U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
Commission file number
0-24886
ACRODYNE COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-3067564
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
516 Township Line Road
Blue Bell, Pennsylvania 19422
----------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 215-542-7000
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,434,270 shares of common
stock of Acrodyne Communications, Inc. were outstanding on May 8, 1997.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
INDEX
Page
No.
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet at March 31, 1997 and 1996 (unaudited).......2
Consolidated Statement of Operations for the Three Months Ended
March 31, 1997 and 1996 (unaudited).................................3
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (unaudited)..................................4
Notes to Consolidated Financial Statements (unaudited)..................5
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................6
PART II. OTHER INFORMATION, AS APPLICABLE................................10
SIGNATURES................................................................11
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Balance Sheet
(Unaudited)_________________________________________________________________
March 31, March 31,
Assets 1997 1996
Current assets:
Cash and cash equivalents $2,780,418 $ 650,148
Accounts receivable, net of
allowance for doubtful accounts 1,740,049 1,207,977
Inventories 5,131,581 2,572,848
Prepaid expenses and deposits 96,737 142,080
---------- ---------
Total current assets 9,748,785 4,573,053
Property, plant and equipment, net 562,394 447,882
Note receivable 81,580 75,409
Non-compete agreement, net 567,072 642,072
Goodwill, net 4,329,574 4,486,070
---------- ----------
Total assets $15,289,405 $10,224,486
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 324,101 $ 403,659
Borrowings under line of credit - 200,000
Accounts payable 1,049,995 1,052,775
Accrued expenses 283,149 306,766
Customer advances 241,222 375,948
---------- ---------
Total current liabilities 1,898,467 2,339,148
Long-term debt 492,303 817,548
Non-compete liability 729,528 729,528
--------- ---------
Total liabilities 3,120,298 3,886,220
Shareholders' equity: (See Note 4)
Preferred stock, par value $1.00;
1,000,000 shares authorized, 8,500 and
7,900 shares issued and outstanding in
1997 and 1996, respectively 8,500 7,900
Common stock, par value $.01; 10,000,000
shares authorized, 4,434,270 and
2,635,530 shares issued and outstanding 44,343 26,356
in 1997 and 1996, respectively
Additional paid-in capital 14,718,322 8,158,597
Preferred Stock subscription receivable - (790,000)
Accumulated deficit ( 2,602,058) ( 1,064,587)
------------ ------------
Total liabilities and shareholders' equity $15,289,405 $10,224,486
=========== ===========
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Operations
(Unaudited)__________________________________________________________________
Three Months Ended March 31,
1997 1996
Net sales $2,268,198 $2,210,350
Cost of sales 1,671,885 1,516,173
---------- ----------
Gross profit 596,313 694,177
---------- ----------
Operating expenses:
Engineering, research and development 193,897 166,816
Selling 327,223 200,635
Administration 353,708 345,128
Amortization 57,874 57,874
--------- -----------
Total operating expenses 932,702 770,453
--------- -----------
Operating profit (loss) ( 336,389) ( 76,276)
Other income (expense):
Interest expense, net ( 19,253) ( 44,255)
Other income (expense), net 613 1,233
----------- -----------
Net income (loss) ($ 355,029) ($119,298)
Dividends on 8% Convertible
Redeemable Preferred Stock (19,888) -
--------- ---------
Net (loss) available to common shares (374,917) (119,298)
========== ==========
Net (loss) per common share ($0.09) ($0.05)
========== ==========
Weighted average common shares outstanding 4,401,303 2,610,550
========== ==========
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Consolidated Statement of Cash Flows
(Unaudited)__________________________________________________________________
Three Months Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 355,029) ($ 119,298)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 92,636 66,924
Stock option accrual 4,166 4,166
Changes in assets and liabilities:
Accounts receivable 417,059 (57,977)
Inventories (643,694) (249,061)
Note receivable (1,645) (1,504)
Prepaids and deposits (32,780) (50,610)
Accounts payable (375,154) (128,036)
Accrued expenses (100,673) (133,097)
Customer advances (8,044) 220,212
----------- -----------
Net cash used in operating activities (1,003,158) (448,281)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (22,844) (1,909)
----------- ----------
Net cash used in investing activities (22,844) (1,909)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net - 262,500
Dividends on convertible preferred stock (19,888) -
Payments on promissory notes (67,500) (67,500)
Capital leases repayments (25,430) (10,162)
Repayments on other borrowings and
non-compete liability (2,306) (3,247)
---------- ---------
Net cash provided by (used in)
financing activities (115,124) 181,591
---------- ---------
Net decrease in cash and cash equivalents (1,141,126) (268,599)
Cash and cash equivalents at
beginning of period 3,921,544 918,747
----------- ---------
Cash and cash equivalents at end of period $2,780,418 $ 650,148
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 38,947 51,884
See notes to consolidated financial statements
<PAGE>
Acrodyne Communications, Inc.
