-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DYZRWmMsjRToEJdy+xflnzLKJP4rUlK7zgQ6a+cPJ/eihKeWxeBGNtao/dhnBjPh rviZTrK8ptt7axbUKr2T+Q== 0000312066-99-000003.txt : 19990416 0000312066-99-000003.hdr.sgml : 19990416 ACCESSION NUMBER: 0000312066-99-000003 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENCOR ENERGY COST CONTROLS INC CENTRAL INDEX KEY: 0000312066 STANDARD INDUSTRIAL CLASSIFICATION: AUTO CONTROLS FOR REGULATING RESIDENTIAL & COMML ENVIRONMENT [3822] IRS NUMBER: 840658020 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-09255 FILM NUMBER: 99593997 BUSINESS ADDRESS: STREET 1: 1450 WEST EVANS CITY: DENVER STATE: CO ZIP: 80223 BUSINESS PHONE: 3039221888 MAIL ADDRESS: STREET 1: 1450 W EVANS STREET 2: 1450 W EVANS CITY: DENVER STATE: CO ZIP: 80223 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB 1(Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1998 or [ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission file number 0-9255 Dencor Energy Cost Controls, Inc. (Exact name of registrant as specified in its charter) Colorado 84-0658020 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1450 West Evans, Denver, Colorado 80223 (Address Of Principal Executive Offices) (Zip Code) Issuer's telephone number, including area code: (303) 922-1888 Securities registered pursuant to Section 12 (b) of the Act: None None (Title of Each Class) (Name of each exchange on which registered) Securities registered pursuant to Section 12 (g) of the Act: Common Stock No Par Value (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or an amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $326,600 As of February 28, 1999 there were 4,803,804 common shares outstanding and the aggregate market value of the common shares (based upon the average of the bid price ($0.03) and the asked price ($0.06) reported by brokers) held by non-affiliates was approximately $127,800. Transitional Small Business Disclosure Format (check one): Yes ; No X PART I ITEM 1. Business (a) General Development of Business. Dencor Energy Cost Controls, Inc. (the "Company") was incorporated on January 16, 1974, under the laws of the State of Colorado for the purpose of developing, manufacturing, and marketing electronic devices. Currently the Company's primary activity is the manufacture and sale of electrical demand controllers which manage electricity consumed in residences and commercial establishments and energy control devices used by utilities to modify residential energy use patterns. The Company has its headquarters, production facilities, and research and development laboratories in Denver, Colorado. (b) Business of Issuer. The Company is engaged in only one industry, that of designing, developing, manufacturing, marketing, and installing products and systems which assist in monitoring energy and controlling the cost of energy utilization. Management of the Company does not recognize any significant business difference, at least at this time, between sales of residential demand controllers, special relay equipment for utilities, temperature activated duty cyclers, commercial demand controllers, and interlocks. (1) Principal Products Produced and Services Rendered (i) Energy Management Systems - Residential The Company's primary business is the assembly and sale of control systems which reduce electrical energy costs. Its principal product is the electrical demand controller that enables a homeowner having an electric heating system or a central air conditioning system to control the peak use of electricity. This enables the homeowner to achieve cost savings in geographic locations served by electric utilities that include a demand factor in their residential billing rates. Demand rates are used by electric utilities to encourage consumers to reduce their peak usage of electricity. A demand controller monitors the total power consumption and turns off selected loads, typically heating circuits, during peak consumption periods, restoring them at the end of that period. The controller automatically keeps the consumption within the level selected. The principal markets for residential demand control systems are in regions served by utilities with a demand rate for residential customers. The residential demand controller is designed for homes heated electrically by baseboard heaters, radiant heaters, heat pumps, electric boilers and electric furnaces, and may also be used to control air conditioners. The sale of residential demand control systems contributed 64% of total Company sales during 1998. (ii) Energy Management Systems - Commercial The Company has developed demand controllers for commercial buildings. One model of the commercial systems includes a graphics system to interface commercial demand controllers to IBM compatible computers. These controllers are designed to permit demand monitoring and controller parameter changes from a remote location by use of telephone