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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, 1998
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
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3646 West 2100 South
Salt Lake City, Utah 84120-1202
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(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, 1999 - 18,580,582 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, 1998
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
Condensed Consolidated Balance Sheets.......................3
Condensed Consolidated Statements of Operations.............5
Condensed Consolidated Statements of Cash Flows.............7
Notes to Condensed Consolidated Financial Statements........8
Item 2. Management's Discussion and Analysis or
Plan of Operations.........................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .........................................17
Item 2Changes in Securities.....................................17
Item 3Defaults Upon Senior Securities...........................17
Item 4Submission of Matters to a Vote of Security Holders.......17
Item 5Other Information.........................................17
Item 6Exhibits and Reports on 8-K...............................17
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CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
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(UNAUDITED)
November 30 February 28
1998 1998
----------------------------
Assets
Current assets:
Cash $121,803 $573,161
Accounts receivable 48,341 113,090
Inventories 153,530 152,026
Prepaid expenses 40,957 75,526
Total current assets 364,631 913,803
Property and equipment, net 185,690 236,780
Other assets:
Goodwill, net -- 311,887
Acquired patents, net 283,784 368,941
Developed patents and other, net 52,800 128,730
----------------------------
$886,905 $1,960,141
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
(UNAUDITED)
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<TABLE>
<CAPTION>
November 30 February 28
1998 1998
----------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $153,764 $668,834
Accrued liabilities 78,815 112,789
Current portion of capital lease obligations 10,514 24,663
----------------------------
Total current liabilities 243,093 806,286
Long-term portion of capital lease obligations 9,735 13,278
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; 1,390 shares and 1,932 shares
issued and outstanding, respectively 13 19
Series "C" convertible preferred stock; 1,000
shares authorized; none issued and outstanding -- --
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; 18,580,582 shares and 15,145,868 shares
issued and outstanding, respectively 18,580 15,146
Additional paid-in capital 17,791,478 16,034,785
Accumulated deficit (16,599,805) (14,408,184)
Less treasury stock, 264,000 common shares at cost (501,545) (501,545)
Subscription receivable (75,000) --
----------------------------
Total stockholders' equity 634,077 1,140,577
----------------------------
$886,905 $1,960,141
============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the three months ended
November 30,
1998 1997
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Net revenues $70,589 $561,474
Costs and expenses:
Cost of sales 83,254 505,465
Research and development 3,135 51,895
Selling and marketing -- 77,658
General and administrative 282,153 566,960
Impairment of intangible assets 273,951 --
Depreciation and amortization 94,648 116,467
-----------------------------
Total expenses 737,141 1,318,445
Loss from operations (666,552) (756,969)
Interest income 54 19,775
Interest expense (713) (8,567)
-----------------------------
Net loss (667,211) (745,761)
Preferred stock dividends (88,534) (38,534)
=============================
Net loss applicable to common stock $(755,745) $(784,295)
Net loss per common share $ (.04) $ (.06)
=============================
Weighted average number of common shares
issued and outstanding 18,025,784 14,335,587
=============================
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the nine months ended
November 30,
1998 1997
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Net revenues $659,254 $1,113,093
Costs and expenses:
Cost of sales 543,951 928,839
Research and development 209,673 203,918
Selling and marketing 203,650 241,932
General and administrative 1,317,851 1,224,828
Impairment of intangible assets 273,951 --
Depreciation and amortization 302,569 333,626
----------------------------
Total expenses 2,851,645 2,933,143
Loss from operations (2,192,391) (1,820,050)
Interest income 3,983 43,266
Interest expense (3,213) (109,625)
-----------------------------
Net loss (2,191,621) (1,886,409)
Preferred stock dividends (166,450) (116,450)
-----------------------------
Net loss applicable to common stock $(2,358,071) $(2,002,859)
=============================
Net loss per common share $ (.14) $ (.15)
=============================
Weighted average number of common shares
issued and outstanding 16,753,956 13,491,875
=============================
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Cash Flow
(UNAUDITED)
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<TABLE>
<CAPTION>
For the nine months ended
November 30,
1998 1997
