<PAGE>
As filed with the Securities and Exchange Commission on May 27, 1997
Registration No. 333-25593
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------
SYSCOMM INTERNATIONAL CORPORATION
(exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5081 1731 11-2889809
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
</TABLE>
275 Marcus Boulevard
Hauppauge, New York 11788
(516) 273-3200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------
John H. Spielberger
Chairman of the Board, President and Chief Executive Officer
275 Marcus Boulevard
Hauppauge, New York 11788
(516) 273-3200 o (516) 952-3788 (fax)
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Raymond S. Evans, Esq. Martin Todtman, Esq.
Norman M. Friedland, Esq. Beth S. Barash, Esq.
David M. Kastin, Esq. Todtman, Young, Nachamie, Hendler & Spizz, P.C.
Ruskin, Moscou, Evans & Faltischek, P.C. 425 Park Avenue
170 Old Country Road New York, New York 10022
Mineola, New York 11501 (212) 754-9400 o (212) 754-6262 (fax)
(516) 663-6600 o (516) 663-6641 (fax)
</TABLE>
------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed Maximum Proposed Maximum
Title of each Class of Securities Number of Shares Offering Price Aggregate Offering Amount of
to be Registered to be Registered (1) per Share (2) Price (2) Registration Fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,840,000 $8.00 $14,720,000 $4,460.61
- ----------------------------------------------------------------------------------------------------------------
Representative's Common Stock
Purchase Warrants ................. 160,000 $.001 $160 (3)
- ----------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value (4) ... 160,000 $9.60 $1,536,000 $465.45
- ----------------------------------------------------------------------------------------------------------------
Total Fee ................................................................................... $4,926.06*
================================================================================================================
</TABLE>
(1) Includes 240,000 shares to cover the Underwriter's over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee.
(3) No fee due pursuant to Rule 457(g).
(4) Reserved for issuance upon exercise of the Representative's Common Stock
Purchase Warrants, together with such indeterminate number of shares
which may be issuable as a result of anti-dilution adjustments.
------
*Previously paid
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
Item Location in Prospectus
----------------------------------------------------------- --------------------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus ........................ Outside front cover page
2. Inside Front and Outside Back Cover Pages of
Prospectus ............................................ Inside front and outside back cover pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ............................. Prospectus Summary; The Company;
Risk Factors; Business
4. Use of Proceeds ....................................... Use of Proceeds
5. Determination of Offering Price ....................... Outside front cover page; Underwriting
6. Dilution .............................................. Dilution
7. Plan of Distribution .................................. Underwriting
8. Description of Capital Stock to be Registered ......... Description of Capital Stock
9. Interests of Named Experts and Counsel ................ Legal Matters; Experts
10. Information with Respect to the Registrant
(a) Item 101 of Regulation S-K ........................ The Company; Business
(b) Item 102 of Regulation S-K ........................ Business
(c) Item 103 of Regulation S-K ........................ Business
(d) Item 201 of Regulation S-K ........................ Dividend Policy; Underwriting; Description of Capital
Stock; Shares Eligible for Future Sale
(e) Financial Statements .............................. Summary Consolidated Financial Information; Selected
Consolidated Financial Data
(f) Item 301 of Regulation S-K ........................ Selected Consolidated Financial Data
(g) Item 302 of Regulation S-K ........................ Inapplicable
(h) Item 303 of Regulation S-K ........................ Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Item 304 of Regulation S-K ........................ Experts
(j) Item 401 of Regulation S-K ........................ Management
(k) Item 402 of Regulation S-K ........................ Management
(l) Item 403 of Regulation S-K ........................ Principal Stockholders
(m) Item 404 of Regulation S-K ........................ Certain Transactions
(n) Item 405 of Regulation S-K ........................ Inapplicable
11. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ............................ Management
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED MAY 27, 1997
PROSPECTUS
SYSCOMM INTERNATIONAL CORPORATION
1,600,000 SHARES
COMMON STOCK
SysComm International Corporation ("SysComm" or the "Company") is hereby
offering 1,600,000 shares of Common Stock, $.01 par value per share ("Common
Stock"). Prior to the offering (the "Offering"), there has been no public
market for the Common Stock of the Company, and there can be no assurance
that such a market will develop or be sustained. See "Underwriting."
Application has been made to have the Common Stock approved for quotation
on the NASDAQ National Market, under the symbol "SYCM." It is currently
estimated that the initial public offering price of the Common Stock will be
between $6.00 and $8.00 per share. See "Underwriting" for information
relating to the factors to be considered in the initial public offering
price.
------
Investors should carefully consider the factors set forth under "Risk
Factors" commencing on page 7.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================
Underwriting Discounts and
Price to Public Commissions(1) Proceeds to Company(2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ... $ $ $
- ---------------------------------------------------------------------------------------
Total (3) ... $ $ $
=======================================================================================
</TABLE>
<PAGE>
(1) Does not include additional compensation to be received by Commonwealth
Associates, as representative (the "Representative") of the several
underwriters (the "Underwriters"), in the form of: (i) a non-accountable
expense allowance in an amount equal to 1.5% of the gross proceeds
derived from the Offering; (ii) an advisory fee equal to 2% of the gross
proceeds derived from the Offering ("Advisory Fee"); and (iii) warrants
(the "Representative's Warrants") to purchase up to 160,000 shares of
Common Stock at a price equal to 140% of the initial public offering
price, exercisable for a period of four years commencing one year from
the date of this Prospectus. In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company,
including the non-accountable expense allowance and Advisory Fee,
estimated at $______ ($______ if the Underwriters' Over-Allotment Option
is exercised in full). See "Underwriting."
(3) The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to 240,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and the Proceeds to Company will
be $_______, $_______ and $_______, respectively. See "Underwriting."
------
The shares of Common Stock are being offered on a firm commitment basis by
the Underwriters named herein, subject to prior sale, when, as and if
delivered to and accepted by them, and subject to certain conditions. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that certificates for
the shares of Common Stock offered hereby will be available for delivery on
or about __________, 1997, at the office of Commonwealth Associates, New
York, New York.
------
COMMONWEALTH ASSOCIATES
The date of this Prospectus is _____________, 1997
<PAGE>
[COMPANY ILLUSTRATIONS]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------
Upon completion of the Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934. The Company
intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent auditors, and
quarterly reports for the first three quarters of each fiscal year containing
unaudited consolidated financial statements.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all information set
forth herein (i) assumes an initial public offering price of $7.00 per share,
(ii) assumes no exercise of the Underwriters' Over-Allotment Option, and
(iii) reflects a 2-for-1 split of Common Stock, effected on March 31, 1997,
and an amendment to the Company's Certificate of Incorporation filed with the
Secretary of State of Delaware on April 21, 1997, increasing the number of
authorized shares of Common Stock and creating a new class of preferred
stock. See "Description of Capital Stock."
THE COMPANY
SysComm International Corporation ("SysComm" or the "Company"), through
its wholly owned subsidiary, Information Technology Services, Inc.
("InfoTech"), is a leading systems integrator and reseller of computer
hardware, operating software and networking applications to Fortune 1000
companies. The Company provides its customers with cost efficient,
comprehensive solutions that satisfy their information technology
requirements. Since 1985, the Company's primary focus has been on the sale,
integration and servicing of International Business Machine Corporation
("IBM") products including personal computers, mid-range systems based on the
IBM RS/6000, servers, and the IBM AS/400. In addition, the Company
integrates, resells and services products from manufacturers such as Hewlett
Packard, Compaq, Apple, Microsoft, 3Com, Bay Networks and Novell.
In March 1997, the Company commenced the assembly and sale of IBM PCs
through IBM's Authorized Assembler Program (the "AAP") providing the Company
with greater flexibility in meeting its customers' needs. The Company
believes that this relationship with IBM will provide it with the opportunity
to enhance its responsiveness to client specific requests and orders, and
improve its operating efficiencies.
A significant percentage of the Company's revenues are derived from sales
to customers in the financial and investment communities. However, the
Company's customer base also includes mid-size retailers, manufacturers,
distributors, colleges, universities and state and local government agencies
in the Northeastern United States. The Company's customers include:
<TABLE>
<CAPTION>
<S> <C> <C>
Astra Pharmaceutical CPC International Merrill Lynch
Boston College Deutsche Bank Northeastern University
Boston Financial Group Fidelity Investments Oxford Healthcare
Brown Brothers Harriman The Gillette Company Pepsico
Cadbury-Motts GTE Services Corp. The Pershing Division of
Carrier Corporation Harvard University Donaldson Lufkin &
The Chase Manhattan Bank Healthsource Jenrette
Citibank International Business Machines Smith Barney
The City University of Corporation The Stop & Shop
New York J.P. Morgan Companies
</TABLE>
The Company intends to pursue new business by focusing on the sale and
integration of high-end systems in financial, commercial, governmental,
healthcare and educational areas. To this end, the Company has the following
growth strategies: (i) targeting vertical markets, (ii) offering a complete
line of IBM products, including IBM mainframe systems, (iii) expanding its
role as an IBM Premier Business Partner, (iv) enhancing competitiveness
through the IBM PC Authorized Assembler Program, and (v) expanding into other
geographic regions through selected acquisitions and strategic alliances.
3
<PAGE>
The Company currently has five operating locations: It operates a
distribution center, a computer configuration, integration and PC assembly
facility and its technical support service center from its Hauppauge, New York
headquarters and conducts its sales operations from its headquarters and offices
located in New York City, New York, Waltham, Massachusetts, Marlton, New Jersey,
and North Haven, Connecticut.
The Company's principal executive offices are located at 275 Marcus
Boulevard, Hauppauge, New York 11788 and its telephone number is (516)
273-3200.
IBM, AS/400, RS/6000, PC Server System/390, OS/2, Netfinity, Eduquest, and
Lotus Notes are registered trademarks of International Business Machines
Corporation. All other products are trademarks of their respective companies.
4
<PAGE>
THE OFFERING
Common Stock Offered........... 1,600,000 shares
Common Stock Outstanding
Before Offering (1).......... 3,170,540 shares
Common Stock Outstanding After
Offering (1)................. 4,770,540 shares
Use of Proceeds................ The Company intends to use the net proceeds of
the Offering (i) to establish and operate an
IBM PC assembly facility under IBM's Authorized
Assembler Program, including the lease or
purchase of a building, (ii) to reduce the
Company's interest bearing obligations to IBM
Credit Corporation, (iii) for general corporate
purposes including working capital, and (iv)
for acquisitions. See "Use of Proceeds."
Proposed NASDAQ National
Market Symbol................ SYCM
Risk Factors................... The Offering involves certain risks and
immediate substantial dilution. See "Risk
Factors" and "Dilution."
- ------
(1) Excludes 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1988 Stock Option Plan (of which 498,000 shares of Common Stock
are issuable upon exercise of the stock options outstanding as of the date
of this Prospectus) and 160,000 shares of Common Stock issuable upon
exercise of the Representative's Warrants. See "Management -- Stock Option
Plan" and "Underwriting."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The Summary Consolidated Financial Information set forth below was derived
from the financial statements of the Company and should be read in
conjunction with the financial statements and related notes thereto appearing
elsewhere in this Prospectus and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Six Months Ended March 31,
Year Ended September 30, (unaudited)
---------------------------------------------- ------------------------------
1994(1) 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ......................... $45,459,575 $55,195,507 $98,446,698 $38,042,823 $39,158,875
Cost of sales ..................... 40,796,425 49,441,544 89,025,331 34,159,227 33,890,028
------------- ------------- ------------- ------------- -------------
Gross profit ...................... 4,663,150 5,753,963 9,421,367 3,883,596 5,268,847
Selling and administrative expenses . 3,406,316 4,079,184 5,028,812 2,382,727 2,957,149
------------- ------------- ------------- ------------- -------------
Income from operations ............ 1,256,834 1,674,779 4,392,555 1,500,869 2,311,698
Interest expense ................. (713,778) (1,207,316) (1,390,867) (633,193) (551,907)
Other income ...................... 39,630 37,126 63,151 7,964 57,324
------------- ------------- ------------- ------------- -------------
Income from continuing operations
before income taxes .............. 582,686 504,589 3,064,839 875,640 1,817,115
Provision for income taxes ........ 242,889 223,769 1,298,386 371,000 766,800
------------- ------------- ------------- ------------- -------------
Income from continuing operations . 339,797 280,820 1,766,453 504,640 1,050,315
Discontinued operations ........... 1,485,698 -- -- -- --
------------- ------------- ------------- ------------- -------------
Net income ........................ $ 1,825,495 $ 280,820 $ 1,766,453 $ 504,640 $ 1,050,315
============= ============= ============= ============= =============
Per Share Data:
Income from continuing
operations ....................... $ .10 $ .08 $ .48 $ .14 $ .29
Income from discontinued
operations ....................... $ .43 -- -- -- --
Weighted average number of shares
outstanding ...................... 3,448,900 3,614,040 3,677,290 3,686,040 3,668,540
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------
(unaudited)
Actual As Adjusted (2)
------------ ---------------
<S> <C> <C>
Consolidated Balance Sheet:
Working capital ........... $ 4,217,120 $13,725,379
Total assets .............. 24,543,969 27,184,947
Short term debt ........... 6,907,940 40,669
Long term debt ............ 85,156 85,156
Stockholders' equity ...... 5,048,992 14,557,241
</TABLE>
- ------
(1) Includes sales of the Company's subsidiary, Romel Technology, Inc. (d/b/a
MSG) of $4,127,768, which was sold in November 1993. The loss from this
subsidiary was de minimis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 11 to
Consolidated Financial Statements.
(2) As adjusted to give effect to the sale of 1,600,000 shares of Common
Stock and the initial application of the net proceeds. See "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors in addition to the other information
contained in this Prospectus or incorporated by reference. This Prospectus
contains forward-looking statements which include risks and uncertainties.
The Company's actual results, performance or achievements could differ
materially from the results expected in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences
include those discussed in the following risk factors.
DEPENDENCE ON IBM AS A SUPPLIER
For the fiscal year ended September 30, 1996 and for the six months ended
March 31, 1997, in excess of 90% of the Company's revenues resulted from the
sale of personal computers, mid-range computer systems, networking systems
and operating software manufactured by International Business Machines
Corporation ("IBM"). Although the Company has had a long standing reseller
relationship with IBM, IBM may terminate this relationship with the Company
at will or upon relatively short notice. The Company's reseller arrangements
with IBM are not exclusive. Moreover, IBM is not obligated to have product on
hand for timely delivery to the Company, nor can IBM guarantee product
availability in sufficient quantities to meet the Company's demands.
If IBM were to discontinue direct sales to the Company as a result of
insufficient purchase volumes or for any other reason, the Company would be
required to purchase IBM products from a wholesaler or other reseller, which
would likely be on terms less favorable than those currently obtained from
IBM. There can be no assurance, therefore, that all IBM products will be
available in a timely fashion as required by the Company. The loss of IBM as
the Company's prime vendor or the loss of the Company's status as an
authorized reseller of IBM products, the deterioration of the Company's
relationship with IBM, the loss of the Company's status as a Premier Business
Partner or the deterioration of the industry's perception of IBM as a leading
manufacturer of high quality computers would have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Business -- Products/IBM Relationship."
PERIODIC IBM PRODUCT SHORTAGES
From time to time, including during the quarter ended March 31, 1997, IBM
has been unable to deliver its products in a timely fashion to meet the
Company's outstanding orders, which has effected the Company's quarterly
results of operations. Specifically, during the quarter ended March 31, 1997,
delays by IBM in shipment of products resulted in a backlog of approximately
$4,000,000 of sales by the Company. For example, with respect to IBM PCs, IBM
allocates a significant portion of IBM PC's to dealers who then resell them
to customers in IBM's Large Account Initiative Program ("LAI"). IBM's
allocation of products for these large account customers, at times, has
resulted in delayed product shipments to the Company, which, in turn, delays
the Company from filling its customer orders. Accordingly, there can be no
assurance that IBM (and other manufacturers who the Company deals with) will
consistently provide an adequate supply of products in order for the Company
to fulfill all of its customers' orders in a timely manner. The failure to
obtain adequate product supplies would have a material adverse effect on the
Company's results of operations or financial condition.
SIGNIFICANT FLUCTUATIONS TO QUARTERLY RESULTS
The Company's quarterly operating results have fluctuated in the past and
will continue to do so in the future. Quarterly operating results may
fluctuate as a result of a variety of factors, including: the timing of the
Company's delivery of significant orders, the ability of IBM to deliver, in a
timely fashion, products for which the Company has received orders, the
length of the sales cycle, receipt of volume discounts by IBM, the demand for
products and services offered by the Company, the introduction or
announcements by IBM and other manufacturers relating to new products, the
hiring and training of additional personnel, problems or delays associated
with the Company's assembly of personal computer systems (under the AAP) as
well as general business conditions.
7
<PAGE>
Historically, the size and timing of the Company's sales transactions have
varied substantially from quarter to quarter and the Company expects such
variations to continue in future periods, including the possibility of losses in
one or more fiscal quarters. The Company's revenues for the past three quarters
have declined from approximately $33,644,000 in the quarter ended June 30, 1996
to approximately $17,876,000 in the quarters ended March 31, 1997. Additionally,
in its second quarter of fiscal year 1995, the Company did not achieve its
expected revenue, yielding a loss. This was caused by IBM's delays in shipping
certain computer systems for which the Company received orders that it expected
to deliver during that quarter. In addition, the Company's collection periods
have fluctuated due to periodic unavailability of product from IBM, which
resulted in the Company not receiving payment from certain customers until their
entire orders were shipped. In contrast, in the second quarter of fiscal year
1996, in the absence of significant delays by IBM in shipping computer systems,
the Company's revenue increased, generating a profit. Accordingly, it is likely
that in one or more future fiscal quarters, the Company's operating results may
be below the expectations of public market analysts and investors. As a result,
the market price of the Company's Common Stock would be materially adversely
affected. See "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations."
