<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
[x] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 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.
(Name of Small Business Issuer in Its Charter)
Delaware 22-3136782
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
c/o Madison Partners
444 Madison Avenue, 38th Floor
New York, NY 10022
(Address of Principal Executive Offices) (Zip code)
212-759-3287
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock,
par value $0.01
per share American Stock Exchange
Redeemable Common
Stock Purchase
Warrants American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
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 definitive proxy or information
statements
<PAGE>
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's revenues (not including interest income)for its most recent
fiscal year was $481,000
As of March 17, 1998, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $5,313,796. Such market
value was calculated based upon the closing price of the stock on the American
Stock Exchange as of such date.
As of March 17, 1998, there were 6,091,991 shares of the registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
FORM 10-KSB REPORT INDEX
<TABLE>
<CAPTION>
10-KSB Part and Item No. Page No.
- ------------------------ --------
<S> <C>
Part I
Item 1 Description of Business....................................................................... 1
Item 2 Description of Property....................................................................... 3
Item 3 Legal Proceedings............................................................................. 3
Item 4 Submission of Matters to a Vote of Security Holders........................................... 3
Part II
Item 5 Market For Common Equity and Related Stockholder
Matters....................................................................................... 4
Item 6 Management's Discussion and Analysis or Plan of
Operation..................................................................................... 7
Item 7 Financial Statements.......................................................................... 8
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................................................... 8
Part III
Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act........................................................................................... 9
Item 10 Executive Compensation........................................................................ 12
Item 11 Security Ownership of Certain Beneficial Owners and
Management.................................................................................... 17
Item 12 Certain Relationships and Related Transactions................................................ 19
Item 13 Exhibits, List and Reports on Form 8-K........................................................ 20
</TABLE>
<PAGE>
Unless otherwise indicated, the terms the "Company" and "Integrated
Technology " refer collectively to Integrated Technology USA, Inc., and its
subsidiaries.
Item 1. Description of Business
History of Discontinued Operations
Integrated Technology USA, Inc. was incorporated in August 1990 and
completed an initial public offering ("IPO") in October 1996. The net proceeds
to the Company from the IPO, after deducting offering expenses, were
approximately $15.5 million.
The Company's revenues through September 30, 1997 were principally
derived from the sale of two products developed by the Company: (i) a PC
keyboard which (together with a headset) could also function as a telephone, and
(ii) an enhanced version of this keyboard/telephone product which included
special features that were intended to expand the potential benefits of
"Internet Telephony". The Company commenced sales of the first product in early
1995 and commenced sales of the second product in September 1996.
Despite the Company's marketing efforts, the Company made only limited
sales of its products and was unable to achieve profitability. In view of the
Company's increasing losses, the Board of Directors of the Company decided in
November 1997 that the Company should completely discontinue its existing
operations and focus on seeking a business combination opportunity that would
enable the Company to redeploy the remaining cash from the IPO into a new
operating business. The process of discontinuing the Company's operations (other
than those relating to seeking a business combination opportunity) has been
substantially completed.
Current Activities of the Company
General
The Company's principal asset at present is its cash, which amounted to
approximately $10.1 million as of February 28, 1998. This cash represents the
remaining net proceeds from the IPO. The Company's cash is currently invested in
short-term, investment-grade securities.
The Company's only activity at present is seeking a business
combination opportunity ("Business Combination") that will enable the Company to
combine with an existing operating business (a "Target Business"). A Business
Combination transaction may take a variety of forms including a merger, purchase
of assets, exchange of stock, or formation of a joint venture. The Company
cannot at present predict the form of any future Business Combination involving
the Company.
The Company has not established specific financial criteria for the
types of Business Combination opportunities that it will consider and has not
selected any specific industry or
1
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geographic area in which to concentrate its search for a Target Business.
Consequently, the Company cannot at present make any prediction as to (i) the
nature of any new business that it may become involved in as result of a future
Business Combination, (ii) the extent, if any, that the current management of
the Company will continue to be involved in the Company's affairs following the
completion of a Business Combination or (iii) the percentage ownership of the
Company that the current stockholders of the Company would have after the
completion of a Business Combination.
Although the Company is focusing its efforts on seeking a Business
Combination opportunity, there can be no assurance that the Company will succeed
in the near term, or at all, in identifying an appropriate Business Combination
opportunity that is available on terms that are satisfactory to the Company.
Competition
The Company expects to encounter intense competition in its search for
Business Combination opportunities. Potential competitors including venture
capital funds, blind pool companies, large industrial and financial
institutions, small business investment companies and wealthy individuals. Many
of the Company's competitors have extensive experience in connection with
identifying and effecting Business Combinations and possess greater financial,
technical, human and other resources than the Company. There can be no assurance
that the Company will have the ability to complete a Business Combination.
Limited Management Resources
The Company's current executive officers and directors intend to devote
only a small portion of their time to the affairs of the Company. Accordingly,
consummation of a Business Combination may require a greater period of time than
if the Company's management devoted their full time to the Company's affairs.
Employees
The Company has no employees (except for one employee who has been
given notice of termination). The Company's officers devote such time to the
Company's affairs as they deem appropriate.
Certain Tax Considerations
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. The Company
will evaluate the possible tax consequences of any prospective Business
Combination and will endeavor to structure a Business Combination so as to
achieve the most favorable tax treatment to the Company, the Target Business and
their respective stockholders. There can be no assurance that the Internal
Revenue
2
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Service or relevant state tax authorities will ultimately assent to the
Company's tax treatment of a particular consummated Business Combination. To the
extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a Business
Combination, there may be adverse tax consequences to the Company, the Target
Business and their respective stockholders.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own or lease any physical properties. The business
of the Company is currently being conducted at office space which the Company's
Acting Chief Executive Officer is currently making available without charge.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
3
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Part II
ITEM 5. Market For Common Equity And Related Stockholder Matters.
Market for Common Stock
The Common Stock of the Company (the "Common Stock") commenced trading
on the American Stock Exchange ("AMEX") on October 1, 1996, under the symbol
ITH. However, the Company has been informed by AMEX that the Company has fallen
below AMEX's continued listing guidelines. As a result, there can be no
assurance that the Common Stock will continue to be listed on the AMEX.
The table below sets forth for the periods indicated the high and low
sales prices for the Common Stock as reported on the AMEX.
Price Range
-----------
High Low
---- ---
1996
- ----
Fourth Quarter............................. 5 3/8 2
1997
- ----
First Quarter.............................. 2 5/8 1 1/8
Second Quarter............................. 1 7/8 7/8
Third Quarter.............................. 1 15/16 1 1/4
Fourth Quarter............................. 2 1/16 1 1/4
On March 19, 1997, the closing price of the Common Stock on AMEX was $1
1/4. As of March 19, 1997, there were 60 holders of record of the Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock.
Recent Sale of Unregistered Securities
The Company in 1997 issued an aggregate of 25,001 shares of Common
Stock upon the exercise of outstanding bridge warrants (including 16,667 shares
issued in February and 8,334 shares issued in March). Pursuant to the terms of
such bridge warrants, such shares were issued at a price of $0.60 per share. The
issuances by the Company of such shares of Common Stock
4
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were not registered under the Securities Act of 1933, pursuant to the exemption
contemplated in Section 4(2) thereof for transactions not involving a public
offering. For additional information concerning such bridge warrants, see Item
12--"Certain Relationships and Related Transactions."
Certain Information Concerning the Company's Initial Public Offering
The Company completed and initial public offering (the "Offering") in
October 1996. Set forth below is certain information concerning the Offering.
1. Prior to commencing the Offering, the Company filed a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), pursuant to the Securities Act of 1933, as
amended, in order to register the securities that the Company proposed to offer.
The Commission file number assigned to the Registration Statement is 333-9697.
The Registration Statement was declared effective by the Commission on October
1, 1996.
2. The Offering commenced on September 30, 1996 and was completed on
October 7, 1996 (except that a portion of the securities sold in the Offering
were issued on November 18, 1997, pursuant to the exercise of the underwriters'
over-allotment option)
3. The underwriter for the Offering was National Securities
Corporation.
