UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
-------------- ---------------
Commission file number 0-14273
DCX, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0868815
................................. ..........................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3002 N. State Highway 83, Franktown, Colorado 80115-0569
...................................................
(Address of principal executive offices)
(Zip Code)
(303) 688-6070
..................................
(Registrant's telephone number, including area code)
Not Applicable
..................................................
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. [X] Yes [ ] No
4,115,631 Common Shares were outstanding as of July 31, 1995.
Number of pages in this report is 12.
PART I, FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DCX, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
June 30 September 30
1995 1994
(Unaudited) (Audited)
-------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash and Cash equivalents $ 162,812 $ 114,886
Marketable securities at market 0 86,675
Restricted cash 150,000 150,000
Accounts receivable 2,866,136 2,747,765
Inventories 786,286 547,426
Prepaid expenses 98,783 199,631
Subscriptions receivable 0 95,500
-------------------------------------------------------------------------------
Total current assets 4,046,017 3,941,883
-------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
At cost 1,978,468 1,835,636
Less: accumulated depreciation (587,086) (540,777)
-------------------------------------------------------------------------------
Net property and equipment 1,391,382 1,294,859
-------------------------------------------------------------------------------
Other assets 192,797 178,728
-------------------------------------------------------------------------------
$ 5,630,196 $ 5,415,470
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
2
PART I, FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DCX, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
June 30 September 30
1995 1994
(Unaudited) (Audited)
----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Notes payable $ 1,273,050 $ 1,360,448
Accounts payable 487,532 271,383
Accounts payable - terminated contracts 332,167 342,167
Accrued expenses 264,434 62,465
Accrued litigation settlement 150,000 150,000
----------------------------------------------------------------------------------------------------
Total current liabilities 2,507,183 2,186,463
LONG-TERM DEBT, less current maturities 33,711 1,721
----------------------------------------------------------------------------------------------------
Total liabilities 2,540,894 2,188,184
----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, no shares issued or outstanding
Common stock, no par value, 2,000,000,000 shares
authorized; shares issued and outstanding,
4,115,631 and 3,453,569 at June 30, 1995 and
1994, respectively 4,765,540 4,538,131
Additional paid-in capital 329,384 329,384
Subscriptions receivable (204,000) (197,000)
Accumulated deficit (1,801,622) (1,443,229)
----------------------------------------------------------------------------------------------------
Total stockholders' equity 3,089,302 3,227,286
----------------------------------------------------------------------------------------------------
$ 5,630,196 $ 5,415,470
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
3
PART I, FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DCX, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended Three months ended
June 30 June 30
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------------------------
NET SALES $ 1,611,647 $ 903,281 $ 690,634 $ 304,978
COST OF SALES 956,699 686,386 426,633 213,935
-----------------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 654,948 216,895 264,001 91,043
-----------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 987,008 523,347 301,959 187,866
-----------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (332,060) (306,452) ( 37,958) ( 96,823)
OTHER INCOME (EXPENSE):
Interest expense ( 35,251) ( 36,044) ( 8,333) ( 11,984)
Investment income 10,830 11,898 3,679 4,847
Other expense ( 1,913) ( 96) ( 830) 0
-----------------------------------------------------------------------------------------------------------------------------------
Net loss $(358,394) $(330,694) $ ( 43,442) $(103,960)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (.09) $ (.10) $ (.01) $ (.03)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 3,875,615 3,237,806 3,919,712 3,254,184
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
4
PART I, FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DCX, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine-Month Periods Ended June 30, 1995 1994
-------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss $ (358,394) $ (330,694)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 46,308 34,063
Increase in accounts receivable (38,370) (128,186)
Decrease in contract claims 0 432,216