(formerly Acrodyne Holdings, Inc.)
Notes to Consolidated Financial Statements (Unaudited)_______________________
1. Unaudited Consolidated Financial Statements
The accompanying consolidated balance sheet of Acrodyne Communications, Inc.
(the "Company") and its subsidiaries (collectively "Acrodyne") at March 31,
1997 and the related consolidated statements of operations and of cash flows
for the three months ended March 31, 1997 and 1996 have been prepared by
management and have not been audited by the Company's Independent Accountants.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments only) necessary to present fairly the financial position at March
31, 1997, and the results of operations and cash flows for the three months
ended March 31, 1997 and 1996 have been made.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB/A for the year ended December 31, 1996 filed with the Securities
and Exchange Commission. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire year.
2. Inventories
Inventories comprise:
March 31, March 31,
1997 1996
Raw materials $2,729,790 $1,760,439
Work in process 1,419,832 654,697
Finished goods 981,959 157,712
---------- ----------
$5,131,581 $2,572,848
========== ==========
3. Net Income (Loss) Per Share
The computation of net income (loss) per share is based on the weighted
average common shares outstanding for the applicable period. Potentially
dilutive securities have not been considered in the calculation of weighted
average common shares outstanding since they would have an anti-dilutive
effect on the loss per share.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The business of Acrodyne Communications, Inc. (the "Company") is conducted
through its sole operating subsidiary Acrodyne Industries, Inc. ("Acrodyne").
Acrodyne was acquired by the Company pursuant to a stock acquisition agreement
on October 24, 1994 (the "Acrodyne Acquisition"). Prior thereto, the Company
had no operations. The Company changed its name from Acrodyne Holdings, Inc.
to Acrodyne Communications, Inc. on June 9, 1995.
Acrodyne's transmitters and translators are manufactured to customer
specifications for installation in connection with television broadcasting
systems and range in price from $10,000 to $140,000 for lower power units and
$150,000 to $2,000,000 for higher power units. Acrodyne's business
historically has been dependent on a relatively small number of significant
orders from one-time customers. Customers establish delivery times often to
coincide with the completion of transmission towers and other components of
the broadcasting system, which is subject to delays beyond Acrodyne's control.
As a result, variances in sales from period to period may occur but are not
necessarily indicative of any particular positive or negative longer term
trend.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31,
1996
The following compares the Company's summary results of operations for the
three months ended March 31, 1997 and for the three months ended March 31,
1996:
Three Months Ended March 31,
(Unaudited)
1997 1996
Net Sales $2,268,198 $2,210,350
Cost of sales 1,671,885 1,516,173
---------- ----------
Gross profit 596,313 694,177
Operating expenses 932,702 770,453
---------- ----------
Operating profit (loss) ($ 336,389) ($ 76,276)
============= =============
Net sales for the three months ended March 31, 1997 showed only a slight
increase (3%) over net sales for the three months ended March 31, 1996.
