- ------------------------------------------------------------------------------
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, 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 January 14, 1998 - 15,145,868 shares of $.001 par
value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
------------------------------------------------------------------------------
<PAGE>
(This page intentionally left blank)
- 2 -
<PAGE>
FORM 10-QSB
Financial Statements and Schedules
CyclO3PSS Corporation
For Three and Nine Months Ended November 30, 1997
The following financial statements of the registrant and its consolidated
subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets -
November 30, 1997 and February 28, 1997 ...........................4
Condensed Consolidated Statements of Operations --
for the three and nine months ended November 30, 1997 and 1996.....6
Condensed Consolidated Statements of Cash Flows --
for the nine months ended November 30, 1997 and 1996...............8
Notes to Condensed Consolidated Financial Statements..........................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ..........................................17
Item 2. Changes in Securities.......................................17
Item 3. Defaults Upon Senior Securities.............................17
Item 4. Submission of Matters to a Vote of Security Holders.........17
Item 5. Other Information...........................................17
Item 6. Exhibits....................................................17
- 3 -
<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
- ------------------------------------------------------------------------------
November 30 February 28
1997 1997
------------- --------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $973,599 $1,275,636
Accounts receivable, less allowance for
doubtful accounts of $2,000 at
November 30, 1997 and February 28, 1997 460,812 97,605
Inventories 198,659 100,584
Prepaid expenses 46,863 102,815
------------ --------------
Total current assets 1,679,933 1,576,640
Property and equipment, net 258,313 370,994
Other assets:
Goodwill, net 421,010 540,375
Acquired patents, net 379,502 411,187
Developed patents and other, net 124,666 125,650
------------ --------------
$2,863,424 $3,024,846
============= ==============
See accompanying notes to condensed consolidated financial statements
- 4 -
<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
- ------------------------------------------------------------------------------
November 30 February 28
1997 1997
----------------------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $464,726 $108,619
Accrued liabilities 83,792 135,190
Current portion of capital lease obligations 25,531 26,120
--------------------------
Total current liabilities 574,049 269,929
Long-term debt obligations 33,764 1,156,000
Long-term portion of capital lease obligations 19,175 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; 15,145,868 issued at
Nov. 30, 1997
12,793,340 shares issued at February 28,
1997 15,145 12,793
Additional paid-in capital 16,088,857 13,546,195
Accumulated deficit (13,366,396) (11,479,987)
Deferred compensation -- (168,000)
Less treasury stock, 264,000 common shares
at cost (501,545) (501,545)
----------------------------
Total stockholders' equity 2,236,436 1,409,831
----------------------------
$2,863,424 $3,024,846
=============================
See accompanying notes to condensed consolidated financial statements
- 5 -
<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
(UNAUDITED)
- -----------------------------------------------------------------------------
For the three months ended
November 30, ed
1997 1996
-----------------------------
Net Revenues $561,474 $48,101
Costs and expenses:
Cost of sales 505,465 47,524
Research and development 51,895 236,850
Selling and marketing 77,658 50,631
General and administrative 566,960 330,330
Depreciation and amortization 116,467 115,845
----------------------------
Total expenses 1,318,445 781,180
Loss from operations (756,969) (733,079)
Interest income 19,775 18,540
Interest expense (8,567) (95,993)
----------------------------
Net loss (745,761) (810,532)
Preferred stock dividends (38,534) -
----------------------------
Net loss applicable to common stock $(784,295) $(810,532)
============================
Net loss per common share $(.06) $(.07)
Weighted average number of common shares ============================
issued and outstanding 14,335,587 12,243,607
============================
See accompanying notes to condensed consolidated financial statements
- 6 -
<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
(UNAUDITED)
- -------------------------------------------------------------------------------
For the nine months ended
November 30, nded
1997 1996
------------------------------
Net Revenues $1,113,093 $264,080
Costs and expenses:
Cost of sales 928,839 213,329
Research and development 203,918 637,798
Selling and marketing 241,932 135,034
General and administrative 1,224,828 901,514
Depreciation and amortization 333,626 350,217
---------------------------
Total expenses 2,933,143 2,237,892
Loss from operations (1,820,050) (1,973,812)
Interest income 43,266 30,154
Interest expense (109,625) (189,285)
---------------------------
Net loss (1,886,409) (2,132,943)
