As filed with the Securities and Exchange Commission on May 23, 1996
Registration No. 33-96554
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------------------
INDUSTRIAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
-------------------------------
3571
DELAWARE 3823 04-2956252
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
-------------------------------
One Trefoil Drive
Trumbull, CT 06611
(203) 268-8000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive office)
--------------------
GERALD W. STEWART
Chief Executive Officer
One Trefoil Drive
Trumbull, CT 06611
(203) 268-8000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------
Copies to:
W. Parker Seeley, Jr., Esq.
Seeley & Berglass
3695 Post Road
Southport, CT 06490
(203) 256-3250
--------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities act of
1933, please check the following box [X]
Calculation of the Registration fee is on page 000002.
Exhibits Index is located on page 000092.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
Title of each class Amount to be registered Proposed maximum price Proposed maximum Amount of
of securities to be per share (1) aggregate offering price (1) registration fee
registered
Issued and outstanding
Shares of Common Stock, par
value $.01 per share (2) 3,913,612 $1.61 $6,310,209 $2,175.93
Class C Common Stock
Purchase Warrants 2,200,000 0.10 220,000 75.86
Class D Common Stock
Purchase Warrants 2,200,000 0.01 22,000 7.59
Common Stock issuable upon
exercise of Class C
Warrants (3) 1,100,000 2.00 2,200,000 758.62
Common Stock issuable upon
exercise of Class D
Warrants (3) 1,100,000 2.00 2,200,000 758.62
Common Stock issuable upon
exercise of Class A and
Class B Warrants (3) 1,380,000 2.00 2,760,000 951.72
Common Stock issuable upon
exercise of
Representatives' Warrants 60,000 2.00 120,000 41.38
(4)
Common Stock issuable upon
exercise of new Lender's
Warrant (4) 100,000 2.00 200,000 68.97
Common Stock issuable upon
exercise of Other Warrants
(4) 144,807 2.00 289,614 99.87
Common Stock issuable upon
exercise of existing
Options reserved for
issuance under the 1985
Stock Option Plan 62,500 2.00 125,000 43.10
Common stock issuable upon
exercise of existing
Options reserved for
issuance under the 1991
Stock Option Plan 520,000 2.00 1,040,000 358.62
Total 12,780,919 --- $15,486,822 $5,340.28*
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g).
(2) As originally filed there were included 2,700,000 shares at $2.00 per
share. There have been added 1,213,612 shares at $.75, bringing the
average maximum price per share to $1.61.
(3) Pursuant to Rule 416, the Registration Statement also relates to an
undeterminate number of additional shares of Common Stock issuable upon
exercise of the Class C and Class D Common Stock Purchase Warrants, and
the Lender's Warrant, pursuant to anti-dilution provisions contained
such Warrants, which shares of Common Stock are registered hereunder.
(4) See "DESCRIPTION OF SECURITIES".
* Previously paid
</TABLE>
The Information to be provided in Part I, Items 1-12, of the Form S-1
Registration Statement is contained in the Prospectus, a copy of which follows
immediately after the Cross-Reference Table on pages (iii) and (iv), which cross
references the Items 1-12 in Form S-1 to their whereabouts in the Prospectus.
The material to be provided in Part II Items 13 through 17 of the Form S-1
follows the section of the Prospectus in which the Financial Statements are set
out (pages F through F-29).
(ii)
<PAGE>
<TABLE><CAPTION>
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
Item Number Form S-1 Caption and Subcaption in Prospectus
-------------------- ------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Outside Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors, and Ratio of Prospectus Summary; Risk Factors; Ratio of Earnings
Earnings to Fixed Charges to Fixed Charges - Not Applicable
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page
6. Dilution Not Applicable
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Page
9. Description of Securities to be Registered Outside Front Cover Page; Securities Covered by this Prospective;
Description of Securities
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant:
(a) Description of Business Business
(b) Description of Property Business - Facilities
(c) Legal Proceedings Not Applicable
(d) Certain Market Information Market Price of Common Stock
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Selected Consolidated Financial Data
(g) Supplementary Financial Information Not Applicable
(h) Management's Discussion and Analysis Management's Discussion and Analysis of Financial Condition and
Results of Operations
(I) Disagreements with Accountants Not Applicable
(j) Directors and Executive Officers Management and Certain Security Holders - Directors and
Executive Officers
(k) Executive Compensation Management and Certain Security Holders - Remuneration
</TABLE>
(iii)
<PAGE>
<TABLE><CAPTION>
<S> <C>
(l) Security Ownership of Certain Beneficial
Owners and Management Principal and Selling Stockholders
(m) Certain Relationships and Related
Transactions Not Applicable
12. Statement as to Indemnification Statement as to Indemnification
</TABLE>
The Table of Contents for the Prospectus
is located at page 53 hereof
--
(iv)
<PAGE>
PROSPECTUS DATED May , 1996
INDUSTRIAL TECHNOLOGIES, INC.
8,380,919 shares of Common Stock
2,200,000 Class C Purchase Warrants
2,200,000 Class D Purchase Warrants
This Prospectus may be used by persons who (a) have received the
above-described shares of Common Stock and Warrants in prior private
transactions and (b) who may receive shares of Common Stock upon the exercise of
the above-referenced and other Warrants and certain Stock Options, and who may
wish to sell such securities in transactions in which they may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 (herein
collectively called the "Selling Stockholders").
This Prospectus relates to: (1) 8,380,919 shares of Common Stock, par value
$.01 per share (the "Common Stock"); (2) 2,200,000 Class C redeemable Common
Stock Purchase Warrants (the "Class C Warrants"); and (3) 2,200,000 Class D
redeemable Common Stock Purchase Warrants (the "Class D Warrants"). Of the
8,380,919 shares of Common Stock offered by this Prospectus, 3,913,612 shares
are issued and outstanding as of the date of this Prospectus, and 4,467,307
shares are reserved for issuance upon exercise of: Class A Purchase Warrants
(690,000), Class B Purchase Warrants (690,000), Class C Purchase Warrants
(1,100,000), Class D Purchase Warrants (1,100,000), the Representatives'
Warrants (60,000), New Lender's Warrants (100,000), other Warrants (144,807),
and existing grants and prospective grants under the 1985 Incentive Stock Option
Plan (62,500) and the 1991 Stock Option Plan (520,000).
The securities the subject of this Prospectus will be sold by the Selling
Stockholders, at prevailing market prices, who will receive the proceeds without
any reduction for "discounts or underwriting commissions".
The Company has informed the Selling Stockholders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-2,
10b-6 and 10b-7, may apply to their sales in the market, and the Company has
furnished the Selling Stockholders with a copy of these rules. The Company has
also informed the Selling Stockholders of the need for delivery of copies of
this Prospectus. The Company will pay all expenses in connection with this
offering, which expenses are estimated to be approximately $150,000.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD
NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS". THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company's Common Stock is traded on the NASDAQ Electronic Market under
the symbol "INTI" and on the Boston Stock Exchange under the symbol "ITI". On
May 21, 1996, the closing bid price of the Common Stock was $0.875. See Section
of this Prospectus entitled, "PRICE RANGE OF COMMON STOCK".
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
This Prospectus is dated May , 1996
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities being offered by
this Prospectus (including all exhibits and amendments hereto, the "Registration
Statement"). This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to summarize the material
provisions of such documents, but are not necessary complete; with respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved.
The Registration Statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
will also be available for inspection and copying at the regional offices of the
SEC located at 7 World Trade Center, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511; and 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, CA 90036. Copies of such material may also
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, is required to file periodic reports and other information with the
SEC which may be inspected and copied at the public reference facilities set
forth above.
The Company's securities are traded on the NASDAQ Electronic Market and
they are listed on the Boston Stock Exchange, where copies of the reports, proxy
statements, and other information filed with the Commission may be inspected.
(2)
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the detailed information and
financial statements that appear elsewhere in this Prospectus.
RISK FACTORS
The Securities offered hereby involve a high degree of risk. See "RISK
FACTORS".
THE COMPANY
Industrial Technologies, Inc. (the "Company"), develops censoring,
monitoring, processing and inspection technologies that operate under the
demanding factory floor conditions encountered in a range of industries. The
Company believes that, compared to its competitors, it offers the broadest range
of surface inspection technologies available for flaw detection based on
sophisticated signal and digital image processing technologies. Its customers
include web process manufacturers of paper, plastics, film, photosensitive
materials, steel, aluminum, glass and rubber products, and their subsequent
converting operations. The Company's innovative solutions help industrial firms
to increase yields, improve product reliability, and diminish costs associated
with defects, thereby allowing such firms to become more competitive in world
markets.
The Company operates three business components. The largest business
component, operated as the Surface Inspection Division, offers a family of
standard inspection systems used in web process and converting industries for
control of intermediate processing and final inspection of finished material.
The second business component, operated as the Amdex Computer Division,
offers a full line of industrial-strength packaged processors, computer
displays, and peripherals designed to operate under harsh temperature, humidity
and shock conditions found in factory environments. The Company's industrial
computers are integrated into the inspection systems delivered by the Company.
The third business component is a contract development service providing
customized design and production of automated inspection and measurement systems
for industrial customers who require advanced use of the Company's core
technology for a specialized module, instrument or system. The majority of the
development projects pursued by the Company have the potential to yield products
that the Company can commercialize and market.
The Company sells its products both domestically and internationally, with
more than half of its revenues being generated from international markets. A
sales and service operation located on the outskirts of Brussels, Belgium,
coordinates the sale and distribution of all of the Company's products in Europe
and maintains a local inventory and an application laboratory. The Company also
has distributors and representatives in the Pacific Rim, South America, the
Middle East, and Africa. Domestically, the Company sells its products directly
through its own sales force, based in Trumbull, Connecticut, and through
representatives located throughout North America.
The Company maintains its principal executive offices at One Trefoil Drive,
Trumbull, Connecticut 06611, and its telephone number is (203) 268-8000.
The Company's Common Stock and its Class A and Class B Warrants are listed
on NASDAQ and the Boston Stock Exchange.
(3)
<PAGE>
THE OFFERING
Securities Offered
by the Company.......... A maximum of 4,467,307 shares of Common Stock to
be sold:
690,000 shares at $8.00 per share upon exercise of
existing Class A Warrants to purchase Common
Stock.
690,000 shares at $12.00 per share upon exercise
of existing Class B Warrants to purchase Common
Stock.
1,100,000 shares at $.16 per share upon exercise
of existing Class C Warrants to purchase Common
Stock (exercise price subject to adjustment).
1,100,000 shares at $1.61 per share upon exercise
of existing Class D Warrants to purchase Common
Stock (exercise price subject to adjustment).
60,000 shares at $7.80 per share upon exercise of
the Representatives' Warrant to purchase Common
Stock. 100,000 shares at $2.00 per share upon
exercise to the New Lender's Warrant to purchase
Common Stock.
71,113 shares at $12.00 per share, upon exercise
of a group of other warrants to purchase Common
Stock held by 91 persons.
73,694 shares at prices varying from $1.31 per
share to $8.69 per share, upon exercise of another
group of warrants to purchase Common Stock held by
6 persons.
62,500 shares reserved for issuance under the 1985
Incentive Stock Option Plan, of which 48,455
shares are the subject of outstanding grants at
$1.31 per share.
520,000 shares reserved for issuance under the
1991 Stock Option Plan, of which 289,945 shares
are the subject of outstanding grants at prices
ranging from $1.25 per share to $4.50 per share.
Securities Offered by
Selling Stockholders.. A maximum of 3,913,612 shares of Common Stock.
A maximum of 4,400,000 Warrants: 2,200,000 Class
C Warrants and 2,200,000 Class D Warrants
Common Stock Outstanding:
Before Offering
inclusive of 3,913,612
shares held by
Shareholders and
included in this
Offering.......... 5,218,298 shares
(4)
<PAGE>
After Offering
(assuming the exercise
of all Warrants, and all
Options which are
or may be granted under
existing Plans................12,780,919 shares
Trading Information:
Common Stock Class A Warrants
NASDAQ Symbol............ INTI NASDAQ Symbol......... INTIW
Boston Stock Boston SE Symbol........ INIW
Exchange Symbol.......... ITI Class B Warrants
NASDAQ Symbol......... INTIZ
Boston SE Symbol........ INIZ
(5)
<PAGE>
Use of Proceeds
The Company will not receive any of the proceeds from the sale of Common
Stock or Warrants offered by the Selling Stockholders.
The Company will receive the proceeds of the exercise of the Warrants and
the Stock Options. The Company anticipates that some of the Class C Warrants may
be exercised in the near future, but that none of the Class A, Class B, or Class
D Warrants will be exercised in the near future. Any proceeds from the exercise
of the "C" Warrants, received by the Company, will serve to reimburse the
Company for the expense of preparing and filing the Registration Statement (and
any amendments thereto), in preparing the Prospectus, and for the expenses
related to the distribution of the Prospectus. Any excess net proceeds will be
used by the Company for working capital purposes.
<TABLE><CAPTION>
Summary Consolidated Statement of Operations Data
Six Months
Ended Years Ended
------------ --------------------------------------------------------------------------
March 31, September 30, September 30, September 24, September 25, September 27,
1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 3,354,425 $ 9,073,432 $ 6,640,230 $ 7,088,230 $ 5,777,542 $1,295,812
Gross profit (loss) 1,685,468 4,151,427 3,303,721 3,505,697 2,474,653 (6,589)
Operating profit (loss) (141,588) 579,015 (317,225) (1,442,873) (1,355,967) (733,672)
Net income (loss) 197,078 370,735 (396,264) (1,754,345) (1,396,746) (767,916)
Net income (loss)
per common share $ (.04) $ .10 $ (0.15)(1)$ (0.70) $ (0.64) $ (0.55)
Weighted Average shares
outstanding 5,218,298 3,880,571 2,556,760 2,500,947 2,179,018 1,392,933
</TABLE>
(1) During fiscal 1994, the Company and certain of its creditors entered
into agreements to reduce amounts payable to the such creditors. The debtors
were offered and accepted a one payment immediate settlement to close out the
existing payables. The gain on settlements of outstanding payables totaled
$300,327 and is reported as an extraordinary item in the 1994 consolidated
statement of operations. Before the extraordinary item the loss was $(696,591),
and loss per share was $(.27) for the fiscal year ended September 30, 1994.
(6)
<PAGE>
<TABLE><CAPTION>
Summary Consolidated Balance Sheet Data
--------------------------------------------------------------------------------------------
March 31, September 30, September 30, September 24, September 25, September 27,
1996 1995 1994 1993 1992 1991
----------- ------------- ------------- ------------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $ 941,417 $ 1,166,128 $ (1,079,942) $ (1,120,051) $ 1,233,803 $ 2,828,058
Total assets 709,376 7,849,610 8,105,378 8,226,944 10,743,439 3,874,987
Long-term obligations ------- 180,000 80,170(1) 1,654,169 3,588,168 ---------
Total liabilities 3,238,038 3,181,194 5,072,633(1) 6,297,935 7,260,085 869,887
Stockholders' equity $ 4,471,338 $ 4,668,416(2)$ 3,032,745 $ 1,929,009 $ 3,483,354 $ 3,005,100
</TABLE>
(1) On September 1, 1994, the Company converted $1,500,000 of subordinated
Notes into 500,000 shares of common capital stock.
(2) The increase in the Stockholders' equity was attributable in large part
to the receipt by the Company of the net proceeds of approximately $1,300,000
for its private placement of 2,000,000 Units of Common Stock, Class C Warrants,
and Class D Warrants, and to the net income of $370,735 for the year.
(7)
<PAGE>
RISK FACTORS
The following factors should be considered carefully in evaluating the
Company and its business.
Past and Current Losses, and Erosion of Stockholder's Equity. The Company
-------------------------------------------------------------
recognized substantial net losses for each of the fiscal years ended September
25, 1992, September 24 , 1993, and September 30, 1994. As a result of its
losses, the Company had, as of September 30, 1994, an accumulated deficit of
$8,948,773. The Company had a net loss the first six months of 1996, and its
stockholders equity was $4,471,338 at the end of the second quarter of 1996.
There can be no assurance that the Company will regain profitability and that
its stockholders equity will not erode again. See other "RISK FACTORS" below;
and "SELECTED CONSOLIDATED FINANCIAL DATA"; "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; "BUSINESS"; and
"CONSOLIDATED FINANCIAL STATEMENTS."
Limitation on Net Operating Loss Carryforwards for Tax Purposes. The
--------------------------------------------------------------------
Company had a net operating loss carryforward at the end of its taxable year
September 30, 1995. Section 382(b) of the Internal Revenue Code of 1986, as
amended, and other provisions of the Code significantly limit the amount of the
Company's losses that may be carried forward, and regulate how those losses can
be carried forward.
Inability to Obtain Adequate Bank or Institutional Financing. All of the
-------------------------------------------------------------
Company's capital requirements to date have been funded through the sale of its
Common Stock to private investors, through the proceeds of an initial public
offering, and through borrowings from a bank and private investors. The Company
does not anticipate significant immediate funding as a result of the exercise of
any of the Warrants or Options. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and "RECENT DEVELOPMENTS."
The terms of the present lending arrangements do not permit the Company to
include in its borrowing base materials and inventory used for its receivables
relating to non-domestic (USA) sales. Since international sales comprise
two-thirds of the Company's sales, its ability to grow sales or to maintain
sales at desired levels is severely impacted. There can be no assurance that the
Company will be able to generate sufficient cash flow from operations to enable
it to maintain desired sales levels, or that it will be able to obtain the
desired financing, or that if it does locate and close such financing, that such
financing will be adequate for the Company's needs.
The Company anticipates the need to raise additional capital to fund its
current operations and to enable it to grow its foreign sales, as it is unlikely
that it will close on new bank or institutional financing in the near future.
Such capital could take the form of a private placement of equity or a debt
financing with conversion feature, and any such financing could cause a dilution
in the value and the voting power of each of the presently issued and
outstanding shares. See "SELECTED CONSOLIDATED FINANCIAL DATA"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and
"RECENT DEVELOPMENTS".
Competition - Surface Inspection Market. The Company's products and
------------------------------------------
services are sold in competitive markets in the United States, Europe, and the
Far East. The Company competes with a number of companies of varying sizes,
including foreign companies and divisions or subsidiaries of companies larger
than the Company. And the Company faces potential competition from companies who
are vendors to or customers of the Company. Some of these firms have longer
operating histories, more extensive facilities, and greater financial,
advertising, marketing, and other resources than the Company has or may
reasonably be expected to have in the foreseeable future. Competitive pressures
or other factors could cause the Company's products to lose market share or
result in significant price erosion which would have a material adverse effect
on the Company's results of operations. See "BUSINESS - Competition."
Competition - Industrial Computer Division. The principal competitors of
--------------------------------------------
the Company's Industrial Computer Division are IBM, Texas Micro System, ICS,
Ibus, and Action Instruments, companies whose size, operating history, and
extensive facilities and financial, advertising, marketing, and other resources
greatly exceed those of the Company now or with in the foreseeable future.
Competitive pressures or other factors could cause the Company's products to
lose market share or result in significant price erosion which would have a
material adverse effect on the Company's results of operations. There are also
many small firms which provide products competitive with the Company's products.
See "BUSINESS - Competition."
Unpredictability of Patent and Trademark Protection and Proprietary
--------------------------------------------------------------------
Technology.
-----------
The Company has developed proprietary technology and has been granted patents
and trademarks relating to some of its technology and products. The Company
believes that patent and trademark protection for its products is important to
its ultimate success. There can be no assurance that
(8)
<PAGE>
competitors will not independently develop similar proprietary technology, or
that important patents and trademarks, if issued, will be ultimately determined
to be valid or will provide adequate protection for the products, formulations
or packaging to which they relate. Further, there can be no assurance that
patents and trademarks issued to the Company will not be infringed upon by
competitors. Even if a competitor were to infringe the Company's patents, the
costs of enforcing its patent rights may be substantial or even prohibitive. In
addition, there can be no assurance that the Company's proposed products will
not infringe the patent rights of others. The Company may be forced to expend
substantial resources if the Company is required to defend against any such
infringement claims.
Risk of Technological Obsolescence. The surface inspection industry is
-----------------------------------
characterized by extensive research and development and rapid technological
change. Development by others of new or improved technologies, processes or
products may make the Company's products or technologies obsolete or less
competitive. While the Company will continue to devote efforts and financial
resources to enhance its existing technologies and to develop or acquire new
technologies, there can be no assurance that the Company will be able to develop
or acquire new technologies that will permit the Company's products to continue
to be competitive. See "BUSINESS - Competition".
Dependencies on Key Personnel. The Company's ability to market
-------------------------------
its products and to attain a competitive position will depend, in large part, on
its ability to attract, retain and motivate qualified personnel. There can be no
assurance that the Company will be able to attract and retain such personnel.
The Company is dependent in particular upon the services of Gerald W. Stewart,
its President and Chief Executive Officer. The loss of Dr. Stewart's services as
an officer of the Company could have a material adverse effect on the Company.
See "MANAGEMENT AND CERTAIN SECURITY HOLDERS".
Additional Shares Eligible for Future Sale. When the Registration
-------------------------------------------
Statement becomes effective, all of the 5,218,298 shares of common stock, which
are outstanding as of the date of the Registration Statement, are available for
resale in the public market without restriction and there are in excess of 200
shareholders. When this Registration Statement becomes effective, there will be
potentially a substantial number of additional shares available for free trading
without restriction as a result of the issuance of shares of Common Stock upon
exercise of the Warrants and Options covered by the Registration Statement.
Sales of substantial amounts of shares of Common Stock, or the perception that
such sales could occur, could adversely affect prevailing market prices of the
shares of Common Stock. The pressure of a significant volume of sales could have
a substantial adverse effect on the price of the stock in the public market.
Loss of Significant Customers. Sales to a single customer in each of
------------------------------
the fiscal years ended September 30, 1995, and September 30, 1994, and September
24, 1993, represented 15%, 16%, and 15% respectively, of sales, and for the
first three months of fiscal 1996 sales to a single customer represented
approximately 16% of sales. There can be no assurance that the Company will
continue to be able to locate such a substantial, single customer, or that
reliance on such a large single customer will be mitigated by increased broad
based sales.
Dilution Caused by the Exercise of Warrants and Options Reserved.
-------------------------------------------------------------------
The Company has reserved for grant to employees, officers, directors and
consultants 62,500 shares of its Common Stock pursuant to the Company's 1985
Stock Option Plan and 300,000 shares of its Common Stock pursuant to the
Company's 1991 Stock Option Plan. At present, there are 339,700 shares of Common
Stock reserved for issuance upon exercise of options granted and outstanding
under these two Plans. The Company has also reserved an aggregate of 3,884,807
shares of its Common Stock for issuance upon exercise of: the Class A and Class
B Warrants; other warrants; and the Class C and Class D Warrants. The existence
of such Warrants and Options may prove to be a hindrance to future financings by
the Company. The holders of options or warrants may exercise them at a time when
the Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company, thereby causing a dilution in the value of all of
the outstanding shares. See "DESCRIPTION OF SECURITIES."
Risk of Product Liability. The marketing and sale of the Company's
-------------------------
products entail an inherent risk of product liability, and there can be no
assurance that product liability claims will not be asserted against the
Company, which is a self-insurer in respect of any such claims.
Environmental Risk Associated with Soil Contamination and Other
-------------------------------------------------------------------
Environmental Risks. The Company's facilities are subject to numerous
--------------------
environmental laws and regulations concerning, among other things, emissions to
the air, discharges to surface and ground water, and the generation, handling,
storage, transportation, treatment, and disposal of toxic and hazardous
substances. Under various Federal, State and local environmental laws,
ordinances, and regulations, a current or prior owner or operator of a facility
may be liable for the costs of removal or remediation of hazardous or toxic
substances on, in, or under the facility, typically without regard to fault. In
May of 1992, Intec filed a Form III with the Connecticut Department of
Environmental Protection relating to Intec's discovery of the presence of
tetrachloroethylene in the soil and possible contamination at the Company's
headquarters in Trumbull,
(9)
<PAGE>
Connecticut. This discovery was confirmed by a Limited Phase II Assessment
performed by Enviro-Shield, Inc., in April and May of 1992. As of March 31,
1996, the Company had incurred expenses of approximately $28,000 in connection
with the investigation of this matter. There can be no assurance that soil
contamination will not occur and that the Company will not incur substantial
additional expenses in connection with the investigation of this matter or
compliance with directive orders from the State of Connecticut.
Compliance with existing Federal, State, and local environmental laws,
ordinances, and regulations is not expected to have a material adverse effect on
the Company's results of operations. See "BUSINESS- Environmental Compliance."
