<PAGE>
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): May 4, 2000
PSA, INC.
---------
(Exact name of Registrant as specified in its charter)
9800 Sepulveda Boulevard
Suite 810
Los Angeles, California 90045
(Address of principal executive offices)
(310) 258-0500
(Registrant's telephone number)
(310) 258-0509 (Fax)
Nevada 0-29627 88-0212662
------------------------------- ------- ----------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
This amendment updates Item 7 of the Report 8-K filed by the Registrant on May
19, 2000, by including the financial statements referred to below.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
S.M.A. REAL TIME INC. AND SUBSIDIARIES
--------------------------------------
FINANCIAL REPORT
----------------
FOR THE YEARS ENDED
-------------------
SEPTEMBER 30, 1998 AND 1999
---------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
S.M.A. REAL TIME INC. AND SUBSIDIARIES
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS F-3
At September 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
For the Years Ended September 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
For the Years Ended September 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
For the Years Ended September 30, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-20
F-1
<PAGE>
To the Shareholders
S.M.A. Real Time Inc.
New York, NY
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
We have audited the accompanying consolidated balance sheets of S.M.A. Real Time
Inc. and Subsidiaries as of September 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of S.M.A. Real Time
Inc. and Subsidiaries as of September 30, 1998 and 1999, and the consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ TABB, CONIGLIARO & McGANN, P.C.
New York, NY
November 17, 1999
F-2
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 123,543 $ 314,870
Accounts receivable (net of allowance for doubtful accounts of
$34,669 and $29,444 at September 30, 1998 and 1999, respectively) 941,725 1,050,022
Prepaid expenses and other current assets 27,034 178,924
------------- -------------
Total Current Assets 1,092,302 1,543,816
Property and equipment - at cost, net of accumulated depreciation 4,882,014 4,016,835
Deferred offering costs - 150,000
Deferred financing costs - 411,111
Other assets 188,345 284,214
------------- -------------
Total Assets $ 6,162,661 $ 6,405,976
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit - bank $ 223,000 $ 250,000
Current maturities of long-term debt and capital lease obligations 1,506,643 1,377,837
Note payable - Private Placement - 700,000
Accounts payable and accrued liabilities 472,992 993,458
Income taxes payable 6,132 3,200
Deferred taxes payable 143,350 -
Current portion of shareholders loans 22,302 23,914
------------- -------------
Total Current Liabilities 2,374,419 3,348,409
Long-term debt, less current maturities 2,221,880 1,482,765
Deferred taxes payable 268,533 14,890
Shareholders' loans 23,268 840
------------- -------------
Total Liabilities 4,888,100 4,846,904
------------- -------------
Commitments, Contingencies and Other Matters
(Notes 2, 6, 7, 9, 11, 12 and 13)
STOCKHOLDERS' EQUITY:
Preferred stock - .0001 par value; 10,000,000 shares authorized;
-0- shares issued and outstanding at September 30, 1999 (Note 12) - -
Common stock - .0001 par value; 50,000,000 shares authorized;
3,490,000 and 3,700,000 shares issued and outstanding at
September 30, 1998 and 1999, respectively (Note 12) 349 370
Paid-in capital 40,411 885,390
Retained earnings 1,233,801 673,312
------------- -------------
Total Stockholders' Equity 1,274,561 1,559,072
------------- -------------
Total Liabilities and Stockholders' Equity $ 6,162,661 $ 6,405,976
============= =============
See notes to financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Revenues $ 6,469,142 $ 7,273,263
Cost of revenues 4,044,591 5,140,641
------------- -------------
Gross Margin 2,424,551 2,132,622
Selling, general and administrative expenses 1,611,515 1,764,327
------------- -------------
Income from operations 813,036 368,295
------------- -------------
Other Expenses:
Interest expense, net of interest income 509,513 435,365
Amortization of deferred financing costs - 513,889
Write-off of deferred offering costs - 370,300
Other expense (income) 2,219 (19,770)
------------- -------------
Total Other Expenses 511,732 1,299,784
------------- -------------
Income (loss) before income taxes 301,304 (931,489)
Provision for (recovery of) income taxes 142,000 (371,000)
------------- -------------
Net Income (loss) $ 159,304 $ (560,489)
============= =============
Basic and diluted earnings (loss) per share $ .05 $ (.15)
============= =============
Weighted average common shares used in basic and diluted
earnings (loss) per share 3,490,000 3,700,000
============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- --------- ----------- ------------- -------------
(1)
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1998:
-----------------------------
Balance - September 30, 1997 3,490,000 $ 349 $ 40,411 $ 1,074,497 $ 1,115,257
Net income - - - 159,304 159,304
----------- --------- ----------- ------------- -------------
Balance - September 30, 1998 3,490,000 $ 349 $ 40,411 $ 1,233,801 $ 1,274,561
=========== ========= =========== ============= =============
Year Ended September 30, 1999:
-----------------------------
Balance - September 30, 1998 3,490,000 $ 349 $ 40,411 $ 1,233,801 $ 1,274,561
Issuance of stock pursuant to Private Placement 210,000 21 839,979 - 840,000
Value assigned to issuance of 21,000 placement
agent warrants - - 5,000 - 5,000
Net loss - - - (560,489) (560,489)
----------- --------- ----------- ------------- -------------
Balance - September 30, 1999 3,700,000 $ 370 $ 885,390 $ 673,312 $ 1,559,072
=========== ========= =========== ============= =============
(1) Share amounts have been restated to reflect the stock splits and other
reorganization transactions effected in April and May of 1999 (Note 12).
See notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 159,304 $ (560,489)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,693,114 1,711,387
Gain from sale of equipment - (19,970)
Deferred income taxes 128,004 (396,993)
Amortization of deferred financing costs - 513,889
Write-off of deferred offering costs - 370,300
Changes in assets and liabilities:
Decrease (increase) in accounts receivable - net 58,839 (108,297)
Decrease (increase) in prepaid expenses and other current assets 9,781 (151,890)
(Decrease) increase in accounts payable and accrued liabilities (181,148) 520,466
Decrease in income taxes payable (1,624) (2,932)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,866,270 1,875,471
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (171,539) (131,995)
Increase in other assets (2,720) (95,869)
Proceeds from sale of property and equipment - 20,000
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (174,259) (207,864)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Private Placement - 700,000
Expenditures for Private Placement - (80,000)
Expenditures for offering costs - (520,300)
Principal payments under capital lease obligations (1,353,219) (1,387,434)
Net change under revolving line of credit 28,000 27,000
Repayments of term loans (222,146) (194,730)
Repayments of loans - stockholders (21,103) (20,816)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (1,568,468) (1,476,280)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 123,543 191,327
CASH AND CASH EQUIVALENTS - BEGINNING - 123,543
-------------- --------------
CASH AND CASH EQUIVALENTS - ENDING $ 123,543 $ 314,870
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 499,751 $ 380,887
============== ==============
Corporate income taxes $ 15,620 $ 28,898
============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Purchase of property and equipment under capital leases $ 150,995 $ 714,243
============== ==============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATED STATEMENTS
The accompanying financial statements include the accounts of S.M.A.
Real Time Inc. and its Subsidiaries, SMA Video, Inc., SMA Visual
Effects Corp. and Fly Films, Inc. (collectively, the "Company"), all of
which were incorporated in the state of New York and are related
through common ownership and management. The Company commenced
operations in 1985 under the name SMA Video, Inc. Commencing November
9, 1998, the financial statements include the accounts of Flicker FX at
SMA, LLC, a joint venture controlled by the Company (Note 2).
As discussed in Note 12, the companies were reorganized during April
and May of 1999. As a result of the reorganization, SMA Visual Effects
Corp. and Fly Films, Inc. were merged into SMA Video, Inc. and SMA
Video, Inc. became a wholly-owned subsidiary of S.M.A. Real Time Inc.
All common shares and related per share data, reflected in the
accompanying financial statements and notes thereto, have been adjusted
to give retroactive effect to the reorganization transactions.
All material intercompany transactions and balances have been
eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company provides a wide range of production and post-production
services to companies that produce commercials, television programs,
music videos and feature films. The Company's principal activities
include studio videotape recording, film to videotape transfer,
computer generated visual effects and the coloring, creation of
customized virtual studio sets, editing and dubbing of various form of
emerging media, including film and video. Most of the Company's
services are performed at its headquarters in lower Manhattan, New
York.
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 reporting period. Actual results could differ
from those estimates.
F-7
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and loans payable are reflected in the accompanying
balance sheets at amounts considered by management to reasonably
approximate fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization are provided by accelerated and straight line methods over
the estimated useful lives of the assets as follows:
Estimated Useful Life
---------------------
Machinery and equipment 5
Furniture and fixtures 7
Computers and office equipment 5
Leasehold improvements 10
Maintenance and repairs are charged to income as incurred. The asset
and related accumulated depreciation accounts are relieved in respect
of items replaced, retired or otherwise disposed of.
The inherent uncertainties in the estimates of the useful lives and
pattern of usage, make it at least reasonably possible that the
Company's estimates of depreciation and amortization could change in
the near term.