lines and a modem. This graphics system can display minute-by-minute demand data as well as 15-minute, daily summaries. All data is also stored in an Access database on computer disk for later inspection. The sale of commercial demand control systems contributed 33% of total Company sales during 1998. (iii) Special Utility Products The Company has developed a series of products used to control water heaters, space heaters, and air conditioners for specific utility applications. Sales of these products accounted for 3% of total Company sales in 1998. The Company anticipates a gradual growth in this portion of the business. (2) Distribution Methods of Products The Company's demand control systems are currently being marketed through traditional electrical distribution channels. They are being sold to electrical distributors who, in turn, market and distribute these systems to electrical contractors who provide installation services to the builder or to the consumer. The Company also sells to dealers who specialize in selling energy products to customers and also utilizes manufacturer's representatives to promote the distribution of its products. The Company also sells to organizations that have lease/purchase plans with customers. This enables the customer to realize cost savings which usually approximate or exceed the lease payments. (3) Status of any Publicly Announced New Products or Services During 1998 the Company began the development of equipment to monitor and report power outages. This equipment is expected to be in production by the second quarter of 1999. (4) Competitive Conditions Competition is intense in the energy management control system market. The Company competes directly with several relatively small electronic companies in its residential controller market, and with the major manufacturers of electrical controls for its commercial demand controllers. Several companies manufacture systems which are similar in concept to the Company's demand controllers. Many of the companies with which the Company competes and will be competing in both the residential and commercial market have substantially greater financial and technical capabilities. Products of these companies often compete directly with those being offered by the Company and with those currently in development. The Company strives to produce high quality products which may be priced slightly higher than the competition. (5) Sources and Availability of Raw Materials The Company has approximately 16 suppliers for its components. Its semi-conductor components are made by a variety of primary semi-conductor manufacturers. The Company also has components made to order from several local and national vendors. It is believed that adequate sources are available and the Company has had no significant difficulty in obtaining components. The Company believes other alternate sources are available if required. The principal suppliers are: Circle AW, Deltrol, and Star Circuits. Its suppliers' productive capacities are believed to be sufficient to meet any rapid delivery requirements of customers or to any continuous allotment of goods. (6) Major Customers During 1998, four major customers accounted for 51% of the Company's net sales. These customers are not affiliated with the Company. The loss of any of these customers may adversely affect the Company's business. As of February 28, 1999, the Company had a backlog of orders totaling $17,400 consisting of equipment orders from distributors and utilities. The Company anticipates filling these orders during the current year. The backlog of orders as of February 28, 1998 was $28,500. (7) Patents Most of the Company's demand control systems are not protected by any patents. While management believes that patent protection may be desirable in some instances, it does not consider such protection essential to the ultimate success of the Company. A patent was issued April 4, 1989 for a Variable-Limit Demand Controller for Metering Electrical Energy. In 1991 the Company entered into a non-exclusive licensing agreement with an unrelated third party for use of the Company's patent. A patent was issued October 7, 1997 for an Adaptive Load Cycler for Controlled Reduction of Energy Use. (8) Government Approval There is no requirement for government approval of principal products or services. The Company has no government contracts. (9) Government Regulations There is no known material effect from known or probable government regulations. (10) Research and Development In the fiscal years ended December 31, 1998 and 1997 the Company expended $81,200 and $92,900, respectively, on Company sponsored research and development activities. The Company plans to continue research and development activities during 1999. (11) Environmental Protection The Company's compliance with federal, state, and local laws and regulations relating to the discharge of material into the environment