-----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, PYgNAagW6IpKaVIjYwJdN+o6wwc2Y2GaEHcNCguVjkDchlmBm8zDkk649yKSizqm hu/2PvcyFdIVe3/nN9Rgug== 0001000096-97-000020.txt : 19970115 0001000096-97-000020.hdr.sgml : 19970115 ACCESSION NUMBER: 0001000096-97-000020 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCX INC CENTRAL INDEX KEY: 0000783284 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 840868815 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14273 FILM NUMBER: 97505493 BUSINESS ADDRESS: STREET 1: 3002 N STATE HWY 83 CITY: FRANKTOWN STATE: CO ZIP: 80116-0569 BUSINESS PHONE: 3036886070 MAIL ADDRESS: STREET 1: PO BOX 569 STREET 2: PO BOX 569 CITY: FRANKTOWN STATE: CO ZIP: 80116 FORMER COMPANY: FORMER CONFORMED NAME: DOUGLAS COUNTY INDUSTRIES INC DATE OF NAME CHANGE: 19860109 10KSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended September 30, 1996 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to Commission file number 0-14273 DCX, INC. ----------------------------- (Name of small business issuer) Colorado 84-0868815 - ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3002 North State Highway 83, Franktown, Colorado 80116-0569 ----------------------------------------------------------- (Address of principal executive offices) (Zip code) Issuer's telephone number (303) 688-6070 Securities registered pursuant to Section 12(g) of the Exchange Act: Title of each class Common Stock, no par value Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 pursuant to Item 405 of Regulation S-B is not 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 any amendment to this Form 10-KSB. [X] The issuer's revenues for its most recent fiscal year were $4,410,592. As of November 30, 1996, the aggregate market value of the shares of the issuer's voting stock held by non-affiliates of the issuer based on the average of closing bid and asked prices of the Common Stock as reported on the NASDAQ Small Cap Market sm, was approximately $8,485,445. As of November 30, 1996, the issuer had outstanding 4,434,109 shares of Common Stock. Transitional Small Business Disclosure Format: Yes [ ] ; No [ X ] Exhibit index begins on page 11 Total number of pages in this report is 34. PART I Item 1 - DESCRIPTION OF BUSINESS (a) Business Development. DCX, Inc. (the "Company") was incorporated as a Colorado corporation on December 8, 1981. During the past three years the Company has been in the custom design and contract manufacture of electronic interconnect assemblies. The Company is also seeking to expand and diversify it business. (b) Business of Issuer The Company provides custom manufacturing services and products to the aerospace and commercial markets and has successfully increased revenues and diversified its customer base. The Company focuses primarily on the engineering design, development, test and custom manufacture of medium technology electrical, electronic and electromechanical assemblies and systems. The Company also manufactures wire harnesses and cable assemblies for use by industrial, commercial, computer and communications industries and for the Federal Government. The Company provides its custom manufacturing products to various entities in the military, aerospace industry and to industrial and commercial customers. Although much of its business results from the needs of the Federal Government, the Company also manufactures products for the commercial market as seen in the representative customers, below. Based on the diverse and continuing demand for cable assemblies, wire harness and electromechanical products in aircraft, tanks, vehicles, telecommunication devices and flight simulators, as well as equipment used for support and maintenance of these systems, there appears to be a continuing long term need for the Company's custom manufactured products. The Company has agreements with manufacturer's representatives strategically located across the United States to find and develop manufacturing opportunities. Finished products are shipped directly to customers via freight or express delivery services. The Company competes in the custom manufacturing market selling to the large prime government contractors and to commercial customers with similar requirements for complex and high quality products. The Company believes there are numerous competitors, many of which are larger and better financed than itself. However, the Company feels it enjoys a strong competitive position because of its high quality, low burden rates, ability to deliver on time and excellent reputation. The Company continues to improve and streamline its products, procedures, and manufacturing techniques in order to secure an additional portion of the commercial and defense markets. The Company's custom manufactured products are unique and of high quality. The Company has been highly successful in meeting certain qualifying standards, stipulated by the purchaser, in order to compete in the bid process. These standards are normally arduous and complex to ensure product is manufactured to exacting standards and specifications under approved quality assurance systems. Toward this end, the Company has implemented Statistical Process Control systems and Total Quality Management philosophies to ensure continuing high quality and low defect rates. The Company manufactures, sells, and repairs the following primary products representative of its sales in the defense (and government) sector: F-16 Ground Support Cables, Interface Cables for F-16 Avionics Memory Loader/Verification System, Warming Harness Assemblies, Ejector Rack Cable Assemblies for various fighter aircraft applications, internal F-16 Wiring Harness Assemblies, Lanyard Release Cable Assemblies for aircraft stores release systems, and interconnect cables and harnesses for airborne computer controlled surveillance systems. The Company provides the following types of products to the commercial industry customers: Vehicle Wire Harnesses, Computer Interconnect Cables and communications related wiring and cable assemblies. The Company continues to examine diversification into new areas outside of defense and aerospace where high reliability is required. The Company has multiple sources for most of its required manufacturing materials. In some instances the customer directs the use of sole source suppliers. The Company believes its sources for equipment and supplies are adequate to meet its responsibilities for the future. The Company's fiscal year 1996 sales to customers in aggregate amounts exceeding 10 percent of the Company's consolidated net sales included $2,205,832 or 50% to Lockheed Martin Aeronautical Systems, $494,720 or 11% to Olin Aerospace Corporation, and $490,763 or 11% to Codar Technology, Inc.; remaining sales amounted to less than 10 percent to any single customer. (See Note Ten to the -2- Financial Statements). The loss of these major customers could have an adverse effect on the Company. However, the Company has conducted business with all but one of these customers for a number of years and believes its relationships are sound as seen by the increasing backlog (see Item 6, below). Although the Company is not completely dependent upon any single customer, a significant portion of the revenue has resulted from sales to the Department of Defense (DOD) indirectly through defense prime contractors. (See Note Ten to the Financial Statements). In most years the Company typically experiences increased DOD related contract activity in its second and third quarters which it believes is a result of Federal program and financial management systems. Because a significant portion of the Company's revenue originates from sales to the Government, directly or indirectly, it is significantly dependent upon budgeting and appropriating activities of the Federal Government. Government contracts can be terminated for convenience or for cause. If they are terminated for convenience, liquidated damages are required to be paid; if terminated for cause, such is not the case. (See Item 3 - Legal Proceedings). Termination for convenience clauses are not usually included in commercial contracts and the Company presently has less than ten percent of its revenue attributable to the