SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) (x) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 ------------------------------- ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1665 EXTECH CORPORATION (Name of small business issuer in its charter) Delaware 36-2476480 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 90 Merrick Avenue, East Meadow, New York 11554 (Address of principal executive offices) (Zip Code) Issuer's telephone number (516) 794-6300 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered none Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par value (Title of class) Check whether the issuer (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 disclosure of delinquent filers in response to Item 405 of Regulation S-B is not 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.( ) State issuer's revenues for its most recent fiscal year: $1,082,038 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: $1,064,668 as of March 21, 1997 (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Check whether the issuer has filed all documents and reports to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ___. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 5,591,367 shares outstanding as of March 21, 1997 DOCUMENTS INCORPORATED BY REFERENCE None
PART I ITEM 1. DESCRIPTION OF BUSINESS (a) Business Development (i) International Airport Hotel EXTECH Corporation (the "Company" or "EXTECH"), through a wholly-owned subsidiary, IAH, Inc. ("IAH"), operates the International Airport Hotel in San Juan, Puerto Rico (the "Hotel"). The Hotel is located on the site of the San Juan International Airport (the "Airport") and occupies the third and fifth floors of the main terminal building. In addition to its 57 guest rooms, the Hotel has a lobby area. The Hotel caters generally to commercial and tourist travelers in transit. IAH also operates a video game room on the terminal level of the Airport. Reference is also made to Item 6 hereof for additional information regarding the Hotel. The Hotel is marketed through brochures, local advertising and in-airport advertising. Its operations are highly seasonal, with the disproportionate share of its revenues being generated during the first several months of the calendar year. Approximately 27% of the total room sales for the Hotel for 1996 were attributable to one customer. The Hotel is the only hotel actually located on the site of the Airport. As such, it has little direct competition for the tourist trade or commercial travelers seeking only sleeping accommodations at the Airport. The Puerto Rico Ports Authority (the "Ports Authority"), the owner of the Hotel, had authorized the construction of an additional hotel in the parking lot of the Airport; however, the Ports Authority has advised IAH that it has abandoned its plan to construct such hotel and instead has determined to upgrade and expand the Hotel. No assurance can be given, however, that an additional hotel or hotels will not be developed at the site of, or near, the Airport, in which case IAH could encounter significant competition with respect to the operations of the Hotel. On July 22, 1988, IAH entered into a Lease Agreement with the Ports Authority pursuant to which the Ports Authority granted IAH a lease to operate the Hotel for five years until June 30, 1993, plus, at the option of IAH, an additional five year term to end June 30, 1998 (subject to agreement as to the rental amount payable, which the parties agreed to negotiate in good faith). In 1992, in accordance with the Lease Agreement, IAH exercised its right for a five year extension of its lease. At the time, the Ports Authority was uncertain as to whether it wished to build a new hotel in the parking lot of the Airport or upgrade the existing Hotel (located in the Airport terminal) and, therefore, requested that IAH accept an 18 month extension of the then existing term. IAH agreed to an 18 month extension and signed a supplemental lease agreement with the Ports Authority in May 1992 extending the lease term to December 31, 1995. IAH is of the belief that, pursuant to the supplemental lease agreement, it retained the option to continue the lease for a period of five years to December 31, 2000.
In July 1993, the Assistant Director of Operations of the Ports Authority forwarded to IAH a letter containing the terms of a proposed ten year lease extension which IAH approved, signed and returned to the Ports Authority. Although the letter setting forth the terms of the extension agreement with IAH does not make the Ports Authority's approval conditional upon the approval of its Board of Directors, the Ports Authority has taken such position and, since Board of Directors approval was not obtained, the Ports Authority takes the position that the extension is not in effect. IAH is of the belief that a ten year agreement has been entered into between IAH and the Ports Authority pursuant to the foregoing or that, alternatively, it exercised its right to extend the term of the lease to December 31, 2000. Based upon IAH's refusal to acknowledge that, effective January 1, 1996, it occupied the Hotel on a month-to-month basis, in February 1996, the Ports Authority requested that IAH vacate, surrender and deliver the premises by February 29, 1996. Following the receipt of such request, IAH brought an action in the Superior Court of San Juan, Puerto Rico for declaratory judgment and possessory injunction against the Ports Authority with respect to the Hotel. The action seeks a declaratory judgment that, among other alternatives, IAH exercised an option with respect to its lease for the Hotel for an extension of the term of five years commencing on January 1, 1996 or that the Ports Authority executed a new lease agreement for a ten year period commencing on such date. (ii) Pipe Harness