<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ____________
Commission file number 001-12127
INTEGRATED TECHNOLOGY USA, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-3136782
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
107 West Tryon Ave, Teaneck, New Jersey 07666
(Address of Principal Executive Offices)
201-837-8000
(Issuer's Telephone Number, Including Area Code)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,018,212 shares of common
stock outstanding as of April 30, 1997
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1997 (unaudited)...........................3
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1996 and 1997 (unaudited).............................................................4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1997 (unaudited).............................................................5
Notes to Condensed Consolidated Financial Statements (unaudited)................................6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K...............................................................12
Signatures.....................................................................................13
</TABLE>
<PAGE>
3
Integrated Technology USA, Inc.
Part I
Condensed Consolidated Balance Sheet Financial Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1997
(Unaudited)
<S> <C>
Assets
Current Assets
Cash and cash equivalents $ 12,933,426
Accounts receivable (net of allowance for doubtful accounts of approximately
$15,000 and reserves for sales returns of approximately $35,927) 117,136
Inventories 247,160
Prepaid expenses and other current assets 147,226
----------
Total current assets 13,444,948
Fixed assets, net 182,017
Security deposits 20,203
----------
Total assets $ 13,647,168
==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 217,574
Accrued expenses 277,236
-------
Total current liabilities 494,810
Provision for severance payments 120,600
Total liabilities 615,410
-------
Commitments and Contingencies (Note 5)
Stockholders' equity
Preferred stock $.01 par value, 5,000,000 shares authorized; none
issued and outstanding --
Common stock, $.01 par value; 40,000,000
shares authorized; 6,068,212 shares issued and outstanding 61,192
Additional paid-in capital 21,692,453
Treasury stock, at cost, 57,048 shares (165,000)
Accumulated deficit (8,730,613)
Cumulative translation adjustment 173,726
----------
Total stockholders' equity $ 13,031,758
----------
Total liabilities and stockholders' equity $ 13,647,168
==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
4
Integrated Technology USA, Inc.
Condensed Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Net sales................................................................ $109,789 $262,950
Cost of products sold.................................................... 60,220 139,776
------- -------
Gross profit.................................................... 49,569 123,174
------- -------
Operating expenses
Selling, general and administrative............................. 314,508 758,045
Research and development, net................................... 43,442 125,500
------- -------
Total costs and expenses............................... 357,950 883,545
-------- -------
Loss from operations................................... (308,381) (760,371)
Interest income (expense)....................................... (9,711) 150,465
------- -------
Net loss............................................... ($318,092) ($609,906)
========== ==========
Net loss per share.............................................. ($0.10) ($0.10)
Weighted average shares outstanding............................. 3,137,437 6,045,778
========== =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
5
Integrated Technology USA, Inc.
Condensed Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Cash flows used for operating activities
Net loss.................................................... ($318,092) ($609,906)
Adjustments to reconcile net loss to net cash used for
operating activities
Deprecation and amortization....................... 9,201 18,116
Non-cash compensation expense...................... 135,403 --
Changes in assets and liabilities
Accounts receivable................................ (3,558) 118,357
Inventories........................................ 6,394 (40,980)
Customer deposits.................................. 17,450 --
Other assets....................................... 769 (12,738)
Accounts payable................................... 86,829 (164,532)
Accrued expenses and other liabilities............. 2,914 (29,623)
------ --------
Net cash used for operating activities.... (62,690) (721,306)
-------- ---------
Cash flows used for investing activities
Capital expenditures........................................ (322) (55,373)
----- --------
Net cash used for investing activities.... (322) (55,373)
----- --------
Cash flows from financing activities
Increase in bank overdraft.................................. 57,989 --
------- -------
Net cash provided by financing activities.......... 57,989 --
------- -------
Effect of exchange rate changes on cash.............................. 16,808 --
Net increase (decrease) in cash and cash equivalents................. 11,785 (776,679)
Cash and cash equivalents, beginning of period....................... 33,473 13,710,105
------- ----------
Cash and cash equivalents, end of period............................. $45,258 $12,933,426
======== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
6
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. Organization
Integrated Technology USA, Inc. (the "Company") was incorporated in
1990. The Company designs, develops and markets products for emerging
computer-related markets: primarily the transmission of voice
communications over the Internet and computer/telephone integration. To
date the Company has generated revenues from the sale of its products,
CompuPhone 2000 (and a predecessor product) and CompuNet 2000 (the
"products"). The Company currently outsources substantially all of its
manufacturing and assembly requirements.
