-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QHWGbxLLAJEY5bvfAIqO7SrmbDidzE5LkmH5xtTavYH8vuqtEEP6jZkqEPALTPCh OGSWuetxss2iC8Yotg8Nlg== 0001144204-02-001699.txt : 20021226 0001144204-02-001699.hdr.sgml : 20021225 20021226094710 ACCESSION NUMBER: 0001144204-02-001699 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020214 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20021226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MICROCOMPUTER SOFTWARE INC /CA/ CENTRAL INDEX KEY: 0000814929 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942862863 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15949 FILM NUMBER: 02868560 BUSINESS ADDRESS: STREET 1: 75 ROWLAND WAY CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158784000 MAIL ADDRESS: STREET 1: 1895 EAST FRANCISCO BLVD CITY: SAN RAFAEL STATE: CA ZIP: 94901 8-K 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 14, 2002 Commission File Number 0-15949 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2862863 (State or other jurisdiction of (I.R.S. Employer identification No.) incorporation or organization) 75 ROWLAND WAY, NOVATO, CA 94945 (Address of principal executive offices) (Zip code) (415) 878-4000 -------------- (Registrant's telephone number including area code) 1 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS ____________________________________________ On November 29, 2001, we entered into an agreement to acquire all issued and outstanding shares of the capital stock of Keynomics, Inc., a California corporation focused on productivity enhancement software. Keynomics was a wholly owned subsidiary of Digital Creative Development Corporation ("DCDC"). We originally accounted for this acquisition as a transfer between entities under common control as at the time of the acquisition, the IMSI board of directors was identical to the DCDC board of directors, with the exception of Mr. Robert Mayer, who was a board member of IMSI only. Additionally, Mr. Martin Wade and Mr. Vincent DeLorenzo served as the Chief Executive Officer and Chief Financial Officer, respectively, of both companies. Using the guidance for accounting for entities under common control, we had restated the financial statements for all prior periods similar to a pooling of interests. However, in consideration of further interpretive guidance, we have revised our original treatment of this transaction as disclosed on Form 10-QSB for the period ended December 31, 2001 filed with the Securities and Exchange Commission on February 14, 2002, to account for it using the purchase method of accounting. This change in accounting treatment has been reflected in our financial statements as of November 29, 2001. This change in accounting has been reflected in our amended filings on Form 10-QSB for the periods ending December 31, 2001 and March 31, 2002 which are to be filed on or about December 27, 2002. This amendment in our accounting treatment was also disclosed on Form 10-KSB for the period ended June 30, 2002 as filed with Securities and Exchange Commission on October 15, 2002, The aggregate purchase price, using purchase accounting, was $300,000 and we assumed approximately $566,000 of liabilities from Keynomics. The consideration was comprised of three components; i) $50,000 in cash paid at closing, ii) $100,000 in management fees and iii) a $150,000 note payable. As of June 30, 2002, the entire $300,000 had been paid to DCDC. The agreement also called for contingent consideration depending on Keynomics' performance. These amounts, payable 60 days after the end of the next three fiscal years, consist of 50% of Keynomics' net operating income, if any, in excess of: - - $500,000 in the fiscal year ending June 30, 2003 - - $1,000,000 in the fiscal year ending June 30, 2004 - - $1,500,000 in the fiscal year ending June 30, 2005 Furthermore, potential payments would have been due DCDC if we had sold substantially all of the capital stock or substantially all of the assets of Keynomics before June 2002. Such payments would have been fifty percent of any amount in excess of $1.2 million. No payments were due or earned as no transactions to sell substantially all of the assets of Keynomics before June 2002 occurred. As of the date of the purchase, Keynomics had $245,000 of promissory notes outstanding. Subsequent