Clamp The Company holds a patent for a specialized clamping device (the "Pipe Harness Clamp") designed to connect principally underground pipe lines of similar and dissimilar materials. In July 1991, the Company and an unrelated third party (the "Licensee") entered into a License and Royalty Agreement (the "License Agreement") pursuant to which the Licensee was granted the exclusive right to manufacture, use, market and sell (either directly or on the Licensee's behalf) the Pipe Harness Clamp. The License Agreement provides that, among other matters, the Licensee will pay royalty payments for the license of the Pipe Harness Clamp in an amount equal to 5% of Net Sales (as defined in the License Agreement) of the Pipe Harness Clamp until such time as the aggregate amount of the royalty payments total $1,000,000 and thereafter an amount equal to 2.5% of Net Sales of the Pipe Harness Clamp (the "Net Sales Royalty"). The License Agreement also provides that the Licensee will pay a percentage of royalty payments that are payable to the Licensee pursuant to a certain License and Technical Assistance Agreement (the "Technical Assistance Agreement"). The Company is to receive, for each twelve month period that the Technical Assistance Agreement is in effect, 23.68% of all amounts in excess of $100,000 received by the Licensee in accordance with the terms of the Technical Assistance Agreement (the "Technical Assistance Royalty"), the aggregate of which payments to the Company shall not exceed $1,480,000. Since inception of the License Agreement, the Company had received an aggregate of approximately $179,891 in Technical Assistance Royalty payments pursuant to the License Agreement (of which approximately $109,891 was accrued during 1996), but had received no Net Sales Royalty payments. No assurances can be given regarding the commercial marketability of the Pipe Harness Clamp. 2
(iii) Robeson Industries Corp. In February 1993, EXTECH entered into a Subscription and Stock Purchase Agreement (the "Subscription Agreement") with Robeson Industries Corp. ("Robeson") pursuant to which the Company agreed to purchase from Robeson, subject to the conditions set forth therein, (i) approximately 15% of the issued and outstanding shares of capital stock of Robeson and (ii) all of the outstanding shares of capital stock of Robeson's wholly-owned Hong Kong subsidiary, Robeson Industries Hong Kong Ltd. ("Hong Kong") (the "Hong Kong Shares"). In May 1993, the Company advised Robeson that it was terminating the Subscription Agreement due to the nonfulfillment of certain of the conditions to the obligation of EXTECH to consummate the transactions contemplated thereby. The Company also made demand upon Robeson for repayment of the principal amount of $320,000 loaned by the Company during 1992 and 1993, together with interest thereon, as well as reimbursement of expenses incurred by the Company in connection with the Subscription Agreement. Subsequently, in May 1993, Robeson filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Act with the United States Bankruptcy Court for the District of New Jersey (the "Court"). In September 1993, the Company filed a proof of claim in such proceeding as a secured creditor to recover the approximate amount of $534,000. Pursuant to a Plan of Reorganization of Robeson (the "Plan") approved by the Court, in September 1994, in consideration of the $320,000 in loans made by the Company to Robeson and other recoverable expenses, the reorganized Robeson issued to the Company a promissory note (the "Note") in the principal amount of $385,000. The Note provided for the payment of interest at the rate of 8% per annum and the repayment of principal in 48 consecutive monthly installments of varying amounts. Pursuant to the Plan, payment of the Note was secured by a pledge of the Hong Kong Shares. In addition, pursuant to the Plan, the Company received a nominal minority equity interest in Robeson. The first three payments under the Note were received by the Company in October, November and December 1994. Effective January 1995, Robeson ceased making payments under the Note. In March 1995, the Company demanded full payment of the Note, foreclosed its security interest with respect to the Hong Kong Shares and purchased such shares at an auction sale. In September 1995, the Company agreed to cancel the Note in consideration for the issuance by Robeson of a new promissory note in the principal amount of $125,000 (the "New Note"). The New Note provides for interest at the rate of 8% per annum and is payable in 27 consecutive monthly installments of $5,000. The Company has received monthly installments sporadically under the New Note, but not on a current basis. 3
(iv) Phone America International, Inc. In February 1996, the Company announced that it had entered into a non-binding letter of intent to acquire Phone America International, Inc. ("Phone America"), an interexchange telecommunications carrier engaged in the design, development and marketing of prepaid telephone calling cards and other telephone products. Concurrently with the execution of the letter of intent, the Company loaned $50,000 to Transcends Telecom Corporation ("Transcends"), a wholly-owned subsidiary of Phone America, for working capital purposes. The note evidencing the loan was payable on or after August 26, 1996 upon 30 days notice. Payment of the principal amount of the note, together with interest at the rate of 10% per annum, was secured by a pledge of certain shares of Phone America Common Stock as well as by a lien on accounts receivable of Transcends. Subsequent to February 1996, the Company decided not to consummate the foregoing transaction due to Phone America's excessive funding requirements. Thereafter, in November 1996, following the discontinuance of operations by Transcends and Phone