-----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, BNEJXtB20iAN+Dlcp0KBVTAS5CF2xSy7sHguB3c4fixd+tRLHGa6m7KrTOUBS0RC QwvBgkzMqooNIHKNJTu4NA== 0000950169-97-000857.txt : 19970930 0000950169-97-000857.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950169-97-000857 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXOTECH INC CENTRAL INDEX KEY: 0000034047 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 540700888 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04076 FILM NUMBER: 97687132 BUSINESS ADDRESS: STREET 1: 8502 DAKOTA DR CITY: GAITHERSBURG STATE: MD ZIP: 20877 BUSINESS PHONE: 3019483060 MAIL ADDRESS: STREET 1: 8502 DAKOTA DR CITY: GAITHERSBURG STATE: MD ZIP: 20877 FORMER COMPANY: FORMER CONFORMED NAME: RADIATION SYSTEMS INC DATE OF NAME CHANGE: 19681121 10-K 1 EXOTECH INCORPORATED SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED: JUNE 30, 1997 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 SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE EXCHANGE ACT NONE ---- SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT COMMON STOCK PAR VALUE $0.10 PER SHARE. 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 [ ] At June 30, 1997, 942,387 shares of Common Stock were outstanding, and the aggregate market value of the Common Stock of Exotech Inc. held by nonaffiliates was approximately $65,560. DOCUMENTS INCORPORATED BY REFERENCE NONE PART I ITEM 1. GENERAL DESCRIPTION AND BUSINESS ACTIVITIES ------------------------------------------- A. GENERAL - There have been no changes in the organization of the Company during the past fiscal year. The Company has been neither a party to, nor contemplates, any actions of bankruptcy, receivership, or reorganization during the past or current fiscal years. No material assets were acquired, no acquisitions or dispositions are anticipated. The basic nature and conduct of the business is expected to continue as in the past. B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - In the opinion of Management, the Company has one industry segment: (1) electro-optics and electronic instrument systems and related services. 1. Electro-optics products - The Company's principal products are: (1) a laser bacteria colony counter used in food and drug processing and laboratory testing environments, (2) a printed circuit board (PCIB) which interfaces the laser-scanner instrument with many models of the personal computers, (3) a crystallographic scanner that evaluates the lattice structure orientation of semiconductor crystals on the basis of surface morphology measurements, (4) a hand-held four channel-ground truth radiometer used for earth resource studies in conjunction with the LANDSAT satellite and also independent studies, and (5) an automated spiral plater that precisely and rapidly dispenses microbial samples onto rotating agar plates used in laboratories performing bacterial enumeration work. These products are currently marketed world-wide. Spiral Biotech, Inc. is the exclusive representative of products 1, 2 and 5. These products and related service work have accounted for 86 percent of the Company's sales in the past year and about 93 percent in the prior two fiscal years. The others are sold directly by the Company. They are built for inventory in lots of 25 units, with two or more lots of the well established products generally being sold in about one year. It is intended that these products will be updated periodically to keep them abreast of new technological developments and will remain products of the Company. In December 1994 the Company accepted a contract from Spiral Biotech, Inc. to design an automated spiral plater (Autoplate) to replace the model that was being imported from Holland. In May 1995 a demonstration model of the instrument was delivered and subsequently the Company received an order for 22 production units. This production was completed in the first six months of fiscal year 1996. A modulation transfer function (MTF) tester, used for quality control in the manufacture of low light level image intensifier tubes, is not in regular production but would be manufactured to fill customers' orders. This instrument was initially produced for the U. S. Army and delivered during fiscal year 1979. The Company developed an adapter assembly for these test instruments that updates them to test the latest versions of image intensifier tubes. Over the past fifteen years the Company has provided support to the U. S. Army and its contractors in the form of repair maintenance and calibration services. The contracts for these services were fixed price. There were three contracts for these services in the past fiscal year and purchase orders for calibration services in the current fiscal year are expected from government contractors using five of the MTF tester systems. The Crystallographic Scanner, developed in fiscal year 1987, redesigned into a manufacturing model in fiscal year 1988, was put into production in 1989. The first unit was delivered to the customer in May 1989. In 1992, a system upgrade was designed and sold for this instrument. An active marketing effort through correspondence and personal contacts, as well as personal presentations, is continuing to 2 introduce this product to semiconductor crystal growers, processors and manufacturers. However, there have been no sales of this instrument over the past five years. The Company is currently engaged with the National Institute of Standards and Technology in a cooperative R&D agreement with the objective to calibrate the Exotech Scanner method with respect to the Bragg Angle method of determining crystal axis orientation. Validation of our instrument's capability vis-a-vis the X-ray methods will overcome a persistent impediment to sales of Exotech's Scanner to producers of semiconductor wafers. There are well-known potential customers that show continued interest in the scanner, but must be convinced of correlation with the traditional X-ray results. Some of the component parts for the products discussed above are fabricated to the Company's specifications and design. Other parts are standard electronic or optical components available off-the-shelf. The availability of these components