4. The Company sold in the Offering an aggregate of (i) 3,000,000
shares of Common Stock at an initial public offering price of $6.00 per share
and (ii) 3,360,082 Redeemable Common Stock Purchase Warrants ("Warrants") at an
initial public offering price of $0.10 per share. The aggregate public offering
price of the Common Stock and Warrants sold in the Offering was $18,336,000.
6. During the period from October 1, 1996 (the effective date of the
Registration Statement) through December 31, 1997, the total expenses paid by
the Company related to the Offering was $2,843,225 and consisted of the
following:
a. $1,466,880 paid to the underwriter in respect of the
underwriting discount;
b. $536,031 paid to the underwriter in respect of expenses
related to the Offering
c. $840,314 of other expenses.
7. None of the payments described in paragraph 6 above represented a
direct or indirect payment to (i) directors, officers or general partners of the
Company or to their associates, (ii) persons owning 10% or more of any class of
equity securities of the Company or (iii) affiliates of the Company.
8. After deducting the payments described in paragraph 6 above, the net
proceeds of the Offering to the Company were $15,492,775.
5
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9. During the period from October 1, 1996 (the effective date of the
Registration Statement) through December 31, 1997, the Company used the net
proceeds of the Offering for the following purposes:
- ---------------------------------------------------------------------------
Purpose Amount
- ------- ------
- ---------------------------------------------------------------------------
construction of plant, building and facilities......... $25,000
- ---------------------------------------------------------------------------
purchase and installation of machinery and equipment... 31,000
- ---------------------------------------------------------------------------
purchase of real estate................................ --
- ---------------------------------------------------------------------------
acquisition of other businesses....................... --
- ---------------------------------------------------------------------------
repayment of indebtedness.............................. 1,209,174
- ---------------------------------------------------------------------------
research and development............................... 594,790
- ---------------------------------------------------------------------------
sales and marketing.................................... 984,207
- ---------------------------------------------------------------------------
working capital........................................ 2,546,654
- ---------------------------------------------------------------------------
The working capital requirements funded by the net proceeds of the
Offering, as shown in the table above, included the payment of compensation and
severance to officers. ( See Item 10-- "Executive Compensation" for information
concerning the compensation of executive officers.) Except for such payments of
compensation and severance, none of the payments made from the net proceeds of
the Offering were direct or indirect payment to (i) directors, officers or
general partners of the Company or to their associates, (ii) persons owning 10%
or more of any class of equity securities of the Company or (iii) affiliates of
the Company.
10. At December 31, 1997, approximately $10.1 million of the net
proceeds of the Offering had not been used and was invested in short-term,
investment-grade securities.
11. The Company has discontinued the business for which the net
proceeds of the Offering were originally expected to be used and is currently
seeking a Business Combination in which to use the remaining net proceeds of the
Offering. See Item 1--"Description of Business."
6
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ITEM 6. Management's Discussion and Analysis or Plan of Operation.
Discontinued Operations
The Company made only limited sales of its products in 1997 and (as
described under Item 1--"Description of Business") has discontinued the
Company's operations in their entirety (other than those relating to seeking a
Business Combination opportunity). The Company's loss from the discontinued
operations was $4.1 million in 1997 and $2.4 million in 1996. Such loss in 1997
included $1.0 million of costs associated with the discontinuance of the
Company's operations.
Current Activities
The Company's principal asset at present is its cash, which amounted to
approximately $10.1 million as of February 28, 1998. This cash represents the
remaining net proceeds from the Company's IPO. The Company's cash is currently
invested in short-term, investment-grade securities. The Company had income from
continuing operations in 1997 of $622,333. All of such income was interest
income.
The Company's only activity at present is seeking a Business
Combination opportunity that will enable the Company to combine with an existing
operating business. Until the Company completes a Business Combination, the
Company expects that its principal cash requirement will be to pay (i) costs
associated with being a public company and (ii) costs associated with searching
for and consummating a Business Combination. The costs associated with being a
public company are principally professional fees and directors' fees. The costs
associated with searching for and consummating a business combination include
professional fees and may include finders' fees, investment banking fees, the
costs associated with proxy solicitations, the costs of fairness opinions and
other transaction costs.
The Company believes that its existing cash will be sufficient to fund
the Company' cash requirements until consummation of a Business Combination. The
Company cannot at present predict (i) whether it will require additional debt or
equity financing in connection with any Business Combination or (ii) the nature
or extent of the Company's cash requirements following a Business Combination.
The executive officers of the Company are not currently receiving any
cash compensation for their services (their sole compensation at present being
stock options). The Company may, however, resume paying cash compensation to its
executive officers in the future.
The Company may retain investment bankers and other advisors in
connection with seeking or consummating a Business Combination. The Company may
pay such bankers and advisors in cash and/or with equity in the Company.
7
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ITEM 7. Financial Statements.
Furnished at end of report commencing on page F-1.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
Name Age Positions
- -------------------------- ------ -------------------------------------------
Executive Officers and
Directors
William Spier 63 Acting Chief Executive Officer and Director
Barry L. Eisenberg 51 Secretary; Treasurer and Director
Simon M. Kahn 41 Chief Financial Officer and Director
Bernard S. Appel 66 Director
Barry W. Blank 57 Director
Alan P. Haber 42 Director
Nicole R. Kubin 44 Director
Morton L. Landowne 50 Director
Morris J. Smith 40 Director
Michael Yudin 51 Director
William Spier became a director of the Company in October 1996 and
became Acting Chief Executive Officer in November 1997. Mr. Spier has been a
private investor since 1982 and is, and has been since 1989, the Chairman and
President of Sutton Holding Corp., a private investment company. He also served
as Chairman of DeSoto, Inc., a manufacturer and distributor of cleaning
products, from May 1991 through September 1996, and as Chief Executive Officer
of DeSoto, Inc., from May 1991 to January 1994 and from September 1995 through
September 1996. From 1980 to 1981, Mr. Spier was Vice Chairman of Phibro-Salomon
Inc. Mr. Spier also serves as a Director of Keystone Consolidated Industries,
Inc., Geotek Communications, Inc., and The Trident Rowan Group, Inc.
Barry L. Eisenberg has been a Director of the Company since 1990 and
Secretary and Treasurer of the Company since 1993. Since 1995, Mr. Eisenberg has
been an active investor and
9
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director of private companies in Israel. Prior thereto, Mr. Eisenberg was, for a
period of more than five years, a partner in the Roseland, New Jersey law firm
of Lasser, Hochman, Marcus, Guryan & Kuskin.
Simon M. Kahn became a director of the Company in October 1996 and has
served as Chief Financial Officer since March 1996. Mr. Kahn also served for as
Executive Vice President of the Company from March 1996 through the end of 1997
and as Director of Research and Development of the Company from 1993 through the
end of 1997. From 1982 to 1992, Mr. Kahn was Chief Financial Officer of Empire
Steel Trading Co., Inc., a metals trading company. Prior thereto, Mr. Kahn was
an engineer at Loral Electronic Systems. Mr. Kahn holds a M.S. degree from the
Columbia University School of Engineering and an M.B.A. degree in corporate
finance from the Columbia University School of Business.
Bernard S. Appel has been a director of the Company since 1993. Since
1993, Mr. Appel has been President of Appel Associates, a marketing consulting
firm. Prior thereto, for a period of more than five years, Mr. Appel held a
series of positions at Tandy Corporation and its Radio Shack division, including
Senior Vice President of Tandy Corporation and President and Chairman of Radio
Shack. Mr. Appel also serves as a director of Curtis Mathes Holding Corporation.
Barry W. Blank became a director of the Company in December 1997. Mr.
Blank is a stockbroker and has been a member of the New York Stock Exchange
since 1981 and a member of the American Stock Exchange since 1978. Since April
1997, he has served as branch manager of the Phoenix office of J. Robbins
Securities L.L.C. Prior thereto, he managed a branch office of Coleman & Co.
Securities (1995 to1997) and a branch office of RAS Securities (1994 to 1995).
Mr. Blank is also a director of Action Industries, Inc and Alfin, Inc.
Alan P. Haber, has been a director of the Company since its inception
in 1990 and served as Chairman of the Board, President and Chief Executive
Officer of the Company from 1990 until November 1997. From 1989 to 1990, Mr.