INCOME TAXES
The provision for income taxes for the years ended September 30, 1998
and 1999 is based on the elements of income and expenses as reported in
the accompanying statements of income and retained earnings.
Deferred tax liabilities and assets are determined based on the
difference between the financial statements carrying amounts and tax
bases of assets and liabilities using enacted rates in effect in the
years in which the differences are expected to reverse.
F-8
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Deferred offering costs relate to costs incurred through September 30,
1999 with respect to a proposed initial public offering of the
Company's securities. Total costs incurred with respect to the proposed
public offering totalled $520,300. During the first quarter of fiscal
2000, the Company and the Underwriter agreed to terminate the proposed
initial public offering. In November of 1999, the Company engaged a
placement agent to arrange for a private placement of its securities.
Accordingly, $370,300 of such deferred costs were written-off during
the fourth quarter ended September 30, 1999, leaving a balance of
$150,000 as of September 30, 1999. In the event the proposed offering
of the Company's securities is not consummated, the remaining deferred
offering costs will be expensed.
DEFERRED FINANCING COSTS
Deferred financing costs consist of (i) a non-cash cost valued at
$840,000, attributable to the issuance of 210,000 shares of common
stock in connection with a Private Placement completed in May of 1999
and (ii) expenses related to such financing approximating $85,000. The
deferred financing costs are being amortized over the nine-month period
commencing May 1, 1999. Amortization of the deferred financing costs
for the period ended September 30, 1999 was $513,889.
REVENUE RECOGNITION
Substantially all revenues are derived from the performance of video
and commercial film production and post production work. Revenue is
recognized at the time services are rendered.
ADVERTISING
Advertising costs are charged to operations when incurred. Advertising
expense for the years ended September 30, 1998 and 1999 approximated
$1,000 and $2,400, respectively.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for its stock-based compensation
arrangements pursuant to APB Opinion No. 25, "Accounting for Stock
Issued to Employees." In accordance with the provisions of SFAS No.
123, the Company discloses the pro forma effects of accounting for
these arrangements using the minimum value method to determine fair
value.
F-9
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing net
income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per
share ("Diluted EPS") gives effect to all dilutive potential common
shares outstanding during a period. In computing Diluted EPS, the
treasury stock method is used in determining the number of shares
assumed to be purchased from the conversion of common stock
equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets by
measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values. Based on
these evaluations, there were no adjustments to the carrying value of
long-lived assets.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures About
Pensions and Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits.
The Statement addresses disclosure only. It does not address liability
measurement or expense recognition. There was no effect on financial
position or net income as a result of adopting SFAS No. 132.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which revises the accounting
for software development costs and will require the capitalization of
certain costs. The adoption of SOP 98-1 did not have an effect on the
Company's financial position or net income.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
F-10
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 2 - JOINT VENTURE
In November 1998, the Company and an unrelated corporation organized
Flicker FX at SMA, LLC and entered into a joint venture agreement to
provide the production of television, film and multimedia graphics
products. The agreement provides for, among other things: (i) that
until the joint venture achieves sufficient revenues to fund its
operations, the Company shall contribute start-up capital funds and
guaranteed annual salaries and benefits aggregating $550,000, of which
$50,000 is to each of the Company's two principal shareholders; (ii)
use of the Company's equipment and facilities; and (iii) that the
operating profits, as defined, shall be allocated 60% to the Company.
The agreement also provides that the Company may terminate the
agreement in the event that the joint venture does not achieve certain
defined financial goals as of the first anniversary date of the
agreement.
The results of operations of the joint venture for the period from
inception (November 9, 1998) through September 30, 1999 have been
consolidated in the accompanying unaudited financial statements in
accordance with the Accounting Principles Board Release No. 51.
NOTE 3 - PROPERTY AND EQUIPMENT - NET
Property and equipment consisted of the following:
<TABLE>
At September 30,
--------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Property held under capital leases $ 6,468,682 $ 5,769,544
Machinery and equipment 2,588,067 4,038,781
Leasehold improvements 1,390,584 1,390,584
Office equipment 198,857 242,832
Furniture and fixtures 108,771 109,054
------------- -------------
10,754,961 11,550,795
Less: Accumulated depreciation (5,872,947) (7,533,960)
------------- -------------
Property and Equipment - Net $ 4,882,014 $ 4,016,835
============= =============
</TABLE>
The property under capital leases had a net book value of $3,438,872
and $2,788,278 at September 30, 1998 and 1999, respectively.
Depreciation and amortization of property and equipment for the years
ended September 30, 1998 and 1999 amounted to $1,693,114 and
$1,711,387, respectively.