Management believes that sales in the domestic market continue to be short of
expectations primarily because the broadcasting industry continues to delay
purchasing decisions pending a clearer plan for the emergence of Digital
Television. Consequently, in order to generate sales volume and meet the
demands of an increasingly competitive market, the Company's margin on sales
decreased from 31% in the three months ended March 31, 1996 to 26% in the
three months ended March 31, 1997.
Operating expenses consisting of Engineering, Research and Development,
Selling, Administration and Amortization overall increased 21% compared to
the three months ended March 31, 1996. Approximately 81% of the increased
operating costs was due to increased Selling expenses as a result of expanded
sales and marketing efforts promoting the Company's current product line as
well as its new MMDS and Digital products. Sales and Marketing costs also
were impacted by higher sales commissions paid due to a higher portion of
foreign sales activity. Continued increases in Engineering expenses are
expected for R&D, quality assurance and materials management initiatives.
Interest expense decreased significantly as a result of the Company paying off
several bank and capital lease debts due to a strong cash flow position.
Additionally, interest income increased significantly due to the investment of
operating cash obtained primarily from warrant exercises during the calendar
year ended December 31, 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Acrodyne has financed its activities primarily from customer
deposits, internally generated funds, and use of its credit facility. At
March 31, 1997, the Company's working capital decreased approximately $90,000
to approximately $8,147,000 compared to December 31, 1996.
Accounts Receivable at March 31, 1997 increased significantly compared to
March 31, 1996 primarily as a result of changed credit terms on more
significant sales of 30 kilowatt and higher power transmitters. Company
credit terms were changed due to an expanded product line into high power
transmitters, strong financial competition in the high power market and
slower demand due to delayed purchasing decisions as a result of the FCC
delaying its decision on a digital transmission format. Accounts Receivable
at March 31, 1997 had a slight decrease as compared to December 31, 1996 due
to sales of transmitters up to 10kW which continue to be made with credit
terms of 30% as a deposit at the time of placing the order, 60% prior to
shipment, and 10% net thirty days. The Company continues to require an
irrevocable letter of credit on international orders.
The significant increase in raw materials and work-in-process inventories at
March 31, 1997 compared to March 31, 1996 is due to the Company's recent
strategy to improve turnaround time to customers on low and higher power
systems to strengthen market position. Raw materials also increased
significantly as a result of the Company's obtaining additional discounts
from higher volume purchasing. The increase in finished goods from $246,591
to $981,959 for ending December 31, 1996 and March 31, 1997, respectively, is
attributable to the cost of building an exhibition model digital transmitter
for the National Association of Broadcaster's trade show.
The Company and Acrodyne, as co-borrowers, have a $1,200,000 credit facility
with a bank for working capital purposes, of which $500,000 is reserved for
an irrevocable standby letter of credit to partially secure the Senior
Subordinated Note (see below). At March 31, 1997 there was no balance
outstanding under such credit facility. On April 1, 1997, $200,000 was
obtained and remains outstanding as of May 8, 1997 under such facility.
The interest rate on this facility is based on prime plus 1% and was 9.50% on
March 31, 1997. The credit facility and the standby letter of credit are
secured by substantially all the assets of the Company and Acrodyne and
contain certain restrictive covenants. In October, 1996, the bank amended
the credit facility, as it pertains to the formal Borrowing Base Certificate
requirement, to permit borrowing up to $1,200,000 (less any outstanding
Letters of Credit) without being limited by a formal borrowing formula. At
March 31, 1997, there was approximately $500,000 available to be borrowed by
the Company under the credit facility.
