SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to .
Commission File Number 2-96392-A
TRIANGLE IMAGING GROUP, INC.
(Name of small business issuer in its charter)
Florida 59-2493183
(State or other jurisdiction of incorporation (IRS Employer I.D. Number)
or organization)
4400 W. Sample Road, Coconut Creek, Florida 33073
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number (954) 968-2080
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year. $302,196 .
As of March 27, 1997, 5,660,166 shares of the issuer's common stock was
outstanding.
As of such date, the aggregate market value of the common stock held by
non-affiliates was approximately $4,700,000.
DOCUMENTS INCORPORATED BY REFERENCE
No documents have been incorporated by reference.
<PAGE>
TRIANGLE IMAGING GROUP, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I PAGE
<S> <C>
Business 2
Properties 7
Legal Proceedings 7
Submission of Matters to a Vote of Security Holders 7
PART II
Market for Registrant's Common Equity and Related Stockholder Matters 8
Management's Discussion & Analysis of Financial Condition & Results of Operations 8
Inflation 10
Financial Statements and Supplementary Data 10
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 10
PART III
Directors and Executive Officers of the Registrant 11
Security Ownership of Certain Beneficial Owners and Management 12
Executive Compensation 13
Certain Relationships and Related Transactions 13
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
Stock Options 14
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PART I
ITEM 1. BUSINESS
General
Triangle Imaging Group, Inc. ("Triangle" or the "Company"), through its 95%
owned subsidiary, is engaged in providing credit reporting software and
automated quality control software for the credit industry.
Engineered Business Systems, Inc. ("EBS") constitutes the Company's entire
business as a result of the Acquisition, as more fully described below. EBS is
one of the nation's largest independent providers of credit reporting software
with more than 350 CRISTM systems installed at credit bureaus throughout the
United States. In addition, EBS is the top provider of automated quality control
software with more than 50 ACESTM systems installed at mortgage companies
nationwide.
Background
On December 2, 1996, Triangle purchased from certain stockholders of EBS a total
of 95% of the outstanding shares of EBS Common Stock for cash and notes of
approximately $2.6 million and Triangle Common Stock.
Business Operations
EBS began in 1989 as a direct response to the needs of the credit reporting and
mortgage lending industries. Since then, EBS has become one of the nation's
larger independent providers of credit reporting software with more than 350
CRISTM systems installed at credit bureaus. In addition, EBS is the top provider
of automated quality control software with more than 50 ACESTM systems installed
at mortgage companies nationwide.
EBS has built its reputation on innovative system design and superior customer
support. Software products include the CRISTM Mortgage Reporting System, the EBS
XchangeTM, an automated merged infile system with Electronic Data Interchange
(EDI) capabilities, and the ACESTM Quality Control System. Additionally, EBS
offers ACESTM Quality Control Solutions to provide the outsourcing service and
mortgage banking institutions' quality assurance function to the mortgage
banking industry.
Products
CRISTM AND EBS XchangeTM
These systems provide merged in file credit information and Residential Mortgage
Credit Report (RMCR) information based upon requests from Loan Origination
System (LOS) programs primarily for the purchase of residential homes.
CRISTM interfaces from the LOSs then with TRW, Trans Union, and Equifax
(repositories) to obtain,
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merge, and deduplicate credit data into a single merged in file report.
Additionally, CRISTM provides an accounts receivable and billing system with
reporting capabilities for EBS' customers to bill their customers.
CRISTM is a personal computer based system with communication ability. Requests
for credit information originate with EBS' customers' customers. The request is
then made to EBS' customer who utilizes the CRISTM system to request credit
information from the repositories. CRISTM also enables EBS' clients to perform
RMCRs which include manually verified information regarding employment, housing
location, and other information requiring verification from the loan
application. Additionally, CRISTM automatically produces a Consumer Letter
requesting an explanation when a credit report contains adverse information
which requires clarification from the consumer.
EBS XchangeTM connects the Quick Credit product, which only produces merged in
file reports, from EBS' customers' customer to CRISTM. This communication
package provides the interface from the LOS to CRISTM and then with the
repositories.
Traditional credit reporting for the residential mortgage credit segment varies
based upon interest rates. New technologies, such as electronic data interfaces
(EDI), one of the more well known being the ANSI X.12 format, create changes in
the marketplace. Investors, such as Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and
others, created automated processing and underwriting systems that need credit
information to make a lending decision. Opportunities for growth exist through
these new systems.
Transactional / Merge Center
The EBS Merge Center links the CRISTM system to the repositories through EBS.
The Merge Center enables EBS' customers to be charged a transactional fee per
report with minimums, billed on a monthly basis. With this product, EBS provides
customers with all interfaces with LOSs that EBS creates. The Merge Center is an
EBS XchangeTM system through which EBS' customers' customers request credit
report information and RMCRs. EBS' customers are performing the entire operation
from their offices.
ACESTM
ACESTM provides an automated review tracking system to perform the quality
control review function required by Fannie Mae, Freddie Mac, FHA, VA, and other
mortgage investors. The ACESTM product enables each company to perform quality
control reviews based upon the risk management philosophy determined by their
company. As guidelines change, ACESTM enables the user to modify the review
process. ACESTM provides a basic questionnaire, which the customer may modify,
to apply the procedures and guidelines each company requires on a consistent
basis.
ACESTM is sold in three formats, usage, lease and sale. The usage option charges
a per use expense for each file reviewed. The lease includes the software
maintenance fee while the sale adds an annual software maintenance fee.
ACESTM receives mortgage loan information in an ASCII comma delimited
format created by the user.
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from their loan origination system. This provides automatic downloads of the
loans each company originates and reduces redundant duplicative data input.
Alternatively, the customer may manually input any or all of the loan detail
elements.