Haber was Chief Executive Officer of an Israeli subsidiary of Intafile
International Incorporated, a computer research and development company. Prior
to 1989, Mr. Haber founded and served as President of an import/export company
dealing in stationery and entertainment products (1985-1989) and as President of
a company that operated a chain of restaurants in New York and New Jersey
(1979-1985).
Nicole R. Kubin became a director of the Company in October 1996. Ms.
Kubin is President of Cornerstone Capital Advisors, a corporate advisory firm
and, since 1993, Ms. Kubin has been an active investor and a consultant to
public and private companies. For more than two years prior to 1993, Ms. Kubin
was a marketing consultant to various Fortune 500 companies. Ms. Kubin was
formerly Vice President, International Sales for Salomon Brothers, Inc.
Morton L. Landowne became a director of the Company in October 1996.
Since 1984, Mr. Landowne has been Director of Sales and Marketing of Plaza
Packaging Corp., a manufacturer
10
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of set-up boxes for the cosmetics industry.
Morris J. Smith has been a director of the Company since January 1994.
Since 1993, Mr. Smith has been a private investor and investment consultant.
Prior thereto, Mr. Smith was employed for a period of more than five years by
Fidelity Investments as a portfolio manager.
Michael Yudin became a director of the Company in December 1997. Mr.
Yudin has been a private investor since 1985 and has served as a Managing
Director of Madison Partners, LLC, a private investment partnership, since 1996,
and as a principal of Coatings Group, Inc., a private investment company, since
1989.
All directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Executive officers hold
office until their successors are chosen and qualify, subject to earlier removal
by the Board of Directors.
In connection with the Company's IPO, the Company agreed that for a
period of three years after October 1, 1996, it would use its best efforts to
cause an individual designated by National Securities Corporation, which acted
as the representative of the underwriters for the IPO, to be elected to the
Company's Board of Directors. Ms. Kubin is currently the individual that has
been designated by National Securities Corporation to be elected to the
Company's Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
that they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations from certain of the Company's executive
officers and directors that no other such reports were required, the Company
believes that during the period from January 1, 1997 through December 31, 1996
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with on a timely basis
(except that Mr. Blank filed a Form 3 (Initial Statement of Beneficial
Ownership) late).
11
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Item 10. Executive Compensation
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation earned by certain persons who served as executive
officers of the Company during 1997 (including each person that served as Chief
Executive Officer during any portion of 1997). No other executive officer of the
Company received total compensation in excess of $100,000 in 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------- ----------
Securities All
Other Annual Underlying Other
Name and Principal Position Year Salary($) Compensation($)(1) Options(#) Compensation($)
- --------------------------------------------- ---- --------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
William Spier ............................... 1997 -- -- 130,000 6,000(3)
Acting Chief Executive Officer (from
November 5, 1997)(2)
1996 -- -- 15,000 500(3)
Alan P. Haber ........................ 1997 190,040 52,388 10,000 344,763(5)
Chairman and Chief Executive Officer
(until November 5, 1997)(4)
1996 176,614 34,026 133,333 --
1995 116,900 2,488 -- --
Simon M. Kahn ........................ 1997 122,470 30,809 26,000 --
Chief Financial Officer(6)
1996 96,610 18,021 66,667 --
Loren Lemcke ................................ 1997 78,034 3,187 175,000 67,500(7)
Chief Operating Officer (from February
1997 until August 1997)
</TABLE>
- -----------------------------
(1) In the case of Messrs. Haber and Kahn, principally represents
contributions to pension, severance and savings plans and the payment
of taxes due as a result of such contributions. In the case of Mr.
Lemcke, principally represents reimbursement for automobile expenses.
(2) Mr. Spier was appointed Acting Chief Executive Officer on November 5,
1997. Prior to being appointed Acting Chief Executive Officer, Mr.
Spier was a director of the Company, but was not an employee or officer
of the Company.
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(3) Represents directors' fees.
(4) Mr. Haber resigned as Chairman and Chief Executive Officer on November
5, 1997. Mr. Haber continues to serve as a director.
(5) The indicated amount was paid to Mr. Haber pursuant to a termination
agreement entered into in connection with Mr. Haber's resigning as
Chairman and Chief Executive Officer of the Company. The amount
includes (i) a cash payment of $324,643 and (ii) the estimated value of
a Company car that was transferred to Mr. Haber.
(6) In 1997, Mr. Kahn also served as Executive Vice President and as
Director of Research and Development.
(7) Represents severance paid in connection with the termination of Mr.
Lemcke's employment in August 1997.
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The following table provides certain information concerning the options
granted in 1997 to the officers named in the Summary Compensation table above.
Option Grants in 1997
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------
% of Total
Options
Granted to
Number of Securities Employees Exercise Price
Underlying Options and Officers Per Expiration
Name Granted 1n 1997 Share($) Date
- ---- -------------------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
William Spier............... 10,000(1) 2.66% 1.50 3/3/2002
20,000(2) 5.32% 1.4063 10/7/2007
50,000(3) 13.30% 1.4375 12/10/2007
50,000(4) 13.30% 2.00 12/10/2007
Alan P. Haber............... 10,000(1) 2.66% 1.50 3/3/2002
Simon M. Kahn............... 10,000(1) 2.66% 1.50 3/3/2002
16,000(5) 4.26% 1.4063 10/7/2007
Loren Lemcke................ 175,000(6) 46.54% 1.6875 (6)
</TABLE>
- -----------------------------
(1) These options became exercisable on March 3, 1998
(2) These options will become exercisable upon the earlier of (a) the
closing of an Acquisition Transaction within 18 months of October 7,
1997 and (c) October 6, 2007. An "Acquisition Transaction" means any
(i) merger or consolidation involving Integrated Technology USA, Inc.
("ITI") or (ii) the acquisition by ITI of any new business (whether
directly or through a subsidiary and whether through an asset purchase,
stock purchase, joint venture or otherwise).
(3) These options will become exercisable in full upon the earlier of (i)
the closing of an Acquisition Transaction within 18 months of December
10, 1997 and (ii) December 9, 2007.
(4) These options will become exercisable with respect to 50% of the shares
subject thereto on the 180th day following the closing of an
Acquisition Transaction, and with respect to the balance of the shares
subject thereto on the first anniversary of the closing of an
Acquisition Transaction. In all events, such options will become
exercisable on December 9, 2007.
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(5) These options became exercisable on February 28, 1998.
(6) These options terminated upon the termination of Mr. Lemcke's
employment in August 1997.
The following table provides certain information concerning the options
held by the officers named in the Summary Compensation table above as of
December 31, 1997. None of such officers exercised any options in 1997.
Options at End of 1997
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Year End Money Options at Year End
------------------------------- ----------------------------
Name Exercisabe Unexercisable Exercisable Unexercisable
- --------------- ---------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
William Spier............................................... 7,500 137,500 -- $5,000
Alan P. Haber............................................... 199,778 76,666 -- --
Simon M. Kahn............................................... 66,655 59,333 $49,648 $1,499
Loren Lemcke................................................ -- -- -- --
</TABLE>
Compensation of Directors
Each director who is not an employee of the Company (including any
officer that is serving as such without being paid a salary) is paid $500 for
attendance (in person or by telephone) at meetings of the Board, and all
directors are reimbursed for out-of-pocket expenses incurred in connection with
attendance at Board meetings. In addition, the Company in 1997 granted to
directors of the Company (including directors who are executive officers)
options to purchase Common Stock. The options granted to Messrs. Spier, Haber
and Kahn are described in the table captioned "Options Grants in 1997" that
appears above under "--Executive Compensations." The options granted to the
other directors are described below:
Number of
Name Shares Underlying Option Exercise Price Per Share
- ---- ------------------------ ------------------------
Barry L. Eisenberg........ 10,000 $1.50
Bernard S. Appel.......... 10,000 $1.50
16,000 $1.4603
Nicole R. Kubin........... 10,000 $1.50
16,000 $1.4603
Morton L. Landowne........ 10,000 $1.50
16,000 $1.4603
Morris J. Smith........... 10,000 $1.50
16,000 $1.4603
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<PAGE>
In 1997, the Company paid Mr. Eisenberg $80,000 for consulting services
provided by him to the Company. Mr. Eisenberg did not receive any additional
compensation for serving as Secretary and Treasurer of the Company. The Company
terminated Mr. Eisenberg's consulting arrangement with the Company effective
December 31, 1997 and, in connection therewith, the Company in 1998 paid Mr.
