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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 MAY 31, 1999
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 July 14, 1999 - 17,779,482 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 Months Ended May 31, 1999
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 Flow..............6
Notes to Condensed Consolidated Financial Statements........7
Item 2. Management's Discussion and Analysis or
Plan of Operations.........................................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .........................................16
Item 2. Changes in Securities......................................16
Item 3. Defaults Upon Senior Securities............................16
Item 4. Submission of Matters to a Vote of Security Holders........16
Item 5. Other Information..........................................16
Item 6(a) Exhibits and Reports on Form 8-K........................16
Item 6(b) Exhibits and Reports on Form S-8........................16
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
(UNAUDITED)
- -------------------------------------------------------------------------------
May 31 February 28
1999 1999 999
------------ --------------
Assets
Current assets:
Cash $51,930 $36,018
Accounts receivable 243,283 47,578
Inventories 65,589 65,348
Prepaid expenses 48,248 45,128
------------ --------------
Total current assets 409,050 194,072
Property and equipment, net 208,394 232,935
Other assets:
Acquired patents, net 103,510 109,210
Developed patents and other, net 51,570 57,390
------------ --------------
$772,524 $593,607
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
(UNAUDITED)
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<TABLE>
<CAPTION>
May 31 February 28
1999 1999
-------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $189,323 $239,140
Accrued liabilities 143,642 149,033
Current portion of capital lease obligations 9,163 9,505
-------------------------
Total current liabilities 342,128 397,678
Long-term portion of capital lease obligations -- 3,778
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; 1,190 shares issued and
outstanding 12 12
Series "C" convertible preferred stock; 550 shares
authorized; 363 and 206 shares issued and
outstanding at May 31, 1999 and February 28,
1999, respectively 4 2
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; 17,779,482 shares issued at May 31,
1999 and 17,599,482 shares issued at February 28,
1999 17,779 17,599
Additional paid-in capital 18,035,601 17,860,958
Accumulated deficit (17,121,811) (17,185,231)
Less treasury stock, 264,000 common shares at
cost (501,545) (501,545)
---------------------------
Total stockholders' equity 430,396 192,151
---------------------------
$772,524 $593,607
============================
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
(UNAUDITED)
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For the three months ended
May 31, ended
1999 1998
-------------- --------------
Net revenues $316,732 $323,391
Costs and expenses:
Cost of sales 129,999 278,106
Research and development -- 114,822
Selling and marketing -- 110,159
General and administrative 86,919 553,064
Depreciation and amortization 36,061 103,671
-------------- --------------
Total expenses 252,979 1,159,822
Income (loss) from operations 63,753 (836,431)
Interest income 15 2,305
Interest expense (348) (1,424)
-------------- --------------
Net income (loss) 63,420 (835,550)
Preferred stock dividends (8,499) (38,958)
-------------- --------------
Net income (loss) applicable to common stock $54,921 $(874,508)
============== ==============
Net income (loss) per common share -- (.05)
-------------- --------------
Weighted average number of common shares
issued and outstanding 18,115,669 16,013,295
============== ==============
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 three months ended
May 31,
1999 1998
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $63,420 $(835,550)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 36,061 103,671
Changes in assets and liabilities:
Increase in accounts receivable (195,705) (119,009)
(Increase) decrease in inventories (241) 2,513
Increase in prepaid expenses (3,120) (20,270)
Decrease in accounts payable and accrued liabilities (55,208) (427,303)
--------------------------------
Net cash used in operating activities (154,793) (1,295,948)
--------------------------------
Cash flows from investing activities:
Purchase of property and equipment ---- (20,455)
Addition to developed patents and other ---- (5,817)
--------------------------------
Net cash used in investing activities ---- (26,272)
--------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock ---- 1,395,004
Proceeds from issuance of preferred stock 156,825 ----
Proceeds from exercise of stock options 18,000 11,800
Principal payments under capital lease obligations (4,120) (7,041)
--------------------------------
Net cash provided by financing activities 170,705 1,399,763
--------------------------------
Net increase in cash 15,912 77,543
Cash at beginning of period 36,018 573,161
--------------------------------
Cash at end of period 51,930 $650,704
================================
</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 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, 1999 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 May 31, 1999, and the results of its operations and its cash flows for the
interim periods ended May 31, 1999 and May 31, 1998. 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, 1999.