Limitation on Directors' Liabilities under Delaware Law. Pursuant to the
--------------------------------------------------------
Company's Certificate of Incorporation and under Delaware law, directors of the
Company are not liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty, except for liability in connection with a breach
of duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, dividend payments or stock
repurchases which are illegal under Delaware law, or any transaction in which
the director has derived an improper personal benefit.
Risk of Holding Company Structure. The Company is a holding company
----------------------------------
which derives all of its operating income from its divisions and subsidiaries.
Claims of creditors of the subsidiaries of the Company, including trade
creditors, generally will have priority as to assets of such subsidiaries over
the claims of the Company and the holders of indebtedness of the Company.
Certain Anti-takeover Provisions. Under certain circumstances, Section 203
--------------------------------
of the Delaware General Corporation Law makes it difficult for an "interested
stockholder" (generally a 15% stockholder) to effect various business
combinations with a corporation for a three year period. This provision may
inhibit a change of control of the Company under circumstances that could give
the stockholders the opportunity to realize a premium over the then prevailing
market prices.
Absence of Dividends. The Company has paid no dividends to its
--------------------
stockholders since its inception and does not plan to pay dividends in the
foreseeable future. Furthermore, covenants contained in certain agreements with
a bank restrict the payment of cash dividends while amounts remain to be paid
under those agreements. The Company intends to reinvest earnings, if any, in the
development and expansion of its business. See "DIVIDENDS".
Possible Issuance of Preferred Stock. The Company is authorized to issue
------------------------------------
up to 1,000,000 shares of Preferred Stock, $.01 par value. The Preferred Stock
may be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. No Preferred Stock
is currently outstanding . However, the issuance of any such Preferred Stock
could affect the rights of the holders of Common Stock, and therefore, reduce
the value of the Common Stock. In particular, specific rights granted to future
holders of Preferred Stock could be used to restrict the Company's ability to
merge with or sell its assets to a third party, thereby preserving control of
the Company by present owners.
NASDAQ Maintenance Requirements; Possible Delisting of Securities
--------------------------------------------------------------------
from NASDAQ System. Company shares of Common Stock are presently
----------- -------
traded on NASDAQ. The Board of Governors of the National Association of
Securities Dealers, Inc. Has established certain standards for the continued
listing of securities on NASDAQ. The maintenance standards require, among other
things, that an issuer have total assets of at least $2,000,000 and capital and
surplus of at least $1,000,000; that the minimum bid price for the listed
securities be $1 per share; and that the minimum market value of the "public
float" be at least $1,000,000. A deficiency in either the market value of the
public float or the bid price maintenance standard will be deemed to exist if
the issuer fails the individual stated requirement for ten consecutive trading
days. If an issuer falls below the bid price maintenance standard, it may remain
on NASDAQ if the market value of the public float is at least $1,000,000 and the
issuer has $2,000,000 in equity. There can be no assurance that the Company will
continue to satisfy the requirements for maintaining a NASDAQ listing. If the
Company's securities were excluded from NASDAQ, it would adversely affect the
prices of such securities and the ability of holders to sell them. See "MARKET
PRICE OF SECURITIES."
Penny Stock Regulation. In the event that the Company is unable to
-----------------------
satisfy NASDAQ's maintenance requirements, trading would be conducted in the
"pink sheets" or the NASDAQ's Electronic Bulletin Board. In the absence of the
Common Stock being quoted on NASDAQ, or the Company having $2,000,000 in net
tangible assets, trading in the Common Stock would be covered by Rules 15g-1
through 15g-6 promulgated under the Securities Exchange Act of 1934 for
non-NASDAQ and non-exchange listed securities. Under such rules, broker/dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale.
(10)
<PAGE>
The Securities and Exchange Commission adopted regulations that generally
define all penny stock to be any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions (such exceptions including
an equity security listed on NASDAQ and an equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock were subject to the regulations as a penny
stock, and in particular the requirement that broker/dealers comply with Rule 15
(g) (9), the broker-dealer must make a special suitability determination for the
purchase of such securities and have received the purchaser's written consent to
the transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt the rules require the delivery, prior to
the transaction, of a risk disclosure document mandated by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may: (1) restrict the ability of broker-dealers to sell the
company's securities and may affect the ability of purchasers in this Offering
to sell the Company's securities in the secondary market; (2) decrease the
liquidity of the stock; and (3) increase the transaction cost of sales and
purchases as compared to other securities not so designated. There is no
assurance that trading in the Company's securities will not be subject to these
or other regulations that would adversely affect the market for such securities.
Current Registration Statement and Blue Sky Qualification Required for
---------------------------------------------------------------------------
Exercise of Warrants. In order for a holder to exercise his Warrants and sell
- ---------------------
the shares of common stock issuable to him upon his proper exercise, there must
be a current registration statement on file with the Securities and Exchange
Commission, and such shares must be the subject of an effective registration
statement under the state securities law where the person exercising the
Warrants resides or such exercise must be exempt from registration in such
state. The Company will be required to file post-effective amendments to the
Registration Statement when events require such amendments. No assurance can be
given, however, that the Registration Statement can be kept current. If it is
not kept current for any reason, the Warrants will not be exercisable and will
have no value. If the Company is unable to qualify for sale in particular states
its Common Stock underlying the Warrants, holders of the Warrants residing in
such states and desiring to exercise the Warrants will have no choice but to
either sell the Warrants or let them expire.
(11)
<PAGE>
RECENT DEVELOPMENTS
Private Offering (1995)
- -----------------------
During the period February 1 through June 26, 1995, the Company sold in a
private offering an aggregate of 2,000,000 Units of its securities at $.80 per
Unit, each Unit consisting of one share of common stock, one Class C Warrant,
and one Class D Warrant, with each Warrant being exercisable in respect of
one-half share of common stock. The Company also distributed 200,000 Units to
the two placement agents who assisted the Company with such offering.
The Units were sold pursuant to an exemption provided by Section 4(2) of
the Federal Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder, and certain State Securities Acts. The
Units were sold to 24 selected accredited investors (as such term is defined in
Rule 501(a) of Regulation D under the Securities Act).
The C and D Warrants are exercisable during a term of three years from the
earlier of the effective date of a Registration Statement or December 1, 1995
("first exercise date"). The Company agreed to file a Registration Statement for
all of the securities comprising the 2,000,000 Units included in the Private
Offering, within 90 days after the completion of the private offering, and to
use its best efforts to make the Registration Statement effective.
The Company filed the Form S-1 ("S-1") September 5, 1995, but its
accountants delivered a letter of resignation to the Securities and Exchange
Commission ("SEC") on August 30, 1995, indicating they would not provide the
consent to use their Report on the financial statements included in the
Registration Statement, required under Section 7 of the 1933 Securities Act and
Regulation S-X promulgated thereunder (the "Consent"). The Company engaged new
accountants to replace the accountants who resigned, October 13, 1995, and these
matters were the subject of Form 8-K and Form 8-KA filings with the SEC. The
Consents of the former and current accountants as to their respective reports on
the financial statements included in the Registration Statement were provided
and filed with the SEC February 22, 1996, as Exhibits to Amendment No. 1.
Current consents are provided with this Amendment No. 2.
The initial exercise price of the C Warrants was $2.75 per common share.
The initial exercise price of the D Warrants was $3.75 per common share. The
Warrants are subject to redemption by the Company after the first exercise date
at $0.01 per share on 30 days' written notice if the bid price of the common
stock for a period of 10 consecutive trading days prior to such notice equals or
exceeds $3.025 per share.
The initial exercise price for the C Warrants was subject to a downward
adjustment for each quarter in fiscal year 1995, determined by multiplying the
percentage that actual operating profit in the respective quarter is of the
projected operating profit times the exercise price in effect on the first day
of the quarter. The Company's projections for each of the four quarters in
fiscal year 1995 were:
Quarter Projected Amount
------- ----------------
1st $ 150,000
2nd 200,000
3rd 250,000
4th 400,000
Based on the quarterly results shown in the Forms 10-QSB using "operating
income" as the measure, filed with the SEC for the first three fiscal quarters
of 1995, and the balance of the "operating income" for the fiscal year as
presented in the financial statements for the fiscal year 1995 which accompany
this Registration Statement, the exercise price was adjusted to $.36 per share
as of September 30, 1995. (See "DESCRIPTION OF SECURITIES - Class C Warrants")
The initial exercise price for the D Warrants was subject to a downward
adjustment for the fiscal year 1995 by the amount which is equal to multiplying
the percentage that the actual pre-tax operating profit for fiscal year 1995 is
to $1.2 million times the initial exercise price. Based on actual figures shown
in the financial statements for fiscal year 1995 which accompany this
Registration Statement, using "operating income" as the measure, the exercise
price has been adjusted to $1.81 per share under this provision.
Under the terms of both the C and D Warrants, if the Registration Statement
did not become effective by January 23, 1996, the exercise prices of the
Warrants were to be discounted by $.05 for each 30-day period beginning on that
date until the Registration Statement becomes effective (until the exercise
price reaches zero). Based on these further adjustments the exercise prices per
share, as of April 24, 1996, are: C Warrants - $.16; and D Warrants - $1.61.
(12)
<PAGE>
Change in Lenders
- -----------------
In September, 1995, the Company entered into a new revolving credit
facility with a private finance company. The Company has received a proposal
from a bank to provide a revolving credit facility offering greater flexibility
than is offered by its existing credit facility.
Change in Accountants
- ---------------------
KPMG Peat Marwick LLP were the principal accountants for the Company for
its fiscal years ended September 30, 1994 and September 24, 1993. They resigned
August 31, 1995.
On October 13, 1995, the Company engaged McGladrey & Pullen as its
principal accountants.
In connection with the audits of the fiscal years ended September 30, 1994,
and September 24, 1993, and the subsequent interim period through August 30,
1995, there were no "disagreements" (as that term is defined in Item 304 of
Regulation S-K of the Act) with KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
Executive Changes
- -----------------
As of June 1, 1995, Eckart Vollmer, Chief Financial Officer, Secretary and
Treasurer, went onto long-term disability with the Company. Mr. Vollmer died
October 19, 1995.
Effective May 8, 1995, the Board of Directors appointed Alfred L. Simensen
as Vice President and General Manager, Surface Inspection Division. Mr.
Simensen, effective April 1, 1996, submitted his resignation to take effect as
of May 15, 1996. Until that time, when his employment will terminate, he will
take on such special assignments as designated by the Company's president.
Joseph Schlig joined the Company as Vice President, Secretary, and
Treasurer on June 15, 1995, and was appointed Chief Financial Officer by the
Board of Directors October 13, 1995.
Annual Meeting
- --------------
The Company held its Annual Meeting on April 16, 1996, at which four
directors were elected to fill the Company's four directorships: Gerald W.
Stewart, Howard Davidoff, Eric J. Twerdahl, and Tancred V. Schiavoni. Robert J.
Borel did not stand for re-election to the Board, simply because his
responsibilities to his current employer make it impossible for him to continue
his Board service. In addition, the Shareholders voted to increase the number of
shares of Common Stock reserved for issuance under the 1991 Stock Option Plan
and to engage McGladrey & Pullen, LLP, as independent accountants for fiscal
year to end September 30, 1996.
Loan and Issuance of Additional Shares of Common Stock
- ------------------------------------------------------
On May 20, 1996, the Company closed a loan from a private investor for
$200,000 and committed to issue 150,000 shares of common stock as an inducement
for doing so. The loan is due November 1, 1996 and interest is at 8%. If the
loan is not paid at maturity the lender may receive an additional number of
shares equal to one share for each $.25 of indebtedness. The investor is
accredited.
USE OF PROCEEDS
In view of the fact that the exercise prices of the Class A, Class B, and
Class D Warrants significantly exceed the current market price of the shares of
Common Stock to be received upon exercise, determined by trades on NASDAQ, there
is no present likelihood that such Warrants will be exercised, and, therefore,
there are no net proceeds anticipated to be received by the Company from the
exercise of these Warrants in the foreseeable future.
As of April 24, 1996, the exercise price of the Class C Warrants was
adjusted to $.16 per common share, and the exercise price of the Class D
Warrants was adjusted to $1.61 per common share, accounting for the applicable
adjustment described under "RECENT DEVELOPMENTS - Private Offering" (p. 12).
There is a likelihood that all or some of the "C" Warrants will be exercised.
Assuming the exercise of all of the Class C Warrants at the current exercise
price, the Company could expect to receive approximately $231,000.
The exercise prices of the Stock Options granted under the 1985 and 1991
Stock Option Plans range from $1.25 per share to $4.50 per share and certain of
the Other Warrants are exercisable at $1.31 per share. Assuming all vested
Options and Warrants, exercisable at $1.25 and $1.31 per share, were to be
exercised, the Company would receive approximately $154,000. There is a
likelihood that some of these Options and Warrants will be exercised because of
the present market price.
(13)
<PAGE>
Any proceeds from the exercise of such Warrants and Options, received by
the Company, will serve to reimburse the Company for the expense of preparing
and filing the Registration Statement and Prospectus (and any amendments
thereto), and distributing the Prospectus. Any excess net proceeds will be used
by the Company for working capital purposes.
(14)
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth for the periods the high and the low bid
prices quoted for the common stock, $.01 par value, of the Company (the "Common
Stock") in transactions on NASDAQ, for the periods indicated:
Common Stock
------------
1994 1995 1996
---- ---- ----
Fiscal Quarter High Low High Low High Low
- ------------------ ----- ---- ---- ---- ---- ----
1st $ 2.19 $ 1.25 $ 2.12 $ 0.50 $ 1.81 $ 1.13
2nd 1.75 1.25 1.38 0.81 1.56 .75
3rd 2.44 1.50 1.69 1.00 -- --
4th 2.63 2.00 2.25 1.38 -- --
The mean between the closing bid and asked quotations on NASDAQ on May 11,
1996 was $.875. The closing bid and asked quotations on the Boston Stock
Exchange on May 11, 1996, were $.625 and $.875, respectively.
DIVIDEND POLICY
The Company has paid no dividends to its stockholders since its inception
and has no present plans to pay any dividends in the foreseeable future. The
terms of its credit facility with its present lender prohibit the Company from
declaring any cash dividends on its shares of capital stock as long as there are
amounts due on the loan. The Company intends to retain any earnings to finance
the growth of the Company.
SECURITIES COVERED BY THIS PROSPECTUS
Of the 8,380,919 shares of common stock covered by this Prospectus,
3,884,807 shares have been reserved for issuance upon the exercise of Warrants,
582,500 shares are reserved for issuance under existing Stock Option Plans, and
3,913,612 shares were previously issued and are presently held by the persons
whose names and holdings are set forth in "PRINCIPAL AND SELLING STOCKHOLDERS".
With the prior consent of the Company, this Prospectus may be used by
persons who have received shares of common stock from the Company, or from
persons who previously received shares of common stock from the Company in
private transactions (the "Selling Stockholders"), which shares are covered by
the Prospectus. The sale of common stock by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions) which are accomplished in the over-the-counter market or
otherwise; in special offerings, exchanges, distributions and/or secondary
distributions pursuant to and in accordance with the sales in the
over-the-counter market; in negotiated transactions; or in a combination of such
methods of sale. Such sales may be effectuated at the market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Selling Stockholders and any other individuals, including
broker-dealers, who participate with the Selling Stockholders in the sale of
common stock, may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act.
(15)
<PAGE>
Beginning 90 days after the effective date of the Registration Statement,
any employee, officer, director, or consultant to the Company who purchased
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701, which permit (a) non-affiliates to sell
their Rule 701 shares without having to comply with the public-information,
holding-period, volume-limitation, or notice provisions of Rule 144, and (b)
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding-period restrictions.
BUSINESS
Glossary of Technical Terms
- ---------------------------
CCD elements Charge coupled devices (a capacitor)
CPU Central processing unit
IPC Industrial personal computer
Mensuration Measurement of physical dimensions
MTBF Mean time between failures
OEM Original equipment manufacturer
RPC Rugged industrial computer
Web Any homogeneous, continuously produced product in roll or
sheet form.
General
- -------
The Company with its subsidiary designs, develops, and markets sensoring,
monitoring, processing and inspection technologies that operate effectively
under the demanding conditions found in a range of industries. The Company's
products are specifically designed to improve the overall quality of industrial
operations. Current customers include leading communications and industrial
equipment suppliers, as well as a wide range of web (continuous sheet) process
manufacturers of paper, plastics, photosensitive materials, steel, aluminum,
other non-ferrous metals, glass and rubber. The Company's technical strategy is
to develop standard innovative solutions which help industrial firms to increase
yields, improve product reliability, and diminish the costs associated with
defects, making such firms more competitive in world markets.
The Company is the successor to Aerodyne Products Corporation ("Aerodyne"),
which was organized in June of 1976 as a wholly-owned subsidiary of Aerodyne
Research, Inc., a government supplier specializing in basic research and
specialty systems. Aerodyne's advanced electro-optics and image analysis and
processing capabilities, developed through certain early projects, led it to
develop customized surface inspection and fiber mensuration systems. In early
1984, Aerodyne became an independent company with a mandate to commercialize
some of the technology that it had developed.
In July, 1991, Aerodyne completed its initial public offering. The proceeds
of the initial public offering enabled the Company to acquire complimentary
operations to support its technological base.
In November of 1991, Aerodyne acquired Amdex Corporation ("Amdex"), a
supplier of industrial computers that were being used in the Company's
inspection systems. Amdex is operated as a division of the Company (the
Industrial Computer Division).
(16)
<PAGE>
In May of 1992, the Company acquired Intec Corp., a supplier of laser-based
surface inspection systems, as a wholly owned subsidiary of the Company. Intec
Corp. has a wholly-owned subsidiary, Intec Europe, Ltd., which coordinates the
distribution and service of all of the Company products in Europe.
Aerodyne changed its name to Industrial Technologies, Inc., in January
1994, and is generally known as INTEC, its registered trade name.
The Company believes that the acquisition of Amdex and Intec Corp. have not
only enhanced its technological capabilities but also have distinguished the
Company in several important respects. The Company believes that its Surface
Inspection Division is the only supplier currently offering a choice of laser,
line scan, or area array surface inspection solutions to a broad base of
customers world-wide. In addition, the Company now has experience in both analog
signal processing and digital image processing techniques.
The Company believes that due to its mandatory standard testing and burn-in
procedures for all products, its Industrial Computer Division delivers high MTBF
industrial computer equipment. The Division is also able to address specialized
customer requirements for high reliability, rugged computer systems. Technology
developed by the Company under contract research and development projects can
often be incorporated into standard INTEC system offerings.
The Company believes that a combination of factors has created a unique
opportunity for the Company to continue to expand its current technological base
in the near future. Specifically, the Company believes that the current economic
environment may be conducive to forming strategic alliances with existing
companies which have complementary knowledge and/or technology. Such alliances
and internal growth should enable the Company to increase its market share while
maintaining the present annualized rate of growth.
The Company also believes that current economic conditions are conducive to
a consolidation of the inspection technology industry.
Accordingly, the Company's business strategy includes plans to:
- target those industrial markets where its advanced technology can be
profitability applied;
- form strategic alliances with companies offering complementary
products and advantages for accessing other markets, geographically or
by application, in which the Company has had limited participation;
- expand its international market presence;
- be increasingly recognized as a worldwide supplier of automated
industrial inspection equipment; and
- continue to develop state of the art technology in the areas
addressing its inspection market opportunity, e.g.: (a) sensor
subsystems, (b) real-time processing facilities, (c) inspection
recognition and (d) categorization algorithms.
Products - In General
- ---------------------
The Company currently maintains two product lines. The Company's primary
product line is a family of standard web inspection systems used in industry for
both the control of intermediate processes and for final inspection of finished
material. The second product line is a full line of industrial computers,
monitors and peripherals. These products operate under harsh temperature,
humidity, shock and other adverse industrial conditions. The Company's
industrial computers are also incorporated into inspection systems that the
Company currently delivers.
The Company's products range in price from under $10,000 for industrial
computers, $25,000 to $50,000 for a basic detection sensor, $80,000 to $125,000
for a standard performance inspection system, and $175,000 to $500,000 for an
advanced inspection system. The Surface Inspection Division, including the old
Aerodyne Systems Division now integrated into the Surface Inspection Division,
contributed 92% and 89%, respectively, to revenues for the fiscal years ended
September 30, 1995, and 1994. The Industrial Computer Division contributed 8%
and 11%, respectively, to revenues for the fiscal years ended September 30,
1995, and 1994.
(17)
<PAGE>
The Surface Inspection Division
- -------------------------------
The Surface Inspection Division of the Company was established by combining
the technology, product lines, and customer base of the Company and its
wholly-owned subsidiary, Intec Corp. Currently this division supports more than
800 installed systems worldwide. Monitoring a moving web of material by visually
searching for surface defects, the Company's systems help manufacturers of a
wide range of different materials provide quality product to their customers.
Its systems alert users to the precise type, location, and size of each defect.
Patented techniques ensure accuracy by compensating for opacity, gloss, surface
roughness and many other factors. The Company's systems have been installed in
almost every industry where material is manufactured in a continuous web.
The Surface Inspection Division offers three levels of surface inspection
equipment based on the level of technological control required. The first level
of equipment is a basic detection monitor. This equipment continuously monitors
the material and when an anomaly is observed the monitor either notifies the
operator by an alarm mechanism and/or sends an electronic signal to another
control system for corrective action. The second level of equipment is a
standard performance package which not only identifies defects, but also
provides a more sophisticated level of process control, assigns physical
parameters to categorize defects, and provides a detailed quality report. The
third level of equipment is configured from standard hardware and software
modules to provide the customer with the maximum versatility through the use of
multiple detectors, double-sided inspection, and a more sophisticated level of
defect classification. Systems currently offered by the Surface Inspection
Division include:
Basic Detection Sensor: SmartCam
The SmartCam System is a low cost single and multiple camera based
visual inspection system intended primarily for fixed, well-defined
applications. SmartCam has an array of CCD elements which are sensitive to
changes in the light pattern caused by passing surface defects or edge
features. This line image is scanned, digitized and processed several
thousand times every second to insure 100% inspection coverage. When the
measured deviation is found to exceed present limits, the SmartCam
instantly sets alarms to warn the operator or provide outputs for machine
control. SmartCam's open design and low cost are attractive for convertors,
integrators, and OEMs who want to incorporate the advantages of inspection
into their machinery. The base price for a single camera system begins at
$25,000.
Standard Performance Package: System 3000
Both a laser-based and camera-based web inspection system, the System
3000 has been designed to provide a compact, medium cost, high performance
inspection system for customers who do not require the capabilities of, and
who do not wish to incur the expense associated with purchasing, the System
9000. In contrast to the System 9000 which can be configured for
simultaneous use of multiple laser or camera scanners, the System 3000 is
intended for relatively narrow (60 inches and under) webs and supports only
a single laser scanner or two cameras at a time. The System 3000 supports
12 defect types which can be defined by length, width, repeat interval or
density. The average sale price is approximately $85,000.
Advanced Configurable System: System 9000
The System 9000 incorporates either laser-based or camera-based
sensors. Through its defect analysis and display processor, the System 9000
can both detect the size and shape of an overall defect and also provide
real time, color graphic computer monitor displays and printed reports
relating to such defects. A laser-based System 9000 generally sells for
approximately $250,000 while a typical camera-based System 9000 sells for
approximately $200,000.
Product Development - Surface Inspection Division
Based on the increasing customer demand for new technological advances that
will enhance performance, the Company engages in both applications and new
product development. The Company's objective is to provide a general solution
for automated inspection which will satisfy requirements in multiple industries
by providing a standard line of products designed for flexibility and
modularity. The
(18)
<PAGE>
Company contemplates that such standardized products will ultimately replace all
special, one-of-a-kind systems currently in existence. Recent examples of
applications and/or new product development include the System 3000 that was
introduced in January, 1993, and has since become a sales leader, and the
development of the repeat pattern recognition (RPR) module for the System 9000
which was instrumental in new business with companies such as Nan Ya Plastics.
In addition to in-house developments, the Company is continuously looking for
product line additions through acquisition, partnerships, and other business
relationships. Examples of such activities are the addition to the product line
of an edge crack and spray marking device, the new SmartCam product, and various
additions to the Amdex Industrial Computer product line through OEM
relationships, made over the past several years.
