UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
COMMISSION FILE NO. 0-21324
TRINITECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 06-1344888
(State of incorporation) (I.R.S. Employer identification number)
333 LUDLOW STREET, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 425-8000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
8,259,530 shares of Common Stock were issued and outstanding as of November 11,
1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TRINITECH SYSTEMS, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS (Unaudited)
September 30, December 31,
ASSETS 1997 1996
----------------- --------------------
CURRENT ASSETS:
<S> <C> <C>
Cash $2,666,060 $1,198,730
Accounts receivable 2,312,341 3,802,364
Inventories 1,586,380 1,154,187
Prepaid expenses and other 338,905 315,911
----------------- --------------------
Total Current Assets 6,903,686 6,471,192
----------------- --------------------
EQUIPMENT - net of accumulated depreciation of $586,928
and $417,087 at September 30 and December 31, respectively 802,715 434,638
----------------- --------------------
OTHER ASSETS - net of accumulated amortization of $901,031
and $832,652 at September 30 and December 31, respectively 604,747 617,506
----------------- --------------------
TOTAL $8,311,148 $7,523,336
================= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $855,102 $1,386,306
Accrued expenses 278,268 525,653
Current portion of term loans payable 51,648 25,994
Credit line payable - 745,000
Advance billings 141,829 149,675
Payroll and other taxes payable 94,194 65,808
----------------- --------------------
Total Current Liabilities 1,421,041 2,898,436
TERM LOANS PAYABLE 54,746 31,065
----------------- --------------------
Total Liabilities 1,475,787 2,929,501
----------------- --------------------
COMMITMENTS:
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock - par value $1.00; 1,000,000
shares authorized; -0- outstanding - -
Common stock - par value $.001; 15,000,000 shares authorized
8,242,530 and 7,375,030 shares issued and outstanding
in 1997 and 1996, respectively 8,243 7,375
Additional paid-in capital 9,814,045 6,088,975
Accumulated deficit (2,986,927) (1,502,515)
----------------- --------------------
Total Stockholders' Equity 6,835,361 4,593,835
----------------- --------------------
TOTAL $8,311,148 $7,523,336
================= ====================
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
TRINITECH SYSTEMS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
--- Three Months Ended --- --- Nine Months Ended ---
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------ -------------------- --------------------- ----------------
REVENUES:
<S> <C> <C> <C> <C>
Sales $ 549,509 $ 837,359 $2,990,786 $3,060,009
Service contracts 259,793 184,660 768,638 533,973
----------- ---------- ---------- ----------
Total Revenues 809,302 1,022,019 3,759,424 3,593,982
----------- ---------- ---------- -----------
COST OF SALES AND SERVICE:
Parts and materials 206,217 275,073 1,009,202 1,516,223
Labor, overhead and other costs 278,888 221,160 717,098 516,947
----------- ---------- ---------- ----------
Total Cost of Sales and Service 485,105 496,233 1,726,300 2,033,170
----------- ---------- ---------- ----------
GROSS PROFIT 324,197 525,786 2,033,124 1,560,812
----------- ---------- ---------- ----------
EXPENSES:
Selling, general and administrative 1,241,663 799,273 3,476,698 2,153,268
Depreciation and amortization 60,008 42,165 158,594 118,379
----------- ---------- ---------- ----------
Total Expenses 1,301,671 841,438 3,635,292 2,271,647
----------- ---------- ---------- ----------
LOSS FROM OPERATIONS (977,474) (315,652) (1,602,168) (710,835)
OTHER INCOME - NET 41,240 18,860 117,756 55,919
----------- ---------- ------------ -----------
NET LOSS ($936,234) ($296,792) ($1,484,412) ($654,916)
=========== ========== ============ ===========
NET LOSS PER COMMON SHARE $ ( 0.11) $( 0.04) $( 0.18) $( 0.09)
=========== ========== ============ ===========
AVERAGE COMMON SHARES
OUTSTANDING 8,219,800 7,306,500 8,027,200 7,292,100
=========== ========== ============ ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
TRINITECH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
---Nine Months Ended ---
September 30, September 30,
1997 1996
-------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($1,484,412) ($654,916)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 439,264 348,737
Changes in assets and liabilities:
Accounts receivable 1,490,023 298,853
Inventories (432,193) (105,789)
Prepaid expenses (22,994) (158,470)
Accounts payable - trade (531,204) 205,199
Deferred revenue (7,846) (56,583)
Payroll and other taxes payable 28,386 34,534
Accrued expenses (247,385) (52,744)
------------------ --------------------
Net cash used in operating activities (768,361) (141,179)
------------------ --------------------
INVESTING ACTIVITIES:
Payments for equipment (537,918) (111,732)
Payments for other assets (256,664) (268,085)
------------------ --------------------
Net cash used in investing activities (794,582) (379,817)
