CONFORMED
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED November 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22720
CYCLO3PSS CORPORATION
(Name of Small Business Issuer as specified in its charter)
Delaware 87-0455642
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3646 West 2100 South
Salt Lake City, Urah 84120-1202
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (801) 972-9090
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
x/ No .
Common Stock outstanding at January 12, 2001 - 30,082,982 shares of $.001
par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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FORM 10-QSB
Financial Statements and Schedules
Cyclo3pss Corporation
For Three and Nine Months Ended November 30, 2000
The following financial statements and schedules of the registrant and
its consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
Item 1. Financial Statements
Condensed Consolidated Balance Sheets.......................3
Condensed Consolidated Statements of Operations.............5
Condensed Consolidated Statements of Cash Flow..............7
Notes to Condensed Consolidated Financial Statements........8
Item 2. Management's Discussion and Analysis or
Plan of Operations.........................................12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .........................................18
Item 2Changes in Securities.....................................18
Item 3Defaults Upon Senior Securities...........................18
Item 4Submission of Matters to a Vote of Security Holders.......18
Item 5Other Information.........................................18
Item 6Exhibits..................................................18
- 2 -
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
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(UNAUDITED)
November 30 February 29
2000 2000
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Assets
Current assets:
Cash $65,206 $107,565
Accounts receivable 139,214 70,723
Notes receivable 80,000 --
Inventories 17,930 17,930
Prepaid expenses 5,466 5,815
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Total current assets 307,816 202,033
Property and equipment, net 77,113 135,521
Other assets:
Acquired patents, net 45,507 72,807
Developed patents and other, net 62,724 56,623
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$493,160 $466,984
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- 3 -
CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
(UNAUDITED)
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November 30 February 29
2000 2000
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Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $96,487 $256,955
Accrued liabilities 180,809 449,440
Note Payable 1,000,000 250,000
Current portion of capital lease obligations 694 3,778
Deferred Revenue 100,000 100,000
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Total current liabilities 1,377,990 1,060,173
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock:
Preferred stock issuable in series: par value $.01,
4,500,000 authorized:
Series "A" convertible preferred stock; 356,638
shares authorized; 356,638 shares issued and
outstanding 356 356
Series "B" convertible preferred stock; 30,000
shares authorized; 716 and 900 shares issued and
outstanding at November 30, 2000 and February 29,
2000, respectively 7 9
Series "C" convertible preferred stock; 550 shares
authorized; none and 75 shares issued and
outstanding at November 30, 2000 and February 29,
2000, respectively --- 1
Class "A" preferred stock, par value $.01; 500,000
shares authorized; none issued or outstanding --- ---
Common stock, par value $.001; 55,000,000 shares
authorized; 29,243,975 shares issued at November
30, 2000 and 25,226,066 shares issued at February
29, 2000 29,244 25,225
Additional paid-in capital 19,555,931 19,028,410
Accumulated deficit (19,968,823) (19,145,645)
Less treasury stock, 264,000 common shares at cost (501,545) (501,545)
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Total stockholders' equity (deficit) (884,830) (593,189)
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$493,160 $466,984
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See accompanying notes to condensed consolidated financial statements
- 4 -
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the three months ended
November 30,
2000 1999
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Net revenues $124,876 $268,543
Costs and expenses:
Cost of sales 84,598 97,573
Research and development 17,793 --
Selling and marketing 27,264 --
General and administrative 148,606 382,739
Depreciation and amortization 26,428 27,981
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Total expenses 304,689 508,293
Loss from operations (179,813) (239,750)
Interest income 519 --
Interest expense -- (169)
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Net loss (179,294) (239,919)
Preferred stock dividends -- (8,499)
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Net loss applicable to common stock $(179,294) $(248,418)
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Basic and dilutive net loss per common share $(.01) $(.01)
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Weighted average number of common shares
issued and outstanding 28,610,961 18,025,784
============== ==============
See accompanying notes to condensed consolidated financial statements
- 5 -
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Operations
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(UNAUDITED)
For the nine months ended
November 30,
2000 1999
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Net revenues $350,041 $754,478
Costs and expenses:
Cost of sales 285,112 345,680
Research and development 51,638 --
Selling and marketing 92,846 --
General and administrative 625,994 709,705
Depreciation and amortization 120,195 88,868
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Total expenses 1,175,785 1,144,253
Loss from operations (825,744) (389,775)
Litigation settlement expense --- (853,000)
Interest income 2,697 15
