UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission File No. 0-21324
TRINITECH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 06-1344888
(State of incorporation) (I.R.S. Employer identification number)
333 LUDLOW STREET, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 425-8000
------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
9,480,017 shares of Common Stock were issued and outstanding as of July 16,
1999.
<PAGE>
Trinitech Systems, Inc.
FORM 10-Q
For the quarterly period ended June 30, 1999
CONTENTS PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Condensed consolidated statements of operations
(unaudited) for the three month and six month
periods ended June 30, 1999 and 1998 4
Condensed consolidated statements of cash flows
(unaudited) for the six month periods ended
June 30, 1999 and 1998 5
Notes to condensed consolidated financial
statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 15
2
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TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
---- ----
(Unaudited) (a)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,504,946 $ 3,948,004
Accounts receivable - less allowance of
$122,952 and $92,986, respectively 5,267,943 3,417,418
Inventories, net 1,241,254 1,279,302
Prepaid expenses and other current assets 500,463 283,912
Receivable from officers 131,036 120,583
------------ ------------
Total Current Assets 8,645,642 9,049,219
EQUIPMENT, net of accumulated depreciation of $1,954,513 and
$1,453,882, respectively
4,300,306 2,854,131
OTHER ASSETS 1,503,688 1,094,169
------------ ------------
TOTAL $ 14,449,636 $ 12,997,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,283,234 $ 873,817
Accrued expenses 741,244 635,943
Advance billings 2,062,333 1,489,057
Payroll and other taxes payable 88,203 79,953
------------ ------------
Total Current Liabilities 4,175,014 3,078,770
LONG TERM DEBT 1,800,000 1,800,000
------------ ------------
Total Liabilities 5,975,014 4,878,770
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock -
par value $1.00; 1,000,000 shares
authorized; -0- issued and outstanding -- --
Common stock - par value $.001; 15,000,00 authorized;
9,479,517 and 9,408,530 shares issued and outstanding,
respectively 9,480 9,409
Warrants 152,675 125,513
Additional paid-in capital 15,009,893 14,767,116
Accumulated deficit (6,150,022) (6,330,364)
Due from officers and directors (547,404) (452,925)
------------ ------------
Total Stockholders' Equity 8,474,622 8,118,749
------------ ------------
TOTAL $ 14,449,636 $ 12,997,519
============ ============
</TABLE>
(a) The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
3
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TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
REVENUES:
<S> <C> <C> <C> <C>
Sales $ 1,041,267 $ 728,657 $ 1,874,506 $ 1,137,458
Subscription Revenue 1,575,478 503,033 2,726,050 835,491
Service Contracts 424,821 329,857 846,172 628,874
----------- ----------- ----------- -----------
Total Revenues 3,041,566 1,561,547 5,446,728 2,601,823
COST OF RECURRING CONTRACTS and SALES 976,949 604,336 1,639,840 1,067,650
----------- ----------- ----------- -----------
GROSS PROFIT 2,064,617 957,211 3,806,888 1,534,173
----------- ----------- ----------- -----------
EXPENSES:
Selling, general and administrative 1,732,643 1,513,398 3,296,717 2,971,622
Depreciation 142,398 87,751 271,010 168,632
Amortization 4,852 4,595 9,705 9,190
----------- ----------- ----------- -----------
Total Expenses 1,879,893 1,605,744 3,577,432 3,149,444
----------- ----------- ----------- -----------
EARNINGS (LOSS) FROM OPERATIONS 184,724 (648,533) 229,456 (1,615,271)
OTHER (EXPENSE) INCOME - NET (26,884) 67,453 (38,639) 93,491
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) BEFORE PROVISION FOR INCOME TAXES 157,840 (581,080) 190,817 (1,521,780)
PROVISION FOR INCOME TAXES 7,675 3,920 10,475 4,220
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 150,165 $ (585,000) $ 180,342 $(1,526,000)
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 0.02 $ (0.07) $ 0.02 $ (0.18)
=========== =========== =========== ===========
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,427,059 8,709,030 9,421,104 8,647,530
=========== =========== =========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
4
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TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Month Six Month
Period Ended Period Ended
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 74,245 $ (636,035)
----------- -----------
INVESTING ACTIVITIES:
Payments for equipment, net of retirements (1,946,805) (620,263)
Payments for other assets (718,867) (405,578)
----------- -----------
Net cash used in investing activities (2,665,672) (1,025,841)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from line of credit -- 500,000
Repayment of borrowings -- (179,285)
Issuance of common stock 148,369 748,875
----------- -----------
Net cash provided by financing activities 148,369 1,069,590
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (2,443,058) (592,286)
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,948,004 2,141,307
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,504,946 $ 1,549,021
=========== ===========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
5
<PAGE>
TRINITECH SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. In the opinion of management, all
adjustments, which comprise normal and recurring accruals considered
necessary for a fair presentation, have been included. Operating
results for the three and six-month period ended June 30, 1999 are
not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-KSB for the year ended
December 31, 1998.
