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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED August 31, 2000
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
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No.
Common Stock outstanding at October 14, 2000 - 28,404,815 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 August 31, 2000
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
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets.......................3
Condensed Consolidated Statements of Operations.............5
Condensed Consolidated Statements of Cash Flow..............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 .........................................18
Item 2. Changes in Securities......................................18
Item 3. Defaults Upon Senior Securities............................18
Item 4. Submission of Matters to a Vote of Security Holders........18
Item 5. Other Information..........................................19
Item 6. Exhibits...................................................19
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
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(UNAUDITED)
August 31 February 29
2000 2000
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Assets
Current assets:
Cash $208,950 $107,565
Accounts receivable 61,485 70,723
Inventories 17,930 17,930
Prepaid expenses 10,935 5,815
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Total current assets 299,300 202,033
Property and equipment, net 105,436 135,521
Other assets:
Acquired patents, net 54,607 72,807
Developed patents and other, net 54,581 56,623
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$513,924 $466,984
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
(UNAUDITED)
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<TABLE>
<CAPTION>
August 31 February 29
2000 2000
-------------------------
<S> <C> <C>
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $99,149 $256,955
Accrued liabilities 172,079 449,440
Note Payable 1,000,000 250,000
Current portion of capital lease obligations 834 3,778
Deferred Revenue 100,000 100,000
-------------------------
Total current liabilities 1,372,062 1,060,173
Commitments and contingencies
Stockholders' equity (deficit):
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; 795 and 900 shares issued and
outstanding at August 31, 2000 and February 29,
2000, respectively 8 9
Series "C" convertible preferred stock; 550 shares
authorized; none and 75 shares issued and
outstanding at August 31, 2000 and February 29,
2000, respectively --- 1
Class "A" preferred stock, par value $.01; 500,000
shares authorized; none issued or outstanding --- ---
Common stock, par value $.001; 55,000,000 shares 27,925 25,734
authorized; shares issued at August 31,
2000 and 25,226,066 shares issued at February 29 27,925 25,225
Additional paid-in capital 19,404,648 19,028,410
Accumulated deficit (19,789,530)(19,145,645)
Less treasury stock, 264,000 common shares at cost (501,545) (501,545)
-------------------------
Total stockholders' equity (deficit) (858,138) (593,189)
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$513,924 $466,984
=========================
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the three months ended
August 31
2000 1999
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Net revenues $44,409 $169,203
Costs and expenses:
Cost of sales 111,222 118,108
Research and development 20,389 --
Selling and marketing 35,985 --
General and administrative 221,651 234,978
Depreciation and amortization 25,718 29,896
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Total expenses 414,965 382,982
Loss from operations (370,556) (213,779)
Legal settlement expense -- (853,000)
Interest income 1,684 3
Interest expense (44) (229)
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Net loss (368,916) (1,067,005)
Preferred stock dividends -- (8,499)
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Net loss applicable to common stockholders $(368,916) $(1,075,504)
============== ==============
Net loss per common share $(.01) $(.06)
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Weighted average number of common shares
issued and outstanding 27,159,853 17,779,482
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See accompanying notes to condensed consolidated financial statements
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<PAGE>
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the six months ended
August 31
2000 1999
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Net revenues $225,165 $485,935
Costs and expenses:
Cost of sales 200,514 248,107
Research and development 33,845 --
Selling and marketing 65,582 --
General and administrative 477,386 321,897
Depreciation and amortization 93,767 65,957
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Total expenses 871,094 635,961
Loss from operations (645,929) (150,026)
Legal settlement expense -- (853,000)
Interest income 2,175 18
Interest expense (131) (577)
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Net loss (643,885) (1,003,585)
Preferred stock dividends -- (16,998)
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Net loss applicable to common stockholders $(643,885) $(1,020,583)
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Net loss per common share $(.02) $(.06)
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Weighted average number of common shares