Market for Surface Inspection Division
The Surface Inspection Division targets those industries that manufacture
and/or convert (i.e., add value to) material on a continuous web. The largest
users of these inspection systems have been paper, plastics, and photosensitive
film suppliers. A number of systems have, however, been utilized by the steel,
aluminum, textiles, fibers, glass, and rubber industries. As the cost of
inspection technology has decreased, the Company believes that new inspection
applications have increased. Based on the number of active process lines and the
typical system configuration purchased by the various segments, the Company has
identified the paper, plastics, photo-sensitives, metals, and converting
industries as its five target industry segments. The Company is focusing
substantially all of its efforts on these particular segments.
In a presentation paper delivered by Nello Zuech of Vision Systems
International at the Automated Imaging Association Third Annual Business
Conference, February 21-23, 1995, it was reported that worldwide sales of
machine vision equipment in 1994 were up 19.22% from 1993; that by 1999 revenues
are expected to increase 17.2% annually based on projections of respondents to a
current survey; and that the North American market for machine vision equipment
has increased 17.4% since 1993 and is expected to continue this growth through
1999.
Industrial Computer Division
- ----------------------------
In November 1991, the Company acquired Amdex Corporation ("Amdex"), a
PC-based industrial computer assembler. Following the Amdex acquisition, the
Company established an Industrial Computer Division which designs, assembles,
and sells PC-based industrial computers, and sells CPU boards, computer
monitors, and terminals. The Industrial Computer Division also develops
customized hardware and software applications. The Industrial Computer Division
achieved approximately $697,000 in net sales for fiscal year 1995, with a large
portion of these shipments coming from a few large OEM accounts.
Amdex Industrial Computers are configured to function in the harsh
environmental conditions found on the factory floor. They are designed to
withstand the wider ambient temperature and humidity ranges, elevated levels of
airborne dust and contaminants, shock, vibration, and other harsh conditions
common in industrial environments. These reliable systems are available in both
passive and active backplane configurations using all currently recognized
architectures to facilitate virtually any processing requirement. The passive
backplane systems are particularly well suited to applications that need to
allow shop floor maintenance or modification while the active backplane units
give a low cost alternative where maintenance and modification are not a
concern.
Industrial computers are used by process engineers and operators in
managing a process, by systems integrators in building complete operating lines,
and by industrial equipment suppliers with a need for reliable computer
processing capability embedded in their products and equipment. They are also
used in military and networking applications where reliability and survivability
are major concerns. Other uses include laboratories and research programs where
they are used to facilitate data acquisition and processing.
Products offered by the Industrial Computer Division embody two key
characteristics. The first is the capacity to offer customers the latest
computer processor engine, and the second is durability. The Company's
experience in building rugged equipment for surface inspection as well as for
space and military use has enabled the Company to produce equipment that will
work reliably in harsh environments.
The AMDEX RPC-85 and other products provide users with the ability to place
computing power directly where it is needed without the need for special rooms
to modify ambient conditions. Placing computing power at the customer's
fingertips enables order-of-magnitude or greater improvement in his ability to
acquire and process data, which in turn help him to cost-effectively manage his
business. In addition
(19)
<PAGE>
to the outstanding track record demonstrated by their use in the Company's
inspection systems, AMDEX industrial computers have been used and proven in
aerospace and defense applications, and in many other settings.
The primary business strategy for the Industrial Computer Division during
fiscal year 1995 and continuing in to fiscal year 1996 has been and is to
continue to be to (a) refine the range of products being offered, and (b)
develop distribution channels. In fiscal year 1994, the Industrial Computer
Division distributed its first catalogue and has established a sales base with
several OEM and Systems Integrators which enabled and is enabling the Company to
increase its presence on the manufacturing floor. The catalogue is updated
periodically.
The third business component, operated as the Systems Development Group,
provides contract development service for industrial customers requiring
advanced automated inspection and measurement technology for a specialized
module, instrument, or system. Generally, the Systems Development Group
undertakes development projects and technologies that have the potential to
yield products that the Company can commercialize and market.
Marketing
- ---------
The Company focuses its sales and marketing efforts on three regions of the
world: The Americas, Western Europe and Asia-Pacific. In fiscal year 1995, the
Company shipped approximately 43% of its orders to North America, 31% to Western
Europe, and 26% to the Asia-Pacific market.
In North America, the Company markets and sells its products both directly
and through manufacturer's representatives. A European subsidiary, Intec Europe,
Ltd., ("Europe"), located in Zaventem, Belgium, a suburb of Brussels,
coordinates sales, distribution and service of all of the Company's products in
Europe and works with manufacturer's representatives based in Italy, England,
Spain, France, Finland, Sweden, West Germany, Portugal and Belgium. Europe
currently employs 10 people.
The Company also has distributors and representatives in the Pacific Rim,
Australia, South America, the Middle East and Africa. The Company's distributors
and manufacturer's representatives do not represent the Company exclusively.
However, under their agreements with the Company, they have agreed not to market
and sell products manufactured by competitors of the Company. The Company plans
to increase its European and Asia/Pacific marketing efforts in fiscal year 1996.
Advertising and Promotions
- --------------------------
The promotional efforts of the Company have included product brochures,
press releases, technical presentations before trade and professional groups,
and video tapes presentations and distributions. The Company has also exhibited
its product lines at major industry trade shows.
The promotional efforts of the Company in fiscal year 1996 will be focused
mainly on participation at selective major trade shows, local customer seminars,
selective trade advertising, direct mail, conferences, and the favorable
publicity gained through articles in key industry trade journals.
Manufacturing and Suppliers
- ----------------------------
The manufacturing process for the Company's products consists primarily of
assembly and testing of subsystems and components. The Company relies on outside
suppliers for all of its manufacturing supplies, parts and components. The
Company does rely on a limited number of sole source suppliers and to date has
not had any problems obtaining the components and subassemblies needed to
complete its products. If the Company were unable to obtain the required
components and subassemblies from its current suppliers, the Company believes
that there are a number of other vendors available to satisfy the Company's
needs. The Company believes that it is more cost effective to purchase the
components and subassemblies than to spend valuable resources to acquire costly
capital equipment to manufacture the parts internally.
(20)
<PAGE>
Service and Warranties
- ----------------------
The Company services its surface inspection systems from its facilities in
Trumbull, Connecticut, and through its office in Belgium. Its representative in
Taiwan will begin to service the Company's growing installed base in this area
in fiscal 1996. Its Japanese distributor provides service to customers in the
Far East and a sales representative in Sweden provides services to certain
European and Scandinavian customers. It enters into annual maintenance and
service contracts with approximately 30% of its customers. Specialized test
equipment and service personnel fulfill its maintenance and service obligations.
In addition, it routinely conducts training of customer personnel at its
Trumbull, Connecticut, facility.
The Company provides a one year warranty for its surface inspection
systems, and through the purchase of an extended preventive maintenance and
service warranty, customers can extend the warranty on surface inspection
products for an additional six month period or longer.
For surface inspection systems, the Company provides an extensive operating
and maintenance training program for customer personnel. System diagnostics
enable plant personnel to identify and repair most problems down to the printed
circuit board level. Customers are encouraged to purchase spare parts in
conjunction with system purchases to ensure maximum equipment on line
availability. The Company has established a spare parts policy to ensure an
adequate supply of spare parts for equipment in the field. The Company typically
warrants its industrial inspection systems for one year (parts and labor) on all
Company fabricated parts and passes on to the ultimate consumer the
manufacturers' warranties on OEM components. The Company also offers a
preventative maintenance and service contract.
The Amdex Division offers no service contracts or training of customer
personnel for its products. The Amdex PC-based computer systems have a one-year
warranty. Extensive user documentation is provided.
Competition
- -----------
Surface Inspection Division
---------------------------
The surface inspection industry is highly competitive -- the Company's
principal competitors in the laser inspection technology market being Lasor and
Sick Optik-Electronik, Inc. Its principal competitors in the line scan
technology market include Sick Optik-Electronik, Inc., European Electronic
Systems International, ISYS, ABB, Measurex (Roibox), and Eastman Kodak Ecktron.
Other competitors include Futec (Japan) and SIRA (Great Britain), a non-profit
corporation.
The Company believes it has several advantages over its competitors in the
global marketplace. One advantage is that the Company offers a broad product
range of multiple sensor technologies for a number of continuous web processing
industries, such that a downturn in one industry group of customers would not
have as significant an impact on the Company as such downturn would have on its
competitors who sell to a single industry. In addition, the Company's sustained
longevity (25 years) in the industrial inspection industry, together with its
worldwide support of multiple industries in such diverse areas as pulp, paper
and photosensitive materials, provide it with greater credibility and experience
than many of its less credible and less experienced competitors. Additionally,
the Company's broad line of standardized inspection system models at various
prices, including its less capital-intensive systems, provide it with a
significant advantage over those of its competitors with limited product
offerings. Furthermore, the Company's multinational sales, distribution and
service capabilities have placed it in a position to compete both domestically
and internationally.
Industrial Computer Division
----------------------------
The principal competitors of the Company's Industrial Computer Division are
Texas Micro Systems, ICS, Ibus and Action Instruments. The Company believes that
several of its product features, including its compact, slim-line product, air
cooling system, vibration-isolated hard disk drives and EMI/RFI filtering system
enhance the durability and reliability of its products, and provide the Company
with a competitive advantage in the PC-based industrial computer market.
Patents, Trademarks and Proprietary Information
- -----------------------------------------------
The Company currently owns two United States patents for three-dimensional
image technology and one United States patent for a mask inspection system for
use in the production of integrated circuits.
(21)
<PAGE>
In addition, through the acquisition of Intec in 1992, the Company obtained
federal patent protection relating to its surface inspection systems. A number
of these patents relate to the tracking of defects through Intec's laser scanner
flaw detection system, as well as to the Company's System 3000.
The Industrial Computer Division has neither applied for nor holds any
patents relating to its products.
Employees
- ---------
As of March 31, 1996, the Company employed forty-six persons in
Trumbull, Connecticut, and Brussels, Belgium, on a full-time basis, including
the Company's President/Chief Executive Officer and Chief Financial Officer at
its Trumbull, Connecticut, facility. Eight persons are employed in sales and
marketing, six in technical services, seven in engineering, eleven in
manufacturing, and fourteen in finance and administration. The Company considers
its relations with its employees to be satisfactory.
Backlog
- -------
As of April 3, 1996, the backlog was approximately $2,550,000.
Major Customers
- ---------------
For the fiscal year ended September 30, 1995, and 1994, sales to Nan Ya
Plastics, a Taiwanese Company, were approximately 15% and 16% of net sales,
respectively. No other customers accounted for 10% or more of the Company's
total revenues in those years.
Management believes that as the Company continues to expand and diversify
its product lines and customer base and its reliance in the future on any single
customer will not be significant.
Environmental Compliance
- ------------------------
In May of 1992, Intec Corp. filed a Form III with the Connecticut
Department of Environmental Protection relating to Intec's discovery of the
presence of tetrachloroethylene in the soil and possible contamination at its
headquarters in Trumbull, Connecticut. This discovery was confirmed by a Limited
Phase II Assessment performed by Enviro-Shield, Inc. in April and May of 1992.
As of March 31, 1996, the Company has incurred expenses of approximately
$28,000 in connection with the investigation of this matter. Based on
preliminary findings and testing as recently as August, 1995, the Company does
not believe that a significant environmental liability exists. Although there
can be no assurance that the Company will not incur substantial additional
expense in connection with the investigation of this matter or compliance orders
from the State of Connecticut, the Connecticut Department of Environmental
Protection has stated that it would accept natural remediation and indicated
that existing monitoring procedures are satisfactory.
Litigation
- ----------
The Company is not involved in any litigation, nor is it aware of any
threatened litigation.
Facilities
- ----------
The Company occupies approximately 30,000 square feet in a single-story
building in a modern industrial park in Trumbull, Connecticut. This facility
houses corporate activities, the Inspection Division, and the Amdex Industrial
Computer Division. The Trumbull facility includes special optics laboratories,
application development and demonstration laboratories, corporate offices, and
manufacturing, assembly and testing areas. The Trumbull facility is leased from
an unaffiliated third party under a lease that expires on May 31, 1999,
(22)
<PAGE>
with an option to renew for one additional five-year term. The base annual rent
for the premises is approximately $210,000 for the period from June 1, 1994,
through May 31, 1996, and approximately $240,000 per year thereafter. The
Company also pays the common area maintenance, building insurance expenses, and
real estate taxes. The rent is subject to increase in the event the renewal
option is exercised. Through its Intec Europe, Ltd., sales office, the Company
also leases approximately 14,000 square feet in a suburb of Brussels, Belgium,
at a cost of approximately $61,000 per year.
(23)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", included elsewhere in this Prospectus. The consolidated statements
of operations data for the years ended September 24, 1993, and September 30,
1994, and the consolidated balance sheet data at September 30, 1994, presented
below, are derived from the consolidated financial statements of the Company,
which were audited by KPMG Peat Marwick LLP, independent certified public
accountants, and together with their report thereon, which contains an
explanatory paragraph stating that the Company was in default of a debt
agreement as of the date of the report (January 6, 1995), and that its recurring
losses from operations, accumulated deficit, and working capital deficiency,
raised substantial doubt about the company's ability to continue as a going
concern, are included elsewhere in this Prospectus. The statement of operations
data for the years ended September 27, 1991, and September 25, 1992, and the
balance sheet data at September 27, 1991, and September 25, 1992, and presented
below, are derived from the Company's financial statements also audited by KPMG
Peat Marwick LLP but not included herein.
The consolidated statement of operations data for the year ended September
30, 1995, and the consolidated balance sheet data at September 30, 1995,
presented below, are derived from the consolidated financial statements which
have been audited by McGladrey & Pullen, LLP, independent certified public
accountants, and together with their report thereon are included elsewhere in
this Prospectus.
The consolidated statements of operations data for the six months ended
March 31, 1995, and March 31, 1996, and consolidated balance sheet data at
March 31, 1995, presented below, are derived from the Company's unaudited
consolidated financial statements that are set out elsewhere in this Prospectus
and include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for fair presentation of the information
therein. The results of operations for the six months ended March 31, 1996,
are not necessarily indicative of future results.
(24)
<PAGE>
<TABLE><CAPTION>
Consolidated Statement of Operations Data
Years Ended
------------------------------------------------------------
Six Months Ended (unaudited)
- ---------------------------------------------
September 30, September 30, September 24, September 25, September 27,
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,073,432 $ 6,640,230 $ 7,088,230 $ 5,577,542 $ 1,295,812
Gross profit (loss) 4,151,427 3,303,721 3,505,697 2,474,653 (6,589)
Selling, general and
administrative expenses 2,874,321 2,849,548 3,544,909 2,870,690 631,777
Engineering 390,629 463,936 1,076,731 851,186 95,306
Amortization of costs in excess
of net assets of business acquired 307,642 307,462 326,930 108,744 --
Operating income (loss) 579,015 (317,225) (1,355,967) (733,672) (110,411)
Interest expense (142,319) (214,201) (231,725) (98,166) (72,135)
Interest income 9,039 4,237 14,800 81,662 44,391
Other - net (75,000) (169,402) (24,275) (6,500) --
Net income (loss) 370,735 (396,264)(1) (1,754,345) (1,396,746) (767,916)
Net income (loss)
per common share $ .10 $ (0.15)(1) $ (0.70) $ (0.64) $ (0.55)
Weighted Average shares 3,880,571 2,556,760 2,500,947 2,179,018 1,392,933
outstanding
<CAPTION>
March
1996 1995 six months ended
-------- --------------------
<S> <C> <C>
Net Sales $ 3,354,425 $ 4,554,187
Gross profit (loss) 1,685,468 1,952,432
Selling, general and
administrative expenses 1,459,847 1,345,367
Engineering 213,478 199,261
Amortization of costs in excess
of net assets of business acquired 153,731 153,731
Operating income (loss) (141,588) 254,073
Interest expense (55,490) (68,036)
Other income (expense) - net -------- (30,038)
Net income (loss) 197,078 155,999
Net income (loss)
per common share $ .04 $ .05
Weighted Average shares 5,218,298 3,018,298
outstanding
</TABLE>
(1) During fiscal 1994, the Company and certain of its creditors entered
into agreements to reduce amounts payable to the such creditors. The creditors
were offered and accepted a one payment immediate settlement to close out the
existing payables. The gain on settlements of outstanding payables totaled
$300,327 and is reported as an extraordinary item in the 1994 consolidated
statement of operations. Before the extraordinary item the net loss for the
fiscal year ended September 30, 1994, was $(696,591), and net loss per share was
$(.27).
(25)
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data Six months ended
March 31,
-------------------------------------------------------------------------- -------------------------
September 30, September 30, September 24, September 25, September 27, (unaudited)
1995 1994 1993 1992 1991 1996 1995
-------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $1,166,128 $(1,079,942) $(1,120,051) $1,233,803 $2,828,058 $ 941,417 $(767,828)
Total assets 7,849,610 8,105,378 8,226,944 10,743,439 3,874,987 7,709,376 7,370,950
Long term liabilities 180,000 80,170(1) 1,654,169 3,588,168 ------- ------- 37,003
Total liabilities 3,181,194 5,072,633(1) 6,297,935 7,260,085 869,887 3,238,038 4,182,206
Stockholders equity (deficit) $4,668,416(3) $3,032,745(2) $1,929,009 $3,483,354 $3,005,100 $4,471,338 $3,188,744
</TABLE>
(1) On September 1, 1994, the Company converted $1,500,000 of subordinated
Notes to 500,000 shares of common capital stock.
(2) During fiscal 1994, the Company and certain of its creditors entered
into agreements to reduce amounts payable to the such creditors. The debtors
were offered and accepted a one payment immediate settlement to close out the
existing payables. The gain on settlements of outstanding payables totaled
$300,327 and is reported as an extraordinary item in the 1994 consolidated
statement of operations. Before the extraordinary item the net loss was
$(696,591), and net loss per share was $(.27) for the fiscal year ended
September 30, 1994.
(3) The increase in the Stockholders' equity (deficit) was attributable in
large part to the receipt by the Company of the net proceeds of approximately
$1,300,000 for its private placement of 2,000,000 Units of Common Stock, Class C
Warrants, and Class D Warrants and net income of $370,735 for the year.
(26)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
In the fiscal year ended September 30, 1994, the Company converted
$1,500,000 of investor indebtedness to 500,000 shares of Common Stock, $.01 par
value. These shares were not registered and are restricted from transfer or sale
for two years. This transaction has been treated as a recapitalization for
accounting purposes.
Also in that fiscal year the Company and certain of its creditors agreed to
reduce amounts payable to such creditors resulting in an extraordinary gain of
$300,327.
During the period October 1, 1994, through September 30, 1995, certain
additional transactions impacted the financial condition and operations of the
Company.
1. The Company completed its Private Offering to 24 accredited
investors of 2 million Units raising net equity funds of
approximately $1,300,000.
2. The Company settled obligations totaling in excess of $450,000
for $282,000.
3. The Company was required by its lender to increase the interest
rate and amortization payments on its credit facility and to
accelerate the maturity of the facility to September 21, 1995. On
September 29, 1995, the Company completed the arrangement of a
new $2 million revolving credit facility with a new lender and
paid its then existing lender in full.
Set forth in the Table below is a summary of the results of operations for
the Company for the six most recently-ended fiscal years and the three month
period ended March 31, 1995 and 1996.
Results of Operations - Summary
(Rounded to the nearest tenth)
<TABLE>
<CAPTION>
Years Ended Six Months Ended (Unaudited)
------------------------------------------- ------------------------------
September 30, September 30, September 24, March 31,
1995 1994 1993 1996 1995
------------- ------------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Sales......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 53.1 % 50.2 % 50.5 % 49.8 % 57.1 %
Gross profit.............. 45.8 % 49.8 % 49.5 % 50.2 % 42.9 %
Selling, general and
administrative.......... 31.7 % 42.9 % 50.0 % 43.5 % 29.5 %
Engineering............... 4.3 % 7.0 % 15.2 % 6.4 % 4.4 %
Amortization of costs in .
excess of net assets of..
business acquired........ 3.4 % 4.6 % 4.6 % 4.6 % 3.4 %
Total operating expense 39.4 % 54.5 % 69.8 % 54.5 % 37.3 %
Operating income(loss).... (6.4)% (4.8)% (20.4)% (4.2)% 5.6 %
Interest income/(expense)
net..................... (1.5)% (3.2)% (3.1)% (0.4)% (1.5)%
Other income (expense) (1.8)% (2.6)% (1.3)% -- (0.6)%
Total other expense....... (2.3)% (5.7)% (4.4)% (0.4)% (2.1)%
Extraordinary item........ 0.0 % 4.5 % 0.0 % -- --
Net income/(loss)......... 4.1 % (6.0)% (24.8)% (5.9)% 3.4%
</TABLE>
(27)
<PAGE>
Results of Operations
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31, 1995
Net Sales
---------
The Company had net sales for the six months ended March 31, 1996. (the
current half year), of $3,354,425 compared to $4,554,187 for the six months
ended March 31, 1995, (the prior half year). The decrease of $1,199,762
reflects the short fall of orders for the current half year due to orders
delayed until future periods and the prior half year included improved INTEC
sales specifically relating to Far East business.
Gross Profit
------------
The Company generated gross profits of $1,685,468 (50% of net sales) for
the current half year compared to gross profits of $1,952,432 (43% of net
sales) for the prior half year. The decreased amount related to the decrease
in Company sales, and the increased gross profit percentage is a result of
product and market mix.
Selling General, and Administrative
-----------------------------------
Selling general and administrative expenses for the current half year
were $1,459,847 (44% of net sales) compared to $1,345,367 (30% of net sales)
for the prior half year. This increase is due to fluctuations in product and
market mix, adjustments to certain reserves in the prior half year and
reclassification of certain expenses.
Engineering expenses for the current half year were $213,478 compared to
the prior half year of $199,261. This increase reflects the addition of
strategic personnel to accelerate new product development
Interest Expense/Interest Income
--------------------------------
The Company had net interest expense of $55,490 for the first six months
of the current fiscal year compared to $68,036 the first six months of fiscal
1995. This reduction is due to the Company's entering into a revolving
financing agreement to replace the existing bank debt which resulted in a
reduction in principal outstanding.
Other expenses for the first six months of the current fiscal year have
been reclassified to conform with audited fiscal year end 1995 presentation.
Net Loss
--------
The net loss of $197,078 in the first six months of the current fiscal
year compares to a profit of $155,999. The decrease in profitability is
substantially the result of decreased sales.
Backlog
-------
The Company's backlog as of April 3, 1996, was approximately $2,500,000.
(28)
<PAGE>
Year Ended September 30, 1995, Compared to Year Ended September 30, 1994.
Net Sales
- ---------
The Company had net sales for the fiscal year ended September 30, 1995
("fiscal year 1995"), of $9,073,432 as compared to $6,640,230 for the fiscal
year ended September 30, 1994 ("fiscal year 1994"). The increase is primarily
due to the improved performance of the Intec Inspection Division in penetrating
the markets in Europe and in the Asia-Pacific region, including Japan. Growth in
the United States markets was also experienced, a downward trend was reversed,
and the addition of new products which recognized the price/performance
elasticity factor in the market created greater domestic visibility for the
Company and new business opportunities.
Gross Profit
- ------------
The Company generated a gross profit of $4,151,427 or 45.8% of net sales
for fiscal year 1995, compared to a gross profit of $3,303,721 or 49.8% of net
sales for fiscal year 1994. The decrease in the gross profit percentage is due
primarily to extra discounting on certain major orders for systems to establish
a strategic presence in the Asia-Pacific region. Another contributing factor is
the allocation in the fiscal year ended September 30, 1995, of engineering
expense to cost of sales to recognize that a substantial engineering effort
during this period was allocated to the support manufacturing and subsequent
product testing.
Selling, General, and Administrative Expenses
- ---------------------------------------------
This category of expenses totaled $2,874,321 for fiscal year 1995 or 31.6%
of net sales, compared to $2,849,548 or 42.9% of net sales for fiscal year 1994.
This small increase is the result of a $239,374 increase in Selling Expense and
a decrease of $214,601 in General and Administrative Expense. The decrease in
General and Administrative Expense is due primarily to personnel reductions and
continued control of expenses. The increase in Selling Expense is the result of
additional travel and increased commission expense due to the increase in net
sales subject to commission payments. The general and administrative
infrastructure is positioned to support growth and greater volume without
significant increases in expense.
Engineering and Research and Development Expenses
- -------------------------------------------------
The Company had engineering and research and development expenses of
$390,629 or 4.3% of net sales for fiscal year 1995, compared to $463,936 or 7.0%
of net sales for fiscal year 1994. The decrease can be attributed primarily to
the completion of the integration of the Company's engineering function and to a
reduction and transfer of personnel. The Company does not expect that this
reduction will have a material effect on current sales levels or its ability to
maintain and keep its technology current and competitive in the marketplace. A
part of the reduction in engineering expense is also attributable to the
allocation of engineering time devoted to operations.
