-----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, D480LjZEnpmHy98imUZjDndoEey7DUFEqGnIABqFTN8RUbAw0poGZEp5EbvxeNCS FwCxbfq3KH6xaH5JNiDpzg== 0000909012-99-000231.txt : 19990311 0000909012-99-000231.hdr.sgml : 19990311 ACCESSION NUMBER: 0000909012-99-000231 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990308 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION MANAGEMENT TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000824578 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 581722085 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-16753 FILM NUMBER: 99561268 BUSINESS ADDRESS: STREET 1: 130 CEDAR ST 4TH FLR CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2123066100 MAIL ADDRESS: STREET 1: 130 CEDAR STREET CITY: NEW YORK STATE: NY ZIP: 10006 8-K/A 1 AMENDMENT NO. 2 TO FORMS 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A AMENDMENT NO. 2 TO FORMS 8-K (DATED JULY 24, 1998 AND NOVEMBER 13, 1998) PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 MARCH 8, 1999 - -------------------------------------------------------------------------------- Date of Report (Date of earliest event reported) INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) DELAWARE - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 01-6753 58-1722085 - ---------------------------------------- --------------------------------------- (Commission File Number) (IRS Employer Identification No.) 130 CEDAR STREET, NEW YORK, NY 10006 - ---------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) (212) 306-6100 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS The Registrant amends its From 8-K/A filed on September 30, 1998 which supplemented its Form 8-K (dated July 24, 1998) filed on July 31, 1998 regarding the Registrant's acquisition of all of the issued and outstanding common stock of the company known as KRL Litho, Inc. d/b/a The Skillcraft Group ("KRL") from Mr. Harold Russell and Mr. Jeffrey Craugh. In addition, the Registrant amends its Form 8-K/A filed on January 28, 1999 which supplemented its Form 8-K (dated November 13, 1998) filed on November 23, 1998 regarding the Registrant's acquisition of all of the issued and outstanding common stock of the company known as RDS Research Distribution Services, Inc. ("RDS") from its sole stockholder, Mr. Matti Kon. The Company incorporates by reference the 8-K filing dated July 24, 1998 (filed on July 31, 1998), the 8-K filing dated November 13, 1998 (filed on November 23, 1998), the Registrant's Form 10-Q for the quarter ended September 30, 1998 (filed on November 16, 1998) and the financial statements and exhibits annexed hereto. ITEM 7. FINANCIAL STATEMENTS ABD EXHIBITS A) FINANCIAL STATEMENTS (1) Audited financial statements of KRL Litho, Inc. as of and For the Year Ended December 31, 1997 (2) Audited financial statements of RDS Research Distribution Services, Inc. as of and For the Year Ended December 31, 1997 (3) Audited financial statements of RDS Research Distribution Services, Inc. as of and For the Six Months Ended June 30, 1998 (4) Audited financial statements of RDS Research Distribution Services, Inc. as of and For the Ten Months Ended October 31, 1998 B) EXHIBITS (1) Consolidated Pro Forma Condensed Statement of Operations For the Fiscal Year Ended March 31, 1998 (2) Summary of Pro Forma Adjustments For the Fiscal Year Ended March 31, 1998 (3) Consolidated Pro Forma Condensed Balance Sheet as of September 30, 1998 (4) Consolidated Pro Forma Condensed Statement of Operations For the Six Months Ended September 30, 1998 (5) Summary of Pro Forma Adjustments For the Six Months Ended September 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: New York, New York March 8, 1999 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION (Registrant) /s/ JOSEPH GITTO --------------------------------- Joseph Gitto, President and Chief Financial Officer KRL LITHO, INC. --------------- FINANCIAL STATEMENTS -------------------- DECEMBER 31, 1997 ----------------- KRL LITHO, INC. FINANCIAL STATEMENTS INDEX ----- PAGE ---- Independent Auditor's Report 1 Balance Sheet as of December 31, 1997 and 1996 2 Statement of Income and Retained Earnings for the Years Ended December 31, 1997 and 1996 3 Statement of Cash Flows for the Years Ended December 31, 1997 and 1996 4 Notes to Financial Statements 5 HBJ HOWARD B. JACOBSON, C.P.A., P.C. CERTIFIED PUBLIC ACCOUNTANT - -------------------------------------------------------------------------------- 33-21 Francis Lewis Blvd. Bayside, New York 11358 Phone (718) 886-8210 FAX (718) 886-8215 REPORT OF INDEPENDENT AUDITOR ----------------------------- Board of Directors KRL Litho, Inc. New York, New York I have audited the accompanying balance sheets of KRL Litho, Inc. as of December 31, 1997 and 1996, and the related statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KRL Litho, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ HOWARD B. JACOBSON, C.P.A., P.,C. - ------------------------------------- Howard B. Jacobson, C.P.A., P.,C. Bayside, New York April 24, 1998 KRL LITHO, INC. BALANCE SHEET DECEMBER 31, 1997 AND 1996
ASSETS ------ 1997 1996 -------- --------- CURRENT ASSETS: Cash and cash equivalents (Notes 2A, 2G and 2H) $ 281,427 $ 861,400 Accounts receivable, net of allowance for doubtful accounts of $207,277 in 1997 (Notes 2G and 3) 2,377,140 949,017 Inventory (Notes 2B and 3) 269,200 182,000 Other current assets 36,252 28,699 ---------- ---------- Total current assets 2,964,019 2,021,116 ---------- ---------- PROPERTY AND EQUIPMENT - AT COST: (NOTES 2C AND 4) Production - machinery and equipment 1,178,007 749,750 Production - computers and software 300,615 34,134 Leasehold improvements 62,641 -0- Office equipment and fixtures 112,206 112,206 ---------- ---------- Total property and equipment 1,653,469 896,090 Less accumulated depreciation and amortization 793,606 547,745 ---------- ---------- Net property and equipment 859,863 348,345 ---------- ---------- Intangible assets net of accumulated amortization (Note 2D) 33,889 -0- ---------- ---------- TOTAL ASSETS $3,857,771 $2,369,461 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Loan payable - bank (Note 3) $ 181,649 $ -0- Equipment notes payable (Note 4) 168,438 76,013 Accounts payable 691,795 656,201 Income taxes payable (Note 6) 45,853 80,972 Accrued expenses and other current liabilities 431,852 183,920 ---------- ---------- Total current liabilities 1,519,587 997,106 ---------- ---------- Equipment notes payable (Note 4) 456,383 184,440 Loan payable - stockholder (Note 5) 150,000 -0- ---------- ---------- Total long-term liabilities 606,383 184,440 ---------- ---------- COMMITMENTS AND CONTINGENCIES (NOTE 7) STOCKHOLDER'S EQUITY: Common stock, no par value Authorized 200 shares Issued and outstanding 10 shares 10,000 10,000 Retained earnings 1,721,801 1,177,915 ---------- ---------- Total stockholder's equity 1,731,801 1,187,915 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,857,771 $2,369,461 ========== ==========
