<PAGE>
Page 1 of 28
INDEX TO EXHIBITS
ON PAGE 10
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(X) Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (FEE REQUIRED)
For the fiscal year ended JUNE 30, 1995
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (NO FEE REQUIRED)
For the transition period from to
----------------- -----------------
Commission File Number 0-3321
GRIFFIN TECHNOLOGY INCORPORATED
------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
NEW YORK 16-0864416
- -------------------------------------- --------------------------------
(State or Other Jurisdiction of (IRS Employer)
Incorporation or Organization) Identification No)
1133 CORPORATE DRIVE
FARMINGTON, NEW YORK 14425
- -------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(716) 924-7121
------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None None
------------------- ---------------------
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
--------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year: $17,912,000.
The aggregate market value of the voting stock held by non-affiliates of
the Issuer based upon the closing sale price of the Common Stock on September 7,
1995, as reported on the NASDAQ National Market System, was approximately
$6,000,000. Shares of Common Stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of September 7, 1995, the Issuer had outstanding 2,384,707 shares of
Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -------
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DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-KSB
INTO WHICH INCORPORATED
Annual Report to Shareholders for Part II
fiscal year ended June 30, 1995 Items 5, 6, and 7
Notice of 1995 Annual Meeting to Part III
be held November 16, 1995, and Items 9, 10, 11, and 12
Proxy Statement
INDEX
PAGE(S)
Cover Page 1-2
PART I
Item 1 - Business 3-5
Item 2 - Properties 5-6
Item 3 - Legal Proceedings 6
Item 4 - Submission of matters to a vote of security holders 6
PART II
Item 5 - Market for common equity and related stockholder matters 6
Item 6 - Management's discussion and analysis of finan-
cial condition and results of operations 6
Item 7 - Financial statements 6
Item 8 - Changes in and disagreements with accountants
on accounting and financial disclosure 6
PART III
Item 9 - Directors and executive officers of the registrant 7
Item 10 - Executive Compensation 7
Item 11 - Security ownership of certain beneficial owners and management 7
Item 12 - Certain relationships and related transactions 7
Item 13 - Exhibits, lists and reports on Form 8-K 7-8
Signatures 9
Index to exhibits 10
<PAGE>
Page 3 of 28
PART I
ITEM 1. BUSINESS
HISTORY
Griffin Technology Incorporated (Griffin) is a New York business corporation
formed on May 24, 1962 under the name of R. D. Products, Inc. In 1974 Griffin
acquired the assets of Amsec, an electronics company located in Long Beach,
California, and combined the capabilities of this electronic division with its
photo identification card expertise to become a designer, manufacturer, and
marketer of microcomputer systems/software and accessories and identification
cards. In June 1982 the company name was changed from R. D. Products, Inc., to
Griffin Technology Incorporated. On July 22, 1991, Griffin acquired Applied
Collegiate Systems (ACS) and other assets of Crozier-Smith, Inc., and
incorporated it into Griffin as the housing information systems division.
PRODUCTS
Griffin is engaged in design and manufacture of electronic systems/software and
accessories, which are marketed to colleges and universities in the United
States. These systems allow colleges and universities to control costs and at
the same time permit students, faculty, and staff to make purchases, unlock
doors, and verify privilege authorizations without cash or keys.
The Series/5 and Protege-TM- make transaction control on an automated campus
possible and constitute central processing resources for the Griffin "Campus
Community Card Program." This program offers a wide range of application
options which can share a centralized database. With the Series/5 or
Protege-TM- as a foundation, applications can be added as new requirements arise
in areas such as dining service, bookstore, health services,
vending/laundry/copying and access control to campus facilities. The Series/5
has been available since 1991.
In Fiscal 1995 Griffin's operating system migrated from DOS to native OS/2, and
a native Microsoft Windows user interface was introduced as part of the core
system architecture. During Fiscal 1994 Griffin presented to the marketplace
new types of reader terminals and systems. The LNX-5100 POS, with flexible
communication options, tracks meal transactions and offers privilege and
entertainment verification, activity checking and modification, and/or meal plan
balance inquiry features. The DLX-5200 POS terminal has additional features
such as a cash register function and user-programmable "default" transaction
capability. At the top of the line are PCX-5300 and 5400 POS systems, which
include the features of the aforementioned terminals, with expanded capability
in the modular hardware design for ease of user servicing and flexible
installation layout.
The DAC-5000 Distributed Access Control System was introduced in 1993. In
conjunction with the Griffin Series/5 or Protege-TM- System, the DAC-5000
provides secured access in an unmanned environment, i.e., controlled entry to
buildings and restricted areas, with the flexibility and reporting essential to
control security and maximize use of diverse campus facilities.
In addition to the new line of reader terminals and systems, Griffin continues
to offer the RDT-4400-Registered Trademark- Retail Data Terminal, introduced in
1986. This terminal affords standard reporting capabilities and product
movement data in addition to reporting financial totals with an audit trail.
Griffin also provides a housing information system to the college and university
market. Software packages in this area include facilities and residential
management, automated assignments, billings, conference services, etc.
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Griffin processes and delivers finished identification cards, charging a fee for
each card plus a camera fee if a photo card is used. Devices, or processes, or
both, can be applied onto cards so that they function as data input devices,
i.e., magnetic striping, bar code labels, OCR labels, embossing, debossing and
hollerith punch.
The Plus-One Instant I-D System (Plus-One System) with Instant Identification
Pouches (Instant Pouch) was introduced in 1984. This system uses instant
cameras and related card-making equipment so that customers can produce instant
identification cards. The Instant Pouch can be manufactured and shipped more
quickly than a photo identification card.
In cooperation with DataCard Corporation the Image-Master Card Production System
became an integral part of the Griffin Series/5 and Protege-TM- Transaction
Processing Systems in 1994. This new digitized identification card system
utilizes integrated databases and minimizes hardware/software requirements for
implementation of an on-line application network. It employs a microcomputer-
based workstation, a high-resolution video camera, printer, and Windows-based
software to facilitate flexible card design.
Any traditional coin-operated device, like a vending machine, copier, laundry
machine, laser printer or personal computer, can be activated by an
identification card with Griffin's VR-1000 Vending Reader, CT-1000 Copier
Terminal or LR-1000 Laundry Reader. By placing these readers on-line through a
Griffin BC-1000 Building Controller to a central debit or credit account,
students, faculty and staff can enjoy multiple services in a "cashless"
environment.
Over 90% of Griffin's sales and service fees are generated from colleges and
universities located throughout the United States; the other 10% comes from
sales to public libraries, banking institutions and industrial companies.