is dependent upon several independent manufacturers and distributors. Delays due to strikes, material availability or scheduling problems could adversely affect the Company's assembly and delivery schedules. A few parts have only one source; however, the suppliers are proven, reliable businesses. The Company does not rely on foreign sources for raw materials, other than to the extent U. S. manufacturers acquire their supplies overseas. An energy crisis or fuel shortage would have no more of an adverse effect on the Company than on other firms requiring lighting, heat and modest amounts of electric power for offices and shops. Among its current electro-optical products the Company holds an exclusive license and foreign patent applications on the Crystallographic Scanner. There are little or no seasonal variations in the business, other than for radiometers which tend to attract greater interest during the spring and fall seasons. Working capital is a continuing problem for the Company. There is currently no working capital financing available through a financial institution, although producer loans made by Spiral Biotech, Inc. were used to finance colony counter production in the most recent and prior fiscal years. The limited availability of working capital results in occasional cash on delivery orders or delays in paying suppliers. All products are guaranteed as to parts and workmanship for a period of six months to one year. The only warranty work incurred in the past year was repair of a Model 200 Vacuum Source at nominal cost. The colony counter, Autoplate, crystallographic scanner and radiometer products are used principally in the scientific research and high technology manufacturing communities and therefore customers tend to be concentrated in these areas of activities. Sales in July and August 1997 amounted to $27,000, comprising an Autoplate, a radiometer and miscellaneous repair and calibration services. Backlog in this segment at June 30, 1997 was $200,000. Business performed for the Government is on a fixed-price basis and therefore not subject to renegotiation; however, the contracts could be terminated for non-delivery or failure to meet specifications. There are other manufacturers of the Company's products, most of them larger and with greater resources available to fund development and production. Competition is very keen for the available market. The Company strives to improve its existing products and produce highly reliable state- of-the-art instruments. 2. General Description of Business - Research and development by the Company in the past affected four products: (1) bacteria colony counters; (2) four channel radiometers, (3) data processors 3 for bacteria colony counters and, (4) Model 500 Crystallographic Scanners. In fiscal year 1992 , the Company, in collaboration with Spiral Biotech, Inc., engaged in development of computer controlled, stepper motor actuated automation for bacteria colony plating and counting instruments. The applications comprise coordinated precise motions on as many as four axes. The purpose of this work is to enhance the technological excellence and competitive edge of the next generation of the Company's products for the microbiological laboratory market. This work, completed in March, 1992, resulted in a colony counter with automated features, and a proof-of-concept and demonstration model of a new spiral plater instrument. Total expenditures for the spiral plater effort amounted to $63,000 of which $20,000 was funded by Spiral Biotech, Inc. The preliminary design of the new plating instrument was completed, and produced by Melvezi-Prolion, a development and manufacturing firm in Holland. Following the termination of importing of the instrument from Holland, the Company, early in 1995, designed a replacement instrument and, concurrent with development work, began production of 12 units on an order from Spiral Biotech, Inc. The order was increased to 22 units in November 1995, with the final unit of this lot shipped in February 1996. Follow-on orders for instruments resulted in shipments of 50 more units prior to June 30, 1997. In the biotechnology instruments business, autoplates, colony counters and related equipment sales accounted for 78% of the year's sales, 11% from radiometer sales, 2% from the MTF parts, calibration and maintenance; and 9% from miscellaneous sales and repair work. For the fiscal year ended June 30, 1997, as has been the case for prior years, the Company's independent auditors' report has included an explanatory paragraph, following the opinion paragraph, describing the existence of a going concern uncertainty. Management has been advised that the principal cause of the going concern uncertainty is cash flow shortage which has caused delays in meeting some current obligations. It is the opinion of Management that progress in resolving cash flow related problems, although elusive in the past several years, will be re-established in fiscal year 1997 provided that modest increases in instrument sales, and maintenance and repair work continue and that ongoing demonstrations and trial applications of the Crystallographic Scanner result in sales of this product. Strengthening of revenues and stringent controls of costs are necessary to enable profits from operations to remedy cash flow problems. The capital expenditures, earnings and competitive position have not been affected by compliance with Federal, State or local regulations enacted to control the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company and its subsidiary employ five persons; two are classified as professional and three as semi-professional. The Company did not conduct operations in foreign countries. ITEM 2. PROPERTIES The Company, and its wholly-owned subsidiary, Exotech Research & Analysis, Inc. have been in their present facilities at 8502 Dakota Drive, Gaithersburg, Maryland 20877 since November, 1987. The premises consist of approximately 4,500 square feet of office space and laboratory facilities. In November 1995, the Company entered into a three year lease extension with McShea Management, Inc. of Gaithersburg, Maryland for the presently occupied facility. 