Certain 1998 balances have been reclassified to conform to the 1999
presentation.
2. PER SHARE INFORMATION
The Company's basic EPS is calculated based on net earnings
available to common shareholders and the weighted-average number of
shares outstanding during the reported period. Diluted EPS includes
additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and stock
warrants.
<TABLE>
<CAPTION>
Three Month Six Month
Period Ended Period Ended
------------------------ --------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Earnings (Loss) $ 150,165 $ (585,000) $ 180,342 $(1,526,000)
========== =========== ========== ===========
Basic Weighted Average Shares Outstanding 9,427,059 8,709,030 9,421,104 8,647,530
Dilutive Options 415,540 - 353,344 -
Dilutive Warrants 86,661 - 86,661 -
----------- ---------- --------- ===========
Dilutive Weighted Average Shares Outstanding 9,929,260 8,709,030 9,861,109 8,647,530
=========== ========== ========= ===========
Dilutive Earnings (Loss) per Common Share $0.02 $(0.07) $0.02 $(0.18)
=========== ========= ========= ==========
</TABLE>
Stock options and warrants were excluded from the earnings per share calculation
for the three and six month period ended June 30, 1998 since the amounts would
be anti-dilutive.
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3. INCOME TAXES
The Company's projected annual Federal income tax provision has been
offset through the utilization of net operating loss carryforwards.
The Company's income tax provision consists of estimated state and
local income taxes.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Parts $ 799,290 $ 823,429
Finished goods 523,964 537,873
Less: allowance for obsolescence 82,000 82,000
---------- -----------
Total $1,241,254 $ 1,279,302
========== ===========
</TABLE>
5. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes standards for the accounting and reporting for
derivative instruments and for hedging activities and requires the
recognition of all derivatives as assets or liabilities measured at
their fair value. Gains or losses resulting from changes in the fair
value of derivatives would be recognized in earnings in the period
of change unless certain hedging criteria are met. The Company does
not expect the Statement to have a material impact on the
consolidated financial statements. SFAS No. 133, as amended by SFAS
No. 137, is effective for fiscal years beginning after June 15,
2000.
7
<PAGE>
6. BUSINESS SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
requires that segment data be disclosed based on how management
makes decisions about allocating resources to segments and measuring
their performance.
The Company has two principal business groups: Equities and Futures
& Options. The Equities Group operates primarily out of Stamford/New
York offices, while the Futures & Options Group operate primarily
out of the London and Chicago offices. However, each office has the
opportunity to sell all of the Company's products. The Company views
each office as its own business segment and measures its performance
based on the revenues of each location. The Company makes decisions
on each segment based on gross profit.
Information on reportable segments is as follows (in 000's):
<TABLE>
<CAPTION>
Three Month Six Month
Period Ended Period Ended
------------------------------------------ -------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------ ---------------------- ----------------------- ---------------
Revenues:
<S> <C> <C> <C> <C>
Stamford/New York $2,429 $859 $4,107 $1,480
London 574 693 1,298 1,098
Chicago 39 10 42 24
Inter-Segment Sales 21 - 21 6
Inter-Segment Elimination (21) - (21) (6)
============ ================ ======================= =======================
Total Revenues $3,042 $1,562 $5,447 $2,602
============ ================ ======================= =======================
Gross Profit:
Stamford/New York $1,560 $302 $2,618 $490
London 470 647 1,153 1,027
Chicago 35 8 36 17
============ ================ ======================= =======================
Gross Profit $2,065 $957 $3,807 $1,534
============ ================ ======================= =======================
</TABLE>
7. STOCK OPTION PLAN
On March 30, 1999, the Board of Directors formally approved the
second amendment to the Amended and Restated 1991 Incentive and
Nonqualified Stock Option Plan. Under this amendment, the number of
options reserved for issuance has been increased from 1,500,000
shares to 2,500,000 shares of common stock. This amendment was
approved at the Company's Annual Meeting of Shareholders held on
June 7, 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto. Historical results and
percentage relationships are not necessarily indicative of the operating results
for any future period.
