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 For the Fiscal Year Ended December 31, 1998
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 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 under Section 12(b) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange on which
registered)
Securities registered under Section 12(g) of the Exchange Act: NONE
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will 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, 1998 were
$6,235,393.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $66 million, as of March 22, 1999. 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 22, 1999 there were 9,415,030 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
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DOCUMENTS FORM 10-KSB REFERENCE
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Proxy Statement for the 1999 Annual Meeting
of Stockholders Part III, Items 9 - 12
PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
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, futures & options, and currencies. The Company's
NYFIX Network, a combined FIX (Financial Information Exchange protocol) and
Exchange Access Network, enables users to electronically communicate trade data
among the buy-side, sell-side, and exchange floor environments. Trinitech is
headquartered in Stamford, Connecticut and maintains operations in New York,
Chicago, and London. The Company was incorporated in New York in 1991 and is
listed on the American Stock Exchange under the ticker symbol TSI.
The Company's goal is to become the leading provider of real-time electronic
trade entry and routing systems and connectivity services to the global
financial services industry. The Company offers its customers the ability to
enter and route orders and executions electronically from "end-to-end," from the
buy-side/retail institution or remote branch office through to the exchange
floors and electronic exchanges. The Company's technology is being used by such
major firms as Lehman Brothers, Schroders & Co., Deutsche Bank AG, UBS AG and
Merrill Lynch, 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. As the financial industry continues to move from a
paper and voice driven tracking environment to real-time electronic-based
trading, management believes Trinitech is well positioned to take advantage of
this growing trend. Wall Street firms are recognizing the ability of electronic
trading systems to enhance order and information flow and improve trading
performance by eliminating trading errors and providing on-line risk management,
in addition to the cost efficiencies associated with electronic trading.
Numerous trading scandals have provided further impetus for the implementation
of electronic trading systems with risk monitoring and audit tracking
capabilities by financial risk managers.
In September 1997, the Company launched its NYFIX Network, a FIX (Financial
Information Exchange protocol) and Exchange Access Network designed to provide
the financial community with a central electronic meeting place for routing
real-time orders and other FIX messages. NYFIX provides the Company's equities
customers access to its subscription-based quote, order and execution routing
systems as well as providing connectivity between the buy-side, sell-side and
exchange floor environments through the industry standard protocol, FIX. NYFIX
offers financial firms the ability to utilize the Company's systems without
having to invest in a communications infrastructure. Furthermore, the Company's
NYFIX Data Center offers the potential for an "any to any" relationship for
routing orders and executions between and among firms, various exchanges and
alternative sources of liquidity including Electronic Communications Networks
(ECNs). The Company has made considerable progress implementing its
subscription-based NYFIX business model throughout 1998 and management believes
the Company is well positioned for further growth in 1999. Trinitech continues
to provide the financial industry with complete systems, including the raw
terminals (hardware manufactured by Trinitech), the software, and the
infrastructure (through its NYFIX Data Centers) to tie the trading industry
together for the electronic entry and routing of orders and executions.
All of the Company's products are available in flexible building blocks that can
be sold as complete systems 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 and enhance
its product portfolio with new and complementary software modules and
connectivity services that allow the Company to collect revenue from multiple
levels. The Company offers its trading systems on a subscription basis, with
hardware, software and maintenance provided for a monthly fee. For the Company's
customers, this 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. From time to time, the Company does offer certain products (such as a
custom enhancement) for a one-time fee. The Company as a whole is moving away
from its previous capital sales model and is now offering its systems, including
the entire NYFIX product line, on a subscription basis.
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PRODUCTS
PORTFOLIO OF COMPLETE ELECTRONIC TRADING SYSTEMS
Trinitech supplies complete, standardized trading solutions that consist of
hardware, proprietary software packages and network technology for the trading
of equities 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.
During 1998, the Company consolidated its Hardware Technology Group into its two
principal business groups: The Equities Group and Future & Options Group.
Hardware staff and resources were reallocated and now provide the terminals for
usage in conjunction with the Company's software and connectivity services
offered through its principal business groups. 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. The
Equities Group operates primarily out of Stamford/New York offices and the
Future and Options Group operate primarily out of the London and Chicago
offices. However, each location has the opportunity to sell all of the Company's
products.
EQUITIES GROUP-PRODUCTS
The Company sells five complete systems for equities trading: the Trinitech
FLOORLOOK SYSTEM, the Trinitech FLOORREPORT SYSTEM, the Trinitech FIXTRADER
SYSTEM, FIRST (FIX INDICATION ROUTING SYSTEM TERMINAL) and FIXTALK.
The Trinitech FLOORLOOK SYSTEM consists of the Trinitech Touchpad(R), a scanner,
server and proprietary software product. The Trinitech TouchPad(R), and
Trinitech's original product, the Guided-Input(R) that 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. 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.
The Trinitech FLOORREPORT SYSTEM is a complete electronic order management
system designed for member firms' exchange floor operations. Orders are received
from upstairs traders (via the FIX Protocol), with execution information routed
back in the same efficient manner. FloorReport enables floor clerks to route
execution information to sales and block traders in real time, enabling them to
better service their customers.
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The Trinitech FIXTRADER SYSTEM is a complete order management system for
traders, which allows the entry and routing of orders and executions between the
buy-side institution and the sales and block desks. Connectivity with the
exchange floor can be achieved by utilizing FIXTRADER in conjunction with the
FLOORREPORT system. Orders by traders are quickly and efficiently captured
utilizing the Trinitech Touchpad(R) (or a mouse and keyboard configuration) and
can be routed to the appropriate venue in seconds, with executions routed back
in the same efficient manner. With the financial industry adoption of FIX as the
standard protocol for communicating electronically, FIXTRADER offers an easy way
for firms to gain FIX compliance. With the added benefit of FIX compliance,
FIXTRADER allows firms to capture and secure buy-side order flow, thereby
increasing buy-side business for firms utilizing the system.
FIRST (FIX INDICATION ROUTING SYSTEM TERMINAL) is a user-friendly FIX message
routing application. FIRST, Trinitech's Indications of Interest Module, is based
on the FIX protocol and Trinitech's industry proven FIXTalk Subscription Routing
Engine. FIRST allows sell-side firms to broadcast positions and inventory to be
traded to the buy-side through the FIX protocol and allows buy-side institutions
to receive and efficiently manage indications of interest or any FIX message
type.
The Trinitech FIXTALK 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 FIXTALK System, co-developed with Morgan Stanley and based
on the current version of the FIX protocol, consists of a C++ object oriented
class library, the Trinitech FIXTALK CLIENT TOOLKIT, which allows easy
development of applications in order to utilize the FIX protocol.