4 ITEM 3. LEGAL PROCEEDINGS Neither the company nor its subsidiary are parties to any material pending legal proceedings nor is any of their property the subject of any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the past fiscal year. 5 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. a. Price range of Common Stock --------------------------- The following table shows the Bid and Ask prices for the Common Stock in the over-the-counter market for the fiscal years and calendar quarters indicated, as obtained upon request from stockbrokers in the Washington area. The quotations represent prices in the over-the counter market between dealers in securities, do not include retail mark-up, mark-down or commission, and do not necessarily represent actual transactions. (Transaction data was insufficient to obtain an average for 1996 and 1997.) -------------BID AND ASK PRICES-------------- 1997 1996 ---- ---- FIRST QUARTER Bid, Nominal / Ask, 1/8 Bid, Nominal / Ask, 1/4 SECOND QUARTER Bid, Nominal / Ask, 1/8 Bid, Nominal / Ask, 1/4 THIRD QUARTER Bid, Nominal / Ask, 1/8 Bid, Nominal / Ask, 1/4 FOURTH QUARTER Bid, Nominal / Ask, 1/8 Bid, Nominal / Ask, 1/4 b. Approximate number of Equity Security Holders. ---------------------------------------------- TITLE OF CLASS: Common Stock APPROXIMATE NUMBER OF SHAREHOLDERS (As of September 27, 1997:) 620 --- c. Dividends. ---------- No dividends were declared or paid during the most recent or any prior fiscal year. 6 ITEM 6. SELECTED FINANCIAL DATA Selected Income Statement Data:
---------------------------------- FISCAL YEAR --------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net Sales $443,176 $367,259 $370,102 $437,330 $435,813 Income (Loss) before Taxes & Extraordinary Credit (265,432) (152,584) (68,130) (35,448) (23,854) Net Income (Loss) $(265,432) $(152,584) $(68,130) $(35,448) $(23,854) Per Share: Net Income (Loss) (.28) (.16) (.07) (.04) (.03)
Selected Balance Sheet Data:
---------------------------------- FISCAL YEAR ----------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Current Assets $329,315 $563,209 $587,808 $643,836 $597,081 Current Liabilities 856,445 825,952 699,068 688,834 611,775 Working Capital (527,130) (262,743) (111,260) (44,998) (14,694) Total Assets 335,602 570,541 596,241 654,136 612,525 Stockholders' Equity and Accumulated Deficit $(520,843) $(255,411) $(102,827) $(34,698) 750
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS. The Company's revenues of $443,176 were 21% higher than in fiscal year 1996, and 20% higher than in fiscal year 1995. The declines in earlier years related in part to organizational and personnel disruptions in the Company's principal customer and marketing agent for biotechnology instruments, Spiral Biotech, Inc., and the sub-par quality of an imported automated plater instrument, sold as a part of a system including Exotech products. The Company's new product has replaced this instrument. Sales of instruments, parts, repairs and calibration services in the past three years are shown in the following table. Instrument sales have increased 90% over the period with the large increase in 1996 related to the introduction of the automated plater. Variations in MTF Tester services relate to the occasional repair work ordered in addition to the usual calibration services. The markedly higher sales of miscellaneous service in fiscal year 1995 resulted from repairs to the imported plater instrument mentioned above. 1997 1996 1995 -------- -------- ------ Biotechnology Instruments $347,445 $302,700 $189,865 Radiometer 47,015 -- 16,440 MTF Tester Service 9,590 17,350 9,050 Miscellaneous Parts and Service 39,126 47,209 154,747 The cost of operations, $670,728 including $281,117 of inventory write-off, resulted in an operating loss of $227,552 compared to a loss of $127,367 in fiscal year 1996 and a profit of $2,057 in 1995. The impact of interest costs resulted in a net loss of $265,432 compared to losses of $152,584 and $68,130 in 1996 and 1995, respectively. A net increase in demand notes of $13,000 needed to sustain operations caused an increase in interest expense to $37,880 compared to $29,817 in the prior year, and $26,822 in fiscal 1995. A charge of $129,000 was incurred in the past year for research and development to search out the combination of electronic and mechanical technology needed to design and develop a state-of-the-art instrument with strong sales potential in a highly competitive market. In the opinion of Management, that objective was achieved through intense effort to deliver two preproduction prototypes and 14 units of the new instrument in the second quarter of fiscal 1996. Production costs for the instrument have been steadily improved following that effort. A modest profit is projected for the current production lot. In the past year, orders for instruments and services by Spiral Biotech, Inc. were sustained at about the level of the prior year, bringing backlog to $200,000 at June 30, 1997, compared to $279,000 one year earlier and $81,000 at the end of fiscal year 1995. In the opinion of Management, recent improvements in the marketing of the biotechnology products will rejuvenate sales of the laser scanner instruments together with increasing sales of the new automated plater. Despite financial and staffing limitations that have impeded marketing of the Crystallographic Scanner instruments, management believes that the results of on-going collaborative studies and demonstrations of capabilities will improve the prospects of sales to the potential customers who continue to show interest in that instrument system. Furthermore, management is committed to explore the prospects for collaborative arrangements with several well established suppliers of manufacturing 8 equipment to the semiconductor producer industry as a means to generate increased exposure and sales potential for this product. However, substantive results were not achieved prior to June 30, 1997. In response to the recommendation of the independent accountant and the reviewing authorities of the Securities and Exchange Commission, this product and the Communications Network System products were deleted from inventory. This action resulted in a charge against income of $281,117. Over the past three fiscal years, as in prior years, the independent accountants' report has included an explanatory paragraph, following the opinion paragraph, describing the existence of a going concern uncertainty. The accountants have advised Management that the principal cause for the going concern uncertainty is cash flow shortages which have caused delays in meeting current obligations. In the opinion of Management, the recent years of seriously depressed markets for the Company's products caused substantial impediments to overcoming the qualification stated by the accountants. Continued stringent control of costs and cash outlays has enabled the Company to sustain high quality and timely upgrades of its products while nurturing improved results from marketing efforts in a very competitive environment. With a new product now experiencing a good level of acceptance in the market, and growth in the Company's backlog for its other biotechnology-related products, Management believes that increasing revenue will provide sufficient cash to support operations throughout fiscal year 1998. Additionally, the opportunity to build on the results of our current activity will be pursued to reactivate sales of the Crystallographic Scanner instruments and technology. As shown in the Statements Of Cash Flows for the three years ended June 30 of 1997, 1996 and 1995, each period ended with a small positive cash balance. The result of operating net losses in 1997 and 1996 caused negative cash flow from operating transactions of ($9,674) and ($60,428) respectively. Offsetting in these cases were net proceeds from notes of $13,000 in 1997 and $60,501 in 1996. In fiscal year 1995, $26,439 was provided by operating transactions. That amount was offset by a net pay down of notes of ($26,903) and purchase of equipment of ($587) causing a decrease in cash of ($1,051). The Company continues to meet its cash flow obligations, although at times delayed in some cases of trade payables and payroll, with receipts from sales and financing activities comprised of loans from the Company's President and from Spiral Biotech, Inc., its principal customer. The loans from Spiral Biotech are secured by ordered instruments in progress and range from 15 to 20 percent of the purchase order value for the total order. No loans are in default. The fluctuations in accounts payable relate to the amount of work-in-progress for products on order. It is noted that the Company's property, plant and equipment are nearly fully depreciated. However, all essential items of these assets are maintained in good repair and no replacements nor additions are anticipated in the next year or more. The Company's management and employees continue to be committed to reestablishing progress toward our goal of profitability. 9 Linton, Shafer & Company, P.A. Certified Public Accountants 6 West Second Street Frederick, MD 21701 301-663-5122 Principals: Edmond B. Gregory III, CPA, CBA Kevin R. Hessler, CPA Donald C. Linton, CPA, CFP Joseph M. McCathran, CPA Ronald W. Shafer, CPA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Exotech, Incorporated and Subsidiary We have audited the accompanying consolidated financial statements and related schedules of Exotech, Incorporated and Subsidiary included on pages 11 through 20 of the annual report on Form 10- K of Exotech, Incorporated and Subsidiary as of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and 1995. These financial statements and related schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and related schedules 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 and per share data and ratios 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 consolidated financial position of Exotech, Incorporated and Subsidiary as of June 30, 1997 and 1996 and the results of their operations and their cash flows for the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $265,432 during the year ended June 30, 1997. This fact, among others discussed in Note 1 to the financial statements, raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Linton, Shafer & Company, P.A. ---------------------------------- September 15, 1997 10 EXOTECH INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED JUNE 30 Reference is made to Note 1 of the Notes to the Consolidated Financial Statements for a description of operations of the Company and to Note 2 for a description of the principal accounting policies followed by the Company. 1997 1996 1995 ---- ---- ---- REVENUES - -------- Instrument Sales $394,460 $302,325 $213,845 Parts, Repairs and Services 48,716 64,934 156,257 -------- --------- --------- TOTAL SALES $443,176 $367,259 $370,102 COST OF OPERATIONS - ------------------ Direct Cost and Overhead Instrument Sales 319,705 287,536 180,600 Repairs, Parts and Service 30,548 56,162 137,366 R & D Costs -- 121,263 -- Inventory Adjustment 281,117 -- -- General and Administrative Instrument Sales 36,191 18,345 28,444 Repairs, Parts and Service 3,167 3,583 21,635 R & D Costs -- 7,737 -- -------- -------- ------- TOTAL COST OF OPERATIONS 670,728 494,626 368,045 -------- -------- ------- OPERATING PROFIT (LOSS) (227,552) (127,367) 2,057 - ----------------------- OTHER REVENUES (EXPENSES) - ------------------------- Miscellaneous -- 4,600 (43,365) Interest (37,880) (29,817) (26,822) -------- -------- -------- NET LOSS BEFORE TAXES (265,432) (152,584) (68,130) - --------------------- INCOME TAXES -- -- -- --------- ---------- -------- NET LOSS $(265,432) $(152,584) $(68,130) - -------- ========== ========== ========= Loss per Common Share (.28) (.16) (.07) Weighted average number of common shares outstanding 942,387 942,387 942,387 The accompanying notes are an integral part of these statements. 11 EXOTECH INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF JUNE 30 1997 1996 ---- ---- CURRENT ASSETS Cash $3,431 $105 Accounts Receivable (Note 2) Billed 18,225 11,073 Less: Allowance for Doubtful Account -- -- Inventories, at lower of average cost or market (Note 2) 307,659 551,687 Prepaid Expenses and Advances -- 344 ------- ------ TOTAL CURRENT ASSETS 329,315 563,209 PROPERTY, PLANT AND EQUIPMENT, at cost (Note 2) Laboratory Equipment 160,980 160,980 Office Furniture & Equipment 70,550 70,550 --------- ------ 231,530 231,530 Less accumulated depreciation and amortization (231,236) (231,119) --------- --------- Total Property, Plant and Equipment - Net 294 411 OTHER ASSETS Miscellaneous 5,993 6,921 ------ ----- TOTAL ASSETS $335,602 $570,541 --------- -------- The accompanying Notes are an integral part of these statements. 