The Company commenced its present business operations in January 1991 through
the acquisition of a software license for its Guided-Input(R) Touchpad system.
Since that time, the Company has transitioned from a hardware vendor to a
software development company focusing exclusively on applications for the
financial marketplace. The Company provides a complete line of workstation
products for the financial trading desk environment and its systems provide
order management and routing software for firms engaged in financial trading.
The Company currently offers its trading products (integrated systems including
hardware and software) together with linkage through its NYFIX data center. The
data center is a communication infrastructure enabling the Company to provide
its customers with global electronic connectivity for order routing and allows
Trinitech to deploy and monitor its systems and services from a single location.
Customers subscribe to various products, paying a monthly fee per terminal for
the Company's integrated software systems. Most contracts provide the customer
with a basic system or infrastructure, via the Company's NYFIX data center and
are entered into by the customer with the intention to expand the level of
services subscribed to, once the basic system and infrastructure are
operational. Subscription revenue contracts range from one to three year
periods. The Company begins recording subscription revenue once installation is
complete. In addition to significant logistical improvements in delivery and
support of its products, the Company expanded its business to offer the industry
a central electronic meeting place between the buy-side and sell-side, while
simultaneously providing a single point of universal access to different
exchange floor environments.
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems and changes to its business
model to that of a subscription-based product offering. The Company believes
this expansion of personnel, facilities, product portfolio and
subscription-based model will continue to benefit the Company and its future
growth. In the previous model, the Company would only receive revenue one time
for products or services sold. It is important to note that this transition is
causing revenue to be recognized over a longer period of time than the previous
capital sales model. Management believes our subscription business model has
strengthened the Company's market share as well as its financial position going
forward.
Revenues
Overall revenue for the three months ended June 30, 1999 exceeded 1998 by 94.8%
from $1,561,547 to $3,041,566. For the six months ended June 30, 1999, revenue
grew, year-over-year, by 109.3%. Subscription revenue continued to show the most
improvement by increasing 213.2% year over year for the three month period and
226.3% for the six month period. Sales also showed improvement with a year over
year increase of 42.9% for the three months ended and 64.8% for the six months
ended, primarily as a result of strong demand for the Company's Order Book
Management System ("OBMS") Futures and Options products. With the increase of
sales and subscription revenue, service contract revenue has shown a modest
increase of 28.8% year over year for the three month period and 34.6% for the
six month period. Revenue from export sales approximated $12,000 and $22,000
(less than 1% of revenue) during the three month and six month periods ended
June 30, 1999, respectively as compared to
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approximately $210,000 (less than 14% of revenue) and $218,000 (less than 9% of
revenue) during the comparable period in 1998.
Cost of Sales and Service and Gross Profit
The Company's cost of recurring contracts and sales are principally comprised of
labor, materials, overhead, subscription communication lines, amortization of
capitalized product enhancement costs and depreciation of subscription-based
equipment. Gross profit, as a percentage of total revenue was approximately
67.9% and 69.9% for the three month and six month period ended June 30, 1999,
respectively, as compared to 61.3% and 59.0% for the same time periods in 1998,
respectively. The increase in gross profit percentage experienced by the Company
during the three and six months ended June 30, 1999 principally resulted from
the change in product mix. The Company obtains its materials and supplies from a
variety of vendors in the US and Far East. During the three and six months ended
June 30, 1999, the Company did not experience any significant price increases in
its component parts purchased. Included in cost of sales is amortization expense
for product enhancement costs of approximately $167,200 and $299,700 for the
three and six month periods ended June 30, 1999 respectively, as compared to
$110,000 and $206,000 for the same periods in 1998, respectively. Also included
in cost of sales is depreciation expense for subscription based equipment of
approximately $126,300 and $229,600 for the three and six month periods ended
June 30, 1999 respectively, as compared to $62,000 and $118,000 for the same
periods in 1998, respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the three and six month periods
ended June 30, 1999 were approximately $1,733,000 and $3,297,000 as compared to
$1,513,000 and $2,972,000 in the comparable periods in 1998, an increase of
14.5% and 10.9%, respectively. Part of the increase in expenses for the Company
is from continuing expansion of the development teams both in the U.S. and in
London. The expansion in development efforts relates to the Company's plans of
providing an increased number of product enhancements as well as new additional
services. As a result, the Company experienced increases in salaries and related
personnel costs, travel expenses and various office expenses. The Company's
recruitment effort continues to strengthen the Company's infrastructure and
position the Company to respond to increasing market and revenue opportunities.
