<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20594
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1996
--------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------------
Commission file number 0-15081
---------
iX SYSTEMS, INC.(FORMERLY SMARTCARD INTERNATIONAL INC.)
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3170130
- -------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3119, South Farmingdale, New York 11735
- -------------------------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: None
----
Securities registered pursuant to Section 12(b) of the act: None
----
Securities registered pursuant to Section 12 (g) of the Act:
- -------------------------------------------------------------------------------
(Title of class)
Common Stock, par value $.001 per share
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-KSB is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
As of February 14, 1997, the aggregate market value of voting stock
held by nonaffiliates of the Registrant was $26,077 as computed by reference to
the average bid and asked prices of the stock($0.001) multiplied by the number
of shares of voting stock outstanding on February 14, 1997 held by
nonaffiliates (26,077,005).
Revenues for the most recent fiscal year were $2,755
The total number of outstanding shares as of February 14, 1996 was
54,794,889.
<PAGE> 2
Part I
ITEM 1. DESCRIPTION OF BUSINESS
iX Systems, Inc. (the Company), was a development stage enterprise, and was
incorporated in 1983, as SmartCard International, Inc. From 1983 to 1985 the
Company was engaged in limited activities, including market research and
consulting services related to smart card technology. In October 1991, the
Company name was changed to iX Systems, Inc.
As of August 6, 1993, the Company's Board of Directors determined that in view
of working capital deficiencies, lack of demand for the Company's electronic
transaction terminal, the large additional capital investment required to
continue operations, and in order to preserve remaining capital resources of
the Company, to immediately cease all ongoing operations of the Company except
for any activity necessary to preserve corporate integrity, assets and capital.
Presently, the Company is seeking a suitable merger or acquisition partner that
can utilize the Company's corporate structure and its propriety technology.
However, there is no assurance that a suitable merger or acquisition partner
can be found.
ITEM 2. PROPERTIES
In connection with the cession of operations, the Company terminated its lease
agreement in 1993. Currently, the Company rents storage space, the estimated
cost is approximately $1,000.00 annually.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
2
<PAGE> 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
The Common Stock, par value $.001 per share ("Common Stock"), of the Company
is traded in the over-the-counter market under the symbol "IXSI" The following
table sets forth the high and low closing bid prices for the Common Stock for
the periods indicated as per National Quotation Bureau Incorporated. The
quotations represent prices between dealers, do not include retail markups,
markdowns or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
-----------------
HIGH LOW
--------- --------
<S> <C> <C>
1996 Quarter Ended:
March 31.................. $0.01 $0.01
June 30................... $0.01 $0.01
September 29.............. $0.01 $0.01
December 29............... $0.01 $0.001
1995 Quarter Ended:
March 31.................. $0.025 $0.01
June 30................... $0.01 $0.005
September 30.............. $0.01 $0.005
December 31............... $0.01 $0.01
</TABLE>
As of February 14, 1997 the closing price was $.001 per share. The Company's
Common Stock is held of record as February 14, 1997 by approximately 660
persons, including several brokers in their names for their customers'
accounts.
3
<PAGE> 4
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of operations
Fiscal year ended December 31, 1996 compared with prior years.
As of August 6, 1993, the Company ceased all ongoing operations. Prior to
August 6, 1993, the Company was a development stage enterprise engaged in the
product and market development of electronic transaction systems.
The Company's total expenditures for the years ended December 31, 1996 and 1995
were $172,425 and $155,312 respectively.
Interest income was $2,755 for the twelve months ended December 31, 1996 as
compared to $4,056 for the same period ending December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1996 were $111,371 as compared to
$138,220 at December 31, 1995. At December 31, 1996, the working capital
deficiency was $2,950,779 compared with a working capital deficiency of
$2,781,046 at December 31, 1995.
The Company is in default which respect to the payment of interest and
principal on all of promissory notes aggregating $2,296,985 which have
matured in June 1993, October 1994, December, 1995 and June, 1996
respectively.
4
<PAGE> 5
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Begins next page
5
<PAGE> 6
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
iX Systems, Inc.