Orders are generally filled upon receipt; backlog orders are insignificant.
Marketing is done through Griffin's own sales organization under various
registered U.S. trademarks. Sales and operations outside the U. S. are limited.
No single customer has ever accounted for more than 10% of Griffin's total
revenues and, accordingly, Griffin believes that the loss of any one or a few of
its customers would not materially affect its business.
Until 1994 Griffin's business was conducted through lease agreements with its
customers. Lease agreements for a majority of the leased systems cover the
period July 1 through June 30, with most service fees prepaid. Systems and
peripherals vary depending on the size and complexity of the individual account
requirements. In Fiscal 1995 Griffin began selling its new card reading
terminals as well as electronic systems/software and accessories with an
optional service contract with different levels of service and support. The
makeup of the current year's total revenue reflects this change in policy, and
it is anticipated that the change from service fee to sales-based revenue will
continue in the immediate future.
Griffin's cash flow in 1994 and 1995 continued to be affected by the fact that a
substantial majority of annual service fees were billed during the months of
July and August, and most of the net sales in both years occurred in the first
and last quarters of the fiscal year.
<PAGE>
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RESEARCH AND DEVELOPMENT
Research and development in the last three years reflect additions to Griffin's
software staff to support continued emphasis on developing the new products
noted and enhancing existing products. During 1995, 1994 and 1993 Griffin
expended $2,900,800, $2,736,000, and $2,750,100, respectively, on these
activities from funds generated by operating activities. Research and
development costs are expensed as incurred except for certain specified software
costs which are capitalized. Such costs amounted to $212,500, $251,200, and
$298,600 in 1995, 1994, and 1993, respectively, and are amortized over a five-
year period, beginning at the time a product goes to the general marketplace.
COMPETITION
There are about a dozen companies in competition with Griffin in the fields of
electronics and general computers and in the manufacture and sale of
identification cards. AT&T and AMX have entered Griffin's market by their
recent acquisition of Harco and Special Teams, respectively. These companies
are larger than Griffin and possess much greater capital resources, larger sales
organizations, and larger production facilities. Griffin believes its principal
competitive advantage to be the service it offers to its customers.
GENERAL
Film, chemicals, laminate, and other materials used by Griffin for its
identification card business are available from sources within and without the
continental United States. There are generally several such sources for each
supply used. Film for processed identification cards has been supplied solely
by Eastman Kodak Company since August 1975. Components and supplies for
electronic equipment used to provide services to Griffin customers are readily
available from sources within the continental United States.
Griffin is not aware that it will have to make any unusual efforts in order to
comply with federal, state or local provisions which have been enacted or
adopted regulating the discharge of materials into the environment, or otherwise
relating to protection of the environment. Accordingly, it does not believe
that any such efforts will have any material effect upon capital expenditures,
earnings, or the competitive position of Griffin.
Griffin employs approximately 191 full-time persons. Sixty-eight are employed
at Griffin's facilities in Victor and Farmington, New York State; one hundred
twelve are employed in Rancho Dominguez and Long Beach, California; six are
employed in Denver, Colorado; and five, in Atlanta, Georgia. None of the
employees are subject to collective bargaining agreements, and employee
relations appear reasonably good. In addition to salaries or wages and legally
required employee benefits, all employees receive hospitalization insurance
including major medical, long-term disability insurance, group life insurance
program, dental coverage, and a defined contribution (401K) retirement plan.
The 401K contribution by Griffin in 1995 approximated $185,000, compared to
$203,000 in 1994.
ITEM 2. PROPERTIES
Griffin maintains its sales and identification card production facilities on
premises owned by Griffin in Victor, New York. Griffin uses 100% of the main
building's 18,000 square feet of space. The building and related facilities are
situated on approximately three acres of land and include a 2,000 square foot
steel strand building used as a warehouse. Contiguous to this facility and
owned by Griffin are two parcels of land consisting of 4 acres and 6.6 acres,
which are available for expansion.
<PAGE>
Page 6 of 28
In May 1990 Griffin leased approximately 15,000 square feet of space in
Farmington, New York, for administrative, sales, and service personnel. These
premises are occupied under an 8-year lease with a 5-year renewal option and
provide adequate space for anticipated expansion.
In February 1995 Griffin exercised its renewal option to lease for 3 years a
29,000 square foot building in Rancho Dominguez, California. The space is used
by Griffin's software engineering and electronic manufacturing departments. In
Long Beach, California, 3,700 sq. ft. are leased through February 1996 for
Griffin's hardware engineering department. These facilities are deemed adequate
for Griffin's near-term requirements.
Leases for sales and service offices in Denver, Colorado, and Atlanta, Georgia,
approximate 3,200 and 2,100 square feet, respectively. The Denver lease expires
in 1997 and has no renewal option; the Atlanta lease was renewed in June 1995
for one year.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information concerning the market for Griffin common stock and related
security holder matters for the two years ended June 30, 1995, appearing in the
Griffin Technology Incorporated 1995 Annual Report under the heading "Selected
Quarterly Data" is incorporated by reference in Item 5 of this Form 10-KSB
Annual Report.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations appearing in the Griffin Technology Incorporated 1995 Annual Report
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is incorporated by reference in Item 6 of this
Form 10-KSB Annual Report.
ITEM 7. FINANCIAL STATEMENTS
Financial statement are included under Item 13(a).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
Page 7 of 28
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 9 of Form 10-KSB relating to directors and
executive officers is set forth under the headings, "Election of Directors" and
"Executive Officers," in Griffin's Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on November 16, 1995.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 of Form 10-KSB is set forth under the
heading, "Executive Officers," in Griffin's Definitive Proxy Statement for the
Annual Meeting of Shareholders to be held November 16, 1995.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 of Form 10-KSB is set forth under the
headings, "Certain Principal Shareholders" and "Security Ownership of
Management," in Griffin's Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on November 16, 1995.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 of Form 10-KSB is set forth under the
heading, "Election of Directors," in Griffin's Definitive Proxy Statement for
the Annual Meeting of Shareholders to be held November 16, 1995.
Pursuant to General Instruction E(3), since Griffin has filed (or will file
within 120 days after June 30, 1995) with the Securities and Exchange Commission
a Definitive Proxy Statement pursuant to Regulation 14A which involves election
of directors, information required in Part III (Items 9 through 13) has been
omitted. Information required in Items 9 through 13 under the headings
described above is incorporated by reference herein by this reference thereto.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) 1. The financial statements listed below and required under Item 7
of this Report are incorporated by reference from pages 2-11 of
the Griffin Technology Incorporated 1995 Annual Report attached
as Exhibit 13.
Balance Sheet at June 30, 1995 and June 30, 1994.