F-11
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 4 - OTHER ASSETS
In connection with an operating lease for its office space, the Company
has $58,936 in a non-interest bearing account with the landlord as
security.
In connection with the purchase of equipment under a capital lease, the
Company placed $100,000 on deposit with the lender. The agreement
provides that the lender shall accrue interest at the rate of 3.5% per
annum. Included in other assets is $106,543 and $110,043 related to
this deposit at September 30, 1998 and 1999.
In connection with an operating lease for additional office space
entered into in September 1999, the Company placed $73,000 in a
non-interest bearing account with the landlord as security.
NOTE 5 - REVOLVING LOAN - BANK
On June 4, 1997, the Company amended its revolving credit facility
providing for a revolving line of credit of up to $250,000 and a term
loan of $250,000 as described below in Note 5. The revolving loan bears
interest at 1% above prime (9.25% at both September 30, 1998 and at
September 30, 1999), and is collateralized by substantially all of the
assets of the Company. As of September 30, 1998, there was $27,000
available credit remaining under this credit facility. As of September
30, 1999, there was no availability of credit remaining under the
facility.
The credit agreement provides for, among other things, the maintenance
of minimum tangible net worth, restrictions and limitations on
additional indebtedness and the maintenance of defined current and
leverage ratios.
The agreement provides for a personal guarantee by the two principal
shareholders of the Company and additional security guarantee through
the assignment of a $500,000 keyman life insurance policy on each of
the two principal shareholders.
F-12
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 6 - NOTE PAYABLE - PRIVATE PLACEMENT
In May 1999, the Company completed a Private Placement, pursuant to
which the Company sold 7 units for aggregate gross proceeds to the
Company of $700,000. Each unit consists of (i) a $100,000 promissory
note bearing interest at 10% per annum, payable the earlier of nine
months from the issuance date, or the closing of an initial public
offering of the Company's securities and (ii) 30,000 shares of the
Company's common stock. The 210,000 shares of common stock issued in
connection with this financing were valued at $840,000 and have been
reflected on the Company's September 30, 1999 balance sheet as an
increase to non-current assets entitled deferred financing costs and an
increase to common stock for $21 and an increase to additional paid-in
capital of $839,979. Such deferred financing costs are being amortized
as interest expense over the initial term of the notes. Costs incurred
in connection with the Private Placement include a $70,000 fee to the
placement agent, approximately $10,000 in legal fees and warrants to
the placement agent to purchase 21,000 shares of the Company's common
stock at an exercise price equal to 120% of the initial public offering
price. Amortization of the deferred financing costs for the period
through September 30, 1999 was $513,889.
NOTE 7 - LONG-TERM DEBT
On March 28, 1994, the Company entered into two term loan agreements,
one for $300,000, which funded costs in connection with the
construction of a studio and other facility improvements and one for
$300,000, which funded the purchase of equipment.
The construction and equipment term loan agreements both provide for
equal monthly principal payments of $5,000 each, commencing September
1, 1994, and a final payment of the unpaid principal due on September
1, 1999, plus interest at 1.5% above the prime rate (9.75% at September
30, 1998), payable monthly. Substantially all of the assets of the
Company are pledged to collateralize the indebtedness. At September 30,
1999, the obligations under both the construction and term loan
agreements had been paid in full.
As part of the amendments to the revolving credit agreement, discussed
in Note 4, on June 4, 1997, $250,000 of indebtedness outstanding under
the Company's revolving line of credit was converted to a term loan.
The term loan agreement provides for 36 equal monthly payments of
principal and interest of $8,037.48. The loan bears interest at 9.75%
per annum. Substantially all of the assets of the Company are pledged
to collateralize the indebtedness.
Each of these obligations have been personally guaranteed by the two
principal shareholders of the Company.