commercial sector. Because its Government contracts are firm fixed price, the Company does not believe it's contracts are subject to price renegotiation on the basis of costs incurred. The Company does not presently hold patents or have trademarked products. As part of its manufacturing activities, the Company performs the engineering design, development and testing on each of its products. While the Company has no formal research and development department, it has expended R & D costs of approximately nil and $24,000 in fiscal years 1996, and 1995, respectively, targeted at specific opportunities expected to result in long term recurring production opportunities. The Company conducts its activities in a manner which does not currently require securing special local, state, or Federal environmental permissions or review, nor is any such permit or review anticipated in the future. Less than $1,000 was spent on environmental compliance in each of the fiscal years covered by this report. The Company currently has 53 full-time and one part-time employees. None of the Company's employees are represented by a labor union. The Company considers its employee relations to be excellent. Item 2 - DESCRIPTION OF PROPERTY The Company owns, and operates out of, a 34,000 square foot facility located on a 9.45 acre site on State Highway 83, north of Franktown, Colorado, between Denver and Colorado Springs. The Company maintains a monitored security system in this facility. The Company's property is subject to a mortgage as indicated in the financial statements included in this report. (See also Item Six, below, and Note Four to the Financial Statements) The facilities are suitable and adequate for the foreseeable future. Item 3 - LEGAL MATTERS Three of the Company's contracts, totaling gross sales in excess of $10 million, were terminated in July, 1988, by the Defense General Supply Center (DGSC) for alleged default. DGSC is a subordinate activity of the Defense Logistics Agency (DLA). As previously reported, the Company completed the settlement process in December, 1995, following a favorable decision in May, 1992, from the Armed Services Board of Contract Appeals (ASBCA) on two of three cases in longstanding litigation with the Department of Defense. The third contract required the Company to design, develop, test and manufacture light sets to a specified schedule. Because of a Government caused delay, a required test report was three days late for which DGSC terminated the contact for default. The Company found this treatment to be inequitable and contested the termination for default of the third contract at the ASBCA and ultimately filed a petition for certiorari at the United States Supreme Court. On November 19, 1996, the Company learned that its petition for certiorari was denied. In its third fiscal quarter the Company recorded a reserve of approximately $521,000 for the effect of the loss. Certain actions ensuing from the loss could have a materially adverse effect on the Company (See Note Five to Financial Statements and Item 6, Management Discussion and Analysis). On December 11, 1996, the Company filed a complaint in the District Court for Douglas County, Colorado, against Airtech International Corporation ("Airtech"), John Potter, and C.J. Comu. The Company alleges, among other items, that the defendants failed to pay funds that they agreed to pay the Company, that the defendants breached the Agreement for Exchange of Shares dated July 29, 1996, between the Company and Airtech, and that the defendants made material -3- misrepresentations of facts to the Company. The complaint seeks recovery of costs and expenses incurred by the Company, and seeks payment of funds the defendents agreed to pay to the Company. The defendants have filed an answer and counterclaim. Counsel believes the allegations in the counterclaim are without merit. The Company is engaged in various other litigation matters from time to time in the ordinary course of business. The Company believes the outcome of any such litigation will not have a material effect on the Company. Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Since June 10, 1989, the Company's common stock has been traded on the National Association of Securities Dealers Automated Quotation ("NASDAQ") system where it now appears in the NASDAQ Small Cap Systemsm under the symbol DCXI. Such quotations reflect interdealer prices without retail markup, markdown, or commission, and may not necessarily represent actual transactions. The quarterly range of high and low bid prices per share for the past two fiscal years have been as follows: Bid Price ------------- Quarter Ended High Low ------------- ---- --- September 30, 1994 1.75 .81 December 31, 1994 1.56 1.00 March 31, 1995 1.19 .73 June 30, 1995 .97 .63 September 30, 1995 1.63 .72 December 31, 1995 1.59 1.13 March 31, 1996 1.50 .75 June 30, 1996 6.00 .63 September 30, 1996 3.63 1.75 As of November 30, 1996, the Company believes there are approximately 3,500 beneficial owners of the Company's stock of which 2,315 are registered with the transfer agent and the balance are held in street name. The Company has never paid a cash dividend on its common stock. The Company currently intends to retain any earnings for use in business development. (b) On November 12, 1996, the Company sold a total of 500 shares of Series A 6% Cumulative Convertible Redeemable Preferred Stock par value $.001 ("Series A Preferred"), pursuant to Regulation S. The total offering price was $500,000. First Capital Partners, Inc., Atlanta, GA, acted as the Company's placement agent for the transaction. The sale was made in a private offshore transaction to two non US funds who represented to the Company that they were sophisticated investors. Terms of the Series A Preferred provide for cumulative dividends at a 6% annual interest rate payable when, as and if declared, payable in cash or, at the option of the Company, in additional shares of Series A Preferred at the rate of one share of Series A Preferred for each $1,000 of such dividend not paid in cash. The dividends are cumulative whether or not earned. The Series A Preferred has a stated value of $1,000 per share. The Series A Preferred do not have voting rights. Shares of Series A Preferred Stock have the following conversion rights: -4- (1) Each holder of shares of Series A Preferred Stock shall have the right at any time and from time to time after forty (40) days from the date on which a share of Series A Preferred Stock was issued, to convert some or all such share into fully paid and non-assessable shares of Common Stock of the Corporation determined in accordance with the Conversion Rate provided in Paragraph (b) below (the "conversion Rate"). (2) The number of shares Common Stock issuable upon conversion of each share of Series A Preferred Stock shall equal (I) the sum of (A) the Stated Value per share and (B) accrued and unpaid dividends on such share, divided by (ii) the Conversion Price. The Conversion Price shall be equal to the lessor of: (I) the average of the Closing Bid Price (as hereinafter defined) of the Corporation's Common Stock for the five (5) trading days immediately preceding the date of issuance of the Series A Preferred Stock; and (ii) seventy five percent (75%) of the average of the Closing Bid Price for the five trading days immediately preceding the conversion of the Series A Preferred Stock. The Closing Bid Price shall mean the Closing bid price of the Corporations Common Stock as reported by NASDAQ (or if not reported by NASDAQ as reported by such other exchange or market where traded). The Series A Preferred is subject to mandatory conversion two years after the date of issue. The Company paid a commission of ten percent of the total offering price, and agreed to issue to First Capital Partners warrants to purchase 36,281 shares of the Company's no par value common stock. The warrants are exercisable until November 12, 1998, with an exercise price of $1.875 per share. The holders of the warrants, and the holders of the 500 shares of Series A Preferred each have a demand and piggy back registration right if necessary to permit the public sale of the underlying common stock. The private sale of the Series A Preferred was exempt from registration under Regulation S. The sale was made in an offshore transaction to non US persons, and the purchasers made representations to the Company regarding their status and actions necessary to comply with Regulation S. Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition (Liquidity and Capital Resources) The following discussion of liquidity and capital resources addresses the combined requirements and sources of the Company and its subsidiaries as of September 30, 1996. Liquidity The third contract, terminated for default in 1988, was vigorously litigated by the Company and it submitted a petition for certiorari to the United States Supreme Court; an unfavorable decision ensued which the Company became aware of on November 19, 1996. The Company had previously recorded a reserve of $521,000 in its third quarter for a potential loss which could have a materially adverse effect on the Company. The Company is contesting the propriety of assessing reprocurement costs which constitute a majority of the reserve. As a result of the contract terminations in 1988, the Company was previously in default with regards to the mortgage loan on its building ($305,000) and the Small Business Administration (SBA) working capital loan ($617,855). (See Item Three and Note Four to the Financial Statements). The SBA has extended its note to June 3, 1997. The Company's mortgage note was refinanced through January 11, 1997, at which time a balloon payment for the remaining balance is due. The lender has provided a written offer to extend the note for 12 months and the Company is accepting it. If not extended, the Company would be required to make a balloon payment of approximately $294,000; presently the Company does not have cash in this amount available nor does it anticipate having that amount by January 11, 1997. The Company is pursuing refinancing options to consolidate the first mortgage and SBA loans. Due to the effects of the terminations of the contracts by the Government, the Company has no usable lines of bank credit. The Company has liquidated all of the terminated contract accounts payable balances for materials delivered to the Company and, during December, 1995, the unsecured notes payable remaining balance of $287,826 on which it received a discount of $82,826. -5- At September 30, 1996, the Company had net working capital of $56,776 and its current ratio was 1.02:1; cash balances available for use amounted to $209,637. Compare with the prior year where working capital was $952,817, current ratio was 1.4:1; and cash balances available for use amounted to $125,844. The principal causes of the decrease in working capital was reserve of litigation settlement expenses recorded of $521,000 recorded for the possible effect of the denial of certiorari at the Supreme Court (See Item Three, supra) and the increase of $292,750 in inventories to support the Company's growing manufacturing operations related to new contracts. Changes in cash during fiscal year 1996 resulted in a net increase of $83,793 as compared to an increase during fiscal year 1995 of only $10,958. The primary cause was that net cash of $183,850 was provided by operating activities as opposed to a use of $151,517 of cash during fiscal year 1995. Investing activities produced $98,649 more than in 1995 while financing activities used $361,181 more; the latter resulted mostly from the liquidation of notes payable of $287,826. The Company has, at the end of FY 1996, capital lease payment commitments through 2000 of $81,116 which require a total annual payment of $55,101 in fiscal year 1997. (See Note Seven to the Financial Statements) The Company considers its facilities adequate to support anticipated sales and operations for the next several years; accordingly, no commitments for manufacturing facilities expansion have been entered into for the twelve months ending September 30, 1997. The Company does not believe that its business has been significantly impacted during the past three years by cost inflation. Major Asset Purchase Agreements During fiscal year 1996 the Company entered into agreements to acquire two companies in accordance with the Company's diversification plans to enhance shareholder value. The Company was not able to raise required cash to purchase the first target. The other acquisition was also not consummated; the first time, because the Company terminated the initial agreement upon the disclosure of certain information during its due diligence process and in the second instance as a result of the target company not curing its breach of the stock exchange agreement executed after arriving at new terms (See also Item Three, Legal Matters, supra). Going Concern Issues As a result of recurring losses from operations over several years, the report of the Company's independent certified accountant includes a comment concerning substantial doubt about the Company's ability to continue as a going concern. (See also, Note One to the Financial Statements). While recurring operating losses have appeared in the financial statements since 1992, the Company also notes that gross profit which bottomed at 5.3 percent in FY 1994, when it was impacted also by startup costs for subsidiaries, grew to 17.8 percent in FY 1995 and to 19.7 percent in fiscal year 1996 with the increased manufacturing volume. As noted, below in Results of Operations, revenue for fiscal year 1996 increased 102 percent over fiscal year 1995 which increased 111 percent over FY 1994; both increases resulted from consolidation and economizing via outsourcing throughout the defense arena. The Company expects this general trend of additional outsourcing to continue. Management believes the result will be a further increase in gross profit as a result of a larger production base over which to distribute fixed overhead costs. Accordingly, manufacturing operations are expected to increase revenues at a reduced rate of approximately 20 to 35 percent and to generate internal cash flows from operations. In the interim and subsequent to the end of the fiscal year, the Company completed a placement of convertible preferred stock under SEC Regulation S with two offshore funds. Additional management plans are outlined under Capital Resources, below and Liquidity, supra. Capital Resources In order to fund the first acquisition as an asset purchase and to secure working capital required to implement the related business plan for rapidly increasing ensuing activities and to support Company capital resource needs, the Company previously took actions to increase its exposure to the investment banking community by apprising relevant principals of its diversification activities, acquisition program and other business development endeavors designed to result in significant new business. The Company recently secured such financing, through the placement of equity as noted supra. An additional placement of equity or debt will be needed, of which there can be no assurance. While it presently has no contractual arrangement for such an offering the Company previously entered into an agreement for locating needed capital, which agreement resulted in the sale of convertible preferred stock. The Company will receive $250,000 proceeds from a life insurance policy carried on the late chairman emeritus (see also Item 9, below). -6- Results of Operations Fiscal Year 1996 Compared to 1995 Sales increased $2,229,252 or 102 percent from fiscal year 1995 to fiscal year 1996 reaching $4,410,592. Management believes the increase is a result of continued consolidation in the defense arena which has caused prime contractors to increase outsourcing of component subassemblies as a means of controlling and reducing their manufacturing costs. As of November 30, 1996 the Company had open contracts valued at $7.6 million with $5.7 million of backlog still to be completed. At the same time in the previous year, the comparable figures were $7.1 and $5.2 million, respectively. Cost of sales for fiscal year 1996 increased $1,753,872 over fiscal year 1995 to a total of $3,542,996 for fiscal year 1996. Considered as a percent of sales the level remained approximately