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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997
[ ] 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
BRISTOL RETAIL SOLUTIONS, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 58-2235556
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5000 BIRCH STREET, SUITE 205, NEWPORT BEACH, CALIFORNIA 92660
(Address of Principal Executive Offices) (Zip Code)
(714) 475-0800
(Issuer's Telephone Number Including Area Code)
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 [ ]
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: $21,088,487
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $10,251,282 (computed using
the closing price of $3.19 per share of Common Stock on February 27, 1998 as
reported by The Nasdaq Stock Market, based on the assumption that directors and
officers and more than 5% stockholders are affiliates).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
There were 5,556,746 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 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held May 15, 1998, which Proxy Statement
will be filed no later than 120 days after the close of the registrant's year
ended December 31, 1997, are incorporated by reference in Part III of this
Annual Report on Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Bristol Retail Solutions, Inc. ("the Company", formerly Bristol
Technology Systems, Inc.) was incorporated on April 3, 1996 in the state of
Delaware and is engaged in key segments of the retail automation industry,
including point-of-sale ("POS") systems installation and service and systems
integration, which provides retailers with turnkey operating solutions.
The Company is building an integrated retail automation company through
a series of targeted acquisitions and internal development. It plans to build a
national network of POS dealers and a group of solutions-oriented systems
integrators, which together can produce synergistic results. The Company's aim
is to serve a broad range of retailers - including national and regional chains
as well as major single unit operations in selected vertical market segments.
The Company's management believes the driving forces in United States
retailing are the need to attract and retain new customers, increase the average
sale per visit and maximize productivity. Retailers need the ability to quickly
identify the buying history and needs of a customer. Access to such information
allows retailers to match their current products and services to each customer's
needs.
The current cash register system used by many retailers is incapable of
handling these needs. The Company believes that the most effective solution to
these needs is the modern POS system. The Company expects demand to come from
three sources: (i) retailers seeking to upgrade their systems; (ii) retailers
seeking to replace their obsolete systems; and (iii) new retailers.
The Company initially was created to capitalize on the opportunity to
consolidate independent dealers in the POS industry. Subsequently, it has
expanded its focus to the broader retail automation market. Large multinational
corporations such as NCR Corporation and Matsushita Electronic Corporation of
America ("Panasonic") manufacture POS systems and ECRs. While a number of
manufacturers continue to make some direct sales to retail establishments, the
principal channel of distribution for POS systems is independent POS dealers.
American Business Information, American Yellow Pages, 1996 Edition, lists more
than 3,000 independent POS and cash register dealers. These dealers account for
more than half of all sales and service of POS systems and related equipment to
retail businesses in the United States. In addition to the high degree of
fragmentation in the POS industry, the development of increasingly more
sophisticated systems which require greater skills for successful marketing and
product support has further enhanced the opportunity for consolidation in the
industry.
In addition, the Company intends to function as a systems integrator of
computer hardware, software and networking products in specific national retail
markets. The Company intends to offer its customers a variety of customized
value-added services such as consulting, integration and support services,
together with a broad range of turnkey computers and networking products from
leading vendors.
The Company is implementing a program of selective POS acquisitions and
consolidations. The Company will then seek to enhance the profitability of the
acquired dealerships through the benefits derived from the economies of scale
flowing from a volume-oriented business, consolidation of key activities,
improved value-added operations, better trained personnel, quicker on-site
service, greater product diversity, focused leasing programs, major/national
account programs and enhanced service and support of end user installations. The
Company also plans to pursue selective acquisitions of systems integrators to
augment its Smyth Systems, Inc., subsidiary as well as producers of proprietary
retail software products to expand the Company's penetration of the retail
automation market.
Through December 31, 1997, the Company has acquired six companies that
sell, install and maintain POS systems and/or turnkey retail automation (VAR)
systems. Currently, the Company has sales and/or service activities in sixteen
cities in eight states throughout the United States. The cities are largely
concentrated within two geographic regions, mid-west and western states. Unless
the context otherwise requires, the term the "Company" is used in this report to
refer to Bristol Retail Solutions, Inc. and its subsidiaries.
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INDUSTRY OVERVIEW
The retail automation industry is a multi-billion dollar industry
composed of several components. The Company's acquisition strategy is focused on
two of the major segments of the industry: POS dealers who sell, install and
service point-of-sale systems and system integrators who provide turnkey
software-based solutions for retail operations.
POS
Within the retail automation industry, there are 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 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 Company offers its customers continued
support, customer service and supplies from installation through the life span
of its products. 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 1996, 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 in order to take advantage of new product features that are being
introduced more frequently than in the past. The industry's total revenue has
grown each year, fueled by the increasing sales of POS systems. RETAIL
AUTOMATION 1996 AND BEYOND, (C)1996 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).
While the industry has a number of large manufacturers that continue to
sell their product on a direct basis today, more than half of all product
placements are made by POS and ECR dealers. All manufacturers use POS and ECR
dealers to distribute their products to the marketplace, and some manufacturers
use POS and ECR dealers as their exclusive means of distributing their products
to the marketplace.
SYSTEMS INTEGRATION
Systems integrators operating in the retail automation field generally
offer their turnkey software solutions on a vertical market basis. The continual
drive by retailers to reduce operating costs, improve productivity and maximize
operating margins has created significant growth opportunities for systems
integrators whose software products serve to automate functions such as
inventory control as well as the entire transaction process. They seek to
deliver solutions for many of the demanding operating challenges facing
retailers in today's competitive environment.
The Company is prepared to offer its customers a variety of value-added
services, such as consulting, integration and support services, together with a
broad range of computer and networking products from leading vendors. Consulting
and integration services include system design, performance analysis, security
analysis, migration planning, product procurement, configuration, testing and
systems installation and implementation. Support services include network
management, "help-desk" support and enhancement, maintenance and repair of
computer systems. Through the acquisition of Smyth Systems, Inc. the Company
believes that it will be in a position to expand on Smyth Systems, Inc.'s
current capacity to provide systems integration services and offer such services
to a broader range of customers.
There are numerous companies who sell, install and support retail
automation software to retail outlets. In addition to the number of retail
outlets who have not automated key elements of their operations, the
introduction of new versions of software creates continual upgrading
opportunities, which contribute to the revenue growth of systems integrators
offering turnkey retail solutions.
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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 are attributable to the direct channel. The 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 one or two 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.
Systems integrators generally market turnkey solutions directly to
retailers through their own sales force of specialists with in-depth knowledge
of their target vertical markets. The Company believes its expanding network of
POS dealers will provide a new channel of distribution opportunity for its
system integrators to reach additional retailers.
ACQUISITIONS
During 1997 and 1996, the Company acquired the entities described
below, which were accounted for by the purchase method of accounting:
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 $955,000, including acquisition costs of $72,000. The excess of
purchase price over the fair values of the net assets acquired was $557,000 and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 15 years.
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 $1,025.000 in cash,
including $78,000 of acquisition costs, and 58,154 shares of non-registered,
restricted common stock of the Company valued at approximately $683,000 at the
acquisition date. The excess of purchase price over the fair values of the net
assets acquired was $1,160,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 15 years.
On April 1, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired all of the outstanding common stock of MicroData, Inc. (MicroData), a
POS dealer with operations in Illinois and Kentucky, for consideration of
$98,000 in cash, including $19,000 of acquisition costs, and 11,415 shares of
non-registered, restricted common stock of the Company valued at approximately
$136,000 at the acquisition date. The excess of purchase price over the fair
values of the net assets acquired was $155,000 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 20 years.
On May 29, 1997, the Company acquired Smyth Systems, Inc. (Smyth) for
consideration of $2,369,000 in cash, including $20,000 of acquisition costs, and
569,408 shares of non-registered, restricted common stock of the Company valued
at approximately $2,064,000 at the acquisition date. Smyth operates through two
divisions which provides VAR systems to customers throughout the United States
and POS systems to customers in Southern California and Ohio. The excess of
purchase price over the fair values acquired was $3,328,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 20
years.
On June 6, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired Electronic Business Machines, Inc. (EBM), a POS dealer with operations
in Indiana and Kentucky, for consideration of $483,000 in cash, including
$62,000 of acquisition costs, and 147,033 shares of non-registered, restricted
common stock of the Company valued at approximately $579,000 at the acquisition
date. The excess of purchase price over the fair values acquired was $838,000
and has been recorded as goodwill, which is being amortized on a straight-line
basis over 20 years.
On August 5, 1997, the Company acquired all of the outstanding common
stock of Pacific Cash Register and Computer, Inc. (PCR), a POS dealer with
operations in Northern California, for consideration of $165,000 in cash,
including $13,000 of acquisition costs, and 75,000 shares of non-registered,
restricted common stock of the Company valued at approximately $225,000 at the
acquisition date. The excess of purchase price over the fair values acquired was
$260,000 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 20 years.
The Company is currently engaged in discussions with several other
retail automation solution businesses, 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.
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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 geographical location of dealers. The Company
primarily competes with independent POS dealers and some of these dealers may
have greater financial resources available to them than does the Company. In
addition, there are original equipment manufacturers of POS equipment that
compete in certain product areas by distributing their products directly. The
Company's ability to make acquisitions will also be subject to competition. The
Company believes that, during the next few years, POS dealers may seek growth
through consolidation with entities other than the Company. In addition, no
assurance can be given that the major manufacturers will not choose to effect or
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
No customer accounted for more than 10% of the Company's net revenue
for the year ended December 31, 1997. Sales to Seed Restaurant Group accounted
for approximately 33% of net revenue for the period from inception (April 3,
1996) to December 31, 1996.
PRINCIPAL SUPPLIERS
A substantial portion of the Company's total revenue is and will be
derived from the sale of POS systems, ECRs and related equipment, none of which
are manufactured by the Company. The Company's business is dependent upon close
relationships with manufacturers of POS equipment and the Company's ability to
purchase equipment in the quantities necessary and upon competitive terms so
that it will be able to meet the needs of its end-user customers. During the
year ended December 31, 1997, the Company purchased its hardware principally
from three main vendors, Panasonic, ERC Parts, Inc. ("ERC"), a distributor of
Panasonic products, and NCR Corporation ("NCR"). Sales of Panasonic, ERC and NCR
products accounted for approximately 32% of net revenue for the year ended
December 31, 1997. The Company has supply agreements with these manufacturers.
The agreements are non-exclusive, have geographic limitations and have renewable
one-year terms. There can be no assurance that the relationships with these
manufacturers will continue or that the Company's supply requirements can be met
in the future. The Company's inability to obtain equipment, parts or supplies on
competitive terms from its major manufacturers could have a material adverse
effect on the Company's business, results of operations, financial condition and
cash flows.
RESEARCH AND DEVELOPMENT
As a systems integrator, the Company offers its software and hardware
solutions to its club, golf and resort retail customers, through its
wholly-owned subsidiary Smyth. These solutions are completely integrated systems
that include financial, operational and information processing capabilities. The
core software components have previously been developed and yearly research and
development expenditures are normally expended for system enhancements and
specific customer requirements. The Company spent $554,000 in research and
development for the year ended December 31, 1997. There were no research and
development costs for the period from inception (April 3, 1996) to December 31,
1996.
EMPLOYEES
As of February 27, 1998, the Company had 226 full-time and 15 part-time
employees, of whom 143 were employed in customer services, 44 in finance and
administrative services, and 54 in sales and marketing. Of the total full-time
employees, 6 were employed at the Company's corporate office, 76 were employed
at CRI (including MicroData and EBM), 32 were employed at ARS, 88 were employed
at Smyth and 24 were employed at PCR. 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 leases its 3,980 square foot headquarters facility in
Newport Beach, California. The Company also leases approximately 38,400 square
feet of office and warehouse facilities in Kentucky, Illinois, Indiana and Ohio
for its CRI operations (including facilities utilized by MicroData and EBM), of
which 6,900 square feet is leased from Coye D. King, a director of CRI, and
12,400 is leased from Floyd Shirrell, the former owner of EBM. The Company's ARS
operations utilize approximately 11,800 square feet of leased property, which
includes an approximately 11,158 square foot office facility in Seattle,
Washington which is leased from certain of the officers of ARS. The lease
expires in December 2003. The Company's Smyth subsidiary leases approximately
29,700 square feet of office and warehouse facilities in Canton, Ohio and
Irvine, California. The Company's PCR subsidiary in San Francisco, California
leases approximately a 7,000 square foot office and warehouse facility.
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 lessors 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
the terms of the contract were equivalent to those that would be under an
arm's-length transaction.
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
and its counsel, although the outcomes of these claims and suits are not
presently determinable, 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 in "Business Item 2. Description of
Properties") and (ii) bonus arrangements described in certain employment
agreements between the Company and the Kings. At December 31, 1997, CRI had
$83,000 accrued in connection with the lawsuit. In February 1998, CRI paid
$50,213 as settlement of the Court of Appeals affirming the award of $31,950
plus interest of $18,263. There is still pending one remaining claim, and the
Company is vigorously defending the claim.
On or about August 7, 1997, a class action lawsuit was filed against
the Company and certain of the Company's officers and directors. Underwriters
for the Company's initial public offering are also named as defendants. The
class action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha
Seamons, on behalf of themselves and all others similarly situated. The case is
pending in the United States District Court for the Southern District of New
York. In addition to seeking themselves declared proper plaintiffs and having
the case certified as a class action, the plaintiffs are seeking unspecified
monetary damages. The plaintiffs' complaint alleges claims under the federal
securities laws for alleged misrepresentations and omissions in connection with
purchases of securities. The Company disputes the allegations made in the
complaint and intends to vigorously defend itself.
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 1997.
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PART II
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 "BRTL" and "BRTLW," respectively. The
following table sets forth the high and low closing sale prices for the
Company's Common Stock and Warrants for the periods indicated as reported by the
Nasdaq National Market System.
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 13, 1996 TO DECEMBER 31, 1996 HIGH LOW
<S> <C> <C>
Common Stock $ 11 - 3/4 $ 9 - 13/16
Warrants 6 5
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
1ST QUARTER
Common Stock $ 13 $ 11 - 5/32
Warrants 7 - 3/8 5 - 1/4
2ND QUARTER
Common Stock 11 - 7/8 3 - 1/16
Warrants 6 - 5/8 0 - 5/8
3RD QUARTER
Common Stock 3 - 13/16 2 - 3/4
Warrants 0 - 7/8 0 - 1/4
4TH QUARTER
Common Stock 5 - 7/8 3
Warrants 2 0 - 1/2
</TABLE>
As of April 1, 1998, the approximate number of record holders of the
Company's Common Stock and Warrants was 696 and 239, 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 not paid dividends on its preferred stock or common
stock to date. The Company is obligated to pay, quarterly, cumulative dividends
at a rate of six percent (6%) per annum of the issue price of the Series A
Convertible Preferred Stock, payable, at the holders' option, in cash or in
Common Stock at the conversion price of the Series A Preferred Stock. So long as
any of shares Series A Preferred Stock remain outstanding, the Company may not,
without the vote or written consent of the holders of at least 66-2/3% of the
then outstanding shares of Series A Preferred Stock, voting together as a single
class, declare or pay any dividend with regard to any share of Common Stock.
(SEE ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS, ANTI-TAKEOVER EFFECT OF
CERTAIN CHARTER AND BYLAW PROVISIONS). Additionally, although the current line
of credit does not expressly prohibit the Company from paying dividends, the
line of credit does contain certain covenants which restrict the reduction or
depletion of the Company's capital. The Company anticipates that future
financing, including any lines of credit, may further restrict or prohibit the
Company's ability to pay 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 from November 20, 1996, unless the consent of the underwriters is
obtained.
