Securities and Exchange Commission
Washington, D.C. 20549
Report on Form 10-KSB/A
[ x ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________to__________________
Commission File No. 2-96392
TRIANGLE IMAGING GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2493183
(State of or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4400 W. Sample Road, Suite 228
Coconut Creek, FL 33073
(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code: (954) 968-2080
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all Reports required
to be filed by Sections 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. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-B is not 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 were $5,508,267.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as of March
31, 1998, was approximately $9,200,000.
Number of shares outstanding of the issuers Common Stock, as of March 31, 1998,
was 9,618,616.
Documents Incorporated By Reference: None
<PAGE>
Item 6
Management's Discussion and Analysis of Financial Condition
The Company's total revenues for the fiscal year 1997 were $5,508,267, which is
an increase of $5,206,071 over the Company's fiscal year 1996 revenues of
$302,196. The increase resulted primarily from a complete operational cycle,
based on the fiscal year of operations, from subsidiary, Engineered Business
Systems, Inc., as compared to the 1996 record of operations for the one month
period ending December 31, 1996. Reoccurring sales in the CRIS(R) and ACES(TM)
product lines constituted 49% of the Company's revenues in the fiscal year 1997.
Sales from the ACES(TM) product line contributed 10% of the reoccurring sales
for the fiscal year 1997 while the remaining 39% of revenues contributed to
reoccurring sales were derived from the CRIS(R) product line. New sales of
CRIS(R) products constituted 9% of the Company's revenues for fiscal year 1997
and new sales of ACES(TM) products comprised 8% of the revenues.
Outsourcing revenues accounted for approximately 28% of the Company's revenues
in fiscal 1997. Other income, including interest income, comprised the remaining
6% of revenues for the 1997 fiscal year.
The cost of sales was $1,577,249 in fiscal 1997, which was an increase of
$1,525,545, over the Company's fiscal year 1996 cost of sales of $51,704. Gross
profit, $3,931,018, as a percentage of revenues was 71% in fiscal 1997 as
compared to 82%, or $250,492, for fiscal 1996. The decrease of gross profit as a
percentage was attributable to the differing length of reporting periods for
subsidiary Engineered Business Systems, Inc., as well as the majority of the
sales during the short 1996 period being service-related with a smaller cost of
sales percentage. The increase in gross profit resulted primarily from a
complete operational cycle, with increased sales from subsidiary, Engineered
Business Systems, Inc., as compared to the 1996 record of operations for the one
month period ending December 31, 1996.
Selling, general and administrative expenses were $2,753,406 in fiscal 1997
compared to $253,247, an increase of $2,500,159 an annualized decrease of 10%.
The increase was primarily due to a complete operational cycle, based on the
fiscal year of operations, from subsidiary, Engineered Business Systems, Inc.,
as compared to the 1996 record of operations for the one month period ending
December 31, 1996. Management also believes that the increase in selling,
general and administrative expenses was due to the increased expenses associated
with increased sales as well as continued and increased investment in its
product lines while the decrease on an annualized basis was due to operational
efficiencies. Non-cash imputed compensation for the fiscal year 1997 was
$138,158 compared to $73,960 for fiscal 1996. The increase was due to the
Company's issuance of stock to new consultants for services necessary for the
dynamic growth of the company. The non-cash imputed compensation also allowed
additional funds to be invested in the Company's existing and developing product
lines.
The Company's net income in fiscal year 1997 includes non-cash expenses of
approximately $85,483 as compared to the $8,035 for fiscal year 1996. 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. The increase of the non-cash expenses was again primarily
attributable to the differing length of reporting periods for subsidiary
Engineered Business Systems, Inc., due to its acquisition.
Interest expense was $110,182 in 1997, compared to $10,192 in the fiscal year
1996, reflecting interest paid on an 8% promissory note of $1,600,000. The
promissory note was issued by the Company in connection with the purchase of the
EBS capital stock. Minority interest for the fiscal year 1997 was $24,301 and
reflects the 5% of EBS not then owned by the Company.
