UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) January 23, 1998
----------------
ImageMax, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
Pennsylvania 000-23077 23-2865585
- ------------------------------- ---------------------- ----------------------
(State or other jurisdiction of Commission File Number (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
1100 East Hector Street
Suite 396
Conshohocken, PA 19428
(610) 832-2111
--------------------------------------------
(Address, including zip code, and telephone
number [including area code] of registrant's
principal executive office)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
(a) Financial Statements of Integrated Information Services, L.L.C.
Report of Independent Public Accountants F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Member's Equity F-4
Statements of Cash Flows F-5
Notes to the Financial Statements F-6
(b) Pro Forma Financial Information
Basis of Presentation F-11
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1997 F-12
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of December 31, 1997 F-13
Notes to Unaudited Pro Forma Consolidated Financial Statements F-14
(c) Exhibits
None
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Integrated Information Services, LLC:
We have audited the accompanying balance sheets of Integrated Information
Services, LLC (an Indiana limited liability corporation) as of March 31, 1997
and December 31, 1997, and the related statements of operations, member's equity
and cash flows for the twelve months ended March 31, 1997 and the nine months
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Integrated Information
Services, LLC, as of March 31, 1997 and December 31, 1997, and the results of
its operations and its cash flows for the twelve months ended March 31, 1997 and
the nine months ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
March 12, 1998
F-1
<PAGE>
INTEGRATED INFORMATION SERVICES, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,118 $ 13,454
Accounts receivable, net of allowance for doubtful
accounts of $19,181 and $23,447 1,618,345 946,539
Revenue in excess of billing 453,755 138,313
Inventories 45,241 18,422
Prepaid expenses and other 80,411 74,540
---------- ----------
Total current assets 2,206,870 1,191,268
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and Fixtures 50,570 50,570
Machinery and Equipment 1,036,609 1,113,762
Less- Accumulated depreciation (349,200) (606,977)
---------- ----------
Property and equipment, net 737,979 557,355
OTHER ASSETS
Goodwill, net of accumulated amortization of $15,426
and $25,297 240,139 230,268
Other assets, net of accumulated amortization of
$12,603 and $37,997 159,592 134,198
---------- ----------
$3,344,580 $2,113,089
========== ==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 35,731 $ 38,789
Accounts payable 306,040 74,219
Accrued expenses-
Payroll and payroll taxes 64,549 12,389
Property taxes 89,243 75,569
Other 129,605 31,401
Unearned revenue -- 17,525
Excess facility reserve 168,668 37,669
Payable to parent -- 98,240
---------- ----------
Total current liabilities 793,836 385,801
---------- ----------
PAYABLE TO PARENT 2,586,188 --
---------- ----------
LONG-TERM DEBT, NET OF CURRENT PORTION 194,230 164,745
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
MEMBER'S EQUITY:
Member's capital -- 2,587,188
Common stock, 1,000 shares authorized, 100 shares issued and
outstanding 1 --
Paid-in capital 999 --
Accumulated deficit (230,674) (1,024,645)
---------- ----------
Total member's equity (229,674) 1,562,543
---------- ----------
$3,344,580 $2,113,089
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
INTEGRATED INFORMATION SERVICES, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Month Nine Months
Ended Ended
March 31, December 31,
1997 1997
------------ ------------
<S> <C> <C>
NET SALES $5,735,774 $4,052,654
COST OF SALES 4,011,040 3,313,164
---------- ----------
Gross profit 1,724,734 739,490
---------- ----------
OPERATING EXPENSES:
Selling 842,464 831,763
Administrative 792,032 683,678
---------- ----------
Total operating expenses 1,634,496 1,515,441
---------- ----------
Operating income (loss) 90,238 (775,951)
INTEREST EXPENSE 27,236 18,020
---------- ----------
Income (loss) before income taxes 63,002 (793,971)
PROVISION FOR INCOME TAXES -- --
---------- ----------
NET INCOME (LOSS) $ 63,002 $ (793,971)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
INTEGRATED INFORMATION SERVICES, LLC
STATEMENTS OF MEMBER'S EQUITY
<TABLE>
<CAPTION>
Common Stock Total
----------------------------- Paid-in Member's Accumulated Member's
Shares Amounts Capital Capital Deficit Equity
-------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, MARCH 31, 1996 100 $ 1 $ 999 $ -- $ (293,676) $ (292,676)
Net income, twelve months
ended March 31, 1997 -- -- -- -- 63,002 63,002
-------------- ------------ ----------- ----------- ----------- -----------
BALANCES, MARCH 31, 1997 100 1 999 -- (230,674) (229,674)
Conversion and contribution
to LLC (100) (1) (999) 2,587,188 -- 2,586,188
Net loss, nine months ended
December 31, 1997 -- -- -- -- (793,971) (793,971)
-------------- ------------ ----------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1997 -- $- $ -- $ 2,587,188 $(1,024,645) $ 1,562,543
============== ============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