Interest Expense/Interest Income
- --------------------------------
The Company had interest expense of $142,319 or 1.6% of net sales for
fiscal year 1995, compared to $214,201 or 3.2% of net sales for fiscal year
1994. This decrease is due to the principal reductions on the outstanding bank
term loan.
Amortization of Costs in Excess of Net Assets Acquired (Goodwill)
- -----------------------------------------------------------------
The Company is amortizing Goodwill associated with the acquisition of Intec
over a fifteen year period. Amortization was $307,462 for both years 1995 and
1994.
Miscellaneous Expense
- ---------------------
Miscellaneous expense amounted to $75,000 for fiscal year 1995, compared to
miscellaneous expense of $169,402 for fiscal year 1994. The current fiscal
year's miscellaneous expense is comprised solely of a reserve for an officer's
loan generated in 1992 to cover a tax liability caused by the requirement
imposed by the underwriter of the Company's 1991 initial public offering on an
officer with respect to the conversion of his accrued deferred compensation to
shares of stock. The Board of Directors has waived interest on this loan and it
is anticipated that the Board of Directors will waive payment of principal
(forgive the debt) in view of the circumstances of this loan.
Extraordinary Item
- ------------------
There were no extraordinary gains in fiscal year 1995. The extraordinary
item for fiscal year 1994 of $300,327 reflects the results of settlements
relating to older accounts payable, many of which were dated in early 1993. The
creditors were offered and accepted a one payment immediate settlement to close
the old existing accounts payable.
(29)
<PAGE>
Net Income (Loss)
- -----------------
The net income for the fiscal year 1995 totaled $370,735 or $.10 per share,
compared to a loss of $396,264 or ($.15) per share for fiscal year 1994. This
significant turnaround, which started in the third quarter of fiscal year 1994,
was primarily attributable to the reduction in general and administrative
expense and to the 37% growth in net sales in fiscal year 1995.
Backlog
- -------
At December 19, 1995, the Company's backlog of customer orders was
approximately $1,095,000, compared to approximately $3,900,000 at September 30,
1994. This change represents the result of building subsystems to forecast,
which has improved the Company's ability to ship more quickly upon the receipt
of an order, even an order for one of the Company's more sophisticated systems.
It also is a result of the completion of a large order from a major customer
which was part of the backlog at September 30, 1994.
Year Ended September 30, 1994, Compared to Year Ended September 24, 1993.
Net Sales
- ----------
The Company had net sales for the fiscal year ended September 30, 1994
("Fiscal Year 1994"), of $6,640,230, compared to $7,088,230 for the fiscal year
ended September 24, 1993 ("Fiscal Year 1993"). The decrease was primarily due to
the decrease of system development division revenue of approximately $600,000
offset in part by an increase in Amdex revenues.
Gross Profit
- ------------
The Company generated a gross profit of $3,303,721 or 49.8% of net sales
for Fiscal Year 1994, compared to $3,505,697 or 49.5% of net sales for Fiscal
Year 1993. This small decrease was primarily due to the lower revenues.
Selling, General and Administrative Expense
- -------------------------------------------
This category of expense totaled $2,849,548 for Fiscal year 1994 or 42.9%
of net sales, compared to $3,544,909 or 50% of net sales for Fiscal Year 1993.
The decrease reflects: the results of the Company's expense reduction program,
including personnel and outside services; charges for the North Billerica,
Massachusetts, lease liability through September, 1996, of approximately
$187,000; and the $150,000 State of Connecticut grant to offset certain
relocation and facility expenses.
The decision to close down the North Billerica facility was made in the
fourth quarter of Fiscal Year 1994 and reflected management's intention to
consolidate all operations and facilities in Trumbull, Connecticut.
Specifically, the Company substantially reduced its monthly expenses
through reduction in payroll and fringe benefits resulting from staff
reductions, by eliminating excess warehouse and sales office space, and by
renegotiating the Trumbull lease.
Engineering Expense
- -------------------
The Company had engineering expense of $463,936 or 7% of net sales for
Fiscal Year 1994, compared to $1,076,731 or 15.2% for Fiscal Year 1993. The
decrease can be attributed primarily to the completion of the integration of the
Company's engineering function and to the reduction or transfer of personnel.
The Company does not expect that this reduction will have a material effect on
current sales levels or its ability to maintain its technical position in the
industry.
Interest Expense/Interest Income
- --------------------------------
The Company had interest expense for $214,201 or 3.2% of net sales for
Fiscal Year 1994, compared to $231,725 or 3.1% of net sales for Fiscal Year
1993. This decrease was due to the monthly reduction of the outstanding bank
loan.
Amortization of Cost in Excess of Net Assets Acquired (Goodwill)
- ----------------------------------------------------------------
The Company is amortizing Goodwill associated with the acquisition of Intec
over a fifteen year period. Amortization for the Fiscal Year 1994 was $307,462,
compared to $326,930 for the Fiscal year 1993. The decrease was due to the
renegotiation of the purchase price for Intec in April 1993.
Other Income (Expense)
- ----------------------
Other expense amounted to $169,402 for Fiscal Year 1994, compared to other
expense of $94,547 for Fiscal Year 1993. The increase for Fiscal year 1994
reflects charges for the write-off of deferred financing expenses of
approximately $196,000 from an aborted warrant and private
(30)
<PAGE>
placement financing. The deferred expenses incurred in an attempted warrant
issue and private placement retained no economic value for any future financing.
Extraordinary Item
- ------------------
The extraordinary item for Fiscal Year 1994 of $300,327 reflects the
results of settlements relating to older accounts payable, many of which were
dated in early 1993. The debtors were offered and accepted a one payment
immediate settlement to close the old existing payables.
Net Loss
- --------
The net loss for Fiscal Year 1994 totaled $396,264 or $(.15) per share,
compared to a net loss of $1,754,345 or $(.70) per share for Fiscal Year 1993.
This significant loss reduction, which took place in the last three quarters of
Fiscal Year 1994, was primarily attributable to the substantial reduction in
operating expense.
Backlog
- -------
At September 30, 1994, the Company's backlog had increased to approximately
$3.9 million from approximately $2.4 million at September 24, 1993. This
increase represented approximately $1.5 million in inspection equipment.
Year Ended September 24, 1993, Compared to Year Ended September 25, 1992
Net Sales
- ---------
The Company had net sales for the fiscal year ended September 24, 1993
("Fiscal Year 1993"), of $7,088,230, compared to $5,577,542 for the period ended
September 25, 1992, ("Fiscal Year 1992"). The increase was primarily due to
increased sales resulting from the acquisitions of Intec and Amdex during the
fiscal year 1992. Net product sales, which included sales of Intec inspection
systems, Amdex industrial computers and Aerodyne RCD Analyzers were $6,402,922
for Fiscal Year 1993, compared to $4,105,458 product sales for Fiscal Year 1992.
Contract revenues comprised of sales to the U.S. Government, revenues from the
sale of photographic products and contract research and development revenues,
contributed $685,308 to gross sales during Fiscal Year 1993 and $1,471,084 in
Fiscal Year 1992.
Gross Profit
- ------------
The Company generated a gross profit of $3,505,697 or 49.5% of net sales
for Fiscal Year 1993, compared to of $2,474,653 or 44.4% of net sales for Fiscal
Year 1992. This difference was primarily due to a change in the Company's
product mix resulting from the acquisitions of Intec, whose products generally
carry a higher product margin than those sold by the Company through its
Industrial Computer and Systems Development Divisions.
Selling, General and Administrative Expense
- -------------------------------------------
Operating expenses, consisting of selling, general and administrative
expenses, for Fiscal Year 1993 were $3,544,909 or 50% of net sales, compared to
$2,870,690 or 51.5% of net sales for Fiscal Year 1992. The increase was
primarily due to increased general and administrative expenses associated with
the operation of Intec and to increased sales and marketing efforts of the Amdex
Division in the U.S. and European markets.
Engineering Expense
- -------------------
The Company had engineering expenses of $1,076,731 for the year ended
September 24, 1993, or 15.2% of net sales, compared to $851,186 or 15.3% of net
sales for the year ended September 25, 1992. This increase can be attributed
primarily to the acquisition of Intec, the integration of the Company's product
lines with those of Intec, the development costs incurred in connection with the
development of the next generation of Intec's products, and the improvement of
the Company's existing products.
Interest Expense/Interest Income
- --------------------------------
The Company had interest expense of $231,725 for the year ended September
24, 1993, compared to $98,166 for the same period in 1992, an increase of
$133,559. This increase was due to an increase in the Company's outstanding debt
resulting from the acquisition of its Intec subsidiary. As a result of the
reduction of the outstanding principal balance of the convertible promissory
notes payable to the Intec noteholders, the Company anticipates that interest
expense in connection with these notes will decrease in future quarters.
For the years ended September 24, 1993, and September 25, 1992, the Company
earned $14,800 and $81,662, respectively, of interest income from cash invested
in short term certificates of deposit. This decrease in interest income in
Fiscal Year 1993 was attributed to a lack of available cash for investment by
the Company due to continuing losses from operations and to the debt assumed in
connection with the Intec acquisition.
(31)
<PAGE>
Amortization of Costs in Excess of Net Assets Acquired (Goodwill)
- -----------------------------------------------------------------
The Company is amortizing Goodwill associated with the acquisition of Intec
over a fifteen year period. Amortization for fiscal year ended September 24,
1993, was $326,930, compared to $108,744 during the year ended September 25,
1992. The increase is due to expense recognition for a full year in the current
period offset by a recalculation based on a setoff against the former owners and
noteholders.
Other Expenses
- --------------
Other expense amounted to $94,547 during the year ended September 24, 1993,
compared to $24,275 for the year ended September 25, 1992. The increase was
primarily due to a loss on the disposal of fixed assets and a sales and use tax
audit adjustment.
Net Loss
- --------
The net loss for the year ended September 24, 1993, totaled $1,754,345 or
($.70) per share, compared to a loss of $1,396,746 or ($.64) per share for
Fiscal Year 1992. The increased loss of $357,599 was primarily attributable to
the amortization of goodwill, and interest expenses associated with the
acquisition of Intec, as well as increased selling, general and administrative
expenses, as described herein.
Backlog
- -------
At September 24, 1993, the Company's backlog had increased to $2,378,500
from $1,301,000 at September 25, 1992. Backlog for contracts, sales to the U.S.
Government, sales of photographic equipment and contract research and
development revenues increased during the same period from $88,000 in Fiscal
Year 1992 to $926,000 in Fiscal Year 1993, while backlog for product sales,
industrial inspection equipment, and computers increased from $1,213,000 at the
end of Fiscal Year 1992 to $1,452,000 at the end of Fiscal Year 1993.
Capital Expenditures
The Company does not have any material commitments for capital expenditures
at this time.
Effect of Inflation
In 1992, 1993, 1994, and 1995, there was only small, gradual inflation with
little effect on the Company's operating costs.
Liquidity and Capital Resources
Since its merger with Intec Corp. in May, 1992, the Company has satisfied
its capital needs principally through private sales of stock, bridge financing,
subordinate and demand notes, and the utilization of lines of credit from a bank
and a financing company.
At March 31, 1996, the Company had working capital of $941,417
compared to working capital of $ 1,166,128 at March 31, 1995. Over the past
twelve months the Company's primary source of liquidity consisted of
approximately $1.3 million provided from the Company's 1995 private offering, in
which the Company sold two million units of its securities @ $.80 per unit, as
follows:
2,000,000 Shares of Common Stock
2,000,000 Class C Warrants
2,000,000 Class D Warrants
The Class C and Class D Warrants are exercisable upon the first to occur of
December 1, 1995, or the date the Registration Statement becomes effective and
thus they are exercisable as of the date of this Prospectus. The stated or
initial Warrant exercise prices, $2.75 and $3.75, respectively, have been
adjusted to $.16 and $1.61 per share as of April 24, 1996. Management projects
that an additional source of liquidity will be provided by the exercise of Class
C Warrants in fiscal year 1996. See "USE OF PROCEEDS", page 13.
--
The Company intends to use the proceeds of the exercise of Warrants and
Options to replenish its working capital for the cost of this offering and to
build up its working capital.
On September 29, 1995, the Company replaced its lender by obtaining a new
revolving credit facility from a private lending company under which it can
obtain advances of up to $2 million against up to 80% of its eligible accounts
receivable and 15% of qualified inventory. The Company's borrowing availability
under this credit facility may be enhanced by the inclusion of all foreign
receivables for which irrevocable letters of credit are given or in respect of
which foreign credit insurance is obtained. The Company has received a proposal
from a bank which would provide a revolving credit facility of up to $3 million
for domestic sales and foreign sales, coupled with an Eximbank loan guaranty.
The Company plans to pursue this proposal with a view to entering into a new
lending relationship during the third fiscal quarter of 1996.
(32)
<PAGE>
In addition to the possibility of a new revolving credit facility, the
Company is seeking export transaction financing and additional state economic
assistance, and it is also evaluating additional equity investments. The Company
believes that the anticipated cash flow from operations, further cost control
measures, and borrowings under its existing (and replacement) revolving credit
facility and other sources will allow the Company to satisfy its cash needs for
the next 12 months and in the longer term. However, there can be no assurance
that liquidity would not be adversely impacted by a decline in general economic
conditions or that future credit facilities will be available.
The Company received the proceeds of a loan of $200,000 from an investor
as of May 20, 1996.
(33)
<PAGE>
MANAGEMENT
Directors and Executive Officers
- --------------------------------
The current directors, executive officers and key employees of the Company,
their ages and their positions held in the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C>
Gerald W. Stewart 51 President and Chief Executive Officer
Director
Joseph Schlig 68 Chief Financial Officer, Vice President, Treasurer, and
Secretary
Walter D. Stewart 30 General Manager, Amdex Division
Ludo Soetens 56 Managing Director, Intec Europe, Ltd.
Howard Davidoff 39 Director
Tancred V. Schiavoni 68 Director
Eric H. Twerdahl 48 Director
</TABLE>
Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his or her successor is duly elected by
the stockholders. In general, vacancies in existing directorships, and newly
created directorships resulting from any increase in the authorized number of
directors may, be filled by a majority vote of the directors then in office.
The Company has agreed to pay outside directors $1,200 per meeting attended
and to reimburse outside directors for the expenses they incur to attend Board
meetings. Dr. Stewart does not receive any compensation for serving as a
director.
The following is a summary of the principal occupations during the past
five years of each of the directors, executive officers, and key employees named
above:
GERALD W. STEWART, PH.D. Dr. Stewart was elected Chairman of the Board and
Chief Executive Officer of the Company in April, 1988, after serving as
President and Chief Executive Officer since October, 1984. Since joining the
Company in 1979 as Director of the Center for Chemical and Environmental
Physics, Dr. Stewart has held several positions, including Director of
Engineering and Vice President for Strategic Planning and Development. Prior to
joining the Company, Dr. Stewart served as Chief, Supporting Research Branch at
the U.S. Department of Energy's Morgantown Energy Technology Center, where he
was responsible for developing new and improved devices for in-process
monitoring and the transfer of these technologies to the commercial sector. Dr.
Stewart served as assistant professor of chemistry at West Virginia University
and as a research associate at both the Massachusetts Institute of Technology
and Washington University. Dr. Stewart holds a Ph.D. in Physical Chemistry from
the University of Idaho, an M.S. in Physical Chemistry from South Dakota School
of Mines and Technology, and a B.S. in Chemistry from Wilmington College.
JOSEPH SCHLIG. Mr. Schlig jointed the Company in June 1995 as Vice
President, Treasurer, and Secretary. He was appointed Chief Financial Officer by
the Board of Directors in September, 1995.For the past five years he has been
the Co-Managing Director of Fairhaven Associates, a consulting firm specializing
in advising small and emerging businesses. He has many years of business
experience including Director of Marketing, Latin America, for ITT and Director
of International Operations for Revlon. He has been a Director and Chairman of
the Finance Committee of Hadron, Inc. (OTC), Chairman of the Supervisory
Committee and Director of the Greenwich (CT) Federal Credit Union, and is
currently a Director of the Bridgeport Economic Development Corporation and The
MIT Enterprise Forum. He is also a planning consultant to the Connecticut
Department of Economic Development through the Flexible Manufacturing Network
Center. He has operated several small/medium size companies in both the public
and private sectors. Mr. Schlig has an engineering degree from the Stevens
Institute of Technology and an M.B.A. from the Harvard Business School where he
was a Baker Scholar. Mr. Schlig is a member of the Audit Committee.
(34)
<PAGE>
WALTER D. STEWART. Mr. Stewart joined Intec in 1993 as the General Manager
of AMDEX Industrial Computer Division. Prior to joining the Company, Mr.
Stewart owned and operated B & S Systems Consulting, a company that designed,
built and installed computer networks. Mr. Stewart has 10 years of experience
working with both mainframe, mini and PC computers and is certified by both
Novell and SCO. Mr. Stewart is the son of Dr. Stewart, President, Chief
Executive Officer, and Director.
LUDO SOETENS. Mr. Soetens joined Intec Europe, Ltd., in 1990 and has been
its Managing Director since then. He is responsible for all European sales and
technical support. He has over 24 years of international experience in the
process controls industry including sales and administrative management.
Previously, Mr. Soetens was General Manager at Fisher Controls, Belgium.
HOWARD DAVIDOFF. Mr. Davidoff, who has served as a Director since November,
1987, has been Managing Director of the Venture Capital Department of Carl
Marks & Co., Inc., operated as CMNY Capital, in New York, New York. Carl Marks
& Co., Inc., is an investment banking firm. From February, 1981, to May, 1986,
Mr. Davidoff was employed by The Chase Manhattan Bank (National Association) as
a corporate lending officer. Mr. Davidoff holds a B.B.S. degree from Boston
University and an M.B.A. degree from New York University. Mr. Davidoff is a
member of the Compensation and Audit Committees.
TANCRED V. SCHIAVONI. Mr. Schiavoni was elected to the Board January 23,
1996. Prior to his retirement he was a general partner of Investech, L.P. He
holds a B.S. degree in electrical engineering from Columbia University.
ERIC H. TWERDAHL. Mr. Twerdahl was elected to the Board January 23, 1996.
Since 1988 he has been Managing Director of Fox, Twerdahl, Lehman & Co., an
investment banking firm which provides corporate finance, advisory, and merger
and acquisition services to clients in the U.S. and abroad. He holds a B.A.
degree from Johns Hopkins University and an M.B.A. degree from Boston
University.
Committees
- ----------
The Audit Committee consists of
Howard Davidoff, Chairman
Eric J. Twerdahl
Joseph Schlig
The Compensation Committee consists of
Tancred V. Schiavoni, Chairman
Howard Davidoff
Eric Twerdahl
Compensation Committee Interlocks and Inside Participation
- ----------------------------------------------------------
During the fiscal year ended September 30, 1995, Robert J. Borel and Howard
Davidoff comprised the Compensation Committee of the Board; during the period of
October, 1995, through the current date, Tancred V. Schiavoni, Howard Davidoff
and Eric Twerdahl comprised the Compensation Committee. None of them are or at
any time have been officers of the Company.
(35)
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company to each of the most highly compensated executive officers, whose total
annual salary and bonus exceeded $100,000, for their services in all capacities
to the Company and its subsidiary during the fiscal years ended September 30,
1995, September 30, 1994, and September 24, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Name and Principal Position Year Salary Bonus Other Annual Restricted Options/SARS LTIP Payouts All Other
Compensation Stock Compensation
Award(s)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($) ($) ($) ($) # ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Gerald W. Stewart, 1995 $125,000 ---- ---- ---- 10,000 ---- ----
Chairman, Chief Executive 1994 $125,000 ---- ---- ---- 10,000 ---- ----
Officer, and President 1993 $ 62,000 $25,000 $18,000 (1) 25,000 ---- ----
Philip L. White 1993 $126,000 $55,000 (2)
Former Executive (3)
Vice President
Sales/Marketing
(Intec Corp.)
</TABLE>
(1) Under the terms of his employment agreement ending December 31, 1993,
Dr. Stewart was entitled to an annual allowance of $18,000 in
non-accountable expenses which was paid.
(2) In Fiscal Year 1993, the Company forgave approximately $55,000 in
notes receivable from Mr. White.
(3) Compensation to Mr. White was paid by Intec Corp., not the Company
(registrant).
(36)
<PAGE>
Employment Agreements
- ---------------------
The Company has entered into an employment agreement (the "Employment
Agreement") with Dr. Gerald W. Stewart, engaging him as its President and Chief
Executive Officer, effective January 1, 1994. The Employment Agreement provides
for a five-year term and an annual base salary of $125,000 payable in
substantially equal payments in accordance with the Company's usual practices
with reimbursement for reasonable business expenses. The base salary was
increased to $145,000 per year as of October 1, 1995. A cash bonus determined
cash bonus by the Board of Directors can be earned if the Company meets or
exceeds the target goals for the year, as set by the Board of Directors.
Dr. Stewart's employment may be terminated by the Company at any time for
"good cause" (as defined in the Employment Agreement) and Dr. Stewart may
terminate his employment at any time by providing 30 days' prior written notice
to the Company. Under either of these circumstances, the Company will be
obligated to pay Dr. Stewart his base salary plus accrued bonus and expenses
through the end of the month of termination. If the Company terminates Dr.
Stewart's employment other than for "good cause" or if Dr. Stewart terminates
his employment due to a material breach of the Employment Agreement by the
Company, Dr. Stewart is entitled to receive from the Company a sum equal to the
annual base salary then in effect, payable in 10 consecutive equal monthly
installments.
The Employment Agreement also includes non-competition provisions which
prevent Dr. Stewart from competing with the Company while employed by the
Company and which prevent Dr. Stewart, for a period of two years after his
termination of employment, from hiring any employee of the Company, or from
persuading any employee, customer, independent contractor, dealer, supplier or
client of the Company from discontinuing its relationship with the Company. If
Dr. Stewart's employment is terminated by the Company without "good cause", or
by Dr. Stewart as a result of a material breach of the Employment Agreement by
the Company, the two year period mentioned above is be reduced to one year.
The Board has granted to Dr. Stewart options to purchase 100,000 shares of
common stock under its 1985 and 1991 Stock Option Plans, all at the exercise
price of $1.31 per share.
------------------------------------------------
(37)
<PAGE>
The Company entered into an employment agreement with Mr. Joseph Schlig as
Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary of
the Company, effective September 30, 1995. This employment agreement provides
for a one year renewable, term, and an annual base salary of $100,000, payable
in substantially equal payments in accordance with the Company's usual
practices, with reimbursement for reasonable business expenses. A cash bonus
determined by the Board of Directors can be earned if the Company meets or
exceeds the target goals for the year, set by the Board of Directors.
Mr. Schlig's employment may be terminated by the Company at any time for
"good cause" (as defined in the employment agreement) and Mr. Schlig may
terminate his employment at any time by providing 30 days' prior written notice
to the Company. Under either of these circumstances, the Company will be
obligated to pay his base salary plus any accrued bonus and expenses through the
end of the month of termination. If the Company terminates Mr. Schlig's
employment other than for "good cause", or if it terminates his employment
agreement, Mr. Schlig is entitled to receive from the Company a sum equal to the
then most recent base salary, payable in 10 consecutive equal monthly
installments.
The employment agreement also includes non-competition provisions which
prevent Mr. Schlig from competing with the Company while employed by the Company
and which prevent Mr. Schlig, for a period of two years after his employment
terminates, from hiring any employee of the Company or from persuading any
employee, customer, independent contractor, dealer, supplier, or client of the
Company from discontinuing its relationship with the Company. If Mr. Schlig's
employment is terminated by the Company without "good cause" or as a result of a
material breach of the employment agreement by the Company, the two year period
mentioned above is reduced to one year.
Mr. Schlig was granted options to purchase 100,000 shares of Common Stock
at $1.50 per share, the closing trading price of the shares on the date of
grant, October 13, 1995, subject to there being shares made available for grant
by action of the stockholders at their 1996 Annual Meeting scheduled for April
9, 1996.
------------------------------------------------
Philip L. White was engaged in 1993 as President, Chief Executive Officer,
and Executive Vice President, Sales and Marketing, of Intec Corp., pursuant to
an employment agreement. He is no longer employed by Intec and the Company has
completed all of its obligations to him.
------------------------------------------------
Mr. Vollmer's employment ended June 1, 1995, when he took a permanent
disability leave. He died October 19, 1995. The Company believes that all of its
obligations to Mr. Vollmer are covered by disability and other insurance
policies. Mr. Vollmer's legal representatives retain the right to exercise his
vested stock options, issued under the 1991 Incentive Stock Option Plan, until
October 19, 1996.