PARTICIPATION IN IBM'S AUTHORIZED ASSEMBLER PROGRAM
In March 1997, the Company commenced operation of an IBM PC system assembly
facility under IBM's Authorized Assembler Program (the "AAP"). In order to
participate in the AAP, the Company intends to commit, in the near future,
significant capital to hire and train a high quality work force to establish an
appropriate assembly facility and to initially increase its inventory of
components to satisfy anticipated customer demand. The Company anticipates that
any initial cost associated with the establishment and operation of the PC
assembly facility will be satisfied by the proceeds of this Offering. As a
component assembler of finished products, the Company will face operational
concerns, which it has not faced as a reseller. These operational concerns
include the ability of the Company to hire and train qualified assembly
personnel and maintain an adequate supply of component parts inventory. The
continued operation of this assembly facility is dependent upon the Company
complying with the terms of its AAP agreement (the "AAP Agreement") with IBM,
including satisfying certain minimum purchase requirements, compliance with
strict quality control provisions and maintaining trained and certified
personnel. The AAP Agreement is terminable by either IBM or the Company upon 30
days' prior notice and is immediately terminable by IBM in the event that IBM
determines, in its sole discretion, that (i) the assembled products fail to meet
required specifications, (ii) the Company materially breaches the terms and/or
conditions of the AAP Agreement, (iii) the Company engages in a course of
conduct that has injured IBM's reputation or the reputation of its products, or
(iv) the Company's status with IBM as a Business Partner is terminated for any
reason, expires or if the Company is no longer eligible to purchase IBM personal
computer components directly from IBM. In addition, the Company is required to
maintain ISO 9002 registration standards, the registered international standard
for ensuring the consistent and measurable quality of products and services.
Subject to the terms of the AAP Agreement, IBM is permitted to periodically
review the Company's performance in order to monitor and assess continued
compliance. The AAP Agreement expires on December 31, 1997 and, although the
Company plans to renew it, there can be no assurance that it will be renewed on
similar terms, if at all. See "Use of Proceeds."
The Company currently plans to expand its participation in the AAP to
include the workstation elements of IBM's RS/6000 computer systems. The
Company's ability to participate in the program with respect to such products
is contingent upon the Company moving into larger facilities to accommodate
such operations, equipping such facilities for assembly activities, hiring
technical employees and approval from IBM. The Company's planned operations
and future growth, to a significant extent, are dependent on the Company's
ability to participate in the AAP with respect to a broad range of IBM
product lines. There can be no assurance that the Company will be able to
successfully operate an IBM approved facility capable of serving an expanded
product line, that IBM will authorize the Company's participation in assembly
programs beyond personal computers, that the Company will maintain necessary
industry registrations or that the computer systems produced by such assembly
programs will gain market acceptance. See "Business -- Products/IBM
Relationship."
FINANCING AGREEMENT
The Company's business activities are capital intensive, requiring the
Company to finance accounts receivable and inventory. The failure to obtain
adequate product financing on a timely basis could have a material adverse
affect on the Company's business, results of operations and financial
condition. Pursuant to the Company's financing agreement ("Financing
Agreement") with IBM Credit Corporation ("IBM Credit"), the Company is
permitted to borrow up to $27,500,000, based upon 85% of all eligible
receivables due within 90 days and up to 100% of all eligible inventory. As
of March 31, 1997, borrowings outstanding under the Financing Agreement were
$6,867,271. Pursuant to the Financing Agreement, the Company's credit
availability is reduced by the
8
<PAGE>
aggregate amount of accounts payable owed to IBM Credit which, as of March
31, 1997, was $10,082,368. The Financing Agreement, which expires on
September 30, 1997, is subject to temporary increases, thereby increasing the
line of credit to $41,250,000 during certain periods. The Company is also
required to comply with certain additional financial covenants.
The amount of credit available to the Company pursuant to the Financing
Agreement at any point in time may be adversely affected by factors such as
delays in collection or deterioration in the quality of the Company's
accounts receivable, inventory obsolescence, economic trends in the computer
industry and interest rate fluctuations. Any decrease or material limitation
on the amount of capital available to the Company under the Financing
Agreement would limit the ability of the Company to fill existing sales
orders, purchase inventory or expand its sales levels and, therefore, would
have a material adverse effect on the Company's financial conditions and
results of operations. The Financing Agreement expires on September 30, 1997.
The Company has had a credit facility with IBM Credit since 1992, and the
Company believes that it will enter into a renewal of this credit facility
with IBM. There can be no assurance that the financing to the Company under
this renewal will be available in amounts at comparable or better terms than
those in effect, if at all. The inability of the Company to have continuous
access to such financing at reasonable costs would materially and adversely
impact the Company's financial condition and results of operations. See "Use
of Proceeds," "Management's Discussion And Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON IBM'S VOLUME DISCOUNT SCHEDULES AND MARKET DEVELOPMENT FUNDS
As part of its overall reseller arrangements with IBM, IBM provides the
Company with volume discounts and market development funds on products
purchased from IBM. These discounts and funds are used to offset a portion of
the Company's cost of IBM's products sold, thereby affecting income from
operations and the Company's expenses relating to marketing and technical
support resources for IBM products. Any adverse change in the volume discount
schedule available to the Company, which the Company believes is currently at
IBM's highest discount level, or changes in the availability, structure or
timing of the receipt of development funds, would materially adversely affect
the Company's business, results of operations and financial condition.
DEPENDENCE ON MAJOR CUSTOMERS; RISK OF INDUSTRY CONCENTRATION
For the last three fiscal years, 1994, 1995 and 1996, a significant
portion (47%, 55% and 50%, respectively) of the Company's revenues were
derived from sales to five principal customers, which customers vary
annually, and encompass markets wherein the demands of any one customer may
vary greatly. In addition, the Company does not have any exclusive long-term
arrangements with its customers for the continued sales of computer systems.
In fiscal year 1994, sales to The Chase Manhattan Bank accounted for 22% of
the Company's total revenues; revenues from sales to The Chase Manhattan Bank
and Deutsche Bank accounted for 23% and 14%, respectively, of the Company's
total revenues in fiscal year 1995; and revenues from sales to Deutsche Bank
and Citibank accounted for 19% and 16%, respectively, of the Company's total
revenues in fiscal year 1996. Although the number of customers who purchase
at least $250,000 of computer systems from the Company has increased from 25
in fiscal year 1994 to 41 in fiscal year 1996, the failure to acquire a
significant or principal customer could have a material adverse effect on the
Company's operations. See "Business -- Principal Markets and Customers."
In the fiscal year ended September 30, 1996, approximately 58% of the
Company's sales of computer systems were to customers in the banking,
financial and securities industry based in the Northeastern United States.
Although the Company continues to broaden its vertical market focus to
include sales to other markets, such as educational institutions, government
agencies, healthcare and insurance companies, the Company expects that it
will continue to derive a substantial percentage of its sales of computer
systems from such banking, financial and securities businesses. Accordingly,
unfavorable economic conditions or factors that relate to these industries,
particularly any such conditions that might result in reductions in capital
expenditures or changes in such company's information processing system
requirements, would have a material adverse affect on the Company's results
of operations.
RAPID TECHNOLOGICAL CHANGE
The industry in which the Company competes is characterized by rapid
technological change and frequent introduction of new products and product
enhancements which result in relatively short product life cycles and
9
<PAGE>
rapid product obsolescence. The expectation, or announcement of new or
enhanced products often causes customers to delay their purchasing decisions
until such new or enhanced products are announced and available. Furthermore,
the Company's success depends in large part on IBM's ability to identify and
develop products that meet the changing requirements of the marketplace. In
the event that IBM is unable to do so, the Company's continued success will
depend upon its ability to identify and source substitute products from other
vendors. There can be no assurance that the Company will be able to identify
and offer such products necessary to remain competitive or avoid losses
related to obsolete inventory and drastic price reductions. For the year
ended September 30, 1996, approximately 59% of the Company's revenues were
generated from the sale of IBM's RS/6000 mid-range business computer systems.
The failure of these systems to continue to command a significant market
share or IBM's discontinuing this computer system without a suitable
substitute would have a material adverse effect on the Company's business,
results of operations and financial condition.
MANAGEMENT OF GROWTH
The Company's ability to manage growth effectively and expand its AAP
operations will require it to continue to implement and improve its operational,
technical, financial, and sales systems, to develop the skills of its managers
and supervisors, and to hire, train, motivate and manage its employees. There
can be no assurance that the Company will be successful in managing growth. The
failure to do so would materially adversely affect the Company's financial
position and results of operations. The Company has recently opened sales
offices in Marlton, New Jersey and North Haven, Connecticut. In October 1995 it
closed a sales facility in Princeton, New Jersey after eleven months of
operations. Within the next twelve months, the Company intends to relocate its
headquarters, including its distribution operations and assembly facilities, in
the Long Island region. The Company anticipates that it will incur substantial
costs in connection with these plans, including expenditures for construction,
furniture, fixtures, and equipment. The Company anticipates that any costs
associated with the relocation of its headquarters, distribution and assembly
facility will be funded by the proceeds from this Offering. There can be no
assurance that the Company will be able to further expand its operations
successfully either through acquisition or the establishment and operation of an
IBM PC assembly facility. Expansion of the Company's operations will be
dependent upon, among other things, the continued growth of the computer
industry, the Company's ability to withstand intense price competition, its
ability to obtain new customers, and retain skilled technicians, engineers,
sales and other personnel. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that
additional financings will be available to the Company on commercially
reasonable terms, if at all. See "Use of Proceeds" and "Business -- Strategy."
ACQUISITION AND ACQUISITION FINANCING
In addition to expanding its operations through internal growth, the
Company intends to grow through the acquisition of selected regional
resellers. Management believes that increased competition for acquisition
candidates exists and may continue in the future, in which event there may be
fewer acquisition opportunities available to the Company as well as higher
acquisition prices. There can be no assurance that the Company will be able
to identify, acquire, manage or successfully integrate acquired businesses
into the Company without substantial costs, delays, operational, or financial
problems. To date, the Company has no understandings, commitments or
agreements with respect to any such acquisition. The Company may finance
future acquisitions by using cash and/or shares of its Common Stock for the
consideration to be paid. In the event that the Common Stock does not
maintain a sufficient market value or potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the consideration for
the sale of their businesses, the Company may be required to utilize more of
its cash resources, if available, in order to initiate and maintain its
acquisition program. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional capital
through debt or equity financings. There can be no assurance that the
additional financing will be available to the Company on commercially
reasonable terms, if at all.
LIMITED BACKLOG OF ORDERS
Customers typically do not place recurring "long-term" orders with the
Company, resulting in a limited order backlog at any point in time. The
failure by the Company to receive orders from customers on a continuous basis
would have a material adverse effect on the Company's financial condition and
results of operations given the Company's lack of recurring orders.
10
<PAGE>
COMPETITION; PRICING COMPETITION
Many established computer manufacturers, system integrators and other
resellers of personal computers or networking products compete with the Company
in the configuration, integration and distribution of computer systems and
equipment. In the highly fragmented computer services area, the Company competes
with several larger competitors, other corporate resellers pursuing high-end
services opportunities, as well as several smaller computer services companies.
In addition, the Company competes directly with IBM for the sale of several
computer systems, including those systems manufactured by IBM, including the
RS/6000 computer system. The Company believes that the principal competitive
factors in the business in which it operates are price and performance, product
availability, technical expertise, adherence to industry standards, financial
stability, service support and reputation. There can be no assurance that the
Company will be able to compete successfully with existing or new competition.
Some of these competitors, including IBM, have financial, technical,
manufacturing, sales, marketing and other resources which are substantially
greater than those of the Company. As a result, they may be better able to
respond more quickly to new or emerging technologies or changes in customer
requirements, benefit from greater purchasing economies, offer more aggressive
hardware and service pricing or devote greater resources to the promotion of
their products and services. There can be no assurance that the Company will be
able to continue to compete successfully with existing or new competitors.
The Company and other U.S. based system integrators and resellers currently
face price and gross profit margin pressures. In recent years, all major
information system manufacturers have instituted extremely aggressive price
reductions in response to lower component costs, discount pricing by certain
competitors and increased competition from non-U.S. based information systems
manufacturers. The increased price competition among computer manufacturers has
resulted in declining gross margins for many computer resellers and may result
in a reduction in existing vendor subsidies and reduced profitability for the
Company. There can be no assurance that the Company will be able to continue to
compete effectively in the marketplace given the continual price reductions and
intense competition currently existing in the information processing and
value-added reseller industry. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success during the foreseeable future will depend largely
upon the continued services of its founder and Chief Executive Officer, John
H. Spielberger, and the executive team of Dennis R. Wilson, Thomas J. Baehr
and Norman Gaffney, who joined the Company in 1995, 1994 and 1994,
respectively. Each of the executive officers will enter into employment
agreements upon the consummation of the Offering that expire on September 30,
1999. The loss of any of the services of the Company's key personnel could
have a material adverse affect on the Company's business, ongoing results and
financial condition. These employment agreements contain confidentiality,
non-compete, and non-solicitation provisions. In addition, the Company has
attempted to mitigate the risks associated with its dependence on John H.
Spielberger and Thomas Baehr by obtaining $1,000,000 key person life
insurance policies on each of such individuals. The Company's success also
depends in part on its ability to attract and retain qualified managerial,
technical, sales and marketing personnel. The Company's results of operations
could be adversely affected if the Company were unable to attract, hire,
assimilate, and train these personnel in a timely manner. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of the Offering, John H. Spielberger, Chairman of the
Board, President and Chief Executive Officer of the Company, will continue to
beneficially own approximately 49% of the Company's outstanding Common Stock.
As a result of his stock ownership, Mr. Spielberger will have effective
control of the Company and will continue to have the power to control the
outcome of matters submitted to a vote of the Company's stockholders, such as
the election of at least a majority of the members of the Company's Board of
Directors and to direct the future operations of the Company. Such
concentration may have the effect of discouraging, delaying or preventing a
change in control of the Company. See "Principal Stockholders."
NO PRIOR MARKET FOR THE COMMON STOCK; DETERMINATION OF OFFERING PRICE;
POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market
will develop or be sustained or that the Common Stock will be resold
11
<PAGE>
at or above the initial public offering price. The initial public offering
price of the Common Stock offered hereby will be determined by negotiations
between the Company and the Representative. Among the factors to be
considered in determining the initial public offering price will be the
history of, and the prospects for, the Company's business and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for earnings of the Company, the general
condition of the securities market at the time of the Offering and the market
prices and earnings of similar securities of comparable companies at the time
of the Offering and prevailing market and economic conditions. See
"Underwriting."
After the Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including, but not
limited to, fluctuations or uncertainties in the Company's quarterly
operating results (including losses), delays with respect to the AAP,
announcements of technological innovations of new products by IBM or other
suppliers, conditions in the markets in which the Company and its competitors
compete, changes by financial analysts in their estimates of the earnings of
the Company, and the economy in general. From time to time, the stock market
experiences significant price and volume volatility which may affect the
market price of the Company's Common Stock for reasons unrelated to the
performance of the Company. Because the Company is closely dependent upon and
associated with IBM, the Company's stock price may be adversely affected
based on the performance of IBM's operations.
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have
4,770,540 shares of Common Stock outstanding, of which the 1,600,000 shares
(1,840,000 shares if the Underwriter's Over-Allotment Option is exercised in
full) sold pursuant to the Offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended ("Securities Act"), by persons other than "affiliates" of the
Company, as defined under the Securities Act. The remaining 3,170,540 shares
of Common Stock are deemed "restricted securities" as defined by Rule 144
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption provided by Rule 144. All of the restricted shares of
Common Stock will be eligible for trading under Rule 144, subject to certain
limitations and other restrictions prescribed by such rule, and to the
contractual restrictions described below, commencing 90 days following the
date of this Prospectus. The Company, its officers, directors, current
stockholders, and option holders have agreed to enter into agreements (the
"Lock-Up Agreements") under which they will agree not to sell or otherwise
dispose of any of their shares of Common Stock of the Company for a period of
one year commencing upon the date of this Prospectus, without the prior
written consent of the Representative. See "Underwriting." Sales of
substantial amounts of Common Stock, or the perception that these sales could
occur, could adversely affect the prevailing market price for the Common
Stock and could impair the ability of the Company to raise additional capital
through the sale of its securities or through debt financing.
In addition, upon completion of the Offering, the Company has agreed to
issue to the Representatives warrants to purchase an aggregate of 160,000
shares of Common Stock exercisable for a four year period commencing one year
from the date of the Offering, at an exercise price equal to 140% of the
initial public offering price. The exercise of the Representative's Warrants
may dilute the book value per share of Common Stock. The holders of such
warrants may exercise them at a time when the Company would otherwise be able
to obtain additional equity capital on terms more favorable to the Company
and have the opportunity to benefit from increases in the price of the Common
Stock without risk of an equity investment. The Company has agreed to grant
certain demand and piggyback registration rights to the holders of these
warrants. Such registration rights could involve substantial expenses to the
Company and may adversely affect the terms upon which the Company may obtain
additional financing. See "Shares Eligible for Future Sale" and
"Underwriting."
Sale of substantial amounts of Common Stock in the public market may
adversely affect the market price of the Common Stock and may also adversely
affect the Company's ability to raise additional capital in the future. See
"Shares Eligible for Future Sale" and "Underwriting."
12
<PAGE>
DILUTION
Investors purchasing shares of the Common Stock in the Offering will incur
immediate and substantial dilution of approximately $3.96 per share in net
tangible book value from the assumed $7.00 per share initial public offering
price. Additional dilution may occur as a result of the exercise of options
and warrants to purchase shares of Common Stock or future acquisitions by the
Company in exchange for stock. See "Dilution."
ABSENCE OF DIVIDENDS
To date, the Company has not paid any cash dividends and does not presently
intend to pay cash dividends in the foreseeable future. As a holding company,
the ability of the Company to pay dividends is dependent upon its receipt of
dividends or other payments from its subsidiaries. Currently InfoTech is the
Company's only subsidiary. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation"), Amended and Restated By-laws
("By-laws") and Delaware law may be deemed to have an anti-takeover effect. The
Company's Certificate of Incorporation provides that the Board of Directors may
issue additional shares of Common Stock or establish one or more classes or
series of Preferred Stock with such designations, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations that
the Board of Directors fixes without stockholder approval. Moreover, the
Company's Certificate of Incorporation and By-Laws provide that its Board of
Directors is divided into three classes serving staggered three year terms,
resulting in approximately one-third of the directors being elected each year
and also contain certain other provisions relating to voting and the removal of
the officers and directors. In addition, the Company is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law.
In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. Each of the foregoing provisions may have the effect of
rendering more difficult, delaying, discouraging, preventing or rendering more
costly an acquisition of the Company or a change in control of the Company. See
"Description of Capital Stock -- Anti-Takeover Provisions; Section 203 of the
Delaware Corporation Law."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,600,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$9,500,000 assuming an initial public offering price of $7.00 per share and
after deducting the estimated underwriting discounts and offering expenses
payable by the Company. The net proceeds will be used for (i) the
establishment and operation of an IBM assembly facility under IBM's
Authorized Assembler Program, including the lease or purchase of a building,
(ii) the reduction of the Company's interest bearing obligations to IBM
Credit Corporation, (iii) for general corporate purposes, including working
capital, and (iv) acquisitions.