Statement of Income and Retained Earnings for each of the three
years ended June 30, 1995.
Statement of Cash Flows for each of the three years ended
June 30, 1995.
Notes to Financial Statements.
Report of Independent Accountants.
(a) 2. Financial Statement Schedules - included in Item 13 herein:
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
<PAGE>
Page 8 of 28
Exhibit 3* Restated Certificate of Incorporation of Griffin Technology
Incorporated under Section 807 of the Business Corporation Law
filed with the Secretary of State of the State of New York on
November 9, 1988. (Filed in September 1990 as Exhibit 3 to
Griffin Technology Incorporated's Annual Report on Form 10-K for
the year ended June 30, 1990, SEC File No. 0-3321.)
Exhibit 3-1* By-Laws of Griffin Technology Incorporated, as amended, to date.
(Filed in October 1988 as Exhibit 3-1 to Griffin Technology
Incorporated's Annual Report on Form 10-K for the five months
ended June 30, 1988, SEC File No. 0-3321.)
Exhibit 4* Restated Certificate of Incorporation of Griffin Technology
Incorporated under Section 807 of the Business Corporation Law
filed with the Secretary of State of the State of New York on
November 9, 1988. (Filed in September 1990 as Exhibit 3 to
Griffin Technology Incorporated's Annual Report on Form 10-K for
the year ended June 30, 1990, SEC File No. 0-3321.)
Exhibit 4-1* By-Laws of Griffin Technology Incorporated as amended to date.
(Filed in October 1988 as Exhibit 3-1 to Griffin Technology
Incorporated's Annual Report on Form 10-K for the five months
ended June 30, 1988, SEC File No. 0-3321.)
Exhibit 4-2* Fifth Amended and Restated Revolving Credit and Term Loan
Agreement, dated November 3, 1994, between Griffin Technology
Incorporated and Chase Manhattan Bank, N.A. (Filed in November
1994 as Exhibit 4 to Griffin Technology's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1994, SEC File
No. 0-3321).
Exhibit 4-3* Griffin Technology Incorporated's 1988 Stock Option Plan, as
amended (Filed in September, 1992 as Exhibit 4-4 to Griffin
Technology Incorporated's Annual Report on Form 10-K for the year
ended June 30, 1992, SEC File No. 0-3321).
Exhibit 4-4* Griffin Technology Incorporated's 1991 Directors Stock Plan
(Filed in September, 1992, as Exhibit 4-5 to Griffin Technology
Incorporated's Annual Report on Form 10-K for the year ended
June 30, 1992, SEC File No. 0-3321).
Exhibit 10* Griffin Technology Incorporated's 1988 Stock Option plan, as
amended. (Filed in September, 1992, as Exhibit 4-4 to Griffin
Technology Incorporated's Annual Report on Form 10-K for the year
ended June 30, 1992, SEC File No. 0-3321).
Exhibit 10-1 Griffin Technology Incorporated 1986 Employee Stock Purchase
Plan, as amended. (Filed in April 1988 as Exhibit 10-1 to
Griffin Technology Incorporated's Annual Report on Form 10-K for
the fiscal year ended January 31, 1988, SEC File No. 0-3321.)
Exhibit 10-2* Griffin Technology Incorporated's 1991 Directors Stock Plan.
(Filed in September, 1992, as Exhibit 4-5 to Griffin Technology
Incorporated's Annual Report Form 10-K for the year ended
June 30, 1992, SEC File No. 0-3321).
Exhibit 13 Annual Report to Shareholders for the year ended June 30, 1995.
Exhibit 23 Consent of Independent Accountants.
- -------------------------
*Incorporated by reference.
(b) No reports on Form 8-K were filed for the quarter ended June 30, 1995.
<PAGE>
Page 9 of 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GRIFFIN TECHNOLOGY INCORPORATED
By s/Robert S. Urland 9/7/95
----------------------------------------------------------- ------
Robert S. Urland, President and Date
Chief Executive Officer
(Principal Executive Officer)
By s/Joseph A. Murrer 9/7/95
----------------------------------------------------------- ------
Joseph A. Murrer, Vice President Date
Finance and Administration
Treasurer and Secretary
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
s/James T. Henderson 9/7/95
- ------------------------------------------------------------- ------
James T. Henderson, Director Date
s/Graeme MacLetchie 9/7/95
- ------------------------------------------------------------- ------
Graeme MacLetchie, Director Date
s/Virginia S. Pacala 9/7/95
- ------------------------------------------------------------- ------
Virginia S. Pacala, Director Date
s/Ned W. Roman 9/7/95
- ------------------------------------------------------------- ------
Ned W. Roman, Director Date
s/Robert S. Urland 9/7/95
- ------------------------------------------------------------- ------
Robert S. Urland, Director Date
<PAGE>
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INDEX TO EXHIBITS
Pages
Exhibit 3 *
Exhibit 3-1 *
Exhibit 4 *
Exhibit 4-1 *
Exhibit 4-2 *
Exhibit 4-3 *
Exhibit 4-4 *
Exhibit 10 *
Exhibit 10-1 *
Exhibit 10-2 *
Exhibit 13 11-27
Exhibit 23 28
<PAGE>
EXHIBIT 13
Page 11 of 28
GRIFFIN
1995 ANNUAL REPORT
GRIFFIN TECHNOLOGY INCORPORATED
<PAGE>
Page 12 of 28
BOARD OF DIRECTORS JAMES T. HENDERSON Retired Chairman of
Johnston Paviour Sibley
Division, Sedgwick James
of New York, Inc. -
insurance brokers
GRAEME MACLETCHIE Senior Vice President of
Deutsche Morgan
Grenfell/C. J. Lawrence,
Inc. - investment firm
NED W. ROMAN Analyst, Clover Capital
Management, Inc. -
investment advisors
VIRGINIA S. PACALA Private Investor
ROBERT S. URLAND President, Griffin
Technology Incorporated
OFFICERS ROBERT S. URLAND President and Chief
Executive Officer
JOHN C. DARJANY Vice President and
Corporate Chief Engineer
GARY W. LORENZ Senior Vice President,
Technical Operation
JOSEPH A. MURRER Vice President, Finance
and Administration,
Treasurer and Secretary
ANTHONY J. RYANCZAK Senior Vice President,
Sales and Marketing
TRANSFER AGENT MELLON SECURITIES TRUST COMPANY
LEGAL COUNSEL NIXON, HARGRAVE, DEVANS & DOYLE LLP
ATTORNEYS AND COUNSELORS AT LAW
INDEPENDENT PRICE WATERHOUSE LLP
ACCOUNTANTS
BUSINESS OF GRIFFIN IS ENGAGED IN THE DESIGN, MANUFACTURE AND
GRIFFIN TECHNOLOGY MARKETING OF ELECTRONIC SYSTEMS/SOFTWARE AND
ACCESSORIES. THE COMPANY'S PRIME MARKET IS COLLEGES AND
UNIVERSITIES THROUGHOUT THE UNITED STATES.