We have audited the accompanying balance sheets of iX Systems (a development
stage company) as of December 31, 1996 and 1995, and the related statements of
operations and cash flows for each of the three years in the period ended
December 31, 1996 and for the period January 6, 1983 (date of incorporation) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express (or disclaim) an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audits provide a reasonable basis
for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in product and market development efforts of SmartCard
readers and terminals. As discussed in Note 1 to the financial statements, the
Company's recurring losses since inception and stockholders' deficiency, along
with its cessation of operations, raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Because of the possible material effects of the uncertainty referred to in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the financial statements for 1996, 1995 and 1994.
/s/ DELOITTE & TOUCHE LLP
April 11, 1997
<PAGE> 7
iX SYSTEMS, INC.
(A company in the development stage)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1996 1995
=================================================== =============== ================
<S> <C> <C>
Current Assets:
Cash $111,371 $138,220
Total Current Assets 111,371 138,220
--------------- ---------------
Total Assets $111,371 $138,220
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
===================================================
Current Liabilities:
Accounts payable and accrued liabilities $1,252,012 $1,109,191
Notes payable 1,810,075 1,810,075
--------------- ---------------
Total Current Liabilities 3,062,087 2,919,266
--------------- ---------------
Long-Term Liabilities:
Notes Payable 0 0
--------------- ---------------
Total Long-term Liabilities 0 0
--------------- ---------------
Total Liabilities 3,062,087 2,919,266
--------------- ---------------
Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock, $1.00 par value:
Authorized, 250,000 shares
9% Cumulative Convertible series A
Issued and outstanding, 600 shares 600 600
Common Stock, $.001 par value:
Authorized 100,000,000 shares
Issued and outstanding , 54,794,889 shares 54,795 54,795
Additional paid-in capital 11,350,501 11,350,501
Deficit accumulated during development stage (14,356,612) (14,186,942)
--------------- ---------------
Total Stockholders' Deficiency (2,950,716) (2,781,046)
--------------- ---------------
Total Liabilities and Stockholders' Deficiency $111,371 $138,220
=============== ===============
</TABLE>
See notes to financial statements.
7
<PAGE> 8
iX SYSTEMS, INC.
(A company in the development stage)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
January 6, 1983*
January 1 to December 31, to December 31,
1996 1995 1994 1996
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Project revenues $1,234,651
Interest income $2,755 $4,056 $4,289 446,725
Rent, consultant fee and other - - - 153,856
------------ ------------ ------------- --------------
2,755 4,056 4,289 1,835,232
------------ ------------ ------------- --------------
Expenses:
Project costs - - - 930,682
Research and development - - - 8,571,711
Management fees - - - 355,747
Professional fees - - - 1,624,693
General and administrative 172,425 155,312 194,580 4,665,693
------------ ------------ ------------- --------------
172,425 155,312 194,580 16,148,526
------------ ------------ ------------- --------------
Loss from sale of furniture and equipment - - - (43,318)
------------ ------------ ------------- --------------
Net Loss ($169,670) ($151,256) ($190,291) ($14,356,612)
============ ============ ============= ==============
Loss per Common Share ($0.003) ($0.003) ($0.003)
============ ============ =============
Average Number of Common Shares 54,794,889 54,794,889 54,794,889
============ ============ =============
Dividends per Common Share -0- -0- -0-
============ ============ =============
</TABLE>
* Date of Incorporation
See notes to financial statements.
8
<PAGE> 9
iX SYSTEMS, INC.