The Auditor's report and accompanying notes are an integral part of these financial statements. -2- KRL LITHO, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ------------- ------------ Revenues (Note 2E) $ 13,773,284 $ 9,228,208 Cost of sales 9,261,574 5,995,636 ------------ ------------ Gross profit 4,511,710 3,232,572 Selling, general and administrative expenses 3,211,121 2,109,222 ------------ ------------ Income from operations 1,300,589 1,123,350 Interest expense, net 21,493 16,101 ------------ ------------ Income before provision for income taxes 1,279,096 1,107,249 Provision for income taxes (Note 6) 133,008 101,496 ------------ ------------ Net income 1,146,088 1,005,753 Distributions to stockholder (602,202) (192,707) Retained earnings - beginning of year 1,177,915 364,869 ------------ ------------ Retained earnings - end of year $ 1,721,801 $ 1,177,915 ============ ============
The Auditor's report and accompanying notes are an integral part of these financial statements. -3- KRL LITHO, INC. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,146,088 $ 1,005,753 Adjustments to reconcile: Depreciation and amortization 251,972 149,575 Accounts receivable (1,428,123) 94,886 Inventory (87,200) 6,600 Other current assets (7,553) 47,095 Accounts payable 35,594 (369,103) Accrued expenses and other current liabilities 212,813 37,586 ----------- ----------- Net cash provided by operating activities 123,591 972,392 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (757,379) (63,489) Increase in intangible assets (40,000) -0- Net cash applied to investing activities (797,379) (63,489) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Bank loan, less repayments 181,649 -0- Additional equipment notes, less repayments 364,368 (54,639) Additional stockholder loans, less repayments 150,000 (25,531) Distributions to stockholder (602,202) (192,707) Repayment of loans to related company -0- (100,000) ----------- ----------- Net cash provided by (applied to) financing activities 93,815 (372,877) ----------- ----------- Net change in cash and cash equivalents (579,973) 536,026 Cash and cash equivalents at beginning of year 861,400 325,374 ----------- ----------- Cash and cash equivalents at end of year $ 281,427 $ 861,400 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- Cash paid during the year for: Interest expense $ 38,956 $ 33,974 =========== =========== Income taxes $ 205,386 $ 41,810 =========== ===========
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES ----------------------------------------------------------------------- During the year ended December 31, 1997, the Company incurred equipment notes payable in the amount of $591,648. The Auditor's report and accompanying notes are an integral part of these financial statements. -4- KRL LITHO, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - THE COMPANY ----------- KRL Litho, Inc. (the "Company") was organized in New York State in June, 1989. The Company provides high quality multi-color printing services to commercial organizations located primarily in the New York Metropolitan area. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ A. CASH AND CASH EQUIVALENTS ------------------------- For the purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest which approximates fair market value. At December 31, 1997 and 1996, cash equivalents included funds deposited in certificates of deposit with a bank and a liquid asset account with a financial institution. B. INVENTORY --------- Inventory consists primarily of paper, toner and inks and is stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market. C. PROPERTY AND EQUIPMENT ---------------------- Depreciation of capital assets is provided to relate the cost of these assets to operations over their estimated useful lives. Management is of the opinion that asset values decline rapidly and has therefore elected to use the double declining balance method of depreciation for production equipment, computer hardware and software, and furniture and fixtures, over estimated useful lives ranging from five to seven years. Leasehold improvements are depreciated using the straight line method over the remaining term of the lease. Repairs and maintenance are charged to operations in the period incurred, and major repairs and improvements which significantly extend the lives of the assets are capitalized, and depreciated over their estimated useful lives. When assets are retired or disposed the cost and accumulated depreciation or amortization are removed from the accounts, and any gain or loss is recognized in the current period's earnings. D. INTANGIBLE ASSETS ----------------- Intangible assets consist of goodwill and a non-compete agreement and are amortized over 15 years and 5 years respectively. -5- KRL LITHO, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ E. REVENUES -------- Revenue is recorded when services are performed or upon delivery of finished product. F. USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 reported period. Actual results could differ from those estimates. G. CONCENTRATION OF CREDIT RISK ---------------------------- Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances and certificates of deposit at one bank and cash equivalents in a liquid asset account with one financial institution. Accounts at the banks and financial institution are insured by the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC) up to $100,000 and $500,000 respectively. The Company performs on going credit evaluations of its customers and records reserves for potentially uncollectible accounts receivable. Accounts receivable consist mainly of customers within the Company's geographic area. H. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The Company's financial instruments consist of cash and trade receivables and payables. The carrying amount of cash and short-term instruments approximates their fair values because of the relatively short period of time between the origination of the instruments and their expected realization. I. IMPAIRMENT OF LONG-LIVED ASSETS ------------------------------- In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market or discounted cash flow value is required. No such write-downs were required for the years ended December 31, 1997 and 1996. -6- KRL LITHO, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 3 - BANK NOTE PAYABLE ----------------- In March 1997, the Company entered into a one year credit arrangement with a bank. According to the terms of the credit arrangement, the Company can borrow up to a maximum of $200,000 under a revolving line of credit (the "line"). All outstanding obligations under the line bear interest at the bank's prime rate plus one percent (1%) and are collateralized by the Company's accounts receivable, inventory and a personal guarantee by the sole stockholder. At December 31, 1997, the Company was indebted to the bank for outstanding obligations under the line in the amount of $181,649. Interest charged to operations for the year ended December 31, 1997 amounted to $9,004. NOTE 4 - EQUIPMENT NOTES PAYABLE ----------------------- Equipment notes payable represent obligations secured by certain equipment having aggregate book values at December 31, 1997 and 1996 in the amounts of $570,427 and $247,641 respectively. The notes are payable in monthly installments, including interest at rates ranging from 8.9% to 11.5%, in the aggregate amounts of $20,588 and $8,378 for 1997 and 1996 respectively. The notes expire at varying dates through August, 2002. Future maturities of equipment notes payable for each of the next five years, and in the aggregate, are as follows: Year ending December 31, 1998 $ 219,265 1999 191,479 2000 173,860 2001 113,509 2002 44,359 ---------- Note repayments 742,472 Less: amount representing interest 117,651 Less: current portion 168,438 ---------- Net long-term portion $ 456,383 ========== NOTE 5 - STOCKHOLDER'S LOANS ------------------- The loan payable to the sole stockholder represents unsecured advances made to the Company which bear interest at the prime rate. -7- KRL LITHO, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 6 - INCOME TAXES ------------ The Company's stockholder has elected, under the provisions of the Internal Revenue Code, to have the Company taxed as a subchapter "S" corporation. Under these provisions there is no federal income tax paid by the corporation. The Company's income (or loss) is passed through directly to the stockholder and taxed on the stockholder's personal income tax return. Accordingly, there is no provision for federal income taxes. The provision for income taxes for the years ended December 31, 1997 and 1996 consist of state and local taxes. NOTE 7 - COMMITMENTS AND CONTINGENCIES ----------------------------- A. OPERATING LEASE --------------- The Company operates its office, sales, production and manufacturing facilities within leased premises in New York City, New York. The lease term is ten years which expires August 31, 2002. The lease includes annual escalations for real estate taxes and operating expenses based on the Consumer Price Index. There are no specified renewal terms. Future minimum annual rentals excluding escalations over the lease term are as follows: Year ending December 31, 1998 $ 253,750 1999 253,750 2000 253,750 2001 253,750 2002 169,167 ----------- Total $ 1,184,167 =========== B. EMPLOYEE BENEFIT PLANS ---------------------- The Company has a qualified defined contribution profit sharing plan which covers employees not included under the collective bargaining agreements in effect with the printing industry unions. The benefit is based on years of service and compensation. The plan is entirely subjective and the Company can contribute an amount ranging form 0% to 15% of compensation per annum. The cost for the plan years ending December 31, 1997 and 1996 was $55,000 and $54,000 respectively. The Company also has collective bargaining agreements with several local printing industry unions. At December 31, 1997 the contracts had expired and negotiations to renew the contracts were in progress. The Company anticipates the contract provisions to be settled shortly. The Company continues to pay union benefits at the prior contract rate and anticipates only minor changes. No provision has been made in these financial statements for the effects of new union contracts. -8- RDS, ---- RESEARCH DISTRIBUTION SERVICES, INC. ------------------------------------ FINANCIAL STATEMENTS -------------------- DECEMBER 31, 1997 ----------------- RDS, RESEARCH DISTRIBUTION SERVICES, INC. FINANCIAL STATEMENTS INDEX ----- PAGE ---- Independent Auditor's Report 1 Balance Sheet as of December 31, 1997 and 1996 2 Statement of Income and Retained Earnings for the Years Ended December 31, 1997 and 1996 3 Statement of Cash Flows for the Years Ended December 31, 1997 and 1996 4 Notes to Financial Statements 5 HBJ HOWARD B. JACOBSON, C.P.A., P.C. CERTIFIED PUBLIC ACCOUNTANT - -------------------------------------------------------------------------------- 33-21 Francis Lewis Blvd. Bayside, New York 11358 Phone (718) 886-8210 FAX (718) 886-8215 REPORT OF INDEPENDENT AUDITOR ----------------------------- Board of Directors RDS, Research Distribution Services, Inc. New York, New York I have audited the accompanying balance sheets of RDS, Research Distribution Services, Inc. as of December 31, 1997 and 1996, and the related statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RDS, Research Distribution Services, Inc. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ HOWARD B. JACOBSON, C.P.A., P.,C. - ------------------------------------- Howard B. Jacobson, C.P.A., P.,C. Bayside, New York April 24, 1998 RDS, RESEARCH DISTRIBUTION SERVICES, INC. BALANCE SHEET DECEMBER 31, 1997 AND 1996
ASSETS ------ 1997 1996 -------- -------- CURRENT ASSETS: Cash and cash equivalents (Notes 2A, 2G and 2H) $118,947 $ 45,609 Accounts receivable (Notes 2G and 2H) 269,470 54,637 Other current assets 1,950 3,891 -------- -------- Total current assets 390,367 104,137 -------- -------- PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B) Production - computers and equipment 150,467 129,250 Less accumulated depreciation and amortization 33,393 11,707 -------- -------- Net property and equipment 117,074 117,543 -------- -------- OTHER ASSETS: Security deposits 7,782 7,782 Intangible assets net of accumulated amortization (Note 2C) 2,382 3,228 -------- -------- Total other assets 10,164 11,010 -------- -------- TOTAL ASSETS $517,605 $232,690 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 11,700 $ 13,914 Income taxes payable (Notes 2D and 4) 20,152 704 Accrued expenses and other current liabilities 14,877 11,328 Deferred income taxes (Notes 2D and 4) 125,004 2,022 -------- -------- Total current liabilities 171,733 27,968 -------- -------- Loan payable - stockholder's (Note 3) -0- 50,000 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 5) STOCKHOLDER'S EQUITY: Common stock, no par value Authorized 200 shares Issued and outstanding 30 shares 40,000 40,000 Paid-in-capital 110,000 110,000 Retained earnings 195,872 4,722 -------- -------- Total stockholder's equity 345,872 154,722 -------- -------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $517,605 $232,690 ======== ========