Eisenberg $32,000 as severance.
16
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to
beneficial ownership (as defined in Item 403 of Regulation S-B under the
Securities Act of 1933) of the Company's Common Stock as of March 18, 1998 by
(i) each director of the Company, (ii) each person named in the Summary
Compensation Table under Item 10--"Executive Director Compensation," and (iii)
all directors and executive officers of the Company as a group. Except as
indicated in the table, the Company is not aware of any stockholder that is the
beneficial owner of more than 5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
Percentage of
Name and Address of Number of Common Shares Common Stock
Beneficial Owner (1) Beneficially Owned (2) Outstanding
- ------------------------------------ ------------------------ --------------
<S> <C> <C>
Barry W. Blank............................... 859,600(3) 12.85%
Alan P. Haber................................ 1,073,939(4) 17.01%
Barry L. Eisenberg........................... 329,873(5) 5.38%
Simon M. Kahn................................ 103,762(6) 1.68%
Bernard S. Appel............................. 125,767(7) 2.02%
Nicole R. Kubin.............................. 46,667(8) *
Morton L. Landowne........................... 28,910(9) *
Morris J. Smith.............................. 30,834(10) *
William Spier................................ 72,169(11) 1.18%
Michael B. Yudin............................. 100,000(12) 1.64%
All executive officers and directors as a
group (10 persons)........................... 2,771,521(13) 38.26%
</TABLE>
- ----------
* Less than 1%
(1) Where no address is indicated, the address is c/o the Company.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table,
a person or group of persons is deemed to have "beneficial ownership"
of any shares as of a given date which such person has the right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person or group of
persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is
deemed to be outstanding for the purpose of computing the percentage
ownership of such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Consists of (i) 259,600 outstanding shares held by Mr. Blank and (ii)
600,000 shares underlying currently exercisable warrants held by Mr.
Blank. Excludes any shares which may be owned by Mr. Blank's customers,
in which he disclaims any beneficial or other interest and over which
he has no voting or dispositive power.
17
<PAGE>
(4) Consists of (i) 830,771 shares held by Mr. Haber, (ii) 209,778 shares
underlying currently exercisable options held by Mr. Haber, (iii)
10,000 shares underlying currently exercisable warrants held by Mr.
Haber and (iv) 23,390 shares held by Mr. Haber's wife. Mr. Haber
disclaims any beneficial ownership of any stock owned by his wife.
(5) Consists of (i) 700 currently outstanding shares held by Mr. Eisenberg,
(ii) 43,334 shares underlying currently exercisable options held by Mr.
Eisenberg, (iii) 1,000 shares underlying currently exercisable warrants
held by Mr. Eisenberg and (iv) 284,839 currently outstanding shares
held by 241 Associates LLC, a limited liability company. Shafrira
Wiener is the sole manager of 241 Associates LLC and as such has voting
and investment power with respect to the shares held by 241 Associates
LLC. Ms. Wiener is the daughter of Barry L. Eisenberg. A majority of
the ownership interest of 241 Associates LLC is owned by Mr. Eisenberg
and his wife and, as a result of such ownership interests, Mr.
Eisenberg may influence the voting and disposition of the shares of
Common Stock held by 241 Associates LLC. Mr. Eisenberg disclaims
beneficial ownership of such shares.
(6) Consists of (i) 23,928 currently outstanding shares held by Mr. Kahn,
(ii) 79,334 shares underlying currently exercisable options held by Mr.
Kahn and (iii) 500 shares underlying currently exercisable warrants
held by Mr.Kahn.
(7) Consists of shares underlying currently exercisable options held by Mr.
Appel.
(8) Consists of (i) 25,000 currently outstanding shares held by Ms. Kubin,
(ii) 17,500 shares underlying currently exercisable options held by Ms.
Kubin and (iii) 4,167 shares underlying currently exercisable warrants
held by Ms. Kubin.
(9) Consists of (i) 11,410 currently outstanding shares held by Landowne &
Co., a corporation controlled by Mr. Landowne and (ii) 17,500 shares
underlying currently exercisable options held by Mr. Landowne.
(10) Consists of (i) 5,000 currently outstanding shares held by Mr. Smith
and (ii) 25,834 shares underlying currently exercisable options held by
Mr. Smith. The Brook Road Nominee Trust, nominee for the Morris Smith
Family Trust, is the owner of 163,653 outstanding shares of Common
Stock. Esther Smith, the mother of Morris J. Smith, is the sole trustee
of the Morris Smith Family Trust and as such has voting and investment
power with respect to such shares. The Morris Smith Family Trust is a
discretionary trust, the potential beneficiaries of which are Mr. Smith
and members of his family. Mr. Smith disclaims any beneficial ownership
of any and all shares owned by the Brook Road Nominee Trust.
(11) Consists of (i) 54,669 currently outstanding shares held by Mr. Spier
and (ii) 17,500 shares underlying currently exercisable options held by
Mr. Spier.
(12) Consists of currently outstanding shares held by Mr. Yudin.
(13) Consists of 1,619,307 currently outstanding shares and 1,152,214 shares
underlying currently exercisable options and warrants. Does not include
163,653 shares that Mr. Smith disclaims beneficial ownership of as
described in footnote 10 above.
18
<PAGE>
Item 12. Certain Relationships and Related Transactions
During the period April 30, 1996, through July 30, 1996, the Company
completed a bridge financing ("Bridge Financing"). In connection with the Bridge
Financing, the Company issued promissory notes ("Bridge Notes") bearing interest
at a rate of 10% per annum. The Company repaid the Bridge Notes from the net
proceeds of the Company's initial public offering ("IPO"). In connection with
the Bridge Financing, the Company also issued to each recipient of a Bridge Note
a warrant ("Bridge Warrant") to purchase a number of shares of Common Stock
determined by dividing (i) the aggregate principal amount of the Bridge Note
issued to such recipient by (ii) $6.00 (the initial public offering price per
share in the IPO). Mr. Eisenberg's father-in-law and a brother-in-law of Mr.
Eisenberg purchased $50,000 and $100,000, respectively, of Bridge Notes in the
Bridge Financing on the same terms as the other participants in the Bridge
Financing and received Bridge Warrants based on the foregoing formula. Mr.
Eisenberg is a director of the Company and serves as treasurer and secretary of
the Company.
Certain relatives of Alan P. Haber were previously employed by the
Company. Alan P. Haber is a director of the Company, beneficially owns more than
5% of the outstanding Common Stock of the Company, and served as Chairman and
Chief Executive Officer until November 5, 1997. Set forth below is certain
information concerning the compensation paid by the Company in 1996 and 1997 to
relatives of Mr. Haber. The Company no longer employs any relatives of Mr.
Haber.
1. Philip Haber, a brother-in-law of Alan Haber, was employed by the
Company as warehouse manager and, from June 1996, also as accounts receivable
manager. Philip Haber received compensation of approximately $43,000 in 1996,
and $36,000 in 1997.
2. Deena Haber, a sister-in-law of Alan Haber, served as assistant
controller of the Company. Deena Haber received compensation of approximately
$40,000 in 1996, and $56,000 in 1997.
3. Carol Haber, Alan Haber's wife, served as a graphic artist for the
Company. Carol Haber received compensation of approximately $14,000 in 1996, and
$12,000 in 1997.
