<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, 1998
[ ] 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 10022
New York, NY
(Address of Principal Executive (Zip code)
Offices)
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, American Stock Exchange
par value $0.01 per share
Redeemable Common American Stock Exchange
Stock Purchase Warrants
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 []
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and, no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The registrant had no revenues (other than interest income of
approximately $547,000)for its most recent fiscal year.
As of March 22, 1999, the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $6.8 million. 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 22, 1999, there were 6,139,401 shares of the registrant's
common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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FORM 10-KSB REPORT INDEX
10-KSB Part and Item No. Page No.
- ------------------------ --------
Part I
Item 1 Description of Business........................... 1
Item 2 Description of Property........................... 2
Item 3 Legal Proceedings................................. 2
Item 4 Submission of Matters to a Vote of Security
Holders........................................... 2
Part II
Item 5 Market For Common Equity and Related
Stockholder Matters............................... 2
Item 6 Management's Discussion and Analysis or
Plan of Operation................................. 4
Item 7 Financial Statements.............................. 4
Item 8 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure........................................ 5
Part III
Item 9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act......................... 5
Item 10 Executive Compensation............................ 8
Item 11 Security Ownership of Certain Beneficial
Owners and Management............................. 9
Item 12 Certain Relationships and Related
Transactions...................................... 11
Item 13 Exhibits, List and Reports on Form 8-K............ 11
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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. However,
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 inability to achieve profitability, the
Company at the end of 1997 discontinued its operations relating to the products
described above. Since that time, the Company's only activity has been seeking a
business combination opportunity that would enable the Company to redeploy the
remaining cash from the IPO into a new operating business. As of March 1, 1999,
the Company had approximately $10.1 million of cash.
Pending Merger
On February 22, 1999, Integrated Technology announced that it had
agreed to merge with Empire Resources Inc. ("Empire"), a distributor of value
added, semi-finished aluminum products. Upon completion of this merger (the
"Merger"), the merged company will change its name to "Empire Resources, Inc."
and will continue the business of Empire. Empire had net sales of $101 million
and pre-tax earnings of $2.485 million for the fiscal year ended December 31,
1998.
Under the terms of the agreement relating to the Merger (the "Merger
Agreement"), Empire will be merged with and into Integrated Technology and
Integrated Technology will issue to the stockholders of Empire 9,384,761 shares
of Integrated Technology common stock, of which 3,824,511 shares will be placed
in escrow. Some or all of the escrowed shares may be released to the
stockholders of Empire based upon a two-year earn-out formula specified in the
Merger Agreement. Any escrowed shares not released to the stockholders of Empire
will be returned to the treasury of the merged company or retired. The shares to
be issued to the stockholders of Empire will represent approximately 47.5% of
the outstanding common stock after the Merger, assuming none of the escrowed
shares are released to the stockholders of Empire, and approximately 60.5%,
assuming all of the escrowed shares are released. Such percentages would be
reduced to
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approximately 45% and 58%, respectively, assuming exercise of certain
outstanding options and warrants that have been issued by Integrated Technology
and provide for an exercise price of $2.00 per share or less.
Following the Merger, Nathan and Sandra Kahn, the current Chief
Executive Officer and Chief Financial Officer, respectively, of Empire, will
continue in these positions with the merged company. They will also join a
nine-member board, together with three additional directors to be designated by
them and four current directors of the Company. The four current directors that
are expected to continue as directors following the Merger are Barry W. Blank,
Barry L. Eisenberg, Morris J. Smith and William Spier.
Completion of the Merger is subject to certain conditions, including
approval by the stockholders of the Company. Although the Company anticipates
that the Merger will be completed during the third quarter of 1999, there can be
no assurance of this.
A copy of the Merger Agreement has been filed as an Exhibit to this
Report. The information included herein concerning the Merger is qualified in
its entirety by reference to the full text of the Merger Agreement.
Employees
The Company has no employees. The Company's officers devote such time
to the Company's affairs as they deem appropriate.
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.
Part II
ITEM 5. Market For Common Equity And Related Stockholder Matters.
Market for Common Stock
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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
---- ---
1997
- ----
First Quarter.................................... 2 5/8 1 1/8
Fourth Quarter................................... 1 7/8 7/8
Fourth Quarter................................... 1 15/16 1 1/4
Fourth Quarter................................... 2 1/16 1 1/4
1998
- ----
First Quarter.................................... 1 13/16 1 1/8
Second Quarter................................... 1 11/16 1 3/16
Third Quarter.................................... 1 5/8 1 1/8
Fourth Quarter................................... 1 3/4 1 3/16
On March 22, 1999, the closing price of the Common Stock on AMEX was $1
1/2. As of March 22, 1999, there were 62 holders of record of the Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock.