Interest expense (131) (747)
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Net loss (823,178) (1,243,507)
Preferred stock dividends --- (25,497)
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Net loss applicable to common stock $(823,178) $(1,269,004)
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Basic and dilutive net loss per common share $(.03) $(.07)
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Weighted average number of common shares
issued and outstanding 27,694,704 16,753,956
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See accompanying notes to condensed consolidated financial statement
- 6 -
CYCLO3PSS CORPORATION
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
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For the nine months ended
November 30,
2000 1999
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Cash flows from operating activities:
Net loss $(823,178) $(1,243,507)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 120,195 88,870
Common stock issued for legal settlement -- 853,000
Common stock issued to board in lieu of compensation -- 13,750
Common stock issued for services 177,060 --
Changes in operating assets and liabilities:
Decrease in accounts receivable (148,491) (43,372)
Increase in inventories -- 11,818
Decrease in prepaid expense 349 42,128
(Decrease) increase in accounts payable and accrued (429,099) 146,982
liabilities
--------------------------------
Net cash used in operating activities (1,103,164) (130,331)
--------------------------------
Cash flows from investing activities:
Disposal and purchase of property and equipment 6,215 (802)
Addition to developed patents and other (46,803) (11,876)
--------------------------------
Net cash used in investing activities (40,588) (12,678)
--------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 150,000 156,825
Proceeds from issuance of warrants 196,000 --
Proceeds from issuance and exercise of stock options 8,477 18,000
Proceeds from notes payable 750,000 --
Principal payments under capital lease obligations (3,084) (7,743)
--------------------------------
Net cash provided by financing activities 1,101,393 167,082
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Net decrease (increase) in cash (42,359) 24,073
Cash at beginning of period 107,565 36,018
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Cash at end of period $65,206 $60,091
================================
Non-cash financing activities: $ -- $ 8,499
Issuance of preferred stock dividend
================================
See accompanying notes to condensed consolidated financial statements.
- 7 -
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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1. Summary of Significant Accounting Policies
Financial Statements
The accompanying interim consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions
to Form 10-QSB and Regulation S-B. The balance sheet at February 29, 2000
represents the Company's audited consolidated balance sheet at that date.
In the opinion of management, the accompanying condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of Cyclo3pss Corporation ("Company") as
of November 30, 2000, and the results of its operations and its cash flows
for the interim periods ended November 30, 2000 and November 30, 1999. The
operating results for the interim periods are not necessarily indicative of
the results for a full year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report to Stockholders for the
year ended February 29, 2000.
Organization
The Corporation was formed in Delaware in 1927. In 1990, the Corporation was
reorganized as Cyclo3pss Medical Systems, Inc. In 1995, the Company changed
its name to Cyclo3pss Corporation. The Company is engaged in the manufacture,
sale and installation of ozone food processing products, ozone washing for
commercial and institutional laundries, the manufacture and sale of specialty
compounds and chemicals, and research and development of technologies for
sterilization and/or disinfection of medical and some consumer products.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions
have been eliminated.
Inventory
Inventory primarily consists of raw material related to the production of
"VAC" soil laundry counting system.
- 8 -
CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", requires that all items that are recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The items of other comprehensive income that are
typically required to be displayed are foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. There have been no items of other
comprehensive income to date.
2. Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business.
The Company has sustained significant net losses which have resulted in an
accumulated deficit at November 30, 2000 of $19,968,823 and $19,145,645 at
February 29, 2000, and periodic cash flow difficulties, all of which raise
substantial doubt of the Company's ability to continue as a going concern.
The net loss for the nine months ended November 30, 2000 was $823,178 and for
the year ended February 29, 2000 was $1,960,414. To date, the Company has
funded its operations through the issuances of common and preferred stock,
and a loan as described further. The Company anticipates a net loss for the
year ended February 28, 2001, and with a cash balance of $65,206 at November
30, 2000 and expected cash requirements for the year, there is substantial
doubt as to the Company's ability to continue operations.
The Company believes that these conditions have resulted from the inherent
risks associated with small technology companies. Such risks include, but are
not limited to, the ability to (a) generate sales of its product at levels
sufficient to cover its costs and provide a return for investors, (b) attract
additional capital in order to finance growth, (c) further develop and
successfully market commercial products and (d) successfully compete with
other technology companies having financial, production and marketing
resources significantly greater than those of the Company.
