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U.S. 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
For the period from inception (April 3, 1996) to December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_________ to___________
Commission file number 0-21633
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Bristol Technology Systems, Inc.
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(Name of small business issuer in its charter)
Delaware 58-2235556
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18201 Von Karman Avenue, Suite 305, Irvine, California 92612
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (714) 475-0800
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Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
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Common Stock, $.001 par value
Class A Redeemable Common Stock Purchase Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in the 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|
State issuer's revenues for its most recent fiscal year: $4,196,230 for
the period from inception (April 3, 1996) to December 31, 1996.
The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $22,774,505 (computed using
the closing price of $9.875 per share of Common Stock on December 12, 1996 as
reported by NASDAQ, based on the assumption that directors and officers and more
than 5% stockholders are affiliates).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
There were 4,745,654 shares of the registrant's Common Stock, par value $.001
per share, and 718,750 of the registrant's Class A Redeemable Common Stock
Purchase Warrants outstanding on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check One): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Bristol Technology Systems, Inc. was founded and incorporated under the
laws of the State of Delaware on April 3, 1996. The Company is building a
national network of full service point-of-sale ("POS") dealers through the
selective acquisition of targeted POS dealers and then seeking to enhance the
profitability of acquired dealerships through economies of scale, improved
value-added operations, improved training of personnel and faster on-site
service, greater product diversity, focused leasing programs, major and national
account programs and enhanced service and support of end user installations.
Through December 31, 1996, the Company has acquired two multi-office POS
systems dealerships, Cash Registers, Incorporated ("CRI") and Automated Retail
Systems, Inc. ("ARS"), which sell POS systems and other products, as well as
provide technical support and supplies to their customers. Unless the context
otherwise requires, the term the "Company" is used in this report to refer to
Bristol Technology Systems, Inc. and its subsidiaries.
INDUSTRY OVERVIEW
The POS industry is a multi-billion dollar industry comprised of two
fundamental product groups: the POS system and the Electronic Cash Register,
("ECR"). POS systems collect and process data with communications capability.
ECRs, on the other hand, are stand-alone type products that do not have these
capabilities. A POS system is used at the "point of sale" in a retail
establishment. It leads or prompts the retail clerk through a sales transaction
with a customer. The POS system collects detailed information, including credit
information, about the transaction. Standard components of a POS system include
a display terminal to view the transaction, a keyboard for data entry, a cash
drawer for collecting funds, a printer to prepare a written record of the
transaction, a server for processing data and coordinating communications, and
software to guide the clerk through the transaction. Typically, a number of
these sophisticated "registers" are installed in a retail establishment, thus
allowing multiple departments or locations to enter transactions simultaneously.
The ECR is a less expensive and less sophisticated alternative to the POS
system, comprised of a stand-alone cash register that is electronic rather than
mechanical. The primary target markets for the products supplied by the Company
are supermarkets, convenience stores, quick service restaurants and higher-end
table service restaurants.
In 1995, there were more than 5.6 million cash registers (both POS systems
and ECRs) in use in the United States. Approximately 800,000 units (POS systems
and ECRs) are sold per year. The Company anticipates that retailers with ECRs or
older POS systems will replace their units or systems sooner than in the past
and thus take advantage of new product features that are being introduced.
While the industry has several large manufacturers that continue to sell
their product on a direct basis, today more than half of all product placements
are made by POS dealers. All manufacturers use POS dealers to distribute their
products to the marketplace, and some manufacturers use POS dealers as their
exclusive means of distributing their products to the marketplace.
The industry's total revenue has grown each year, fueled by the increasing
sales of POS systems. Retail Automation 1995 and Beyond, (C)1995 by the Retail
Automation Research Office, has reported that, currently, the number of POS
systems installed annually is approximately equal to the number of stand-alone
ECRs installed each year (approximately 400,000 for each).
DISTRIBUTION CHANNELS
Today, there are two principal distribution channels for POS systems and
ECR products to reach the end user: (i) the "Direct" channel and
(ii) the "Dealer" channel. The Direct channel consists of
manufacturers that sell directly to large national "major retail" chains. Less
than half of all units sold were attributable to the Direct channel. The POS
Dealer channel consists of more than 3,000 independent businesses which sell to
all types of retail end-users.
The typical POS dealer is privately owned. The dealership normally
concentrates on only a few manufacturers for its key products and sells and
services these products on a local basis. The basic dealership functions are
sales, in-house and on-site service and administration. Based on the Company's
experience in evaluating POS dealers as acquisition candidates, the Company
believes that the typical POS dealer derives its revenue from the sale of
hardware, software and service. Service revenue comes from the ongoing service
and supply stream from the installed base of systems. In many cases, the retail
customer agrees to a fixed monthly future service contract to support its POS
equipment. This built-in stream of revenue makes the dealer less susceptible to
economic swings in the economy.
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COMPANY STRATEGY
The Company's objective is to capitalize on the developments described
above by consolidating regional POS dealers, thereby leveraging already
established regional channels and customer relationships to achieve synergistic
growth of revenue and improved profit performance through a program of dealer
acquisitions. Key elements of the Company's strategy include:
Rationalization of Business Combinations. The Company intends to achieve
operating efficiencies through:
Reduced Administrative Expenses. The Company intends to reduce certain
administrative expenses and introduce improved operating systems after a
business is acquired.
Improved Buying Practices. The Company will strive to earn the maximum
available discounts and other benefits and incentives through a careful process
of supervised buying and inventory control.
Manufacturer Assistance. The Company plans to initiate negotiations
with key manufacturers to develop a joint approach to increase market share
throughout the United States. Management believes that this should strengthen
the manufacturers' presence in certain markets while initiating a presence in
others. It is the Company's goal to become a significant purchaser of products
from these manufacturers.
Centralized Functions. The Company plans to centralize certain
functions, such as cash management, legal and auditing services, employee
benefits, and property, casualty and worker's compensation insurance, to achieve
greater efficiencies. It is the Company's objective that these programs will
result in direct cost reductions for the Company.
Leasing Programs. A portion of the product sold by a dealer is
actually sold under lease programs. The Company intends to consolidate these
leases with one national leasing organization that can assist in program
development and enable the Company to realize an additional cost reduction based
upon its total leased sales.
Decentralized Management. The Company intends to manage on a decentralized
basis and to maintain an environment attractive to entrepreneurs by providing
the opportunity for local managers to focus on marketing and expansion of their
business. The Company intends to foster an environment attractive to
entrepreneurs by acquiring POS dealers interested in remaining involved with the
acquired organization under long-term contracts containing appropriate
incentives. The Company also intends to provide the opportunity for the local
managers to share specialized POS expertise with other Company dealers.
Hub and Spokes. A key element of the Company's operating policy is based
on the "hub" and "spoke" concept. The Company's strategy is to acquire hub
dealers with (i) a substantial base of revenue, (ii) an
established customer base and market share in key geographic regions,
(iii) strong key management interested in being involved in the
Company's network and (iv) the potential to benefit from the Company's
uniform operating procedures. The Company plans to assist its hubs in acquiring
smaller POS dealers which will be the "spokes" in their regions. Management
believes that the acquisition of "spoke" POS dealers will increase profit
margins through elimination of redundant administrative costs and the
acquisition of sales volume.
Regional Geographical Structure. To accelerate the establishment of a
national POS dealer channel, the Company initially will seek to acquire one or
more hubs in each of five key regions on the United States: the West, East,
Midwest, Southeast and Southwest.
ACQUISITIONS
As part of the Company's acquisition strategy, on June 28, 1996, the
Company completed the purchase of all of the outstanding Common Stock of CRI, a
POS systems dealer in Kentucky and southern Ohio. The total purchase price was
$954,962 and included a cash payment of $883,001 and acquisition costs of
$71,961. CRI sells POS systems, support services and supplies to approximately
1,500 retail establishments, primarily supermarkets and quick service
restaurants.
On December 31, 1996, the Company acquired Automatic Register Systems,
Inc., a POS systems dealer in the Northwest United States, through a merger of
Automatic Register Systems, Inc. into a wholly-owned subsidiary of the Company.
In consideration for the merger, the shareholders of Automatic Register Systems,
Inc. received $1,025,023 in cash and 58,154 shares of non-registered restricted
Common Stock of the Company which were valued at $683,349 at December 31, 1996.
ARS sells, installs and services POS systems and cash registers at supermarkets,
quick service food outlets, restaurants, and other retail establishments.
On February 28, 1997, the Company entered into a definitive agreement
providing for the merger of Micro Data, Inc. ("Micro Data"), a POS dealer with
operations in Kentucky and Illinois, into CRI. Micro Data's shareholder will
receive cash of approximately $82,000 and shares of non-registered, restricted
Common Stock of the Company worth approximately $140,000 as consideration for
the merger, subject to adjustment as defined in the agreement. The merger is
expected to close on April 1, 1997, and is subject to certain terms and
conditions as set forth in the agreement. The transaction will be recorded under
the purchase method of accounting.
On March 27, 1997, the Company entered into a definitive agreement
providing for the merger of International Systems & Electronics Corporation
("ISE"), a POS dealer with operations in Florida, into Bristol Merger
Corporation, a wholly-owned subsidiary of the Company. As consideration for the
merger, ISE's shareholder will receive cash of approximately $1,100,000 and
shares of non-registered, restricted common stock of the Company worth
approximately $750,000, subject to adjustment as defined in the agreement. The
transaction will be recorded under the purchase method of accounting. The
merger is expected to close on April 30, 1997, and is subject to certain terms
and conditions as set forth in the agreement.
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The Company is currently engaged in discussions regarding other possible
acquisitions, some of which could be material. However, the Company currently
has not entered into any definitive agreements with respect to any acquisitions
that are, individually or in the aggregate, material to the Company, other than
the Micro Data and ISE agreements as discussed above.
COMPETITION
The POS industry is highly fragmented and competitive. Competitive factors
within the industry include product prices, quality of products, service levels,
and reputation and geographic location of dealers. The Company primarily
competes with independent POS dealers and some of these dealers are currently
larger and have greater financial resources than the Company. In addition, there
are original equipment manufacturers that compete in certain product areas. The
Company's ability to make acquisitions will also be subject to competition.
Although management is not aware of any other company that is actively
attempting to consolidate this industry, management believes that, during the
next few years, competing POS dealers may seek growth through consolidation
through and with entities other than the Company. No assurance can be given,
furthermore, that the major manufacturers will not choose to expand the
distribution of their products through their own wholesale organizations or
effect distribution directly to many of the retail accounts of the Company in
the markets served by the Company.
MAJOR CUSTOMERS
The Company's largest customer, Seed Restaurant Group, accounted for
approximately 33% of net revenue for the period from inception (April 3, 1996)
to December 31, 1996. This customer has both company-owned stores and
independent franchisee stores. To date, substantially all of the company-owned
stores and independent franchisee stores have purchased their POS systems from
the Company. However, the Company and this customer have no written agreement
related to the purchase of new equipment and, accordingly, the customer may
cease purchasing new equipment from the Company at any time. The Company and
this customer do have a written contract whereby the Company has agreed to
provide maintenance services for certain equipment installed by the Company in
this customer's stores. The loss of or a decline in orders from this key
customer could have a material adverse effect on the Company's financial and
operating results. No other customer accounted for more than 10% of the
Company's net revenue for the period from inception (April 3, 1996) to December
31, 1996.
The Company acquired ARS on December 31, 1996. For the year ended December
31, 1996, ARS had two customers whose sales represented more than 10% of ARS's
net revenues. These two customers accounted for approximately 18% and 16% of
ARS's net revenues, respectively. ARS's net revenues for the year ended December
31, 1996 are not included in the Company's consolidated financial statements for
the period from inception (April 3, 1996) to December 31, 1996.
PRINCIPAL SUPPLIERS
During the period from inception (April 3, 1996) to December 31, 1996, the
Company purchased its hardware principally from two main vendors, ERC Parts,
Inc. ("ERC") a distributor of Panasonic products, and NCR Corporation ("NCR").
Sales of ERC and NCR products accounted for approximately 51% of net revenue for
the period from inception (April 3, 1996) to December 31, 1996. The Company has
supply agreements with both of these manufacturers. The agreements are
non-exclusive, have geographic limitations and have renewable one-year terms.
ARS, which was acquired by the Company on December 31, 1996, is a dealer
for NCR, Panasonic, International Business Machines and ICL Fujitsu equipment.
