SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(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, 1997
( ) 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.(X)
State issuer's revenues for its most recent fiscal year: $996,618
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: $1,797,321 as of March 25, 1998
(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 25, 1998
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 10% of the total room sales for the Hotel for 1997 were
attributable to one customer, American Airlines.
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 a 30 month extension of the then existing
term. IAH agreed to a 30 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.
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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, on February 26, 1996,
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 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, in the alternative, that the
Ports Authority executed a new lease agreement for a ten year period commencing
on such date. Certain discovery proceedings have taken place, and the action is
still pending. IAH has continued to operate the Hotel during the pendency of the
action.
In seeking to protect its interests under the original lease agreement, as
extended, in April 1997, IAH purchased a bank certificate of deposit in the
amount of $40,000 and pledged it to the Ports Authority as security for the
payment of amounts due under the lease agreement, as required by the terms
thereof (but which previously had not been delivered).
(ii) Dealers Choice Automotive Planning, Inc.
In November 1997, the Company entered into a non-binding letter of intent
with respect to the acquisition of all of the issued and outstanding Common
Shares of Dealers Choice Automotive Planning, Inc. ("DCAP") as well as interests
in certain entities affiliated with DCAP. DCAP and such affiliates are
privately-held and are engaged primarily in the retail automotive, motorcycle,
and boat casualty and liability insurance business, having an aggregate of 52
wholly-owned, joint venture and franchise locations in the New York metropolitan
area.
The letter of intent provides that, in consideration for the shares of DCAP
and interests in such affiliates, EXTECH will issue shares of its Common Stock
constituting a substantial minority interest in EXTECH. In addition, the letter
of intent contemplates that management of DCAP, together with Morton L.
Certilman, President of EXTECH, and Jay M. Haft, Chairman of the Board of
EXTECH, will purchase, in the aggregate, the 1,800,000 shares of EXTECH Common
Stock owned by Sterling Foster Holding Corp. (see Item 11 hereof) as well as
other shares of Common Stock from EXTECH, with the result that the shareholders
of DCAP would own approximately one-half of the outstanding shares of Common
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Stock of EXTECH. It is contemplated that the purchases by the DCAP shareholders
will be made following loans of funds by EXTECH and Messrs. Certilman and Haft
for such purposes.
Simultaneously with the signing of the letter of intent, EXTECH loaned
$325,000 to DCAP. The note evidencing the loan (the "$325,000 Note") is payable
in installments commencing on April 21, 1998 and ending no later than September
30, 1998. In March 1998, EXTECH loaned an additional $114,000 to DCAP. The note
evidencing the loan (the "$114,000 Note" and together with the $325,000 Note,
the "DCAP Notes") is payable on September 30, 1998. The payment of the principal
amounts of the DCAP Notes, together with interest at the rate of 10% per annum,
is secured by a pledge of the shares of DCAP and certain of its affiliates and,
with respect to the $114,000 Note, by the personal guarantees of the DCAP
shareholders. It is contemplated that, upon the signing of a definitive
agreement with respect to the contemplated acquisition, EXTECH will lend to DCAP
up to an additional $311,000.
The consummation of the transaction is subject to the satisfaction of a
number of conditions, including certain third party and governmental approvals
and the negotiation and execution of a mutually acceptable definitive agreement
among the parties. No assurances can be given that the acquisition will take
place upon the terms described above or otherwise.
(iii) 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 NPS Products,
Inc., 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 has received
an aggregate of approximately $179,891 in Technical Assistance Royalty payments
pursuant to the License Agreement (none of which was accrued during 1997), but
has received no Net Sales Royalty payments. No assurances can be given regarding
the commercial marketability of the Pipe Harness Clamp.
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(iv) Robeson Industries Corp.
In February 1993, the Company 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 the Company 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 "Original Robeson Note") in the
principal amount of $385,000. The Original Robeson 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 Original Robeson 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 Original Robeson Note were received by
the Company in October, November and December 1994. Effective January 1995,
Robeson ceased making payments under the Original Robeson Note. In March 1995,
the Company demanded full payment of the Original Robeson 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 Original Robeson Note
in consideration for the issuance by Robeson of a new promissory note in the
principal amount of $125,000 (the "New Robeson Note"). The New Robeson Note
provides for interest at the rate of 8% per annum and was payable in 27
consecutive monthly installments of principal and interest of $5,000. The
Company has received monthly installments sporadically under the New Robeson
Note, but not on a current basis. The balance of the New Robeson Note at
December 31, 1997 was $59,500.
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(v) 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 (the "Transcends Note") was payable on or after August 26, 1996 upon 30
days notice. Payment of the principal amount of the Transcends 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 Transcends' accounts receivable. The
Company obtained a peaceful surrender of the accounts receivable and, pursuant
to collection proceedings brought against the account debtors, as of December
31, 1997, had collected an aggregate of approximately one-half of the principal
amount of the Transcends Note.