ACESTM also contains a loan selection module which enables the customer to
select loans for review from the entire universe of loans originated, with
specific criteria or risk elements. This module randomly selects loans to insure
no undue bias. Furthermore, EBS entered into a contract with COGENT Economics to
provide an interface with COGENT's customized statistical sampling program
designed for each specific company. This system enables large mortgage companies
to enhance the review process and target risk areas.
Within ACESTM the processing of the loan for quality control review initiates
the process. This entails the creation of reverification letters for the
application, employment, deposits (source of funds), credit, and sometimes
appraisal. With the bulk of this information included in the download from the
LOS, customers may create their own letter with tokens in place to receive the
specific information for each individual loan without re-entry. Through ACESTM
the customer may also access the Quick Credit product to request credit reports
on the specified loans.
The underwriting module includes the questionnaire, which customers may tailor
to their needs. This provides consistent application of the review of all
aspects of the loan as customers determine. The questionnaire provides the basis
for investors to insure that all of the risk elements they identify have been
addressed by the mortgage company. This section records exceptions and provides
a worksheet which includes specific information about each loan and provides the
opportunity for the reviewer to rate each loan. Alternatively, customers may use
any combination of checklists and / or exception based reviews to customize the
system to their individual risk management needs.
The reporting module summarizes selected information on exceptions cited in the
underwriting module. Reports may be generated to include statistical percentage
information, listing and adding of exceptions cited, and graphical reports.
Customers may export information in an ASCII format for use in various
spreadsheet and database packages.
Quality Assurance
EBS' ACES Quality Control Services focuses on assisting Lenders in their quality
construction requirements. EBS promotes and supports the highest level of
standards for mortgage lending.
EBS provides third party quality construction services for professional reviews
of Conventional, FHA, VA, Jumbo, and specialty mortgage loans throughout the
lending process. Through the ACESTM Quality Control Software EBS selects,
processes, reviews, and reports on all aspects of loans to include specific loan
exceptions to all findings in a given loan. The ACESTM Quality Control software
also enables EBS to perform reviews for various transactions including
prefunding reviews, post closing reviews, portfolio acquisitions, and due
diligence processes.
Upon the completion of an audit, the client is charged for each review based
upon a per file charge, credit report and RMCR (if applicable) charge, review
appraisal (as applicable) charge, and any other extra services charge as
requested by the customer.
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EBS performs a complete review of loan files and reverification of relevant
documents which exceeds investors' requirements. Various options exist which
include fewer review elements, exclude certain components of the full review, or
entail additional review criteria as agreed upon with the customer.
The lender provides EBS with the universe of loans from which EBS will select
loans for the quality control audit. EBS selects the sample loans based upon
agreed upon selection criteria to meet the guidelines established by the
lender's Agencies, investors, management, etc. Alternatively, the lender may
perform their own loan selection and provide EBS with the download information.
Upon completion of the review, EBS provides detailed information and reports
that identify the findings of the review for analysis by the customer.
Sales and Markets
The credit reporting market, while somewhat cyclical in the mortgage origination
segment, possesses substantial opportunity for growth in new segments requiring
sizeable investments which necessitate credit evaluation. Furthermore,
opportunities exist for related products requiring the evaluation of consumers'
credit background.
Customers acquire CRISTM and EBS XchangeTM through referrals to EBS or contacts
through the sales organization. EBS derives revenue from these products based
upon sale of software and hardware, annual service maintenance agreement
payments, and monthly transactional fees.
Outsourcing of systems and support offers growth in the EBS Merge Center
product. This customer segment can utilize this service without the capital
investment for a dedicated system and provide their quality product through
their local office. This product possesses a unique piece of the market offered
by few others.
Customers acquire the product through referrals to EBS or contacts through the
sales organization. EBS derives revenue from these products based upon sale of
software and hardware, annual service maintenance agreement payments, and
monthly transactional fees.
ACESTM provides a very flexible quality control system. ACESTM remains the
choice of the nation's largest mortgage companies who did not develop their own
system in house. Utilization of the ACESTM product offers substantive
opportunity for expansion. As the financial value of quality receives expanded
knowledge in the industry, the demand for a tracking and evaluation product will
continue to grow. Furthermore, the increased utilization of automated processing
and underwriting systems will necessitate the evaluation of the basic premises
under which these systems make decisions. The analysis of the output of quality
assurance system will determine the changes that need to be made to these
processing and underwriting systems.
Customers acquire the product through referrals to EBS or contacts through the
sales organization. EBS derives revenue from these products based upon sale of
software and hardware, annual service maintenance agreement payments, or monthly
transactional fees.
Outsourcing provides substantial growth opportunities for EBS. Utilizing ACESTM,
the Outsourcing function can support existing ACESTM users when the cyclical
industry grows, as well as provide the
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base loan review function allowing companies to allocate limited financial
resources to evaluating results and targeting reviews based upon adverse
findings.
Fundamentally, companies of any size can utilize the Outsourcing function to
build upon their internal quality assurance function and build results into
improving the system. Customers contract for the product through referrals to
EBS or contacts through the sales organization.
Each of the individual business segments of CRISTM, EBS XchangeTM, the Merge
Center, ACESTM, and ACES Outsourcing are in growth markets that can be expanded
with demand and increased functionality of CRISTM, EBS XchangeTM, and ACESTM.
Competition
Both CRISTM and EBS XchangeTM penetrate a sizeable portion of the market. Both
systems receive widespread industry knowledge of the products and enter in each
application decision for credit reporting systems. Other credit reporting
systems exist from other companies, most of which are privately held. Because
the Transactional / Merge Center operates on the CRISTM and EBS XchangeTM
systems, other national privately held companies' credit reporting systems exist
that offer this service.
Competition for ACESTM exists from one private non-mortgage banking company
which provides a system nationally and from large national mortgage companies
developing their own proprietary system internally, but these systems are not
sold.
Quality Assurance Outsourcing competition exists from many local and regional
privately held companies. Several national companies also provide this service.