RESEARCH AND DEVELOPMENT
The Company has not engaged in any research and development activities for
the period from inception (April 3, 1996) to December 31, 1996.
EMPLOYEES
As of December 31, 1996, the Company had 100 full-time and 5 part-time
employees, of whom 60 were employed in customer services, 25 in finance and
administrative services, and 20 in sales and marketing. Of the total, 4 were
employed at the Company's corporate office, 65 were employed at CRI and 36 were
employed at ARS. No employee of the Company is covered by a collective
bargaining agreement or is represented by a labor union. The Company considers
its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's general policy is to lease, rather than own, its
business locations. The Company leases numerous properties for administration,
sales and service, and distribution functions. The terms vary under the
respective leases, although in general, the Company's lease agreements require
it to pay its proportionate share of taxes, common area expenses, insurance, and
related costs of such rental properties.
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The Company subleases its 2,205 square foot headquarters facility in
Irvine, California for a base monthly rate of $2,205. The Company also leases
approximately 22,000 square feet of office and warehouse facilities in Kentucky
and Ohio for its CRI operations, a portion of which is leased from Coye D. King,
a director of CRI. The Company's ARS operations utilize approximately 13,000
square feet of leased property, which includes an approximately 11,158 square
foot office facility in Seattle, Washington. In connection with the merger of
ARS into the Company, the Seattle facility lease agreement between ARS and
Michael J. Pollastro, President of ARS, Gary T. Pollastro, Vice President and
Treasurer of ARS, John E. Pollastro, Vice President and Secretary of ARS, and
Carmen Pollastro was amended. The amended lease is at a monthly rate of $15,063
and expires in December 2003.
In connection with the proposed move of CRI from its current location
in London, Kentucky, the Company has agreed to negotiate in good faith a
definitive lease agreement with Stephen King and Andrew King, Vice Presidents of
CRI, as lessors, whereby the latter will lease to CRI up to 12,000 square feet
of office and warehouse space in a new, yet to be constructed, office complex in
London, Kentucky. Certain terms of the lease have already been agreed to, and it
is expected that when signed, the lease will be for ten years and the base
rental rate will be $6.00, $8.00 and $10.00 per square feet for years one, two
and three through ten, respectively. The Company expects that the remaining
terms of the lease will be competitive and as favorable to the Company as those
which could be obtained from unrelated third parties. Upon commencement of the
lease for the new office complex, the monthly lease for CRI's current space in
London, Kentucky will be terminated without penalty.
The Company believes that its leased facilities, and the anticipated
lease of the new office complex in London, Kentucky, are adequate for its
present needs and that suitable additional or replacement space will be
available on commercially reasonable terms, as required.
ITEM 3. LEGAL PROCEEDINGS.
The Company's subsidiaries have been from time to time a party to
various lawsuits and other matters involving ordinary and routine claims arising
in the normal course of business. In the opinion of management of the Company,
although the outcomes of these claims and suits are uncertain, in the aggregate
they should not have a material adverse affect on the Company's business,
financial position or results of operations.
In September 1993, a judgement was entered in Bell Circuit Court,
Kentucky, on behalf of James J. Kreuger, a former employee of CRI, against CRI
and Coye D. King and Barbara King, former stockholders of CRI, in the amount of
$107,726 and accrued interest. The judgement arises from an alleged partnership
formed by the Kings and Mr. Kreuger and is currently on appeal. The former
stockholders of CRI have agreed to pay any and all amounts of the judgement in
excess of $83,000; provided, however, that the Company can only collect such
amounts from the former stockholders by offsetting amounts owed by CRI and/or
the Company to such stockholders pursuant to (i) the new lease of the new
London, Kentucky facility (discussed above) and (ii) bonus
arrangements described in certain employment agreements between the Company and
the former stockholders. At December 31, 1996, CRI had $83,000 accrued in
connection with the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock and Warrants have traded on the Nasdaq
SmallCap Market under the symbols "BTEC" and "BTECW," respectively, since the
Company's initial public offering of the Common Stock and warrants on November
13, 1996. Prior to November 13, 1996, there was no public market for the
Company's securities. The following table sets forth the high and low closing
sale prices for the Common Stock and Warrants for the period from November 13,
1996 through December 31, 1996 as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Common Stock $11 - 3/4 $9 - 13/16
Warrants 6 5
</TABLE>
As of February 28, 1997, the approximate number of record holders of
the Company's Common Stock and Warrants was 33 and 2, respectively. The Company
believes that a significant number of beneficial owners hold substantial shares
of Common Stock and Warrants in depository or nominee form.
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any available funds from earnings for future
growth and, therefore, does not anticipate paying any cash dividends on its
common stock for the foreseeable future. Until November 20, 1998, without the
Underwriters' consent, the Company is restricted from paying dividends in excess
of the amount of the Company's current or retained earnings derived after
November 20, 1996. Additionally, although CRI's and ARS's current lines of
credit do not expressly prohibit the Company from paying dividends, the lines of
credit do contain covenants which restrict the reduction or depletion of the
respective companies' capital. The Company anticipates that future financing,
including any lines of credit, may restrict or prohibit the Company's ability to
pay dividends.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed in
the "Risk Factors" section of the Company's final prospectus dated November 12,
1996, including but not limited to, limited operating history, risks related to
the Company's acquisition strategy, need for additional financing to implement
acquisition strategy, substantial competition, reliance on key personnel,
integration of CRI, dependence on manufacturers, current reliance on major
customer, fixed fee contracts, potential conflicts of interest, control by
management, potential inability to market newly developed products,
anti-takeover effects of certain charter and bylaw provisions, possible
volatility of stock price, possible environmental liabilities and absence of
dividends.
OVERVIEW
The Company was formed on April 3, 1996 to establish a national
network of full service point-of-sale "POS" dealers through the selective
acquisition of targeted POS dealers.
From April 3, 1996 to December 31, 1996, management of the Company devoted
substantially all of its efforts to the raising of capital, the identification
of dealership acquisition candidates and the acquisition of two dealerships, CRI
on June 28, 1996 and ARS on December 31, 1996. The following discussion and
analysis of the results of operations relates to 1) the consolidated statement
of operations for the Company for the period from inception (April 3, 1996) to
December 31, 1996 and 2) the stand-alone statement of operations of CRI for the
year ended June 30, 1996 compared to the year ended June 30, 1995. (Prior to its
acquisition by the Company, CRI had a fiscal year end on June 30.) The
discussion and analysis of financial condition relates to the consolidated
balance sheet of the Company at December 31, 1996.
RESULTS OF OPERATIONS OF THE COMPANY
For the period from inception (April 3, 1996) to December 31, 1996
Net revenue
The Company's net revenue is comprised of two components: (i) revenue
derived from the sale and installation of hardware and software ("Systems
Revenue") and (ii) revenue derived from the sale of service and supplies
("Service Revenue"). Net revenue for the period from inception (April 3, 1996)
to December 31, 1996 was $4,196,000 and was comprised solely of net revenue from
the Company's wholly-owned subsidiary CRI for the period from June 29, 1996 (the
day after the Company acquired CRI) to December 31, 1996. Net revenue was
comprised of $3,120,000, or 74%, of Systems Revenue and $1,076,000, or 26%, of
Service Revenue.
As discussed in "Major Customers" and "Principal Suppliers" under Item
1, "Business," the Company's largest customer, Seed Restaurant Group, accounted
for approximately 33% of net revenue for the period from inception (April 3,
1996) to December 31, 1996, and sales of products from the Company's two main
hardware vendors, ERC and NCR, accounted for approximately 51% of net revenue
for the period from inception (April 3, 1996) to December 31, 1996. A change in
the Company's relationships with this key customer or these principal vendors
could have a material adverse effect on the Company's financial and operating
results.
Gross Margin
Gross margin for the period from inception (April 3, 1996) to December
31, 1996 was 32% and was comprised solely of gross margin from CRI for the
period from June 29, 1996 to December 31, 1996. Total gross margin was comprised
of gross margin for Systems Revenue of 31% and gross margin for Service Revenue
of 36%.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses for the period
from inception (April 3, 1996) to December 31, 1996 were $1,452,000, or 35% of
net revenue. S,G,&A expenses consisted of two components: 1) corporate office
S,G&A expenses from April 3, 1996 to December 31, 1996 and 2) CRI S,G&A expenses
from June 29, 1996 to December 31, 1996. The Company anticipates that S,G&A
expense will increase during 1997 due to planned staffing additions at corporate
headquarters needed to integrate acquired companies and to support future
growth.
Interest Income and Interest Expense
Interest income of $43,000 was derived primarily from interest earned
on the investment of the Company's proceeds from its initial public offering.
The proceeds were received on November 20 and invested in a short-term,
interest-bearing money market fund.
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Interest expense of $46,000 consisted primarily of interest on
$817,500 of subordinated notes payable that were outstanding from June 30, 1996
to November 22, 1996 and from interest on outstanding balances on CRI's line of
credit from June 30, 1996 to December 31, 1996.
Income Taxes
The Company incurred income tax expense of $1,800 for the period from
inception (April 3, 1996) to December 31, 1996. Income tax expense consisted
solely of state taxes as the Company had a taxable loss for federal income tax
purposes.
RESULTS OF OPERATIONS OF CRI
Background on CRI
CRI was formed in 1974 and has been operated by its current management
team since July 1, 1993. The Company acquired 100% of the outstanding common
stock of CRI on June 28, 1996. Prior to its acquisition by the Company, CRI had
a fiscal year end on June 30.
Year ended June 30, 1996 compared to the year ended June 30, 1995
Net revenue
Net revenue for the fiscal year ended June 30, 1996 increased 45% to
$7,218,000 from $4,969,000 in 1995. The increase consisted of a 59% increase in
Systems Revenue and a 16% increase in Service Revenue from the year ended June
30, 1995. The increase in Systems Revenue is attributed to a focused effort to
increase the installed customer base along with a substantial increase in the
number of systems sold to CRI's largest customer. The increase in Service
Revenue was attributed to an increase in the installed customer base. CRI's
revenue growth historically has been a function of increasing system sales which
in turn has increased CRI's Service Revenue through a larger installed customer
base.
CRI's largest customer, Seed Restaurant Group, accounted for
approximately 44% and 24% of net revenue in the twelve months ended June 30,
1996 and 1995, respectively. No other customer accounted for more than 10% of
net revenue during these years. CRI purchased its hardware primarily from two
main vendors, ERC, and NCR. Sales of ERC and NCR products accounted for
approximately 39% and 15% of net revenue, respectively, for the twelve months
ended June 30, 1996.
Gross margin
Gross margin decreased to 32% in fiscal 1996 from 38% in fiscal 1995.
The gross margin for Systems Revenue decreased to 31% from 38% primarily due to
an investment in growing the installed base through aggressive pricing in 1996.
The gross margin for Service Revenue was 36% in fiscal 1996 compared to 39% in
fiscal 1995. The Service Revenue margin decrease was due to an investment of
approximately $150,000 in building the service department infrastructure to
support the increase in the installed customer base that is under maintenance
contract. CRI's gross margin is currently and historically has been the result
of the sales mix between higher and lower quality systems, the mix between
system and service sales, and the increase and cost of the number of personnel
needed to install new systems and service maintenance contracts.
Selling, general and administrative expenses
Selling, general and administrative expenses expressed as a percentage
of net revenue were 30% for fiscal 1996 as compared to 34% for fiscal 1995.
Selling, general and administrative expenses increased by $438,000 or 26%, to
$2,134,000 in fiscal 1996 from $1,696,000 in fiscal 1995. The increase in
expenses consisted primarily of increased payroll and related costs, including
commissions, required to support the growth of revenue.
Write-off of cash surrender value of officers' life insurance
Write-off of cash surrender value of officers' life insurance in
fiscal 1996 represents amounts written off because the ownership of the life
insurance policies was transferred to former owners and a former director of CRI
in contemplation of the acquisition of CRI by the Company.
Income taxes
The effective income tax rate was 35% for fiscal 1996 compared to 34%
for fiscal 1995.