The Company's net gain before any income tax provision for fiscal year 1997, was
$819,488, compared to the net loss of $99,040 for the fiscal year 1996. The
increase in the net gain in fiscal year 1997 is primarily attributable to a
combination of all the factors discussed above. The Company also had an income
tax provision of $226,000, which resulted from the realization of net operating
loss carry forwards recoverable in future years. The Company's final net income
after tax provisions was $1,045,488 for the fiscal year 1997 as compared to the
net loss of $99,040 for the fiscal year ending December 31, 1996. The increase
in the net gain in fiscal year 1997 is primarily attributable to a combination
of all the factors discussed above.
Liquidity and Capital Resources
The Company has funded its working capital and capital expenditure requirements
with cash provided from operations. The primary source of cash receipts is from
payments for CRIS(R), ACES(TM), and outsourcing sales and accounts receivables.
The management of the company believes cash flows from continuing operations
will be sufficient to fund operational expenditures into the foreseeable future
and anticipated acquisitions will be funded with cash from operations and
through the issuance of stock.
Management estimates the future spending for capital expenditures, for the
fiscal year 1998, to be approximately $350,000 and believes that the current and
future cash flows from sales are sufficient to fund the planned capital
expenditures as included.
At December 31, 1997, the Company had working capital of $525,009 as compared to
working capital of $200,264 at December 31, 1996. The increase is due to the
cash flow from the operations of EBS as well as the issuance of common stock and
common stock options.
Year 2000
What is commonly known as the "Year 2000 issue" arises due to the use by many
computer hardware and software systems of only two digits to represent year date
formats. As a result, these systems and programs may not calculate dates beyond
1999, which may cause errors in information collection and manipulation or
systems failures resulting in business process interruption. The calculation and
process errors resulting from the Year 2000 issue may be further complicated
since the year 2000 is a leap year. With respect to its internal systems, the
Company is taking appropriate steps to prepare its computer systems for the year
2000. The Company does not expect the cost of these efforts to be material. The
Company is also assessing its current line of software products to determine the
capabilities of such products in the year 2000 and beyond and has, in the
ordinary course of its product development efforts, designed its current
hardware and software offerings to be year 2000 ready. (However, Year 2000
readiness of the Company's customers and the hardware and software offerings
from the Company's suppliers, subcontractors and business partners may vary and
may adversely effect the use by such persons and entities of the Company's
products). Current information about the Year 2000 capacity of the Company's
products is available at the Company's website (www.ebs-inc.com). The Company is
aware of the potential for claims against it and other companies for damages
from products and services that were not year 2000 ready but believes that any
such claims against it will be without merit. While the Company does not
anticipate that the year 2000 matters discussed above will have a material
impact on its business, financial condition or results of operations, it is
uncertain whether or to what extent the Company may be affected by such matters.
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 passing any effects of thereof onto the Company's
customers.
The Company is including the following cautionary statement in its Annual Report
on Form 10-KSB 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 7
Financial Statements and Supplementary Data
See the Index to Financial Statements attached hereto for a listing of the
financial statements and supplementary data included as a part of this
amendment.