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 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 sterilization and/or
disinfection of surgical, medical and other instruments.
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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CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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1. Summary of Significant Accounting Policies (continued)
Net Income (Loss) per Common Share
Net income (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. Income (loss) per common
share for preferred stock dividends was not significant (less than one cent
per share). The Company excluded 5,551,451 and 5,519,173 options and warrants
from the weighted average shares outstanding computation at May 31, 1999 and
February 28, 1999, respectively as their effect would be anti-dilutive.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The items of other comprehensive income that are
typically required to be displayed are foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. There have been no items of other
comprehensive income to date.
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 May 31, 1999 of $17,121,811 and $17,185,231 at
February 28, 1999, 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, 1999 was $3,232,857 and the
Company recorded net income of $63,420 for the three months ended May 31,
1999. To date, the Company has funded its operations through the issuances of
common and preferred stock. The Company anticipates a net loss for the year
ended February 28, 2000, and with a cash balance of $51,930 at May 31, 1999
and expected cash requirements for the year, there is substantial doubt as to
the Company's ability to continue operations.
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.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------------------------------
2. Basis of Presentation (continued)
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; however, no assurance can be given that sales
will be generated or that the additional necessary funding will be raised.
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, 1999.
4. Segment Information
During the three months ended May 31, 1999 and 1998, the Company operated in
three principal industries; the manufacture, sale and installation of ozone
food processing products ("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 profit is total revenue less operating expenses, excluding interest
expense and general corporate expenses. Corporate assets consist primarily of
cash and cash equivalents, other receivables, prepaid expenses, property and
equipment and corporate payables.
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<PAGE>
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------------------------------
4. Segment Information (continued)
<TABLE>
<CAPTION>
For three months ended
May 31, 1999 May 31, 1998
_______________________________________
<S> <C> <C>
Net revenues
Food Safety products $111,535 $156,000
Textile products 96,764 102,894
Biochemical products 108,433 64,497
------------- -------------
Total Revenue $316,732 $323,391
============= =============
Operating income (loss)
Food Safety products $ 84,668 $(12,998)
Textile products (14,758) (327,950)
Biochemical products 32,218 (9,746)
------------- -------------
Total operating income (loss) 102,128 (350,694)
Corporate expenses (38,375) (485,737)
Interest income 15 2,305
Interest expense (348) (1,424)
------------- -------------
Net income (loss) $ 63,420 $ (835,550)
============= =============
Identifiable assets
Food Safety products $110,268 $110,989
Textile products 403,670 897,510
Biochemical products 160,284 270,808
General corporate assets 98,302 817,744
------------- -------------
Totals assets $772,524 $2,097,051
============= =============
</TABLE>
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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 the design, manufacturing,
assembly, sales and installation of ozone application technologies and
processes. The Company's main product lines offer an alternative to address
food safety concerns and laundry disinfection and efficiency. Ozone
disinfectant technology is proven to reduce microbial counts on food products
without the potential for the development of immunity or resistance by the
microbial organism and build up of chemicals on the final product. Ozone
laundry systems enable users to reduce costs associated with labor, water,
energy, chemical, textile replacement and wastewater.
The Company also markets an automated sorting and counting system for
commercial laundries. Other non-ozone based products offer by the Company
include more than 350 specialty chemicals and compounds. The Company holds
patents for medical sterilization processes and plans to resume research
and development activities in this field within the next few years, when
sufficient funds are available. . Results of Operations
The Company's revenues were $316,732 for the three months ended May 31, 1999
compared to $323,391 for the three months ended May 31, 1998. 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). The Company's
gross margin for the three months ended May 31, 1999 was $186,733 compared to
$45,285 for the three months ended May 31, 1998. The Company has taken steps
to control cost of sales by reducing management, employees, production space,
and any other unnecessary expense. The Company expects revenue to increase in
the upcoming quarters, due to managements efforts to locate new customers.
The Company also expects cost of sales to increase at a relative proportion
to the revenue.