Backlog
At December 31, 1996, EBS' has no contract backlog. Revenues from sales are
recorded upon software delivery, hardware delivery, and training. EBS provides
all products and services within contractual requirements. EBS has entered into
one to two year contracts for services which obligate customers to specific
minimum transactions with EBS.
Executive Office
The executive offices of the Company and EBS are located at 4400 W. Sample
Rd., Coconut Creek, Florida 33073. (Telephone (954) 968-2080).
Employees
EBS currently employs approximately 43 people. None of the employees are union
members and are not covered under any collective bargaining agreements. EBS
considers relations with its employees to be good.
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Patents and Trademarks
EBS holds a number of trademarks and servicemarks covering various products and
processes relating to its business. EBS believes that its trademarks are
important and highly recognized by customers in the credit reporting and
mortgage banking markets as providers of quality credit reporting and quality
assurance software and services. EBS has four registered and two pending
trademarks.
Insurance
EBS maintains insurance with respect to its properties and operations in such
form, in such amounts and with such insurers as is customary in the businesses
in which EBS is engaged. EBS believes that the amount and form of its insurance
coverage are adequate at the present time.
Research and Development
EBS research and development activities are focused at the present time on the
optimization of performance and design of the ANSI X.12 communication protocol.
EBS' programmers are engaged in research and development. 24% of the programming
resources are spent on developing and completing new products.
ITEM 2. PROPERTIES
EBS leases a facility in Coconut Creek, Florida consisting of approximately
8,300 square feet of office and research and development space. The Company has
a lease through May, 1998, at a base monthly rental of approximately $6668. The
Company believes that the space it currently occupies is adequate for the
Company's needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In January of 1996, Columbia Credit Bureau (the "Plaintiff") commenced an action
in the Supreme Court of the State of Florida against the Company seeking damages
in the amount of $32,000. The Company is of the opinion that the claim against
it is without merit and the Company will prevail. Although the outcome of the
claim cannot be predicted, EBS does not believe that the results of this
litigation will have a material effect on EBS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ Bulletin Board under the
symbol TRIG. As of March 25, 1996, there were approximately 1250 holders of
record of the Company's Common Stock.
The following table sets forth, for the fiscal periods shown, the high and the
low sales prices for Triangle Common Stock as reported on the NASDAQ Bulletin
Board. These prices are based on quotations between dealers and do not reflect
retail mark-up, mark-down or commissions.
COMMON STOCK HIGH LOW
Calendar 1996 .40 .09
October 1 through December 31 .40 .11
July 1 through September 30 .17 .09
April 1 through June 30 .15 .12
January 1 through March 31 .18 .15
Calendar 1995
Annual 5.00 .15
On March 25, 1997, there were 5,660,166 shares outstanding.
The Company has never paid dividends on its shares of Common Stock and does not
expect to pay any in the immediate future. The future dividend policy will
depend on the Company's earnings, capital requirements, financial condition and
other factors considered relevant to the Company's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Prior to December 2, 1996, the Company's primary focus was to search for and
identify acquisition candidates for the purpose of merging with or acquiring
promising young companies in need of an infusion of cash and/or superior
management. On December 2, 1996, the Company completed the acquisition of 95% of
the stock of Engineered Business Systems, Inc., in a leveraged transaction.
Total value of the transaction was approximately $3 Million.
Reocurring sales in the CRISTM and ACESTM product lines constituted 66% of the
Company's revenues in the fiscal year 1996. Sales from the ACESTM product line
contributed 12% of the reoccurring sales for the fiscal year 1996 while the
remaining 54% of the revenues contributed to reoccurring sales were derived from
the CRISTM product line. New sales of CRISTM products constituted 8% of the
Company's revenues for fiscal year 1996 and new sales of ACESTM products
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comprised 14% of the revenues. Outsourcing revenues accounted for approximately
12% of the Company's revenues in fiscal 1996. The company's total revenues for
the fiscal year 1996 were $302,196, which is an increase over the Company's
fiscal year 1995 revenues of $0.00. The increase resulted entirely from the
acquisition of Engineered Business Systems, Inc. (EBS) on December 2, 1996 and
the results of EBS's operations for the one month period ending December 31,
1996.
Cost of sales was $51,704 in fiscal 1996, which again was an increase over the
Company's fiscal year 1995 cost of sales of $0.00. Gross profit as a percentage
of revenue was 83% in fiscal 1996. The increase resulted entirely from the
acquisition of EBS on December 2, 1996, and the results of EBS's operations for
the one month period ending December 31, 1996.
Selling general and administrative expenses were $218,247 in fiscal 1996
compared to $65,915, an increase of 231%. Management believes that the increase
in selling, general and administrative expenses was due to the acquisition of
EBS and the expenses related to its operations, compared to the minimal
operating expenses associated with a non-revenue producing company for fiscal
year 1995. Non-cash imputed compensation for the fiscal year 1996 was $73,960
compared to $437,250 for fiscal 1995. The decrease was due to the Company's
ability to pay cash compensation during fiscal 1996, as well as a decrease in
the number of consultants during 1996, due to the acquisition of EBS, its
revenue stream and personnel.
The Company's net income in fiscal year 1996 includes non-cash expenses of
approximately $15,480 and a litigation settlement of $35,000. Such expenses were
incurred as a result of depreciation and amortization of assets acquired with
the acquisition of EBS as well as the goodwill created in the acquisition.
Litigation expenses related to the settlement, in full, of a suit against the
Company, by the issuance of 350,000 shares of Common Stock, with a $0.10 basis.
Interest expense was $10,192 in 1996, compared to $0.00 in the fiscal year 1995,
reflecting interest paid on an 8% promissory note of $1,600,000. The promissory
note is held by the selling shareholders of EBS, created during the sale of EBS
to the Company. Minority interest for the fiscal year 1996 was $4,098 reflecting
interest due to holders of the 5% of EBS Stock.
The Company's net loss for fiscal year 1996, was $99,040 compared to the net
loss of $503,165 for the fiscal year 1995. The net loss in fiscal year 1996 is
primarily attributed to a combination of all the factors discussed above, plus
acquisition costs related to the acquisition of EBS.