19
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the
Registrant*
3.2 Amended and Restated By-Laws of the Registrant*
3.3 Amendment No. 1 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.3 to the Registrant's Report on Form
10-KSB for the year ended December 31, 1996)
3.4 Amendment No. 2 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Report on Form 8-K
dated May 11, 1997)
10.1 Form of the Subscription Agreement entered into by the Registrant
with each person or entity that provided funds to the Company in connection with
the Bridge Financing (as defined in Note 6 of Notes to Condensed Consolidated
Financial Statements included under Item 7 of this Report), having attached
thereto the form of Bridge Note and Bridge Warrant (as such terms are defined in
such Note 6)*
10.2 Form of Underwriting Agreement dated as of October 1, 1996,
between the Company and National Securities Corporation, as Representative of
the several Underwriters listed therein**
10.3 Employment Agreement dated as of July 1, 1996, between the
Registrant and Alan Haber*
10.4 Distribution Agreement entered into in 1996 between the Registrant
and Gemini Industries, Inc.*
10.5 Bundling and Sales License Fee Agreement dated July 3, 1996
between the Registrant and VocalTec Ltd*
10.6 Registrant's 1996 Stock Option Plan*
10.7 Form of Representative's Warrant Agreement dated as of October 1,
1996, between the Registrant and National Securities Corporation**
10.8 Form of Warrant Agreement dated as of October 1, 1996, between the
Registrant and American Stock Transfer & Trust Company**
10.9 Form of Employment Agreement dated November 14, 1996, between the
Registrant and Simon Kahn***
20
<PAGE>
10.10 Form of Employment Agreement dated November 15, 1996, between the
Registrant and Ed Abramson***
10.11 Form of Employment Agreement dated February 10, 1997, between the
Registrant and Loren Lemcke (incorporated by reference to Exhibit 10.11 to the
Registrant's Report on Form 10-KSB for the year ended December 31, 1996)
10.12 Form of Indemnification Agreement entered into by the Registrant
with executive officers and directors (incorporated by reference to Exhibit
10.12 to the Registrant's Report on Form 10-KSB for the year ended December 31,
1996)
10.13 Form of Indemnification Agreement between the Registrant and
Edward Abramson (incorporated by reference to Exhibit 3.3 to the Registrant's
Report on Form 10-KSB for the year ended December 31, 1996)
10.14 Termination Agreement dated November 5, 1997 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB
for the period ended September 30, 1997)
10.15 Form of Rights Agreement, dated as of July 23, 1997, between the
Registrant and American Stock Transfer & Trust Co., as Rights Agent, including
all exhibits thereto (incorporated by reference to Exhibit 4 to the Registrant's
Report on Form 8-K date July 23, 1997)
11.1 Statement re: computation of per share earnings****
21.1 List of subsidiaries of the Registrant*
27.1 Financial Data Schedule****
- --------------------------------------
* Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Registration statement on Form SB-2 (No. 333-9697)
** Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Report on Form 10-QSB for the quarterly period ended September 30,
1996 (File No. 001-12127)
*** Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Registration statement on Form SB-2 (No. 333-13447)
**** Filed herewith
21
<PAGE>
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter
ended December 31, 1996.
22
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1997
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheet as of December 31, 1997 F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1997 F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors of
Integrated Technology USA, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Integrated Technology USA,
Inc. and its subsidiaries (the "Company") at December 31, 1997, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company has
discontinued all of its operations as of December 31, 1997. Management's
intentions regarding such matters are also described in Note 1. The accompanying
consolidated financial statements have been adjusted to reflect the
discontinuation of operations.
PRICE WATERHOUSE LLP
New York, New York
February 24, 1998
F-2
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997
----
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,101,950
Assets of discontinued operations 79,904
Prepaid expenses and other current assets 160,900
------------
Total current assets $ 10,342,754
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,520
Accrued expenses and other current liabilities 298,158
------------
Total current liabilities 358,678
------------
Commitments and contingencies (Note 10)
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; 6,058,670 shares issued and
outstanding 61,597
Additional paid-in capital 21,692,910
Treasury stock, at cost, 107,048 shares (217,500)
Accumulated deficit (11,552,931)
------------
Total stockholders' equity 9,984,076
------------
Total liabilities and stockholders' equity $ 10,342,754
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997
----------- -----------
<S> <C> <C>
Interest (expense) income, net $ (287,791) $ 622,333
----------- -----------
(Loss) income from continuing operations (287,791) 622,333
----------- -----------
Discontinued operations:
Loss from discontinued operations (2,408,247) (3,166,236)
Loss on disposal of discontinued operations -- (888,321)
----------- -----------
Loss from discontinued operations (2,408,247) (4,054,557)
----------- -----------
Extraordinary item:
Loss on early extinguishment of debt (224,061) --
----------- -----------
Extraordinary Loss (224,061) --
Net Loss $(2,920,099) $(3,432,224)
=========== ===========
(Loss) earnings per share from continuing operation - basic and
diluted $ (0.08) $ 0.10
Loss per share from discontinued operations (0.66) (0.67)
Extraordinary loss per share (0.06) --
----------- -----------
Net loss per share - basic and diluted $ (0.80) $ (0.57)
=========== ===========
Weighted average shares outstanding 3,646,799 6,041,181
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Common Cumulative Total
Common Stock Paid-in Stock to be Treasury Accumulated Translation Stockholders'
Shares Amount Capital Issued Stock Deficit Adjustment Equity
------------ ------ ---------- ----------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 2,930,178 $29,812 $ 5,535,863 $ -- $(165,000) $ (5,200,608) $ 98,157 $ 298,224
Compensatory stock options
issued to officers,
directors and employees -- -- 202,963 -- -- -- -- 202,963
Proceeds from
issuance of Bridge
Warrants, net of
expenses -- -- 432,180 -- -- -- -- 432,180
Proceeds from IPO, 3,000,000 30,000 15,430,477 -- -- -- -- 15,460,477
net of expenses
Issuance of
underwriter warrants -- -- 32,298 -- -- -- -- 32,298
Exercise of Bridge
Warrants 75,001 750 44,251 -- -- -- -- 45,001
Exercise of options
and warrants -- -- -- 15,051 -- -- -- 15,051
Change in cumulative
translation adjustment -- -- -- -- -- -- 75,569 75,569
Net loss for 1996 -- -- -- -- -- (2,920,099) -- (2,920,099)
--------- ------- ---------- ----------- --------- ---------- --------- ----------
Balance at December 31,
1996 6,005,179 60,562 21,678,032 15,051 (165,000) (8,120,707) 173,726 13,641,664
Issuance of previously
exercised Bridge
Warrants and stock options 63,033 630 14,421 (15,051) --
Exercise of options
and warrants 40,458 405 457 -- -- -- -- 862
Repurchase of shares (50,000) -- (52,500) -- -- (52,500)
Reversal of cumulative
translation adjustment (173,726) (173,726)
Net loss for 1997 -- -- -- -- -- (3,432,224) (3,432,224)
--------- ------- ---------- ------------ --------- ---------- -------- ----------
Balance at December 31, 6,058,670 $61,597 $21,692,910 $ -- $(217,500) $(11,552,931) $ -- $9,984,076
1997 ========= ======= ========== ========== ========= =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997
---- ----
<S> <C> <C>
Cash flows used for operating activities:
Net loss $ (2,920,099) $ (3,432,224)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation and amortization 44,422 64,323
Extraordinary loss 224,061 --
Amortization of deferred financing costs 45,013 --
Amortization of loan discount 275,682 --
Non-cash compensation expense 202,963 --
Loss on sale of property and equipment -- 84,176
Reversal of cumulative translation adjustment (173,726)
Changes in assets and liabilities:
Assets of Discontinued Operations 155,778 361,769
Other assets (88,115) 10,749
Accounts payable 132,224 (321,586)
Accrued expenses and other liabilities 175,949 (129,301)
------- --------
Net cash used for operating activities (1,752,122) (3,535,820)
--------- ---------
Cash flows used for investing activities of
discontinued operations:
Capital expenditures (66,230) (89,708)
Proceeds from sales of property and equipment -- 69,011
------ ------
Net cash used for investing activities (66,230) (20,697)
------ ------
Cash flows from financing activities:
Decrease in bank overdraft (20,819) --
Proceeds from bridge financing net of expenses 1,062,500 --
Repayment of bridge financing (1,175,000) --
Proceeds from issuance of underwriter warrants 32,298 --
Proceeds from exercise of bridge warrants 60,002 --
Proceeds from exercise of stock options 50 862
Purchase of treasury stock -- (52,500)
Proceeds from issuance of stock, net of expenses 15,460,477 --
---------- ------
Net cash provided by financing activities 15,419,508 (51,638)
---------- ------
Effect of exchange rate changes on cash 75,476 --
Net increase (decrease) in cash and cash equivalents 13,676,632 (3,608,155)
Cash and cash equivalents, beginning of year 33,473 13,710,105
------ ----------
Cash and cash equivalents, end of year $ 13,710,105 $ 10,101,950
========== ==========
Supplemental schedule of cash paid during the year for interest $ 49,764 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and basis of presentation
Integrated Technology USA, Inc. (the "Company") was incorporated in 1990 to
design, develop and market products for emerging computer related markets.