<PAGE>
Triangle Imaging Group, Inc. and Subsidiary
Index to Consolidated Financial Statements
Years Ended December 31, 1997 and 1996
Page
Number
INDEPENDENT AUDITORS REPORT..................................................F-2
CONSOLIDATED BALANCE SHEET.................................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS........................................F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS........................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................F-7--F-19
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, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997 and 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, 1997, and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
Mazars & Guerard, LLP
Certified Public Accountants
New York, New York
February 13, 1998 and March 10, 1998 as to Note 7j and 14
F-2
<PAGE>
<TABLE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 525,009
Accounts receivable, net of allowance for
doubtful accounts of $114,000 778,555
Prepaid expenses 38,489
Deferred tax asset 229,000
-------------
TOTAL CURRENT ASSETS 1,571,053
EQUIPMENT 154,489
GOODWILL 1,639,704
OTHER ASSETS 644,023
-------------
$ 4,009,269
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 404,254
Deferred revenue 390,925
Due to stockholder 50,000
Current portion of notes payable 400,000
---------------
TOTAL CURRENT LIABILITIES 1,245,179
NOTE PAYABLE 1,100,000
DEFERRED TAX LIABILITY 3,000
STOCKHOLDERS' EQUITY:
Convertible preferred stock,
Class A, $1.00 par, 1,000,000 shares
authorized, 10,000 shares issued and
outstanding 10,000
Common stock, $.001 par value, authorized
50,000,000 shares, 9,418,616 shares
issued and outstanding 9,418
Additional paid-in capital 2,865,059
Accumulated deficit -589,387
Stock subscription receivable -526,300
Deferred compensation -107,700
---------------
TOTAL STOCKHOLDERS' EQUITY 1,661,090
---------------
$ 4,009,269
===============
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
-------------------------------
1997 1996
---------------- -----------
<S> <C> <C>
SALES $ 5,508,267 $ 302,196
COST OF SALES 1,577,249 51,704
--------------- -----------
GROSS PROFIT 3,931,018 250,492
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,753,406 253,247
NON-CASH IMPUTED COMPENSATION EXPENSE 138,158 73,960
AMORTIZATION EXPENSE 85,483 8,035
--------------- -----------
INCOME (LOSS) FROM OPERATIONS 953,971 -84,750
INTEREST EXPENSE, net 110,182 10,192
--------------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 843,789 -94,942
MINORITY INTEREST 24,301 4,098
--------------- -----------
INCOME (LOSS) BEFORE INCOME TAX PROVISION 819,488 -99,040
PROVISION FOR INCOME TAXES -226,000 0
--------------- -----------
NET INCOME (LOSS) $ 1,045,488 $ -99,040
=============== ===========
NET INCOME (LOSS) PER SHARE:
Basic $ 0.13 $ -0.03
=============== ===========
Diluted $ 0.09 $ -0.03
=============== ===========
NUMBER OF SHARES USED IN COMPUTATION:
Basic 8,224,044 3,956,415
=============== ===========
Diluted 11,141,700 3,956,415
=============== ===========
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
Preferred Stock Preferred Stock
Class A Class B Common Stock
------------------- ------------------ ------------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
-------- -------- -------- -------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- December 31, 1995 10,000 $ 10,000 -- $ -- 3,492,166 $ 3,492 $ 1,480,727 $ -1,527,944
Shares issued for services -- -- -- -- 961,000 961 96,199 --
Shares issued for legal -- -- -- -- 350,000 350 34,650 --
settlement
Shares issued in acquisition of -- -- -- -- 500,000 500 34,500 --
EBS
Shares issued for settlement of -- -- -- -- 350,000 350 18,150 --
debt
Cancellation -- -- -- -- -500,000 -500 500 --
Cancellation of treasury stock -- -- -- -- -- -- -12,115 --
Sale of options -- -- -- -- -- -- 70,000 --
Shares sold -- -- 75,000 300,000 -- -- -- --
Cumulative preferred dividends -- -- -- -- -- -- -- -2,000
payable, Class B
Net loss -- -- -- -- -- -- -- -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
Shares issued for services -- -- -- -- 33,200 33 17,065 --
Shares issued for deferred -- -- -- -- 650,000 650 173,350 --
compensation
Shares sold -- -- -- -- 2,557,250 2,557 878,393 --
Conversion of preferred stock -- -- -75,000 -300,000 1,500,000 1,500 298,500 --
Shares issued for purchase of -- -- -- -- 75,000 75 53,175 --
minority interest
Shares purchased and retired -- -- -- -- -550,000 -550 -278,035 --
Amortization of deferred -- -- -- -- -- -- -- --
compensation