F-13
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 7 - LONG-TERM DEBT (CONTINUED)
<TABLE>
Long-term debt consisted of the following:
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
$300,000 term loan - bank, principal payments of
$5,000 payable monthly, plus interest at 1.5%
above prime. $ 55,000 $ -
$300,000 term loan - bank, principal payments of
$5,000 payable monthly, plus interest at 1.5%
above prime. 55,000 -
$250,000 term loan - bank, with interest at 9.75%
requiring monthly payments of principal and
interest of $8,037.48 for 36 months. 155,455 70,725
Obligations under capital leases collateralized
by the related equipment (see Note 9) 3,463,068 2,789,877
------------- -------------
Total 3,728,523 2,860,602
Less: Current maturities 1,506,643 1,377,837
------------- -------------
Long-Term Debt $ 2,221,880 $ 1,482,765
============= =============
</TABLE>
Aggregate maturities required on long-term debt are as follows:
Year Ended
September 30,
-------------
2000 $ 1,377,837
2001 946,254
2002 515,167
2003 21,344
2004 -
--------------
$ 2,860,602
==============
F-14
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 8 - INCOME TAXES
Components of the provision for (recovery of) income taxes are as
follows:
For the Years Ended
September 30,
----------------------------------
1998 1999
------------- -------------
Current:
Federal $ - $ -
State and local 13,996 25,993
------------- -------------
13,996 25,993
------------- -------------
Deferred:
Federal 82,000 (288,000)
State and local 46,004 (108,993)
------------- -------------
128,004 (396,993)
------------- -------------
Totals $ 142,000 $ (371,000)
============= =============
As of June 30, 1999, the Company has a consolidated net operating loss
carryforward of approximately $655,000 for federal and state income tax
purposes. Such loss carryforward expires in September of 2017.
The effects of the significant temporary differences that comprise the
deferred tax assets and liabilities are as follows:
At September 30,
1998 1999
------------- -------------
Assets:
Accounts receivable $ 15,602 $ 11,890
Net operating loss carryforward - 295,000
------------- -------------
Total Deferred Tax Assets 15,602 306,890
------------- -------------
Liabilities:
Property and equipment 427,485 292,000
------------- -------------
Net deferred tax liabilities $ 411,883 $ 14,890
============= =============
A reconciliation of the federal statutory income tax rate to the
Company's effective tax rate as reported is as follows:
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------
1998 1999
------------- -------------
Taxes at federal statutory rate 34% (34)%
State and local income taxes - net of
federal tax benefit 13 (6)
Effect of graduated federal tax rates - -
------------- -------------
Effective income tax rate 47% (40)%
============= =============
F-15
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan, which covers substantially all
full time employees who meet certain service requirements and are not
covered by the union pension plan as disclosed below. During the years
ended September 30, 1998 and 1999, the Company did not make any
contributions to this plan.
The Company has several employees covered by a union sponsored, multi-
employer pension plan. The Company contributed and charged to expense
$14,037 and $12,568 for the years ended September 30, 1998 and 1999,
respectively. The contributions are determined in accordance with
provisions of the plan and are generally based on the number of hours
worked.
The Company adopted a non-contributory 401K plan effective January 1,
1998. The plan covers all non-union employees who are at least 21 years
of age with no minimum service requirements. There were no
contributions to the plan for either of the years ended September 30,
1998 and 1999.
NOTE 10 - SHAREHOLDERS' LOANS PAYABLE
In August 1995, pursuant to one promissory note agreement, the two
principal shareholders of the Company loaned the Company $103,772. The
promissory note provides for 60 monthly payments of $2,093.39,
inclusive of interest at 7% per annum, commencing December 1995 and is
unsecured. Interest paid on such debt during the years ended September
30, 1998 and 1999 amounted to $4,019 and $2,819, respectively.
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES
The Company leases various production and post-production equipment
under capital leases expiring at various dates through 2003. Interest
rates on these leases vary from approximately 8% to 15% and are imputed
based on the Company's incremental borrowing rate at inception of the
lease or the lessor's implicit rate of return. Substantially all of the
capital lease obligations have been personally guaranteed by the two
principal shareholders of the Company.
The Company leases space utilized as a production facility and office
space in New York City under an operating lease expiring in December
2005. The lease provides for monthly rental payments of $25,000 through
September 1, 1997, $27,083 through September 1, 2000 and $29,333.33
thereafter through expiration. The lease contains escalation clauses
relating to increases in real property taxes as well as certain
maintenance costs and has been personally guaranteed by the two
principal shareholders of the Company.
F-16
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
LEASES (CONTINUED)
On September 30, 1999, the Company entered into an agreement to lease
space to be utilized as a production and office facility in New York
City expiring in August 2004. The lease provides for monthly rental
payments of $24,333 through August 30, 2000 and increases of 3.5%
annually thereafter through expiration. The lease contains escalation
clauses relating to increases in real property taxes as well as certain
maintenance costs.
In addition, the Company leases a studio for the production of
commercial video tapes and films and storage facility for film
production equipment under an operating lease expiring in May 2000,
with monthly rental payments of $2,800. The lease provides that payment
of all real estate taxes imposed and utility costs shall be borne by
the Company.
The Company also leases a storage facility in New Jersey on a
month-to-month basis at a rate of $995 per month.