During 1998, the Company added a number of enhancements, as well as increased
functionality, to its existing product lines. Auxiliary services, such as
increased connectivity options and linkages were also added. Product development
is mainly focused on adding additional features to the Company's existing
product line, taking customer requests into consideration.
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. Pricing for the
FLOORLOOK and FLOORREPORT SYSTEMS is based on a monthly fee per booth on an
exchange floor, with an additional monthly upstairs fee per trader workstation
using the Systems. Both FIXTRADER and FIRST are sold on a monthly fee basis per
trader workstation. The Company's FIX engine technology, FIX-TALK, is now sold
on a subscription basis. Previously, this product was sold for a one-time fee.
PRODUCT PENETRATION-EQUITIES GROUP
NYFIX-FIX AND EXCHANGE ACCESS NETWORK- building upon the NYSE Data Center it
established in late 1996, the Company launched NYFIX, a combined FIX and
Exchange Access Network, in September 1997. The Network and data center,
strategically located several blocks from the New York Stock Exchange, offers
easy monthly subscription-based access to all of the Company's quote, order and
execution routing systems. NYFIX 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, as they can
simply subscribe to the service. During 1998, the Company has continued to
invest in the NYFIX data center infrastructure to accommodate customer needs and
growth of the service.
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The Company plans to launch an additional data center during 1999, EuroFix,
which will be located in London. Building on the success of its original NYSE
data center, the Company intends to provide its customers with global
connectivity for routing of orders, executions, and other FIX messages. EuroFix
will provide the capability to route orders and executions globally through one
centralized "hub." EuroFix was originally slated for launch in 1998; however,
the Company decided to postpone the EuroFix Center until customer demand for a
European data center would justify the investments required.
Developing trading systems with the cooperation of 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
Lehman Brothers, Schroders & Co., Deutsche Bank AG, UBS AG, and Merrill Lynch,
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
The Company offers 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 CS First Boston, Dresdner Kleinwort Benson, and Merrill
Lynch, among others.
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 adjustment. 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 and futures & options trading on a global basis. Management believes
the Company's offering of products on a subscription or transaction basis
through a data center solution will significantly aid in the roll-out of its
products on an industry-wide basis, opening up new market segments for the
Company's products. In 1998, the market's reception to the Company's product
offering increased, with the Company signing the largest number of agreements in
a year since inception.
The Company continued its aggressive marketing efforts in 1998 and increased its
global presence by exhibiting its products at numerous domestic and
international technology and financial industry conferences. In addition, the
Company continued its advertising campaign for its NYFIX network encompassing
the major trade publications. The Company also generated significant press
coverage with respect to its FIX trading solutions and industry wide FIX and
exchange connectivity network, NYFIX. The Company intends to continue its
marketing initiatives in 1999.
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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 trading systems, gaining additional leverage through
optimized integration of Trinitech's advanced systems and its large number of
connectivity options. 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.
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.
PRODUCT PRODUCTION
The Company designs, develops and produces its proprietary software and hardware
products at its facility in Stamford, Connecticut. The Company is not dependent
upon any one supplier, vendor or subcontractor for any of its manufacturing
components.
EFFECTS OF PROPOSED AMENDMENTS TO RULE 123
Trinitech Systems is aware of amendments on file with the SEC to change certain
regulations governing the recording and transmission of orders to and on the
NYSE floor. The first phase of such regulations, if implemented, calls for all
orders received on the NYSE floor to be input into an electronic order
management system for better monitoring and tracking of trades. The second phase
calls for all orders to the exchange to be sent electronically. The Company
believes this regulation would positively impact Trinitech's business. The
Company already produces systems capable of meeting and exceeding regulatory
requirements with many additional features designed to reduce errors and
maximize customer efficiency. Management believes that a "regulatory push" would
provide Trinitech an even greater opportunity to capture market share both on
the exchange floor and on the upstairs trading desks. Such regulations are
currently under consideration and have not yet been passed.
EMPLOYEES
As of March 22, 1999 the Company had 57 full-time employees.
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 06902 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 of approximately $180,000, expiring
on April 30, 2002. The Company's London premises consist of approximately 1,500
square feet at a current annual rental of $15,000, excluding local taxes. The
London office is currently negotiating a lease of approximately 3,200 square
feet at an annual rental of approximately $82,000 net of a sublease of $64,000,
excluding local taxes. The Company also rents office space at 100 Wall Street,
New York, NY 10005 and at 20 North Wacker Drive, Chicago, IL 60606 for an annual
rental of approximately $145,000 and $18,000, respectively and approximately
4,800 square feet and 1,000 square feet, respectively.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings that 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.
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
---- ---
1998 Fiscal Year
First Quarter $8.63 $6.00
Second Quarter $7.75 $5.75
Third Quarter $8.00 $5.50
Fourth Quarter $9.50 $5.75
1997 Fiscal Year High Low
- - ---------------- ---- ---
First Quarter $7.00 $5.13
Second Quarter $6.38 $5.56
Third Quarter $9.94 $8.75
Fourth Quarter $9.00 $7.75
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(B) HOLDERS
At March 22, 1999, the records of the Company's transfer agent indicated that
there were 432 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. The Company intends to utilize any earnings it may achieve for
the development of its business and for working capital purposes.
ITEM 6. 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 has completed its first full year of
transforming its business from that of traditional capital equipment sales to
that of licensing-based and subscription-based revenue for its software and
systems. 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 are generally for an initial period of one year
with one to three year renewal periods. The Company begins recording
subscription revenue once installation is complete. In 1997, subscription-based
revenue had the short-term negative impact of reduced revenues; however,
management believes that the change will have a long-term positive impact on the
future revenue growth of the Company. Management is of the opinion that this
change has already resulted in new orders and increased market share that it
otherwise would not have had, leading to longer-term and more predictable
revenues per customer. 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
that this expansion of personnel, facilities, product portfolio and
subscription-based model will better position the Company and facilitate 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 the new business model will
strengthen the Company's market share and its financial position going forward.
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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
The increase in revenues for the year ended December 31, 1998 over the
comparable 1997 period was principally due to the Company's changing its
strategy to electronic order routing which it began executing in late 1997. In
addition to the conversion from capital sales to subscription sales, a number of
new products and order routing services under the NYFIX umbrella are
contributing to the Company's continued increase in new orders and corresponding
recurring revenues.
Consistent with the Company's objectives, recurring revenue has generally been
increasing on a quarter-to-quarter and year-to-year basis. Recurring contractual
revenue is accounting for a greater share of the Company's total revenue.