or otherwise relating to the protection of the environment does not have a material impact on the Company's capital expenditures. (12) Employees On February 28, 1999, the Company had 5 full-time employees. Two were engaged in administration, two in production, and one in engineering research and development. ITEM 2. Properties The Company leases 5,100 sq. ft. of office, research and development, sales, and manufacturing space at 1450 West Evans, Denver, Colorado for $2,853/month. Management considers these facilities to be adequate for its requirements for the immediate future. This lease expires in April 1999. See Note 7 of the Notes to Financial Statements for additional information about the Company's commitments under terms of non-cancelable leases. ITEM 3. Legal Proceedings The Company is not a party to any legal proceedings other than ordinary routine litigation incidental to its business, nor, to the best of its knowledge, are any such proceedings threatened or contemplated. ITEM 4. Submission of Matters to a Vote of Security Holders No matter was submitted during the fourth quarter. PART II ITEM 5. Market for the Registrant's Common Stock and Related Security Holder Matters (a) The principal market on which the Company's common stock is traded is the Over-the-Counter market. The table below presents the high and low bid price for the Company's common stock each quarter during the past two years and reflects inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions. The Company obtained the following information from brokers who make a market in the Company's securities. Bid Bid Quarter Ended Low High Quarter Ended Low High 03/31/98 $.03 $.05 03/31/97 $.01 $.06 06/30/98 .05 .06 06/30/97 .01 .06 09/30/98 .03 .06 09/30/97 .01 .06 12/31/98 .03 .06 12/31/97 .01 .06 (b) Holders. The approximate number of holders of record of the Registrant's Common Stock as of February 28, 1999 was 340. (c) The Registrant has paid no dividends from inception to date and does not currently intend to do so. ITEM 6.Management's Discussion and Analysis (a) Selected Financial Data Year Ended December 31 1998 1997 1996 1995 1994 Net Sales $318,200 $437,700 $388,700 $567,900 $547,300 Net Earnings (Loss) (153,100) (74,200) (74.400) 11,300 (42,800) Net Earnings (Loss) Per Common Share (.03) (.02) (.02) * (.01) Weighted Average Common Shares Outstanding 4,296,674 3,671,304 3,671,304 3,671,304 3,671,304 * Less than $.01 per share AT YEAR END Total Assets $172,500 $201,700 $217,400 $275,800 $248,700 Working Capital (Deficiency) (222,900) (102,600) (16,700) 50,600 32,900 Shareholders' Equity (Deficit)(210,300) (85,500) (11,300) 63,100 51,800 No dividends have been declared or paid for any of the periods presented. (b) Liquidity and Capital Resources The independent auditors' report on the Company's financial statements for the year ended December 31, 1998, included a "going concern" explanatory paragraph, which means that the auditors have expressed substantial doubt about the Company's ability to continue as a going concern. Management plans in regard to the factors which prompted the explanatory paragraph are discussed in Note 2 to the Company's December 31, 1998 financial statements. The Company considers, and currently uses for internal management purposes, a number of measures of liquidity. These measures include the Current Ratio which is the ratio of current assets to current liabilities and the Sales to Total Assets Ratio. Working capital is current assets less current liabilities. 1998 1997 1996 Current Ratio .44 .64 .93 Sales to Total Assets 1.72 2.17 1.79 The major factors affecting these ratios were the net losses for 1998, 1997 and 1996. The Company has made extensive use of short-term debt as summarized in the following table: Maximum Average Weighted Weighted amount amount average Balance at average outstanding outstanding interest end of interest during the during the rate during Notes Payable period rate period period period Shareholders $118,300 18.3% $118,300 $109,000 18.3% Others 5,000 18.0% 5,000 14 18.0% The weighted average interest rate during the period was based on the outstanding balance and interest rate at each month-end for each note. The Company anticipates continuing short term borrowing in 1999. The Company currently has no line of credit. If working capital beyond that provided by cash flow is needed, additional debt financing will be sought. If traditional debt financing is not available, the Company will attempt to raise working capital by private borrowing including stockholder loans, or sales of stock through private placements although no assurances can be given that financing will be available. The Company at present has no long-term debt. On January 1, 1998, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income. This standard establishes requirements for disclosure of comprehensive income which includes certain items previously not included in the