(vi) 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.
However, no transactions were consummated.
(vii) 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.
(b) Business of Issuer
(i) International Airport Hotel
Reference is made to Items 1(a)(i) and 2 hereof.
(ii) Dealers Choice Automotive Planning, Inc.
Reference is made to Item 1(a)(ii) hereof.
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(iii) Pipe Harness Clamp
Reference is made to Item 1(a)(iii) hereof.
(iv) Other Business Opportunities
Reference is made to Item 1(a)(vi) hereof.
(v) Number of Employees
As of December 31, 1997, 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 $181,178
for 1997 as compared to $189,610 for 1996. Set forth below is certain
approximate information with regard to the Hotel:
o Number of guest rooms: 57
o Renovation expenditures for 1997: $-0-
o Average occupancy rate:
o 1993 - 66%
o 1994 - 60%
o 1995 - 61%
o 1996 - 61%
o 1997 - 60%
o Average room rate: $75.00
o Total room revenues divided by total available rooms:
o 1993 - $44.00
o 1994 - $42.00
o 1995 - $45.00
o 1996 - $46.00
o 1997 - $44.00
No additional renovations are currently planned for the Hotel.
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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
In 1997, the Company had total revenues of $996,618 and a net loss of
$143,992 as compared to revenues of $1,118,647 and a net loss of $5,099 for
1996.
Room rental and other departmental revenue for the Hotel decreased by
$39,705 (4.09%) during 1997. The net profit for the Hotel, on a "stand-alone"
basis, was $96,876 in 1997 as compared to $109,322 in 1996.
Interest income increased by $27,567 from 1996 to 1997 due to the receipt
in June 1996 of $800,000 in funds from a private placement of Common Stock. See
Item 12 hereof.
No royalty income was earned during 1997 with respect to the Pipe Harness
Clamp as the required revenue threshold for the payment of royalties was not
met. See Item 1(a)(iii) hereof.
In 1997, the Company incurred costs and expenses of $1,136,616 as compared
to $1,119,090 in 1996, representing an increase of $17,526. The increase was
attributable primarily to an increase in bad debt and energy costs and was
offset by a decrease in corporate and sundry, departmental, and lease rental
costs and expenses.
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. Reference is also
made to Item 1(a)(ii) hereof for a discussion regarding the contemplated
acquisition of DCAP and related entities.
Liquidity and Capital Resources:
As of December 31, 1997, the Company had $1,040,389 in cash and cash
equivalents as compared to $1,318,121 in 1996, representing a decrease of
$277,732. Such decrease was primarily the result of the $325,000 loan made in
November 1997 to DCAP as discussed under Item 1(a)(ii) hereof.
As of December 31, 1997, the Company had a working capital surplus of
$1,150,732 and, except as described in Item 1(a)(ii) hereof, had no material
commitments for capital expenditures.
Reference is made to Items 1(a)(ii), (iv) and (v) hereof for a discussion
of the status of (i) certain notes in the principal amounts of $325,000 and
$114,000 issued by DCAP to the Company in November 1997 and March 1998,
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respectively, (ii) a certain note in the principal amount of $125,000 issued by
Robeson to the Company in September 1995 and (iii) 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.
During the fiscal year ended December 31, 1997, the combined operating loss
for the DCAP companies was $530,825. In addition, as of December 31, 1997, the
combined working capital deficiency for the DCAP companies was $753,164. DCAP
has plans to diversify its operations into the areas of premium financing and
income tax preparation, and to increase advertising efforts in order to grow the
combined operations. Based upon the combined financial position of the DCAP
companies, EXTECH anticipates that, in the event the contemplated DCAP
acquisition is consummated, additional funds will be required to implement such
plans. As of March 31, 1998, no additional financing arrangements were in place
and no assurances could be given that any such financing would be available upon
commercially reasonable terms or otherwise.
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)(vi) hereof. Except as a purchaser of shares
of Common Stock, neither Mr. Leiberman nor SFHC was involved as an underwriter
or otherwise in connection with the transaction.
As described in Item 1(a)(ii) hereof, the Company has entered into a letter
of intent with respect to the acquisition of all of the issued and outstanding
Common Shares of DCAP as well as interests in certain entities affiliated with
DCAP. Four of such affiliated entities are one-half owned by Mr. Certilman's
daughter; however, her interest in such entities is not contemplated to be
purchased, and no shares of EXTECH Common Stock or other consideration is to be
issued to her in connection with the acquisition.
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.
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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: December 23, 1998 By: /s/ Morton L. Certilman
------------------------------
Morton L. Certilman
President
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