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USE OF PROCEEDS
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. The
Company used $850,000 of the net proceeds to repay $817,500 in subordinated
notes payable and related accrued interest on November 22, 1996; $350,000 to
repay the outstanding balance under CRI's line of credit on March 25, 1997;
$4,218,000 for the acquisitions of ARS, MicroData, Smyth, EBM and PCR, including
approximately $200,000 for acquisition-related costs; and approximately
$1,628,000 for working capital and general corporate purposes.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this Annual
Report on Form 10-KSB. This Annual Report on Form 10-KSB contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Additional Factors
That May Affect Future Results".
YEAR ENDED DECEMBER 31, 1997 AND 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 services and supplies
(Service Revenue). Net revenue for the year ended December 31, 1997 was
$21,088,000 and was comprised of net revenue from the Company's wholly-owned
subsidiaries CRI and ARS for the entire year and MicroData, Smyth, EBM and PCR
from the date of their respective acquisitions (see NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS,NOTE 3. ACQUISITIONS). This represents an increase of 403%
from the Company's net revenue of $4,196,000 for the period from inception
(April 3, 1996) to December 31, 1996. Net revenue for the period from inception
(April 3, 1996) to December 31, 1996 is comprised solely of revenue of CRI
subsequent to the Company's acquisition of CRI on June 28, 1996. The increase in
revenue from the period from inception (April 3, 1996) to December 31, 1996 to
the year ended December 31, 1997, is due primarily to the revenue contributed by
the additional acquired businesses.
Net revenue for the year ended December 31, 1997 was comprised of 64%
Systems Revenue and 36% Service Revenue, as compared to a revenue composition of
74% Systems Revenue and 26% Service Revenue for the period from inception (April
3, 1996) to December 31, 1996. The mix of revenue changed from 1996 to 1997 due
to the following: (i) a decline in systems sales in 1997 to Seed Restaurant
Group, CRI's largest customer during 1996; (ii) an increase in Service Revenue
in 1997 derived from additional maintenance contracts obtained as a result of a
high volume of systems sold by CRI during the last half of 1996; and (iii)
different revenue mixes at ARS and at the subsidiaries acquired in 1997.
No customer accounted for more than 10% of net revenue for the year
ended December 31, 1997. Sales to Seed Restaurant Group accounted for
approximately 33% of net revenue for the period from inception (April 3, 1996)
to December 31, 1996. Sales of products from the Company's three main hardware
vendors, Panasonic, ERC, and NCR, accounted for approximately 32% of net revenue
for the year ended December 31, 1997 and approximately 51% of net revenue for
the period from inception (April 3, 1996) to December 31, 1996. The Company has
supply agreements with these manufacturers. The agreements are non-exclusive,
have geographic limitations and have renewable one-year terms. A change in the
Company's relationships with these principal vendors could have a material
adverse effect on the Company's business, results of operations, financial
condition and cash flows.
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GROSS MARGIN
Gross margin for the year ended December 31, 1997 was 30% and was
comprised of gross margin for Systems Revenue of 34% and gross margin for
Service Revenue of 23%. Gross margin for the period from inception (April 3,
1996) to December 31, 1996 was 32% and was comprised of gross margin for Systems
Revenue of 31% and gross margin for Service Revenue of 36%. The decrease in
gross margin between these years is primarily due to lower margins realized on
Systems Revenue generated by the subsidiaries acquired in 1997. Gross margin for
the period from inception (April 3, 1996) to December 31, 1996 is comprised
solely of gross margin of CRI subsequent to the acquisition of CRI on June 28,
1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended
December 31, 1997, totaled $8,956,000, or 42% of net revenue, and totaled
$1,452,000 for the period from inception (April 3, 1996) to December 31, 1996,
or 35% of net revenue. The increase in selling, general and administrative
expenses as a percentage of net revenue for the year ended December 31, 1997, is
primarily due to a full year of staffing, operating and acquisition costs
incurred at corporate headquarters needed to successfully integrate acquired
companies and to support future growth.
GOODWILL WRITE-DOWN
The Company reviews its assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During the fourth quarter of 1997, the Company analyzed the
performance of its subsidiaries' operations and recognized a goodwill impairment
loss of $1,871,000 due to lower than anticipated future cash flows of certain
acquired companies compared to the current value on the balance sheet.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs were $554,000 for the year ended
December 31, 1997, and consist primarily of internal costs to develop
proprietary software incurred at the Company's wholly-owned subsidiary Smyth,
which was acquired on May 29, 1997. The Company's policy is to expense such
costs until technological feasibility is established. At December 31, 1997, such
technological feasibility had not been established.
INTEREST INCOME AND INTEREST EXPENSE
The Company earned interest income of $131,000 for the year ended
December 31, 1997, compared to $43,000 for the period from inception (April 3,
1996) to December 31, 1996. Interest income in 1997 was derived primarily from
interest earned on the investment of the Company's proceeds from its initial
public offering in November 1996. The proceeds were invested in a short-term,
interest-bearing money market fund.
The Company recognized interest expense of $111,000 for the year ended
December 31, 1997, compared to $46,000 for the period from inception (April 3,
1996) to December 31, 1996. Interest expense in 1997 consisted primarily of
interest on outstanding balances on the Company's lines of credit. Interest
expense in 1996 consisted primarily of interest on $817,500 of subordinated
notes payable that were issued on June 30, 1996.
INCOME TAX PROVISION
The Company recorded an effective income tax provision of 0% for the
year ended December 31, 1997, and for the period from inception (April 3, 1996)
to December 31, 1996. Income tax expense in 1997 consisted solely of state taxes
as the Company had a taxable loss for federal income tax purposes.
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LIQUIDITY AND CAPITAL RESOURCES FOR THE COMPANY
The Company had cash and cash equivalents of $716,000 and working
capital of $264,000 at December 31, 1997, compared to cash and cash equivalents
of $5,476,000 and working capital of $6,164,000 at December 31, 1996. In the
year ended December 31, 1997, the Company used $2,192,000 of cash in operations;
used $208,000 for the purchase of property and equipment and used $3,008,000 for
the acquisitions of MicroData, Smyth, EBM and PCR; and generated $1,247,000 from
financing activities, which consists of the net impact of borrowings and
repayments under the Company's various debt agreements and the purchase of
treasury stock. In addition, the Company used $1,100,000 during the year ended
December 31, 1997, for an acquisition which was later rescinded, where $250,000
was refunded to the Company in cash. The remaining funds are recorded as
$600,000 in receivables and $250,000 in other assets at December 31, 1997, and
will be returned to the Company as provided in the Rescission Agreement (see
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, NOTE 3, ACQUISITIONS). During the
period from inception (April 3, 1996) to December 31, 1996, the Company used
$44,000 of cash in operations; used $86,000 for the purchase of property and
equipment and used $2,035,000 for the acquisitions of CRI and ARS; and generated
$7,640,000 from investing activities, primarily due to proceeds received from
the Company's initial public offering.
On December 17, 1997, the Company obtained a new line of credit which
provides for aggregate borrowings up to $5,000,000 computed based on eligible
accounts receivable and inventories; bears interest at the bank's prime rate
plus 1.75%; matures on December 31, 2000; and is collateralized by the Company's
accounts receivable and inventories. The Company repaid all amounts outstanding
under its previous CRI, ARS and Smyth credit lines using proceeds from the new
line of credit. The Company had outstanding borrowings of $2,031,000 bearing
interest at 10.25% at December 31, 1997.
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. The
Company used $850,000 of the net proceeds to repay $817,500 in subordinated
notes payable and related accrued interest on November 22, 1996; $350,000 to
repay the outstanding balance under CRI's line of credit on March 25, 1997;
$4,218,000 for the acquisitions of ARS, MicroData, Smyth, EBM and PCR, including
approximately $200,000 for acquisition-related costs; and approximately
$1,628,000 for working capital and general corporate purposes.
The Company is currently engaged in discussions with several other
retail automation solution businesses 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.
On March 18, 1998, the Company entered into a definitive agreement for
a private placement of shares of Series A Preferred Stock. The investment
commitment is up to $2,000,000 and will be issued in three installments. The
first installment of $1,000,000 funded on March 18, 1998. The second and third
installments of $500,000 each will subsequently close in thirty and sixty days,
respectively, assuming that the various conditions set forth in the purchase
agreement are met. The Series A Preferred Stock is convertible by the holders
into common stock of the Company at any time into a number of shares of common
stock determined by dividing the issue price by the conversion price, which is
defined to be 78% of the lowest five-day average closing bid price for the
25-day period prior to the date of the conversion notice. At no time shall the
conversion price be higher than 110% of the five-day average bid price prior to
the date such shares were purchased. The dividends on the Series A Preferred
Stock is payable quarterly in stock or in cash. The purchaser of the Series A
Preferred Stock received warrants to purchase 125,000 shares for the first
$1,000,000 installment. The agreement has a provision that prohibits the
purchaser from owning more than 20% of the Company's common stock. In addition,
if one of the two remaining installments might cause the purchaser to own more
than 20% of the Company's outstanding common stock, then the installment will
not fund.
The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under its credit facility will be
sufficient to meet the Company's liquidity requirements for its operations
through the end of 1998. However, the Company intends to identify, evaluate and
acquire additional retail automation solution businesses during 1998. These
acquisitions are expected to be funded through a combination of cash and common
stock and may necessitate additional costs and expenditures to expand
operational and financial systems and corporate management and administration.
The Company will require additional financing in order to continue this
acquisition program. The Company currently intends to obtain financing through
future issuances of debt or equity securities during 1998. However, there can be
no assurance that the Company will be able to successfully obtain financing or
that such financing will be available on terms the Company deems acceptable. The
Company's long-term success is dependent upon its ability to obtain necessary
financing, the successful execution of management's strategic plan and the
achievement of sustained profitable operations.
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SEASONALITY, QUARTERLY INFORMATION AND INFLATION
The Company's business is subject to seasonal influences. The POS
dealers and system integrators which the Company has acquired to date have
typically had lower net revenues in the quarters ending March 31 and December 31
primarily due to the lower level of new store openings by customers caused by
inclement weather, budgetary concerns and/or holidays. The Company believes that
this pattern of seasonality will continue in the foreseeable future.
Quarterly results in the future may be materially affected by the
timing and magnitude of acquisitions and costs related to such acquisitions, the
timing and extent of staffing additions at corporate headquarters necessary to
integrate acquired companies and support future growth and general economic
conditions. Therefore, results for any quarter are not necessarily indicative of
the results that the Company may achieve for any subsequent quarter or for a
full 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 the Company's future
operating results.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based
on current expectations and involve a number of risks and uncertainties. In
addition, the Company may from time to time make oral forward-looking
statements. Factors that may materially affect revenues, expenses and operating
results include, without limitation, the success of the Company's operating
subsidiaries; the impact of the Company's acquisition strategy and the Company's
ability to successfully integrate and manage the acquired subsidiaries; the
ability of the Company to obtain future financing on acceptable terms; and
subsequent changes in business strategy or plan.
The forward-looking statements included herein are based on current
assumptions that the Company will continue to sell and install products on a
timely basis; that the Company will continue to sell maintenance contracts to
service its installed base; that the Company will successfully implement its
acquisition strategy; that competitive conditions within the Company's market
will not change materially or adversely; that demand for the Company's products
and services will remain strong; that the Company will retain existing key
management personnel; that inventory risks due to shifts in market demand will
be minimized; that the Company's forecasts will accurately anticipate market
demand; that the Company will be able to obtain future financing on acceptable
terms when needed; that the Company will be able to maintain key vendor
relationships; and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments that are difficult to predict accurately and are subject to many
factors that can materially affect the Company's business, financial condition,
results of operations and cash flows. Budgeting and other management decisions
are subjective in many respects and are, thus, susceptible to interpretations
and periodic revisions based on actual experience and business developments, the
impact of which may cause the Company to alter its acquisition strategy,
marketing, capital expenditure, or other budgets, which may in turn affect the
Company's business, results of operations, financial condition and cash flows.
In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Because of these and other factors affecting the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition to the factors discussed above
in this section, as well as those discussed under the heading "Seasonality,
Quarterly Information and Inflation," the following factors also may materially
affect the Company's business, results of operations, financial condition and
cash flows and therefore should be considered.
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LIMITED OPERATING HISTORY. The Company was founded in April 1996 and,
prior to the acquisition of CRI in June 1996, the Company had no operations upon
which an evaluation of the Company and its prospects could be based. There can
be no assurance that the Company will be able to implement successfully its
strategic plan, to generate sufficient revenue to meet its expenses or to
achieve or sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company's
strategy is to increase its revenue and the markets it serves through the
acquisition of additional POS dealers and value added resellers serving retail
end users. From its inception through March 31, 1998, the Company has completed
six acquisitions. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional companies or successfully
integrate the operations of additional companies into those of the Company
without encountering substantial costs, delays or other problems. In addition,
there can be no assurance that companies acquired in the future will achieve
sales and profitability that justify the Company's investment in them or that
acquired companies will not have unknown liabilities that could materially
adversely affect the Company's results of operations or financial condition. The
Company may compete for acquisition and expansion opportunities with companies
that have greater resources than the Company. There can be no assurance that
suitable acquisition candidates will continue to be available, that financing
for acquisitions will be obtainable on terms acceptable to the Company, that
acquisitions can be consummated or that acquired businesses can be integrated
successfully and profitably into the Company's operations. Further, the
Company's results of operations in quarters immediately following a material
acquisition may be materially adversely effected while the Company integrates
the acquired business into its existing operations. The Company may acquire
certain businesses that have either been unprofitable or that have had
inconsistent profitability prior to their acquisition. An inability of the
Company to improve the profitability of these acquired businesses could have a
material adverse effect on the Company. Finally, the Company's acquisition
strategy places significant demands on the Company's resources and there can be
no assurance that the Company's management and operational systems and structure
can be expanded to effectively support the Company's continued acquisition
strategy. If the Company is unable to implement successfully its acquisition
strategy, this inability may have a material adverse effect on the Company's
business, results of operations, financial condition and cash flows.
NEED FOR ADDITIONAL FINANCING TO IMPLEMENT ACQUISITION STRATEGY. The
Company currently intends to effect future acquisitions with cash generated from
operations and future issuances of debt or equity securities. There can be no
assurance that the Company will be able to obtain financing if and when it is
needed on terms the Company deems acceptable. The inability of the Company to
obtain financing would have a material adverse effect on the Company's ability
to implement its acquisition strategy, and as a result, could require the
Company to diminish or suspend its acquisition strategy.
CONSIDERATION FOR ACQUIRED COMPANIES EXCEEDS ASSET VALUE. Valuations of
the companies acquired by the Company have not been undertaken based on
independent appraisals, but have been determined through arm's-length
negotiations between the Company and representatives of such companies. The
consideration for each such company has been based primarily on the judgment of
management as to the value of such company as a going concern and not on the
book value of the acquired assets. Valuations of these companies determined
solely by appraisals of the acquired assets may have been less than the
consideration paid for the companies. No assurance can be given that the future
performance of such companies will be commensurate with the consideration paid.
Moreover, the Company has incurred and expects to incur significant amortization
charges resulting from consideration paid in excess of the book value of the
assets of the companies acquired and companies which may be acquired in the
future.
SUBSTANTIAL 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 geographical location of
dealers. The Company primarily competes with independent POS dealers and some of
these dealers may have greater financial resources available to them than does
the Company. In addition, there are original equipment manufacturers of POS
equipment that compete in certain product areas. The Company's ability to make
acquisitions will also be subject to competition. The Company believes that,
during the next few years, POS dealers may seek growth through consolidation
with entities other than the Company. In addition, no assurance can be given
that the major manufacturers will not choose to effect or 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. Any of these developments could have a
material adverse effect on the Company's business, results of operations,
financial condition and cash flows.
