-----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, At8fAwLe5ljjokNCY1ldIHEqB2YoqtBPmS2exWv+iQaYsuefqvMb+k65g2ypN18t 6S9t+l8Xe12yb40ZvWcwew== 0001047469-98-005792.txt : 19980218 0001047469-98-005792.hdr.sgml : 19980218 ACCESSION NUMBER: 0001047469-98-005792 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-16753 FILM NUMBER: 98536437 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 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from __________ to __________ COMMISSION FILE NUMBER: 0-16753 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 58-1722085 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 130 CEDAR STREET, FOURTH FLOOR, NEW YORK, NY 10006 (Address of Principal Executive Offices) (Zip Code) (212) 306-6100 (Registrant's Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] AS OF FEBRUARY 13, 1998, THE REGISTRANT HAD OUTSTANDING 5,579,552 SHARES OF CLASS A COMMON STOCK. INDEX PAGE PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS 1 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13 CONDITION AND RESULTS OF OPERATIONS PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS 20 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 21 SIGNATURES 22 PART I FINANCIAL INFORMATION ITEM 1. INDEX TO FINANCIAL STATEMENTS PAGE BALANCE SHEETS AS OF DECEMBER 31, 1997 AND MARCH 31, 1997 2 Statements of Operations for the Three Months and Nine Months Ended December 31, 1997 and 1996 4 Statements of Cash Flows for the Nine Months Ended December 31, 1997 and 1996 5 Notes to Financial Statements 6 1 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION BALANCE SHEETS ASSETS
------------------ ------------------ December 31, March 31, 1997 1997 ------------------ ------------------ (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 675,262 $ 1,228,819 Accounts receivable, net of allowance for doubtful accounts of $79,200 at December 31, 1997 and $36,800 at March 31, 1997 1,518,565 1,331,428 Inventory 444,817 281,729 Note receivable - related party 56,773 54,886 Prepaid expenses and other current assets 693,002 590,224 --------------- ---------------- Total current assets 3,388,419 3,487,086 PROPERTY AND EQUIPMENT - AT COST Production equipment 2,955,863 2,548,699 Software 426,598 242,932 Furniture and fixtures 359,490 459,696 Leasehold improvements 675,818 609,888 Computer equipment 706,127 806,066 --------------- ---------------- 5,123,896 4,667,281 Less: Accumulated depreciation and amortization 2,135,385 2,065,833 --------------- ---------------- Net property and equipment 2,988,511 2,601,448 --------------- ---------------- OTHER ASSETS Note receivable - related party 170,873 195,114 Deposits and other assets 401,837 364,405 Investment in INSCI Corp. 1,032,818 1,782,108 --------------- ---------------- Total other assets 1,605,528 2,341,627 --------------- ---------------- TOTAL ASSETS $ 7,982,458 $ 8,430,161 =============== ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 2 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION BALANCE SHEETS (CONCLUDED) LIABILITIES AND STOCKHOLDERS' EQUITY
---------------- -------------- December 31, March 31, 1997 1997 ---------------- -------------- (Unaudited) CURRENT LIABILITIES Current debt $ 380,000 $ 380,000 Loan payable - bank 624,941 - Current maturities of long-term debt 285,862 288,329 Current maturities of long-term capital lease obligations 203,249 280,878 Accounts payable 1,564,891 1,479,166 Accrued salaries 91,767 157,820 Other accrued liabilities 921,705 684,221 --------------- --------------- Total current liabilities 4,072,415 3,270,414 LONG-TERM DEBT, LESS CURRENT MATURITIES 874,729 900,000 CAPITAL LEASE OBLIGATIONS, LESS CURRENT MATURITIES 311,899 213,002 DEFERRED RENT 370,933 382,677 --------------- --------------- Total long-term liabilities 1,557,561 1,495,679 --------------- --------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY 12% Preferred Stock - authorized 3,000,000 shares at $1.00 par value; 2,727,240 shares issued and outstanding at December 31, 1997 and 2,534,100 at March 31, 1997 2,727,240 2,534,100 Class A common stock - authorized 100,000,000 shares at $.04 par value; 5,579,552 shares issued and outstanding at December 31, 1997 and March 31, 1997 223,182 223,182 Additional paid-in capital 31,972,921 31,528,477 Unrealized gain from investment in securities available for sale 1,032,818 1,774,515 Accumulated deficit (33,603,679) (32,396,206) --------------- --------------- Total stockholders' equity 2,352,482 3,664,068 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,982,458 $ 8,430,161 =============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 3