CYCLO3PSS CORPORATION
- 9 -
Notes to Condensed Consolidated Financial Statements (Unaudited)
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2. Basis of Presentation (continued)
The Company is attempting to improve these conditions by way of financial
assistance through collaborative partnering agreements, issuances of
additional equity, debt arrangements, and product sales. Management believes
that appropriate funding will be generated and future product sales will
result from these opportunities and that the Company will continue operations
through the next fiscal year; however, no assurance can be given that sales
will be generated or that the additional necessary funding will be raised.
The severe financial condition of the Company was disclosed to Procter &
Gamble (" P&G") during the last week of November 1999. P&G responded
immediately and after conferring with the Company's management negotiated and
subsequently entered into a Letter of Intent on December 10, 1999. The
agreement allowed for two separate financings by P&G to the Company. The
first, a Secured Convertible Promissory Note for $250,000, was executed and
funded in concert with the signing of the Letter of Intent in order to
relieve the immediate and critical cash requirements of the Company. The
second Secured Convertible Promissory Note for $750,000 provides long-term
working capital for the Company. The entire $1,000,000 loan is secured by a
first security interest in all of the Company's Intellectual Properties and
will be due and payable in full on the one year anniversary date of its
execution, February 1, 2001. The loan is non interest bearing, but in the
event of a default, it may accrue up to 15% interest. The loan agreement
grants a conversion right to P&G allowing for the conversion of all or any
part of the outstanding loan, including all or any part of interest due into
shares in the Company's common shares of stock at anytime during the term of
the loan, and at the sole discretion of P&G, at the average closing bid price
of the Company's common stock for ten consecutive business days prior to the
date of execution of the note, February 2, 2000, which was $.27987. The
Company contemplates engaging in several diverse development and testing
contracts within various departments of P&G. In addition, under the terms of
the agreement, P&G will be granted an Exclusive First Right of Refusal for
the Licensing of all the current and future technologies of the Company.
3. Contingencies
The Company is not a party to and presently is not aware of any pending
claims or existing litigation. Previous settled matters are described in the
Company's Form 10-KSB for the year ended February 29, 2000.
4. Segment Information
On March 7, 2000 the Company internally realigned its ozone businesses,
collapsing two business units, Cyclopss Laundry Systems, Inc. and Eco-Pure
Food processing Systems, Inc. During the nine months ended November 30, 2000
the Company operated in two principal industries; the manufacture, sale and
installation of ozone products ("ozone products"); and the manufacture and
sale of specialty chemicals ("biochemical products"). Operating profit is
total revenue less operating expenses, excluding interest expense and general
corporate expenses. Corporate assets consist primarily of cash and cash
equivalents, other receivables, prepaid expenses, property and equipment and
corporate payables.
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CYCLO3PSS CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
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4. Segment Information (continued)
For three months ended For nine months ended
Nov. 30, 2000 Nov. 30, 1999 Nov. 30, 2000 Nov. 30, 1999
--------------- --------------- --------------- ---------------
Net revenues
Ozone products $ 74,729 $ 200,693 $ 157,136 $448,822
Biochemical products 50,147 67,850 192,905 305,656
--------------- --------------- --------------- ---------------
Total Revenue $ 124,876 $268,543 $350,041 $754,478
=============== =============== =============== ===============
Operating income (loss)
Ozone products $ (57,250) $ 15,297 $ (200,240) $ (15,007)
Biochemical products (602) (5,734) 23,341 71,075
--------------- --------------- --------------- ---------------
Total operating income (loss)(57,852) 9,563 (176,899) 56,068
Corporate expenses (121,961) (249,313) (648,845) (1,298,843)
Interest income 519 -- 2,697 15
Interest expense -- (169) (131) (747)
--------------- --------------- --------------- ---------------
Net income (loss) $ (179,294) $ (239,919) $ (823,178) $ (1,243,507)
=============== =============== =============== ===============
Identifiable assets
Ozone products $227,819 $251,693
Biochemical products 71,356 107,334
General corporate assets 193,985 171,889
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Total assets $493,160 $530,916
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5. Stockholders' Equity
During the nine months ended November 30, 2000, the Company had the following
equity transactions: 184 Series "B" preferred shares were redeemed for
1,879,988 unrestricted common shares pursuant to the legal settlement with
Mifal Kilta et al. in September of 1999. Also, 75 shares of Series "C"
convertible preferred stock were converted into 744,250 shares of common
stock. 392,000 common shares were issued for $196,000 upon the exercise of
warrants, and 350,000 shares were issued in lieu of cash payment for
services. 167,800 shares were issued in connection with exercise of stock
options by the Company's employees. Finally 483,871 shares are due to be
issued in connection to a private placement of the company's common stock as
described in Liquidity and Capital Resources of this 10-QSB.