Future minimum lease payments are as follows:
Years Ended Obligations Under
September 30, Operating Leases Capital Leases
------------- ---------------- --------------
2000 $ 642,502 $ 1,503,682
2001 655,101 1,053,733
2002 665,710 537,494
2003 676,690 21,699
2004 659,154 -
Thereafter 88,000 -
------------ ------------
Total minimum obligations $ 3,387,157 3,116,608
Less: Amount representing
interest expense 326,731
------------
Present value of minimum
lease payments 2,789,877
Less: Current portion 1,307,112
------------
Long-Term Portion $ 1,482,765
============
Rent expense relating to the operating leases included in general and
administrative expenses amounted to $368,274 and $398,124 for the years
ended September 30, 1998 and 1999, respectively.
F-17
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
EMPLOYMENT AGREEMENTS
In May of 1999, the Company entered into five-year employment
agreements with its two principal shareholders, which commence upon the
closing of an initial public offering of the Company's securities. Each
employment agreement provides for, among other things, a base salary of
$250,000 per year and annual increases for costs of living.
In addition, in May of 1999, the Company entered into employment
contracts with two of its key technicians, one for a five-year term
providing for a base salary of $175,000 per year and a second contract
for a three-year term providing for a base salary of $230,000 per year.
CONSULTING AGREEMENT
In May of 1999, the Company entered into a six-month consulting
agreement with an unrelated individual to assist the Company in its
sales and marketing efforts in the area of digital audio. The agreement
commences on June 1, 1999 and provides for minimum payments of $140,000
through November 30, 1999 and commissions based on new clients and new
business generated during the term of the agreement and for five-year
period thereafter.
In July 1999, the Company entered into an agreement with a consultant
providing for the supervision of the design, construction and operation
of an audio post production facility. The agreement provides for weekly
payments of $2,500 beginning July 15, 1999 until completion and
reimbursement of expenses. Upon completion of the facility, it is
agreed that the consultant performing the services will enter into an
employment agreement with the Company at terms to be determined.
In August 1999, the Company entered into an agreement with a consultant
providing for assistance in its sales and marketing efforts in the area
of digital audio. The agreement provides for monthly payments of
$3,200, from August 1, 1999 to May 15, 2000, and reimbursement of
expenses.
CASH AND CASH EQUIVALENTS
At September 30, 1999, the Company has bank balances in excess of
federally insured limits of approximately $315,000.
F-18
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash and cash equivalents
and trade accounts receivable.
With respect to trade receivables, ongoing credit evaluations of
customers' financial condition are performed and generally, no
collateral is required. The Company maintains a reserve for potential
credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
At September 30, 1998, one customer accounted for approximately 11% of
the accounts receivable balance. For the year ended September 30, 1998,
the same one customer accounted for approximately 13% of net revenues.
At September 30, 1999, one customer accounted for approximately 17% of
the accounts receivable balance. For the year ended September 30, 1999,
two customers accounted for 22% of net revenues.
NOTE 12 - STOCKHOLDERS' EQUITY
REORGANIZATION
In April of 1999, the shareholders of S.M.A. Real Time Inc. authorized
an amendment to its Certificate of Incorporation to increase the
authorized number of common shares from 1,000,000 to 50,000,000, to
amend the par value of the common stock from no par to a par value of
$.0001, and to effect a 50-for-1 stock split applicable to all issued
and outstanding shares of S.M.A. Real Time Inc.'s common stock,
increasing the issued and outstanding shares of common stock to
1,250,000.
In addition, in April of 1999, the shareholders of each of the
companies included in this consolidated group authorized (i) the merger
of SMA Visual Effects Corp. and Fly Films, Inc. with SMA Video, Inc.
and (ii) the exchange of all of their common shares of SMA Video, Inc.
for 1,250,000 post split common shares of S.M.A. Real Time Inc. These
transactions were effected in April of 1999 and, as a result, the
issued and outstanding shares of S.M.A. Real Time Inc. common stock
increased to 2,500,000 as of April 30, 1999 and SMA Video, Inc. became
a wholly-owned subsidiary of S.M.A. Real Time Inc.
On May 10, 1999, the stockholders of S.M.A. Real Time Inc. authorized a
1.396- to-1 stock split of its common shares, which increased the
outstanding common shares of S.M.A. Real Time Inc. to 3,490,000 as of
such date. All common shares and related per-share data, reflected in
the accompanying financial statements and notes thereto, have been
adjusted to give retroactive effect to the above reorganization
transactions.
F-19
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
During May of 1999, the Board of Directors and the stockholders of the
Company approved the 1999 Stock Option Plan (the "Plan"), which
provides for the granting of up to 500,000 shares of common stock,
pursuant to which officers, employees, directors and consultants are
eligible to receive incentive and/or nonstatutory stock options.
