Item 1. BUSINESS
A. General
CDX Corporation is a Colorado corporation incorporated in 1978 with its corporate offices headquartered in Providence, Rhode Island.
The Business of the Company has consisted of the sale of computerized pulmonary diagnostic equipment which is used in the medical profession to test for indications of lung or congestive heart disease. Approximately 10,000 units have been sold.
In December 1994 the Company acquired Compliance Systems, a manufacturer of infection control products which provide emergency personnel with protection during trauma response situations and assist compliance with certain OSHA mandates. In FY96 the Company also introduced a new version of its Instant Response Mask (IRM) with improved features designed to protect personnel involved in administering emergency cardio-resuscitation techniques to compliment the Compliance Systems product line.
CDX also generates revenue from the sale of consumable and accessory items associated with its diagnostic equipment. In addition, the Company has developed an upgrade for its spirometers marketed to existing customers. The Company has an updated version of its Model 110S spirometer currently which incorporates the latest technology. This product is marketed to physician offices, hospitals and industrial sites.
B. Products And Services
Approximately 17% of the Company's gross revenues in its most recent fiscal year was attributable to the sale of its testing machines, 59% of gross revenues was attributable to sales of consumable and accessory items and 9% of gross revenues was attributable to repairs and maintenance. Bio-hazard control products and the IRM comprised 13% of sales.
The Company's objective is to increase gross revenues with the introduction of the upgrade and upgraded version of the current spirometer and to aggressively pursue the export markets. A new version of the Instant Response Mask was released in December 1995. Although initially well received, this product has not lived up to the Company's expectations and marketing efforts and expenditures in connection with it have been greatly reduced.
The types of products which the Company currently markets are described below.
1. Instant Response Mask Provides protection against the transmission of infectious pathogens during the administration of emergency resuscitation techniques such as CPR.
2. 110S Spirometer Computerized pulmonary diagnostic equipment which is used in the medical profession to test for indications of lung or congestive heart disease.
3. 110M Spirometer A metric version of the 110S Spirometer specifically designed for the international markets.
4. 110MAX Spirometer An upscale version of the 110S Spirometer with additional features.
5. Biosponse A portable bio-hazard spill kit for bloodborne pathogens which complies with OSHA regulation.
6. Biopail A complete clean up and personal protection for first reponders against blood pathogens contained in a refillable two gallon pail meeting OSHA Regulations.
Additionally, the Company provides for sale of disposable and accessory items associated with its testing equipment as well as maintenance and service agreements; it also offers disposable items for the infection control markets.
C. Marketing And Customers
The Company's principal customers have historically been primary care physicians, group practices, clinic, and medical centers. Portable spirometers are typically used by internists, family physicians, and general practitioners in their offices to conduct preliminary diagnostic tests of a patients pulmonary function. Spirometers are also used extensively in industry to provide screening diagnosis, establish baselines and monitor pulmonary function in the workplace. The Company's customer base includes pulmonologists, allergists, and cardiologists who require the speed, accuracy, and flexibility of hospital-based systems in a small, light-weight, portable system.
During the year ended June 30, 1997, the Company did not have any one customer responsible for 10% or more of sales activity or revenues.
The Company currently markets its products directly to retail customers from its Rhode Island office and through medical equipment dealers and distributors, supported through a network of factory trained manufacturer's representatives. The Company supports this sales network through direct mail, advertising in clinical and trade publications, and participation in national and regional trade shows.
Relative to the IRM mask, the Company held exclusive worldwide distribution rights under terms of an agreement with Valley Forge Scientific. During FYE 6.30.96 the Company relinquished its exclusive rights and has undertaken to co-distribute the IRM with Valley Forge in return for a 10% royalty on all IRM sales by Valley Forge.
D. Product Development
The Company has undertaken a product development program with the ultimate objective of the following:
The development of products specifically targeted at the equipment needs of the physician's office. During the year ended June 30, 1996, the Company spent $8,657 on research and development.
Further, in March 1995 the Company acquired all rights to certain technology relating to the firefighting and industrial markets from Global Environmental Technologies, Inc. The Company had planned to develop prototype units and was involved in strategic discussions with several interested parties which have established presence in these markets. The Company has abandoned pursuit of this project.
E. Products Protection
The company holds a patent issued by the U.S. Patent office in 1981 for the overall structure and function of its remote pulmonary function tester known as the CDX 110. The Company's current products have protection under certain claims of this patent. The patent does not apply outside the United States.