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PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
Cyclopss Corporation (the "Company") historically has been engaged in a fully
integrated business model providing the design, manufacturing, assembly,
sales and installation of ozone application technologies and processes. The
Company's principal technology provides an alternative to address food safety
concerns and laundry disinfection and processing efficiency. Ozone technology
is proven to reduce microbial counts on food products without the potential
for the development of immunity or resistance by the organism. Ozone laundry
systems enable users to reduce costs associated with labor, water, energy,
chemical, textile replacement and wastewater. The Company has recently
changed its business model to include the licensing of proprietary
technologies to partners who have resources and infrastructures better suited
to successfully commercialize certain of the Company's technologies or
products. The Company has entered into a Technology Licensing Agreement with
Consolidated Stills and Sterilizers of Boston, MA. The agreement licenses the
ozone medical instrument sterilization technology developed and patented by
the Company for an initial licensing fee and future royalties. The Company
anticipates negotiating like arrangements on other of its proprietary
technologies when the circumstances are beneficial. Cyclopss will continue to
engage in all integrated functions required in the synthesis, manufacturing
and marketing of its specialty chemicals.
Consumers, food producers and processors, both large and small, are searching
for new technologies to address food safety and sterilization concerns.
Consumers and food processors, who have relied heavily on chlorination and
other chemicals to decontaminate foods and household items, are being forced
to consider alternatives to chlorine and other toxic chemicals. The Company
believes that ozone products offer a lower cost and more
environmentally-friendly and consumer accepted form of decontamination and
sterilization than many other chemical treatments.
These statements are forward-looking and involve matters which are subject to
a number of risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by such forward looking
statements. These risks and uncertainties include product development or
production difficulties or delays due to supply constraints, technical
problems or other factors; technological changes; the effect of global,
national and regional economic conditions; the impact of competitive products
and pricing; changes in demand; increases in component prices or other costs;
and a number of other risks including those identified by the Company
throughout Form 10- KSB for February 29, 2000, and other risks identified
from time to time in the Company's filings with the Securities and Exchange
Commission, press releases and other communications. The Company assumes no
obligation to update forward-looking statements.
- 12 -
Results of Operations
The Company's revenues were $124,876 for the three months ended November 30,
2000 compared to $268,543 for the three months ended November 30, 1999. The
revenues were $350,041 for the nine months ended November 30, 2000 compared
to $754,478 for the nine months ended November 30, 1999. This decrease was
mainly due to the Company's shift in the use of its employees and resources
from the generation of short term revenues, required to cover operating
expenses, to research and design efforts in developing long term future
product and application royalty receipts as described further. The Company's
gross margin for the three months ended November 30, 2000 was $40,278
compared to $170,970 for the three months ended November 30, 1999. The gross
margin for the nine months ended November 30, 2000 was $64,929 compared to
$408,798 for the nine months ended November 30, 1999. This reduction is due
to a decrease in product sales as described above. The Company continues to
closely monitor expenses to minimize all unnecessary operating costs. The
Company expects to start receiving royalty payments from the sale of consumer
products as described further in this section.
Research and development expenses increased to $17,793 and $51,638 for the
three and nine months ended November 30, 2000, respectively from $0 for the
three and nine months ended November 30, 1999. The Company eliminated all
research and development costs during the three and nine months ended
November 30, 1999, due to lack of necessary funds for this function. The
Company resumed its research and development efforts in the last quarter of
fiscal 2000 when funds and personnel were available for these activities.
Selling and marketing expenses increased to $27,264 and $92,846 for the three
and nine months ended November 30, 2000, respectively, from $0 for the three
and nine months ended November 30, 1999. In 1999, the Company eliminated
marketing staff and eliminated all advertising in order to help conserve
cash. Management believes that it is critical to periodically support and
supplement its sales efforts through advertising, public relations and
trade-show participation when sufficient funds are available, and started to
dedicate limited funds to selling and marketing expense in the last quarter
of fiscal 2000.