------------------ --------------------
FINANCING ACTIVITIES:
Issuance of common stock 3,725,938 73,620
Proceeds from borrowings - 30,000
Repayment of borrowings (695,665) (12,500)
------------------ --------------------
Net cash provided by financing activities 3,030,273 91,120
------------------ --------------------
INCREASE (DECREASE) IN CASH 1,467,330 (429,876)
CASH, BEGINNING OF PERIOD 1,198,730 1,258,119
------------------ --------------------
CASH, END OF PERIOD $2,666,060 $828,243
================== ====================
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
TRINITECH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the
Company without audit (except for the balance sheet information as
of December 31, 1996 which has been derived from the Company's
audited financial statements) in accordance with generally accepted
accounting principles for interim financial information and
instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. In
the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying financial statements do not include certain
footnotes and financial presentations normally required under
generally accepted accounting principles and, therefore, should be
read in conjunction with the Company's 1996 audited financial
statements. Results of operations for the period ended September 30,
1997 are not necessarily indicative of operating results for the
fiscal year.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following:
September 30, 1997 December 31, 1996
------------------ -----------------
Parts $1,076,326 $ 750,722
Finished goods 510,054 403,465
---------- -----------
Total $1,586,380 $ 1,154,187
========== ==========
3. PER SHARE INFORMATION
Net loss per common share is based on the weighted average number of
common shares outstanding. Common stock equivalents have not been
included in the per share calculation because their effect is
anti-dilutive. In February of 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard
No. 128, "Earnings Per Share". The Company will adopt this standard,
as required, at the end of this year. Had this standard been adopted
at the beginning of 1997, for the three and nine month periods ended
September 30, 1997 the Company would have reported basic loss per
share of $0.11 and $0.18, respectively.
4. RIGHTS AGREEMENT
On September 1, 1997, the Board of Directors declared a dividend
distribution of one Right for each outstanding share of Common
Stock, par value $.001 per share, of the Company to stockholders of
record on September 19, 1997. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of
Series A Preference Stock, par value $.001 per share, of the
Company, at a price of $40 per one one-hundredth of a Preference
Share, subject to adjustment, upon change of control in the Company,
as defined in the rights agreement.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company commenced its present business operations in January
1991 through the acquisition of a software license for its Guided-Input(R)
Trinitech TouchPad(R) System. The following discussion should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere herein. Certain statements included in this report,
including, but not limited to, statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are not
historical facts may be deemed to contain forward looking statements with
respect to events, the occurrence of which involves risks and uncertainties,
including, but not limited to, the Company's expectations regarding net sales,
gross profit, operating income (loss) and financial condition.
REVENUES
Revenues for the three and nine months ended September 30, 1997 were
$809,302 and $3,759,424 as compared to $1,022,019 and $3,593,982 in the
comparable periods in 1996. The decrease in revenues during the three month
period ended September 30, 1997 over the comparable 1996 quarter principally
resulted from two reasons, 1) the Company is shifting its revenue mix from
traditional capital equipment sales to licensing-based and subscription-based
revenue, resulting in revenue to recur over a 12 to 36 month period rather than
up-front, 2) the Company is now offering its trading-products together with
linkage through its data-center. In connection therewith, several contracts that
the Company had on hand, at the end of the third quarter, involves outside third
party services, ie. communication linkage, expected to be completed during the
fourth quarter. As a result, revenue on such contracts will not occur until they
are fully installed and supporting the new services of the data-center.
Management is of the opinion that charging customers by subscription and adding
additional data-center routing services, should provide an increasing rate of
new sales contracts and increase in revenue in the future.
Subscription revenue contracts are generally for an initial period
of one year with one to three year renewal periods. Initial annual revenues
range from $15,000 to over $100,000, per contract. Most contracts provide the
customer with a basic system or infra-structure, via the Company's data-center.