Management believes that the continued investment in development of the NYFIX
data center, and its services, are designed to better leverage the existing
products together with providing additional sources of revenue. The Company has
continued its marketing programs in 1999 primarily focusing on representation at
technology exhibitions planned throughout the year. The Company will continue to
expand these programs throughout 1999. Research and development (new explorative
research) expenses for the three months and six months ended June 30, 1999 were
approximately $17,000 and $144,000, respectively, as compared to $175,000 and
$343,000 for the comparable periods in 1998 (a decrease of 90.3% and 58.0%,
respectively) and are included in selling, general and administrative expenses.
The decrease resulted from the continuation of the Company's strategy,
incorporated during 1998, to balance resources between research and development
and product enhancements, which strengthens our existing product lines.
Depreciation
Depreciation expense for the three and six month periods ended June 30, 1999 was
approximately $142,000 and $271,000 as compared to $88,000 and $169,000 in the
comparable periods in 1998, an increase of 61.4% and 60.4%, respectively. Such
increases principally reflect the continued investment in the Company's
infrastructure in its state-of-the-art NYFIX data center on Wall Street.
10
<PAGE>
Other (Expense) Income
Financing and interest expense increased in the first three months of 1999
principally because of higher balances outstanding on the Company's new line of
credit.
Other income consists of interest income earned on cash balances and notes
receivable. Interest income for the three and six month periods ended June 30,
1999 approximated $23,000 and $61,000 as compared to $17,000 and $43,000 in the
same periods in 1998, an increase of 35.3% and 41.9%, respectively. The increase
in interest income was principally because of higher average cash balances
maintained by the Company during the three and six months ended June 30, 1999
versus the comparable period in 1998.
Net Earnings (Loss)
Net earnings for the three months ended June 30, 1999 was $150,165 ($.02 per
basic and diluted common share) compared to a net loss of $585,000 ($(.07) per
basic and diluted common share) for the three months ended June 30, 1998. Net
earnings for the six months ended June 30, 1999 was $180,342 ($.02 per basic and
diluted common share) compared to a net loss of $1,526,000 ($(.18) per basic and
diluted common share) for the six months ended June 30, 1998. The net earnings
principally resulted from the higher level of revenues, stable product costs and
minimal increases in Selling, General and Administrative expenses.
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems which began in 1993 and
continues into 1999 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model has
positioned the Company to facilitate its future growth.
Liquidity and Capital Resources
The Company's primary source of liquidity has been equity capital and drawdowns
from its line of credit. Since the commencement of operations, the Company has
raised approximately $13.3 million of working capital through various private
placements of its securities. At June 30, 1999, cash balances decreased to
$1,504,946 from $3,948,004 at December 31, 1998 as a result of the Company's
working capital needs and continued desire to strengthen its NYFIX and
subscription infrastructure.
The Company's current assets at June 30, 1999 exceeded its current liabilities
by approximately $4,471,000 million. The Company at June 30, 1999 had long-term
debt totaling $1,800,000, which represents amounts drawn down from its line of
credit. See discussion below. In addition, at June 30, 1999, the Company had no
material commitments for capital expenditures or inventory purchases.