The Company intends to use approximately $2,500,000 of the proceeds of the
Offering to establish and operate an IBM PC assembly facility under the AAP.
In connection with the establishment of an IBM PC assembly facility, the
Company anticipates leasing or purchasing a 25,000 to 30,000 square foot
building. In connection with the operation of this assembly facility, the
Company intends on increasing component parts inventory.
The Company intends to use the balance of the proceeds of the Offering for
working capital and acquisitions. Until such funds are required for these
purposes, these proceeds will be used to temporarily reduce the Company's
interest bearing obligations to IBM Credit Corporation under the Financing
Agreement. Pursuant to the Financing Agreement, which became effective on
September 30, 1996, the Company may borrow up to $27,500,000, based upon 85%
of all eligible receivables due within 90 days and up to 100% of all eligible
inventory. As of March 31, 1997, borrowings outstanding under the Financing
Agreement were $6,867,271. The Company's credit availability is reduced by
the aggregate amount of accounts payable owed to IBM Credit which, as of
March 31, 1997, was $10,082,368. The Financing Agreement, which expires on
September 30, 1997, is subject to temporary increases, increasing the amount
of credit to $41,250,000 during certain periods. Effective September 30,
1996, interest on the outstanding borrowings is payable monthly at prime plus
1.375%, or prime plus 6.5% should the Company fail to meet certain collateral
requirements. See "Risk Factors -- Financing Agreement."
The Company believes that there are numerous opportunities available to
acquire comparable and established regional system integrators. The Company
plans to actively seek out and evaluate potential acquisitions of such
businesses. As of the date of this Prospectus, however, the Company has no
agreements, understandings or commitments and is not engaged in any
negotiations relating to any potential acquisitions.
DIVIDEND POLICY
The Company intends to retain earnings for use in the operation and expansion
of its business and therefore does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. As a holding company, the ability of the
Company to pay dividends is dependent upon its receipt of dividends or other
payments from its subsidiaries. Currently Infotech is the Company's only
subsidiary. The payment of dividends is within the discretion of the Board of
Directors and will be dependent, among other things, upon earnings, capital
requirements, financing agreement covenants, including the Financing Agreement,
the financial condition of the Company and applicable law.
14
<PAGE>
DILUTION
As of March 31, 1997, the Company had a net tangible book value of
$5,003,359 or $1.58 per share of Common Stock outstanding. Net tangible book
value equals the tangible net worth of the Company (tangible assets less
total liabilities) divided by the aggregate number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 1,600,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $7.00 per share and the application of the net proceeds therefrom,
the pro forma net tangible book value of the Company as of March 31, 1997,
would be $14,511,608 or $3.04 per share. This represents an immediate
increase in pro forma net tangible book value of $1.46 per share to current
stockholders and an immediate dilution of $3.96 per share to new investors.
The following table illustrates this per share dilution:
Assumed initial public offering price .............. $7.00
Net tangible book value before the Offering ... $1.58
Increase attributable to new investors ........ 1.46
-----
Pro forma net tangible book value after the Offering 3.04
-----
Dilution to new investors .......................... $3.96
=====
The following table sets forth the difference between the existing
stockholders of the Company and the new investors with respect to the
aggregate number of shares of Common Stock purchased from the Company, the
total cash consideration paid and the average cash price per share paid. The
calculation below is based upon an assumed initial public offering price of
$7.00 per share (before deducting underwriting discounts and commissions and
other estimated expenses of the Offering payable by the Company):
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Paid Per Share
--------------------------- ----------------------------- ---------------
Number Percentage Amount Percentage
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (1) 3,170,540 66.5% $ 152,290 1.3% $ .05
New Investors ........... 1,600,000 33.5% 11,200,000 98.7% $7.00
----------- ------------ ------------- ------------
Total ................. 4,770,540 100.0% $11,352,290 100.0%
=========== ============ ============= ============
</TABLE>
- ------
(1) Excludes 498,000 shares of Common Stock issuable upon exercise of
outstanding options and 160,000 shares of Common Stock issuable upon
exercise of the Representative's Warrants. See "Underwriting."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 and as adjusted to give effect to the sale by the Company of 1,600,000
shares of Common Stock at an assumed initial public offering price of $7.00 per
share, and the application by the Company of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
---------------------------
(unaudited, in thousands)
Actual As Adjusted
-------- -----------
<S> <C> <C>
Debt:
Short Term debt:
Credit facility ........................................ $ 6,867 $ 0
Current maturities of long-term debt ................... 41 41
-------- --------
Total short term debt ................................... 6,908 41
-------- --------
Long-term debt, less current maturities ................. 85 85
-------- --------
Stockholders' equity: (1)(2)
Common Stock, $.01 par value, 5,000,000 shares
authorized, 3,170,540 shares outstanding, actual and
4,770,540 shares outstanding, as adjusted (3) ...... 36 52
Additional paid-in-capital ........................... 138 9,630
Unrealized loss on available for sale securities ..... (843) (843)
Retained earnings .................................... 5,860 5,860
Treasury stock ....................................... (142) (142)
-------- --------
Total stockholders' equity ........................... 5,049 14,557
-------- --------
Total capitalization ................................ $ 12,042 $ 14,683
======== ========
</TABLE>
- ------
(1) See "Description of Capital Stock" for description of the relative rights
of the Preferred Stock and Common Stock.
(2) On April 21, 1997, a special meeting of stockholders was held to amend
the Certificate of Incorporation to increase the aggregate of authorized
shares from 5,000,000 shares of Common Stock to 40,000,000 shares of
Common Stock and to authorize 1,000,000 shares of Preferred Stock.
(3) Excludes 498,000 shares of Common Stock issuable upon exercise of
outstanding options and 160,000 shares of Common Stock issuable upon
exercise of Representative's Warrants. See "Underwriting."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The financial statement data as of and for the
fiscal years ended September 30, 1994, 1995 and 1996 are derived from, and
are qualified by reference to, the audited Consolidated Financial Statements
included elsewhere in this Prospectus and should be read in conjunction with
those Consolidated Financial Statements and the Notes thereto. The financial
statement data as of and for the fiscal years ended September 30, 1992 and
1993 are derived from audited consolidated financial statements not included
in this Prospectus. The Selected Consolidated Financial Data presented for
the six months ended March 31, 1996 and 1997 have been derived from unaudited
consolidated financial statements of the Company, but in the opinion of
management of the Company include all adjustments necessary for a fair
presentation for the results of such operating periods. The operating results
for such interim periods are not necessarily indicative of operating results
for the full year. This data is qualified by reference to, and should be read
in conjunction with, the Company's consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------------------------------------ ------------------------
1992 1993 1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales ...................... $40,355,000(1) $51,085,000(1) $45,459,575(1) $55,195,507 $98,446,698 $38,042,823 $39,158,875
Cost of sales .................. 37,575,000 46,948,000 40,796,425 49,441,544 89,025,331 34,159,227 33,890,028
------------- ------------- ------------- ----------- ----------- ----------- -----------
Gross profit ................... 2,780,000 4,137,000 4,663,150 5,753,963 9,421,367 3,888,596 5,268,847
Selling and administrative
expenses ..................... 2,754,000 3,565,000 3,406,316 4,079,184 5,028,812 2,382,727 2,957,149
------------- ------------- ------------- ----------- ----------- ----------- -----------
Income from operations ......... 26,000 572,000 1,256,834 1,674,779 4,392,555 1,500,869 2,311,698
Interest expense (net) ......... (225,000) (498,000) (713,778) (1,207,316 (1,390,867) (633,193) (551,907)
Other income ................... -- -- 39,630 37,126 63,151 7,964 57,324
------------- ------------- ------------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes (199,000) 74,000 582,686 504,589 3,064,839 875,640 1,817,115
Provision for income taxes ..... 8,000 31,000 242,889 223,769 1,298,386 371,000 766,800
------------- ------------- ------------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations ................... (207,000) 43,000 339,797 280,820 1,766,453 504,640 1,050,315
Discontinued operations ........ -- -- 1,485,698 -- -- -- --
Cumulative effect of a change in
accounting principle ......... -- 78,000 -- -- -- -- --
------------- ------------- ------------- ----------- ----------- ----------- -----------
Net income (loss) .............. $ (207,000) $ 121,000 $ 1,825,495 $ 280,820 $ 1,766,453 $ 504,640 $ 1,050,315
=========== =========== =========== =========== =========== =========== ===========
Per Share Data:
Income (loss) from continuing
operations ................... $ (.06) $ .01 $ .10 $ .08 $ .48 $ .14 $ .29
Income from discontinued
operations ................... -- -- $ .43 -- --
Income from accounting changes . -- $ .02 -- -- -- -- --
Weighted average number of
shares outstanding ........... 3,584,164 3,615,830 3,448,900 3,614,040 3,677,290 3,686,040 3,668,540
</TABLE>
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996 March 31, 1997
----------- ------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital ................ $ 579,000 $ 661,000 $ 1,171,764 $ 1,769,589 $ 3,342,545 $ 4,217,120
Total assets ................... 8,380,000 16,067,000 18,867,758 18,471,659 32,102,557 24,543,969
Short term debt ................ 2,665,000 7,677,000 6,469,072 10,797,111 12,510,017 6,907,940
Long term debt ................. -- -- -- -- 67,291 85,156
Stockholders' equity ........... 920,000 1,041,000 2,412,564 2,355,884 3,998,587 5,048,992
</TABLE>
- ------
(1) Includes sales of the Company's former subsidiary, Romel Technology, Inc.
(d/b/a MSG) of $19,876,500, $29,272,300 and $4,127,768 for the three
years ended September 30, 1994, respectively, which was sold in November
1993. The profit/loss from this subsidiary during these periods were de
minimis. After adjusting for these sales figures, the Company's revenues
were $20,478,500, $21,812,700 and $41,331,807 for the three years ended
September 30, 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 11 to
Consolidated Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis is intended to assist the reader in
understanding and assessing the significant changes and trends relating to
the results of operations and financial condition of SysComm and its
subsidiaries. This discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes.
The Company is a systems integrator and a reseller of a broad range of
computers and related products. The Company offers integrated technological
expertise to serve its customers' automation and communication needs.
The Company has experienced significant growth over the past three years with
sales increasing approximately 21% from $45,459,575 in the fiscal year ended
September 30, 1994 to $55,195,507 in the fiscal year ended September 30, 1995
and 78% from $55,195,507 in the fiscal year ended September 30, 1995 to
$98,446,698 in the fiscal year ended September 30, 1996. The Company operates in
a highly competitive industry which in turn places constant pressures on
maintaining gross profit margins. Many of the Company's sales are high volume
equipment sales which produce lower than average gross profit margins, but are
often accompanied by a service arrangement, which yields higher than average
gross profit margins.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------- --------------------
(unaudited)
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales ...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .................. (89.7) (89.6) (90.4) (89.8) (86.5)
Gross profit ................... 10.3 10.4 9.6 10.2 13.5
Selling and administrative
expenses ...................... (7.5) (7.4) (5.1) (6.3) (7.6)
Income from operations ......... 2.8 3.0 4.5 3.9 5.9
Interest expense (Net) ......... (1.6) (2.1) (1.4) (1.6) (1.3)
Income from continuing
operations before income taxes 1.2 .9 3.1 2.3 4.6
Income taxes ................... (.5) (.4) (1.3) (1.0) (2.0)
Income from continuing
operations .................... .7 .5 1.8 1.3 2.6
Discontinued operations income
from sale of subsidiary ....... 3.3 -- -- -- --
Net income ..................... 4.0 .5 1.8 1.3 2.6
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Sales for the six months ended March 31, 1997 increased 3% or $1,116,052
to $39,158,875 from $38,042,823 for the six months ended March 31, 1996. This
increase in sales was primarily attributable to an increase in demand for
IBM's mid-range RS/6000 computer systems. At March 31, 1997, the Company had
a backlog of approximately $4,000,000 which would have been shipped had
product been available. In addition, the Company's concentration and
dependence on any one customer diminished during the six months ended March
31, 1997 when no one customer accounted for more than 10% of the Company's
sales as compared to the six months ended March 31, 1996 when two customers
accounted for 26% and 13% of the Company's sales. Also the Company had a
major rollout for one of its customers postponed from the second quarter to
the third and fourth quarters of the current fiscal year.
18
<PAGE>
Gross profit as a percentage of sales increased to 13.5% for the six months
ended March 31, 1997 as compared to 10.2% for the six months ended March 31,
1996. This increase is due in part to the Company taking lower volume but higher
margin business. Generally, the Company generates a higher gross profit
percentage on customer orders aggregating less than $1 million, and conversely,
a lower profit percentage on customer orders aggregating greater than $1
million, regardless of product mix. In addition, the Company increased the
revenue it generated from its service business, which is generally higher margin
business. During the six months ended March 31, 1996, the Company sold two RISC
Symmetrical Processors which accounted for approximately $6,000,000 in sales.
This type of sale is typically low margin business and tends to pull down the
overall gross profit percentage.
Selling and administrative expenses increased by 24% or $574,422 to
$2,957,149 in the six months ended March 31, 1997 from $2,382,727 for the six
months ended March 31, 1996. Included in the increase of $574,422 were
increases of approximately $290,000 in commissions, payroll and payroll
related expenses and an increase of approximately $100,000 in the Company's
bad debt expense.
Interest expense for the six months ended March 31, 1997 decreased 13% to
$552,143 from $633,716 for the six months ended March 31, 1996. This decrease
was primarily the result of credits received from IBM Credit Corporation
relating to various leases for which the Company's payment had been delayed.
In addition, the Company believes that its constant monitoring of accounts
receivable has helped to keep interest costs at a minimum. The Company uses
all available funds to reduce its outstanding loan balance on a daily basis.
Income from continuing operations before income taxes increased by 108% to
$1,817,115 for the six months ended March 31, 1997 from $875,640 for the six
months ended March 31, 1996. This increase resulted from the significant
increase in gross profit.
The Company's effective tax rate is 42.2% for the six months ended March
31, 1997 and 42.4% for the six months ended March 31, 1996.
The Company's net income for the six months ended March 31, 1997 increased
to $1,050,315 from $504,640 for the six months ended March 31, 1996 resulting
from all the factors described above.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Sales for fiscal 1996 increased 78% or $43,251,191 to $98,446,698 from
$55,195,507 in fiscal year 1995. This increase in sales was primarily due to the
increase in sales in IBM's mid-range RS/6000 computer systems. The Company also
participated in major rollouts for a number of financial institutions which
produced substantial sales. In addition, two of the Company's customers
accounted for 16% and 19%, of those fiscal year 1996 sales. During fiscal year
1996, the Company also increased the amount of service and service related
billings from the prior year.
Gross profit as a percentage of sales slightly decreased in fiscal year
1996 from fiscal year 1995. This decrease was the result of pricing
competition, major customer rollouts which typically produce lower gross
profit margins, vendor pricing, and rebate policies. A reduction of cost of
goods sold resulted from rebates and other favorable pricing from many
vendors. These rebates, if cancelled or lowered, will have an effect on gross
profit percentages and profitability.
Selling and administrative expenses increased by 23% or $949,628 to
$5,028,812 in fiscal year 1996 from $4,079,184 in fiscal year 1995. Included
in the increase of $949,628 were increases in commission expense of $456,587,
which was a direct result of the significant increase in sales during fiscal
year 1996. In addition, payroll expenses increased by approximately $350,000
due to additional personnel, payroll increases and management incentives of
approximately $100,000, which were paid based on the profitability of the
Company.
Interest expense for fiscal year 1996 increased 15% to $1,391,452 from
$1,211,727 in fiscal year 1995, due to an increase in borrowings necessary to
fund the Company's continuing sales growth. The Company believes that its
constant monitoring of accounts receivable has helped to keep interest costs
at a minimum. In addition, the Company uses all available funds to reduce its
outstanding loan balance on a daily basis. Net interest expense (interest
expenses less interest income) for fiscal year 1996 and 1995 was $1,390,867
and $1,207,316, respectively.
19
<PAGE>
Income from continuing operations before income taxes increased by 507% to
$3,064,839 in fiscal year 1996 from $504,589 in fiscal year 1995. This
increase resulted from a significant increase in sales during 1996.
The Company's effective tax rate was 42.4% for fiscal year 1996 and 44.3%
for fiscal year 1995.
The Company's net income for fiscal year 1996 increased to $1,766,453 from
$280,820 in fiscal year 1995 resulting from all the factors described above.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Sales for fiscal year 1995 increased 21% or $9,735,932 to $55,195,507 from
$45,459,575 in fiscal year 1994. This increase in sales was due to the fact
that the Company began selling IBM's RS/6000 mid-range computers during
fiscal year 1995.
Gross profit as a percentage of sales increased slightly over the
preceding year, resulting from the Company's effort to increase its service
and service related sales.
Selling and administrative expenses increased by 20% or $672,868 to
$4,079,184 in fiscal year 1995 from $3,406,316 in fiscal year 1994 due to
increases in payroll and payroll related expenses, the Company's move to a
new location in Waltham Massachusetts, the opening of a new office in
Princeton, New Jersey and the first full year of operations in the Company's
New York City office.
Interest expense for fiscal year 1995 increased 67% to $1,211,727 from
$726,367 in fiscal year 1994 resulting from inventory increases during the
year which were necessary due to the Company's increased sales level. Net
interest expense (interest expense less interest income) for fiscal year 1995
and 1994 was $1,207,316 and $713,778, respectively. Also, due to sporadic
collateral shortfalls, the Company was paying interest on the shortfall
amounts at the rate of 6.5% over the prime rate.
Income from continuing operations before income tax decreased $78,907 or
13% primarily due to the reasons described above.
The Company's effective tax rate was 44.3% for fiscal year 1995 and 41.7%
for fiscal year 1994.
Income from discontinued operations was $1,485,698 for fiscal year 1994.
Effective November 30, 1993, the Company exchanged 100% of the shares of a
subsidiary (Romel Technology, Inc. (d/b/a MSG) for 300,000 shares of
Ameriquest Technologies, Inc., formerly known as CMS Enhancements, Inc. Such
transaction qualified as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended. The Company realized a gain as a
result of this transaction of $1,485,698, which is net of deferred taxes of
$641,000.