The Company is obligated to pay the former majority shareholder of Acrodyne
quarterly installments of principal and interest over a five-year period under
the terms of the $1,450,000 Senior Subordinated Note. Interest on such note
is payable at the rate of 9% per annum. Such note is partially secured by
the irrevocable standby letter of credit in the principal amount of $500,000
mentioned above. The first ten quarterly payments totaling $1,007,932
(including interest) under such note have been made through April 23, 1997
according to the agreement. The next quarterly payment of $82,688 (including
interest) is due on July 23, 1997.
<PAGE>
In the three months ended March 31, 1996, the Company privately placed an
aggregate of 7,900 shares of its newly created class of 8% Convertible
Redeemable Preferred Stock, par value $1.00 per share (the "8% Preferred
Stock"). Although such private placement occurred as of the end of the first
quarter of 1996, the Company did not receive the aggregate proceeds of the
sale, $790,000, until the beginning of the second quarter. As of May 7, 1996,
the Company had privately placed an additional 2,600 shares of 8% Preferred
Stock during the second quarter, for which the Company received aggregate
proceeds of $260,000. The Company used the proceeds of the private placements
for general corporate purposes. As agreed with the investors in such private
placements, the Company has registered the shares of Common Stock, into which
the 8% Preferred Stock held by such investors is convertible, under the
Securities Act of 1933, as amended (the "Securities Act").
As set forth in the Certificate of Designation of the Preferred Stock (the
"Certificate of Designation"), the holders of the 8% Preferred Stock (the
"Preferred Holders") will vote, on a fully converted basis, together with the
holders of Common Stock and, in the event of certain dividend arrearages,
will have the right to elect one director to the Company's Board. Subject to
the terms of the Certificate of Designation, (i) the Preferred Holders will
receive a per share liquidation value of $100 (as such amount may be adjusted,
the " Liquidation Value") plus accumulated but unpaid dividends thereon
before any payment or asset distribution to holders of junior stock, including
Common Stock; (ii) Preferred Holders may convert each share of 8% Preferred
Stock held by them into shares of Common Stock at a conversion price of $4.00
per share of Common Stock, subject to certain adjustments (the "Conversion
Price"), with the number of shares of Common Stock issuable upon such
conversion being equal to the quotient of the Liquidation Value divided by
the Conversion Price then in effect; and (iii) after March 29,1997, the
Company may redeem the 8% Preferred Stock at a redemption price equal to its
Liquidation Value plus all accumulated but unpaid dividends thereon, provided
that (x) the then current market price of the Common Stock shall have been at
least $6.00 per share for a specified period prior to the mailing of any
notice of redemption and (y) the Company shall have registered the shares of
Common Stock into which the 8% Preferred Stock to be redeemed is convertible
under the Securities Act.
On February 28, 1997, 2,000 shares of the Company's 8% Preferred Stock was
converted into 50,000 shares of common stock in accordance with the conversion
provisions described above.
On April 15, 1997, the Company's Board of Directors approved the 1997 Stock
Option Plan with authorization to grant options with respect to an aggregate
of up to 450,000 shares of the Company's common stock.
Available cash on hand combined with cash flow from operations and available
funds under the line of credit and other financing sources are anticipated to
be sufficient to finance the operations and obligations of the Company through
1997.
As of May 8,1997, the Company had approximately $2,600,000 of available cash
and cash equivalents on hand.
<PAGE>
ACRODYNE COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
______________________________________________________________________________
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of security holders during the fourth quarter
of fiscal 1996.
Item 6. Exhibits and Reports on Form 8-KSB
(a) Exhibits
Exhibit 10.20 - 1997 Stock Option Plan of the Company
(b) No Form 8-KSB was filed during the quarter ended
March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Acrodyne Communications, Inc.
-----------------------------
(Registrant)
Date: May 14, 1997 /s/ A. Robert Mancuso
-----------------------------
A. Robert Mancuso
Chairman, President, and Chief
Financial Officer
Exhibit 10.19
1997 STOCK OPTION PLAN
OF
ACRODYNE COMMUNICATIONS, INC.