Cash received on stock -- -- -- -- -- -- -- --
subscription
Net income -- -- -- -- -- -- -- 1,045,488
Cumulative preferred dividends -- -- -- -- -- -- -- -5,891
paid
-------- -------- -------- -------- --------- -------- ----------- -------------
BALANCE -- December 31, 1997 10,000 $ 10,000 -- $ -- 9,418,616 $ 9,418 $ 2,865,059 $ -589,387
======== ======== ======== ======== ========= ======== =========== =============
Stock Total
Deferred Subscription Treasury Stockholders'
Compensation Receivable Stock Equity
- ------------ ------------- ---------- --------------
<C> <C> <C> <C>
$ -- $ -- $ -12,115 $ 3,456,326
-- -- -- 1,058,160
-- -- -- 385,000
-- -- -- 535,000
-- -- -- 368,500
-- -- -- --
-- -- 12,115 --
-- -- -- 70,000
-- -- -- 375,000
-- -- -- -2,000
-- -- -- -99,040
- ------------ ------------- ---------- --------------
-- -- -- 6,146,946
-- -- -- 50,298
-174,000 -- -- --
-- -768,700 -- 2,669,500
-- -- -- --
-- -- -- 128,250
-- -- -- -828,585
66,300 -- -- 66,300
-- 242,400 -- 242,400
-- -- -- 1,045,488
-- -- -- -5,891
- ------------ ------------- ---------- --------------
$ -107,700 $ -526,300 $ -- $ 9,514,706
============ ============= ========== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,045,488 $ -99,040
Adjustment to reconcile net income (loss)
to net cash provided by operating
activities (net of effects of acquisition):
Depreciation 142,203 7,445
Amortization of goodwill 85,483 8,035
Shares issued for services 83,398 73,962
Shares issued for legal settlement -- 35,000
Minority interest 24,301 4,098
Changes in assets and liabilities:
Increase in accounts receivable 0 -39,994
Decrease (increase) in prepaid expenses 0 -25,800
Increase in deferred tax asset -393,000 --
Increase in other assets 273,700 --
Increase in accounts payable and
accrued expenses 0 33,963
Increase in deferred tax liability 167,000 --
Increase in deferred revenue 0 32,140
------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
1,428,573 29,809
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash
acquired of $674,106 -- -221,894
Cash received for acquisition liabilities 10,000 --
Purchase of equipment -142,203 -12,522
------------ ------------
CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES -132,203 -234,416
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 354,650 --
Proceeds from sale of options -- 50,000
Proceeds from sale of preferred stock -- 300,000
Cost of purchasing and retiring stock -278,585 --
Cumulative preferred dividends paid,
Class B -5,891 --
Repayment of debt -200,000 --
Increase (decrease) in due to stockholders -- 53,500
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -129,826 403,500
------------ ------------
NET INCREASE IN CASH 1,166,544 198,893
CASH - BEGINNING OF YEAR 200,264 1,371
------------ ------------
CASH - END OF YEAR $ 1,366,808 $ 200,264
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 121,976 $ 0
============ ============
Taxes $ 8,000 $ 0
============ ============
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
============ ============
Issuance of debt in connection with
acquisition of EBS $ -- $1,600,000
============ ============
Dividend payable $ -- $ 2,000
============ ============
Issuance of debt in connection with
purchase of minority interest $ 100,000 $ --
============ ============
Shares subject to subscription receivable $ 768,700 $ --
============ ============
Issuance of common stock in connection
with purchase of minority interest $ 53,250 $ --
============ ============
Issuance of options for services $ 50,000 $ --
============ ============
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
TRIANGLE IMAGING GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. BUSINESS
Triangle Imaging Group, Inc. and Subsidiary (the "Company"), formerly known
as The Triangle Group, Inc., formerly Benefit Performance of America, Inc. was
incorporated under the laws of the State of Florida on December 12, 1984. From
1992, during which the Company ceased its previous business, through December
1996, the Company did not have any operations. On December 2, 1996, the Company
acquired 95% of the outstanding stock of Engineered Business Systems, Inc.
("EBS") and on December 31, 1997 the remaining 5% of EBS was purchased by the
Company (see Note 10). On February 27, 1998 the Company formed QuickCREDIT
Corp., a Florida corporation, for the purpose of acquiring and developing Credit
Reporting Agencies. On March 10, 1998 the Company announced a Letter of Intent
to acquire TriMax Systems, Corp. and Multitask Corp., New York based full
service systems integration firms.