Net income for fiscal year 1995 was significantly below fiscal year 1994
due to the gain resulting from the sale of a subsidiary discussed above as
well as the other items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratios at March 31, 1997 and 1996 were 1.22 and
1.10, respectively. Working capital at March 31, 1997 was $4,217,120, an
increase of $2,014,292 over the prior period. This increase was primarily due
to the Company's earnings.
Cash provided by operating activities was $5,338,600 for the six months
ended March 31, 1997. Cash used by operating activities was $7,966,923 for
the six months ended March 31, 1996. Cash used in investing activities was
$213,716 and $58,371 for the six months ended March 31, 1997 and 1996,
respectively, and was used to finance capital expenditures including computer
equipment, leasehold improvements, furniture and fixtures and automobiles.
Cash used by financing activities included $5,633,337 for the six months
ended March 31, 1997 and included net payments under the Financing Agreement
and cash provided by financing activities was $8,308,067 for the six months
ended March 31, 1996 and included net proceeds under the Financing Agreement.
Since 1992, the Company has had a series of credit arrangements with IBM
Credit Corporation. Pursuant to the Financing Agreement, the Company may
borrow up to 85% of its eligible receivables and 100% of eligible inventory,
to a maximum of $27,500,000. In addition to the permanent credit line, there
are various credit
20
<PAGE>
line uplifts during the year which can increase the line of credit by as much
as 50%. As of March 31, 1997 and 1996, interest on outstanding borrowings was
prime plus 1.375% and 1.625%, respectively, or prime plus 6.5%, should the
Company fail to meet certain collateral requirements. As of March 31, 1997
and 1996, borrowings outstanding under this facility were $6,867,271 and
$10,999,060, respectively. Additionally, $10,082,368 and $9,624,695 were
included in accounts payable at March 31, 1997 and 1996, respectively, and
are included against the maximum credit available.
The Company believes that its present line of credit with IBM Credit coupled
with its current earning capacity and the proceeds of this Offering will be
sufficient to meet its capital and operational requirements for the coming year,
including, but not limited to, establishing new headquarters, distribution and
assembly facility and inventory and accounts receivable financing.
The Company has been notified by the Internal Revenue Service that it will
commence an audit of the Company's Federal Income Tax return for the fiscal
year ended September 30, 1995. In addition, New York State has notified the
Company that it will commence a sales tax audit for the period June 1, 1994
to February 28, 1997. Management believes that both these audits are within
the ordinary course of business and will not have a material adverse affect
on the Company.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its net sales, earnings from operations and
net earnings. As the Company continues to increase its percentage of sales from
business, education and government markets, management believes that the
Company's quarterly net sales will be less impacted by seasonality. The revenue
for the quarter ended June 30, 1996 reflected an unusually large sale
(approximately $10 million) of a major system to a financial institution.
Disregarding that sale, the Company's upward revenue trend would have continued
through the quarter ended September 30, 1996. Sales declined during the first
quarter of fiscal year 1997 (the quarter beginning October, 1996) due to the
postponement by one of the Company's customers of the purchase of computer
equipment associated with the completion of that customer's project. The
Company's sales in the second quarter declined from the prior quarter due to the
postponement of orders by several customers in anticipation of IBM's
announcement of "upgrades/refreshers" of certain products which the Company
would otherwise have sold then in that quarter. The following table sets forth
certain quarterly information for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1996 Fiscal Year 1997
--------------------------------------- ------------------------------------- -----------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $10,135 $13,723 $15,840 $15,497 $14,556 $23,487 $33,644 $26,760 $21,283 $17,876
Gross profit ............ 1,333 1,059 1,376 1,986 1,490 2,393 2,497 3,041 2,640 2,629
Income (loss) from
continuing operations
before income taxes .... 198 (306) 73 539 198 678 1,022 1,167 962 855
Net income (loss) (1) ... 116 (223) 73 315 114 390 589 673 560 490
</TABLE>
- ------
(1) Taxes are computed based on effective tax rates for the respective fiscal
years.
RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
A recent pronouncement of the Financial Accounting Standards Board
("FASB"), which is not required to be adopted at this date, is Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," issued
in February 1997. This statement establishes standards for computing and
presenting earnings per share and is effective for periods ending after
December 15, 1997. This standard requires the Company to present basic
earnings per share and diluted earnings per share. The impact of adopting
this standard has not yet been determined.
21
<PAGE>
BUSINESS
GENERAL
SysComm International Corporation ("SysComm" or the "Company"), through
its wholly owned subsidiary, Information Technology Services, Inc.
("InfoTech"), is a leading systems integrator and reseller of computer
hardware, operating software and networking applications to Fortune 1000
companies. The Company provides its customers with cost efficient,
comprehensive solutions that satisfy their information technology
requirements. Since 1985 the Company's primary focus has been on the sale,
integration and servicing of International Business Machine Corporation
("IBM") products including personal computers, mid-range systems based on the
IBM RS/6000, servers, and the IBM AS/400. In addition, the Company
integrates, resells and services products from manufacturers such as Hewlett
Packard, Compaq, Apple, Microsoft, 3Com, Bay Networks and Novell.
In March 1997, the Company commenced the assembly and sale of IBM PCs
through the "AAP" providing the Company with greater flexibility in meeting
its customers' needs. The Company believes that this relationship with IBM
will provide it with the opportunity to enhance its responsiveness to client
specific requests and orders, and improve its operating efficiencies.
A significant percentage of the Company's revenues are derived from sales
to customers in the financial and investment communities. However, the
Company's customer base also includes mid-size retailers, manufacturers,
distributors, colleges, universities and state and local government agencies
in the Northeastern United States. The Company's customers include:
<TABLE>
<CAPTION>
<S> <C> <C>
Astra Pharmaceutical CPC International Merrill Lynch
Boston College Deutsche Bank Northeastern University
Boston Financial Group Fidelity Investments Oxford Healthcare
Brown Brothers Harriman The Gillette Company Pepsico
Cadbury-Motts GTE Services Corp. The Pershing Division of
Carrier Corporation Harvard University Donaldson Lufkin & Jenrette
The Chase Manhattan Bank Healthsource Smith Barney
Citibank International Business The Stop & Shop Companies
The City University of Machines Corporation
New York J.P. Morgan
</TABLE>
The Company intends to pursue new business by focusing on the sale and
integration of high-end systems in financial, commercial, governmental,
healthcare and educational areas. To this end, the Company has the following
growth strategies: (i) targeting vertical markets, (ii) offering a complete
line of IBM products, including IBM mainframe systems, (iii) expanding its
role as an IBM Premier Business Partner, (iv) enhancing competitiveness
through the AAP, and (v) expanding into other geographic regions through
selected acquisitions and strategic alliances.
The Company currently has five operating locations. From its Hauppague,
New York headquarters it operates a distribution center, a computer
configuration, integration and PC assembly facility and its technical support
services. The Company conducts its sales operations from offices located in
Hauppauge, New York City, Waltham, Massachusetts, Marlton, New Jersey, and
North Haven, Connecticut.
STRATEGY
The Company strives to offer its customers high quality computer and
networking system hardware (particularly IBM products), related operating
system software and network design, system installation and testing in a
timely, cost-effective and value-added manner. The Company believes that the
following factors are significant elements to the successful implementation
of this strategy:
TARGETING VERTICAL MARKETS
The Company has a ten year track record as a market leader in the
installation and integration of high-level information systems to the
banking and financial services communities. In addition, the Company focuses
22
<PAGE>
on other selected, major vertical markets, including retailers, manufacturers
and distributors, institutions of higher learning, health care and
pharmaceutical companies, and state and local government agencies. The
Company's in-depth understanding of its customers current and future needs
combined with its experience and in-depth market focus enable it to offer an
optimum range of products and services that meet each customer's
requirements.
OFFERING A COMPLETE LINE OF IBM PRODUCTS
The Company has chosen to represent IBM products because it believes that
IBM is the world's premier designer and manufacturer of computer equipment,
software and networking products. The wide range of products and services
offered by the Company, include personal computers (desktop workstations,
file servers and notebook computers), mid-range computers (RS/6000 and AS/400
systems), networking products (network hubs, routers, bridges and switches)
and IBM software products, including OS/2, Netfinity, Eduquest and Lotus
Notes. The Company also offers warranty repair, systems support and
customized training programs. In order to offer its customers a full line of
IBM products, the Company is planning on becoming a value-added reseller of
IBM S/390 mainframe systems. The Company believes that its current mix of IBM
products meets the needs of its customers and brings the Company closer to
reaching its goal of becoming a total solution integrator of the complete IBM
product line.
EXPANDING THE COMPANY'S ROLE AS AN IBM PREMIER BUSINESS PARTNER
The Company's designation as an IBM Premier Business Partner provides it
with important competitive advantages. In 1997, the Company was among a small
number of original value-added resellers selected by IBM as a Premier
Business Partner. This designation by IBM was in recognition of the Company's
long-standing relationship with IBM, combined with its overall value,
performance and contribution in value to its customers. The Company believes
that the principal advantage to being a Premier Business Partner is the
potential referral of business by the IBM sales force.
ENHANCING COMPETITIVENESS THROUGH THE IBM AAP
Within the past twelve months, the PC industry has experienced a
fundamental change as major PC suppliers, led by IBM, have begun shifting
responsibility for the final assembly and delivery of PC products to a select
number of companies, including the Company. The AAP will allow the Company to
sell IBM PCs configured to the exact customer hardware and software
specifications in a more timely and efficient manner. In addition to
permitting the Company to offer greater product selection, the Company
believes AAP will afford it future opportunities and competitive advantages,
including the potential to increase gross margins on build-to-order systems,
and the ability to act as an assembler and distributor to other resellers.
The Company is also planning on becoming an assembler of the RS/6000 product
line.
EXPANDING INTO OTHER GEOGRAPHIC REGIONS THROUGH ACQUISITION AND STRATEGIC
ALLIANCE
The Company's participation in the AAP will make it an attractive acquirer
and/or joint venture partner to companies that do not possess the expertise
or resources to attain this status. The Company believes that the systems
integration business which targets Fortune 1000 companies is both extremely
competitive and based on existing relationships.
The Company believes that the expansion of its business into growing
markets and varied geographic regions, including the possibility of
acquisitions of qualified systems integrators and resellers, will allow it to
service existing customers in these new locations, expand its customer base,
expand its product and service offerings, and obtain more competitive pricing
as a result of increased purchasing volumes of particular products. The
Company intends to focus its expansion efforts on value-added resellers that
complement its existing operations. In particular, the Company believes that
IBM resellers who do not participate in the AAP will be at a competitive
disadvantage to the Company and other AAP participants. Accordingly, the
Company believes that certain of these companies will find that an
acquisition by, or a joint venture with, the Company to be an attractive
alternative.
23
<PAGE>
INDUSTRY BACKGROUND
Complex computer information processing systems, the foundation on which
business and organizations now function, are continuously being redesigned,
modified and upgraded as new computer and telecommunications technologies are
introduced. Until the mid-1980's, either mid-range or mainframe computer
systems, were used to manage an organization's mission-critical,
transaction-oriented commerce and business functions, such as banking, credit
transactions, retail point-of-sale transactions and airline reservations.
Client/server networks, otherwise known as "hub and spoke" networks,
supported access to these functions, either within a single site or from
numerous geographically-dispersed sites.
In the late 1980's, a new architecture for information processing called
"client/server" computing emerged, fueled by the growing intelligence in
desktop computers, expanding capabilities of software applications and
growing capabilities of networks. A client/server system typically consists
of multiple intelligent desktop client computers linked with high performance
server computers by a local and/or wide area network ("LAN" and/or "WAN") and
is characterized by the flexibility and mobility of both application and
user. In order to take advantage of their established operational staff and
physical plant, many corporations are seeking to reconfigure their existing
mainframe/mid-range computers (sometimes referred to as "legacy" systems) to
operate in parallel with client/server networks.
The Company believes that these two information system models - legacy
systems and client/server systems - will continue to coexist, each with
advantages for certain applications. Thus, organizations are faced with
complex decisions concerning the current and future configurations of their
information systems, based upon factors such as the re-engineering of aspects
of legacy systems to function more efficiently with related client/server
systems, the explosive growth of the Internet (and related World Wide Web)
and stand-alone intranets, the convergence of computer and telecommunications
technologies and the universal recognition of information systems as the
medium for commerce, finance, education and administration. Mid-range and
mainframe computer systems remain important in this changing environment, and
the Company intends to exploit opportunities in both segments of the high end
computer system markets. At the same time, manufacturers such as IBM are
increasing their reliance upon companies such as SysComm to work with mid-
and large-sized businesses and organizations to provide single-source
responsibility for the design, procurement, installation and implementation
of such systems.
24
<PAGE>
PRINCIPAL MARKETS AND CUSTOMERS
Since 1994, the Company has sold and delivered computer systems, network
products, software, maintenance and system support services to more than 700
customers throughout the United States and in more than 20 countries
worldwide. Based on its installed customer base, the Company believes it is a
leading IBM supplier/systems integrator of mid-range and computer/network
systems in the northeast United States. In fiscal year 1994, sales to The
Chase Manhattan Bank accounted for 22% of the Company's total revenues;
revenues from sales to The Chase Manhattan Bank and Deutsche Bank accounted
for 23% and 14%, respectively, of the Company's total revenues in fiscal year
1995; and revenues from sales to Deutsche Bank and Citibank accounted for 19%
and 16%, respectively, of the Company's total revenues in fiscal year 1996.
In fiscal year 1996, the Company's top five customers (two of which were new
customers) accounted for 50% of total revenues.
The Company's significant markets, some of its representative customers
and some of the applications to which the customers adapted the Company's
systems are described below.
<TABLE>
<CAPTION>
Market Organizations Applications
- ------ ------------- ------------
<S> <C> <C>
Banking Bankers Trust; Citibank; The Chase Credit Card Processing; Retail Banking;
Manhattan Bank Research; Customer Service; Account
Inquiry; Data Mining
Brokerage Deutsche Bank; J.P. Morgan; Merrill Lynch; Electronic Mail; Foreign Exchange;
Smith Barney; Spear, Leeds & Kellogg; Brown Securities Trading; Currency Trading;
Brothers Harriman; Fidelity Investments Client-Server Computing; Analytics
Pharmaceutical/ Astra; HealthSource; Private Healthcare Office Automation; Order Entry; Bill
Healthcare Systems; Oxford Healthcare Payments; Invoicing; Account History;
Healthcare Electronic Mail
Education Boston College; Harvard University; Student Registration; Office Automation;
Lawrence Public Schools; MIT; Northeastern Electronic Mail; Primary Education;
University; City University of New York Teaching Aid; School Administration;
Student Scheduling; Grades Administration,
Reporting, Research
Governmental State and local government agencies Office Automation; Reporting; Printing
throughout the Northeastern United States Systems
Industrial and Consumer Cadbury-Motts; Carrier Corporation; The Office Automation; Order Processing;
Stop & Shop Companies; CPC International; Electronic Mail; Invoicing; Client-Server
Pepsico; Barnes & Noble Computing
</TABLE>
25
<PAGE>
Banking. The Company was engaged by a large international bank to
configure, install and provide operating and network support for a 98 node
RS/6000 Power Parallel System 2 for data mining and market evaluations for
credit card products. Examples of data mining include profiling prospective
credit card customers and usage, spending patterns, credit risks, new credit
card product offerings, credit card marketing and promotion.
Brokerage. The Company provided RS/6000 workstations, servers and Power
Parallel System 2 systems to the investment banking and finance operations
departments of a large investment bank to assist in the international trading
of loans in the United States, Asia and Latin America.
Pharmaceutical/Healthcare Industry. The Company has been an ongoing
supplier of IBM PC's and related hardware to several divisions of a
pharmaceutical company. In connection with the sales of the computer systems,
the Company provided the pharmaceutical company with a long-term on-site
support technician. The Company has assisted the pharmaceutical company in
establishing its computer system to operate salesforce automation and FDA
application programs based on Windows NT and the Pentium Pro server.
Education. One of the public school systems in the Massachusetts area has
implemented a technology plan to incorporate computers in the teaching
environment. The plan, which covers 22 schools, includes the installation of
a LAN comprised of IBM servers and running the IBM Schoolview(TR) software,
and a WAN, running a large Lotus Notes network, utilizing attendance,
discussion, and mail databases. Each LAN server connects each classroom,
containing 4 student and 1 teacher workstations. Systemwide, the Company
supplied the schools with 2,000 PCs and 40 servers. The Company believes that
working closely with school systems affords it the opportunity to increase
the utilization of technology in the classroom.
Industrial and Consumer. The Company completed the installation and
integration of a networking system linking 180 stores of a major retail
chain. To accomplish this task, the Company custom configured each RS/6000
and PC systems with specific store information, allowing the systems to "plug
& play" immediately upon their arrival at each store location. The Company
worked closely with IBM to coordinate delivery of all hardware in a timely
and orderly manner, resulting in the successful installation of the systems
within a two month time-frame.
26
<PAGE>
PRODUCTS/IBM RELATIONSHIP
The Company has access to a full range of computer product lines,
networking and interconnectivity systems and operating software, from IBM,
Hewlett Packard and Compaq, as well as other selected manufacturers. However,
the Company has concentrated its efforts in developing strong relationships
with IBM because it believes that IBM offers the most comprehensive and well
established product line in the industry. The Company has had a long term
relationship with IBM whereby it has the opportunity to configure, sell and
service IBM's full line of PCs and mid-range information processing systems.
In addition, as a member of several IBM advisory committees, the Company
maintains close communications with IBM's future plans and directions. The
Company believes its strong marketing and technical skills have enabled it to
become North America's largest reseller of IBM's RS/6000 product line, and
the Company believes it will continue to have a close business relationship
with IBM. The Company's principal sales are derived from the following: (i)
IBM PC systems; (ii) IBM RS/6000 systems; (iii) IBM AS/400 systems; and (iv)
communication and networking systems.
IBM PC PRODUCT LINE AND PARTICIPATION IN IBM'S PC COMPANY AUTHORIZED
ASSEMBLER PROGRAM
IBM is one of the world's leading designers and manufacturers of personal
computer systems. IBM's personal computer product line includes mobile
(notebook) and desktop workstations as well as file, application and network
servers. In 1996, according to industry estimates, IBM produced and sold more
than $13 billion of PC products worldwide. Accordingly, in 1996, IBM had
approximately a 9% marketshare of the worldwide personal computer market.