Options granted under the Plan are exercisable for a period of up to 10
years from date of grant at an exercise price which is not less than
the fair value on date of grant, except that the exercise period of
options granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their exercise
price may not be less than 110% of the fair value of the common stock
at date of grant. The Plan provides for the options to include vesting
provisions. No options under this Plan have been granted.
PREFERRED STOCK
In May of 1999, the Company authorized the issuance of up to 10,000,000
shares of preferred stock - par value $.0001 per share. The Board of
Directors has the authority to issue the preferred stock in one or more
series and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon
any wholly unissued series of undesignated preferred stock and to fix
the number of shares constituting any series and the designation of
such series, without any further vote or action by the stockholders.
NOTE 13 - SUBSEQUENT EVENTS
PROPOSED PRIVATE OFFERING
In November 1999, the Company signed an engagement letter with a
placement agent ("the Placement Agent"), with respect to a proposed
private offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith, the
Company anticipates incurring substantial costs, which if the offering
is not consummated, will be charged to expense.
F-20
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
--------------------------------------
FINANCIAL REPORT
----------------
MARCH 31, 2000
--------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
S.M.A. REAL TIME INC. AND SUBSIDIARIES
Page Nos.
---------
PART I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS 1
CONSOLIDATED BALANCE SHEET 2
At March 31, 2000
CONSOLIDATED STATEMENTS OF INCOME 3
For the Six Months Ended March 31, 1999 and 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 4
For the Six Months Ended March 31, 1999 and 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
For the Six Months Ended March 31, 1999 and 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 20
<PAGE>
To the Shareholders
S.M.A. Real Time Inc.
New York, NY
We have reviewed the accompanying consolidated balance sheet of S.M.A. Real Time
Inc. and Subsidiaries as of March 31, 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for the six months
then ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of S.M.A. Real Time Inc. and Subsidiaries.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
TABB, CONIGLIARO & McGANN, P.C.
New York, NY
May 17, 2000
1
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 2000
ASSETS
------
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 112,425
Accounts receivable (net of allowance for doubtful accounts of
$29,444) 1,108,606
Prepaid expenses and other current assets 88,885
-------------
Total Current Assets 1,309,916
Property and equipment - at cost, net of accumulated depreciation 3,402,342
Deferred offering costs 150,000
Other assets 318,484
-------------
Total Assets $ 5,180,742
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,349,253
Income taxes payable 3,200
Current maturities of long-term debt and capital lease obligations 1,319,938
Note payable - Private Placement 700,000
Shareholders' loans 11,521
-------------
Total Current Liabilities 3,383,912
Bank term loan payable 275,021
Long-term debt, less current maturities 899,227
Deferred taxes payable 14,890
-------------
Total Liabilities 4,573,050
-------------
Commitments, Contingencies and Other Matters (Notes 2, 5, 6, 8, 10,
11, and 12)
STOCKHOLDERS' EQUITY:
Preferred stock - .0001 par value; 10,000,000 shares authorized;
-0- shares issued and outstanding (Note 11) -
Class A common stock - .0001 par value; 25,000,000 shares
authorized; 1,850,000 shares issued and outstanding (Notes 11
and 12) 185
Class B non-voting common stock - .0001 par value; 25,000,000
authorized; 1,850,000 shares issued and outstanding (Notes 11
and 12) 185
Paid-in capital 885,390
Accumulated deficit (278,068)
-------------
Total Stockholders' Equity 607,692
-------------
Total Liabilities and Stockholders' Equity $ 5,180,742
=============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
<CAPTION>
1999 2000
--------------- ---------------
<S> <C> <C>
Revenues $ 3,375,320 $ 3,461,609
Cost of Revenues 2,216,328 2,387,991
--------------- ---------------
Gross margin 1,158,992 1,073,618
Selling, general and administrative expenses 878,452 1,240,299
--------------- ---------------
Income (loss) from operations 280,540 (166,681)
--------------- ---------------
Other Income (Expenses):
Interest expense, net of interest income (200,187) (177,947)
Amortization on deferred financing costs - (411,111)
Write-off of deferred offering costs - (209,623)
Other income (expense) (5,494) 16,067
--------------- ---------------
Total Other Expenses (205,681) (782,614)
--------------- ---------------
Income (loss) before income taxes 74,859 (949,295)
Provision for income taxes 34,000 2,085
--------------- ---------------
Net Income (Loss) $ 40,859 $ (951,380)
=============== ===============
Basic and diluted earnings (loss) per share $ .01 $ (.26)
=============== ===============
Weighted average common shares used in basic
and diluted earnings per share 3,490,000 3,700,000
=============== ===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
<CAPTION>
COMMON STOCK (1) COMMON STOCK (1)
------------------------- ------------------------- RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS
------------------------- ------------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
Six Months Ended March 31, 1999:
-------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - September 30, 1998 1,745,000 $ 175 1,745,000 $ 174 $ 40,411 $ 1,233,801 $ 1,274,561
Net income - - - - - 40,859 40,859
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 1999 1,745,000 $ 175 1,745,000 $ 174 $ 40,411 $ 1,274,660 $ 1,315,420
============ ============ ============ ============ ============ ============ ============
Six Months Ended March 31, 2000:
-------------------------------
Balance - September 30, 1999 1,850,000 $ 185 1,850,000 $ 185 $ 885,390 $ 673,312 $ 1,559,072
Net loss - - - - - (951,380) (951,380)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance - March 31, 2000 1,850,000 $ 185 1,850,000 $ 185 $ 885,390 $ (278,068) $ 607,692
============ ============ ============ ============ ============ ============ ============
</TABLE>
(1) Share amounts have been restated to reflect the stock splits and other
reorganization transactions effected in April and May of 1999 (Note 11)
and a recapitalization effected on May 4, 2000 (Note 12).