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SUBSTANTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS. The Company may
experience substantial fluctuations in its annual and quarterly operating
results in future periods. The Company's operating results are affected by a
number of factors, many of which are beyond the Company's control. A substantial
portion of the Company's backlog is typically scheduled for delivery within 90
days. Delivery dates for products sold by the Company are subject to change due
to customers changing the required installation date of an automation retail
solution system. The changing of such delivery dates is beyond the Company's
control. Quarterly sales and operating results therefore depend in large part on
customer-driven delivery dates, which are subject to change. In addition, a
significant portion of the Company's operating expenses are relatively fixed in
nature and planned expenditures are based in part on anticipated orders. Any
inability to adjust spending quickly enough to compensate for any revenue
shortfall may magnify the adverse impact of such revenue shortfall on the
Company's results of operations.
DEPENDENCE ON MANUFACTURERS. A substantial portion of the Company's
total revenue is and will be derived from the sale of POS systems, ECRs and
related equipment, none of which are manufactured by the Company. The Company's
business is dependent upon close relationships with manufacturers of POS
equipment and the Company's ability to purchase equipment in the quantities
necessary and upon competitive terms so that it will be able to meet the needs
of its end user customers. For the year ended December 31, 1997, the Company
purchased its hardware principally from three main vendors, Panasonic, ERC, a
distributor of Panasonic products, and NCR. Sales of Panasonic, ERC and NCR
products accounted for approximately 32% of net revenue for the year ended
December 31, 1997. There can be no assurance that the relationships with these
manufacturers will continue or that the Company's supply requirements can be met
in the future. The Company's inability to obtain equipment, parts or supplies on
competitive terms from its major manufacturers could have a material adverse
effect on the Company's business, results of operations, financial condition and
cash flows.
FIXED FEE CONTRACTS. Many of the Company's service contracts are fixed
fee contracts pursuant to which the customer pays a specified fee for the
Company's performance of all necessary maintenance and remedial services during
the contract's term. Under these agreements, the Company is responsible for all
costs incurred in maintaining and repairing the equipment, including the cost of
replacement parts, regardless of actual costs incurred. Accordingly, the Company
can incur losses from fixed fee contracts if the actual cost of maintaining or
repairing the equipment exceeds the costs estimated by the Company.
POTENTIAL INABILITY TO MARKET NEWLY DEVELOPED PRODUCTS. The technology
of POS systems, ECRs, VARs and related equipment is changing rapidly. There can
be no assurance that the Company's existing manufacturers will be able to supply
competitive new products or achieve technological advances necessary to remain
competitive in the industry. Further, there can be no assurance that the Company
will be able to obtain the necessary authorizations from manufacturers to market
any newly developed equipment. The Company's Smyth subsidiary operates in the
VAR solutions segment, wherein it develops customized turnkey retail automation
solutions, consisting of both hardware and software. There can be no assurance
that Smyth will be able to develop commercially viable and technologically
competitive VAR solutions at competitive prices.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances which could be located
on, in or under such property. These laws and regulations often impose liability
whether or not the owner or operator knew of or was responsible for the presence
of the hazardous or toxic substances. The costs for any required remediation or
removal of these substances could be substantial, and the liability as to any
property is generally not limited under these laws and regulations and could
exceed the value of the property and the aggregate assets of the owner or
operator. The presence of these substances or failure to remediate these
substances properly may also adversely affect the owner's ability to sell or
rent the property or to borrow using the property as collateral. In connection
with the ownership or operation of its acquired companies, the Company could be
liable for these and other related costs.
RELIANCE ON KEY PERSONNEL. Implementation of the Company's acquisition
strategy is largely dependent on the efforts of a few senior officers. In
particular, the Company's operations are dependent to a great degree on the
continued efforts of Chief Executive Officer Richard H. Walker. Furthermore, the
Company will in most probability continue to be dependent on the senior
management of companies that are acquired. Competition for highly qualified
personnel is intense, and the loss of any executive officer or other key
employee, or the failure to attract and retain other skilled employees, could
have a material adverse effect upon the Company's business, results of
operations or financial condition. The Company is a party to employment
agreements with Mr. Walker, as well as with Executive Vice President Paul
Spindler. The agreements with Messrs. Walker and Spindler terminate in the years
2004 and 2001, repectively, unless terminated earlier pursuant to the
agreements, and each contains confidentiality provisions and covenants not to
compete. State laws, however, may limit the enforceability of the
confidentiality and/or non-competition provisions therein. The Company is
currently the beneficiary of a key man life insurance policy in the amount of
$1,000,000 on the life of Mr. Walker for a term of three years. There can be no
assurance that the Company will maintain the policy in effect or that the
coverage will be sufficient to compensate the Company for the loss of the
services of Mr. Walker.
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ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS. Certain
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
These provisions make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of the Company. For example, the Company has not elected to be
excluded from the provisions of Section 203 of the Delaware General Corporation
Law, which impose certain limitations on business combinations with interested
stockholders upon acquiring 15% or more of the common stock. This statute may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company, even if such event would be beneficial to the
then-existing stockholders. In addition, the Company's Certificate of
Incorporation authorizes the issuance of up to 4,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion, and voting or other rights, which could adversely affect the voting
power or other rights of the holders of the Company's common stock. The issuance
of preferred stock could have the effect of entrenching the Company's Board of
Directors and making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company.
As of March 31, 1998, the Company had issued 10,000 shares of Series A
Convertible Preferred Stock, at an issue price of $100 per share. Each share of
Series A Preferred Stock is convertible at the option of the holder thereof at
any time into a number of shares of common stock determined by dividing the
issue price by the conversion price, which is defined to be 78% of the lowest
non-consecutive five-day average closing bid price for the common stock for the
25-day period prior to conversion. Each holder of shares of the Series A
Preferred Stock is entitled to the number of votes equal to the number of shares
of common stock into which it could be converted. The Company cannot, without
the vote or written consent of at least 66-2/3% of the then outstanding shares
of Series A Preferred Stock, (i) redeem, purchase or otherwise acquire for value
any share of the Series A Preferred Stock; (ii) redeem, purchase or otherwise
acquire any of the Company's common stock; (iii) authorize or issue any other
equity security senior to or on parity with the Series A Preferred Stock as to
voting rights, dividend rights, conversion rights, redemption rights or
liquidation preferences; (iv) declare or pay any dividend or make any
distribution with regard to any share of common stock; (v) sell, convey, lease
or otherwise dispose of all or substantially all of its property or business;
liquidate, dissolve or wind up the Company's business; or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary);
(vi) effect any transaction or series of transactions in which more than 50% of
the voting power of the Company is disposed of, unless the Company's
stockholders of record as constituted immediately prior to such transaction
will, immediate thereafter, hold at least a majority of the voting power of the
surviving or acquiring entity; (vii) permit any subsidiary to issue or sell any
of its capital stock (except to the Company); (viii) permit any subsidiary to
issue or sell any if its capital stock (except to the Company);(ix) increase or
decrease (other than by redemption or conversion) the total number of authorized
shares of Series A Preferred Stock; or (x) alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock so as to
adversely affect the shares.
VOLATILITY OF STOCK PRICE. The stock market from time to time
experiences significant price and volume fluctuations that are unrelated to the
operating performance of the particular companies. These broad market
fluctuations may materially adversely affect the market price of the Company's
common stock. In addition, the market price of the Company's common stock has
been and may continue to be highly volatile. Factors such as possible
fluctuations in the Company's business, results of operations or financial
condition, failure of the Company to meet expectations of security analysts and
investors, announcements of new acquisitions, the timing and size of
acquisitions, the loss of suppliers or customers, the announcement of new or
terminated supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its suppliers, the loss of the
services of a member of senior management, litigation and changes in general
market conditions all could have a material adverse affect on the market price
of the Company's common stock.
MAINTENANCE CRITERIA FOR NASDAQ; RISKS OF LOW-PRICED SECURITIES. The
Company's common stock is presently traded on the Nasdaq SmallCap Market. To
maintain inclusion on the Nasdaq SmallCap Market, the Company's common stock
must continue to be registered under Section 12(g) of the Exchange Act, and the
Company must continue to have at least $2,000,000 in net tangible assets or
$500,000 in income in two of the last three years, a public float of at least
500,000 shares, $1,000,000 in market value of public float, a minimum bid price
of $1.00 per share, at least two market makers and at least 300 stockholders.
While the Company currently meets the maintenance standards, there is no
assurance that the Company will be able to maintain the standards for Nasdaq
SmallCap Market inclusion with respect to its securities. At December 31, 1997,
the Company had $2,032,000 in net tangible assets. If the Company fails to
maintain Nasdaq SmallCap Market listing, the market value of the Company's
common stock likely would decline and stockholders would find it more difficult
to dispose of or to obtain accurate quotations as to the market value of the
common stock.
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INDEMNIFICATION AND LIMITATION OF LIABILITY. The Company's Certificate
of Incorporation (the "Certificate') and Bylaws include provisions that
eliminate the directors' personal liability for monetary damages to the fullest
extent possible under Delaware Law or other applicable law (the "Director
Liability Provision"). The Directory Liability Provision eliminates the
liability of directors to the Company and its stockholders for monetary damages
arising out of any violation by a director of his fiduciary duty of due care.
Under Delaware Law, however, the Director Liability Provision does not eliminate
the personal liability of a director for (i) breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or
repurchases or redemptions of stock other than from lawfully available funds, or
(iv) any transaction from which the director derived an improper benefit. The
Director Liability Provision also does not affect a director's liability under
the federal securities laws or the recovery of damages by third parties.
ABSENCE OF DIVIDENDS. The Company has not paid dividends on its
preferred stock or common stock to date. The Company is obligated to pay,
quarterly, cumulative dividends at a rate of six percent (6%) per annum of the
issue price of the Series A Convertible Preferred Stock, payable, at the
holders' option, in cash or in common stock at the conversion price of the
Series A Preferred Stock. So long as any of shares Series A Preferred Stock
remain outstanding, the Company may not, without the vote or written consent of
the holders of at least 66-2/3% of the then outstanding shares of Series A
Preferred Stock, voting together as a single class, declare or pay any dividend
with regard to any share of common stock. (SEE ADDITIONAL FACTORS THAT MAY
AFFECT FUTURE RESULTS, ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW
PROVISIONS). Additionally, although the current line of credit does not
expressly prohibit the Company from paying dividends, the line of credit does
contain certain covenants which restrict the reduction or depletion of the
Company's capital. The Company anticipates that future financing, including any
lines of credit, may further restrict or prohibit the Company's ability to pay
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 from November 20,
1996, unless the consent of the underwriters is obtained.
YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. Although the Company
believes that its products and internal systems will be Year 2000 compliant, the
Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct their current software systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase software
products such as those offered by the Company. The Company estimates it will
expend approximately $150,000 to $200,000 to make its software products Year
2000 compliant. The Company is making inquiries of its vendors of POS systems
and cash registers regarding whether the systems upon which they rely are Year
2000 compliant and whether they anticipate any impairment of their ability to
deliver product and services as a result of Year 2000 issues.
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.
On September 30, 1997, the Board of Directors of the Company approved
the dismissal of its former principal accountants, Ernst & Young LLP, and
appointed the accounting firm of Deloitte & Touche LLP as its new independent
auditors.
During the period from inception (April 3, 1996) to December 31, 1996,
and each subsequent interim period preceding September 30, 1997, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report.
The Ernst & Young LLP report on the financial statements of the Company
for the period from inception (April 3, 1996) to December 31, 1996, contained no
adverse opinion or disclaimer of opinion, nor was either qualified or modified
as to uncertainty, audit scope, or accounting principles.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information set forth in the 1998 Proxy Statement under the
captions "Election of Directors" and "Other Executive Officers" respectively,
is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
To the extent required, the information in the 1998 Proxy Statement
under the captions "Compensation of Directors" and "Executive Compensation" and
"Employment Contracts and Termination of Employment, and Change-In-Control
Arrangements" is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth in the 1998 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth in the 1998 Proxy Statement under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) Financial Statements
The financial statements listed on the index to financial statements on
page 21 are filed as part of this Form 10-KSB.
(b) Exhibits
Exhibits marked with an asterisk (*) are filed herewith. Exhibits
marked with an asterisk (**) will be filed by post-effective amendment. 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 (+).
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger by and among the Company,
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, filed on January 15, 1997, File No.
000-21633).
2.2 Agreement and Plan of Reorganization by and among the
Company, Smyth Systems Inc., the Managing Stockholders of
Smyth Systems, Inc. and Smyth Merger Corp. (Incorporated
by reference to Exhibit 10.29 of the Company's Form 8-K
dated May 29, 1997 filed on June 12, 1997, File No.
0-21633).
2.3 Second Amendment to Agreement and Plan of Reorganization
by and among the Company, Smyth Systems Inc., the
Managing Stockholders of Smyth Systems, Inc. and Smyth
Merger Corp. (Incorporated by reference to Exhibit 10.30
of the Company's Form 8-K dated May 29,1997, filed on
June 12, 1997, No. 0-21633).
2.4 Agreement and Plan of Merger, as amended, by and among
the Company, Cash Register, Inc., Floyd Shirrell and
Electronic Business Machines, Inc. (Incorporated by
reference to Exhibit 10.35 of the Company's Form 8-K
dated June 6, 1997, filed on June 20, 1997, File No.
0-21633).
2.5 Agreement and Plan of Merger by and among Bristol Retail
Solutions, Inc., Pacific Merger Corp., Pacific Cash
Register and Company, Inc., Robert Freaney and Abbass
Barzgar dated June 27, 1997, (Incorporated by reference
to Exhibit 10.41 of the Company's Form 10-Q dated June
30, 1997, filed on August 13, 1997, File No. 0-21633).
16
<PAGE>
2.6 Closing Agreement by and among the Company, Pacific
Merger Corp., Pacific Cash Register and Company, Inc.,
Robert Freaney and Abbass Barzgar dated August 4, 1997,
(Incorporated by reference to Exhibit 10.43 of the
Company's Form 10-Q dated June 30, 1997, filed on August
13, 1997, File No. 0-21633).
2.7 Rescission Agreement by and among the Company,
International Systems & Electronics Corporation and Pedro
Penton dated July 23, 1997, (Incorporated by reference to
Exhibit 10.42 of the Company's Form 10-Q dated June 30,
1997, filed on August 13, 1997, File No. 0-21633).
3.1 Certificate of Incorporation, as amended, of the Company
(Incorporated by reference to Exhibit 3.1 of Amendment
No. 1 to the Company's Registration Statement on Form
SB-2, File No. 333-5570-LA)
3.2 Bylaws of the Company (Incorporated by reference to
Exhibit 3.2 of Amendment No. 1 to the Company's
Registration Statement on Form SB-2, 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, File No.
333-5570-LA).
4.2 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, File No. 333-5570-LA).
4.3 Form of Registration Rights Agreement by and among the
Company and Investors listed on Schedule 1 thereto
(Incorporated by reference to Exhibit 4.4 of the
Company's Registration Statement on Form SB-2, File No.
333-5570-LA).
4.4 Form of Underwriter's Warrant Agreement for Shares
entered into between the Company and First Cambridge
Securities Corporation (Incorporated by reference to
Exhibit 4.5 of Amendment No. 1 of the Company's
Registration Statement on Form SB-2, File No.
333-5570-LA).
4.5 Form of Underwriter's Warrant Agreement for Warrants
entered into between the Company and First Cambridge
Securities Corporation (Incorporated by reference to
Exhibit 4.6 of Amendment No. 1 of the Company's
Registration Statement on Form SB-2, File No.
333-5570-LA).