12 EXOTECH INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF JUNE 30 1997 1996 ---- ---- CURRENT LIABILITIES Notes Payable and Current Maturities of Long Term Debt (Note 5) $385,294 $372,294 Accounts Payable and Other Accrued Liabilities 99,369 105,664 Accrued Payroll and Employee Benefits 73,301 67,180 Accrued Officer Salary and Benefits 186,402 201,510 Accrued Interest 112,079 79,304 ------- ------ TOTAL CURRENT LIABILITIES 856,445 825,952 SHAREHOLDERS' DEFICIT Common Stock, par value $.10 per share; 1,500,000 shares authorized; 970,135 shares issued and outstanding 97,014 97,014 Paid in Surplus 1,169,645 1,169,645 Accumulated Deficit (1,675,082) (1,409,650) Treasury Stock 27,748 shares at cost (112,420) (112,420) --------- --------- TOTAL SHAREHOLDERS' DEFICIT (520,843) (255,411) --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $335,602 $570,541 ======== ======== The accompanying Notes are an integral part of these statements. 13 EXOTECH INCORPORATED AND SUBSIDIARY STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JUNE 30
INCREASE (DECREASE) IN CASH 1997 1996 1995 - --------------------------- ---- ---- ---- CASH FLOWS FROM OPERATING TRANSACTIONS - -------------------------------------- Net Loss: $(265,432) $(152,584) $(68,130) Add: Non Cash Income Determinants Depreciation & Amortization 1,045 1,101 2,454 Add (Deduct): Changes in Current Assets and Liabilities: (Increase) Decrease in Accounts Receivable (7,152) (141) 83,447 (Increase) Decrease in Prepaid Expenses & Advances 344 1,050 (572) (Increase) Decrease in Inventories 244,028 23,764 (27,899) Increase (Decrease) in Accounts Payable & Other Accrued Liabilities (6,295) 53,667 (4,484) Increase (Decrease) in Accrued Payroll & Related (8,987) 9,560 15,176 Increase (Decrease) in Accrued Interest 32,775 3,155 26,447 ------- ------ ------ Cash Provided By (or) Used In Operating Transactions $(9,674) $(60,428) $26,439 ----------- ------- -------- --------- ------- CASH FLOWS FROM FINANCING TRANSACTIONS: - --------------------------------------- Proceeds from Notes 43,000 87,500 4,000 Payment on Notes (30,000) (26,999) (30,903) -------- -------- -------- Cash Provided By (or) Used In Financing Transactions 13,000 60,501 (26,903) ----------- ------- ------- ------- -------- CASH FLOWS FROM INVESTING TRANSACTIONS: - --------------------------------------- Purchase of Equipment -- -- (587) -------- ------- ----- Cash Provided By (or) Used In Investing Transactions -- -- (587) ----------- ------- -------- ------- ----- INCREASE (DECREASE) IN CASH 3,326 73 (1,051) CASH BALANCE - BEGINNING 105 32 1,083 -------- ----- ----- CASH BALANCE - ENDING $3,431 $105 $32 =========== ===== === SUPPLEMENTAL INFORMATION - ------------------------ Interest Paid $37,880 $26,160 $3,740 Taxes -- -- --
The accompanying notes are an integral part of these statements. 14 EXOTECH INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT FOR THE THREE YEARS ENDED JUNE 30, 1997
COMMON STOCK TREASURY STOCK ($0.10) PAID-IN ACCUMULATED -------------- PAR VALUE SURPLUS (DEFICIT) SHARES COST ----------------- ------- --------- ------ ---- Balance, June 30, 1994 970,135 $97,014 $1,169,645 $(1,188,936) 27,748 $(112,420) Add (Deduct) - - - - - - Net Profit (Loss) - - - (68,130) - - ------- ------- ---------- ------------ ------ ---------- Balance, June 30, 1995 970,135 $97,014 $1,169,645 $(1,257,066) 27,748 $(112,420) Add (Deduct) - - - - - - Net Profit (Loss) - - - (152,584) - - ------- ------- ---------- ------------ ------ ---------- Balance June 30, 1996 970,135 $97,014 $1,169,645 $(1,409,650) 27,748 $(112,420) Add (Deduct) - - - - - - Net Profit (Loss) - - - (265,432) - - ------- ------- ---------- ------------ ------ ---------- Balance June 30, 1997 970,135 $97,014 $1,169,645 $(1,675,082) 27,748 $(112,420) ======= ======= ========== ============ ====== ==========
The accompanying notes are an integral part of these statements. 15 EXOTECH INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DISCUSSION OF OPERATIONS AND REALIZATION OF ASSETS For the fiscal year ended June 30, 1997, the Company had an operating loss of $227,552, reflecting a year-end write-off of $281,117 in manufacturing inventory. The Company had an operating loss of $127,367 in the prior fiscal year. At June 30, 1997, approximately $66,800 of accounts payable were more than 30 days old. The accompanying financial statements have been prepared on the "going concern" basis of generally accepted accounting principles. The ability of the Company to continue normal operations is dependent upon its ability to obtain the required amounts of working capital to finance the existing contracts, to continue the acquisition of additional contracts, and to pursue instrument sales at prices sufficient to recover costs and some profits. Management believes that improved revenues now being experienced with the Company's new product together with stringent control of costs and cash outlays will provide sufficient cash to support its operations throughout the coming fiscal year. Inventory of Crystallographic Scanners have experienced no sales activity since their development approximately five years ago. Efforts are ongoing to develop a marketing agreement with an established marketer of capital equipment to the crystal growers and processors, or alternatively to sell the products, design package, software, patents and licenses to larger manufacturers of instruments with a significant presence in the semiconductor processing equipment market. However, substantive results were not achieved prior to June 30, 1997. In response to the recommendation of the independent accountant and the reviewing authorities of the Securities and Exchange Commission, this product and the Communications Network System products were deleted from inventory. This action resulted in a charge against income of $281,117 representing all completed instrument hardware, data processing equipment and software programs and documentation, optical and electronic calibration procedures and fixturing for a variety of system applications. At June 30, 1997, the remaining value (backlog) of existing sales contracts were approximately $200,000. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business - ------------------ The Company is a manufacturer of Electro-optical instruments. It performs the research and development required for those products. Principle of Consolidation - -------------------------- The accompanying consolidated financial statements include the accounts of the Company and its subsidiary, after elimination of all significant intercompany transactions. Revenue Accounting - ------------------ The Company records revenue earned based on shipments of units of its products. Inventory - --------- Finished goods inventory is stated on the basis of the lower of average costs or market value. 16 Depreciation and Amortization - ----------------------------- The Company uses a straight-line method of depreciation and amortization for both tax and financial reporting purposes. The following time periods are used: DEPRECIATION: Laboratory equipment 5 or 8 years Office furniture and equipment 5 years AMORTIZATION: Leasehold improvements Life of lease Patents 12 years Depreciation expenses recorded in the consolidated statement of operations are as follows: 1995 - $2,454, 1996 - $1,101, and 1997 - $1,045, including amortization of patents at the rate of $928 in each year. The Company's limit for capitalization of property and equipment is $500 or more. Income Taxes - ------------ Provisions for income taxes are based on pre-tax income reported in the financial statements, using the guidance of Financial Accounting Standards Board Statement No. 109 (FAS #109) "Accounting for Income Taxes." Differences between income (loss) for financial reporting purposes and tax reporting arise from (a) the capitalization and amortization of research and development costs for income tax reporting purposes, but deducting these costs as expenses in the period incurred for financial statement purposes; and (b) timing differences in deducting net losses on contracts. There were no provisions for income taxes required in the three year period ended June 30, 1997 due to the operating losses for each of those years. At June 30, 1997, the Company had net operating loss carryforwards of $659,060 which begin to expire in 1998. The Company also has incurred research and experimental expenses of $129,000 in 1996, and $54,368 in prior years that have been capitalized to be amortized over a sixty month period for income tax purposes, but have been expensed in the period incurred for financial statement reporting. While the accounting standard allows companies to recognize a deferred tax asset on the tax effect of these timing differences, the Company has provided a valuation allowance for the full amount since it is more likely than not the deferred tax asset will not be realized. The approximate tax effect of the carryforward and temporary difference for the three years ended June 30 consist of: 1997 1996 1995 -------- -------- ------ Net operating loss carryforward $263,624 $148,543 $150,545 Deferred research and experimental expenses 36,120 48,174 5,204 Less: Valuation allowance (299,744) (196,717) (155,749) --------- --------- --------- Deferred Tax Asset - net - 0 - - 0 - - 0 - ========= ========= ======= Net increase in valuation allowance $(103,027) $(40,968) $(27,153) ========== ========= ========= 17 Following is a table reconciling the Company's accounting net loss for each of the last three years ended June 30. 1997 1996 1995 -------- -------- -------- Accounting Net Loss $265,432 $152,584 $68,130 Nondeductible expense (250) Research and experimental costs: Capitalized on tax return (129,000) - Tax amortization 30,135 21,574 8,674 -------- -------- -------- Taxable Net Loss $295,567 $ 45,158 $ 76,554 ======== ======== ======== Repairs and Betterments - ----------------------- Repairs are expensed as incurred. Betterments are capitalized and amortized over the remaining useful life of the assets. Accounts Receivable - ------------------- Accounts receivable consist of amounts billed from sales as of June 30, 1997 and 1996. There is no allowance for doubtful accounts as of June 30, 1997, as the Company considers accounts receivable to be fully collectible. Cash And Cash Equivalents - ------------------------- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Use of Estimates - ---------------- In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. (3) INVENTORY Inventories are summarized as follows: 1997 1996 ---- ---- Raw Materials $ 32,625 $32,625 Goods in Process 261,034 505,062 Finished Goods 14,000 14,000 -------- -------- $307,659 $551,687 (4) RESEARCH AND DEVELOPMENT COSTS The Company's accounting policy is to write off research and development costs as incurred. In the fiscal year 1996, $129,000 of R&D costs related to the new Autoplate 4000 product were incurred and written off. There were no R&D costs in the fiscal year 1997 nor in 1995. 18 (5) NOTES PAYABLE Notes payable at June 30, 1997, consist of three demand notes of $100,000, $8,000 and $47,000 with interest at 8.5% per annum to three of the Company's former directors. In addition, Notes amounting to $230,294 are 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 (bacteria colony counters) at a negotiated interest rate. 1997 1996 ---- ---- Average* aggregate amount outstanding during year $390,877 $352,712 Maximum amount outstanding during year 402,794 372,294 Average* interest rate on loans outstanding at end of year 8.50% 8.50% Average* interest rate incurred during the period 8.52% 8.50% *Average amounts outstanding during the year and related average interest rates were determined from the average of the month-end amounts outstanding. The average interest rate at each year-end was determined from the weighted average of amounts outstanding at that time. (6) COMMITMENTS AND CONTINGENCIES All operations of the Company and subsidiary were conducted in leased facilities. In March 1990, the