Increase in inventory (220,860) (170,675)
(Increase) decrease in prepaid expenses 100,848 (133,366)
(Increase) in other assets (164,069) (10,000)
Increase in accounts payable 206,149 62,331
Decrease in accounts payable - terminated
contracts 0 (98,685)
(Decrease) increase in other liabilities 351,970 (14,404)
-------------------------------------------------------------------------------
Net cash used in operating activities (76,418) (357,400)
-------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisition of property and equipment (84,332) (125,001)
-------------------------------------------------------------------------------
Net cash used in investing activities (84,332) (125,001)
-------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on notes payable 0 (300,510)
Payments on long-term debt, net (89,273) (78,720)
Payments on capital leases (9,135) (1,646)
Stock subscriptions paid/issuance of common stock 220,409 150,000
-------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 122,001 (230,876)
-------------------------------------------------------------------------------
NET DECREASE IN CASH (38,749) (713,277)
-------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, beginning of period $ 201,561 $1,001,062
-------------------------------------------------------------------------------
CASH AND CASH EQIVALENTS, end of period $ 162,812 $ 287,785
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
5
DCX, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by DCX, INC. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. DCX, INC. believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's consolidated financial position as of June 30,
1995, the consolidated results of its operations for the three- and nine-month
periods ended June 30, 1994, and 1995 and statements of cash flows for the nine-
month periods then ended.
The accounting policies followed by the Company are set forth in the annual
report of September 30, 1994, filed on Form 10-K, and the audited consolidated
financial statements therein with the accompanying notes thereto. While
management believes the procedures followed in preparing these consolidated
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by DCX, INC. later in the year.
During April, 1994, the Company formed a subsidiary corporation, GeoStars,
International, Inc. which in turn subsequently formed two subsidiary operating
corporations to provide products and services in the geographic information
services (GIS) arena. Accordingly, these quarterly consolidated financial
statements represent the consolidated results of operations while the prior year
financial statements represent, primarily, only the results of DCX, Inc.'s
custom manufacturing operations. All intercompany balances and transactions have
been eliminated in the consolidation of current year results.
The consolidated results of operations for the three- and nine-month periods
ended June 30, 1995, are not necessarily indicative of the results to be
expected for the full year ending September 30, 1995.
(2) ACCOUNTS RECEIVABLE
Accounts receivable contain amounts computed under the cost-to-cost method to
determine percentage of completion as described in the Form 10-K for September
30, 1994. A portion of the total amount of receivables represents unrecovered
costs and estimated profits subject to future negotiation and represented by
certain portions of a settlement proposal and related claim asserted against the
Department of Defense for contracts terminated by the Government (See Note 10 to
the financial statements accompanying the Form 10-K and Note 4, below). Such
receivables amounted to $2,100,838 at June 30, 1995 and $2,062,550 at September
30, 1994 as compared to $2,318,731 at June 30, 1994.
(3) PROVISION FOR INCOME TAXES
At the beginning of the fiscal year the Company had net operating loss
carryforwards of $1,306,000 with expirations through 2004. At June 30, 1995, the
amount of the net operating loss carryforward balance is estimated at
$1,664,394. The Company expects to incur a minimal amount of alternative minimum
tax for the fiscal year.
6
Since the Company is unable to determine that deferred tax assets exceeding tax
liabilities are more likely than not to be realized, it will record a valuation
allowance equal to the excess deferred tax assets at fiscal year end.
(4) TERMINATED CONTRACTS
As a result of the favorable decision on May 22, 1992, by the Armed Services
Board of Contract Appeals (ASBCA) concerning two longstanding terminated
government contracts, the Company has received in fiscal years 1993 through
1995, in response to its settlement proposals, a number of partial payments
totaling approximately $3.5 million as reimbursement for certain costs incurred;
an additional partial payment has also been authorized. The decision affirmed
the Company's assertions during the July 1990 hearing that two Defense Logistics
Agency contracts (valued originally at $5.7 million in revenues) were terminated
improperly for default rather than for the convenience of the Government.