to the acquisition of Keynomics by IMSI, holders of an aggregate $225,000 of the outstanding notes agreed to convert them into 661,765 shares of IMSI's capital stock at $0.34 per share. Gordon Landies, our president, and Paul Jakab, our Chief Operating Officer, received 192,079 and 10,232 shares of IMSI's capital stock, respectively, in exchange for their outstanding promissory notes from Keynomics. Joe Abrams, an IMSI related party, received 287,389 shares in exchange for his outstanding promissory note to Keynomics. Mr. Abrams holds IMSI stock options and warrants, which if exercised, would result in ownership exceeding 5% of the total shares outstanding. 2 The allocation of the purchase price is as follows (in thousands): CONSIDERATION PAID - ------------------ Cash $50 Note Payable 150 Management Fees 100 TOTAL CONSIDERATION $300 ALLOCATION OF CONSIDERATION TO ASSETS - ------------------------------------- Current Assets 379 Long Term Assets 73 Liabilities Assumed (566) Identifiable Intangibles 235 Assumed Goodwill 179 ALLOCATED ASSETS $300 The identifiable intangibles consist of software development costs that will be amortized over 3 years. At September 30, 2002, we had amortized approximately $65,000 with a remaining net book value of approximately $170,000. We began to consolidate Keynomics from the date of the acquisition ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS _______________________________________________ (a) Pursuant to Item 7(a)(4), the Registrant is filing the following financial statements of Keynomics, Inc., the business acquired: Audited Financial Statements (see Exhibit 99.1): - ------------------------------------------------ Report of Independent Auditors Balance Sheet - December 31, 2000 Statement of Operations - Inception (April 5, 2000) to December 31, 2000 Statement of Stockholder's Deficit - Inception (April 5, 2000) to December 31, 2000 Statement of Cash Flows - Inception (April 5, 2000) to December 31, 2000 Notes to Financial Statements Unaudited Interim Financial Statements - -------------------------------------- Balance Sheet - September 30, 2001 Statement of Operations - Nine Months ended September 30, 2001 Condensed Statement of Cash Flows - Nine Months ended September 30, 2001 Notes to Financial Statements 3 (b) The Registrant is filing the following unaudited pro forma financial statements to reflect the business acquired: Unaudited Pro Forma Condensed Combined Statements of Operations for the twelve months ended June 30, 2001 Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended September 30, 2001 Unaudited Pro Forma Condensed Combined Balance Sheets as of September 30, 2001 Notes to Pro Forma Condensed Combined Financial Statements. (c) Exhibits 99.1 Audited Financial Statements of Keynomics, Inc. as of December 31, 2000 Documents incorporated by reference: (as originally filed with the Securities and Exchange Commission on February 14, 2002 on Form 10-QSB for the interim period ended December 31, 2001) - - Keynomics Stock Purchase Agreement 4 ITEM 7 (A) - UNAUDITED INTERIM FINANCIAL STATEMENTS KEYNOMICS, INC. BALANCE SHEET (UNAUDITED) (In Thousands) SEPTEMBER 30, 2001 --------------------- ASSETS Current assets: Cash and cash equivalents $ 3 Receivables, net 413 Other current assets 5 --------------------- Total current assets 421 Fixed assets, net 18 Capitalized software development costs, net 52 Other assets, net 7 --------------------- Total assets $ 498 ===================== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Trade accounts payable 128 Due to parent 150 Accrued and other liabilities 44 Deferred revenue 399 --------------------- Total current liabilities 721 Notes Payable 20 Notes Payable - Related Parties 225 --------------------- Total liabilities 966 Shareholders' deficit: Capital stock 451 Accumulated deficit (919) --------------------- Total shareholders' deficit (468) --------------------- Total liabilities and shareholders' deficit $ 498 ===================== See Notes to Financial Statements 5 KEYNOMICS, INC. STATEMENT OF OPERATIONS (UNAUDITED) (In Thousands) NINE MONTHS ENDED SEPTEMBER 30, 2001 -------------------- Net revenues $ 683 Product costs 8 -------------------- GROSS MARGIN 675 Costs and expenses: Sales and marketing 557 General and administrative 463 Research and development 69 -------------------- TOTAL OPERATING EXPENSES 1,089 -------------------- OPERATING LOSS BEFORE INCOME TAX (414) Income tax expense -- -------------------- NET LOSS ($414) ==================== See Notes to Financial Statements 6 KEYNOMICS, INC. STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands)