Recurring contractual revenue is comprised of subscription revenue and service
contracts. Recurring contractual revenue for the Company increased by
approximately 172% for the year ended December 31, 1998 (from $1,317,976 to
$3,582,293) over the comparable 1997 period. During the year ended December 31,
1998, subscription revenues and service contracts were approximately 64% and 36%
of recurring contractual revenue, respectively, as compared to 21% and 79%,
respectively, during the comparable 1997 period. The increase in recurring
contractual revenue is due principally to the Company's strategy of offering its
products and services on a subscription basis rather than capital sales coupled
with increased service agreements.
Sales revenue is comprised of capital equipment sales and software sales. Sales
revenue for the Company decreased by approximately 28% for the year ended
December 31, 1998 over the comparable 1997 period (from $3,688,041 to
$2,653,100). During the year ended December 31, 1998, capital equipment sales
and software revenue were approximately 39% and 61% of sales revenues,
respectively, as compared to 66% and 34%, respectively, during the year ended
December 31, 1997. The decrease in sales revenue is due principally to the
Company's strategy of offering its products and services on a subscription basis
rather than capital sales. Revenue from export sales approximated $234,000
(approximately 4% of revenue) during the year ended December 31, 1998 as
compared to approximately $1,283,000 (approximately 26% of revenue) during the
comparable period in 1997. During fiscal 1998, sales to two customers accounted
for approximately 26% of total revenue.
Total revenue for the Stamford/New York location increased by approximately 19%
for the year ended December 31, 1998 as compared to the year ended December 31,
1997. This increase was principally due to higher levels of subscription and
service revenue partially offset by a decrease in sales revenue resulting from
the Company's efforts to market its products on a subscription basis. Total
revenue for the London location increased by approximately 55% for the year
ended December 31, 1998 over the comparable 1997 period. This increase was also
due to higher levels of subscription and service revenue together with an
increase in software sales, partially offset by a decrease in hardware sales.
Total revenue for the Chicago location decreased by approximately 81% for the
year ended December 31, 1998 as compared to the year ended December 31, 1997
(from $166,994 to $31,480). The decrease was directly attributable to the change
in the Company's business model from capital sales to an emphasis on
subscription based revenue.
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 59%
and 46% during 1998 and 1997, respectively. The increase in gross profit
percentage experienced by the Company during fiscal 1998 principally resulted
from an increase in the amount of higher margin software installations and
subscription agreements. The Company obtains its materials and supplies from a
variety of vendors in the US and Far East. During 1998, 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 $479,000 and $373,000 for 1998 and 1997, respectively. Also
included in cost of sales is depreciation expense for subscription based
equipment of approximately
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$291,000 and $111,000 for 1998 and 1997, respectively.
SELLING, GENERAL AND ADMINISTRATIVE
During fiscal 1998, selling, general and administrative expenses increased 14%
(from $4,830,361 to $5,506,491) when compared to fiscal year 1997. These
increases reflect the continued expansion of the development teams both in the
U.S. and in London. The expansion in development efforts relates to the
Company's plans of providing an increased number of new additional services.
These services relate to offering subscription and transaction based
order-routing, via the Company's data center, to multiple exchange-floors and
between the "Buy-side" and "Sell-side" industry. As a result, the Company
experienced increases in salaries and related personnel costs, travel expenses
and various office expenses. During the past two years the Company added
personnel principally to its technical, programming, service, support and
accounting staff. During 1998, the Company added 7 new employees. The Company's
recruitment effort continues to strengthen the Company's infrastructure and
position the Company to respond to increasing market and revenue opportunities.
The Company, during the past several years, has spent a considerable effort in
developing a variety of "trader desk-top" and "exchange-floor" trading systems.
Management believes that the investment in development of the new 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 1998 primarily focusing on public relations
activities, production of various product brochures, and representation at
technological exhibitions planned throughout the year. The Company will continue
to expand these programs during 1999. Research and development (new explorative
research) expenses for the year ended December 31, 1998 and 1997 were
approximately $537,300 and $321,600, respectively, (an increase of 67%) and are
included in selling, general and administrative expenses.
DEPRECIATION
Depreciation expense increased by approximately 145% for the year ended December
31, 1998 over the comparable 1997 period (from $186,324 to $456,615). Such
increases principally reflect the continued investment in the Company's
infrastructure in its state of the art NYFIX data center on Wall Street.
OTHER (EXPENSE) INCOME
Financing and interest expense increased in fiscal 1998 principally because of
higher balances outstanding on the Company's new line of credit and the cost of
warrants issued to a non-employee for the guarantee of the amounts outstanding
under the credit facility.
Other income includes interest income and other miscellaneous non-operating
items. Interest income in 1998 and 1997 approximated $92,000 and $133,000,
respectively. The 31% decrease in interest income was principally because of
lower average cash balances maintained by the Company during the year ended
December 31, 1998 versus the comparable period in 1997. The Company previously
leased a portion of its corporate office facility under a three-year sublease,
which expired on April 30, 1997. Due to the continuing expansion of operations,
(see "Selling, General and Administrative" above) the Company has decided not to
renew the sublease and incorporated such space into its existing corporate
facility. Sublease rental income earned during 1997 approximated $13,000.
- - -10-
<PAGE>
NET LOSS
Net loss for fiscal 1998 was $2,233,809 ($0.25 per share) compared to a net loss
of $2,594,040 ($0.32 per share) for fiscal 1997. The decrease in net loss
principally resulted from the increase in subscription type revenue and the
increase in software capital sales. See "Revenues", "Cost of Sales and Service
and Gross Profit" and "Selling, General and Administrative" above.
Management has made a considerable effort with respect to an expansion of its
operations, development of various trading systems which began in 1993 and
continues into 1998 and changes to its business model to that of a
subscription-based product offering. The Company believes that this expansion of
personnel, facilities, product portfolio and subscription-based model will
better position the Company and facilitate its future growth. However, in spite
of its optimism, management is also cautioning that the Company's aggressive
conversion from a capital sales model to subscription-based model is causing
revenue recognition from subscription-based orders to be realized over a longer
period of time than the previous capital sales model.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $5,270,000, which expire between 2008 and 2013. These
carryforwards may be significantly limited under the Internal Revenue Code of
1986, as amended, as a result of ownership changes resulting from the Company's
equity offerings. A valuation allowance of approximately $2,400,400 has been
established at December 31, 1998 to offset any benefit from the net operating
loss carryforwards, as it cannot be determined when or if the Company will be
able to utilize the net operating losses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
The decrease in revenues for the year ended December 31, 1997 over the
comparable 1996 period was principally due to the Company's strategy of
transforming its operations from capital equipment sales to subscription based
sales, specifically for the Company's FIXTalk software system. Sales revenues
for the Company decreased by 41% in fiscal 1997 (from $6,295,468 to $3,688,041).