America, Transcends defaulted on its note and the Company foreclosed on its security interest in Transcend's accounts receivable. The Company obtained a peaceful surrender of the accounts receivable and has commenced collection proceedings against the account debtors. However, no assurances can be given regarding the satisfaction of the full amount due to the Company under the note. (v) Other Business Opportunities During 1996 and 1997, the Company explored a number of business opportunities in connection with the acquisition and/or operation of sports franchises and negotiated acquisition agreements in connection therewith. Although no transactions have been consummated to date, the Company is continuing to investigate opportunities in this industry. (vi) General The Company was incorporated in the State of Delaware on August 25, 1961. The Company's principal executive offices are located at 90 Merrick Avenue, East Meadow, New York 11554, and its telephone number at such office is (516) 794-6300. 4
(b) Business of Issuer (i) International Airport Hotel Reference is made to Items 1(a)(i) and 2 hereof. (ii) Pipe Harness Clamp Reference is made to Item 1(a)(ii) hereof. (iii) Other Business Opportunities Reference is made to Item 1(a)(v) hereof. (iv) Number of Employees As of December 31, 1996, the Company and its subsidiaries employed 17 persons. ITEM 2. DESCRIPTION OF PROPERTY The executive offices of the Company are located at 90 Merrick Avenue, East Meadow, New York where approximately 200 square feet of space are occupied on a month-to-month basis at a monthly rental of $500. The Hotel is leased by IAH from the Ports Authority. The annual rental obligation for the Hotel equals the greater of $169,400 or 20% of annual gross revenues, as defined. Total rent expense under the lease amounted to $189,610 for 1996 as compared to $191,335 for 1995. Reference is made to Item 1(a)(i) hereof for a discussion of certain pending litigation with regard to IAH's lease rights in the Hotel. ITEM 3. LEGAL PROCEEDINGS Reference is made to Item 1(a)(i) hereof for a discussion of certain pending litigation with regard to the Hotel. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 5
PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The Company's Common Stock is traded in the over-the-counter market on the National Association of Securities Dealers' Bulletin Board under the symbol "EXTH". The following table sets forth, for the periods indicated, the high and low bid prices for the Company's Common Stock as reported by the National Quotation Bureau, Inc.: 1996 Calendar Year High Low First Quarter $1/4 $1/16 Second Quarter 7/16 1/4 Third Quarter 7/16 3/8 Fourth Quarter 3/8 3/8 1995 Calendar Year High Low First Quarter $1/8 $1/16 Second Quarter 1/8 1/8 Third Quarter 1/8 1/16 Fourth Quarter 1/16 1/16 The above quotations reflect interdealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. (b) Holders As of March 21, 1997, there were 3,060 record holders of the Company's Common Stock. (c) Dividends The Company has neither declared nor paid any cash dividends on its Common Stock during its two most recent fiscal years and the Board of Directors does not contemplate the payment of dividends in the foreseeable future. Any decisions as to the future payment of dividends will depend on the earnings and financial position of the Company and such other factors as the Board of Directors deems relevant. (d) Recent Sales of Unregistered Securities Reference is made to Item 12 hereof for discussion of a private placement of Common Stock of the Company made pursuant to Section 4(2) of the Securities Act of 1933, as amended. 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations: In 1996, the Company had total revenues of $1,118,647 and a net loss of $5,099 as compared to revenues of $1,024,057 and a net profit of $51,229 for 1995. Room rental and other departmental revenue for the Hotel decreased by $13,016 (1.32%) during 1996. The net profit for the Hotel, on a "stand-alone" basis, was $109,322 in 1996 as compared to $144,351 in 1995. Interest income increased by $16,929 from 1995 to 1996 due to the receipt of $800,000 in funds from the private placement of Common Stock discussed under "Liquidity and Capital Resources". Royalty income earned during 1996 with respect to the Pipe Harness Clamp was $109,891 as compared to $19,214 in 1995 (see Item 1(a)(ii)). In 1996, the Company incurred costs and expenses of $1,119,090 as compared to $967,152 in 1995, representing an increase of $151,938. The increase was attributable primarily to an increase of $162,079 in corporate and sundry costs and expenses arising from the professional fees incurred in connection with, among other things, the Company's investigation and negotiation of other business opportunities (see Item 1(a)(v)) and an increase in the salary of an executive officer of the Company, which increase was granted in view of the greater amount of effort required to be expended by him in connection with the aforementioned investigation and negotiation of business opportunities. Reference is made to Item 1(a)(i) hereof for a discussion of a certain litigation with the Ports Authority with regard to the Hotel. Liquidity and Capital Resources: As of December 31, 1996, the Company had $1,318,121 in cash and cash equivalents as compared to $644,956 in 1995, representing an increase of $673,165. Such increase was primarily the result of an $800,000 equity investment made during 1996 by the President and Chairman of the Board of the Company and another investor (see Items 5 and 12 hereof). 7