NINE MONTHS ENDED SEPTEMBER 30, 2001 ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($414) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 4 Changes in: Receivables, net (333) Other current assets (2) Accounts payable 46 Accrued and other liabilities 17 Deferred revenue 295 ----------------------- NET CASH USED BY OPERATING ACTIVITIES (387) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of software development costs (7) ----------------------- NET CASH USED BY INVESTING ACTIVITIES (7) CASH FLOWS FROM FINANCING ACTIVITIES: Advances from parent 150 Capital contributed 187 ----------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 337 ----------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (57) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60 ----------------------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3 =======================
See Notes to Financial Statements 7 KEYNOMICS, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION --------------------- The accompanying financial statements reflect all the adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These statements should be read in conjunction with the consolidated financial statements and notes in Keynomics, Inc.'s financial statements for the year ended December 31, 2000. The results for the nine months ended September 30, 2001 are not necessarily indicative of the results for the entire fiscal year ended December 31, 2001. 8 ITEM 7 (B) - PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma condensed combined financial statements of International Microcomputer Software, Inc. ("IMSI") have been prepared to give effect to the acquisition of Keynomics, Inc. ("Keynomics ") using the purchase method of accounting. The historical financial information has been derived from the historical financial statements of IMSI and Keynomics and should be read in conjunction with the financial statements of IMSI on Form 10-KSB for the period ended June 30, 2001 and the financial statements of Keynomics for the period ended December 31, 2001 financial statements which are included in Exhibit 99.1 of this Form 8-K filing. The unaudited pro forma condensed combined balance sheet assumes the merger took place at the date of the balance sheet presented and allocates the total purchase cost of the fair values of the assets and liabilities of Keynomics. The unaudited pro-forma condensed combined statements of operations assume that the acquisition took place as of July 1,2000, and combine IMSI's results for the twelve months ended June 30,2001 and the three months ended September 30,2001 with Keynomics results for the same periods. Keynomics has a December 31 year end and we have adjusted their fiscal periods to coincide with IMSI`s to allow presentation of the pro-forma statements. The total purchase cost of $300,000 for Keynomics as already disclosed above has been allocated to assets and liabilities based on management's estimates of their fair value. The unaudited pro forma financial information is presented for illustrative purposes only. It is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition had been consummated as of the dates indicated, nor is it necessarily indicative of future operating results or financial position. 9
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - REFLECTING THE ACQUISITION OF KEYNOMICS, INC. TWELVE MONTHS ENDED JUNE 30, 2001 (Unaudited) (In thousands, except per share amounts) KEYNOMICS, PRO FORMA IMSI INC. ENTRIES PRO-FORMA -------- -------- --------- ----------- Net revenues $12,245 $ 925 $ -- $ 13,170 Product costs 3,406 23 78 (A) 3,824 -------- -------- --------- ----------- GROSS MARGIN 8,839 902 (78) 9,663 Costs and expenses: Sales and marketing 2,732 826 3,558 General and administrative 4,243 551 4,794 Research and development 2,634 126 2,760 -------- -------- --------- ----------- TOTAL OPERATING EXPENSES 9,609 1,503 -- 11,112 -------- -------- --------- ----------- Operating loss (770) (601) (78) (1,449) Other income (expense): Gain on product line sales 285 -- 285 Interest and other expense, net (2,164) (3) (2,167) Loss on disposition of fixed assets (13) -- (13) Settlement agreements (287) -- (287) Arbitration award 2,041 -- 2,041 -------- -------- --------- ----------- TOTAL OTHER EXPENSE (138) (3) -- (141) -------- -------- --------- ----------- LOSS FROM CONTINUING OPERATIONS (908) (604) (78) (1,590) ======== ======== ========= =========== BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING OPERATIONS ($0.09) ($0.16) SHARES USED IN CALCULATING BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS 9,687 9,687