Because of the decision, the Company is entitled, under Federal Acquisition
Regulations, to reimbursement for costs incurred in the production build-up on
these contracts and for certain other costs incurred which are related to the
termination and litigation of these contracts. Settlement proposals amounting to
$5.3 million (and now exceeding $6.0 million) were initially submitted to the
Termination Contracting Officer (TCO) in the fourth quarter of fiscal year 1992
followed by several revisions for additionally accrued costs. The TCO
subsequently authorized the partial payments noted above. The Company received a
request from the TCO to commence final negotiations which it has begun.
A third contract with DLA required the Company to design, develop test and
manufacture light sets to a specified schedule. Testing of the lights was
subcontracted and conducted in an off site test facility. Failures of testing
equipment and scheduling delays resulting from a higher priority Government
contract caused the Company to miss the contractually required date for an
environmental test report by three days. Federal regulations require a delivery
date extension equal to the Government caused delay. The contract was terminated
for default by the Government in July, 1988. The Company asserted in July 1991
hearings the termination for default was erroneous and that the termination be
characterized as for the convenience of the Government. The Company received a
decision from the ASBCA holding for the Government. The Company has reviewed the
decision, trial testimony and evidence and other facts with the contract
attorney for the litigation and filed an appeal before the U.S. Court of Appeals
for the Federal Circuit. If the Company prevails in its appeal, it will submit a
settlement proposal in excess of $1.5 million; were it not to prevail it could
record a loss of approximately $521,000. Neither of these possible results is
recorded in the financial statements as the ultimate outcome cannot be
determined at present.
See also the more detailed explanation of terminated contracts in Note 10 to the
Consolidated Financial Statements for September 30, 1994, as filed on Form 10-K.
(5) EMPLOYEE BENEFIT PLAN
On March 21, 1995, the Company's board of directors approved and established the
DCX 1995 Stock Incentive Plan (the "Plan") in which 750,000 of the Company's no
par value common stock are reserved for possible issuance under the Plan.
Eligible participants in the Plan are non-director officers, employees and
consultants and/or agents of the Company. A total of 534,540 stock options have
been granted under the Plan at prices ranging from $0.71875 to $0.75 per share.
Effective April 18, 1995, the Company registered the underlying shares
authorized in the Plan with the Securities and Exchange Commission on Form S-8.
Subsequent to March 31, 1995, options for 250,000 shares were exercised at a
price of $0.75 per share.
(6) LEASE OBLIGATIONS
During the quarter the Company entered into two operating leases for the use of
certain computer hardware (three years) and software (one year) related to a new
management information system in
7
support of manufacturing resource planning and shop floor control for its
manufacturing processes. As a result, the Company has the following future
rental payments:
Hardware Software
-------- --------
FY 1995 $ 8,883 $21,456
FY 1996 30,195 -0-
FY 1997 24,996 -0-
FY 1998 6,249 -0-
------- -------
Total Minimum Payments $70,323 $21,456
------- -------
------- -------
Each lease provides for optional renewal periods at reduced rates subsequent to
the required rental periods for which amounts are shown, above. There are no
other restrictions imposed by the lease agreements.
8
PART I, ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION:
LIQUIDITY.
Unrestricted cash and marketable securities decreased $47,926 to $162,812 from
$201,561 at September 30, 1994, reflecting the Company's close cash management
capabilities. The decrease ensued from cash used in operations, $73,582; by
investing activities, $84,332; and for debt reduction payments on financing
instruments, $98,400. A portion of this was offset by $220,409 received in
payment of stock subscriptions.
Final negotiations related to the balance of the $6.0 million of settlement
proposals have recently begun (See Note Four to the Financial Statements).