During the year ended December 31, 1997, capital equipment sales, software and
subscription revenue were approximately 62%, 31% and 7% of sales revenues,
respectively as compared to 85%, 15% and 0%, respectively during the year ended
December 31, 1996. Approximately 31% of the Company's sales revenues for the
year ended December 31, 1997 were derived from software licenses as compared to
approximately 15% during the comparable period in 1996. The export market
continued to be an important source of revenue. Revenue from export sales
approximated $1,283,000 (26% of sales) during the year ended December 31, 1997
as compared to approximately $4,669,000 (67% of sales) during the comparable
period in 1996. Foreign operation revenues amounted to approximately $1,293,000
and $1,164,000 for the years ended December 31, 1997 and 1996, respectively. In
addition, revenues from service contracts increased by 45% in the year ended
December 31, 1997 over the comparable 1996 period. The increase in service
revenue resulted from increased sales of hardware and software products during
the past year. During fiscal 1997, sales to one customer accounted for
approximately 17% of total revenue. During fiscal 1996, sales to two customers
accounted for approximately 72% of total revenue.
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 revenue was approximately 46% and 41%
during 1997 and 1996, respectively. The increase in gross profit percentage
experienced by the Company during fiscal 1997 principally resulted from an
increase in the amount of higher margin software installations, which was
partially offset by lower margins associated with the Company's touch vending
terminal products sold during the first quarter of 1997. The Company obtains its
materials and supplies from a variety of vendors in the US and Far East. During
1997, 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 $373,000 and $316,000 for 1997 and
1996, respectively. Also included in cost of sales is depreciation expense for
subscription based equipment of approximately $111,000 for 1997.
- - -11-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
During fiscal 1997, selling, general and administrative expenses increased 50%
(from $3,219,000 to $4,830,361) when compared to fiscal year 1996. Such
increases reflect the continued expansion of the development teams both in the
U.S. and in London. The expansion in development efforts relates to the
Company's plans of providing an increased number of new additional services.
These services relate to offering subscription and transaction based
order-routing, via the Company's data center, to multiple exchange-floors and
between the "Buy-side" and "Sell-side" industry. As a result, the Company
experienced increases in salaries and related personnel costs, travel expenses,
recruiting fees and various office expenses. During the past two years the
Company added personnel principally to its technical programming, service,
support and sales staff. During 1997, the Company added 18 new employees. The
Company's recruitment effort, which began during 1993, continues to strengthen
the Company's infrastructure and position the Company to respond to increasing
market and revenue opportunities. The Company, during the past several years,
has spent a considerable effort in developing a variety of "trader desk-top" and
"exchange-floor" trading systems. Management believes that the investment in
development of the new data center, and its services, are designed to better
leverage the existing products together with providing additional sources of
revenue. The Company has continued its marketing programs in 1997 primarily
focusing on public relations activities, production of various product
brochures, and representation at technological exhibitions planned throughout
the year. The Company will continue to expand these programs during 1998.
Research and development (new explorative research) expenses for the year ended
December 31, 1997 and 1996 were approximately $321,600 and $241,900,
respectively, (an increase of 33%) and are included in selling, general and
administrative expenses.
DEPRECIATION
Depreciation expense increased by approximately 39% for the year ended December
31, 1998 over the comparable 1997 period (from $133,780 to $186,324). Such
increases principally reflect the continued investment in the Company's
infrastructure in its state of the art data center on Wall Street.
OTHER (EXPENSE) INCOME
Interest expense increased in fiscal 1997 principally because of higher balances
outstanding on the Company's new line of credit.
Interest income in 1997 and 1996 approximated $133,000 and $34,600,
respectively. The 99% increase in other income principally results from interest
earned on higher cash balances maintained by the Company during 1997. The
Company previously leased a portion of its corporate office facility under a
three-year sublease, which expired on April 30, 1997. Due to the continuing
expansion of operations, (see "Selling, General and Administrative" above) the
Company has decided not to renew the sublease and incorporated such space into
its existing corporate facility. Sublease rental income earned during 1997 and
1996 approximated $13,000 and $36,000 respectively.
NET LOSS
Net loss for fiscal 1997 was $2,594,040 ($0.32 per share) compared to a net loss
of $445,285 ($0.06 per share) for fiscal 1996. The increase in net loss
principally resulted from 1) decrease in "capital sales" type revenue resulting
from the Company moving to a subscription-based revenue model which presently is
in its early stage of growth, and 2) increase in selling, general and
administrative expenses. See "Revenues", "Cost of Sales and Service and Gross
Profit" and "Selling, General and Administrative" above.
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. During November 1998, the Company completed a
private placement of 600,000 shares of Common Stock at a price of $6.00 per
share, for an aggregate value of $3,600,000. Cash expenses related to
- - -12-
<PAGE>
this offering amounted to approximately $150,000 resulting in net proceeds to
the Company of approximately $3,450,000. During March 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 $85,000 resulting in net proceeds to the
Company of approximately $3,515,000. At December 31, 1998, cash balances
increased to $3,948,004 from $2,141,307 at December 31, 1997.
The Company's current assets at December 31, 1998 exceeded its current
liabilities by approximately $6.0 million. The Company at December 31, 1998 had
long-term debt totaling approximately $1,800,000, which represents amounts drawn
down from its line of credit. See discussion below. In addition, at December 31,
1998, 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 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. The
debt is personally secured by a Company shareholder and the Company's president.
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 325,837
shares of its Common Stock. Assuming the exercise of all such outstanding
Warrants, the Company would receive approximately $1,765,000 in gross proceeds.
WORKING CAPITAL
At December 31, 1998 and 1997 the Company had working capital of approximately
$5,970,000 and $3,803,000, 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.
- - -13-
<PAGE>
CASH USED IN OPERATING ACTIVITIES
During fiscal 1998, net cash used in operations was approximately $1,159,000 as
compared to cash used in operations in fiscal 1997 of approximately $502,000.
The increase from fiscal 1997 to fiscal 1998 is primarily attributable to an
increase in accounts receivable that more than offset other working capital
changes and an increase in noncash charges.
CASH USED IN INVESTING ACTIVITIES
During fiscal 1998 and fiscal 1997, net cash used in investing activities was
approximately $3,152,000 and $1,799,000, respectively, and principally
represents payments for the 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 fiscal 1998 and fiscal 1997, proceeds from financing activities were
approximately $6,117,000 and $3,243,000, respectively. Such increase in fiscal
1998 primarily resulted from the issuance of Common Stock through exercise of
warrants and stock options totaling approximately $984,000, proceeds from the
November 1998 private placement $3,450,000 and net borrowings under our credit
line of approximately $1,706,000.
