UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the Year Ended December 31, 1996
OR
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ________to________
Commission file number: 0-21324
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, CT 06902
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 425-8000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant'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/
The Issuer's revenues for the fiscal year ended December 31, 1996 were
$7,013,605.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $32,384,000, as of March 24, 1997. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination by the Registrant that such individuals are, in fact, "affiliates"
of the Registrant.
As of March 24, 1997 there were 8,180,030 shares of the Registrant's Common
Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-KSB Reference
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Proxy Statement for Annual Meeting of
Stockholders to be held June 2, 1997 Part III, Items 9 - 12
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PART I
ITEM 1. BUSINESS
GENERAL
TRINITECH SYSTEMS, INC. (the "Company" or "Trinitech") develops and markets
advanced electronic trading systems to brokerage firms, international banks and
global exchanges trading in equities, currencies and futures & options. The
Company has also successfully leveraged its patented flat panel hardware
technology, its Trinitech Touchpad(R), through sales outside the financial
sector.
The Company's goal is to become the leading provider of real-time electronic
trade entry and routing systems to the global financial services industry
thereby offering its customers the ability to enter and route orders and
executions from "end-to-end," from the buy-side/retail institution or remote
branch office through to the exchange floors and electronic exchanges. The
Company is setting new standards for the future in this regard and its
technology is being used by such firms as Morgan Stanley & Co., Inc., J.P.
Morgan Securities, Inc., Lehman Brothers, Inc., Merrill Lynch Pierce, Fenner &
Smith, Inc., Smith Barney, Inc., CS First Boston, Paine Webber, Incorporated,
Donaldson, Lufkin & Jenrette, Inc., Pershing Trading Corp., and Dean Witter
Reynolds, Inc. among others.
The Company's systems provide electronic order entry, order routing, tracking
and risk monitoring capabilities, replacing existing paper and telephone based
trading and eliminating a number of redundant steps in the order flow and
execution reporting process. The Company believes that the trading industry is
inevitably moving from a paper and voice driven tracking environment to
real-time electronic-based trading. The primary reasons for this transition, the
Company believes, are the increased order and information flow provided by an
electronic trading environment, the subsequent improvement in trading
performance and elimination of trading errors as a result of the availability of
on-line risk management, and the cost efficiencies associated with electronic
trading. Recurring, high profile trading scandals have provided further impetus
for the implementation by financial risk managers of electronic trading systems
with risk monitoring capabilities.
All the Company's products are available in flexible building blocks that can be
sold either together or separately to complement existing customer components.
This has given the Company the ability to collect revenue from each "link" of
the trading process. The Company also continues to expand its product portfolio
with new and complementary software modules that allow the Company to collect
revenue from multiple levels. The Company now offers its trading systems on a
subscription or transaction basis, with hardware, software and maintenance
provided for a monthly fee. For the Company's customers, the new pricing model
offers minimal up-front investment in technology as well as an alternative to
costly in-house development. For the Company, it offers a simplification of the
sales cycle as well as significant recurring revenue.
(R)-TRINITECH TOUCHPAD, GUIDED-INPUT, X-PAD, TRINITECH, THE COMPANY'S LOGO "T",
AND TRINITECH SYSTEMS ARE REGISTERED TRADEMARKS OF TRINITECH SYSTEMS, INC.
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In October 1996, the Company launched its NYSE Data Center which provides its
equities customers access to its subscription-based quote, order and execution
routing systems. The Data Center offers member firms the ability to utilize the
Company's systems without having to invest in a communications infrastructure.
Furthermore, the Company's Data Center offers the potential for an "any to any"
relationship for routing orders and executions between and among firms and the
NYSE. During 1997, in conjunction with other major firms and exchanges, the
Company will be working to establish a transaction data center for the futures &
options industry with the potential for a similar arrangement for electronic
order and execution routing. (Part of the gross proceeds from the Company's
March 7, 1997 private placement of 800,000 shares of its common stock with gross
proceeds of $3.6 million, will be used to finance both of these areas). Going
forward into 1997, the Company has repositioned itself for substantial growth.
It can now provide the raw terminals (through its hardware products), the
software, and the infrastructure (through its Data Centers) to tie the trading
industry together for the electronic entry and routing of orders and executions.
PRODUCTS
PORTFOLIO OF COMPLETE ELECTRONIC TRADING SYSTEMS
Trinitech supplies complete turnkey trading solutions that consist of hardware,
complete proprietary software packages and network technology for the trading of
equities, currencies and futures & options. In addition, the Company supports
its customers in all aspects of planning and implementing these systems as well
as providing on-going technical support.
Based on these well received and maturing turnkey systems developed with leading
international firms, the Company has successfully re-organized its staff into
business groups to address each of its core product lines: the Equities Group,
Futures and Options Group, Inter-broker Group, and Hardware Technology Group.
Each group has built its business and technical management staff with expert
knowledge so that their individual product segments are efficiently targeted to
their respective customers.
EQUITIES GROUP-PRODUCTS
The Company sells three complete systems for equities trading: The Trinitech
FLOORLOOK SYSTEM, the Trinitech FLOORREPORT SYSTEM, and FIX-TALK. A fourth
software piece, an INDICATION OF INTEREST (IOI) Module, was developed in 1996,
with a formal product introduction planned during 1997.
The Trinitech FLOORLOOK SYSTEM consists of the Trinitech Touchpad(R), a scanner,
server and proprietary software. FLOORLOOK solves the challenge faced by member
firms in getting fast quotes on stocks directly from the exchange floor to their
upstairs trading operations. The Trinitech FLOORLOOK SYSTEM works by scanning
handwritten quote slips called "LOOKS" into a scanner by a floor clerk located
at the member's booth. These scanned LOOKS are instantly transmitted to upstairs
traders at their workstations in multiple sites and remote offices.
Implementation of the system results in the elimination of repetitive and error
prone telephone traffic between clerks and traders resulting in better execution
of large trades.
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The Trinitech FLOORREPORT SYSTEM is a complete order management system which
allows the entry and routing of orders and executions between the buy-side
institution, the sales & block desks and the exchange floor. Order by traders
are quickly and efficiently captured utilizing the Trinitech Touchpad(R) and can
be routed to the appropriate venue in seconds, with executions routed back in
the same efficient manner. With the added benefit of FIX compliance, FLOORREPORT
allows firms to capture and secure buy-side order flow, thereby increasing
buy-side business for firms utilizing the system.
The Trinitech FIX-Talk System ("FIX" - Financial Information exchange protocol),
offers firms the ability to establish and maintain FIX sessions, send FIX
messages and route incoming messages to different applications (utilizing any
operating platform) residing on trader or broker workstations over the Internet
or private lines. The FIX protocol offers the ability to connect the buy-side
and sell-side of an equities transaction for electronic order/execution routing
and trade information sharing and is recognized as being the standard in the
industry. Trinitech's FIX-Talk System, co-developed with Morgan Stanley and
based on the latest 4.0 version of the FIX protocol, consists of a C++ object
oriented class library, the Trinitech FIX-TALK CLIENT TOOLKIT, which allows easy
development of applications in order to utilize the FIX protocol. A new software
piece, Trinitech's INDICATIONS OF INTEREST MODULE, allows sell-side firms to
broadcast positions and inventory to be traded to the buy-side through the FIX
protocol (provided by Trinitech).
PRODUCT PRICING-EQUITIES GROUP
All of Trinitech's products for equities trading are available on a subscription
basis, with hardware, software and maintenance provided for a monthly
subscription fee. Subscription agreements usually run from one to three years,
with automatic multiple year renewal provisions included. For the Company's
customers, subscription-based pricing offers a low up front investment in
mission critical technology as well as an alternative to costly in-house
development. For Trinitech it offers a simplification of the sales cycle as well
as significant recurring revenue. Pricing for the FLOORLOOK and FLOORREPORT
SYSTEMS is based on a monthly fee per booth on the NYSE floor, with an
additional monthly upstairs fee per trader workstation using the Systems.
FIX-TALK is sold through a one-time domestic licensing fee or a global licensing
with a recurring monthly maintenance fee per user. The Company's FIX compliant
INDICATION OF INTEREST ("IOI") Module is sold on a monthly fee basis per trader
workstation.
PRODUCT PENETRATION-EQUITIES GROUP
NYSE DATA CENTER: In October of 1996, the Company launched its Equities Data
Center, strategically located several blocks from the New York Stock Exchange.
