UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-1665
EXTECH CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 36-2476480
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
90 Merrick Avenue, East Meadow, New York 11554
(Address of principal executive offices) (Zip Code)
(516) 794-6300
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (X) Yes ( ) No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. ( )Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 5,591,367 shares as of October 20, 1998
<PAGE>
INDEX
EXTECH CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - September 30, 1998 (Unaudited)
Condensed Consolidated Statements of Operations - Nine months ended
September 30, 1998 and 1997 (Unaudited)
Condensed Consolidated Statements of Operations - Three months ended
September 30, 1998 and 1997 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 1998 and 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements - Nine months
ended September 30, 1998 and 1997 (Unaudited)
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
EXTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 406,275
Accounts receivable 78,383
Notes and other receivables 822,438
Inventories 8,103
Prepaid expenses and
other current assets 40,757
------
Total current assets 1,355,956
---------
PROPERTY AND EQUIPMENT, net 101,216
-------
OTHER ASSETS:
Operating equipment, net 10,527
Deposits 5,000
Restricted certificate of deposit 40,000
----------
Total other assets 55,527
------
$1,512,699
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,416
Accrued expenses 99,983
Debentures payable 154,200
Accrued taxes payable 11,430
----------
Total current liabilities 269,029
-------
MINORITY INTEREST 560
---
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value;
authorized, 10,000,000 shares;
issued and outstanding,
5,591,367 shares 55,914
Capital in excess of par 5,264,950
Deficit (4,077,754)
-----------
1,243,110
---------
$1,512,699
==========
See notes to condensed consolidated financial statements.
3
<PAGE>
EXTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended
September 30,
1998 1997
---- ----
Revenues:
Rooms $ 641,494 $ 697,702
Other 15,146 16,237
Interest 66,586 47,580
--------- ---------
Total revenues 723,226 761,519
--------- ---------
Costs and expenses:
General, administrative
and sundry 366,448 379,824
Departmental 219,505 222,286
Depreciation and amortization 29,625 39,209
Energy costs 15,638 18,142
Lease rentals 130,026 139,986
Marketing 14,232 15,765
Property operation
and maintenance 21,161 19,973
Provision for bad debt 1,700 13,122
--------- ---------
798,335 848,307
Net loss $ (75,109) $ (86,788)
========== =========
Basic loss per common share:
Net loss $ (.01) $ (.02)
========== ==========
Weighted average number of common
shares outstanding 5,591,367 5,591,367
========== ==========
See notes to condensed consolidated financial statements.
4
<PAGE>
EXTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
September 30,
1998 1997
---- ----
Revenues:
Rooms $ 197,163 $ 185,067
Other 4,942 6,964
Interest 24,370 17,380
--------- ---------
Total revenues 226,475 209,411
--------- ---------
Costs and expenses:
General, administrative
and sundry 107,580 120,212
Departmental 72,907 73,030
Depreciation and amortization 9,774 13,283
Energy costs 5,197 6,776
Lease rentals 39,553 39,291
Marketing 4,165 4,155
Property operation
and maintenance 7,984 7,490
Provision for bad debt 600 12,522
--------- ---------
247,760 276,759
Net loss $ (21,285) $ (67,348)
========== =========
Basic loss per common share:
Net loss $ (.01) $ (.01)
========== ==========
Weighted average number of common
shares outstanding 5,591,367 5,591,367
========== ==========
See notes to condensed consolidated financial statements.