the same overall; however, after factoring out fiscal year 1995 nonmanufacturing cost of sales, there is an increase when 1996 costs are viewed as a percent of sales. The increase is attributable to the learning curve and some of amount of rework required as the Company began production of a new more complex product. This is anticipated to come into line as the manufacturing operation gains additional experience with the new product. General and administrative expenses decreased slightly by $6,229 from fiscal year 1995 to $1,329,002 in fiscal year 1996. The total included approximately $151,319 attributable to costs of attempted acquisitions versus $48,982 in the prior year. The Company recorded litigation settlement expenses during fiscal 1996 of approximately $529,500, reduced by approximately $83,000 from forgiveness of debt during the Company's first fiscal quarter ensuing from the liquidation of two promissory notes related to the DOD contracts terminated in 1988. Interest expense increased $32,329 from the prior year as a result of an increased interest rate on the first mortgage and interest assessed on certain late payments. Other expenses decreased as a result of the absence of asset write down expense. As a result of its net operating loss the Company increased its deferred tax valuation allowance by $330,000. During the fourth quarter, the Company recorded consulting fees of approximately $118,000 as amortization of deferred marketing expenses. Operations Outlook. While the Company is currently heavily dependent on defense spending for its revenues; it continues to be the opinion of management that overall demand for contract manufacture in aerospace and defense will continue to grow. The large prime defense contractors have been and continue to actively subcontract out more manufacturing of component parts as a means of reducing their cost of manufactured product. This has provided increased opportunities for the Company. The Company believes the increased production in its manufacturing operations will allow distribution of its indirect costs over a larger direct cost base and result in a return to profitability in manufacturing which will then lead to additional contracts for manufacturing. Concurrently, the Company is attempting to diversify through mergers and acquisitions. Effect of Recent Accounting Pronouncements. The Financial Accounting Standards Board issued two pronouncements which may affect the Company in FY 1997 (see the Financial Statements, Summary of Accounting Policies). Statement of Financial Accounting Standard ("SFAS") No. 121 requires that long-lived assets and certain identifiable intangibles be reported at the lower of the carrying amount or their estimated recoverable amount; the adoption of this SFAS is not expected to have an impact on the financial statements. SFAS 123 encourages the accounting for stock-based employee compensation programs to be reported within the financial statements on a fair value based method; if not, pro-forma disclosure of net income and earnings per share as if adopted is required. The Company has not yet determined how SFAS 123 will be adopted nor its impact on financial statements. Item 7 - FINANCIAL STATEMENTS The financial statements required by this item are included at the end of this Form 10-KSB. An index to such financial statements and applicable schedules is contained in that separate section. -7- Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 9 - DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The directors and executive officers of the Company are: Name Age Position ---- --- -------- John G. Anderson & 67 Chairman Emeritus & and Director Jeanne M. Anderson* 45 Chairman of the Board of Directors Frederick G. Beisser 54 Chief Financial Officer, Secretary, Treasurer and Director Stephen Carreker 47 President, CEO and Director D. Scott McReynolds 32 Vice President and General Manager and Director William A. Walters# 57 Vice President, Manufacturing NOTES: * Ms. Jeanne Anderson is the daughter of the late Mr. John G. Anderson. # Mr. William A. Walters is the brother-in-law of Mr. John G. Anderson. & Mr. Anderson passed away on January 7, 1997. Mr. John G. Anderson served as Chairman of the Company's Board of Directors since its inception in December of 1981, except for a brief retirement from October, 1989, to February, 1990. Effective January 1, 1997, Mr. Anderson became Chairman Emeritus and remained a Director until he passed away on January 7, 1997. On October 1, 1991, he retired from the position of President which he had also held since 1981. Prior to founding the Company, Mr. Anderson was employed from 1969-1981 as General Manager, Manufacturing Operations, of OEA, Inc. Mr. Anderson holds a Bachelor of Science Degree in Electrical Engineering from Pacific States University. Ms. Jeanne M. Anderson has been with DCX, Inc. since its inception and served as President and Chief Executive Officer through December 31, 1996. She was elected to that position effective October 1, 1991, and became Chairman of the Board of Directors on January 1, 1997. She has been a Director of the Company since 1987. She was Secretary of the Corporation from October, 1990, until she became President and also served as General Manager from March of 1990. Mr. Frederick G. Beisser joined the Company as Chief Financial Officer in July, 1990. He was appointed to the Board of Directors in March, 1991, at which time he became Treasurer and was appointed Secretary on October 1, 1991. Mr. Beisser is a Colorado Certified Public Accountant. Previously he headed Budget & Cost Analysis for the Air Force Accounting & Finance Center in Denver, Colorado, from 1985 to 1989. He held Air Force budget management positions in Europe, and controller and accounting positions with the Air Force in the United States and abroad. Retired with the rank of Major in 1989, he holds an MBA from Golden Gate University in San Francisco and a BS in Business Administration from the University of Southern Colorado at Pueblo, Colorado. In addition he has diplomas from the Air War College and the Air Command & Staff College. Mr. Stephen Carreker became a director of the Company on December 12, 1995. He is Director of Strategic Planning and became President and Chief Executive Officer effective January 1, 1997. Prior to joining the Company he was manager -8- of the IDS/IBM Manama, Bahrain; was Vice President, Geonex Corporation, Inc., and Project Manager for Gwinnet County, Georgia. Mr. Carreker has over 20 years of domestic and international experience. He holds a Bachelor of Landscape Architecture from the University of Georgia and is a Georgia-licensed landscape architect. Mr. D. Scott McReynolds became a director of the Company on June 7, 1996 and was appointed Vice President and General Manager on the same date. Mr. McReynolds joined the Company in 1991 as an industrial engineer; he was subsequently promoted to Quality Assurance Manager and became Acting General Manager in December, 1995. He holds a Bachelor of Science in Industrial Engineering from Southern Illinois University. Mr. William A. Walters has served as Vice President--Manufacturing since inception of the Company. From 1962 to 1981 he was in the construction industry as the founder and owner of Walters Construction Company. Prior to that, from 1959 to 1962, he was an expeditor for Autonetics in their electronic operation of Minuteman Missiles. Mr. Walters holds an Associate of Arts Degree in Electronics from Cerritos College. Compliance with Section 16(a) of the Exchange Act Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during and with respect to its most recent fiscal year, the Company believes all directors, officers and any beneficial owner of more than 10 percent of its registered shares are in compliance with Section 16(a) of the Exchange Act. Item 10 - EXECUTIVE COMPENSATION The following table sets forth information concerning the cash compensation paid and accrued by the Company for services rendered during the fiscal year ending September 30, 1996, to the CEO. No other executive officers of the Company had aggregate compensation exceeding $100,000. Mr. Carreker became President and CEO on January 1, 1997.