Recent Sale of Unregistered Securities
In 1998, the Company issued 8,334 shares of Common Stock pursuant to
certain warrants that were issued by the Company prior to its IPO. These shares
were issued at a price of $0.60 per share. The issuances by the Company of such
shares of Common Stock 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.
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Certain Information Concerning the Company's Initial Public Offering
At December 31, 1998, approximately $10.1 million of the net proceeds
of the Company's IPO had not been used and was invested in short-term,
investment-grade securities.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
Discontinued Operations
As described under Item 1, the Company discontinued its operations at
the end of 1997 because it was unable to achieve profitability. Since that time,
the Company's only activity has been seeking a business combination opportunity
that would enable the Company to redeploy its remaining cash into a new
operating business. The Company's loss from the discontinued operations was
$30,336 in 1998 and $4,054,557 million in 1997. The loss in 1997 included
approximately $888,000 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 March 1, 1999. 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's income from
continuing operations was $58,377 in 1998. This income represents the Company's
interest income of $546,920 less general and administrative expense of $488,543.
The Company's general and administrative expenses in 1998 consisted primarily of
(i) costs associated with being a public company (including legal and accounting
fees and directors' and officer's insurance) and (ii) cost associated with
searching for a business combination opportunity.
As described under Item 1, the Company has entered into a Merger
Agreement. The Company's only activity at present is seeking to complete the
Merger with Empire contemplated by the Merger Agreement. Until the Company
completes the Merger, 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 consummating the Merger. Empire's obligation to complete the
Merger is conditioned on, among other things, Integrated Technology having a
minimum of $9.8 million of cash and cash equivalents as of the effective time of
the Merger. The Company expects that it will be able to satisfy this condition,
although there can be no assurance of this. The Company expects that, following
completion of the Merger, its cash will be used to repay indebtedness of Empire
that will be assumed in connection with the Merger.
ITEM 7. Financial Statements.
Furnished at end of report commencing on page F-1.
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ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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 64 Acting Chief Executive Officer and
Director
Barry L. Eisenberg 52 Secretary; Treasurer and Director
Simon M. Kahn 42 Chief Financial Officer and Director
Bernard S. Appel 67 Director
Barry W. Blank 58 Director
Alan P. Haber 43 Director
Nicole R. Kubin 45 Director
Morton L. Landowne 51 Director
Morris J. Smith 41 Director
Michael Yudin 52 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, since 1989, has been 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.
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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 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. Following the discontinuance
of the Company's operations at the end of 1997 (as described under Item 1), Mr.
Kahn has worked for the Company on an as-needed basis and, since July 1998, has
been employed in the intellectual property department of Tadiran
Telecommunications Ltd. and its successor, E.C.I. Telecom, Ltd. Mr. Kahn served
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 October
1998, he has served as branch manager of the Phoenix office of Dirks & Co. 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).
6
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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 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, 1998 through December 31, 1998
all Section 16(a) filing requirements applicable to its officers, directors and
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greater than ten-percent beneficial owners were complied with on a timely basis
(except that Mr. Eisenberg filed a Form 4 (Statement of Changes of Beneficial
Ownership) late).
Item 10. Executive Compensation
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation earned by the Company's Acting Chief Executive
Officer. No executive officer of the Company received total compensation
in excess of $100,000 in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------ All
Other Annual Securities Other
Compensation Underlying Compensation
Name and Principal Position Year Salary($) ($) Options (#) ($)
- --------------------------- ---- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
William Spier...................... 1998 --- --- --- 4,000(2)
Acting Chief Executive Officer
(from November 5, 1997)(1) 1997 --- --- 130,000 6,000(2)
1996 --- --- 15,000 500(2)
</TABLE>
- ----------
(1) 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.
(2) Represents directors' fees.
In 1998, no options were granted to or exercised by the officer
named in the Summary Compensation table above.
The following table provides certain information concerning the options
held by the officer named in the Summary Compensation table above as of December
31, 1998.