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) ---------------------------- ---------------------------- Three Months Ended Nine Months Ended December 31, December 31, ---------------------------- ---------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Revenues $ 2,553,116 $ 2,626,573 $ 7,215,462 $ 8,049,613 Cost of sales 1,569,357 2,238,877 5,281,416 6,380,876 ------------ ------------ ------------ ----------- Gross profit 983,759 387,696 1,934,046 1,668,737 Operating expenses: Selling, general and administrative expenses 1,264,859 908,046 2,567,707 2,480,714 Other costs - 550,000 - 550,000 ------------ ------------ ------------ ------------ Total operating expenses 1,264,859 1,458,046 2,567,707 3,030,714 ------------ ------------ ------------ ------------ Loss from operations (281,100) (1,070,350) (633,661) (1,361,977) Other (income) expenses: Interest expense, net 152,610 102,920 370,153 303,480 Interest - beneficial conversion attached to convertible debt - - 444,444 - Gain from the sale of INSCI Corp. stock (181,555) - (240,785) (2,078,661) Equity in net loss of INSCI Corp. - - - 341,140 ------------ ------------ ------------ ------------ Net other (income) expense (28,945) 102,920 573,812 (1,434,041) ------------ ------------ ------------ ------------ Net income (loss) $ (252,155) $(1,173,270) $(1,207,473) $ 72,064 ============ ============ ============ ============ Earnings (loss) per share $ (0.05) $ (0.21) $ (0.22) $ 0.01 ============ ============ ============ ============ Weighted average number of shares outstanding 5,579,552 5,011,500 5,579,552 5,011,500 ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 4 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------- Nine Months Ended December 31, ------------------------------------- 1997 1996 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (1,207,473) $ 72,064 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 383,040 301,114 Amortization of consulting fees 57,500 - Amortization of beneficial conversion feature related to convertible debt 444,444 - Preferred stock issued to pay preferred dividends 193,140 - Equity in net loss of INSCI Corp. - 341,140 Gain from sale of INSCI Corp. stock (240,785) (2,078,661) Provision for doubtful accounts 51,183 33,907 Deferred rent (11,744) - Changes in assets and liabilities: Accounts receivable (238,319) (191,751) Inventory (163,088) (101,713) Prepaid expenses and other current assets, deposits and other (197,710) 260,793 Accounts payable, accrued expenses and other current liabilities 537,293 (750,978) ------------- -------------- Net cash used in operating activities (392,519) (2,114,085) ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (510,799) (409,261) Repayments from loan to related party 22,354 - Proceeds from the sale of INSCI Corp. stock 279,932 2,457,718 ------------- -------------- Net cash (used in) provided by investing activities (208,513) 2,048,457 ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under bank credit facility 624,941 (640,056) Net proceeds from issuance of long-term debt 90,000 - Payments of capital lease obligations (238,036) (205,669) Proceeds from equity placements and option exercises - 172,602 Repayments of long-term debt (429,430) (431,975) ------------- -------------- Net cash provided by (used in) financing activities 47,475 (1,105,098) ------------- -------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (553,557) (1,170,726) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,228,819 2,011,560 ------------- -------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 675,262 840,834 ============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS 5 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 THE COMPANY Information Management Technologies Corporation (referred to as "IMTECH" or the "Company") was incorporated in 1986 in the State of Delaware. The Company provides information processing and facilities management services to financial, legal, accounting and other medium to large service organizations which operate in business environments that are characterized by substantial information processing, communications and document administration requirements. The Company's customer base is principally located in New York City and the surrounding metropolitan area, such as New Jersey, Southeast Connecticut and Westchester County. The Company also services clients in Pennsylvania, the midwest and in Europe, as a result of strategic alliances with two New York based service providers. The alliances allow IMTECH to offer its clients a smooth process of receiving and managing data for print production and subsequent distribution. At December 31, 1997, the Company holds a 11% ownership interest in INSCI Corp. ("INSCI") , a Massachusetts based developer of software. At December 31, 1996, the Company held a 18% ownership interest in INSCI. The investment in INSCI was accounted for under the equity method through the period when the Company owned more than 20% of the common stock in INSCI. When the Company's investment in INSCI decreased below 20% the investment in INSCI was accounted for under the "Securities Available For Sale" method as promulgated by Statement of Financial Accounting Standards ("SFAS") No. 115. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") established for interim financial information and Form 10-Q and Article 10 of Regulation S- X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. Management believes however that all of the adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 1998. For further information, refer to the financial statements and disclosures thereto included in the Company's annual report on Form 10-K for the year ended March 31, 1997. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies that have been applied on a consistent basis in the preparation of the accompanying financial statements: 1. REVENUE RECOGNITION Revenue is recorded when services are performed or upon delivery of the product. 