(38)
<PAGE>
Options/SAR Grants in Last Fiscal Year
================================================================================
Potential
Realizable
Value of
Individual Grants Assumed Annual
Rates of Stock
Price
Appreciation
for Option Term
(a) (b) (c) (d) (e) (f) (g)
- --------------------------------------------------------------------------------
Name Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SA Employees in Price Expiration
Rs Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
(#)
- --------------------------------------------------------------------------------
Gerald
W.
Stewart 10,000 15.8% 1.31 9/30/98 $5,566.70 $8,362.37
================================================================================
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at FY-End at FY-End
--------------------------- --------------------------
Name Unexercisable Exercisable Unexercisable Exercisable
- ---- ------------- ----------- ------------- -----------
Gerald W. Stewart (NEO) 48,382 51,618 $ 15,240 $ 16,260
Transactions with Management and Others
- ---------------------------------------
Effective as of January 23, 1996, the Board of Directors (Gerald W.
Stewart abstaining) voted to forgive a loan in the principal amount of
$75,000 the Company had extended to Gerald W. Stewart, Chief Executive
Officer and Chairman of the Board, in April of 1992, to enable him to pay
an unexpected tax liability resulting from the conversion of certain
deferred compensation to shares of common stock required by the underwriter
in the Company's 1991 initial public offering.
(39)
<PAGE>
STOCK OPTION PLANS
In 1985 the Company adopted the 1985 Incentive Stock Option Plan (the
"1985 Plan") which provides that options granted thereunder are intended to
qualify as "incentive stock options" within the meaning of Section 422 of
the United States Internal Revenue Code (then 1954), as amended (the
"Code"). In 1991 the Company adopted the 1991 Stock Option Plan (the
"1991 Plan"). The 1991 Plan provides for the grant of options intended to
qualify as incentive stock options within the meaning of Section 422 of the
Code as well as for the grant of other (non-incentive) stock options.
Although incentive stock options are issuable only to employees of the
Company, non-incentive stock options may be issued to non-employee
directors, consultants and others, as well as to employees. The 1985 Plan
and the 1991 Plan are collectively referred to herein as the "Plans".
The 1985 Plan is administered by the Board of Directors and the 1991
Plan is administered by a committee consisting of two members of the Board
of Directors, neither of whom is eligible to participate in this Plan.
The Company currently has 62,500 shares of Common Stock reserved for
issuance under the 1985 Plan and there are 300,000 shares reserved for
issuance under the 1991 Plan. The Board of Directors and the Compensation
Committee, respectively, determine which individuals shall receive options,
the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock that may be purchased under
each option and the exercise price thereof.
The terms of grant under each of the Plans require that no option may
be exercised while there is outstanding, within the meaning of Section
422A(c)(3) of the Code, any previously granted incentive-stock option.
As of March 31, 1996, the following Options were outstanding:
No. of Exercise Expiration Shares
Shares Price Date Vesting Vested
- -------------- -------------- --------------- ------- --------
1985 Plan
---------
23,445 $ 1.31 10/08/01 20% per year 14,073
25,000 1.31 03/12/02 0% per year 10,000
------ ------
48,445 24,073
No. of Exercise Expiration Shares
Shares Price Date Vesting Vested
- -------------- -------------- --------------- ------- --------
1991 Plan
---------
6,545 1.31 10/31/97 100% 6,545
10,000 1.94 12/14/98 20% per year 10,000
25,000 1.31 02/15/00 20% per year 15,000
3,000 4.50 02/15/00 20% per year 1,800
44,500 1.75 04/21/01 20% per year 17,800
10,000 1.31 04/21/01 20% per year 4,000
10,000 1.31 03/14/02 20% per year 2,000
50,700 1.31 03/14/02 20% per year 10,140
100,000 1.25 05/08/02 33 1/3% per year 33,333
30,000 1.50 10/13/02 20% per year 6,000
------ -----
289,745 106,618
There were no exercises of any stock options in the fiscal year ended
September 30, 1995, or during the six months ended March 31, 1996.
See Table II at page 47 for Options held by Executive Officers of the
Company and Table II at page 47 for Warrants held by Directors of the
Company.
(40)
<PAGE>
401K Plan
- ---------
On January 1,1994, the Company adopted the "Intec Retirement Plan" with
an original effective date of January 1, 1986. The Plan is a qualified 401K
Profit Sharing Plan under the Internal Revenue Code, as amended. The Company
made no contribution to the Plan in fiscal year 1995, or for the six months
ended March 31, 1996.
PRINCIPAL AND SELLING STOCKHOLDERS
The following tables set forth on a pro forma basis certain information
regarding the beneficial ownership of the issued and outstanding shares of
Common Stock as of December 31, 1995, inclusive of the shares of Common
Stock offered by this Prospectus (which include shares subject to issuance
upon exercise of certain warrants) by: (I) each director of the Company;
(ii) each person nominated to become a director of the Company; (iii) each of
the executive officers of the Company; (iv) all directors and officers of the
Company, as a group; (v) each person known by the Company to own beneficially
more than 5% of the Common Stock of the Company; and (vi) each other selling
stockholder.
Table I shows the stockholdings of the officers, directors, and present 5%
shareholders, and their percentage ownership based on (a) 5,218,298 the number
of outstanding shares of common stock as of March 31, 1996, and (b)
9,565,605 as the number of shares to be outstanding after the Offering
assuming all Warrants and Options covered by this registration statement
are exercised. Table II shows the holders of shares and warrants received in
the private offering ("Selling Stockholders"), and the holders of warrants and
options, whose exercise will cause the delivery by the Company of the shares
enumerated (also "Selling Stockholders").
The Selling Stockholders may offer and sell the shares of Common Stock
pursuant to this Prospectus from time to time. The distribution of such
securities may be effected in one or more transactions that may take place on
the over-the-counter market including ordinary brokers' transactions,
privately negotiated transactions or through sales to one or more
brokers/dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by those holders in
connection with such sales.
<TABLE>
<CAPTION>
Table I. Principal Stockholders
----------------------
Officers, Shares Beneficially Number of Shares Shares Beneficially
Directors, and Owned Prior to this which may be owned after this
5% Stockholders Offering(1) Offered Offering(1)
- --------------- ------------------- ---------------- ------------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
CMNY Capital, L.P.(2) 845,663 16.21 0 845,663 8.84
135 East 57th Street
New York, NY 10022
Worthington Industries, 172,008 3.30 0 172,008 1.80
Inc.(3)
1205 Dearborne Drive
Columbus, OH 43085
Howard Davidoff (2) (4) 18,000 .34 18,000 18,000 .19
Carl Marks & Co., Inc.
135 East 57th Street
New York, NY 10022
Dr. Gerald Stewart (5) 195,857 3.75 195,857 195,857 2.02
1079 Boston Post Road
Sudbury, MA 01776
Robert J. Borel (3) (6) 18,000 .34 18,000 18,000 .19
Worthington Industries,
Incorporated
1205 Dearborn Drive
Columbus, OH 43085
Joseph Schlig 100 .0019 0 100 .001
129 Mayfield Drive
Trumbull, CT 06611
All Directors and
officers as a group
(3 individuals) 1,249,628 23.95 231,857 1,249,628 12.90
</TABLE>
(41)
<PAGE>
Footnotes are on next page.
(1) Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right
to acquire within 60 days of this filing pursuant to the exercise
of options or warrants are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual
or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in
the table.
(2) Mr. Davidoff may be deemed the beneficial owner of these shares
by virtue of his position as Managing Director, Venture Capital
Department for Carl Marks & Co., Inc., an affiliate of CMNY
Capital, L.P., the record owner of these shares.
(3) Mr. Borel may be deemed the beneficial owner of these shares by
virtue of his position as Vice President, Engineering for
Worthington, the record owner of these shares.
(4) Mr. Davidoff holds warrants to purchase up to: (a) 6,000 shares
of Common Stock at $8.69 issued on November 1, 1992, which are
exercisable until November 1, 1997, and (b) up to 12,000 shares
of Common Stock at $1.31 issued on March 14, 1995, which are
exercisable until March 14, 2000.
(5) Includes the following options: (I) options granted October 8,
1991, under the 1985 Stock Option Plan to purchase 23,455 shares
of Common Stock exercisable until October 8, 2001, which options
vest at the rate of 20% per year, beginning October 1, 1992, such
that as of April 1, 1996, options in respect of 18,764 shares had
vested; (ii) options granted as of March 10, 1992, under the 1985
Stock Option Plan to purchase 25,000 shares of Common Stock,
exercisable until March 10, 2002, which options vest at the rate
of 20% per year, beginning March 10, 1993, such that as of April
1, 1996, options in respect of 20,000 shares are vested; (iii)
options granted November 1, 1992, under the 1991 Stock Option
Plan to purchase 6,545 shares of Common Stock, exercisable at any
time after the date of grant and prior to November 1, 1997, such
that as of April 1, 1996, all 6,545 options are vested; (iv)
options granted February 16, 1993, under the 1991 Stock Option
Plan to purchase 25,000 shares of Common Stock, exercisable until
February 16, 2000, which options vest at the rate of 20% per year
beginning February 23, 1993, such that as of April 1, 1996,
options in respect of 20,000 shares are vested; (v) options
granted April 21, 1994, under the 1991 Stock Option Plan to
purchase 10,000 shares of Common Stock, exercisable until April
21, 2001, which options vest at the rate of 20% per year
beginning April 21, 1994, such that as of April 1, 1996, options
in respect of 4,000 shares are vested and options for an
additional 2,000 shares will vest within 60 days; and (vi)
options granted March 14, 1995, under the 1991 Stock Option Plan
to purchase 10,000 shares of Common Stock, exercisable until
March 14, 2001, which options vest at the rate of 20% per year
beginning March 14, 1995, such that as of April 1, 1996, 4,000 of
these options are vested.
(6) Mr. Borel holds warrants to purchase up to: (a) 6,000 shares of
Common Stock at $8.69 per share on November 1, 1992, which are
exercisable until November 1, 1997, and (b) 12,000 shares of
Common Stock at $1.31 issued on March 14, 1995, which are
exercisable until March 14, 2000.
(42)
<PAGE>
Table II
Persons Whose Securities are to be
Included in this Registration Statement
---------------------------------------
<TABLE>
<CAPTION>
Total Shares
Shareholders in the Number of Warrants Held if all Warrants
Private Offering Shares Held C D Exercised
- ---------------- ----------- ------ ---- ----------------
<S> <C> <C> <C> <C>
Donaldson, Lufkin &
Jenrette Securities
Corporation, custodian
f/b/o Becker, Stanley 250,000 250,000 250,000 500,000
Cattonar, Ray 130,000 130,000 130,000 260,000
Clapp, Clarence P.
and Doris E. Clapp, JTWROS 137,500 137,500 137,500 275,000
DeBlasio, Boniface 12,500 12,500 12,500 25,000
Dyke, Kermit R. and
Barbara W. Dyke, JTWROS 56,250 56,250 56,250 112,500
Epinal Corp., Ltd. 37,500 37,500 37,500 75,000
Fear, Richard A. 15,700 15,700 15,700 31,400
Feigenbaum Family 31,250 31,250 31,250 62,500
Partnership
First Montauk Securities
Corp. 31,250 31,250 31,250 62,500
Firstmark Corp. 192,500 192,500 192,500 385,000
Flanagan, John L. 25,000 25,000 25,000 50,000
Harborside Associates 100,000 100,000 100,000 200,000
JW Charles/CSG and others 19,625 19,625 19,625 39,250
Kennedy Capital Management,
Inc., Defined Benefit Pension Plan 62,500 62,500 62,500 125,000
Donaldson, Lufkin &
Jenrette Securities
Corporation, custodian
f/b/o Charles Y. Kim 25,000 25,000 25,000 50,000
Y.J. Kim Anesthesia S.C.
Defined Benefit Plan & Trust,
Y.J. Kim, Trustee 62,500 62,500 62,500 125,000
Lattanzio, Stephen P. 31,250 31,250 31,250 62,500
DLJSC FBO Tzium Shou Lee
IRA Rollover Account 175,000 175,000 175,000 350,000
Leeds, Marshall T. 2,625 2,625 2,625 5,250
Levitin, Eli 25,000 25,000 25,000 50,000
Marks, Joel E. 5,250 5,250 5,250 10,500
Nathanson, Barry F. 106,250 106,250 106,250 212,500
Picasso, Daniel 50,000 50,000 50,000 100,000
Prosperity Investments, Inc. 37,500 37,500 37,500 75,000
Russo, Anthony J. 18,750 18,750 18,750 37,500
Safier, Jacob 100,000 100,000 100,000 200,000
TEMCO - McConnaughy, Jr., J.E. 250,000 250,000 250,000 500,000
Von Bibra, Conrad 53,050 53,050 53,050 106,100
Wolfson Equities Partnership
(c/o Jacob Safier) 125,000 125,000 125,000 250,000
Williams, Gibbs A. 31,250 31,250 31,250 62,500
------ ------ ------ ------
TOTAL 2,200,000 1,100,000 1,100,000 4,400,000
</TABLE>
(43)
<PAGE>
Other Shareholders Number of Shares Held
- ------------------ ---------------------
[list to be obtained from Transfer Agent and inserted prior to effective date of
Registration Statement]
Holders of Number of Shares to be
Class A Warrants Number of Warrants Held Issued on Exercise
- ---------------- ----------------------- ---------------------
[list of all holders to be obtained from the Transfer Agent and inserted prior
to effective date of registration statement]
Holders of Number of Shares to be
Class B Warrants Number of Warrants Held Issued on Exercise
- ---------------- ----------------------- ---------------------
[list of all holders to be obtained from the Transfer Agent and inserted prior
to effective date of registration statement]
Representatives' Number of Shares to be
Warrants Number of Warrants Held Issued on Exercise
- ---------------- ----------------------- ---------------------
Schneider Securities, Inc.
104 Broadway
Denver, CO 80203 8,800 8,800
Henry Tow
5 Shirley Blvd.
Cranston, RI 02920 1,900 1,900
Pasquale Ruggieri
51 Country Lane
Cranston, RI 02920 10,650 10,650
Arthur Jenkins
101 Transit Avenue
Providence, RI 02906 10,650 10,650
Thomas L. De Pretrillo
7 Constitution Hill
Providence, RI 02904 15,500 15,500
Titan Value Equities
Group, Inc.
17852 Seventeenth St.
Tustin, CA 92680 12,500 12,500
------ ------
TOTAL 60,000 60,000
New Lender's Number of Shares to be
Warrants Number of Warrants Held Issued on Exercise
- ---------------- ----------------------- ---------------------
Boston Financial
& Equity Corp.
20 Overland Street
Boston, MA 02215 100,000 100,000
(44)
<PAGE>
Number of Shares to be
Other Warrantholders Number of Warrants Held Issued on Exercise
- -------------------- ----------------------- -------------------
Intec Group Warrant List
European Development
Capital Limited Partnership 1,684 1,684
European Development
Capital Corporation, N.V. 2,173 2,173
767 V.C.I. Ventures N.V. 2,059 2,059
Noro-Venture Partners IV 5,895 5,895
Asea-Harvest Partners I 2,362 2,362
N.A.B. Nordic Investors Ltd., N.V. 1,257 1,257
WFG-Harvest Partners 1,546 1,546
Campanius-Harvest Partners 442 442
Harvest Technology Partners, L.P. 177 177
Harvest Associates, L.P. 101 101
State Farm Mutual
Automobile Insurance 13,946 13,946
Pioneer Associates, L.P. 4,175 4,175
Pioneer III, L.P. 4,709 4,709
Pioneer IV, L.P. 4,716 4,716
James G. Niven 1,353 1,353
R. Scott Asen 578 578
Neil A. McConnell 1,729 1,729
Neil Gagnon 1,325 1,325
Borrexo Corp. 19 19
Oxam Corp. 22 22
Gerlach & Co. 280 280
Swiss Bank Corp. 6 6
Ince & Co. 100 100
61 Broadway Associates Partnership 76 76
Union Bank Switzerland
(Lausanne) 200 200
Union Bank Switzerland
(Montreaux) 251 251
Louis Aledort 1 1
Travis Anderson 116 116
Theodore G. Bartholdi 3 3
Edmund Bartlett 1 1
Robert C. Bechert 77 77
Bershire Paper Co. 17 17
Leonard B. Boehner 1 1
Louis Castaldi 1 1
Stanley A. Dolin 18 18
Ruth W. Finch 147 147
Norman Gatof 36 36
Edwin A. Gee 4 4
Bruns Grayson 116 116
Rainer Greeven 1 1
Lawrence Hancock 58 58
Ake Hoegberg 48 48
David Howe 116 116
Paul F. Jacobson, P.C. 5 5
Stephen O. James 116 116
Macko Lacquer 1 1
Samuel Lenhur 1 1
Frank Low 1 1
Robert Meijer 1 1
(45)
<PAGE>
Cydney Meltzer 1 1
Monty Merlen 8 8
Barry F. Nathanson 16 16
Peter H. Nichols 46 46
Bernard J. O'Keefe 1 1
John R. O'Laughlin 36 36
Murray V. Osofsky, M.D. 36 36
RTS Research Labs, Inc. 619 619
St. John's College 178 178
Stuart K. Schienvar 77 77
Francine Sommer 2 2
Charles R. B. Stowe 143 143
David Beecher Stowe, et al. 630 630
Edith Stowe, et al. 97 97
Robinson B. Stowe 87 87
Harold V. Wallace 3 3
Elisabeth Wehner 1 1
Richard E. Welch, Jr. 17 17
Harvey J. Wertheim 5 5
H65 Trust F/B/O David Beecher Stowe 82 82
H57 Trust F/B/O David Beecher Stowe 82 82
Henry B. Stowe 103 103
Richard A. M. Stowe 69 69
Kenneth C. Yu 4 4
S. Robert Maszaros 15 15
Joseph D. Paumi 3 3
William J. Sautner 15 15
John Robert Maytag 1,128 1,128
Richard Berniik 62 62
Robert W. McKendrick 1,050 1,050
Michael E. Faherty 2,100 2,100
Ronald J. Bekech 525 525
Mario Carozza 525 525
Joseph J. Franchi 525 525
John S. Hubertus 525 525
Joseph D. Paumi 525 525
Ludo Soetens 525 525
Spengler, Carlson, Gubar,
Brodsky & Frischling 5,000 5,000
Bruce S. Laskin 2,100 2,100
Philip L. White 2,100 2,100
----- -----
TOTAL 71,133 71,133
(46)
<PAGE>
Non-Intec Group Warrantholders
L.G. Zangani, Inc.
c/o Financial Public Relations
Penn Plaza, Suite 5
62 Pennsylvania Avenue
Flemington, NJ 06822 25,694 25,694
Vincent A. Fulmer
27 Kimball Road
Arlington, MA 02174 6,000 6,000
Howard Davidoff
Carl Marks and Co., Inc.
135 East 57th Street
New York, NY 10022 18,000 18,000
Arthur Jenkins
101 Transit Street
Providence, RI 02906 6,000 6,000
Robert J. Borel
c/o Worthington Industries
1127 Dearborn Drive
Columbus, OH 43085 18,000 18,000
------ ------
TOTAL 73,694 73,694
Holders of Options Number of Shares to be
issued under 1985 Plan Number Options Held Issued on Exercise
- ---------------------- ------------------- ---------------------
Gerald W. Stewart
P.O. Box 529
1079 Old Boston Post Road
Sudbury, MA 01776 48,455 48,455
Holders of Options Number of Shares to be
issued under 1991 Plan Number Options Held Issued on Exercise
- ---------------------- --------------------- ---------------------
Gerald W. Stewart
P.O. Box 529
1079 Old Boston Post Road
Sudbury, MA 01776 51,545 51,545
Norma Gold
P.O. Box 529
1079 Old Boston Post Road
Sudbury, MA 01776 6,000 6,000
Walter D. Stewart
15 Turkey Hill Terrace
Newtown, CT 06470 40,000 40,000
Joseph Paumi
18 Ball Farm Road
Oakville, CT 06795 10,000 10,000
James F. Borges
4 Huntington Circle
Huntington, CT 06484 6,000 6,000
(47)
<PAGE>
John Hubertus
37 Benson Drive
Danbury, CT 06810 3,000 3,000
Elaine C. Kuhn
884 Wood Avenue
Bridgeport, CT 06604 2,000 2,000
Ronald J. Bekech
42 Falcon Crest Road
Middlebury, CT 06762 10,000 10,000
Dennis J. Kosisko
19 Christianna Drive
Monroe, CT 06468 2,500 2,500
Nancy Wilkins
441 Stemway Road
Trumbull, CT 06611 1,450 1,450
Michael Lepore
40 Dande Street
Bridgeport, CT 06604 1,450 1,450
David R. D'Elia
27 Button Shop Road
Newtown, CT 06470 1,400 1,400
Patrick M. Flick
99 Hillside Road
Southbury, CT 06488 1,000 1,000
Annis O'Donnell
31 Gisella Road
Trumbull, CT 06611 1,450 1,450
William Sautner
183 Southern Boulevard
Danbury, CT 06810 4,500 4,500
Stefaan Quidosse
Breemlaan 26
2530 Boechout
Belgium 1,500 1,500
Dean Stoddart
14 Sophia Drive
Ridgefield, CT 06877 2,500 2,500
Benedict G. Harucki
P.O. Box 185
Shelton, CT 06484 2,000 2,000
Ludo Soetens
Pater Nuyenslaan 39
2970 Schilde, Belgium 10,000 10,000
Jacques Muret
Avenue Normande 14
1332 Genval, Belgium 6,000 6,000
(48)
<PAGE>
Gaston Loreti
Rue Hochets 30
4530 Viller-le-Bouillet, Belgium 3,000 3,000
Emilio Martinez
Rue F. Debelder 25
1200 Brussels, Belgium 3,000 3,000
Gianni Evangelisti
Rue Simmonis 39
1050 Brussels, Belgium 1,000 1,000
Jan De Keukeleire
Bosuilstratt 4
1170 Brussels, Belgium 1,000 1,000
Alfred L. Simensen
25 Gordon Mountain Road
Winham, NH 03087 100,000 100,000
Harry Fontana
357 Lebanon Hill
Southbridge, MA 01550 1,000 1,000
Varathajan Sambasivam
87 Putting Green Road
Trumbull, CT 06611 1,500 1,500
Nadine D'Haese
Bld. de Souverain 356, B. 28
1160 Brussels, Belgium 1,450 1,450
Paul Cowan
9 Beverly Road
Trumbull, CT 06611 1,000 1,000
Earl Shoop
71 Seaside Avenue
Milford, CT 06460 1,000 1,000
Estate of Eckart Vollmer
62 Round Hill Drive
Fairfield, CT 06430 13,000 13,000
------ ------
TOTAL 291,245 291,245
(49)
<PAGE>
DESCRIPTION OF SECURITIES
Preferred Stock.
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock,
$.01 par value. The Preferred Stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking fund
provisions. The issuance of any Preferred Stock could reduce the rights of the
holders of Common Stock, and, therefore, reduce the value of the Common Stock.
In particular, specific rights granted to holders of Preferred Stock could be
used to restrict the Company's ability to merge with or sell its assets to a
third party, thereby preserving control of the Company by existing management.
Common Stock.
The Company is authorized to issue a total of 14,000,000 shares of Common Stock,
$.01 par value per share. The holders of Common Stock are entitled to one vote
for each share held of record on each matter submitted to vote of stockholders.
There is no cumulative voting for election of directors. Subject to the prior
rights of any series of Preferred Stock which may from time to time be
outstanding, if any, holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board of Directors out of funds legally
available therefor, and, in the event of the liquidation, dissolution or winding
up of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities. Holders of Common Stock have no pre-emptive rights and
have no rights to convert their Common Stock into any other securities. The
outstanding shares of Common Stock are, and the Common Stock to be outstanding
upon exercise of the Warrants and Options will be, validly issued, fully paid
and nonassessable.
As of the date of this Prospectus, the executive officers and directors of the
Company own approximately 23.95% of the outstanding Common Stock, assuming that
al2 Warrants and Options, exercisable by the officers and directors of the
Company within 60 days of the date of this Prospectus, are exercised. If all
Warrants and Options covered by this Prospectus are exercised and all warrant
and option shares are issued, the officers and directors of the Company will own
approximately 12.90% of the then outstanding Common Stock. See "PRINCIPAL AND
SELLING STOCKHOLDERS - Table I."
Publicly-Traded Warrants.