4.6 Form of Warrant Agreement entered into between the
Company and American Stock Transfer and Trust Company
(Incorporated by reference to Exhibit 4.7 of Amendment
No. 1 to the Company's Registration Statement on Form
SB-2, File No. 333-5570-LA).
10.1 Form of the 1996 Equity Participation Plan of the
Company, dated July 31, 1996, (Incorporated by reference
to Exhibit 10.1 of the Company's Registration Statement
on Form SB-2, File No. 333-5570-LA).
10.2 Amendment to the 1996 Equity Participation Plan of the
Company (Incorporated by reference to Exhibit A of the
Company's Definitive Proxy Statement filed on April
14,1997, File No. 0-21633).
10.3 1997 Employee Stock Purchase Plan of the Company
(Incorporated by reference to Exhibit B of the Company's
Definitive Proxy Statement filed on April 14, 1997, File
No. 0-21633).
17
<PAGE>
10.4+ Employment Agreement between the Company 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, File No. 333-5570-LA).
10.5+ Employment Agreement between the Company and Paul
Spindler dated April 3, 1996, (Incorporated by reference
to Exhibit 10.6 of the Company's Registration Statement
on Form SB-2, File No. 333-5570-LA).
10.6+ Employment Agreement between the Company 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, File No. 333-5570-LA).
10.7+ Employment Agreement between Michael Pollastro and
Automated Register Systems, Inc., dated January 1, 1997,
(Incorporated by reference to Exhibit 10.27 of the
Company's 8-K/A dated December 31, 1996, filed on March
14, 1997, File No. 0-21633).
10.8+ Employment Agreement between Gary Pollastro and Automated
Register Systems, Inc., dated January 1, 1997,
(Incorporated by reference to Exhibit 10.28 of the
Company's 8-K/A dated December 31, 1996, filed on March
14, 1997, File No. 0-21633).
10.9+ Employment Agreement between John Pollastro and Automated
Register Systems, Inc., dated January 1, 1997,
(Incorporated by reference to Exhibit 10.29 of the
Company's Form 8-K/A dated December 31, 1996, filed on
March 14, 1997, File No. 0-21633).
10.10+ Employment Agreement by and between Robert T. Smyth and
Smyth Systems, Inc., and first Amendment to Employment
Agreement dated June 1, 1997, (Incorporated by reference
to Exhibit 10.31 of the Company's Form 8-K dated May 29,
1997, filed on June 12,1997, File No. 0-21633).
10.11+ Employment Agreement by and between Larry D. Smyth and
Smyth Systems, Inc., and first Amendment to Employment
Agreement dated June 1, 1997, (Incorporated by reference
to Exhibit 10.32 of the Company's Form 8-K dated May 29,
1997, filed on June 12,1997, File No. 0-21633).
10.12+ Employment Agreement by and between William A. Smyth and
Smyth Systems, Inc., and first Amendment to Employment
Agreement dated June 1, 1997, (Incorporated by reference
to Exhibit 10.33 of the Company's Form 8-K dated May 29,
1997, filed on June 12,1997, File No. 0-21633).
10.13+ Independent Contractor Agreement by and between the
Company, Cash Registers, Inc. and Floyd Shirrell
(Incorporated by reference to Exhibit 10.36 of the
Company's 8-K dated June 6, 1997, filed on June 20, 1997,
File No. 0-21633).
10.14 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, File No.
333-5570-LA).
18
<PAGE>
10.15 Stock Purchase Agreement by and among the Company, 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 the
Company's Registration Statement on Form SB-2, File No.
333-5570-LA).
10.16 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, filed on January 15, 1997, File No. 000-21633).
10.17* Loan and Security Agreement by and between the Company,
Cash Registers, Inc., Smyth Systems, Inc., Automated
Retail Systems, Inc. and Coast Business Credit dated
December 11, 1997.
10.18* First Amendment to the Loan and Security Agreement by and
between the Company, Cash Registers, Inc., Smyth Systems,
Inc., Automated Retail Systems, Inc. and Coast Business
Credit dated January 6, 1998.
10.19* Second Amendment to the Loan and Security Agreement by
and between the Company, Cash Registers, Inc., Smyth
Systems, Inc., Automated Retail Systems, Inc. and Coast
Business Credit dated February 2, 1998.
11* Statement of Computation of Per Share Earnings.
21* List of Subsidiaries of the Company.
23.1** Consent of Ernst & Young LLP.
23.2* Consent of Deloitte & Touche LLP.
27* Financial Data Schedule.
(c) Reports on Form 8-K
During the last quarter of the year covered by this report, the Company
filed the following Current Reports on Form 8-K:
i. On October 6, 1997, the Company filed a report on Form 8-K reporting,
under Item 4 thereof, that it had changed its principal accountants from
Ernst & Young LLP to Deloitte & Touche LLP. The change was effective
September 30, 1997.
19
<PAGE>
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 Retail Solutions, Inc. (Registrant)
By: /s/ RICHARD H. WALKER
------------------------------------------
Richard H. Walker
President, Chief Executive
Officer and Director
Date: April 15, 1998
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>
/s/ RICHARD H. WALKER Chief Executive Officer, President and Director April 15, 1998
- ------------------------------- (Principal Executive Officer)
Richard H. Walker
/s/ PAUL SPINDLER Executive Vice President, Chairman of the Board and April 15, 1998
- ------------------------------- Director
Paul Spindler
/s/ MICHAEL S. SHIMADA Chief Financial Officer April 15, 1998
- ------------------------------- (Principal Accounting and Financial Officer)
Michael S. Shimada
/s/ LAWRENCE COHEN Director April 15, 1998
- -------------------------------
Lawrence Cohen
/s/ JACK BORSTING Director April 15, 1998
- -------------------------------
Dr. Jack Borsting
/s/ THOMAS LUTRI Director April 15, 1998
- -------------------------------
Dr. Thomas Lutri
</TABLE>
20
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BRISTOL RETAIL SOLUTIONS, INC.
PAGE
----
Report of Independent Auditors - Ernst & Young LLP.......................... 22
Independent Auditors' Report - Deloitte & Touche LLP........................ 23
Consolidated Balance Sheets
as of December 31, 1997 and December 31, 1996............................. 24
Consolidated Statements of Operations
for the year ended December 31, 1997 and for
the period from inception (April 3, 1996) to December 31, 1996............ 25
Consolidated Statements of Stockholders' Equity
for the year ended December 31, 1997
and for the period from inception (April 3, 1996) to December 31, 1996 ... 26
Consolidated Statements of Cash Flows
for the year ended December 31, 1997 and
for the period from inception (April 3, 1996) to December 31, 1996........ 27
Notes to Consolidated Financial Statements.................................. 29
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Bristol Retail Solutions, Inc.
We have audited the accompanying consolidated balance sheet of Bristol Retail
Solutions, Inc. (the Company) as of December 31, 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 audit 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 audit provides 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 Retail
Solutions, Inc. at December 31, 1996 and the consolidated results of its
operations and its 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
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Bristol Retail Solutions, Inc.
We have audited the accompanying consolidated balance sheet of Bristol Retail
Solutions, Inc. and subsidiaries (the Company) as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bristol Retail Solutions, Inc. and
subsidiaries at December 31, 1997 and the results of their operations and cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 27, 1998
23
<PAGE>
<TABLE>
BRISTOL RETAIL SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 715,929 $ 5,475,674
Accounts receivable, net of allowance for doubtful accounts of $382,990
and $39,090 at December 31, 1997 and 1996 3,202,787 1,296,956
Inventories 3,314,029 2,169,531
Prepaid expenses and other current assets 422,860 88,628
Current portion of note receivable 144,380 --
Amounts due from related parties -- 67,028
------------ ------------
Total current assets 7,799,985 9,097,817
Property and equipment, net 759,725 250,826
Intangible assets, net of accumulated amortization of $265,801
and $18,589 at December 31, 1997 and 1996 4,160,964 1,693,400
Note receivable-noncurrent portion 293,839 --
Other assets 797,117 127,656
------------ ------------
Total assets $13,811,630 $11,169,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,060,141 $ 438,441
Accounts payable 2,005,677 964,625
Accounts payable to related party 21,613 --
Accrued salaries, wages and related benefits 775,628 210,567
Accrued expenses 540,703 230,889
Deferred revenue 1,596,296 427,059
Customer advances 399,758 425,717
Income taxes payable 63,229 179,000
Note payable to related party -- 40,000
Current portion of long-term debt 54,110 --
Current portion of capital lease obligations 19,264 17,029
------------ ------------
Total current liabilities 7,536,419 2,933,327
Capital lease obligation - noncurrent portion 14,827 36,879
Other long-term liabilities 66,998 24,500
Commitments and contingencies (note 8)
Stockholders' equity:
Preferred stock, $.001 par value:
4,000,000 shares authorized and no shares issued or outstanding -- --
Common stock, $.001 par value:
20,000,000 shares authorized; 5,548,510 and 5,543,510 shares issued and outstanding
at December 31, 1997; 4,745,654 shares issued and outstanding at December 31, 1996 5,548 4,746
Additional paid-in-capital 11,287,695 8,276,872
Accumulated deficit (5,075,232) (106,625)
------------ ------------
6,218,011 8,174,993
Less 5,000 shares of treasury stock, at cost (24,625) --
------------ ------------
Total stockholders' equity 6,193,386 8,174,993
------------ ------------
Total liabilities and stockholders' equity $13,811,630 $11,169,699
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
24
<PAGE>
<TABLE>
BRISTOL RETAIL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Inception
Year Ended (April 3, 1996) to
December 31, 1997 December 31, 1996
-------------------- ---------------------
<S> <C> <C>
Revenue:
System sales and installation $ 13,501,805 $ 3,120,350
Service and supplies sales 7,586,682 1,075,880
----------------- -------------------
Net revenue 21,088,487 4,196,230
Cost of revenue:
Cost of system sales and installation 8,862,489 2,161,340
Cost of service and supplies sales 5,830,955 684,655
----------------- -------------------
Total cost of revenue 14,693,444 2,845,995
----------------- -------------------
Gross margin 6,395,043 1,350,235
Operating expenses:
Selling, general and administrative expenses 8,955,793 1,452,215
Goodwill writedown 1,871,471 --
Research and development costs 554,076 --
----------------- -------------------
Total operating expenses 11,381,340 1,452,215
----------------- -------------------
Operating loss (4,986,297) (101,980)
Other (income) expense (20,190) 2,845
----------------- -------------------
Loss before income taxes (4,966,107) (104,825)
Provision for income tax 2,500 1,800
----------------- -------------------
Net loss $ (4,968,607) $ (106,625)
================= ===================
Basic and diluted net loss per share $ (0.96) $ (0.03)
================= ===================
Basic and diluted weighted average common shares outstanding 5,198,156 3,319,738
================= ===================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
BRISTOL RETAIL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED TREASURY STOCK
SHARES AMOUNTS PAID-IN-CAPITAL DEFICIT SHARES AMOUNTS TOTAL
---------- ---------- ---------------- ----------- ---------- ---------- -------------
<S> <C> <C> <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 directors 23,838 24 22,476 -- -- -- 22,500
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 -- -- -- (106,625) -- -- (106,625)
---------- ---------- ---------------- ----------- ---------- ---------- -------------
Balance at December 31, 1996 4,745,654 4,746 8,276,872 (106,625) -- -- 8,174,993
Compensation expense 8,021 8,021
Issuance of shares in connection
with acquisitions 802,856 802 3,002,802 -- -- -- 3,003,604
Purchase of treasury shares -- -- -- -- (5,000) (24,625) (24,625)
Net loss -- -- -- (4,968,607) -- -- (4,968,607)
---------- ---------- ---------------- ----------- ---------- ---------- -------------
Balance at December 31, 1997 5,548,510 $ 5,548 $ 11,287,695 $(5,075,232) (5,000) $ (24,625) $ 6,193,386
========== ========== ================ ============ ========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
BRISTOL RETAIL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
INCEPTION
YEAR ENDED (APRIL 3, 1996)
DECEMBER 31, TO DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (4,968,607) $ (106,625)
Adjustments to reconcile net loss to net cash and cash equivalents
used in operating activities:
Depreciation 207,613 29,552
Amortization 415,854 18,589
Provision for doubtful accounts 231,984 13,000
Provision for excess and obsolete inventories 494,863 30,000
Stock compensation expense 8,021 --
Goodwill write-down 1,871,471 --
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable (289,471) (111,184)
Inventories (240,234) (413,664)
Prepaid expenses and other assets (373,099) (17,641)
Accounts payable (9,956) 124,760
Other accrued expenses 313,284 139,337
Deferred revenue 152,196 37,240
Customer advances (38,659) 188,597
Other long-term liabilities 32,969 24,500
--------------- ---------------
Net cash used in operating activities (2,191,771) (43,539)
Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired (3,007,701) (2,035,463)
Receivables from rescinded acquisition (600,000) --
Purchases of property and equipment (207,606) (85,646)
--------------- ---------------
Net cash used in investing activities (3,815,307) (2,121,109)
Cash flows from financing activities
Repayment of capital lease obligations (27,817) (7,540)
Repayment of note payable to related party (47,922) --
Net borrowings on line of credit 1,371,700 49,593
Repayment of long-term debt (24,003) --
Issuance of subordinated notes payable -- 817,500
Repayment of subordinated notes payable -- (817,500)
Issuance (repurchase) of common stock, net of offering costs (24,625) 7,517,222
Issuance of warrants, net of offering costs -- 81,047
--------------- ---------------
Net cash provided by financing activities 1,247,333 7,640,322
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (4,759,745) 5,475,674
Cash and cash equivalents at beginning of period 5,475,674 --
--------------- ---------------
Cash and cash equivalents at end of period $ 715,929 $ 5,475,674
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 111,082 $ 46,125
=============== ===============
Cash paid for income taxes, net $ 40,410 $ 4,000
=============== ===============
Supplemental disclosure of noncash transactions
Capital lease obligations $ -- $ 54,884
=============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE>
BRISTOL RETAIL SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information (continued):
The Company issued common stock and cash in connection with certain business
combinations completed during the year ended December 31, 1997 and the period
from inception (April 3, 1996) to December 31, 1996. The fair values of the
assets acquired and the liabilities assumed at the dates of the respective
acquisitions are presented as follows:
<TABLE>
<CAPTION>
Inception
Year Ended (April 3, 1996) to
December 31, 1997 December 31, 1996
---------------------- --------------------
<S> <C> <C>
Current assets, net of cash acquired $ 3,534,044 $ 3,133,560
Property and equipment 895,255 139,848
Long-term assets 270,032 116,750
Intangible assets 4,581,016 1,712,379
(2,888,479) (2,376,771)
Long-term debt, net of current portion (380,563) (6,954)
---------------------- --------------------
Net assets acquired $ 6,011,305 $ 2,718,812
====================== ====================
The acquisitions were funded as follows:
Cash $ 3,007,701 $ 2,035,463
Common stock 3,003,604 683,349
---------------------- --------------------
$ 6,011,305 $ 2,718,812
====================== ====================
</TABLE>
Effective June 1, 1997, the Company transferred certain land, buildings and
building improvements, acquired as part of the EBM acquisition, with a fair
value of $381,000, and certain loans aggregating $381,000, assumed as part of
the EBM acquisition, to the former owner of EBM.
See accompanying notes to consolidated financial statements.