2. CASH AND CASH EQUIVALENTS For the purposes of reporting cash flows (presented under the indirect method), the Company considers all highly liquid investments with insignificant interest rate risk and an original maturity of three months or less to be cash equivalents. The cash equivalents are carried at cost which approximates fair value. At December 31, 1997, cash equivalents included funds deposited in a liquid asset fund with a financial institution. 6 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2. CASH AND CASH EQUIVALENTS (CONTINUED) In addition, at December 31, 1997, cash and cash equivalents includes a certificate of deposit in the amount of $504,270 held with a financial institution, and is maintained as security for the Company's obligation under an operating lease for certain production equipment. 3. INVENTORY Inventory consists primarily of paper, toner and inks, and is stated at the lower of cost (determined by the first-in, first-out method) or market. 4. PROPERTY AND EQUIPMENT Depreciation of capital assets is provided to relate the cost of the depreciable assets to operations over their estimated useful service lives. In that connection, production equipment, computer hardware and software and furniture and fixtures are depreciated by the straight-line method over estimated useful lives ranging from five to seven years. Leasehold improvements are amortized by the straight-line method over the lesser of the remaining lease term or estimated useful lives of the improvements. Major additions and betterments are capitalized and repairs and maintenance are charged to operations in the period incurred. At the time of disposal or retirement of any property and equipment, the cost and accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is recognized in the current period's earnings. 5. DEFERRED FINANCING COSTS Costs incurred to secure financing arrangements are included in deposits and other assets in the balance sheets. The costs are amortized over the life of the related credit facilities, which range from 24 to 110 months. 6. 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 at various banks and places its temporary cash investments in a liquid asset fund 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 ongoing credit evaluations of its customers and records reserves for potentially uncollectible accounts receivable which are deemed credit risks as determined by management. Accounts receivable consist of geographically and industry dispersed customers. 7 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 7. USE OF ESTIMATES The preparation of the accompanying financial statements 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 period. Actual results could differ from those estimates. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, trade receivables and payables and debt instruments. 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. The carrying amount of the debt is based on the current market interest rates being paid, and as a result, it approximates fair value. 9. 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 nine months ended December 31, 1997. 10. ACCOUNTING FOR STOCK OPTIONS The Company accounts for its stock option plans in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock- based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25 and provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants made from 1995 forward as if the fair-valued-based method defined in SFAS No. 123 had been applied. APB Opinion No. 25 requires that compensation expense be recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. 11. CONVERTIBLE DEBT The beneficial conversion feature of certain outstanding convertible securities is accounted for as additional interest to the holders and amortized over the period from the date of issue through the date the securities first become convertible. This policy conforms to the accounting for these transactions announced by the Securities and Exchange Commission ('SEC") Staff in March 1997. 8 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 INVESTMENT IN INSCI CORP. The Company holds an 11% ownership interest in INSCI, its former majority-owned subsidiary. As of December 31, 1997, the carrying value and estimated fair market value of the Company's investment in INSCI is as follows: Cost Basis Market Value Unrealized Gain Investment in INSCI Corp. (486,032 shares) $ - $ 1,032,818 $ 1,032,818 The investment is accounted for under the "Securities Available For Sale" method as promulgated by SFAS No. 115. As a result, the investment is carried at fair market value. During the second quarter of fiscal year 1997, the Company sold 703,000 shares of INSCI Corp. stock. Prior to that sale, IMTECH owned a 38% interest in INSCI, whose results were accounted for under the equity method. At December 31, 1997, 500,000 shares of the INSCI stock are pledged as collateral for the outstanding 12% convertible secured promissory notes issued in connection with the February 1997 private placement offering of $1,000,000. However, the Company has the right to receive the return of 100,000 shares of the pledged stock in the event it becomes required in order for IMTECH to sell the shares for a source of working capital. LOAN PAYABLE - BANK In November 1997, IMTECH (the "Company") entered into a two year secured credit arrangement with MTB Bank (the "Bank"). Under the credit arrangement, the Company can borrow up to 80% of eligible accounts receivable and 35% of eligible paper inventory (up to a maximum of $50,000), both of which in the aggregate cannot exceed a total of $1,500,000 (including $250,000 in outstanding letters of credit) at any one time. All outstanding obligations under the arrangement bear interest at the banks prime rate plus two percent (2%). At December 31, 1997, the Company was indebted to the Bank for outstanding obligations totaling approximately $625,000. In conjunction with the execution of the credit arrangement, the Company entered into a security agreement which grants the Bank a security interest in substantially all of the assets of IMTECH as collateral for all indebtedness outstanding under the arrangement. The credit arrangement contains a minimum tangible net worth covenant of $2,200,000. In addition to the collateral secured as part of the security agreement, the Company also pledged 66,535 shares of INSCI Corp. common stock to secure payment of all outstanding obligations under the credit arrangement. In connection with the closing of the credit arrangement, the Company issued a warrant to the Bank which entitles MTB to purchase 25,000 shares of Class A Common stock at $1.81 per share (the market price of the underlying shares on the date of closing), exercisable until November 2000. 9 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 EARNINGS (LOSS) PER SHARE In December 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Under SFAS No. 128 public companies and entities with complex capital structures are required to present basic and diluted EPS on the face of the income statement. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS and, if applicable, diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to Class A Common stockholders by the weighted-average number of Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Class A Common stock were exercised or converted and the resulting additional shares are dilutive (their inclusion decreases the amount of EPS). The effect on earnings (loss) per share of outstanding stock options and warrants is antidilutive and therefore not included in the calculation of the weighted-average number of Class A Common shares outstanding. CONTINGENCIES EMPLOYEE BENEFIT PLANS In January 1994, the Company received correspondence from the United States Department of Labor (the "DOL") stating their intent to penalize the Company in connection with an investigation of past IMTECH employee benefit plans (prior to April 1, 1992). The DOL concluded that for certain plan years the Company did not file the proper financial information required. In October 1997, the DOL assessed the Company with a penalty of $25,000 as a result of their findings. The penalty which is payable, without interest, in twelve monthly installments of $2,083, through November 1998 is included in accrued liabilities on the balance sheet as of December 31, 1997. REGISTRATION RIGHTS The Company has granted, without cost, demand and "piggyback" registration rights with respect to the stock underlying securities issued or issuable to the holders of certain outstanding warrants and shares of the Company. EMPLOYMENT AGREEMENTS In December 1996, the Board of Directors appointed Matti Kon as the Company's Chief Executive Officer. Consequently, the Company entered into an employment agreement with Mr. Kon which provides for a base annual salary of $200,000 plus an incentive bonus equal to 20% of operating income as reported in the annual 10-K document, up to a maximum of $500,000. The agreement had an initial one year term and awarded Mr. Kon 500,000 options to purchase 500,000 shares of the Company's Class A common stock at an exercise price of $1.18 per share as a signing bonus. In the event the employment agreement is renewed for an additional one year term, Mr. Kon will be entitled to receive an additional 500,000 options to purchase 500,000 shares of Class A common stock at his original exercise price. The agreement further provides that Mr. Kon has the right to devote his time and attention to his other business interests. In January 1998, the Board of Directors elected to renew Mr. Kon's contract for an additional two year period through December 1999. Consequently, Mr. Kon was awarded the additional 500,000 options to purchase 500,000 shares of the Company's Class A Common stock at $1.18 per share. 10 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 CONTINGENCIES (CONTINUED) EMPLOYMENT AGREEMENTS (CONTINUED) The Company has entered into an employment agreement with Mr. Joseph Gitto, its President and Chief Financial Officer. The agreement, as amended in July 1997, has an initial one year term and provides for an annual base salary of $180,000. In addition, Mr. Gitto is entitled to an incentive bonus equal to 15% of operating income as reported in the annual 10-K document, up to a maximum of $150,000, and has been awarded 600,000 options to purchase 600,000 shares of the Company's Class A Common stock at exercise prices ranging from $1.25 to $1.88 per share. OTHER In November 1995, the Company entered into a three year service agreement with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH with promotional and brokerage communication services related to the marketing of the Company's stock. As consideration for their services, IMTECH was to pay CRG the sum of $300,000 or 171,000 shares of the Company's free trading Class A common stock plus 500,000 options to purchase 500,000 shares