10
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - REFLECTING THE ACQUISITION OF KEYNOMICS, INC. THREE MONTHS ENDED SEPTEMBER 30, 2001 (Unaudited) (In thousands, except per share amounts) KEYNOMICS, PRO-FORMA IMSI INC. ENTRIES PRO-FORMA -------- -------- --------- ----------- Net revenues $ 2,575 $ 89 $ -- $ 2,664 Product costs 709 -- 20 (A) 729 -------- -------- --------- ----------- GROSS MARGIN 1,866 89 (20) 1,935 Costs and expenses: Sales and marketing 524 178 702 General and administrative 1,073 126 1,199 Research and development 608 34 642 -------- -------- --------- ----------- TOTAL OPERATING EXPENSES 2,205 338 -- 2,543 -------- -------- --------- ----------- Operating loss (339) (249) (20) (608) Other expense: Interest and other expense, net (436) (1) (437) -------- -------- --------- ----------- TOTAL OTHER EXPENSE (436) (1) -- (437) -------- -------- --------- ----------- LOSS FROM CONTINUING OPERATIONS ($775) ($250) ($20) ($1,045) ======== ======== ========= =========== BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS PER SHARE ($0.08) ($0.11) SHARES USED IN CALCULATING BASIC AND DILUTED LOSS FROM CONTINUING OPERATIONS 9,711 9,711
11 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEETS - REFLECTING THE ACQUISITION OF KEYNOMICS, INC. AS OF SEPTEMBER 30, 2001 (UNAUDITED) (In thousands, except per share amounts)
IMSI KEYNOMICS, INC. PRO-FORMA ENTRIES PRO-FORMA --------- ----------------- ------------------- ----------- ASSETS Current assets: Cash and cash equivalents $ 1,102 $ 3 $ -- $ 1,105 Receivables, less allowances for doubtful accounts, discounts and returns of $995 837 413 -- 1,250 Inventories 44 -- -- 44 Prepaid royalties and licenses 166 -- -- 166 Other current assets 328 5 -- 333 --------- ----------------- ------------------- ----------- Total current assets 2,477 421 -- 2,898 Fixed assets, net 502 18 -- 520 Capitalized software development costs, net 1,155 52 215 (B) 1,422 Capitalized brand and goodwill, net 1,111 7 179 (B) 1,297 --------- ----------------- ------------------- ----------- Total assets $ 5,245 $ 498 $ 394 $ 6,137 ========= ================= =================== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 3,970 $ -- $ 300 (C)$ 4,270 Trade accounts payable 3,580 128 -- 3,708 Accrued interest and penalties payable 2,294 -- -- 2,294 Accrued and other liabilities 774 194 -- 968 Accrued arbitration award 2,720 -- -- 2,720 Deferred revenue 1,116 399 -- 1,515 --------- ----------------- ------------------- ----------- Total current liabilities 14,454 721 300 15,475 Accrued arbitration award 703 -- -- 703 Long term debt and other obligations 129 245 -- 374 --------- ----------------- ------------------- ----------- Total liabilities 15,286 966 300 16,552 Shareholders' deficit: Capital stock, no par value; 300,000,000 authorized; issued and outstanding 9,469,366 29,004 451 (451) 29,004 Accumulated deficit (39,057) (919) 545 (39,431) Accumulated other comprehensive income 12 -- -- 12 --------- ----------------- ------------------- ----------- Total shareholders' deficit (10,041) (468) 94 (10,415) --------- ----------------- ------------------- ----------- Total liabilities and shareholders' deficit $ 5,245 $ 498 $ 394 $ 6,137 ========= ================= =================== ===========