The Company's Data Center offers easy monthly subscription-based access to all
of the Company's quote, order and execution routing systems. The Data Center
also allows smaller "two-dollar" and independent brokers access to the Company's
systems. Firms no longer need a communications infrastructure to utilize the
Company's systems, they can simply subscribe to the service. Proceeds from the
Company's private placement (see "General" above) will be used to roll-out the
Company's Data Center in 1997.
Developing trading systems with a number of the leading firms, the Company has
successfully moved from primarily a hardware vendor to a provider of complete
electronic trading systems. Leading customers include Morgan Stanley & Co.,
Inc., J.P. Morgan Securities, Inc., Lehman Brothers, Inc., Merrill Lynch Pierce,
Fenner & Smith, Inc., Smith Barney, Inc., CS First Boston, Paine Webber
Incorporated, Nicholas Applegate, SAC Capital Management, among others. The
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opening of the Company's Data Center in 1996 resulted in five new
subscription-based contracts in eight weeks. New customers from 1996 include:
Donaldson, Luffkin & Jenrette, Inc., Pershing Trading Corp., J.C. Bradford &
Co., LLC, Legg Mason Wood Walker, Inc., NatWest Securities, Inc., Stuart Frankel
& Co., Inc., and A.W. Bertsch, among others.
FUTURES AND OPTIONS GROUP-PRODUCTS
For the futures & options trading market, the Company markets its Futures and
Options ORDER BOOK MANAGEMENT SYSTEM ("OBMS"), which enables futures and options
traders to enter, route and manage orders and executions in real-time. Global
order-routing between different international branches of the same firm and all
the major global exchanges, both open outcry and electronic, is supported by
this comprehensive system. OBMS is offered utilizing the Company's patented
Trinitech Touchpad(R) or in stand-alone software versions
PRODUCT PRICING-FUTURES AND OPTIONS GROUP
During 1996, the Company began to offer OBMS on a subscription or transaction
basis, with hardware, software and maintenance provided for a monthly fee.
Subscription agreements usually run from one to three years with automatic
multiple year renewal provisions included. When OBMS is sold on a transaction
basis, the Company will receive a fee per futures contract traded through the
system with a guaranteed monthly minimum payment.
PRODUCT PENETRATION-FUTURES AND OPTIONS GROUP
OBMS has been utilized by a number of leading firms in the futures & options
industry, including J.P. Morgan, Citi-futures, and Lloyd Bank, among others. New
customers for 1996 include BA Futures, Inc. and Fimat Futures, a division of
Societe General, among others.
TRANSACTION DATA CENTER: Based on meetings with a number of leading firms,
exchanges and vendors in the futures and options industry throughout 1996, the
Company began to test the concept of establishing a transaction data center
which provides the capability to route orders and executions globally through
one centralized "hub." In return the Company would receive a fee per futures &
options contract traded through the system. Response to this concept has been
positive and the Company is moving forward with this project in 1997. Proceeds
from the Company's private placement (see "General" above) will be used to
finance this project.
INTER-BROKER GROUP-PRODUCTS
For large scale inter-broker firms, the Company markets its Trinitech MONEY
BROKER SYSTEM, (MBS) for spot currency trading. Utilizing the Trinitech
Touchpad(R), MBS provides real-time electronic deal-matching, instant deal
confirmation and error detection, which provides significant organizational and
operational savings to firms utilizing the system.
The Company is also currently piloting various prototype applications for
forward currency trading and for inter-broker bond trading.
PRODUCT PRICING-INTER-BROKER GROUP
Trinitech offers its MBS software on a global licensing basis and charges per
broker "seat" for its Trinitech Touchpad(R).
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PRODUCT PENETRATION-INTER-BROKER GROUP
MBS is currently utilized by the two largest money brokers in the world, Tullett
& Tokyo Forex, Inc. and Harlow Butler. Sales of the Company's MBS in 1996
consisted of global roll-outs of the System to other locations and sites. The
global roll-out of the System among large customers, management believes, are
anticipated to continue in 1997.
HARDWARE TECHNOLOGY GROUP-PRODUCTS
Trinitech Touchpad(R): Utilizing a touch-screen interface, the Company's
original product, the Guided-Input(R) Trinitech Touchpad(R) was designed to
simplify and expedite the entry of orders and information related to the trading
of financial instruments. The Trinitech Touchpad(R), with its patented flat
panel design, was developed to optimize critical trader/broker desktop real
estate. Its proprietary open architecture offers seamless integration with all
major industry operating systems, thereby allowing customers to freely choose
between MS-DOS, MS-Windows, Windows NT, OS/2, and UNIX applications.
By offering what it believes to be a unique concept in intuitive, high-speed
data entry and on-line information retrieval, the Company has managed to combine
its touch-screen technology with proprietary software in such a manner that it
has become possible to virtually eliminate the process of manual collection and
processing of paper deal, order or quote tickets. Traders and brokers using the
Company's Trinitech Touchpad(R) are able to record all of their trading
activities electronically as they happen. As a result, it is now possible to
automatically update on-line trader and management overview screens, thereby
reducing the risk of errors and uninformed trading both in slow and frenetic
markets.
The Company's flat panel hardware technology has established applications in
segments of the financial industry, but has also been successfully deployed in
other sectors. The Company, during February 1996, was awarded a contract valued
at $4,000,000 to provide 2,100 units of its TRINITECH TOUCH VENDING TERMINAL to
ATG, the leading Swedish-based off-track-betting operation.
Based on the prospects for future sales in both financial and non-financial
markets, the Company has promoted a new manager to lead a newly created Hardware
Technology Group. The Group will be responsible for the sale of the Company's
flat panel touchscreens and monitors to both the financial industry and
non-financial markets, as well as new product development. During 1996, the
Company introduced a new generation of high-end flat panel monitors with
optional touchscreens, including the TRINITECH XGA MULTISYNC MONITOR, which is
available in 12.1", 14.1" and 20.0" versions. By offering the Company's patented
flat panel design utilized by its Trinitech Touchpad(R), combined with higher
quality and a lower price than existing competitors, the Company believes it can
capture an increasing share of the market for flat panel displays and
touchscreens in both the financial and non-financial sectors. In addition, the
Company offers different variations of its Trinitech Touchpad(R), including its
S-Bus Trinitech Touchpad(R), which is designed specifically for Sun SPARC
workstations.
PRODUCT PRICING-HARDWARE TECHNOLOGY GROUP
The price of the Company's hardware products depends upon the features desired
by customers, excluding software. Generally, customers enter into sales
agreements with the Company that provide for initial orders from one to twenty
Trinitech Touchpads(R).
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PRODUCT PENETRATION-HARDWARE TECHNOLOGY GROUP
To date, the Company's Trinitech Touchpad(R) products have been extensively
utilized by major international banks, securities firms and exchanges in the
United States, Europe and the Far East, including the American Stock Exchange,
Arab Bank, Bank of Tokyo, Berliner Bank, CBOE (Chicago Board of Options
Exchange), Citi-Futures, Daichi Kangyo Bank, Dean Witter, CS First Boston, JP
Morgan, Lehman Brothers, Lloyds Bank, Merrill Lynch, Montreal Stock Exchange,
Morgan Stanley, Paine Webber, Smith Barney, Swiss Bank, Shell Oil, and Yamaichi
International, among others.
The Company has also sold its units in non-financial industries, including ATG
in Sweden for off-track-betting. Based on further test marketing throughout 1996
and by exhibiting at major industry exhibitions including COMDEX, where the
Company believes its products were well received, the Company continues to
selectively pursue the sale of its hardware products outside of the financial
industry.
MARKETING
ELECTRONIC TRADING SYSTEMS
The Company believes that the financial trading industry represents an ideal
example of a uniform niche market. The characteristics of this market,
particularly its low level of automation at the trade-entry or deal-making
level, provide an excellent opportunity for the marketing of cost-effective and
innovative technical solutions. The Company believes that this market is clearly
defined, readily accessible, and accustomed to technological investment. As a
single, coherent community, the trading industry allows the Company to market
standardized products in a uniform manner in each of its market segments for
equities, currencies and futures & options trading on a global basis. The
Company's offering of products on a subscription or transaction basis through a
data center solution, management believes, will significantly aid the roll-out
of its products on an industry-wide basis, opening up new market segments for
the Company's products.
The Company continued to increase its global presence by exhibiting its products
at approximately five international technology conferences. In addition, the
Company is building marketing and advertising programs for each product group
and, by offering complete solutions on a subscription basis, this effort will
accelerate. The Company intends to expand these programs in 1997.