(A company in the development stage)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
January 1, to December 31, January 6, 1983*
--------------------------------------------------- to December 31,
1996 1995 1994 1996
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Loss ($169,670) ($151,256) ($190,291) ($14,356,612)
Adjustments to Reconcile Net Loss to Net Cash
used in operating activities:
Depreciation and amortization - - - 203,905
Loss on sale of furniture,fixtures and equipment - - - 43,318
Deferred compensation relating to stock options - - - 351,250
Decrease/(increase) in accounts receivable net - - 10,837 0
Decrease/(Increase) in inventory - - - 0
Decrease/(increase) in prepaid assets - - 40,000 0
Non cash contributions for services - - - 144,380
Payment for professional services - - - 185,393
Decrease/(increase) in other assets - - - (142,599)
Increase/(decrease) in accounts payable
and accrued liabilities and liabilities to
related parties 142,821 127,803 53,147 1,607,687
Increase/(decrease) in other liabilities - - - 9,000
---------------- --------------- --------------- ---------------
Net Cash Used In Operating Activities (26,849) (23,453) (86,307) (11,954,278)
---------------- --------------- --------------- ---------------
Investing Activities:
Purchase of furniture,fixtures and equipment - - - (251,070)
Proceeds from sale of furniture,fixture and equipment - - - 4,446
---------------- --------------- --------------- ---------------
Net Cash Provided By/(Used In) Investing Activities - - - (246,624)
---------------- --------------- --------------- ---------------
Financing Activities:
Net proceeds from issuance of preferred stock - - - 1,456,783
Net proceeds from issuance of common stock - - - 8,000,490
Payment of note payable - - - (9,500)
Proceeds from note payable - - - 2,864,500
---------------- --------------- --------------- ---------------
Net Cash Provided By Financing Activities - - - 12,312,273
---------------- --------------- --------------- ---------------
Increase/(Decrease) in cash and cash equivalents (26,849) (23,453) (86,307) 111,371
Cash and Cash Equivalents at Beginning of Period 138,220 161,673 247,980
---------------- --------------- --------------- ---------------
Cash and Cash Equivalents at Ending of Period $111,371 $138,220 $161,673 $111,371
================ =============== =============== ===============
</TABLE>
See notes to financial statements.
9
<PAGE> 10
iX Systems, Inc.
(A Company in the development stage)
STATEMENT OF CASH FLOWS
(continued)
Supplemental disclosures of cash flow information:
During 1992, additional Common Stock of 240,000 shares were issued in
payment for professional services at a price of $0.125 per share.
During 1992, debt of $1,250,000 was converted into 10,000,000 shares of
Common STock at a price of $0.125 per share.
3,342,857 share of Common Stock were issued at a price of $0.125 per
share pursuant to February 1992 investment agreement antidilution
provisions.
Pursuant to February 1992 investment agreement, the Company converted
$205,075 of interest and dividends payable into notes payable.
During 1991, approximately $142,000 of inventory was returned to
vendors.
During 1990, additional Common Stock of 250,000 shares were issued in
payment for professional services.
* date of Incorporation
See notes to the financial statements
10
<PAGE> 11
iX SYSTEMS, INC.
(A company in the development stage)
NOTES TO FINANCIAL STATEMENTS
JANUARY 6, 1983 (DATE OF
INCORPORATION)
TO DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Company
iX Systems, Inc.(the "Company") (formerly SmartCard International Inc.) is a
development stage enterprise and was incorporated on January 6, 1983 for the
purpose of developing and marketing the smart card technology worldwide. In
1990, new strategic directions were established for the corporation with
targeted "product niches" within the electronics transactions market. The
Company's name was changed to iX Systems, Inc. in October 1991. As of August
6, 1993, The Board of Directors met and determined that in view of working
capital deficiencies, lack of demand for the iX2010 terminal, the large
additional capital investment required to continue operations, and in order to
preserve remaining capital resources of the Corporation, authorization was
given to the President to cease immediately all ongoing operations of the
Company except for any activity necessary to preserve corporate integrity,
assets and capital.
b. Project Accounting
The Company follows the percentage-of-completion method of accounting.
Accordingly, revenues are recognized on the basis of project costs incurred as
a percentage of total estimated project costs. Adjustments to cost estimates
are made periodically.
c. Research and Development
Research and development costs are charged to operations when incurred.
d. Basis of Financial Statements
As of August 6, 1993, the Board of Directors met and determined that in view of
working capital deficiencies, lack of demand for the iX2010 terminal, the large
additional capital investment require to continue operations, and in order to
preserve remaining capital resources of the Corporation, authorization was
given to the President to cease immediately all ongoing operations of the
Company except for any activity necessary to preserve corporate integrity,
assets and capital. Presently, the Company is seeking a suitable merger or
acquisition partner that can utilize the Company's corporate structure and its
propriety technology.
e. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect 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.