issued and outstanding 27,236,575 17,709,482
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See accompanying notes to condensed consolidated financial statement
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<PAGE>
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Cash Flow
(UNAUDITED)
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<TABLE>
<CAPTION>
For the six months ended
August 31
2000 1999
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(643,885) $(1,003,585)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 93,766 65,957
Common stock issued for services 177,060 --
Common stock issued for legal settlement -- 853,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 9,238 (88,677)
Increase in inventories -- 11,868
Increase in prepaid expense (5,120) (7,587)
(Decrease) increase in accounts payable/accrued liabilites (435,167) 24,606
--------------------------------
Net cash used in operating activities (804,108) (144,418)
--------------------------------
Cash flows from investing activities:
Purchase of property and equipment (11,713) (802)
Addition to developed patents and other (31,728) (9,914)
--------------------------------
Net cash used in investing activities (43,441) (10,716)
--------------------------------
Cash flows from financing activities:
Proceeds from issuance of preferred and common stock -- 156,825
Proceeds from issuance of warrants 196,000 --
Proceeds from issuance and exercise of stock options 5,878 18,000
Proceeds from notes payable 750,000 --
Principal payments under capital lease obligations (2,944) (9,425)
--------------------------------
Net cash provided by financing activities 948,934 165,400
--------------------------------
Net increase (decrease) in cash 101,385 10,266
Cash at beginning of period 107,565 36,018
--------------------------------
Cash at end of period $ 208,950 $46,284
================================
</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 29, 2000 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 August 31, 2000, and the results of its operations and its cash flows for
the interim periods ended August 31, 2000 and August 31, 1999. 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 29, 2000.
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 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 medical and some consumer products.
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.
Inventory
Inventory primarily consists of raw material related to the production of
"VAC" soil laundry counting system.
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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)
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.
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 August 31, 2000 of $19,789,530 and $19,145,645 at
February 29, 2000, 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 six months ended August 31, 2000 was $643,885 and for
the year ended February 29, 2000 was $1,960,414. To date, the Company has
funded its operations through the issuances of common and preferred stock,
and a loan as described further. The Company anticipates a net loss for the
year ended February 28, 2001, and with a cash balance of $208,950 at August
31, 2000 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)
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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.
The severe financial condition of the Company was disclosed to Procter &
Gamble (" P&G") during the last week of November 1999. P&G responded
immediately and after conferring with the Company's management negotiated and
subsequently entered into a new Letter of Intent on December 10, 1999. The
agreement allowed for two separate financings by P&G to the Company. The
first, a Secured Convertible Promissory Note for $250,000, was executed and
funded in concert with the signing of the new Letter of Intent in order to
relieve the immediate and critical cash requirements of the Company. The
second Secured Convertible Promissory Note for $750,000 provides long-term
working capital for the Company. The entire $1,000,000 loan is secured by a
first security interest in all of the Company's Intellectual Properties and
will be due and payable in full on the one year anniversary date of its
execution, February 1, 2001. The loan is non interest bearing, but in the
event of a default, it may accrue up to 15% interest. The loan agreement
grants a conversion right to P&G allowing for the conversion of all or any
part of the outstanding loan, including all or any part of interest due into
shares in the Company's common shares of stock at anytime during the term of
the loan, and at the sole discretion of P&G, at the average closing bid price
of the Company's common stock for ten consecutive business days prior to the
date of execution of the note, February 2, 2000, which was $.27987. The
Company contemplates engaging in several diverse development and testing
contracts within various departments of P&G. In addition, under the terms of
the agreement, P&G will be granted an Exclusive First Right of Refusal for
the Licensing of all the current and future technologies of the Company.
3. Contingencies
The Company is not a party to and presently is not aware of any pending
claims or existing litigation. Previous settled matters are described in the
Company's Form 10-KSB for the year ended February 29, 2000.