NON-FINANCIAL/HARDWARE
The Company believes its touch-based flat panel hardware technology is well
positioned to compete in markets other than the financial sector. Since
inception, the Company has received inquiries concerning the use of its hardware
products in such industries as factory automation and inventory control, retail
automation, travel service, and medical markets (i.e. hospital bedside
terminals). The Company will carefully evaluate the need to further adapt or
expand its product-line for the general retail sector. The addition of the
aforementioned markets could potentially add a significant long-term component
to the Company's revenues. However, there can be no assurances that the Company
will be successful in capturing a share of the market in this sector.
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COMPETITION
ELECTRONIC TRADING SYSTEMS
Competition exists in the Company's primary market. The Company believes that it
competes favorably with its turnkey trading systems, where additional leverage
is achieved through optimized integration of Trinitech Touchpad(R) technology,
modular trading software and data center solutions. To further enhance the
marketability of its systems, the Company is implementing its solutions on the
most popular and well established client server architectures.
The Company believes that its technology offers unique advantages compared to
alternative technologies utilized by competitors. The Company believes, based
upon customer feedback, that its systems successfully fulfill their promise of
immediate entry, routing and reporting of trading positions, operational
savings, reduction of input error and improvement in reporting for compliance
purposes. Having been a early pioneer in providing electronic order capture and
routing solutions to the trading industry, the Company has established close
relationships with a number of large firms on Wall Street which can increase its
leverage in selling its products.
The Company also believes that its management and staff have an in-depth
knowledge of the inner-workings of trading rooms, exchange floors, and the
overall marketplace, thus facilitating its ability to serve client needs with
technological hardware and software adaptations.
NON-FINANCIAL/HARDWARE
There are a large number of suppliers of touch or flat-panel terminals in the
market for general retail or point of sale ("POS") automation. However, the
Company believes that it has overcome the challenge of designing very robust
terminals and, at the same time, achieving visually sleek designs. However, the
Company believes that the most competitive feature of its new products are the
incorporation into one integrated PC board of all the power, performance video,
sound and touch electronics necessary to drive a touch vending terminal. This
integration simplifies logistical and maintenance issues, an important concern
for large retail organizations that often rely on third parties to perform
service and repair work in multiple geographical locations.
SALES OPERATIONS
To take advantage of opportunities in the global market, the Company has
established sales offices in the United States (New York and Chicago) and
European (London) markets. See Note 5 to the Financial Statements for
information concerning export sales. The Company during 1996 continued to
increase its global presence by exhibiting the Company's products at
approximately five international technology conferences held in both the US and
Europe. In addition, the Company, on a selective basis, advertises in various
trade publications. The Company intends to continue these programs during 1997.
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PRODUCT PRODUCTION
The Company designs and develops its proprietary software and prototypes of its
hardware products at its facility in Stamford, Connecticut. Once tested and
blueprinted, various hardware parts developed by the Company are manufactured by
subcontractors and delivered to the Company for final complete assembly, quality
control and burn-in testing. To date, the Company has not experienced any
returns of its products for generic manufacturing defects. The Company is not
dependent upon any one supplier, vendor or subcontractor for any of its
manufacturing components.
PROPRIETARY ASSETS
The Company actively seeks protection for its copyrights and trade names and,
accordingly, the Company, during 1996, received notices of registration for
additional trademarks, for "Trinitech(R)", "Trinitech TouchPad(R)" and
"Trinitech Systems(R)" for its products in the US and "Trinitech Systems,
Inc.(R)" for services in the US. In addition, the Company believes that the look
of its primary product is unique and, accordingly, obtained a US Design Patent
for its unique product look. The Company, during 1997, will be awarded a utility
patent on its Trinitech TouchPad in the US. All employees of the Company,
irrespective of job description, are subject to nondisclosure and
anti-competitive restrictions.
EMPLOYEES
As of March 21, 1997, the Company had 32 full-time employees. None of the
Company's employees are subject to a collective bargaining agreement. The
Company considers its relationship with its employees to be satisfactory.
RISK FACTORS: FORWARD LOOKING STATEMENTS
The management discussion and analysis and the information provided elsewhere in
this Form 10-KSB contain forward looking statements regarding the Company's
future plans, objectives and expected performance. Those statements are based on
assumptions that the Company believes are reasonable, but are subject to a wide
range of risks and uncertainties, and a number of factors could cause the
Company's actual results to differ materially from those expressed in the
forward looking statements referred to above. These factors include, among
others, the Company's ability to further penetrate the financial services market
with a full range of the Company's products and the highly competitive market in
which the Company operates.
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ITEM 2. PROPERTIES
The Company maintains its executive offices and production facilities in leased
premises at 333 Ludlow Street, Stamford, CT 06901 and its European Sales Office
in London, England. The Company's US headquarters consists of approximately
8,600 square feet at a current annual rental (including subleased space) of
approximately $178,000, expiring on April 30, 2002. The Company subleases
approximately 1,900 square feet of its US premises at an annual rental of
$36,000, expiring April 30, 1997. The Company's London premises consist of
approximately 1,500 square feet at a current annual rental of $15,000, excluding
local taxes, expiring on February 17, 1999. In addition, the Company also rents
office space in New York City (Data Center) and Chicago on a monthly basis.
Management believes that its facilities are adequate for the Company's purposes
for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings which are currently pending or, to the
Company's knowledge, contemplated against the Company or to which it is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "TSI". The following table sets forth the high and low sales
prices for the Common Stock, for the periods presented, as reported by the AMEX.
PRICES OF COMMON STOCK
High Low
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1996 Fiscal Year
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First Quarter $6.63 $4.50
Second Quarter $6.13 $4.63
Third Quarter $5.00 $2.38
Fourth Quarter $6.00 $2.88
1995 Fiscal Year
First Quarter $3.13 $2.25
Second Quarter $8.19 $2.25
Third Quarter $8.75 $5.88
Fourth Quarter $7.06 $4.63
(B) HOLDERS
At March 24, 1997, the records of the Company's transfer agent indicated that
there were 472 holders of record of the Company's Common Stock.
(C) DIVIDENDS
Stockholders of the Company's Common Stock are entitled to dividends if and when
declared by the Board of Directors out of funds legally available therefor. The
Company has not paid or declared any dividends on any class of its capital stock
since its organization and has no present intention of paying cash dividends on
its Common Stock. In addition, the payment of cash dividends on the Common Stock
is restricted under the provisions of the Company's revolving credit facility
and term loan agreements. The Company intends to utilize any earnings it may
achieve for the development of its business and for working capital purposes.
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ITEM 6. 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) TouchPad System.
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. Historical
results and percentage relationships are not necessarily indicative of the
operating results for any future period.
REVENUES
Sales revenues for the Company increased by 38% in fiscal 1996 (from $4,560,935
to $6,295,468) and 51% in fiscal 1995 (from $3,022,237 to $4,560,935). The
increase in sales revenues over the past two fiscal years was principally due to
increased deliveries of Trinitech TouchPad(R) Systems, primarily 1,750 units of
its touch vending terminal to a non-financial service firm customer, during
fiscal 1996. The Company's sales revenues were comprised of both hardware and
software installations. Approximately 15% and 21% of the Company's 1996 and 1995
sales, respectively, were derived from software installations. In addition,
revenues from service contracts increased by 48% in fiscal 1996 (from $483,712
to $718,137) and 88% in fiscal 1995 (from $257,881 to $483,712). The increase in
service contract revenue resulted from an increase of equipment in use by
customers. The service contract revenue generally begins between three to six
months after the delivery and installation of the hardware and software. Service
and maintenance for 1996 sales of the Company's touch vending terminal products
(1,750 units) will be managed on an actual time and material arrangement. Even
though the Company expects its service and maintenance revenue to grow in the
financial sector, management does not anticipate receiving any significant
future service and maintenance revenue from its 1996 sales of touch vending
terminal products.
The export market continued to be an important source of revenue, with sales
approximating 86% and 40% of sales in fiscal 1996 and 1995, respectively. During
fiscal 1996, sales to two customers accounted for approximately 72% of total
revenue. During fiscal 1995, sales to three customers accounted for
approximately 38% of total revenue. The Company did not experience any
significant price changes in its product line in fiscal 1996 or fiscal 1995.
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 was 40.9% and 53.2% in fiscal
1996 and 1995, respectively. The decrease in gross margin between 1996 and 1995
principally resulted from lower margins associated with the Company's touch
vending terminal products sold during 1996. The Company continues to maintain
higher margins (in the 50% range) in its core business groups that serve the
financial community. The Company obtains its materials, parts and supplies from
a variety of vendors in the U.S. and Far East. During 1996, the Company did not
experience any significant price increases in its component parts purchased.