5
<PAGE>
EXTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net loss $(75,109) $ (86,788)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Depreciation and amortization 29,625 39,209
Provision for bad debts 1,700 13,122
Decrease (increase) in assets:
Accounts receivable (41,845) 997
Inventories (1,981) 2,839
Prepaid expenses and other
current assets (29,799) 108,461
Notes receivable (468,860) 54,798
Other assets (1,336) ( 524)
Deposits -0- (5,000)
Increase (decrease) in liabilities:
Accounts payable 1,929 4,298
Accrued expenses ( 47,883) (26,752)
Accrued taxes payable 11,430 12,049
--------- ---------
Net cash (used in) provided by
operating activities (622,129) 116,709
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (11,985) (17,834)
---------- -----------
Net cash (used in)
investing activities: (11,985) (17,834)
---------- -----------
Net (decrease) increase in cash and
cash equivalents (634,114) 98,875
Cash, beginning of period 1,040,389 1,318,121
----------- ----------
Cash, end of period $ 406,275 $1,416,996
=========== ==========
See notes to condensed consolidated financial statements.
6
<PAGE>
EXTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1. The Condensed Consolidated Balance Sheet as of September 30, 1998, the
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 1998 and 1997 and the Condensed Consolidated
Statements of Cash Flows for the nine months ended September 30, 1998 and
1997 have been prepared by EXTECH Corporation ("EXTECH" or the "Company")
without audit. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
necessary to present fairly its financial position as of September 30,
1998, results of operations for the three and nine months ended September
30, 1998 and 1997 and cash flows for the nine months ended September 30,
1998 and 1997. This report should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.
2. The results of operations and cash flows for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Results of Operations:
The Company's net loss for the nine months ended September 30, 1998 was
$75,109 as compared to a net loss of $86,788 for the nine months ended September
30, 1997. The loss for the nine months ended September 30, 1998 was caused by
lower room occupancies of $56,208 as compared to the nine months ended September
30, 1997. The reduced loss was partially the result of increased interest income
of $19,006 as a result of a loan made in November 1997 to Dealers Choice
Automotive Planning Inc. ("DCAP Insurance") which bears interest at the rate of
10% per annum (see "Prospects" below) and lower expenses of $49,972. The
foregoing were partially offset by lower room occupancies of $56,208 for the
nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997.
Liquidity and Capital Resources:
As of September 30, 1998, the Company had $406,275 in cash and cash
equivalents and a working capital surplus of $1,086,927. As of December 31,
1997, the Company had $1,040,389 in cash and cash equivalents and a working
capital surplus of $1,150,732. The reduction in cash was due primarily to loans
in the aggregate amount of $425,000 made to DCAP Insurance during the nine
months ended September 30, 1998 as well as losses from operations.
Except as described below under "Prospects," the Company did not have any
material commitments for capital expenditures as of September 30, 1998.
Prospects:
DCAP:
On May 8, 1998, the Company entered into an agreement with respect to the
acquisition of all of the issued and outstanding Common Shares of DCAP Insurance
as well as interests in certain entities affiliated with DCAP Insurance
(collectively, the "DCAP Companies")(the "DCAP Agreement"). The DCAP Companies
are privately-held and offer, as brokers, primarily retail automotive,
motorcycle, boat, life, business and homeowner's insurance products. DCAP
Insurance has an aggregate of approximately 56 wholly-owned, joint venture and
franchise locations in the New York metropolitan area.
The DCAP Agreement provides that, in consideration for the shares of the
DCAP Companies, the Company will issue 3,300,000 shares of its Common Stock. In
8
<PAGE>
addition, the DCAP Agreement contemplates that the shareholders of DCAP
Insurance (the "DCAP Shareholders"), together with Morton L. Certilman,
President of EXTECH, and Jay M. Haft, Chairman of the Board of EXTECH, will
purchase, in the aggregate, the 1,800,000 shares of Common Stock of the Company
beneficially owned by Sterling Foster Holding Corp. ("Sterling Foster") (the
"Sterling Foster Shares") as well as an aggregate of 1,402,000 other shares of
Common Stock from the Company. Sterling Foster has entered into an agreement
with each of the DCAP Shareholders and Messrs. Certilman and Haft providing for
the purchase and sale of the Sterling Foster Shares concurrently with the
closing of the DCAP Agreement (the "Sterling Foster Agreement"). Each of the
parties has the right to terminate the Sterling Foster Agreement if the closing
shall not have occurred by December 31, 1998.