Liquidity and Capital Resources
The Company has funded its working capital and capital expenditure requirements
from cash provided from operations and from the proceeds of the sale of
Preferred Stock. The primary source of cash receipts is from payments for
CRISTM, EBS XchangeTM, ACESTM and Outsourcing Sales and accounts receivables.
At December 31, 1996, the Company had cash of $200,264 as compared to cash of
$1,371 at December 31, 1995. The increase is due to the issuance of Preferred
Stock for the acquisition of EBS and the cash flow from the operations of EBS.
In December of 1996, the Company acquired EBS for $896,000 in cash, a note
payable to EBS' shareholders for $1,600,000, and, 500,000 restricted shares of
the Company's stock. The $896,000 of cash was funded as follows: $596,000 as
acquired from EBS and $300,000 in new cash raised from
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the sale of Preferred Stock.
As of March 25, 1997, the Company has substantially increased its cash position
and its working capital and on a monthly basis is showing an increasing positive
cash flow.
ITEM 7. INFLATION
To date, inflation has not had a material effect on the Company's business. The
Company believes that the effects of future inflation may be minimized by
controlling costs and increasing efficiency through an increase in the volume of
MRI examinations performed.
The Company is including the following cautionary statement in its Annual Report
on Form 10-K to make applicable and take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of the company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements which are
other than statements of historical facts. Certain statements contained herein
are forward-looking statements and accordingly involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company's expectations, beliefs
and projects are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitations, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in view of the Company, could
cause actual results to differ materially from those discussed in the
forward-looking statements: technological advances by the Company's competitors,
changes in health care reform, including reimbursement programs, capital needs
to fund any delays or extensions of research programs, delays in product
development, lack of market acceptance of technology and the availability of
capital on terms satisfactory to the Company. The Company disclaims any
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 and the Index therein for a listing of the financial statements and
supplementary data as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On December 30, 1996, Feldman Radin & Co., P.C. resigned as the independent
accountants for Triangle Imaging Group, Inc. During the two most recent fiscal
years there have been no disagreements with Feldman Radin & Co., P.C. on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure or any reportable events. Similarly, during the
interim period from January 1, 1996 to the dismissal date of December 30, 1996,
there have been no disagreements with Feldman Radin & Co., P.C.
On February 2, 1997, Triangle Imaging Group, Inc. engaged Mazars & Guerard
as its independent accountants.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
Information Regarding Present Directors and Executive Officers
The following table sets forth certain information concerning the Company's
current directors and executive officers:
NAME AGE POSITION
Vito A. Bellezza 58 President, Chief Executive Officer,
Chairman and Director
Peter J. Bellezza 62 Director
Franz A. Fideli 74 Director
Officers and directors are elected on an annual basis. The present terms for
each director will expire at the next annual meeting of shareholders or at such
time as a successor is duly elected. Officers serve at the discretion of the
Board of Directors. Vito Bellezza and Peter Bellezza are brothers. Except for
the foregoing, there are no family relationships between any of the officers or
directors.
The following is a biographical summary of the business experience of the
directors and executive officers of the Company:
Vito A. Bellezza Mr. Bellezza has served as President and Chairman of the
Company since 1994, and also serves as CEO of EBS, its operating subsidiary. Mr.
Bellezza has served as President of Omnicap Corp., a merchant banking firm since
June of 1993. Additionally, since 1981, Mr. Bellezza has served as a President
of Wealthmasters, a financial planning firm. Mr. Bellezza has served as a
licensed sales executive for US Life Equity Sales from 1980 to 1995 and
currently for Redstone Securities, and since 1967, Mr. Bellezza has served as a
sales representative of New York Life Insurance Co.
Peter J. Bellezza Mr. Bellezza has served as a Director of the Company since
1994. Prior to joining the Company, Mr. Bellezza served as President and 100%
owner of Alpha Systems, Inc., a manufacturer and marketer of high vacuum valves,
from 1968 to 1992.
Franz A. Fideli Mr. Fideli has served as a director of the company since
1994. Mr. Fideli, a professional engineer, has served as President and owner of
Fideli Associates Consulting, a heating, ventilation and air conditioning firm
since 1985.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following tables sets forth, as of March 25, 1997, the number of shares of
the Company's Common Stock beneficially owned, or as to which there was a right
to acquire beneficial ownership within 60 days, by each beneficial owner known
to own more than five percent of the Company's Common Stock, by each director,
each executive officer and all directors, nominees for director and all
executive officers, directors and nominees for director as a group.
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Name and Address of Amount and Nature of Title of Percent
Beneficial Owner Beneficial Ownership (1) Class or Series of Class
<S> <C> <C> <C>
Vito A. Bellezza 2,036,150 (2) Common 36.00%
12 S. Penataquit Avenue
Bay Shore, NY 11706
Peter J. Bellezza 47,500 Common .8%
4250 N A1A, Apt. 506
N. Hutchinson Island, Fl 33449
Franz A. Fideli 57,500 Common 1.0%
820 Bird Bay Way
Venice, FL 34292
Charles Moche 1,120,000 Common 19.8%
196 Maple Street
Englewood, NJ 07631
Elaine Oppenheimer 500,000 Common 8.8%
466 Golf Course Dr.
Leonia, NJ 07605
Marc Oppenheimer 160,000 Common 2.8%
466 Golf Course Dr.
Leonia, NJ 07605
Steven Sherb 500,000 Common 8.8%
80 Coachman Place West
Muttontown, NY 11791
Irving Bass 250,000 Common 4.4%
Harold Schwartz 248,000 Common 4.4%
c/o Jeffrey L. Greenberg, Esq.
5550 Glades Rd. Ste 401
Boca Raton, FL 33431
</TABLE>
(1) Unless noted otherwise, all shares indicated as beneficially owned are
held of record by, and the right to vote and transfer such shares lies with the
person indicated.