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SELLING, GENERAL AND ADMINISTRATIVE
During fiscal 1996, selling, general and administrative expenses increased 27.5%
(from $2,525,684 to $3,219,000) when compared to fiscal year 1995. During fiscal
1995, selling, general and administrative expenses increased 24.3% (from
$2,031,357 to $2,525,684) when compared to fiscal year 1994. The increase in
fiscal 1996 and 1995 was principally due to a continued expansion of operations
in both the U.S. and in London, which began during 1994. As a result, the
Company experienced increases in salaries and related benefits, travel expenses,
recruiting fees and various related office expenses. During 1996 and 1995, the
Company added personnel to its technical programming and sales staff. Such
employees were added to technical positions with a primary focus on customer
hardware and software project implementation and development. The Company's
recruitment effort, which began during 1993, continues to strengthen the
management infrastructure in order to better position the Company to respond to
present customers needs as well as for the future. During 1996, the Company
established a sales presence in Chicago with the addition of a sales office. The
Company has expanded its advertising and marketing programs in 1996 which
included production of various product brochures, advertisements in several
financial trade publications as well as representation at several technological
exhibitions. The Company will continue to expand these programs during 1997.
Research and development expenses for fiscal 1996 and 1995 were approximately
$241,900 and $194,500, respectively and are included in selling and
administrative expenses.
OTHER INCOME
Other income consists principally of interest earned on cash balances and
sublease income earned. The Company leases a portion of its corporate office
facility under a three year sublease which expires on April 30, 1997. Sublease
rental income earned during 1996 and 1995 totaled approximately $35,800 per
year. The interest income earned by the Company during 1996 increased slightly
from 1995 principally due to higher interest rates earned on the Company's cash
balances during 1996.
NET INCOME/LOSS
Net loss for fiscal 1996 was $445,285 ($0.06 per share) as compared to a net
income of $81,466 ($0.01 per share) for fiscal 1995. The net loss during fiscal
1996 principally resulted from the continued expansion of operations as
described in "Selling, General and Administrative" above combined with lower
gross margins associated with the Company's touch vending terminal products sold
during 1996. Net income for the three months ended December 31, 1996 was
$209,631 ($0.03 per share) as compared to $89,912 ($0.01 per share) in the three
months ended December 31, 1995. The increase in net income during the three
months ended December 31, 1996 principally resulted from a 95% increase in
revenues during the period as compared to the three months ended December 31,
1995 (from $1,756,725 to $3,419,623). This increase in revenues during the three
months ended December 31, 1996 principally resulted from increased deliveries of
the Company's touch vending terminal products enabling the Company to record a
profit in the three month period ended December 31, 1996.
As previously discussed, management made a considerable effort to initiate an
expansion of its operations which began in 1993 and continued into 1996. The
Company believes that this expansion will better position the Company in 1997
and facilitate its future growth. However, no assurances can be given that the
planned future growth will occur.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been equity capital. Since the
commencement of operations, the Company has raised approximately $6.1 million of
working capital through various private placements of its securities. On March
7, 1997, the Company completed a private placement of 800,000 shares of Common
Stock at a price of $4.50 per share, for an aggregate value of $3,600,000. Costs
related to this offering amounted to approximately $75,000 resulting in net
proceeds to the Company of approximately $3,525,000. During 1996, the Company
renewed its $1 million dollar line of credit facility for the purpose of
financing accounts receivable. At December 31, 1996, the Company had $745,000
outstanding under the line of credit. During January 1997, the Company repaid
the credit line in full from accounts receivable collections. The line of credit
expires on April 30, 1997 and is secured by accounts receivable, inventory and
certain equipment. Interest on the line of credit is based on the bank's prime
rate plus one percent. The Company expects that it will renew the credit
facility upon substantially similar terms. The bank agreement requires the
Company, among other things, to maintain minimum tangible net worth and a
minimum current ratio. At December 31, 1996, the Company obtained a waiver of
the required minimum tangible net worth and minimum current ratio. At March 7,
1997, the Company is in compliance with required minimum tangible net worth and
minimum current ratio. Cash balances at December 31, 1996 decreased to
approximately $1,199,000 from $1,258,000 a year earlier.
The accounts receivable balance at December 31, 1996 principally represents
amounts due from customers on sales made during 1996. The Company has been
continually placing an emphasis on the collection of all outstanding
receivables, and believes that all of the balances are fully collectable.
Through March 21, 1997, the Company collected the majority of its outstanding
receivables at December 31, 1996. The Company's current assets at December 31,
1996 exceeded its current liabilities by approximately $3,573,000. The Company
at December 31, 1996 had long-term debt totaling $31,065 which represents
secured term loans on the purchase of development equipment. In addition, at
December 31, 1996, the Company had no material commitments for capital
expenditures or inventory purchases.
The Company believes that with its available capital, including the proceeds
from the March 7, 1997 private placement, the 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, the Company has warrants outstanding for the purchase of 542,587
shares of its Common Stock. Assuming the exercise of all such outstanding
Warrants, the Company would receive approximately $1,486,000 in gross proceeds.
13
<PAGE>
WORKING CAPITAL
At December 31, 1996 and 1995 the Company had working capital of $3,573,000 and
$3,899,000, respectively. The Company's present capital resources include cash
flows from operations, proceeds from its March 7, 1997 private placement of
Common Stock and available borrowing capacity under its bank credit facility.
CASH PROVIDED BY OR USED IN OPERATING ACTIVITIES
During fiscal 1996, net cash used in operations was $449,343 as compared to cash
provided by operations in fiscal 1995 of $326,246. The decline from fiscal 1995
to fiscal 1996 is attributable to the Company recording a profit from fiscal
1995 operations as compared to a loss in fiscal 1996, increases in depreciation
and current liabilities during 1996, offset by increases in 1996 accounts
receivable and inventory balances.
CASH USED IN INVESTING ACTIVITIES
During fiscal 1996 and fiscal 1995, net cash used in investing activities was
$535,145 and $527,362, respectively, and principally represents payments for the
purchases of equipment and payments related to product enhancement costs for the
Company's product portfolio.
PROCEEDS FROM FINANCING ACTIVITIES
During fiscal 1996 and fiscal 1995, proceeds from financing activities were
$925,099 and $423,959, respectively. Such increase in fiscal 1996 resulted from
issuance of Common Stock through exercise of warrants and stock options totaling
$168,874 and proceeds from net borrowings of $756,225, principally from the line
of credit facility. Utilization of the line of credit during 1996 was to
facilitate purchases of component parts required to fulfill the delivery
requirements under a contract to supply touch vending terminals. The line of
credit was fully repaid during January 1997 as collections were made against the
related account receivable.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Financial Statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
Section entitled "Proposal No. 1. - Election of Directors" and "Executive
Compensation" in the Company's Proxy Statement for the June 2, 1997 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
not later than April 23, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement for the June 2, 1997 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission not later
than April 23, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Sections entitled "Principal Holders of Voting Securities" and "Security
Ownership of Officers and Directors" of the Company's Proxy Statement for the
June 2, 1997 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission not later than April 23, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Section entitled "Executive Compensation and Transactions with Management" in
the Company's Proxy Statement for the June 2, 1997 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission not later
than April 23, 1997.
15
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Information
See index to Financial Statements on Page F-1
(2) Financial Statement Schedules
Supplemental schedules are omitted because they are not
required, inapplicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits *
3.1 Articles of Incorporation of Trinitech Systems, Inc.
(Exhibit 3.1 to Registrant's Form 10 filed March 5,
1993).
3.2 By-Laws of Trinitech Systems, Inc. (Exhibit 3.2 to
Registrant's Form 10 filed March 5, 1993).
4.1 Certificate of Designation of Series A Preferred Stock
(Exhibit 4.1 to Registrant's Form 10 filed March 5,
1993).
4.2 Specimen - Common Stock Certificate (Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.1 Employment Agreement with Peter Kilbinger Hansen dated
January 1, 1991 (Exhibit 3.2 to Registrant's Form 10
filed March 5, 1993).
10.2 Revolving Credit Agreement, dated April 30, 1995,
between First Fidelity Bank and Trinitech Systems, Inc.
10.3 Amended and Restated 1991 Incentive Stock Option Plan
of Trinitech Systems, Inc. **
21.1 Subsidiaries of the Registrant (Exhibit 21.1 to
Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994).
24.1 Consent of Independent Public Accountants.**
- --------------------------------------
* - Except as noted, all exhibits have been previously filed.
** - Filed herewith.
(B) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed this 26th day of March, 1997 on its behalf by the undersigned, thereunto
duly authorized.
TRINITECH SYSTEMS, INC.