statements of operations, including minimum pension liability adjustments and foreign currency translation adjustments, among others. During the year ended December 31, 1998, and 1997, the Company had no items of comprehensive income. In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and in February 1998, the FASB issued SFAS No. 132, Employer's Disclosure about Pensions and Other Post Retirement Benefits. Both of these statements require disclosure only and therefore will not impact the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instru- ments and Hedging Activities. This statement is effective for fiscal years beginning after June 15, 1999. Currently, the Company does not have any deri- vative financial instruments and does not participate in hedging activities. Therefore, management believes that SFAS No. 133 will not have an impact on its financial statements. YEAR 2000 The Company will make its accounting system year 2000 compliant by June 30, 1999. The Company has determined its products are year 2000 compliant and that there are no year 2000 issues in its production processes. The Company is surveying its vendors for year 2000 compliance. Also, several potential suppliers have been identified for each part purchased. The company will be dependent on the power, communication, transportation and water infra- structures. (c) Results of Operations The Company's sales in 1998 of $318,200 were 27% lower than the net sales of $437,700 in 1997. Approximately 12% of the sales decrease was due to utility sales decreases. A decrease in dealer sales also resulted in 9% of the sales decrease. The net loss for 1998 was $153,100 compared to net loss of $74,200 in the prior year. Gross Margins. The gross margin percentages were 43% and 47%, of sales for 1998 and 1997, respectively. The decrease in the gross margin was due to decreased production efficiency caused by decreased sales volume. Selling Expenses. Selling expenses as a percentage of sales increased to 6.4% in 1998 compared to 6.0% in 1997. General and Administrative Expense. General and administrative expenses as a percentage of sales have increased to 49.1% in 1998 compared to 32.4% in 1997. The increase was due to an increase in rent, business taxes and fees as well as an increase in percentage of time spent on general and administrative effort. Research and Development. Research and development expenses decreased 12.6% in 1998 compared to 1997 due to a decrease in software development activity. Inflation. Inflation has no significant impact on the operations of the Company. Management's Plans. The Company's 1999 operating plan includes achieving increased sales goals and continuing its cost reduction program. Management believes that actions presently being taken to revise the Company's operating and financial requirements will enable the Company to meet its cash flow needs during 1999. ITEM 7. Financial Statements INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Dencor Energy Cost Controls, Inc. Denver, Colorado We have audited the accompanying balance sheet of Dencor Energy Cost Controls, Inc. (the "Company") as of December 31, 1998, and the related statements of operations, shareholders' deficit and cash flows for each of the years in the two-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dencor Energy Cost Controls, Inc. as of December 31, 1998, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company reported a $153,100 net loss for the year ended December 31, 1998, and a shareholders' deficit and a working capital deficiency of $210,300 and $222,900, respectively, as of December 31, 1998. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. GELFOND HOCHSTADT PANGBURN & CO. Denver, Colorado February 12, 1999 DENCOR ENERGY COST CONTROLS, INC. BALANCE SHEET DECEMBER 31, 1998 ASSETS Current assets: Cash $ 8,300 Accounts receivable, net of allowance for doubtful accounts of $18,700 (Note 9) 20,000 Inventories (Note 4) 138,100 Prepaids and other 6,100 Total current assets 172,500 Furniture and equipment 213,300 Less accumulated depreciation 213,300 Long-term receivables, net of allowance for doubtful receivables of $11,400 (Note 3) 12,600 $ 185,100 LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Notes payable - shareholders (Note 5) $ 118,300 Notes Payable - other 5,000 Accounts payable 36,500 Accrued compensation and benefits 133,700 Accrued interest and other - shareholders (Note 5) 97,900 Warranty reserve 3,200 Other 800 Total liabilities (all current) 395,400 Commitments (Note 7) Shareholders' deficit (Note 8): Common stock, no par value; authorized, 5,000,000 shares; issued and outstanding, 4,803,804 shares 1,175,900 Accumulated deficit (1,386,200) (210,300) $ 185,100 See notes to financial statements. DENCOR ENERGY COST CONTROLS, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,1998 AND 1997 1998 1997 Revenues: Net sales $ 318,200 $ 437,700 Interest and other 8,400 