11
<PAGE> 12
2. FURNITURE, FIXTURES AND EQUIPMENT
The Company sold all the furniture, fixtures and equipment during the month of
August, 1993. The loss of disposal of furniture and equipment was $43,318.
3. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which, among other things, supersedes, SFAS No. 96 and allows recognition of a
deferred tax asset based on the likelihood of realization of a tax benefit in
future years. During 1993, the Company adopted SFAS No. 109 and such adoption
had no impact on the financial position or results of operations of the
Company. At December 31, 1996 and 1995 the Company had a deferred tax asset of
approximately $2,890,000 relating to net operating loss carryforwards for which
a full valuation allowance has been established as it is not likely to be
realized due to the cessation of operations.
4.LOSS PER SHARE
Loss per common share is based upon the weighted average number of common
shares outstanding during the periods presented. Options and warrants were not
included in the computation of earnings per share because the effect is
antidilutive.
12
<PAGE> 13
5. STOCKHOLDER'S DEFICIENCY
The following is an analysis of changes in stockholders' equity:
<TABLE>
<CAPTION>
Additional Additional
Preferred stock paid-in Common stock paid-in
Shares Amount capital Shares Amount capital
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 6, 1983 - $ - $ - - $ - $ -
(Date of Incorporation)
Cumulative stockholders' equity
transactions (January 6, 1983
to December 1987):
Issuance of common stock (1985 and 1986) 3,520,800 3,530 5,847,103
Capital contribution - cash and services - - 151,780
Declaration of stock dividend (1983) 749,000 7,490 (7,490)
Recapitalization (1984) 3,375,000 (3,375) 3,375
Reverse stock split (1984) (875,000) (875) 875
Stock options and warrants exercised 111,575 111 227,586
Stock options granted - - 156,250
Deferred compensation - - 156,000
Net Loss - - -
====================================================================================
Balance, December 31, 1988 - - - 6,881,375 6,881 6,535,479
Issurance of Preferred Stock 1,110 1,110 855,673 - - -
Issurance of Common Stock 9,943,301 9,943 545,727
Conversion of Preferred Stock
to Common Stock (1,110) (1,110) (855,673) 11,508,426 11,508 845,275
Deferred Compensation 39,000
Payment for Professional Services 1,628,930 1,630 161,263
Net Loss - - -
====================================================================================
Balance December 31, 1989 - - - 29,962,032 29,962 8,126,744
Issurance of Preferred Stock 600 600 599,400
Payment for Professional Services 250,000 250 22,250
Net Loss
====================================================================================
Balance December 31, 1990 600 600 599,400 30,212,032 30,212 8,148,994
Net Loss
====================================================================================
Balance December 31, 1991 600 $600 $599,400 30,212,032 $30,212 $8,148,994
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
deficit
accumulated Total
during Stockholders'
development (deficiency)
stage equity
--------------------------------
<S> <C> <C>
Balance, January 6, 1983 $ - $ -
(Date of Incorporation)
Cumulative stockholders' equity
transactions (January 6, 1983
to December 1987):
Issuance of common stock (1985 and 1986) - 5,850,633
Capital contribution - cash and services - 151,780
Declaration of stock dividend (1983) - 0
Recapitalization (1984) - 0
Reverse stock split (1984) - 0
Stock options and warrants exercised - 227,697
Stock options granted - 156,250
Deferred compensation - 156,000
Net Loss (6,352,986) (6,352,986)
================================
Balance, December 31, 1988 (6,352,986) 189,374
Issurance of Preferred Stock - 856,783
Issurance of Common Stock - 555,670
Conversion of Preferred Stock
to Common Stock - -
Deferred Compensation - 39,000
Payment for Professional Services - 162,893
Net Loss (1,045,799) (1,045,799)
================================
Balance December 31, 1989 (7,398,785) 757,921
Issurance of Preferred Stock 600,000
Payment for Professional Services 22,500
Net Loss (1,580,741) (1,580,741)
================================
Balance December 31, 1990 (8,979,526) (200,000)
Net Loss (1,592,249) (1,592,249)
================================
Balance December 31, 1991 ($10,571,775) ($1,792,569)
================================
</TABLE>
Continue on following page.