The Auditor's report and accompanying notes are an integral part of these financial statements. -2- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- Revenues (Note 2E) $ 876,753 $ 243,637 Cost of sales 292,439 117,824 --------- --------- Gross profit 584,314 125,813 Selling, general and administrative expenses 246,780 112,466 --------- --------- Income from operations 337,534 13,347 Interest expense 3,250 4,333 --------- --------- Income before provision for income taxes 334,284 9,014 Provision for income taxes (Notes 2D and 4) 143,134 2,726 --------- --------- Net income 191,150 6,288 Retained earnings (deficit) - beginning of year 4,722 (1,566) --------- --------- Retained earnings - end of year $ 195,872 $ 4,722 ========= =========
The Auditor's report and accompanying notes are an integral part of these financial statements. -3- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 191,150 $ 6,288 Adjustments to reconcile: Depreciation and amortization 22,532 12,427 Accounts receivable (214,833) (54,637) Other current assets 1,941 (3,891) Accounts payable (2,214) 13,914 Accrued expenses and other current liabilities 22,997 10,753 Deferred income taxes 122,982 2,022 --------- --------- Net cash provided by (applied to) operating activities 144,555 (13,124) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (21,217) (129,250) Increase in intangible assets -0- (7,782) Net cash (applied to) investing activities (21,217) (137,032) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions -0- 150,000 Stockholder loan repayments (50,000) (30,000) Net cash provided by (applied to) financing activities (50,000) 120,000 --------- --------- Net change in cash and cash equivalents 73,338 (30,156) Cash and cash equivalents at beginning of year 45,609 75,765 --------- --------- Cash and cash equivalents at end of year $ 118,947 $ 45,609 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- Cash paid during the year for: Interest expense $ 3,250 $ 4,333 ========= ========= Income taxes $ 20,152 $ 704 ========= =========
The Auditor's report and accompanying notes are an integral part of these financial statements. -4- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - THE COMPANY ----------- RDS, Research Distribution Services, Inc. (the "Company") was organized in New York State in September, 1995. The Company provides mail fulfillment services to the research departments of financial institutions located primarily in the New York Metropolitan area. During 1996, the Company had one account and has since added several more. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ A. CASH AND CASH EQUIVALENTS ------------------------- For the purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest which approximates fair market value. At December 31, 1997 and 1996, cash equivalents included funds deposited in certificates of deposit with a bank. B. PROPERTY AND EQUIPMENT ---------------------- Depreciation of capital assets is provided to relate the cost of these assets to operations over their estimated useful lives. Management has elected to use the straight line method of depreciation for production equipment, computer hardware and software, and furniture and fixtures, over estimated useful lives ranging from five to seven years. Repairs and maintenance are charged to operations in the period incurred, and major repairs and improvements which significantly extend the lives of the assets are capitalized, and depreciated over their estimated useful lives. When assets are retired or disposed the cost and accumulated depreciation or amortization are removed from the accounts, and any gain or loss is recognized in the current period's earnings. C. INTANGIBLE ASSETS ----------------- Intangible assets consist of initial start up costs and are amortized over a period of 5 years. D. INCOME TAXES ------------ Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. -5- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ E. REVENUES -------- Revenue is recorded when services are performed or upon delivery of finished product. F. USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 reported period. Actual results could differ from those estimates. G. CONCENTRATION OF CREDIT RISK ---------------------------- Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances and certificates of deposit at one bank. Accounts at the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company performs on going credit evaluations of its customers and records reserves for potentially uncollectible accounts receivable. Accounts receivable consist mainly of customers within the Company's geographic area. H. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The Company's financial instruments consist of cash and trade receivables and payables. The carrying amount of cash and short-term instruments approximates their fair values because of the relatively short period of time between the origination of the instruments and their expected realization. I. IMPAIRMENT OF LONG-LIVED ASSETS ------------------------------- In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market or discounted cash flow value is required. No such write-downs were required for the years ended December 31, 1997 or December 31, 1996. -6- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 3 - STOCKHOLDER'S LOANS ------------------- The stockholder loan payable represents unsecured advances made to the Company which bear interest at ten (10) percent. NOTE 4 - INCOME TAXES ------------ Income tax expense consists of the following: 1997 1996 ---------- ---------- Federal tax $ 79,953 $ 1,110 State and local taxes 63,181 1,616 ---------- --------- Total income tax expense 143,134 2,726 Less deferred tax liability (122,982) (2,022) ---------- --------- Taxes due currently $ 20,152 $ 704 ========== ========= The differences giving rise to the deferred tax liability result primarily from the use of cash-basis accounting for income tax purposes and accrual basis accounting for financial reporting purposes. The cash basis of accounting reports income in the period when actually received and expenses in the period when actually disbursed. The accrual basis of accounting reports income in the period in which it is earned and expenses in the period in which they are incurred. NOTE 5 - COMMITMENTS AND CONTINGENCIES ----------------------------- OPERATING LEASE --------------- The Company operates its office, sales and production facilities within sub-leased premises in New York City, New York. The lease term is month to month. There is an informal agreement with the landlord to pay one-third of any rent increases or escalations he incurs. There are no renewal terms. Monthly rent is approximately $4,700. -7- RDS, ---- RESEARCH DISTRIBUTION SERVICES, INC. ------------------------------------ FINANCIAL STATEMENTS -------------------- JUNE 