6,800 326,600 444,500 Costs and expenses: Cost of products sold 179,900 231,300 Selling 20,400 26,300 General and administrative 156,300 141,900 Research and development 81,200 92,900 Provision for doubtful receivables 16,100 5,300 Interest, substantially to related parties (Note 5) 25,800 21,000 479,700 518,700 Net loss $ (153,100) $ (74,200) Loss per common share $ (.03) $ (.02) Weighted average common shares outstanding 4,296,674 3,671,304 See notes to financial statements. DENCOR ENERGY COST CONTROLS, INC. STATEMENTS OF SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31,1998 AND 1997 Common Stock Accumulated Shareholders' Shares Amount deficit equity (deficit) Balances, January 1, 1997 3,671,304 $1,147,600 ($1,158,900) ($11,300) Net loss (74,200) (74,200) Balances, December 31, 1997 3,671,304 1,147,600 (1,233,100) (85,500) Issuance of common stock in exchange for debt 1,000,000 25,000 25,000 Issuance of common stock in private placement 132,500 3,300 3,300 Net loss (153,100) (153,100) Balances, December 31, 1998 4,803,804 $1,175,900 $(1,386,200) $ (210,300) See notes to financial statements. DENCOR ENERGY COST CONTROLS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,1998 AND 1997 1998 1997 Cash flows from operating activities: Net loss $ (153,100) $ (74,200) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,000 Provision for doubtful receivables 16,100 5,300 Changes in operating assets and liabilities: Accounts receivable (13,600) 39,800 Inventories 11,600 (6,100) Prepaids and other 2,200 Long term receivables 2,500 (20,800) Accounts payable (15,000) 18,200 Accrued compensation and benefits 97,100 6,000 Accrued interest and other - shareholders 25,700 18,600 Deposits (9,900) Other liabilities (4,400) 500 Total adjustments 120,000 55,800 Net cash used in operating activities (33,100) (18,400) Cash flows from financing activities: Proceeds from notes payable - shareholders 30,800 25,100 Proceeds from notes payable - others 5,000 23,000 Principle payments on notes payable - shareholders (6,000) (23,000) Proceeds from private placement of common stock 3,300 Net cash provided by financing activities 33,100 25,100 Net increase in cash 6,700 Cash, beginning 8,300 1,600 Cash, ending $ 8,300 $ 8,300 Supplemental disclosure of cash flow information: Issuance of 1,000,000 shares of common stock in settlement of $25,000 of notes payable-shareholders Cash paid during the year for interest $ 300 $ 500 See notes to financial statements. DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31,1998 AND 1997 1. Organization and significant accounting policies: Organization: Dencor Energy Cost Controls, Inc. (the "Company") manufactures and markets electrical energy cost control devices and equipment which are sold primarily to distributors and dealers in the United States and Canada. There is only one business segment. Inventories: Inventories are stated at the lower of cost (first-in, first-out; FIFO) or market. Furniture, equipment, and depreciation: Furniture and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets of three to five years. Research and development: Research and development costs are charged to operations as incurred. Product warranties: Estimated costs related to product warranties are provided for at the time of sale. Earnings (loss) per share: Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted loss per share reflects the potential dilution that could occur if securities other than contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company had no potential common stock instruments which would result in diluted loss per share in 1998 and 1997. DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31,1998 AND 1997 1. Organization and significant accounting policies (continued): Accounting for income taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. Use of estimates in the preparation of financial statements: 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 assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Recently issued accounting standards: On January 1, 1998, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. This standard establishes requirements for disclosure of comprehensive income which includes certain items previously not included in the statements of operations, including minimum pension liability adjustments and foreign currency translation adjustments, among others. During the year ended December 31, 1998, the Company had no items of comprehensive income. In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and in February 1998, the FASB issued SFAS No. 132, Employers Disclosure about Pensions and Other Post Retirement Benefits. Both of these statements require disclosure only and therefore will not impact the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for fiscal years beginning after June 15, 1999. Currently, the Company does not have any derivative financial instruments and does not participate in hedging activities. Therefore, management believes that SFAS No. 133 will not have an impact on its financial statements. DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31,1998 AND 1997 2. Going concern, results of operations, and management's plans: The Company's financial statements for the year ended December 31, 1998 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. For the year ended December 31, 1998, the Company reported a $153,100 net loss and a shareholders' deficit and a working capital deficiency of $210,300 and $222,900, respectively, at December 31, 1998. The Company has also experienced difficulty and uncertainty in meeting its liquidity needs. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's 1999 operating plan includes achieving increased sales goals and maintaining its cost reduction program, which primarily includes a reduction in labor costs. Management believes that actions presently being taken under its 1999 operating plan will enable the Company to meet its cash needs in 1999. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 3. Long-term receivables: Long-term receivables consist of a $6,000 promissory note and other receivables due on demand from a customer. The promissory note bears interest at 18% and is unsecured. 4. Inventories: Inventories at December 31, 1998 consist of: Finished products $ 10,400 Work in progress - sub-assemblies 26,500 Raw materials - component parts 101,200 $ 138,100 The elements of cost in inventories include materials, labor and overhead. 5. Notes payable - shareholders and other: The notes payable to shareholders and other are due on demand, and bear interest at 12% to 18.25% per year. Notes payable to shareholders and other of $25,000 are collaterized by the Company's inventory. The remaining notes payable shareholders are unsecured. The weighted average interest rates during the years ended December 31, 1998 and 1997 were approximately 18.3% and 18.1%, respectively. Interest expense of approxi- mately $25,500 and $20,500 associated with these notes payable was charged to operations for the years ended December 31, 1998, and 1997, respectively. DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31,1998 AND 1997 6. Income taxes: The components of the deferred tax assets as of December 31, 1998, were as follows: Current deferred tax assets: Receivables, due to allowance for doubtful accounts $ 6,000 Inventories, due to obsolescence reserve and additional costs inventoried for tax purposes 21,900 Compensated absences 5,800 Warranty reserve 600 Total current gross deferred tax assets 34,300 Less valuation allowance (34,300) Net current deferred tax assets $ - Noncurrent deferred tax assets: Net operating loss carryforwards $ 174,900 Other tax credits carryforwards 39,700 Total noncurrent gross deferred tax assets 214,600 Less valuation allowance (214,600) Net noncurrent deferred tax assets $ - The net increase during the year in the total valuation allowance was $10,700. The difference between taxes computed at the statutory federal tax rate and the effective tax rate is reconciled below: Years ended December 31, 1998 1997 Income tax benefit computed at statutory federal tax rate $ 33,300 $ 13,600 Deferred tax benefit not recognized (33,300) (13,600) Income tax benefit computed at the effective tax rate $ - $ - DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31,1998 AND 1997 6. Income taxes (continued) At December 31, 1998, the Company had net operating loss and general business credit carryforwards which may be used to reduce future taxable income and taxes payable, respectively, and which expire through 2018 as follows: Net General operating business loss credit carryforwards carryforwards 1999 $ 91,200 $ 300 2000 2001 2002 151,900 Thereafter 546,300 39,700 $789,400 $ 39,700 7. Commitments: The Company leases its facility and certain equipment under non-cancelable operating leases that expire in 1999. Future rentals at December 31, 1998, on the non-cancelable operating leases for its facility and equip- ment are approximately $12,700. Lease rental expense of approximately $41,400 and $40,900 were charged to operations for the years ended December 31, 1998 and 1997, respectively. 8. Common stock: At December 31, 1998, the Company has reserved 196,000 shares of common stock for issuance under a restricted stock bonus plan. All employees and directors of the Company, with the exception of the President, are eligible to receive stock bonuses under this plan. There have been no shares issued under this plan. During 1998, the Company issued 1,000,000 shares of common stock in exchange for $25,000 of shareholder notes payable, and the Company issued 132,500 shares of common stock in private placements. 