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,191,621) $(1,886,409)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 302,569 333,626
Impairment of intangible assets 273,951 --
Accrued interest on convertible debt issuance -- 105,833
Issuance of warrant with convertible debt -- 27,380
Common stock issued for services -- 168,000
Changes in assets and liabilities:
Decrease/ (Increase) in accounts receivable 64,749 (363,207)
Increase in inventories (1,504) (98,075)
Decrease in prepaid expense 34,569 55,952
(Decrease)/Increase in accounts payable and
accrued liabilities (549,044) 338,473
---------------------------------
Net cash used in operating activities (2,066,331) (1,318,427)
---------------------------------
Cash flows from investing activities:
Purchase of property and equipment (41,445) (29,840)
Addition to developed patents and other (11,011) --
---------------------------------
Net cash used in investing activities (52,456) (29,840)
---------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,500,821 1,065,000
Proceeds from issuance of preferred stock 172,500 --
Proceeds from exercise of stock options 11,800 --
Principal payments under capital lease obligations (17,692) (18,770)
---------------------------------
Net cash provided by financing activities 1,667,429 1,046,230
---------------------------------
Net decrease in cash (451,358) (302,037)
Cash at beginning of period 573,161 1,275,636
---------------------------------
Cash at the end of period $121,803 $973,599
=================================
Supplemental schedule of non-cash financing activities
Conversion of long term debt obligations to common stock -- $1,156,000
Conversion of interest due on long term obligations to
common stock -- $257,563
Conversion of preferred to common stock 247,500 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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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, 1998 represents the Company's
audited consolidated balance sheet at that date.
In the opinion of management, the accompanying condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of Cyclo3pss Corporation ("Company") as of
November 30, 1998, and the results of its operations and its cash flows for the
interim periods ended November 30, 1998 and November 30, 1997. 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 consolidated financial statements and notes thereto
included in the Company's Annual Report to Stockholders for the year ended
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 is primarily engaged in the
design, manufacture, assembly, sales and installation of ozone application
technologies and processes. The Company's principal technology provides an
alternative to address food safety concerns and laundry disinfection and
efficiency. Cyclo3pss also markets sorting and counting systems to the laundry
industry and manufactures and sells 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.
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 Condensed Consolidated Financial Statements (Unaudited)
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1. Summary of Significant Accounting Policies (continued)
Net Loss per Common Share
Net loss per common share is calculated after deduction of preferred stock
dividends divided by the weighted average number of shares of common stock
issued and outstanding during the period. Loss per common share for preferred
stock dividends was immaterial (less than one cent per share). The Company
excluded 1,139,375 options and 1,296,140 warrants issued for the three and nine
months ended November 30, 1998 and 465,000 options and 2,000,000 warrants issued
for the three and nine months ended November 30, 1997 from the weighted average
shares outstanding computation as their effect would be anti-dilutive.
New Accounting Standard
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS
No.130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement has no
material impact on the Company's net income (loss) or stockholders' equity.
For the three and nine months ended November 30, 1998 and 1997, total
comprehensive loss calculated in accordance to SFAS No. 130, amounted to
$755,745 and $2,358,071, and $784,295 and $2,002,859, respectively.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for reporting financial and descriptive
information about its reportable operating segments. SFAS No. 131 changes
current practice under SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", by establishing a new framework on which to base segment
reporting (referred to as the management approach) and also requires interim
reporting of segment information. The Company has elected to apply the Statement
to its interim financial statements in the year ending February 28, 1999.
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 November 30 and February 28, 1998, and periodic cash flow
difficulties, all of which raise substantial doubt of the Company's ability to
continue as a going concern.
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CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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2. Basis of Presentation (continued)
The net loss for the nine months ended November 30, 1998 was $2,191,621 and
$2,928,197 for the year ended February 28, 1998. 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.