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PLAN OF OPERATIONS FOR THE COMPANY
During the next 12 months, the Company will continue to operate its
two wholly-owned subsidiaries, CRI and ARS. In addition, the Company plans to
continue to identify, evaluate and acquire other POS dealerships that would fit
within its business strategy of acquiring and operating a network of dealers
which sell and service POS systems. It is the intention of the Company to
utilize various combinations of cash, promissory notes and stock in executing
acquisitions. On February 28, 1997, the Company entered into a definitive
agreement providing for the merger of Micro Data, a POS dealer with operations
in Kentucky and Illinois, into CRI. On March 27, 1997, the Company entered into
a definitive agreement providing for the merger of International Systems &
Electronics Corporation, a POS dealer with operations in Florida, into Bristol
Merger Corporation, a wholly-owned subsidiary of the Company. At the present
time, no other definitive agreements have been entered into with respect to
any acquisitions.
LIQUIDITY AND CAPITAL RESOURCES FOR THE COMPANY
The Company's cash totaled $5,476,000 at December 31, 1996. During the
period from inception (April 3, 1996) to December 31, 1996, the Company utilized
$44,000 for operations; utilized $2,035,000 for the acquisition of CRI and ARS
and $86,000 for the purchase of property and equipment; and generated $7,640,000
from investing activities, primarily due to proceeds received from the Company's
initial public offering.
On November 20, 1996, the Company successfully completed an initial
public offering of its common stock and warrants. The Company sold 1,437,500
shares of Common Stock and 718,750 Class A Redeemable Common Stock Purchase
Warrants. The Company raised net proceeds, after deducting underwriting
discounts and commissions and the expenses of the offering, of $7,046,000. On
November 22, 1996, $850,000 of these proceeds were used to repay $817,500 in
subordinated notes payable as well as $32,500 in accrued interest. On December
31, 1996, $1,025,023 of the proceeds were used in connection with the Company's
purchase of ARS. On March 25, 1997, $350,000 of these proceeds were used to
repay the outstanding balance under the CRI line of credit. The remainder of the
proceeds have been invested in short-term, interest-bearing, investment-grade
securities, including money market instruments.
CRI has a line of credit with a commercial bank which does not have a
termination date, but which is reviewed annually for renewal. At December 31,
1996, the line permitted borrowings up to $350,000. Borrowings under the line
bear interest at a rate which the Company and the bank mutually agree upon. At
December 31, 1996, the agreed upon interest rate was prime plus 1%. Borrowings
under the line of credit are secured by CRI's accounts receivable. As of
December 31, 1996, the Company had $285,629 outstanding under the line bearing
interest at 9.7% The line prohibits the reduction or depletion of CRI's capital
without 30 days prior written notice to the bank. On March 25, 1997, all amounts
outstanding under the line of credit were repaid, however, the line is still
available for future borrowings and thus provides a source of liquidity.
ARS has a line of credit arrangement with a bank which provides for
aggregate borrowings of $600,000 at the bank's prime rate plus 2.25%. The line
is collateralized by accounts receivable and inventories and matures on January
2, 1997. At December 31, 1996, outstanding borrowings under the line of credit
were $152,812. The line of credit requires ARS to maintain certain financial
covenants for which ARS was in compliance at December 31, 1996. ARS repaid all
amounts outstanding under the line in January 1997 and is currently
renegotiating the line of credit.
The Company has no significant commitments for expenditures other than
commitments under certain employment agreements, the lease of its corporate
and subsidiary offices and commitments under definitive agreements to purchase
Micro Data and ISE. The Company has entered into employment contracts with
key members of management, the terms of which expire at various times through
2001. The contracts provide for minimum salary levels and incentive bonuses
based on the attainment of certain management goals primarily based on pretax
profits of the Company's subsidiaries. If such goals are not met, the agreements
provide for certain guaranteed bonus amounts. The aggregate commitment for
future salaries and the guaranteed bonus amounts was $4,253,125 at December 31,
1996. In addition, the Company has entered into an employment contract expiring
in 2008 that provides a minimum salary and certain guaranteed bonus amounts
which are payable even in the event of termination for cause or upon death. The
commitment for future salaries and guaranteed bonus amounts under this contract
at December 31, 1996 was $441,500.
CRI has agreed to negotiate in good faith the terms of the lease to
move its current locations in London, Kentucky, and lease up to 12,000 square
feet of office and warehouse space to be constructed by two officers of CRI.
When signed, the lease will be for 10 years and the rental rate will be $6.00,
$8.00, and $10.00 per square foot for years one, two, and three through ten,
respectively. The Company has agreed to guarantee these lease payments. Upon
relocation to the new facility, leases for CRI's current office and warehouse
facilities will be terminated. ARS leases its 11,158 square foot office facility
in Seattle, Washington, from certain officers of ARS. The lease is at a monthly
rate of $15,063 and expires in December 2003. The mortgage on the Seattle
facility is guaranteed by ARS. The mortgage balance outstanding at December 31,
1996 was $343,000.
In September 1993, a judgement was entered against CRI and two of its
former stockholders, Coye King and Barbara King, in the amount of $107,726, plus
accrued interest. The judgement arose from an alleged partnership formed by
CRI's former stockholders and a former employee. CRI's former stockholders have
agreed to pay to CRI the amount, if any, by which the final, non-appealable
judgement exceeds $83,000. As of December 31, 1996, CRI has an accrual for
$83,000 to cover any amounts which may have to be paid related to the judgement.
<PAGE> 9
9
The Company estimates that its current subsidiaries, together with
corporate headquarters, will incur additional capital expenditures of
approximately $300,000 during the next twelve months.
On February 28, 1997, the Company entered into a definitive agreement
providing for the merger of Micro Data, Inc. ("Micro Data"), a POS dealer with
operations in Kentucky and Illinois, into CRI. Micro Data's shareholder will
receive cash of approximately $82,000 and shares of non-registered, restricted
Common Stock of the Company worth approximately $140,000 as consideration for
the merger, subject to adjustment as defined in the agreement. The merger is
expected to close on April 1, 1997, and is subject to certain terms and
conditions as set forth in the agreement.
On March 27, 1997, the Company entered into a definitive agreement
providing for the merger of International Systems & Electronics Corporation
("ISE"), a POS dealer with operations in Florida, into Bristol Merger
Corporation, a wholly-owned subsidiary of the Company. As consideration for the
merger, ISE's shareholder will receive cash of approximately $1,100,000 and
shares of non-registered, restricted common stock of the Company worth
approximately $750,000, subject to adjustment as defined in the agreement. The
transaction will be recorded under the purchase method of accounting. The
merger is expected to close on April 30, 1997, and is subject to certain terms
and conditions as set forth in the agreement.
Should the Company not acquire any additional dealerships other than
the acquisitions of Micro Data and ISE discussed above, management believes that
operating cash flow, available cash and available cash resources will be
adequate to make the repayment of indebtedness described herein, to meet the
working capital cash needs of the Company and to meet anticipated capital
expenditure needs during the next twelve months. However, it is the Company's
intention to identify, evaluate and acquire additional POS dealerships within
the next twelve months. The Company is currently engaged in discussions with
several other POS dealerships regarding possible acquisitions, some of which
could be material. However, the Company currently has not entered into any
definitive agreements with respect to any acquisitions that are, individually or
in the aggregate, material to the Company, other than the Micro Data and ISE
agreements as discussed above. Because the Company's cash requirements in the
future are heavily dependent upon the frequency and cost of future acquisitions,
as well as the combination of cash, promissory notes and stocks used in
executing acquisitions, it is impossible to determine at this time the effect of
the Company's acquisition strategy on its future cash requirements. If
significant acquisition opportunities arise, the Company may need to seek
additional capital to complete them.
SEASONALITY, QUARTERLY INFORMATION AND INFLATION
Historically, the Company's net revenues typically have shown no
significant seasonal variations, although seasonality of the Company's net
revenues may be affected in the future by general economic conditions and the
timing of acquisitions.
Quarterly results may be materially affected by the timing and
magnitude of acquisitions, general economic conditions and the timing and extent
of staffing additions at corporate headquarters necessary to integrate acquired
companies and support future growth. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
The effect of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on CRI's and the
Company's future operating results.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required to be filed hereunder are included
under Item 13 (a) (1) of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE> 10
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
As of February 28, 1997, the directors, officers and key employees of
the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard H. Walker 53 President, Chief Executive Officer and Director
Paul Spindler 66 Chairman of the Board, Executive Vice President,
Secretary
Lawrence Cohen 53 Vice Chairman of the Board, Executive Vice
President, Treasurer
Maurice R. Johnson 55 Vice President, Director (also President of CRI)
Dr. Jack Borsting 67 Director
Dr. Thomas Lutri 41 Director
Kelly Kaufman 30 Vice President of Finance
</TABLE>
RICHARD H. WALKER is a founder of the Company and has served as
President, Chief Executive Officer and a director of the Company since its
inception in April 1996. Prior to joining the Company, Mr. Walker served as
Chairman of the Board and Chief Executive Officer for Castle Office Systems,
Inc., a privately owned company that acquires and operates office machine
dealerships in the mid-Atlantic region of the United States, from April 1994 to
March 1996. Previous to that, Mr. Walker served as Vice President of Toshiba
America Information Systems, Inc. ("Toshiba") and General Manager of Toshiba's
Electronic Imaging Division from November 1989 to March 1994. Mr. Walker also
served as an executive of Matsushita Electric Corporation of America's office
automation group from March 1981 to November 1989, most recently as Vice
President, Marketing.
PAUL SPINDLER is a founder of the Company and has served as Chairman
of the Board, Executive Vice President and Secretary of the Company since its
inception in April 1996. Prior to joining the Company, Mr. Spindler served as
President of GCI Spindler, a corporate/investor relations and marketing
communications firm, from May 1987 to December 1996.
LAWRENCE COHEN is a founder of the Company and has served as Vice
Chairman of the Board, Executive Vice President and Treasurer of the Company
since its inception in April 1996. From November 1990 to September 1996, Mr.
Cohen served as Chairman of the Board of BioTime, Inc. ("BioTime"), a
biotechnology company engaged in the artificial plasma business. Mr. Cohen has
also served as a director of ASHA Corporation, a publicly traded supplier of
traction control systems, from April 1995 to present; a director of Apollo
Genetics Inc., a company founded by Mr. Cohen which is engaged in the genetic
pharmaceutical business, from January 1993 to the present; director of Registry
Magic Inc., a company founded by Mr. Cohen which develops voice recognition
equipment, from November 1995 to present; and a director of Kaye Kotts
Associates, Inc.
from April 1995 to the present.
MAURICE R. JOHNSON has served as Vice President and a director of the
Company since July 1996. From March 1, 1993 to the present, Mr. Johnson has
served as President and a director of CRI. From June 1992 to March 1993, Mr.
Johnson was a consultant to CRI. Prior to that time, Mr. Johnson served as Vice
President of Omron Systems, a manufacturer of electronic components and POS
systems, from August 1980 to February 1992.
DR. JACK BORSTING has served as a director of the Company since
November 1996. From August 1988 to the present, Dr. Borsting has been an E.
Morgan Stanley Professor of Business Administration at the University of
Southern California ("USC"). Since January 1995, Dr. Borsting has served as
Executive Director of the Center of Telecommunications at USC. Dr. Borsting
served as the Dean of the USC School of Business Administration from August 1988
to January 1994. From January 1994 to January 1995, Dr. Borsting was on
sabbatical. A former Assistant Secretary of Defense, Dr. Borsting is also a
director of Northrup Grumman Corporation, Whitman Medical and TRO Learning, Inc.
DR. THOMAS LUTRI has served as a director of the Company since
November 1996. Dr. Lutri was a founder of Gentle Care, Inc., a home health care
company in New York City, and has served as President and Chief Executive
Officer of Family Care, P.C., a New York walk-in medical clinic, from September
1987 to present.
KELLY KAUFMAN has served as Vice President of Finance since September
1996. Ms. Kaufman served as an Audit Manager from October 1993 to September 1996
and as an Audit Senior Accountant from April 1990 to September 1993 at the
accounting firm of Ernst & Young LLP. Ms. Kaufman holds a B.S. degree in
Accounting from the University of Illinois and is a Certified Public Accountant.
<PAGE> 11
11
All directors hold office until the next meeting of stockholders and
the election and qualification of their successors. Officers are elected by the
Board of Directors and serve at the discretion of the Board.
ITEM 10. EXECUTIVE COMPENSATION.