of Class A common stock at exercise prices ranging from $1.75 to $3.06 per share for a period of five years. The Company elected to pay CRG by issuing 171,000 shares of Class A common stock. The Company made an initial payment to CRG of 92,250 shares of freely traded Class A common stock which IMTECH borrowed from a number of shareholders. The Company agreed to repay the shareholders by making interest payments at a rate of 10% per annum in addition to returning the borrowed shares plus one additional share of Class A common stock for each ten shares of borrowed stock (an aggregate of 9,250 additional shares). The Company further agreed to grant cost free registration rights to each lender for the additional shares as a result of the loan transaction. The balance of the 78,750 shares was not remitted to CRG. CRG asserted a claim for the balance of the shares. The Company has disputed the claim based upon the position that CRG did not perform under the provisions of the service contract. The Company is currently considering instituting legal action, in the state of Florida based upon the jurisdiction which was recited in the agreement, to recover the shares of stock and to seek punitive damages from CRG. SUBSEQUENT EVENTS On January 30, 1998, the Company appointed Ms. Dale L. Hirschman and Mr. Kenneth J. Buettner as members of the Board of Directors (the "Board") of IMTECH. Ms. Hirschman, who is currently a management consultant with a Company called DH Management/CAL Consulting Group, is also active in raising capital for private companies through private placements and has an extensive background in publishing with companies such as Hearst Business Publishing, Inc. and Scholastic, Inc. Upon her appointment, Ms. Hirschman was awarded 100,000 options to purchase 100,000 shares of IMTECH Class A Common stock at a per share price of $.74. 11 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 SUBSEQUENT EVENTS (CONTINUED) Mr. Buettner is an executive and principal in a Company called York Scaffold Equipment Corp. He has also served on the Board of numerous trade associations and task forces. Mr. Buettner is currently an executive committee member of the State Insurance Fund of NY Construction Industry Safety Group No. 469. Mr. Buettner was also awarded 100,000 options to purchase 100,000 shares of the Company's Class A Common stock at $.74 per share. In January 1998, the Company redeemed $380,000 of 12% subordinated convertible debentures issued in connection with a January 1996 private placement. Also in January 1998, the Company received proceeds for working capital purposes in the amount of $200,000 as a result of loan from an individual who performs consulting services for IMTECH, and is also a member of the Board of Directors. The loan , which is unsecured, bears interest at a per annum rate of 12% and is payable in specific monthly installments through July 1998 as stipulated in the promissory note evidencing the loan. In addition, in January 1998, the Company sold to the same individual 50,000 shares of INSCI Corp. common stock for proceeds of $50,000, also used for working capital purposes. On December 23, 1997, the Company filed a Form S-3 Registration Statement in accordance with the Securities Act of 1933, which an amendment thereto was subsequently filed on January 14, 1998. The statement covers the subsequent resale or offer for sale of all of the Company's outstanding Class A Common stock (not eligible under Rule 144) and all other shares issuable upon exercise or conversion of certain options, warrants, convertible debt and preferred stock. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF RESULTS OF OPERATIONS The following schedule sets forth the percentage relationship of significant items of the Company's results of operations to revenues:
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, 1997 1996 1997 1996 Revenues 100% 100% 100% 100% Cost of sales 61 85 73 79 Gross profit 39 15 27 21 Operating expenses: Selling, general and administrative 50 35 36 31 Other costs - 21 - 7 Loss from operations (11) (41) (9) (17) Other (income) expenses: Interest expense, net 6 4 5 4 Interest on beneficial conversion of 12% convertible secured notes - - 6 - Gain from sale of INSCI Corp. stock (7) - (3) (26) Equity in net loss of INSCI Corp. - - - 4 Net other (income) expense (1) 4 8 (18) Net income (loss) (10) (45)% (17) 1%
13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED 12/31/97 AS COMPARED TO THE THREE MONTHS ENDED 12/31/96 During the three months ended December 31, 1997, the Company reported revenues of approximately $2,553,000; a decrease of $74,000 (or 3%) from revenues of approximately $2,627,000 that were generated during the three months ended December 31, 1996. The Company's Regional Service Center ("RSC") division generated revenues of approximately $2,390,000 (which represented 94% of total revenues for the period) for the three months ended December 31, 1997; an increase of $134,000 (or 6%) when compared to revenues of approximately $2,256,000 (86% of total 1996 revenue) reported for the three months ended December 31, 1996. The increase in RSC revenues was a direct result of an increase in the Company's core research printing business created by the opportunity to provide printing services to ten new clients during the quarter ended December 31, 1997. The Company's Facility Management division