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
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Peter Kilbinger Hansen Chairman of the Board March 26, 1997
- ------------------------------------ (Principal Executive Officer)
Peter Kilbinger Hansen
/s/ William E. Alvarez, Jr. Chief Financial Officer and March 26, 1997
- ------------------------------------ Secretary
William E. Alvarez, Jr. (Principal Accounting Officer)
/s/ Dr. John H. Chapman Director March 26, 1997
- ------------------------------------
Dr. John H. Chapman
/s/ Craig M. Shumate Director March 26, 1997
- ------------------------------------
Craig M. Shumate
/s/ Carl E. Warden Director March 26, 1997
- ------------------------------------
Carl E. Warden
</TABLE>
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants..................................F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1995.................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995............................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995............................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995............................................F-6
Notes to Consolidated Financial Statements................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Trinitech Systems, Inc.:
We have audited the accompanying consolidated balance sheets of
Trinitech Systems, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Trinitech Systems, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
Stamford, Connecticut,
March 18, 1997
F-2
<PAGE>
TRINITECH SYSTEMS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1996 1995
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash $1,198,730 $1,258,119
Accounts receivable - less allowance of $30,000 in 1996 3,802,364 2,409,434
Inventories 1,154,187 1,000,450
Prepaid expenses and other 315,911 201,849
----------- -----------
Total Current Assets 6,471,192 4,869,852
----------- -----------
EQUIPMENT - net of accumulated depreciation of $417,087
and $283,306 in 1996 and 1995, respectively 434,638 403,512
----------- -----------
OTHER ASSETS - net of accumulated amortization of $832,652
and $565,107 in 1996 and 1995, respectively 617,506 596,561
----------- -----------
TOTAL $7,523,336 $5,869,925
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $1,386,306 $353,129
Accrued expenses 525,653 454,449
Current portion of term loans payable 25,994 16,667
Credit line payable 745,000 -
Advance billings 149,675 120,634
Payroll and other taxes payable 65,808 25,633
----------- -----------
Total Current Liabilities 2,898,436 970,512
TERM LOANS PAYABLE 31,065 29,167
----------- -----------
Total Liabilities 2,929,501 999,679
----------- -----------
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 authorized;
7,375,030 and 7,272,530 shares issued and outstanding
in 1996 and 1995, respectively 7,375 7,273
Additional paid-in capital 6,088,975 5,920,203
Accumulated deficit (1,502,515) (1,057,230)
----------- ------------
Total Stockholders' Equity 4,593,835 4,870,246
----------- -----------
TOTAL $7,523,336 $5,869,925
=========== ============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
TRINITECH SYSTEMS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
1996 1995
------------- -----------
REVENUES:
Sales 6,295,468 $4,560,935
Service contracts 718,137 483,712
--------- ----------
Total Revenues 7,013,605 5,044,647
COST OF SALES AND SERVICE 4,146,490 2,359,170
--------- ----------
GROSS PROFIT 2,867,115 2,685,477
--------- ----------
EXPENSES:
Selling, general and administrative 3,219,000 2,525,684
Depreciation and amortization 166,896 144,278
--------- ----------
Total Expenses 3,385,896 2,669,962
--------- ----------
INCOME (LOSS) FROM OPERATIONS (518,781) 15,515
OTHER INCOME - NET 73,496 65,951
--------- ----------
NET INCOME (LOSS) ($445,285) $81,466
========= ==========
NET INCOME (LOSS) PER COMMON SHARE ($ 0.06) $ 0.01
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(INCLUDING COMMON SHARE EQUIVALENTS IN 1995) 7,297,900 7,551,700
========== ===========
See Notes to Financial Statements.
F-4
<PAGE>
TRINITECH SYSTEMS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Description Shares Amount Capital Deficit
- -------------------------- ---------- ------- ------------- -------------
BALANCE,
<S> <C> <C> <C> <C>
JANUARY 1, 1995 7,091,530 $7,092 $5,542,259 ($1,138,696)
Stock issued from exercise
of options and warrants 181,000 181 377,944 -
Net income for the year ended
December 31, 1995 - - - 81,466
---------- ------- ------------- -------------
BALANCE,
DECEMBER 31, 1995 7,272,530 7,273 5,920,203 (1,057,230)
Stock issued from exercise
of options and warrants 102,500 102 168,772 -
Net loss for the year ended
December 31, 1996 - - - (445,285)
---------- ------- ------------- -------------
BALANCE,
DECEMBER 31, 1996 7,375,030 $7,375 $6,088,975 ($1,502,515)
========== ======= ============= =============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
TRINITECH SYSTEMS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ($445,285) $81,466
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 483,074 397,689
Changes in assets and liabilities:
Accounts receivable (1,392,930) (965,122)
Inventory (153,737) 317,911
Prepaid expenses (114,062) 50,083
Accounts payable - trade 1,033,177 202,271
Advanced billings 29,041 (11,822)
Payroll and other taxes payable 40,175 4,563
Accrued expenses 71,204 249,207
---------- ----------
Net cash provided by (used in) operating activities (449,343) 326,246
---------- ----------
INVESTING ACTIVITIES:
Payments for equipment, net of retirements (164,907) (176,257)
Payments for other assets (370,238) (351,105)
---------- ----------
Net cash used in investing activities (535,145) (527,362)
---------- ----------
FINANCING ACTIVITIES :
Proceeds from borrowings 1,025,000 50,000
Repayment of borrowings (268,775) (4,166)
Issuance of common stock 168,874 378,125
---------- ----------
Net cash provided by financing activities 925,099 423,959
---------- ----------
INCREASE (DECREASE) IN CASH (59,389) 222,843
CASH, BEGINNING OF YEAR 1,258,119 1,035,276
---------- ----------
CASH, END OF YEAR $1,198,730 $1,258,119
========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $8,443 $2,643
========== ===========
</TABLE>
F-6
<PAGE>
TRINITECH SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Trinitech Systems, Inc. and subsidiary (the "Company") develops and
markets advanced electronic trade entry and data capture systems to
financial service firms in the United States and Europe. The Company's
turnkey systems, developed using patented hardware technology and
proprietary software, permit real time execution monitoring of trading
transactions. The Company has also successfully leveraged its patented
flat panel hardware technology through sales outside the financial sector.
During 1996, the Company had a major sale of equipment to a non-financial
service firm customer. In addition, the Company offers a range of related
information technology services and maintenance support. The Company has
sales offices in both the U.S. and Europe.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories consist of parts, work-in-process and finished goods and are
stated at the lower of cost, determined on a first-in, first-out basis, or
market.
EQUIPMENT
Equipment is stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of
the assets ranging from three to eight years.
OTHER ASSETS
Other assets consist principally of organization costs, deferred product
enhancement costs, and deposits. Such other assets are being amortized
using the straight-line method over three to five years. Patent costs,
included in organization costs, are being amortized over seventeen years.
F-7
<PAGE>
REVENUE RECOGNITION
Sales are generally recorded upon shipment of the product to customers.
Revenue from service contracts is recognized over the period the services
are performed. Costs to fulfill service contracts have been insignificant
during the periods presented.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the U.S. dollar. Accordingly, the
monetary assets and liabilities of the European sales office are
translated at year-end exchange rates while nonmonetary assets and
liabilities are translated at historical rates. Revenues and expenses are
translated at average rates in effect during the year, except for
depreciation and cost of sales which are translated at historical rates.
The resulting currency translation gain or loss is included in the results
of operations for the periods presented.
NET INCOME (LOSS) PER COMMON SHARE AND COMMON STOCK
Net income (loss) per common share is based on the weighted average number
of common and common equivalent shares outstanding. Common stock
equivalents have not been included in the per share calculation for 1996
because their effect is anti-dilutive.
2. INVENTORY
Inventory consists of the following:
----- December 31, -----
1996 1995
---- ----
Parts $ 750,722 $ 634,003
Finished goods 403,465 366,447
---------- ----------
Total $1,154,187 $1,000,450
========== ==========
3. EQUIPMENT
Equipment consists of the following:
----- December 31, -----
1996 1995
---- ----
Computer software $233,681 $202,520
Leasehold improvements 39,169 32,474
Furniture and Equipment 578,875 451,824
--------- ---------
Subtotal 851,725 686,818
Less accumulated
depreciation 417,087 283,306
--------- ---------
$434,638 $403,512
======== ========
F-8
<PAGE>
4. CAPITAL STOCK
During 1995, 155,500 warrants were exercised resulting in the issuance of
155,500 shares of Common Stock. The Company received $311,000 from the
exercise of such warrants. In addition, during 1996, 27,500 warrants were
exercised resulting in the issuance of 27,500 shares of Common Stock. The
Company received $55,000 from the exercise of such warrants.