Options at End of 1998
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Year End Money Options at Year End
------------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Spier........................ 17,500 127,500 $625 $9,374
</TABLE>
8
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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 1998 granted options
to directors as described below:
<TABLE>
<CAPTION>
Number of
Name Shares Underlying Option Exercise Price Per Share
- ---- ------------------------ ------------------------
<S> <C> <C>
Barry Blank............................ 16,000 $1.6563
Simon Kahn............................. 20,000 $1.5625
Michael Yudin ......................... 16,000 $1.6563
</TABLE>
The Company terminated Mr. Eisenberg's consulting arrangement with the
Company effective December 31, 1997. In connection therewith, the Company in
1998 paid Mr. Eisenberg $31,945 as severance.
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 10, 1999 by
(i) each director of the Company, (ii) each person named in the Summary
Compensation Table under Item 10--"Executive 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.
Percentage of
Name and Address of Number of Common Shares Common Stock
Beneficial Owner (1) Beneficially Owned(2) Outstanding
- ------------------- --------------------- -----------
Barry W. Blank....................... 859,600(3) 12.8%
Alan P. Haber........................ 1,140,605(4) 17.8%
Barry L. Eisenberg................... 363,706(5) 5.9%
Simon M. Kahn........................ 137,095(6) 2.2%
Bernard S. Appel..................... 141,600(7) 2.3%
Nicole R. Kubin...................... 54,167(8) *
Morton L. Landowne................... 36,410(9) *
Morris J. Smith...................... 48,667(10) *
William Spier........................ 79,669(11) 1.3%
Michael B. Yudin..................... 100,000(12) 1.6%
All executive officers and
directors as a group (10 persons).... 2,961,519(13) 39.6%
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- ----------
* 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
cquire within 60 days after such date. For purposes of computing the
a 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.
(4) Consists of (i) 830,771 shares held by Mr. Haber, (ii) 276,444 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) 76,667 shares underlying currently exercisable options held by Mr.
Eisenberg, (iii) 1,000 shares underlying currently exercisable warrants
held by Mr. Eisenberg, (iv) 500 shares owned by Mr. Eisenberg's wife
and (v) 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 and of the shares owned by his wife.
(6) Consists of (i) 23,928 currently outstanding shares held by Mr. Kahn,
(ii) 112,667 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) 25,000 shares underlying currently exercisable options held by Ms.
Kubin and (iii) 4,167 shares underlying currently exercisable warrants
held by Ms. Kubin.
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(9) Consists of (i) 11,410 currently outstanding shares held by Landowne &
Co., a corporation controlled by Mr. Landowne and (ii) 25,000 shares
underlying currently exercisable options held by Mr. Landowne.
(10) Consists of (i) 7,000 currently outstanding shares held by Mr. Smith
and (ii) 41,667 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) 25,000 shares underlying currently exercisable options held by
Mr. Spier.
(12) Consists of currently outstanding shares held by Mr. Yudin.
(13) Consists of 1,621,807 currently outstanding shares and 1,339,712 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.
Item 12. Certain Relationships and Related Transactions
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 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 accounts receivable manager. Philip Haber
received compensation of approximately $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
$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 $12,000 in 1997.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger among the Registrant, Empire
Resources Inc., Empire Resource Pacific, Ltd., Nathan Kahn and
Sandra Kahn, dated as of February 22, 1999
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(incorporated by reference to Exhibit 2.1 to the Registrant's
Report on Form 8-K dated March 9, 1999)
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 referred
to in Note 4 of Notes to Condensed Consolidated Financial
Statements included under Item 7 of this Report, having
attached thereto the form of the notes and warrants issued in
connection with such financing.*
10.2 Registrant's 1996 Stock Option Plan*
10.3 Form of Representative's Warrant Agreement dated as of October
1, 1996, between the Registrant and National Securities
Corporation**
10.4 Form of Warrant Agreement dated as of October 1, 1996, between
the Registrant and American Stock Transfer & Trust Company**
10.5 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)
10.6 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)
10.7 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)
10.8 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
12
<PAGE>
(incorporated by reference to Exhibit 4 to the Registrant's
Report on Form 8-K dated July 23, 1997)
10.9 Amendment to Rights Agreement, dated February 19, 1999,
between the Registrant and American Stock Transfer & Trust
Co., as Rights Agent (incorporated by reference to Exhibit 4.1
to the Registrant's Report on Form 8-K dated March 9, 1999)
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)
*** Filed herewith
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter
ended December 31, 1998.