INTEGRATED INFORMATION SERVICES, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Nine Months
Months Ended Ended
March 31, December 31,
1997 1997
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 63,002 $ (793,971)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Depreciation 311,649 257,777
Amortization 27,243 35,265
Changes in operating assets and liabilities -
Decrease (increase) in accounts receivable (341,775) 671,806
Decrease (increase) in revenue in excess of billing (408,528) 315,442
Decrease (increase) inventories (45,241) 26,819
Decrease (increase) in prepaid expenses and other (62,100) 5,871
Increase (decrease) in accounts payable 197,435 (231,821)
Increase (decrease) in accrued expenses (93,959) (164,038)
Increase (decrease) in unearned revenue (52,541) 17,525
Increase (decrease) in excess facility reserve (176,875) (130,999)
Increase (decrease) in payable to parent 701,259 98,240
--------------- ---------------
Net cash provided by operating activities 119,569 107,916
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (99,502) (77,153)
--------------- ---------------
Net cash used in investing activities (99,502) (77,153)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (31,980) (26,427)
--------------- ---------------
Net cash used in financing activities (31,980) (26,427)
--------------- ---------------
Net change in cash and cash equivalents (11,913) 4,336
CASH AND CASH EQUIVALENTS, at beginning of period 21,031 9,118
--------------- ---------------
CASH AND CASH EQUIVALENTS, at end of period $ 9,118 $ 13,454
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
INTEGRATED INFORMATION SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND
Integrated Information Services, LLC ("IIS" or the "Company") has been in
operation since 1985. In February 1996, the Company was purchased by Pettibone
LLC (parent), a subsidiary of the Heico Companies ("Heico"), and in April 1997
was converted from a regular "C" corporation into a Limited Liability
Corporation ("LLC"). At that time, the parent contributed its prior equity
interest and the balance of the intercompany payable to member's capital.
The Company provides document conversion services for converting paper,
microfilm, microfiche and data files to electronic storage media for retrieval.
The Company also provides technical consulting services in the client/server
environment ranging from document management to network installations. In
addition, the Company offers a software product marketed as a total imaging
solution for its clients, integrating database, full-text and image retrieval
functions into one user-friendly solution operating in the Microsoft Windows
environment. The Company's customers include Fortune 500 companies, major law
firms and other professional services firms located throughout the United
States.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Property and Equipment
Depreciation has been computed on the straight-line method based on the expected
useful lives of the assets as indicated below:
Machinery and equipment 3 years
Furniture and fixtures 10 years
b. Revenue Recognition
Revenue is recognized when the services are rendered or the products are shipped
to customers. Unearned revenue represents services billed in advance of
performance.
c. Use of Estimates in Financial Statements
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
F-6
<PAGE>
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
d. Fair Value of Financial Instruments
Accounts receivable and accounts payable are reflected in the financial
statements at cost which approximates fair value due to the short-term nature of
those instruments. The carrying amount of long-term debt approximates its fair
value as of the balance sheets dates.
e. Long-Lived Assets
IIS follows SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." Accordingly, in the event that
facts and circumstances indicate that property and equipment, goodwill or other
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the assets is compared to the assets' carrying amount to
determine if a write-down to market value or discounted cash flow value is
necessary.
f. Income Taxes
Prior to April 1, 1997, the Company was a regular C Corporation. For the year
ended March 31, 1997, no tax provision was required as the Company utilized net
operating loss carryforwards. Additionally, at March 31, 1997, the Company's net
deferred tax assets were reduced to zero through a valuation allowance.
As an LLC, beginning April 1, 1997, the operating results of the Company are
allocated directly to its member. Accordingly, income taxes are not reflected in
the accompanying financial statements.
g. Goodwill
Goodwill associated with the February 16, 1996 purchase of IIS by Heico is being
amortized primarily over a life of 30 years.
h. Other Assets
Other assets consist of various items including purchased customer lists and
trademarks and are being amortized primarily over a five-year period.
i. Excess Facility Reserve
This reserve was established at the time of the Heico acquisition based on the
amount of space unused by the Company due to its downsizing. A portion of the
future rentals was reserved based on the ratio of unused square footage to total
square footage over the period
F-7
<PAGE>
the Company estimated would be required to find a sublessee. The reserve is used
to reduce rent expense each month as lease payments are made.