On July 13, 1998, the Company entered into a three year $3 million line of
credit agreement (the "Agreement") with a financial institution with advances on
such agreement available to the Company during the first 18 months. The
Agreement is primarily intended to finance existing and future
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<PAGE>
equipment expenditures. The Agreement bears interest at either LIBOR plus 1.25%
or the Bank's Prime rate. The rate used is management's discretion. The Company
drew down an aggregate of $1,800,000 under the agreement during 1998 ($1 million
at the nine month LIBOR rate plus 1.25% (7%), $500,000 at the 30 day LIBOR rate
plus 1.25% (6.78%) and $300,000 at the Bank's Prime rate (8%)). The Agreement
requires monthly payments of interest only until January 30, 2000. Principal
drawdowns under the Agreement can not be prepaid in the first eighteen months.
Repayment of principal commences on July 30, 2000 with twelve monthly
installments of $83,333 with the remaining balance due on July 30, 2001. A
Company shareholder and the Company's president personally secure the debt. In
consideration for securing the Agreement, the said shareholder and president
received 150,000 and 25,000 warrants respectively, to purchase the Company's
common stock at $6.375 per share, which was the market value of the Company's
common stock on the date such warrants were issued. Expense related to the
warrants issued to the non-employee shareholder will be recognized over the
three-year term of the Agreement.
In association with obtaining the $3 million line of credit facility, the
Company terminated its previous $500,000 line of credit agreement (revised from
$1 million line of credit agreement in June 1998) and repaid all outstanding
term loans.
The Company believes that with its available capital, including the proceeds
from the November 1998 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 1999 without the need for additional capital or
financing. The Company intends to utilize its projected 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 grow more
rapidly than anticipated and do not generate cash to the extent currently
anticipated by management of the Company, it is possible that the Company could
require additional funds beyond 1999. 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 273,250
shares of its Common Stock. Assuming the exercise of all such outstanding
Warrants, the Company would receive approximately $1,623,000 in gross proceeds.
Working Capital
At June 30, 1999 and December 31, 1998 the Company had working capital of
approximately $4,471,000 and $5,970,000, respectively. The Company's present
capital resources include proceeds from its November 1998 private placement of
Common Stock and drawdowns from its bank credit facility.
Cash Provided by / Used in Operating Activities
During the six months ended June 30, 1999, net cash provided by operations was
approximately $74,000 as compared to net cash used in operations for the six
months ended June 30, 1998 of approximately $636,000.
Cash Used in Investing Activities
During the six months ended June 30, 1999 and 1998, net cash used in investing
activities was approximately $2,666,000 and $1,026,000, respectively, and
principally represents payments for the
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purchases of equipment related to the Company's data center and subscription
equipment and payments related to product enhancement costs for the Company's
product portfolio.
Proceeds From Financing Activities
During the six months ended June 30, 1999 and 1998, proceeds from financing
activities were approximately $148,000 and $1,070,000, respectively. The
decrease is primarily attributable to a decrease in the number of Common Stock
options and warrants exercised during the six month period ended June 30, 1999.
During that period 18,400 options and 52,587 warrants were exercised as compared
to 154,500 options and 75,500 warrants for the six month period ended June 30,
1998.
Year 2000 Compliance
Overview. The Company is aware of industry wide issues related to Year 2000 that
are associated with the programming code in computer systems. Systems that do
not properly recognize the Year 2000 could generate erroneous data or cause a
system to fail. The Company has developed a Year 2000 plan for our customers as
well as for our internal needs, consisting of several phases which include risk
assessment, manual and automated review of programming code, baseline testing,
unit testing, integrated testing and a review of third party products.
Customers. The Company participated in industry wide Year 2000 testing between
March through April of 1999. The objective of these tests was to ensure our
customer base is in full Year 2000 compliance before the end of the year. All of
these tests were successful. To date, the Company has already issued Year 2000
enhancements to our customers. The Company does not envision that further
industry wide tests will reveal any significant software errors. However, should
there be unforeseen problems, the Company has established a Year 2000 Quality
Assurance Team that will stay in place well into the Year 2000.
The Company estimates that the most likely worst case scenario would be a
failure of exchange and utility systems caused by an unforeseen Year 2000
complication. Such a condition could affect our ability and the ability of
brokerage houses and other service providers to submit order executions
electronically.