(2)Includes 385,000 shares held of record by Omnicap Corp., a corporation
controlled by Mr. Vito Bellezza. Excludes 13,500 shares held by the adult
children of Vito Bellezza, with respect to which Mr. Bellezza disclaims any
beneficial interest.
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ITEM 12. EXECUTIVE COMPENSATION
The Company paid $10,000 as compensation to its current President, during 1996
and the Company has paid no compensation exceeding $100,000 to any of its
current Officers during the preceding three years.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, the Company issued an aggregate of 665,000 shares of Common Stock
to various officers and directors of the Company as an inducement for their
services and certain contributions to the Company. Such shares were issued as
follows: Vito Bellezza 350,000 shares for $18,500 in debt cancellation; Peter
Bellezza 20,000 shares for service on the Board of Directors; Franz Fideli
20,000 shares for service on the Board of Directors; Vito Bellezza 275,000
shares for service on the Board of Directors.
Additionally, the Company sublets its executive offices from Omnicap Corp.
Effective October 1, 1995, the company sublet space and secretarial services
from Omnicap Corp. at a rate of $1,000 per month. As of December 31, 1996, all
rents with respect to the Company's executive offices had been accrued but not
paid.
As of January 2, 1997, the Company relocated its Corporate Offices to 4400 W.
Sample Rd., Coconut Creek, Florida 33073, and all agreements with Omnicap Corp.
with respect to rent and secretarial services have been terminated.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
3.1 Articles of Incorporation, as amended....... *
3.2 Bylaws, as amended.......................... *
4.1 Specimen Common Stock Certificate - incorporated *
* Incorporated by reference pursuant to Exchange Act Rule 12b-23.
(b) Reports on Form 8-K
Form 8-K Dated December 31, 1996
Form 8-K Dated December 20, 1996
Form 8-K/A Dated March 4, 1997
13
<PAGE>
Employment Agreements
VITO A. BELLEZZA
Vito A. Bellezza entered into an Employment Agreement with the Company on
December 2, 1996, as President of Triangle Imaging Group, Inc. The Agreement is
for an initial term of three years, or, until such time as the promissory note
to the Sellers of EBS is paid off. Compensation is at the rate of $120,000
annually with bonus arrangements based on quarterly profit goals as set by the
Board of Directors. The Agreement also entitles Mr. Bellezza to receive 10% of
the outstanding stock of EBS. Additionally, a temporary living allowance, moving
expenses and a car allowance is included along with a limited amount of life and
health insurance coverage.
HAROLD S. FISCHER
Harold S. Fischer entered into an Employment Agreement with EBS on January 13,
1997, as President. The Agreement is for an initial term of one year.
Compensation is at the rate of $120,000 annually with bonus arrangements based
on quarterly profit goals as set by the Board of Directors. The Agreement also
entitles Mr. Fischer to receive 10% of the outstanding stock of EBS.
Additionally, a temporary living allowance, moving expenses and a car allowance
is included along with a limited amount of life and health insurance coverage.
ALBERT J. BRIGGS
Albert J. Briggs entered into an Employment Agreement with EBS on March 1, 1997,
as Vice President. The Agreement is for an initial term of one year.
Compensation is at the rate of $60,000 annually with bonus arrangements based on
quarterly profit goals as set by the Board of Directors. Additionally, a
temporary living allowance, moving expenses and a car allowance is included
along with a limited amount of life and health insurance coverage.
ITEM 15. STOCK OPTIONS
At December 31, 1996, there were 3,100,000 outstanding options to purchase
shares of Common Stock at prices ranging from $.05 to $.20 per share,
exercisable through December 2, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1997 TRIANGLE IMAGING GROUP, INC.
By:
Vito Bellezza, Chairman of the Board,
President, Chief Financial Officer, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Name Title Date
/s/ Vito Belleza Chairman of the Board, March 31, 1997
Vito Bellezza President, Chief Financial Officer,
Chief Executive Officer and Director
/s/ Peter Belleza Director March 31, 1997
Peter Bellezza
/s/ Franz Fideli Director March 31, 1997
Franz Fideli
15
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Page
Number
INDEPENDENT AUDITORS' REPORT..............................................F-2
INDEPENDENT AUDITORS' REPORT..............................................F-3
CONSOLIDATED BALANCE SHEET............................................... F-4
CONSOLIDATED STATEMENTS OF OPERATIONS.....................................F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.......................... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS.....................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................F-8-15
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Triangle Imaging Group, Inc. and Subsidiary
We have audited the consolidated balance sheet of Triangle Imaging
Group, Inc. and Subsidiary as of December 31, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Triangle Imaging
Group, Inc. and Subsidiary as of December 31, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
/s/ Mazars & Guerard, LLP
Mazars & Guerard, LLP
Certified Public Accountants
New York, New York
March 27, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Triangle Imaging Group, Inc.
We have audited the balance sheet of Triangle Imaging Group, Inc. as of
December 31, 1995 and the related statements of operations, stockholders' equity
and cash flows for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Triangle Imaging
Group, Inc. as of December 31, 1995, and the results of its operations and its
cash flows for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/Feldman Radin & Co., P.C.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
June 12, 1996
F-3
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 200,264
Accounts receivable, net of allowance for
doubtful accounts of $65,000 369,868
Prepaid expenses 31,275
----------------
TOTAL CURRENT ASSETS 601,407
EQUIPMENT 191,716
GOODWILL 1,920,478
OTHER ASSETS 4,097
----------------
$ 2,717,698
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 271,175
Deferred revenue 347,203
Due to stockholders 50,000
Current portion of note payable 200,000
----------------
TOTAL CURRENT LIABILITIES 868,378
NOTE PAYABLE 1,400,000
MINORITY INTEREST 40,540
STOCKHOLDERS' EQUITY:
Preferred stock,$1.00 par, 1,000,000 shares
authorized:
Class A, 10,000 shares issued and
outstanding 10,000
Class B, 75,000 shares issued and
outstanding 300,000
Common stock, $.001 par value, authorized
50,000,000 shares, 5,153,166 shares issued
and outstanding 5,153
Additional paid-in capital 1,722,611
Accumulated deficit (1,628,984)
----------------
TOTAL STOCKHOLDERS' EQUITY 408,780
----------------
$ 2,717,698
================
See notes to consolidated financial statements.
