SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED: MARCH 31, 1999 COMMISSION FILE NO. 0-4076 --------------- ------ EXOTECH INCORPORATED (Exact name of Registrant as Specified in Charter) STATE OR JURISDICTION OF INCORPORATION OR ORGANIZATION: DELAWARE IRS IDENTIFICATION NO: 54-0700888 ADDRESS OF PRINCIPAL OFFICE: 8502 DAKOTA DRIVE GAITHERSBURG, MD. 20877 REGISTRANT'S TELEPHONE NUMBER: (301) 948-3060 INDICATE BY CHECKMARK 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 REQUIREMENT FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT. CLASS: COMMON STOCK, PAR VALUE $0.10 OUTSTANDING AT MARCH 31, 1999 942,387 ------- EXOTECH INCORPORATED INDEX PART I FINANCIAL INFORMATION PAGE NO. CONSOLIDATED CONDENSED BALANCE SHEET March 31, 1999 AND JUNE 30, 1998.............................. 2 CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 1999 AND 1998........................................ 3 STATEMENT OF CASH FLOWS FOR NINE MONTHS ENDED MARCH 31, 1999 AND 1998........................... 4 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS........................................... 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS.................................................. 6 PART II OTHER INFORMATION OTHER FINANCIAL INFORMATION.................................... 8 SIGNATURES..................................................... 9 FINANCIAL DATA SCHEDULES (EX-27).............................. 10 EXOTECH INCORPORATED CONSOLIDATED BALANCE SHEET ASSETS MARCH 31, JUNE 30, 1999 1998 ---------- -------- (Unaudited) CURRENT ASSETS Accts. Receivable, Net $ 44,744 $ 33,912 Inventories Work in Process 372,371 287,437 Raw Materials 32,625 32,625 Finished Goods 14,000 14,000 Cash and Other Current Assets 17,734 7,057 Fixed Price Contracts in Progress 598,000 -- Less: Progress Payments Received (217,700) -- -------- -------- Total Current Assets $861,775 $375,031 PROPERTY, PLANT AND EQUIPMENT, NET 90 176 OTHER NON CURRENT ASSETS 11,017 10,156 -------- -------- TOTAL ASSETS $872,882 $385,363 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accts. Payable & Other Accrued Expenses $ 67,349 $87,022 Other Current Liabilities 619,153 397,531 Notes Payable 400,275 411,775 ---------- -------- Total Current Liabilities $1,086,777 $896,328 DEFERRED REVENUE (LONG-TERM) 295,800 -- SHAREHOLDERS EQUITY Common Stock, Par Value $.10 per share; 1,500,000 shares authorized; 970,135 issued; 942,387 outstanding 97,014 97,014 Paid-in-Surplus 1,169,645 1,169,645 Deficit (1,663,934) (1,665,204) Treasury Stock (27,748 shares) (112,420) (112,420) ---------- ---------- Total Shareholders' Equity (509,695) (510,965) TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $872,882 $385,363 ======== ======== See accompanying Notes to Consolidated Condensed Financial Statements. 2 EXOTECH INCORPORATED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS 1999 1998 ----------------------------- --------------------------- 3 Mos. 9 Mos. 3 Mos. 9 Mos. ----------- ENDED ----------- ----------- ENDED --------- 3/31 3/31 3/31 3/31 REVENUE Contract Sales $243,350 $567,678 $132,178 $327,189 EXPENSES Direct Labor 754 1,071 3,216 8,954 Overhead 3,123 8,003 4,895 15,615 Materials -- -- 2,230 2,874 Other Direct Costs -- -- -- -- Travel -- -- -- 650 General & Administrative 177 604 722 3,170 Inventory Costs 224,114 527,729 100,889 258,034 -------- -------- -------- -------- Cost of Contract Services 228,168 537,407 112,602 289,297 Operating Income (Loss) 15,182 30,271 19,576 37,892 Miscellaneous Income 132 390 -- -- Research and Development -- -- -- -- Interest & Other (8,393) (29,390) (9,487) (29,631) -------- -------- -------- -------- NET INCOME BEFORE TAXES 6,921 1,271 10,089 8,261 State Income Tax Provision -- -- -- -- -------- -------- -------- -------- NET INCOME (LOSS) 6,921 1,271 10,089 8,261 Weighted Average Number of Common Shares Outstanding 942,387 942,387 942,387 942,387 EARNINGS (LOSS) PER COMMON SHARE 0.01 0.00 0.01 0.01 DIVIDENDS PER COMMON SHARE None None None None See accompanying Notes to Consolidated Condensed Financial Statements. These statements have been prepared from the books of account without audit. 