Although the Company received an unfavorable decision on the third contract,
because of certain facts it has appealed the decision to the U.S. Court of
Appeals for the Federal Circuit. In the event it is successful in this action it
will submit a settlement proposal in excess of $1.5 million; should it not
prevail it could record a loss of up to $521,000. Most of the loss amount
results from reclassification of certain accounts. In view of the successful
litigation on the first two contracts for which the Company is still entitled to
receive over $2.0 million of additional damages, a loss on the third contract is
not expected to have a material effect. (See Note Four to the Financial
Statements, above)
The Company presently has working capital of $1,538,834 as compared to
$1,910,195 at June 30, 1994, and to $1,755,420 at the beginning of the fiscal
year. The primary causes for the decrease in working capital from September 30,
1994, were the use of cash, $76,418 for operating activities, inventory build
up to support new contracts, and the acquisition of equipment for $84,332. The
primary causes for the decrease from a year ago are the repayment of long term
debt principal and interest of $689,983 related to the terminated contracts, a
reduction in terminated contract payables of $335,076 and the Company's
operating losses during that period, a portion of which is offset by the
decrease of $217,893 in terminated contract receivables.
The Company's current ratio, the ratio of total current assets to total current
liabilities, decreased to 1.61:1 as compared to 1.78:1 a year ago and to 1.80:1
at September 30, 1994.
CAPITAL RESOURCES.
Until fiscal year 1993 the Company's primary source of liquidity historically
consisted of cash flow from operations. During fiscal years 1993 through 1995
the Company received reimbursements of exceeding $3.5 million from the two
successfully litigated terminated contracts in the form of a number of partial
payments for the uncontested portions of the settlement proposals. Based upon a
request for final negotiations from the termination contracting officer, the
Company has commenced final negotiation of remaining amounts of the settlement
proposal. While there is no guarantee as to the total amount of reimbursement
which will be received, the Company believes it will retain significant amounts
of working capital after all payables related to the litigation are liquidated.
The Company's long-term liquidity requirements may be significant in order to
continue to implement its business plan, establish and build its subsidiary GIS
operations effectively, and to pursue additional acquisitions. The Company has
taken numerous actions to increase its exposure to the investment banking
community. Accordingly, were the Company to require additional capital, it
believes it could secure such financing itself, or through its subsidiary,
either through the placement of equity or debt, of which there can be no
assurances.
The Company is also attempting to refinance its real property mortgage and
plans, as a by product of this action, to secure additional working capital of
approximately $400,000. The present holder of
9
the mortgage has executed a modifification extending it to October, 1995, in
support of these efforts. Further, in light of the approaching final negotiation
of the terminated contract settlement with the Defense Logistics Agency coupled
with mortgage refinancing the Company believes that it will be able to meet the
working capital needs of its current operations during the current fiscal year.
The Small Business Administration (SBA) holds and administers a line of credit
note with a principal balance of $617,855 which the SBA extended to June 3,
1996.
RESULTS OF OPERATIONS:
The following discussions of results of operations for the nine-month period
ended June 30, 1995, include DCX, Inc. and the consolidated statements for the
GIS subsidiaries. The financial statements for the period ended June, 1994, are
primarily the results of operations of the parent Company (DCX, Inc.), and its
manufacturing operations, only, as the first subsidiary was initially formed in
April, 1994. The new GIS subsidiaries have not yet resulted in significant
revenue.
NINE MONTHS OF FISCAL YEAR 1995.
During the nine months of fiscal year 1995 net sales increased by $708,366, or
78 percent, over the same period of the prior year. Cost of sales was $956,699,
or 59 percent of sales, and resulted in a gross profit of $654,948, or 41
percent of sales which compares favorably to gross profit of 24 percent of sales
for the same period of the prior year. The increase in gross profit is
attributable to the increased volume of production during the current period.
Sales have increased during the current fiscal year as a result of restructuring
in the defense industry causing prime contractors to outsource more work.
General and Administrative expenses of $987,008 for the current period reflect
the effects of funding the development stage subsidiaries. While G & A expenses
have increased $463,661 over the same period of the prior year, approximately
$480,033 of G & A expenses resulted from financial support developing the
subsidiaries. After factoring out this amount, G & A expenses related to
manufacturing operations would amount to $506,975 or a decrease of three percent
from the prior year. Interest expense has decreased slightly, as has investment
income from the prior year.