F-4
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
-----------------------------------
1996 1995
---------------- ----------------
SALES $ 302,196 $ -
COST OF SALES 51,704 -
---------------- ----------------
GROSS PROFIT 250,492 -
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 218,247 65,915
NON-CASH IMPUTED COMPENSATION EXPENSE 73,960 437,250
LITIGATION SETTLEMENT 35,000 -
AMORTIZATION EXPENSES 8,035 -
---------------- ----------------
INCOME (LOSS) FROM OPERATIONS (84,750) (503,165)
INTEREST EXPENSE (10,192) -
---------------- ----------------
LOSS BEFORE MINORITY INTEREST (94,942) (503,165)
MINORITY INTEREST 4,098 -
---------------- ----------------
NET LOSS $ (99,040) $ (503,165)
================ ================
NET LOSS PER SHARE $ (0.03) $ (0.26)
================ ================
NUMBER OF SHARES USED IN COMPUTATION 3,956,415 1,958,168
================ ================
See notes to consolidated financial statements.
F-5
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Class A Class B Common Stock Total
---------------- ---------------- ------------------ Paid-In Accumulated Treasury Stockholders
Shares Amount Shares Amount Shares Amount Capital Deficit Stock Equity
------- ------- ------- ------- --------- ------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1994 - $ - - $ - 692,166 $ 692 $ 1,003,256 $(1,024,779) $ (12,115) $ (32,946)
Shares sold 10,000 10,000 - - - - - - - 10,000
Shares issued for services - - - - 1,800,000 1,800 435,450 - - 437,250
Shares issued for
cancellation of debt - - - - 1,000,000 1,000 42,021 - - 43,021
Net loss - - - - - - - (503,165) - (503,165)
------- ------- ------- ------- --------- ------- ---------- ----------- --------- ---------
BALANCE - December 31, 1995 10,000 10,000 - - 3,492,166 3,492 1,480,727 (1,527,944) (12,115) (45,840)
Shares issued for services - - - - 961,000 961 96,199 - - 97,160
Shares issued for legal
settlement - - - - 350,000 350 34,650 - - 35,000
Shares issued in acquisition
of EBS - - - - 500,000 500 34,500 - - 35,000
Shares issued for settlement
of debt - - - - 350,000 350 18,150 - - 18,500
Cancellation - - - - (500,000) (500) 500 - - -
Cancellation of treasury
stock - - - - - - (12,115) - 12,115 -
Sale of options - - - - - - 70,000 - - 70,000
Shares sold - - 75,000 300,000 - - - - - 300,000
Dividend payable - - - - - - - (2,000) - (2,000)
Net loss - - - - - - - (99,040) - (99,040)
------- ------- ------- ------- --------- -------- --------- ----------- --------- ---------
BALANCE - December 31, 1996 10,000 $ 10,000 75,000 $300,000 5,153,166 $ 5,153 $1,722,611 $(1,628,984) $ - $ 408,780
======= ======= ======= ======= ========= ======== ========= =========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (99,040) $ (503,165)
Adjustment to reconcile net loss to net cash
provided by operating activities (net of effects of acquisition):
Depreciation 7,445 -
Amortization of goodwill 8,035 -
Shares issued for services 73,962 437,250
Shares issued for legal settlement 35,000 -
Minority interest 4,098 -
Changes in assets and liabilities:
Increase in accounts receivable (39,994) -
Increase in prepaid expenses (25,800) -
Increase in accounts payable and accrued expenses 33,963 57,986
Increase in deferred revenue 32,140 -
---------------- ----------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 29,809 (7,929)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired (221,894) -
Purchase of equipment (12,522) -
---------------- ----------------
CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (234,416) -
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock - 10,000
Proceeds from sale of options 50,000 -
Proceeds from sale of preferred stock 300,000 -
Increase (decrease) in due to stockholders 53,500 (700)
---------------- ----------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 403,500 9,300
---------------- ----------------
NET INCREASE IN CASH 198,893 1,371
CASH - BEGINNING OF YEAR 1,371 -
---------------- ----------------
CASH - END OF YEAR $ 200,264 $ 1,371
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ - $ -
================ ================
Taxes $ - $ -
================ ================
Non cash financing and investing activities:
Issuance of common stock in connection with acquisition of EBS $ 78,200 $ -
================ ================
Issuance of common stock for cancellation of debt $ 18,500 $ 43,021
================ ================
Issuance of debt in connection with acquisition of EBS $ 1,600,000 $ -
================ ================
Dividend payable $ 2,000 $ -
================ ================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. BUSINESS
Triangle Imaging Group, Inc. and Subsidiary (the "Company"), formerly
known as The Triangle Group, Inc., formerly Benefit Performance of
America, Inc. ("Benefit") was incorporated under the laws of the State
of Florida on December 12, 1984. From 1988 until 1992, the Company,
through Old Triangle and various operating subsidiaries, provided data
processing consulting and software development services. During 1992,
the Company abandoned the operations of each of its operating
subsidiaries and management of the remaining public shell set out to
identify attractive businesses with which to merge or to acquire.