4. Segment Information
On March 7, 2000 the Company internally realigned its ozone businesses,
collapsing these separate business units into a single entity. During the
three months ended May 31, 2000 the Company operated in two principal
industries; the manufacture, sale and installation of ozone products ("ozone
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)
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4. Segment Information (continued)
<TABLE>
<CAPTION>
For three months ended For six months ended
Aug 31, 2000 Aug 31, 1999 Aug 31, 2000 Aug 31, 1999
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues
Ozone products $ 6,321 $ 39,830 $ 82,408 $ 248,129
Biochemical products 38,087 129,373 142,757 237,806
------------- -------------- ------------- --------------
Total Revenue $ 44,408 $ 169,203 $ 225,165 $ 485,935
============= ============== ============= ==============
Operating income (loss)
Ozone products $ (114,972) $ (100,214) $(142,990) $ (30,304)
Biochemical products (25,091) 44,591 23,944 76,809
------------- -------------- ------------- --------------
Total operating income(loss) (140,063) (55,623) (119,046) 46,505
Corporate expenses (230,493) (1,011,156) (526,883) (1,049,531)
Interest income 1,684 3 2,175 18
Interest expense (44) (229) (131) (577)
------------- -------------- ------------- --------------
Net income (loss) $ (368,916) $(1,067,005) $ (643,885) $(1,003,585)
============= ============== ============= ==============
Identifiable assets
Ozone products $262,345 $387,834
Biochemical products 68,696 152,203
General corporate assets 182,883 92,990
------------ ------------
Total assets $513,924 $633,027
=========== ============
</TABLE>
5. Stockholders' Equity
During the six months ended August 31, 2000, the Company had the following
equity transactions: 105 Series "B" preferred shares were redeemed for
1,125,618 unrestricted common shares pursuant to the legal settlement with
Mifal Kilta et al. in September of 1999. 75 shares of Series "C" convertible
preferred stock were converted into 744,250 shares of common stock. Also some
"Series A" warrants were exercised at $.50 each, and 392,000 common shares
were issued for $196,000 upon the exercise of 392,000 warrants. 350,000
shares were issued in lieu of cash payment for services. Finally 87,800
shares were issued in connection to some exercise of stock options by the
Company's employees.
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<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Cyclopss Corporation (the "Company") historically has been engaged in a fully
integrated business model providing the design, manufacturing, 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 processing efficiency. Ozone technology
is proven to reduce microbial counts on food products without the potential
for the development of immunity or resistance by the organism. Ozone laundry
systems enable users to reduce costs associated with labor, water, energy,
chemical, textile replacement and wastewater. The Company has recently
changed its business model to include the licensing of proprietary
technologies to partners who have resources and infrastructures better suited
to successfully commercialize certain of the Company's technologies or
products. The Company has entered into a Technology Licensing Agreement with
Consolidated Stills and Sterilizers of Boston, MA. The agreement licenses the
ozone medical instrument sterilization technology developed and patented by
the Company for an initial licensing fee and future royalties. The Company
anticipates negotiating like arrangements on other of its proprietary
technologies when the circumstances are beneficial. Cyclopss will continue to
engage in all integrated functions required in the synthesis, manufacturing
and marketing of its specialty chemicals.
Consumers, food producers and processors, both large and small, are searching
for new technologies to address food safety and sterilization concerns.
Consumers and food processors, who have relied heavily on chlorination and
other chemicals to decontaminate foods and household items, are being forced
to consider alternatives to chlorine and other toxic chemicals. The Company
believes that ozone products offer a lower cost and more
environmentally-friendly and consumer accepted form of decontamination and
sterilization than many other chemical treatments.
These statements are forward-looking and involve matters which are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by such forward looking
statements. These risks and uncertainties include product development or
production difficulties or delays due to supply constraints, technical
problems or other factors; technological changes; the effect of global,
national and regional economic conditions; the impact of competitive products
and pricing; changes in demand; increases in component prices or other costs;
and a number of other risks including those identified by the Company
throughout Form 10- KSB for February 29, 2000, and other risks identified
from time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications. The Company assumes no
obligation to update forward-looking statements.