IBM PC systems feature Pentium(TR) processors from Intel and are available
with a choice of operating software, including SelectaSystem, which allows
end-users' systems to store both IBM OS/2 Warp and Microsoft DOS/Windows on
the same hardware, or Microsoft(R) Windows 95(TR). For the last five years,
due to the amount of sales volume for IBM products generated by the Company,
IBM has enabled the Company to purchase products directly from IBM for resale
at the lowest prices available. There can be no assurances that the Company
will be able to continue to purchase at these prices, and loss of this
competitive pricing could have a material adverse affect on the Company's
business and results of operations.
In fiscal year 1996, the Company's sales of IBM PC products were
approximately $30 million, or 30.5%, of the Company's annual sales.
In March 1997, the Company commenced participation in the AAP at its
Hauppauge, New York location. By combining the assembly of PCs with its
proven systems integration abilities, the Company believes that it will
provide its clients with speed of delivery and flexibility of design at both
the PC and systems levels. The Company also believes that the establishment
and operation of its IBM PC assembly facility will greatly enhance the
Company's position in the marketplace, enabling it to assemble various IBM
personal computer systems, which in effect permits it to better serve its
customers as well as reduce finished goods inventory levels.
The continued operation of this assembly facility is dependent upon the
Company complying with the terms of the AAP Agreement, including satisfying
certain minimum purchase requirements, compliance with strict quality control
provisions and maintaining trained and certified personnel. The AAP Agreement
is terminable by either IBM or the Company upon 30 days' prior notice and
immediately terminable by IBM in the event that IBM determines, in its sole
discretion, that (i) the assembled products fail to meet required
specifications (whether or not the Company is at fault), (ii) the Company
materially breaches the terms and/or conditions of the AAP Agreement, (iii)
the Company engages in a course of conduct that has injured IBM's reputation
or the reputation of its products, or (iv) the Company's status with IBM as a
Business Partner is terminated for any reason, expires or if the Company is
no longer eligible to purchase IBM personal computer products directly from
IBM. In addition, the Company is required to maintain ISO 9002 registration
standards, the registered international standard for ensuring the consistent
and measurable quality of products and services. Subject to the terms of the
AAP Agreement, IBM is permitted to periodically review the Company's
performance in order to monitor and assess continued compliance. The AAP
Agreement expires on December 31, 1997. The Company intends to renew it.
By being part of the AAP, the Company believes it may increase its
inventory turnover rate, expand the range of products available to its
customers and improve delivery time to its customers. In addition, the
Company will maintain an inventory of component parts, rather than an
inventory of fully-configured PC models.
27
<PAGE>
IBM RISC SYSTEM/6000
The IBM RISC System/6000 is a mid-range computer workstation and server
configuration providing industry-leading computing and graphic performance
that meets large-scale, data handling and network management demands for many
types of businesses. RS/6000 systems perform mission critical applications,
such as those found in financial trading systems, from the combination of a
robust UNIX operating system with fast 2D and 3D graphic capabilities. The
RS/6000 is a flexible and scalable system incorporating (1) symmetric
multiprocessing capabilities, a design that makes it possible for a number of
processors to share memory and other existing features more efficiently; (2)
scalable parallel processing, a technology that allows several hundred
processor nodes to run in tandem as application servers, data servers,
Internet or Intranet servers; and (3) a multi-operating system support,
allowing a user to run existing programs simultaneously.
RS/6000 systems have been used for general business and financial
applications, including billing, payroll and accounts receivable, as well as
for advanced graphics programs for mechanical and electrical design,
scientific visualization, communications and networking applications for
optimum client/server and Internet performance, and word processing and
desktop publishing applications for both scientific and commercial documents.
These applications are particularly useful for the securities, manufacturing,
retail, education and transportation industries.
As Internet and Intranet-based transactions grow, RS/6000 systems'
networking capabilities, including security and integrity features, are
becoming increasingly important.
IBM has recognized the Company (ranked by dollar value of systems sold) as
its largest "Industry Remarketer" for RS/6000 systems in North America for
the year ending December 31, 1996, with sales of the RS/6000 for fiscal year
1996 of approximately $59 million, or 59%, of the Company's annual sales. The
Company considers RS/6000 systems to be an integral product for future
increases in the Company's sales volume.
ALL OTHER PRODUCTS
IBM AS/400 Product Line. Although the IBM Application System/400 (also
known as AS/400) has not been a major source of revenue to the Company, the
Company is attempting to increase its revenue in this market. The AS/400 is
designed and built as a multi-user commercial application platform
integrating a relational database and networking capabilities into the
operating system of the computer. It is designed as a general purpose
business computer, optimized for the commercial environment. Its design
reflects the dominant requirements for businesses, i.e., integration of new
technology without disrupting existing applications, large portfolio of
business solutions allowing companies to discover the most suitable
application for their needs, integration of functions including security,
database, system management, communications and on-line teleprocessing,
enabling companies to manage a system with limited resources in a demanding
business climate.
The AS/400 provides businesses with a cost effective solution, allowing
them to adopt advanced technologies at their own pace, integrating high
quality PC technology and associated software to enhance the computer's speed
for PC file serving. The AS/400 is a popular business computing system due to
its ease of installation, implementation, usage (it can support up to 7,000
users) and ability to upgrade.
Communication -- Networking Systems. The Company provides various
communications and networking products including complex data communications
equipment and software such as bridges, hubs and routers, as well as modems
and network interface cards (NIC) to connect personal computers to local and
wide area networks (LAN/WAN). Nearly every computer sold today in the
commercial marketplace is connected to a communications network.
Other. The Company is authorized to sell other manufacturers' personal
computer systems, networking, printers and software products including: Bay
Networks, Compaq, Lexmark, Hewlett Packard, Apple, MicroSoft, Novell, and
3Com. Certain of the Company's agreements with such suppliers provide for
minimum annual purchase requirements. Although the Company, to date, has
complied with these agreements, there is no assurance that the Company will
continue to meet such minimum purchase requirements or other terms of such
agreements. To the extent that it does not comply with such terms, the
Company may lose its status as an authorized reseller for such suppliers. For
fiscal year 1996, the Company's sales of non-IBM products accounted for
approximately $9 million, or 9%, of total revenue.
28
<PAGE>
SALES AND MARKETING
The Company has a broad customer base of primarily Fortune 1000 companies.
The Company's sales and marketing efforts are focused on high level decision
making executives, whose purchasing decisions are based on factors such as
the overall cost of purchasing and maintaining a system and the Company's
reputation and expertise in delivering and installing effective total
information technology solutions, which initially may not be the least
expensive. The Company relies on its marketing and sales programs, its
industry-wide expertise, its relationship with existing customers and its
status as an IBM Premier Business Partner to generate sales opportunities.
The Company currently has sales offices in five locations: New York City
and Hauppauge, New York, Waltham, Massachusetts, Marlton, New Jersey and
North Haven, Connecticut. Currently, the Company employs 28 field sales
representatives and system engineers. The sales efforts are led by the
Company's senior executives, John H. Spielberger, Thomas Baehr and Norman
Gaffney, who have more than 69 years of combined experience in sales of
high-level computer systems. The Company believes that due to the complex
nature of the computer products it sells and supports, maximum marketing
effectiveness can only be achieved by sales specialization. Each sales
representative is trained in one specific product line and representatives of
one product line can call upon specialized sales and systems engineering
personnel from another product line.
The Company pursues new business opportunities by referrals from IBM or
other manufacturers, referrals from existing customers, direct solicitation
by telephone or mail of prequalified customers, and participation in IBM and
other industry trade shows.
The Company has developed and maintained automated sales tools intended to
improve sales productivity, quality and reliability and increased customer
satisfaction. These systems include on-line systems configuration and
pricing, real time order entry, order confirmation and electronic mail for
customers through privately leased telephone lines and through the Internet.
CUSTOMER SUPPORT AND SERVICE
The Company believes that its ability to provide effective total solutions
to meet the needs of its customers is enhanced by its internal management
information system, which combines accounting, purchasing, inventory control,
sales order processing and work order management. The Company provides a
large array of services to its customers, including warranty repair on all
IBM personal computer products; toll-free telephone number for sales and
product information and order placement; toll-free telephone number for
customer service on all products sold, including technical assistance and
repair warranty; E-mail network access for customers to receive real time
price quotations, place orders and check order status; on-site system
engineers to provide technical assistance for installations and upgrades;
partnership with IBM to provide customized services such as helpdesk,
consulting, extended warranty, extended maintenance coverage; and IBM Credit
Corporation financing options on all products sold.
COMPETITION
The markets in which the Company operates are characterized by intense
competition from several types of network integrators and technical service
providers, including mainframe and mid-range computer manufacturers and
outsourcers, including, among others, Digital Equipment Corporation, Sun
Microsystems, Electronic Data Systems Corporation, Hewlett-Packard Company and
Integrated Systems Solution Corporation. Other competitors which, like the
Company purchase directly from IBM include value added resellers, systems
integrators and third-party service companies, including AmeriData Technologies,
Inc., CompuCom Systems, Inc., Entex Information Services, InaCom Corp.,
MicroAge, Inc. and Vanstar. While the Company receives substantial sales and
marketing assistance from IBM, including introductions and referrals to
potential customers, the Company, from time to time, faces direct competition
from IBM with respect to large contracts. The Company expects to face further
competition from new market entrants and possible alliances between competitors
in the future. Certain of the Company's current and potential competitors have
greater financial, technical, marketing and other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the development, promotion and sales of their services than the Company. No
assurance can be given that the Company will be able to compete successfully
against current and future competitors.
29
<PAGE>
The Company's ability to compete successfully depends on a number of
factors such as breadth of product and service offerings, sales and marketing
efforts, pricing, quality and reliability of services and other support
capabilities. While there can be no assurance that the Company will be able
to continue to compete successfully with existing or new competition, the
Company believes that it currently competes favorably due to its focus and
expertise of network integration and its concentration on sales of IBM
product lines.
EMPLOYEES
As of March 31, 1997, the Company had 59 full-time employees. The Company
has no collective bargaining agreements and believes its relations with its
employees are good.
DESCRIPTION OF PROPERTY
The Company leases 11,200 square feet of executive office and warehouse
space in Hauppauge, New York pursuant to a five year contract which expires
on January 31, 1999. The lease provides for payments totaling $288,580 over
the course of the lease.
The Company leases 5,027 square feet of general office space in New York
City pursuant to a five year lease at an annual rental of $130,704. This
lease expires on February 28, 2002.
The Company leases 5,350 square feet of general office space in Waltham,
Massachusetts pursuant to a five year lease which expires on October 31,
1999. The lease provides payments in the amount of $70,085 annually for the
period from December 1, 1994 through September 30, 1997 and $76,772 annually
for the period from October 1, 1997 through December 31, 1999.
The Company leases 300 square feet of general office space in Marlton, New
Jersey and North Haven, Connecticut for $7,800 per year and $8,100 per year,
expiring on January 31, 1998 and December 31, 1997, respectively.
LEGAL PROCEEDINGS
The Company is involved in a legal proceeding that is incidental to the
conduct of its business. This proceeding is not, in the opinion of
management, material. In the ordinary course of its business, the Company is,
from time to time, subject to litigation. The Company does not believe that
any litigation to which the Company is currently subject is likely,
individually or in the aggregate, to have a material adverse affect on the
financial condition of the Company.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
directors and persons nominated to become directors and executive officers
and the positions they hold with the Company.
<TABLE>
<CAPTION>
Name Age Position
------------------------- ----- ----------------------------------------
<S> <C> <C>
John H. Spielberger 55 Chairman of the Board of Directors, President
and Chief Executive Officer of SysComm
Thomas J. Baehr (2) 40 Vice President, Director of SysComm,
President and Chief Operating Officer of
InfoTech
Dennis R. Wilson 47 Vice President, Chief Financial Officer,
Secretary and Director of SysComm
Norman M. Gaffney (1) 49 Director of SysComm, Executive Vice President
of Marketing and Sales of InfoTech
John C. Spielberger (1) 28 Director of SysComm
Cornelia Eldridge (1) (2) 55 Nominee for Director of SysComm
Lee Adams (1) (2) 65 Nominee for Director of SysComm
</TABLE>
- ------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John H. Spielberger is the Chairman of the Board of Directors, President
and Chief Executive Officer of SysComm, which he founded in 1986. He is also
currently the Chairman of the Board and Chief Executive Officer of InfoTech,
which he founded in 1980. From 1968 through 1976, Mr. Spielberger worked for
IBM as a sales representative. From 1976 through 1980, Mr. Spielberger was
employed as Vice President of The Harvey Group Inc., a company listed on the
American Stock Exchange, where he was responsible for all management
information systems and communications. In 1980, Mr. Spielberger founded John
Spielberger & Associates, Inc., a designer, programmer and installer of
computer systems, which later became known as InfoTech. Mr. Spielberger is a
member of various IBM advisory boards which assist IBM in developing new and
innovative programs to market their products. Mr. Spielberger graduated from
Long Island University, C.W. Post Campus, New York in May 1966 with a B.A. in
Biology.
Thomas J. Baehr joined InfoTech in January 1994 and has been a member of
SysComm's Board of Directors since August 1995. Mr. Baehr became InfoTech's
President in January 1996 and is currently its Chief Operating Officer. From
June 1978 through October 1979, Mr. Baehr worked as a sales representative at
the Burroughs Corporation. From October 1979 through November 1986, Mr. Baehr
was employed at Honeywell Information Systems, where he was responsible for
the sale of mainframe and minicomputers to the General Electric Company. From
November 1986 through July 1992, Mr. Baehr was employed by Prime Computer
Inc. in various positions including sales manager for the New York
metropolitan area and regional manager for the northeastern United States.
From July 1992 through January 1994, Mr. Baehr was employed by Basic Computer
Corporation in White Plains, New York. Mr. Baehr graduated Fairfield
University, Connecticut in May of 1978 with a B.S. in Marketing.
Dennis R. Wilson has been a director of the Company since 1986 and became
Vice President and Chief Financial Officer of SysComm and InfoTech in March
1995. From 1972 through March 1992, Mr. Wilson was employed by The Harvey
Group Inc. During his career at The Harvey Group, Mr. Wilson held the
following positions: Member of the Board of Directors, Executive Vice
President and Chief Financial Officer, Corporate Secretary and Director of
Internal Audit. From 1992 through February 1995, Mr. Wilson was employed at
31
<PAGE>
The Boerner Company, a successor to the Harvey Group, as Chief Financial
Officer. He received a B.S. in Accounting from St. John's University in June
1970 and received his M.B.A. from St. John's in January 1976. He is also a
member of the Association of Management Accountants and the Association of
MBA Executives.
Norman M. Gaffney has been a Director of the Board of SysComm since
September 1996. He joined the Company in November 1994 and has served as
Executive Vice President of Sales and Marketing of InfoTech since January
1996. Prior to joining SysComm, Mr. Gaffney was employed by IBM in various
positions including Consulting Marketing Representative and Senior Accounts
Manager for 22 years. Mr. Gaffney graduated from the University of Miami
receiving a B.S. in Marketing.
John C. Spielberger is a Director of the Board of SysComm. In 1991, he
received a B.S. in Marketing from the Wallace School of Management, Boston
College. From February 1992 through October 1992, Mr. Spielberger was
employed as a marketing support representative for Lexmark International. Mr.
Spielberger joined InfoTech in October 1992 and is a sales specialist for the
RISC System/6000. Mr. Spielberger is the son of John H. Spielberger, the
Chairman of the Board, President and Chief Executive Officer of SysComm.
Cornelia Eldridge has been nominated to serve on the Company's Board of
Directors upon consummation of the Offering. Since 1981, Ms. Eldridge has
been President of Eldridge Associates, Inc., a management consulting firm.
Eldridge Associates provides strategic planning and organizational consulting
services to senior executive management including Chief Executive Officers.
Ms. Eldridge has a B.A. from Ohio Wesleyan University and an M.B.A. from the
University of Massachusetts. She serves on the Board of Directors of DE Frey,
Inc., a privately-held financial services firm. Ms. Eldridge also currently
provides consulting services to Commonwealth Associates.
Lee Adams has been nominated to serve on the Company's Board of Directors
upon consummation of the Offering. From 1989 through March 1997, when that
company was sold, Mr. Adams was the Chairman and Chief Executive Officer of
Target Solutions, Incorporated, a privately-held vertical remarketer of IBM's
AS/400 line of products. From 1963 to 1989, Mr. Adams held various executive
sales and marketing positions at IBM. Mr. Adams received a B.B.A. from
Kalamazoo College in June 1963.
BOARD OF DIRECTORS
The Board of Directors currently consists of five members. There are two
vacancies on the Board. Upon completion of the Offering, the Company expects
to appoint Cornelia Eldridge and Lee Adams as directors to its Board of
Directors.
The Company's Board of Directors is divided into three classes with each
class consisting, as nearly as may be possible, of one-third of the total number
of directors constituting the entire Board. The Company's Board of Directors
presently consists of five members with one member in Class I and two members in
Classes II and III. Class III consists of John H. Spielberger and Thomas Baehr,
whose term will expire at the 2000 annual meeting of stockholders; Class II
consists of Norman Gaffney and John C. Spielberger, whose term will expire at
the 1999 annual meeting of stockholders; and Class I currently consists of
Dennis Wilson, and, upon their appointment upon completion of the Offering, will
additionally consist of Cornelia Eldridge and Lee Adams, whose term will expire
at the 1998 annual meeting of stockholders. After the initial term, each Class
is elected for a term of three years. At each annual meeting, directors are
elected to succeed those in the Class whose term expires at that annual meeting,
such newly elected directors to hold office until the third succeeding annual
meeting and the election and qualification of their respective successors.
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and Compensation Committee.
The Audit Committee makes annual recommendations to the Board of Directors
concerning the appointment of the independent public accountants of the
Company and reviews the results and scope of the audit and other services
provided by the Company's independent auditors. The Audit Committee is
currently comprised of two Board Members,
32
<PAGE>
Norman Gaffney and John C. Spielberger. The Compensation Committee, currently
comprised of Thomas Baehr, makes recommendations to the Board of Directors
concerning salaries and incentive compensation for employees of the Company.
Upon consummation of the Offering, the Board of Directors intends to appoint
Cornelia Eldridge to the Audit Committee and the Compensation Committee, and
Lee Adams to the Compensation Committee.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation, as
such, for service as members of the Board. It is expected that directors who
are not employees of the Company will receive options to purchase 5,000
shares of Common Stock for each year served on the Board of Directors, and
reimbursement of expenses incurred in connection with attendance of Board and
committee meetings.