EBS designs, develops and sells Windows based software systems for both the
mortgage quality control and the credit reporting industries. Additionally, the
outsourcing division processes quality control files for mortgage banks.
QuickCREDIT Corp. was formed for the purpose of acquiring and consolidating
the credit reporting companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
subsidiary, EBS. All material intercompany transactions have been eliminated.
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.
Equipment
Equipment is stated at cost and is depreciated over the estimated useful
lives of the assets using various accelerated method which approximates economic
depreciation.
F-7
<PAGE>
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.
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.
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.
Minority Interest
Minority interest represents the minority stockholders' proportionate share
of the equity in EBS which was 5%. In 1997, the Company purchased the minority
interest.
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.
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.
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.
F-8
<PAGE>
Accounting of Long - Lived Assets
The Company reviews long-lived assets, certain identifiable assets and any
goodwill related to those assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recoverable. At December 31, 1997, the Company believes that there has
been no impairment of its long-lived assets.
Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS No. 128"),
which became effective for both interim and annual financial statements for
periods ending after December 15, 1997. FAS No. 128 requires a presentation of
"Basic" and (where applicable) "Diluted" earnings per share. Generally, Basic
earnings per share are computed on only the weighted average number of common
shares actually outstanding during the period, and the Diluted computation
considers potential shares issuable upon exercise or conversion of other
outstanding instruments where dilution would result. Furthermore, FAS No. 128
requires the restatement of prior period reported earnings per share to conform
to the new standard.
Software Development Costs
The Company has capitalized software costs included in Other Assets which
totaled $419,431 at December 31, 1997. The capitalization of such costs is in
accordance with SFAS No. 86. Amortization is computed on an individual product
basis and has been recognized for those products available for market based on
their estimated economic lives.
Accounting for Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (ASFAS 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.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade receivables include
concentrations of trade account from software products users.
F-9
<PAGE>
3. EQUIPMENT
Equipment at December 31, 1997 consisted of the following:
<TABLE>
Estimated useful
lives
-------------------
<S> <C> <C>
Computer hardware 5-7 $ 510,334
Computer software 5 140,751
Office furniture 7 68,479
Office equipment 5-7 111,574
---------
831,138
---------
Less: Accumulated depreciation 676,649
---------
$ 154,489
=========
</TABLE>
4. DEFERRED REVENUE
At December 31, 1997, deferred revenue of $390,925 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 STOCKHOLDER
Amounts due to stockholder are non-interest bearing advances which are
repayable on demand.
6. NOTES 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 1/4% 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 were due and payable on the first
day of January, February, March and April 1997. Thereafter, principal is 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.
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.
F-10
<PAGE>
The Company covenants and agrees to use not less than twenty-five (25)
percent of the net proceeds from the sale by the Company of the Company's common
stock or other securities in any private placement or public offering occurring
after the date of the note to pay down the indebtedness evidenced by the Note.
Principal payments under the note through January 2000 are as follows:
<TABLE>
<S> <C>
1998 $ 300,000
1999 300,000
2000 800,000
</TABLE>
In December 1997, in connection with the purchase of the 5% minority
interest of EBS the Company entered into a promissory note for $100,000 payable
in four equal installments of $25,000 payable on the fifteenth of each month
from February through May 1998.
7. STOCKHOLDERS' EQUITY
a. In September 1995, the Company issued 100,000 shares of Class A
Convertible Preferred Stock to its Chairman with a par value of $1.00. In March
1997, the Company effected a reverse stock split of the shares on a 1:10 basis,
there by reducing the number of shares to 10,000. The Class A Preferred has the
following features: (1) voting -- 500 votes per share, (2) convertible into
1,500,000 shares of common stock until March 27, 1998 and convertible into
1,000,000 shares of common stock thereafter, (3) holder has a special vote to
appoint a majority of the members of the Board of Directors for a period of
three years from the date of issue. The stock does not bear any dividends.
b. In December 1996, the Company sold for $300,000, 75,000 shares of Class
B, $1.00 par value convertible preferred stock. The shares paid cumulative
dividends at the rate of 8% per year and were convertible into 1,500,000 shares
of common stock. In May 1997, all such shares were converted into 1,500,000
shares of common stock.
c. 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.
d. During 1996, the Company settled a legal dispute against the Company in
return for the issuance of 350,000 shares of common stock valued at $35,000.
e. During 1996, the Company exchanged $18,500 of amounts due to the
Chairman of the Company for 350,000 shares of common stock.