9. Concentration of credit risk: The Company extends credit based on an evaluation of each customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. During 1998, four customers accounted for approximately 18%, 12%, 11% and 10% of net sales. During 1997, three customers accounted for approxi- mately 17%, 15% and 12% of net sales. As of December 31, 1998, all of the Company's long-term receivables were due from a single customer. DENCOR ENERGY COST CONTROLS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31,1998 AND 1997 10. Fair value of financial instruments: The carrying values of the Company's financial instruments, including cash, accounts receivables, accounts payable and accrued liabilities, approximate fair values primarily because of the short maturities of these instruments. The fair values of net long-term receivables approximate their carrying values as a result of the valuation allowance applied to these receivables. The fair values of notes due to shareholders are not practicable to estimate, due to the indefinite payment terms of the amounts, and due to the related party nature of the underlying transactions. ITEM 8. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure None PART III ITEM 9. Directors and Executive Officers of the Registrant (a) Identification of Directors The following information, as of February 28, 1999, is furnished with respect to each Director: Year First Elected as Name of Director Age Director Position with Company Theodore A. Hedman 60 1988 Director, Vice President, Secretary, Manager of Engineering Edmund Barbour 75 1997 Director, Treasurer Maynard L. Moe 64 1974 Chairman of Board and President All Directors serve for one-year terms which expire at the annual shareholders meeting in 1999. For the period ended December 31, 1998, all corporate officers were also directors. (b) Identification of Executive Officers Position Name of Officer Age (Date Elected To Position) Theodore A. Hedman 60 Director, Vice President, Secretary, Manager of Engineering (March 24, 1988) Edmund Barbour 75 Treasurer (July 15, 1997); Director Maynard L. Moe 64 Chairman of the Board & President (January 16, 1974); Director All officers serve at the pleasure of the Board. There are no family relationships among the officers or directors listed, and there are no arrangements or understandings pursuant to which any of them were elected as officers. Dr. Moe has served as President for the Registrant since 1974. Mr. Hedman has been Manager of Engineering for Dencor since 1979. Since 1987 Edmund Barbour has been an economics consultant. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or executive officer during the past 5 years. Section 16(a) Beneficial Ownership Reporting Compliance Based on information furnished to Registrant, no officer, director, or ten percent shareholder failed to file on a timely basis reports on Forms 3, 4, or 5 during the most recent two fiscal years. ITEM 10. Executive Compensation Summary Compensation Table The following table sets forth in summary form the compensation received during each of the Company's last three completed fiscal years by the Chief Executive Officer and President of the Company. No executive officer of the Company, including the Chief Executive Officer and President, received total salary and bonus exceeding $100,000 during any of the last three fiscal years. Summary Compensation Table Annual Compensation Long Term Compensation All Other Restricted Other Name and Annual Stock LTIP Compen- Principal Fiscal Salary Bonus Compensation Awards Options Payouts sation Position Year ($) ($) ($) # ($) (4) (1) (2) (3) (4) (5) (6) (7) Maynard Moe 1998 $69,700 -0- -0- -0- -0- -0- -0- Chief Execu- tive Officer, 1997 68,600 -0- -0- -0- -0- -0- -0- President and a Director 1996 54,672 -0- -0- -0- -0- -0- -0- (1) The dollar value of base salary (cash and non-cash) received. (2) The dollar value of bonus (cash and non-cash) received. (3) During the periods covered by the Summary Compensation Table, the Company did not pay any other annual compensation not properly categorized as salary or bonus, including perquisites and other personal benefits, securities or property. (4) During the periods covered by the Summary Compensation Table, the Company did not make any award of restricted stock. (5) The Company has had no stock option plans. (6) The Company has a Restricted Stock Bonus Plan, the purpose of which is to attract and retain qualified personnel for responsible positions. The Company has remaining 196,000 shares of the Company's authorized but unissued common stock as of December 31, 1998, to be awarded as stock bonuses to employees, not including Dr. Moe. Stock bonuses may be awarded, as an incentive to contribute to the success of the Company, at the discretion of a stock bonus committee, consisting of not less than two directors, from a list of recommendations submitted periodically by the President. The plan may be amended, modified, suspended or withdrawn at any time by the Board of Directors. There were no shares awarded during the periods covered by the Summary Compensation Table. (7) No