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 is participating in industry wide Year 2000 testing that
is running from March 6, 1999 through April 11, 1999. The objective of these
tests is to ensure our customer base is in full Year 2000 compliance before the
end of the year. To date, the Company has already issued Year 2000 enhancements
to our customers. The Company does not envision that these 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. This team will have ample time to
correct any problems identified in industry wide tests to ensure they are
corrected by the end of June 1999.
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.
It is possible that a significant amount of litigation will arise out of Year
2000 compliance issues. The Company has
- - -14-
<PAGE>
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 been identifying and evaluating internal
software and hardware systems for Year 2000 compliance. The Company's internal
plan allows vendors of such systems to be contacted to document compliance and
at the time of this filing, is performing appropriate testing of systems
identified by our Year 2000 Quality Assurance Team.
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. The statement is effective for fiscal years
beginning after June 15, 1999.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk principally with changes in interest
rates. Interest rate exposure is principally limited to the $1.8 million of
long-term debt outstanding at December 31, 1998, under the Company's line of
credit agreement. Borrowings under the line of credit agreement bear interest at
rates that float with the market. Assuming a change of 100 basis points in the
interest rates on the line of credit agreement, interest expense and cash flows
would be affected by approximately $18,000 on an annual basis. The Company does
not use derivative financial instruments for any purpose.
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.
- - -15-
<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 May 28, 1999 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
no later than April 30, 1999.
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 May 28, 1999 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than April 30, 1999.
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
May 28, 1999 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission no later than April 30, 1999.
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 May 28, 1999 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission no later
than April 30, 1998.
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).
- - -16-
<PAGE>
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 July 13, 1998,
between Chase Manhattan Bank and Trinitech
Systems, Inc. Exhibit 10.4 to the Company form 8K
dated July 13, 1998.
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.**
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information purposes only and not
filed.
- - -------------------------
* - Except as noted, all exhibits have been previously filed.
** - Filed herewith.
(B) REPORTS ON FORM 8-K
On August 7, 1998 the Company filed a current report on Form 8-K
relative to obtaining a $3 million line of credit facility, terminating its
$500,000 previous line of credit agreement and repaying its three term loans.
- - -17-
<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 31st day of March, 1999 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/ Richard A. Castillo
------------------------------
Richard A. Castillo
Chief Financial Officer
POWER OF ATTORNEY
Trinitech Systems, Inc. and each of the undersigned do hereby appoint Peter
Kilbinger Hansen and Richard A. Castillo, and each of them severally, its or his
true and lawful attorney to execute on behalf of Trinitech Systems, Inc. and the
undersigned any and all amendments to this Annual Report on Form 10-KSB and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the other.
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.
/s/ Peter Kilbinger Hansen Chairman of the Board March 31, 1999
- - -------------------------- (Principal Executive Officer)
Peter Kilbinger Hansen
/s/ Richard A. Castillo Chief Financial Officer March 31, 1999
- - -------------------------- (Principal Accounting Officer)
Richard A. Castillo
/s/ John H. Chapman Director March 31, 1999
- - --------------------------
Dr. John H. Chapman
/s/ Craig M. Shumate Director March 31, 1999
- - --------------------------
Craig M. Shumate
/s/ Carl E. Warden Director March 31, 1999
- - --------------------------
Carl E. Warden
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants....................................F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and 1997................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997..........................................F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997..........................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997..........................................F-6
Notes to Consolidated Financial Statements..................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Trinitech Systems, Inc.:
We have audited the accompanying balance sheets of Trinitech Systems, Inc. (a
New York corporation) and subsidiary as of December 31, 1998 and 1997, 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, 1998 and 1997, 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
Stamford, Connecticut,
March 23, 1999
<PAGE>
TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,948,004 $ 2,141,307
Accounts receivable - less allowance of $92,986 and $144,000 3,417,418 1,859,301
Inventories, net 1,279,302 1,208,373
Prepaid expenses and other current assets 283,912 102,500
Receivable from officers 120,583 91,597
------------ ------------
Total Current Assets 9,049,219 5,403,078
EQUIPMENT, net 2,854,131 1,361,707
OTHER ASSETS 1,094,169 782,478
------------ ------------
TOTAL ASSETS $ 12,997,519 $ 7,547,263
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 873,817 $ 927,672
Accrued expenses 635,943 389,174
Current portion of debt -- 47,709
Advance billings 1,489,057 171,414
Payroll and other taxes payable 79,953 63,706
------------ ------------
Total Current Liabilities 3,078,770 1,599,675
LONG TERM DEBT 1,800,000 45,855
------------ ------------
Total Liabilities 4,878,770 1,645,530
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock - par value $1.00; 1,000,000 shares
authorized; zero issued and outstanding
-- --
Common stock - par value $.001; 15,000,000 authorized; 9,408,530 and
8,524,530 shares issued and outstanding
9,409 8,525
Warrants 125,513 --
Additional paid-in capital 14,767,116 10,419,763
Accumulated deficit (6,330,364) (4,096,555)
Due from officers (452,925) (430,000)
------------ ------------
Total Stockholders' Equity 8,118,749 5,901,733
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,997,519 $ 7,547,263
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE>
TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
REVENUES:
Sales $ 2,653,100 $ 3,688,041
Subscription Revenue 2,278,447 273,771
Service contracts 1,303,846 1,044,205
----------- -----------
Total Revenues 6,235,393 5,006,017
COST OF SALES AND SERVICE 2,532,709 2,680,138
----------- -----------
GROSS PROFIT 3,702,684 2,325,879
----------- -----------
EXPENSES:
Selling, general and administrative 5,506,491 4,830,361
Depreciation 456,615 186,324
Amortization 18,381 36,227
----------- -----------
Total Expenses 5,981,487 5,052,912
----------- -----------
LOSS FROM OPERATIONS (2,278,803) (2,727,033)
OTHER (EXPENSE) INCOME:
Financing and Interest (108,465) (13,463)
Other income 153,459 146,456
----------- -----------
NET LOSS $(2,233,809) $(2,594,040)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE ($ 0.25) ($ 0.32)
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,827,930 8,103,330
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common
------------------------ Additional
Stock Paid-in Accumulated Due from
Description Shares Amount Warrants Capital Deficit Officers Total