The following tables present information concerning the cash
compensation and stock options provided to the Company's Chief Executive Officer
and each additional executive officer whose total annualized compensation
exceeded $100,000 for the period from inception (April 3, 1996) to December 31,
1996 ("fiscal 1996"). The notes to these tables provide more specific
information regarding compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term
---------------------------------------- Compensation
Awards
Securities
Other Annual Underlying
Name and Fiscal Salary Bonus Compensation Options/SARs All Other
Principal Position Year $ $ ($) (#) Compensation
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Walker 1996 74,293 -- -- 100,000 --
President, Chief
Executive Officer &
Director
Maurice R. Johnson 1996 50,000 37,500(b) -- 37,500 1,495(c)
(a) Vice President,
Director (also President
of CRI)
</TABLE>
(a) Amounts disclosed for Mr. Johnson represent compensation earned subsequent
to the commencement of his employment with the Company on July 1, 1997.
(b) Under the terms of Mr. Johnson's employment agreement, subject to the sole
discretion of the Board of Directors as to whether he has performed his
duties satisfactorily, the Company will pay him a guaranteed minimum bonus
of $50,000 per annum; such bonus of $25,000 was paid to Mr. Johnson in 1996
for the period from July 1, 1996 to December 31, 1996. In addition, Mr.
Johnson was paid a bonus of $12,500 by the Company upon the Company's
completion of its acquisition of CRI.
(c) Amount represents the Company's matching contribution to the CRI 401(k)
plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Base
Options/SARs Employees in Exercise or Expiration
Name Granted (a)(#) Fiscal Year Price($/Share) Date
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard H. Walker 39,400 10.02% 6.00 7/31/01
60,600 15.41% 6.60 7/31/01
Maurice R. Johnson 37,500 9.54% 6.00 7/31/06
</TABLE>
(a) All options vest and become exercisable at the rate of 25% per year
commencing on the first anniversary of the date of grant.
<PAGE> 12
12
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SAR In-the-Money Options/SARs at
Fiscal Year-End (#) Fiscal Year-End ($)
------------------------ ----------------------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H Walker -- -- -- 100,000 -- 526,140
Maurice R Johnson -- -- -- 37,500 -- 210,938
</TABLE>
Compensation of Directors. The Company's directors do not receive any
cash compensation for service on the Board of Directors or any committee
thereof, but directors may be reimbursed for certain expenses in connection with
their attendance at Board and Committee meetings.
The 1996 Equity Participation Plan provides for a grant of options to
purchase 10,000 shares of Common Stock to each newly elected, non-employee
director. In addition, each non-employee director will receive an option to
purchase an additional 10,000 shares of Common Stock on the date of the second
annual meeting of stockholders following the Company's initial public offering
at which the non-employee director is reelected to the Board and on the date of
each annual meeting thereafter at which the non-employee director is reelected
to the Board. Options vest equally over four years commencing on the first
anniversary of the date of grant. Each option is exercisable at 100% of the
Common Stock's fair market value on the date of grant. On July 31, 1996, the
Company granted nonqualified stock options to purchase 10,000 shares of stock
each at the exercise price of $6.00 per share to Dr. Jack Borsting and Dr.
Thomas Lutri.
Employment Agreements. The Company is a party to employment agreements
with Richard Walker and Maurice Johnson. Mr. Walker's agreement provides that he
will receive a salary of $225,000 per year, subject to upward revision during
the term of the agreement. Beginning April 3, 1997, Mr. Walker's salary will
increase to $247,500 per year. Mr. Walker's employment agreement terminates on
December 31, 2001. Mr. Johnson's agreement provides that he will receive a
salary of $100,000 plus a minimum guaranteed bonus of $50,000 per year, subject
to the sole discretion of the Board of Directors. Mr. Johnson's employment
agreement has an initial term of five years, which ends on June 30, 2001. Both
agreements contain confidentiality provisions and covenants not to compete.
State laws, however, may limit the enforceability of the confidentiality and/or
noncompetition provisions therein and, accordingly, such provisions may not be
fully or even partially enforced by a court of law.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of February 28, 1997, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person known by the Company to own beneficially more than 5%
of the outstanding Common Stock; (ii) each director of the Company; (iii) each
of the Named Executive Officers; and (iv) all directors and executive officers
of the Company as a group. The Company had 4,745,654 shares outstanding at
February 28, 1997.
<TABLE>
<CAPTION>
Numbers of Shares of Percentage of Shares
Name and Address of Beneficial Owner (1) (2) Stock Beneficially Owned Outstanding
- -------------------------------------------- ------------------------ -----------
<S> <C> <C>
Walker Trust (3) 748,477 15.8%
Spindler Trust (4) 750,478 15.8%
East Ocean (5) 740,478 15.6%
Dr. Jack Borsting 10,595 *
Dr. Thomas Lutri 105,950 2.2%
Mr. Maurice R. Johnson 13,243 *
All directors and officers as a group 7 persons) 2,369,221 49.9%
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated below, the persons in the table above have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Unless otherwise indicated below, the address of each person is c/o the
Company at 18201 Von Karman Avenue, Suite 305, Irvine, California 92612.
(3) All of the 748,477 shares held of record by the Walker Trust are
beneficially owned by Mr. Walker, the President, Chief Executive Officer
and a director of the Company. Mr. Walker has direct or indirect voting or
investment power for the Walker Trust.
<PAGE> 13
13
(4) All of the 750,478 shares held of record by the Spindler Trust are
beneficially owned by Mr. Spindler, the Chairman of the Board, Executive
Vice President and Secretary of the Company. Mr. Spindler has direct or
indirect voting or investment power for the Spindler Trust.
(5) All of the 740,478 shares held of record by East Ocean are beneficially
owned by Mr. Cohen, the Vice Chairman of the Board, Executive Vice
President and Treasurer of the Company. Mr. Cohen has direct or indirect
voting or investment power for East Ocean.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company was incorporated on April 3, 1996, and in connection with
its initial capitalization issued an aggregate of 2,648,745 shares of common
stock for $.007 per share in the following manner: (i) 785,794 shares were
issued to East Ocean Limited Partnership ("East Ocean"), an investor affiliated
with Lawrence Cohen; (ii) 732,819 shares were issued to the Walker
Family Trust (the "Walker Trust"), an investor affiliated with Richard H.
Walker; (iii) 732,820 shares were issued to The Spindler Family
Trust (the "Spindler Trust") dated February 1, 1994, an investor affiliated with
Paul Spindler; and (iv) the remaining 397,312 shares were issued to
two other stockholders of the Company. In August 1996, East Ocean transferred
17,658 shares to each of the Walker Trust and the Spindler Trust for $.007 per
share.
CRI presently leases office space in London, Kentucky on a
month-to-month basis from Coye D. King, a director of CRI. Rent paid to Coye D.
King for the period from inception (April 3, 1996) to December 31, 1996 was
$15,000. In connection with its proposed move from its current location in
London, Kentucky, CRI has agreed to negotiate in good faith a definitive lease
agreement with Stephen King and Andrew King, Vice Presidents of CRI, as lessors,
whereby the latter will lease to CRI up to 12,000 square feet of office and
warehouse space in a new, yet to be constructed, office complex in London,
Kentucky. Certain terms of the lease have already been agreed to, and it is
expected that when signed, the lease will be for ten years and the base rental
rate will be $6.00, $8.00 and $10.00 per square feet for years one, two and
three through ten, respectively. Management believes that the aforementioned
base rental rates are as favorable to the Company as those that could be
obtained from unrelated third parties. Upon commencement of the lease for the
new office complex, the monthly lease for CRI's current space in London,
Kentucky will be terminated without penalty.
In connection with the merger of ARS into the Company, ARS amended its
lease agreement with Michael J. Pollastro, President of ARS, Gary T. Pollastro,
Vice President and Treasurer of ARS, John E. Pollastro, Vice President and
Secretary of ARS, and Carmen Pollastro for an 11,158 square foot office facility
in Seattle, Washington. The amended lease is at a monthly rate of $15,063 and
expires in December 2003. The mortgage on this building is guaranteed by ARS;
the mortgage balance outstanding of December 31, 1996 was $343,000.
The Company purchases insurance coverage for its corporate office and
its CRI subsidiary through an insurance broker who is the brother-in-law of Mr.
Walker. The Company paid premiums totaling $121,634 during the period from
inception (April 3, 1996) to December 31, 1996 for insurance coverage expiring
at various dates through November 1997.
The Company has outstanding a loan from Maurice Johnson, a director
and officer of the Company and an officer of CRI, in the amount of $40,000 at an
interest rate of one point over the prime rate.
At December 31, 1996, the Company had an outstanding receivable
balance from Michael J. Pollastro, President of ARS, in the amount of $60,028.
This receivable originated through transactions entered into by ARS in the
normal course of business with affiliated companies owned by Mr. Pollastro.
On June 3, 1996 and in connection with a private placement of the
Company's common stock, the Company issued 105,950 shares to Dr. Thomas Lutri, a
director of the Company, at a price of $0.94 per share. On June 28, 1996, the
Company issued 13,243 shares to Mr. Maurice Johnson, Vice President of the
Company, and on July 1, 1996 the Company issued 10,595 shares to Dr. Jack
Borsting, a director of the Company, in each case at a price of $0.94 per share.
The Board of Directors of the Company determined the price of the shares issued
to Messrs. Lutri, Johnson and Borsting based on the then current financial
condition of the Company and the per share price for such shares equaled the
price per share of common stock issued on June 28, 1996 to third parties in
connection with the private placement of the Company's common stock.
On July 31, 1996, the Company granted (i) nonqualified stock options
to purchase 39,400 shares of common stock and incentive stock options to
purchase 60,600 shares of common stock to Paul Spindler; (ii) nonqualified stock
options to purchase 39,400 shares of common stock and incentive stock options to
purchase 60,600 shares of common stock to Lawrence Cohen; (iii) nonqualified
stock options to purchase 39,400 shares of common stock and incentive stock
options to purchase 60,600 shares of common stock to Richard H. Walker; (iv)
nonqualified stock options to purchase 10,000 shares of common stock to Dr. Jack
Borsting; (v) nonqualified stock options to purchase 10,000 shares of common
stock to Dr. Thomas Lutri; (vi) incentive stock options to purchase 37,500
shares of common stock to Maurice R. Johnson; (vii) incentive stock options to
purchase 4,000 shares of common stock to Janet Sanborn; (viii) incentive stock
options to purchase 5,000 shares of common stock to Stephen King; (ix) incentive
stock options to purchase 5,000 shares of Common Stock to Andrew King; and (x)
incentive stock options to purchase 5,000 shares of common stock to Coye D.
King. On September 26, 1996, the Company granted incentive stock options to
purchase 16,666 shares of common stock to Kelly Kaufman. All of the nonqualified
stock options issued by the Company have an exercise price of $6.00, while all
incentive stock options issued by the Company have an exercise price of $6.00
for
<PAGE> 14
14
stockholders owning up to 10% of the voting stock of the Company and an exercise
price of $6.60 for stockholders owning more than 10% of the voting stock of the
Company.
The Company believes that all of the aforementioned transactions
between the Company and its directors, officers and stockholders and immediate
family members of such persons were made upon terms that were as favorable to
the Company as those that could have been obtained from unrelated third parties.
Further, it is the Company's policy that all future transactions with affiliates
will be conducted at arms-length and upon terms that are as favorable to the
Company as those that could be obtained from unrelated third parties. Such
affiliated transactions will be subject to the prior approval of the Company's
audit committee.
<PAGE> 15
15
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
The financial statements listed on the index to financial statements
on page F-1 are filed as part of this Form 10KSB.
(a) (2) Exhibits
Exhibits marked with an asterisk are filed herewith. The remainder
of the exhibits have heretofore been filed with the Commission and are
incorporated herein by reference. Each management contract or compensation
plan or arrangement filed as an exhibit hereto is identified by a dagger
(+).
EXHIBIT DESCRIPTION
NUMBER
- --------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger by and among Bristol Technology
Systems, Inc., Bristol Merger Corporation, Automated Register
Systems, Inc. and the Shareholders thereof. (Incorporated by
reference to Exhibit 2.1 of the Company's Form 8-K dated December
31, 1996 as filed with the Securities and Exchange Commission on
January 15, 1997, File No. 000-21633.)