other compensation (8) Compensation Pursuant to Plans Dr. Moe, for the year 1999, will receive an annual salary of $69,700 payable in substantially equal monthly installments. Dr. Moe will also receive additional compensation equal to two percent of the Company's first $100,000 pre-tax net profits, plus four percent of pre-tax profits from $100,000 to $200,000 plus six percent of the pre-tax profits in excess of $200,000. Compensation of Directors The Company pays its non-employee director $100 per Directors' Meeting attended. It is anticipated that no more than twelve meetings will occur each year. Employment Contracts and Termination of Employment and Change-In Control Arrangements The Company does not have any written employment contracts with respect to any of its executive officers. The Company has no compensatory plan or arrangement that results or will result from the resignation, retirement, or any other termination of an executive officer's employment with the Company or from a change-in-control of the Company or a change in an executive officer's responsibilities following a change-in-control. ITEM 11. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners All persons known by the Registrant to own beneficially more than 5% of any class of the Company's outstanding stock on February 28, 1999, are listed below: Percent Name & Address of Amount and Nature of of Title of Class Beneficial Owners Beneficial Ownership Class (w) Common Stock Maynard L. Moe 1,203,650 (x) 25.1 No Par Value 2309 South Jackson Denver, CO 80210 Theodore A. Hedman 648,300 (y) 13.5 5445 South Camargo Road Littleton, CO 80123 (w) On February 28, 1999, there were 4,803,804 shares of common stock issued and outstanding. (x) Includes 409,650 shares owned of record by Carol M. Moe, wife of Maynard L. Moe. (y) Includes 35,800 shares owned of record by Charlotte Hedman, wife of Theodore A. Hedman. (b) Security Ownership of Management The following table sets forth the number of shares owned beneficially on February 28, 1999, by each Director and by all Officers and Directors as a group. Information as to the beneficial ownership is based upon statements furnished to the Company by such persons. Percent Name & Address of Amount and Nature of of Title of Class Beneficial Owners Beneficial Ownership Class (w) Common Stock Maynard L. Moe 1,203,650 (x) 25.1 2309 South Jackson Denver, CO 80210 Theodore A. Hedman 648,300 (y) 13.5 5445 South Camargo Road Littleton, CO 80123 Edmund Barbour 110,000 2.3 2765 S. Golden Way Denver, CO 80227 Executive Officers 1,961,950 40.8 and Directors as a group (w) On February 28, 1999, there were 4,803,804 shares of common stock issued and outstanding. (x) Includes 409,650 shares owned of record by Carol M. Moe, wife of Maynard L. Moe. (y) Includes 35,800 shares owned of record by Charlotte Hedman, wife of Theodore A. Hedman. (c) Changes in Control The Company knows of no contractual arrangements which may at a subsequent date result in a change of control of the Company. ITEM 12. Certain Relationships and Related Transactions (a) Transactions with Management and Others None involving more than $60,000. (b) Parents of Small Business Issuer None. (c) Transactions with Promoters None. ITEM 13. Exhibits and Reports on Form 8-K (a) Financial Statements 1. The following financial statements of Dencor Energy Cost Controls are included in Part II, Item 7: Page Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 9 Balance Sheet - December 31, 1998 . . . . . . . . . . . . . . . . . . .10 Statements of Operations - years ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . .11 Statements of Shareholders' Deficit - years ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . .12 Statements of Cash Flows - years ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . .13 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . .15 2. Exhibits 3. Articles of Incorporation and By-Laws are incorporated by reference to Exhibit No. 1 of Form 10 filed May 5, 1980. 27. Financial Data Schedule (b) Reports On Form 8-K There were no reports on Form 8-K for the three months ended December 31, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Dencor Energy Cost Controls, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DENCOR ENERGY COST CONTROLS, INC. by: MAYNARD L. MOE President Date: March 24, 1999 In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: April 13, 1999 THEODORE A. HEDMAN Date Secretary/Director/Vice President April 13, 1999 EDMUND BARBOUR Date Treasurer/Director April 13, 1999 MAYNARD L. MOE Date Director/Principal Executive Officer EX-27 2 ART.5 FDS FOR 10-KSB FOR YEAR 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1998 DEC-31-1998 8,300 0 32,600 30,100 138,100 172,500 213,300 213,300 185,100 395,400 0 1,175,900 0 0 0 185,100 318,200 326,600 179,900 479,700 0 16,100 25,800 (153,100) 0 0 0 0 0 (153,100) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----