<PAGE>
Page 13 of 28
TO OUR SHAREHOLDERS:
During the fiscal year ended June 30, 1995, Griffin Technology concentrated
its efforts on enhancing and expanding applications of our microcomputer-based
systems on the college and university campus. While we achieved our nineteenth
consecutive year of revenue growth and profitable operations, our year-end
results were below expectations. Expanding the core capability of our systems
to meet what we believe is an emerging market opportunity has had an unforeseen
impact on costs. We believe these expenditures are an investment in our future
and are committed to basing our long-range growth and profitability on continued
innovative product development.
FINANCIAL REVIEW
Revenues for fiscal year 1995 were $17,912,000, an approximate 6% increase
over last year. Net income decreased to $162,700. During this past year
research and development expenditures amounted to 15% of total revenues
reflective of our program of product line expansion. To ensure our future
growth in a dynamic computer environment, we must maintain this level of
spending in order to expand our software applications and incorporate non-
Griffin technologies. We encourage shareholders to read the following
"Financial Presentation" and "Management's Discussion" for detailed analysis of
the corporation's financial condition.
PRODUCT DEVELOPMENT
During this past year we have made substantial progress in our product
development effort. We introduced a new series of terminals for student
entitlement verification and point-of-sale transactions. In addition, we
migrated our transaction processor operating system from DOS to native OS/2. We
also introduced a native Microsoft Windows user interface as part of our core
system architecture. We remain committed to providing systems that support and
enhance a Distributed Computing Environment at an economical cost per
transaction.
BOARD OF DIRECTOR CHANGES
James L. D. Roser served as a member of our Board of Directors from January
1971 through June 30 of this year. During these 24 years Griffin's corporate
direction--both product offerings and market expansion--and even our corporate
name, changed. Throughout his tenure Jim generously devoted his time and talent
to the best interest of the Company. His sound judgment and good counsel were a
major influence in our corporate evolution, and we gratefully thank Jim for all
his efforts. John C. Partigan, a partner in the law firm of Nixon Hargrave
Devans and Doyle, was elected to replace Mr. Roser at the September Board of
Directors meeting. We welcome John aboard.
SUMMARY
The future of Griffin Technology is indelibly linked to the emergence of
networked computing solutions for campus administration that are integrated into
a networked financial transaction processing system for electronically
processing a majority of student procurement and disbursements. These systems
handle on-campus purchases, banking services, and long distance telephone
services via electronic cash payment and a single identification card. We
believe with our product and personnel resources we are uniquely positioned to
provide the necessary system analysis, to create the software applications, and
to deliver the on-going system support essential to a successful all-
encompassing campus implementation.
Our future direction leads along a difficult, but rewarding, path. Many
will try, but few will succeed; our goal is to be the market leader among the
survivors. Your continued support is genuinely appreciated, and we hope you
will attend the Annual Meeting on November 16, 1995, in Rochester, New York.
Robert S. Urland
President and
Chief Executive Officer 1
<PAGE>
Page 14 of 28
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF GRIFFIN TECHNOLOGY INCORPORATED
In our opinion, the accompanying balance sheets and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Griffin Technology Incorporated at June 30,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the Income Tax note, the Company changed its method of
accounting for income taxes in fiscal 1994.
PRICE WATERHOUSE LLP
1900 Chase Square
Rochester, New York 14604
August 31, 1995
2
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
JUNE 30
BALANCE SHEET 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 119,200 $ 60,500
Accounts receivable 3,946,800 3,391,200
Inventories 3,903,900 3,776,100
Prepaid expenses and other current assets 218,000 139,500
Refundable income taxes 76,600
Deferred income tax charges 409,000 388,500
Electronic systems, at cost 13,947,900 13,933,200
Less - Accumulated amortization (13,945,600) (13,923,100)
- ------------------------------------------------------------------------------------------
Net electronic systems 2,300 10,100
- ------------------------------------------------------------------------------------------
Total current assets 8,599,200 7,842,500
- ------------------------------------------------------------------------------------------
LONG-TERM ELECTRONIC SYSTEMS, AT COST 16,942,500 15,626,100
Less - Accumulated amortization (11,174,700) (9,089,700)
- ------------------------------------------------------------------------------------------
Net electronic systems 5,767,800 6,536,400
- ------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 5,730,200 5,540,700
Less - Accumulated depreciation and amortization (4,213,100) (3,899,300)
- ------------------------------------------------------------------------------------------
Net property, plant and equipment 1,517,100 1,641,400
- ------------------------------------------------------------------------------------------
Deferred software costs, net 1,018,000 1,135,800
- ------------------------------------------------------------------------------------------
Other assets 371,900 108,500
- ------------------------------------------------------------------------------------------
Total assets $17,274,000 $17,264,600
- ------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 600,000 $ 600,000
Accounts payable 981,700 1,038,000
Accrued payroll and related taxes 484,300 561,500
Other accrued liabilities and expenses 448,600 204,000
Income taxes payable 47,200 50,600
Unearned service fees 1,861,700 2,400,800
- ------------------------------------------------------------------------------------------
Total current liabilities 4,423,500 4,854,900
OTHER LIABILITIES:
Long-term debt 5,600,000 5,500,000
Employee stock purchase plan 11,800 19,800
Deferred income tax credits 633,100 532,100
- ------------------------------------------------------------------------------------------
Total liabilities 10,668,400 10,906,800
- ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, par value $.05 per share
Authorized--6,000,000 shares
Issued and outstanding 2,382,747 and
2,362,364 shares, respectively 119,100 118,100
Capital in excess of par value 3,487,700 3,403,600
Retained earnings 2,998,800 2,836,100
- ------------------------------------------------------------------------------------------
Total shareholders' equity 6,605,600 6,357,800
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $17,274,000 $17,264,600
- ------------------------------------------------------------------------------------------
</TABLE>
(SEE NOTES ON PAGES 6-11)
3
<PAGE>
Page 16 of 28
<TABLE>
<CAPTION>
STATEMENT OF INCOME AND RETAINED EARNINGS
- ------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Service fees $12,590,200 $13,350,400 $13,294,600
Net sales 5,321,800 3,597,100 3,599,900
- ------------------------------------------------------------------------------------------
Total revenues 17,912,000 16,947,500 16,894,500
- ------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 3,397,400 2,489,600 2,620,500