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards - ------------------------------------------------- ---------------------------------------------------------------- Name and Other Restricted Stock All Other Principal Annual Comp- Stock Options Compen- Position Year Salary ($) Bonus ensation Awards (#) sation ($)* ---------- ---- ---------- ----- ---------- ------ ------- ---------- Jeanne M. 1996 $116,018 - - - $1,740 Anderson 1995 116,018 - - 75,000 - 1,740 President 1994 117,518 - - - 1,624 & CEO
* Amounts of All Other Compensation represent employer contribution under the Company's 401K Retirement Savings Plan. The Company did not grant any stock options to officers or employees during fiscal years 1994; in 1995 a total of 175,000 stock options were issued to officers of the Company under the 1991 Stock Option Plan.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Value of Unexercised Unexercised In-The-Money Stock Options Stock Options at FY-End (#) at FY-End ($) Shares acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized ($) Unexercisable Unexercisable ---- --------------- ------------ ------------- ------------- Jeanne M. Anderson President & CEO - - 125,000/0 (1) $ 382,813/-0-
-9- (1) Options for 50,000 shares of DCX common stock were granted under the Company's 1991 Stock Option Plan on May 15, 1992 at a price of $1.21875; additional options for 75,000 shares were granted on April 19, 1995 under the 1991 Plan at $.71875. Both grants were at fair market value; no options have been exercised to date. The Company does not have a long term incentive plan or a defined benefit or actuarial form of pension plan. Directors who are employees of the Company do not receive any additional compensation above their full time employment compensation. Nonemployee directors receive reimbursement of expenses incurred in carrying out their duties; during the fiscal year the Company did not have a standard compensation arrangement other than reimbursement of actual expenses for non-employee directors. Mr. Anderson, a non-employee director, received $10,000.00 for his services as a director during fiscal year 1996. Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Percentages of shares held by officers and directors of the Company, as well as those parties owning more than five (5) percent of the Company's common stock as of the date of this proxy statement, are as follows: Security ownership of certain beneficial owners: During the fiscal year the Company upon exercise of stock options issued 231,000 shares to a nonaffiliated person in exchange for certain services (see Note Eight to the Financial Statements). Because the Company has not received copies of Rule 13d-1 filings under the Exchange Act, and based on certain other information available, the Company believes there are no parties other than management owning more than five (5) percent of the common stock of the Company. Security ownership of management:
Title of Name of Beneficial Amount & Nature of Percent Class Owner (1) Beneficial Ownership (2) of Class (3) ----- ------------------ ------------------------ ------------ Common John G. and Elva M. Anderson 511,400 Sole 11.5 Mr. Anderson was the Chairman Voting Power Jeanne M. Anderson (*) Common President and Chief Executive Officer 114,000 Sole 2.6 and Director Voting Power Common Stephen Carreker ( & ), Director for None Nil Strategic Planning and Director Common Frederick G. Beisser 9,400 Sole @ Chief Financial Officer, Secretary Voting Power Treasurer, and Director Common D. Scott McReynolds 5,600 Sole @ VP, General Manager and Director Voting Power Common William A. Walters (#) 25,000 Sole @ VP - Manufacturing Voting Power All Directors and Officers as a group (6 persons) 665,400 15.0
NOTES: * Ms. Jeanne Anderson is the daughter of the late Mr. John G. Anderson and became Chairman of the Board of Directors on January 1, 1997. # Mr. William A. Walters is the brother-in-law of Mr. John G. Anderson. @ The number of shares constitutes less than one percent of outstanding shares. -10- & Mr. Carreker became President and Chief Executive Officer on January 1, 1997. (1) The address for each of the directors of the company is "In Care Of DCX, Inc., P.O. Box 569, Franktown, CO 80116-0569. (2) The number of shares beneficially owned does not include 251,300 shares which may be acquired under Non Qualified Stock Options held by Officers and Directors of the Company. Such shares and management personnel holding them are: Mr. Anderson, 50,000 shares; Ms. Anderson, 125,000; Mr. Beisser, 60,000 shares; and Mr. Walters, 16,300 shares. (3) If the options denoted in Note 2, above, were exercised, Directors and Officers would have the following percentages of outstanding common stock: Mr. Anderson, 11.0 percent; Ms. Anderson, 4.7 percent; Mr. Beisser, 1.4 percent; Mr. Walters, 0.8 percent; and as a group, 18.0 percent. Item 12- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV Item 13- EXHIBITS AND REPORTS ON FORM 8-K (a) The following financial statements, schedules and exhibits are filed as a part of this report: 1. Financial Statements 2. Exhibit Index The following exhibits are filed as part of this Report:
Exhibit Number Exhibit Page - ------ ------- ---- 2.1 Agreement for Exchange of Shares between DCX, Inc. and AIRTECH INTERNATIONAL CORPORATION Note 6 3.1 Amended Articles of Incorporation and Bylaws of Douglas County Industries, Inc. Note 1 3.2a Amended Articles of Incorporation of DCX, Inc. Note 1 3.2b Amended and Restated Articles of Incorporation of DCX, Inc., dated July 8, 1991. Note 2 3.2c Articles of Amendment to the Articles of Incorporation of DCX, Inc., dated November 6, 1996 Note 4 4.2 Specimen Stock Certificate Note 1 10.1 Standard Form Purchase Order Note 1 10.2 Standard Form Government Contract/Purchase Order Note 1 10.3 Contract between Douglas County Industries, Inc. and Ogden Air Logistics Center Note 1 -11- 10.4 DCX 1991 Stock Option Plan Note 5 10.5 DCX 1995 Stock Incentive Plan Note 5 16.1 Resignation Letter from Wenner, Silvestain & Co. Oct 11, 1994 Note 3 16.2 Wenner, Silvestain & Co. response to SEC, Oct 17, 1994 Note 3 16.3 DCX New s Release, October 18, 1994 Note 3 21.1 List of Subsidiaries Page 14 27.1 Financial Data Schedules Incorporated by reference from Edgar Filing on January 14, 1997
NOTE: (1) Incorporated by reference from Registration Statements on Form S-18, file no. 33-1484. (2) Incorporated by Reference from the definitive Proxy Statement, dated May 3, 1991 (3) Incorporated by Reference from Form 8K and Amendment, dated October 11, 1994. (4) Incorporated by Reference from Form 8K, dated November 12, 1996. (5) Incorporated by Reference from Form S-8, dated September 29, 1996 (6) Incorporated by Reference from Form 10-Q for June 30, 1996, dated August 1, 1996. The agreement was terminated prior to completion. (b) Reports on Form 8-K. No report was filed on Form 8-K by the Company during fourth quarter of the fiscal year covered by this annual report. Reports filed on Form 8-K subsequent to the end of the fiscal year: Form 8-K dated November 12, 1996, reported subsequent to fiscal year end the placement of $500,000 of convertible redeemable preferred stock and an amendment of the Company's Articles of Incorporation. Form 8-K dated December 11, 1996, reported (1) changes in management of the Company, (2) the Company's complaint in district court seeking recovery of costs, expenses and monetary sums from Airtech International Corporation as a result of breach of the stock exchange agreement and (3) the Company's reinstatement of a motion asserting that the government did not fulfil its duty to mitigate damages during the reprocurement process on the third terminated contract of 1988. -12- SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DCX, INC. Date: January 13, 1997 By: /s/ STEPHEN CARREKER --------------------- ------------------------------- Stephen Carreker President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- - ------------------------- Jeanne M. Anderson Chairman & Director //S STEPHEN CARREKER January 13, 1997 - ------------------------- Stephen Carreker President, CEO & Director /S/ FREDERICK G. BEISSER January 13, 1997 - ------------------------- Frederick G. Beisser Chief Financial Officer, Secretary, Treasurer and Director /S/ D. SCOTT MC REYNOLDS January 13, 1997 - ------------------------- D. Scott McReynolds Vice President & General Manager and Director -13- List of Subsidiaries (Inactive) Registered Name State of Incorporation ------------------- ----------------------------- GeoNova US, Inc. Colorado GeoStars International Inc. Colorado -14- DCX, Inc. and Subsidiaries Index to Consolidated Financial Statements ================================================================================ Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheet as of September 30, 1996 F-3 - F-4 Consolidated Statements of Operations for the Years Ended September 30, 1996 and 1995 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1996 and 1995 F-6 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996 and 1995 F-7 Summary of Accounting Policies F-8 - F-11 Notes to Consolidated Financial Statements F-12 - F-20 F-1 Report of Independent Certified Public Accountants The Board of Directors and Stockholders DCX, Inc. and Subsidiaries Franktown, Colorado We have audited the accompanying consolidated balance sheet of DCX, Inc. and subsidiaries as of September 30, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated 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 presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DCX, Inc. and subsidiaries as of September 30, 1996 and the results of their operations and their cash flows for