28
<PAGE>
BRISTOL RETAIL SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Bristol Retail Solutions, Inc. (the Company, formerly Bristol
Technology Systems, Inc.) was incorporated on April 3, 1996 in the State of
Delaware for the purpose of acquiring and operating a national network of
full-service retail automation solution providers. As of December 31, 1997, the
Company has acquired six subsidiaries. The Company earns revenue from the sale
and installation of point-of-sale (POS) systems and turnkey retail automation
(VAR) 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 December 31, 1997 financial statements
include the accounts of Bristol Retail Solutions, Inc. (the Company) and its
wholly-owned subsidiaries: Cash Registers, Inc (CRI) which includes (MicroData,
Inc. (MicroData) and Electronic Business Machines, Inc. (EBM)); Automated
Register Systems, Inc. (ARS); Smyth Systems, Inc. (Smyth); and Pacific Cash
Register and Computer, Inc. (PCR) (collectively, Acquisitions) from the date of
acquisition. The accompanying consolidated December 31, 1996 financial
statements include the accounts of the Company and its wholly-owned subsidiaries
CRI and ARS from the date of acquisition. All intercompany transactions have
been eliminated in consolidation.
The Company's acquisitions were accounted for in the Company's
consolidated financial statements as purchases in accordance with Accounting
Principles Board Opinion (APB) No. 16. The purchase prices were allocated to
the underlying assets and liabilities based upon their respective fair values.
The allocation of the purchase price included the assignment of approximately
$6,298,000 to excess of cost over net assets acquired. The results of the
Acquisitions are included in the Company's consolidated financial statements
subsequent to the respective date of acquisitions. Accordingly, the financial
statements for the period subsequent to the Acquisitions are not comparable to
the financial statement amounts for the periods prior to the Acquisitions (SEE
NOTE 3, ACQUISITIONS).
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.
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 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
ten years. Leasehold improvements are amortized over the shorter of their useful
life or remaining term the lease using the straight-line basis.
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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 estimated useful lives of 15 and 20 years.
In accordance with Statement of Financial Accounting Standards (SFAS)
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 are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated expected future cash flows.
The Company measures the amount of the impairment by comparing the carrying
amount of the asset to its fair value. During the fourth quarter of 1997, the
Company recorded a $1,871,000 write-down of goodwill (SEE NOTE 2, GOODWILL
WRITE-DOWN).
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.
The Company had prepaid license fees of $102,750 as of December 31, 1997 and
1996 which is included in other assets.
REVENUE RECOGNITION
The Company recognizes revenue for system sales upon delivery of the
system to the customer. The Company sells product and support service contracts
for hardware, peripheral support and software 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.
SOFTWARE DEVELOPMENT COSTS
As a systems integrator, the Company provides its customers with
turnkey software solutions including proprietary software products exclusively
for application to retail operations. Purchased software, which generally has
alternative future uses, is included in other assets and amortized, using the
straight-line method, over the estimated economic life of the software of three
to five years. Unamortized purchased software costs at December 31, 1997 and
related amortization expense for the year then ended, was not material. The
costs of internal development of proprietary software are expensed as research
and development until technological feasibility is established. No internal
software development costs were capitalized at December 31, 1997, or amortized
during the year then ended, as the Company generally has not established
evidence of technological feasibility pursuant to generally accepted accounting
principles prior to completing development of each software product.
INCOME TAXES
The Company uses the liability method of accounting for income taxes as
set forth in SFAS 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. A valuation allowance
related to a deferred tax asset is recorded when it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
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 the
balance sheet date based on rates currently available to the Company for debt
with similar terms and remaining maturities.
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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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CREDIT RISK
The Company sells its products on credit terms, performs ongoing credit
evaluations of its customers and generally does not require collateral.
STOCK-BASED COMPENSATION
The Company has elected to follow APB No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, Accounting for Stock-Based Compensation,
requires use of option valuation models that were not developed for use in
valuing employee stock options. No compensation expense is recognized under APB
Opinion No. 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.
To calculate the pro forma information required by SFAS 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 that 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.
BASIC AND FULLY DILUTED PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, Earnings per Share, which is effective for financial
statements for interim and annual periods ending after December 15, 1997. SFAS
No. 128 redefines earnings per share under generally accepted accounting
principles. SFAS No. 128 requires the Company to report Basic EPS, as defined
therein, which excludes all common share equivalents from the earnings per share
computation, and Diluted EPS, as defined therein, which is calculated similar to
the Company's primary earnings per share computation. All historical earnings
per share information has been restated as required by SFAS No. 128.
Basic net income (loss) per share is computed using the weighted
average number of common shares outstanding during the periods presented.
Diluted net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the periods
presented assuming the exercise of the Company's stock options and warrants.
Common equivalent shares have not been included where inclusion would be
antidilutive.
Basic and diluted 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 year ended December 31,
1997 and for the period from inception (April 3, 1996) to December 31, 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for the reporting of comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income that are
excluded from net income include foreign currency translation adjustments and
unrealized gain/loss on available-for-sale securities. The disclosures
prescribed by SFAS No. 130 are effective for interim periods and years beginning
after December 15, 1997.
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In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement establishes standards
for the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosure about
products and services, geographic areas and major customers. The Company has not
yet determined what its reporting segments are. The disclosures prescribed by
SFAS No. 131 are effective for interim periods and years beginning after
December 15, 1997.
2. GOODWILL WRITEDOWN
The Company reviews for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. During the fourth quarter of 1997, the Company determined that
certain amounts recorded as goodwill that resulted from prior acquisitions had
been impaired and was no longer recoverable. This determination was made based
on an analysis of future estimated operating results for certain subsidiaries
compared to the carrying amount of the asset to the estimated future cash flows.
As a result of the above analysis, the previously recorded amounts for goodwill
were written down by $1,871,000 and such write-off is recorded in the
accompanying statement of operations for the year ended December 31, 1997.
3. ACQUISITIONS
During 1997 and 1996, the Company acquired the entities described
below, which were accounted for by the purchase method of accounting:
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 $955,000, including acquisition costs of $72,000. The excess of
purchase price over the fair values of the net assets acquired was $557,000 and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 15 years.
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 $1,025.000 in cash,
including $78,000 of acquisition costs, and 58,154 shares of non-registered,
restricted common stock of the Company valued at approximately $683,000 at the
acquisition date. The excess of purchase price over the fair values of the net
assets acquired was $1,160,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 15 years.
On April 1, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired all of the outstanding common stock of MicroData, a POS dealer with
operations in Illinois and Kentucky, for consideration of $98,000 in cash,
including $19,000 of acquisition costs, and 11,415 shares of non-registered,
restricted common stock of the Company, valued at approximately $136,000 at the
acquisition date. The excess of purchase price over the fair values of the net
assets acquired was $155,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.
On May 29, 1997, the Company acquired Smyth for consideration of
$2,369,000 in cash, including $20,000 of acquisition costs, and 569,408 shares
of non-registered, restricted common stock of the Company, valued at
approximately $2,064,000 at the acquisition date. Smyth operates through two
divisions which provides VAR systems to customers throughout the United States
and POS systems to customers in Southern California and Ohio. The excess of
purchase price over the fair values acquired was $3,328,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 20
years.
On June 6, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired EBM, a POS dealer with operations in Indiana and Kentucky, for
consideration of $483,000 in cash, including $62,000 of acquisition costs, and
147,033 shares of non-registered, restricted common stock of the Company, valued
at approximately $579,000 at the acquisition date. The excess of purchase price
over the fair values acquired was $838,000 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 20 years.
On August 5, 1997, the Company acquired all of the outstanding common
stock of PCR, a POS dealer with operations in Northern California, for
consideration of $165,000 in cash, including $13,000 of acquisition costs, and
75,000 shares of non-registered, restricted common stock of the Company, valued
at approximately $225,000 at the acquisition date. The excess of purchase price
over the fair values acquired was $260,000 and has been recorded as goodwill,
which is being amortized on a straight-line basis over 20 years.
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The purchase prices have been allocated to the assets acquired and the
liabilities assumed based upon the fair values at the dates of acquisition (SEE
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION).
The following presents the unaudited pro forma consolidated results of
operations of the Company for the year ended December 31, 1997 and for the
period from inception (April 3, 1996) to December 31, 1996 as if the CRI, ARS,
Smyth and EBM acquisitions had been consummated on April 3, 1996, and includes
certain pro forma adjustments resulting from the acquisitions, including the
amortization of goodwill.
FROM INCEPTION
YEAR (APRIL 3,
ENDED 1996) TO
DECEMBER 31, DECEMBER 31,
1997 PRO FORMA 1996 PRO FORMA
AS ADJUSTED AS ADJUSTED
-------------- --------------
Net revenue $26,882,849 $10,085,836
Net income (loss) (5,153,593) 23,900
Basic and Diluted net income (loss) per share (.94) .01
Shares used in computing basic and diluted
net income (loss) per share 5,491,352 3,541,166
Options to purchase 418,166 shares of common stock at $6.00 per share
were outstanding during the second half of 1996, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of common shares.
The unaudited pro forma consolidated results of operations are
presented for comparative purposes only and do not necessarily reflect the
results that would have occurred had the acquisitions occurred on April 3, 1996
or the results which may occur in the future.
On May 9, 1997, pursuant to a merger agreement dated April 30, 1997,
the Company acquired all of the outstanding common stock of International
Systems & Electronics Corporation (ISE), a POS dealer with operations in
Florida, for consideration of $1,192,000 in cash, including $92,000 of
acquisition costs, and 130,434 shares of non-registered, restricted common stock
of the Company, valued at approximately $750,000. On July 23, 1997, the Company
entered into a Rescission Agreement whereby the merger agreement and all of the
transactions contemplated thereunder were rescinded in their entirety effective
as of April 30, 1997. In accordance with the Rescission Agreement, (i) all of
the 130,434 shares of common stock have been returned to the Company and
canceled; (ii) the shareholder of ISE has refunded to the Company $250,000 in
cash; (iii) the shareholder of ISE has delivered to the Company a promissory
note in the amount of $350,000 bearing interest at 8.5% to be paid in thirty
equal monthly installments commencing in January 1998; (iv) the shareholder of
ISE will from time to time make monthly transfers of finished goods inventory to
the Company, with an aggregate market value of up to $250,000; and (v) a
consulting agreement has been executed by the shareholder of ISE to provide
consulting services to the Company through December 31, 2001 for a fee of
$250,000, which fee has been prepaid by the Company. All costs incurred related
to the acquisition and the subsequent rescission have been expensed in the
accompanying statements of operations.
4. 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 year ended December 31, 1997, there was no customer that
accounted for more than 10% of sales. For the period from inception (April 3,
1996) to December 31, 1996, 33% of revenues were attributable to one major
quick-service food franchisor and its franchisees. The Company purchased its
hardware primarily from three main vendors, sales of products from these vendors
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accounted for 32% and 51% of net revenue for the year ended December 31, 1997
and for the period from inception (April 3, 1996) to December 31, 1996,
respectively.
5. 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:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Systems and installation inventories $ 2,417,472 $ 1,469,404
Services and supplies inventories 896,557 700,127
------------ ------------
$ 3,314,029 $ 2,169,531
============ ============
Included in services and supplies inventories at December 31, 1997 and
December 31, 1996 is approximately $431,479 and $365,255, respectively, of used
or 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. During the fourth quarter of 1997, the Company recorded
a provision for excess and obsolete inventories of $451,182.
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Furniture and equipment $ 673,251 $ 154,053
Automobiles 215,688 35,754
Leasehold improvements 107,685 90,571
------------ ------------
996,624 280,378
Less accumulated depreciation (236,899) (29,552)
------------ ------------
Property and equipment, net $ 759,725 $ 250,826
============ ============
7. SHORT-TERM BORROWINGS
On December 17, 1997, the Company entered into a new line of credit
that provides for aggregate borrowings up to $5,000,000 computed based on
eligible accounts receivable and inventories; bears interest at the bank's prime
rate plus 1.75%, (10.25% at December 31, 1997); matures on December 31, 2000;
and is collateralized by the Company's accounts receivable and inventory. At
December 31, 1997, the Company was in compliance with the covenants on the line
of credit.
8. 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.
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Future annual minimum lease payments for noncancelable capital and
operating leases at December 31, 1997 were:
CAPITAL OPERATING
LEASES LEASES
---------- ----------
1998 $ 25,043 $ 790,519
1999 16,057 643,003
2000 -- 334,612
2001 -- 243,762
2002 -- 226,498
Thereafter -- 180,760
---------- ----------
Total minimum lease payments 41,100 $2,419,154
Amounts representing interest (7,009) ==========
----------
Present value of minimum lease payments 34,091
Current portion (19,264)
----------
Long-term capital lease obligations $ 14,827
==========
Rent expense for the year ended December 31, 1997 was $581,438, of
which $48,000 was paid to a director of CRI and $173,760 was paid to a officer
of ARS. Rent expense for the period from inception (April 3, 1996) to December
31, 1996 was $123,441, of which $15,000 was paid to a director of CRI.
The net book value of assets under capital lease at December 31, 1997
was $28,967.
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. The Company believes that the terms of
the contract were equivalent to those that would be under an arm's-length
transaction.
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, 1997 was $331,000.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain executive officers
and employees, the terms of which expire at various times through 2004 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 $7,106,878 at December 31, 1997.
In addition, the Company has entered into an employment contract with an
employee, expiring in 2008, that provides for a minimum salary and certain
guaranteed bonus amounts that 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, 1997 was $443,275.
The Company has a independent contractor agreement, with a former owner
of a subsidiary, expiring in 2003. The commitment for future payments under this
contract at December 31, 1997 was $650,000.
LITIGATION
The Company's subsidiaries have been, from time to time, parties 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
and its counsel, although the outcomes of these claims and suits are not
presently determinable, in the aggregate, they should not have a material
adverse affect on the Company's business, financial position or results of
operations or cash flows.
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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 the Company 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. In February 1998, CRI paid
$50,213 as settlement of the Court of Appeals affirming the award of $31,950
plus interest of $18,263. There is still pending one remaining claim, and the
Company is vigorously fighting the claim.
On or about August 7, 1997, a class action complaint was filed against
the Company and certain of the Company's officers and directors. Underwriters
for the Company's initial public offering are also named as defendants. The
class action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha
Seamons, on behalf of themselves and all others similarly situated. The case is
pending in the United States District Court for the Southern District of New
York. In addition to seeking themselves declared proper plaintiffs and having
the case certified as a class action, plaintiffs seek unspecified monetary
damages. The plaintiffs' complaint alleges claims under the federal securities
laws for alleged misrepresentations and omissions in connection with purchases
of securities. The Company disputes the allegations made in the complaint and
intends to vigorously defend itself.
9. STOCKHOLDERS' EQUITY
WARRANTS
At December 31, 1997, the Company had outstanding 718,750 Class A
Redeemable Common Stock Purchase Warrants (Warrants) that 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.
At December 31, 1997, 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 antidilution
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
The Company has not paid dividends on its preferred stock or common
stock to date. The Company is obligated to pay, quarterly, cumulative dividends
at a rate of six percent (6%) per annum of the issue price of the Series A
Convertible Preferred Stock, payable, at the holders' option, in cash or in
common stock at the conversion price of the Series A Preferred Stock. So long as
any of shares Series A Preferred Stock remain outstanding, the Company may not,
without the vote or written consent of the holders of at least 66-2/3% of the
then outstanding shares of Series A Preferred Stock, voting together as a single
class, declare or pay any dividend with regard to any share of common stock.
Additionally, although the current line of credit does not expressly prohibit
the Company from paying dividends, the line of credit does contain certain
covenants which restrict the reduction or depletion of the Company's capital.
The Company anticipates that future financing, including any lines of credit,
may further restrict or prohibit the Company's ability to pay 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 from November 20, 1996, unless
the consent of the underwriters is obtained.
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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. The
accompanying consolidated financial statements have been retroactively restated
to reflect such stock split.
EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan of Bristol Retail Solutions, Inc.