Research and development expenses decreased to $0 for the three months ended
May 31, 1999 from $114,822 for the three months ended May 31, 1998. The
Company eliminated all research and development costs during the three months
ended May 31, 1999, due to lack of necessary funds for this function. The
Company believes it is necessary and intends to resume its research and
development efforts in the current year when more funds are available or if
it can locate strategic partners that are able to fund research and
development efforts.
Selling and marketing expenses decreased to $0 for the three months ended May
31, 1999 from $110,159 for the three months ended May 31, 1998. The Company
took steps to eliminate marketing staff and eliminated all advertising in
order to help conserve cash. Management believes that it is critical to
periodically support and supplement its sales efforts through advertising,
public relations and trade-show participation when sufficient funds are
available.
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<PAGE>
General and administrative expenses decreased to $86,919 for the three months
ended May 31, 1999 from $553,064 for the three months ended May 31, 1998, due
to a decrease in management employment, shareholder relations and legal fees.
Management has taken steps to reduce these costs in order to help conserve
the limited cash available. Management will continue to review and control
these costs, but believes general and administrative expenses in the coming
quarters of fiscal 2000 will increase due to management and human resource
requirements for the Company should sales and other commercial activities
increase, and should more funds become available.
Interest expense declined to $348 for the three months ended May 31, 1999
compared with $1,424 for the three months ended May 31, 1998, due to the
conversion of all long-term debt to common stock and lower lease payments.
The Company is not in a financial position to borrow from traditional sources
and anticipates low interest expense in fiscal 2000. The Company has minimum
debt and intends to fund its operations through non-interest bearing capital
sources.
The Company recorded net income applicable to common stock for the three
months ended May 31, 1999 of $54,921. The loss incurred for the three months
ended May 31, 1998 was $874,508. This change is due partly to reduction of
employees from twenty four last year to eleven this year. Also in order to
help conserve cash, the Company has taken steps to control costs by reducing
management, promotional and investor relation activities. The Company
anticipates that it will operate at a loss for the year ending February 28,
2000. However, if revenues of CLS, EFS and CBC increase, it is anticipated
that losses will begin to diminish.
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 the major 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 the date of this filing, the Company has insufficient funds on hand to
continue its operations for the entire fiscal year ending February 28, 2000
unless significantly increased revenues and gross profits are achieved or
additional financing is obtained. Should the Company be unsuccessful in
achieving the increased level of revenues and gross profits required to pay
its operating expenses or in acquiring additional equity financing to pay the
shortfall, the Company will seek direction from the Board of Directors as to
what action must be taken, or what action should be taken to preserve the
Company's limited assets. Management is aggressively exploring additional
financing for the ongoing operations of the Company. There are no assurances
that the efforts to locate and secure additional financing will be
successful, and the failure to secure this financing would substantially
alter management's assumptions as presented heretofore and in the remainder
of this section
Cash used in operating activities was $154,793 for the three months ended May
31, 1999 compared to $1,295,948 for the three months ended May 31, 1998. The
Company has significantly reduced its cash burn rate in fiscal 2000, due to
the necessity of having to conserve available cash.
Cash expenditures for property and equipment were $0 for the three months
ended May 31, 1999
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<PAGE>
compared to $20,455 for the three months ended May 31, 1998. This decrease is
also the result of the Company's attempt to help conserve cash and reduce
expenses.
Net cash provided by financing activities for the three months ended May 31,
1999 was $170,705, due mainly to issuance of 157 shares of preferred "C"
shares, as described further in this section. Cash provided by financing
activities for the three months ended May 31, 1998 was $1,399,763, due to the
issuance of 1,296,140 shares of common stock in a private placement offering
through First Financial Investment Securities, which raised $1,620,175
($1,395,004 in net proceeds).
Total assets increased to $772,524 for the three months ended May 31, 1999
from $593,607 for the year ended February 28, 1999, due to a slight increase
in the Company's cash position and a significant increase in accounts
receivable from $47,578 at February 28, 1999 to $243,283 at May 31, 1999.
This increase in accounts receivable is mainly due to the majority of the
sales that were recorded for first quarter, occurring toward the end of the
quarter.
Total current liabilities decreased to $342,128 at May 31, 1999 from $397,678
at February 28, 1999, mainly due to a slight decrease in accounts payable.
