:
1. Market acceptance of the Company's products;
2. Obtaining additional operating capital in the form of debt or equity;
3. The ability to achieve and maintain the requirements necessary to continue
listing of its shares on the NASDAQ Small Cap market, where they are
currently listed. A loss of such listing would negatively impact the
existence of an orderly market in the Company's securities; and
4. Increased sales of the various products of the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.None.
Item 2. Changes in Securities.
On August 29, 1997 the Company gave all holders of the
Company's Convertible Promisory Notes an option to convert
their current outstanding principal and interest into the
Company's restricted common stock at a conversion price which
is the higher of a) $1.00 per share or b) the average closing
price for the ten days prior to date of conversion. Note
holders continue to own the options which were received as
part of the original purchase, but the exercise price was
reduced to $2.00 per share for the Note Holders that
converted. As of August 31, 1997, $916,000 of the long term
debt obligations and $174,430 of the interest payable on long
term debt obligations have been converted to 1,090,430 of the
Company's restricted common stock which is restricted from
sale for a period of 120 days from the date of conversion.
Item 3. Defaults Upon Senior SecuritieNone.
Item 4. Submission of Matters to a Vote of Security HoldNone.
Item 5. Other Information.None
Item 6. Exhibits. None.
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<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: October 15, 1997 By/s/ William R. Stoddard
--------------------------
William R. Stoddard
Chief Executive Officer
President
Principal Executive Officer
Date: October 15, 1997 By/s/ Mondis Nkoy
----------------------------
Mondis Nkoy
Controller, Corporate Secretary
Principal Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CYCLO3PSS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 554,015
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
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356
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