(the 1997 Employees Plan) was adopted by the Board of Directors and approved by
the Company's stockholders at the Annual Meeting of Stockholders held on May 20,
1997. The 1997 Employees Plan allows eligible employees of the Company to
subscribe for, and purchase shares of, the Company's common stock directly from
the Company at a discount from the market price, in installments through
authorized payroll deductions. A total of 200,000 shares of common stock are
authorized to be issued.
Common stock is purchased on each semi-annual purchase date at a
purchase price equal to eighty-five (85%) percent of the lower of (i) the fair
market value per share of common stock on the entry date into that offering
period; or (ii) the fair market value per share on that semi-annual purchase
date. The maximum number of shares of common stock purchasable per participant
on any semi-annual purchase date shall not exceed 1,000 shares. Purchase rights
are not granted under the 1997 Employees Plan to any eligible employee if such
individual would, immediately after grant, own or hold outstanding options or
other rights to purchase stock possessing five percent (5%) or more of the total
combined voting power of all classes of stock of the Company or any of its
corporate affiliates.
As of December 31, 1997, no shares have been issued under the 1997
Employees Plan.
EQUITY PARTICIPATION PLAN
The 1996 Equity Participation Plan of Bristol Retail Solutions, Inc.
(the Stock Option 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
Stock Option 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 Stock Option Plan may be incentive stock options (ISOs) or
nonstatutory stock 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 Stock Option 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.
On April 3, 1997, the Board of Directors amended the Stock Option Plan
to increase the number of shares authorized to 2,450,000 from 450,000 shares of
common stock. The increase was approved by the stockholders on May 20, 1997. At
December 31, 1997, options to purchase 1,405,000 shares of common stock were
outstanding at exercise prices ranging from $2.875 to $3.163 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 Stock
Option Plan.
Of the options granted, 50,000 were granted to nonemployees and were
accounted for at their fair value in accordance with SFAS No. 123. The remaining
options were issued to employees and were accounted for in accordance with APB
Opinion No. 25 (Note 1). SFAS No. 123 requires the calculation of pro forma
information regarding net loss and net loss per share as if SFAS No. 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 for the year ended December 31, 1997 and
for the period from inception (April 3, 1996) to December 31, 1996: risk-free
interest rates of 5.8% and 6.6%, respectively; dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of 80% and
40%, respectively; and a weighted average expected life of the option of five
years.
37
<PAGE>
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 year ended December 31, 1997 and for the period
from inception (April 3, 1996) to December 31, 1996 follows:
FROM INCEPTION
YEAR ENDED (APRIL 3, 1996) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Pro forma net loss $ (5,311,373) $ (197,257)
Pro forma basic and diluted $ (1.02) $ (0.06)
net loss per share
Option activity under the Stock Option Plan is as follows:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
----------------- -----------------
Outstanding - Inception -- $ --
(April 3, 1996)
Granted 418,166 3.00
----------------- -----------------
Outstanding - December 31, 1996 418,166 3.00
Granted 1,092,500 3.01
Forfeited (105,666) (2.89)
----------------- -----------------
Outstanding - December 31, 1997 1,405,000 $ 3.02
================= =================
Exercisable at end of period 99,375 $ 3.01
Weighted-average fair value of $ 2.11
options granted during the year
The weighted-average remaining term of options outstanding as of
December 31, 1997 is 7.6 years.
On September 11, 1997, all outstanding stock options held by employees,
officers, Board members and non-employees were repriced at $2.875, the closing
market price on that date. The number of shares and vesting schedule of the new
option grants is the same as that of the old options replaced. The Company
initiated this repricing arrangement in order to retain and motivate key
employees. A total of 1,092,500 options with exercise prices ranging from $3.63
to $11.16 were repriced.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1997, 2,511,250 shares of common stock were reserved
for future issuance in connection with outstanding warrants and the Company's
incentive stock option and employee stock purchase plans.
38
<PAGE>
10. INCOME TAXES
Significant components of the provision for income taxes are as
follows:
FROM INCEPTION
YEAR ENDED (APRIL 3, 1996) TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ ------------------
Current:
Federal $ -- $ --
State 2,500 1,800
------------------ ------------------
Total current 2,500 1,800
Deferred:
Federal (1,118,651) (150,771)
State (242,154) (44,159)
Change in valuation allowance 1,360,805 194,930
------------------ ------------------
Total deferred -- --
------------------ ------------------
Provision for income taxes $ 2,500 $ 1,800
================== ==================
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.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Deferred tax assets:
Net operating loss $ 744,699 $ 5,326
Inventories 309,180 22,000
Allowance for doubtful accounts 164,686 15,636
Deferred revenue 103,839 97,000
Accrued compensation 114,941 22,663
Other reserves and allowances 134,983 39,749
------------ ------------
Total deferred tax assets 1,572,328 202,374
Deferred tax liabilities:
Tax over book depreciation (16,593) (7,444)
------------ ------------
Net deferred tax assets 1,555,735 194,930
Valuation allowance on net deferred tax
assets (1,555,735) (194,930)
------------ ------------
Net deferred taxes $ -- $ --
============ ============
The Company has recorded a valuation allowance against deferred tax
assets as deemed necessary to reduce deferred tax assets to amounts that 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, 1997, the Company has federal net operating loss
carryforwards of $1,741,000 that begin to expire in the year 2011. Pursuant to
Section 382 of the Internal Revenue Code, use of the Company's net operating
loss and credit carryforwards for federal and state income tax purposes may be
limited if the Company experiences a cumulative change in ownership of greater
than 50% in a moving three-year period. Ownership changes could impact the
Company's ability to utilize net operating losses and credit carryforwards
remaining at the ownership change date. The limitation will be determined by the
fair market value of common stock outstanding prior to the ownership change,
multiplied by the applicable federal rate.
39
<PAGE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax provision is:
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED (APRIL 3, 1996) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
AMOUNT PERCENT AMOUNT PERCENT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Tax at U.S. statutory rates $(1,738,137) (35.0) $ (35,641) (34.0)
State income taxes, net of
federal tax benefit 1,625 0.0 1,800 1.7
Nondeductible goodwill 741,541 14.9 6,320 6.0
Change in valuation
allowance 967,880 19.5 28,078 26.8
Other 29,591 0.6 1,243 1.2
------------ ------------ ------------ ------------
$ 2,500 0.0 $ 1,800 1.7
============ ============ ============ ============
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company's wholly-owned subsidiaries CRI, ARS and Smyth each
sponsors a Section 401(k) employees savings plan, covering substantially all
full-time employees who have worked for more than one year. Discretionary
contributions were $46,461 for the year ended December 31, 1997. CRI made
discretionary contributions of $14,761 for the period from inception (April 3,
1996) to December 31, 1996.
12. 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
YEAR INCEPTION
ENDED (APRIL 3, 1996) TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Purchases from R.S.M.G for cash registers, officer of
Smyth is an officer and member of its Board of $ 421,746 $ --
Directors
Note paid to RBC, Inc., a company owned by the president
of CRI 40,000 --
Rent paid to a director of CRI 48,000 15,000
Rent paid to Pollastro Properties, an officer of ARS 173,760 --
Auto leases paid to ARS Leasing Co, owned by an officer
of ARS 18,628 --
Received payment from president of ARS (47,767) --
Insurance premiums paid for insurance coverage
purchased through a broker who is a family
member of a director and officer of the Company 73,845 121,634
</TABLE>
Facility lease transactions with related parties are further discussed
in Note 8, Commitments and Contingencies.
40
<PAGE>
Amounts payable to (due from) related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Insurance premiums for insurance coverage
purchased through a broker who is a family
member of a director and officer of the Company $ 112,088 $ --
R.S.M.G.,officer of Smyth is a member of its
Board of Directors 21,613 --
RBC, Inc. a company owned by the president
of CRI -- 40,000
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>
13. SUBSEQUENT EVENTS
On March 18, 1998, the Company entered into a definitive agreement for
a private placement of shares of Series A Preferred Stock. The investment
commitment is up to $2,000,000 and will be issued in three installments. The
first installment of $1,000,000 funded on March 18, 1998. The second and third
installments of $500,000 each will subsequently close in thirty and sixty days,
respectively, assuming that the various conditions set forth in the purchase
agreement are met. The Series A Preferred Stock is convertible by the holders
into common stock of the Company at any time into a number of shares of common
stock determined by dividing the issue price by the conversion price, which is
defined to be 78% of the lowest five-day average closing bid price for the
25-day period prior to the date of the conversion notice. At no time shall the
conversion price be higher than 110% of the five-day average bid price prior to
the date such shares were purchased. The dividends on the Series A Preferred
Stock is payable quarterly in stock or in cash. The purchaser of the Series A
Preferred Stock received warrants to purchase 125,000 shares for the first
$1,000,000 installment. The agreement has a provision that prohibits the
purchaser from owning more than 20% of the Company's common stock. In addition,
if one of the two remaining installments might cause the purchaser to own more
than 20% of the Company's outstanding common stock, then the installment will
not fund.
41
<PAGE>
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
BRISTOL RETAIL SOLUTIONS, INC., CASH REGISTERS, INC.,
SMYTH SYSTEMS, INC. AND AUTOMATED RETAIL SYSTEMS, INC.
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
Dated as of December 11, 1997
- --------------------------------------------------------------------------------
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
1. DEFINITIONS....................................................... 1
Account Debtor............................................... 1
Acquisition Loans............................................ 1
Affiliate.................................................... 1
Audit........................................................ 1
Borrower..................................................... 2
Borrower's Address........................................... 2
Business Day................................................. 2
Change of Control............................................ 2
Closing Date................................................. 2
Coast........................................................ 2
Code......................................................... 2
Collateral................................................... 2
Credit Limit................................................. 2
Default...................................................... 2
Deposit Account.............................................. 2
Dollars or $................................................. 2
Early Termination Fee........................................ 2
Eligible Inventory........................................... 2
Eligible Receivables......................................... 2
Equipment.................................................... 3
Equipment Acquisition Loans.................................. 3
Event of Default............................................. 3
GAAP......................................................... 3
General Intangibles.......................................... 3
Inventory.................................................... 4
Inventory Loans.............................................. 4
Investment Property.......................................... 4
Loan Documents............................................... 4
Loans........................................................ 4
Material Adverse Effect...................................... 4
Maturity Date................................................ 4
Maximum Dollar Amount........................................ 4
Minimum Monthly Interest..................................... 4
Obligations.................................................. 4
Permitted Liens.............................................. 4
Person....................................................... 5
Prime Rate................................................... 5
Real Property................................................ 5
Receivable Loans............................................. 5
Receivables.................................................. 5
Renewal Date................................................. 5
Renewal Fee.................................................. 5
Solvent...................................................... 5
Term Loan.................................................... 5
Other Terms.................................................. 5
2. CREDIT FACILITIES................................................. 6
2.1 Loans........................................................ 6
3. INTEREST AND FEES................................................. 6
3.1 Interest..................................................... 6
3.2 Fees......................................................... 6
4. SECURITY INTEREST................................................. 6
5. CONDITIONS PRECEDENT.............................................. 6
5.1 Status of Accounts at Closing................................ 6
5.2 Minimum Availability......................................... 6
5.3 Landlord Waiver.............................................. 6
5.4 Executed Agreement........................................... 7
5.5 Opinion of Borrower's Counsel................................ 7
5.6 Priority of Coast's Liens.................................... 7
5.7 Insurance.................................................... 7
5.8 Borrower's Existence......................................... 7
5.9 Organizational Documents..................................... 7
5.10 Taxes........................................................ 7
5.11 Due Diligence................................................ 7
5.12 Other Documents and Agreements............................... 7
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER......... 7
6.1 Existence and Authority...................................... 7
6.2 Name; Trade Names and Styles................................. 7
6.3 Place of Business; Location of Collateral.................... 8
6.4 Title to Collateral; Permitted Liens......................... 8
6.5 Maintenance of Collateral.................................... 8
6.6 Books and Records............................................ 8
6.7 Financial Condition, Statements and Reports.................. 8
6.8 Tax Returns and Payments; Pension Contributions.............. 8
6.9 Compliance with Law.......................................... 9
6.10 Litigation................................................... 9
6.11 Use of Proceeds.............................................. 9
i
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Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
7. RECEIVABLES....................................................... 9
7.1 Representations Relating to Receivables...................... 9
7.2 Representations Relating to Documents and Legal Compliance... 9
7.3 Schedules and Documents relating to Receivables.............. 9
7.4 Collection of Receivables.................................... 10
7.5 Remittance of Proceeds....................................... 10
7.6 Disputes..................................................... 10
7.7 Returns...................................................... 10
7.8 Verification................................................. 10
7.9 No Liability................................................. 10
8. ADDITIONAL DUTIES OF THE BORROWER................................. 10
8.1 Financial and Other Covenants................................ 10
8.2 Insurance.................................................... 10
8.3 Reports...................................................... 11
8.4 Access to Collateral, Books and Records...................... 11
8.5 Negative Covenants........................................... 11
8.6 Litigation Cooperation....................................... 12
8.7 Further Assurances........................................... 12
9. TERM.............................................................. 12
9.1 Maturity Date................................................ 12
9.2 Early Termination............................................ 12
9.3 Payment of Obligations....................................... 12
10. EVENTS OF DEFAULT AND REMEDIES.................................... 12
10.1 Events of Default............................................ 12
10.2 Remedies..................................................... 14
10.3 Standards for Determining Commercial Reasonableness.......... 15
10.4 Power of Attorney............................................ 15
10.5 Application of Proceeds...................................... 16
10.6 Remedies Cumulative.......................................... 16
11. GENERAL PROVISIONS................................................ 16
11.1 Interest Computation......................................... 16
11.2 Application of Payments...................................... 17
11.3 Charges to Accounts.......................................... 17
11.4 Monthly Accountings.......................................... 17
11.5 Notices...................................................... 17
11.6 Severability................................................. 17
11.7 Integration.................................................. 17
11.8 Waivers...................................................... 17
11.9 No Liability for Ordinary Negligence......................... 17
11.10 Amendment................................................... 18
11.11 Time of Essence..............................................18
11.12 Attorneys Fees, Costs and Charges........................... 18
11.13 Benefit of Agreement........................................ 18
11.14 Publicity................................................... 18
11.15 Paragraph Headings; Construction............................ 18
11.16 Governing Law; Jurisdiction; Venue......................... 18
11.17 Mutual Waiver of Jury Trial................................ 19
ii
<PAGE>
- --------------------------------------------------------------------------------
COAST BUSINESS CREDIT(R)
LOAN AND SECURITY AGREEMENT
BORROWER: BRISTOL RETAIL SOLUTIONS, INC.
ADDRESS: 5000 BIRCH STREET, SUITE 205
NEWPORT BEACH, CALIFORNIA 92660
BORROWER: CASH REGISTERS, INC.
ADDRESS: 503 NORTH MAIN STREET
LONDON, KENTUCKY 40741
BORROWER: SMYTH SYSTEMS INC.
ADDRESS: 7100 WHIPPLE AVENUE, N.W.
CANTON, OHIO 44711
BORROWER: AUTOMATED RETAIL SYSTEMS, INC.
ADDRESS: 1437 S. JACKSON
SEATTLE, WASHINGTON 98144
DATE: DECEMBER 11, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrowers named above (jointly and severally, the
"Borrower"), whose chief executive offices are located at the above addresses
(collectively, "Borrower's Addresses"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 1 below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable or General Intangible.
"ACQUISITION LOANS" means the Loans described in Section 2(c) of the
Schedule.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AUDIT" means to inspect, audit and copy Borrower's books and records and
the Collateral.
1
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
"BORROWER" has the meaning set forth in the introduction to this Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction to this
Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty percent
(20%) of the total voting power of all classes of stock or other ownership
interests then outstanding of any Borrower normally entitled to vote in the
election of directors or analogous governing body.