13
<PAGE> 14
5. STOCKHOLDER'S DEFICIENCY
(continued)
<TABLE>
<CAPTION>
Additional Additional
Preferred stock paid-in Common stock paid-in
Shares Amount capital Shares Amount capital
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of Notes Payable 10,000,000 10,000 1,240,000
Issuance of Common Stock 11,000,000 11,000 1,348,090
Payment for Professional Services 240,000 240 17,360
Antidulitive issuance of Common Stock 3,342,857 3,343 (3,343)
Net Loss
========================================================================================
Balance December 31, 1992 600 600 599,400 54,794,889 54,795 10,751,101
Net loss
========================================================================================
Balance December 31, 1993 600 600 599,400 54,794,889 54,795 10,751,101
Net loss
========================================================================================
Balance December 31, 1994 600 600 599,400 54,794,889 54,795 10,751,101
Net loss
========================================================================================
Balance December 31, 1995 600 600 599,400 54,794,889 54,795 10,751,101
Net loss
========================================================================================
Balance December 31, 1996 600 $600 $599,400 54,794,889 $54,795 $10,751,101
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
deficit
accumulated Total
during Stockholders'
development (deficiency)
stage equity
------------------------------------------
<S> <C> <C>
Conversion of Notes Payable - 1,250,000
Issuance of Common Stock - 1,359,090
Payment for Professional Services - 17,600
Antidulitive issuance of Common Stock - -
Net Loss (2,150,182) 2,150,182
==========================================
Balance December 31, 1992 (12,721,957) (1,316,061)
Net loss (1,123,438) (1,123,438)
==========================================
Balance December 31, 1993 (13,845,395) (2,439,499)
Net loss (190,291) (190,291)
==========================================
Balance December 31, 1994 (14,035,686) (2,629,790)
Net loss (151,256) (151,256)
==========================================
Balance December 31, 1995 (14,186,942) (2,781,046)
Net loss (169,670) (169,670)
==========================================
Balance December 31, 1996 ($14,356,612) ($2,950,716)
==========================================
</TABLE>
<PAGE> 15
6. DEBT FINANCING
In November 1990, Poly Ventures L.P. I loaned the Company $400,000. The loan
was for a one-year period(which was extended in November 1991 on a
month-to-month basis) with interest at prime plus 1 percent. The loan
agreement provided for the issuance of a five-year warrant to Poly Ventures
L.P. I to purchase 640,000 shares of the Company's Common Stock at a price of
$.125 per share. The loan was converted to Common Stock in 1992 (see Note 7).
During 1991, Poly Ventures L.P.I loaned the Company $850,000 in the form of a
series of convertible promissory notes. The loans were for a one-year period
with various due dates with interest at a rate of 12%. The notes were
convertible into shares of the Company's common stock at a price of $.125 per
share. The promissory notes were converted into Common Stock in 1992 (see Note
7).
On February 13, 1992 the Company entered into an agreement to convert all
accrued and unpaid interest and dividends, which totaled $205,075; owed by the
Company to Poly Ventures I, in connection with the $400,000 loan and $850,000
promissory notes held by Poly Ventures I and converted into Common Stock on
that date (see Note 7), to a promissory note with interest at prime and a
maturity in June 1994.
On October 13, 1992, the Company borrowed $105,000 from an investor and issued
a senior convertible demand promissory note with interest rate at 6 percent per
annum. The principal of and the accrued interest on this Note shall, at the
sole option of the Lender, be convertible in full at any time after the date
hereof, at a conversion price of $.125 per share for a period of two years from
October 13, 1992.
On December 8, 1992, the Company entered into a loan agreement with a group of
investors which included Poly Ventures L.P.II, wherein outside investors and
Poly Ventures L.P.II provided total financing of $1,000,000 in cash in exchange
for senior convertible demand promissory notes. The Notes were due December 8,
1995 with an interest rate 6 percent per annum. The principal of and accrued
interest on the Note shall, at the sole option of the Lender, be convertible in
full at any time after the date hereof, at a conversion price of $.125 per
share.