Service of electronic systems 4,262,000 3,777,700 3,832,100
Amortization of electronic systems 2,107,500 2,095,900 2,178,300
Selling, general and administrative 4,340,800 4,442,900 4,573,400
Research and development 2,688,300 2,484,800 2,451,500
Amortization of software costs 330,300 312,600 228,800
Interest 533,700 368,300 354,700
- ------------------------------------------------------------------------------------------
Total costs and expenses 17,660,000 15,971,800 16,239,300
- ------------------------------------------------------------------------------------------
Income before income taxes 252,000 975,700 655,200
Provision for income taxes 89,300 315,900 152,000
- ------------------------------------------------------------------------------------------
NET INCOME 162,700 659,800 503,200
RETAINED EARNINGS:
Beginning of period 2,836,100 2,176,300 1,673,100
- ------------------------------------------------------------------------------------------
End of period $ 2,998,800 $ 2,836,100 $ 2,176,300
- ------------------------------------------------------------------------------------------
Earnings per common and
common equivalent share $.07 $.28 $.21
- ------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 2,387,896 2,383,309 2,376,969
- ------------------------------------------------------------------------------------------
</TABLE>
(SEE NOTES ON PAGES 6-11)
4
<PAGE>
Page 17 of 28
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
Year ended June 30,
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 162,700 $ 659,800 $ 503,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment 313,800 308,700 315,000
Amortization of electronic systems 2,107,500 2,095,900 2,178,300
Amortization of software costs 330,300 312,600 228,800
Benefit from deferred taxes 80,500 281,100 124,200
(Decrease) in unearned service fees (539,100) (37,200) (114,800)
(Increase)decrease in accounts receivable (555,600) 108,800 (497,800)
(Increase)decrease in inventories (127,800) (59,700) 18,700
Decrease(increase) in refundable income taxes 76,600 (76,600) 138,700
(Increase) in deferred software costs (212,500) (251,200) (298,600)
(Increase)decrease in prepaid expenses (78,500) 44,100 69,800
(Increase) in long-term receivables (117,700)
Increase(decrease) in liabilities
excluding borrowings 107,700 47,100 (91,900)
(Increase)decrease in other assets (145,700) 13,100 9,900
- -----------------------------------------------------------------------------------------------
Total adjustments 1,239,500 2,786,700 2,080,300
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,402,200 3,446,500 2,583,500
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Provided from stock option and
stock purchase plans 77,100 146,400 186,400
Revolving credit and term loan agreement
Borrowings 2,600,000 2,800,000 3,800,000
Repayments (2,500,000) (3,250,000) (2,950,000)
Principal payments under other long-term debt (64,700) (51,700)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 177,100 (368,300) 984,700
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to electronic systems (1,331,100) (2,916,700) (3,320,600)
Additions to property, plant and equipment (189,500) (252,500) (284,500)
- -----------------------------------------------------------------------------------------------
Cash used in investing activities (1,520,600) (3,169,200) (3,605,100)
- -----------------------------------------------------------------------------------------------
Net increase(decrease) in cash 58,700 (91,000) (36,900)
Cash at beginning of period 60,500 151,500 188,400
- -----------------------------------------------------------------------------------------------
Cash at end of period $ 119,200 $ 60,500 $ 151,500
- -----------------------------------------------------------------------------------------------
Interest paid $ 524,100 $ 353,400 $ 356,300
- -----------------------------------------------------------------------------------------------
Income taxes (refunded)paid, net ($ 64,300) $ 7,900 ($ 143,200)
- -----------------------------------------------------------------------------------------------
</TABLE>
(SEE NOTES ON PAGES 6-11)
5
<PAGE>
Page 18 of 28
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS ACCOUNTING POLICIES:
Griffin Technology is engaged in the design, manufacture and marketing of
electronic systems/software and accessories. The Company's prime market is
colleges and universities throughout the United States. A summary of
significant accounting policies follows:
RECEIVABLES AND REVENUE RECOGNITION
Net sales represent revenue from sales of electronic systems/software and
accessories. Service fees for financial accounting purposes are credited to
Unearned Service Fees and recognized as revenue in the Statement of Income over
the contract term.
INVENTORIES
Inventories are valued at cost, which is not in excess of market. The cost of a
substantial majority of the inventories is determined by the first-in, first-out
(FIFO) or average cost method. The cost of other inventories, represented by
film and supplies, is determined by the last-in, first-out cost (LIFO) method.
The LIFO reserve amounted to $84,500 and $125,000 at June 30, 1995 and 1994,
respectively.
ELECTRONIC SYSTEMS AND AMORTIZATION
Electronic systems are stated at cost. Cost consists of systems installed at
customer locations. Amortization for financial accounting purposes is computed
on the straight-line method and charged to income over a one- to five-year
period beginning in the month of installation.
PROPERTY AND RELATED DEPRECIATION AND AMORTIZATION
Property, plant and equipment is stated at cost. Depreciation is computed based
on estimated useful lives of property owned using the straight-line method.
Leasehold improvements are amortized over the life of the related lease using
the straight-line method.
Costs of maintenance and repairs are charged against income when incurred.
Renewals and betterments of a major nature are capitalized.
Upon sale or retirement of assets, the cost and related accumulated depreciation
are removed from the accounts and gains and losses are reflected in income.
RESEARCH AND DEVELOPMENT COSTS AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred except for certain
specified software development costs which are capitalized. Such costs are
amortized over a five-year period or written down to net realizable value based
on the judgment by management with respect to certain external factors.
6
<PAGE>
INCOME TAXES Page 19 of 28
Provision for income taxes is based upon income reported in the financial
statements, and the tax effect of temporary differences--when the Company's
accounting policies differ for financial accounting and tax reporting--is
recorded as deferred income taxes. Such temporary differences relate primarily
to depreciation of certain fixed assets, capitalized software development costs,
amortization of electronic systems and recognition of revenue from service fees.
Tax credits are accounted for by the flow-through method as a direct reduction
of the current federal income tax provision.
Depreciation for tax purposes is computed using primarily accelerated methods,
as opposed to the straight-line method used for financial reporting. Service
fees are recognized on the tax return on an "as earned basis" or at the time
payment is received, whichever occurs first. All research and development costs
are expensed on the tax return as incurred.
EARNINGS PER SHARE
Per share amounts are computed on the basis of the weighted average number of
common and common equivalent shares outstanding during each year. The common
equivalent shares represent shares contingently issuable under the Company's
stock option plan.