recorded revenues of approximately $163,000 (6% of total revenues) for the three months ended December 31, 1997, as compared to revenues of approximately $194,000 (7% of total 1996 revenues) that were generated for the three months ended December 31, 1996. Cost of sales for the three months ended December 31, 1997 amounted to approximately $1,569,000 (61% of total revenues for the three months ended December 31, 1997); a decrease of approximately $670,000 (or 30%) from cost of sales of approximately $2,239,000 (85% of 1996 revenues) recorded for the three months ended December 31, 1996. During the past twelve months, the IMTECH has reduced it production staff and realized certain production cost efficiencies as a result of management's investment in improving the Company's infrastructure. As a result, production facilities have been stream-lined, resulting in an overall savings in the Company's cost of providing its core printing services. Operating expenses ("SG&A") expenses for the three months ended December 31, 1997 amounted to approximately $1,265,000 (which represents 50% of total December 1997 revenues); an overall decrease in operating expenses of approximately $193,000 (or 13%) when compared to operating expenses of approximately $1,458,000 (56% of total 1996 revenues) reported for the three months ended December 31, 1996. Operating expenses, in total, were higher for the three months ended December 31, 1996 because of a one time charge of $550,000 recorded by management in that period to account for costs incurred to restructure IMTECH's work force and redeploy certain production assets. Interest expense for the three months ended December 31, 1997 totaled approximately $153,000 (6% of total revenues); an increase of approximately $50,000 (or 48%) from interest expense recorded for the three months ended December 31, 1996 of approximately $103,000 (4% of total 1996 revenues). The increase in interest expense from 1997 to 1996 is attributable in part to the acquisition by the Company of new high speed copying equipment obtained under capital lease. In addition, the Company entered into a secured credit arrangement with a bank during November 1997, whereby the Company can borrow up to a specified amount of eligible accounts receivable and inventory. The Company pays interest at a per annum rate of 2% above the prime rate on all obligations due to the bank. During the three months ended December 31, 1997, the Company sold 33,435 shares of stock in INSCI Corp., its former majority-owned subsidiary, realizing a gain of $181,555 (7% of total revenues) for the period. The sale of INSCI Corp. stock provided a source of funds for the Company to obtain certain production equipment. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NINE MONTHS ENDED 12/31/97 AS COMPARED TO THE NINE MONTHS ENDED 12/31/96 For the nine months ended December 31, 1997, IMTECH recorded revenues of approximately $7,215,000; a decrease of approximately $834,000 (or 10%) from revenues of approximately $8,050,000 generated for the nine months ended December 31, 1996. During the nine months ended December 31, 1997, the Company's RSC division accounted for approximately $6,468,000 in revenues, which amounts to 90% of total December 1997 revenues; a decrease of approximately $235,000 (or 4%) when compared to RSC revenues of approximately $6,703,000 (83% of total 1996 revenues) reported for the nine months ended December 31, 1996. Revenues generated from the Facilities Management division for the nine months ended December 31, 1997 amounted to approximately $585,000 (8% of total revenues); a decrease of approximately $104,000 (or 18%) from Facilities Management revenues of approximately $689,000 (9% of total revenues) generated for the nine months ended December 31, 1996. The Company's Litigation Duplication division reported revenues of approximately $162,000 (2% of total revenues) for the nine months ended December 31, 1997; a decrease of $496,000 from revenues reported during the nine months ended December 31, 1996 of approximately $658,000 (which represented 8% of total 1996 revenues). The overall decrease in revenues for the nine months ended December 31, 1997 when compared to the same period in the prior fiscal year is a result of management's decision to exit certain unprofitable lines business. The decrease was partially offset by an increase in the Company's core research printing business created by the opportunity to provide printing services to ten new clients during the quarter ended December 31, 1997. During the past year, IMTECH has reduced it production staff and realized certain production cost efficiencies as a result of management's continuing investment in the Company's infrastructure. As a result, production facilities have been stream-lined, resulting in an overall savings in the Company's cost of providing its core printing services. Consequently, cost of sales for the nine months ended December 31, 1997 decreased $1,100,000 (or 17%) to approximately $5,281,000 (73% of total revenues) from cost of sales of approximately $6,381,000 (79% of total December 1996 revenues) reported for the nine months ended December 31, 1996. Operating expenses ("SG&A") expenses for the nine months ended December 31, 1997 amounted to approximately $2,568,000 (which represents 36% of total December 1997 revenues); an overall decrease in operating expenses of