As of December 31, 1996, the Company had a working capital surplus of $1,299,647 and had no material commitments for capital expenditures. Reference is made to Items 1(a)(iii) and (iv) hereof for a discussion of the status of a certain note in the principal amount of $125,000 issued by Robeson to the Company in September 1995 and a certain note in the principal amount of $50,000 issued by Transcends to the Company in February 1996. Reference is also made to Item 1(a)(i) hereof for a discussion of certain litigation with the Ports Authority with regard to the Hotel. ITEM 7. FINANCIAL STATEMENTS The financial statements required by this Item 7 are included in this Annual Report on Form 10-KSB following Item 13 hereof. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in accountants due to disagreements on accounting and financial disclosure during the twenty-four month period ended December 31, 1996. 8
PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Directors and Executive Officers The following table sets forth the positions and offices presently held with the Company by each Director and executive officer, his age and the year from which such person's service on the Company's Board of Directors dates: Positions and Offices Director Name Age held with the Company Since ---- --- --------------------- ----- Jay M. Haft 61 Chairman of the Board 1989 Morton L. Certilman 65 President and Director 1989 Leon Lapidus 52 Director 1989 Brian K. Ziegler 42 Secretary and Treasurer -- Jay M. Haft has served as the Company's Chairman of the Board since October 1989. Mr. Haft has been engaged in the practice of law for more than the past five years and serves as counsel to Parker Duryee Rosoff & Haft. He was previously a senior corporate partner of such firm (1989-1994). Mr. Haft is a strategic and financial consultant for growth stage companies. He is active in international corporate finance, mergers and acquisitions, as well as in the representation of emerging growth companies. He has actively participated in strategic planning and fund raising for many high-tech companies, leading edge medical technology companies and technical product, service and marketing companies. Mr. Haft is a Managing General Partner of Venture Capital Associates, Ltd. and Gen Am "1" Venture Fund, a domestic and an international venture capital fund, respectively. Mr. Haft is also a Director of numerous public and private corporations, including Robotic Vision Systems, Inc., Noise Cancellation Technologies, Inc., Encore Medial Corporation, Viragen, Inc., PC Service Source, Inc., DUSA Pharmaceuticals, Inc., Oryx Technology Corp. and Jenna Lane, Inc., all of whose securities are traded in the over- the-counter market, and serves as Chairman of the Board of Noise Cancellation Technologies, Inc., and Jenna Lane, Inc. Mr. Haft is a member of the Florida Commission for Government Accountability to the People, Co-President of the Dade Venue of the Miami Ballet and a Director of the Concert Association of Florida. Mr. Haft received B.A. and L.L.B. degrees from Yale University. 9
Morton L. Certilman has served as the Company's President since October 1989. Mr. Certilman has been engaged in the practice of law for more than the past five years and is a member of the law firm of Certilman Balin Adler & Hyman, LLP. Mr. Certilman is Chairman of the Long Island Regional Planning Board, the Northrop/Grumman Master Planning Council and a Director of the Long Island Association, the New Long Island Partnership and the Long Island Sports Commission. Mr. Certilman has lectured extensively before bar associations, builders' institutes, title companies, real estate institutes, banking and law school seminars, The Practicing Law Institute, The Institute of Real Estate Management and at annual conventions of such organizations as the National Association of Home Builders, the Community Associations Institute and the National Association of Corporate Real Estate Executives. He is a member of the faculty of the American Law Institute/American Bar Association, as well as the Institute on Condominium and Cluster Developments of the University of Miami Law Center. Mr. Certilman has written various articles in the condominium field, is the author of the New York State Bar Association Condominium Cassette and the Condominium portion of the State Bar Association book on "Real Property Titles", and is the editor of the New York Land Report. Mr. Certilman is a member of the Advisory Board of First American Title Insurance Company of New York and the American College of Real Estate Lawyers. Mr. Certilman received an L.L.B. degree, cum laude, from Brooklyn Law School. Leon Lapidus has been the President of the Mibro Group, a privately held importer, packager and distributor of hardware, for more than the past five years. Mr. Lapidus received a B.A. degree from Hunter College and an M.B.A. degree from the Bernard M. Baruch College of the City of New York. Mr. Lapidus is the brother-in-law of Mr. Haft. Brian K. Ziegler has been engaged in the practice of law for more than the past five years and is a member of the law firm of Certilman Balin Adler & Hyman, LLP. Mr. Ziegler received a B.S. degree, cum laude, from the Wharton School of the University of Pennsylvania, and a J.D. degree and an L.L.M. degree in Taxation from the University of Miami. Mr. Ziegler is the son- in-law of Mr. Certilman. Each Director will hold office until the next Annual Meeting of Stockholders and until his successor is elected and qualified, or until his earlier resignation or removal. Each executive officer will hold office until the next regular meeting of the Board of Directors following the next Annual Meeting of Stockholders and until his successor is elected or appointed and qualified, or until his earlier resignation or removal. Section 16(a) Beneficial Ownership Reporting Compliance To the Company's knowledge, based solely on a review of the copies of Forms 3 and 4 furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to the Company's officers, Directors and 10% stockholders were complied with, except that Brian K. Ziegler, Treasurer and Secretary of the Company, inadvertently failed on a timely basis to file a Form 5 for a certain gift transaction. This was Mr. Ziegler's first late filing in connection with Section 16(a) filing requirements. 10