RECLASSIFICATIONS
Certain 1994 and 1993 financial statement and related footnote amounts have been
reclassified to conform to 1995 presentation.
<TABLE>
<CAPTION>
NOTE 2 - INVENTORIES:
- --------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic systems:
Finished system equipment $ 395,400 $ 308,200
Work in process 2,381,100 2,183,000
Parts and supplies 941,900 1,114,300
- --------------------------------------------------------------------------------------------
3,718,400 3,605,500
- --------------------------------------------------------------------------------------------
Film and supplies 185,500 170,600
- --------------------------------------------------------------------------------------------
Total $3,903,900 $3,776,100
- --------------------------------------------------------------------------------------------
<CAPTION>
NOTE 3 - ELECTRONIC SYSTEMS:
A summary of investment in electronic systems follows:
- --------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Systems installed $13,947,900 $13,933,200
- --------------------------------------------------------------------------------------------
Long-term Assets:
Systems installed $16,394,600 $14,739,200
Systems on hand 547,900 886,900
- --------------------------------------------------------------------------------------------
Total $16,942,500 $15,626,100
- --------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Page 20 of 28
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment comprised the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
USEFUL LIFE
(YEARS) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 357,900 $ 357,900
Land improvements 3-20 24,200 24,200
Buildings and improvements 21-40 735,000 735,000
Term
Leasehold improvements of lease 146,400 146,400
"Identi-Proof" cameras, parts and equipment 3-8 588,500 588,500
Machinery and equipment 5-10 2,985,300 2,835,200
Office furniture, fixtures and equipment 5-10 865,300 842,500
Additions in progress 27,600 11,000
- ------------------------------------------------------------------------------------------
$5,730,200 $5,540,700
- ------------------------------------------------------------------------------------------
</TABLE>
NOTE 5 - RENTALS AND LEASE COMMITMENTS
Rental expense for the period ended:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
June, 1993 $416,600
June, 1994 404,000
June, 1995 419,300
</TABLE>
The approximate minimum amounts of non-cancelable lease commitments with terms
of more than one year for the rental of real property are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
1996 $389,000
1997 324,000
1998 236,000
</TABLE>
Leases for the Company's computer manufacturing facility in California and
corporate office in New York expire in three years. Both leases require the
Company to pay real estate taxes and other expenses, and the New York lease
contains a five-year renewal option.
8
<PAGE>
Page 21 of 28
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit and Term Loan Agreement:
Revolving loans - 9 1/2% $4,700,000 $4,000,000
Term loans - 9 3/4% 1,500,000 2,100,000
- --------------------------------------------------------------------------------
6,200,000 6,100,000
Less - current portion 600,000 600,000
- --------------------------------------------------------------------------------
$5,600,000 $5,500,000
- --------------------------------------------------------------------------------
</TABLE>
In November 1994 the Company negotiated a $8,500,000 Revolving Credit and Term
Loan Agreement with a bank. The current agreement provides for revolving loans
up to $5,500,000 during the three-year period ending January 1997 and
continuation of a five-year $3,000,000 term loan. The term loan principal is
payable in twenty equal quarterly installments of $150,000, beginning January 1,
1993. The loan bears interest at 3/4% above the bank's prime lending rate.
The revolving loans bear interest at 1/2% above the bank's prime lending rate;
the Company is also subject to a commitment fee of 3/8% of the unused portion of
the revolving loans available. No compensating cash balance on outstanding
borrowings is required. Security for this line of credit primarily consists of
the Company's accounts receivable, inventory and electronic system equipment.
Maximum amounts outstanding under the Revolving Credit and Term Loan Agreement
at any time during fiscal years ended June 30, 1995 and 1994 were $6,950,000 and
$6,850,000, respectively. Average amounts outstanding during those years were
approximately $5,857,000 and $5,104,000 at weighted average interest rates of
9.0% and 6.9%, computed by dividing the face amount outstanding into the related
interest expense.
The loan agreement contains covenant requirements for minimum increases to
tangible net worth each year of $500,000; a minimum ratio of earnings before
interest and taxes for the prior four fiscal quarters to all interest payments
plus the current portion of long-term debt paid during the same period; and a
maximum total liabilities to tangible net worth ratio at the end of each fiscal
year. The agreement prohibits payment of dividends on common stock. Operations
during fiscal year ended June 30, 1995, rendered the Company unable to comply
with the covenant requirements. The bank granted a waiver for these events of
default.
The amount of annual principal payments due on long-term debt in the years after
June 30, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 600,000
1997 5,300,000
1998 300,000
</TABLE>
9
<PAGE>
NOTE 7 - INCOME TAXES: Page 22 of 28
Effective July 1, 1993, the Company adopted Statement of Financial Standards No.
109 (FAS 109), "Accounting for Income Taxes." The Standard, which mandates the
liability method for computing deferred income taxes, was adopted on a
prospective basis; amounts presented in prior years were not restated. The
Company adopted FAS 96 in Fiscal 1988, which also mandates the liability method
for computing deferred income taxes. Therefore, adoption of FAS 109 had no
material effect on the tax provision or net income for Fiscal 1994.
The components of income taxes were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision Federal $ 22,000 $ 16,000
State $ 8,800 12,800 11,800
- ------------------------------------------------------------------------------------------------
Total 8,800 34,800 27,800
- ------------------------------------------------------------------------------------------------
Deferred provision Federal 66,000 247,000 99,300
State 14,500 34,100 24,900
- ------------------------------------------------------------------------------------------------
Total 80,500 281,100 124,200
- ------------------------------------------------------------------------------------------------
$89,300 $315,900 $152,000
- ------------------------------------------------------------------------------------------------
</TABLE>
The following are differences between the provision for income taxes and income
taxes computed using U. S. Federal income tax rate:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount computed using statutory rate $85,600 $331,700 $ 222,800
Increase(reduction) in taxes resulting from:
State income taxes net of federal tax 15,400 31,000 24,200
Tax loss benefits (15,100) (111,400)
Tax credits (2,800) (37,600)
Others, net (8,900) 5,900 16,400
- -----------------------------------------------------------------------------------------------
$89,300 $315,900 $ 152,000
- -----------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1995, and 1994, significant components of deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unearned service fees and vacation pay $277,900 $373,800
Tax loss carryforwards 411,000 302,300
Alternative minimum tax credits 424,700 424,700
Other 114,600 63,900
Valuation allowance (646,400) (661,500)
- --------------------------------------------------------------------------------
Net deferred assets $581,800 $503,200
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $437,400 $256,900
Capitalized software 368,500 389,900
- --------------------------------------------------------------------------------
Total deferred tax liability $805,900 $646,800
- --------------------------------------------------------------------------------
</TABLE>
The valuation allowance of $646,400 is primarily attributable to net operating
loss carryforwards totaling $845,000 that expire in 2007 and 2008 and
alternative minimum tax credits of $424,700 which have no expiration date.