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, 1997 March 31, 1997
----------------- --------------
Long-term note payable,
11% interest rate, due in
monthly installments
through April 1, 2002 $203,534 $229,961
Less current portion of debt (38,789) (35,731)
-------- --------
Long-term debt, net $164,745 $194,230
======== ========
Scheduled principal payments of $43,277, $48,286, $53,873 and $19,309 become due
during 1999, 2000, 2001 and 2002, respectively.
4. RELATED PARTY TRANSACTIONS
The Company participates in the health insurance program of its parent. Included
in the results of operations are health insurance costs of $282,535 and $217,864
for the twelve months ended March 31, 1997 and the nine months ended December
31, 1997, respectively. Health insurance costs are allocated to the Company each
month, based on the number of employees, to cover all related expenditures
including insurance, claims and administrative costs. Management believes that
the allocation approach used is a reasonable estimate of the actual costs.
The Company also has intercompany sales as IIS provides conversion services to
several Heico subsidiaries. The sales totaled $159,664 and $79,204 for the
twelve months ended March 31, 1997 and the nine months ended December 31, 1997.
F-8
<PAGE>
5. COMMITMENTS AND CONTIGENCIES
The Company leases its office facility under a noncancellable operating lease.
In addition, the Company leases certain equipment. Aggregate rental expense
under the operating leases was $230,215 and $191,146 for the twelve months ended
March 31, 1997 and the nine months ended December 31, 1997, respectively. Annual
minimum future rentals under all lease commitments with an initial term of
greater than one year are as follows:
Total
--------
1998 $394,481
1999 394,481
2000 394,481
2001 394,481
2002 90,405
The Company from time to time is involved in other legal actions common to its
business. The Company believes it has defenses for all such claims and is
vigorously defending the actions. In the opinion of management, based on the
advice of legal counsel, liabilities, if any, arising from these legal actions
should not have a material effect on the Company's financial position or results
of operations.
6. SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES
Cash paid for interest was $27,236 and $18,018 for the twelve months ended March
31, 1997 and the nine months ended December 31, 1997, respectively.
7. EMPLOYEE INCENTIVE PLANS
The parent has a 401(k) Plan for the benefit of IIS' employees. Under provisions
of the Plan, IIS matches 100% of employees' total contributions to the Plan,
subject to Internal Revenue Service limitations. Total expense recorded by IIS
related to the Plan was $54,824 and $39,966 for the twelve months ended March
31, 1997 and the nine months ended December 31, 1997, respectively.
F-9
<PAGE>
8. SIGNIFICANT CUSTOMERS
For the twelve months ending March 31, 1997, the Company received approximately
28.4% of its net sales from one customer. For the nine months ended December 31,
1997, the Company received 19.4%, 14.6% and 13% of its net sales from its 3
largest customers.
9. SALE OF THE BUSINESS
Effective January 23, 1998, certain assets and liabilities of the Company were
sold to ImageMax, Inc. for approximately $1.15 million. In addition, the
facility lease discussed in Note 5 was assumed by the parent company at the time
of the sale.
F-10
<PAGE>
IMAGEMAX, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial statements should be
read in conjunction with ImageMax, Inc.'s ("ImageMax") Supplemental Pro Forma,
As Adjusted and historical consolidated financial statements and notes thereto
filed with ImageMax's annual report on Form 10-K for the year ended December 31,
1997, and the Form 8-K dated February 3, 1998, and the historical financial
statements and notes thereto of Integrated Information Services, L.L.C. ("IIS")
filed pursuant to item 7(a) of this report on Form 8-K/A.
The following unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1997 gives effect to the acquisition of IIS by
ImageMax as if it had occurred on January 1, 1997. The unaudited pro forma
condensed consolidated balance sheet as of December 31, 1997, gives effect to
the acquisition as if it had occurred on that date. The pro forma results are
not necessarily indicative of results of operations had the acquisition taken
place at the beginning of the year.