the two years then ended, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, and may not be able to meet the payment of certain notes payable within the contractual terms of the note agreements. These conditions 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 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO SEIDMAN, LLP Denver, Colorado January 9, 1996 F-2 DCX, Inc. and Subsidiaries Consolidated Balance Sheet ================================================================================ September 30, 1996 - -------------------------------------------------------------------------------- Assets Current: Cash and cash equivalents $ 209,637 Accounts receivable, less allowance of $30,000 for possible losses (Notes 2 and 4) 995,040 Inventories (Notes 3 and 4) 1,103,672 Prepaid expenses and other 195,832 - -------------------------------------------------------------------------------- Total current assets 2,504,181 - -------------------------------------------------------------------------------- Property and equipment (Note 4): Building and land 1,415,058 Leased assets 227,863 Furniture and equipment 236,973 Test and manufacturing equipment 159,640 - -------------------------------------------------------------------------------- 2,039,534 Less accumulated depreciation 767,233 - -------------------------------------------------------------------------------- Net property and equipment 1,272,301 - -------------------------------------------------------------------------------- Other assets 44,000 - -------------------------------------------------------------------------------- $ 3,820,482 ================================================================================ See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-3 DCX, Inc. and Subsidiaries Consolidated Balance Sheet ================================================================================ September 30, 1996 - -------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current: Notes payable (Note 4) $ 1,279,623 Accounts payable 494,646 Accounts payable - terminated contracts 66,377 Accrued expenses 85,759 Accrued litigation settlement (Note 5) 521,000 - -------------------------------------------------------------------------------- Total current liabilities 2,447,405 Long-term debt, less current maturities (Note 4) 24,060 - -------------------------------------------------------------------------------- Total liabilities 2,471,465 - -------------------------------------------------------------------------------- Contingencies (Notes 1 and 5) Stockholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares issued or outstanding (Note 12) - Common stock, no par value, 2,000,000,000 shares authorized, shares issued and outstanding 4,434,109 (Note 8) 5,060,357 Additional paid-in capital 329,384 Subscriptions receivable (Note 8) (179,000) Accumulated deficit (3,861,724) - -------------------------------------------------------------------------------- Total stockholders' equity 1,349,017 - -------------------------------------------------------------------------------- $ 3,820,482 ================================================================================ See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-4
DCX, Inc. and Subsidiaries Consolidated Statements of Operations ================================================================================================== Years Ended September 30, 1996 1995 - --------------------------------------------------------------------------------------------------- Net sales (Note 10) $ 4,410,592 $ 2,181,340 Cost of sales 3,542,996 1,789,124 - --------------------------------------------------------------------------------------------------- Gross profit on sales 867,596 392,216 - --------------------------------------------------------------------------------------------------- General and administrative expenses 1,329,002 1,335,231 Litigation settlement and related - net (Notes 4 and 5) 446,674 - - --------------------------------------------------------------------------------------------------- Loss from operations (908,080) (943,015) - --------------------------------------------------------------------------------------------------- Other income (expense): Interest expense (155,757) (123,428) Asset writedowns (Note 11) - (287,529) Miscellaneous 10,183 (10,869) - --------------------------------------------------------------------------------------------------- Total other expense (145,574) (421,826) - --------------------------------------------------------------------------------------------------- Net loss $ (1,053,654) $ (1,364,841) - --------------------------------------------------------------------------------------------------- Net loss per share $ (.25) $ (.34) - --------------------------------------------------------------------------------------------------- Weighted average number of shares of common stock outstanding 4,287,437 3,969,464 - --------------------------------------------------------------------------------------------------- See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-5
DCX, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity =================================================================================================================== Common Stock Additional Years ended September 30, ---------------------- Paid-in Subscriptions Accumulated 1996 and 1995 Shares Amount Capital Receivable Deficit Total - ------------------------------------------------------------------------------------------------------------------- Balance, October 1, 1994 3,853,569 $ 4,538,131 $ 329,384 $ (197,000) $ (1,443,229) $ 3,227,286 Proceeds from issuance of stock (Note 8) 250,000 218,750 - (187,500) - 31,250 Stock issued for services (Note 8) 12,052 8,659 - - - 8,659 Proceeds from subscription receivables (Note 8) - - - 205,500 - 205,500 Net loss for the year - - - - (1,364,841) (1,364,841) - ------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1995 4,115,621 4,765,540 329,384 (179,000) (2,808,070) 2,107,854 Sale of stock through options exercised 85,000 61,094 - - - 61,094 Stock issued for services 233,488 233,723 - - - 233,723 Net loss for the year - - - - (1,053,654) (1,053,654) - ------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1996 4,434,109 $ 5,060,357 $ 329,384 $ (179,000) $ (3,861,724) $ 1,349,017 ==================================================================================================================== See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-6
DCX, Inc. and Subsidiaries Consolidated Statements of Cash Flows ================================================================================================== Increase (Decrease) In Cash And Cash Equivalents Years Ended September 30, 1996 1995 - ------------------------------------------------------------------------------------------------- Operating activities: Net loss $ (1,053,654) $ (1,364,841) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Asset writedowns - 251,347 Provision for losses on accounts receivable - 330,000 Forgiveness of debt (82,826) - Provision for litigation 521,000 - Provision for losses on inventory 60,000 - Stock issued for services 258,723 8,659 Depreciation and amortization 114,202 128,302 Changes in operating assets and liabilities: Accounts receivable 1,066,891 348,602 Inventories (352,750) (473,990) Other assets 9,915 127,062 Accounts payable (82,360) 317,582 Accrued expenses (275,291) 175,760 - --------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 183,850 (151,517) - --------------------------------------------------------------------------------------------------- Investing activities: Acquisition of property and equipment - (25,354) Proceeds on sale of marketable securities - 86,675 Restricted cash 154,985 (4,985) - --------------------------------------------------------------------------------------------------- Net cash provided by investing activities 154,985 56,336 - --------------------------------------------------------------------------------------------------- Financing activities: Proceeds from debt 325,000 - Payments on debt (641,136) (201,111) Proceeds from the issuance of common stock 61,094 307,250 - --------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (255,042) 106,139 - --------------------------------------------------------------------------------------------------- Net increase in cash 83,793 10,958 Cash and cash equivalents, beginning of year 125,844 114,886 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 209,637 $ 125,844 =================================================================================================== See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-7
DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Organization and Business These consolidated financial statements include the accounts of DCX, Inc. and those of its inactive wholly-owned subsidiaries, GeoStars International, Inc. and GeoNova US, Inc. ("GeoNova"), d/b/a GeoNova International, Inc., (collectively the "Company"). DCX, Inc. provides services and products to aerospace, aviation, military, and commercial industries. DCX, Inc. is currently engaged in the engineering design, development, testing, and manufacturing of electronic and electro-mechanical devices and assemblies for use in the missile and aerospace industries, as well as the manufacturing of wire harnesses and cable assemblies for use by commercial computer and communications industries and the U.S. Government. All intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories, other than inventoried costs relating to long-term contracts and programs, are stated at the lower of cost or market by specific identification. Inventoried costs relating to long-term contracts and programs are stated at the actual production costs, including factory overhead and other related non-recurring costs, incurred to date reduced by amounts identified with revenue recognized as progress is completed. In accordance with industry practice, such inventoried costs are recorded in accounts receivable-unbilled and include amounts which are not expected to be realized within one year. Property, Equipment and Depreciation Property and equipment are recorded at cost. Depreciation is provided on property and equipment by charging against earnings, amounts sufficient to amortize the costs of the assets over their estimated useful lives. The ranges of estimated useful lives in computing depreciation and amortization are as follows: F-8 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Building 31 years Leased assets Life of lease Furniture and equipment 5 to 7 years Test and manufacturing equipment 5 to 7 years - -------------------------------------------------------------------------------- Depreciation is computed principally on an accelerated method. Revenue Recognition The estimated sales value of performance under government fixed-price contracts in process is recognized under the percentage of completion method of accounting where under the estimated sales value is determined on the basis of physical completion to date (the total contract amount multiplied by percent of performance to date less sales value recognized in previous periods). Estimated losses on contracts are recorded when identified. Taxes on Income The Company accounts for income taxes under SFAS No. 109. Deferred income taxes result from temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Research and Development Costs Research and development costs are expensed as incurred and totalled approximately $-0- and $24,000 for the years ended September 30, 1996 and 1995. Net Loss Per Share Net loss per common share is based on the weighted average number of shares outstanding during each period presented. Options to purchase stock are included as common stock equivalents, when dilutive. Concentrations of Credit Risk The Company provides its products as a prime contractor and subcontractor to various entities in the aerospace, aviation, and military industries, with most of its products being utilized by the U.S. Government as well as by major defense contractors. The Company grants credit to its customers in these industries and, therefore, a substantial portion of its debtors' ability to honor the contracts is dependent upon the defense economic sector. F-9 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. The fair value of long-term debt and capital lease obligations were estimated based on market value for obligations with similar terms. Management believes that the fair value of the long-term debt and capital lease obligations approximate their carrying value. Use of Estimates The preparation of the Company's 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 balance sheet dates and the reported amounts of revenue and expense during the reporting periods for long-term contracts. The Company's operations require it to make significant assumptions concerning cost estimates for equipment and labor, productivity rates as well as production schedules for long-term contracts. Due to the uncertainties inherent in the estimation process and the significance of having a few contracts in process at September 30, 1996, it is possible that completion costs for some contracts may have to be materially revised in the near future. Recent Accounting Pronouncements The Financial Standards Board has recently issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reported at the lower of the carrying amount or their estimated recoverable amount and the adoption of this statement by the Company is not expected to have an impact on the financial statements. SFAS No. 123 encourages the accounting for stock-based employee compensation programs to be reported within the financial statements on a fair value based method. If the fair value based method is not adopted, then the statement requires pro-forma disclosure of net income and earnings per share as if the fair value based method had been adopted. The Company has not yet determined how SFAS No. 123 will be adopted nor its impact on the financial statements. Both statements are effective for fiscal years beginning after December 15, 1995. F-10 DCX, Inc. and Subsidiaries Summary of Accounting Policies ================================================================================ Reclassifications Certain items included in the prior year's financial statements have been reclassified to conform to the current presentation. F-11 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1. Continued Existence As reflected in the accompanying financial statements, the Company incurred net losses from operations of $461,000, $943,000 for the years ended September 30, 1996 and 1995. The Company has three notes payable totalling $1,230,817 due in fiscal year 1997. The Company may not be able to meet the note payments due. Additionally, a significant portion of the Company's working capital is comprised of certain assets that in the normal course of business are not readily convertible into liquid assets. The ultimate results of these efforts cannot be determined at the present time. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans include, among other items, actively pursuing additional funding in order to meet working capital requirements. Also, the Company is in negotiations to extend the maturities of their notes payable. 2. Accounts Receivable The components of accounts receivable are as follows: September 30, 1996 ------------------------------------------------------------ Long-term contracts: U.S. Government - Prime and subcontracts: Amounts billed $ 302,226 Recoverable costs and accrued profit on progress completed - not billed 616,616 ------------------------------------------------------------ Total U.S. Government 918,842 ------------------------------------------------------------ Commercial: Amounts billed 50,505 Recoverable cost and accrued profit on progress completed-not billed (27,542) ------------------------------------------------------------ Total commercial 22,963 ------------------------------------------------------------ Other 53,235 Less provision for losses 30,000 ------------------------------------------------------------ Total accounts receivable $ 995,040 ============================================================ Recoverable costs and accrued profits not billed will be billed on the basis of contract terms and delivery schedules. F-12 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 3. Inventories Inventories are stated at the lower of cost or market by specific identification and consist of: September 30, 1996 ------------------------------------------------------------ Raw materials $ 955,978 Work in process 297,694 ------------------------------------------------------------ 1,253,673 Reserve for obsolescence 150,000 ------------------------------------------------------------- Total inventory $ 1,103,672 ============================================================= 4. Notes Payable and Long-Term Debt September 30, 1996 ------------------------------------------------------------ Note payable in monthly installments of $10,787 per month beginning August 1996, interest at 10.5%, collateralized by accounts receivable, inventory, second deed of trust on building, property and equipment and contract rights, maturing June 3, 1997 $ 611,967 Note payable in monthly installment of $2,450 per month beginning August 1996 with no accrual of interest, collateralized by accounts receivable, inventory, second deed of trust on building property and equipment and contract rights, maturing June 3, 1997. 313,724 Note payable in monthly installments of $5,912, including interest at 13%, collateralized by a deed of trust on building and assignment of a lease, the note matures on January 11, 1997. (a) 305,126 Capital lease obligation (Note 7) 72,866 ------------------------------------------------------------ 1,303,683 Less current maturities 1,279,623 ------------------------------------------------------------ Long-term debt, less current maturities $ 24,060 ============================================================ F-13 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ (a) In December 1996, the Company received written commitment which will extend the $305,126 mortgage loan payable. The extension would provide the terms of the note to remain the same with the note maturing in January 1998. In December 1995, a previously outstanding note payable was settled requiring a cash payment of $205,000. The settlement gain on forgiven debt of $82,826 was recorded in the year ended September 30, 1996. 