As of December 31, 1996 there are outstanding warrants (the "Warrants") to
purchase 542,587 shares of Common Stock. The Warrants are exercisable as
follows:
Per Share
Warrants Exercise Price Expiration Date
-------- -------------- ---------------
50,000 $3.50 December 1, 1997
245,000 $2.00 December 31, 1997
90,087 $2.25 - $2.67 December 31, 1998
90,000 $3.00 June 30, 1998
67,500 $5.13 December 31, 2000
5. MAJOR CUSTOMERS AND EXPORT SALES
During the year ended December 31, 1996 two customers accounted for
approximately 57% (non-financial service firm customer) and 15%,
respectively of total sales. For the year ended December 31, 1995 three
customers accounted for 38% of total sales, the largest customer
representing 16% of total sales. Export sales amounted to approximately
$5,419,000 and $1,819,000 for the years ended December 31, 1996 and 1995,
respectively.
6. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the years ended December 31, 1996
and 1995 totaled approximately $241,900 and $194,500, respectively and are
included in selling and administrative expenses.
7. TERM LOANS PAYABLE
At December 31, 1996 and 1995, the Company had two term loans payable
totaling $57,059 and $45,834, respectively, for the purpose of financing
development equipment. The term loans, secured by the underlying
equipment, are payable in monthly instalments through September 1998 and
September 1999, respectively. Interest on the term loans are 7.96% and
8.95%, respectively, per annum. Interest expense for 1996 and 1995 totaled
$3,753 and $2,643, respectively.
F-9
<PAGE>
8. CREDIT LINE PAYABLE
The Company has a $1 million line of credit agreement with interest at 1
percent over the Bank's prime rate (8.25% at December 31, 1996) available
through April 30, 1997 and is secured by accounts receivable, inventory
and certain equipment. At December 31, 1996, the Company utilized $745,000
of the line and had $255,000 available under such agreement. The Company
repaid the line of credit, in full during January 1997. The weighted
average outstanding borrowings during 1996 were $86,200 at a weighted
average interest rate of 9.25%. The bank agreement requires the Company,
among other things, to maintain minimum tangible net worth and a minimum
current ratio. At December 31, 1996, the Company obtained a waiver of the
required minimum tangible net worth and minimum current ratio. Interest
expense for 1996 totaled $8,032.
9. COMMITMENTS
At December 31, 1996, the Company was committed under operating leases for
offices, production facilities and equipment for terms expiring through
April 30, 2002. Future minimum annual rental payments are as follows:
Year Amount
---- ------
1997 $178,400
1998 185,200
1999 182,800
2000 185,200
2001 185,200
Thereafter 61,700
For the year 1997, future minimum annual rental payments are net of
sublease income of $12,000. The gross expense under these operating leases
was $172,200 and $162,200 for the years ended December 31, 1996 and 1995,
respectively. Sublease income for the year ended December 31, 1996 totaled
$35,800.
During January 1991, the Company entered into an employment agreement with
its President. The agreement calls for a base salary of $114,000 for the
first year, such base salary to be reviewed on an annual basis thereafter
by the Compensation Committee of the Board of Directors. In addition, the
President is entitled to receive a sales commission on the gross sales of
any products of the Company which are sold through the direct sales effort
of the executive, which is equivalent to the normal sales commission paid
to all Company commission employees. The President received $41,900 and
$30,200 in sales commissions during 1996 and 1995, respectively.
10. DEFINED CONTRIBUTION PLAN
The Company, on January 1, 1994, established a 401(k) retirement plan
covering substantially all of its domestic employees who meet eligibility
requirements. The Company matches employees' tax deferred contributions up
to a maximum of 3% of employees' compensation provided the employee is
employed by the Company at the end of the year. Remaining contributions
under the plan are discretionary. Total
F-10
<PAGE>
expense under the plan approximated $30,000 and $25,500 in 1996 and 1995,
respectively.
11. STOCK OPTION PLAN
The Company maintains an incentive stock option plan for its officers and
key employees and reserved 1,500,000 shares of its Common Stock to cover
the exercise of options which may be granted under such plan. The option
exercise price equals the stock's market price on the date of grant. The
options vest 50% one year from date of grant and 50% two years from date
of grant. All options granted under the plan expire ten years from date of
grant, unless an earlier expiration date is set at the time of grant. At
December 31, 1996, options to purchase 1,109,500 shares were available for
grant under the stock option plan. The Company accounts for this plan
under APB Opinion No. 25, under which no compensation cost has been
recognized.
Had compensation cost been determined consistent with FASB Statement No.
123, the Company's net income (loss) and income (loss) per share would
have been reduced to the following pro forma amounts:
1996 1995
---- ----
Net Income: As Reported ($445,285) $81,466
Pro forma ($666,561) ($12,679)
Income (loss) per share: As Reported ($0.06) $0.01
Pro forma ($0.09) $0.00
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
A summary of the status of the Company's stock option plan at December 31,
1996 and 1995, and changes during the years then ended are as follows:
Number Weighted Average
of Shares Exercise Price
1995
Outstanding January 1, 1995 185,500 $2.22
Granted 109,500 $3.21
Exercised (25,500) $2.63
Forfeited (13,000) $3.77
-------
Outstanding December 31, 1995 256,500 $2.52
Granted 207,000 $4.26
Exercised (75,000) $1.52
Canceled (83,500) $5.31
Forfeited (15,000) $3.63
-------
Outstanding December 31, 1996 290,000 $3.06
=======
Exercisable at December 31, 1996 130,500 $2.62
=======
F-11
<PAGE>
160,500 of the 290,000 options outstanding at December 31, 1996 have
exercise prices between $2.25 - $3.00, with a weighted average exercise
price of $2.60 and a weighted average remaining contractual life of 7.6
years. 130,500 of these options are exercisable; their weighted average
exercise price is $2.62. The remaining 129,500 options have exercise
prices between $3.63 and $3.99, with a weighted average exercise price of
$3.69 and a weighted average remaining contractual life of 8.7 years, none
of these options are exercisable.
The fair values of the option grants were estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1996 and 1995; expected life of 5
years, no expected dividend yields, expected volatility of 67% and
risk-free interest rates of 6.20 and 7.01, respectively.
12. INCOME TAXES
No provision for income taxes was recorded for all periods presented, due
to the cumulative loss from operations. At December 31, 1996, the Company
had operating loss carryforwards for financial reporting and tax purposes,
subject to review by the Internal Revenue Service, of approximately
$1,300,000 and $1,200,000, respectively. These loss carryforwards expire
beginning in 2007. The tax benefit of such operating loss carryforwards
will be credited to income when realization is more likely than not.
Deferred tax assets of approximately $520,000 relating to the loss
carryforwards were offset by a full valuation allowance.
13. SUBSEQUENT EVENT
On March 7, 1997 the Company completed a private placement of 800,000
shares of Common Stock at a price of $4.50 per share, for an aggregate
value of $3,600,000. Costs related to this offering amounted to
approximately $75,000 resulting in net proceeds to the Company of
approximately $3,525,000.
----------------------------------
F-12
TRINITECH SYSTEMS, INC.
AMENDED AND RESTATED 1991 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
1. PURPOSE. The TRINITECH SYSTEMS, INC. 1991 INCENTIVE AND
NONQUALIFIED STOCK OPTION PLAN (the "Plan") is intended to provide a means
whereby certain employees, directors of TRINITECH SYSTEMS, INC., a New York
corporation (the "Company"), its subsidiaries and affiliated entities, or who
are deemed to be in a position to perform such services in the future, may
develop a sense of proprietorship and personal involvement in the development
and financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Company may
grant to such individuals the option to purchase shares of the Common Stock of
the Company, as hereinafter set forth. Options granted under the Plan may be
either incentive stock options, within the meaning of section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), ("Incentive Stock
Options") or options which do not constitute Incentive Stock Options
("Nonqualified Stock Options").
2. ADMINISTRATION. The Plan shall be administered by a committee
(the "Option Committee") which shall be constituted so as to permit the Plan to
continue to comply with Rule 16b-3, as currently in effect or as hereafter
modified or amended, promulgated under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). The members of the Committee shall be members of the
Board of Directors of the Company (the "Board") and shall be appointed by the
Board. The Board of Directors may from time to time remove members from or add
members to the Committee. Vacancies on the Committee, howsoever caused, shall be
filed by the Board of Directors. Committee may act at a meeting in which a
majority are present, or by written consent of a majority of the Committee.