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of Bristol Technology
Systems, Inc. (Incorporated by reference to Exhibit 3.1 of
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
3.2 Bylaws of Bristol Technology Systems, Inc. (Incorporated by
reference to Exhibit 3.2 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
4.1 Form of Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 of Amendment No. 1 to the Company's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
4.2 Form of 10% Subordinated Note (Incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form SB-2
as filed with the Securities and Exchange Commission on September
12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
4.3 Form of Class A Redeemable Common Stock Purchase Warrants
(Incorporated by reference to Exhibit 4.3 of Amendment No. 1 to
the Company's Registration Statement on Form SB-2 as filed with
the Securities and Exchange Commission on October 22, 1996, File
No. 333-5570-LA.)
- --------------------------------------------------------------------------------
4.4 Form of Registration Rights Agreement by and among Bristol
Technology Systems, Inc. and Investors listed on Schedule 1
thereto (Incorporated by reference to Exhibit 4.4 of the
Company's Registration Statement on Form SB-2 as filed with the
Securities and Exchange Commission on September 12, 1996, File
No. 333-5570-LA.)
- --------------------------------------------------------------------------------
4.5 Form of Underwriter's Stock Warrant (Incorporated by reference to
Exhibit 4.5 of Amendment No. 1 to the Company's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
4.6 Form of Underwriter's Warrant (Incorporated by reference to
Exhibit 4.6 of Amendment No. 1 to the Company's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on October 22, 1996, File No. 333-5570-LA.)
<PAGE> 16
16
- --------------------------------------------------------------------------------
4.7 Form of Warrant Agreement (Incorporated by reference to Exhibit
4.7 of Amendment No. 1 to the Company's Registration Statement on
Form SB-2 as filed with the Securities and Exchange Commission on
October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.1 Form of the 1996 Equity Participation Plan of Bristol Technology
Systems, Inc. dated July 31, 1996 (Incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement on Form SB-2
as filed with the Securities and Exchange Commission on September
12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.2 Dealer Agreement between Cash Registers, Incorporated and Siemens
Nixdorf Information Systems, Inc. dated June 20, 1995
(Incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on September 12, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.3 Dealer Agreement between Cash Registers, Incorporated and ERC
Parts, Inc. dated February 1, 1993 (Incorporated by reference to
Exhibit 10.3 of the Company's Registration Statement on Form SB-2
as filed with the Securities and Exchange Commission on September
12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.4 Retail Reseller Agreement between Cash Registers, Incorporated
and NCR Corporation dated September 3, 1993 (Incorporated by
reference to Exhibit 10.4 of the Company's Registration Statement
on Form SB-2 as filed with the Securities and Exchange Commission
on September 12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.5+ Employment Agreement between Bristol Technology Systems, Inc. and
Richard H. Walker dated April 3, 1996 (Incorporated by reference
to Exhibit 10.5 of the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
September 12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.6+ Employment Agreement between Bristol Technology Systems, Inc. and
Paul Spindler dated April 3, 1996 (Incorporated by reference to
Exhibit 10.6 of the Company's Registration Statement on Form SB-2
as filed with the Securities and Exchange Commission on September
12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.7+ Employment Agreement between Bristol Technology Systems, Inc. and
Maurice R. Johnson dated June 28, 1996 (Incorporated by reference
to Exhibit 10.7 of the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
September 12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.8 Lease Agreement between C-W-K 8 and Cash Register, Incorporated
dated April 30, 1996 (Incorporated by reference to Exhibit 10.8
of the Company's Registration Statement on Form SB-2 as filed
with the Securities and Exchange Commission on September 12,
1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.9 Lease Agreement between Crow Kessler and Cash Registers,
Incorporated dated December 7, 1990 (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form SB-2
as filed with the Securities and Exchange Commission on September
12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.10 Lease Agreement between Paul Thompson, Cash Registers,
Incorporated and Coye D. King dated October 30, 1987
(Incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on September 12, 1996, File No.
333-5570-LA.)
<PAGE> 17
17
- --------------------------------------------------------------------------------
10.11 Lease between Webb Properties and Cash Registers, Incorporated
dated October 1, 1987 with Second Lease Addendum dated June 24,
1992 (Incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on September 12, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.12 Agreement of Lease between Windsor Park, Ltd. and Cash Registers,
Incorporated dated December 1, 1995 (Incorporated by reference to
Exhibit 10.12 of the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
September 12, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.13 Agreement by and between Southern California Federal Savings and
Loan Association and Bristol Technology Systems, Inc.
(Incorporated by reference to Exhibit 10.13 of the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on September 12, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.14 Stock Purchase Agreement by and among Bristol Technology Systems,
Inc., Cash Registers, Inc. and Maurice R. Johnson, Andrew D. King
and C. Stephen King, dated as of June 26, 1996 (Incorporated by
reference to Exhibit 10.14 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.15 Loan Agreement by and between Bristol Technology Systems, Inc.
and Wells Fargo Bank, National Association dated October 10, 1996
(Incorporated by reference to Exhibit 10.15 of Amendment No. 1 to
the Company's Registration Statement on Form SB-2 as filed with
the Securities and Exchange Commission on October 22, 1996, File
No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.16 Revolving Line of Credit Note executed by Bristol Technology
Systems, Inc. in favor of Wells Fargo Bank, National Association
and dated October 10, 1996 (Incorporated by reference to Exhibit
10.16 of Amendment No. 1 to the Company's Registration Statement
on Form SB-2 as filed with the Securities and Exchange Commission
on October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.17 Revolving Note executed by Cash Registers, Inc. in favor of First
National Bank and Trust (Incorporated by reference to Exhibit
10.17 of Amendment No. 1 to the Company's Registration Statement
on Form SB-2 as filed with the Securities and Exchange Commission
on October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.18 Commercial Management Account Agreement by and between Cash
Registers, Inc. and First National Bank and Trust dated June 27,
1996 and that certain addendum thereto (Incorporated by reference
to Exhibit 10.18 of Amendment No. 1 to the Company's Registration
Statement on Form SB-2 as filed with the Securities and Exchange
Commission on October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.19 Continuing Guaranty entered into by Paul Spindler dated October
10, 1996, whereby Mr. Spindler guarantees the obligation of
Bristol Technology Systems, Inc. to Wells Fargo Bank, National
Association (Incorporated by reference to Exhibit 10.19 of
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
October 22, 1996, File No. 333-5570-LA.)
<PAGE> 18
18
- --------------------------------------------------------------------------------
10.20 Continuing Guaranty entered into by Richard H. Walker dated
October 10, 1996, whereby Mr. Walker guarantees the obligation of
Bristol Technology Systems, Inc. to Wells Fargo Bank, National
Association (Incorporated by reference to Exhibit 10.20 of
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 as filed with the Securities and Exchange Commission on
October 22, 1996, File No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.21 Dealer Agreement by and between ERC Parts, Inc. and Cash
Registers, Inc. dated September 17, 1996 (Incorporated by
reference to Exhibit 10.21 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.22 Dealer Agreement by and between ERC Parts, Inc. and Cash
Registers, Inc. dated September 17, 1996 (Incorporated by
reference to Exhibit 10.22 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.23 Dealer Agreement by and between ERC Parts, Inc. and Cash
Registers, Inc. dated September 17, 1996 (Incorporated by
reference to Exhibit 10.23 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.24 Form of Financial Consulting Services Letter Agreement to be
entered into by and between First Cambridge Securities
Corporation and Bristol Technology Systems, Inc. (Incorporated by
reference to Exhibit 10.24 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2 as filed with the Securities
and Exchange Commission on October 22, 1996, File No.
333-5570-LA.)
- --------------------------------------------------------------------------------
10.25 Full Service Maintenance Agreement by and between Fazolis
Restaurants, Inc. and Cash Registers, Inc. dated March 18, 1996
(Incorporated by reference to Exhibit 10.25 of Amendment No. 4 to
the Company's Registration Statement on Form SB-2 as filed with
the Securities and Exchange Commission on November 6, 1996, File
No. 333-5570-LA.)
- --------------------------------------------------------------------------------
10.26 Building Lease dated May 29, 1990 by and between Automated
Register Systems, Inc., Michael J. Pollastro, Gary T. Pollastro,
and John and Carmen Pollastro, as amended by First Amendment to
Building Lease dated January 1, 1997 by and between Automated
Retail Systems, Inc., Michael Pollastro, Gary T. Pollastro, and
John and Carmen Pollastro (Incorporated by reference to Exhibit
10.25 of the Company's Form 8-K dated December 31, 1996 as filed
with the Securities and Exchange Commission on January 15, 1997,
File No. 000-21633.)
- --------------------------------------------------------------------------------
99.1 Press Release dated December 16, 1996 (Incorporated by reference
to Exhibit 99.1 of the Company's Form 8-K dated December 12, 1996
as filed with the Securities and Exchange Commission on December
20, 1996, File No. 000-21633.)
- --------------------------------------------------------------------------------
11* Statement of Computation of Per Share Earnings
- --------------------------------------------------------------------------------
21* List of Subsidiaries of Bristol Technology Systems, Inc.
- --------------------------------------------------------------------------------
27* Financial Data Schedule
(a) During the last quarter of the fiscal year covered by this report, the
Company filed the following Current Reports on Form 8-K:
<PAGE> 19
19
Form 8-K dated December 12, 1996 and filed with the Commission on December
20, 1996 reporting information under Item 5.
Form 8-K dated December 31, 1996 and filed with the Commission on January
15, 1997 reporting information under Items 2 and 7.
<PAGE> 20
20
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Bristol Technology Systems, Inc.
(Registrant)
By: /s/ RICHARD H. WALKER
--------------------------------
Richard H. Walker
President, Chief Executive
Officer and Director
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief Executive Officer and Director
/s/ RICHARD H. WALKER (Principal Executive Officer) March 28 , 1997
- --------------------------------
Richard H. Walker
Chairman of the Board, Executive Vice President and
/s/ PAUL SPINDLER Director March 28 , 1997
- --------------------------------
Paul Spindler
Vice Chairman of the Board, Executive Vice
/s/ LAWRENCE COHEN President, Treasurer and Director March 28 , 1997
- --------------------------------
Lawrence Cohen
/s/MAURICE R. JOHNSON Vice President and Director March 28 , 1997
- --------------------------------
Maurice R. Johnson
Vice President of Finance
/s/ KELLY KAUFMAN (Principal Accounting and Financial Officer) March 28 , 1997
- --------------------------------
Kelly Kaufman
/s/ JACK BORSTING Director March 28 , 1997
- --------------------------------
Jack Borsting
/s/ THOMAS LUTRI Director March 28 , 1997
- --------------------------------
Thomas Lutri
</TABLE>
<PAGE> 21
Index to Financial Statements
Bristol Technology Systems, Inc. (Successor)
Cash Registers Incorporated (Predecessor)
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors - Bristol Technology Systems, Inc........................F-2
Report of Independent Auditors - Cash Registers, Incorporated...........................F-3
Consolidated Balance Sheets of Bristol Technology Systems, Inc.
as of December 31, 1996 (Successor) and June 30, 1996 (Successor)
and Balance Sheet of Cash Registers Incorporated as of
June 30, 1995 (Predecessor).........................................................F-4
Consolidated Statement of Operations of Bristol Technology
Systems, Inc. for the period from inception (April 3, 1996) to
December 31, 1996 (Successor), Statements of Operations
for Cash Registers Incorporated for the years ended
June 30, 1996 and 1995 (Predecessor)................................................F-5
Consolidated Statement of Stockholders' Equity of Bristol
Technology Systems, Inc. for the period from inception
(April 3, 1996) to December 31, 1996 (Successor), Statements of
Stockholders' Equity for Cash Registers Incorporated for the
years ended June 30, 1996 and 1995 (Predecessor)....................................F-6
Consolidated Statement of Cash Flows of Bristol Technology
Systems, Inc. for the period from inception (April 3, 1996)
to December 31, 1996 (Successor), Statements of Cash Flows
for Cash Registers Incorporated for the years ended
June 30, 1996 and 1995 (Predecessor)................................................F-7
Notes to Consolidated Financial Statements..............................................F-8
</TABLE>
F-1
<PAGE> 22
Report of Independent Auditors
Board of Directors
Bristol Technology Systems, Inc.