The DCAP Agreement provides further that the purchases by the DCAP
Shareholders will be made following loans of funds by the Company for such
purpose (with respect to the purchases from Sterling Foster) or by the delivery
of promissory notes as part of the purchase price (with regard to the additional
shares to be acquired from the Company).
Simultaneously with the signing of the DCAP Agreement, the Company advanced
$311,000 to DCAP Insurance (increasing its aggregate advances to DCAP Insurance
to $750,000). The outstanding advances, together with interest at the rate of
10% per annum, are payable on December 31, 1998.
The consummation of the DCAP Agreement is subject to the satisfaction of a
number of conditions, including stockholder and certain third party and
governmental approvals. Each of the parties has the right to terminate the DCAP
Agreement if the closing shall not have occurred by December 31, 1998. No
assurances can be given that the acquisition will take place upon the terms
described above or otherwise.
Eagle:
On October 2, 1998, the Company and Eagle Insurance Company ("Eagle")
entered into a Subscription Agreement (the "Eagle Agreement") which provides for
the issuance and sale by the Company to Eagle of 1,486,893 shares of Common
Stock for an aggregate purchase price of approximately $1,000,000 (the "Eagle
Issuance"). The Eagle Issuance is to be made concurrently with the closing of
the DCAP Agreement. Each of the parties has the right to terminate the Eagle
Agreement if the closing shall not have occurred by December 31, 1998. The
closing of the Eagle Agreement is subject to a number of other conditions.
Eagle is a New Jersey insurance company wholly-owned by The Robert Plan
Corporation ("The Robert Plan"). Pursuant to separate agency agreements between
certain DCAP Companies and certain insurance company subsidiaries of The Robert
Plan, such DCAP Companies have been appointed agents of the insurance companies
with regard to the offering of automobile and other insurance products.
9
<PAGE>
In the event of the closing of the DCAP Agreement, the Sterling Foster
Agreement and the Eagle Agreement, the DCAP Shareholders will own an aggregate
of approximately 43.8% of the outstanding Common Stock of the Company, Messrs.
Certilman and Haft will own an aggregate of approximately 26% of such
outstanding Common Stock and Eagle will own approximately 12.6% of such
outstanding Common Stock.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
Reference is made to "Prospects" under Part I, Item 2 hereof for a
discussion of a certain Subscription Agreement between the Company and
Eagle Insurance Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2 Agreement, dated as of May 8, 1998, by and among EXTECH,
Morton L. Certilman, Jay M. Haft, Kevin Lang and Abraham
Weinzimer1
3(a) Certificate of Incorporation, as amended2
3(b) By-laws, as amended3
27 Financial Data Schedule
(b) Reports on Form 8-K
None
- --------
1 Denotes document filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1998 and incorporated herein by
reference.
2 Denotes document filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1993 and incorporated herein by
reference.
3 Denotes document filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1998 and incorporated herein by
reference.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EXTECH CORPORATION
Dated: November 16, 1998 By: /s/ Morton L. Certilman
---------------------------
MORTON L. CERTILMAN
President (Chief Operating
Officer and Principal Financial
Officer)
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
statements and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1
<CASH> 406,275
<SECURITIES> 0
<RECEIVABLES> 857,438
<ALLOWANCES> 35,000
<INVENTORY> 8,103
<CURRENT-ASSETS> 1,355,956
<PP&E> 397,183
<DEPRECIATION> 295,967
<TOTAL-ASSETS> 1,512,699
<CURRENT-LIABILITIES> 269,029
<BONDS> 0
0
0
<COMMON> 55,914
<OTHER-SE> 1,187,196
<TOTAL-LIABILITY-AND-EQUITY> 1,512,699
<SALES> 0
<TOTAL-REVENUES> 723,226
<CGS> 0
<TOTAL-COSTS> 798,335
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (75,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> (75,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,109)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0.00
</TABLE>