30, 1998 ------------- RDS, RESEARCH DISTRIBUTION SERVICES, INC. FINANCIAL STATEMENTS INDEX ----- PAGE ---- Report of Independent Auditor 1 Balance Sheet as of June 30, 1998 2 Statement of Income and Retained Earnings for the Six Months Ended June 30, 1998 3 Statement of Cash Flows for the Six Months Ended June 30, 1998 4 Notes to Financial Statements 5 HBJ HOWARD B. JACOBSON, C.P.A., P.C. CERTIFIED PUBLIC ACCOUNTANT - -------------------------------------------------------------------------------- 33-21 Francis Lewis Blvd. Bayside, New York 11358 Phone (718) 886-8210 FAX (718) 886-8215 REPORT OF INDEPENDENT AUDITOR Board of Directors RDS, Research Distribution Services, Inc. New York, New York I have audited the accompanying balance sheet of RDS, Research Distribution Services, Inc. as of June 30, 1998, and the related statements of income and retained earnings, and cash flows for the six months then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RDS, Research Distribution Services, Inc. as of June 30, 1998, and the results of its operations and its cash flows for the six months then ended, in conformity with generally accepted accounting principles. /s/ HOWARD B. JACOBSON, C.P.A., P.,C. - ------------------------------------- Howard B. Jacobson, C.P.A., P.,C. Bayside, New York July 24, 1998 RDS, RESEARCH DISTRIBUTION SERVICES, INC. BALANCE SHEET JUNE 30, 1998
ASSETS ------ 1998 -------- CURRENT ASSETS: Cash and cash equivalents (Notes 2A, 2G and 2H) $101,409 Accounts receivable (Notes 2G and 2H) 343,581 Other current assets 2,250 -------- Total current assets 447,240 PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B) Production - computers and equipment 151,624 Less accumulated depreciation and amortization 45,355 Net property and equipment 106,269 OTHER ASSETS: Security deposits 7,782 Intangible assets net of accumulated amortization (Note 2C) 1,959 -------- Total other assets 9,741 TOTAL ASSETS $563,250 ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 11,950 Income taxes payable (Notes 2D and 3) 20,152 Accrued expenses and other current liabilities 10,884 Deferred income taxes (Notes 2D and 3) 139,584 -------- Total current liabilities 182,570 COMMITMENTS AND CONTINGENCIES (NOTE 4) STOCKHOLDER'S EQUITY: Common stock, no par value Authorized 200 shares Issued and outstanding 30 shares 40,000 Paid-in-capital 110,000 Retained earnings 230,680 -------- Total stockholder's equity 380,680 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $563,250 ========
The Auditor's report and accompanying notes are an integral part of these financial statements. -2- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1998
1998 1998 ---- Revenues (Note 2E) $541,801 Cost of sales 372,852 Gross profit 168,949 Selling, general and administrative expenses 119,461 Income from operations 49,488 Interest income 580 Income before provision for income taxes 50,068 Provision for income taxes (Notes 2D and 3) 15,260 -------- Net income 34,808 Retained earnings - beginning of period 195,872 -------- Retained earnings - end of period $230,680 ========
The Auditor's report and accompanying notes are an integral part of these financial statements. -3- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998
1998 ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 34,808 Adjustments to reconcile: Depreciation and amortization 12,385 Accounts receivable (74,111) Other current assets (300) Accounts payable 250 Accrued expenses and other current liabilities (3,993) Deferred income taxes 14,580 --------- Net cash (applied to) operating activities (16,381) --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (1,157) Net cash (applied to) investing activities (1,157) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net cash provided by financing activities -0- Net change in cash and cash equivalents (17,538) Cash and cash equivalents - beginning of period 118,947 --------- Cash and cash equivalents - end of period $ 101,409 ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- Cash paid during the year for: Interest expense $ -0- Income taxes $ 680 =========
The Auditor's report and accompanying notes are an integral part of these financial statements. -4- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1 - THE COMPANY ----------- RDS, Research Distribution Services, Inc. (the "Company") was organized in New York State in September, 1995. The Company provides mail fulfillment services to the research departments of financial institutions located primarily in the New York Metropolitan area. The Company currently provides services to four clients. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ A. CASH AND CASH EQUIVALENTS ------------------------- For the purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest which approximates fair market value. At June 30, 1998, cash equivalents included funds deposited in certificates of deposit with a bank. B. PROPERTY AND EQUIPMENT ---------------------- Depreciation of capital assets is provided to relate the cost of these assets to operations over their estimated useful lives. Management has elected to use the straight line method of depreciation for production equipment, computer hardware and software, and furniture and fixtures, over estimated useful lives ranging from five to seven years. Repairs and maintenance are charged to operations in the period incurred. Major repairs and improvements which significantly extend the lives of the assets are capitalized, and depreciated over their estimated useful lives. When assets are retired or disposed the cost and accumulated depreciation or amortization are removed from the accounts, and any gain or loss is recognized in the current period's earnings. C. INTANGIBLE ASSETS ----------------- Intangible assets consist of initial start up costs and are amortized over a five year period. D. INCOME TAXES ------------ Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. -5- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ E. REVENUES -------- Revenue is recorded when services are performed or upon delivery of finished product. F. USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 reported period. Actual results could differ from those estimates. G. CONCENTRATION OF CREDIT RISK ---------------------------- Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances and certificates of deposit at one bank. Accounts at the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company performs on going credit evaluations of its customers and records reserves for potentially uncollectible accounts receivable. Accounts receivable consist mainly of customers within the Company's geographic area. H. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The Company's financial instruments consist of cash and trade receivables and payables. The carrying amount of cash and short-term instruments approximates their fair values because of the relatively short period of time between the origination of the instruments and their expected realization. I. IMPAIRMENT OF LONG-LIVED ASSETS ------------------------------- In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market or discounted cash flow value is required. No such write-downs were required for the six months ended June 30, 1998. -6- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 3 - INCOME TAXES Income tax expense consists of the following: 1998 ---- Federal tax $ 6,143 State and local taxes 9,117 --------- Total income tax expense 15,260 Less deferred tax liability (14,580) Taxes due currently $ 680 ========= The differences giving rise to the deferred tax liability result primarily from the use of cash-basis accounting for income tax purposes and accrual basis accounting for financial reporting purposes. The cash basis of accounting reports income in the period when actually received and expenses in the period when actually disbursed. The accrual basis of accounting reports income in the period in which it is earned and expenses in the period in which they are incurred. NOTE 4 - COMMITMENTS AND CONTINGENCIES ----------------------------- OPERATING LEASE --------------- The Company operates its office, sales and production facilities within sub-leased premises in New York City, New York. The lease term is month to month. There is an informal agreement with the landlord to pay one-third of any rent increases or escalations he incurs. There are no renewal terms. Monthly rent is approximately $4,700. NOTE 5 - SUBSEQUENT EVENTS ----------------- On July 31, 1998 all of the Company's issued and outstanding common stock was purchased by Halcon Acquisition Corp., a wholly owned subsidiary of Information Management Technologies Corporation. The Company's former sole stockholder will continue in his present position as the chief executive officer of RDS, Research Distribution Services, Inc., as will the Company's other top managers. -7- RDS, ---- RESEARCH DISTRIBUTION SERVICES, INC. ------------------------------------ FINANCIAL STATEMENTS -------------------- OCTOBER 31, 1998 ---------------- RDS, RESEARCH DISTRIBUTION SERVICES, INC. FINANCIAL STATEMENTS INDEX ----- PAGE ---- Report of Independent Auditor 1 Balance Sheet as of October 31, 1998 2 Statement of Income and Retained Earnings for the Ten Months Ended October 31, 1998 3 Statement of Cash Flows for the Ten Months Ended October 31, 1998 4 Notes to Financial Statements 5 HBJ HOWARD B. JACOBSON, C.P.A., P.C. CERTIFIED PUBLIC ACCOUNTANT - -------------------------------------------------------------------------------- 33-21 Francis Lewis Blvd. Bayside, New York 11358 Phone (718) 886-8210 FAX (718) 886-8215 REPORT OF INDEPENDENT AUDITOR Board of Directors RDS, Research Distribution Services, Inc. New York, New York I have audited the accompanying balance sheet of RDS, Research Distribution Services, Inc. as of October 31, 1998, and the related statements of income and retained earnings, and cash flows for the ten months then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RDS, Research Distribution Services, Inc. as of October 31, 1998, and the results of its operations and its cash flows for the ten months then ended, in conformity with generally accepted accounting principles. /s/ HOWARD B. JACOBSON, C.P.A., P.,C. - ------------------------------------- Howard B. Jacobson, C.P.A., P.,C. Bayside, New York November 11, 1998 RDS, RESEARCH DISTRIBUTION SERVICES, INC. BALANCE SHEET OCTOBER 31, 1998
ASSETS ------ 1998 ---- CURRENT ASSETS: Cash and cash equivalents (Notes 2A, 2G and 2H) $ 87,768 Accounts receivable (Notes 2G and 2H) 398,511 Other current assets 15,650 -------- Total current assets 501,929 PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B) Production - computers and equipment 151,624 Less accumulated depreciation and amortization 53,329 Net property and equipment 98,295 OTHER ASSETS: Security deposits 7,782 Intangible assets net of accumulated amortization (Note 2C) 1,677 -------- Total other assets 9,459 TOTAL ASSETS $609,683 ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 27,950 Income taxes payable (Notes 2D and 3) 680 Accrued expenses and other current liabilities 15,790 Deferred income taxes (Notes 2D and 3) 169,261 -------- Total current liabilities 213,681 COMMITMENTS AND CONTINGENCIES (Note 4) STOCKHOLDER'S EQUITY: Common stock, no par value Authorized 200 shares Issued and outstanding 30 shares 40,000 Paid-in-capital 110,000 Retained earnings 246,002 -------- Total stockholder's equity 396,002 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $609,683 ========
The Auditor's report and accompanying notes are an integral part of these financial statements. -2- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE TEN MONTHS ENDED OCTOBER 31, 1998
1998 ---- Revenues (Note 2E) $948,166 Cost of sales 662,952 Gross profit 285,214 Selling, general and administrative expenses 210,562 Income from operations 74,652 Interest income 943 Income before provision for income taxes 75,595 Provision for income taxes (Notes 2D and 3) 25,465 -------- Net income 50,130 Retained earnings - beginning of period 195,872 -------- Retained earnings - end of period $246,002 ========
The Auditor's report and accompanying notes are an integral part of these financial statements. -3- RDS, RESEARCH DISTRIBUTION SERVICES, INC. STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 1998
1998 --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 50,130 Adjustments to reconcile: Depreciation and amortization 20,641 Accounts receivable (129,041) Other current assets (13,700) Accounts payable 16,250 Accrued expenses and other current liabilities (19,239) Deferred income taxes 44,937 --------- Net cash (applied to) operating activities (30,022) --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to plant and equipment (1,157) Net cash (applied to) investing activities (1,157) --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net cash provided by financing activities -0- Net change in cash and cash equivalents (31,179) Cash and cash equivalents - beginning of period 118,947 ---------- Cash and cash equivalents - end of period $ 87,768 ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION ------------------------------------------------- Cash paid during the period for: Interest expense $ -0- Income taxes $ 680 =========