1. Purpose. The purpose of this Stock Option Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by employees and
directors of, and consultants to, the Corporation, and its Subsidiaries upon
whose judgment and keen interest the Corporation is largely dependent for the
successful conduct of its operations and by providing such employees,
directors and consultants with incentives to put forth maximum efforts for
the success of the Corporation's business. It is anticipated that the
acquisition of such proprietary interest in the Corporation and such
incentives will stimulate the efforts of such employees, directors and
consultants on behalf of the Corporation and its Subsidiaries and strengthen
their desire to remain with the Corporation and its Subsidiaries. It is also
expected that such incentives and the opportunity to acquire such a
proprietary interest will enable the Corporation and its Subsidiaries to
attract desirable personnel.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Board of Directors" or "Board" shall mean the Board of
Directors of the Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Corporation" shall mean Acrodyne Communications, Inc.
(e) "Eligible Persons" shall mean those persons described in
Section 4 who are potential recipients of Options.
(f) "Fair Market Value" on a specified date shall mean (A) the
mean between the high and low sale price reported on such date on
the stock exchange, if any, on which Shares are primarily traded,
but if no Shares were traded on such date, then on the last
previous date on which a Share was so traded, or (B) if the
Shares are not listed on any stock exchange but are quoted in the
National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") on a last sale
basis, then the mean between the high and low sale price reported
on such date, but if there is no such sale on such date, then on
the last previous date on which a sale was reported, or (C) if
the Shares are not quoted on NASDAQ on a last sale basis, then
the mean between the highest asked and lowest bid prices for a
Share on such date, but if there are no transactions in Shares on
such date, then on the last previous date on which such
<PAGE>
transactions occurred, or (D) if none of the above are applicable,
the value of a Share as established by the Board for such date
using any reasonable method of valuation.
(g) "Options" shall mean the Stock Options granted pursuant to
this Plan.
(h) "Plan" shall mean this 1997 Stock Option Plan of Acrodyne
Communications, Inc., as adopted by the Board of Directors on
April 15, 1997, as such Plan from time to time may be amended.
(i) "President" shall mean the person who at the time shall be
the President of the Corporation.
(j) "Share" shall mean a share of common stock of the Corporation.
(k) "Subsidiary" shall mean any corporation 50% or more of whose
stock having general voting power is owned by the Corporation, or
by another Subsidiary, as herein defined, of the Corporation.
3. Administration. The Plan shall be administered by the Board of
Directors as provided herein. Determinations of the Board as to any
question which may arise with respect to the interpretation of the
provisions of the Plan and Options shall be final. The Board may
authorize and establish such rules, regulations and revisions thereof
not inconsistent with the provisions of the Plan, as it may deem
advisable to make the Plan and Options effective or provide for their
administration, and may take such other action with regard to the Plan
and Options as it shall deem desirable to effectuate their purpose.
4. Participants. All employees and directors of, and consultants to,
the Corporation or a Subsidiary, as determined by the Board, shall be
eligible to receive Options under the Plan. The parties to whom
Options are granted under this Plan, and the number of Shares subject
to each such Option, shall be determined by the Board, in its sole
discretion, subject, however, to the terms and conditions of this
Plan. Employees to whom Options may be granted include employees who
are also directors of the Corporation, or a Subsidiary.
5. Shares. Subject to the provisions of Section 14 hereof, the Board
may grant Options with respect to an aggregate of up to 450,000 Shares,
all of which Shares may be either Shares held in treasury or authorized
but unissued Shares. If the Shares that would be issued or transferred
pursuant to any Option are not issued or transferred and cease to be
issuable or transferable for any reason, the number of Shares subject
to such Option will no longer be charged against the limitation
provided for herein and may again be made subject to Options.