2. Summary of Significant Accounting Policies and Disclosure of Change in
Functional Currency
Basis of presentation
The condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, I.T.I. Innovative
Technology, Ltd. ("Innovative") and CompuPrint Ltd. ("CompuPrint"),
both of which are incorporated and conduct business in Israel. All
significant intercompany transactions and account balances have been
eliminated in consolidation.
Effective January 1, 1997, the Company changed the functional currency
of its Israeli subsidiaries from the New Israeli Shekel to the U.S.
dollar. Changes in economic facts and circumstances necessitated such
change in the functional currency. Accordingly, persuant to the
requirements of Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation, the U.S. dollar translated amounts of
Innovative's and CompuPrint's nonmonetary assets, primarily fixed
assets and security deposits, at December 31, 1996 became the
accounting basis for those assets at January 1, 1997 and for
subsequent periods. In addition, the $173,726 cumulative translation
adjustment at December 31, 1996 accumulated in stockholders' equity
prior to this change in functional currency will remain as a separate
component of stockholders' equity. Had the Company not changed the
functional currency of its Israeli subsidiaries, consolidated net loss
for the three months ended March 31, 1997 would have been increased by
$110,610 (approximately $0.02 per share).
The condensed consolidated interim financial statements included
herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission
with respect to Form 10-QSB. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and
<PAGE>
7
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
regulations. In the opinion of management, such financial statements
reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair statement of the results for the
interim periods presented and to make such financial statements not
misleading. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's 1996 Annual Report on Form 10-KSB.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for any future interim
period or the year ending December 31, 1997.
Revenue recognition and warranties
Revenues are recognized on shipment of the products. For products
shipped on consignment, revenues are recognized when the products are
sold by the consignee. The Company provides for estimated returns on
all sales.
The Company provides purchasers of CompuPhone 2000 and CompuNet 2000
with certain warranties. The Company covers the potential costs
associated with such warranties by obtaining corresponding warranties
from the contract manufacturer that manufactures CompuPhone 2000 and
CompuNet 2000 for the Company.
Inventory
Inventory is valued at the lower of cost or market and is principally
comprised of CompuPhone 2000 and CompuNet 2000 units. Cost is
determined by the first-in, first-out method.
Net loss per share
Net loss per share is computed using the weighted average number of
common shares outstanding and dilutive common share equivalents.
Common shares issued, and options and warrants granted, by the Company
during the twelve months preceding the Company's Initial Public
Offering (the "IPO") have been included in the calculation of common
and common equivalent shares outstanding as if they were outstanding
for all periods presented using the treasury stock method and an
estimated initial public offering price prior to the IPO. Options and
warrants granted prior to the aforementioned twelve month period and
subsequent to the IPO have been included in the calculation of common
and common equivalent shares outstanding when dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 128, Earnings per Share ("FAS
128"), which requires the presentation of basic
<PAGE>
8
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
earnings per share in a company's financial statements for reporting
periods ending subsequent to December 15, 1997. Early adoption of FAS
128 is not permitted. The adoption of FAS 128 is not expected to have
a material impact on the Company's consolidated financial statements.
As of March 31, 1997, the Company had outstanding warrants and options
to purchase 3,360,082 and 1,116,567 shares, respectively, of common
stock which are not included in the calculation of earnings per share
for the three months ended March 31, 1997 and would not be included in
such calculation under the guidance prescribed by FAS 128, due to the
anti-dilutive nature of these instruments.
Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. Actual
results could differ from these estimates.
Concentration of Credit Risk
Financial instruments which subject the Company to concentration of
credit risk consist principally of trade receivables.
3. Accrued Expenses
Accrued expenses are summarized as follows:
Accrued payroll and benefits............ 124,134
Accrued professional fees............... 92,000
Other................................... 61,102
-------
277,236
=======
4. 1996 Stock Option Plan
The Board of Directors has adopted, subject to Stockholder approval, an
amendment to the Company's 1996 Stock Option Plan (the "Stock Option
Plan") increasing the aggregate number of stock options authorized for
issuance under the Stock Option Plan from 833,333 to 1,129,000. All
officers, directors and employees of the Company and other persons who
perform services for the Company are eligible to participate in the
Stock Option Plan. Some
<PAGE>
9
Integrated Technology USA, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
or all of the options may be "Incentive stock options" within the
meaning of the Internal Revenue Code of 1986, as amended. As of March
31, 1997, the Company has granted options to purchase approximately
764,166 shares under the Stock Option Plan, including an aggregate of
approximately 630,001 options to executive officers and directors of
the Company.