13
<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 23, 1999
/s/ William Spier
- -----------------------------
William Spier
Acting Chief Executive Officer and Director (Principal Executive Officer)
March 23, 1999
/s/ Simon Kahn
- -----------------------------
Simon Kahn, Chief Financial Officer and Director (Principal Financial and
Principal Accounting Officer)
March 23, 1999
/s/ Bernard S. Appel
- -----------------------------
Bernard S. Appel, Director
March 23, 1999
/s/ Barry W. Blank
- -----------------------------
Barry W. Blank, Director
March 23, 1999
<PAGE>
/s/ Barry L. Eisenberg
- -----------------------------
Barry L. Eisenberg, Director
March 23, 1999
/s/ Alan P. Haber
- -----------------------------
Alan P. Haber, Director
March 23, 1999
- -----------------------------
Nicole R. Kubin, Director
/s/ Morton L. Landowne
- -----------------------------
Morton L. Landowne,
Director
March 23, 1999
- -----------------------------
Morris J. Smith, Director
/s/ Michael Yudin
- -----------------------------
Michael Yudin, Director
March 23, 1999
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1998
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheet as of December 31, 1998 F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1998 F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1997 and 1998 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998 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, 1998, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
New York, New York
January 25, 1999, except as to Note 8 which
is as of February 22, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED BALANCE SHEET
December 31,
1998
----
Current assets:
<S> <C>
Cash and cash equivalents $10,109,736
Prepaid expenses and other current assets 82,790
-----------
Total current assets $10,192,526
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $29,714
Accrued professional fees 144,950
--------
Total current liabilities 174,664
--------
Commitments and contingencies
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; 6,139,401 shares issued and 62,425
outstanding
Additional paid-in capital 21,697,827
Treasury stock, at cost, 107,048 shares (217,500)
Accumulated deficit (11,524,890)
------------
Total stockholders' equity 10,017,862
-----------
Total liabilities and stockholders' equity $10,192,526
===========
</TABLE>
The accompanying notes are an integral partof these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
1997 1998
---- ----
<S> <C> <C>
Interest income, net $622,333 $546,920
Expenses - general and administrative 488,543
------------- -------
Income from continuing operations 622,333 58,377
Discontinued operations:
Loss from discontinued operations (3,166,236) (30,336)
Loss on disposal of discontinued operations (888,321) --
--------- --------
Loss from discontinued operations (4,054,557) (30,336)
----------- --------
Net (loss) income $(3,432,224) $28,041
============ =======
Earnings per share from continuing operations - basic $0.10 $0.01
Loss per share from discontinued operations (0.67) (0.01)
------ ------
Net (loss) income per share - basic $(0.57) $0.00
======= =====
Net (loss) income per share - diluted $(0.57) $0.00
========= =========
Weighted average shares outstanding - basic 6,041,181 6,115,361
Weighted average shares outstanding - diluted 6,041,181 6,220,452
</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>
Common Stock Amount Additional Common Stock Treasury Accumulated
Shares Paid-in to be Issued Stock Deficit
Capital
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 6,005,179 $60,562 $21,678,032 $15,051 $(165,000) $(8,120,707)
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 -- -- --
Repurchase of shares (50,000) -- -- -- (52,500) --
Reversal of cumulative translation -- -- -- -- -- --
adjustment
Net loss for 1997 -- -- -- -- (3,432,224)
-------- ------- ------- ------ ---------- ----------
Balance at December 31, 1997 6,058,670 61,597 21,692,910 -- (217,500) (11,552,931)
Exercise of Bridge Warrants 8,334 83 4,917 -- -- --
Exercise of options 72,397 745 -- -- -- --
Net income for 1998 -- -- -- -- 28,041
---------- -------- ----------- -------- ---------- -----------
Balance at December 31, 1998 6,139,401 $62,425 $21,697,827 $ $(217,500) $(11,524,890)
========== ======== ============ ======== ========== =============
<CAPTION>
Cumulative Total
Translation Stockholders'
Adjustment Equity
Balance at January 1, 1997 $173,726 $13,641,664
Issuance of previously exercised
Bridge Warrants and stock options -- --
Exercise of options and warrants -- 862
Repurchase of shares -- (52,500)
Reversal of cumulative translation (173,726) (173,726)
adjustment
Net loss for 1997 -- (3,432,224)
---------- -------------
Balance at December 31, 1997 -- 9,984,076
Exercise of Bridge Warrants -- 5,000
Exercise of options -- 745
Net income for 1998 -- 28,041
---------- -----------
Balance at December 31, 1998 $ $10,017,862
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
F-5
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(3,432,224) $28,041
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 64,323 --
Loss on sale of property and equipment 84,176 --
Reversal of cumulative translation adjustment (173,726) --
Changes in assets & liabilities:
Assets of discontinued operations 361,769 79,904
Prepaid expenses and other current assets 10,749 78,110
Accounts payable (321,586) (58,583)
Accrued expenses and other liabilities (129,301) (125,431)
---------- -----------
Net cash (used for) provided by operating activities (3,535,820) 2,041
Cash flows used for investing activities:
Capital expenditures (89,708) --
Proceeds from sales of property and equipment 69,011 --
------- --------
Net cash used for investing activities (20,697) --
-------- --------
Cash flows from financing activities:
Proceeds from exercise of options and warrants 862 5,745
Purchase of treasury stock (52,500) --
----------- --------
Net cash provided by financing activities (51,638) 5,745
-------- --------
Net (decrease) increase in cash and cash equivalents (3,608,155) 7,786
Cash and cash equivalents, beginning of year 13,710,105 10,101,950
----------- ----------
Cash and cash equivalents, end of year $10,101,950 $10,109,736
=========== ===========
</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. 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 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.