Class A Warrants
The Company has authorized and issued Class A Warrants to purchase an aggregate
of up to 690,000 shares of Common Stock and has reserved an equivalent number of
shares of Common Stock for issuance upon exercise of such Class A Warrants. Each
Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $8.00. The right to exercise the Class A Warrants will
terminate at the close of business on September 30, 1996 . A Class A
Warrantholder does not possess any rights as a stockholder of the Company.
The Class A Warrants are subject to redemption by the Company at $.10
per Class A Warrant on 30 days' written notice provided the average closing
bid price of the Common Stock on NASDAQ is at least $10.00 for ten
consecutive trading days prior to the Notice of Redemption.
Class B Warrants
The Company has also authorized and issued Class B Warrants to purchase an
aggregate of up to 690,000 shares of Common Stock and has reserved an equivalent
number of shares of Common Stock for issuance upon exercise of such Class B
Warrants. Each Class B Warrant entitles the holder thereof to purchase one share
of Common Stock at a price of $12.00. The right to exercise the Class B Warrants
will terminate at the close of business on September 30, 1996 . A Class B
Warrantholder does not possess any rights as a stockholder of the Company.
The Class B Warrants Wre subject to redemption by the Company at $.10 per Class
B Warrant on 30 days' written notice provided the average closing bid price of
the Common Stock on NASDAQ is at least $14.00 for ten consecutive trading days
prior to the Notice of Redemption.
Non-publicly Traded Warrants
The Company has issued a total of 4,750,619 non-publicly traded
Warrants to purchase shares of its Common Stock:
Warrants to purchase 60,000 shares of Common Stock were issued to the
representatives of the underwriter in connection with the Company's
initial private offering (referred to as the "Representatives'
Warrants"). The exercise price is $7.80 per share. These Warrants may
be exercised until July 18, 1996.
Warrants to purchase 71,113 shares of Common Stock were issued to
certain shareholders of Intec Corp. at the time of its acquisition by
the Company ("Intec Shareholders' Warrants"). The exercise price is
$12.00 per share. These Warrants may be exercised until May 20, 1997.
(50)
<PAGE>
Warrants to purchase 73,694 shares of Common Stock have been issued to
directors of the Company and other persons who have been connected
with the Company ("Non-Intec Shareholder Warrants"). The exercise
prices range from $1.31 per share to $8.69 per share. Some of these
Warrants may be exercised until August 31, 2000. The Intec
Shareholders' Warrants and the NonIntec Shareholder Warrants are
herein collectively called "Other Warrants").
Warrants to purchase 100,000 shares of Common Stock have been issued
to the Company's current lender. The exercise price is $2.00 per
share. These Warrants may be exercised until August 31, 2000.
Class C Warrants to acquire 1,100,000 shares of Common Stock were
issued in 1995 with the following terms:
Period of
Exercise: These Warrants may be exercised until November 30,
1998.
Exercise Price: The initial exercise price of $2.75 per share is
subject to adjustments in exercise price as provided under the terms
of the private offering and has been adjusted to $.31 per share to
reflect the following required adjustments:
(a) a reduction in price in each quarter in fiscal year 1995
equal in percentage to the shortfall in pre-tax operating
profit projections as follows:
Projected Pre-TaxPre-Tax % Difference
Quarter Operating Profit Operating Profit Each Quarter
------- ---------------- ---------------- ------------
1st Quarter $150,000 120,340(1) 19.77%
2nd Quarter $200,000 133,733(1) 33.13%
3rd Quarter $250,000 120,264(1) 51.89%
4th Quarter $400,000 204,678(2) 48.83%
(1) as reported on Form 10-QSB for this quarter.
(2) difference between Operating Income for the fiscal
year 1995 as reported in the Financial Statements
which accompany this Registration Statement and
the aggregate Operating Income shown on the
Company's Forms 10-QSB filed for the first three
quarters of fiscal year 1995.
(b) a reduction of $0.05 for each 30 day period, beginning
on the 211th day subsequent to the closing of the
Offering, June 26, 1995, during which the Registration
Statement to be filed by the Company to register the
Securities does not become effective. Such reduction
will continue until the date the Registration Statement
becomes effective.
The Company has the right to redeem the Class C Warrants at the redemption
price of $0.01 per Warrant on 30 days' written notice if the quoted bid price,
as quoted on NASDAQ, of the Common Stock for a period of 10 consecutive trading
days prior to the notice of redemption exceeds 10% of the then exercise price of
the Warrants, and if a registration statement of the Company covering the
Securities is current at all times during the 30-day notice period. In the event
the Company exercises the right to redeem the Warrants, such Warrants would be
exercisable until the close of business on the date fixed for redemption in such
notice. See, "DESCRIPTION OF SECURITIES".
Class D Warrants to acquire 1,100,000 shares of Common Stock were
issued in 1995 with the following terms:
Period of
Exercise: These Warrants may be exercised until November 30,
1998.
Exercise
Price: The initial exercise price of $3.75 per share has been
adjusted to $1.76 per share to reflect the following
required adjustments:
(a) a reduction at the end of fiscal year 1995 equal
in percentage to the shortfall from the annual
pre-tax operating profit projection for fiscal
year 1995 of $1,200,000.
(51)
<PAGE>
(b) a reduction of $0.05 for each 30 day period, beginning
on the 211th day subsequent to the closing of the
Offering, during which the Registration Statement to be
filed by the Company to register the Securities does
not become effective. Such reduction will continue
until the date the Registration Statement becomes
effective.
Registration Rights
Pursuant to certain agreements with CMNY Capital, L.P. (formerly CMNY
Capital Company, Inc.) ("CMNY"), and Worthington Industries, Incorporated
("Worthington"), the Company granted to CMNY and Worthington the right, on no
more than two occasions, to require the Company to register 35,422 shares of
issued and outstanding Common Stock and up to 89,462 shares of Common Stock
issuable upon the exercise of certain warrants (collectively referred to as the
"Registrable Securities") under the Act. The costs of any such registration are
required to be borne by the Company. In addition, CMNY and/or Worthington may
request that the Company register the Registrable Securities at any time that
the Company files a registration statement to register its securities.
The Representative's Warrants carry certain piggyback and demand
registration rights in respect of the Warrants and the underlying shares of
Common Stock, which extend to July 18, 1996.
The New Lender Warrants carry certain piggyback registration rights,
which extend to August 31, 2000.
Pursuant to the terms of its 1995 private offering of 2,000,000 Units of
its securities, consisting of 2,000,000 shares of common stock, 2,000,000 Class
C Warrants (each redeemable for 1/2 share of Common Stock), and 2,000,000 Class
D Warrants (also each redeemable for 1/2 share of Common Stock), the Company
agreed to file a Registration Statement in respect of all of those shares, Class
C Warrants, and Class D Warrants on or prior to the 90th day after the close of
the private offering. The Registration Statement was filed September 5, 1995,
within said 90 day period.
There are piggyback rights in the shares issued to the investor
who loaned $200,000 to the Company on May 20, 1996.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Seeley
& Berglass, 3695 Post Road, Southport, CT 06490.
EXPERTS
The consolidated financial statements and schedule of Industrial
Technologies, Inc., as of September 30, 1994, and for each of the years ended
September 24, 1993, and September 30, 1994, have been included herein and in the
Prospectus in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP covering the above-mentioned consolidated financial statements
contains an explanatory paragraph stating that the Company was in default of a
debt agreement as of the date of the report (January 6, 1995) and that its
recurring losses from operations, accumulated deficit, and working capital
deficiency raised substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
The consolidated financial statements and schedule of Industrial
Technologies, Inc., and subsidiary as of September 30, 1995, and the year then
ended are included herein and in the Prospectus in reliance upon the report of
McGladrey & Pullen, LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
(52)
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORTS
- - McGladrey & Pullen, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
- - KPMG Peat Marwick LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
FINANCIAL STATEMENTS (audited)
- - Consolidated Balance Sheets as of
September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 and F-4
- - Consolidated Statements of Operations for the
years ended September 30, 1995 and 1994 and September 24, 1993 . . . . . . . . . F-5
- - Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1995 and 1994 and September 24, 1993 . . . . . F-6
- - Consolidated Statements of Cash Flows for the years
ended September 30, 1995 and 1994 and September 24, 1993 . . . . . . . . . . . . F-7 and F-8
- - Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . F-9 to F-21
FINANCIAL STATEMENTS (unaudited)
- - Consolidated Balance Sheets as of March 31, 1996,
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
- - Consolidated Statements of Operations for three months and
six monts ended March 31, 1996, and March 31, 1995 . . . . . . . . . . . . . . . F-23
- - Consolidated Statement of Stockholders' Equity for the six
months ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
- - Consolidated Statements of Cash Flows for the six months
ended March 31, 1996, and March 31, 1995 . . . . . . . . . . . . . . . . . . . . F-25
- - Notes to unaudited Consolidated Financial Statements . . . . . . . . . . . . . . F-26
</TABLE>
<PAGE>
[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Industrial Technologies, Inc.
Trumbull, Connecticut
We have audited the accompanying consolidated balance sheet of Industrial
Technologies, Inc. and subsidiary as of September 30, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Industrial
Technologies, Inc. and subsidiary as of September 30, 1995 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
New Haven, Connecticut
December 7, 1995
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Industrial Technologies, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Industrial
Technologies, Inc. and subsidiary (formerly Aerodyne Products Corporation) as of
September 30, 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended September 30, 1994 and
September 24, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 opinion.
In our opinion, the consolidated financial statements referred to above
represent fairly, in all material respects, the financial position of Industrial
Technologies, Inc. and subsidiary as of September 30, 1994 and the results of
their operations and their cash flows for the years ended September 30, 1994 and
September 24, 1993 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Industrial Technologies, Inc. will continue as a going concern. As
discussed in Note 14 to the consolidated financial statements, the Company is
currently in default of a debt agreement and its' recurring losses from
operations, accumulated deficit and working capital deficiency, raise
substantial doubt about the entity's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
January 6, 1995
F-2
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS (Note 4) 1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 214,448 $ 181,148
Trade accounts receivable, less allowance for doubtful
accounts 1995 $41,864; 1994 $61,321 (Note 11)
2,080,270 1,570,555
Inventories (Note 2) 1,806,893 2,073,446
Prepaid expenses and other current
assets 65,711 87,372
---------- ----------
Total current assets 4,167,322 3,912,521
---------- ----------
Property and equipment, less accumulated
depreciation 1995 $971,275; 1994 $834,709
(Note 3) 38,682 172,151
---------- ----------
Intangible and other assets:
Cost in excess of net assets of business
acquired, less accumulated amortization 1995
$1,050,598; 1994 $743,136 3,574,242 3,881,704
Note receivable from officer/stockholder
(Note 15) - 75,000
Other 69,364 64,002
---------- ----------
3,643,606 4,020,706
---------- ----------
Total assets $7,849,610 $8,105,378
========== ==========
- -----------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements. F-3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---------- ----------
<S> <C> <C>
Current liabilities:
Notes payable (Note 4) $ 659,462 $ 180,000
Current portion of long-term debt (Note 5) 74,000 1,208,999
Accounts payable (Note 6) 769,348 1,447,554
Accrued expenses (Note 6) 884,608 1,166,239
Warranty and installation costs 396,360 227,728
Deferred revenue and customer deposits 217,416 761,943
---------- ----------
Total current liabilities 3,001,194 4,992,463
---------- -----------
Subordinated notes payable to stockholder
(Note 4) 180,000 -
---------- ----------
Long-term debt, excluding current portion
(Note 5) - 80,170
---------- ----------
Commitments and contingencies (Notes 8 and 13)
Stockholders' equity (Notes 4, 9 and 10)
Common stock, $.01 par value, authorized
14,000,000 shares; issued and outstanding
1995 5,218,298 shares; 1994 3,018,298 shares 52,182 30,182
Preferred stock, $.01 par value, authorized
1,000,000 shares; no shares issued and
outstanding - -
Additional paid-in capital 13,194,272 11,951,336
Accumulated deficit (8,578,038) (8,948,773)
---------- ----------
Total stockholders' equity 4,668,416 3,032,745
---------- ----------
Total liabilities and stockholders'
equity $7,849,610 $8,105,378
========== ==========
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements F-4
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30, 1995 and 1994 and September 24, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C>
Net Sales (Note 11) $9,073,432 $6,640,230 $ 7,088,230
Cost of Goods Sold 4,922,005 3,336,509 3,582,533
---------- ---------- -----------
Gross profit 4,151,427 3,303,721 3,505,697
---------- ---------- -----------
Operating Expenses
Selling 1,895,688 1,656,314 1,765,867
General and administrative 978,633 1,193,234 1,779,042
Engineering 390,629 463,936 1,076,731
---------- ---------- -----------
3,264,950 3,313,484 4,621,640
Amortization of cost in excess
of net assets of business acquired
307,462 307,462 326,930
---------- ---------- -----------
3,572,412 3,620,946 4,948,570
---------- ---------- -----------
Operating income (loss) 579,015 (317,225) (1,442,873)
Other Income (Expense)
Interest expense (142,319) (214,201) (231,725)
Interest income 9,039 4,237 14,800
Miscellaneous expense (Note 15) (75,000) (169,402) (94,547)
---------- ---------- -----------
Income (loss) before
extraordinary item 370,735 (696,591) (1,754,345)
Extraordinary item - restructuring
of accounts payable (Note 6) - 300,327 -
---------- ---------- -----------
Net income (loss) $ 370,735 $ (396,264) $(1,754,345)
========== ========== ===========
Income (loss) per share before
extraordinary item $ .10 $ (.27) $ (.70)
Extraordinary item - .12 -
---------- --------- ----------
Net income (loss) per
share $ .10 $ (.15) $ (.70)
========== ========= =========
Weighted average common shares
- ------------------------------
outstanding 3,880,571 2,556,760 2,500,947
----------- ========== ========== ==========
- -----------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements. F-5
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1995 and 1994 and September 24, 1993
<TABLE>
<CAPTION>
Common Stock Additional
-----------
Par Paid-in Accumulated Stockholders
Shares Value Capital Deficit Equity
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 25, 1992 $ 2,484,965 $ 24,849 $10,256,669 (6,798,164) $3,483,354
Issuance of stock on settlement
with noteholders (Note 9) 33,333 333 199,667 -- 200,000
Net loss -- -- -- (1,754,345) (1,754,345)
----------- ----------- ------------ ----------- ---------
Balance at September 24, 1993 2,518,298 25,182 10,456,336 (8,552,509) 1,929,009
Issuance of stock on settlement
with noteholders (Note 9) 500,000 5,000 1,495,000 -- 1,500,000
Net loss -- -- -- (396,264) (396,264)
----------- ----------- ---------- ----------- -----------
Balance at September 30, 1994 3,018,298 30,182 11,951,336 (8,948,773) 3,032,745
Sale of common stock (Note 9) 2,200,000 22,000 1,242,936 -- 1,264,936
Net income -- -- -- 370,735 370,735
----------- --------- ----------- ------------ ----------
Balance at September 30, 1995 5,218,298 $ 52,182 $13,194,272 (8,578,038) $ 4,668,416
=========== ========= =========== ============ ==========
- -----------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements. F-6
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1995 and 1994 and September 24, 1993
- ----------------------------------------------------------------------------
1995 1994 1993
---------- --------------------
Cash Flows From Operating Activities:
Income (loss) before extraordinary
item $ 370,735 $(696,591) $(1,754,345)
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Extraordinary item - 300,327 -
Depreciation 136,566 196,105 270,979
Amortization of cost in
excess of net assets of
business acquired 307,462 307,462 326,930
Loss on disposal of fixed
assets - - 27,228
Stockholder note receivable
reserve 75,000 - -
Changes in assets and
liabilities:
Trade accounts receivable (509,715) (102,598) 422,957
Inventories 266,553 (647,433) 430,449
Prepaid expenses and
other assets 21,661 272,196 38,866
Accounts payable (678,206) 166,976 438,468
Accrued expenses (281,631) (145,772) (425,504)
Warranty and installation 168,632 (7,064) (285,969)
costs
Deferred revenue and
customer deposits (544,527) 374,557 84,854
---------- -------- -----------
Net cash provided by
(used in) operating
activities (667,470) 18,165 (425,087)
---------- -------- ----------
Cash Flows From Investing Activities
Additions to property and equipment (3,097) (3,722) (46,850)
Other (5,362) - -
---------- --------- ----------
Net cash (used in)
investing activities (8,459) (3,722) (46,850)
---------- -------- ----------
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Years Ended September 30, 1995 and 1994 and September 24, 1993
- -----------------------------------------------------------------------------
1995 1994 1993
---------- --------------------
Cash Flows From Financing Activities
Payments on notes payable (1,215,169) (293,999) (273,999)
Proceeds from notes payable to
stockholders - 380,000 -
Payments on notes payable to
stockholders - (200,000) -
Proceeds from sale of common stock 1,264,936 - -
Net borrowings on revolving credit
agreement 659,462 - -
---------- -------------------
Net cash provided by
(used in) financing
activities 709,229 (113,999) (273,999)
---------- -------------------
Net increase (decrease)
in cash and cash
equivalents 33,300 (99,556) (745,936)
Cash and cash equivalents, beginning
of year 181,148 280,704 1,026,640
---------- -------------------
Cash and cash equivalents, end of
year $ 214,448 $181,148$ 280,704
========== ===================
Supplemental Disclosures of Cash Flow
Information
Cash paid during the year for
interest $ 134,737 $201,967$ 119,212
========== ===================
See Notes to Consolidated Financial Statements. F-8
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
- ------------------
Industrial Technologies, Inc. and subsidiary (the "Company"), formerly Aerodyne
Products Corporation, designs, assembles and markets automated surface
inspection systems, electro-optical sensors, other laser-based equipment and
industrial computers and related products. The Company's surface inspection
group's customers include web process manufacturers of paper, plastics, film
photosensitive materials, steel, aluminum, glass, non wovens and rubber
products. The Company's industrial computer group offers a full line of
industrial-strength processors, displays and peripherals to a variety of
customers. The Company sells its products throughout the United States and
internationally, primarily Europe and the Far East. The Company extends credit
to its customers on terms that it establishes for each individual customer.
A summary of the Company's significant accounting policies follows:
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Intec Corporation. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Sales
- -----
Revenue from sales of the Company's products is recorded upon shipment of
products or performance of services.
Inventories
- -----------
Inventories are carried at the lower of cost or market. Cost is determined
using the first-in, first out (FIFO) method. Work in process and finished
goods include materials, labor and allocated overhead.
- -----------------------------------------------------------------
F-9
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Property and equipment
- ----------------------
Property and equipment is stated at cost. Depreciation is computed by the
straight-line and accelerated methods over the following estimated useful
lives:
Years
-----
Leasehold improvements 6
Machinery and test equipment 3-7
Furniture and office equipment 3-7
Leasehold improvements are depreciated over the term of the lease.
Expenditures for maintenance and repairs are charged to operations.
Cost in excess of net assets of business acquired
- -------------------------------------------------
Cost in excess of net assets of business acquired is being amortized on a
straight-line basis over 15 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the balance
over its remaining life can be recovered through projected future results.
Estimated warranty
- ------------------
The Company sells its products with a warranty that provides for repairs or
replacements of any defective parts for a six to twelve month period after the
sale. At the time of the sale, the Company accrues an estimate of the cost of
providing the warranty based on prior experience.
Deferred taxes
- --------------
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
- -----------------------------------------------------------------
F-10
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Research and development expense
- --------------------------------
The Company incurred research and development expense for fiscal years 1995,
1994 and 1993 of approximately $110,000, $224,000 and $296,000, respectively.
Earnings (loss) per share
- -------------------------
Earnings (loss) per share is computed by dividing the net income (loss) by the
weighted average number of common stock and common stock equivalents (warrants
and options) outstanding during the year. Common stock equivalents are not
considered in the calculation of earnings (loss) per share when their effect
would be antidilutive.
Reclassification
- ----------------
Certain amounts on the balance sheet, statement of operation and statement of
cash flows for the years ended September 30, 1994 and September 24, 1993, have
been reclassified to be consistent with the classification adopted for the year
ended September 30, 1995. The reclassifications had no effect on stockholders'
equity or net loss.
Newly issued accounting standards
- ---------------------------------
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" was issued. This statement is required to be adopted by the
Company for its fiscal year beginning October 1, 1996. This statement provides
broad criteria for determining when assets should be considered potentially
impaired and provides guidance as to the measurement methods of recording the
amount of loss to be recognized for impaired assets. Although management has
not completed its assessment of the impact of this statement, management does
not expect the impact of this statement to be material to the Company's
financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. This statement is
required to be adopted by the Company for its fiscal year beginning October 1,
1996. This statement applies to all transactions in which an entity acquires
goods or services by issuing equity instruments or by incurring liabilities to
the supplier in amounts based on the price if the entity's common stock or
other equity instruments. Therefore, it applies to all transactions in which
an entity grants shares of its common stock, stock options, or other equity
instruments to its employees, except for equity instruments held by an employee
stock ownership plan. The Statement provides a choice of
- -----------------------------------------------------------------
F-11
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
accounting methods for stock-based compensation arrangements with employees
using either a fair value based method of accounting or the intrinsic value
method of accounting. Management has not completed its assessment of the
impact of this statement and has not decided upon the measurement basis to be
utilized for its stock options.
Note 2. Inventories
The components of inventories are as follows:
1995 1994
---------- ----------
Raw materials and subassemblies $1,229,082 $1,056,247
Work in process 293,519 485,996
Finished goods 284,292 531,203
---------- ----------
$1,806,893 $2,073,446
========== ==========
Note 3. Property and Equipment
Property and equipment consists of the following:
1995 1994
---------- ----------
Furniture and office $ 217,508 $ 215,089
equipment
Machinery and test 776,717 776,039
equipment
Leasehold improvements 15,733 15,733
---------- ----------
1,009,958 1,006,861
Less accumulated
depreciation 971,276 834,710
---------- ----------
and amortization
$ 38,682 $ 172,151
========== ==========
Note 4. Notes Payable
The Company has a revolving financing agreement (the "agreement") with a
financing company (the "Lender"), which represents a $2,000,000 revolving
credit line. The balance outstanding at September 30, 1995 is $659,462. The
agreement provides for revolving credit through August 31, 1996. The agreement
was amended to extend the agreement for additional successive 12 month periods
unless the agreement is terminated by the Company or the Lender pursuant to
provisions of the agreement. Loans made pursuant to the agreement bear
interest at 15% per annum (minimum of $4,000 per month), are due upon demand
and are collateralized by substantially all Company assets. The maximum
borrowing amount under the agreement is the aggregate of (1) 75% to 80%
- -----------------------------------------------------------------
F-12
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
of the net amount of eligible accounts receivable outstanding for less than 90
days, and (2) 15% of the net value of eligible inventory, exclusive of work-in-
process. At September 30, 1995, $4,429 of additional borrowings were available
on the credit line. The agreement contains certain restrictive covenants which
include, among others, covenants regarding incurrence of additional
indebtedness, payment of dividends and restrictions on fixed asset
expenditures. The Company was in compliance with these restrictive covenants
at September 30, 1995.
The revolving financing agreement includes a warrant to purchase 100,000 shares
of common stock at $2 per share. The warrant provides anti-dilution protection
and certain registration rights and is exercisable through August 31, 2000.
The Company has notes payable to a stockholder which represent a $150,000
working capital line of credit the Company obtained in December 1993. In
September 1994, the line of credit was increased to $180,000. The line of
credit accrues interest at 10% and the principal and accrued interest is
payable on demand. In August 1995, the line of credit was subordinated to all
borrowings made pursuant to the revolving financing agreement. The
subordination agreement is effective until October 31, 1996, and therefore, at
September 30, 1995, the notes payable to stockholder are classified as a long-
term liability.
Note 5. Long-Term Debt
Long-term debt consists of the following:
1995 1994
------- ----------
Note payable bank, due April 1996,
interest payable monthly at
prime plus 1-1/2% (a) $ - $1,135,000
Note payable customer in settlement
of a product performance and
warranty claim, due November
1996. Monthly payments of
$6,166 until maturity. 74,000 154,169
------- ----------
74,000 1,289,169
Less current maturities 74,000 1,208,999
------- ----------
$ - $ 80,170
======= ==========
(a) At September 30, 1994, the Company was not in compliance with certain
covenants of the loan agreement and the guaranty agreement and had
not received a waiver from the Bank.
- -----------------------------------------------------------------
F-13
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
As a result, the entire amount of the note was classified as a
current liability at September 30, 1994. During 1995, the loan was
called by the Bank and the Company paid off the loan with proceeds
from the revolving financing agreement (see Note 4).