5. Commitments, Contingencies and Other Matters
Outstanding Purchase Commitments
At March 31, 1997, the Company had outstanding purchase orders for its
new wireless printing product amounting to approximately $570,000 for
delivery in 1997. In addition, the Company had outstanding purchase
orders for its keyboard products amounting to approximately $575,000
for delivery in 1997.
Leases
The Company leases all of its facilities under operating lease
agreements. The facilities leased in the first quarter of 1997 include
a facility in Teaneck, New Jersey which is leased until January 31,
1999 with a renewal option for an additional two years.
6. Subsequent Event
Stock Repurchase Plan
In April 1997, the Board of Directors authorized the Company to
repurchase shares of the companies common stock for an aggregate cost
not to exceed $1,000,000. As of April 30, 1997, the Company had
repurchased 50,000 shares for an aggregate cost of $52,500.
<PAGE>
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and related Notes thereto
of Integrated Technology USA, Inc.(the "Company"), included herein and the
Consolidated Financial Statements and related Notes thereto included in the
Company's 1996 Annual Report on Form 10-KSB
The following discussion includes statements that are forward-looking
in nature. Whether such statements ultimately prove to be accurate depends upon
a variety of factors that may affect the business and operations of the Company.
Certain of these factors are discussed under the caption Item 1 - "Description
of Business-Factors that May Influence Future Results and Accuracy of
Forward-Looking Statements" included in the Company's 1996 Annual Report on Form
10-KSB.
General
The Company has developed and is currently marketing two products: (i)
CompuPhone 2000, which the company developed for the computer/telephone
integration market, and (ii) CompuNet 2000, which the Company developed for the
Internet Telephony market. The Company commenced sales of CompuPhone 2000 in
early 1995 and commenced sales of CompuNet 2000 in the third quarter of 1996.
The Company has also developed a relatively low-priced product that
enables wireless printing from a laptop computer. The Company plans to market
this product under the name CompuShare 2000. (The Company formerly called this
product WPS-1000.) The Company is seeking to commence the commercial
introduction of this product in the third quarter of 1997, although there can be
no assurance that such introduction will not be delayed by various
circumstances, including, among others, manufacturing or shipping delays or
unforseen technical problems.
The Company has made only limited sales of its products to date. The
Company is seeking to increase its sales through advertising and marketing.
There can be no assurance, however, that the Company will be successful in this
regard or that any of the Company's products will achieve market acceptance (or
sufficient market acceptance to make the product profitable). The Company is
also evaluating the possibility of expanding its business and/or diversifying
into new businesses through acquisitions.
Effective January 1, 1997, the Company changed the functional currency
of its Israeli subsidiaries from the New Israeli Shekel to the U.S. dollar.
Changes in economic facts and circumstances necessitated such change in the
functional currency. The $173,726 cumulative translation adjustment at December
31, 1996 accumulated in stockholders' equity prior to this change in functional
currency will remain as a separate component of stockholders' equity. Had the
Company not changed the functional currency of its Israeli subsidiaries,
consolidated net loss for the three months ended March 31, 1997 would have been
increased by $110,610 (approximately $0.02 per share).
<PAGE>
11
Results of Operations
Net Sales. Net sales in the first quarter of 1997 were $263,000,
representing an increase of approximately 140% over net sales of $110,000, in
the first quarter of 1996. This increase primarily reflected the increase in
CompuPhone 2000 sales described below. In addition, approximately $54,000 of the
net sales in the first quarter of 1997 was attributable to the shipment of 600
units of the Company's CompuNet 2000 product to Gemini Industries, Inc. This
shipment completed the delivery of units contemplated by a purchase commitment
entered into by Gemini in 1996.
The number of CompuPhone 2000 units sold increased to 2,557 units in
the first quarter of 1997 from 1,419 units in the first quarter of 1996, and the
amount of net sales attributable to CompuPhone 2000 sales increased to $197,000
in the first quarter of 1997 from $108,000 in the first quarter of 1996.
International sales of CompuPhone 2000 accounted for 57% of the CompuPhone 2000
units sold in the first quarter of 1997 compared with 12% in the first quarter
of 1996.
Gross Profit. Gross profit margin in the first quarter of 1997 was 47%
compared with 45% in the first quarter of 1996.
SG&A. Selling, General and Administrative expense ("SG&A") for the
first quarter of 1997 was $444,000 higher than in the first quarter of 1996.