Preferred stock dividends
Net loss applicable to common stock (116,450) -
---------------------------
$(2,002,859) $(2,132,943)
===========================
Net loss per common share $(.15) $(.19)
===========================
Weighted average number of common shares
issued and outstanding 13,491,875 11,232,931
===========================
See accompanying notes to condensed consolidated financial statements
- 7 -
<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Cash Flow
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months ended
November 30,
1997 1996
----------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,886,409) $(2,132,943)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 333,626 350,217
Accrued interest on convertible debt issuance 105,833 108,267
Accretion of convertible debt warrant 27,380 72,873
Common stock issued for services 168,000 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (363,207) 508
(Increase) decrease in inventories (98,075) 151,424
(Increase) decrease in prepaid expense 55,952 (31,211)
Increase (decrease) in accounts payable and accrued
liabilities 338,473 (102,112)
Increase in deferred revenue - 120,000
--------------------------------
Net cash used in operating activities (1,318,427) (1,462,977)
--------------------------------
Cash flows from investing activities
Purchase of property and equipment and other assets (29,840) (10,483)
Purchase of marketable securities - (1,306,815)
--------------------------------
Net cash used in investing activities (29,840) (1,317,298)
--------------------------------
Cash flows from financing activities
Proceeds from issuance of common stock 1,065,000 277
Proceeds from issuance of preferred stock - 2,755,000
Proceeds from issuance of convertible debt obligations - 351,000
Principal payments under capital lease obligations (18,770) (9,802)
--------------------------------
Net cash provided by financing activities 1,046,230 3,096,475
--------------------------------
Net (increase) decrease in cash and cash equivalents (302,037) 316,200
Cash and cash equivalents at beginning of period 1,275,636 252,113
--------------------------------
Cash and cash equivalents at end of period $973,599 $568,313
================================
Supplemental schedule of non-cash financing activities:
Conversion of long term debt obligations to common stock 1,156,000 -
Conversion of interest payable on long term debt
obligation to common stock 257,563 -
Capital lease obligations incurred for acquisition of
property and equipment 8,350
================================
</TABLE>
See accompanying notes to condensed consolidated financial statements
- 8 -
<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Financial Statements
The accompanying interim condensed 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 28, 1997 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,
1997, and the results of its operations and its cash flows for the three and
nine month periods ended November 30, 1997 and 1996. 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 audited condensed financial statements for the year ended February 28,
1997.
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 food processing products, 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 November 30, 1997, these standards
were either not effective or not yet required to be adopted by the Company. Upon
adoption of these standards, the impact is not expected to be material.
- 9 -
<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------------------------------
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 November 30, 1997 of $11,479,987
and $13,366,396 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 nine months
ended November 30, 1997 was $2,957,744 and $1,886,409 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 believes 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.
- 10 -
<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------------------------------
Long-Term Debt (continued)
On August 29, 1997 the Company gave all holders of the Company's
Convertible Promissory Notes an option to convert the outstanding principal and
interest of outstanding notes 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 option exercise price was reduced to $2.00 per share for the
Note Holders that converted. As of November 30, 1997, all of the long term debt
obligations and the interest payable on long term debt obligations have been
converted to 1,305,852 shares of the Company's restricted common stock, which is
restricted from sale for a period of 120 days from the date of conversion. The
majority of the conversions took place between August 26, 1997 to August 31,
1997.
4. Stockholders' Equity
Preferred Stock
During the nine months ended November 30, 1997, 3 shares of Series "B"
convertible preferred stock were converted to approximately 4,900 common shares.
Common stock in the amount of $336,000 was issued to a consultant for
services to be performed. As such services related to one half of the agreement
had not been performed as of February 28, 1997. The remaining cost was recorded
as deferred compensation. Subsequently, upon performance of the service, the
cost were recorded to general and administratie expense in the statement of
operations for the nine months ended November 30, 1997.