See Notes to Pro Forma Consolidated Financial Statements 12 INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ADJUSTMENTS TO THE PRO FORMA FINANCIAL STATEMENTS The following adjustments are incorporated in the pro forma balance sheets: A. Amortization of capitalized software development costs B. To reflect the fair value adjustments resulting from the allocation of the purchase price consideration C. To reflect the consideration payable to DCDC as part of the acquisition of Keynomics 13 ITEM 7 (C) - EXHIBIT 99.1 AUDITED FINANCIAL STATEMENTS OF KEYNOMICS, INC. AS OF DECEMBER 31, 2000 Keynomics, Inc. As of December 31, 2001 and for the period from Inception (April 5, 2000) to December 31, 2000 14 KEYNOMICS, INC. FINANCIAL STATEMENTS INCEPTION (APRIL 5, 2000) TO DECEMBER 31, 2000 CONTENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 2 BALANCE SHEET 3 STATEMENT OF OPERATIONS 4 STATEMENT OF SHAREHOLDERS' DEFICIT 5 STATEMENT OF CASH FLOWS 6 NOTES TO FINANCIAL STATEMENTS 7 15 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S To the Board of Directors and Shareholders Keynomics, Inc. We have audited the accompanying balance sheet of Keynomics, Inc. (the "Company") as of December 31, 2000 and the related statements of operations, shareholders' deficit, and cash flows from inception (April 5,2000)to December 31, 2000. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Keynomics, Inc. as of December 31, 2000, and the results of its operations and cash flows from inception to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Grant Thornton LLP San Francisco, California December 10, 2002 16 KEYNOMICS, INC. BALANCE SHEET (In thousands)
DECEMBER 31, 2000 ------------------- ASSETS Current assets: Cash and cash equivalents $ 60 Receivables, net 80 Other current assets 3 ------------------- Total current assets 143 Fixed assets, net 22 Capitalized software development costs 45 Other assets, net 7 ------------------- TOTAL ASSETS $ 217 =================== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Trade accounts payable $ 82 Accrued and other liabilities 27 Deferred revenue 104 ------------------- TOTAL CURRENT LIABILITIES 213 Notes payable 20 Notes payable - related parties 225 ------------------- TOTAL LIABILITIES 458 Shareholders' deficit: Capital stock ( 50,000,000 authorized, 3,150,000 shares outstanding) 264 Accumulated deficit (505) ------------------- TOTAL SHAREHOLDERS' DEFICIT (241) ------------------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 217 ===================
See Notes to Financial Statements 17 KEYNOMICS, INC. STATEMENT OF OPERATIONS (In thousands)
INCEPTION TO DECEMBER 31, 2000 -------------- Net revenues $ 351 Product costs 18 -------------- GROSS MARGIN 333 Costs and expenses: Sales and marketing 506 General and administrative 282 Research and development 80 -------------- TOTAL OPERATING EXPENSES 868 -------------- OPERATING LOSS (535) Other income 30 -------------- NET LOSS BEFORE INCOME TAX (505) -------------- Income tax expense -- -------------- NET LOSS ($505) ==============
See Notes to Financial Statements 18 KEYNOMICS, INC. STATEMENT OF SHAREHOLDERS' DEFICIT INCEPTION TO DECEMBER 31, 2000 (In thousands, except share amounts)
Common Stock Accumulated Shares Amount Deficit Total ----------------------------------------- BALANCE AT INCEPTION - APRIL 5, 2000 -- -- -- -- ----------------------------------------- Proceeds from issuance of capital stock Formation 3,000,000 $ 150 $ 150 Sale of stock 150,000 49 49 Capital contribution -- 65 65 Net loss (505) (505) ----------------------------------------- BALANCE AT DECEMBER 31, 2000 3,150,000 $ 264 ($505) ($241) =========================================
See Notes to Financial Statements 19 KEYNOMICS, INC. STATEMENT OF CASH FLOWS (In thousands)
INCEPTION TO DECEMBER 31, 2000 -------------- Cash flows from operating activities: Net loss ($505) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 2 Changes in assets and liabilities: Receivables, net (80) Other current assets (10) Trade accounts payable 82 Accrued and other liabilities 27 Deferred revenue 104 -------------- NET CASH USED BY OPERATING ACTIVITIES (380) Cash flows from investing activities: Purchase of equipment and furniture (24) Capitalized software development (45) -------------- NET CASH USED BY INVESTING ACTIVITIES (69) Cash flows from financing activities: Notes payable 245 Proceeds from issuance of common stock 199 Capital contributed 65 -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 509 NET INCREASE IN CASH AND CASH EQUIVALENTS 60 Cash and cash equivalents at beginning of period -- -------------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 60 ==============