On June 14, 1993, the Company entered into a loan agreement with a group of
investors including Poly Venture II and issued senior convertible demand
promissory notes totaling $500,000, with interest rate at prime plus 2 percent
per annum. The principal and accrued interest on this Note shall, at the sole
option of the Lender, be convertible in full at any time after the date hereof,
at a conversion price based on the price paid for any new investment by a third
party of at least $750,000, calculated as follows:(i). for first six months
convertible at price of any new investment by third party of greater or equal
to $750k. (ii).for next three months convertible at 85% of such price. (iii.)
From thereafter, until term of loan convertible at 70 percent of such price.
In addition, the Company also issued warrants to purchase 6,250,000 shares of
the Company's Common Stock at the price of $.08 per share for a period of three
years, which at December 31, 1996 have expired.
As a result of these transactions, Poly Ventures L.P. I and Poly Venture II
would own approximately 53 percent of the Company's Common Stock assuming
conversion of all convertible debt, preferred stock and exercise of warrants.
Included in General & Administrative is approximately $132,000, $118,000 and
$123,000 of interest expenses for the year ended December 31, 1996, 1995 and
1994, respectively.
15
<PAGE> 16
7. EQUITY FINANCING
In July 1990, the Company entered into an investment agreement which Poly
Ventures L.P. I (a venture capital limited partnership, which prior to this
transaction owned approximately 50 percent of the Company's Common Stock on a
fully diluted basis), whereby the Company received $600,000 in cash in exchange
for 600 shares of 9% Series A Cumulative Convertible Preferred Stock, which is
convertible into 4,800,000 shares of Common Stock.
On February 13, 1992, the Company entered into an investment agreement with a
group of accredited investors which included Poly Ventures L.P. I. As a result
of this transaction, outside investors and Poly Ventures L.P. I provided total
financing of $975,000 in cash in exchange for 7,800,000 shares ($.125 per
share) of the Company's Common Stock. Pursuant to the agreement, Poly Ventures
L.P.I agreed to contribute $100,000 in exchange for shares of the Company's
Common Stock at a price of $.125 per share (800,000 shares). Poly Ventures
L.P. I also agreed to convert its November 1990 $400,000 note to Common Stock
at a price of $.125 per share(3,200,000 shares) and to cancel the underlying
warrants. Additionally, Poly Ventures L.P. I agreed to convert all its
convertible promissory notes (aggregating $850,000) to Common Stock at a price
of $.125 per share(6,800,000)(see note 6). In accordance with the agreement,
the convertible promissory notes were converted once shareholder's approval to
increase the authorized number of shares was granted in September 1992. The
remaining investors contributed $875,000 in cash in exchange for shares of the
Company's Common Stock at a price of $.125 per share (7,000,000 shares).
During August 1992, the Company entered into an investment agreement with a
group of accredited investors which included Poly Ventures L.P.I and some of
the same investors from the February financing. As a result of this
transaction, outside investors and Poly Ventures L.P. I provided total
financing of $400,000 in cash in exchange for 3,200,000 shares ($.125 per
share) of the Company's Common Stock. Pursuant to this agreement, Poly
Ventures L.P I. agreed to invest $50,000 in cash in exchange for shares of the
Company's Common Stock at a price of $.125 per share (400,000 shares). The
remaining investors contributed $350,000 in cash in exchange for shares of the
Company in exchange for shares of the Company's Common Stock at a price of
$.125 per share (2,800,000 shares). In addition, the Company also issued
warrants, valid for a period of five years, to purchase 2,571,429 shares of the
Company's Common Stock at the price of $.178 per share.
In January 1993, the Company issued 3,342,857 shares of Common Stock to the
February 13, 1992 investors pursuant to the antidilution provisions of the
investment agreement and such additional shares are reflected as outstanding
shares at December 31, 1992.