Company entered into a lease agreement for a three-year period for the present facilities at 8502 Dakota Drive, Gaithersburg, MD. This lease was renegotiated and extended for three years expiring November 30, 1995 and was again extended for an additional three years effective December 1, 1995. The current lease expires November 30, 1998. Non-Financing 1999 1998 ------ ----- Building $13,220 $31,344 (7) EARNINGS PER SHARE Per share computations were based on the weighted average number of shares outstanding during the periods, excluding options because the market price and option price were the same. (8) SUPPLEMENTAL PROFIT AND LOSS INFORMATION Description 1997 1996 1995 ----------- ---- ---- ---- Taxes other than income: Payroll $ 7,796 $ 9,588 $14,487 Franchise, Personal Property and other Miscellaneous 1,168 1,137 2,681 Rents, including equipment rental 38,653 40,097 39,823 19 (9) DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No disagreements exist between management and its independent public accounting firm. (10) TRANSACTIONS WITH SHAREHOLDERS Sales to a company owned by a shareholder aggregated $381,130, $340,841, and $335,736, (about 86, 93 and 91 percent, respectively, of total sales) for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. Amounts due from such sales at June 30, 1997 and 1996 were $12,725 and $11,073, respectively. Sales were consummated on terms similar to those prevailing with unaffiliated customers. (11) VALUATION AND QUALIFYING ACCOUNTS The following is a schedule of Valuation and Qualifying Accounts:
Additions: Balance Charged to Balance Beginning Costs and End of Description of Period Expenses Deductions Period ----------- --------- -------- ---------- ------ Allowance deducted from asset to which it applies: Allowance for Doubtful Accounts: Year Ended June 30, 1995 $ -- 0 -- $43,368 $43,368(A) $ -- 0 -- Allowance for Depreciation: Year Ended June 30, 1997 231,119 117 231,236 Year Ended June 30, 1996 230,946 174 231,119 Year Ended June 30, 1995 229,420 1,526 230,946 Allowance for Amortization of Patents: Year Ended June 30, 1997 7,887 928 8,815 Year Ended June 30, 1996 6,959 928 7,887 Year Ended June 30, 1995 6,031 928 6,959
Note (A): Uncollected receivables written off. 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (a), (b), (e) NAME: ROBERT G. LYLE (68) President, CEO of the Company and subsidiary; Director. Business experience during past 5 years Same as above, since 1977. Other Positions: None. Other Directorships: None. NAME: JOHN M. TALBOT (41) Secretary (1997) and Director and Member of Audit Committee (1997). Business experience - Senior Electronic Engineering Technician during past 5 years and Data Processing Supervisor (1987-1997). Electronic Technician and Computer Programmer (1979-1987) Other Positions: None. Other Directorships: None. NAME: ANDREW WONG (44) Treasurer (1997). Secretary and Director (1996-97); Member of Audit Committee (1996). Business experience - Vice President, Marketing, General during past 5 years Electric-Spacenet, McLean, VA. Manager of Marketing Function for Telecommunications Division. Responsible for selling customized private networks to businesses in the United States and international markets (1995-97). - Director, Business Development, COMSAT Mobile Communications, Bethesda, MD. Responsible for identification, analysis and implementation of mobile wireless communications business opportunities (1991-95). Other Positions: None. Other Directorships: Member, Board of Engineering Advisors, Univ. of California, Lawrence Livermore Laboratory (1995-97). - ---------- Note: All terms expire in December, 1997 c. Not applicable. d. There are no family relationships between any of the above listed directors and any other director or executive officer of the Company. f. None of the directors or executive officers have been subject to any bankruptcy or insolvency proceedings, criminal proceedings, or injunctions against dealing in investments during the past three years. 21 ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS A. No individual in management received remuneration of $100,000 or more. Officers as a group of three people received no payments except for $3,500 in disbursements for the group health and life insurance premiums for the Chief Executive Officer. The total compensation for the Chief Executive Officer in fiscal year 1997 was $3,500. Mr. Talbot was elected to be Secretary and Director subsequent to June 30, 1997 at no added compensation over his salary as a full-time employee. B. No annuity, pension or retirement benefits are proposed to be paid to any director or officer in the event of his retirement. No remuneration payments are proposed to be made in the future, directly or indirectly, to any director or officer by the Company or its subsidiary pursuant to any existing plan or arrangement. C. There are no fees paid to directors for services in that capacity. D. No officer, or director of the Company: (1) received options during the reporting period; or (2) exercised options during the reporting period, or (3) held options as of September 1, 1997. The officers and directors of the Company as a group did not: (1) receive options during the reporting period, or (2) exercise options during the reporting period, or (3) hold options as of September 1, 1997. E. Termination of employment - the Company has no employment termination agreements with officers or employees. 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 27, 1997, the information with respect to common stock ownership of each person known by the Company to own beneficially more than 5% of the shares of the Company's common stock, par value $0.10 per share, and of all officers and directors as a group: AMOUNT AND NATURE OF % NAME AND ADDRESS BENEFICIAL OWNERSHIP CLASS - ---------------- -------------------- ----- Carter C. Chinnis Of Record 90,244 303 N. Vine Street Beneficially 1,200 ------- Richmond, VA 23220 Total 91,444 9.70 Robert G. Lyle Of Record 68,242 7.24 41957 Brightwood Lane Leesburg, VA 22075 William T. Stephens Of Record 96,449 10.23 PO Box 1096 McLean, VA 22075 Denzil C. Pauli Of Record 204,547 21.70 13021 Bluhill Road Aspen Hill, MD 20906 Samuel Schalkowsky Of Record 92,076 9.77 4003 Woodlawn Road Chevy Chase, MD 20014 Current officers and directors as a group own a total of 68,242, representing 7.24% of Common Stock. 