Most contracts are entered into by the customer with the intention to expand the
level of services subscribed to, once the basic system and infra-structure is
operational. During the three months ended September 30, 1997, capital equipment
sales, software and subscription revenue were approximately 58%, 28% and 14% of
sales revenues, respectively as compared to 70%, 30% and 0%, respectively during
the three months ended September 30, 1996. Although subscription-based revenue
has the short-term negative impact of reduced revenues in the early stage,
management believes that the change will have a long-term positive impact on the
future revenue growth of the Company. Management is of the opinion that this
change will result in additional new orders and increased market share that it
otherwise would not have had, as well as longer-term predictable revenues per
customer. The increase in revenues for the nine month period ended September 30,
1997 over the comparable 1996 period was principally due to an increase in the
delivery of software systems, specifically for the Company's FIXtalk software
system, partially offset by a decrease in capital equipment sales. Approximately
28% and 37% of the Company's sales revenues for the three and nine month periods
ended September 30, 1997 were derived
6
<PAGE>
from software licenses as compared to approximately 30% and 20% during the
comparable periods in 1996. Revenue from export sales approximated $87,000 (16%
of sales) and $1,528,000 (51% of sales) during the three and nine months ended
September 30, 1997 as compared to $617,000 (74% of sales) and $2,209,000 (72% of
sales) during the comparable periods in 1996. In addition, revenues from service
contracts increased by 41% and 44% in the three and nine month periods ended
September 30, 1997 over the comparable 1996 periods. The increase in service
revenue resulted from increased sales of hardware and software products during
the past year.
COST OF SALES AND SERVICE AND GROSS PROFIT
The Company's cost of sales and service is principally comprised of
labor, materials, overhead and amortization of capitalized product enhancement
costs. Gross profit as a percentage of total revenues were 40.1% and 54.1% for
the three and nine month periods ended September 30, 1997 as compared to 51.4%
and 43.4% during the comparable periods in 1996. The increase in gross profit
percentage, experienced by the Company during the nine month period in 1997,
principally resulted from an increase in the amount of higher margin software
installations which was partially offset by lower margins associated with the
Company's touch vending terminal products sold during the first quarter of 1997
and throughout 1996. The Company obtains its materials and supplies from a
variety of vendors in the US and Far East. During the three and nine months
ended September 30, 1997, the Company did not experience any significant price
increases in its component parts purchased.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three and nine
month periods ended September 30, 1997 were $1,241,663 and $3,476,698 as
compared to $799,273 and $2,153,268 in the comparable periods in 1996, an
increase of 55.3% and 61.5%, respectively. Such increases reflected the
continued expansion of the development teams both in the U.S and in London. The
expansion in development efforts relates to the Company's plans of providing an
increased number of new additional services during second half of 1997. These
services relate to offering subscription and transaction based order-routing,
via the Company's data-center, to multiple exchange-floors and between the
"Buy-side" and "Sell-side" industry. As a result, the Company experienced
increases in salaries and related personnel costs, travel expenses, recruiting
fees and various office expenses. During the past two years, the Company added
personnel principally to its technical programming and sales staff and, during
the nine months ended September 30, 1997, the Company added 15 new employees.
The Company's recruitment effort, which began during 1993, continues to
strengthen the Company's infrastructure and position the Company to respond to
increasing market and revenue opportunities. The Company, during the past
several years, has spent a considerable effort in developing a variety of
"trader desk-top" and "exchange-floor" trading systems. Management believes that
the investment in development of the new data-center, and its services, are
designed to better leverage the existing products together with providing
additional sources of revenue. The Company has also continued its marketing
programs for 1997, primarily focusing on public relations activities, production
of various product brochures, and representation at technological exhibitions
planned throughout the year. Research and development (new explorative research)
expenses for the three and nine month periods ended September 30, 1997
approximated $71,900 and $212,800 as compared to $56,000 and $180,000 in the
comparable periods in 1996 and are included in selling, general and
administrative expenses.
7
<PAGE>
OTHER INCOME
Other income consists principally of interest earned on cash
balances and sublease income earned. Interest income for the three and nine
month periods ended September 30, 1997 were approximately $41,200 and $104,800
as compared to $9,200 and $26,700 in the comparable periods in 1996. The
increase in other income principally results from interest earned on higher cash
balances maintained by the Company during 1997. The Company previously leased a
portion of its corporate office facility under a three-year sublease which
expired on April 30, 1997. Due to the continuing expansion of operations, (see
"Selling, General and Administrative" above) the Company has decided not to
renew the sublease and incorporated such space into its existing corporate
facility. Sublease rental income earned during the three and nine month periods
ended September 30, 1997 approximated $0 and $13,000 as compared to $9,700 and
$29,200 in the comparable 1996 periods.