Long term liabilities decreased to $0 for the three months ended May 31, 1999
from $3,778 for the year ended February 28, 1999. This decrease was due to
the repayment of certain lease liabilities and the reclassification of the
remaining lease obligations to current obligations.
During the period of September 28, 1998 to April 15, 1999 the Company
authorized and offered its Series "C" preferred shares to accredited
investors in an offering made pursuant to Regulation S of the Securities
Exchange Act, and a Board Resolution on September 10, 1998. By the end of the
offering, seven subscribers purchased such shares in this offering for a
total of $362,825 that were accepted under the subscription plan. Series "C"
preferred shares are convertible to common shares at $.10 (ten cents) per
share.
Year 2000 Issue
The Year 2000 issue refers to some computer systems' 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. There is substantial concern that if the Year 2000 problem is not
adequately addressed, there may be widespread problems with computer
applications in all areas of use, potentially affecting the global economy.
If the Company's internal systems and products do not correctly recognize
date information when the year changes to 2000, there could be an adverse
impact on the Company's operations. Additionally, if the Company's supplier,
customers, and other parties experience Y2K difficulties, the Company could
be adversely affected. The Company is continuing the process of assessing and
correcting potential Year 2000 problems with the Company's operations.
The Company has assessed the potential impact of this issue on its
business and operations as being minor. With regard to its information
systems (financial, supply, inventory, order, office support, etc.) the
Company has developed and begun implementing a plan to convert all necessary
systems to be ready for the year 2000. The Company does not believe the Year
2000 issue will have a material effect on the Compny's internal accounting
and information systems, most of
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<PAGE>
which consist of relatively inexpensive off-the-shelf software packages.
Costs incurred to date to modify systems have been insignificant and
remaining costs to modify IT systems are expected to be less than $5,000.
With regard to its non-information system operations, the Company is in
the process of reviewing and correcting Y2K problems in the following areas:
products currently manufactured by the Company and manufacturing and
engineering systems. This review is approximately 95% complete and the
Company has been able to correct or plans to correct prior to 2000 each
material Y2K issue identified in the review.
With regard to potential Y2K issues for the Company's major material
suppliers, the Company is in the process of communicating with such parties.
Although not all major suppliers have indicated their Y2K compliance, the
Company has not yet identified any major supplier that believes it will be
unable to operate due to Y2K problems in 2000. Generally, the Company has
alternative sources for supplies in the event a supplier experiences such
difficulties and the Company does not presently anticipate material
difficulties in obtaining materials due to suppliers' Y2K problems.
With regard to major customers, the Company has had communications with
such parties and is reviewing responses regarding the Companies Y2K
compliance. To date, the Company has insufficient information from such
parties to determine the potential impact on the Company if such parties
experience Y2K difficulties.
With regard to third-party utilities and services (for example, telephone
electrical, bankcard processing and shipping services), the Company has no
plans to evaluate the Y2K readiness of such providers.
The Company anticipates that the material risks related to its information
and non- information systems will be timely mitigated by current efforts
being made by the Company to identify and correct internal Y2K problems.
However, there is no guarantee that the Company will successfully identify or
correct all Y2K problems in a timely manner. In some cases, problems may be
unforeseen, and occur regardless of the testing and review that is done.
Additionally, a major potential Y2K risk to the Company's operations is
service disruption from third-party providers that supply telephone,
electrical, banking and shipping services. Any disruption of these critical
services would hinder the Company's ability to receive, process and ship
orders.
Plan of Operation
The Company's Plan of Operation is solely subject to availability of
additional capital, of which there can no assurance. The Company has
insufficient capital for operations; however, the Company is, the subject of
two separate due diligence efforts. The parties engaged in these two separate
due diligence processes are both confined by stringent Confidential
Disclosure Agreements which protect the Company's intellectual properties.
These companies are both significant purveyors to the target markets of the
Company. These due diligence efforts have provided positive results, and as
of the time of this filing, the Company has entered into a Letter of Intent
with one of these strategic partners, and the Company anticipates its
revenues as well as
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<PAGE>
the source of those revenues to change significantly. However, there can be
no assurance that these due diligence activities will be concluded or that
such efforts will gain any significant market acceptance in the intended
target markets, even if a successful strategic partnership agreement is
negotiated as a result of this Letter of Intent.