See Notes to Financial Statements 20 KEYNOMICS, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND HISTORY Keynomics, Inc. ("Keynomics" or the "Company") provides software for ergonomic and keyboard training for worker-enhanced safety, productivity and ergonomic compliance. The company's mission is to reduce corporate keyboarding costs and risks and provide significant long-term savings through ergonomic and productivity training and awareness. Keynomics was incorporated in California on April 5, 2000 with the issuance of 3,000,000 shares of capital stock for an investment of $150,000. The company was formed to acquire the Keysoft product line, including certain related assets and liabilities from Mattel, Inc. which occurred on May 31, 2000 for a total of $36,000 cash. The total purchase price was allocated as follows: AMOUNT AT ACQUISITION Accounts receivable $122 Deferred revenue (86) ------------ Cash paid $ 36 ------------ Subsequently, the company collected $152,000 on the acquired receivables, giving rise to a $30,000 gain. In November 2000 a private firm entered into an agreement to acquire all outstanding capital stock of Keynomics in exchange for shares of its stock and a note payable for $150,000. The note payable was subsequently recorded by Keynomics. On March 27, 2001, Digital Creative Development Corporation ("DCDC") entered into an agreement to acquire all issued and outstanding shares of the private company, (of which Keynomics was a subsidiary) in exchange for 2,245,000 shares of DCDC common stock. On November 29, 2001, DCDC entered into an agreement to sell all issued and outstanding shares of the capital stock of Keynomics to International Microcomputer Software Inc. ("IMSI") for $300,000. On December 3, 2001 the $150,000 note payable to the former Keynomics investors and $75,000 due to related parties (Gordon Landies, president of IMSI and Joseph Abrams, shareholder of IMSI) were converted into IMSI stock. The results of operations from inception to December 31, 2000 are not necessarily indicative of the results to be expected for any subsequent year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The amounts Keynomics will ultimately incur or recover could differ materially from Keynomics' current estimates. 21 REVENUE RECOGNITION Revenue is recognized in accordance with American Institute of Certified Public Accountants Statement of Position ("SOP") 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, With Respect to Certain Transactions. Revenue is recognized when persuasive evidence of an arrangement exists (generally a purchase order), product has been delivered, the fee is fixed and determinable, and a collection of the resulting account is probable. Maintenance revenue is recognized ratably over the contract period; 12 months for most customers. CONCENTRATIONS Financial instruments that potentially subject Keynomics to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. Keynomics sells its products direct to end users, extending credit according to the terms of each sales contract. Credit terms are based on evaluation of the customers' financial condition and, generally, collateral is not required. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. Management regularly evaluates the allowance for doubtful accounts. Estimated losses are based on the aging of accounts receivable balances and a review of significant past due accounts. If the financial condition of our customers were to deteriorate, whether due to deteriorating economic conditions generally or otherwise, resulting in an impairment of their ability to make payments, additional allowances would be required. Two customers accounted for greater than 10% of Keynomics' gross revenues from inception to December 31, 2000 as follows (in thousands): PERCENT OF OUTSTANDING ACCOUNTS RECEIVABLE AS OF CUSTOMER REVENUE PERCENT OF REVENUE DECEMBER 31, 2000 Company A $117 25% 3% Company B 65 14% -- CASH AND CASH EQUIVALENTS Keynomics considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. CAPITALIZED SOFTWARE DEVELOPMENT COSTS AND LICENSE FEES Costs incurred in the initial design phase of software development are expensed as incurred in research and development. Once the point of technological feasibility is reached, direct production costs are capitalized in compliance with Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Keynomics ceases capitalizing computer software costs when the product is available for general release to customers. Costs associated with acquired completed software are capitalized. Total capitalized software development costs at December 31, 2000 were $45,000. We amortize capitalized software development costs on a product basis. The amortization for each product is the greater of the amount computed using (a) the ratio of current gross revenues to the total of current and anticipated future gross revenues for the product or (b) 18, 36, or 60 months, depending on the product. The net realizable value of each software product is evaluated at each balance sheet date and write-downs to net realizable value are recorded for any products for which the carrying value is in excess of the estimated net realizable value. No amortization expense was recorded for capitalized software from inception to December 31, 2000 as the product had not been released. 22 FIXED ASSETS Furniture and equipment are stated at cost. Depreciation of furniture and equipment is computed using the straight-line method over the estimated useful lives of the respective assets of 3 to 5 years. INCOME TAXES No provision for federal and state income taxes has been recorded, as the Company has incurred net operating losses through December 31, 2000. The Company has provided a full valuation allowance against its net deferred tax assets of approximately $200,000. The Company believes sufficient uncertainty exists regarding the realizability of the deferred tax assets such that a full valuation allowance is required. At December 31, 2000, the Company had approximately $400,000 of federal operating loss carryforwards and related state net operating loss carryforwards for tax reporting purposes available to offset future taxable income; such carryforwards will expire beginning in 2020. Federal and state laws impose restrictions on the utilization of net operating loss carryforwards in the event of an "ownership change" as defined in Section 382 of the Internal Revenue Code. As a result of subsequent acquisitions, the Company believes that ownership changes have occurred and utilization of the net operating losses may be limited. LONG LIVED ASSETS SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of requires that long-lived assets be written down to fair value whenever events or changes indicate that the carrying amount of an asset may not be recoverable. Keynomics' policy is to review the recoverability of all long-lived assets at a minimum of once per year and record an impairment loss when the fair value of the assets do not exceed the carrying amount of the asset. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of cash and cash equivalents, accounts receivable, accounts payable, and accrued and other liabilities approximate carrying value due to the short-term nature of such instruments. The fair value of notes payable to related parties is not determinable since these would not be considered arms-length transactions. The $20,000 note payable does not have a stated interest rate and therefore approximates carrying value. 2. DEFERRED REVENUE Keynomics defers recognition of revenues when future obligations or responsibilities exist for a customer under their contract. In the case of maintenance, revenue is recognized ratably over a period equal to the customer contract, generally 12 months. From inception to December 31, 2000, Keynomics had the following deferred revenue activity: INCEPTION TO DECEMBER 31, 2000 Deferred revenue acquired $86 Additional deferral during period 155 Less recognition during period (137) ---------- Balance, December 31, 2000 $104 ---------- 23 3. DEBT Keynomics' long-term debt and other obligations consist of $245,000 in notes payable. A total of $225,000 of the amount is issued to Gordon Landies, Bob Borsari, and Joe Abrams, related parties to Keynomics and initial contributors of capital at inception. 4. COMMITMENTS Keynomics leases its facility under a non-cancelable operating lease agreement expiring in 2001. Future minimum payments for this lease total $49,000. Total rent expense for the facility lease was $33,000 from inception to December 31, 2000. 24 -----END PRIVACY-ENHANCED MESSAGE-----