The Company holds a federal trademark "CDX" which is used on its products. The Company uses additional trademarks related to the IRM mask.
The Company's developmental efforts on the IRM mask has resulted in a U.S. patent application. As per the terms of an agreement between the Company and Valley Forge Scientific this patent has been assigned to Valley Forge. Under the further terms of this agreement, the Company received the exclusive worldwide distribution rights for the IRM mask.
F. Backlog
The Company does not currently have any backlog of sales orders or delays of shipments due to lack of parts or supplies.
G. Competition
The market for the Company's products is characterized by rapid advancements in technology and by intense competition among a number of manufacturers and distributors. The Company believes that it competes favorably in the market; however, no assurance can be given that the Company will have the financial resources, marketing, distribution, service or support capabilities, depth of key personnel or technological expertise to compete successfully in the future.
H. Employees
As of June 30, 1997, the Company employed two full-time employees.
Item 2.
Item 2. PROPERTIES
The Company's administrative offices and manufacturing facilities consist of approximately 3,500 square feet of office, manufacturing and storage space which it leases from a related party. The Company believes that its rental costs are equal to or less than those which would be charged for comparable space on month to month basis by a third party. The facilities have been rented on a month to month basis since March 1, 1995. Rental space is available in the area, and the Company expects to be able to continue to obtain a lease for adequate space at costs comparable to its current rent.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The corporation did not submit any matter to a vote of security holders during the year ended June 30, 1997.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS
There is no established public trading market for the Corporation's common stock. The stock is traded over-the-counter in privately negotiated transactions between market makers and brokers. Prices are published in the pink sheets issued by the National Quotation Bureau, but sales are not systematically reported by market makers and brokers.
Holders
Based upon the number of record holders, the approximate number of shareholders of the common stock of the Corporation as of June 30, 1997 was 809.
Dividends
No dividends have been declared during the past fiscal years with respect to common stock.
Item 6.
Item 6. SELECTED FINANCIAL DATA
MARKET INFORMATION
CDX Corporation's common stock is traded over-the-counter in privately negotiated transactions between makers and brokers.
These market quotations are from the National Daily Quotation Service. They reflect prices between dealers without retail mark up, mark down or commission. They do not represent actual transactions. No dividends have been declared during the past two fiscal years with respect to common stock.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales and Operating Revenues for FY 97 decreased by $14,402 which is down approximately 4% from the previous fiscal year. This compares with a decrease of $51,242, or approximately 12%, in similar figures for FY 96 to FY 95. Cost of Sales decreased by $47,648 for FY 97 compared to FY 96, with the Company sustaining an Operating Loss of $104,327. During the previous fiscal year, costs and expenses increased by $78,439 from those of FY 95 resulting in an Operating Loss of $195,928. FY 95 also showed an Operating Loss of $66,193. Operating Losses as a percentage of Net Sales were 27.5%, 49.7% and 14.9% for FY 97, FY 96 and FY 95, respectively. Management plans to renew its efforts to reduce expenses and bring them into line with margins as was successfully implemented in FY95 resulting in reduction of $254,460 in Operating Costs and Expenses compared with FY 94.
Cost of Goods Sold as a percent of Net Sales decreased from 59.8% (235,441) in FY 96 to 49.5% ($187,793) in FY 97 due primarily to decreased cost of raw materials and greater use of contract services. Similar costs for FY 95 to FY 96 increased from 52.3% ($232,924) to 62.7% ($247,463) of Revenues.
Selling and Administrative Expenses decreased overall by $58,388, to $296,142 for FY 97 from $354,430 for FY 96. As a percentage of Net Sales these figures were 78.0% and 90.0% respectively which represents a 12.0% decrease in such expenses between the two years. Comparable expenses for FY 95 were 62.6% ($278,554). The decrease in percentages of expenses shown in FY 97 and FY 96 reflects a decrease in certain marginal advertising.
Interest expense for FY 97 increased $7,635 to $18,065 for the entire year. In FY 96, interest expense decreased $1,358. Interest income decreased by $75 in FY 97 from the prior year due to reduced cash levels during FY 97. FY 96 interest income of $95 represented a $248 decrease from FY 95.
Inflation has had a minimum impact upon the Revenues and Costs of the Company.