Such increase primarily reflected (i) additional marketing and advertising
expenses, (ii) the hiring of additional personnel (including a chief operating
officer), (iii) compensation increases to certain employees and (iv) costs
associated with being a public company that the Company began to incur following
the completion of an initial public offering in October 1996.
R&D, Net. Research and development expense, net, in the first quarter
of 1997 increased to $125,500 from $43,000 in the first quarter of 1996. This
increases primarily reflected (i) the hiring of additional personnel and (ii)
increased research and development activities related to preparing to commence
production of CompuShare 2000.
Liquidity and Capital Resources
The Company has had only limited revenues to date and, as a result, has
had negative cash flow from operations during each year since it commenced
operations and during the first quarter of 1997. The amount of cash used by the
Company for operating activities was $721,000 in the first quarter of 1997.
As of March 31, 1997, the Company had cash and cash equivalents of
approximately $12.9 million (including approximately $570,000 of restricted cash
that has been pledged as collateral for a letter of credit in such amount
securing certain purchase commitments of the Company relating to CompuShare
2000). The Company estimates that its cash on hand and cash generated from
operations will be sufficient to fund the cash requirements relating to its
existing business for at least the next 12 months, although there can be no
assurance of this. However, the Company may determine to expand or diversify
through acquisitions, in which event additional financing may be required. If
additional financing is required, there can be no assurance that the Company
will be able
<PAGE>
12
to obtain such additional financing on terms acceptable to the Company and at
the times required by the Company, or at all. The Company does not have any bank
or other lines of credit available to it at present.
On April 17, 1997, the Board of Directors authorized the Company to
repurchase shares of the Company's common stock from time to time for an
aggregate cost not to exceed $1,000,000. As of April 30, 1997, the Company had
repurchased 50,000 shares at an aggregate cost of $52,500.
Part II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are furnished with this report:
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) The Registrant did not file any reports on form 8-K during the
quarter ended March 31, 1997.
<PAGE>
13
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
INTEGRATED TECHNOLOGY USA, INC.
By: Simon Kahn
-----------------------------
Simon Kahn
Chief Financial Officer
(signing both on behalf of the registrant and in his capacity as Principal
Financial and Principal Accounting Officer)
Dated: May 13, 1997
<PAGE>
14
Integrated Technology USA, Inc.
Exhibit 11.1
- ------------
Earnings per share
<TABLE>
<CAPTION>
Period Days Shares Weighted
Outstanding Outstanding Outstanding Shares
----------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1996
Balance at 1/1/96 1/1/96-3/31/96 91 2,930,178 266,646,198
1995/96 cheap warrants/options 1/1/96-3/31/96 (A) 91 207,259 18,860,561
-------
3,137,437
---------
Three Months Ended March 31, 1997
Balance at 1/1/97 1/1/97-3/31/97 90 6,005,179 540,466,110
Exercise of Stock Options 1/20/97-3/31/97 70 38,032 2,662,240
Exercise of Bridge Warrants 2/5/97-3/31/97 54 16,667 900,018
Exercise of Bridge Warrants 3/20/97-3/31/97 11 8,334 91,674
-----
6,068,212
---------
<CAPTION>
Weighted Avg. Net Net Loss
Shares Loss Per Share
------- ---- ---------
<S> <C> <C> <C>
Three Months Ended March 31, 1996
Balance at 1/1/96 2,930,178
1995/96 cheap warrants/options 207,259
-------
3,137,437 (318,092) (0.10)
---------
Three Months Ended March 31, 1997
Balance at 1/1/97 6,005,179
Exercise of Stock Options 29,580
Exercise of Bridge Warrants 10,000
Exercise of Bridge Warrants 1,019
-----
6,045,778 (609,906) (0.10)
---------
</TABLE>
(A) Computed using the treasury stock method and an estimated offering price of
$7 per share
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,933,426
<SECURITIES> 0
<RECEIVABLES> 168,063
<ALLOWANCES> 50,927
<INVENTORY> 247,160
<CURRENT-ASSETS> 13,444,948
<PP&E> 392,301
<DEPRECIATION> 210,284
<TOTAL-ASSETS> 13,647,168
<CURRENT-LIABILITIES> 494,810
<BONDS> 0
<COMMON> 61,192
0
0
<OTHER-SE> 12,970,566
<TOTAL-LIABILITY-AND-EQUITY> 13,647,168
<SALES> 262,950
<TOTAL-REVENUES> 262,950
<CGS> 139,776
<TOTAL-COSTS> 139,776
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (150,465)
<INCOME-PRETAX> (609,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (609,906)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