KEY MAN INSURANCE
The Company is the beneficiary of $1,000,000 whole life policy covering
the life of John H. Spielberger and a $1,000,000 term policy covering the
life of Thomas J. Baehr.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and the By-laws of the Company provide that
a director shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except: (i) for any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law; (iii) for liability under Section 174
of the Delaware General Corporation Law (relating to certain unlawful dividends,
stock repurchases or stock redemptions); or (iv) for any transaction from which
the director derived any improper personal benefit. The effect of this provision
in the Certificate is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in certain limited situations. This provision does
not limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. These provisions will not alter the liability of
directors under federal securities laws.
The Company's By-Laws provides that the Company shall indemnify each
director and such of the Company's officers, employees and agents as the
Board of Directors shall determine from time to time in its sole discretion
to the fullest extent provided by the laws of the State of Delaware.
33
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for services in all
capacities awarded to, earned by or paid to the Company's Chief Executive
Officer and the most highly compensated executive officers of the Company
whose aggregate cash compensation exceeded $100,000 during the last three
fiscal years:
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Other Annual
Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)
--------------------------------------- ------ ---------- --------- --------------
<S> <C> <C> <C> <C>
John H. Spielberger, Chairman of the 1996 100,000 90,000 $29,411 (1)
Board of Directors, President and Chief 1995 100,000 -- --
Executive Officer of SysComm 1994 100,000 -- --
Dennis R. Wilson, Vice President, 1996 100,000 35,000 --
Chief Financial Officer, Secretary and 1995 58,333 -- --
Director of SysComm 1994 -- -- --
Thomas J. Baehr, Vice President and 1996 134,579 157,000 --
Director of SysComm, President and 1995 157,016 -- --
Chief Operating Officer of InfoTech 1994 101,272 -- --
Norman M. Gaffney, Director of 1996 304,613 -- --
SysComm, Executive Vice President, 1995 141,972 -- --
Marketing and Sales of InfoTech 1994 -- -- --
</TABLE>
- ------
(1) Consists of expenses for a Company car ($4,464), life insurance premiums
($23,897) for John H. Spielberger, and administration fees on his pension
plan ($1,050). This life insurance policy will be cancelled after the
effective date of this Prospectus and any cash value will be returned to
the Company.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements effective upon the
consummation of the Offering with its executive officers. Each of the
employment agreements expire on September 30, 1999, unless sooner terminated
for death, physical or mental incapacity or cause (which is defined as the
uncured refusal to perform, or habitual neglect of, the performance of his
duties, willful misconduct, dishonesty or breach of trust which causes the
Company to suffer any loss, fine, civil penalty, judgment, claim, damage or
expense, a material breach of the employment agreement, or a felony
conviction), or terminated by either party with thirty (30) days' written
notice, and are automatically renewed for consecutive terms, unless cancelled
at least one year prior to expiration of the existing term. Each Employment
Agreement provides that all of such executive's business time be devoted to
the Company. In addition, each of the Employment Agreements also contain: (i)
non-competition provisions that preclude each employee from competing with
the Company for a period of two years from the date of the termination of his
employment of the Company, (ii) non-disclosure and confidentiality provisions
providing that all confidential information developed or made known during
the term of employment shall be exclusive property of the Company, and (iii)
non-interference provisions whereby, for a period of two years after his
termination of employment with the Company, the executive shall not interfere
with the Company's relationship with its customers or employees.
The employment agreements also include compensation plans for fiscal year
1997 as follows: John H. Spielberger will receive base salary of $140,000
plus a bonus based on 3% of all pre-tax earnings of the Company; Thomas J.
Baehr will receive $150,000 plus a bonus based on 3.5% of all pre-tax
earnings of InfoTech, payable quarterly; Dennis R. Wilson will receive
$120,000 plus a discretionary bonus determined by the Compensation Committee;
and Norman M. Gaffney will receive $125,000 plus a bonus plan based on 1.5%
of gross profit dollars of InfoTech, payable monthly.
These employment agreements contain annual performance incentive plans
which will be reviewed during the fiscal year and new incentive plans will be
implemented by the Company's Compensation Committee for fiscal year 1998, and
thereafter as applicable.
34
<PAGE>
In addition, the employment agreements provide that if an executive
officer is terminated for reasons other than for cause, the Company has
agreed to continue to pay his total base salary for the remainder of the term
of the employment agreement or one year, whichever is greater.
STOCK OPTION PLAN
On July 29, 1988, the stockholders approved a stock option plan (the "1988
Stock Option Plan"). In connection with the 1988 Stock Option Plan, 1,000,000
shares of Common Stock are reserved for issuance pursuant to options that may
be granted under the plan through May 5, 1998. As of September 30, 1996,
498,000 options were granted at exercise prices ranging from $.68 to $.75 per
share. To date, none of those options has been exercised. The options vest
over a three year period following the date of the grant. Currently, only
164,340 shares are exercisable.
The purpose of the 1988 Stock Option Plan is to encourage stock ownership
by employees of the Company, its divisions and subsidiary corporations and to
give them a greater personal interest in the success of the Company. The 1988
Stock Option Plan is administered by the Compensation Committee. The
Compensation Committee consists of at least three members of the Board of
Directors. The Compensation Committee shall have the authority in its
discretion, subject to and not inconsistent with the express provisions of
the Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without limitation,
the authority to grant Options; to determine which Options shall constitute
incentive stock options ("ISO") and which Options shall constitute
Non-Qualified Stock Options; to determine which Options (if any) shall be
accompanied by rights or limited rights; to determine the purchase price of
the shares of Common Stock covered by each Option (the "Option Price"); to
determine the persons to who, and the time or times at which, Options shall
be granted; to determine the number of shares to be covered by each Option;
to interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; and to make all other determinations deemed necessary
or advisable for the administration of the Plan. The Compensation Committee
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Compensation
Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any
responsibility the Compensation Committee or such person may have under the
Plan.
Options granted under the 1988 Stock Option Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of
grant (or 110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). The aggregate fair market value of
shares for which ISOs granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock option plans
of the Company and any related corporation) may not exceed $100,000. Options
granted under the 1988 Stock Option Plan will expire not more than ten years
from the date of grant (five years in the case of ISOs granted to persons
holding 10% or more of the voting stock of the Company). Options granted
under the 1988 Stock Option Plan are not transferable during an optionee's
lifetime but are transferable at death by will or by the laws of descent and
distribution.
Each Executive Officer and Director has been granted options to purchase
shares of Common Stock pursuant to the 1988 Stock Option Plan as follows:
OPTION GRANTS
Dated Options Exercise Expiration
Name Granted Granted (1) Price Date
------------------- --------- ----------- ---------- ------------
John H. Spielberger 6/30/95 40,000 $.75 9/1/98
Dennis R. Wilson 6/30/95 104,000 $.68 9/1/98
Thomas J. Baehr 6/30/95 100,000 $.68 9/1/98
Norman M. Gaffney 6/30/95 100,000 $.68 9/1/98
John C. Spielberger 6/30/95 4,000 $.68 9/1/98
401(K) PLAN
On January 1, 1994, the Company adopted a 401(k) savings plan for the
benefit of all eligible employees. All employees as of the effective date of
the 401(k) became eligible. An employee who became employed after
- ------
(1) Each option is exercisable into one share of Common Stock.
35
<PAGE>
January 1, 1994 would become a participant after the completion of six months
of service and attainment of 20 years of age. Under the 401(k) plan,
participants may elect to contribute from their compensation any amount up to
the maximum deferral allowed by the Internal Revenue Code. Company
contributions are discretionary and the Company may make optional
contributions for any plan year at its discretion. During the fiscal years
ended September 30, 1996, 1995 and 1994, the Company recorded 401(k) costs
totalling $31,738, $19,148 and $100, respectively.
36
<PAGE>
CERTAIN TRANSACTIONS
John H. Spielberger has a consulting agreement with Ameriquest
Technologies, Inc., a company that purchased Romel Technology, Inc., a
SysComm subsidiary. This agreement, which commenced in December 1993, pays
Mr. Spielberger $10,000 per month through January 1998.
Currently, the Company is required to purchase as much as $1,000,000 worth
of Mr. Spielberger's stock from his family upon the occurrence of his death.
The buy-back price per share would be the greater of ten times the net income
for the prior four quarters preceding his death divided by the average number
of shares outstanding during that period or three times the current net worth
divided by the current number of shares outstanding, whichever is greater.
The Company and Mr. Spielberger have agreed to cancel the buy-back
arrangement concurrent with the Offering.
In addition, Mr. Spielberger has personally guaranteed the Company's
financing arrangements with IBM Credit Corporation. The Company and Mr.
Spielberger anticipate that IBM Credit Corporation will release Mr.
Spielberger from his personal guarantee immediately prior to, or upon
completion of, the Offering.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of shares of
Common Stock as of the date of this Prospectus, and as adjusted to reflect
the sale of 1,600,000 shares of Common Stock offered hereby by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director and nominee director
of the Company, (iii) each named executive officer of the Company, and (iv)
all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Percentage Beneficially Owned (2)
---------------------------------
Number of Shares
Beneficially Owned
Name and Address (2) Before Offering After Offering
------------------------------------- -------------------- --------------- --------------
<S> <C> <C> <C>
John H. Spielberger (1) (3) 2,506,400 71.62% 49.15%
Dennis R. Wilson (1) (5) 88,640 2.53% 1.74%
Thomas J. Baehr (1) (6) 86,000 2.46% 1.69%
Norman M. Gaffney (1) (6) 66,000 1.89% 1.29%
John C. Spielberger (1) (4) 7,667 .22% .15%
Cornelia Eldridge (7) -- -- --
Lee Adams (8) -- -- --
Mark Vinelli (1) 270,000 7.72% 5.30%
All Officers and Directors as a group
(five persons) 2,754,680 78.72% 54.02%
</TABLE>
- ------
(1) The addresses of John H. Spielberger, Dennis R. Wilson, Thomas Baehr,
John C. Spielberger, Norman Gaffney, and Mark Vinelli are c/o SysComm
International Corporation, 275 Marcus Boulevard, Hauppauge, New York
11788.
(2) Beneficial ownership is determined in accordance with the Rule 13d-3 of
the Securities Exchange Act of 1934 and generally includes voting and
investment power with respect to securities, subject to community
property laws, where applicable. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date of this Prospectus upon exercise of options or warrants.
Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person (but not those held
by any other person) and that are exercisable within 60 days from the
date of this Prospectus have been exercised. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(3) Includes 600,000 shares owned by Bearpen Limited Partnership, a
partnership of which John H. Spielberger and his wife, Catherine, are the
general partners. Excludes 50,000 shares owned by Mr. Spielberger's wife,
Catherine, of which John H. Spielberger disclaims beneficial ownership.
Includes options to purchase 26,400 shares of Common Stock at an exercise
price of $.75 per share, exercisable as of June 30, 1997. Does not
include options to purchase 13,600 shares of Common Stock at an exercise
price of $.75 per share.
(4) Excludes 20,000 shares owned by Teresa Murphy, John C. Spielberger's
wife. Includes options to purchase 2,640 shares of Common Stock at an
exercise price of $.68 per share, exercisable as of June 30, 1997. Does
not include options not currently exercisable to purchase 1,360 shares of
Common Stock at an exercise price of $.75 per share.
(5) Includes options to purchase 68,640 shares of Common Stock at an exercise
price of $.68 per share, exercisable as of June 30, 1997. Does not
include options not currently exercisable to purchase 35,360 shares of
Common Stock at an exercise price of $.68 per share.
(6) Includes options to purchase 66,000 shares of Common Stock at an exercise
price of $.68 per share, exercisable as of June 30, 1997. Does not
include options not currently exercisable to purchase 34,000 shares of
Common Stock at an exercise price of $.68 per share.
(7) The address of Cornelia Eldridge is 4514 Elkhorn Road, P.O. Box 6243, Sun
Valley, Idaho 83354.
(8) The address of Lee Adams is P.O. Box 2404, Lake Arrowhead, California
92352.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred
stock, par value $.01 per share. As of April 15, 1997, there were 3,632,200
shares of Common Stock issued and 3,170,540 shares of Common Stock
outstanding held of record by 30 stockholders. No shares of Preferred Stock
are issued and outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the stockholders of the Company.
Holders of shares of Common Stock are entitled to receive dividends when, as,
and if declared by the Company's Board of Directors out of funds legally
available to the Company. The Company currently intends to retain all future
earnings for the use in the operation of its business and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy." Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in the
assets remaining after payment of all liabilities and liquidation of
preferences if any. Shares of Common Stock are not redeemable and have no
preemptive or similar rights to subscribe for additional shares. All
outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will, upon issuance and payment, be fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to issue
without any further vote or action by the stockholders, up to 1,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"),
in one or more series, to designate the number of shares constituting any
series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, voting rights, rights and terms of
redemption, redemption price or prices and liquidation preferences of such
series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
Common Stock, including the loss of voting control. The Company has no
present plans to issue any shares of preferred stock. See "Risk Factors --
Anti-Takeover Provisions."
ANTI-TAKEOVER PROVISIONS; SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is governed by Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, this statute restricts a corporation
from entering into certain business combinations with an interested
stockholder (defined as any person or entity that is the beneficial owner of
at least 15% of a corporation's voting stock) or its affiliates for a period
of three years after the date of the transaction in which the person became
an interested stockholder unless (i) the transaction is approved by the Board
of Directors of the corporation prior to such business combination, (ii) the
interested stockholder acquires 85% of the corporation's voting stock in the
same transaction in which it exceeds 15%, or (iii) the business combination
is approved by the Board of Directors and by a vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder. A "business
combination" includes mergers, asset sales and other transactions resulting
in a financial benefit to the interested stockholder. The Company's Amended
and Restated Certificate of Incorporation excludes John H. Spielberger from
the definition of "interested stockholder."
The Company's Amended and Restated Certificate of Incorporation and/or
Amended and Restated By-Laws include certain provisions which may have an
anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interests,
including attempts that might result in a premium over the market for the
shares held by the stockholders and could make it more difficult to remove
incumbent management. The Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws provide (i) that the Board of
Directors will be divided into three classes of directors serving staggered
three year terms resulting in approximately one-third of the Company's Board
of Directors being elected each year; (ii) that directors may be removed from
office only for cause and only by the affirmative vote of the holders of
66 2/3% of the then outstanding shares of capital stock entitled to vote
generally in an election of directors; (iii) that, except as otherwise
required by law, vacancies in the Board of Directors may be filled
39
<PAGE>
only by the remaining directors; (iv) that commencing with the consummation of
the Offering, any action required or permitted to be taken by the stockholders
of the Company may be effected only at an annual or special meeting of
stockholders and not by written consent of the stockholders; (v) that subject to
certain provisions, any special meeting of stockholders may be called only upon
the holders of a majority of the outstanding shares of Common Stock or by a
majority of the members of the Board of Directors; and (vi) for an advance
notice procedure for the nomination other than by or at the discretion of the
Board of Directors or a committee of the Board of Directors for the candidates
for election as directors as well as for other stockholder proposals to be
considered at annual meetings of the stockholders. In general, notice of an
intent to nominate a director or raise business at such meetings must be
received by the Company not less than sixty (60) nor more than ninety (90) days
prior to the first anniversary of the preceeding year's annual meeting and must
contain certain information concerning the person to be nominated or the matters
to be brought before the meeting and concerning stockholders submitting the
proposal. The affirmative vote of at least a majority of the directors and
Stockholders of the Company's Common Stock is required to alter, amend, repeal
or adopt any provision inconsistent with the provisions described in this
paragraph.
The Delaware General Corporation Law, the Amended and Restated Certificate
of Incorporation and the Amended and Restated By-Laws may discourage certain
types of transactions involving an actual or potential change in control of
the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, Inc.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The 1,600,000 shares of Common Stock sold in the Offering will be freely
transferable without restriction or further registration under the Securities
Act unless acquired by an "affiliate" of the Company within the meaning of the
Securities Act. Upon completion of the Offering, the existing stockholders of
the Company will own 3,170,540 shares of Common Stock. All of these shares are
deemed "restricted securities" as defined by Rule 144 under the Securities
("Rule 144"). Upon expiration of the contractual restrictions between the
Company, its officers, directors and current stockholders and option holders and
the Representative, beginning one year after the date of this Prospectus, these
shares will be available for sale in the public market, subject to compliance
with Rule 144.
Rule 144, as currently in effect, provides that a person (or persons whose
sales are aggregated) who is an affiliate of the Company, or who has
beneficially owned shares for at least one year which were issued and sold in
reliance upon certain exemptions from registration under the Securities Act
("Restricted Shares"), is entitled to sell within any three month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who has beneficially owned Restricted Shares for at
least two years and who is not an affiliate of the Company may sell such shares
under Rule 144 without regard to volume limitations, manner-of-sale provisions,
notice requirements or the availability of current public information about the
Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 of the Securities Act ("Rule 701")
may be relied upon with respect to the resale of securities originally
purchased from the Company by its employees, directors, officers, consultants
or advisors prior to the date the issuer becomes subject to the reporting
requirements of the Exchange Act, pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Commission has indicated that Rule 701 will apply to typical
stock options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and subject to the contractual restrictions described above,
beginning ninety days after the date of this Prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions
of Rule 144 and by affiliates under Rule 144 without compliance with its
one-year minimum holding period requirements.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market
sales of Restricted Shares or the availability of Restricted Shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Restricted Shares in the public market could
adversely affect prevailing market prices.
41
<PAGE>
UNDERWRITING
The underwriters named below (collectively, the "Underwriters") for which
Commonwealth Associates is acting as representative (the "Representative"),
have severally, not jointly, subject to the terms and conditions of the
underwriting agreement ("Underwriting Agreement") agreed to purchase from the
Company, and the Company has agreed to sell, the shares of Common Stock which
equal the number of shares set forth opposite the name of such Underwriters
below:
Underwriter Number of Shares
----------- ----------------
Commonwealth Associates
----------------
Total ................. 1,600,000
================
The Underwriters are committed on a "firm commitment" basis to purchase
and pay for all shares of Common Stock offered hereby (other than those
covered by the Over-Allotment Option described below), if any such shares are
purchased. The shares are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and
subject to approval of certain legal matters by counsel and to certain other
conditions.
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock to the public
at the price set forth on the cover page of this Prospectus and the
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions, not in excess
of $------ per share, of which not in excess of $------ per share may be
reallowed to other dealers who are members of the NASD. After the
commencement of the Offering, the public offering price, concessions and
reallowance may be changed. The Representative has informed that Company that
it does not expect any sales of the shares of Common Stock offered hereby to
be made to discretionary accounts of the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 240,000 additional
shares of Common Stock, at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. Such option
may be exercised in whole or, from time to time, in part, to purchase
additional shares solely for the purpose of covering over-allotments, if
any, incurred in connection with the sale of the shares offered hereby.