NET INCOME (LOSS)
Net loss for the three months ended September 30, 1997 was $936,234
($0.11 per share) as compared to a net loss of $296,792 ($0.04 per share) in the
three months ended September 30, 1996. Net loss for the nine months ended
September 30, 1997 totaled $1,484,412 ($0.18 per share) as compared to a net
loss of $654,916 ($0.09 per share) in the nine months ended September 30, 1996.
This increase in net loss, during the three and nine month periods ended
September 30, 1997, principally resulted from 1) decrease in "capital sales"
type revenue resulting from the Company moving to a subscription-based revenue
model which presently is in its early stage of growth and 2) lower margins
experienced on the sale of the Company's touch vending terminal products sold
during the first quarter of 1997. See "Revenues" and "Cost of Sales and Service
and Gross Profit" above.
Management has made a considerable effort with respect to an
expansion of its operations, development of various trading systems which began
in 1993 and continues into 1997 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model will
better position the Company and facilitate its future growth. However, in spite
of its optimism, management is also cautioning that the Company's aggressive
conversion from a capital sales model to a subscription-based model is causing
revenue recognition from subscription-based orders to be realized over a longer
period of time than the previous capital sales model.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company's primary source of working capital
has been private offerings of its securities, through which the Company has
raised approximately $9.8 million of working capital. At September 30, 1997,
cash balances increased to $2,666,060 from $1,198,730 at December 31, 1996.
The Company's current assets at September 30, 1997 exceeded its
current liabilities by approximately $5,483,000. The Company at September 30,
1997 had long-term debt totaling approximately $54,700 which represents secured
term loans on the purchase of development equipment. In addition, at September
30, 1997, the Company had no material commitments for capital expenditures or
inventory purchases. The Company had available a one million dollar bank line of
credit facility for the purpose of financing accounts receivable and, at
September 30, 1997, the Company had not used the line of credit facility. The
line of credit, secured by accounts receivable and inventory, expires on June
30, 1999. Interest on the line of credit is based on the bank's prime rate plus
one percent.
8
<PAGE>
The Company believes that with its available capital, line of credit
facility and anticipated funds generated from operations, it will be able to
fund its cash needs through the end of 1997 without the need for additional
capital or financing. The Company intends to utilize its positive financial
position to internally finance its continuing research and development
activities and anticipated sales growth. The Company's financial requirements
and its ability to meet them thereafter will depend largely on its future
financial performance. However, in the event the Company's operations do not
generate cash to the extent currently anticipated by management of the Company
and grow more rapidly than anticipated, it is possible that the Company would
require additional funds beyond 1997. At this time, the Company does not know
what sources, if any, would be available to it for such funds, if required.
In addition, at September 30, 1997, the Company has warrants
outstanding for the purchase of 528,837 shares of its Common stock at exercise
prices between $2.00 to $4.50. Assuming the exercise of all such outstanding
Warrants, the Company would realize approximately $1,477,000 in gross proceeds.
9
<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.
Dated: November 13, 1997
TRINITECH SYSTEMS, INC.
(Registrant)
By: /s/ Peter Kilbinger Hansen
--------------------------
Peter Kilbinger Hansen
Chairman of the Board
and President
(Chief Executive Officer)
By: /s/ William E. Alvarez, Jr.
---------------------------
William E. Alvarez, Jr.
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,666,060
<SECURITIES> 0
<RECEIVABLES> 2,312,341
<ALLOWANCES> 0
<INVENTORY> 1,586,380
<CURRENT-ASSETS> 6,903,686
<PP&E> 1,389,643
<DEPRECIATION> 586,928
<TOTAL-ASSETS> 8,311,148
<CURRENT-LIABILITIES> 1,421,041
<BONDS> 0
0
0
<COMMON> 8,243
<OTHER-SE> 9,814,045
<TOTAL-LIABILITY-AND-EQUITY> 8,311,148
<SALES> 2,990,786
<TOTAL-REVENUES> 3,759,424
<CGS> 1,726,300
<TOTAL-COSTS> 1,726,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,484,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,484,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,484,412)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