10
<PAGE>
Page 23 of 28
<TABLE>
<CAPTION>
NOTE 8 - SHAREHOLDERS' EQUITY:
Analysis of changes in common stock and capital in excess of par value follows:
- ------------------------------------------------------------------------------------------
COMMON STOCK
-----------------------
NUMBER CAPITAL IN
OF SHARES AMOUNT, EXCESS OF
OUTSTANDING AT PAR PAR VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1992 2,314,303 $115,700 $3,058,500
Employee stock purchase on July 14, 1992 5,804 300 35,500
Stock options exercised 29,100 1,400 139,100
Other distribution 1,600 100 17,500
- ------------------------------------------------------------------------------------------
June 30, 1993 2,350,807 117,500 3,250,600
Employee stock purchase on July 15, 1993 2,957 100 26,900
Stock options exercised 7,000 400 108,600
Other distribution 1,600 100 17,500
- ------------------------------------------------------------------------------------------
June 30, 1994 2,362,364 118,100 3,403,600
Employee stock purchase on July 14, 1994 3,283 100 20,400
Stock options exercised 15,500 800 51,600
Other distribution 1,600 100 12,100
- ------------------------------------------------------------------------------------------
June 30, 1995 2,382,747 $119,100 $3,487,700
- ------------------------------------------------------------------------------------------
</TABLE>
In November 1991 the shareholders approved an amendment to the 1988 stock option
plan which authorizes an increase to 400,000 in the number of shares of common
stock available for grants to officers and key employees. As of June 30, 1995,
options for 299,300 shares have been granted at option prices at 100% of the
market price on the day of the grant. Options have a maximum duration of ten
years and may be exercised in various installments.
Shareholders approved an employee stock purchase plan in June 1986. Common
stock reserved under the plan aggregated 200,000 shares and is available for
sale to employees through payroll deductions authorized by participating
employees. Grants of options to purchase are made annually on the offering
date, and shares are purchased one year from the date of grant at a price equal
to 85% of the lower of the fair market value of the Company's common stock on
the offering date or the purchase date. As of June 30, 1995, there were 138,318
shares available for purchase under the plan. On July 14, 1995, an additional
1,960 shares were purchased under the plan.
The following table summarizes stock option transactions during the period
June 30, 1994, through June 30, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NUMBER OF SHARES
---------------------
AVAILABLE UNDER PRICE PER
FOR OPTION OPTION SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1994 52,700 215,300 $3.375-$12.625
- --------------------------------------------------------------------------------
Exercised (15,500) $3.375
Expired 48,000 (48,000) $7.625-$10.375
- --------------------------------------------------------------------------------
Balance at June 30, 1995 100,700 151,800 $3.375-$12.625
- --------------------------------------------------------------------------------
Exercisable at June 30, 1995 31,800
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Page 24 of 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities for the year ended June 30, 1995, amounted
to $1,402,200 compared to $3,446,500 and $2,583,500 in 1994 and 1993,
respectively. Factors other than the normal seasonal nature and cyclical
pattern of the college and university market had a significant impact on the
current year's cash flow. Until the current fiscal year Griffin's business was
conducted strictly through lease agreements related to installed equipment. The
current policy includes sale of new card reading terminals as well as electronic
systems/software and accessories with an optional service contract for a
selected level of service and support. As a result, certain items in the
balance sheet have changed significantly as of June 30, 1995. Accounts
receivable increased because of a $700,000 increase in net sales in the fourth
quarter of 1995 compared to 1994. Investments in electronic systems are
decreasing, and these items are taking the form of inventory for sale. Unearned
service fees decreased $539,000 from a year ago due to the impact of sale versus
lease arrangements. Working capital at June 30, 1995, was $4,175,700 compared
to $2,987,600 one year ago, due primarily to the foregoing items.
Reorganization costs played a big role in reducing cash flows from operations
and earnings, as discussed below. Management anticipates benefits from changes
made in the way Griffin operates to have a more positive impact in fiscal 1996
and future years.
Griffin negotiated its Fifth Amended and Restated Revolving Credit and Term Loan
Agreement with a bank November 3, 1994. Interim loans up to $5,500,000 become
due January 31, 1997 and the term loan which is payable in quarterly
installments of $150,000 becomes due October 29, 1997. The short duration of
interim loans was based on the change in method of operations for Griffin; the
overall impact will be reviewed before a longer term agreement is negotiated.
The current agreement contains covenant requirements for minimum increases to
tangible net worth each year of $500,000; a minimum ratio of earnings before
interest and taxes for the prior four fiscal quarters to all interest payments
plus the current portion of long-term debt paid during the same period; and a
maximum total liabilities to tangible net worth ratio at the end of each fiscal
year. The agreement prohibits payment of dividends on common stock. Operations
during fiscal year ended June 30, 1995, rendered the Company unable to comply
with covenant requirements. The bank granted a waiver for these events of
default. The Company is reviewing the agreement with the bank at the present
time and anticipates a new agreement will be negotiated in the near future which
will more adequately meet the Company's capital requirements.
Management believes that there are sufficient funds available to meet Griffin's
operating cash requirements in the foreseeable future.
RESULTS OF OPERATIONS
Net earnings for fiscal 1995 amounted to $162,700, or $.07 per share. This
compares to net earnings of $659,800, or $.28 per share, for fiscal 1994 and net
earnings of $503,200, or $.21 per share, in fiscal 1993.
12
<PAGE>
Page 25 of 28
In 1995 revenues increased almost 6% over the prior year, compared with almost
no growth in revenues in 1994. In prior years Griffin made lease arrangements
for its installation and servicing of electronic systems of varying
configuration, most of which were on a prepaid fee basis for 12 months beginning
in July. Current revenues derived from sale of electronic systems/software and
accessories with or without a maintenance contract resulted in a 5 1/2% decrease
in service fees and a 48% increase in net sales. The increase in net sales
reflects a new line of terminals and systems ranging from simple
privilege/entitlement to point-of-sale with product movement tracking,
integrated digitized identification card systems, and a facility access system.
A $700,000 increase in net sales occurred in the fourth quarter, as previouly
noted, which indicates that Griffin may no longer have to rely on its first
quarter as its only period of major activity and revenue.