General and administrative expenses decreased to $148,606 for the three
months ended November 30, 2000 from $382,739 for the three months ended
November 30, 1999. General and administrative expenses slightly decreased to
$625,994 for the nine months ended November 30, 2000 from $709,705 for the
nine months ended November 30, 1999. The unusually low general and
administrative expenses last year were due to a refund of $138,875 for
insurance premiums that was recorded against administrative expenses in the
first quarter. Management is closely monitoring and controlling these
expenses. These expenses are expected to increase in fiscal 2001, with other
potential increases due to management and human resource requirements for the
Company should commercial activities increase, and more funds become
available for this use.
The Company recorded net loss applicable to common stockholders for the three
months ended November 30, 2000 of $179,294 compared to $248,418 for the three
months ended November 30, 1999. Net loss applicable to common stockholders
for the nine months ended November 30, 2000 of $823,178 compared to
$1,269,004 for the nine months ended November 30, 1999. The Company recorded
$853,000 in legal settlement expenses in connection with the settlement
agreement it
- 13 -
reached with Mifal Klita et al. in September of 1999. During the period from
May through August 1996, the Company sold its series B preferred stock in a
private placement offering to certain investors pursuant to the provisions of
Regulation S. One of these investors, Mifal Klita, a purported Canadian
company, filed suit against the Company demanding the removal of the
restrictive investment legend which the Company caused to be placed on common
shares issued pursuant to the conversion of series B preferred shares. The
suit was filed in the Court of Chancery in the State of Delaware, which ruled
in favor of the Company on April 8, 1997 and dismissed Mifal Klita's suit.
Subsequently, Mifal Klita refiled an amended suit in the Superior Court of
the State of Delaware. The final settlement agreement reached by the parties
involved, entitled Mifal Klita to the conversion of the series B preferred
shares into unrestricted common stock of the Company plus shares for legal
fees and other provisions stated in the original agreement. The unrestricted
common stock is being disbursed monthly over a two year period.
A toothbrush and a kitchen sponge sanitizer were developed by Otres, a
strategic partner, in collaboration with the Company and are the subject of a
co-marketing agreement with the Crest and Dawn divisions of P&G. The products
are designed to kill 99.9% of germs found on toothbrushes and kitchen sponges
using ozone technology, and they address a growing consumer concern, that of
reducing the spread of germs and microorganisms, such as streptococci and
staphylococci on toothbrushes and e-coli, salmonella and listeria on kitchen
sponges. The Company will receive ongoing royalty revenues from the sale of
those products. The products became available to the consumer market, via
internet sales, in September 2000. The Otres products have been available for
purchase on the Company's website (www.cyclopss.com) since October 1999. The
Company anticipates that Otres products will be available in grocery,
appliance and hardware stores, mass merchandisers and drug stores within six
months.
Liquidity and Capital Resources
In December 1999, the Company entered into a Secured Convertible Promissory
Note for $250,000 with P&G. In February 2000, the Company entered into a
second financing of a Secured Convertible Promissory Note for $750,000 which
provides long-term working capital for the Company. With respect to the
second $750,000 Note, $250,000 in cash was received and recorded in the first
quarter ended May 31, 2000. The balance of $500,000 in cash was received on
June 19, 2000. The entire $1,000,000 loan is secured by a first security
interest in all of the Company's Intellectual Properties and will be due and
payable in full on the one year anniversary date of its execution, February
3, 2001. The loan agreement grants a conversion right to P&G allowing for the
conversion of all or any part of the outstanding loan, including all or any
part of interest due, into shares of the Company's unrestricted common stock
at anytime during the term of the loan, and at the sole discretion of P&G.
Subsequent to the quarter end, P&G and the Company have entered into
negotiations which would provide for the conversion of $500,000 of the loan
principal to equity, and extension of the loan due date to February of 2002,
and the payment of any interest accrued to date through the issuance of
common stock. There can be no assurance that these negotiations will continue
or that they will fruitful and that an agreement will be reached.
The Company has, and continues to engage in several diverse development and
testing contracts within various departments of P&G. In addition, under the
terms of the agreement, P&G will be granted an Exclusive First Right of
Refusal for the purchase or license of all the current and future
technologies of the Company. There are no assurances that cash received from
these arrangements will be sufficient to meet the Company's operating needs
through February 28, 2001.