Trinitech Systems can not assure that third-party utilities and service
providers will be in a position to address an unforeseen concern in a timely
basis. Failure of a third party to correct an issue could result in significant
loss of revenue, cause business disruption, a loss of customers, and could
materially affect our financial condition.
Were this contingency to arise, our application programs would automatically
alert our customers that the exchange or utility has not successfully
acknowledged their orders. All of the exchanges and utilities have a documented
process for reporting technical concerns and events. The Company is well versed
in following the procedures established for reporting technical trouble. The
Company would inform our customers to call in their orders via phone directly to
the exchange.
However, at the time of this report and after extensive testing with exchanges
and utilities, the Company has not identified any Year 2000 compliance problem
relating to our systems that would harm our business operations or financial
condition.
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<PAGE>
It is possible that a significant amount of litigation will arise out of Year
2000 compliance issues. The Company has established a workable plan and Quality
Assurance team to help minimize these risks. Because of the unprecedented nature
of such litigation, it is uncertain whether such issues may affect the Company.
Therefore, there can be no assurances that the Company will not experience
serious unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in the Company's internal
systems or in third party systems that the Company employs.
Internal needs. The Company has identified and evaluated all internal software
and hardware systems for Year 2000 compliance. Vendors of such systems were
contacted to document compliance and at the time of this filing, report that
critical facilities and equipment will not be affected by Year 2000 concerns. In
addition, the Company formulated and published contingency procedures.
The Company is also evaluating Year 2000 compliance of third parties that
provide services to the Company, such as banking and payroll processing.
Non-information technology systems will also be subjected to evaluation
including building support systems provided by the lessors of our offices and
our telecommunications systems.
The costs incurred to date have principally been the payroll related costs
associated with the time spent by our personnel in identifying, evaluating and
testing systems and products. To date, the Company has not identified any
systems that would require significant expenditures to become Year 2000
compliant nor is the Company aware of any significant costs that would be
incurred as a result of ensuring the internal needs are Year 2000 compliant.
Seasonality
The Company believes that its operations are not significantly effected by
seasonality.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities and requires the recognition of all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the fair value of derivatives would be
recognized in earnings in the period of change unless certain hedging criteria
are met. We do not expect the Statement to have a material impact on our
consolidated financial statements. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000.
14
<PAGE>
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company was held on
June 7, 1999. Votes were cast with respect to the Proposals
described in the Proxy Statement (filed with the Securities
and Exchange Commission and incorporated herein by reference)
as follows:
Proposal 1 - Election of Directors for a term of one year.
Name For Withheld Vote
---- --- -------------
Peter K. Hansen 8,104,639 201,925
John H. Chapman 8,105,739 201,925
Craig M. Shumate 8,103,639 201,925
Carl E. Warden 8,105,639 201,925
Proposal 2 - To ratify the appointment of Arthur Andersen LLP
as auditors of the corporation for the year 1999.
For 8,262,974
Against 31,300
Abstain 13,390
Proposal 3 - To approve an amendment to the Company's Amended
and Restated 1991 Incentive and Nonqualified Stock Option
Plan.
For 3,787,570
Against 557,361
Abstain 69,799
Non-vote 3,892,934
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information purposes only and not filed.
(b) REPORTS ON FORM 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Trinitech Systems, Inc.
(Registrant)
By:/s/ Richard A. Castillo
-------------------------------
Richard A. Castillo
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,504,946
<SECURITIES> 0
<RECEIVABLES> 5,390,895
<ALLOWANCES> 122,952
<INVENTORY> 1,241,254
<CURRENT-ASSETS> 8,645,642
<PP&E> 6,284,819
<DEPRECIATION> 1,954,513
<TOTAL-ASSETS> 14,449,636
<CURRENT-LIABILITIES> 4,175,014
<BONDS> 0
0
0
<COMMON> 9,480
<OTHER-SE> 8,465,142
<TOTAL-LIABILITY-AND-EQUITY> 14,449,636
<SALES> 1,874,506
<TOTAL-REVENUES> 5,446,728
<CGS> 1,639,840
<TOTAL-COSTS> 5,217,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,246
<INCOME-PRETAX> 190,817
<INCOME-TAX> 10,475
<INCOME-CONTINUING> 180,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,342
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