Results of Operations
The Company's revenues were $44,409 for the three months ended August 31,
2000 compared to $169,203 for the three months ended August 31, 1999. The
revenues were $225,165 for the six months ended August 31, 2000 compared to
$485,935 for the six months ended August 31, 1999. This decrease was mainly
due to the Company's shift in the use of its employees and resources from
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<PAGE>
the generation of short term revenues, required to cover operating expenses,
to research and design efforts in developing long term future product and
application royalty receipts as described further. The Company's gross margin
for the three months ended August 31, 2000 was $(66,813) compared to $51,095
for the three months ended August 31, 1999. The gross margin for the six
months ended August 31, 2000 was $24,651 compared to $237,828 for the six
months ended August 31, 1999. This reduction is due to a decrease in product
sales as described above. The Company continues to closely monitor expenses
to minimize all unnecessary operating costs. The Company expects to start
receiving royalty payments from the sale of consumer products as described
further in this section.
Research and development expenses increased to $20,389 and $33,845 for the
three and six months ended August 31, 2000, respectively from $0 for the
three and six months ended August 31, 1999. The Company eliminated all
research and development costs during the three and six months ended August
31, 1999, due to lack of necessary funds for this function. The Company
resumed its research and development efforts in the last quarter of fiscal
2000 when funds and personnel were available for these activities.
Selling and marketing expenses increased to $35,985 and $65,582 for the three
and six months ended August 31, 2000, respectively, from $0 for the three and
six months ended August 31, 1999. In 1999, the Company eliminated 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, and started to
dedicate limited funds to selling and marketing expense in the last quarter
of fiscal 2000.
General and administrative expenses decreased to $221,651 for the three
months ended August 31, 2000 from $234,978 for the three months ended August
31, 1999. General and administrative expenses increased to $477,386 for the
six months ended August 31, 2000 from $321,897 for the six months ended
August 31, 1999. The unusually low general and administrative expenses last
year were due to a refund of $138,875 for insurance premiums that was
recorded against administrative expenses in the first quarter. Excluding the
refund of insurance premiums, the general and administrative expenses for the
first and second quarter of this year are comparable to the same periods last
year. Management is closely monitoring and controlling these expenses.
However, management has little control over the escalating legal and
accounting expenses related to newly enacted SEC requirements and new
regulations that are being adopted with increasing regularity. These expenses
while burdensome are crucial to providing and maintaining a market for the
Company's securities. These expenses are expected to increase in fiscal 2001,
with other potential increases due to management and human resource
requirements for the Company should commercial activities increase, and more
funds become available for this use.
The Company recorded net loss applicable to common stockholders for the three
months ended August 31, 2000 of $368,916 compared to $1,075,504 for the three
months ended August 31, 1999. Net loss applicable to common stockholders for
the six months ended August 31, 2000 of $643,885 compared to $1,020,583 for
the six months ended August 31, 1999. The Company recorded $853,000 in August
1999 legal settlement expenses in connection with the settlement agreement it
reached with Mifal Klita et al. in September of 1999. During the period from
May through August
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<PAGE>
1996, the Company sold its series B preferred stock in a private placement
offering to certain investors pursuant to the provisions of Regulation S. One
of these investors, Mifal Klita, a purported Canadian company, filed suit
against the Company demanding the removal of the restrictive investment
legend which the Company caused to be placed on common shares issued pursuant
to the conversion of series B preferred shares. The suit was filed in the
Court of Chancery in the State of Delaware, which ruled in favor of the
Company on April 8, 1997 and dismissed Mifal Klita's suit. Subsequently,
Mifal Klita refiled an amended suit in the Superior Court of the State of
Delaware. The final settlement agreement reached by the parties involved,
entitled Mifal Klita to the conversion of the series B preferred shares into
unrestricted common stock of the Company plus shares for legal fees and other
provisions stated in the original agreement. The unrestricted common stock
will be disbursed monthly over a two year period.