----------- ------ ------ -------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996 7,375,030 $ 7,375 -- $ 6,088,975 $(1,502,515) $ (50,000) $ 4,543,835
Stock issued from
exercise of
warrants 349,500 350 816,588 -- -- 816,938
Common stock, net of
issuance costs 800,000 800 3,514,200 -- -- 3,515,000
Due from Officers -- -- -- -- (380,000) (380,000)
Net loss -- -- -- (2,594,040) -- (2,594,040)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1997 8,524,530 8,525 -- 10,419,763 (4,096,555) (430,000) 5,901,733
Stock issued from
exercise of
options and warrants 284,000 284 - 983,466 -- -- 983,750
Common stock, net of
issuance costs 600,000 600 -- 3,449,400 -- -- 3,450,000
Warrants issued -- -- 125,513 (85,513) -- -- 40,000
Due from Officers -- -- -- -- -- (22,925) (22,925)
Net loss -- -- -- -- (2,233,809) -- (2,233,809)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 9,408,530 $ 9,409 $ 125,513 $14,767,116 $(6,330,364) $ (452,925) $ 8,118,749
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
TRINITECH SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,233,809) $(2,594,040)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 747,664 297,672
Amortization 497,552 409,346
Provision for bad debt 50,922 144,269
Provision for inventory obsolescence -- 82,000
Noncash financing charges 40,000 --
Changes in assets and liabilities:
Accounts receivable (1,609,039) 1,798,794
Inventory 31,681 (136,186)
Prepaid expenses and other current assets (181,412) 90,634
Receivable from officers (28,986) (18,820)
Accounts payable (53,855) (458,634)
Accrued expenses 246,769 (136,479)
Advanced billings 1,317,643 21,739
Payroll and other taxes payable 16,247 (2,102)
------------ ------------
Net cash used in operating activities (1,158,623) (501,807)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for equipment (2,342,698) (1,224,742)
Payments for software development costs and other assets (809,243) (574,317)
------------ ------------
Net cash used in investing activities (3,151,941) (1,799,059)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from borrowings 2,300,000 75,000
Repayment of borrowings (593,564) (783,495)
Issuance of common stock, net of issuance costs 4,410,825 3,951,938
------------ ------------
Net cash provided by financing activities 6,117,261 3,243,443
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,806,697 942,577
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,141,307 1,198,730
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,948,004 $ 2,141,307
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 69,044 $ 16,404
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
TRINITECH SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION
Trinitech Systems, Inc. and subsidiary (the "Company") develops and
markets advanced electronic trading systems to brokerage firms,
international banks and global exchanges trading in equities and
futures & options. The Company's NYFIX Network, a combined FIX
(Financial Information Exchange protocol) and Exchange Access
Network, enables users to electronically communicate trade data
among the buy-side, sell-side, and exchange floor environments. In
addition, the Company offers a range of related information
technology services and maintenance support. The Company is
headquartered in Stamford, Connecticut and maintains operations in
New York, Chicago and London.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Trinitech Systems, Inc. and its subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Reclassifications
-----------------
Certain 1997 balances have been reclassified to conform to the 1998
presentation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents.
Inventories
-----------
Inventories consist of parts, finished goods and minor materials and
are stated at the lower of cost, determined on a first-in, first-out
basis, or market.
F-7
<PAGE>
Equipment
---------
Equipment is stated at cost less accumulated depreciation. Included
in equipment are certain payroll costs related to the development of
the NYFIX Network and other long-lived assets to support the
Company's subscription and service based businesses. Depreciation is
provided using the straight-line method over the estimated useful
lives of the assets ranging from two to eight years. The estimated
useful lives for subscription and service based equipment is
generally two to three years. In the fourth quarter of 1998, the
Company extended the life of certain subscription equipment from two
to three years. The change decreased depreciation expense by
approximately $20,000.
Other Assets
------------
Other assets consist principally of patents, deferred product
enhancement costs (capitalized based on time incurred for
enhancement of products which have achieved technological
feasibility), and deposits. Product enhancement costs are being
amortized using the straight-line method over three years, Patent
costs are being amortized over seventeen years.
Long-Lived Assets
-----------------
Long-lived assets, primarily equipment and other assets, are
reviewed for impairment whenever events or circumstances indicate
that the asset's undiscounted expected cash flows are not sufficient
to recover its carrying amount. The Company measures an impairment
loss by comparing the fair value of the asset to its carrying
amount. Fair value of an asset is calculated based upon the present
value of expected future cash flows.
Revenue Recognition
-------------------
Sales are generally recorded upon shipment of the product to and
acceptance by customers. Subscription revenue is recognized ratably
over the life of the subscription agreements with customers. Revenue
from service contracts is recognized ratably over the period the
services are performed. Costs to fulfill service contracts have been
insignificant during the periods presented. Amounts billed in
advance for service and subscription contracts are deferred and
reflected as advance billings.
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 97-2, "Software
Revenue Recognition," which supercedes SOP-91-1 and clarifies the
existing guidance regarding revenue recognition of certain computer
software products. The Company adopted SOP 97-2 in 1998 and the
effect was not material to the Company's operations or financial
position taken as a whole.
Research and Development
------------------------
Research and development costs are expensed as incurred.
Advertising
-----------
The Company expenses advertising costs as incurred. Advertising
expense was approximately $294,000 and $320,000 for the years ended
December 31, 1998 and 1997, respectively.
F-8
<PAGE>
Foreign Currency Translation
----------------------------
The Company's functional currency is the U.S. dollar. Accordingly,
the monetary assets and liabilities of the London 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 Loss Per Common Share
-------------------------
The weighted average number of common shares outstanding used for
calculating earnings per share is based upon amounts oustanding at
the end of each quarter. Diluted earnings per share is not presented
in either 1998 or 1997 because the effect of the Company's common
stock equivalents (employee stock options and warrants) are
antidilutive.
Income Taxes
------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The Company uses different methods of accounting for financial
reporting and tax purposes, principally through the utilization of
accelerated depreciation methods for income tax purposes, certain
valuation allowances and net operating loss carryforwards;
accordingly deferred taxes are provided on the basis of such
differences.
Financial Instruments
---------------------
The carrying value for all current assets and current liabilities
approximates fair value because of their short-term nature. The
carrying value of the Company's long-term debt also approximates its
fair value based on prevailing interest rates.
Impact of Recently Issued Accounting Pronouncements
---------------------------------------------------
In June 1998, the Financial Accounting Standards Boards issued 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 is
effective for fiscal years beginning after June 15, 1999.