8. WARRANTS AND OPTIONS
As of December 31, 1996, the Company has reserved 22,461,391 shares of the
Company's Common Stock for future warrant conversions, conversions of debt and
conversion of the cumulative Preferred Stock.
16
<PAGE> 17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
17
<PAGE> 18
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------- --- --------
<S> <C> <C>
Dr. Shelley A. Harrison 54 Chairman of the Board
James Juliana 74 Director
Dr. Ralph L. Miller 54 Director
</TABLE>
Dr. Harrison became a director of Company in April 1986. since 1981, Dr.
Harrison has been President of Harrison Enterprises, Inc., a high technology
consulting firm. In addition, since May 1987, Dr. Harrison has served as a
Managing General Partner for Poly Ventures L.P., a venture capital limited
partnership. In 1973, Dr. Harrison co-founded Symbol Technologies, Inc., a
manufacturer of proprietary bar-code laser scanners, where he was Chairman of
the Board and Chief Executive Officer until 1981. From 1971 to 1973, Dr.
Harrison served as President of Public Systems Research, a research "think
tank". He was an Assistant Professor of Electrical Sciences at the State
University of New York at Stony Brook from 1970 to 1975. From 1964 to 1966,
Dr. Harrison was a member of the technical staff at Bell Telephone
Laboratories, specializing in radar systems and computer signal processing.
Dr. Harrison holds a B.S. in Electrical Engineering from New York University
and an M.S. and a Ph.D. in Electrophysics from Polytechnic Institute of
Brooklyn. He holds several patents and has authored a wide range of technical
papers and articles. Dr. Harrison is currently on the Board of Directors of
General Sciences Corporation, a publicly held company engaged in information
systems developments.
Mr. Juliana has been a director of the Company since August 1985. Since July
1984, he has been principal and owner of James N. Juliana Associates, a
management, government and public affairs consulting firm which he founded.
From 1981 to 1984, he was Principal Deputy Assistant Secretary of Defense for
Manpower, Reserve Affairs and Logistics, Office of the Secretary of Defense of
the United States. He was appointed to this position by Secretary of Defense
Weinberger and in April 1982, received the Outstanding Public Service award in
connection with this position. From 1977 to 1981, he was Executive Vice
President, Armed Services Marketing Council, an organization of business firms
specializing in the marketing of consumer products to the military resale
system. In addition, from 1977 to 1981, Mr. Juliana served as Vice
President-Federal Affairs of Braniff International. From 1961 to 1977, he also
engaged in management, government and public affairs consulting activities.
From 1958 to 1961, Mr. Juliana was the Executive Director of the Civil
Aeronautics Board. Mr. Juliana is currently a director of Tround
International, a publicly held company engaged in the manufacture of military
and industrial products.
Dr. Miller has been a director of the Company since 1985. Since January 1994,
Dr. Miller has been President and CEOof Aero Detroit, Inc.(a company providing
engineering services to the transportation industry), which is a subsidiary of
TAD Technical Services, Inc. of Cambridge, MA. From 1991 to 1994, Dr, Miller
was Executive Vice President and General Manager of that firm. From 1986 to
1991, Dr. Miller was the President and Chief Operating Officer of Modern
Engineering Services Co., Inc.(another company providing engineering services
to the transportation industry), which is a subsidiary of CDI Corporation, a
New York Stock Exchange company. From 1981 to 1985, he was Vice President of
Engineering and
18
<PAGE> 19
Strategic Planning, Heavy Vehicles, of Rockwell Industry International. From
1961 to 1981, Dr. Miller was employed by General Motors Corporation which
included a position as Director, Manufacturing Facilities Planning, from 1979
to 1981. Dr. Miller received a Ph.D. from Massachusetts Institute of
Technology in 1966.
The Company's by-laws provide for the election of directors at the annual
meeting of shareholders, such directors to hold office until the next annual
meeting and until their successors are duly elected and qualified. The by-laws
also provide that the annual meeting of shareholders be held each year during
the month of September at a time and place to be designated by the Board of
Directors. Directors may be removed at any time for cause by the Board of
Directors and with or without cause by a majority of the votes cast by the
shareholders entitled to vote for the election of directors.