In late 1997 the Electrical Power Research Institute (EPRI) self affirmed
ozone as being Generally Regarded As Safe (GRAS) allowing food processors to
use ozone in the processing of certain food items. The Company's expertise in
ozone applications combined with the aggressive public relations activities
of early 1998 created substantial interest in the food decontamination
potential of the Company's technologies. However, those interested parties
anticipated proven turnkey solutions, and were not initially prepared to
contribute resources toward the development work and expenses necessary to
ultimately provide the solution. The Company has been aggressively seeking
customers and strategic partners who are sufficiently convinced of the
potential to pro-actively participate in necessary research and development
costs. These customers and strategic partners not only may provide revenues
from possible R&D contracts but also follow-on revenues from the purchase of
systems and processes. These installed systems will be used as demonstration
sites, and will further validate the technologies.
The Company currently has provided a major food producer with prototype
ECO-PURE test systems that have been installed in wet produce processing
plants, long-term produce storage facilities, short term banana and tomato
ripening rooms, and is developing systems for another major customer for use
in treatment of herbal remedies and dietary supplements.
The Company continues to pursue strategic partners who are willing to
advance resources and expenses in contract R&D relationships that not only
provide revenues and working capital for the Company but, if successful,
create a captive customer for future products.
Until such time as additional monies are raised and the Company can
execute its broader sales and marketing plan, management anticipates its
primary revenues will be generated through the R&D contracts and the
resulting sale of systems engineered from, and sold to, the parties funding
the specific R&D activities.
Even with sufficient funds available, the ongoing challenge facing the
Company 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. For industry, ozone is a
cost competitive and environmentally-friendly answer to microbial
contaminates. For the consumer, ozone kills harmful microorganisms quickly
and leaves behind no chemical residue.
The Biochem products will continue to be driven by customer requests and
increased sales will be derived from contract product development. Current
sales activities will be evaluated and alternatives looked for to improve
profit margins. Joint efforts will continue with Foster Miller, Inc., in
efforts to create a market for Biochem's monomer to the aerospace industry.
Given the Company's generally illiquid cash position and limited capital,
there can be no assurances that the Company will be able to effectively
execute its plan of operations.
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<PAGE>
The Company had eleven full time employees as of May 31, 1999. The Company
anticipates additional employees will be required in engineering and sales
during the next twelve months. The impact of the above will be determined by
the market demand for food safety and textile systems and specialty
chemicals.
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 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 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.
- 16 -
<PAGE>
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 Holders. None.
Item 5. Other Information.
Item 6(a). Exhibits and Reports on Form 8None.
6(b). Exhibits and Reports on Form S-8. To register Executive
Employee Stock Option Agreements and grant of shares to
William R. Stoddard in Lieu of cash wages.
- 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: July 14, 1999 By/s/ William R. Stoddard
-----------------------
William R. Stoddard
Chief Executive Officer
Principal Executive Officer
Date: July 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 EXTRACTS FROM
CYCLO3PSS CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIRIFED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 51,930
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-1-1999
<PERIOD-END> MAY-31-1999
<EXCHANGE-RATE> 1
<CASH> 51,930
<SECURITIES> 0
<RECEIVABLES> 243,283
<ALLOWANCES> 48,248
<INVENTORY> 65,589
<CURRENT-ASSETS> 409,050
<PP&E> 208,394
<DEPRECIATION> 204,113
<TOTAL-ASSETS> 772,524
<CURRENT-LIABILITIES> 342,128
<BONDS> 0
0
372
<COMMON> 17,779
<OTHER-SE> 412,617
<TOTAL-LIABILITY-AND-EQUITY> 772,524
<SALES> 316,732
<TOTAL-REVENUES> 316,732
<CGS> 186,733
<TOTAL-COSTS> 252,979
<OTHER-EXPENSES> (333)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348
<INCOME-PRETAX> 63,420
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (8,499)
<NET-INCOME> 54,921
<EPS-BASIC> .003
<EPS-DILUTED> 0
</TABLE>