Liquidity And Capital Resources
In fiscal year 1997, the Company's liquidity remained constant. This compares with a decrease of $150,440 for FY 96. In FY96 this was due to favorable working capital changes related to collections on accounts receivable and increases in inventory which were offset by operating losses and increases in accounts payable in connection with marketing efforts for the IRM mask and increased borrowing from an officer. In FY97 the stabilizing liquidity was the result of consistency in inventories, prepaid expenses and certain capitalized development costs offset by operating losses and consistency in accounts payable, accrued expenses and short term borrowings from an officer.
The Company expects that its current working capital position is sufficient to continue to meet operating requirements during the coming fiscal year and that it has sufficient reserves to meet some unforeseen contingencies given a continued willingness on the part of several of its officers to fund deficits with loans.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this report.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Corporation, their ages, their positions held in the Corporation and the term during which each served in such position are as follows:
DIRECTORS
Year First Elected Name and All Positions or Nominated to Held With the Corporation Age Become a Director
Harold I. Schein 61 1985 Chairman of the Board, Treasurer and Director
Philip D. Schein 33 1989 President, Secretary and Director
Officers and directors are elected on an annual basis. The present term of office for each director will expire at the next annual meeting of the Company's stockholders at such time as his successor is duly elected.
Officers serve at the discretion of the Board of Directors.
EXECUTIVE OFFICERS
Name and All Positions Year First Term of Currently Held Elected to Office With the Corporation Age This Office Expiring
Harold I. Schein (2) 61 Chairman of the Board, 1989 (1) Chief Executive Officer, 1989 (1) Treasurer, 1989 (1) Director 1985 (1)
Philip D. Schein (2) 33 President, 1992 (1) Secretary, 1989 (1) Director 1989 (1)
(1) The executive officers serve at the pleasure of the board of directors and do not have fixed terms.
(2) Philip D. Schein is the son of Harold I. Schein
HAROLD I. SCHEIN, 61, serves as Chairman of the Board, Chief Executive Officer, Treasurer and a Director. Mr. Schein, since January 1990, has been President of Richmond Square Capital Corporation, a Small Business Investment corporation which is licensed by the SBA. Prior to 1990, Mr. Schein served as chairman and chief executive officer of William Bloom & Son, Inc, a manufacturer of store fixtures. From March 1989 to September 1992, Mr. Schein also served as chairman of Piezo Electric Products, Inc. of Metuchen, New Jersey, a publicly owned company. He is also a developer of commercial real estate. Mr. Schein became chairman of the board of directors and treasurer of the Corporation in March 1989.
PHILIP D. SCHEIN, 33, serves as President, Secretary and a Director. Mr. Schein became secretary of the corporation in March 1989 and assumed the office of president in October 1992. Prior to this, Mr. Schein held the position of Executive Vice President of William Bloom & Son, a manufacturer of custom store fixtures, where he was in charge of sales and manufacturing. He is a 1985 graduate of Boston University.
Item 11.
Item 11. EXECUTIVE COMPENSATION
No executive officer received in excess of $100,000.
No executive officer of the Corporation received other compensation not reported in the above cash compensation table in excess of $25,000 or 10% of the compensation reported in the above cash compensation table.
Directors who are not regular, full-time employees may be compensated for service on the board of directors at the rate of $1,500 per director per quarter, i.e., $6,000 annually. In order to qualify for quarterly compensation, a director must attend the majority of meetings held within the quarter. No such payments have been made since 1989.
SUMMARY COMPENSATION TABLE Annual Compensation
Long Term Compensation Awards
Securities Name & Principal Fiscal Other Annual Underlying Position Year Salary Compensation(1) Option/SARS(#) ________________ ______ _______ ____________ ______________
Philip D. Schein 1997 $65,000 5,000 President & CEO 1996 65,000 15,000 1995 65,000 0
Harold I. Schein 1997 $ 0 17,500 Chairman & 1996 0 0 Treasurer 1995 0 5,000
(1) Certain perquisites provided to each of the named executive officers totaled less than 10 percent of each officer's total salary and Stock Option Grants.
OPTION/SAR GRANTS TABLE
(1) Market value of underlying securities at grant date discounted by two-thirds to reflect restrictive provisions, minus exercise or base price.
(1) Market value of underlying securities at FYE 6.30.97 discounted by two-thirds to reflect restrictive provisions, minus exercise or base price.