Officers will normally be elected at the annual meeting of the Board of
Directors held immediately following the annual meeting of shareholders, to
hold office for the term for which elected and until their successors are duly
elected and qualified. Officers may be removed by the Board of Directors at
any time, with or without cause.
19
<PAGE> 20
ITEM 10. EXECUTIVE COMPENSATION
The Following table sets forth the cash compensation paid to the executive
officers of the Company whose cash compensation exceeded $100,000 and to all
executive officers as a group for services rendered during the year ended
December 31, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
------------- -------------------
Name and Principal Position Year Salary Bonus Options(Shares) All other Compensation
- --------------------------- ---- ------ ----- --------------- ----------------------
<S> <C>
None
Option/SAR Grants In Last Fiscal Year
None
Aggregated Option/SAR Exercises In Last Fiscal Year
And Fiscal Year-End Option/SAR Values
None
</TABLE>
Compensation of Directors
The Company has not paid and does not presently propose to pay compensation to
any director for acting in such capacity, except reimbursement for reasonable
expenses in attending those meetings.
Employment Contracts, Termination of Employment and Change in Control
Arrangements.
None.
20
<PAGE> 21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1995, certain information
with respect to the beneficial ownership of the Common Stock by each person
owning more than 5% of the outstanding shares of Common Stock, each director of
the Company and all officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Name (and Address Number of Shares Shares
of 5% Shareholders) Owned Percent(1)
- ------------------- ----------------- ---------
<S> <C> <C>
Poly Ventures L.P. (2)(3) 33,860,741 43.83%
Polytechnic University Office
Route 110
Farmingdale, NY 11735
Poly Ventures L.P. II(3) 7,125,000 9.22%
Polytechnic University Office
Route 110
Farmingdale, NY 11735
Dr. Shelley A. Harrison(2)(3) 40,985,741 53.05%
New York Life Insurance Co. 13,393,536 17.34%
All officers and directors 40,985,741 53.05%
as a group (3)
</TABLE>
(1) Based on fully diluted shares of Common Stock(assuming the conversion of
the Preferred Stock, the underwriters warrant, all convertible debt, and the
exercise of all options held by officers and directors) or 77,256,290 shares of
Common Stock.
(2) Includes 4,800,000 shares of Common Stock of the company issuable upon the
conversion of 600 shares of the Company's Series A Cumulative Convertible
Preferred Stock acquired by Poly Ventures L.P. I in July 1990.
(3) Dr. Shelley Harrison are Managing General Partners of Poly Ventures L.P.I
& II. As such, the number of shares owned beneficially by Poly Ventures L.P.I
& II is attributed to Dr. Harrison and in the total of all officers and
directors.
21
<PAGE> 22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
22
<PAGE> 23
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit
Number Document
3 (a) Certificate of Incorporation, as amended.*
(b) By-Laws, as amended.*
4 (a) Specimen of Common Stock Certificate.*
- -----------
* Incorporated by reference to the Company's Registration Statement on
Form S-1(Reg.No.33-6433), which became effective with the
Securities and Exchange Commission on September 10, 1986.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto dully authorized.
iX SYSTEMS, INC.
Date: March 31, 1997 By: /s/ SHELLEY A. HARRISON
-----------------------------------------
Shelley A. Harrison
Chairman of the Board
(Principal Executive and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: March 31, 1997 /s/ RALPH L. MILLER
--------------------------------------------
Ralph L. Miller
Director
Date: March 31, 1997 /s/ JAMES N. JULIANA
--------------------------------------------
James N. Juliana
Director
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 111,371
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,371
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,371
<CURRENT-LIABILITIES> 3,062,087
<BONDS> 0
0
600
<COMMON> 54,795
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 111,371
<SALES> 0
<TOTAL-REVENUES> 2,755
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 40,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,705
<INCOME-PRETAX> (169,670)
<INCOME-TAX> 0
<INCOME-CONTINUING> (169,670)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,670)
<EPS-PRIMARY> (0.003)
<EPS-DILUTED> 0
</TABLE>