A toothbrush and a kitchen sponge sanitizer were developed by Otres, a
strategic partner, in collaboration with the Company and are the subject of a
co-marketing agreement with the Crest and Dawn divisions of P&G. The products
are designed to kill 99.9% of germs found on toothbrushes and kitchen sponges
using ozone technology, and they address a growing consumer concern, that of
reducing the spread of germs and microorganisms, such as streptococci and
staphylococci on toothbrushes and e-coli, salmonella and listeria on kitchen
sponges. The Company will receive ongoing royalty revenues from the sale of
those products. The products are expected to be available to the consumer
market in September 2000. The OTRES products, when released, will be
available for purchase on the Company's website (www.cyclopss.com), as well
as grocery, appliance and hardware stores, mass merchandisers and drug
stores.
Liquidity and Capital Resources
In December 1999, the Company entered into a Secured Convertible Promissory
Note for $250,000 with P&G. In February 2000, the Company received a second
financing of a Secured Convertible Promissory Note for $750,000 which
provides long-term working capital for the Company. With respect to the
second $750,000 Note, $250,000 in cash was received and recorded in the first
quarter ended May 31, 2000. The balance of $500,000 in cash was received on
June 19, 2000. The entire $1,000,000 loan is secured by a first security
interest in all of the Company's Intellectual Properties and will be due and
payable in full on the one year anniversary date of its execution, February
1, 2001. The loan agreement grants a conversion right to P&G allowing for the
conversion of all or any part of the outstanding loan, including all or any
part of interest due, into shares of the Company's unrestricted common stock
at anytime during the term of the loan, and at the sole discretion of P&G.
The Company has, and continues to engage in several diverse development and
testing contracts within various departments of P&G. In addition, under the
terms of the agreement, P&G will be granted an Exclusive First Right of
Refusal for the licensing of all the current and future technologies of the
Company. There are no assurances that cash received from these arrangements
will be sufficient to meet the Company's operating needs through February 28,
2001.
Cash used in operating activities was $804,105 for the six months ended
August 31, 2000 compared to $144,418 for the six months ended August 31,
1999. A large portion of this increase was due to the Company paying off
accrued liabilities and extremely aged accounts payables that had been
accumulating for a substantial amount of time. There was a decrease of
$435,167 in accounts payable and accrued liabilities for the six months ended
August 31, 2000 compared to an increase of $24,606 for the same accounts for
the six months ended August 31, 1999.
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<PAGE>
Cash expenditures for property, equipment and developed patents were $43,441
for the six months ended August 31, 2000 compared to $10,716 for the six
months ended August 31, 1999. This increase was due primarily to Company
updating, maintaining and filing new patents.
Net cash provided by financing activities for the six months ended August 31,
2000 was $948,934, $196,000 of this total was received from the exercise of
certain "Series A" warrants in connection with an offering of 1,000,000
"Series A" preferred shares made in October of 1997.These warrants were
exercisable at $.50 each, and 392,000 common shares were issued for $196,000
upon the exercise of the same number of warrants. $750,000 was received from
P&G during this period as part of the loan described earlier. Cash provided
by financing activities for the six months ended August 31, 1999 was
$165,400, due mainly to issuance of 157 shares of "Series C" preferred
shares.
Total assets increased to $513,924 at August 31, 2000 from $466,984 as of
February 29, 2000. This increase was mainly due to increase in cash, slightly
offset by increase in amortization and depreciation of assets.
Total current liabilities increased to $1,372,062 at August 31, 2000 from
$1,060,173 at February 29, 2000, mainly due to the increase in Notes payable
from $250,000 to $1,000,000, offset by a decrease in accounts payable of
$157,806 and a decrease in accrued liabilities of $277,361.