The Auditor's report and accompanying notes are an integral part of these financial statements. -4- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998 NOTE 1 - THE COMPANY ----------- RDS, Research Distribution Services, Inc. (the "Company") was organized in New York State in September, 1995. The Company provides mail fulfillment services to the research departments of financial institutions located primarily in the New York Metropolitan area. The Company currently provides services to four clients. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ A. CASH AND CASH EQUIVALENTS ------------------------- For the purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. Cash equivalents are carried at cost plus accrued interest which approximates fair market value. At October 31, 1998, cash equivalents included funds deposited in certificates of deposit with a bank. B. PROPERTY AND EQUIPMENT ---------------------- Depreciation of capital assets is provided to relate the cost of these assets to operations over their estimated useful lives. Management has elected to use the straight line method of depreciation for production equipment, computer hardware and software, and furniture and fixtures, over estimated useful lives ranging from five to seven years. Repairs and maintenance are charged to operations in the period incurred. Major repairs and improvements which significantly extend the lives of the assets are capitalized, and depreciated over their estimated useful lives. When assets are retired or disposed the cost and accumulated depreciation or amortization are removed from the accounts, and any gain or loss is recognized in the current period's earnings. C. INTANGIBLE ASSETS ----------------- Intangible assets consist of initial start up costs and are amortized over a five year period. D. INCOME TAXES ------------ Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. -5- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ E. REVENUES -------- Revenue is recorded when services are performed or upon delivery of finished product. F. USE OF ESTIMATES ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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 reported period. Actual results could differ from those estimates. G. CONCENTRATION OF CREDIT RISK ---------------------------- Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances and certificates of deposit at one bank. Accounts at the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company performs on going credit evaluations of its customers and records reserves for potentially uncollectible accounts receivable. Accounts receivable consist mainly of customers within the Company's geographic area. H. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The Company's financial instruments consist of cash and trade receivables and payables. The carrying amount of cash and short-term instruments approximates their fair values because of the relatively short period of time between the origination of the instruments and their expected realization. I. IMPAIRMENT OF LONG-LIVED ASSETS ------------------------------- In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market or discounted cash flow value is required. No such write-downs were required for the ten months ended October 31, 1998. -6- RDS, RESEARCH DISTRIBUTION SERVICES, INC. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998 NOTE 3 - INCOME TAXES ------------ Income tax expense consists of the following: Federal tax $ 11,543 State and local taxes 13,922 --------- Total income tax expense 25,465 Less deferred tax liability 24,785 Taxes due currently $ 680 ========= The differences giving rise to the deferred tax liability result primarily from the use of cash-basis accounting for income tax purposes and accrual basis accounting for financial reporting purposes. The cash basis of accounting reports income in the period when actually received and expenses in the period when actually disbursed. The accrual basis of accounting reports income in the period in which it is earned and expenses in the period in which they are incurred. NOTE 4 - COMMITMENTS AND CONTINGENCIES ----------------------------- OPERATING LEASE --------------- The Company operates its office, sales and production facilities within sub-leased premises in New York City, New York. The lease term is month to month. There is an informal agreement with the landlord to pay part of any rent increases or escalations. There are no renewal terms. Monthly rent is approximately $4,700. NOTE 5 - SUBSEQUENT EVENTS ----------------- The Company's sole stockholder entered into an agreement to sell all of the Company's issued and outstanding common stock to Halcon Acquisition Corp., a wholly owned subsidiary of Information Management Technologies Corporation. The Company's former sole stockholder will continue in his present position as the chief executive officer of RDS, Research Distribution Services, Inc., as will the Company's other top managers. The sale took place November 11, 1998. -7- IMTECH CORP. EXHIBIT (1) Consolidated Pro Forma Condensed Statement of Operations For the Fiscal Year Ended March 31, 1998 (Unaudited)
RDS, Research Distribution IMTECH Corp. KRL Litho, Inc. Services, Inc. Combined Year Ended Year Ended Year Ended Historical Pro Forma Adj. Pro Forma 31-Mar-98 31-Dec-97 31-Dec-97 Statements Adjustments Ref. Results ------------ --------------- -------------- ------------- ----------- ----- --------- [1] Revenues $ 9,488,340 $13,773,284 $ 876,753 $ 24,138,377 $ - $24,138,377 Cost of sales 7,323,641 9,261,574 292,439 16,877,654 48,704 A) 16,926,358 ------------ ------------ ---------- ------------- ------------- ----------- Gross profit 2,164,699 4,511,710 584,314 7,260,723 (48,704) 7,212,019 Operating expenses 3,759,689 3,211,121 246,780 7,217,590 - 7,217,590 Interest expense, net 717,879 21,493 3,250 742,622 984,636 B) 1,727,258 Amortization of goodwill - - - - 443,928 C) 443,928 ------------ ------------ ---------- ------------- ------------- ----------- Income (loss) before income taxes (2,312,869) 1,279,096 334,284 (699,489) (1,477,268) (2,176,757) Provision for income taxes - 133,008 143,134 276,142 (276,142)D) - ------------ ------------ ---------- ------------- ------------- ----------- Net income (loss) (2,312,869) 1,146,088 191,150 (975,631) (1,201,126) (2,176,757) Preferred stock dividends 270,159 - - 270,159 - 270,159 ------------ ------------ ---------- ------------- ------------- ----------- Net income (loss) applicable to common stockholders $ (2,583,028) $ 1,146,088 $ 191,150 $ (1,245,790) $ (1,201,126) $(2,446,916) ============ ============ ========== ============= ============ =========== Basic and diluted earnings per share applicable to common stockholders $ (0.46) $ (0.22) $ (0.44) ========== ========= ========= Weighted average number of shares outstanding 5,589,483 5,589,483 5,589,483 ========== ========= ========= - ----------------------------------------------------- [1] See Summary of Pro Forma Adjustments for the Fiscal Year Ended March 31, 1998 on Exhibit 2.