Through September 30, 1997, the Company had generated revenues from the sale of
its products, CompuPhone 2000 (and a predecessor product) and CompuNet 2000. On
November 6, 1997, the Company announced its decision to discontinue its existing
operations in their entirety. As a result, the Company's principal asset is its
remaining cash, and it intends to focus on seeking merger and/or acquisition
opportunities that will enable it to deploy its cash into a new operating
business.
The 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 in Israel and
conducted business in Israel prior to the discontinuation of operations. All
significant intercompany transactions and account balances have been eliminated
in consolidation.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all money market accounts and investments with original
maturities of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and
payable, and accrued expenses approximate their fair values due to the
short-term maturities of these assets and liabilities.
Income Taxes
The Company follows the asset and liability approach for deferred income taxes.
This method provides that deferred tax assets and liabilities are recorded,
using currently enacted tax rates, based upon the difference between the tax
bases of assets and liabilities and their carrying amounts for financial
statement purposes. Deferred tax asset valuation allowances are recorded where
management does not believe that it is more likely than not that the related
deferred tax assets will be realized.
Net Loss per Share
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share ("FAS 128"), which requires the
presentation of basic and diluted earnings per share in a company's financial
statements for reporting periods ending subsequent to December 15, 1997. As
required by SEC Staff Accounting Bulletin No. 98, previously reported 1996 per
share information contained in the accompanying consolidated financial
statements has been restated to give effect to the adoption of FAS 128,
resulting in an increased net loss per share of $0.03 for the year ended
December 31, 1996. The adoption of FAS 128 did not have a material impact on the
net loss per share for the year ended December 31, 1997.
F-7
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net loss per share is computed using the weighted average number of common
shares outstanding and dilutive common share equivalents. As of December
31, 1996 and 1997, the Company had outstanding warrants and options to
purchase an aggregate of 4,238,038 and 4,413,069 shares of common stock,
respectively, which are not included in the calculation of earnings per
share for the years ended December 31, 1996 and 1997, respectively, under
the guidance prescribed by FAS 128, due to the anti-dilutive nature of
these instruments.
Stock-Based Compensation
The Company continues to measure compensation cost using the methodology
prescribed by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"). However, the Company has adopted the
disclosure requirements of Statement of Financial Accounting Standards No.
123, Accounting for Stock Based Compensation ("SFAS 123").
Accounting 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 reporting period. Significant assumptions made by
the company include the valuation of inventories and certain components of
the loss on disposal of discontinued operations. 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 cash and cash equivalents. The Company tries to
minimize its credit risk by diversifying its investment portfolio. As of
December 31, 1997, the Company's cash and investments were diversified
through three investment advisors.
3. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at December 31, 1997 are
summarized as follows:
Accrued professional fees $ 93,797
Accrued payroll and benefits 31,341
Accrued severance 62,500
Accrued termination fee payable to an officer (Note 11) 31,945
Other $ 78,575
------
$ 298,158
=======
4. Discontinued Operations
In connection with its decision to discontinue its existing operations (see
Note 1), the Company had substantially completed the disposition of its net
assets and the settlement of its outstanding purchase commitments and lease
obligations by December 31, 1997, resulting in a loss on disposal of
approximately
F-8
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$888,000. Included in the loss on disposal is a gain of $173,726,
representing the cumulative translation adjustment relating to the
discontinued operations of the Company's Israeli subsidiaries. The Company
estimates that the net cash outlay to be made in connection with the
discontinuation of its current operations will approximate $1,188,955, of
which approximately $962,173 was paid as of December 31, 1997. Revenues,
costs and expenses of the Company's discontinued operations, excluding the
above loss, are as follows:
Year Ended December 31,
1996 1997
---- ----
Net sales $1,224,596 $ 481,319
Cost of products sold 819,645 328,823
--------- -------
Gross profit 404,951 152,496
Operating expenses
Selling, general and administrative 2,371,682 2,804,437
Research and development, net 441,516 514,295
---------- ---------
Total costs and expenses 2,813,198 3,318,732
---------- ---------
Loss from discontinued operations (2,408,247) (3,166,236)
========== =========
Prior year financial statements have been restated to reflect the
discontinuation of the Company's operations.
5. Common Stock
Recapitalization
In September 1996, the Company amended its Certificate of Incorporation to,
among other matters, change the authorized share capital of the Company
from 10,000 shares of common stock, no par value, to 40,000,000 shares of
common stock, $.01 par value, and 5,000,000 shares of preferred stock, $.01
par value. The Company also converted each outstanding share of its common
stock, no par value, into 760.6291 shares of common stock, $.01 par value.
All applicable share and per share data have been adjusted for the above
recapitalization.
Bridge financing
During the period from April through July 1996, the Company completed a
bridge financing (the "Bridge Financing"). The gross proceeds from the
Bridge Financing was $1,175,000 and the net proceeds to the Company from
such financing (after deduction of commissions and the expenses of such
financing) was approximately $1,062,500.
In connection with the Bridge Financing, the Company issued promissory
notes (the "Bridge Notes") in the aggregate principal amount of $1,175,000.
The Bridge Notes accrued interest at a rate of 10% per annum and were
repaid, together with accrued interest, upon completion of the initial
public offering of the Company's common stock.
In connection with the Bridge Financing, the Company also issued certain
warrants (the "Bridge Warrants").
F-9
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Bridge Warrants included warrants (the "Investor Bridge Warrants")
issued to each recipient of a Bridge Note to purchase an aggregate of
195,840 shares of the Company's common stock. The Bridge Warrants also
included warrants (the "Other Bridge Warrants") issued to a party that
assisted the Company in connection with the Bridge Financing. The aggregate
number of shares issuable upon exercise of the Other Bridge Warrants is
3,334. The Bridge Warrants provide for an exercise price per share of $0.60
and contain certain demand and piggyback registration rights. In November
1996, four holders of an aggregate of 100,002 Investor Bridge Warrants
exercised such warrants. No Bridge Warrants were exercised in 1997.
The gross proceeds from the Bridge Financing were allocated to the Bridge
Notes and to the Investor Bridge Warrants based on their relative fair
values at the dates of such Bridge Financing. In connection with the Bridge
Financing, the Company recorded (i) loan discount of $458,000, representing
the portion of the gross proceeds from the Bridge Financing that was
allocated to the Bridge Warrants, and (ii) deferred financing costs of
approximately $77,000, representing the portion of the expenses of the
Bridge Financing that was allocated to the Bridge Notes. Such loan discount
and deferred financing costs were being amortized over the estimated terms
of the Bridge Notes. For the year ended December 31, 1996, the Company
recognized approximately $276,000 of non-cash interest expense. Upon
repayment of the Bridge Notes from the net proceeds of the initial public
offering of the Company's common stock, the unamortized portions of the
loan discount and deferred financing costs in the aggregate amount of
$224,061 were recognized as an extraordinary loss, with no associated tax
benefit due to the Company's tax position (Note 7).
Initial public offering
On October 7, 1996, the Company completed an initial public offering of
3,000,000 shares of the Company's common stock and warrants to acquire
3,000,000 shares of its common stock (the "IPO"). The Company realized net
proceeds of approximately $15,400,000, after expenses of approximately
$2,900,000 inclusive of underwriting commissions and expenses, a portion of
which was used to repay the Bridge Notes (see Bridge financing above). In
addition, the Company granted the underwriters of the IPO an option
exercisable prior to November 15, 1996 to purchase up to 450,000 additional
shares of the Company's common stock and/or 450,000 warrants. In November
1996, the Company issued 360,082 warrants to the underwriters of the IPO
upon the exercise of this option. The warrants will be exercisable at $9.00
per share of common stock, subject to adjustment under certain
circumstances, at any time during the four year period commencing October
1, 1997.
In connection with the IPO, the Company sold to an underwriter of the IPO,
for nominal consideration, warrants to purchase up to 300,000 shares of the
Company's common stock and/or 300,000 warrants to acquire 300,000 shares of
the Company's common stock (the "Representative Warrants"). The
Representative Warrants are initially exercisable at a price of $9.90 per
share of common stock and approximately $0.17 per warrant for a four-year
period commencing on the first anniversary of the issuance of such
warrants. The warrants issuable upon the exercise of the Representative
Warrants are exercisable at a price of $14.85 per share of common stock.