3. 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, 1998.
4. Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Standard (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets to be disposed of. The
standard requires the Company to review long-lived and intangible assets for
impairment whenever events or circumstances indicate that the carrying value of
an asset may not be recoverable. For the quarter ended November 30, 1998, the
Company recorded a goodwill write down of $140,522. This write down eliminates
all remaining goodwill of the Company. For the quarter ended November 30, 1998,
the Company also recorded an acquired patent write down of $53,473 to $283,784
and a developed patent write down of $79,956 to $52,800. These long lived assets
were determined to have been impaired because of the current financial condition
of the Company and the Company's inability to generate sufficient future
operating income related to those technologies without substantial sales volume
increases which are uncertain. Moreover, anticipated future cash flows of the
Company indicate that the recoverability of these assets is not reasonably
assured during the remaining amortization period.
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CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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5. Segment Information
During the three and nine months ended November 30, 1998, the Company
operated in three principal industries; development, marketing and installation
of Eco-Pure Food Safety Systems for food decontamination in both aqueous and
gaseous forms ("food safety products"); the manufacture, sale and installation
of ozone washing and laundry sorting and counting systems for commercial and
institutional laundries ("textile products"); and the manufacture and sale of
specialty chemicals ("biochemical products").
Operating loss is total revenue less operating expenses, excluding interest
expense and general corporate expenses. Corporate assets consist primarily of
cash, property, and equipment.
For three months For nine months
Ended Ended
November 30, 1998 November 30, 1998
----------------- -----------------
Net revenues
Food safety products $ 8,872 $ 283,308
Textile products 43,995 173,910
Biochemical products 17,722 202,036
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Total consolidated revenue $ 70,589 $ 659,254
========== ==========
Operating loss
Food Safety products $ (34,485) $ (120,561)
Textile products (244,517) (917,665)
Biochemical products (87,756) (43,161)
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Total operating loss (366,758) (1,081,387)
Corporate expenses (299,794) (1,111,004)
Interest income 54 3,983
Interest expense (713) (3,213)
----------- -----------
Consolidated net loss $(667,211) $(2,191,621)
=========== ============
November 30, 1998 February 28, 1998
----------------- -----------------
Identifiable assets
Food Safety products $ 34,344 $ --
Textile products 530,558 1,100,191
Biochemical products 151,008 373,434
General corporate assets 170,995 486,516
---------- ------------
Total consolidated assets $ 886,905 $ 1,960,141
========== ============
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
Cyclopss Corporation is primarily engaged in ozone application technologies
and processes. The Company's main product lines offer an alternative for food
safety, particularly microbial reductions on meat, poultry, fruits and
vegetables. Additional products offered by the Company enable manufacturers to
eliminate microbial build up in and on food processing equipment, while other
ozone-related products marketed by the Company to commercial and institutional
laundry markets enable users to reduce costs associated with labor, water,
energy, chemicals, and wastewater disposal. The Company also markets an
automated sorting and counting system for commercial laundries. Other non-ozone
based products offered by the Company include more than 350 specialty chemicals
and compounds.
The Company has developed but not marketed two medical sterilization
products to date. Due to the demand for alternative disinfection systems for
food safety and cost saving equipment for the commercial laundry markets, the
Company shifted its focus from medical sterilization, to more immediate target
markets -- food, laundry and chemical compounds.
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, under its present plan of operations, does not have
sufficient liquidity and capital resources to continue in operation through
February 28, 1999.
Results of Operations
The Company's revenues were $659,254 for the nine months ended November 30,
1998 compared to $1,113,093 for the nine months ended November 30, 1997. The
revenues for the three months ended November 30, 1998 were $70,589 compared to
$561,474 for the three months ended November 30, 1997. Three of the Company's
wholly owned subsidiaries currently contribute to the Company's gross revenues,
Eco-Pure Food Safety Systems, Inc. (EPFS), Cyclopss Laundry Systems, Inc. (CLS)
and Cyclopss Biochemical Corporation (CBC). This large decline in revenues was
largely due to the Company's concentration of efforts in acquiring additional
funding. The Company expects revenue to increase during the last quarter,
compared to the third quarter of the current fiscal year.