On December 2, 1996, the Company acquired 95% of the outstanding stock
of Engineered Business Systems, Inc. ("EBS") (See Note 10). EBS is
engaged in the business of developing, marketing and supporting various
software packages primarily of business use.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of consolidation - The financial statements for
year ended December 31, 1996 include the accounts of the
Company and its subsidiary, EBS. All material intercompany
transactions have been eliminated.
b. Cash and cash equivalents - The Company classifies as cash
equivalents highly liquid temporary investments with an
original maturity of three months or less when purchased.
c. Equipment - Equipment is stated at cost and is depreciated
over the estimated useful lives of the assets using various
accelerated methods which approximates economic depreciation.
d. Goodwill - Goodwill resulting from the acquisition of EBS
represents the excess of the purchase price plus the
acquisition costs over the fair value of the net assets of
EBS. Goodwill is amortized on a straight line basis over a
period of 20 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be
recovered through projected undiscounted future cash flows of
the acquired companies.
F-8
<PAGE>
e. Revenue recognition - Revenue from software sales is generally
recognized upon execution of a sales contract, the delivery of
the software and completion of the major portion of the
contract requirement.
f. Research and development - Research and development costs
are expensed as incurred. These costs primarily consist of
fees paid for the development of the Company's software.
g. Minority interest - Minority interest represents the minority
stockholders' proportionate share of the equity in EBS which
was 5% at December 31, 1996.
h. Accounting 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.
i. Fair value of financial instruments - The carrying amounts
reported in the balance sheet for cash, receivables, and
accrued expenses approximate fair value based on the
short-term maturity of these instruments.
j. Stock based compensation - The Company accounts for stock
transactions in accordance with APB Opinion No. 25,
"Accounting For Stock Issued To Employees" and has adopted the
disclosure-only option under SFAS No. 123, as of December 31,
1995. If the accounting provisions of the new Statement had
been adopted as of the beginning of 1995, the effects on 1995
and 1996 net earnings would have been immaterial.
k. Impairment of long - lived assets - The Company has adopted
Statement of Financial Accounting Standards No. 121,
"Accounting For The Impairment Of Long- Lived Assets And For
Long-Lived Assets To Be Disposed Of" as of January 1, 1996.
Such adoption had no material effect on the financial position
of the Company.
l. Earnings (Loss) Per Share - Earnings (loss) per share are
computed on the basis of the weighted average number of common
shares and common stock equivalents outstanding during the
respective periods after reducing the net loss for preferred
stock dividends. Per share amounts give retroactive effect to
all recapitalizations.
F-9
<PAGE>
3. EQUIPMENT
Equipment at December 31, 1996 consisted of the following:
Estimated
useful lives
--------------------
Computer hardware 5-7 $ 124,051
Computer software 5 35,575
Office furniture 7 13,945
Office equipment 5-7 25,590
----------------
199,161
Less: Accumulated depreciation 7,445
----------------
$ 191,716
================
4. DEFERRED REVENUE
At December 31, 1996, deferred revenue of $347,203 represents the
unearned portion of sales related to software maintenance agreements.
Deferred revenue is recognized as income on a straight - line basis
over the service contract terms which are generally for renewable
twelve month periods.
5. DUE TO STOCKHOLDERS
Amounts due to stockholders are non-interest bearing advances which are
repayable on demand.
6. NOTE PAYABLE
On December 2, 1996 in connection with the acquisition of EBS, the
Company entered into a $1,600,000 promissory note with the former
stockholders of EBS. The note presently bears interest at a rate of 8%
per annum with the interest rate determined annually, at a rate per
annum equal to the Prime Rate less one quarter percent, with a minimum
and maximum rate of 8% and 9% per annum, respectively. Payments of
interest only are due and payable on the first day of January,
February, March and April 1997, thereafter principal shall be payable
in equal installments of $25,000 each together with interest commencing
in May 1997 through January 2000 when all outstanding principal and
interest is due.
F-10
<PAGE>
The note is secured by a Stock Pledge Agreement and a Security
Agreement. Under the Stock Pledge Agreement, the Company agreed to
pledge all of its stock of EBS as security for the note. Additionally,
under the Security Agreement, the note is collateralized by all assets
of the Company.
Principal payments under the note through January 2000 are as follows:
1997 $ 200,000
1998 300,000
1999 300,000
2000 800,000
7. STOCKHOLDERS' EQUITY
a. On April 7, 1995, the Company declared a one for ten reverse
stock split. All common share data has been restated to
reflect this recapitalization.
b. In May 1995, the Company issued a dividend in the form of
common stock warrants to each holder of common stock. An
aggregate of 1,202,126 warrants were issued and each warrant
is convertible into one share of common stock at a price of $5
expiring on August 1, 1996. The warrants expired in 1996.
c. During September 1995 the Company sold for $10,000, 10,000
shares of Class A, $1.00 par value, convertible preferred
stock to an individual who serves as its President. Each share
is entitled to 500 votes and the holder of the shares is
entitled to elect a majority of the board of directors for a
period of three years. The shares do not pay any dividends and
each share is convertible into 150 shares of common stock
until March 27, 1999 and 100 shares of common stock
thereafter.
d. In October 1995 the Company issued 1,000,000 shares of common
stock to its President in exchange for the cancellation of
indebtedness totaling $43,021.
e. A total of 1,800,000 shares of common stock were issued for
services during the year ended December 31, 1995. Such shares
have been valued at their estimated fair market value on the
date of issuance resulting in a non-cash charge to income of
$437,250.
f. In December 1996, the Company sold for $300,000, 75,000 shares
of Class B, $1.00 par value convertible preferred stock. The
shares pay cumulative dividends at the rate of 8% per year and
are convertible into 1,500,000 shares of common stock.
F-11
<PAGE>
g. In December 1996, the President of the Company purchased for
$50,000, 1,000,000 options to purchase common stock at $0.05
per share which expire in December, 1999. In addition, the
President also received 500,000 options to purchase common
stock at $.20 per share which expire in December, 1999. The
difference between the options' estimated fair market value at
the date of issuance and the amount paid for the options has
been recorded as compensation of $20,000.
h. A total of 961,000 shares of common stock were issued for
services during the year ended December 31, 1996. Such shares
have been valued at their estimated fair market value on the
date of issuance resulting in a non-cash charge to income of
$53,960 and $43,200 was capitalized.
i. In December 1996, the Company issued to a consultant 500,000
options to purchase common stock at $.20 per share which
expire in December, 1999.
j. During 1996, the Company exchanged $18,500 of amounts due to
the President of the Company into 350,000 shares of common
stock. In addition, the Company settled a legal dispute for
350,000 shares of common stock valued at $35,000.
k. In January 1997 the Company issued 600,000 stock options to
three consultants to purchase common stock at $0.20 per share
which expire in January, 2000. In addition, the Company issued
500,000 shares of common stock for consulting services.