We have audited the accompanying consolidated balance sheets of Bristol
Technology Systems , Inc. (the Company/Successor) as of December 31, 1996 and
June 30, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from inception (April 3,
1996) to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bristol Technology
Systems, Inc. at December 31, 1996 and June 30, 1996 and the consolidated
results of operations and cash flows for the period from inception (April 3,
1996) to December 31, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Orange County, California
March 27, 1997
F-2
<PAGE> 23
Report of Independent Auditors
The Board of Directors and Stockholder
Cash Registers, Incorporated
We have audited the accompanying consolidated balance sheet of Cash Registers,
Incorporated (the Company/Predecessor) as of June 30, 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cash Registers, Incorporated at
June 30, 1995, and the results of its operations and its cash flows for each of
the two years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
August 23, 1996
F-3
<PAGE> 24
Bristol Technology Systems, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Successor) (Predecessor)
=========================== ============
December 31, June 30, June 30,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,475,674 $ 418,497 $ 2,663
Accounts receivable, net of allowance for doubtful
accounts of $39,090 at December 31, 1996, $10,144 at
June 30, 1996 and $14,000 at June 30, 1995 1,296,956 653,409 612,881
Inventories 2,169,531 1,058,364 939,352
Deferred income taxes -- 116,305 135,665
Prepaid expenses and other current assets 88,628 105,468 65,655
Amounts due from related parties 67,028 -- --
------------ ------------ ------------
Total current assets 9,097,817 2,352,043 1,756,216
Property and equipment, net 250,826 69,490 51,406
Intangible assets, net of accumulated amortization of
$18,589 at December 31, 1996 and $0 at June 30, 1996
and 1995 1,693,400 441,419 --
Prepaid license fees 102,750 -- --
Other assets 24,906 -- --
------------ ------------ ------------
Total assets $ 11,169,699 $ 2,862,952 $ 1,807,622
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 438,441 $ 236,036 $ 253,967
Accounts payable 964,625 684,881 264,809
Accrued salaries, wages and related benefits 210,567 99,378 61,772
Accrued expenses 230,889 124,483 121,660
Deferred revenue 427,059 206,078 250,385
Customer advances 425,717 140,635 287,052
Income taxes payable 179,000 2,963 16,411
Note payable to related party 40,000 40,000 110,000
Current portion of capital lease obligations 17,029 -- --
------------ ------------ ------------
Total current liabilities 2,933,327 1,534,454 1,366,056
Capital lease obligation - noncurrent portion 36,879 -- --
Other long-term liabilities 24,500 -- --
Subordinated notes payable -- 817,500 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 4,000,000
Outstanding shares - none -- -- --
Common stock, $.001 par value:
Authorized shares - 20,000,000 at December 31, 1996
and June 30, 1996, 2,000 at June 30, 1995
Shares issued - 4,745,654 at December 31, 1996,
3,239,405 at June 30, 1996 and 1,001 at June 30,
1995 4,746 3,239 2,000
Additional paid-in-capital 8,276,872 539,009 --
Retained earnings (deficit) (106,625) (31,250) 439,566
------------ ------------ ------------
Total stockholders' equity 8,174,993 510,998 441,566
------------ ------------ ------------
Total liabilities and stockholders' equity $ 11,169,699 $ 2,862,952 $ 1,807,622
============ ============ ============
</TABLE>
See accompanying notes. F-4
<PAGE> 25
Bristol Technology Systems, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Successor) (Predecessor)
======================================
Inception Year Ended June 30
(April 3, -------------------------
1996) to
December
31, 1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
System sales and installation $ 3,120,350 $ 5,331,260 $ 3,348,957
Service and supplies sales 1,075,880 1,886,542 1,620,299
----------- ----------- -----------
Net revenue 4,196,230 7,217,802 4,969,256
Costs and expenses:
Cost of system sales and installation 2,161,340 3,675,394 2,090,370
Cost of service and supplies sales 684,655 1,209,628 994,758
Selling, general and administrative 1,452,215 2,133,975 1,696,091
Write-off of cash surrender value of life
insurance -- 76,140 --
----------- ----------- -----------
Total costs and expenses 4,298,210 7,095,137 4,781,219
----------- ----------- -----------
Operating income (loss) (101,980) 122,665 188,037
Other (income) expense:
Interest income (43,280) (20,438) (7,699)
Interest expense 46,125 21,155 22,942
----------- ----------- -----------
Total other expense 2,845 717 15,243
----------- ----------- -----------
Income (loss) before income taxes (104,825) 121,948 172,794
Income tax provision 1,800 42,771 58,037
----------- ----------- -----------
Net income (loss) $ (106,625) $ 79,177 $ 114,757
=========== =========== ===========
Net income (loss) per common share: $ (.03) $ 79 $ 115
=========== =========== ===========
Common shares used in computing per share
amounts: 3,483,012 1,000 1,001
=========== =========== ===========
</TABLE>
See accompanying notes. F-5
<PAGE> 26
Bristol Technology Systems, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(Successor)
===================================================================
Common Stock
-------------------- Additional Retained
Shares Amounts Paid-in-capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 3, 1996 -- $ -- $ -- $ -- $ --
Issuance of shares to founders 2,648,745 2,649 17,351 -- 20,000
Issuance of shares in
private placement, net of
issuance costs of $35,252 577,417 577 509,171 -- 509,748
Issuance of shares to director 13,243 13 12,487 -- 12,500
Net loss -- -- -- (31,250) (31,250)
-------------------------------------------------------------------
Balance at June 30, 1996 3,239,405 3,239 539,009 (31,250) 510,998
Issuance of shares to director 10,595 11 9,989 -- 10,000
Issuance of shares in
initial public offering,
net of issuance costs of
$1,660,026 1,437,500 1,438 6,963,536 -- 6,964,974
Issuance of warrants in initial
public offering, net of
issuance costs of $8,984 -- -- 80,859 -- 80,859
Issuance of warrants to underwriter -- -- 188 -- 188
Issuance of shares in connection
with acquisition of ARS 58,154 58 683,291 -- 683,349
Net loss -- -- -- (75,375) (75,375)
-------------------------------------------------------------------
Balance at December 31, 1996 4,745,654 $4,746 $8,276,872 $(106,625) $8,174,993
===================================================================
</TABLE>
<TABLE>
<CAPTION>
(Predecessor)
===================================================
Common Stock
-------------------- Retained
Shares Amounts Earnings Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Balance at July 1, 1994 1,001 $ 2,000 $324,809 $326,809
Net income -- -- 114,757 114,757
---------------------------------------------------
Balance at June 30, 1995 1,001 2,000 439,566 441,566
Sale of shares 20 30,000 -- 30,000
Purchase and cancellation of shares (21) (30,000) (7,200) (37,200)
Net income -- -- 79,177 79,177
---------------------------------------------------
Balance at June 30, 1996 1,000 $ 2,000 $511,543 $513,543
===================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 27
Bristol Technology Systems, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Successor) (Predecessor)
=======================================
Inception Year Ended June 30
(April 3, 1996) ----------------------
to December
31, 1996 1996 1995
----------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (106,625) $ 79,177 $ 114,757
Adjustments to reconcile net income (loss) to net cash and
cash equivalents provided by operations:
Depreciation 29,552 32,194 52,784
Amortization 18,589 -- --
Provision for doubtful accounts 13,000 -- --
Reserve for excess and obsolete inventories 30,000 -- --
Deferred income taxes -- 19,360 37,401
Changes in operating assets and liabilities:
Accounts receivable (111,184) (40,528) (283,520)
Inventories (413,664) (119,012) (204,212)
Prepaid expenses and other (17,641) 5,947 (28,382)
Accounts payable 124,760 353,636 101,734
Other accrued expenses 139,337 8,231 3,237
Deferred revenue 37,240 (44,307) (12,408)
Customer advances 188,597 (146,417) 29,607
Other long-term liabilities 24,500 -- --
----------- -------- ---------
Net cash and cash equivalents provided by (used for) (43,539) 148,281 (189,002)
operations
INVESTING ACTIVITIES
Purchase of CRI, net of cash acquired of $5,535 (949,037) -- --
Purchase of ARS, net of cash acquired of $16,745 (1,086,426) -- --
Capital expenditures (85,646) (50,278) (18,880)
----------- -------- ---------
Net cash and cash equivalents used in investing activities (2,121,109) (50,278) (18,880)
FINANCING ACTIVITIES
Capital lease payments (7,540) (70,000) --
Note payable to related party -- -- 70,000
Net borrowings (payments) on line of credit 49,593 (17,931) 68,963
Issuance of subordinated notes payable 817,500 -- --
Repayment of subordinated notes payable (817,500) -- --
Issuance of common stock, net of offering costs 7,517,222 30,000 --
Purchase of common stock -- (37,200) --
Issuance of warrants, net of offering costs 81,047 -- --
----------- ----------- ---------
Net cash and cash equivalents provided by (used for)
financing activities 7,640,322 (95,131) 138,963
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents 5,475,674 2,872 (68,919)
Cash and cash equivalents at beginning of period -- 2,663 71,582
----------- ----------- ---------
Cash and cash equivalents at end of period $ 5,475,674 $ 5,535 $ 2,663
=========== =========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 46,125 $ 21,152 $ 22,942
=========== =========== =========
Cash paid (refunds received) for income taxes $ 4,000 $ 48,374 $ (3,868)
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Capital lease obligations $ 54,884 $ -- $ --
Common stock issued in connection with purchase of ARS $ 683,349 $ -- $ --
</TABLE>
See accompanying notes.
F-7
<PAGE> 28
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Bristol Technology Systems, Inc. (the Company) was incorporated on April 3, 1996
in the state of Delaware for the purpose of acquiring and operating a national
network of full service point-of-sale (POS) dealers. On June 28, 1996, the
Company completed an acquisition of Cash Registers, Incorporated (CRI), a POS
dealer based in Kentucky. On December 31, 1996, the Company completed an
acquisition of Automated Register Systems, Inc. (ARS), a POS dealer based in
Washington. The Company earns revenue from the sale and installation of POS
systems, the sale of supplies and from service fees charged to customers under
service agreements. Sales and service operations are located in various states
throughout the western and midwestern United States.
BASIS OF PRESENTATION
The accompanying consolidated balance sheets as of December 31, 1996 include the
accounts of Bristol Technology Systems, Inc. (the Company) and its wholly-owned
subsidiaries CRI and ARS and as of June 30, 1996 include the accounts of Bristol
Technology Systems, Inc. and CRI. The accompanying consolidated statement of
operations from inception (April 3, 1996) to December 31, 1996 include the
accounts of the Company from April 3, 1996 and CRI from June 29, 1996. All
intercompany transactions have been eliminated in consolidation.
Since the Company did not exist before April 3, 1996, but its wholly-owned
subsidiary, CRI, did exist before that date, generally accepted accounting
principles (GAAP) define CRI as the Predecessor to the Company. As such, GAAP
requires that certain financial statements of CRI (the Predecessor) be
presented. Accordingly, the accompanying financial statements include the
Predecessor balance sheet as of June 30, 1995 and the Predecessor statements of
operations, stockholders' equity and cash flows for the years ended June 30,
1996 and 1995.
The Company's acquisition of CRI (the Acquisition) was accounted for in the
Company's consolidated financial statements as a purchase in accordance with
Accounting Principles Board Opinion No. 16. The purchase price was allocated to
the underlying assets and liabilities based upon their respective fair values.
The allocation of the purchase price included the assignment of approximately
$557,724 to excess of cost over net assets
F-8
<PAGE> 29
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
acquired. Commencing on June 29, 1996, the results of CRI are included in the
Company's consolidated financial statements. Accordingly, the financial
statements for the period subsequent to the Acquisition (Successor) are not
comparable to the financial statement amounts for the periods prior to the
Acquisition (Predecessor).
FISCAL YEAR
The Company's year-end is December 31.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue for system sales upon delivery of the system to
the customer. The Company sells product service contracts for hardware and
peripheral support which generally cover a period of twelve months. Revenues
from such service contracts are deferred and amortized on a straight-line basis
over the life of the contracts. Deferred revenue represents the unrealized
portion of deferred maintenance contract revenue.
CASH EQUIVALENTS
Cash equivalents represent highly liquid investments with original maturities of
three months or less.
CUSTOMER ADVANCES
Customer advances represent deposits made in advance of equipment installation
and are applied against invoices when revenue is recorded.