Stock Option Plan
In November, 1987, the Shareholders of the Corporation approved an incentive stock option plan which provides that options may be granted to officers and employees, with a maximum aggregate number of 150,000 shares issuable under the plan. Shares underlying granted options are exercisable 25% on the date of grant and 25% each year thereafter on a cumulative basis. Unexercised options lapse ten years after the date of grant or expire within 90 days of termination of employment. Exercise price is fair market value of a share of common stock at date of grant. The plan has a term of ten years.
In November 1987, the Directors of the Corporation approved a Non-Qualified Stock Option Plan for employees, consultants and directors. The Corporation has reserved 60,000 unregistered shares of its common stock for use in this plan. During 1993, the Board of Directors reserved another 1,440,000 unregistered shares of its common stock for use in this plan. Each of the four outside directors were granted options for 15,000 shares at $.10 per share exercisable during their continuation as an employee, director or advisory member of, or consultant to the Company, and for the three year period thereafter. In addition, during 1993, the Company granted one of its
directors options for 250,000 shares at $.10 per share and granted one of its consultants options for 77,800 shares at $.05 per share.
A summary of the plans at June 30, 1997 is as follows:
TOTAL SHARES SHARES AT OPTION OPTION RESERVED OUTSTANDING PRICE ____________ ________________ _______
1987 Incentive Stock 150,000 0 n/a Option Plan
1987 Non-Qualified Stock Option Plan 1,500,000 310,000 $.10 77,800 $.05 100,000 $.25 15,000 $.25 22,500 $.25
In December 1992, the Company issued 600,000 warrants for its common stock to certain of its officers and consultants in return for services. The warrants are exercisable at $.02 per share with an expiration date of December 31, 1998. Also, in February 1995, the Company issued 75,000 warrants for its common stock to an investor in connection with a loan. The warrants are divided into three equal classes with exercise prices of $0.25, $0.375 and $0.50 respectively with all classes expiring in February 1998.
Item 12.
Item 12. CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to persons other than management (see the following table) who are known to management to beneficially own more than 5% of the outstanding voting stock as of June 30, 1997.
Title Name and Address Amount and Nature of Percent of of Class of Beneficial Owner Beneficial Ownership Class ________ ___________________ ____________________ __________
Common Mendel S. Kaliff 247,223 Direct 5.6% Stock 70 N.E. Loop 410 No. 450 San Antonio, TX 78216
The following table sets forth the security ownership of all directors and executive officers of the corporation as of June 30, 1997.
Title Name of Amount and Nature of Percent of of Class Beneficial Owner Beneficial Ownership of Class Position ________ ________________ ____________________ __________ ________
Common Harold I. Schein 2,616,737 (1) 59.6% Treasurer, Stock Director, and Chairman of the Board
Common Philip D. Schein 426,000 (2) 9.7% President, Stock Secretary, Director
Common Directors and 3,042,737 69.3% Stock Officers as a Group (2 persons) ____________________________
(1) Shares subject to sole investment and voting power. Includes options and warrants granted by the corporation to purchase 585,000 shares, as to which option shares the optionee/warrantholder disclaims beneficial ownership.
(2) Shares subject to sole investment and voting power. Includes options and warrants granted by the corporation to purchase 215,000 shares, as to which option shares the optionee/warrantholder disclaims beneficial ownership.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a lease agreement on March 26, 1990 with a related party to rent its facilities in Providence, Rhode Island. Base monthly rental payments were modified to $2,500 beginning October 1995 and the lease term is five years, expiring on February 28, 1995. In May of 1996 the Company and related party modified the terms of the lease to month to month rental payments of $1,500. The Company subleases a part of this space to an unrelated party for $500 per month. The Company believes this to be at or below the rent for comparable space.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Opinions of independent public accountants dated May 27, 1998 on the financial statements as follows:
Balance Sheets, June 30, 1997 and 1996.
Statements of Earnings for the years ended June 30, 1997, 1996 and 1995.
Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995.
Statements of Changes in Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995.
2. Financial Statement Schedules: All schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted because they are not required if the information is shown in the financial statements and notes thereto.
(b) Reports on form 8-K No reports on Form 8-K were filed.