6. Grant of Options. The number of any Options to be granted to any
Eligible Person shall be determined by the Board in its sole
discretion. At the time an Option is granted, the Board may, in its
sole discretion, designate whether such Option (a) is to be
considered as an incentive stock option within the meaning of Section
422 of the Code, or (b) is not to be treated as an incentive stock
option for purposes of this Plan and the Code. No Option which is
intended to qualify as an incentive stock option shall be granted
under this Plan to any individual who, at the time of such grant, is
not an employee of the Corporation or a Subsidiary.
<PAGE>
Notwithstanding any other provision of this Plan to the contrary, to
the extent that the aggregate Fair Market Value (determined as of the date
an Option is granted) of the Shares with respect to which Options which are
designated as (or deemed to be) incentive stock options granted to an
employee (and any incentive stock options granted to such employee under any
other incentive stock option plan maintained by the Corporation or any
Subsidiary that meets the requirements of Section 422 of the Code) first
become exercisable in any calendar year exceeds $100,000, such Options shall
be treated as Options which are not incentive stock options. Options with
respect to which no designation is made by the Board shall be deemed to be
incentive stock options to the extent that the $100,000 limitation described
in the preceding sentence is satisfied. This paragraph shall be applied by
taking Options into account in the order in which they are granted.
Nothing herein contained shall be construed to prohibit the issuance
of Options at different times to the same person.
The form of an Option shall be determined from time to time by the
Board. A certificate of Option signed by the Chairman of the Board or the
President or a Vice President of the Corporation, shall be issued to each
person to whom an Option is granted. The certificate of Option for an Option
shall be legended to indicate whether or not the Option is an incentive stock
option.
7. Purchase Price. The purchase price per Share for the Shares
purchased pursuant to the exercise of an Option shall be fixed by
the Board at the time of grant of the Option but shall not be less
than the par value of a Share; provided, however, that the purchase
price per Share for the Shares to be purchased pursuant to the
exercise of an incentive stock option shall not in any event be less
than 100% of the Fair Market Value of a Share on the date of grant of
the Option.
8. Duration of Options. The duration of each Option shall be
determined by the Board at the time of grant; provided, however, that
the duration of any Option shall not be more than ten years from the
date of grant of the Option.
9. Ten Percent Shareholders. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as
an incentive stock option may be granted under this Plan to any
employee who, at the time the Option is granted, owns Shares
possessing more than 10 percent of the total combined voting power or
value of all classes of stock of the Corporation, unless the exercise
price under such Option is at least 110% of the Fair Market Value of
a Share on the date such Option is granted and the duration of such
Option is no more than five years.
10. Exercise of Options. Except as otherwise provided herein,
Options, after the grant thereof, shall be exercisable by the holder
at such rate and times as may be fixed by the Board at the time of
grant. Notwithstanding the foregoing, all or any part of any
remaining unexercised Options granted to any person may be exercised
upon the occurrence of such special circumstance or event as in the
opinion of the Board merits special consideration, but in no event
prior to approval of the Plan by shareholders as provided in Section
19.
<PAGE>
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect, together with the Option
certificate and the full purchase price of the Shares purchased
pursuant to the exercise of the Option, to the President or an
officer of the Corporation appointed by the President for the purpose
of receiving the same. Payment of the full purchase price shall be
made as follows: in cash or by check payable to the order of the
Corporation; by delivery to the Corporation of Shares which shall be
valued at their Fair Market Value on the date of exercise of the
Option (provided, that a holder may not use any Shares unless the
holder has beneficially owned such Shares for at least six months);
by a combination of the methods of payment previously described; or
by such other method of payment as the Board in its discretion may
permit.
Within a reasonable time after the exercise of an Option, the
Corporation shall cause to be delivered to the person entitled
thereto, a certificate for the Shares purchased pursuant to the
exercise of the Option. If the Option shall have been exercised
with respect to less than all of the Shares subject to the Option,
the Corporation shall also cause to be delivered to the person
entitled thereto a new Option certificate in replacement of the
certificate surrendered at the time of the exercise of the Option,
indicating the number of Shares with respect to which the Option
remains available for exercise, or the original Option certificate
shall be endorsed to give effect to the partial exercise thereof.