Research and development expenses slightly increased to $209,673 for the
nine months ended November 30, 1998 from $203,918 for the nine months ended
November 30, 1997. Research and development expenses for the three months ended
November 30, 1998 were $3,135, a significant decrease from $51,895 for the three
months ended November 30, 1997. This decrease was the result of Management
decision to downsize and the Company's need to conserve cash. Once additional
funding is obtained, the Company believes it is necessary and intends to
increase its research and development efforts in order to complete the
development process of food processing systems and to comply with USDA protocols
to validate these systems. Completion of systems and protocols will depend on
the Company's ability to obtain additional funding.
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<PAGE>
Selling and marketing expenses decreased to $203,650 for the nine months
ended November 30, 1998 from $241,932 for the nine months ended November 30,
1997. Selling and marketing expenses for the three months ended November 30,
1998 were -$0-, compared to $77,658 for the three months ended November 30,
1997. As part of the Company's downsizing plan to help conserve cash, all
marketing personnel have been placed on a commission basis and the Company
canceled all advertising in trade publications and eliminated other marketing
efforts.
General and administrative expenses increased slightly to $1,317,851 for
the nine months ended November 30, 1998 from $1,224,828 for the nine months
ended November 30, 1997, due to an increase in management employment,
shareholder relations and legal fees during the first six months of the year.
General and administrative expense for the three months ended November 30, 1998
were $282,153, a significant decrease from $566,960 for the three months ended
November 30, 1997. During the three months which ended November 30, 1998,
Management took steps to reduce general and administrative costs to help
conserve cash, by reducing overheard and eliminating several nonessential
positions.
In order to comply with Statement of Financial Standard (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets to be disposed of, the
Company reviewed long-lived and intangible assets for impairment and recorded
$273,951 for impairment of intangible assets for the three and nine months ended
November 30, 1998.
Interest expense declined to $713 for the three months ended November 30,
1998 compared to $8,567 for the three months ended November 30, 1997 and
interest expense also declined to $3,213 for the nine months ended November 30,
1998 compared to $109,625 for the nine months ended November 30, 1997 due to the
conversion of long-term debt to common stock.
The Company believes that three of its divisions, namely Eco-Pure Food
Safety Systems, Inc., Cyclopss Laundry Systems, Inc., and Cyclopss Biochemical,
Inc. will be contributors to the Company's future revenue stream. In order to
achieve sales growth acceptable to management, the Company will primarily focus
on these three areas of the Company.
Liquidity and Capital Resources
As of November 30, 1998, the Company had insufficient funds on hand to
continue its operations for the entire fiscal year ending February 28, 1999.
Under the direction of the Board of Directors, in August 1998 the Company
eliminated several nonessential positions, reducing the number of employees by
roughly half and overhead by 50%. Also, on September 1, 1998 chairman/CEO Gary
Bratcher resigned to help the Company conserve cash and reduce overhead. The
Company is attempting to raise additional capital through private placements of
preferred and/or common stocks. However, the Company under its present plan of
operations, does not have sufficient liquidity and capital resources to continue
in operation through February 28, 1999.
On October 2, 1998, the Company was de-listed from the Nasdaq Small-Cap
Market, since it did not meet the new quantitative maintenance requirements for
continued listing on the Nasdaq Stock Market. Because the Company has funded its
operations through the sale of its securities, the failure
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<PAGE>
to be listed on Nasdaq will likely have an adverse effect on the ability of
the Company to raise additional capital.