approximately $463,000 (or 18%) when compared to operating expenses of approximately $3,031,000 (38% of total 1996 revenues) reported for the nine months ended December 31, 1996. Operating expenses, in total, were higher for the nine months ended December 31, 1996 because of a one time charge of $550,000 recorded by management in that period to account for costs incurred to restructure IMTECH's work force and redeploy certain production assets. Interest expense for the nine months ended December 31, 1997 amounted to approximately $370,000 (5% of total revenues); an increase of approximately $67,000 (or 22%) from interest expense recorded for the nine months ended December 31, 1996 of approximately $303,000 (4% of total 1996 revenues). The increase in interest expense from 1997 to 1996 is attributable in part to the acquisition by the Company of new high speed copying equipment obtained under capital lease. In addition, the Company entered into a secured credit arrangement with a bank during November 1997, whereby the Company can borrow up to a specified amount of eligible accounts receivable and inventory. The Company pays interest at a per annum rate of 2% above the prime rate on all obligations due to the bank. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NINE MONTHS ENDED 12/31/97 AS COMPARED TO THE NINE MONTHS ENDED 12/31/96 (CONTINUED) As a result of complying with the Securities and Exchange Commissions ("SEC") position of accounting for the beneficial conversion feature of debt instruments announced in March of 1997, the Company recorded an additional interest charge of approximately, $444,000 (6% of revenues) for the nine months ended December 31, 1997. The additional interest charge, as it relates only to the compliance of the SEC's position, and has no bearing on the operations of the Company, represents the amortization of the conversion feature attached to the 12% convertible secured promissory notes outstanding at December 31, 1997. The interest is calculated as the difference between the conversion price and the fair value of the common stock into which the notes are convertible. In May 1997, the Company exchanged shares of stock in INSCI Corp. ("INSCI"), its former majority owned subsidiary, for the repayment of certain debt. In addition, during fiscal quarter ended December 31, 1997, the IMTECH sold 33,435 shares of stock in INSCI which provided a source of funds for the Company to obtain certain production equipment. In the aggregate, the Company recognized a gain of $240,785 (3% of total revenues) as a result of the transactions for the nine months ended December 31, 1997. During the nine months ended December 31, 1996, the Company recognized a gain of $2,078,661 (which represented 26% of total December 1996 revenues) form the sale of 600,000 shares of INSCI common stock. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES The schedule below sets forth the Company's cash flow activities for the nine months ended December 31, 1997 and 1996:
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 1996 Operating activities $ (392,000) $ (2,114,000) Investing activities (209,000) 2,048,000 Financing activities 47,000 (1,105,000) Decrease in cash and cash equivalents $ (554,000) $ (1,171,000)
In the nine month period ended December 31, 1997, the Company used net cash of approximately $392,000 for operating activities. The net use of cash was attributable in part to an increase in inventory of approximately $163,000 as the Company prepared for the 1997 earnings season (which extends from January through March 1998). In addition, accounts receivable increased as a result of business created by the opportunity to provide printing services to ten new clients during the quarter ended December 31, 1997. Net cash used for investing activities during the nine months ended December 31, 1997 of approximately $209,000 was a direct result of key capital expenditures of approximately $511,000 made by management as it continued to invest in improving the Company's infrastructure. The net cash used by capital expenditures was offset by proceeds of approximately $280,000 generated by the sale of INSCI Corp. stock. In November 1997, the Company entered into a two year secured credit arrangement with MTB Bank (the "Bank"). Under the credit arrangement, IMTECH can borrow up to 80% of eligible accounts receivable and 35% of eligible paper inventory (up to a maximum of $50,000), both of which in the aggregate cannot exceed a total of $1,500,000 (including $250,000 in outstanding letters of credit) at any one time. The credit facility has provided a key source of working capital to the Company, and as a result, total borrowings under the credit arrangement of approximately $625,000 attributed in part to the net cash provided by financing activities of approximately $47,000 for the nine months ended December 31, 1997. The cash provided by the bank advances under the credit arrangement were offset by repayments of obligations under both capital leases and long-term debt. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) At December 31, 1997, the Company had a working capital deficiency of approximately $684,000 as compared to a working capital surplus of approximately $217,000 at March 31, 1997. In January 1998, the Company generated working capital through sources such as loans and the sale of INSCI Corp. common stock. In addition, the Company filed a Form S-3 Registration Statement in accordance with the Securities Act of 1933 on December 23, 1997 (amended on January 14, 1998). The statement covers the subsequent resale or offer for sale of all of the Company's outstanding Class A Common stock (not eligible under Rule 144) and all other shares issuable upon exercise or conversion of certain options, warrants, convertible debt and preferred stock. Upon exercise of any options or warrants covered in the registration, the Company will receive proceeds to be used for working capital purposes. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NEW ACCOUNTING STANDARDS During the third quarter of fiscal year ended March 31, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Under SFAS No. 128 public companies and entities with complex capital structures are required to present basic and diluted EPS on the face of the income statement. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS and, if applicable, diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and the resulting additional common shares are dilutive (their inclusion decreases the amount of EPS). INFLATION The Company has not experienced significant increases in the prices of materials or in the payment of operating expenses as a result of inflation. Although inflation has not been a significant factor to date, there can be no assurances that it will not be in the future. YEAR 2000 COMPUTER SOFTWARE CONVERSION The Company relies on numerous computer programs in its day to day business. Older computer programs use only two digits to identify a year in its date field. As a result, when the Company has to identify the year 2000, the computer will think its means the year 1900 and the operation attempting to be performed may fail or crash thus resulting in the potential interference in the operations of the Company's business. The Company has formulated plans to safeguard against the Year 2000 conversion problem. The cost of the implementation of the Year 2000 safeguards will not be material to the Company. 19 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In January 1994, IMTECH received correspondence from the U.S. Department of Labor ("DOL") stating their intent to penalize the Company in connection with their investigation of past IMTECH employee benefit plans. The DOL determined that for certain plan years in question, the Company did not file the proper financial information required. In October 1997, the DOL assessed the Company with a penalty of $25,000 as a result of their findings. The penalty is payable in twelve monthly installments of $2,083 through November 1998. In November 1995, the Company entered into a three year service agreement with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH with promotional and brokerage communication services. As consideration for their services, IMTECH was to pay CRG the sum of $300,000 or 171,000 shares of the Company's free trading Class A common stock plus 500,000 options to purchase 500,000 shares of Class A common stock at exercise prices ranging from $1.75 to $3.06 per share for a period of five years. The Company elected to pay CRG by issuing 171,000 shares of Class A common stock. Initially, the Company delivered to CRG 92,250 shares of the freely traded Class A common stock which IMTECH borrowed from a number of shareholders. The Company agreed to repay the shareholders by making interest payments at a rate of 10% per annum in addition to returning the borrowed shares plus one additional share of Class A common stock for each ten shares of borrowed stock (an aggregate of 9,250 additional shares). The Company further agreed to grant cost free registration rights to each lender for the additional shares as a result of the loan transaction. The balance of the 78,750 shares were not remitted to CRG. CRG asserted a claim for the balance of the shares. The Company has disputed the claim based upon the position that CRG did not perform under the provisions of the service contract. The Company is currently considering instituting legal action, in the state of Florida based upon the jurisdiction which was recited in the agreement, to recover the stock and seek punitive damages from CRG. 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K [a] EXHIBITS No exhibits are being filed with this report. [b] REPORTS ON FORM 8-K During the period between October 1, 1997 and December 31, 1997, the Company filed with the Commission reports on Form 8-K as follows: 1) A report Form 8-K, dated November 13, 1997, was filed with the Commission announcing the execution of an accounts receivable financing agreement between the Company and MTB Bank. 21 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, thereunto duly authorized. INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION By: /s/ Joseph A. Gitto, Jr. ----------------------------- JOSEPH A. GITTO JR., PRESIDENT AND CHIEF FINANCIAL OFFICER DATED FEBRUARY 13, 1998 22 EX-27 2 FDS
5 0000824578 INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION 9-MOS DEC-31-1997 DEC-31-1997 675,262 0 1,825,368 79,158 444,817 3,388,419 5,123,896 2,135,385 7,982,458 4,072,415 874,729 2,727,240 0 223,182 (597,940) 7,982,458 7,215,462 7,215,462 5,281,416 5,281,416 2,516,524 51,183 444,444 (1,207,473) 0 (1,207,473) 0 0 0 (1,207,473) (0.22) (0.22)
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