EXHIBIT (2) SUMMARY OF PRO FORMA ADJUSTMENTS -------------------------------- FOR THE FISCAL YEAR ENDED MARCH 31, 1998
- --------- ------------------------------------------------------- ----------- Adj. Description of Adjustment Amount Ref. - --------- ------------------------------------------------------- ----------- A) Additional depreciation for bump-up in the fixed assets of KRL to fair market value as a result of an allocation of the excess of the purchase price over the net assets of KRL acquired 48,704 ======= B) Interest expense accrued on the debt issued for the financing related to the acquisitions: Interest on the 12% convertible debentures 480,000 Interest on the term loan payable to GE Capital Corp. 125,464 Interest on the notes payable to the sellers of KRL 303,338 Interest on the note payable to the seller of RDS 75,834 ------- 984,636 ======= C) Amortization of the goodwill resulting from the purchase of KRL and RDS 443,928 ======= D) Decrease in income taxes expense resulting from the utilization of the existing Net Operating Loss Carryforwards of the Registrant 276,142 =======
IMTECH CORP. EXHIBIT (3) Consolidated Pro Forma Condensed Balance Sheet September 30, 1998 (Unaudited)
RDS, Research Distribution Combined IMTECH Corp. Services, Inc. Historical Pro Forma Adj. Pro Forma 30-Sep-98 31-Oct-98 Statements Adjustments Ref. Results -------------- -------------- ---------- ----------------- ------------ [1] [2] ASSETS Current assets: Cash and cash equivalents $ 92,970 $ 87,768 $ 180,738 $ (60,000) A) $ 120,738 Accounts receivable, net 3,621,681 398,511 4,020,192 (333,950) B) 3,686,242 Other current assets 1,875,968 15,650 1,891,618 - 1,891,618 ------------ ---------- ------------- ---------- ------------ Total current assets 5,590,619 501,929 6,092,548 (393,950) 5,698,598 ------------ ---------- ------------- ---------- ------------ Property and equipment - at cost 8,034,756 151,624 8,186,380 - 8,186,380 Less: Accumulated depreciation and amortization 3,988,664 53,329 4,041,993 - 4,041,993 ------------ ---------- ------------- ---------- ------------ Net property and equipment 4,046,092 98,295 4,144,387 - 4,144,387 ------------ ---------- ------------- ---------- ------------ Goodwill, net of accumulated amortization 6,348,076 - 6,348,076 506,942 C) 6,855,018 Other assets 1,169,491 9,459 1,178,950 157,056 D) 1,336,006 ------------ ---------- ------------- ---------- ------------ $17,154,278 $ 609,683 $ 17,763,961 $ 270,048 $ 18,034,009 ============ ========== ============= ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,087,137 $ 27,950 $ 2,115,087 $ - $ 2,115,087 Other current liabilities 3,925,097 185,731 4,110,828 (33,950) E) 4,076,878 ------------ ---------- ------------- ---------- ------------ Total current liabilities 6,012,234 213,681 6,225,915 (33,950) 6,191,965 ------------ ---------- ------------- ---------- ------------ Long-term debt 3,417,444 - 3,417,444 - 3,417,444 Sellers' notes payable 2,473,839 - 2,473,839 700,000 F) 3,173,839 ------------ ---------- ------------- ---------- ------------ Total long-term obligations 5,891,283 - 5,891,283 700,000 6,591,283 ------------ ---------- ------------- ---------- ------------ Convertible debt 4,932,800 - 4,932,800 - 4,932,800 Stockholders' equity: 12% convertible preferred stock 2,783,493 - 2,783,493 - 2,783,493 Additional paid-in capital 32,185,977 110,000 32,295,977 (110,000) G) 32,185,977 Retained earnings (accumulated deficit) (35,259,430) 246,002 (35,013,428) (246,002) G) (35,259,430) Other stockholder's equity 607,921 40,000 647,921 (40,000) G) 607,921 ------------ ---------- ------------- ---------- ------------ Total stockholders' equity 317,961 396,002 713,963 (396,002) 317,961 ------------ ---------- ------------- ---------- ------------ $17,154,278 $ 609,683 $ 17,763,961 $ 270,048 $ 18,034,009 ============ ========== ============= ========== ============ - --------------------------------------------------------- [1] Includes the consolidated balance sheets of IMTECH Corp. and its wholly owned subsidiary, KRL Litho, Inc., as of September 30, 1998. [2] See Summary of Pro Forma Adjustments For the Six Months Ended September 30, 1998 on Exhibit 5.
IMTECH CORP. EXHIBIT (4) Consolidated Pro Forma Condensed Statement of Operations For the Six Months Ended September 30, 1998 (Unaudited)
RDS, Research Distribution IMTECH Corp. Services, Inc. Six Months Six Months Combined Ended Ended Historical Pro Forms Adj. Pro Forma 30-Sep-98 30-Jun-98 Statements Adjustments Ref. Results -------------- --------- ---------- ----------- ---- ------------- [1] [2] Revenues $ 10,690,759 $ 541,801 $ 11,232,560 $ - $ 11,232,560 Cost of sales 7,174,638 372,852 7,547,490 - 7,547,490 ----------- ---------- ------------- ----------- ------------- Gross profit 3,516,121 168,949 3,685,070 - 3,685,070 Operating expenses 3,222,939 119,461 3,342,400 - 3,342,400 Interest expense, net 288,567 (580) 287,987 39,529 H) 327,516 Amortization of goodwill 68,941 - 68,941 159,117 I) 228,058 ----------- ---------- ------------- ----------- ------------- Income (loss) before income taxes (64,326) 50,068 (14,258) (198,646) (212,904) Provision for income taxes - 15,260 15,260 (15,260) J) - ----------- ---------- ------------- ----------- ------------- Net income (loss) (64,326) 34,808 (29,518) (183,386) (212,904) Preferred stock dividends 122,760 - 122,760 - 122,760 ----------- ---------- ------------- ----------- ------------- Net income (loss) applicable to common stockholders $ (187,086) $ 34,808 $ (152,278) $ (183,386) $ (335,664) =========== ========== ============= =========== ============= Basic and diluted earnings per share applicable to common stockholders $ (0.03) $ (0.03) $ (0.06) =========== ============= ============= Weighted average number of shares outstanding 5,789,846 5,789,846 5,589,483 =========== ============= ============= - ------------------------------------------------------ [1] Includes the consolidated results of operations of IMTECH Corp. and its wholly owned subsidiary, KRL Litho, Inc., for the six months ended September 30, 1998. [2] See Summary of Pro Forma Adjustments for the Six Months Ended September 30, 1998 on Exhibit 5.
EXHIBIT (5) SUMMARY OF PRO FORMA ADJUSTMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
Adj. Description of Adjustment Amount Ref. - --------- ---------------------------------------------------------- --------- A) Cash remitted at closing for the purchase of RDS 60,000 ======== B) Elimination of intercompany balances 333,950 ======== C) Goodwill resulting from the purchase of RDS 506,942 ======== D) Deferred interest of the notes payable to the seller of RDS 157,056 ======== E) Current portion of the note payable to the seller of RDS 300,000 Elimination of intercompany balances (See B. above) (333,950) ======== (33,950) ======== F) Long-term portion of the note payable to the seller of RDS 700,000 ======== G) Elimination of the equity of RDS in accordance with Generally Accepted Accounting Principles which provide guidance on the accounting treatment of a business combination accounted for as a purchase: Additional paid-in capital 110,000 ======== Retained earnings 246,002 ======== Common stock 40,000 ======== H) Interest expense accrued on the note payable to the seller of RDS 39,529 ======== I) Amortization of the goodwill 159,117 ======== J) Decrease in income taxes expense resulting from the utilization of the existing Net Operating Loss Carryforwards of the Registrant 15,260 ========
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