F-11
<PAGE>
IMAGEMAX, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------------------------------
Pro Forma
ImageMax IIS Adjustments Pro Forma
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $ 48,930,000 $ 5,742,000 $ -- $ 54,672,000
Cost of Revenues 32,926,000 4,558,000 (38,000)(A) 37,446,000
------------- ------------- ------------ --------------
Gross Profit 16,004,000 1,184,000 38,000 17,226,000
------------- ------------- ------------ --------------
Selling, General and Administrative Expense 11,367,000 1,948,000 (13,000)(A) 13,302,000
Executive Compensation 610,000 -- -- 610,000
Special Compensation Charge 2,235,000 -- -- 2,235,000
Founding Companies Transaction Costs 742,000 -- -- 742,000
Amortization of Intangibles 1,195,000 47,000 (47,000)(C) 1,195,000
------------- ------------- ------------ --------------
Operating loss (145,000) (811,000) 98,000 (858,000)
Interest Expense 70,000 24,000 104,000 (B) 198,000
Interest Income (94,000) -- -- (94,000)
------------- ------------- ------------ --------------
Loss Before Income Taxes (121,000) (835,000) (6,000) (962,000)
Income Tax Provision 1,139,000 -- (330,000)(D) 809,000
------------- ------------- ------------ --------------
Net Loss $ (1,260,000) $ (835,000) $ 324,000 $ (1,771,000)
============= ============= ============ ==============
Basic and diluted loss per share $ (.24) $ (.33)
============= ==============
Weighted average number of common shares
outstanding 5,347,000 5,347,000
============= ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
IMAGEMAX, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------
Pro Forma
ImageMax IIS Adjustments Pro Forma
------------ ------------ -------------- -------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,310,000 $ 13,000 $ (13,000) $ 1,310,000
Accounts receivable 6,922,000 1,085,000 -- 8,007,000
Inventories 1,997,000 18,000 -- 2,015,000
Prepaid expenses and other 527,000 75,000 -- 602,000
------------ ------------ -------------- -------------
Total current assets 10,756,000 1,191,000 (13,000) 11,934,000
PROPERTY, PLANT AND EQUIPMENT, net 4,381,000 557,000 (257,000) 4,681,000
INTANGIBLES, primarily goodwill, net 32,996,000 230,000 (230,000) 32,996,000
OTHER ASSETS 95,000 135,000 (135,000) 95,000
------------ ------------ -------------- -------------
$ 48,228,000 $ 2,113,000 $ (635,000) $ 49,706,000
============ ============ ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of
long-term debt $ 251,000 $ 39,000 $ (39,000) $ 251,000
Accounts payable 2,846,000 74,000 -- 2,920,000
Accrued expenses 3,248,000 119,000 -- 3,367,000
Deferred revenues 1,333,000 18,000 -- 1,351,000
Other current liabilities 84,000 38,000 -- 122,000
------------ ------------ -------------- -------------
Total current liabilities 7,762,000 288,000 (39,000) 8,011,000
------------ ------------ -------------- -------------
LONG-TERM DEBT 342,000 165,000 1,064,000 1,571,000
------------ ------------ -------------- -------------
OTHER LONG-TERM LIABILITIES 106,000 98,000 (98,000) 106,000
------------ ------------ -------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 47,580,000 -- -- 47,580,000
Member's capital -- 2,587,000 (2,587,000) --
Accumulated deficit (7,562,000) (1,025,000) 1,025,000 7,562,000
------------ ------------ -------------- -------------
Total shareholders' equity 40,018,000 1,562,000 (1,562,000) 40,018,000
------------ ------------ -------------- -------------
$ 48,228,000 $ 2,113,000 $ (635,000) $ 49,706,000
============ ============ ============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE>
IMAGEMAX, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. IMAGEMAX FINANCIAL STATEMENTS:
ImageMax's statement of operations for the year ended December 31, 1997 presents
Supplemental Pro Forma, As Adjusted results of operations, as if the acquisition
of the Founding Companies and ImageMax's initial public offering occurred on
January 1, 1997 as described in Item 7 of ImageMax's Form 10-K. The balance
sheet at December 31, 1997 represents ImageMax's year-end balance sheet included
in its historical financial statements.
2. IIS ACQUISITION:
On January 23, 1998, ImageMax acquired substantially all of the assets and
assumed certain liabilities of Integrated Information Services, L.L.C. ("IIS")
pursuant to an Asset Purchase Agreement. The total consideration paid by
ImageMax was $1,150,000 in cash, subject to adjustment based on the working
capital of IIS at closing. The acquisition has been accounted for using the
purchase method of accounting, whereby the purchase price is allocated to the
assets and liabilities of IIS based on the fair market values at the acquisition
date. Such allocation has been based on estimates that may be revised at a later
date. The fair market value of the net assets acquired exceeded the purchase
price and estimated transaction costs of $100,000 by approximately $257,000. For
financial reporting purposes, this excess reduced the fair market value of
property, plant and equipment.
Unaudited Pro Forma Adjustments to Consolidated Statement of Operations
A. Reduction in depreciation expense of $51,000 based on the write down of
property, plant and equipment discussed above.
B. Interest expense is adjusted by $104,000 to account for the debt incurred to
finance the acquisition at a 8.44% interest rate.
C. Elimination of historical IIS goodwill and other intangible asset
amortization of $47,000.
D. Reduction of the income tax provision of $330,000 based on a pro forma
consolidated loss before income taxes.
F-14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMAGEMAX, INC.
Date: April 8, 1998 /s/ JAMES D. BROWN
--------------------------------------
James D. Brown
Senior Vice President - Finance and
Chief Financial Officer