F-7
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per Share
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share ("FAS 128"), which requires the
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock. Basic EPS is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an anti-dilutive effect on earnings. The dilutive effect of the outstanding
stock warrants and options was computed using the treasury stock method. The
adoption of FAS 128 did not have a material impact of the net loss per share for
the year ended December 31, 1997.
The computations of Basic EPS and Diluted EPS for the years ended December 31,
1997 and 1998 are as follows:
Year Ended December 31, 1997
------------------------------------------------
Income Available to Weighted Average
Common Stockholder Shares Outstanding EPS
--------------------- ------------------------- ----------
Basic EPS $(3,432,224) 6,041,181 $ (0.57)
============ ========= =========
Year Ended December 31, 1998
-------------------------------------------
Income Available to Weighted Average
Common Stockholder Shares Outstanding EPS
------------------- ------------------- -------
Basic EPS $28,041 6,115,361 $ 0.00
Effect of dilutive
stock options -- 105,091 --
------- --------- --------
Diluted EPS $28,041 6,220,452 $ 0.00
======= ========= ========
As of December 31, 1997, the Company had outstanding warrants and options to
purchase an aggregate 5,013,069 shares of common stock, respectively, which were
not included in the calculation of earnings per share for the year ended
December 31, 1997, due to the anti-dilutive nature of these instruments.
F-8
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
1998, the Company's cash and investments were diversified through three
investment advisors.
3. 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 $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's net cash outlay in connection with
the discontinuation of its operations to date was approximately $1,225,000, of
which approximately $962,000 was paid in the year ending December 31, 1997 and
approximately $263,000 was paid in the year ending December 31, 1998. Revenues,
costs and expenses of the Company's discontinued operations for the year ended
December 31, 1997, excluding the above loss, were as follows:
F-9
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net sales $ 481,319
Cost of products sold 328,823
-------
Gross profit 152,496
Operating expenses
Selling, general and administrative 2,804,437
Research and development, net 514,295
---------
Total costs and expenses 3,318,732
Loss from discontinued operations (3,166,236)
=========
The loss from discontinued operations in the year ended December 31, 1998 of
$30,336 was attributable to the write down of all remaining assets of
discontinued operations.
4. Common Stock
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.
During the year ended December 31, 1997, the Company repurchased 50,000 shares
for an aggregate cost of $52,500. No shares were repurchased during the year
ended December 31, 1998.
Outstanding warrants
In connection with the a bridge financing during the year ended December 31,
1996, the Company issued warrants to purchase an aggregate of 199,174 shares of
the Company's common stock at an exercise price of $0.60 per share. As of
December 31, 1998, there were 90,838 such warrants outstanding.
In connection with its initial public offering in October 1996 (the "IPO"), the
Company issued warrants to acquire 3,360,082 shares of its common stock at an
exercise price of $9.00 per share, subject to adjustment under certain
circumstances. These warrants are exercisable at any time during the four-year
period commencing October 1, 1997.
F-10
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
exercise of the Representative Warrants are initially exercisable at a price of
$14.85 and provide for adjustments in the number of shares of common stock and
warrants issuable upon exercise of the Representative Warrants as a result of
certain events.
5. Income Taxes
There was no provision for income taxes for the years ended December 31, 1997
and 1998 due to the realization of a net loss for the year ended December 31,
1997 and the utilization of a net operating loss carryforward during the year
ended December 31, 1998.