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-KB for the
year ended February 28, 1997.
6. Other 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
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, 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.
- 11 -
<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 Eco-PureTM food processing system,
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 November 30, 1997, the Company had incurred a
cumulative net loss of $13,366,396. 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 and accordingly the Company will
need to either generate positive cash flow from operations or raise additional
debt or equity capital in order to fund its future operation and to meet the
requirements to maintain its listing on the NASDAQ 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 food processing technologies, 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 $1,113,093 for the nine months ended November
30, 1997, and $264,080 for the nine months ended November 30, 1996, an increase
of 421.4%. The revenues for the three months ended November 30, 1997 were
$561,474 compared to $48,101 for the three months ended November 30, 1996, an
increase of 1,167.2%. 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, 1997 was $184,254 compared to
$50,751 for the nine months ended November 30, 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.
In fact, Research and development expenditures were $203,918 for the nine
months ended November 30, 1997, and $637,798 for the nine months ended November
30, 1996. Research and development
- 12 -
<PAGE>
expenditures were $51,895 for the three months ended November 30, 1997, and
$236,850 for the three months ended November 30, 1996. The Company anticipates
the research and development cost will continue to decrease, as ;more products
are brought to market.
The Company incurred general and administrative expenses of $1,224,827 for
the nine months ended November 30, 1997, compared to $901,514 for the nine
months ended November 30, 1996. General and administrative expenses for the
three months ended November 30, 1997 were $566,958 and $330,330 for the three
months ended November 30, 1996. This increase is due primarily to the
recognition of $168,000 in deferred compensation expense for consulting fees for
the nine months ended November 30, 1997. At quarter end November 30, 1997, the
Company had 24 full time employees, compared to 19 full time employees at
quarter end November 30, 1996. As the Company completes development of certain
products and prepares for commercialization, the human resource requirements of
the Company will increase.
The Company incurred selling and marketing expenses of $241,932 for the
nine months ended November 30, 1997, compared to $135,034 for the nine months
ended November 30, 1996. The selling and marketing expenses for the three months
ended November 30, 1997 were $77,658 compared to $50,631 for the three months
ended November 30, 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 health care industries.
For the nine months ended November 30, 1997, the Company had interest
income of $43,266 compared to interest income for the nine months ended November
30, 1996, of $30,154. The interest income for the three months ended November
30, 1997 was $19,775 compared to $18,540 for the three months ended November 30,
1996. This increase was due to an increase in the amount of cash on hand for the
nine months ended November 30, 1997 compared to 1996. The Company incurred
$109,625 in interest expense for the nine months ended November 30, 1997
including $33,599 attributable to equipment leasing arrangements and $76,026 in
interest on long-term debt. The Company anticipates that interest expense will
decrease due to the conversion of the convertible debt to common stock.
The Company's net loss for the nine months ended November 30, 1997 was
$1,886,409 as compared to $2,132,943 for the nine months ended November 30,
1996. The Company's net loss for the three months ended November 30, 1997 was
$745,762 as compared to $810,532 for the three months ended November 30, 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 start to
decrease as the revenues of CTS and CBC continue to increase.
Liquidity and Capital Resources
The Company has successfully completed a private placement of $1,250,000 of
units of common stock and redeemable warrants to purchase common stock with
First Financial Investment
- 13 -
<PAGE>
Securities, Inc., a registered broker dealer firm with headquarters in Austin,
Texas, resulting in net proceeds to the Company of $1,065,000. This private
placement was for a total of 1,000,000 units, at a price of $1.25 per unit. Each
unit consists of one share of the Company's common stock, one redeemable class
"A" Warrant entitling the holder to purchase one share of common stock at a
price of $2.60 per share and one redeemable Class "B" Warrant entitling the
holder to purchase one share of common stock at a price of $2.75 per share.