Sales have increased during the current nine-month period as compared to the
same period of the prior year; however, the Company experienced a net loss of
$358,394, or nine cents per share. Of this amount, approximately $464,881, or
about 12 cents per share, is from activities related to the GIS subsidiaries;
manufacturing activities generated net income of $100,033, or about three cents
per share from activities comparable to those in same period of the prior year
where a net loss of 10 cents per share was experienced.
NINE MONTHS OF FISCAL YEAR 1994.
During the nine-month period of fiscal year 1994 net sales had increased by
$287,412, or 47 percent, over the same period a year prior. While still well
below historical levels, the Company believed the increase coupled with recent
contract awards from key customers suggested that funding incertitudes which had
been adversely impacting customer delivery schedules and requirements had
passed. The Company further believed that in response to the contractions in
defense spending more large prime contractors would continue to downsize their
manufacturing operations to reduce overhead and reduce their cost of sales by
offloading additional work to contract manufacturers such as DCX, Inc.
During the previous fiscal year (1993), the Company's primary customer incurred
DOD directed work stoppages which were passed through. Most of the stoppages
experienced by the Company were being resolved through production reinstatement
or substitute orders. However, a consequence of the limited level of sales for
this part of fiscal year 1994 was the operating result reporting a net loss of
$330,694, or ten cents per share; of this amount, $50,082 resulted from GeoNova,
the new subsidiary.
10
This reflected an improvement from a loss of $548,039 or 17 cents per share, for
the same period, a year before.
Cost of sales returned, as expected, to a normal percent of sales levels as
production levels increased. Operating expenses declined as general and
administrative expenses decreased from the prior year's total in response to
less cost of preparing bids and proposals, a reduction in research and
development expenditures, and decreases in interest expense resulting from the
refinancing of the mortgage note to a lower interest rate.
CONTRACT BACKLOG
The Company's manufacturing operation has active funded contracts and awarded
work amounting to $5.4 million as compared to an approximate $5.1 million
backlog with $4.4 million of uncompleted work of which $2.5 million was unfunded
a year prior. The current backlog contains approximately $4.2 million of
uncompleted work of which approximately $.5 million is unfunded. Deliveries on
funded orders are scheduled over the next 42 months. The Company is aggressively
bidding opportunities with defense customers and sends its technical staff to
meet personally with program managers in order to more competitively meet their
requirements. The Company is confident that during the ensuing year these
projects will result in additional orders. In addition, the Company continues to
be invited to bid on more projects with new and existing customers.
In the GIS arena, the Company's GeoNova subsidiaries have identified a number of
opportunities to bid on and have done so. GeoNova entered into a letter of
intent during the current fiscal with Westinghouse Landmark GIS, Inc. to jointly
pursue GIS contract opportunities worldwide.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 2, 1995, the annual meeting of shareholders was held at 2:00 p.m. in the
Company's executive offices. At that meeting a quorum (81.22 percent of
outstanding votable shares were represented) of the shareholders elected the
following board of directors, each of whom was reelected to the board from the
preceding year. No other matters came before the meeting for a vote. The
11
results of that election were:
For Withhold
--------- --------
John G. Anderson 2,817,101 515,856
Jeanne M. Anderson 2,816,193 516,764
Frederick G. Beisser 2,910,071 422,886
Wayne A. Wilson 2,909,269 423,688
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K.
The Company filed Form 8-K, dated April 13, 1995, announcing the record date of
April 26, 1995, for shareholders eligible to vote at the annual meeting on June
2, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D C X , I N C .
Dated: August 14, 1995
/s/ Fred Beisser
--------------------------------------------
Frederick G. Beisser
Chief Financial Officer, Secretary & Treasurer
12