Subject to the provisions of the Plan, the Option Committee shall
have authority: (i) to construe and interpret the Plan, (ii) to define the terms
used therein; (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan; (iv) to determine the individuals to whom and the time or
times at which options shall be granted and exercisable, the number of shares to
be subject to each option, the option price and the duration of each option; (v)
to modify, extend or renew outstanding options except such change shall not
impair any rights under an option previously granted; (vi) to accept the
surrender of outstanding options to the extent not theretofore exercised whether
or not in connection with the grant of other options to the same persons; (vii)
to approve and determine the duration of leaves of absences which may be granted
to participants without constituting a termination of their employment for the
purposes of the Plan; and (viii) to make all other determinations necessary or
advisable for the administration of the Plan. All determinations and
interpretations made by the Option Committee shall be binding and conclusive on
all participants in the Plan and on their legal representative and
beneficiaries.
1
<PAGE>
3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN. Subject to adjustments
as provided in Section 15 hereof, the stock to be offered under the Plan shall
consist of shares of the Company's authorized but unissued Common Stock, $.001
par value and the aggregate amount of stock to be delivered upon exercise of all
options granted under the Plan shall not exceed (1,500,000) of such shares. If
any option granted hereunder shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for the purposes of this Plan.
4. ELIGIBILITY AND PARTICIPATION. (a) Options may be granted only to
(i) individuals who are employees (including officers and directors who are also
employees) of the Company or any parent or subsidiary corporation (as defined in
Section 424 of the Code) of the Company at the time the Option is granted, and
(ii) individuals who are directors (but not also employees) of the Company or
any such parent or subsidiary corporation, provided, however, that (A) Options
which constitute Incentive Stock Options may only be granted to employee
described in clause (i) above, and (B) members of the Committee shall only be
granted Options pursuant to Paragraph 4(b) hereof. Options may be granted to the
same individual on more than one occasion. To the extent that the aggregate fair
market value (determined at the time the respective Incentive Stock Options is
granted) of stock with respect to which Incentive Stock Options are exercisable
for the first time by an individual during any calendar year under all incentive
stock option plans of the individual's employer corporation and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Stock Options because of
such limitation and shall notify the optionee of such determination as soon as
practicable after such determination.
(b) Subject to the limitation on the number of shares of Stock set
forth in Paragraph 3 hereof, each member of the Board of Directors of the
Company as of January 1, 1996 who is not also an employee of the Company or any
parent or subsidiary corporation (as defined in section 424 of the Code) of the
Company (a "Non-Employee Director") on January 1, 1998 is hereby granted,
effective on such date, an Option to purchase 7,500 shares of Stock at a price
equal to the fair market value of the Stock on such grant date. Moreover, each
Non-Employee Director hereafter newly-elected to the Board of Directors of the
Company during the term of the Plan is hereby granted, effective on the first
business day next following such election, an Option to purchase 30,000 shares
of Stock at a price equal to the fair market value of the Stock on such grant
date which options vest immediately as to 7,500 shares and over a three year
period as to the remaining 22,500 shares (7,500 shares per year). Additionally,
after all options granted to a newly-elected Director vest, each Non-Employee
Director who receives an initial grant under the Plan and who is a Non-Employee
Director on the applicable effective date of the annual grant is hereby granted,
effective on the first business day next following the anniversary of such
initial grant date in each calendar year during the term of the Plan (but only
after all options granted to such Non-Employee Director shall have vested), an
Option to purchase 7,500 shares of Stock at a price equal to the fair market
value of the Stock on such grant date. Each such Option shall be fully
exercisable after the date of grant, with payment in cash or stock, may be
exercised only by the Non-Employee Director or by the Non-Employee Director's
guardian or legal representative during the Non-Employee Director's lifetime,
may be exercised only while the Non-Employee Director remains a member of the
Board and during the three month period immediately
2
<PAGE>
following the loss of such membership status, may, in the event of the
Non-Employee Director's death while the Option is exercisable, be exercised by
the administrator of the Non-Employee Director's estate during the one-year
period following such date of death and must, in any event, be exercised prior
to the expiration of ten years from the date of grant. All options under this
Paragraph 4(b) shall be evidenced by Option Agreements. Except as expressly
provided in this Paragraph 4(b), grants made pursuant to this Paragraph 4(b)
shall be subject to the terms and conditions of the Plan; however, if there is a
conflict between the terms and conditions of the Plan and this Paragraph 4(b),
then the terms and conditions of this Paragraph 4(b) shall control. The
Committee may not exercise any discretion with respect to this Paragraph 4(b)
which would be inconsistent with the intent that (i) the Plan meet the
requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission
under the 1934 Act and (ii) any Non-Employee Director who is eligible to receive
a grant or to whom a grant is made pursuant to this Paragraph 4(b) will not for
such reason cease to be a "disinterested person" within the meaning of such Rule
16b-3 with respect to the Plan and other stock related plans of the Company or
any of its affiliates.
5. PURCHASE PRICE; LIMITATION ON VALUE. The purchase price of the
stock covered by each option shall be determined by the Option Committee but
shall not be less than one hundred percent (100%) except when an Incentive Stock
Option is granted to an individual who at the time of grant owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or its parent or subsidiary corporations ("Ten
Percent Holder"). The purchase price shall not be less than one hundred ten
percent (110%) of the fair market value of such stock, on the date the option is
granted, as determined by the Option Committee. The aggregate fair market value,
determined as of the date an Incentive Stock Option is granted, of the stock for
which Incentive Stock Options are exercisable for the first time by any optionee
during any calendar year under the Plan (and/or any other stock option plans of
the Company or any subsidiary) shall not exceed $100,000.
6. DURATION OF OPTIONS. Each option and all rights thereunder shall
expire on such date as the Option Committee may determine but in no event later
than ten (10) years, (or with respect to Incentive Stock Options for Ten Percent
Holders five (5) years) from the date on which the option is granted and shall
be subject to earlier termination as provided herein.
7. EXERCISE OF OPTIONS. Each option shall be exercised in whole or
in such installments during the period prior to its expiration date as the
Options Committee shall determine, provided that in the event the Option Holder
shall not in any given installment period purchase all of the shares which he is
entitled to purchase in such installment period, his right to purchase any
shares not purchased in such installment period shall continue until the
expiration date or sooner termination of his option. At the time of each
exercise the purchase price of any shares purchased shall be paid in full in
cash or by certified or cashier's check payable to the order of the Company; or
at the Option Holder's election subject to the adoption of and in compliance
with guidelines established by the Board of Directors and provided such election
does not preclude an Incentive Stock Option from being an "incentive stock
option" within the meaning of the Internal Revenue Code, by the exchange of
shares of the Common Stock of the Company then owned by the Option Holder with a
fair market value equal to said purchase price. The Option Committee may
authorize the purchase price of the stock subject to option to be
3
<PAGE>
loaned to the Option Holder by the Company in connection with his exercise,
provided that the Board of Directors has established guidelines for such loans
by the Company (including term, whether such loan shall be interest free or the
means of determining interest rate and whether or not such loans shall be
collateralized) and the loan authorized by the Option Committee is in compliance
with such guidelines.
8. WITHHOLDING; DISQUALIFYING DISPOSITION. (a) The Company shall
deduct and withhold from any salary or other compensation for employment service
of an option holder all amounts required to satisfy withholding tax liabilities
arising from the grant or exercise of an option under the Plan or the
acquisition or disposition of shares acquired upon exercise of any such option.
(b) In the case of disposition by an option holder of shares
acquired upon exercise of an incentive stock option with (i) two years after the
date of grant of such incentive stock option, or (ii) one year after the
transfer of such shares to such option holder, such option holder shall give
written notice to the Company of such disposition not later than 30 days after
the occurrence thereof, which notice shall include all such information as may
be required by the Company to comply with applicable provisions of the Code and
shall be in such form as the Company shall from time to time determine.
(c) In the discretion of the Option Committee and in lieu of the
deduction and withholding provided for in subparagraph (a) above, the Company
shall deduct and withhold shares otherwise issuable to the option holder having
a fair market value on the date income is recognized pursuant to the exercise of
an option equal to the amount required to be withheld.
9. NON-TRANSFERABILITY OF OPTIONS. An option granted under the Plan
shall, by its terms, be non-transferable by the Option Holder, either
voluntarily or by operation of law, otherwise than by will or the laws of
descent and distribution and shall be exercisable during his lifetime only by
him.