- 14 -
Cash used in operating activities was $1,103,164 for the nine months ended
November 30, 2000 compared to $130,331 for the nine months ended November 30,
1999. A large portion of this increase was due to the Company paying off
accrued liabilities and extremely aged accounts payables that had been
accumulating for a substantial amount of time. There was a decrease of
$429,098 in accounts payable and accrued liabilities for the nine months
ended November 30, 2000 compared to an increase of $146,982 for the same
accounts for the nine months ended November 30, 1999.
Net cash expenditures for property, equipment and developed patents were
$40,588 for the nine months ended November 30, 2000 compared to $12,678 for
the nine months ended November 30, 1999. This increase was due primarily to
Company updating, maintaining and filing new patents.
Net cash provided by financing activities for the nine months ended November
30, 2000 was $1,101,393. Proceeds of $196,000 were received from the issuance
of 392,000 common shares upon the exercise of the same number of warrants.
$750,000 was received from P&G during this period as part of the loan
described earlier. $150,000 was received from a private placement of the
Company's common stock at $.31 (thirty one cents) in October of 2000.
Subsequent ot November 30, 2000, the Company received an additional $40,000
in proceeds as a continuation of its private placement of common stock. Cash
provided by financing activities for the nine months ended November 30, 1999
was $167,082, due mainly to issuance of 157 shares of "Series C" preferred
shares.
Total assets increased to $493,160 at November 30, 2000 from $466,984 as of
February 29, 2000. This increase was mainly due to increase in accounts and
notes receivable from $70,723 at February 29, 2000 to $219,214 at November
30, 2000, offset by depreciation of fixed assets, amortization of patents and
a decrease in cash.
Total current liabilities increased to $1,377,990 at November 30, 2000 from
$1,060,173 at February 29, 2000, mainly due to the increase in notes payable
from $250,000 to $1,000,000, offset by a decrease in accounts payable of
$160,468 and a decrease in accrued liabilities of $268,631.
Plan of Operation
Under the Company's new plan of operations and revised operations strategy,
it will no longer attempt to act as a large volume manufacturer of products
using the Company's technology. Instead, the Company intends to act as a
provider of specialized and proprietary technologies to others and
manufacture small quantities of its products. The Company will direct efforts
toward the creation of technology bridges for other companies that will in
turn use the Cyclopss technologies to develop new products, processes and
services. The Company envisions that it will be able to create strategic
alliances, joint ventures and other partnerships with manufacturers,
equipment suppliers, and manufacturers and suppliers of disposable and
consumable products to utilize the Company's proprietary technologies under a
variety of licensing and royalty structures. This new business model will
permit the Company to better commercialize its technology, without having to
take on the significant cost of developing individual products or
manufacturing processes. Revenues will
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be derived through royalty and licensing arrangements from the
commercialization of the Company's products as well as research and
development efforts and services performed on behalf of others. This model
will allow the Company to more efficiently utilized its limited resources and
provide a more effective means of commercializing its significant technology.
The Company sold an EcoWash ozone laundry system to the US Navy, which was
shipped in the third quarter 2000 and paid in the fourth quarter 2000. Also,
the Company has entered into an exclusive relationship with Alliance Laundry
to jointly furnish Eco-Wash ozone laundry systems to the Navy. The Company
anticipates the manufacturing activity will become the function of Alliance
or some other contract manufacturer as demand from the Navy dictates. The
Company and Alliance are currently in discussions in regards to co-venturing
other commercial laundry markets other than the Navy. The Company continues
to seek industry participants for design and development work required in
modifying their existing products to accommodate the incorporation of the
Company's proprietary technologies. This model allows the Company to keep the
number of employees limited to specific requirements of the technology
application, and converts the Company into a technology purveyor.
This business model is illustrated by the current business relationship
between the Company, P&G and Otres, Inc. Cyclopss had established a working
relationship with P&G early in 1999. In May of 1999, the Company was
approached by the principals of Otres to assist in the development and
validation of a toothbrush sanitizer and a kitchen sponge sanitizer utilizing
ozone. The management of the Company determined the products could be of
great interest to P&G and, after having appropriate confidentiality documents
executed, Otres agreed to allow the Company to introduce the product concepts
to P&G. P&G determined they had products that would lend themselves to a
co-marketing relationship with the Otres appliances as long as the product
development was responsibly executed and the technology application proved
safe and effective. Both Otres and P&G engaged the Company for these
activities. The Company manages the relationship with P&G for Otres under
contract, and contributed to the execution of co-marketing agreements between
Otres and CREST(R) for the toothbrush sanitizer, and Otres and DAWN(R) for
the kitchen sponge sanitizer that were announced at the International Home
Appliance Show in Chicago on January 16, 2000. The Company negotiated to
receive an ongoing royalty from the sale of these appliances, which may
provide for potential future revenues with minimal related costs.