The Company has agreed to pay to Commonwealth individually, and not as
Representative of the Underwriters, a non-accountable expense allowance in
the amount of 1.5% of the gross proceeds of the Offering, including the
Over-Allotment Option, $50,000 of which has been paid to date. The Company
shall bear all fees and expenses incurred by the Company in connection with
clearing the Offering with the NASD and qualifying the shares of Common Stock
offered hereby for sale under the laws of such states as the Representative
may designate, including expenses of counsel retained for such purposes by
the Representative.
In addition, the Company has agreed to pay to Commonwealth individually,
and not as Representative of the Underwriters, a corporate advisory fee equal
to 2% of the gross proceeds of the Offering (including any shares purchased
pursuant to the Underwriters' Over-Allotment Option) as reimbursement for
Commonwealth's advisory services, which is payable at the closing of the
Offering.
42
<PAGE>
The Company has agreed to sell to the Representative and its designees for an
aggregate price of $160, the warrants ("Representative's Warrants") to purchase
up to 160,000 shares of Common Stock at an exercise price per share equal to
140% of the initial public offering price per share of Common Stock offered
hereby. The Representative's Warrants may not be transferred for one year from
the date of this Prospectus, except to the officers or partners of the
Representative and are exercisable during the four-year period commencing one
year from the date of this Prospectus (the "Warrant Exercise Term"). During the
Warrant Exercise Term, the holders of the Representative's Warrants are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Company's Common Stock. To the extent that the Representative's Warrants are
exercised or exchanged, dilution to the interests of the Company's stockholders
will occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Representative's Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representative's
Warrants. Any profit realized by the Representative on the sale of the
Representative's Warrants or the underlying shares of Common Stock may be deemed
additional underwriting compensation. Subject to certain limitations and
exclusions, the Company has agreed to register the Representative's Warrants and
the underlying shares of Common Stock under the Securities Act on one occasion
during the four year period ending five years from the date of this Prospectus
and to include such Representative's Warrants and shares in any appropriate
Registration Statement that is filed by the Company during the seven years
following the date of this Prospectus. The Representative's Warrants include a
provision permitting the holders to elect a "cashless exercise" whereby the
holders may exchange, in lieu of cash, such number of shares issuable upon
exercise of the Representative's Warrants equal in value to the aggregate
exercise price.
The Company and its officers, directors, stockholders and holders of any
options, warrants or other securities convertible into, or exercisable for,
shares of Common Stock, have agreed that they will not, directly or
indirectly, offer, sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into or
exchangeable for any shares of Common Stock or other capital stock of the
Company for a period of one year commencing upon the date of this Prospectus,
without the prior written consent of Commonwealth, on behalf of the
Underwriters.
The Underwriting Agreement provides for reciprocal indemnification and
contribution between the Company and the Underwriters against certain civil
liabilities in connection with the Registration Statement of which this
Prospectus forms a part, including liabilities under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representative. Among
the factors considered in determining the initial public offering price are
the history of, and the prospects for, the Company's business and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the Offering and the market prices and
earnings of similar securities of comparable companies at the time of the
Offering and prevailing market and economic conditions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola,
New York. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Todtman, Young, Nachamie, Hendler &
Spizz, P.C., New York, New York.
EXPERTS
The Consolidated Financial Statements of SysComm International Corporation
and its subsidiaries included in this prospectus and the related financial
statement schedules included elsewhere in the Registration Statement
43
<PAGE>
have been audited by Albrecht, Viggiano, Zureck & Company, P.C., independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the shares
of Common Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and such exhibits and
schedules, which may be inspected without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511 or Seven World Trade Center, New York, New York
10048. Copies of such material may also be obtained at prescribed rates from
the Public Reference Section of the Commission in Washington, D.C. 20549.
Statements contained in the Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding the Company; the address of such site is http://www.sec.gov.
44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................................... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1995 and 1996 and March 31, 1997
(unaudited) ............................................................................. F-3
Consolidated Statements of Operations for the Years Ended September 30, 1994, 1995, and
1996 and the Six Months Ended March 31, 1996 (unaudited) and 1997 (unaudited) ........... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1994,
1995, and 1996 and the Six Months Ended March 31, 1997 (unaudited) ...................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994, 1995, and
1996 and the Six Months Ended March 31, 1996 (unaudited) and 1997 (unaudited) ........... F-6
Notes to Consolidated Financial Statements ................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SysComm International Corporation and Subsidiaries
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of SysComm
International Corporation and Subsidiaries as of September 30, 1995 and 1996
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
30, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position
of SysComm International Corporation and Subsidiaries as of September 30,
1995 and 1996 and the results of its operations and its cash flows for each
of the years in the three-year period ended September 30, 1996, in conformity
with generally accepted accounting principles.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
November 1, 1996, except as to
Note 14 which is as of April 21, 1997
F-2
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-------------------------------- March 31,
1995 1996 1997
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................. $ 1,064,949 $ 1,180,680 $ 672,227
Accounts receivable, net ................... 10,343,186 21,012,242 13,834,592
Note receivable ............................ 21,939 -0- -0-
Inventory .................................. 5,976,192 8,936,845 8,703,014
Prepaid expenses ........................... 66,598 43,207 210,708
Investments ................................ 412,500 206,250 206,400
-------------- -------------- --------------
Total Current Assets .................. 17,885,364 31,379,224 23,626,941
Property, Plant and Equipment, Net .............. 399,708 539,174 723,148
Other Assets .................................... 186,587 184,159 193,880
-------------- -------------- --------------
Total Assets .......................... $18,471,659 $32,102,557 $24,543,969
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Supplier credit facility ................... $10,797,111 $12,483,391 $ 6,867,271
Accounts payable and accrued liabilities ... 5,194,454 14,440,421 12,384,282
Current portion of long-term liabilities ... -0- 26,626 40,669
Income taxes payable ....................... 23,053 1,069,197 100,495
Deferred income taxes ...................... 101,157 17,044 17,104
-------------- -------------- --------------
Total Current Liabilities ............. 16,115,775 28,036,679 19,409,821
Long-Term Liabilities ........................... -0- 67,291 85,156
-------------- -------------- --------------
Total Liabilities ..................... 16,115,775 28,103,970 19,494,977
-------------- -------------- --------------
Commitments and Contingencies
Stockholders' Equity
Common stock; $.01 par value; 5,000,000
shares authorized; 3,632,200 shares
issued; 3,170,540 shares outstanding ..... 36,322 36,322 36,322
Additional paid-in capital ................. 138,143 138,143 138,143
Unrealized loss on available-for-sale
securities ............................... (720,000) (843,750) (843,660)
Retained earnings .......................... 3,043,589 4,810,042 5,860,357
Less: Treasury stock (at cost) -- 461,660
shares ................................... (142,170) (142,170) (142,170)
-------------- -------------- --------------
Total Stockholders' Equity ............ 2,355,884 3,998,587 5,048,992
-------------- -------------- --------------
Total Liabilities and Stockholders'
Equity .............................. $18,471,659 $32,102,557 $24,543,969
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales .......................... $45,459,575 $55,195,507 $98,446,698 $38,042,823 $39,158,875
Cost of Sales ...................... 40,796,425 49,441,544 89,025,331 34,159,227 33,890,028
-------------- -------------- -------------- -------------- --------------
Gross Profit ............. 4,663,150 5,753,963 9,421,367 3,883,596 5,268,847
Selling and Administrative Expenses 3,406,316 4,079,184 5,028,812 2,382,727 2,957,149
-------------- -------------- -------------- -------------- --------------
Income from Operations ... 1,256,834 1,674,779 4,392,555 1,500,869 2,311,698
-------------- -------------- -------------- -------------- --------------
Other Income (Expense)
Interest expense ................. (726,367) (1,211,727) (1,391,452) (633,716) (552,143)
Interest income .................. 12,589 4,411 585 523 236
Other income ..................... 39,630 37,126 63,151 7,964 57,324
-------------- -------------- -------------- -------------- --------------
Total Other Expense ...... (674,148) (1,170,190) (1,327,716) (625,229) (494,583)
-------------- -------------- -------------- -------------- --------------
Income from Continuing
Operations Before Income
Taxes .................. 582,686 504,589 3,064,839 875,640 1,817,115
Provision for Income Taxes ......... 242,889 223,769 1,298,386 371,000 766,800
-------------- -------------- -------------- -------------- --------------
Income from Continuing
Operations ............. 339,797 280,820 1,766,453 504,640 1,050,315
Discontinued Operations
Income from sale of subsidiary ... 1,485,698 -0- -0- -0- -0-
-------------- -------------- -------------- -------------- --------------
Net Income ............... $ 1,825,495 $ 280,820 $ 1,766,453 $ 504,640 $ 1,050,315
============== ============== ============== ============== ==============
Net Income Per Common Share
Continuing Operations ............ $ .10 $ .08 $ .48 $ .14 $ .29
Discontinued Operations .......... .43 -0- -0- -0- -0-
-------------- -------------- -------------- -------------- --------------
Net Income per Common
Share .................. $ .53 $ .08 $ .48 $ .14 $ .29
============== ============== ============== ============== ==============
Weighted Average Number of Common
Shares Outstanding ............... 3,448,900 3,614,040 3,677,290 3,686,040 3,668,540
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Unrealized Total
-------------------- Paid-In -------------------- Gain (Loss) Retained Stockholders'
Shares Amount Capital Shares Amount on Securities Earnings Equity
--------- ------- -------- ------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of September 30, 1993 3,368,164 $36,322 $138,143 264,036 $ (72,440) $ 937,274 $1,039,299
Net Income ...................... 1,825,495 1,825,495
Purchase of Common Stock ........ (197,624) 197,624 (69,730) (69,730)
Unrealized Loss on Available-for-
Sale Securities ............... $(382,500) (382,500)
--------- ------- -------- ------- --------- --------- ---------- ----------
Balance as of September 30, 1994 3,170,540 36,322 138,143 461,660 (142,170) (382,500) 2,762,769 2,412,564
Net Income ...................... 280,820 280,820
Unrealized Loss on Available-for-
Sale Securities ............... (337,500) (337,500)
--------- ------- -------- ------- --------- --------- ---------- ----------
Balance as of September 30, 1995 3,170,540 36,322 138,143 461,660 (142,170) (720,000) 3,043,589 2,355,884
Net Income ...................... 1,766,453 1,766,453
Unrealized Loss on Available-for-
Sale Securities ............... (123,750) (123,750)
--------- ------- -------- ------- --------- --------- ---------- ----------
Balance as of September 30, 1996 3,170,540 36,322 138,143 461,660 (142,170) (843,750) 4,810,042 3,998,587
Net Income (unaudited) .......... 1,050,315 1,050,315
Unrealized Gain on Available-for-
Sale Securities (unaudited) ... 90 90
--------- ------- -------- ------- --------- --------- ---------- ----------
Balance as of March 31, 1997
(unaudited) ................... 3,170,540 $36,322 $138,143 461,660 $(142,170) $(843,660) $5,860,357 $5,048,992
========= ======= ======== ======= ========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
-------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- ------------ -------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income .................................... $ 1,825,495 $ 280,820 $ 1,766,453 $ 504,640 $ 1,050,315
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization .............. 111,412 134,139 149,090 67,781 81,437
Income from sale of subsidiary ............. (1,485,698) -0- -0- -0- -0-
Disposition of accumulated deficit of subsidiary 514,198 -0- -0- -0- -0-
Deferred tax (benefit) expense ............. 35,115 (5,442) (1,614) -0- -0-
(Gain) loss on disposition of fixed assets . 2,701 114 (23) -0- (2,570)
Changes in assets and liabilities:
Accounts receivable ...................... (592,271) (585,610) (10,669,056) (6,538,994) 7,177,650
Note receivable .......................... (40,217) 41,705 21,939 20,621 -0-
Inventory ................................ (55,516) 93,808 (2,960,653) (554,133) 233,831
Prepaid expenses and other assets ........ (37,028) (55,666) 25,819 40,579 (177,222)
Accounts payable and accrued liabilities . 2,465,743 (287,525) 9,245,967 (1,733,399) (2,056,139)
Income taxes payable ..................... 156,237 (164,451) 1,046,144 225,982 (968,702)
Deferred revenue ......................... (89,517) -0- -0- -0- -0-
------------- ------------ -------------- ------------- -------------
Net Cash Provided (Used) by Operating
Activities .......................... 2,810,654 (548,108) (1,375,934) (7,966,923) 5,338,600
------------- ------------ -------------- ------------- -------------
Cash Flows From Investing Activities
Purchase of fixed assets ...................... (291,387) (92,697) (235,388) (58,371) (221,016)
Proceeds from disposition of fixed assets ..... 10,000 400 450 -0- 7,300
------------- ------------ -------------- ------------- -------------
Net Cash Used in Investing Activities . (281,387) (92,297) (234,938) (58,371) (213,716)
------------- ------------ -------------- ------------- -------------
Cash Flows From Financing Activities
Net proceeds from (payments under) supplier credit
facility ................................... (1,436,428) 343,000 1,686,280 8,313,021 (5,616,120)
Net proceeds from long-term debt .............. -0- -0- 58,229 -0- -0-
Payments of long-term liabilities ............. -0- -0- (17,906) (4,954) (17,217)
Purchase of treasury stock .................... (69,730) -0- -0- -0- -0-
------------- ------------ -------------- ------------- -------------
Net Cash Provided (Used) by Financing
Activities .......................... (1,506,158) 343,000 1,726,603 8,308,067 (5,633,337)
------------- ------------ -------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents ......................... 1,023,109 (297,405) 115,731 282,773 (508,453)
Cash and Cash Equivalents at Beginning of Period . 339,245 1,362,354 1,064,949 1,064,949 1,180,680
------------- ------------ -------------- ------------- -------------
Cash and Cash Equivalents at End of Period ...... $ 1,362,354 $1,064,949 $ 1,180,680 $ 1,347,722 $ 672,227
============= ============ ============== ============= =============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes ............................... $ 63,709 $ 219,543 $ 248,606 $ 77,114 $ 566,885
Interest ................................... 732,864 1,211,727 1,391,452 633,716 552,143
Supplemental Schedules of Noncash Investing and
Financing Activities
Acquisition of equipment:
Cost of equipment .......................... $ -0- $ -0- $ 53,594 $ 78,472 $ 49,125
Less: Equipment financed ................. -0- -0- (53,594) (78,472) (49,125)
------------- ------------ -------------- ------------- -------------
Cash Paid for Capital Expenditures .... $ -0- $ -0- $ -0- $ -0- $ -0-
============= ============ ============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
AND THE SIX MONTHS ENDED MARCH 31, 1996 AND 1997
(INFORMATION AS IT RELATES TO THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
SysComm International Corporation (the "Company"), incorporated on
September 30, 1987, is a Delaware corporation with one active subsidiary:
Information Technology Services, Inc. (doing business as InfoTech, a New York
Corporation since 1980).
The Company, through its subsidiary, is authorized to conduct business in
New York, New Jersey, Massachusetts, and Connecticut. The Company is a
supplier and systems integrator of a broad range of computer and related
products.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of SysComm
International Corporation and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful accounts
and for sales returns. The allowances are based on prior experience and
management's evaluation of the collectibility of accounts receivable and
returned merchandise credits. Authorized sales returns from the supplier are
classified as receivables. Management believes that the allowances are
adequate. However, further additions to the allowances may be necessary based
on changes in economic conditions.
The allowance for doubtful accounts was $50,000, $63,846, and $114,127 as
of September 30, 1995, September 30, 1996, and March 31, 1997, respectively.
The allowance for sales returns was $125,000 as of September 30, 1995 and
$37,389 as of September 30, 1996 and March 31, 1997.
INVENTORY
Inventory consists principally of computer hardware and software, and is
valued at the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, net of accumulated
depreciation. Expenditures for maintenance and repairs are charged against
operations as incurred. Upon retirement or sale, the assets disposed are
removed from the accounts and any resulting gain or loss is reflected in the
results of operations. Capitalized values of property under leases are
amortized over the life of the lease or the estimated life of the asset,
whichever is less.
F-7
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) - (Continued)
Note 1 -- Summary of Significant Accounting Policies - (Continued)
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
Estimated
Useful Lives
----------------
Vehicles ............................................... 1-5 years
Computer Equipment ..................................... 5 years
Furniture and Fixtures ................................. 7 years
Leasehold Improvements ................................. 5 years
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
INVESTMENTS
The Company evaluates its investment policies consistent with Financial
Accounting Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FASB 115"). Accordingly,
investment securities are classified as available-for-sale securities and
carried at fair value, with the unrealized gains and losses reported as a
separate component of stockholders' equity.
REVENUE RECOGNITION
Revenue related to the sales of computer equipment is recorded at the time of
shipment. Service revenue and costs are recognized when services are provided.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of
shares of common stock and dilutive common share equivalents outstanding
during each period. Dilutive common share equivalents include stock options.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
liquid instruments purchased with a maturity of three months or less to be
cash equivalents.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, prepaid expenses, accounts payable and
accrued liabilities, approximate fair value due to the relatively short
maturity of these instruments. The fair value of investments is estimated
based on quoted market price. The carrying value of the supplier credit
facility and long-term debt, including the current portion, approximates fair
value based on the incremental borrowing rates currently available to the
Company for financing with similar terms and maturities.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited consolidated financial
statements for the six months ended March 31, 1996 and 1997 are presented on
a basis consistent with the audited consolidated financial statements and
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results thereof. The results of
operations for the six months ended March 31, 1997, are not necessarily
indicative of the results to be expected for the year ending September 30,
1997.
F-8
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) - (Continued)
Note 1 -- Summary of Significant Accounting Policies - (Continued)
RECENTLY ISSUED PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
issued in February 1997, establishes standards for computing and presenting
earnings per share and is effective for periods ending after December 15,
1997. This standard requires the Company to present basic earnings per share
and diluted earnings per share. The impact of adopting this standard has not
yet been determined.
NOTE 2 -- INVESTMENTS
Investments consist of the following:
September 30,
-------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(unaudited)
Ameriquest Technologies, Inc.
(Formerly CMS Enhancements, Inc.)