Cash used in operating activities was $2,066,331 for the nine months ended
November 30, 1998 compared to $1,318,427 for the nine months ended November 30,
1997. The Company's use of cash has been more aggressive in the first six months
of 1998, as the Company experienced significant general and administrative and
marketing expenses associated with the development and promotion of its Eco-Pure
Food Safety Systems. However, In August of 1998 Management took steps to reduce
these costs to help conserve cash and reduce the overall cash burn rate of the
Company.
Cash expenditures for property and equipment and other assets were $52,456
for the nine months ended November 30, 1998 compared to $29,840 for the nine
months ended November 30, 1997. This increase was the result of the Company
increasing purchases of research equipment, patent fees and certain leasehold
improvements.
During the period of March 9, 1998 to June 15, 1998, the Company authorized
and offered its restricted common shares to accredited investors in an offering
made pursuant to a Board Resolution on February 27, 1998 through First Financial
Investment Securities Inc. Subscribers purchased 1,395,140 of such shares in
this offering with net proceeds of $1,500,821. These shares were sold for $1.25
each and each share carries a warrant. This redeemable warrant entitles the
holder to purchase one share of common stock at a price of $3.75 per share. On
September 10, 1998 the Board of Directors authorized issuance of Series "C"
convertible preferred stock with a $.01 par value and a stated value of $1,000
per share. These shares are convertible into common shares at 70% to 90% of the
average stock price with a conversion price of no lower than $.18 per share. The
shares provide for payment of cumulative dividends at 10% annually, paid in
stock. The offering was opened on October 1, 1998. The Company has raised
$172,500 as of the date of this filing in this offering. The 247.5 shares of
Series "C" convertible preferred stock issued were subsequently converted to
1,375,000 restricted common shares. In connection with the conversion of the
preferred shares, the Company recorded preferred dividends of $50,000. These
offerings resulted in an increase in net cash provided by financing activities
for the nine months ended November 30, 1998 to $1,667,429 compared to cash
provided by financing activities of $1,046,230 for the nine months ended
November 30, 1997.
Total assets decreased to $886,905 for the nine months ended November 30,
1998 from $1,960,141 for the year ended February 28, 1998, due to a decrease in
the Company's cash position and a decrease in accounts receivable from $113,090
at February 28, 1998 to $48,341 at November 30, 1998 and $273,951 impairment
write down of intangible assets on November 30, 1998.
Total current liabilities decreased to $243,093 at November 30, 1998 from
$806,286 at February 28, 1998, due mainly to a decrease of $515,070 in accounts
payable and reflects the efforts of management to reduce the debt burden of the
Company and pay down existing obligations. Long- term liabilities decreased to
$9,735 for the three months ended November 30, 1998 from $13,278 for the year
ended February 28, 1998. This decrease was due to reclassification of long term
lease obligations to current obligations.
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<PAGE>
Year 2000 Issue
The year 2000 issue refers to some computer system's inability to recognize
the date field as the year 2000. As a result of these shortcomings, some
computers may be unable to process year-date data accurately beyond the year
1999. The Company has assessed the potential impact of this issue on its
business and operations as being minor. The Company does not believe the year
2000 issue will have a material effect on the Company's internal accounting and
information systems, most of which consists of relatively inexpensive
off-the-shelf software packages.
The Company has taken steps to write a new software for the VAC soil
counting system it provides, to be year 2000 compatible. The software is
scheduled to be completed by March of 1999. None of the Company's other products
are impacted by the Year 2000 issue. The Company's primary vendors consist of
service professionals who are not expected to be materially impacted by the year
2000 issue. The Company does have relationships with various financial
institutions, which could be materially impacted by this problem.
Plan of Operation
The Company's Plan of Operation is subject to availability of additional
capital, of which there can be no assurance. As stated elsewhere in the Form
10-QSB, the Company continues to operate at a significant loss and continues to
have insufficient capital for its operations.