On October 6, 2000 the Company entered into a "Term Sheet/ Letter of
Agreement" to acquire Oxidyn Incorporated, a North Carolina Corporation.
Oxidyn manufactures and sells patented proprietary ozone sanitation systems
to the food and beverage industries. The acquisition is subject to a number
of specific conditions including the completion of due deligince by each
party, and providing Oxidyn with operationg cost of $40,000 a month. To date
the Company has made a loan of $80,000 to Oxidyn. As of the date of this
filing Oxidyn's preliminary audit suggest it will be unable to meet certain
primary conditions of the agreement. The Company will incur no further
expenses regarding the transaction unless new terms can be negotiated.
To better provide the personnel required under this business model the
Company moved its Research and Development activities to New Mexico in
February 2000. The Company maintains a limited administrative staff, and its
Biochemical division in its current offices in Salt Lake City, Utah.
Subsequent to the quarter end the Company has reduced the administrative
space in Salt Lake City, Utah from 6,400 square feet to 1,260 square feet, by
subleasing the extra space.
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The Company anticipates its revenues as well as the source of those revenues
to change significantly through establishment of these types of strategic
alliance relationships. However, there can be no assurance that the financing
as completed with P&G will be sufficient to offset cash demands, nor can
there be any assurance that any of the Company's products will be accepted in
such numbers as to make the royalty revenues significant enough to cover the
cost of operation.
Even with sufficient funds available, the ongoing challenge facing the
Company is that of educating potential partners, government, industry and the
end consumer about the benefits of ozone. Ozone is a naturally-occurring
phenomenon that is usually associated with photochemical smog or an eroding
level of protection in our atmosphere. It is the Company's intent to provide
this education and show the beneficial side of ozone- decontamination. For
industry, ozone is a cost competitive and environmentally-friendly answer to
microbial contaminates. For the consumer, ozone kills harmful microorganisms
quickly and leaves behind no chemical residue.
The Biochem products will continue to be driven by customer requests and
increased sales will be derived from contract product development. Current
sales activities will be evaluated and alternatives looked for to improve
profit margins. Joint efforts will continue with Foster Miller, Inc., in
order to create a market for Biochem's monomer to the aerospace industry.
The information set forth herein as to anticipated research and development
costs, equipment purchases and increase in employees are management's best
estimates based upon current plans. Actual expenditures may be greater or
less than such estimates depending on many factors including, but not limited
to the availability of new technologies, the completion or lack of completion
of certain strategic alliances, and the timing and successful completion of
the Company's stated requirement to acquire additional operating and growth
capital, industry initiatives, success of the Company's research and
development efforts, and other factors.
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The private Securities litigation Reform Act
of 1995 provides a safe harbor for forward looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the
Company's business include, but are not limited to, the following:
1. Market acceptance of the Company's products;
2. Obtaining sufficient additional operating capital in the form of debt or
equity; 3. The existence of an orderly market in the Company's securities; 4.
Increased sales of the various products of the Company; 5. Continued success
in the Company's research and development activities; and 6. Successful
completion of strategic alliances.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior SecuritieNone.
Item 4. Submission of Matters to a Vote of Security HoldNone.
Item 5. Other Information.
Item 6(a). Exhibits and Reports on Form S-8. To register Executive
Employee Stock Option Agreements, register shares for director
fees, legal and consulting fees.
6(b)Exhibits and Reports on Form S-3. To register 3,573,024 shares
of Common stock that may be used by P&G in lieu of cash
repayment of the $1,000,000 Promissary Note as described
above.
6(c)Exhibits and Reports on Form 8-K. To report on the possible
acquisition of Oxidyn Incorporated , by Cyclopss Corporation.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CYCLO3PSS CORPORATION
Date: January 15, 2001 By/s/ William R. Stoddard
----------------------------
William R. Stoddard
Chief Executive Officer
Principal Executive Officer
Date: January 15, 2001 By/s/ Mondis Nkoy
-----------------------------
Mondis Nkoy
Controller, Corporate Secretary
Principal Financial Officer
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