ITEM 10. EXECUTIVE COMPENSATION (a) Summary Compensation Table The following table sets forth certain information concerning the compensation of Morton L. Certilman, President of the Company, for the fiscal years ended December 31, 1994, 1995 and 1996. No other person who served as an executive officer of the Company as of December 31, 1996 had a total salary and bonus for the year then ended in excess of $100,000. Annual Compensation Name and Principal All Other Position Year Salary Compensation Morton L. Certilman, 1996 $101,250 -0-* President 1995 $50,000 -0-* 1994 $40,000 -0-* ____________ * Excludes fees payable during 1994, 1995 and 1996 by the Company to Certilman Balin Adler & Hyman, LLP, a law firm of which Mr. Certilman is a member. (b) Option Grants No grants of stock options were made to Mr. Certilman during the fiscal year ended December 31, 1996. (c) Aggregated Option Exercises and Fiscal Year-End Option Value Mr. Certilman did not exercise any options during the year ended December 31, 1996 and held no options as of such date. (d) Long-Term Incentive Plan Awards No awards were made to Mr. Certilman during the fiscal year ended December 31, 1996 under any long-term incentive plan. 11
(e) Compensation of Directors Each Director is entitled to receive a $500 fee for each Directors' meeting he attends. In addition, Directors are reimbursed for travel expenses incurred in connection with attendance at such meetings. (f) Employment Contracts, Termination of Employment and Change-in-Control Arrangements Not applicable. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of March 27, 1997 regarding the beneficial ownership of the Company's shares of Common Stock by (i) each person who is known by the Company to beneficially own or exercise voting or dispositive control over more than 5% of the Company's Common Stock, (ii) each present Director and (iii) all of the Company's present executive officers and Directors as a group: Approximate Name and Address Number of Shares Percentage of Beneficial Owner Beneficially Owned of Class Morton L. Certilman............ 2,611,893(1)(2)(3) 46.7% The Financial Center at Mitchel Field 90 Merrick Avenue East Meadow, New York Adam R. Lieberman.................. 1,800,000(2)(4) 32.2% 125 Baylis Road Melville, New York Jay M. Haft.................... 910,393(1)(5) 16.3% 201 S. Biscayne Blvd. Suite 3000 Miami, Florida Leon Lapidus................... 20,000 * 111 Sinnott Road Scarborough Ontario M1L 4S6 Canada All executive officers and Directors as a group (4 persons).................... 3,587,286(3)(5)(6) 64.2% 12
* Less than 1%. (1) Messrs. Certilman and Haft have previously filed a Schedule 13D and amendments thereto under the Securities Exchange Act of 1934, as amended, with respect to their respective equity interests in the Company. In view of their intention to consult with each other with respect to the acquisition, voting and disposition of their respective shares, Messrs. Certilman and Haft may be deemed a group. Accordingly, the group of Messrs. Certilman and Haft beneficially owns 3,522,286 shares of Common Stock. Such amount represents approximately 63.0% of the outstanding shares of Common Stock of the Company. However, each of Messrs. Certilman and Haft independently makes his own decisions with respect to the acquisition, voting and disposition of the shares of Common Stock directly owned by him. Further, neither Mr. Certilman nor Mr. Haft has any economic interest in the shares of Common Stock directly owned by the other. (2) Pursuant to a certain Amended and Restated Voting Trust Agreement, dated as of December 30, 1996, between Sterling Foster Holding Corp. ("SFHC") and Mr. Certilman, as voting trustee (the "Voting Trust Agreement"), SFHC transferred voting control over all 1,800,000 shares of Common Stock of the Company it presently owns to Mr. Certilman during the three year term of the Voting Trust Agreement. (3) Includes 1,800,000 shares held by Mr. Certilman pursuant to the Voting Trust Agreement and 360,000 shares held in a retirement trust for his benefit. (4) The shares are registered in the name of SFHC; Mr. Lieberman is the beneficial owner of these shares by reason of his position as President and sole stockholder of SFHC. (5) Includes 12,500 shares held in a retirement trust for the benefit of Mr. Haft. (6) Includes 5,000 shares held in a retirement trust for the benefit of an executive officer and 20,000 shares held by such executive officer's wife. Such executive officer disclaims beneficial ownership of the shares owned by his wife. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to a certain Subscription Agreement, dated June 3, 1996, by and between the Company, Mr. Certilman, Mr. Haft, and SFHC, the Company issued 3,200,000 shares of Common Stock at a price of $0.25 per share (the "Offering") for a total subscription price of $800,000. Of such amount, $450,000 was paid by SFHC for the purchase of 1,800,000 shares and $175,000 was paid by each of Mr. Haft and Mr. Certilman for the purchase of 700,000 shares each. The proceeds of the Offering were intended to be used in connection with the business opportunities described in Item 1(a)(v) hereof. 13