Food Safety Systems
In June of 1997, ozone was granted the status as "generally recognized as
safe" or "GRAS", allowing food processors to use ozone in the processing of
certain food items. This, together with a period of increased scrutiny over food
safety issues, created a groundswell of demand for alternative food
decontamination technologies. One Cyclo3pss designed food safety system is
already in the process of being installed for a major food company. The Company
believes this sale will result in further opportunities with this and other food
related companies.
One major challenge that the Company faces is that of educating government,
industry and the end consumer about the benefits of ozone. Ozone is a
naturally-occurring phenomenon that is usually associated with photochemical
smog or an eroding level of protection in our atmosphere. It is the Company's
intent to provide this education and show the beneficial side of ozone:
decontamination without residual chemicals. For industry, ozone is a cost
competitive and environmentally-friendly answer to microbial decontamination.
For the consumer, ozone kills harmful microorganisms quickly and leaves behind
no chemical residue.
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<PAGE>
Laundry Systems
The Company will continue to market its ozone laundry washing systems,
Eco-Wash. The Company will also continue to upgrade existing customers' sorting
and counting system, (VAC Soil Counting System) with recent technological
changes. The Company believes the products developed and marketed by this
subsidiary will enjoy increased market potential in coming years due to:
* Increasingly competitive laundry markets will create a need for cost
reduction and increased productivity;
* Further environmental restrictions will be placed on discharge water
quality and reduced chemical contamination;
* There is increased emphasis on sanitation and disinfection in the
laundry industry; and * Concerns are increasing regarding
environmental issues associated with the laundry industry.
Specialty Chemicals
Joint efforts will continue with Foster Miller, Inc., to market Biochem's
monomer to the aerospace industry. Current sales activities will be evaluated
and alternatives sought to improve profit margins.
The focus for the fiscal year 2000 will be sales in the three target areas
and to the extend the Company can obtain the necessary capital and financing, it
will apply the resources necessary to accomplish this. The Company anticipates a
spending level of approximately $500,000 on research and development activities
required to continue with product validation and food trials. Sales and
marketing activities will be budgeted at $500,000 to allow for sales staff,
advertising and trade shows. General and administrative expenses should be in
the $1,000,000 range for the year.
The Company had 11 full time employees as of November 30, 1998. The Company
anticipates additional employees will be required in engineering and sales
during the next twelve months. This addition will be determined by the market
demand for food safety and textile systems and specialty chemicals and the
Company's ability to obtain additional funding.
The information set forth herein as to anticipated research and development
costs, equipment purchases and increase in employees are management's best
estimates 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,
industry initiatives, success of the Company's research and development efforts,
and other factors.
From time to time, the Company publishes 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 such 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.
- 16 -
<PAGE>
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 sufficient additional operating capital in the form of debt
or equity;
3. The existence of an orderly market in the Company's securities;
4. Increased sales of the various products of the Company;
5. Continued success in the Company's research and development
activities; and 6. Successful completion of strategic alliances.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.None.
Item 2. Changes in Securities. None.
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 and Reports on Form 8None.
- 17 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CYCLO3PSS CORPORATION
Date: January 14, 1999 By /s/ William R. Stoddard
------------------------------
William R. Stoddard
Chief Executive Officer
Principal Executive Officer
Date: January 14, 1999 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 EXTRACTED FROM
CYCLOPSS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 121,803
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<EXCHANGE-RATE> 1
<CASH> 121,803
<SECURITIES> 0
<RECEIVABLES> 48,341
<ALLOWANCES> 40,957
<INVENTORY> 153,530
<CURRENT-ASSETS> 364,631
<PP&E> 185,690
<DEPRECIATION> 302,569
<TOTAL-ASSETS> 886,905
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
369
<COMMON> 18,580
<OTHER-SE> 576,545
<TOTAL-LIABILITY-AND-EQUITY> 886,905
<SALES> 70,589
<TOTAL-REVENUES> 70,589
<CGS> 83,254
<TOTAL-COSTS> 737,141
<OTHER-EXPENSES> 653,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 713
<INCOME-PRETAX> (775,745)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (755,745)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