F-11
<PAGE>
f. In December 1996, the Chairman 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 Chairman also received 500,000 options to
purchase common stock at $0.20 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.
g. In September 1996, the Company canceled 500,000 shares of stock. This
stock was originally issued as part of the consideration for the "Transfer of
Technology Agreement" between the Company and Pegasus Technologies. The shares
were canceled due to the "Rescission Agreement" concerning the Technology
Transfer Agreement. The said shares have been retired, and accordingly, the
costs have been charged against paid-in-capital.
h. In December 1996, the Company retired treasury stock valued at $12,115,
and accordingly, such amount has been charged against paid-in-capital.
i. In January 1997, the Company issued 500,000 shares of common stock for
consulting services. The stock was valued at $69,000 and is being amortized over
5 years resulting in a non-cash charge to income of $13,800. The balance of
$55,200 has been recorded as deferred compensation.
j. In April 1997, pursuant to stock subscription agreements, the President
of the Company and the wife of the President subscribed to purchase 2,333,000
shares of common stock for a total value of $768,700. As of March 10, 1998, the
amount was paid in full by the President.
k. During 1997, the Company sold 224,250 shares of common stock for a total
value of $112,250.
l. In July 1997, the Company purchased 500,000 shares of the Company's
common stock from the original sellers of EBS for $233,000. In December 1997,
the Company purchased 50,000 shares of common stock on the open market for
$45,583. All said shares have been retired, and accordingly, the costs have been
charged against additional paid-in capital.
m. In July 1997, the Company issued 150,000 shares of common stock to two
consultants. The stock was valued at $105,000 and is being amortized over 1 year
resulting in a non-cash charge to income of $52,500. The balance of $52,500 has
been recorded as deferred compensation.
n. In December 1997, the Company entered into an agreement with the
individuals representing the minority interest of EBS. The agreement provides
for the Company to purchase the minority interest of EBS in exchange for 75,000
shares of Company common stock and a note payable for $100,000.
F-12
<PAGE>
o. During 1997, the Company issued 33,200 shares of common stock to various
employees and consultants for services resulting in a non-cash charge to income
of $17,098.
p. In December 1997, the Company issued 675,000 stock options to a
consulting firm which provides management and consulting services. The options
range in price from $0.625 to $3.50. Such options expire between June 1998 and
December 2001. Such options were valued at $50,000, the fair market value on the
date of grant. Such costs will be accrued as consulting expense over the period
for which services are provided.
8. INCOME TAXES
During the year ended December 31, 1997, the Company determined that the
realization of its net operating loss carryforwards was probable, and
accordingly, recorded the tax asset expected to be recovered in future years. At
December 31, 1997, the Company recorded a $393,000 deferred tax asset with
$263,000 recorded as a current asset, which represents the portion of the net
operating loss carryforward expected to be utilized in the next twelve months.
At December 31, 1997 the Company recorded a $167,000 deferred tax liability with
$34,000 recorded as a current liability which represents the tax effects of the
annual amortization attributed to the temporary timing difference. The following
table gives the components of the Company's deferred tax asset and liability at
December 31, 1997:
<TABLE>
<S> <C>
Temporary difference -- liability $ (167,000)
Net operating loss carryforward 393,000
</TABLE>
The income tax provision consisted of the following:
<TABLE>
Year Ended December 31,
------------------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred $226,000 --
</TABLE>
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:
F-13
<PAGE>
<TABLE>
Year ended December 31,
-----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Income tax (benefit) computed at statutory rate $ 287,000 $ (176,108)
State tax 41,000 --
Effect of permanent difference 74,000 35,000
Tax benefit not recognized -- 141,108
Tax benefit recognized (628,000) --
Provision for income taxes (benefit) $ (226,000) $ --
</TABLE>
The Company has net operating loss carryforwards for tax purposes totaling
approximately $980,000 at December 31, 1997 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 April 1997 the Company triggered a section 382 net operating loss
limitation on the cumulative net operating loss carryforwards. Utilization of
such net operating losses are limited to $650,000 per annum.