3 EXOTECH INCORPORATED AND SUBSIDIARY STATEMENT OF CASH FLOWS FOR NINE MONTHS ENDED MARCH 31, 1999 1998 ------ ------ CASH FLOWS FROM OPERATING TRANSACTIONS Net Income (Loss) 1,271 8,261 Add: Non cash Income Determinants Depreciation and Amortization 782 784 Add (Deduct): Changes in Current Assets & Liabilities (Increase) Decrease in Accounts Receivable (10,832) (33) (Increase) Decrease in Prepaid Expenses (1,514) (343) (Increase) Decrease in Inventory (84,934) (62,035) Increase (Decrease) in Accts. Payable (19,675) (11,660) Increase (Decrease) in Payroll/Emp. Benefits (14,864) (4,818) Increase (Decrease) in Accrued Interest 24,586 24,586 Increase (decrease) in Progress Payments 127,400 -- ------- ------ Cash Provided By or (Used For) Operating Transactions 22,220 (45,258) ----------- -------- CASH FLOWS FROM FINANCING TRANSACTIONS: Proceeds from Notes 16,000 66,789 Payments on Notes (27,500) (23,864) ------- ------ Cash Provided By or (Used For) Financing Transactions (11,500) 42,925 ----------- -------- CASH FLOWS FROM INVESTING TRANSACTIONS: Purchase of Equipment -- -- Deposits (1,557) -- ------- ------ Cash Provided By or (Used For) Investing Transactions (1,557) -- ----------- -------- INCREASE (DECREASE) IN CASH 9,163 (2,333) - --------------------------- CASH BALANCE - BEGINNING 6,442 3,431 ------- ------ CASH BALANCE - ENDING $15,605 $1,098 ======= ====== 4 EXOTECH INCORPORATED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE 1. In the opinion of Management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 1999 and June 30, 1998 and the results of operations and changes in financial position for the nine months ended March 31, 1999 and 1998 of Exotech Incorporated and its inactive wholly-owned consolidated subsidiary, Exotech Research & Analysis, Inc. There are no significant intercompany transactions. NOTE 2. Per share computations have been based on the weighted average shares outstanding of 942,387 for the nine months ended March 31, 1999 and 1998. NOTE 3. Notes Payable at March 31, 1999 consist of four demand notes of $100,000, $8,000 and $47,000, payable with interest at 8.5% per annum to three of the Company's former directors. In addition, one demand note of $245,275 is payable with interest at 8.5% per annum to one officer/employee. Periodically, the Company has obtained producer loans from Spiral Biotech, Inc. that are secured by inventory instruments (Autoplaters). At March 31, 1999, there was no outstanding Producer Loan. NOTE 4. Inventory cost shown in the cost of sales, represents the cost of production of goods sold that were incurred in the prior fiscal year. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS The following is Management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated condensed statement of operations. A summary of the period to period changes in the principal items included in the consolidated statement of operations is shown below: ------------------------------------- COMPARISON OF -------------------------------------- THREE MONTHS THREE MONTHS NINE MONTHS -------------------- --------------------- -------------------- Mar 31 Dec 31 Mar 31 Mar 31 Mar 31 Mar 31 1999 1998 1999 1998 1999 1998 Net Sales 243,350 224,398 243,350 132,178 567,678 327,189 Cost of Labor & Overhead 3,877 2,329 3,877 8,111 9,074 24,589 G&A Expense 177 29 177 722 604 3,170 Inventory Cost 224,114 216,676 224,114 100,889 527,729 258,034 --------- --------- --------- --------- --------- --------- Cost of Sales 228,168 219,034 228,168 112,602 537,407 289,297 Interest & Other 8,393 10,760 8,393 9,487 29,390 29,631 6 I. CHANGE IN FINANCIAL POSITION IN THE NINE MONTHS ENDED MARCH 31, 1999. In the nine months period ended March 31, 1999, a reduction of the working capital deficit of $296,297 resulted from a contract obtained in October 1998 for Autoplate instruments and related technical support. The initial fixed price contract has a value of $598,000 with performance and deliveries scheduled over a 15 month period. The initial scheduling of performance under the contract indicates that about $295,800 will be revenue in the following fiscal year, beginning 1 July, 1999. The contract was negotiated to provide progress payments for an accelerated production schedule. In addition to revenue from sales, this contract has provided $127,400 as progress