Note 6. Accounts Payable and Accrued Expenses
During 1994, the Company and certain of its debtors entered into agreements to
reduce amounts payable to such debtors. The debtors were offered and accepted
a one payment immediate settlement to close out the existing payables. The
gain on settlements of outstanding payables totaled $300,327 and is reported as
an extraordinary item in the 1994 consolidated statement of operations.
Accrued expenses consist of:
1995 1994
-------- ----------
Accrued payroll and vacation $165,396 $ 166,549
Accrued commissions 233,801 242,959
Accrued travel 12,472 27,512
Accrued professional fees 56,719 70,527
Accrued taxes 103,040 120,018
Accrued interest 28,849 21,267
Accrued royalties 32,003 62,506
Reserve for customer settlements 165,780 195,780
Reserve for environmental clean-up - 57,935
Reserve for lease settlement - 173,390
Other 86,548 27,796
-------- ----------
$884,608 $1,166,239
======== ==========
- -----------------------------------------------------------------
F-14
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Note 7. Income Taxes
The net deferred tax asset consisted of the following:
1995 1994
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $3,259,000 $3,282,000
Inventory reserves 545,000 825,000
Other miscellaneous items, net 289,000 125,000
Valuation allowance (4,093,000) (4,232,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
No tax benefits can be realized due to the Company's significant net operating
loss carryforwards.
The provision for income taxes for the year ended September 30, 1995 differs
from the amount obtained by applying the U.S. federal income tax rate to pretax
income due to the following:
Income tax computed at statutory tax rate $129,800
Increase (decrease) in taxes resulting from:
Benefit of operating loss carryforwards (23,800)
Nondeductible expenses 8,350
Valuation allowance (114,350)
--------
$ -
========
For the years ended September 30, 1994 amd September 24, 1993, there was no tax
provision due to the Company's net loss.
At September 30, 1995, the Company had net federal operating loss carryforwards
of approximately $9,400,000 attributable to Industrial Technologies, Inc. and
subsidiary and $11,000,000 attributable to Intec Corp., which expire from 1997
through 2009. However, the ability of the Company to realize future tax
benefit from its net operating loss carryforwards is significantly limited
under Internal Revenue Code Section 382 because of a series of greater than 50%
stock ownership changes. In addition, the net operating loss carryforwards
attributable to Intec Corp. will be further limited by the separate return
limitation year (SRLY) rule.
- -----------------------------------------------------------------
F-15
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Due to a greater than 50% change in stock ownership during the three-year
period ended in March 1989, the amount of the net operating loss carryforwards
as of March 1989 which may be utilized in each year will be limited to $157,000
per year. Due to a greater than 50% change in stock ownership during the
period March 1989 through July 1991, the amount of net operating loss
carryforwards generated during that period which may be utilized in future
years will be limited to $439,000 per year. Due to a greater than 50% change
in stock ownership in May 1992 from the Intec acquisition, the amount of net
operating loss carryforwards since that acquisition which may be utilized in
future years will be limited to $85,000 per year.
Note 8. Leases
The Company leases buildings, automobiles, a computer and other office
equipment under noncancelable operating leases. Future minimum lease payments
under these leases are as follows:
1996 $ 366,243
1997 347,920
1998 249,254
1999 166,993
2000 6,303
----------
Total $1,136,713
==========
Rent expense was $384,028, $411,214 and $469,725 for fiscal years 1995, 1994
and 1993, respectively.
Note 9. Stockholders' Equity
During 1995, the Company received $1,264,936, net of offering expenses, from a
private offering for an aggregate of 2,000,000 units of its securities at $.80
per unit. Each unit consists of one share of common stock, one Class C
warrant, and one Class D warrant. Under the terms of the private offering the
Company is required to file a Registration Statement for all of the securities
comprising the units. The Company also distributed 200,000 units to the two
placement agents who assisted the Company with the offering.
Each Class C and D warrant entitles the holder to purchase one-half share of
common stock for a period of three years commencing on December 1, 1995. After
December 1, 1995, the exercise price of the warrants are discounted by $.05 for
each month, or part thereof, until a Registration Statement becomes effective.
The Registration Statement has been filed but is not
- -----------------------------------------------------------------
F-16
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
yet effective. The initial exercise price of the C warrants was $2.75 per
common share. The initial exercise price of the D warrants was $3.75 per
common share. The warrants are subject to redemption by the Company after the
first exercise date at $.01 per share on 30 days written notice if the bid
price of the common stock for a period of 10 consecutive trading days prior to
such notice equals or exceeds $3.025 per share.
The initial exercise price for the C warrants is subject to a downward
adjustment for each quarter in fiscal year 1995. The adjustment is determined
by multiplying the percentage that actual operating profit in the respective
quarter is to the projected operating profit times the exercise price on the
first day of the quarter. There is no adjustment upward. Based on actual
results for the year ended September 30, 1995, the initial exercise price of
the C warrants has been adjusted to $.36 per share.
The initial exercise price for the D warrants is subject to a downward
adjustment by the amount which is equal to multiplying the percentage that
actual operating profit for fiscal year 1995 is to $1.2 million times the
initial exercise price. There is no adjustment upward. Based on actual
results for the year ended September 30, 1995, the initial exercise price of
the D warrants has been adjusted to $1.81 per share.
In connection with the 1992 acquisition of its wholly-owned subsidiary, Intec
Corp., certain Intec noteholders exchanged an aggregate of $2,000,000 in
promissory notes for five year convertible promissory notes issued by the
Company in the aggregate amount of $2,000,000. On March 29, 1993, the Company
and Intec renegotiated the acquisition price of Intec based on financial
information not available at the time of the acquisition. As a result of these
negotiations; pursuant to a settlement agreement dated as of March 29, 1993,
among the Company, Intec and the holders of certain promissory notes in the
original aggregate principal amount of $2,000,000 issued by the Company in
connection with the Intec merger, the noteholders agreed, effective as of April
1, 1993, to (i) waive the payment by the Company of an aggregate of the first
$250,000 of interest on the notes, (ii) forgive the payment of an aggregate
$300,000 in principal on the notes and (iii) convert $200,000 in principal on
the notes into an aggregate of 33,333 shares of Common Stock, $.01 par value of
the Company, at a conversion rate of $6.00 per share. The parties further
agreed that no interest payments would be due and payable to the noteholders by
the Company under the promissory notes dated April 1, 1993 until September 1,
1994.
- -----------------------------------------------------------------
F-17
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
As of September 1, 1994, the Company and holders of the remaining promissory
notes in the aggregate principal amount of $1,500,000 agreed to convert these
notes to 500,000 shares of common stock, $.01 par value of the Company. These
shares are not registered and are restricted from transfer or sale for two
years. The conversion of the convertible notes has been reflected as a
recapitalization in the Company's consolidated financial statements.
In July 1991, the Company sold 690,000 Units for $6.50 per Unit in an Initial
Public Offering (the "IPO") of its stock. Each Unit sold consisted of one
share of Common Stock, $.01 par value, one Class A Common Stock Purchase
Warrant and one Class B Common Stock Purchase Warrant. The shares of Common
Stock and the Warrants included in the Units are detachable and separately
transferable. Each Class A Warrant and each Class B Warrant entitle the holder
to purchase one share of Common Stock at prices of $8.00 and $12.00,
respectively. The right to exercise the Class A and B Warrants will expire on
September 30, 1996, as amended on June 23, 1995. The Company has agreed to pay
the Underwriter of the IPO ("Underwriter") a 5% solicitation fee for assistance
toward the exercise of any Class A or Class B warrants.
The Company sold to the Underwriter, for $.001 per warrant, warrants to
purchase 60,000 shares of common stock at a price of 120% of the public
offering price per unit ($7.80 per unit). These warrants expire in July, 1996.
The number of shares issuable upon exercise of the warrants is subject to
adjustment in the event of a stock split, stock dividend, recapitalization or
similar event.
Note 10. Stock Option Plans
The Company has two Stock Option Plans (the "Plans") which provide for the
granting of incentive stock options to purchase a total of 362,500 shares of
common stock to key employees as determined by the Board of Directors. Options
are granted at a price equal to or greater than the fair market value of the
Company's common stock at the grant date and expire up to ten years from the
date of grant, or upon termination of employment.
- -----------------------------------------------------------------
F-18
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Additionally, one Plan permits the Company to issue nonqualified stock options.
The exercise price of these stock options is not limited and may be below fair
market value.
Incentive Stock Options
-----------------------------
Outstanding Option Price
Options Per Share
------------ -------------
Balance at September 25, 1992 57,500 $5.60 - $6.12
Options granted 97,000 4.50 - 8.69
Options forfeited (13,500) 5.60 - 8.69
------- -------------
Balance at September 24, 1993 141,000 4.50 - $8.69
Options granted 73,400 1.75 - 1.94
Options forfeited (22,500) 4.50 - 5.60
------- -------------
Balance at September 30, 1994 191,900 1.75 - 8.69
Options granted 171,700 1.25 - 1.31
Options forfeited/expired (47,200) 1.75 - 8.69
------- -------------
Balance at September 30, 1995 316,400 $1.25 - $4.50
======= =============
Options for 107,738 were exercisable at September 30, 1995
In March 1995, the Board of Directors amended the exercise price of options for
100,000 shares of common stock granted to the President of the Company to $1.31
per share. The original option exercise price for these shares ranged from
$1.75 per share to $8.69 per share.
Note 11. Significant Customers and Export Sales
Sales to one commercial customer totaled 15%, 16% and 15% of sales in the years
ended September 30, 1995, 1994 and September 24, 1993, respectively. Accounts
receivable due from this customer approximated $246,000, $464,000 and $57,000,
for fiscal year-end 1995, 1994 and September 24, 1993, respectively.
Export sales represented 57%, 62% and 53% of sales for fiscal years 1995, 1994
and 1993, respectively.
- -----------------------------------------------------------------
F-19
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
Note 12. Pension Plans
Until August 31, 1993, the Company had a salary reduction pension plan whereby
employees entered into a compensation reduction agreement with the Company to
reduce their salaries by 5% in exchange for which the Company contributed to
the Plan an amount equal to the salary reduction on behalf of the employees.
The Company terminated the Plan and the Plan assets were distributed to
participants.
On January 1, 1994, the Company adopted the "Intec Retirement Plan" with an
original effective date of January 1, 1986. The Plan is a qualified 401k
Profit Sharing Plan under the Internal Revenue Code. The Company is not
required to and has made no contributions to the Plan in 1995 or 1994.
Note 13. Commitments and Contingencies
The Company has entered into employment agreements with certain officers of the
Company. The agreements are for terms ranging from one year to five years and
provide for a base salary and certain benefits which are specified in each of
the agreements. Each of the agreements also provide for severance pay for
termination under certain circumstances which are defined in the agreements.
The minimum annual commitments under the agreements are 1996 $353,000; 1997
$145,000; 1998 $145,000; and 1999 $36,250.
Intec Corp. is currently working with the Department of Environmental
protection of the State of Connecticut (CT-DEP) to review, and to clear, all
adverse findings with respect to the Tetrachloroethylene Analysis performed in
May 1992. This analysis was performed in conjunction with the CT-DEP Property
Transfer Program. A follow-up analysis was made as recently as August 1995.
Although the levels of the contaminant have decreased substantially, they still
remain above acceptable levels. Appropriate methods are being employed to
lower these levels. Tests will continue until compliance levels have been met.
The Company has spent approximately $28,000 to date. The Company believes the
resolution of this matter will not have a material impact on the financial
position, results of operations and cash flows of the Company.
Note 14. Liquidity
At September 30, 1994, the Company's continued but substantially reduced net
losses through 1994, accumulated deficit and working capital deficiency as of
September 30, 1994 raised doubt about the Company's ability to continue as a
going concern. At September 30, 1994, the Company was in default of
restrictive debt covenants with its secured lender, and the creditor was
unwilling to waive the Company's non-compliance with these covenants although
the Company had not missed any scheduled principal and interest payments.
- -----------------------------------------------------------------
F-20
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
At September 30, 1995, the Company has positive working capital of $1,166,128
compared to a working capital deficit of $1,079,942 at September 30, 1994. The
$2,246,070 improvement in working capital is due primarily to the effect of the
private placement, which netted approximately $1,300,000, and the effect of
profitable operations.
On September 29, 1995, the Company entered into a $2,000,000 revolving
financing agreement with a finance company and paid off the loan which was in
default at September 30, 1994. The agreement provides for revolving credit
through August 31, 1996. The agreement can be extended for additional
successive 12 month periods unless terminated by the Company or the lender
pursuant to provisions of the agreement. The Company was in full compliance
with all covenants of the agreement at September 30, 1995.
The Company has received a proposal from a bank regarding the financing of
export materials and accounts receivable in conjunction with guarantees from
the Export-Import Bank. The Company expects to receive a similar proposal from
another bank. No decision has been made by the Company as to whether to
proceed, and there are no assurances that the loans covered by the proposal
will close.
During the last two years, the Company has substantially reduced its monthly
operating expenses through payroll reductions, eliminating excess warehouse and
sales offices and by renegotiating the Trumbull lease. Management plans to
continue this cost containment program in fiscal 1996 while seeking increased
sales from new product offerings and further penetration of its existing
customer and prospect base globally. Additionally, in August 1994, the Company
received a grant from the State of Connecticut in the amount of $150,000 for
reimbursement of moving expenses.
Note 15. Related Party Transaction
During the year ended September 30, 1995, the Company recorded a $75,000
reserve in connection with a note receivable from an officer/stockholder in
anticipation that the amount would be forgiven by the Company's Board of
Directors. The debt was forgiven upon the conclusion by the Board that the
officer/stockholder had incurred a personal liability in the same amount for
the benefit of the Company, and, therefore, should be reimbursed. The $75,000
expense is included in miscellaneous expense in the consolidated statement of
operations.
- -----------------------------------------------------------------
F-21
<PAGE>
PART 1 - FINANCIAL INFORMATION
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE><CAPTION>
ITEM 1. Financial Statements
March 31, September 30,
1996 1995
______________________
Assets (Unaudited)
------
<S> <C> <C>
Current assets $ 169,264 $ 214,448
Cash
Trade accounts receivable, less allowance for doubtful
accounts of $46,075 in fiscal 1996 and $41,864 in fiscal 1995 1,910,382 2,080,270
Inventories 2,000,810 1,806,893
Prepaid expenses and other current assets 98,999 65,711
----------- -----------
Total current assets 4,179,455 4,167,322
Property and equipment, net 40,905 38,682
Other assets, net 68,505 69,364
Costs in excess of net assets of business acquired 3,420,511 3,574,242
----------- -----------
Total assets $ 7,709,376 $ 7,849,610
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Notes payable $ 528,026 $ 659,462
Subordinated notes payable to stockholder 180,000 ------
Current portion of long-term debt 37,000 74,000
Accounts payable 971,856 769,348
Accrued expenses 844,293 884,608
Warranty and installation costs 291,938 396,360
Deferred revenue and customer deposits 384,925 217,416
---------- ----------
Total current liabilities 3,238,038 3,001,194
Subordinated notes payable to stockholder ------ 180,000
---------- ----------
Total liabilities 3,238,038 3,181,194
Stockholders' equity
Common stock, $.01 par value. Authorized 14,000,000
shares: issued and outstanding 5,218,298 shares in
fiscal 1996 and 5,218,298 shares in fiscal 1995 52,182 52,182
Additional paid-in capital 13,194,272 13,194,272
Accumulated deficit (8,775,116) (8,578,038)
----------- -----------
Total stockholders' equity 4,471,338 4,668,416
----------- -----------
Total liabilities and stockholders' equity $ 7,709,376 $ 7,849,610
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE><CAPTION>
Three Months Ended Six Months Ended
March 31 March 31, March 31, March 31,
1996 1995 1996 1995
___________ ___________ ___________ __________
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales 1,706,956 2,493,671 3,354,425 4,554,187
Cost of goods sold 824,822 1,508,335 1,668,957 2,601,755
----------- ----------- ----------- -----------
Gross Profit 882,134 985,336 1,685,468 1,952,432
Operating expenses
Selling 389,700 505,455 741,469 906,662
General and Administrative 332,941 173,432 718,378 438,705
Engineering 113,803 95,850 213,478 199,261
Amortization of costs in excess of
net assets of business acquired 76,866 76,866 153,731 153,731
----------- ----------- ----------- -----------
Total operating expenses 913,310 851,603 1,827,056 1,698,359
----------- ----------- ----------- -----------
Operating income (loss) (31,176) 133,733 (141,588) 254,073
----------- ----------- ----------- -----------
Interest expense, net (29,047) (33,186) (55,490) (68,036)
Other income (expense), net ----- 329 ----- (30,038)
----------- ----------- ----------- -----------
Total other income (expense) (29,047) (32,857) (55,490) (98,074)
Net income (loss) $ (60,223) $ 100,876 $ (197,078) $ 155,999
=========== =========== =========== ===========
Income/(loss) per share $ (0.01) $ 0.03 $ (0.04) $ 0.05
=========== =========== =========== ===========
Weighted average common shares outstanding 5,218,298 3,018,298 5,218,298 3,018,298
=========== =========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements F-23
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(unaudited)
<TABLE><CAPTION>
Common Stock
------------------------- Additional Total
Par paid-in Accumulated stockholders'
Shares value capital deficit equity
--------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 5,218,298 $ 52,182 $ 13,194,272 $ (8,578,038) 4,668,416
Net loss (unaudited) - - - (197,078) (197,078)
--------- -------- ----------- ------------ -----------
Balance at March 31, 1996
(unaudited) 5,218,298 $ 52,182 $ 13,194,272 $ (8,775,116) $ 4,471,338
========= ======== ============ ============= ===========
</TABLE>
F-24
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE><CAPTION>
Six Months Ended
-------------------------------
March 31, March 31,
1996 1995
___________ __________
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (197,078) $ 155,999
Adjustment to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 9,810 54,025
Amortization of costs in excess of net assets
of business acquired 153,731 153,731
Changes in assets and liabilities
Trade accounts receivable 169,888 41,701
Inventories (193,917) 48,892
Prepaid expenses and other current assets (33,288) (32,633)
Accounts payable 202,508 (424,633)
Accrued expenses (40,315) (11,064)
Warranty and installation costs (104,422) 70,062
Deferred revenue and customer deposits 167,509 (311,625)
----------- -----------
Net cash provided by operating activities 134,426 244,455
----------- -----------
Cash flows from investing activities:
Capitalization of product software (12,033) -----
Other 859 -----
----------- ----------
Net cash used for investing activities (11,174) -----
----------- ----------
Cash flows from financing activities
Proceeds from revolving financing agreement 2,450,311 -----
Payments on revolving financing agreement (2,581,747) -----
Payments on notes payable to bank ----- (170,000)
Payments on notes payable (37,000) (43,167)
----------- -----------
Net cash used for financing activities (168,436) (213,167)
----------- -----------
Net increase in cash equivalents (45,184) 31,288
Cash and cash equivalents at beginning of period: 214,448 181,148
----------- ----------
Cash and cash equivalents at end of period: $ 169,264 $ 212,436
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 52,684 $ 75,864
=========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
F-25
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC., AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1. Nature of Business
------------------
Industrial Technologies, Inc., "INTEC"), is a leading manufacturer of
advanced sensing, monitoring, computer processing, and inspection
technologies used in diverse Industrial manufacturing and other applications.
INTEC'S specialized product and technology divisions are directed to the
common mission of developing and implementing leading-edge products and
technologies for the improvement of manufacturing productivity and quality.
INTEC instruments, computers and turnkey systems are designed and
manufactured to meet the diverse needs and demanding conditions found in
process measurement and control applications. INTEC serves its clients in a
broad range of industries ranging from aerospace, communications and
industrial equipment, and rubber industries. INTEC's products and systems
are dedicated to improving manufacturing efficiencies and quality required to
maintain leadership in highly competitive global markets.
Note 2. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all necessary, normal and recurring adjustments
which are required to present fairly the financial position of the Company
and its subsidiary as of March, 1996, and the results of operations and cash
flows for the three and six months ended March 31, 1996 and March 31, 1995.
Certain information and footnote disclosures normally included in the annual
financial statements, which are prepared in accordance with generally
accepted accounting principles, have been condensed or omitted. Accordingly,
the Company believes that although the disclosures are adequate to make the
information presented not misleading, these financial statements should be
read in conjunction with the annual financial statements of the Company and
notes thereto, contained in the Company's Form 10-KSB, for the fiscal year
ended September 30, 1995. The results of operations for the three month
period ended March 31, 1996, are not necessarily indicative of those that may
be expected for the full fiscal year.
Note 3. Commitments and Contingencies
-----------------------------
The Company has entered into employment agreements with certain officers
of the Company. The agreements are for terms ranging from one year to five
years and provide for a base salary and certain benefits which are specified
in each of the agreements. Each of the agreements also provide for severance
pay for termination under certain circumstances which are defined in the
agreements. The minimum annual commitments under the agreements are 1996
$353,0000; 1997 $145,000; 1998 $145,000; and 1999 $36,250.
Intec Corp. is currently working with the Department of Environmental
Protection of the State of Connecticut (CT-DEP) to review, and to clear, all
adverse findings with respect to the Tetrachloroethylene Analysis performed
in May 1992. This analysis was performed in conjunction with the CT-DEP
Property Transfer Program. A follow-up analysis was made as recently as
August 1995. Although the levels of the containment have decreased
substantially , they still remain above acceptable levels. Appropriate
methods are being employed to lower these levels. Tests will continue until
compliance levels have been met. The Company has spent approximately $28,000
to date. The Company believes the resolution of this matter will not have a
material impact on the financial position, results of operations and cash
flows of the Company.
Note 4. Inventories
-----------
The components of inventories are as follows:
Raw materials and subassemblies $ 1,400,567 $ 1,229,082
Work in process 320,130 293,519
Finished goods 280,113 284,292
----------- ----------
$ 2,000,810 $ 1,806,893
F-26
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Three Months Ended March 31, 1996, Compared to Three Months Ended March 31, 1995
The Company had net sales for the three months ended March 31, 1996 (the
current quarter) of $1,706,956 compared to $2,493,671 for the three months ended
March 31, 1995 (the prior year quarter). The decrease of $786,715 reflects the
shortfall of orders for the current quarter due to orders delayed until future
periods and the prior year quarter included improved INTEC sales specifically
relating to Far East business.
The Company generated gross profits of $882,134 (52% of the net sales) for
the current quarter compared to gross profits of $985,336 (40% of net sales) for
the prior year quarter. The decreased amount relates to the decrease in Company
sales, and the increase of gross profit percentage is a result of product and
market mix.
Selling, general and administrative expenses for the current quarter were
$722,641 (42% of net sales) compared to $678,887 (27% of net sales) for the
prior year quarter. This increase was due to fluctuations in product and market
mix, adjustments to certain reserves in the prior year quarter and
reclassification of certain expenses.
Engineering expenses for the current quarter were $113,803 compared to the
prior year quarter of $95,850. This increase reflects the addition of strategic
personnel to accelerate new product development.
Amortization of costs in excess of net assets of business acquired are the
same for the current and prior quarters and will continue to be so given the
remaining established life of the asset.
The Company had net interest expense of $29,047 for the current quarter
compared to $33,186 in the prior year quarter. This reduction is due to the
Company's entering into a revolving financing agreement to replace the existing
bank debt which resulted in a reduction in principal outstanding.
The net loss of $60,223 in the current quarter compares to a profit of
$100,876 in the prior year quarter. The decrease in profitability is
substantially the result of decreased sales.
At April 3, 1996, the Company's backlog of customer orders was
approximately $2,500,000, compared to approximately $2,500,000 at March 31,
1995. The increase to the levels of the prior year period is a positive trend
and management believes this will continue.
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31, 1995
The Company had net sales for the six months ended March 31, 1996 (the
current half year) of $3,354,425 compared to $4,554,187 for the six months ended
March 31, 1995 (the prior half year). The decrease of $1,199,762 reflects the
short fall of orders for the current half year due to orders delayed until
future periods and the prior half year included improved INTEC sales
specifically relating to Far East business.
The Company generated gross profits of $1,685,468 (50% of net sales) for
the current half year compared to gross profits of $1,952,432 (43% of net sales)
for the prior half year. The decreased amount related to the decrease in
Company sales, and the increased gross profit percentage is a result of product
and market mix.
Selling, general and administrative expenses for the current half year were
$1,459,847 (44% of net sales) compared to $1,345,367 (30% of net sales) for the
prior half year. This increase is due to fluctuations in product and market
mix, adjustments to certain reserves in the prior half year and reclassification
of certain expenses.