10. EMPLOYMENT. If required by the Option Committee, each person to
whom an option is granted under the Plan must agree in writing as a condition to
the granting of the option that he will remain in the employ of the Company or a
subsidiary corporation following the date of the granting of the option for a
period of one (1) year. Nothing contained in the Plan or in any option granted
under the Plan shall confer upon any Option Holder any right with respect to the
continuation of his employment by the Company or any subsidiary or interfere in
any way with the right of the Company or of any subsidiary, subject to the terms
of any separate employment agreement to the contrary at any time to terminate
such employment or to increase or decrease the compensation of the Option Holder
from the rate in existence at the time of the granting of an option.
11. TERMINATION OF EMPLOYMENT. If an Option Holder ceases to be
employed by the Company or one of its subsidiaries for any reason other than his
death, his option shall immediately terminate; provided, however, that if such
cessation of employment shall be due to his voluntary resignation with the
consent of the Board of Directors of the Company or such
4
<PAGE>
subsidiary, expressed in the form of a resolution, or to his retirement under
the provisions of any Pension or Retirement Plan of the Company or of such
subsidiary than in effect, such option may be exercised to the extent
exercisable but remaining unexercised on the date of such cessation of
employment, within three (3) months after the date he ceases to be an employee
of the Company or such subsidiary, or if such Option Holder is disabled within
the meaning of Section 105 (d) (4) of the internal Revenue Code, within three
(3) months after he ceases to be an employee of the Company, to the extent
exercisable but remaining unexercised on the date his employment terminates.
12. DEATH OF OPTION HOLDER. If an Option Holder dies while he is
employed by the Company or one of the subsidiaries or within three (3) months
after he shall cease to be an employee by reason of his voluntary resignation
with the consent of the Board of Directors of the Company or such subsidiary
expressed in form of a resolution, or his retirement under the provisions of any
Pension or Retirement Plan of the Company or of such subsidiary then in effect,
this option shall expire one (1) year after the date of such death. During such
period after such death, such option, to the extent that it was exercisable but
it remained unexercised on the date of such death, but subject to adjustment in
respect of option price and number and class of shares by reason of any event
occurring subsequent to such date of death as provided in Section 15 thereof,
may be exercised by the person or persons to whom the Option Holder's rights
under the option shall pass by his will or by the laws of descent and
distribution and such person or persons shall adequately prove to the Company
his right to exercise any such option. To the extent of any conflict between
Paragraphs 11 and 12, Paragraph 12 shall govern. Anything herein above stated in
Paragraphs 11 or 12 to the contrary notwithstanding, an option may not be
exercised by anyone after the expiration of the maximum period provided for in
Paragraph 6.
13. STOCK PURCHASE FOR INVESTMENT. Each Option Holder shall, by
accepting an option, represent and agree, for himself and his transferees by
will or the laws of descent and distribution, that all shares of stock purchased
upon exercise of the option will be acquired for investment and not for resale
or distribution. Upon each exercise of any portion of an option, the person
entitled to exercise the same shall furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for his own account and for investment
and not for resale or distribution. Such investment representation shall not be
effective if and so long as the shares issuable upon exercise of the option are
covered by an effective and current Registration Statement under the Securities
Act of 1933.
14. PRIVILEGES OF STOCK OWNERSHIP. No person entitled to exercise
any option granted under the Plan shall have any of the rights and privileges of
a Stockholder of the Company in respect of any shares of stock issuable upon
exercise of such option until certificates representing such shares shall have
been issued and delivered. No shares shall be issued and delivered upon exercise
of any option unless and until, in the opinion of counsel for the Company, any
applicable registration requirements of the Securities Act of 1933, any
applicable listing requirements of any national securities exchange on which
stock of the same class is then listed, and any other requirements of law or of
any regulatory bodies having jurisdiction are complied with. The Company may,
but need not, require that all costs in connection with any such registration,
listing or any other requirements of law be paid by the person exercising the
option.
5
<PAGE>
15. ADJUSTMENTS. If the outstanding shares for the Common Stock of
the Company are increased, decreased, or changed into or exchanged for a
different number or kind of shares or securities of the Company, through
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split, an appropriate and proportionate adjustment shall be
made in the maximum number and kind of shares as to which options may be granted
under this Plan. A corresponding adjustment changing the number of kind of
shares allocated to unexercised option or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in the number of shares subject to outstanding options shall be made
without change in the aggregate purchase price applicable to the unexercised
portion of the option but with a corresponding adjustment in the price for each
share or other unit of any security then covered by the option.
Upon the dissolution or liquidation of the Company or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, the
plan shall terminate and any option theretofore granted hereunder shall
terminate unless provision be made in writing in connection with such
transaction for the continuance of the Plan or for the assumption of options
theretofore granted, or the substitution for such options of new options
covering the stock of a successor, employer, corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to number and kind of shares
and prices, in which event the Plan and options theretofore granted shall
continue in the manner and under the terms so provided.
Adjustments under this Section shall be made by the Board of
Directors whose determination as to what adjustments shall be made and the
extent thereof shall be final, binding and conclusive. No fractional shares of
stock or units or other securities shall be issued under the Plan or any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding either upward or downward to the nearest
whole share or unit, provided, however, that any adjustments under this Section
shall be made in such manner as not to constitute a "modification" as defined in
Section 425 of the Internal Revenue Code.
16. OTHER PROVISIONS. The option agreements authorized under the
Plan shall contain such other provisions including without limitation,
restrictions upon the exercise of the option, as the Option Committee or the
Board of Directors of the Corporation shall deem advisable. Any such option
agreement with respect to an Incentive Stock Option shall contain such
limitations and restrictions upon the exercise of such options as shall be
necessary in order that such option will be an "incentive stock option" as
defined in Section 422A of the Internal Revenue Code or to conform to any change
in the law.
17. AMENDMENT AND TERMINATION OF PLAN. The Board of Directors of the
Company may at any time suspend or terminate the Plan. The Board may also at any
time amend or revise the terms of the Plan, provided that no such amendment or
revisions shall increase the maximum number of shares in the aggregate which may
be sold pursuant to the options granted under the Plan, except as permitted
under the provisions of Section 15, or change the minimum purchase
6
<PAGE>
price set forth in Section 5, or increase the maximum term of options provided
for in Section 6, or permit the granting of options to anyone other than as
provided in section 4. No Amendment, suspension or termination of the Plan shall
(a) result in the disqualification of any option granted pursuant to the Plan as
an "incentive stock option" under the Internal Revenue Code or (b) without the
consent of the Option Holder, alter or impair any rights or obligations under
any option theretofore granted under the Plan unless authorized by the
provisions of the Plan.
18. DEFINITION OF SUBSIDIARY AND PARENT. The terms "subsidiary" and
"parent" as used in the Plan and in any stock option agreement issued pursuant
thereto mean, respectively, a subsidiary or a parent corporation as defined in
Section 425 of the Internal Revenue Code.
19. INDEMNIFICATION OF COMMITTEE. In addition to such other rights
of indemnification as they may have as directors, the members of the Option
Committee shall be indemnified by the Company to the full extent authorized by
Section 722 of the Business Corporation Law of the State of New York that within
60 days after institution of any action, suit or proceeding to which such
indemnification applies an Option Committee member shall in writing offer the
Company the opportunity at its own expense, to handle and defend the same.
20. APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Stock pursuant to option will be used for general
corporate purposes.
21. NO OBLIGATION TO EXERCISE OPTION. The granting of an option
shall impose no obligation upon the Option Holder to exercise such option.
22. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its
approval by the affirmative vote or consent of the Holders of a majority of
shares of Common Stock outstanding. The Plan shall terminate ten (10) years
after becoming effective and no further options shall thereafter be granted
hereunder.
---------------------------------------
This Plan expires on June 23, 2001.
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-KSB, into the Company's
previously filed Registration Statement File Nos. 33-61298 and 33-85522.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Stamford, Connecticut,
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,198,730
<SECURITIES> 0
<RECEIVABLES> 3,832,364
<ALLOWANCES> 30,000
<INVENTORY> 1,154,187
<CURRENT-ASSETS> 6,471,192
<PP&E> 851,725
<DEPRECIATION> 417,087
<TOTAL-ASSETS> 7,523,336
<CURRENT-LIABILITIES> 2,898,436
<BONDS> 0
0
0
<COMMON> 7,375
<OTHER-SE> 6,088,975
<TOTAL-LIABILITY-AND-EQUITY> 7,523,336
<SALES> 7,013,605
<TOTAL-REVENUES> 7,013,605
<CGS> 4,146,490
<TOTAL-COSTS> 4,146,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,694
<INCOME-PRETAX> (445,285)
<INCOME-TAX> 0
<INCOME-CONTINUING> (445,285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (445,285)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