payment for work-in-progress. The Company's principal customer in recent years was acquired by Advanced Instruments, Inc. of Norwood, Massachusetts in October 1998, giving rise to the substantial improvement in sales and backlog. The expenses of adding and training two technicians to accommodate increased production rates resulted in a net loss of $5,396 at the end of the second quarter and a net profit of $1,271 at the end of nine months. Non-fund charges in the period were $782. All loans acquired from Spiral Biotech Inc. in this and prior periods were paid in full. II. INCOME AND EXPENSE IN THE MOST RECENT QUARTER AND NINE MONTH PERIOD AND THE SAME QUARTER AND NINE MONTHS PERIOD LAST YEAR. Revenue for the quarter ended March 31, 1999, was higher by $111,172 compared to the same period in 1998. Operating income for the period was $30,271 compared to $19,576 in the prior year. In the opinion of Management, the most recent quarter results show a new opportunity for progress toward profitable operations and recovery from the large losses incurred in prior years. Revenue was markedly higher, there is a large backlog. Although the cost of establishing an increased production rate resulted in lower net profit, it is not expected to impact subsequent quarters. For the nine months period ended March 31, 1999, revenue of $567,678 was higher by about 74 percent compared to the same period in 1998. On the same basis of comparison, the cost of sales was higher by about 86 percent, resulting in a net profit of $1,271 compared to an net profit of $8,261 in the prior year. These changes reflect the fluctuations between quarterly periods that are cyclical according to the phase of the manufacturing process occurring in a particular quarter. The cycle is dependent on the time of receipt of an order for a lot of instruments. In the first quarter of the current fiscal year, production of a new lot of thirty Autoplate instruments was begun, requiring substantial effort and expenditures prior to the delivery and invoicing for the products which began at the start of the second quarter. In the last month of that quarter, a new production run on these instruments was started in response to a contract for one hundred units. In the prior year, deliveries of the instruments were ongoing throughout the period, with a startup of only new lot of twenty-six units. 7 PART II. OTHER FINANCIAL INFORMATION ITEM 5. As in the past, a shortage of working capital continues to be a significant problem, limiting efforts to develop new business to the fullest extent possible, as well as causing occasional delays of 30 to 45 days in payments to suppliers of materials for manufacturing. In the most recent nine months period, the accounts payable more than 30 days old was reduced by about 87 percent, from $57,300 to $7,500. Management also is continuing to pursue opportunities to affiliate with other companies to increase marketing and sales of its products and develop new products from Exotech's proprietary technology. In the opinion of Management, the Company should be in a position to sustain operations at least until such time as the results of current contracts and negotiations for new business is determinable. Ultimate realization of the carrying value of prepaid expenses and advances, property and equipment, and miscellaneous other assets shown in the accompanying balance sheet depend on the effect of the matters discussed herein. The dollar amount of the backlog as of March 31, 1999 was $495,400, higher by $326,500 compared to that of the prior year, and $124,600 lower than the backlog at December 31, 1998. Management has continued its study of potential risks associated with the anticipated problems for some data processing systems (hardware and software) at the turn of the century. To date, no risks of this kind have been identified that could adversely impact the Company's operations or administration. ITEM 6 (B) There were no reports filed on Form 8-K for the nine months ended March 31, 1999. 8 SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. EXOTECH INCORPORATED REGISTRANT DATE: May 13, 1999 ________________ ____________________________________ ROBERT G. LYLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER 9