5. Litigation Following the termination of merger discussions between the Company and an unrelated company, Airtech International Corporation ("Airtech"), DCX, Inc. filed a complaint against Airtech and certain of its officers alleging that the defendants had breached its agreement and made material misrepresentation of facts. The Company's claim seeks payment of amounts due under the agreement and reimbursement of costs and expenses with such amounts estimated at approximately $400,000. During January 1997 Airtech filed an answer to the claim denying the Company's claim and counter claiming for breach of contract, fraud and negligence claiming damages in excess of $27 million. The case is in its preliminary stages and no formal discovery has commenced. Management of the Company intends to vigorously pursue its claim and oppose the alleged counterclaims and feels that the ultimate resolution of this matter will not have a material adverse impact on the Company's financial position. Other Litigation ---------------- The Company had previously filed an appeal before the U.S. Court of Appeals for the Federal Circuit on a contract with the Defense Logistics Agency (DLA). The appeals court held for the DLA during the Company's third quarter. As such, the Company recorded a reserve for $521,000 for potential losses. The Company is engaged in various litigation matters from time to time in the ordinary course of business. In the opinion of management, the outcome of any such litigation will not materially affect the financial position or results of operations of the Company. F-14 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 6. Taxes on Income The provision for income taxes consisted of the following: Year ended September 30, 1996 1995 ----------------------------------------------------------- Deferred benefit: Federal $ 301,000 $ 452,000 State 29,000 44,000 ----------------------------------------------------------- 330,000 496,000 Valuation allowance (330,000) (496,000) ------------------------------------------------------------ $ - $ - ============================================================ A reconciliation of the effective tax rates and the statutory U.S. federal income tax rates follows: 1996 1995 ------------------------------------------------------------- U.S. federal statutory rates (34.0)% (34.0)% State income tax benefit, net of federal tax amount (3.3) (3.3) Expenses not deductible for tax purposes - 1.2 Increase in deferred tax asset valuation allowance 37.3 36.1 ------------------------------------------------------------- Effective tax rate -% -% ============================================================= F-15 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Temporary differences that give rise to a significant portion of the deferred tax asset are as follows: 1996 ------------------------------------------------------------ Net operating loss carryforward $ 993,000 Inventory, obsolescence reserve 56,000 Accrued settlement 194,000 Capital loss carryover 122,000 Other 22,000 ------------------------------------------------------------ Total gross deferred tax assets 1,387,000 Valuation allowance (1,387,000) ------------------------------------------------------------ Net deferred tax asset $ - ============================================================ A valuation allowance equal to the net deferred tax asset has been recorded, as management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. At September 30, 1996, the Company had net operating loss carryforwards of approximately $2,663,000 with expirations through 2011. F-16 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 7. Leases The Company leases various equipment under capital leases that expire through June 2000. The present value of future minimum capital lease payments at September 30, 1996 are as follows: 1996 ------------------------------------------------------------ 1997 $ 55,101 1998 20,237 1999 3,489 2000 2,334 ------------------------------------------------------------ Total minimum lease payments 81,161 Less amounts representing interest 8,295 ------------------------------------------------------------ Present value of net minimum lease payment 72,866 Less capital lease obligation, current 48,806 ------------------------------------------------------------ Capital lease obligation, noncurrent $ 24,060 ------------------------------------------------------------ 8. Common Stock Transactions As consideration for future service to be performed by the recipient of certain stock options, the exercise price on a portion of these stock options was below the fair market value of the stock on the date the options were granted. Accordingly, the Company recorded $148,750 in deferred charges for future services. In addition, the Company waived the exercise price on 224,000 shares under the stock option and recorded deferred charges for future services of $150,000. In March 1995, the Company issued options to purchase 250,000 shares to the same individual at an exercise price of $.75 per share and recorded $31,250 in deferred charges for future services. The options were exercised in April 1995. Services by the recipient are to be provided over three years. Accordingly, the Company is amortizing deferred compensation charges on a straight line basis over 36 months. Amortization of approximately $118,000 and $100,000 was recorded during in the years ended September 30, 1996 and 1995. F-17 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ The Company issued 3,488 shares valued at $2,508 in exchange for services rendered in August 1995. The Company issued 12,052 shares valued at $8,659 to two vendors to fulfill payable obligations in June 1995. At various times throughout the year ended September 30, 1996, options were exercised for a total of 85,000 shares for a total of $61,094. The Company issued 230,000 shares valued at fair market value of $231,215 to a financial advisor in exchange for services to be performed for a period of 12 months beginning in February 1996. The Company collected $205,500 of subscriptions receivable during the year ended September 30, 1995. Stock Options ------------- The Company's Board of Directors have reserved 300,000 and 750,000 shares under two stock option plans (1991 and 1995 respectively). The Company grants options under the Plan in accordance with the determinations made by the Option Committee. The Option Committee will, at its discretion, determine individuals to be granted options, the time or times at which options shall be granted, the number of shares subject to each option and the manner in which options may be exercised. The option price shall be the fair market value on the date of the grant and expire five years subsequent to the date of grant. 1991 Plan --------- In May 1992, the Company issued options for the purchase of 140,000 shares at $1.22 per share. Of the total issued, 125,000 were issued to officers and directors. In February 1995, 20,000 options were cancelled. Options to purchase 175,000 shares at $.71875 were issued to officers of the Company in April 1995. To date, none of these options have been exercised. F-18 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1995 Plan --------- In April 1995, the Company issued options to purchase 269,000 shares at $.71875 per share, of the total issued, 60,000 were issued to an officer. Through September 30, 1996, options to purchase 85,000 shares were exercised resulting in proceeds to the Company of $61,094. 9. Employee Benefit Plans 401(k) Plan ----------- In January 1992, the Company established a Section 401(k) profit sharing plan covering substantially all employees. Participants in the plan may contribute up to 15% of their compensation, subject to certain limitations. Under the plan, the Company makes matching contributions equal to 25% of the participants elected deferred contribution up to a maximum of 6% of compensation. Company matching contributions vest ratably over 5 years. Additional contributions may be made at the Company's discretion based upon the Company's performance. Total Company contributions under the plan were approximately $9,700 and $8,900 in 1996 and 1995. 10. Major Customers The Company has historically derived significant revenue from contract services from a few customers. During the year ended September 30, 1996, sales to three customers accounted for 50%, 11% and 11% of total sales. During the year ended September 30, 1995, the Company derived 48%, 17%, 15%, and 10% of total revenue from four customers. The majority of all sales are to Government Prime or Sub-contractors. 11. Significant Fourth Quarter Adjustments During the quarter ended September 30, 1996, the Company recorded consulting fees expense of approximately $118,000 relating to the amortization of deferred marketing expense. During the quarter ended September 30, 1995, the Company recorded an adjustment of $287,529 as an other expense for the curtailment of certain activities being performed in Argentina. F-19 DCX, Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 12. Subsequent Event In November 1996, the Company amended its articles of incorporation to provide for a Series A 6% cumulative convertible redeemable preferred stock $.001 par value (Series A). The Company designated 1,000,000 shares Series A as part of the authorized class of preferred shares. The Company issued 500 shares of the Series A with a stated value of $1,000 per share, with net proceeds to the Company of $450,000, in November 1996. 13. Supplemental Schedule of Non-Cash Investing and Financing Activities 1996 1995 ------------------------------------------------------------ Common stock sold for subscriptions receivable $ - $ 187,500 ============================================================ Acquisition of equipment under capital leases $ - $ 227,863 ============================================================ Common stock issued for services and debt $ 233,723 $ 8,659 ============================================================ Cash paid for interest $ 114,000 $ 72,000 ============================================================ F-20 EX-27 2
5 12-MOS SEP-30-1996 SEP-30-1996 209,637 0 1,025,040 (30,000) 1,103,672 2,504,181 2,039,534 767,233 3,820,482 2,447,405 0 0 0 5,060,357 3,711,340 3,820,482 4,410,592 4,420,774 3,542,996 5,318,672 145,575 0 155,757 0 0 (908,080) 0 0 0 (1,053,655) .25 .25 Includes litigation settlement expenses of $446,674 related to loss on third terminated contract.
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