Notwithstanding any other provision of the Plan or of any Option, no
Option granted pursuant to the Plan may be exercised at any time when
the Option or the granting or exercise thereof violates any law or
governmental order or regulation.
11. Consideration for Options. The Corporation shall obtain such
consideration for the grant of an Option as the Board in its
discretion may determine.
12. Restrictions on Transferability of Options. Options shall not
be transferable otherwise than by will or by the laws of descent and
distribution or as provided in this Section 12. Notwithstanding the
preceding, the Board of Directors may, in its discretion, authorize
a transfer of any Option, other than an Option which is intended to
qualify as an incentive stock option, by the initial holder to (i)
the spouse, children, stepchildren, grandchildren or other family
members of the initial holder ("Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Family Members, (iii) a
corporation or partnership in which such Family Members and the
initial holder are the only shareholders or partners, or (iv) such
other persons or entities which the Board of Directors may permit;
provided, however, that subsequent transfers of such Options shall be
prohibited except by will or the laws of descent and distribution.
Following any transfer of such an Option, such Option shall continue
to be subject to the terms and conditions of the Option and of the
Plan. The events of termination of employment or service under
Section 13 shall continue to be applied with respect to the initial
holder, following which a transferred Option shall be exercisable by
the transferee only to the extent and for the periods specified
under Section 13. An Option which is intended to qualify as an
incentive stock option shall not be transferable otherwise than by
will or by the laws of descent and distribution and shall be
exercisable during the holder's lifetime only by the holder thereof.
<PAGE>
13. Termination of Employment or Service. All or any part of any
Option, to the extent unexercised, shall terminate immediately upon
the cessation or termination for any reason of the holder's
employment by, or service with, the Corporation or any Subsidiary,
except that the holder shall have three months following the
cessation of his employment or service with the Corporation or its
Subsidiaries, and no longer, to exercise any unexercised Option that
he could have exercised on the day on which such employment or
service terminated; provided, however, that such exercise must be
accomplished prior to the expiration of the term of such Option.
Notwithstanding the foregoing, if the cessation of employment or
service is due to permanent and total disability (within the meaning
of Section 22(e)(3) of the Code) or to death, the holder or the
representative of the estate of a deceased holder shall have the
privilege of exercising any unexercised Options which the holder
could have exercised at the time of such disability or death;
provided, however, that such exercise must be accomplished prior to
the expiration of the term of such Option and within one year of the
holder's disability or death, as the case may be.
14. Adjustment Provision. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the
Shares or if the Shares shall be split up, converted, exchanged,
reclassified, or in any way substituted for, then the Option, to the
extent that it has not been exercised, shall entitle the holder
thereof upon the future exercise of the Option to such number and
kind of securities or cash or other property subject to the terms of
the Option to which he would have been entitled had he actually owned
the Shares subject to the unexercised portion of the Option at the
time of the occurrence of such stock dividend, split-up, conversion,
exchange, reclassification or substitution, and the aggregate
purchase price upon the future exercise of the Option shall be the
same as if the originally optioned Shares were being purchased
thereunder. If any such event should occur, the number of Shares
with respect to which Options remain to be issued, or with respect to
which Options may be reissued, shall be adjusted in a similar manner.
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, rights offering, separation, reorganization, or any
other change in the corporate structure or outstanding Shares, the
Board may make such equitable adjustments to the number of Shares and
the class of shares available hereunder or to any outstanding Options
as it shall deem appropriate to prevent dilution or enlargement of
rights.
Subject to any required action by shareholders, if the Corporation
shall be the surviving corporation in any merger or consolidation,
any Options granted hereunder shall cover the securities to which a
holder of the number of Shares covered by the unexercised portion of
the Option would have been entitled pursuant to the terms of the
merger or consolidation.