Engineering expenses for the current half year were $213,478 compared to
the prior half year of $199,261. This increase reflects the addition of
strategic personnel to accelerate new product development.
Amortization of costs in excess of net assets of business required are the
same for the first six months of the current fiscal year and will continue to be
so given the remaining established life of the asset.
F-27
<PAGE>
The Company had net interest of $55,490 for the first six months of the
current fiscal year compared to $68,036 the first six months of fiscal 1995.
This reduction is due to the Company's entering into a revolving financing
agreement to replace the existing bank debt which resulted in a reduction in
principal outstanding.
Other expenses for the first six months of the current fiscal year have
been reclassified to conform with audited fiscal year end 1995 presentation.
The net loss of $197,078 in the first six months of the current fiscal year
compares to a profit of $155,999. The decrease in profitability is
substantially the result of decreased sales.
Liquidity and Capital Resources
- -------------------------------
The Company's primary source of liquidity at March 31, 1996, consisted of
$169,264 of cash plus the borrowing power under the Company's new revolving
credit loan agreement ("Loan Agreement") which provides a $2,000,000 revolving
credit loan at an annual interest rate of 15%. At March 31, 1996, the Company
had borrowed $528,026 under the Loan Agreement, and $14,217 of additional
borrowings were available. The agreement can be extended for additional
successive 12 month periods unless terminated by the Company or the lender
pursuant to provisions of the Loan Agreement. The Loan Agreement contains
certain restrictive covenants which include, among others, covenants prohibiting
the incurrence of additional indebtedness and the payment of dividends, and also
restrictions on fixed asset expenditures. The Company was in compliance with
all covenants at March 31, 1996. At March 31, 1996, the Company had a working
capital of $941,417 compared to a working capital of $1,166,128 at fiscal year
end 1995. The decline in working capital was a result of the net loss for the
current half year offset by non cash depreciation and amortization expense and
the reclassification of subordinated note payable to stockholder to current
liabilities.
The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts receivable. The Company may also seek additional funds through public
or private debt or through bank borrowings. No assurances can be given that
future financing will be available with terms acceptable to the Company.
Without such future financing, the Company's ability to finance its growth will
be severely limited.
Capital Expenditures
- --------------------
The Company does not have any material commitments for capital expenditures
at this time.
Effect of Inflation
- -------------------
The Company believes that inflation has not had a material effect on its
results of operation or financial condition during the last two fiscal years.
F-28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not involved in any litigation which is not
routine and/or incidental to its business.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) There are no exhibits submitted with this report.
(b) There was no report on Form 8-K filed by the registrant, as
of October 30, 1995 during the first quarter ended December
31, 1995, wherein the registrant reported the engagement of
its new independent auditors, McGladrey & Pullen, L.L.P.
There were no reports on Form 8-K filed during the second
quarter.
F-29
<PAGE>
- -----------------------------------------------
No dealer, salesman or any other person has
been authorized to give any information or to 8,380,919 Shares of Common Stock
make any representation not contained in this
Prospectus in connection with the offer 2,200,00 Class "C" Warrants, each
contained herein, and, if given or made, such being a Warrant to purchase 1/2
information or representation must not be Share of Common Stock
relied upon as having been authorized by the
Company or any Underwriter. This Prospectus 2,200,000 Class "D" Warrants, each
does not constitute an offer to seek, or the being a Warrant to purchase 1/2
solicitation of an offer to buy the Share of Common Stock
securities offered hereby to any person in
any state or other jurisdiction in which such
offer or solicitation is unlawful. Neither
the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances,
create any implication that there has been no
change in the affairs of the Company since
the date hereof.
- ---------------------------------------------
TABLE OF CONTENTS
Page
----
Available Information................
Prospectus Summary...................
Risk Factors.........................
Recent Developments..................
Use of Proceeds .....................
Price Range of Common Stock..........
Dividend Policy...................... -------------
Securities Covered by this Prospectus PROSPECTUS
Business............................. -------------
Selected Consolidated Financial
Data................................ , 1996
Management's Discussion and Analysis ----------------
of Financial Condition and Results
of Operations.......................
Management...........................
Principal and Selling Stockholders...
Description of Securities............
Legal Matters........................
Experts..............................
Index to Consolidated Financial
Statements.......................... (F)
Consolidated Financial
Statements.......................... (F-1) ------------------------------------
- ---------------------------------------------
<PAGE>
INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ------------------------------------------------------------------------------
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DILUTION
- -------------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby.
Items marked with an asterisk (*) represent estimated expenses.
Registration Fee....................................... $ 5,499.25
NASDAQ and Boston Stock Exchange Fee................... 28,500.00
Blue Sky Filing Fees and Expenses*..................... 2,500.00
Printing Costs*........................................ 2,500.00
Transfer Agent Fees*................................... 0.00
Legal Fees*............................................ 85,000.00
Accounting Fees*....................................... 30,000.00
Miscellaneous*......................................... 2,500.00
----------
Total...................................... $ 149,999.25
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
- ---------------------------------------------------
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members
of its Board of Directors for violations of a director's fiduciary duty of
care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, a failure to act in good faith, an
engagement in intentional misconduct or a knowing violation of a law, a payment
of a dividend or the approval of a stock repurchase which was deemed illegal,
or the obtainment of an improper personal benefit.
The Company's Certificate of Incorporation includes the following language:
"A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty or loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of Title
8 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit."
Delaware General Law, Section 145, permits a corporation organized under
Delaware Law to indemnify directors and officers with respect to any matter in
which the director or officer acted in good faith and in a manner he reasonably
believed to be not opposed to the best interests of the Company, and, with
respect to any criminal action, he had reasonable cause to believe his conduct
was not unlawful.
(II-1)
<PAGE>
The Bylaws of the Company include the following provision:
"Reference is made to Section 145 and any other relevant provisions
of the General Corporation Law of the State of Delaware. Particular
reference is made to the class of persons, hereinafter called
"Indemnitees", who may be indemnified by a Delaware corporation pursuant
to the provisions of such Section 145, namely, any person or the heirs,
executors, or administrators of such person, who was or is a party or is
threatened to be made a party of any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such person is or was a
director, officer, employee, or agent or another corporation, partnership,
joint venture, trust, or other enterprise. The Corporation shall, and is
hereby obligated to, indemnify the Indemnitees, and each of them, in each
and every situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and
every situation, where, under the aforesaid statutory provisions, the
Corporation is not obligated, but is nevertheless permitted or empowered,
to make such indemnification, it being understood that before making such
indemnification with respect to any situation covered under this sentence
(i) the Corporation shall promptly make or cause to be made, by any of the
methods referred to in Subsection (d) of such Section 145, a determination
as to whether each Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interest of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful, and (ii) that
no such indemnification shall be made unless it is determined that such
Indemnitee acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, in
the case of any criminal action or proceeding, had no reasonable cause to
believe that his conduct was unlawful."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
- -------------------------------------------------
Set forth below in chronological order is information regarding the
numbers of shares of Common Stock sold, the number of warrants and options
issued by the Company, and the amount of debt instruments issued by the Company
since September 1, 1994, the consideration received by the Company for such
shares, warrants, options and debt instruments and information relating to the
section of the Securities Act of 1933, as amended (the "Act") or rule of the
Commission under which exemption from registration was claimed. None of these
securities were registered under the Act. Except as otherwise indicated, no
sales of securities involved the use of an underwriter and no commissions were
paid in connection with the sale of any securities.
On September 1, 1994, the Company converted $1,500,000 of outstanding
promissory notes into 500,000 shares of Common Stock at a conversion price of
$3 per share.
During the period February 1, 1995, through June 26, 1995, the Company
sold 2,000,000 Units in a Private Offering to 24 Accredited Investors. Each
Unit consisted of one share of the Company's Common Stock, one Class C Warrant,
and one Class D Warrant. Each Unit was sold for $.80. An additional 125,000
Units were delivered to the first placement agent upon a payment of
$250; and an additional 75,000 Units were delivered to the second placement
agent upon a payment of $150.
On May 20, 1996, the Company committed to deliver 150,000 shares of its
Common Stock as an inducement for a short-term loan of 200,000 from an
accredited investor. These shares are to be delivered within 15 days of
receipt of the loan proceeds and they will carry piggyback registration
Rights.
(II-2)
<PAGE>
Effective as of March 14, 1995, the Board of Directors of the Company
authorized the grant of 71,700 Options under the 1991 Stock Option Plan,
corrected the Option grant records by confirming the grant of an additional
25,000 Options under the 1985 Stock Option Plan, effective March 10, 1992, and
confirmed the issuance of 24,000 Warrants, each to purchase one share of common
stock, authorized at a previous Board Meeting.
On June 23, 1995, the Board of Directors of the Company authorized the
grant of 100,000 Options to Al Simensen, a newly-hired executive employee,
under the 1991 Stock Option Plan.
On October 13, 1995, the Board of Directors authorized the grant of stock
options under the 1991 Plan as follows:
(1) to Walter Stewart - 30,000 options from shares reserved for issuance
under the Plan.
(2) to Joseph Schlig - 100,000 options when and if shares become
available for issuance under the Plan.
On January 23, 1996, the Board of Directors authorized the grant of 1,500
Options to an employee.
Each of the foregoing transactions was exempt from registration under the
Act by virtue of the provisions of Section 4(2) and/or Section 3(b) of the Act.
Each purchaser of the securities described above, and each optionholder, has
represented or will represent prior to the purchase of the securities that he
understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Act of the shares being purchased, or
the availability of an exemption from the registration requirements of the Act,
and each certificate evidencing the securities owned by each purchaser bears
and will bear a legend to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
Exhibit Sequential
Number Page Nos.
- ------- ---------
3.1 [2] -- Form of Amended Certificate of Incorporation ..............
3.2 [1] -- Form of Amended Bylaws. ...................................
4.1 [2] -- See Amended Certificate of Incorporation, filed
as Exhibit 3.1. ...........................................
4.2 [7] -- Form of "C" Warrant .......................................
4.3 [7] -- Form of "D" Warrant .......................................
5 -- Opinion of Seeley & Berglass ..............................
10.1 [1] -- Form of Company's 1985 Incentive Stock Option Plan,
dated January 8, 1985 ....................................
10.2 [3] -- Form of Company's 1991 Incentive Stock Option Plan ........
10.3 [7] -- Employment Agreement, dated as of January 1, 1994,
between the Company and Gerald W. Stewart ................
(II-3)
<PAGE>
10.3(a) [7] -- Amendment to Employment Agreement, dated as of
October 1, 1995, filed as Exhibit 10.3 ...................
10.4 [7] -- Employment Agreement between the Company and
Alfred L. Simensen .......................................
10.5 [7] -- Employment Agreement between the Company and
Joseph Schlig .............................................
10.6 [7] -- Revolving Financing Agreement with Boston
Finance & Equity Corporation, dated as of
August 31, 1995, as amended ...............................
10.6(a) [7] -- Amendment, dated as of September 29, 1995,
to Revolving Financing Agreement, filed as
Exhibit 10.6 ..............................................
10.6(b) [7] -- Supplement, dated as of August 31, 1995, to
Revolving Financing Agreement, filed as
Exhibit 10.6 ..............................................
10.7 [7] -- Security Agreement with Boston Finance & Equity
Corporation, dated as of August 31, 1995 .................
10.7(a) [7] -- Supplement, dated August 31, 1995, to Security
Agreement, filed as Exhibit 10.7 ..........................
10.8 [7] -- Agreement to Issue Warrants to Boston Finance & Equity
Corporation, dated as of August 31, 1995 .................
10.9 [7] -- Subordination Agreement of Carl Marks & Co., Inc.,
dated as of August 31, 1995 ..............................
10.10 [7] -- Letter to "C" Warrantholders, dated as of
December 21, 1995 ........................................
10.11 [7] -- Letter to "D" Warrantholders, dated as of
December 21, 1995 ........................................
16.1 [4] -- Letter of resignation to the Company from
KPMG Peat Marwick LLP, dated as of August 31, 1995 .......
16.2 [5] -- Letter, pursuant to Item 304(a)(3) of Regulation
S-K of the Act, to the Company from KPMG Peat
Marwick LLP, dated as of August 31, 1995 .................
16.3 [6] -- Letter of engagement to the Company from
McGladrey & Pullen, LLP, dated as of October
10, 1995 ................................................
21 [7] -- Subsidiaries of the Registrant ............................
23.1 -- Consent of McGladrey & Pullen, LLP ........................
23.2 -- Consent of KPMG Peat Marwick LLP ..........................
23.3 -- Consent of Seeley & Berglass (included in Exhibit 5) ......
- --------------------------
[1] Previously filed (on April 16, 1991) as an exhibit to the Company's
registration statement no. 33-39967 on Form S-1 and incorporated herein by
this reference with the Commission.
[2] Previously filed (on June 10, 1991) as an exhibit to the Company's amended
registration statement no. 33-39967 on Form S-1 and incorporated herein by
this reference.
[3] Previously filed (on December 30, 1992) as an exhibit to the Company's
Form 10-KSB for fiscal year ended September 25, 1992, as amended January
26, 1993, and incorporated herein by this reference.
[4] Previously filed (on September 8, 1995) as an Exhibit to the Company's
Form 8-K and incorporated herein by this reference.
[5] Previously filed (on September 18, 1995) as an Exhibit to the Company's
Form 8K/A and incorporated herein by this reference.
[6] Previously filed (on October 30, 1995) as an Exhibit to the Company's Form
8-K and incorporated herein by this reference.
[7] Previously filed (on January 5, 1996) as an Exhibit to the Company's Form
10-KSB for fiscal year ended September 30, 1995, and incorporated herein
by this reference.
(b) Financial Statement Schedules.
(II-4)
<PAGE>
Page
----
Schedule
No.
-------
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to and in connection with
transactions in the Company's securities as described in this Registration
Statement, under the certificate of incorporation, bylaws, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy, as expressed in the Act,
and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part
of the registration statement as of the time it was declared
effective.
(2) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(II-5)
<PAGE>
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(3) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
[signatures are on page (II-7) next following]
(II-6)
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment Number 5 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the Town of Trumbull, State of Connecticut on May 21 , 1996.
-----------
INDUSTRIAL TECHNOLOGIES, INC.
By: /s/ Gerald W. Stewart
----------------------
Gerald W. Stewart
Its: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
Chief Executive Officer
and President (Principal
/s/ Gerald W. Stewart Executive Officer) May 21, 1996
- ----------------------
Gerald W. Stewart
/s/ Joseph Schlig Chief Financial Officer May 21, 1996
- ------------------
Joseph Schlig Joseph Schlig (Principal Financial
and Accounting Officer)
All of the Directors
--------------------
as of
/s/ Gerald W. Stewart Director May 21, 1996
- ----------------------
Gerald W. Stewart
as of
/s/ Howard Davidoff Director May 21, 1996
- --------------------
Howard Davidoff
as of
/s/ Tancred V. Schiavoni Director May 21, 1996
- -------------------------
Tancred V. Schiavoni
as of
/s/ Eric H. Twerdahl Director May 21, 1996
- ---------------------
Eric H. Twerdahl
- ----------------------------------------
(II-7)
<PAGE>
Industrial Technologies, Inc.,
and Subsidiary
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 1995, September 30, 1994, and September 24, 1993
<TABLE><CAPTION>
Accounts
------------------
Balance at Charged Charged Balance
Beginning to to other at end
Description of year cost and accounts Deductions of year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995
Allowance for doubtful accounts
(deducted from accounts
receivable) $ 61,321 $ 13,250 $ 0 $ 32,707(1) $ 41,864
========= ======== ==== =========== ========
Year ended September 30, 1994
Allowance for doubtful
accounts deducted from
accounts receivable) $ 92,832 $ 12,000 $ 0 $ 43,511(2) $ 61,321
========= ======== ==== =========== ========
Year Ended September 24, 1993
Allowance for
doubtful accounts
(deducted from $120,000(2)
accounts receivable) 263,930 9,000 $ 0 60,098(1) $ 92,832
========= ======== ==== =========== ========
TOTALS 263,930 9,000 $ 0 $180,098 $ 92,832
========= ======== ==== =========== ========
</TABLE>
Footnotes: (1) Accounts deemed to be uncollectible.
(2) Decrease in Allowance.
S-1
<PAGE>
EXHIBIT INDEX
Amendment No. 5 to S-1 Registration
INDUSTRIAL TECHNOLOGIES, INC.
Exhibit Sequential
Number Page Nos.
- ------- ---------
3.1 [2] -- Form of Amended Certificate of Incorporation ..............
3.2 [1] -- Form of Amended Bylaws. ...................................
4.1 [2] -- See Amended Certificate of Incorporation, filed
as Exhibit 3.1. ...........................................
4.2 [7] -- Form of "C" Warrant .......................................
4.3 [7] -- Form of "D" Warrant .......................................
5 -- Opinion of Seeley & Berglass ..............................
10.1 [1] -- Form of Company's 1985 Incentive Stock Option Plan,
dated January 8, 1985 ....................................
10.2 [3] -- Form of Company's 1991 Incentive Stock Option Plan ........
10.3 [7] -- Employment Agreement, dated as of January 1, 1994,
between the Company and Gerald W. Stewart ................
10.3(a) [7] -- Amendment to Employment Agreement, dated as of
October 1, 1995, filed as Exhibit 10.3 ...................
10.4 [7] -- Employment Agreement between the Company and
Alfred L. Simensen .......................................
10.5 [7] -- Employment Agreement between the Company and
Joseph Schlig .............................................
10.6 [7] -- Revolving Financing Agreement with Boston
Finance & Equity Corporation, dated as of
August 31, 1995, as amended ...............................
10.6(a) [7] -- Amendment, dated as of September 29, 1995,
to Revolving Financing Agreement, filed as
Exhibit 10.6 ..............................................
10.6(b) [7] -- Supplement, dated as of August 31, 1995, to
Revolving Financing Agreement, filed as
Exhibit 10.6 ..............................................
10.7 [7] -- Security Agreement with Boston Finance & Equity
Corporation, dated as of August 31, 1995 .................
10.7(a) [7] -- Supplement, dated August 31, 1995, to Security
Agreement, filed as Exhibit 10.7 ..........................
10.8 [7] -- Agreement to Issue Warrants to Boston Finance & Equity
Corporation, dated as of August 31, 1995 .................
10.9 [7] -- Subordination Agreement of Carl Marks & Co., Inc.,
dated as of August 31, 1995 ..............................
10.10 [7] -- Letter to "C" Warrantholders, dated as of
December 21, 1995 ........................................
10.11 [7] -- Letter to "D" Warrantholders, dated as of
December 21, 1995 ........................................
16.1 [4] -- Letter of resignation to the Company from
KPMG Peat Marwick LLP, dated as of August 31, 1995 .......
16.2 [5] -- Letter, pursuant to Item 304(a)(3) of Regulation
S-K of the Act, to the Company from KPMG Peat
Marwick LLP, dated as of August 31, 1995 .................
16.3 [6] -- Letter of engagement to the Company from
McGladrey & Pullen, LLP, dated as of October
10, 1995 ................................................
21 [7] -- Subsidiaries of the Registrant ............................
23.1 -- Consent of McGladrey & Pullen, LLP ........................
23.2 -- Consent of KPMG Peat Marwick LLP ..........................
23.3 -- Consent of Seeley & Berglass (included in Exhibit 5) ......
- -----------------------------
[1] Previously filed (on April 16, 1991) as an exhibit to the Company's
registration statement no. 33-39967 on Form S-1 and incorporated herein
by this reference with the Commission.
[2] Previously filed (on June 10, 1991) as an exhibit to the Company's
amended registration statement no. 33-39967 on Form S-1 and incorporated
herein by this reference.
[3] Previously filed (on December 30, 1992) as an exhibit to the Company's
Form 10-KSB for fiscal year ended September 25, 1992, as amended January
26, 1993, and incorporated herein by this reference.
[4] Previously filed (on September 8, 1995) as an Exhibit to the Company's
Form 8-K and incorporated herein by this reference.
[5] Previously filed (on September 18, 1995) as an Exhibit to the Company's
Form 8K/A and incorporated herein by this reference.
[6] Previously filed (on October 30, 1995) as an Exhibit to the Company's
Form 8-K and incorporated herein by this reference.
[7] Previously filed (on January 5, 1996) as an Exhibit to the Company's Form
10-KSB for fiscal year ended September 30, 1995, and incorporated herein
by this reference.
Exhibit 5
---------
LAW OFFICES
SEELEY & BERGLASS
AN ASSOCIATION OF PROFESSIONAL CORPORATION
W. PARKER SEELEY, JR.
& ASSOCIATES, P.C.
3695 POST ROAD
P.O. BOX 858
SOUTHPORT, CONNECTICUT 06490
-------------------
W. PARKER SEELEY, JR. (203) 256-3250 NEW HAVEN OFFICE:
STEVEN BERGLASS Fax: (203) 256-3252 STEVEN BERGLASS, P.C.
TERESA E. CICHUCKI 121 WHITNEY AVENUE
DOUGLAS M. McALLISTER NEW HAVEN, CT 06510
KEVIN M. GODBOUT* PHONE: (203) 562-5888
ROSIE MILLER FACSIMILE: (203) 562-9365
- -------------------------------
OF COUNSEL:
LEONARD S. PAOLETTA
DAVID HELD* PLEASE REPLY TO SOUTHPORT OFFICE
*ALSO ADMITTED IN NEW YORK
[SEELEY & BERGLASS LETTERHEAD]
May , 1996
American Securities Transfer, Incorporated
938 Quail Street, Suite 101
Lakewood, CO 80215-5513
Ladies and Gentlemen:
This firm has represented Industrial Technologies, Inc., a Delaware
corporation (hereinafter called the "Corporation"), in connection with the
registration of shares of its common stock, and the distribution of such
shares, as described below.
In our capacity as counsel to the Corporation, we are familiar with the
Certificate of Incorporation, as amended, and the By-Laws of the Corporation.
We are also familiar with the corporate proceedings taken by the Corporation in
connection with the preparation and filing with the United States Securities
and Exchange Commission of a Registration Statement on Form S-1 September 5,
1995, and amendments thereto covering:
(1) 3,913,612 shares of common stock presently issued and
outstanding (the "Outstanding Stock");
(2) Class "C" Warrants to purchase shares of Common Stock;
(3) Class "D" Warrants to purchase shares of Common Stock;
(4) Common Stock issuable upon exercise of Class "A", Class "B",
Class "C", Class "D", Representatives', Lender's, and Other
Warrants ("Warrant Stock"); and
<PAGE>
(5) Common Stock issuable upon exercise of Options presently
exercisable or which may become exercisable in the future
under the Corporation's 1985 and 1991 Executive Stock Option
Plans ("Option Stock").
All terms used above and herein have the meanings ascribed to them in the
Registration Statement and the Amendments thereto.
Based upon the foregoing, we are of the opinion that:
1. The Corporation is duly organized and validly existing under
the laws of the State of Delaware.
2. All of the shares of Outstanding Stock are validly issued and
outstanding.
3. All of the Class "C" Warrants are validly issued and
outstanding.
4. All of the Class "D" Warrants are validly issued and
outstanding.
5. All of the Warrant Stock, when issued upon a valid exercise
of the respective underlying Warrants with the required
tender of the exercise price, will be validly issued and
outstanding.
6. All of the Option Stock, when issued upon a valid exercise of
the respective underlying Options with the required tender of
the option exercise price, will be validly issued and
outstanding.
This opinion is provided solely for the benefit of the addressee hereof
and is not to be relied upon by any other person or party. Nevertheless, we
hereby consent to the use of this opinion and to all references to our firm in
or made part of the Registration Statement and any amendments thereto.
Very truly yours,
SEELEY & BERGLASS
By: W. Parker Seeley, Jr. & Associates, P.C.
its Associate
--------------------------------------
W. Parker Seeley, Jr., president
pc: Dr. Gerald W. Stewart
Exhibit 23.1
------------
[LOGO]
[McGLADREY & PULLEN LETTERHEAD]
We hereby consent to the incorporation by reference in the April 25, 1996
Registration Statement on Form S-1 of our report, dated December 7, 1995, which
appears on page 19 of the annual report on Form 10-KSB of Industrial
Technologies, Inc. for the year ended September 30, 1995, and reference to our
Firm under the caption "Experts" in the Prospectus.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
May 23, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT CERITIFIED PUBLIC ACCOUNTANTS
----------------------------------------------------
The Board of Directors
Industrial Technologies, Inc. and Subsidiary:
We consent to the reference to our firm under the heading "Selected Consolidated
Financial Data" and "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Stamford, Connecticut
May 23, 1996