9. COMMITMENTS
a. The Company leases office space in Coconut Creek, Florida. At December
31, 1997, the future minimum lease payments under the operating leases which
expire in May 1998 will be $31,000. Rent expense was $79,869 for the year ended
December 31, 1997 and $6,000 for the year ended December 31, 1996.
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:
<TABLE>
<S> <C>
1998 $ 126,600
1999 26,600
2000 10,550
</TABLE>
The agreements also provide for incentive bonuses based on profit criteria
and the 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
Chairman's house in an amount equal to an MAI appraisal.
F-14
<PAGE>
Effective July 1, 1997, the terms of the employment agreements with the
Company's President and Chairman were amended. For each, their ownership of 10%
of EBS was replaced with options to purchase 10% of the shares of EBS.
Accordingly, the minority interest associated with their ownership was
reclassified against goodwill.
The President and Chairman's options to purchase 10% of the shares of EBS
have been valued at $136,850 each. Such amounts have been recorded as deferred
compensation and are being amortized over 5 years. The current year's non cash
imputed compensation expense as a result of this amortization was $54,760.
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:
<TABLE>
<S> <C>
Purchase Price, including acquisition costs $ 2,620,915
Liabilities assumed 454,159
Assets acquired (1,146,561)
-------------
Goodwill $ 1,928,513
=============
</TABLE>
Accumulated amortization on goodwill at December 31, 1997 was $93,518.
In 1997, the Company received from the sellers of EBS $10,000 for the
settlement of certain liabilities. Such amount has been recorded as a reduction
to goodwill.
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.
F-15
<PAGE>
The following schedule combines the unaudited pro forma results of
operations of the Company and EBS for the year ended December 31, 1996 as if the
acquisition had occurred on January 1, 1996 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, 1996.
<TABLE>
Year Ended
December 31,
1996
----------------------
<S> <C>
Net sales $ 3,296,325
Net income $ 155,027
Net income per share $0.04
Shares used in computation $ 3,956,415
</TABLE>
In December 1997, the Company purchased the 5% minority interest of EBS for
75,000 shares of common stock and a note payable for $100,000. The common stock
was valued at its fair market value on the date of the agreement. The total cost
of $153,250 was recorded as additional goodwill.
11. STOCK OPTIONS
In December 1997, the Company adopted two stock option plans authorizing
the issuance of options covering 900,000 shares of the Company's common stock.
Officers and Directors are eligible to participate in the Officers and Directors
Stock Option Plan covering 600,000 shares while key employees are eligible to
participate in the Employee Stock Option Plan covering 300,000 shares.
Participants receive incentive stock options pursuant to the Plan. Options
granted under the Employee Stock Option Plan are exercisable for a period of not
more than ten years from the inception of the Plan. Options granted under the
Officers and Directors Stock Option Plan are exercisable for a period of not
more than five years from the inception of the Plan. Selection of participants,
allotment of shares, determination of exercise price and other conditions of the
granting of options will be determined by the Company. Additionally, the Plan
provides that no options may be issued at an exercise price which is less than
the fair market value of the Company's common stock on the date of grant.
F-16
<PAGE>
The Company has outstanding stock options as follows:
<TABLE>
Plan Options Non-Plan Options
-------------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 -- -- 2,100,000 $.05-$.20
Option grants 680,000 $.875 750,000 $.625-$3.50
-------------------- ----------------------
Outstanding at December 31, 1997 680,000 $.875 2,850,000 $.05-$3.50
==================== ======================
</TABLE>
At December 31, 1997, all of the 2,850,000 Non-Plan options were
immediately exercisable and the 680,000 Plan options are exercisable beginning
September 1, 1998.