3. INVENTORY
Inventory consists of the following:
December 31,
-----------------------
1998 1997
--------- ---------
Parts, including minor materials $ 823,429 $ 875,822
Finished goods 537,873 414,551
---------- ----------
1,361,302 1,290,373
Less: Allowance for obsolescence 82,000 82,000
---------- ----------
Total $1,279,302 $1,208,373
========== ==========
F-9
<PAGE>
4. EQUIPMENT
Equipment consists of the following:
December 31,
------------------------
1998 1997
--------- ---------
Computer software $ 389,090 $ 331,668
Leasehold improvements 116,002 81,957
Furniture and equipment 1,087,174 878,518
Subscription and service
bureau equipment 2,715,747 784,323
---------- ----------
4,308,013 2,076,466
Less: Accumulated depreciation 1,453,882 714,759
---------- ----------
Total $2,854,131 $1,361,707
========== ==========
5. COMPUTER SOFTWARE
Included in other assets are unamortized deferred product
enhancement costs aggregating approximately $974,000 and $686,000 as
of December 31, 1998 and 1997, respectively. Amounts deferred are
based upon an analysis of payroll and other costs directly related
to the enhancement of existing products. Included in cost of sales
is amortization expense for product enhancement costs of
approximately $479,000 and $373,000 for 1998 and 1997, respectively.
Also included in cost of sales is depreciation expense for
subscription based equipment of approximately $291,000 and $111,000
for 1998 and 1997, respectively.
6. CAPITAL STOCK
On November 24, 1998, the Company completed a private placement of
600,000 shares of Common Stock at a price of $6.00 per share, for an
aggregate value of $3,600,000. Costs related to this offering
amounted to approximately $150,000 resulting in net proceeds to the
Company of approximately $3,450,000.
On March 7, 1997, the Company completed a private placement of
800,000 shares of Common Stock at a price at $4.50 per share, for an
aggregate value of $3,600,000. Costs related to this offering
amounted to approximately $85,000 resulting in net proceeds to the
Company of approximately $3,515,000.
On September 1, 1997, the Board of Directors declared a dividend
distribution of one Preference Share Purchase right (a "Right") for
each outstanding share of Common Stock, par value $.001 per share,
of the Company to stockholders of record on September 19, 1997. Each
Right entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series A Preference Stock, par value
$.001 per share, of the Company, at a price of $40 per one
one-hundredth of a Preference Share, subject to adjustment, upon
change of control in the Company, as defined in the rights
agreement.
Due to the nature of the Preference Shares' dividend liquidation and
voting rights, the value of a Preference Share should approximate
the value of one share of Common Stock.
During 1998, 83,000 warrants were exercised for 83,000 shares of
Common Stock. The Company received approximately $272,000 from the
exercise of such warrants.
F-10
<PAGE>
7. MAJOR CUSTOMERS AND EXPORT SALES
For the year ended December 31, 1998, two customers accounted for
approximately 26% of total sales. For the year ended December 31,
1997, one customer accounted for approximately 17% (non-financial
service firm customer), of total sales. Export sales amounted to
approximately $234,000 and $1,283,000 for the years ended December
31, 1998 and 1997, respectively.
8. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the years ended December 31,
1998 and 1997 totaled approximately $537,300 and $321,600,
respectively, and are included in selling, general and
administrative expenses.
9. DEBT
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 eighteen months. The Agreement is primarily
intended to finance existing and future 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 weighted average outstanding borrowings
during 1998 were approximately $601,000 at a weighted average
interest rate of 7.03%. 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 princial commences on July 30, 2000, with twelve monthly
installments of $83,333 with the remaining balance due on July 30,
2001. The debt is personally secured by a Company non-employee
shareholder and the Company's President. 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. The
expense related to the warrants issued to the non-employee
shareholder will be recognized over the three-year term of the
Agreement.
The following is a schedule of principal payments as of December 31,
1998:
1999 -
2000 $ 500,000
2001 1,300,000
In association with obtaining the $3 million line of credit
facility, the Company terminated its previous $500,000 line of
credit agreement and repaid all outstanding term loans. The weighted
average outstanding borrowings under the previous credit line during
1998 approximated $74,000 at a weighted average interest rate of
9.50%.
F-11
<PAGE>
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company was committed under operating
leases for offices, production facilities and equipment for terms
expiring through June 30, 2005. Future minimum annual rental
payments are as follows:
Year Amount
---- ------
1999 $663,000
2000 548,000
2001 332,000
2002 207,000
2003 150,000
Thereafter 224,000
Aggregate rental expense amounted to approximately $622,500 and
$228,900 for the years ended December 31, 1998 and 1997,
respectively.
In 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, with such base salary to be reviewed on an annual basis
thereafter by the Compensation Committee of the Board of Directors.
The Company maybe subject to legal proceedings, which arise in the
ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not materially affect the
Company's financial statements.
11. RELATED PARTIES
Certain executive officers of the Company have amounts due to the
Company for the exercise of warrants for capital stock. Such amounts
aggregated $452,925 and $430,000 as of December 31, 1998 and 1997,
respectively, and have been shown as a reduction to stockholders'
equity.
At December 31, 1998 and 1997, the Company had amounts receivable
from officers of $120,583 and $91,597, respectively.
12. DEFINED CONTRIBUTION PLAN
The Company, on January 1, 1994, established a 401(k) retirement
plan (the "Plan") covering substantially all of its U.S. employees
who meet eligibility requirements. The Plan permits participants to
contribute up to a maximum of 15% of their annual compensation, as
defined, not to exceed the federal limit of $10,000 in 1998. The
Plan permits the Company to match 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 expense under the Plan approximated $57,000 and $52,100 in
1998 and 1997, respectively.