Certilman Balin Adler & Hyman, LLP, a law firm of which Mr. Certilman is a member, serves as counsel to the Company. It is presently anticipated that such firm will continue to represent the Company and/or its affiliates and will receive fees for its services at rates and in amounts not greater than would be paid to unrelated law firms performing similar services. ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description of Exhibit - ------ ---------------------- 3(a) Certificate of Incorporation, as amended(1) 3(b) By-laws, as amended(2) 9 Amended and Restated Voting Trust Agreement, dated December 30, 1996, among Sterling Foster Holding Corp. and Morton L. Certilman, as voting trustee. 10(a) Agreement, dated July 22, 1988, between the Ports Authority and IAH(1) 10(b) Resolution of Board of Directors of Ports Authority, dated August 10, 1994, regarding rental obligation of the Hotel(3) 10(c) Amended and Restated 1990 Stock Option Plan(1) 10(d) License and Royalty Agreement, dated July 1991, among the Company, IFTI Capital Appreciation Management Corporation, and NPS Products, Inc.(4) 10(e) Subscription Agreement, dated as of June 3, 1996, between Mr. Certilman, Mr. Haft, SFHC and the Company (5) 21 Subsidiaries of the Registrant(4) 27 Financial Data Schedule. __________ (1) Denotes document filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference. (2) Denotes document filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1989 and incorporated herein by reference. (3) Denotes document filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1994 and incorporated herein by reference. (4) Denotes document filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. (5) Denotes document filed as an exhibit to the Company's Current Report on Form 8-K for an event dated June 3, 1996 and incorporated herein by reference. 14
(b) Reports on Form 8-K No report on Form 8-K was filed by the Company during the last quarter of the fiscal year ended December 31, 1996. 15
EXTECH CORPORATION AND SUBSIDIARIES REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS TWO YEARS ENDED DECEMBER 31, 1996
INDEX Page Independent auditors' report F-2 Consolidated balance sheet F-3 Consolidated statements of operations F-4 Consolidated statement of stockholders' equity F-5 Consolidated statements of cash flows F-6 Notes to consolidated financial statements F-7 - F-10
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants Board of Directors and Stockholders EXTECH CORPORATION East Meadow, New York We have audited the accompanying consolidated balance sheet of EXTECH CORPORATION and Subsidiaries as of December 31, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 audit provides 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 EXTECH CORPORATION and Subsidiaries as of December 31, 1996 and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1996 in conformity with generally accepted accounting principles. HOLTZ RUBENSTEIN & CO., LLP Melville, New York February 25, 1997 F-2
EXTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996 ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $1,318,121 Accounts receivable, net of allowance for doubtful accounts of approximately $500 50,591 Notes receivable, net of allowance for doubtful accounts of approximately $48,000 (Note 4) 81,856 Inventories 6,400 Prepaid expenses and other current assets 122,479 ------- Total current assets 1,579,447 PROPERTY AND EQUIPMENT, net (Note 3) 153,595 OPERATING EQUIPMENT, net 9,529 $1,742,571 ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 1,974 Accrued expenses (Notes 5 and 6) 123,626 Debentures payable (Note 7) 154,200 ------- Total current liabilities 279,800 MINORITY INTEREST 560 COMMITMENT AND CONTINGENCY (Note 10) STOCKHOLDERS' EQUITY: (Note 11) Common stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 5,591,367 shares 55,914 Capital in excess of par 5,264,950 Deficit (3,858,653) ---------- 1,462,211 $1,742,571 ========== See notes to consolidated financial statements F-3
EXTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, ------------ 1996 1995 ---- ---- REVENUES: (Note 13) Rooms $ 936,976 $ 924,381 Other operating departments 32,958 58,569 Interest, net 38,822 21,893 Royalty income 109,891 19,214 ------- ------ Total revenues 1,118,647 1,024,057 --------- --------- COSTS AND EXPENSES: Administrative and general 124,697 111,234 Bad debt (recovery) (21,174) 5,195 Corporate and sundry (Note 8) 352,225 190,146 Departmental 380,711 381,192 Depreciation and amortization 51,544 51,901 Energy costs 14,285 16,701 Lease rentals (Note 10) 189,610 191,335 Property operation and maintenance 26,605 18,761 Real estate and personal property taxes 587 687 ------- ------- Total costs and expenses 1,119,090 967,152 --------- ------- (LOSS) INCOME BEFORE INCOME TAXES (443) 56,905 INCOME TAXES (Note 9) 4,656 5,676 ----- ----- NET (LOSS) INCOME $ (5,099) $ 51,229 ====== ====== (LOSS) INCOME PER COMMON SHARE (Note 12) $ (.001) $.02 ===== ==== WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING (Note 12) 4,236,176 2,391,367 ========= ========= See notes to consolidated financial statements F-4
EXTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> Capital Common Stock in Excess Shares Amount of Par Deficit Total ------ ------ ------ ------- ----- <S> <C> <C> <C> <C> <C> Balance, January 1, 1995 2,391,367 $ 23,914 $4,496,950 $(3,904,783) $ 616,081 Net income for the year - - - 51,229 51,229 --------- ------ --------- --------- ------- Balance, December 31, 1995 2,391,367 23,914 4,496,950 (3,853,554) 667,310 Issuance of stock 3,200,000 32,000 768,000 - 800,000 Net loss for the year - - - (5,099) (5,099) --------- ------ --------- --------- ------- Balance, December 31, 1996 5,591,367 $ 55,914 $5,264,950 $(3,858,653) $1,462,211 ========= ====== ========= ========= ========= </TABLE> See notes to consolidated financial statements F-5