The Representative Warrants provide for adjustments in the number of shares
of common stock and warrants issuable upon the exercise of the
Representative Warrants as a result of certain events.
Stock repurchase plan
In April 1997, the Board of Directors authorized the Company to repurchase
shares of its common stock for an aggregate cost not to exceed $1,000,000.
As of December 31, 1997, the Company had repurchased 50,000 shares for an
aggregate cost of $52,500.
F-10
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Income Taxes
There was no provision for income taxes at December 31, 1996 and 1997.
Losses before United States and Israeli income taxes were as follows:
1996 1997
---- ----
United States $ 1,408,117 $ 1,448,290
Israel 1,511,982 2,157,660
--------- ---------
$ 2,920,099 $ 3,605,950
========== ==========
Deferred income tax assets comprise the following:
December 31,
1996 1997
---- ----
Compensatory stock options $ 340,470 $ 227,532
Net operating loss carryforwards-U.S. 1,617,084 2,201,765
Net operating loss carryforwards-Israel 670,680 1,630,800
Other 274,316 81,411
------- ------
2,902,550 4,141,508
Valuation allowance (2,902,550) (4,141,508)
----------- -----------
-- --
=========== ===========
Net operating loss carryforwards of approximately $5,500,000 at December
31, 1997 are due to expire in the years 2006 to 2012. Internal Revenue Code
Section 382 places a limitation on the utilization of Federal net operating
loss carryforwards when an ownership change, as defined by tax law, occurs.
Generally, an ownership change, as defined, occurs when a greater than 50
percent change in ownership takes place. The annual utilization of net
operating loss carryforwards generated prior to such changes in ownership
will be limited, in any one year, to a percentage of fair market value of
the Company at the time of the ownership change. Such an ownership change
occurred upon completion of the IPO (see Note 6) and from the additional
equity financing obtained by the Company since its formation. Management
estimates that the utilization of net operating losses of approximately
$3,600,000 which were incurred prior to such ownership changes, will be
limited to approximately $1,000,000 per annum.
At December 31, 1997, the net operating loss carryforwards for Innovative
and CompuPrint in the State of Israel, which do not expire, amounted to
approximately $3,900,000 and $630,000, respectively.
Financial Accounting Standard No. 109, "Accounting for Income Taxes",
requires that a valuation allowance be recorded when it is more likely than
not that deferred tax assets will not be realized. Since the Company has
discontinued its operations, and future income is uncertain, and due to the
limitation in the utilization of
F-11
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<PAGE>
the net operating loss carryforwards described above, the Company has
recorded a full valuation allowance against all deferred tax assets at
December 31, 1997.
7. Stock Options
The following is a summary of stock option activity:
Number Exercise price
of shares per share
--------- ---------
Options outstanding at January 1, 1996 356,854 $0.01 - 2.74
Granted 46,335 0.01
Granted 543,944 6.00
Exercised (38,032) 0.01
Forfeited (18,389) 6.00
Expired (12,756) 2.74
--------
Options outstanding at
December 31, 1996 877,956 0.01 - 6.00
Granted 480,000 1.00 - 2.125
Exercised (40,458) 0.01 - 0.05
Forfeited (69,511) 6.00
Forfeited (195,000) 1.00 - 2.125
---------
Options outstanding at
December 31, 1997 1,052,987 $0.01 - $6.00
=========
352,401 and 545,588 options were exercisable at December 31, 1996 and 1997,
respectively, at a weighted average exercise price of $0.63 and $2.97,
respectively.
The Company recognized $202,963 in non-cash compensation expense with
respect to the granting of stock options for the year ended December 31,
1996. No such expense was recognized with respect to the stock options
granted during the year ended December 31, 1997.
In July 1996, the shareholders approved the Company's 1996 Stock Option
Plan (the "1996 Plan") which, as amended, provides for the granting of
options to purchase not more than an aggregate of 1,129,000 shares of
Common Stock. All officers, directors and employees of the Company and
other persons who perform services for the Company are eligible to
participate in the 1996 Plan. Some or all of the options may be "incentive
stock options" within the meaning of the Internal Revenue Code of 1986, as
amended. The 1996 Plan provides that it is to be administered by the Board
of Directors, or by a committee appointed by the Board, which will be
responsible for determining, subject to the provisions of the 1996 Plan, to
whom the options are granted, the number of shares of Common Stock subject
to an option, whether an option shall be incentive or non-qualified, the
exercise price of each option (which, other than in the case of incentive
stock options, may be less than the fair market value of the shares on the
date of grant), the period during which each option may be exercised and
the other terms and conditions of each option. No options may be granted
F-12
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
under the 1996 Plan after July 29, 2006.
As of December 31, 1997, the Company had granted options to purchase
1,023,944 shares under the 1996 Plan (282,900 of which had been forfeited),
including an aggregate of approximately 830,001 options to executive
officers and directors of the Company (of which 175,000 had been
forfeited). Such options have an exercise price of ranging between $1.38
and $6.00 per share. The Company has also reserved 387,956 shares of Common
Stock for possible future grants of options under the 1996 Plan.
As permitted by SFAS 123, the Company continues to account for its stock
plans in accordance with APB 25 and its related interpretations. Had the
compensation cost for the options issued in 1996 and 1997 to officers,
directors and employees been determined based upon the fair value at the
grant date in accordance with the methodology prescribed under SFAS No.
123, the Company's net loss for the years ended December 31, 1996 and 1997
would have increased by approximately $197,000 (or $0.05 per share) and
$682,612 (or $0.11 per share), respectively. The weighted average fair
value of the options granted in 1996 and 1997 was estimated at $1,814,475
and $99,466, respectively, on the date of grant, using the Black-Scholes
option-pricing model which included the following assumptions stated on a
weighted average basis:
1996 1997
---- ----
Dividend yield 0% 0%
Volatility 64.81 68.72
Risk free interest rate 6.17% 6.10%
Expected life 58 months 101 months
8. Stock Rights Agreement
In July 1997, the Company adopted a Stockholder Rights Plan (the "Rights
Plan"). The Rights Plan provides for the issuance of a common stock
purchase right (a "Right") in respect of each share of common stock
outstanding as of August 4, 1997 and each share issued thereafter. Each
Right entitles the holder to buy one-quarter of one share of the Company's
common stock for $1.50. The Rights become exercisable only if a person or a
group acquires beneficial ownership of 15% or more of the Company's common
stock (25% in the case of a person or group that was a 15% holder at the
time the plan was adopted) or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or
more of the Company's common stock.
If any person or group (an "Acquiring Person") becomes the beneficial owner
of 15% or more of the Company's common stock (25% in the case of a person
that was a 15% holder at the time the plan was adopted), other than
pursuant to a tender or exchange offer for all outstanding shares of the
Company approved by a majority of the independent directors, then each
Right not owned by the Acquiring Person will entitle its holder to
purchase, at the Right's then current exercise price, shares of the
Company's common stock having a value of twice the Right's then current
exercise price.
In addition, if after any person has become an Acquiring Person, the
Company is involved in a merger or other business combination transactions
in which the Company is not the surviving entity or in which its common
stock is changed or exchanged, or sells 50% or more of its assets or
earning power to another
F-13
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
person, each Right will entitle its holder to purchase, at the Right's then
current exercise price, shares of common stock of such other person having
a value of twice the Right's then current exercise price.
The Company may redeem the Rights at one-quarter of a cent per Right at any
time until ten days following a public announcement that an Acquiring
Person has acquired a 15% position. During the year ended December 31,
1997, no Rights were exercised or redeemed. The Rights expire on July 23,
2007.
9. Commitments, Contingencies and Other Matters
On September 26, 1996, the Company entered into an agreement with a
stockholder pursuant to which the Company agreed to pay such stockholder
$50,000 (plus up to an additional $10,000 under certain circumstances). In
exchange, such stockholder released all claims and rights against the
Company, including certain preemptive rights with respect to the Company's
capital stock.