Total Griffin costs and expenses included the following increases(decreases):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of sales. . . . . . . . . . . . . . $ 908,000 ($131,000) ($ 70,000)
Amortization and repair parts related
to electronic systems. . . . . . . . . 59,000 (143,000) 107,000
Other operating expenses . . . . . . . . 276,000 (8,000) 141,000
Interest . . . . . . . . . . . . . . . . 165,000 14,000 (18,000)
Reconfiguration costs. . . . . . . . . . 280,000
Startup and other costs related
to new products. . . . . . . . . . . . (209,000)
- --------------------------------------------------------------------------------
Net increase(decrease) $1,688,000 ($268,000) ($ 49,000)
- --------------------------------------------------------------------------------
</TABLE>
Product mix is the primary factor in changes in cost of sales. The decrease in
each of the prior years is due to the fact that sales increases were software
related. The new product sales in 1995 involved mainly equipment, such as
point-of-sale and digitized imaging systems, as noted previously.
A $204,000 increase in research and development (included in the 1995 increase
in other expenses) enabled new system products to be brought to market.
Management believes this area is very important and will continue to give it a
high priority. Innovations made possible in 1995 by this effort were systems
integration of the new LNX-5100 and DLX-5200 terminals, as well as the PCX-5300
and 5400 systems. Software costs capitalized are an integral part of this area.
Another $212,000 was capitalized in 1995, compared to $251,000 and $299,000 in
1994 and 1993, respectively. Amortization has remained relatively steady in
1994 and 1995, up about $100,000 since 1993. The increase in other operating
expenses in 1993 includes an R&D increase of approximately $140,000.
Interest expense increased in 1995 due to a 2% increase in the average annual
rate of interest and a $750,000 increase in the average balance of long-term
debt outstanding during the year. The increase in 1994 interest expense was due
to an increase of $175,000 in the balance outstanding.
Inflation has had very little impact on overall costs and expenses for the past
three years. Realignment of sales and marketing functions, electronic system
service, and housing information systems functions whereby job functions were
eliminated and the Dallas, Texas, office closed amounted to an additional
$280,000 in costs for 1995. The increase of $209,000 in 1993 was related to
various new hardware products as well as housing information software.
Management believes these costs have put Griffin in a positive position to meet
future goals.
13
<PAGE>
Page 26 of 28
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The Standard
mandates the liability method for computing deferred income taxes and was
adopted on a prospective basis; amounts presented in prior years are not
restated. The Company adopted FAS 96 in fiscal 1988, which also mandates the
liability method for computing deferred income taxes. Therefore, there was no
material effect on the tax provision or net income for fiscal 1994. The
Company's effective tax rates were 35%, 32% and 23% for 1995, 1994 and 1993,
respectively. Reference should be made above to Note 7 - "Income Taxes" for a
detailed analysis of individual items that cause rates to vary from the U. S.
Federal statutory rate.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
Selected Five-Year Financial Data 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales and service fees $17,912,000 $16,947,500 $16,894,500 $16,508,800 $15,627,500
- ------------------------------------------------------------------------------------------------------------------------------
Cost of sales and services 9,766,900 8,363,200 8,630,900 8,796,400 8,316,600
Other expenses 7,359,400 7,240,300 7,253,700 7,119,700 5,962,200
Interest expense 533,700 368,300 354,700 372,500 354,000
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 252,000 975,700 655,200 220,200 994,700
Provision for income taxes 89,300 315,900 152,000 41,500 212,500
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 162,700 $ 659,800 $ 503,200 $ 178,700 $ 782,200
- ------------------------------------------------------------------------------------------------------------------------------
Net income per share $.07 $.28 $.21 $.08 $.34
- ------------------------------------------------------------------------------------------------------------------------------
Dividends per share -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and common
equivalent shares outstanding 2,387,896 2,383,309 2,376,969 2,347,647 2,306,601
- ------------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Total assets $17,274,000 $17,264,600 $16,831,000 $15,149,900 $13,413,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 5,600,000 $ 5,500,000 $ 5,967,000 $ 5,764,700 $ 4,916,500
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Page 27 of 28
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
SELECTED QUARTERLY DATA QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 1995
Revenues $4,912,800 $4,017,100 $4,051,000 $4,931,100
Gross profits 2,305,300 1,849,000 1,829,400 2,161,400
Net income(loss) 219,700 (36,500) (110,000) 89,500
Net income(loss) per share .09 (.02) (.05) .04
Stock prices:
High 8 1/4 8 1/4 8 1/4 8 1/4
Low 6 3/4 7 7 7
June 1994
Revenues $4,861,900 $3,823,000 $3,860,800 $4,401,800
Gross profits 2,560,000 1,944,800 1,961,000 2,118,500
Net income 492,600 19,500 15,700 132,000
Net income per share .21 .01 .01 .06
Stock prices:
High 11 11 10 1/2 10
Low 9 1/2 9 3/4 9 6 3/4
</TABLE>
The stock prices reflect the highest and lowest trade prices of the Company's
common stock traded on The NASDAQ Stock Market under the symbol, GRIF.
As provided by a restriction in the Company's revolving credit and term loan
agreement, the Company paid no dividend during either fiscal year and does not
anticipate paying dividends in the foreseeable future. There were approximately
1,000 shareholders at August 29, 1995.
Additional Information
- --------------------------------------------------------------------------------
A copy of the annual report, Form 10-KSB, filed with the Securities and Exchange
Commission may be obtained, without charge, by writing: Corporate Secretary,
Griffin Technology Incorporated, 1133 Corporate Drive, Farmington, NY 14425.
15
<PAGE>
EXHIBIT 23
Page 28 of 28
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Forms S-8 (Nos. 33-6272,
33-34436, and 33-46905) of Griffin Technology Incorporated of our report dated
August 31, 1995, appearing on page 2 of the 1995 Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10KSB.
PRICE WATERHOUSE LLP
Rochester, New York
August 31, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 119,200
<SECURITIES> 0
<RECEIVABLES> 3,946,800
<ALLOWANCES> 0
<INVENTORY> 3,903,900
<CURRENT-ASSETS> 8,599,200
<PP&E> 22,672,700
<DEPRECIATION> 15,387,800
<TOTAL-ASSETS> 17,274,000
<CURRENT-LIABILITIES> 4,423,500
<BONDS> 5,600,000
<COMMON> 119,100
0
0
<OTHER-SE> 3,487,700
<TOTAL-LIABILITY-AND-EQUITY> 17,274,000
<SALES> 5,321,800
<TOTAL-REVENUES> 17,912,000
<CGS> 3,397,400
<TOTAL-COSTS> 17,660,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 533,700
<INCOME-PRETAX> 252,000
<INCOME-TAX> 89,300
<INCOME-CONTINUING> 162,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162,700
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