F-9
<PAGE> 30
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market using the specific
identification method for inventories with identifying serial numbers and the
average cost method for all other inventories.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation in the Successor
statements is computed on a straight-line basis over the estimated useful lives
of the assets which range from three to five years. Depreciation in the
Predecessor statements is computed principally by accelerated methods for income
tax and financial reporting purposes over the estimated useful lives of the
assets which range from three to five years.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill which represents the excess of
cost over the fair value of net assets acquired and is amortized on a
straight-line basis over an estimated useful life of 15 years.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, long-lived assets and certain identifiable intangibles held and
used by the Company will be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. At December 31, 1996, the Company has noted no such indicators of
impairment.
PREPAID LICENSE FEES
The Company has prepaid amounts to a related party for certain software license
agreements. These amounts will be amortized as the licenses are sold.
F-10
<PAGE> 31
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable and accounts payable
approximated their carrying amounts due to the relatively short maturity of
these items. The fair value of debt approximated its carrying amount at December
31, 1996 based on rates currently available to the Company for debt with similar
terms and remaining maturities.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (Statement 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
To calculate the pro forma information required by Statement 123, the Company
uses the Black-Scholes option pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
F-11
<PAGE> 32
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE INFORMATION
Net income (loss) per share is based on the weighted average number of common
shares outstanding. Common stock equivalents, which consist of stock options and
warrants, were antidilutive for the period from inception (April 3, 1996) to
December 31, 1996. No common stock equivalents were outstanding during the years
ended June 30, 1996 and 1995.
Pursuant to the requirements of the Securities and Exchange Commission (SEC),
shares of common stock issued by the Company during the twelve months
immediately preceding the initial public offering have been included in the
calculation of the shares used in computing net income per share as if they were
outstanding for the period from April 3, 1996 (inception) to December 31, 1996
(using the treasury stock method and the initial public offering price in
calculating equivalent shares).
2. ACQUISITIONS
On June 28, 1996, the Company acquired all of the outstanding common stock of
CRI, a POS systems dealer in Kentucky and southern Ohio, for cash consideration
of $954,962, including acquisition costs of $71,961.
On December 31, 1996, the Company, through its wholly-owned subsidiary, Bristol
Merger Corporation, acquired all of the outstanding common stock of ARS, a POS
systems dealer in Washington, for consideration of $1,025,023 in cash and 58,154
shares of non-registered, restricted common stock of the Company which were
valued at $683,349 at December 31, 1996. In addition, $78,145 of acquisition
costs were incurred.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired has been preliminarily recorded as intangible assets (goodwill),
to be amortized on a straight-line basis over 15 years. The net purchase price
for each acquisition was allocated as follows:
<TABLE>
<CAPTION>
CRI ARS
------------------------
<S> <C> <C>
Working capital, other than cash $ 438,518 $ 460,483
Valuation allowance for deferred income tax assets acquired (116,305) (25,907)
Property and equipment 69,490 70,358
Net long-term assets -- 110,186
Intangible assets 557,724 1,154,655
------------------------
Purchase price, net of cash received $ 949,427 $1,769,775
========================
</TABLE>
F-12
<PAGE> 33
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
2. ACQUISITIONS (CONTINUED)
The following presents the unaudited pro forma results of operations of the
Company for the period from April 3, 1996 to December 31, 1996 as if the CRI and
ARS acquisitions had been consummated on April 3, 1996, and includes certain pro
forma adjustments resulting from the acquisitions, including the amortization of
intangible assets, an increase in interest expense and an increase in rent
expense, together with related income tax effects.
<TABLE>
<CAPTION>
FROM INCEPTION
(APRIL 3,
1996) TO
DECEMBER 31,
1996 PRO FORMA
AS ADJUSTED
-------------
<S> <C>
Net revenue $10,085,836
Net income 23,900
Net income per share .01
Shares used in computing net income per share 3,541,166
</TABLE>
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect results that would have occurred had the CRI and
ARS acquisitions occurred on April 3, 1996 or the results which may occur in the
future.
3. CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to quick service restaurants, grocery
stores and other retailers. Credit is extended based on an evaluation of the
customer's financial condition and collateral is generally not required. Credit
losses have historically been minimal and such losses have been within
management's expectations.
For the period from inception (April 3, 1996) to December 31, 1996 and for the
years ended June 30, 1996 and 1995, the Company had 33%, 44% and 24%,
respectively, of revenues attributable to one major quick service food
franchisor and its franchisees. At December 31, 1996, June 30, 1996 and June 30,
1995, accounts receivable due from these customers totaled $151,872, $165,013
and $58,876, respectively. The Company purchased its hardware primarily from two
main vendors for the period from inception (April 3, 1996) to December 31, 1996.
Sales of products from these vendors accounted for 51% of net revenue for that
period.
F-13
<PAGE> 34
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
4. INVENTORIES
Inventories consist primarily of POS terminals, peripherals, paper and other
supplies for resale to customers, as well as items to support maintenance
contracts. Inventories held by revenue type were as follows:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
========== =======================
December 31, June 30,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Systems and installation inventories $1,469,404 $ 401,599 $ 490,742
Services and supplies inventories 700,127 656,765 448,610
---------- ---------- ----------
$2,169,531 $1,058,364 $ 939,352
========== ========== ==========
</TABLE>
Included in services and supplies inventories at December 31, 1996 is
approximately $365,255 of refurbished parts and components which the Company has
on hand to fulfill maintenance contract requirements. Due to the nature of the
systems installed and the longevity of the systems in general, service may be
provided for several years after sale, causing much of the refurbished
inventories on hand to be composed of older items.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
========== =======================
December 31, June 30,
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and equipment $154,053 $280,898 $230,385
Automobiles 35,754 169,008 176,507
Leasehold improvements 90,571 -- --
---------- ---------- ----------
280,378 449,906 406,892
Less accumulated depreciation 29,552 380,416 355,486
---------- ---------- ----------
Property and equipment, net $250,826 $ 69,490 $ 51,406
========== ========== ==========
</TABLE>
F-14
<PAGE> 35
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
6. DEBT
The Company's wholly-owned subsidiary CRI funds overdrafts on its operating
account under a line-of-credit arrangement with a bank, collateralized by
accounts receivable. CRI may borrow up to $350,000 on such terms as CRI and the
bank may mutually agree upon. This arrangement does not have a stated maturity
date but is reviewed annually for renewal. At December 31, 1996, the agreed upon
interest rate was the bank's prime plus 1%, or 9.7% and outstanding borrowings
under the line of credit totaled $285,629. The line prohibits the reduction or
depletion of CRI's capital without 30 days prior written notice to the bank. At
December 31, 1996, the Company was in compliance with the covenants on the line.
On March 25, 1997, all amounts outstanding under the line of credit were repaid
using a portion of the proceeds from the Company's initial public offering.
The Company's wholly-owned subsidiary ARS has a line of credit with a bank which
provides for aggregate borrowings of $600,000, bears interest at the bank's
prime rate plus 2.25%, matures on January 2, 1997, and is collateralized by
accounts receivable and inventories. ARS had outstanding borrowings of $152,812
bearing interest at 10.5% at December 31, 1996. ARS repaid all amounts
outstanding under the line in January 1997 and is currently renegotiating the
line of credit. The line requires ARS to maintain certain financial covenants
for which ARS was in compliance at December 31, 1996.
CRI has a $40,000 note payable due to a company owned by the president of CRI.
The note accrues interest at the same rate as CRI's line of credit. The note has
no stated maturity date and interest is paid when requested.
In June 1996, as part of a private placement, the Company issued $817,500 of
subordinated notes payable, bearing interest at 10% and maturing June 30, 1998.
The subordinated notes payable were prepaid without penalty on November 22, 1996
with a portion of the proceeds from the Company's initial public offering.
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, equipment and vehicles under
noncancelable capital leases and operating lease arrangements expiring in
various years through 2003. Certain of the operating leases may be renewed for
periods ranging from one to three years.
F-15
<PAGE> 36
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future annual minimum lease payments for noncancelable capital and operating
leases at December 31, 1996 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------------------
<S> <C> <C>
1997 $ 29,204 $ 365,636
1998 29,204 294,694
1999 19,209 249,958
2000 -- 212,167
2001 -- 206,272
Thereafter -- 361,512
------------------------
Total minimum lease payments 77,617 $1,690,239
==========
Amounts representing interest 23,709
----------
Present value of minimum lease payments 53,908
Current portion 17,029
----------
Long-term capital lease obligations $ 36,879
==========
</TABLE>
Rent expense for the period from inception (April 3, 1996) to December 31, 1996
and for the years ended June 30, 1996 and 1995 was $123,441, $112,308 and
$105,263, respectively, of which $15,000, $30,000 and $30,000, respectively, was
paid to a director of CRI.
The net book value of assets under capital lease at December 31, 1996 was
$47,261.
In connection with its proposed move from its current location in London,
Kentucky, CRI has agreed to negotiate in good faith a definitive lease regarding
up to 12,000 square feet of office and warehouse space to be constructed by two
officers and former owners of CRI. Certain terms of the lease have already been
agreed to, and it is expected that when signed, the lease will be for 10 years
and the rate will be $6.00, $8.00, and $10.00 dollars per square foot for years
one, two, and three through ten, respectively. The Company has agreed to
guarantee these lease payments.
In connection with the merger of ARS into the Company on December 31, 1996, an
amended lease agreement was executed with the former owners of ARS, certain of
whom are now officers of ARS, for the office facility which ARS currently
occupies. The amended lease is at a monthly rate of $15,063 and expires in
December 2003. The mortgage on this building is guaranteed by ARS. The mortgage
balance outstanding at December 31, 1996 was $343,000.
F-16
<PAGE> 37
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain executive officers and
employees, the terms of which expire at various times through 2001 and provide
for minimum salary levels and incentive bonuses based on the attainment of
certain management goals. If such goals are not met, certain agreements provide
for guaranteed bonus amounts. The aggregate commitment for future salaries and
the guaranteed bonus amounts was $4,253,125 at December 31, 1996. In addition,
the Company has entered into an employment contract expiring in 2008 that
provides for a minimum salary and certain guaranteed bonus amounts which are
payable even in the event of termination for cause or upon death. The aggregate
commitment for future salaries and guaranteed bonus amounts under this contract
at December 31, 1996 was $441,500.
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes the resolution of such
matters will not have a material effect on the Company's financial position or
future results of operations.
At December 31, 1996, the Company had $83,000 accrued in connection with a
lawsuit wherein CRI is being sued by a former employee. In accordance with the
purchase agreement between Bristol and the former owners of CRI, the Company's
liability is limited to $83,000 in connection with this suit. Any amounts in
excess of $83,000 are recoverable from amounts due to the former owners under
certain lease and employment agreements.
8. STOCKHOLDERS' EQUITY
WARRANTS
At December 31, 1996, the Company had outstanding 718,750 Class A Redeemable
Common Stock Purchase Warrants (Warrants) which entitle each holder to purchase
one share of common stock for $6.00 during a five year period commencing
December 12, 1997. The exercise price and the number of shares issuable upon
exercise of the Warrants are subject to adjustment in certain circumstances.
Commencing February 12, 1998, the Warrants are redeemable by the Company at $.01
per Warrant upon thirty days prior written notice, provided the closing bid
price of the common stock shall have been at least $10.00 per share for the
twenty consecutive trading days ending on the third day prior to the date of the
notice of redemption.
F-17
<PAGE> 38
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS (CONTINUED)
At December 31, 1996, the Company had outstanding 125,000 Underwriters' Stock
Warrants which entitle the holders thereof to purchase up to 125,000 shares of
common stock at $8.70 per share. In addition, the Company had 62,500
Underwriters' Warrants entitling the holders to purchase up to 62,500 Warrants
at $.125 per Warrant. The Warrants underlying the Underwriters' Warrants entitle
the holders to purchase up to 62,500 shares of common stock at $8.70 per share.
Both the Underwriters' Stock Warrants and the Underwriters' Warrants are
exercisable during a four year period commencing November 12, 1996. The
Underwriters' Stock Warrants and Underwriters' Warrants contain anti-dilution
provisions providing for adjustment upon the occurrence of certain events.