Plan of Operation
Under the Company's new plan of operations and revised operations strategy,
it will no longer attempt to act as a manufacturer of products using the
Company's technology. Instead, the Company intends to act as a provider of
specialized and proprietary technologies to others. The Company will direct
efforts toward the creation of technology bridges for other companies that
will in turn use the Cyclopss technologies to develop new products, processes
and services. The Company envisions that it will be able to create strategic
alliances, joint ventures and other partnerships with manufacturers,
equipment suppliers, and manufacturers and suppliers of disposable and
consumable products to utilize the Company's proprietary technologies under a
variety of licensing and royalty structures. This new business model will
permit the Company to better commercialize its technology, without having to
take on the significant cost of developing individual products or
manufacturing processes. Revenues will be derived through royalty and
licensing arrangements from the commercialization of the Company's products
as well as research and development efforts and services performed on behalf
of others. This model will allow the Company to more efficiently utilized its
limited resources and provide a more effective means of commercializing its
significant technology.
The Company sold an EcoWash ozone laundry system to the US Navy, which was
shipped in September of 2000, and is not recorded in this financial
statement. Also, the Company has entered into an exclusive relationship with
Alliance Laundry to jointly furnish Eco-Wash ozone laundry systems to the
Navy. The Company anticipates the manufacturing activity will become the
function of Alliance or some other contract manufacturer as demand from the
Navy dictates. The Company and Alliance are currently in discussions in
regards to co-venturing other commercial laundry
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markets other than the Navy. The Company continues to seek industry
participants for design and development work required in modifying their
existing products to accommodate the incorporation of the Company's
proprietary technologies. This model allows the Company to keep the number of
employees limited to specific requirements of the technology application, and
converts the Company into a technology purveyor.
This business model is illustrated by the current business relationship
between the Company, P&G and Otres, Inc. Cyclopss had established a working
relationship with P&G early in 1999. In May of 1999, the Company was
approached by the principals of Otres to assist in the development and
validation of a toothbrush sanitizer and a kitchen sponge sanitizer utilizing
ozone. The management of the Company determined the products could be of
great interest to P&G and, after having appropriate confidentiality documents
executed, Otres agreed to allow the Company to introduce the product concepts
to P&G. P&G determined they had products that would lend themselves to a
co-marketing relationship with the Otres appliances as long as the product
development was responsibly executed and the technology application proved
safe and effective. Both Otres and P&G engaged the Company for these
activities. The Company manages the relationship with P&G for Otres under
contract, and contributed to the execution of co-marketing agreements between
Otres and CREST(R) for the toothbrush sanitizer, and Otres and DAWN(R) for
the kitchen sponge sanitizer that were announced at the International Home
Appliance Show in Chicago on January 16, 2000. The Company negotiated to
receive an ongoing royalty from the sale of these appliances, which provides
the potential for significant future revenues with minimal related costs.
To better provide the personnel required under this business model the
Company moved its Research and Development activities to New Mexico in
February 2000. The Company maintains a limited administrative staff, and its
Biochemical division in its current offices in Salt Lake City, Utah.
The Company anticipates its revenues as well as the source of those revenues
to change significantly through establishment of these types of strategic
alliance relationships. However, there can be no assurance that the financing
as completed with P&G will be sufficient to offset cash demands, nor can
there be any assurance that any of the Company's products will be accepted in
such numbers as to make the royalty revenues significant enough to cover the
cost of operation.
Even with sufficient funds available, the ongoing challenge facing the
Company is that of educating potential partners, 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
order to create a market for Biochem's monomer to the aerospace industry.
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
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<PAGE>
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.
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.
Item 6(a). Exhibits and Reports on Form S-8. To register Executive
Employee Stock Option Agreements, register shares for director
fees, legal and consulting fees.
6(b). Exhibits and Reports on Form S-3. To register 3,573,024
shares of Common stock that may be used by P&G in lieu
of cash repayment of the $1,000,000 Promissary Note as
described above.
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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: October 16, 2000 By /s/ William R. Stoddard
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William R. Stoddard
Chief Executive Officer
Principal Executive Officer
Date: October 16, 2000 By /s/ Mondis Nkoy
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Mondis Nkoy
Controller, Corporate Secretary
Principal Financial Officer