Number of Shares .............. 300,000 300,000 300,000
Fair Value .................... $412,500 $206,250 $206,400
Cost .......................... $ 10,000 $ 10,000 $ 10,000
Marketable equity securities have been categorized as available for sale
and are stated at fair value. At September 30, 1995 and 1996, unrealized
losses of $1,200,000 and $1,406,250, respectively, are shown, net of deferred
taxes of $480,000 and $562,500, respectively, as a separate component of
stockholders' equity until realized. At March 31, 1997, unrealized losses of
$1,406,100 are shown net of deferred taxes of $562,440. The increase in the
net unrealized loss for the years ended September 30, 1995 and 1996 totaled
$337,500 and $123,750, respectively, and $67,500 for the six months ended
March 31, 1996. The net unrealized gain for the six months ended March 31,
1997, was $90.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is set forth below.
September 30,
-------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(unaudited)
Vehicles .......................... $ 33,182 $ 93,412 $ 119,159
Computer equipment ................ 615,786 733,297 886,195
Furniture and fixtures ............ 267,090 360,106 442,145
Leasehold improvements ............ 76,017 93,243 93,243
----------- ----------- -----------
992,075 1,280,058 1,540,742
Accumulated depreciation .......... (592,367) (740,884) (817,594)
----------- ----------- -----------
Property, plant and equipment, net $ 399,708 $ 539,174 $ 723,148
----------- ----------- -----------
F-9
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited)
- (Continued)
NOTE 4 -- OTHER ASSETS
The Company is the owner and beneficiary of a $1,000,000 whole life policy
covering the life of the principal stockholder/officer. The cash surrender
value of life insurance included in Other Assets as of September 30, 1995,
September 30, 1996, and March 31, 1997, amounted to $137,546, $145,046, and
$145,046, respectively.
NOTE 5 -- FINANCING ARRANGEMENTS
The Company entered into a formal credit agreement with the financing
subsidiary of its major supplier. Under the credit facility, the Company may
borrow up to 85% of receivables due within 90 days and up to 100% of eligible
inventory, to a maximum of $27,500,000. The agreement, which expires on
September 30, 1997, is subject to temporary increases, thereby increasing the
line of credit to $41,250,000 during certain periods.
As of September 30, 1995, September 30, 1996 and March 31, 1997,
borrowings outstanding under this facility were $10,591,511, $12,483,391, and
$6,867,271, respectively. For the years ended September 30, 1995 and 1996,
and for the six months ended March 31, 1996 and 1997, interest on the
outstanding borrowings was payable monthly at prime plus 1.625%, 1.375%,
1.625% and 1.375%, respectively, or prime plus 6.5%, should the Company fail
to meet certain collateral requirements. Interest costs included in interest
expense for the years ended September 30, 1994, 1995, and 1996 totaled
$726,367, $1,188,525, and $1,381,373, respectively. Interest costs included
in interest expense for the six months ended March 31, 1996 and 1997, totaled
$633,716 and $552,143, respectively.
The credit facility contains certain financial covenants and is personally
guaranteed by the principal stockholder/officer of the Company. Additionally,
$4,772,075, $12,560,441, and $10,082,368, were included in accounts payable
at September 30, 1995, September 30, 1996, and March 31, 1997, respectively,
and are included against the maximum credit available.
F-10
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited)
- (Continued)
NOTE 6 -- LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1997
--------------- -----------
(unaudited)
<S> <C> <C>
Ford Motor Credit Corp.
Collateralized by a lien on a Company automobile; payable in 36
monthly installments of $815 including interest of 9.0% per annum;
final payment due October 1999. ..................................... $ -0- $ 22,470
Collateralized by a lien on a Company automobile; payable in 36
monthly installments of $1,194 including interest of 9.9% per annum;
final payment due December 1998. .................................... 27,832 21,928
Collateralized by a lien on a Company automobile; payable in 36
monthly installments of $678 including interest of 8.9% per annum;
final payment due November 1998. .................................... 16,480 13,066
AT&T Credit Corp.
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $654 including interest of
14.446% per annum; final payment due May 2001. ..................... 29,497 27,105
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $573 including interest of
15.089% per annum; final payment due December 2000. ................ 20,108 18,256
Capital lease collateralized by a lien on the Company's phone system;
payable in monthly installments of $494 including interest of 9.9%
per annum; final payment due February 2002. ........................ -0- 23,000
-------- --------
93,917 125,825
Less: Current maturities ........................................... (26,626) (40,669)
-------- --------
$ 67,291 $ 85,156
======== ========
</TABLE>
Maturities of long-term liabilities as of March 31, 1997 are as follows:
1998 ........................ $ 40,669
1999 ........................ 38,958
2000 ........................ 22,010
2001 ........................ 17,673
2002 ........................ 6,515
--------
$125,825
========
NOTE 7 -- CAPITAL LEASES
As further discussed in Note 6, the Company began leasing telephone
equipment in December 1995. As of September 30, 1996 and March 31, 1997, the
gross assets capitalized under such leases totaled $54,486 and $77,980,
respectively, and the accumulated amortization totaled $3,892 and $7,934,
respectively. The amortization expense for the year ended September 30, 1996,
of $3,892 is included in depreciation expense. Amortization expense included
in depreciation expense for the six months ended March 31, 1997 is $4,042.
F-11
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited)
- (Continued)
NOTE 8 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal ................ $145,859 $148,504 $ 956,000 $262,000 $566,100
State .................. 61,915 80,707 344,000 109,000 200,700
-------- -------- ---------- -------- --------
Total Current .. 207,774 229,211 1,300,000 371,000 766,800
-------- -------- ---------- -------- --------
Deferred:
Federal ................ 29,848 (4,626) (1,517) -0- -0-
State .................. 5,267 (816) (97) -0- -0-
-------- -------- ---------- -------- --------
Total Deferred . 35,115 (5,442) (1,614) -0- -0-
-------- -------- ---------- -------- --------
Provision for Income Taxes $242,889 $223,769 $1,298,386 $371,000 $766,800
======== ======== ========== ======== ========
</TABLE>
The difference between the provision for income taxes at the Company's
effective income tax rate and the federal statutory rate of 34% is as
follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes at statutory rate ..... $198,113 $171,560 $1,042,045 297,718 617,819
State taxes, net of federal benefit 44,340 52,728 226,976 71,940 132,462
Other .............................. 436 (519) 29,365 1,342 16,519
-------- -------- ---------- -------- --------
Provision for Income Taxes ....... $242,889 $223,769 $1,298,386 $371,000 $766,800
======== ======== ========== ======== ========
</TABLE>
The tax effects of temporary differences giving rise to significant
portions of deferred taxes are as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------- March 31,
1995 1996 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Allowance for doubtful accounts $ 20,000 $ 25,538 $ 30,000
Inventory capitalization ...... 21,753 15,742 16,000
Unrealized loss on securities . (161,000) (78,500) (78,560)
Depreciation .................. -0- 5,840 5,360
Other ......................... 18,090 14,336 10,096
---------- --------- ---------
Net deferred tax liability .... $(101,157) $(17,044) $(17,104)
========== ========= =========
</TABLE>
NOTE 9 -- STOCK OPTION PLAN
On July 29, 1988, the stockholders approved a stock option plan. In
connection therewith, 1,000,000 shares of common stock are reserved for
issuance pursuant to options that may be granted under the plan through May
5, 1998. The options vest straight-line over a three-year period following
the date of grant.
F-12
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) - (Continued)
Note 9 -- Stock Option Plan - (Continued)
A summary of stock option activity related to the Company's plan is as
follows:
<TABLE>
<CAPTION>
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Period Period Period Outstanding Exercisable
------------- --------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Number of shares .............. 0 302,000 0 0 302,000 0
Average option price per share 0 $ .95 0 0 $ .95 0
Year ended September 30, 1995
Number of shares .............. 302,000 768,000 0 502,000 568,000 0
Average option price per share $ .95 $ .72 0 $ .90 $ .69 0
Year ended September 30, 1996
Number of shares .............. 568,000 0 0 70,000 498,000 166,000
Average option price per share $ .69 0 0 $ .68 $ .69 $ .69
Six months ended March 31, 1997
Number of shares .............. 498,000 0 0 0 498,000 166,000
Average option price per share $ .69 0 0 0 $ .69 $ .69
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation ("FASB 123"), which is
effective for the Company's year beginning October 1, 1996. As permitted
under FASB 123, the Company has elected not to adopt the fair value based
method of accounting for its stock-based compensation plans, but will
continue to account for such compensation under the provisions of Accounting
Principles Board Opinion No. 25. FASB 123 requires pro forma disclosures of
the effects of all awards granted in years that begin after December 15,
1994, which would be the Company's year beginning October 1, 1995 and ending
September 30, 1996. There is no impact of FASB 123 on the Company's operating
results or financial position, since the Company has not granted any options
since June 30, 1995.
NOTE 10 -- 401(K) PLAN
On January 1, 1994, the Company adopted a 401(k) Savings Plan (the "Plan")
for the benefit of all eligible employees. All employees as of the effective
date of the Plan became eligible. An employee who became employed after
January 1, 1994, would become a participant after the completion of a
half-year of service and the attainment of 20 years of age.
Participants may elect to contribute from their compensation any amount up
to the maximum deferral allowed by the Internal Revenue Code. Employer
contributions are a discretionary percentage match. The Company may make
optional contributions for any plan year at its discretion.
During the years ended September 30, 1994, 1995, and 1996, the Company
incurred 401(k) costs totaling $100, $19,148, and $31,738, respectively.
During the six months ended March 31, 1997, the Company's 401(k) costs
totaled $7,181.
NOTE 11 -- SALE OF SUBSIDIARY
Effective November 30, 1993, the Company exchanged 100% of the shares of a
subsidiary (Romel Technology, Inc. (d/b/a MSG)) for 300,000 shares of CMS
Enhancements, Inc. Such transaction qualified as a tax-
F-13
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) - (Continued)
Note 11 -- Sale of Subsidiary - (Continued)
free reorganization under Section 368 of the Internal Revenue Code. The
Company realized a gain as a result of this transaction of $1,485,698, which
is net of deferred income taxes of $641,000. Included in the consolidated
statement of operations for the year ended September 30, 1994, are net sales
of $4,127,768, cost of sales of $3,775,372, and an operating loss of $22,432.
NOTE 12 -- CONCENTRATION OF CREDIT RISK
CASH
The Company places most of its temporary cash investments with one
financial institution and normally exceeds the Federal Deposit Insurance
Corporation limit. The Company has not experienced any loss to date as a
result of this policy.
MAJOR CUSTOMERS
Computer sales encompass markets wherein the demands of any one customer
may vary greatly due to changes in technology. One customer accounted for 22%
of sales for the year ended September 30, 1994, and 31% of accounts
receivable as of September 30, 1994. In comparison, two customers accounted
for 23% and 14%, respectively, of sales for the year ended September 30,
1995. One of these customers accounted for 10% of accounts receivable as of
September 30, 1995. Two customers comprised 16% and 19%, respectively, of
sales for the year ended September 30, 1996. One of these customers accounted
for 33% of accounts receivable as of September 30, 1996. Two customers
accounted for 26% and 13%, respectively, of sales during the six months ended
March 31, 1996. No single customer comprised more than 10% of sales during
the six months ended March 31, 1997. At March 31, 1997, one customer
accounted for 15% of accounts receivable.
PURCHASES
The Company purchases a majority of goods from International Business
Machines Corporation, whose subsidiary represents the Company's major lending
source. The loss of this supplier could materially affect the Company.
Purchases from this supplier represented 70% of total purchases for each of
the years ended September 30, 1994 and 1995 and approximately 90% of total
purchases for the year ended September 30, 1996 and the six months ended
March 31, 1996 and 1997.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company has operating leases on real property and equipment expiring
through the year 2002. In addition to fixed rentals, the real property leases
have escalation clauses that require the Company to pay a percentage of
common area maintenance, real estate taxes, and insurance.
Rent expense and other charges totaled $173,051, $255,307, and $253,412
for years ended September 30, 1994, 1995, and 1996, and $128,357 and $131,919
for the six months ended March 31, 1996 and 1997, respectively.
As of March 31, 1997, the future minimum rental commitments for the twelve
months ending March 31, are as follows:
1998 ........................ $276,657
1999 ........................ 254,748
2000 ........................ 175,488
2001 ........................ 130,704
2002 ........................ 119,812
--------
$957,409
========
F-14
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 1994, 1995, and 1996
and the six months ended March 31, 1996 and 1997
(information as it relates to the six months ended
March 31, 1996 and 1997 is unaudited) - (Continued)
Note 13 -- Commitments and Contingencies - (Continued)
The Company is a defendant in a lawsuit which alleges wrongful termination of
employment. The action has been in the discovery stage since 1992. While the
results of litigation cannot be predicted with any certainty, management
believes that the final outcome of such litigation will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows. Changes in assumptions, as well as actual experience,
could cause the estimates made by management to be altered.
In March 1997, the Company commenced operation of an IBM PC assembly facility
under IBM's Authorized Assembler Program (the "AAP"). Under the terms of the AAP
Agreement with IBM, the Company must purchase a sufficient number of Base System
Units and Approval Components to enable it to assemble at least 20% of the
Company's actual sales volume of PCs.
NOTE 14 -- SUBSEQUENT EVENTS
In March 1997, the Company and an underwriter agreed to a proposed public
offering of 1,600,000 shares of the Company's common stock.
On March 31, 1997, the Company effected a two-for-one split of common
stock. All references in the accompanying consolidated financial statements
and notes thereto relating to common stock and additional paid-in capital,
stock options, per share and share data have been retroactively adjusted to
reflect the two-for-one stock split.
On April 21, 1997, a special meeting of the stockholders was held to amend
the Certificate of Incorporation to increase the aggregate of authorized
shares of common stock from 5,000,000 shares of common stock to 40,000,000
shares of common stock and to authorize 1,000,000 shares of preferred stock.
The preferred stock is not expected to be issued at any time in the near
future. The preferred stock's rights, preferences and characteristics will be
determined by the Board of Directors at such time as the preferred stock is
issued.
F-15
<PAGE>
=============================================================================
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstance create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof or that there has been no change in the affairs of the Company since
such date.
------
TABLE OF CONTENTS
Page
--------
Prospectus Summary ...................... 3
Risk Factors ............................ 7
Use of Proceeds ......................... 14
Dividend Policy ......................... 14
Dilution ................................ 15
Capitalization .......................... 16
Selected Consolidated Financial Data .... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................. 18
Business ................................ 22
Management .............................. 31
Certain Transactions .................... 37
Principal Stockholders .................. 38
Description of Capital Stock ............ 39
Shares Eligible for Future Sale ......... 41
Underwriting ............................ 42
Legal Matters ........................... 43
Experts ................................. 43
Additional Information .................. 44
Index to Financial Statements ........... F-1
=============================================================================
=============================================================================
1,600,000 SHARES
SYSCOMM INTERNATIONAL
CORPORATION
COMMON STOCK
------
PROSPECTUS
------
COMMONWEALTH ASSOCIATES
_____________, 1997
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
being registered, other than underwriting discounts. All of the amounts shown
are estimated except the Securities and Exchange Commission registration fee
and the NASD filing fee.
SEC registration fee ....................................... $ 4,926.06
NASDAQ listing fee ......................................... 28,853.00
NASD filing fee ............................................ 2,125.60
Printing and engraving expenses ............................ 100,000.00
Legal fees and expenses .................................... 200,000.00
Accounting fees and expenses ............................... 60,000.00
Transfer agent and registrar fee ........................... 20,000.00
Miscellaneous .............................................. 100,000.00
-----------
Total .................................................... $515,904.66
===========
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with
respect to liability arising out of their capacity or status as directors and
officers provided that this provision shall not eliminate or limit the
liability of a directors (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
Company' By-Laws, any agreement, vote of shareholders or otherwise.
The Company's Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7)
of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such
persons in their official capacities if such person acted in good faith and
in a manner that he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonably cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
the Company pursuant to the applicable provisions, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits
1.1 Form of Underwriting Agreement
1.2 Form of Financial and Advisory Consulting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated By-Laws
*4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.1 1988 Incentive Stock Option Plan
Inventory and Working Capital Financing Agreement, dated September 26, 1996, and amendment thereto,
10.2 dated October 31, 1996
*10.3 Form of Employment Agreement between the Company and John H. Spielberger
*10.4 Form of Employment Agreement between the Company and Thomas J. Baehr
*10.5 Form of Employment Agreement between the Company and Dennis R. Wilson
*10.6 Form of Employment Agreement between the Company and Norman Gaffney
21.1 Subsidiaries of Registrant
23.1 Consent of Albrecht, Viggiano, Zureck & Company, P.C., Independent Auditors
*23.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Statement Schedule
99.1 Valuation and Qualifying Accounts Schedule (with consent)
</TABLE>
- ------
* To be filed by amendment
Schedules other than the ones listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
The undersigned Registrant hereby undertakes to provide to the
Underwriter, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(b) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act each
Post-Effective Amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein
and the Offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in Hauppauge, New
York, on May 27, 1997.
SYSCOMM INTERNATIONAL CORPORATION
By: /s/ John H. Spielberger
--------------------------------
John H. Spielberger, President
Dated: May 27, 1997
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hauppaugue, New
York, on May 27, 1997.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John H. Spielberger Chairman of the Board of Directors, President May 27, 1997
- -------------------------- and Chief Executive Officer
John H. Spielberger
/s/ * Vice President and Director May 27, 1997
- --------------------------
Thomas J. Baehr
/s/ * Vice President, Chief Financial Officer, May 27, 1997
- -------------------------- Secretary and Director
Dennis R. Wilson
/s/ * Director May 27, 1997
- --------------------------
Norman Gaffney
/s/ * Director May 27, 1997
- --------------------------
John H. Spielberger
*By /s/ John H. Spielberger
------------------------
John H. Spielberger
as attorney-in-fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Financial and Advisory Consulting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated By-Laws
*4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
10.1 1988 Incentive Stock Option Plan
10.2 Inventory and Working Capital Financing Agreement, dated September 26, 1996, and amendment thereto,
dated October 31, 1996
*10.3 Form of Employment Agreement between the Company and John H. Spielberger
*10.4 Form of Employment Agreement between the Company and Thomas J. Baehr
*10.5 Form of Employment Agreement between the Company and Dennis R. Wilson
*10.6 Form of Employment Agreement between the Company and Norman Gaffney
21.1 Subsidiaries of Registrant
23.1 Consent of Albrecht, Viggiano, Zureck & Company, P.C., Independent Auditors
*23.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Statement Schedule
99.1 Valuation and Qualifying Accounts Schedule (with consent)
</TABLE>
- ------
* To be filed by amendment