Class "A" Warrants are redeemable by the Company at $.005 per Redeemable Warrant
on 10 days prior written notice, provided that the average closing bid price of
the Common Stock equals or exceeds $2.85 per share for 10 consecutive trading
days ending within 10 days prior to the notice of redemption. Class "B" Warrants
are redeemable by the Company at $.005 per Redeemable Warrant on 30 days prior
written notice, provided that the average closing bid price of the Common Stock
equals or exceeds $3.25 per share for 10 consecutive trading days ending within
10 days prior to the notice of redemption.
Cash used in operating activities was $1,318,427 for the nine months ended
November 30, 1997, compared to $1,462,977 for the nine months ended November 30,
1996. Cash used for the nine months ended November 30, 1997 was comprised of
cash on hand and collections of accounts receivable, which is comprised of VAC
soil counting sales, health care and ozone washing systems sales and service
from CyclO3PSS Textile Systems, Inc. and contract development and chemical
compound sales from CyclO3PSS Biochemical Corporation.
The Company received $1,065,000 in cash from issuance of common stock
during the nine months ended November 30, 1997, as described above, compared to
$277 from issuance of common stock, $2,755,000 from issuance of preferred stock
and $351,000 from issuance of convertible debt for the nine months ended
November 30, 1996.
Total assets decreased to $2,863,424 at November 30, 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 12 months includes the following:
1. Aggressively market the Company's Ozone Food Processing Systems, the
ECO-PureTM , to the food processing market.
2. Continue to market the Company's Ozone Laundry Systems to the Health
care market and the commercial and Industrial Laundry marketplaces.
3. 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 the FDA.
4. 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.
- 14 -
<PAGE>
5. Complete design and development and embark upon marketing of the
Company's Ozone Laundry Systems for institutional users such as hotels, resorts,
prisons, etc.
6. 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.
7. Complete validation testing of the Company's liquid chemical sterilant,
SterOxTM, preparatory to completion of a licensing agreement with an established
medical product manufacturing/marketing company and/or preparation and
submission of a 510(k) Pre market Notification to the FDA.
8. 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.
9. Continued development of products and enhancements for the Company's
textile operations.
10. 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.
11. 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.
12. 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. The 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 for 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 November 30,
1997. The Company anticipates that no more than six additional employees will be
hired during the next
- 15 -
<PAGE>
twelve months, and then, only as the market acceptance of the Company's
food processing and 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 requirements to acquire additional operating and growth
capital.
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 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.
- 16 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.See 10-KB for the year ended February 28, 1997.
Item 2. Changes in Securities. On August 29, 1997 the Company gave all
holders of the Company's Convertible Promissory 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
continued 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 November 30, 1997, all of the long term debt
obligations and interest payable on long term debt obligations have been
converted to 1,305,852 shares 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 Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6(a). Exhibits. None.
Item 6(b). Reports on Form 8-K On November 5, 1997 the Company filed a Form 8-K
to announce the closing of a private offering of its common stock and
resignation of John M Williams as the Chairman of the Board of Directors
and as a director of the Company.
- 17 -
<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, 1998 By: /s/ William R. Stoddard
---------------------------------
William R. Stoddard
Chief Executive Officer
President
Principal Executive Officer
Date: January 14, 1998 By: /s/ Mondis Nkoy
---------------------------------
Mondis Nkoy
Controller, Corporate Secretary
Principal Financial Officer
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTS FROM
CYCLO3PSS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIRIFED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 973,599
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1
<CASH> 973,599
<SECURITIES> 0
<RECEIVABLES> 460,812
<ALLOWANCES> 0
<INVENTORY> 198,659
<CURRENT-ASSETS> 1,679,933
<PP&E> 258,313
<DEPRECIATION> 116,467
<TOTAL-ASSETS> 2,863,424
<CURRENT-LIABILITIES> 574,049
<BONDS> 0
0
375
<COMMON> 15,145
<OTHER-SE> 2,722,461
<TOTAL-LIABILITY-AND-EQUITY> 2,863,424
<SALES> 561,474
<TOTAL-REVENUES> 561,474
<CGS> 505,465
<TOTAL-COSTS> 1,318,445
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,567
<INCOME-PRETAX> (745,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (38,534)
<CHANGES> 0
<NET-INCOME> (784,295)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