"CLOSING DATE" means the date of the initial funding under this Agreement.
"COAST" has the meaning set forth in the introduction to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"CREDIT LIMIT" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION FEE" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of boxed finished goods, in
good, new and salable condition which is not perishable, not obsolete or
unmerchantable, and is not comprised of raw materials, work in process,
packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perferted, first priority security interest; (vi) is situated at a
one of locations set forth on the Schedule; and (vii) Coast has received a
Landlord Waiver and Agreement, in form and substance acceptable to Caost, from
the Landlord where the Inventory is situated.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Coast, in its sole judgement, shall deem eleigible for borrowing, based on such
considerations as Coast may from time to time deem appropriate. Eligible
Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay within
ninety (90) days of Invoice date:
(b) Receivables owed by an Account Debtor or its Affiliates
where twenty-five percent (25%) or more of all Receivables owed by that Account
Debtor (or its Affiliates) are deemed ineligible under clause (a) above;
2
<PAGE>
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Receivables, that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof;
(f) Receibables with repect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which Borrower
has complied, to the satisfaction of Coast, with the Assignment of Claims Act,
31 U.S.C. ss. 3727), or (ii) any State of the United States (exclusive, however,
of Receivables owed by any State that does not have a statutory counterpart to
the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty-five percent (25%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage;
(i) Receivables with respect to which the Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation proceeding, or becomes insolvent, or goes
out of business;
(j) Receivables the collection of which Coast, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Receivables with respect to which the goods giving rise to
such Receivable have not been shipped and billed to the Account Debtor, the
services giving rise to such Receivable have not been performed and accepted by
the Account Debtor, or the Receivable otherwise does not represent a final sale;
(l) Receivables with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement; and
(m) Receivables that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
3
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"INVENTORY LOANS" means the Loans described in Section 2(b) of the
Schedule.
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115 of the Code
as in effect as of the date hereof.
"LOAN DOCUMENTS" means this Agreement, the agreements and documents listed
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"LOANS" has the meaning set forth in Section 2.1 hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its material obligations under this Agreement (including,
without limitation, repayment of the Obligations as they come due) or (iii) the
validity or enforceability of this Agreement or any other agreement or document
entered into by any party in connection herewith, or the rights or remedies of
Coast hereunder or thereunder.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of the
Schedule.
"MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
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Coast Business Credit Loan and Security Agreement
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"PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing by
Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"PRIME RATE" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"REAL PROPERTY" means Borrower's real property located in each of
Borrower's Addresses.
"RECEIVABLE LOANS" means the Loans described in Section 2(a) of the
Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"RENEWAL DATE" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"RENEWAL FEE" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
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Coast Business Credit Loan and Security Agreement
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"SOLVENT" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"TERM LOAN" means the Loans described in Section 2(c) of the Schedule.
"OTHER TERMS." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement with respect to the Receivable Loans, Inventory Loans and
the Acquisition Loans in the amount set forth on the Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. No account payable shall be due and
unpaid ninety (90) days past its due date except for such accounts payable being
contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.
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Coast Business Credit Loan and Security Agreement
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5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
(a) landlord waivers and access agreements in form and substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased locations where Borrower maintains any inventory or
equipment.
(b) mortgagee waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
mortgaged locations where Borrower maintains any inventory or equipment.
(c) warehouse waivers in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
warehouse locations where Borrower maintains any inventory or equipment.
5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results of "of
record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.7 INSURANCE. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.
5.8 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.10 TAXES. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.
5.11 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.12 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may reasonably require in
connection with the transactions contemplated hereby, all in form and substance
satisfactory to Coast in Coast's sole and absolute discretion, and in form for
filing in the appropriate filing office, including, but not limited to, those
documents listed in Section 5 of the Schedule.
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Coast Business Credit Loan and Security Agreement
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6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition (normal wear and tear excepted), and Borrower will not
use the Collateral for any unlawful purpose. Borrower shall file a patent
application on all patentable material and register any trademarks, copyrights
and copyrightable material which comprises the Collateral and advise Coast of
the acquisition, existence, filing and/or registration thereof. Borrower will
immediately advise Coast in writing of any material loss or damage to the
Collateral.
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Coast Business Credit Loan and Security Agreement
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6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower, of which Borrower becomes aware or in the exercise of reasonable due
diligence should have become aware, involving an amount set forth on the
Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
7. RECEIVABLES.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Except as to Receivables that are the subject of a
dispute, which shall be addressed as provided in Section 7.6, below, each
Receivable with respect to which Loans are requested by Borrower shall, on the
date each Loan is requested and made, to the best of Borrowers' knowledge or in
the exercise of reasonable due diligence should have known, represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business.
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Coast Business Credit Loan and Security Agreement
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7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms at the time submitted to Coast except as enforceability may
thereafter be limited by equitable principles and/or by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Coast via facsimile, unless otherwise directed by Coast, at such locations
and at such intervals as Coast may request, transaction reports and loan
requests, schedules of Receivables, and schedules of collections, all on Coast's
standard forms; PROVIDED, HOWEVER, that Borrower's failure to execute and
deliver the same shall not affect or limit Coast's security interest and other
rights in all of Borrower's Receivables, nor shall Coast's failure to advance or
lend against a specific Receivable affect or limit Coast's security interest and
other rights therein. Loan requests received after 10:30 A.M. Los Angeles,
California time, will not be considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition, Borrower
shall deliver to Coast the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary indorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred. Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (a) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after the occurrence of an Event
of Default, settle or adjust disputes or claims directly with Account Debtors
for amounts and upon terms which Coast considers advisable in its reasonable
credit judgment and, in all cases, Coast shall credit Borrower's Loan account
with only the net amounts received by Coast in payment of any Receivables.
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Coast Business Credit Loan and Security Agreement
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7.7 RETURNS. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (a) hold the returned Inventory in trust for
Coast, (b) segregate all returned Inventory from all of Borrower's other
property, (c) conspicuously label the returned Inventory as subject to Coast's
security interest, and (d) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the written
reports set forth in Section 8 of the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating plans
and other financial documentation), as Coast shall from time to time reasonably
specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits during Borrower's normal
business hours. Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the right
to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The Audits shall
be at Borrower's expense and the charge for the Audits shall be Seven Hundred
Fifty Dollars ($750) per person per day (or such higher amount as shall
represent Coast's then current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event the annual Audit expense (fees and other
expenses) in any single year commencing upon the Closing Date and measured
annually from that date exceed $15,000.00, the Audit charge shall be reduced to
Five Hundred Fifty Dollars ($550) per person per day for the balance of that
year, provided Borrower is not in Default. Borrower will not enter into any
agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement.
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Coast Business Credit Loan and Security Agreement
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8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(d) merge or consolidate with another entity, except in a transaction
in which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) the Borrower is the surviving entity;
(e) acquire any assets, except (i) in the ordinary course of business,
or (ii) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of the amount set forth in Section 8 of the
Schedule;
(f) enter into any other transaction outside the ordinary course of
business;
(g) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(h) store any Inventory or other Collateral with any warehouseman or
other third party;
(i) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(j) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(k) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(l) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(m) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for dividends or distributions payable solely in
stock form of ownership interests in Borrower);
(n) make any change in Borrower's capital structure which would have a
Material Adverse Effect; or
(o) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default is continuing or would occur as a
result of such transaction. Furthermore, Coast acknowledges that Borrower's
ordinary course of business is to acquire additional Point of Sale Dealers.
8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
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Coast Business Credit Loan and Security Agreement
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8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than ninety (90) days prior to the Maturity Date or the next
Renewal Date, that such party elects to terminate this Agreement effective on
the Maturity Date or such next Renewal Date. If this Agreement is renewed under
this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the amount shown
in Section 3 of the Schedule. The Renewal Fee shall be due and payable on the
Renewal Date and thereafter shall bear interest at a rate equal to the rate
applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or misleading and results in a
Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to Coast
as provided in Section 7.5 above, or shall fail to give Coast access to its
books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within seven (7) Business Days after the date due; or
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(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within thirty
(30) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower shall suffer or
experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment and which consent (or lack thereof) shall not be unreasonably
delayed; or
(p) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) Borrower shall fail to file a patent application on any patentable
material or register any trademark, copyright or copyrightable material which is
part of the Collateral or advise Coast of the acquisition, creation, existence,
filing on or registration of any such Collateral.
(r) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods. However, Coast recognizes that Borrower is in the
business of acquiring point of sale dealers.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower under
this Agreement or any other document or agreement;
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(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; PROVIDED, HOWEVER, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto required
by any statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make
it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.
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Coast Business Credit Loan and Security Agreement
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All reasonable attorneys' fees, expenses, costs, liabilities and
obligations incurred by Coast (including attorneys' fees and expenses incurred
in connection with bankruptcy) with respect to the foregoing shall be due from
the Borrower to Coast on demand. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m Los
Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time that there occurs
and exists an Event of Default, at its option, but without obligation, with or
without notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but Coast agrees to exercise the
following powers in a commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its
sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
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(h) Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect thereto as Coast has under this Agreement;
and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney or
any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
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11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 10.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH
ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE
PARTIES IN CONNECTION HEREWITH.
11.8 WAIVERS. The failure of Coast at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
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Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for
all reasonable attorneys' fees (including reasonable attorneys' fees and
expenses incurred pursuant to bankruptcy) and all filing, recording, search,
title insurance, appraisal, audit, and other costs incurred by Coast, pursuant
to, or in connection with, or relating to this Agreement (whether or not a
lawsuit is filed), including, but not limited to, any attorneys' fees and costs
(including attorneys' fees and expenses incurred pursuant to bankruptcy) Coast
incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its costs and attorneys' fees
(including attorneys' fees and expenses incurred pursuant to bankruptcy),
including (but not limited to) attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. Borrower shall also pay Coast's standard charges for returned checks
and for wire transfers, in effect from time to time. All attorneys' fees, costs
and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; PROVIDED,
HOWEVER, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder by the sale of assignment or participation
interests, all without the consent of Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof. Borrower
is hereby authorized, at its expense and upon prior consultation with, review
and approval by Coast, to issue appropriate, non-derogatory press releases and
to cause a tombstone to be published announcing the consummation of this
transaction and the aggregate amount thereof.
19
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
20
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
BORROWER:
BRISTOL RETAIL SOLUTIONS, INC.
By:/S/ Richard Walker
------------------------------------
Name: Richard Walker
Title: President
BORROWER:
CASH REGISTERS, INC.
By:/S/ Richard Walker
------------------------------------
Name: Richard Walker
Title: Vice President
BORROWER:
SMYTH SYSTEMS, INC.
By:/S/ Richard Walker
------------------------------------
Name: Richard Walker
Title: Vice President
BORROWER:
AUTOMATED RETAIL SYSTEMS, INC.
By:/S/ Richard Walker
------------------------------------
Name: Richard Walker
Title: Vice President
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By:/S/ Susan G. Dudas
------------------------------------
Name: Susan G. Dudas
Title: Vice President
21
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COAST BUSINESS CREDIT(R)
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: BRISTOL RETAIL SOLUTIONS, INC.
ADDRESS: 5000 BIRCH STREET, SUITE 205
NEWPORT BEACH, CALIFORNIA 92660
BORROWER: CASH REGISTERS, INC.
ADDRESS: 503 NORTH MAIN STREET
LONDON, KENTUCKY 40741
BORROWER: SMYTH SYSTEMS, INC.
ADDRESS: 7100 WHIPPLE AVENUE, N.W.
CANTON, OHIO 44711
BORROWER: AUTOMATED RETAIL SYSTEMS, INC.
ADDRESS: 1437 S. JACKSON
SEATTLE, WASHINGTON 98144
DATE: DECEMBER 11, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the Borrower of
even date.
================================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser of a
total of FIVE MILLION DOLLARS
($5,000,000.00) at any one time
outstanding (the "Maximum Dollar Amount"),
or the sum of (a), (b) and (c) below:
22
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
(a) Receivable Loans in an amount not to
exceed 80% of the amount of
Borrower's Eligible Receivables (as
defined in Section 1 of the
Agreement), which may be increased to
an amount not to exceed 85% if
dilution is less than 5%, PLUS
(b) Inventory Loans in an amount not to
exceed the lesser of:
(1) 25% of the value of Borrower's
Eligible Inventory (as defined
in Section 1 of the Agreement),
calculated at the lower of cost
or market value and determined
on a first-in, first-out basis,
or
(2) One Million Dollars
($1,000,000.00), PLUS
(c) Acquisition Loans as reasonably
needed by Borrower in furtherance of
its business plan subject to Coast's
standard approval process, including
but not limited to, appraisals,
analysis, business judgment, fees,
due diligence and documentation, in
form and substance acceptable to
Coast.
================================================================================
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus 1.75%
per annum, calculated on the basis of a
360-day year for the actual number of days
elapsed. The interest rate applicable to
all Loans shall be adjusted monthly as of
the first day of each month, and the
interest to be charged for each month
shall be based on the highest Prime Rate
in effect during the prior month, but in
no event shall the rate of interest
charged on any Loans in any month be less
than 9% per annum.
SECTION 3.1- INTEREST RATE
REDUCTION: In the event Borrower is not in Default
and (i) receives additional subordinated
debt or an equity contribution of no less
than Six Million Dollars ($6,000,000.00),
or (ii) audited net income for the
immediately preceeding twelve (12) month
calendar year exceeds One Million Dollars
($1,000,000.00), than the interest rate
described above shall be reduced to the
Prime Rate plus 1.50% per annum.
23
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: An amount equal to the Interest Rate
described above charged against an
outstanding daily loan balance of One
Million Dollars ($1,000,000.00) during
Year 1; and an amount equal to the
Interest Rate described above charged
against an outstanding daily loan balance
of Two Million Dollars ($2,000,000.00)
starting in Year 2 and at all times
thereafter.
SECTION 3.2 - LOAN FEE: Fifty Thousand Dollars ($50,000.00) fully
earned and payable on the Closing Date.
SECTION 3.2 - FACILITY FEE: Five Thousand Dollars ($5,000.00) per
quarter, payable on the Closing Date
(prorated for any partial quarter at the
beginning of the term of this Agreement).
SECTION 9.1 - RENEWAL FEE: One Half of One Percent (0.5%) of the
Maximum Dollar Amount per year fully
earned and payable at the beginning of
each year commencing in Year 4.
SECTION 9.2 - EARLY TERMINATION
FEE: In the event the effective date of
termination occurs on or before six (6)
months from the Closing Date, Borrower
shall pay Two Hundred Fifty Thousand
Dollars ($250,000.00). Thereafter, an
amount equal to the greater of (i) an
amount equal to all interest due and
payable during the six (6) months
immediately preceding the effective date
of termination, or (ii) an amount equal
to the average monthly interest due and
payable based on the greater of the six
(6) month monthly interest immediately
preceding the effective date of
termination or, if the effective date of
termination is less than six (6) months
from the initial funding, an amount equal
to the average monthly interest
multiplied by the number of full or
partial months from the effective date of
termination to the Maturity Date will be
due and payable or (iii) an amount equal
to the Minimum Monthly Interest
multiplied by the number of full or
partial months from the effective date of
termination to the Maturity Date.
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM AVAILABILITY: Five Hundred Thousand Dollars
($500,000.00).
24
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
SECTION 5.13 -OTHER DOCUMENTS
AND AGREEMENTS: 1. Joint and Several Borrower Rider;
2. Intercreditor and Subordination
Agreements;
3. UCC-1 financing statements, fixture
filings and termination statements;
4. Security Agreements (including those
covering copyrights, patents and
trademarks);
5. Warrants.
================================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: Bristol Technology Systems, Inc.