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS a. Transactions with management and others. The Company was not a party to material transactions since the beginning of its last fiscal year in which a holder of 5% of the securities of the Company had or has a direct or indirect material interest, other than in the normal course of bacteria colony counters and related equipment sales on an exclusive basis with Spiral Biotech, Inc. owned by a shareholder holding 9.77% of the Company's stock. b. Certain Business relationships. None of the Company's directors, executive officers, or nominees for director have a working relationship with any of the Company's vendors, customers or sources of working capital that would be sizeable enough to generate a conflict of interest or undue influence, to the best knowledge of management. William T. Stephens, is the Company's legal counsel; however, revenue generated by services rendered to the Company do not exceed 5% of that law firm's revenues. c. Indebtedness of Management. No director or officer of the Company or any associate of any director or officer were indebted to the Company. 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K A. 1. LIST OF FINANCIAL STATEMENTS IN PART II OF THIS REPORT. PAGE NO. -------- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...................... 10 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THREE YEARS ENDED JUNE 30, 1997.................................................... 11 CONSOLIDATED BALANCE SHEETS - JUNE 30, 1997 AND 1996.................... 12-13 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JUNE 30, 1997.............................................. 14 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT - FOR THE THREE YEARS ENDED JUNE 30, 1997...................... 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. 16-20 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................................... 23 FINANCIAL DATA SCHEDULE (EX-27)......................................... 28 Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. Individual financial statements of the Company are omitted because it is primarily an operating company and the subsidiary included in the consolidated financial statements being filed in the aggregate does not have minority equity interests and/or indebtedness to any person other than the parent in the amounts which together exceed 5% of the total consolidated assets at the date of the latest balance sheet filed excepting indebtedness incurred in the ordinary course of business which is not overdue and which matures within one year of its creation, whether evidenced by securities or not, and indebtedness which is collateralized by the parent by guarantee, pledge, assignment or otherwise. A. 2. PARENT AND SUBSIDIARY The Company has no parent. The subsidiary of the Company is: NAME: EXOTECH RESEARCH & ANALYSIS, INC. STATE OF INCORPORATION: DELAWARE SECURITIES OWNED BY THE COMPANY: COMMON STOCK, 100% The foregoing is included in the consolidated statements of the Company and subsidiary. 25 A. 3. EXHIBITS 3.1 Restated Certificate of Incorporation of the Company which is hereby identified as a BASIC DOCUMENT. The document was originally filed pursuant to a Registration Statement (Form S-1) filed on November 8, 1968, and is incorporated herein by reference. 3.2 By-Laws of the Company as revised amended on April 16, 1971, which is hereby identified as a BASIC DOCUMENT. The document has been filed pursuant to FORM 10-K for the fiscal year ended June 30, 1971, and is incorporated herein by reference. 3.4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION - EXOTECH SYSTEMS, INC. changing its name to EXOTECH RESEARCH AND ANALYSIS, INC. certified by the Secretary of the State of Delaware on the 12th day of August 1975, which is identified as a BASIC DOCUMENT. The document was originally filed with the Form 10-K for the fiscal year ended June 30, 1976, and is incorporated herein by reference. 3.5 CERTIFICATE OF OWNERSHIP AND MERGER merging EXO-REALTY, INC. into EXOTECH INCORPORATED, certified by the Secretary of State, State of Delaware on the 28th day of June, 1976, which is identified as a BASIC DOCUMENT. The document was originally filed with the Form 10-K for the fiscal year ended June 30, 1976, and is incorporated herein by reference. 4.1 Specimen copy of a certificate for the Company's common stock, par value $.10 per share, which is hereby identified as a BASIC DOCUMENT. The specimen was filed pursuant to a Registration Statement (form S-1) filed on November 8, 1968, and is incorporated herein by reference. 4.1(a) Specimen copy of a certificate for the Company's common stock, par value $.10 per share, reprinted due to exhaustion of the initial supply. This specimen copy was identified as a BASIC DOCUMENT. This exhibit was filed with Form 8 for the fiscal year ended June 30, 1975, and is incorporated herein by reference. B. No Form 8-K reports were filed in the fiscal year covered in this report. 26 SIGNATURE Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, the Company has duly caused this amended Report to be signed on its behalf by the undersigned, thereunto duly authorized. September 25, 1997 BY: /s/ Robert G. Lyle - ------------------------- ----------------------------------------- DATE ROBERT G. LYLE, CHIEF EXECUTIVE OFFICER, PRINCIPAL ACCOUNTING OFFICER AND DIRECTOR September 25, 1997 BY: /s/ Andrew Wong - ------------------------- ----------------------------------------- DATE ANDREW WONG, TREASURER (PRINCIPAL FINANCIAL OFFICER) AND DIRECTOR September 25, 1997 BY: /s/ John M. Talbot - ------------------------- ----------------------------------------- DATE JOHN M. TALBOT, SECRETARY AND DIRECTOR 27 EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS JUN-30-1996 JUN-30-1996 3,431 0 18,225 0 307,659 329,315 231,530 231,236 335,602 856,445 0 0 0 97,014 (617,857) 335,602 443,176 443,176 670,728 670,728 0 0 37,880 (265,432) 0 (265,432) 0 0 0 (265,432) (0.28) (0.28)
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