8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for
the expected future tax benefit to be derived from tax loss and tax
credit carryforwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. At December 31, 1996, the Company
had net deferred tax assets of $500,000. The Company has established a
valuation allowance for the full amount of such deferred tax assets.
The following table gives the Company's deferred tax assets and
(liabilities) at December 31, 1996:
Net operating loss carryforward $ 500,000
Valuation allowance (500,000)
--------------------
$ -
====================
F-12
<PAGE>
The provision for income taxes (benefits) differs from the amount
computed by applying the statutory federal income tax rate to income
(loss) before income taxes as follows:
Year ended December 31,
-------------------------------------
1996 1995
--------------- ---------------
Income tax (benefit) computed
at statutory rate $ (18,100) $ (176,108)
Effect of permanent difference 10,000 35,000
Tax benefit not recognized 8,100 141,108
--------------- ---------------
Provision for income taxes (benefit) $ - $ -
=============== ===============
The Company has net operating loss carryforwards for tax purposes
totaling approximately $1,600,000 at December 31, 1996 expiring in the
years 2005 to 2011. Substantially all of the carryforwards are subject
to limitations on annual utilization because there are "equity
structure shifts" or "owner shifts" involving 5% stockholders (as these
terms are defined in Section 382 of the Internal Revenue Code), which
have resulted in a more than 50% change in ownership. The annual
limitation is based on the value of EBS as of the date of the ownership
change multiplied by the applicable Federal Long Term Tax Exempt Bond
Rate. In June 1995 the Company triggered a section 382 net operating
loss limitation on the cumulative net operating loss carryforwards of
approximately $1,300,000. Utilization of such net operating losses are
limited to $100,000 per annum.
9. COMMITMENTS
a. The Company leases office space in Coconut Creek, Florida.
At December 31, 1996, the future minimum lease payments under
the operating leases which expire in May 1998 are as follows:
1997 $ 76,000
1998 31,000
b. The Company has employment agreements with two officers and
an employee of the Company. The agreements expire in January
1998 and January 2000. Minimum commitments under these
agreements are as follows:
1997 $ 350,700
1998 126,600
1999 126,600
2000 10,550
The agreements also provide for incentive bonuses based
on profit criteria and the
F-13
<PAGE>
payment of various expenses. In addition, the agreement with
the President and CEO of EBS entitles each of them to receive
10% of the outstanding stock of EBS. Additionally, the Company
has guaranteed the sale of the President's house in an amount
equal to an MAI appraisal.
10. ACQUISITION
On December 2, 1996, 95% of the stock of EBS was acquired by the
Company for $896,000 in cash, a note payable to EBS's shareholders for
$1,600,000 and 500,000 restricted shares of the Company's common stock
with certain piggy back registration rights and restrictions. EBS's
shareholders also have certain anti-dilution provisions and selling
rights tied to the President's personal stock holdings, which expire
upon the earlier of the a) registration of the restricted shares and
the payment of all obligations to the EBS's shareholders or b) on
January 2, 2000 and payment of all obligations to EBS's shareholders.
The acquisition of EBS has been accounted for as a purchase and
accordingly, the assets acquired and liabilities assumed have been
recorded at their estimated fair values which approximates book value.
The following table summarizes this acquisition:
Purchase Price, including acquisition costs $ 2,620,915
Liabilities assumed 454,159
Assets acquired (1,146,561)
-------------------
Goodwill $ 1,928,513
===================
Accumulated amortization on goodwill at December 31, 1996 was $8,035.
The results of operations for EBS for the period December 2, 1996 to
December 31, 1996 are included in the accompanying consolidated
financial statements for the year ended December 31, 1996.
The following schedule combines the unaudited pro forma results of
operations of the Company and EBS for the years ended December 31, 1996
and 1995, respectively, as if the acquisition had occurred on January
1, 1995 and includes such adjustments which are directly attributable
to the acquisition. It should not be considered indicative of the
results that would have been achieved had the acquisition not occurred
or the results that would have been obtained had the acquisition
actually occurred on January 1, 1995.
F-14
<PAGE>
Year Ended December 31,
------------------------------------------
1996 1995
----------------- ------------------
Net sales $ 3,296,325 $ 3,860,711
Net income (loss) 155,027 (30,764)
Net income (loss) per share 0.04 (0.02)
Shares used in computation 3,956,415 1,958,168
11. RESCINDED ACQUISITION
During 1995, the Company had entered into an agreement with Pegasus
Technologies, Inc. to acquire certain licenses related to aircraft
inspection technology in exchange for 90% of the Company's issued and
outstanding common stock. The Company subsequently learned that Pegasus
did not own the rights to the technologies, contrary to what it had
claimed. Upon learning of this situation, the Company exercised its
rights and rescinded all aspects of this transaction. In connection
with the rescinded acquisition, 500,000 shares of the Company's common
stock were canceled during 1996.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764763
<NAME> TRIANGLE IMAGING GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 200,264
<SECURITIES> 0
<RECEIVABLES> 369,868
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 601,407
<PP&E> 191,716
<DEPRECIATION> 0
<TOTAL-ASSETS> 2717698
<CURRENT-LIABILITIES> 868,378
<BONDS> 0
0
310,000
<COMMON> 5,153
<OTHER-SE> 93,627
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<CGS> 51,704
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<INCOME-PRETAX> (99,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,040)
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<EPS-PRIMARY> (.03)
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</TABLE>