(c) Exhibits
See the Index of Exhibits immediately preceding the exhibits attached to this report. The exhibits are incorporated herein by this reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CDX CORPORATION (Registrant)
/s/Philip D.. Schein
By: __________________ Philip D. Schein President
Dated: May 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Harold I. Schein
_______________________ Chairman of the Board, May 31, 1998 Harold I. Schein Treasurer and Director
/s/Philip D. Schein
_______________________ President, Secretary and May 31, 1998 Philip D. Schein Director
INDEX TO EXHIBITS
(a) Exhibits:
The following documents are filed herewith or have been included as exhibits to previous filings with the Commission and are incorporated herein by this reference:
Exhibit No. Document * 3.1 Restated Articles of Incorporation dated July 3, 1985 (incorporated by reference to the exhibits and Registrant's report filed on Form 10-K dated September 25, 1985)
* 3.2 Articles of Amendment dated December 4, 1987 to the Restated Articles of Incorporation (incorporated by reference to the exhibits to Registrant's report filed on Form 10-K dated September 15, 1989)
* 3.3 Bylaws dated July 5, 1985 (incorporated by reference to the exhibits to Registrant's report filed on Form 10-K dated September 15, 1989)
x 23.1 Consent of Counsel, Mark T. Thatcher, P.C.
x 23.2 Consent of Cayer, Prescott, Clune & Chatellier, LLP, Independent Certified Public Accountants
x 27.0 Financial Data Schedule ______________
* Incorporated by reference from the issuer's Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
x Filed herewith
CDX CORPORATION
FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1997, 1996, and 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors CDX Corporation
We have audited the balance sheets of CDX Corporation as of June 30, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for the years ended June 30, 1997, 1996, and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CDX Corporation as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the years ended June 30, 1997, 1996, and 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 13. The financial statements do not include any adjustments that might result from this uncertainty.
May 27, 1998 /s/ Cayer, Prescott, Clune & Chatellier, LLP
CDX CORPORATION
BALANCE SHEETS JUNE 30, 1997 and 1996
ASSETS
1997 1996 ___________ __________ Current assets: Cash $ 1,305 $ 69 Accounts receivable - trade (net of allowance for doubtful accounts of $2,010 in 1997 and $1,560 in 1996) 39,488 53,177 Inventory 46,555 73,587 Prepaid expenses and other 17,473 6,497 Total current assets 104,821 133,330
Property and equipment - net of accumulated depreciation 20,228 22,806
Other assets: Invention rights and deferred product development costs (less accumulated amortization of $435,340 in 1997 and $432,298 in 1996) 60,869 27,945
TOTAL ASSETS $ 185,918 $ 184,081
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable - trade $ 159,617 $ 182,659 Accounts payable - shareholder 270,500 243,544 Accrued interest payable 48,816 31,302 Accrued expenses 36,458 33,523 Total current liabilities 515,391 491,028
Other liabilities: Notes payable - officers 206,705 119,859 Notes payable 55,000 55,000 Total other liabilities 261,705 174,859
Stockholders' equity: Common stock, $.01 par value; 10,000,000 shares authorized, 4,888,093 and 3,588,093 shares issued at June 30, 1997 and 1996 48,881 35,881 Capital surplus 4,771,798 4,771,798 Deficit (5,411,857) (5,289,485) Less treasury stock; 166 shares, no assigned value ___________ ___________ Total stockholders' equity (591,178) (481,806) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 185,918 $ 184,081
SEE NOTES TO FINANCIAL STATEMENTS.
CDX CORPORATION
STATEMENTS OF OPERATIONS YEARS ENDED June 30, 1997, 1996, and 1995
1997 1996 1995 ___________ ___________ ___________ Revenues: Net sales and other revenues $ 379,608 $ 394,043 $ 445,285 Operating costs and expenses: Cost of sales 187,793 235,441 232,924 Selling & administrative expenses 296,142 354,430 278,554 Total operating costs and expenses 483,935 589,971 511,478
Operating loss (104,327) (195,928) (66,193)
Other income (expense): Interest expense (18,065) (10,430) (11,788) Interest income 20 95 343 Loss on investment (150) 2,610 Net other expense (18,045) (10,485) (8,835)
Net loss $ (122,372) (206,412) $ (75,028)
Net loss per common share $ (.028) $ (.057) $ (.022)
Weighted-average number of common shares outstanding 4,339,434 3,587,927 3,472,094
SEE NOTES TO FINANCIAL STATEMENTS.
CDX CORPORATION