(Loss) income before United States and Israeli income taxes were as follows:
1997 1998
---- ----
United States $ (1,448,290) $ 28,041
Israel (2,157,660) --
------------ ----------
$ (3,605,950) $ 28,041
============ =========
F-11
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income tax assets comprise the following:
December 31,
1997 1998
---- ----
Compensatory stock options $ 227,532 $ --
Net operating loss carryforwards-U.S. 2,201,765 4,362,340
Net operating loss carryforwards-Israel 1,630,800 2,097,297
Other 81,411 9,895
----------- ----------
4,141,508 6,469,532
Valuation allowance (4,141,508) (6,469,532)
----------- -----------
-- --
=========== ===========
Net operating loss carryforwards of approximately $10,900,000 at December 31,
1998 are due to expire in the years 2006 to 2013. 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 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, 1998 the net operating loss carryforwards for Innovative and
CompuPrint in the State of Israel, which do not expire, amounted to
approximately $5,169,000 and $657,000, respectively.
F-12
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the net operating loss carryforwards described above, the Company
has recorded a full valuation allowance against all deferred tax assets at
December 31, 1998.
6. Stock Options
The following is a summary of stock option activity:
Number Exercise price
of shares per share
--------- --------------
Options outstanding at January 1, 1997 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
Granted 52,000 $1.56 - $1.66
Exercised (72,397) $0.01
Forfeited (20,878) $0.01 - $6.00
-----------
Options outstanding at
December 31, 1998 1,011,712 $0.01 - $6.00
==========
F-13
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
545,588 and 572,381 options were exercisable at December 31, 1997 and 1998,
respectively, at a weighted average exercise price of $2.97 and $3.01,
respectively.
No compensation expense was recognized with respect to the stock options granted
during the years ended December 31, 1997 and December 31, 1998 respectively.
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 under
the 1996 Plan after July 29, 2006.
As of December 31, 1998, the Company had granted options to purchase 1,075,944
shares under the 1996 Plan (303,778 of which had been forfeited), including an
aggregate of approximately 882,001 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 350,332 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 1997 and 1998 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) income for the years ended December 31, 1997 and 1998 would have
increased/decreased by approximately $682,612 (or $0.11 per share), and $809,850
(or $0.13 per share), respectively. The weighted average fair value of the
options granted in 1997 and 1998 was estimated at $99,466, and 33,530
respectively, on the date of grant, using the Black-Scholes option-pricing model
which included the following assumptions stated on a weighted average basis:
F-14
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1998
---- ----
Dividend yield 0% 0%
Volatility 68.72 70.0
Risk free interest rate 6.10% 5.50%
Expected life 101 months 97 months
7. 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
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.
F-15
<PAGE>
INTEGRATED TECHNOLOGY USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 years ended December 31, 1997 and 1998, no
Rights were exercised or redeemed. The Rights expire on July 23, 2007.
8. Subsequent events
On February 22, 1999 the Company signed a merger agreement (the "Merger
Agreement") with Empire Resources, Inc. ("Empire"), a distributor of value
added, semi-finished aluminum products. The merger is subject to approval of the
Company's shareholders and will effect a change in control of the Company. Under
the terms of the Merger Agreement, Empire will be merged with and into the
Company and the Company will issue to the current shareholders of Empire
9,384,761 shares of common stock, of which 3,824,511 shares of common stock will
be placed in escrow. Some or all of the escrowed shares will be released to the
stockholders of Empire based on a two-year earn-out formula. Any escrowed shares
not released to the stockholders of Empire will be returned to the treasury of
the merged company or retired. Upon completion of the merger, the merged company
will continue the business of Empire. Prior to signing the Merger Agreement, the
Company amended its Rights Plan to provide that (1) neither the signing of the
Merger Agreement with Empire, nor the consummation of the merger, will have any
affect on the Rights and (2) the Rights Plan will terminate upon completion of
the merger with Empire.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,109,736
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,192,526
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,192,526
<CURRENT-LIABILITIES> 174,664
<BONDS> 0
0
0
<COMMON> 62,425
<OTHER-SE> 9,955,437
<TOTAL-LIABILITY-AND-EQUITY> 10,192,526
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546,920
<INCOME-PRETAX> 58,377
<INCOME-TAX> 0
<INCOME-CONTINUING> 58,377
<DISCONTINUED> (30,330)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,041
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