Unless otherwise provided by the Board, upon any merger or
consolidation in which the Corporation shall not be the surviving
corporation, a dissolution or liquidation of the Corporation or a
sale of all or substantially all of its assets, all Options
outstanding hereunder shall terminate, except that the surviving
corporation may grant an option or options to purchase its shares on
such terms and conditions, both as to the number of shares and
otherwise, which shall substantially preserve the rights and benefits
of any Option then outstanding hereunder.
Any fractional shares or securities issuable upon the exercise of an
Option as a result of any of the foregoing adjustments may, in the
discretion of the Board, be eliminated or payable in cash based upon
the Fair Market Value of such shares or securities at the time of
such exercise.
<PAGE>
15. Issuance of Shares and Compliance with Securities Act. The
Corporation may postpone the issuance and delivery of Shares pursuant
to the grant or exercise of any Option until (a) the admission of
such Shares to listing on any stock exchange on which Shares of the
Corporation of the same class are then listed, and (b) the completion
of such registration or other qualification of such Shares under any
State or Federal law, rule or regulation as the Corporation shall
determine to be necessary or advisable. Any holder of an Option shall
make such representations and furnish such information as may, in the
opinion of counsel for the Corporation, be appropriate to permit the
Corporation, in the light of the then existence or non-existence with
respect to such Shares of an effective Registration Statement under
the Securities Act of 1933, as from time to time amended (the
"Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The
Corporation shall have the right, in its sole discretion, to legend
any Shares which may be issued pursuant to the grant or exercise of
any Option, or may issue stop transfer orders in respect thereof.
16. Income Tax Withholding. If the Corporation or a Subsidiary shall
be required to withhold any amounts by reason of any Federal, State or
local tax rules or regulations in respect of the issuance of Shares
pursuant to the exercise of any Option, the Corporation or the
Subsidiary shall be entitled to deduct and withhold such amounts from
any cash payments to be made to the holder of such Option. In any
event, the holder shall make available to the Corporation or
Subsidiary, promptly when requested by the Corporation or such
Subsidiary, sufficient funds to meet the requirements of such
withholding; and the Corporation or Subsidiary shall be entitled to
take and authorize such steps as it may deem advisable in order to
have such funds made available to the Corporation or Subsidiary out of
any funds or property due or to become due to the holder of such
Option.
17. Amendment of the Plan. Except as hereinafter provided, the Board
of Directors may at any time withdraw or from time to time amend the
Plan as it relates to, and the terms and conditions of, any Option not
theretofore granted, and the Board of Directors, with the consent of
the affected holder of an Option, may at any time withdraw or from
time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing,
any amendment by the Board of Directors which would increase the
number of Shares issuable under the Plan or change the class of
Eligible Persons shall be subject to the approval of the shareholders
of the Corporation within one year of the date of adoption of such
amendment.
18. No Right of Employment or Service. Nothing contained herein or
in an Option shall be construed to confer on any employee, consultant
or director any right to be continued in the employ or service of the
Corporation or any Subsidiary or derogate from any right of the
Corporation and any Subsidiary to retire, request the resignation of
or discharge or otherwise cease its service arrangement with any
employee, consultant or director (without or with pay), at any time,
with or without cause.
19. Effective Date. This Plan is conditioned upon its approval by the
shareholders of the Corporation on or before April 14, 1998, at any
special or annual meeting of the shareholders of the Corporation,
except that this Plan is adopted and approved by the Board of Directors
effective April 15, 1997, to permit the grant of Options prior to the
approval of the Plan by the shareholders of the Corporation as
aforesaid. In the event that this Plan is not approved by the
shareholders of the Corporation as aforesaid, this Plan and any Options
granted hereunder shall be void and of no force or effect.
<PAGE>
20. Final Issuance Date. No Option shall be granted under the Plan
after April 14, 2007.
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