EXTECH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Years Ended December 31, ------------ 1996 1995 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income ....................... $ (5,099) $ 51,229 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 51,544 51,901 Bad debts (20,948) 5,195 Changes in operating assets and liabilities: (Increase) decrease in assets: Accounts receivable 1,830 (1,048) Inventories 790 4,514 Prepaid expenses and other assets (115,592) 36,544 Increase (decrease) in liabilities: Accounts payable (1,582) (632) Accrued expenses (15,875) 2,484 ------- ----- Net cash (used in) provided by operating activities (104,932) 150,187 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (175) (4,425) Notes receivable - net (21,728) 16,835 ------- ------ Net cash (used in) provided by investing activities (21,903) 12,410 ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 800,000 - ------- ------- Net cash provided by financing activities 800,000 - ------- ------- Net increase in cash and cash equivalents 673,165 162,597 Cash and cash equivalents, beginning of year 644,956 482,359 ------- ------- Cash and cash equivalents, end of year $1,318,121 $644,956 ========= ======= </TABLE> See notes to consolidated financial statements F-6
EXTECH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996 AND 1995 1. Summary of Significant Accounting Policies: a. Description of business The Company's operations are within one industry as lodging sales and related revenues accounted for substantially all revenues during the two-year period ended December 31, 1996. b. Principles of consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and a 90% owned inactive subsidiary. All intercompany transactions and balances have been eliminated. c. Inventories Inventories, consisting of merchandise and supplies, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. d. Property and equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are being amortized using the straight-line method over the remaining term of the lease. e. Concentration of credit risk The Company invests its excess cash in deposits and money market accounts with major financial institutions. The Company has not experienced losses related to these investments. f. Statement of cash flows For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with a maturity of three months or less, as well as bank money market accounts, to be cash equivalents. g. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates. 2. Supplementary Information - Statement of Cash Flows: Cash paid for income taxes was $7,141 and $5,452 during the years ended December 31, 1996 and 1995, respectively. F-7
3. Property and Equipment: At December 31, 1996, property and equipment consists of the following: Furniture, fixtures and equipment $360,360 Leasehold improvements 134,384 ------- 494,744 Less accumulated depreciation and amortization 341,149 ------- $153,595 ======= 4. Notes Receivable: a. During the period December 1992 to March 1993, the Company entered into various loans with Robeson Industries Corp. ("Robeson") (an unrelated third party) in the aggregate amount of $320,000. The notes were secured by a pledge of all of the issued and outstanding shares of Robeson Industries Hong Kong Ltd. ("Robeson Hong Kong"). In May 1993, Robeson filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Act. In September 1993, the Company filed a proof of claim in such proceeding as a secured creditor to recover such advances, related accrued interest and other costs. In September 1994, pursuant to a Plan of Reorganization (the "Plan"), Robeson issued to the Company a promissory note (the "Note") in the principal amount of $385,000. The Note provided for the payment of interest at the rate of 8% per annum and the repayment of principal in 48 consecutive monthly installments. Such installments were to cover an aggregate of 5% of the principal amount of the Note during the initial six months, an additional 7.5% thereof during the following six months, an additional 37.5% thereof during the following 12 months, an additional 25% thereof during the following 12 months and the final 25% thereof during the last 12 months of the Note. The Note was secured by all the outstanding shares of capital stock of Robeson's wholly-owned Hong Kong subsidiary. In addition, pursuant to the Plan, the Company received a nominal minority equity interest in Robeson. The first three payments under the Note were received by the Company in October, November and December 1994. Effective January 1995, Robeson ceased making payments under the Note. In March 1995, the Company demanded full payment of the Note, foreclosed its security interest with respect to the Hong Kong stock and purchased such shares at an auction sale. In September 1995, the Company agreed to cancel the Note in consideration for the issuance by Robeson of a new promissory note in the principal amount of $125,000 (the "New Note"). The New Note provides for interest at the rate of 8% per annum and is payable in 27 consecutive monthly installments of $5,000. b. In February 1996, the Company signed a letter of intent to acquire Phone America International, Inc. ("Phone America"), an interexchange telecommunications carrier engaged in the design, development and marketing of prepaid telephone calling cards and other telephone products. Additionally, the Company advanced $50,000 to Transcends Telecom Corporation ("Transcends"), a wholly-owned subsidiary of Phone America, and entered into a Loan and Security Agreement. Subsequent to February 1996, the Company decided not to pursue this acquisition. Thereafter, in November 1996, Transcends defaulted on its note and the Company foreclosed on its security interest in Transcend's accounts receivable. The Company obtained a peaceful surrender of the accounts receivable and has commenced collection proceedings against the account debtor. F-8