12. ACCOUNTING FOR EMPLOYEE STOCK OPTIONS
In fiscal 1996, the Company adopted the disclosure provisions SFAS No. 123,
"Accounting for Stock-Based Compensation". For disclosure purposes, the fair
value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during the years ended December 31, 1997 and 1996: annual
dividends of $0; expected volatility of 50%; risk-free interest rate of 7% and
expected life of five years. The weighted average fair value of stock options
granted during the years ended December 31, 1997 and 1996 was $.37 and $.07,
respectively. If the Company had recognized compensation cost for stock options
in accordance with SFAS No. 123, the Company's proforma net income (loss) and
net income (loss) per share would have been $522,378 and $.06 per share for the
fiscal year ended December 31, 1997 and $(259,948) and $(.07) per share for the
fiscal year ended December 31, 1996.
13. EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator
underlying the earnings per share computations:
F-17
<PAGE>
<TABLE>
For the Year ended December 31, 1997
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -----------
<S> <C> <C> <C>
Net Income $ 1,045,488
Preferred stock dividends (5,891)
Basic EPS:
Income available to
common shareholders $ 1,039,597 8,224,044 $.13
Effective of Dilutive
Securities:
Options 1,417,656
Convertible Preferred
Stock
Diluted EPS: 1,500,000
Income available to
common shareholders
and assumed conversions $ 1,039,597 11,141,700 $.09
============ ============= ===========
</TABLE>
Other potentially dilutive securities outstanding at December 31, 1997,
excluded from the computation because their effect is antidilutive, include
1,280,000 shares issuable pursuant to outstanding options.
<TABLE>
For the Year ended December 31, 1996
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -----------
<S> <C> <C> <C>
Net Income $ (99,040)
Preferred stock dividends (2,000)
Basic EPS:
Income available to common
shareholders $ (101,040 3,956,415 $(.03)
============ ============= ===========
</TABLE>
14. SUBSEQUENT EVENT
On March 10, 1998, as amended, the Company announced a Letter of Intent to
acquire TriMax Systems, Inc. and Multitask Corp. for 450,000 shares of the
Company's common stock. The acquisitions will be accounted for as purchases.
The following schedule combines the unaudited pro forma results of
operations of the Company and TriMax and Multitask for the year ended December
31, 1997 as if the acquisition had occurred on January 1, 1997 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, 1997.
F-18
<PAGE>
<TABLE>
Year Ended
December 31, 1997
----------------------------
<S> <C>
Sales $ 9,346,470
Net income $ 1,024,694
Net income per share -- basic $0.12
Net income per share -- diluted $0.09
Shares used in computation -- basic 8,629,044
Shares used in computation -- diluted 11,546,700
</TABLE>
15. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Accounts payable -- trade $ 193,449
Accrued expenses 89,512
Vacation payable 23,877
Wages payable 96,116
Sales and payroll taxes payable 1,300
----------
$ 404,254
==========
</TABLE>
16. OTHER ASSETS
Other assets consist of the following at December 31, 1997:
<TABLE>
Accumulated Net Book
Life Cost Amortization Value
--------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Software development costs 5 yrs. $ 419,431 -- $ 419,431
Deferred compensation 5 yrs. 273,700 54,760 218,940
Deposits -- -- -- 5,652
----------
$ 644,023
==========
</TABLE>
F-19
<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: Coconut Creek, Florida
October 29, 1998
TRIANGLE IMAGING GROUP, INC.
By: /s/ Vito A. Bellezza
Vito A. Bellezza
Chairman of the Board, Chief Executive Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- -------------------------------- ------------------------ ----------------
/s/ Vito A. Bellezza Chairman of the Board, October 29, 1998
Vito A. Bellezza Chief Executive Officer
and Principal Accounting
Officer
/s/ Harold S. Fischer President and Director October 29, 1998
Harold S. Fischer
/s/ Peter Bellezza Director October 29, 1998
Peter Bellezza
/s/ Franz A. Fideli Director October 29, 1998
Franz A. Fideli
/s/ J. Alan Lindauer Director October 29, 1998
J. Alan Lindauer
______________________ Director
Charles D. Winslow