Automated Register Systems, Inc.
Bristol Merger Corp.
Micro Data, Inc.
Electronic Business Machines, Inc.
Pacific Cash Register and Computer, Inc.
Smyth Business Systems, Inc.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: Pacific Cash Register Company
EBM
Micro Data
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: CRI
Automated Retail System
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: See Exhibit.
SECTION 6.10 -MATERIAL ADVERSE
LITIGATION: In September 1993, a judgment was entered
in Commonwealth of Kentucky, 44th Judicial
Circuit, Bell Circuit Court Case Number
91-CI-429, on behalf of James J. Kreuger,
a former employee of Cash Registers, Inc.
("CRI"), against CRI and Coye D. King and
Barbara King, former stockholders of CRI,
in the amount of $107,726.00 and accrued
interest. The judgment 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 judgment in excess of $83,000;
provided however, that Bristol Retail
Solutions ,Inc. (the "Company") can only
collect such amounts from the former
25
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
stockholders by offsetting amounts owed by
CRI and /or the Company to such
stockholders pursuant to (i) the new lease
of the London, Kentucky facility and (ii)
bonus arrangements described in certain
employment agreements between the Company
and the former stockholders.
On or about August 7, 1997 a class action
complaint was filed against the Company
and certain of its officers and directors.
Underwriters for the company's initial
public offering are also named defendants.
The class action plaintiffs are Lincoln
Adair, Antique Prints, Ltd. and Martha
Seamons, on behalf of themselves and all
others similarly situated. The case is
pending in the United States District
Court for the Southern District of New
York as Case Number 97CIV5874. In addition
to seeking themselves declared proper
plaintiffs and having the case certified
as a class action, plaintiffs seek
unspecified monetary damages. Plaintiffs'
complaint alleges claims under the federal
securities laws for alleged
misrepresentation and omissions in
connection with purchases of securities.
SECTION 6.10 -FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform Coast in
writing of any claim, proceeding,
litigation or investigation in the future
threatened or instituted by or against
Borrower involving any single claim of
Fifty Thousand Dollars ($50,000.00) or
more, or involving One Hundred Thousand
Dollars ($100,000.00) or
more in the aggregate.
================================================================================
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS:
1. Borrower shall have no accounts payable
over one hundred twenty (120) days from
invoice date at the time of funding.
2. All of Borrower's applicable taxes shall
be paid and current at the time of funding
and at all times during the Term of the
Loan and Security Agreement.
3. Borrower shall ensure that Coast is
granted a first priority perfected
security interest on all of Borrower's
tangible and intangible assets including,
without limitation, accounts receivables,
inventory, machinery and equipment, and
all other tangible and intangible assets
including patents, trademarks and/or
copyrights.
4. Satisfactory review of service contracts
and lease contracts by Coast's counsel.
5. Termination or release of inventory liens
currently in place by Borrower's primary
vendors (e.g., IBM, Omrom Systems and
Panasonic/Matsushita) in form and
substance satisfactory to Coast's counsel.
26
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
6. Termination of first security interest on
all of Borrower's assets currently in
place by Coye and Barbara King in form and
substance satisfactory to Coast's counsel.
7. Daily remittances shall be collected via a
lockbox or blocked account basis in form
and substance approved by Coast.
8. Each Borrower shall be jointly and
severally liable for each of the other
Borrower's Loans under the Loan and
Security Agreement.
9. Each Borrower shall guarantee all amounts
due and owing of each and every other
Borrower under the Loan and Security
Agreement.
10.The Collateral of each of Borrower shall
not only secure all amounts due and owing
by that Borrower, but shall secure all
amounts due and owing by each and every
other Borrower under the Loan and Security
Agreement.
11.The Inventory Loans are availability only
at locations that Coast has received a
Landlord Waiver and Agreement in form and
substance acceptable to Coast.
12.Completion of background investigations
on key officers of each Borrower with
results satisfactory to Coast.
13.In the event Borrower obtains floor
planning with terms and conditions
acceptable to Coast, Coast agrees to
subordinate its lien on inventory for the
benefit of the floor planning lender
provided that an intercreditor agreement,
in form and substance acceptable to Coast,
is obtained and the Borrower is not in
Default.
SECTION 8.2 - INSURANCE: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast shall
release to Borrower insurance proceeds
with respect to Equipment totaling less
than Fifty Thousand Dollars ($50,000.00).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with the
following:
1. Monthly Receivable agings, aged by
invoice date, within ten (10) days
after the end of each month.
2. Monthly accounts payable agings, aged
by invoice date, and outstanding or
held check registers within ten (10)
days after the end of each month.
3. Monthly perpetual inventory reports
for the Inventory valued on a first-
in, first-out basis at the lower of
cost or market (in accordance with
GAAP) or such other inventory reports
as are reasonably requested by Coast,
all within ten (10) days after the
end of each month. Monthly inventory
reporting shall include a perpetual
report, reconciliation to the general
ledger, aging report, inventory
valuation report and other reports
sorted to Coast's discretion such as
by product category and code/SKU, by
vendor, by highest dollar or other as
may be required by Coast.
27
<PAGE>
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
4. Monthly internally prepared financial
statements, as soon as available, and
in any event within thirty (30) days
after the end of each month.
5. Quarterly internally prepared
financial statements, as soon as
available, and in any event within
forty-five (45) days after the end of
each fiscal quarter of Borrower.
6. Quarterly prepared financial
statements filed on form 10Q with the
Securities Exchange Commission
pursuant to the Securities Exchange
Act of 1934, within ten (10) days of
the applicable filing due date.
7. Quarterly customer lists, including
customer name, address, and phone
number.
8. Annual financial statements, as soon
as available, and in any event within
ninety (90) days following the end of
Borrower's fiscal year, containing
the unqualified opinion of, and
certified by, an independent
certified public accountant
acceptable to Coast.
9. Annual financial statements filed on
Form 10K with the Securities Exchange
Commission pursuant to the Securities
Exchange Act of 1934, within ten (10)
days of the applicable filing due
date.
SECTION 8.5 - NEGATIVE COVENANTS
(ACQUIRED ASSETS): Fifty Thousand Dollars ($50,000.00)
================================================================================
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: December 31, 2000, subject to automatic
renewal as provided in Section 9.1 of the
Agreement, and early termination as
provided in Section 9.2 of the Agreement.
28
<PAGE>
COAST BUSINESS CREDIT(R)
FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT AND THE
SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
BORROWER: BRISTOL RETAIL SOLUTIONS, INC.
ADDRESS: 5000 BIRCH STREET, SUITE 205
NEWPORT BEACH, CALIFORNIA 92660
BORROWER: CASH REGISTERS, INC.
ADDRESS: 503 NORTH MAIN STREET
LONDON, KENTUCKY 40741
BORROWER: SMYTH SYSTEMS INC.
ADDRESS: 7100 WHIPPLE AVENUE, N.W.
CANTON, OHIO 44711
BORROWER: AUTOMATED RETAIL SYSTEMS, INC.
ADDRESS: 1437 S. JACKSON
SEATTLE, WASHINGTON 98144
DATE: JANUARY 6, 1998
THIS FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT AND THE SCHEDULE TO THE
LOAN AND SECURITY AGREEMENT is entered into as of the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and Bristol Retail Solutions, Inc.
("Bristol"), Cash Registers, Inc. ("CRI"), Smyth Systems, Inc. ("Smyth") and
Automated Retail Systems, Inc. ("ARS") (jointly and severally, "Borrower") whose
chief executive office is located at the above addresses (collectively,
"Borrower's Address"). This Amendment shall for all purposes be deemed to be a
part of the Loan and Security Agreement ("L&S Agreement") and the Schedule to
the Loan and Security Agreement ("Schedule"), and the same is an integral part
of the L&S Agreement and the Schedule.
AMENDMENTS.
(1) Section 1 of the L&S Agreement shall be amended as follows:
1
<PAGE>
"ELIGIBLE INVENTORY" means Inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's discretion,
Inventory which does not meet the following requirements will not be deemed to
be Eligible Inventory: Inventory which (i) consists of boxed finished goods, in
good, new and salable condition, which is not perishable, not for demonstration
purposes, not obsolete or unmerchantable, and is not comprised of raw materials,
work in process, packaging materials or supplies; (ii) meets all applicable
governmental standards; (iii) has been manufactured in compliance with the Fair
Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; (vi) is situated at a
one of the locations set forth on the Schedule; and (vii) Coast has received a
Landlord Waiver and Agreement, in form and substance acceptable to Coast, from
the landlord where the Inventory is situated.
"CASH REGISTER, INC. ELIGIBLE REFURBISHED INVENTORY" means Inventory owned
by Cash Register, Inc. that meets all of the requirements of Eligible Inventory
except that it is not new but has been refurbished.
(2) Section 2.1 of the Schedule is hereby amended to read as follows:
(a) Receivable Loans in an amount not to
exceed 80% of the amount of
Borrower's Eligible Receivables (as
defined in Section 1 of the
Agreement), which may be increased to
an amount not to exceed 85% if
dilution is less than 5%, PLUS
(b) Inventory Loans in an amount not to
exceed the lesser of:
(1) 25% of the value of Bristol's,
CRI's and ARS's Eligible
Inventory (as defined in Section
1 of the Agreement), calculated
at the lower of cost or market
value and determined on a
first-in, first-out basis, which
will be increased to 35% upon
Coast's receipt of appraisals
from Jay, Cobb and Marley
reflecting net liquidation
values of no less than 45%, plus
(2) 25% of the value of CRI Eligible
Refurbished Inventory (as
defined in Section 1 of the
Agreement), calculated at the
lower of cost or market value
and determined on a first-in,
first-out basis, plus
(3) 35% of the value of Smyth's
Eligible Inventory (as defined
in Section 1 of the Agreement),
calculated at the lower of cost
or market value and determined
on a first-in, first-out basis,
or
2
<PAGE>
(4) One Million Dollars
($1,000,000.00), PLUS
(c) Acquisition Loans as reasonably needed
by Borrower in furtherance of its
business plan subject to Coast's
standard approval process, including
but not limited to, appraisals,
analysis, business judgment, fees, due
diligence and documentation, in form
and substance acceptable to Coast.
(3) Section 5.2 of the Schedule to the L&S Agreement is hereby amended to read
as follows:
SECTION 5.2- MINIMUM AVAILABILITY: Two Hundred Fifty Thousand Dollars
($250,000.00)
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF
THE L&S AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST AND
BORROWER SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE HEREBY
RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A
WAIVER OF ANY OTHER PROVISION OR TERM OF THE L&S AGREEMENT NOR ANY RELATED
DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION OF
THE LOAN AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE FUTURE.
Borrower: Borrower:
BRISTOL RETAIL SOLUTIONS, SMYTH SYSTEMS, INC.
INC.
By:/S/ Richard Walker By:/S/ Richard Walker
---------------------------- -------------------------------
Richard Walker, President Richard Walker, Vice President
Borrower: Borrower:
CASH REGISTERS, INC. AUTOMATED RETAIL SYSTEMS, INC.
By:/S/ Richard Walker By:/S/ Richard Walker
---------------------------- -------------------------------
Richard Walker, Vice President Richard Walker, Vice President
Coast:
COAST BUSINESS CREDIT, a division of Southern
Pacific Bank
By:/S/ Maged Ghebrial
----------------------------
Maged Ghebrial, Vice President
3
<PAGE>
COAST BUSINESS CREDIT(R)
SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT AND
SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
BORROWER: BRISTOL RETAIL SOLUTIONS, INC.
ADDRESS: 5000 BIRCH STREET, SUITE 205
NEWPORT BEACH, CALIFORNIA 92660
BORROWER: CASH REGISTERS, INC.
ADDRESS: 503 NORTH MAIN STREET
LONDON, KENTUCKY 40741
BORROWER: SMYTH SYSTEMS INC.
ADDRESS: 7100 WHIPPLE AVENUE, N.W.
CANTON, OHIO 44711
BORROWER: AUTOMATED RETAIL SYSTEMS, INC.
ADDRESS: 1437 S. JACKSON
SEATTLE, WASHINGTON 98144
DATE: FEBRUARY 2, 1998
THIS SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT AND SCHEDULE TO THE
LOAN AND SECURITY AGREEMENT is entered into as of the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and Bristol Retail Solutions, Inc. ("Bristol"), Cash
Registers, Inc. ("CRI"), Smyth Systems, Inc. ("Smyth") and Automated Retail
Systems, Inc. ("ARS") (jointly and severally, "Borrower") whose chief executive
office is located at the above addresses (collectively, "Borrower's Address").
This Amendment shall for all purposes be deemed to be a part of the Loan and
Security Agreement ("L&S Agreement") and Schedule to the Loan and Security
Agreement ("Schedule"), and the same is an integral part of the L&S Agreement
and the Schedule.
/ / /
/ / /
AMENDMENTS.
1
<PAGE>
(1) Section 2.1 (a) of the Schedule is hereby amended to read as follows:
(a) Receivable Loans in an amount not to
exceed 80% of the amount of
Borrower's Eligible Receivables (as
defined in Section 1 of the
Agreement), which may be increased to
an amount not to exceed 85% if
consolidated dilution is less than
5%, PLUS
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
L&S AGREEMENT, SCHEDULE AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST AND
BORROWER SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE HEREBY
RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A WAIVER
OF ANY OTHER PROVISION OR TERM OF THE L&S AGREEMENT, SCHEDULE NOR ANY RELATED
DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION OF THE
LOAN AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE FUTURE.
Borrower: Borrower:
BRISTOL RETAIL SOLUTIONS, INC. SMYTH SYSTEMS, INC.
By:/S/ Richard Walker By:/S/ Richard Walker
------------------------------- ---------------------------------
Richard Walker, President Richard Walker, Vice President
Borrower: Borrower:
CASH REGISTERS, INC. AUTOMATED RETAIL SYSTEMS, INC.
By:/S/ Richard Walker By:/S/ Richard Walker
-------------------------------- ---------------------------------
Richard Walker, Vice President Richard Walker, Vice President
Coast:
COAST BUSINESS CREDIT, a division of Southern
Pacific Bank
By:/S/ Maged Ghebrial
-------------------------------
Maged Ghebrial, Vice President
2
<PAGE>
<TABLE>
EXHIBIT 11
BRISTOL RETAIL SOLUTIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<CAPTION>
INCEPTION
YEAR ENDED (APRIL 3, 1996) TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------------ ------------------
<S> <C> <C>
BASIC LOSS PER SHARE
Net loss $ (4,968,607) $ (106,625)
================== ==================
Weighted average number of common shares
outstanding during the period
5,198,156 3,319,738
================== ==================
Basic loss per share $ (.96) $ (.03)
================== ==================
DILUTED LOSS PER SHARE
Net loss $ (4,968,607) $ (106,625)
================== ==================
Weighted average number of common shares
outstanding during the period
5,198,156 3,319,738
Effect of stock options and warrants
treated as common stock equivalents
under the treasury stock method -- --
------------------ ------------------
Total shares 5,198,156 3,319,738
================== ==================
Diluted loss per share $ (.96) $ (.03)
================== ==================
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
NAME STATE OF INCORPORATION
---------------------- ----------------------
Cash Registers, Incorporated Kentucky
Automated Retail Systems, Inc. Washington
Smyth Systems, Inc. Delaware
Pacific Merger Corp. Delaware
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement Nos. 333
5570-LA and 333-43899 on Form S-3 and Form S-8, respectively, of our report
dated March 27, 1998, appearing in, and incorporated by reference in, the Annual
Report on Form 10-K of Bristol Retail Solutions, Inc. for the year ended
December 31, 1997.
/S/ Deloitte & Touche LLP
- --------------------------------
Costa Mesa, California
April 14, 1998
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