5. Accrued Expenses: At December 31, 1996, accrued expenses consists of the following: Rent $ 63,965 Professional fees 14,200 Payroll and related costs 15,836 Deferred compensation (Note 6) 14,100 Room tax 7,082 Other 8,443 ----- $123,626 ======== 6. Deferred Compensation: The Company has an agreement to pay special compensation to certain employees who at the date of retirement have accumulated 20 years of uninterrupted service. Maximum amount payable per employee is $3,000. At the effective date, there were seven employees covered by this plan, four of them with 15 years of accumulated service. The accrual is being done pro-ratably from the inception of the plan to the date each employee is eligible for benefits. At December 31, 1996, there was $14,100 shown as accrued expenses payable. 7. Debentures Payable: In 1971, the Company, pursuant to a plan of arrangement, issued a series of debentures which matured in 1977. As of December 31, 1996, $154,200 of these debentures have not been presented for payment. Accordingly, this balance has been included as a current liability in the accompanying consolidated balance sheet. Interest has not been accrued on the remaining debentures payable. In addition, no interest or other charges have been accrued with regard to any escheat obligation of the Company. 8. Related Party Transaction: During the years ended December 31, 1996 and 1995, the Company leased its corporate office facility from a partnership of which a stockholder/officer is a member. Rent expense amounted to $6,000 for each of the years ended December 31, 1996 and 1995. 9. Income Taxes: The 1996 and 1995 income of IAH, Inc., a wholly-owned subsidiary has been calculated excluding the loss of EXTECH, as it is separately taxed under the laws of Puerto Rico. A provision of $4,656 and $5,676, respectively, has been made for this tax liability. For federal income taxes, the Company has a net operating loss carryforward of approximately $613,000 available to offset future taxable income and approximately $1,500,000 of capital loss carryforwards available to offset future capital gains. In addition, the Company has general business tax credit carryforwards available to reduce future income taxes of approximately $33,000. If not utilized, these credits are scheduled to expire in various amounts through 2010. The Company incurred operating losses during the past four years and losses are expected in the early subsequent periods. As a result, the Company has not recorded a deferred tax asset in 1996 due to the fact that a 100% valuation allowance would be needed. 10. Commitment and Contingency: IAH, Inc. leases the International Airport Hotel property pursuant to an operating lease with the Puerto Rico Ports Authority ("Ports Authority"), which expired in December 1995. IAH is of the belief that pursuant to a supplemental lease agreement, it retained the option to continue the lease for a period of five years to December 31, 2000. The lease agreement provides for the annual rental payments to be equal to the greater of $169,400 or 20% of the annual gross revenues, as defined, effective January 1, 1994. Total rent expense under this lease amounted to $189,610 for 1996 and $191,335 for 1995. F-9
10. Commitment and Contingency: (Cont'd) Based upon IAH's refusal to acknowledge that, effective January 1, 1996, it occupied the Hotel on a month-to-month basis, in February 1996, the Ports Authority requested that IAH vacate, surrender and deliver the premises by February 29, 1996. Following the receipt of such request, IAH brought an action in the Superior Court of San Juan, Puerto Rico for declaratory judgment and possessory injunction against the Ports Authority with respect to the Hotel. The action seeks a declaratory judgment that, among other alternatives, IAH exercised an option with respect to its lease for the Hotel for an extension of the term of five years commencing on January 1, 1996 or that the Ports Authority executed a new lease agreement for a ten year period commencing on such date. 11. Stockholders' Equity: a. Stock options The Company maintains a stock option plan which provides for the granting of options to individuals rendering service to the Company to purchase up to 300,000 shares of common stock of the Company. Such options may be either incentive stock options or non-statutory stock options. No options have been granted as of December 31, 1996. b. Common shares reserved Stock Option Plan 300,000 ======= 12. (Loss) Income Per Share: Net (loss) income per common share was computed using the weighted average number of shares of common stock outstanding during each period presented. 13. Major Customer: Sales to a major customer approximated 27% and 15% of total room sales for the years ended December 31, 1996 and 1995, respectively. 14. Fair Value of Financial Instruments: The methods and assumptions used to estimate the fair value of the following classes of financial instruments were: Current Assets and Current Liabilities: The carrying amount of cash and temporary cash investments, current receivables and payable and certain other short-term financial instru ments approximate their fair value. The carrying amount and fair value of the Company's financial instruments at December 31, 1996 are as follows: Carrying Fair Amount Value ------ ----- Cash and cash equivalents $1,318,121 $1,318,121 Accounts receivables 50,591 50,591 Notes receivable 81,856 81,856 Debentures payable 154,200 154,200 Other current liabilities 125,600 125,600 F-10
SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EXTECH CORPORATION Dated: April 15, 1997 By: /s/ Morton L. Certilman ----------------------- Morton L. Certilman, President In accordance with 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. Signatures Capacity Date ---------- -------- ---- Chairman of the Board /s/Jay M. Haft of Directors April 15, 1997 - ---------------------- Jay M. Haft President and Director (Principal Executive, Financial and Accounting /s/Morton L. Certilman Officer) April 15, 1997 - ---------------------- Morton L. Certilman /s/ Leon Lapidus Director April 15, 1997 - ---------------- Leon Lapidus