Pursuant to an agreement dated December 5, 1990 (the "Royalty Agreement"),
the Company was required to pay royalties of 1% on sales of certain of its
products, up to a maximum of $150,000. On September 30, 1996, the Company
entered into an agreement pursuant to which the Company agreed to pay
$50,000 to the other party to the Royalty Agreement. In exchange, such
party has agreed to release all claims and rights against the Company,
including any right to receive royalties based upon future sales of the
Company's products.
In October 1996, the Company paid $50,000 with respect to each of the above
claims.
10. Related Party Transaction
Since February 1996, an officer of the Company has provided consulting
services to the Company under an arrangement pursuant to which the officer
was compensated at a rate of $80,000 per annum. The Company has recorded a
provision of $31,945 representing the termination fee to be paid to the
officer, which is included in accrued expenses at December 31, 1997.
11. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"),
which requires the presentation of the components of comprehensive income
in a company's financial statements for reporting periods beginning
subsequent to December 15, 1997. Comprehensive income is defined as the
change in a company's equity during a financial reporting period from
transactions and other circumstances from nonowner sources (including
cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). The Company will
adopt FAS 130 in the first quarter of 1998. The adoption of FAS 130 is not
expected to have a material impact on the Company's consolidated financial
statements.
F-14
<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.
Integrated Technology USA, Inc.
By: /s/ William Spier
--------------------------------
William Spier
Acting Chief Executive Officer
March 25, 1998
/s/ William Spier
- -----------------------------
William Spier
Acting Chief Executive Officer and Director (Principal Executive Officer)
March 25, 1998
/s/ Simon Kahn
- -----------------------------
Simon Kahn, Chief Financial Officer and Director (Principal Financial and
Principal Accounting Officer)
March 25, 1998
/s/ Bernard S. Appel
- -----------------------------
Bernard S. Appel, Director
March 30, 1998
/s/ Barry W. Blank
- -----------------------------
Barry W. Blank, Director
March 25, 1998
23
<PAGE>
/s/ Barry L. Eisenberg
- -----------------------------
Barry L. Eisenberg, Director
March 25, 1998
/s/ Alan P. Haber
- -----------------------------
Alan P. Haber, Director
March 25, 1997
- -----------------------------
Nicole R. Kubin, Director
March 25, 1997
/s/ Morton L. Landowne
- -----------------------------
Morton L. Landowne,
Director
March 25, 1998
/s/ Morris J. Smith
- -----------------------------
Morris J. Smith, Director
March 25, 1997
- -----------------------------
Michael Yudin, Director
March , 1998
24
<PAGE>
Exhibit Index
-------------
3.1 Amended and Restated Certificate of Incorporation of the Registrant*
3.2 Amended and Restated By-Laws of the Registrant*
3.3 Amendment No. 1 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.3 to the Registrant's Report on Form
10-KSB for the year ended December 31, 1996)
3.4 Amendment No. 2 to Amended and Restated By-Laws of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Report on Form 8-K
dated May 11, 1997)
10.1 Form of the Subscription Agreement entered into by the Registrant with
each person or entity that provided funds to the Company in connection with the
Bridge Financing (as defined in Note 6 of Notes to Condensed Consolidated
Financial Statements included under Item 7 of this Report), having attached
thereto the form of Bridge Note and Bridge Warrant (as such terms are defined in
such Note 6)*
10.2 Form of Underwriting Agreement dated as of October 1, 1996, between
the Company and National Securities Corporation, as Representative of the
several Underwriters listed therein**
10.3 Employment Agreement dated as of July 1, 1996, between the Registrant
and Alan Haber*
10.4 Distribution Agreement entered into in 1996 between the Registrant and
Gemini Industries, Inc.*
10.5 Bundling and Sales License Fee Agreement dated July 3, 1996 between
the Registrant and VocalTec Ltd*
10.6 Registrant's 1996 Stock Option Plan*
10.7 Form of Representative's Warrant Agreement dated as of October 1,
1996, between the Registrant and National Securities Corporation**
10.8 Form of Warrant Agreement dated as of October 1, 1996, between the
Registrant and American Stock Transfer & Trust Company**
10.9 Form of Employment Agreement dated November 14, 1996, between the
Registrant and Simon Kahn***
10.10 Form of Employment Agreement dated November 15, 1996, between the
<PAGE>
Registrant and Ed Abramson***
10.11 Form of Employment Agreement dated February 10, 1997, between the
Registrant and Loren Lemcke (incorporated by reference to Exhibit 10.11 to the
Registrant's Report on Form 10-KSB for the year ended December 31, 1996)
10.12 Form of Indemnification Agreement entered into by the Registrant with
executive officers and directors (incorporated by reference to Exhibit 10.12 to
the Registrant's Report on Form 10-KSB for the year ended December 31, 1996)
10.13 Form of Indemnification Agreement between the Registrant and Edward
Abramson (incorporated by reference to Exhibit 3.3 to the Registrant's Report on
Form 10-KSB for the year ended December 31, 1996)
10.14 Termination Agreement dated November 5, 1997 (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-QSB
for the period ended September 30, 1997)
10.15 Form of Rights Agreement, dated as of July 23, 1997, between the
Registrant and American Stock Transfer & Trust Co., as Rights Agent, including
all exhibits thereto (incorporated by reference to Exhibit 4 to the Registrant's
Report on Form 8-K date July 23, 1997)
11.1 Statement re: computation of per share earnings****
21.1 List of subsidiaries of the Registrant*
27.1 Financial Data Schedule****
- --------------------------------------
* Incorporated by reference from the correspondingly numbered Exhibit in
the Company' s Registration statement on Form SB-2 (No. 333-9697)
** Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Report on Form 10-QSB for the quarterly period ended September 30,
1996 (File No. 001- 12127)
*** Incorporated by reference from the correspondingly numbered Exhibit in the
Company' s Registration statement on Form SB-2 (No. 333-13447)
**** Filed herewith
<PAGE>
Integrated Technology USA, Inc. Exhibit 11.1
Earnings per share
<TABLE>
<CAPTION>
Weighted
Days Shares Weighted Average Net Net Loss
Period Outstanding Outstanding Outstanding Shares Shares Loss Per Share
------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Balance at 1/1/97 1/1/97-4/23/97 113 6,005,179 678,585,227 1,859,138
After repurchase of certain shares 4/23/97-12/31/97 252 5,995,179 1,500,705,108 4,111,521
Exercise of Stock Options 1/20/97-12/31/97 345 38,032 13,121,040 35,948
Exercise of Bridge Warrants 2/5/97-12/31/97 329 16,667 5,483,443 15,023
Exercise of Bridge Warrants 3/20/97-12/31/97 286 8,334 2,383,524 6,530
Exercise of Stock Options 7/5/97-12/31/97 179 3,000 537,000 1,471
Exercise of Stock Options 7/18/97-12/31/97 166 5,346 887,436 2,431
Exercise of Stock Options 7/18/97-12/31/97 166 4,156 689,896 1,890
Exercise of Stock Options 7/18/97-12/31/97 166 3,994 663,004 1,816
Exercise of Stock Options 8/28/97-12/31/97 125 2,092 261,500 716
Exercise of Stock Options 9/4/97-12/31/97 118 11,410 1,346,380 3,689
Exercise of Stock Options 11/11/97-12/31/97 50 2,092 104,600 287
Exercise of Stock Options 11/20/97-12/31/97 41 2,092 85,772 235
Exercise of Stock Options 11/24/97-12/31/97 37 2,092 77,404 212
Exercise of Stock Options 12/10/97-12/31/97 21 2,092 43,932 120
Exercise of Stock Options 12/11/97-12/31/97 20 2,092 41,840 153
----- -------
6,041,181 622,333 0.10
(4,054,557) (0.67)
(3,432,224) (0.57)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,101,950
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,342,754
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,342,754
<CURRENT-LIABILITIES> 358,678
<BONDS> 0
0
0
<COMMON> 61,597
<OTHER-SE> 9,922,479
<TOTAL-LIABILITY-AND-EQUITY> 10,342,754
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (622,333)
<INCOME-PRETAX> (3,432,224)
<INCOME-TAX> 0
<INCOME-CONTINUING> 622,333
<DISCONTINUED> (4,054,557)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,432,224)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> 0
</TABLE>