F-12
<PAGE>
13. STOCK WARRANTS AND STOCK OPTION PLAN
The Company has 1,500,000 shares reserved under its option plan. At
December 1998 and 1997, the following options and warrants had been
granted under our plan and were outstanding:
<TABLE>
<CAPTION>
Weighted Average Weighted
Exercise Average
Stock Options Price Stock Warrants Exercise Price
------------- ----- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at
December 31, 1996 290,000 $3.06 542,587 $2.74
Granted 752,500 4.95 28,250 4.50
Exercised (42,500) 3.07 (307,000) 2.24
Forfeited (48,000) 4.35 -
------------------- ----------------
Outstanding at
December 31,1997 952,000 4.51 263,837 3.51
------------------- ----------------
Shares exercisable
at end of period 239,500 3.04 201,337 3.21
Weighted Average
fair value of shares
granted during year 3.04 2.18
Outstanding at
December 31, 1997 952,000 4.54 263,837 3.51
Granted 401,700 6.69 200,000 6.33
Exercised (201,000) 3.56 (83,000) 3.27
Forfeited (76,400) 6.53 (55,000) 2.82
------------------- ----------------
Outstanding at
December 31, 1998 1,076,300 5.34 325,837 5.42
------------------- ----------------
Shares excercisable
at end of period 244,500 4.45 73,337 3.15
Weighted average
fair value of
Shares granted
during year $3.85 $2.92
</TABLE>
F-13
<PAGE>
The following table summarizes information about stock options and warrants
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Range of Outstanding at Average Weighted Exercisable at Weighted
Exercise December 31, Remaining Average December 31, Average
Prices 1998 Contractual Life Exercise Price 1998 Exercise Price
------ ---- ---------------- -------------- ---- --------------
<S> <C> <C> <C> <C> <C>
$2.25-$3.38 87,587 5.27 $2.53 87,587 $2.53
$3.63-$5.44 634,750 8.01 $4.65 175,750 $4.33
$5.63-$8.45 679,800 9.34 $6.39 54,500 $6.14
---------- ---------
1,402,137 317,837
========== =========
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997:
o Risk free interest rates range from 4.18% to 6.42%
o Expected didvedend yields of 0%
o Expected lives of 3 to 5 years and
o Expected volatility of 63% and 66%, respectively
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" to account for its stock plans. Except for certain warrants granted
to non-employees during 1998, no compensation cost has been recognized for any
option grants in the accompanying income statement. Had compensation costs been
recorded, our net loss and basic and diluted loss per share would have been
reduced from the following as reported amounts to the following pro forma
amounts:
Net loss: 1998 1997
----------------------------
As reported $(2,233,809) $(2,594,040)
Pro forma (3,215,042) (3,335,625)
Basic and Diluted
loss per share:
As reported $(0.25) $(0.32)
Pro forma $(0.36) $(0.41)
14. BUSINESS SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued 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. This Statement became
effective in 1998.
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 operates 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, measures its performance
based on the revenues of each location. The Company makes decisions
on each segment based on gross profit.
F-14
<PAGE>
Foreign operation revenues amounted to approximately $2,001,000 and $1,293,000
for the years ended December 31, 1998 and 1997, respectively. Intersegment sales
are accounted for at cost.
Identifiable assets by segment include assets directly identifiable with those
operations. Other assets consist primarily of corporate cash and cash
equivalents and fixed assets associated with non-segment activities.
Summarized financial information by business segment for 1998 and 1997 is as
follows (in 000's):
1998 1997
------------ ------------
Revenues:
Stamford / New York $ 4,203 $ 3,546
London 2,001 1,293
Chicago 31 167
Inter-Segment Sales 95 189
Inter-Segment Elimination (95) (189)
------------ ------------
Total revenues 6,235 5,006
Gross Profit:
Stamford / NewYork
$ 1,936 $ 1,185
London
1,745 1,074
Chicago
22 67
------------ ------------
Gross Profit $ 3,703 $ 2,326
Identifiable assets at December 31:
Stamford / New York $ 7,284 4,013
London 1,472 1,130
Chicago 57 142
Corporate 4,184 2,262
------------ ------------
Total identifiable assets $ 12,997 $ 7,547
Additions to fixed assets:
Stamford / New York 2,259 1,165
London 81 44
Chicago 3 16
------------ ------------
Total additions to fixed assets $ 2,343 $ 1,225
Depreciation:
Stamford / New York 676 262
London 69 35
Chicago 3 1
------------ ------------
Total depreciation $ 748 $ 298
F-15
<PAGE>
15. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amount used for income tax
purposes. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liability recognized as of December 31, 1998 and 1997 are presented
below:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- -----------
Deferred tax assets:
<S> <C> <C>
Bad debt expense $ 37,200 $ 57,600
Inventory obsolescence 32,800 32,800
Product development costs 199,000 158,000
Other 53,000 29,000
Operating loss carryforward 2,110,100 1,284,000
--------- -----------
Total deferred tax asset 2,432,100 1,561,400
Less valuation allowance 2,400,400 1,545,400
--------- -----------
Net deferred tax asset 31,700 16,000
Deferred tax liability:
Depreciation 31,700 16,000
---------- -----------
Total deferred tax liability 31,700 16,000
---------- -----------
Net deferred tax amount $ - $ -
---------- -----------
</TABLE>
At December 31, 1998 and 1997, the Company had net operating loss
carryforwards of approximately $5,2700,000 and $3,100,000,
respectively. These losses expire between 2008 and 2013. The tax
benefit of such operating loss carryforwards will be credited to
income when realization is considered more likely than not. In
addition, these amounts may be limited under Internal Revenue Code
Section 382 as a result of ownership changes resulting from the
Company's equity offerings.
Significant components of the provision for income taxes are as
follows for the years ended:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
----------- -------------
<S> <C> <C>
Current $ - $ -
Deferred:
Federal 727,000 918,000
State 128,000 102,400
Increase in valuation allowance (855,000) (1,020,400)
----------- -------------
Total deferred - -
----------- -------------
Total provision for income taxes $ - $ -
----------- -------------
</TABLE>
F-16
<PAGE>
The reconciliation between the federal statutory income tax rate and
the Company's income tax provision is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
----------- -------------
<S> <C> <C>
Statutory tax rate (34%) (34%)
State and local taxes, net of federal benefit (6) (6)
Valuation allowance 40 40
----------- -------------
0% 0%
</TABLE>
16. VALUATION AND QUALIFYING ACCOUNTS:
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Deductions Balance at
of Year Expenses Write-Off End of Year
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for inventory obsolescence:
December 31, 1997 $ -- $ 82,000 $ -- $ 82,000
December 31, 1998 $ 82,000 $ -- $ -- $ 82,000
Allowance for doubtful accounts:
December 31, 1997 $ 30,000 $144,269 $ 30,269 $144,000
December 31, 1998 $144,000 $ 50,922 $101,936 $ 92,986
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trinitech Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 333-24891.
/s/ Arthur Andersen LLP
Stamford, Connecticut
March 30, 1999
<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, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,948,004
<SECURITIES> 0
<RECEIVABLES> 3,510,404
<ALLOWANCES> 92,986
<INVENTORY> 1,279,302
<CURRENT-ASSETS> 9,049,219
<PP&E> 4,308,013
<DEPRECIATION> 1,453,882
<TOTAL-ASSETS> 12,997,519
<CURRENT-LIABILITIES> 3,078,770
<BONDS> 0
0
0
<COMMON> 9,409
<OTHER-SE> 14,767,116
<TOTAL-LIABILITY-AND-EQUITY> 12,997,519
<SALES> 6,235,393
<TOTAL-REVENUES> 6,235,393
<CGS> 2,532,709
<TOTAL-COSTS> 8,514,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,465
<INCOME-PRETAX> (2,233,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,233,809)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,233,809)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