Holders of the Company's warrants do not possess any rights as stockholders of
the Company until they exercise their warrants and, accordingly, holders of the
Company's warrants are not entitled to vote in matters submitted to the
shareholders and are not entitled to receive dividends.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Under the terms of the underwriting agreement entered into by the Company in
connection with its initial public offering, the Company is restricted until
November 20, 1998, from paying dividends in excess of the amount of the
Company's current or retained earnings derived after November 20, 1996, unless
the consent of the underwriters is obtained. Additionally, although CRI's and
ARS's lines of credit do not expressly prohibit the Company from paying
dividends, the lines of credit do contain covenants which restrict the reduction
or depletion of the respective companies' capital.
STOCK SPLIT
On September 11, 1996, the Board of Directors authorized a 1 for 1.9 reverse
split of its common stock which was effected on October 16, 1996. All references
in the accompanying consolidated balance sheet and notes to the number of shares
of common stock and par value have been retroactively restated to reflect the
stock split.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1996, 1,324,416 shares of common stock were reserved for future
issuance in connection with outstanding warrants and the Company's incentive
stock option plan.
F-18
<PAGE> 39
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
EQUITY PARTICIPATION PLAN
The 1996 Equity Participation Plan of Bristol Technology Systems, Inc. (the
Plan) was adopted by the Board of Directors and approved by the written consent
of the majority of the stockholders on July 31, 1996. The Plan provides for the
grant of stock options, restricted stock, performance awards, dividend
equivalents, deferred stock, stock payments and stock appreciation rights to
employees, consultants and affiliates. Options granted under the Plan may be
incentive stock options (ISOs) or nonstatutory stock
F-19
<PAGE> 40
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
8. STOCKHOLDERS' EQUITY (CONTINUED)
EQUITY PARTICIPATION PLAN (CONTINUED)
options (NSOs). ISOs may be granted only to employees and the exercise price per
share may not be less than 100% of the fair market value of a share of common
stock on the grant date and the term of the options may not be more than ten
years from the date of grant (110% of the fair market value and five years from
the date of grant if the employee owns more than 10% of the total combined
voting power of all classes of stock of the Company). All other stock awards may
be granted to employees, consultants, or affiliates. The exercise price of NSOs
shall be determined by a committee appointed by the Board of Directors to
administer the Plan (the Committee) but shall not be less than the par value of
a share of common stock on the grant date. The term of the NSOs shall be
determined by the Committee.
The Plan allows for the issuance of up to 450,000 shares of common stock. At
December 31, 1996, options to purchase 418,166 shares of common stock had been
granted at exercise prices ranging from $6.00 to $6.60 per share. All options
vest at a rate of 25% per year commencing on the first anniversary of the grant
date. No other stock-based awards have been offered under the Plan.
Of the options granted, 25,000 were granted to a nonemployee and were accounted
for at their fair value in accordance with Statement 123. The remaining options
were issued to employees and were accounted for in accordance with APB 25 (Note
1). Statement 123 requires the calculation of pro forma information regarding
net loss and net loss per share as if Statement 123 had been adopted for options
issued to employees.
In calculating the pro forma information, the fair value was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 6.6%; dividend yield of
0%; volatility of the expected market price of the Company's common stock of
.40; and a weighted average expected life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information for the period from inception (April 3, 1996) to December 31,
1996 follows:
<TABLE>
<S> <C>
Pro forma net loss $ (197,257)
Pro forma net loss per share $ (.06)
</TABLE>
F-20
<PAGE> 41
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
8. STOCKHOLDERS' EQUITY (CONTINUED)
EQUITY PARTICIPATION PLAN (CONTINUED)
The weighted average exercise price and fair value of options granted whose
exercise price equals the market price of the stock on the date of grant is
$6.00 and $2.67, respectively, and the weighted average exercise price and fair
value of options granted whose exercise price exceeds the market price of the
stock on the date of grant is $6.60 and $2.52, respectively. The weighted
average remaining term of options outstanding as of December 31, 1996 is 6.0
years and the weighted average exercise price is $6.26 per share. No options
were exercisable at December 31, 1996.
9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
(SUCCESSOR) (PREDECESSOR)
================== ====================
FROM INCEPTION
(APRIL 3, 1996) TO
DECEMBER 31, JUNE 30,
1996 1996 1995
------------------ ------- -------
<S> <C> <C> <C>
Current:
Federal $ -- $18,525 $16,189
State 1,800 4,886 4,447
----------- --------------------
Total current 1,800 23,411 20,636
Deferred:
Federal -- 16,878 32,614
State -- 2,482 4,787
----------- --------------------
Total deferred -- 19,360 37,401
----------- --------------------
Provision for income taxes $1,800 $42,771 $58,037
=========== ====================
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
F-21
<PAGE> 42
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
=========== ====================
December 31, June 30,
1996 1996 1995
----------- --------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 15,636 $ -- $ --
Reserve for excess and obsolete inventories 22,000 -- --
Deferred revenue 97,000 63,534 84,712
Accrued compensation 22,663 16,190 12,190
Litigation settlement 33,200 32,624 32,624
Net operating loss 5,326 -- --
Other 6,549 3,957 6,139
----------- --------------------
Total deferred tax assets 202,374 116,305 135,665
Deferred tax liabilities:
Tax over book depreciation (7,444) -- --
----------- --------------------
Net deferred tax assets 194,930 116,305 135,665
Valuation allowance on net deferred tax
assets (194,930) -- --
----------- --------------------
Net deferred taxes $ -- $116,305 $135,665
=========== ====================
</TABLE>
The Company has recorded a valuation allowance against deferred tax assets as
deemed necessary to reduce deferred tax assets to amounts which are more likely
than not to be realized. A portion of the valuation allowance relates to
acquired temporary differences that when realized will be recorded as an
adjustment to goodwill.
At December 31, 1996, the Company has federal net operating loss carryforwards
of $15,000 which begin to expire in the year 2011.
F-22
<PAGE> 43
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
9. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax provision is:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
======================== ===============================================
From inception
(April 3, 1996) to
December 31, 1996 June 30, 1996 June 30, 1995
Amount Percent Amount Percent Amount Percent
------------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $(35,641) (34.0) $41,462 34.0 $58,750 34.0
State income taxes, net of any
federal tax benefit 1,800 1.7 3,225 2.7 2,935 1.7
Losses incurred without tax
benefit 28,078 26.8 -- -- -- --
Nondeductible goodwill 6,320 6.0 -- -- -- --
Nondeductible meals and
entertainment 1,243 1.2 3,665 3.0 325 --
Officers' life insurance
premium -- -- 3,686 3.0 2,881 1.9
Effect of graduated tax rates -- -- (9,267) (7.6) (6,854) (4.0)
------------------------- --------------------- -------------------
$ 1,800 1.7 $42,771 35.1 $58,037 33.6
========================= ===================== ===================
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company's wholly-owned subsidiary CRI sponsors a Section 401(k) employees
savings plan, covering substantially all full-time employees who have worked for
CRI for more than one year. CRI made discretionary contributions of $14,761,
$26,362 and $19,759 for the period from inception (April 3, 1996) to December
31, 1996 and for the years ended June 30, 1996 and 1995, respectively.
F-23
<PAGE> 44
Bristol Technology Systems, Inc.
Notes to Consolidated Financial Statements
11. RELATED PARTY TRANSACTIONS
The Company had various transactions with related parties which were made in the
normal course of business. A summary of these transactions is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION (APRIL
3, 1996) TO Year Ended June 30,
DECEMBER 31, ----------------------------
1996 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Consulting fees paid to King Enterprises, owned by
a director and former owner of CRI $ -- $ 37,728 $ 37,728
Rent paid to a director of CRI 15,000 30,000 30,000
Insurance premiums paid for insurance coverage
purchased through a broker who is a family
member of a director and officer of the Company 121,634 -- --
</TABLE>
Facility lease transactions with related parties are further discussed in Note
7, Commitments and Contingencies.
Amounts payable to (due from) related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996 1995
------------ -----------------
<S> <C> <C> <C>
RBC, Inc. (See Note 6) $40,000) $40,000 $40,000
Director and former owner of CRI -- -- 70,000
Pollastro Properties, Inc., owned by the former
owners of ARS, certain of whom are now
officers of ARS (7,000) -- --
President of ARS (60,028) -- --
</TABLE>
Interest expensed and paid to the RBC, Inc. during the years ended June 30, 1996
and 1995 was $3,762 and $4,021 respectively.
F-24
<PAGE> 45
Bristol Technology Systems, Inc.
Notes to Financial Statements (continued)
12. SUBSEQUENT EVENTS
On February 28, 1997, the Company entered into a definitive agreement providing
for the merger of Micro Data, Inc., a POS dealer with operations in Kentucky and
Illinois, into CRI. As consideration for the merger, Micro Data, Inc.'s
shareholder will receive cash of approximately $82,000 and shares of
non-registered, restricted common stock of the Company worth approximately
$140,000, subject to adjustment as defined in the agreement. The transaction
will be recorded under the purchase method of accounting. The merger is expected
to close on April 1, 1997, and is subject to certain terms and conditions as set
forth in the agreement.
On March 27, 1997, the Company entered into a definitive agreement providing for
the merger of International Systems & Electronics Corporation ("ISE"), a POS
dealer with operations in Florida, into Bristol Merger Corporation, a
wholly-owned subsidiary of the Company. As consideration for the merger, ISE's
shareholder will receive cash of approximately $1,100,000 and shares of
non-registered, restricted common stock of the Company worth approximately
$750,000, subject to adjustment as defined in the agreement. The transaction
will be recorded under the purchase method of accounting. The merger is expected
to close on April 30, 1997, and is subject to certain terms and conditions as
set forth in the agreement.
F-25
<PAGE> 1
EXHIBIT 11
BRISTOL TECHNOLOGY SYSTEMS, INC.
Computation of Earnings (Loss) per Share
<TABLE>
<CAPTION>
(Successor)
=========== (Predecessor) (Predecessor)
Inception ============= =============
(April 3, 1996)
to Twelve Twelve months
December 31, months Ended Ended
1996 June 30, 1996 June 30, 1995
--------------- ------------- -------------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Net income (loss) $ (106,625) $ 79,177 $114,757
=========== =========== ===========
Weighted average number of common shares
outstanding during the period calculated in
accordance with generally accepted accounting
principles including the effects of SAB 83 3,483,012 1,000 1,001
Effect of stock options and warrants treated as
Common Stock equivalents under the
treasury stock method -- -- --
----------- ----------- -----------
Total shares 3,483,012 1,000 1,001
=========== =========== ===========
Primary earnings (loss) per share $(.03) $79 $115
=========== =========== ===========
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net income (loss) $ (106,625) $79,177 $114,757
Weighted average number of common shares
outstanding during the period calculated in
accordance with generally accepted accounting
principles including the effects of SAB 83 3,483,012 1,000 1,001
Effect of stock options and warrants
treated as Common Stock equivalents
under the treasury stock method -- -- --
----------- ----------- -----------
Total shares 3,483,012 1,000 1,001
----------- ----------- -----------
Fully diluted earnings (loss) per share $(.03) $79 $115
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
Name State of Incorporation
Cash Registers, Incorporated Kentucky
Automated Retail Systems, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE AUDITED STATEMENT
OF OPERATIONS FOR THE PERIOD FROM INCEPTION (APRIL 3, 1996) TO DECEMBER 31, 1996
IN THE REPROT ON FORM 10-KSB FOR THE PERIOD FROM INCEPTION (APRIL 3, 1996) TO
DECEMBER 31, 1996 OF BRISTOL TECHNOLOGY SYSTEMS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-03-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,475,674
<SECURITIES> 0
<RECEIVABLES> 1,336,046
<ALLOWANCES> 39,090
<INVENTORY> 2,169,531
<CURRENT-ASSETS> 155,656
<PP&E> 280,378
<DEPRECIATION> 29,552
<TOTAL-ASSETS> 11,169,699
<CURRENT-LIABILITIES> 2,933,327
<BONDS> 0
0
0
<COMMON> 4,746
<OTHER-SE> 8,170,247
<TOTAL-LIABILITY-AND-EQUITY> 11,169,699
<SALES> 4,196,230
<TOTAL-REVENUES> 4,239,510
<CGS> 2,845,995
<TOTAL-COSTS> 4,298,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,125
<INCOME-PRETAX> (104,825)
<INCOME-TAX> 1,800
<INCOME-CONTINUING> (106,625)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (106,625)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