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
<CAPTION>
1999 2000
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 40,859 $ (951,380)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 854,289 774,342
Gain from sale of equipment 5,057 -
Amortization of deferred financing costs - 411,111
Write-off of deferred offering costs - 209,623
Changes in assets and liabilities:
Increase in accounts receivable - net (145,775) (58,584)
Decrease in prepaid expenses and other current assets 7,974 90,039
Increase in accounts payable and accrued liabilities 122,279 146,173
Increase in income taxes payable 27,909 -
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 912,592 621,324
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (49,359) (49,912)
Increase in other assets (10,809) (34,270)
Proceeds from sale of property and equipment 32,860 -
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (27,308) (84,182)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from term loan - 250,000
Expenditures for offering costs (100,000) -
Principal payments under capital lease obligations (750,327) (680,649)
Net change under revolving line of credit - (250,000)
Repayments of term loans (100,983) (45,704)
Repayments of loans - stockholders (11,096) (13,234)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (962,406) (739,587)
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (77,122) (202,445)
CASH AND CASH EQUIVALENTS - BEGINNING 123,543 314,870
-------------- --------------
CASH AND CASH EQUIVALENTS - ENDING $ 46,421 $ 112,425
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 200,418 $ 171,201
============== ==============
Corporate income taxes $ 9,480 $ 2,085
============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Purchase of property and equipment under capital
leases $ 433,017 $ 119,937
============== ==============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATED STATEMENTS
The accompanying financial statements include the accounts of
S.M.A. Real Time Inc., its wholly-owned Subsidiary, SMA Video,
Inc., and commencing November 9, 1998, Flicker FX at SMA, LLC,
a joint venture controlled by the Company (collectively, the
"Company"), all of which were organized in the state of New
York. The Company commenced operations in 1985 under the name
SMA Video, Inc. During 1999, the Company completed a
reorganization plan under which SMA Video, Inc. became a
wholly-owned subsidiary of S.M.A. Real Time Inc. All common
shares and related per share data, reflected in the
accompanying financial statements and notes thereto, have been
adjusted to give retroactive effect to the reorganization.
In May of 2000, the Company sold a 55% interest in its voting
securities to PSA, Inc. for cash and common stock of PSA, Inc.
(Note 12).
All material intercompany transactions and balances have been
eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company provides a wide range of production and
post-production services to companies that produce
commercials, television programs, music videos and feature
films. The Company's principal activities include studio
videotape recording, film to videotape transfer, computer
generated visual effects and the coloring, creation of
customized virtual studio sets, editing and dubbing of various
form of emerging media, including film and video. Most of the
Company's services are performed at its headquarters in lower
Manhattan, New York.
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
reporting period. Actual results could differ from those
estimates.
6
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM INFORMATION
The information presented as of March 31, 2000 and for the
six-month periods ended March 31, 1999 and 2000 has not been
audited. In the opinion of management, the unaudited interim
financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly
the information set forth therein. The net income for the six
months ended March 31, 2000 are not necessarily indicative of
the results for the year ended September 30, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and loans payable are reflected in
the accompanying balance sheets at amounts considered by
management to reasonably approximate fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization are provided by accelerated and straight line
methods over the estimated useful lives of the assets as
follows:
Estimated Useful Life
---------------------
Machinery and equipment
Furniture and fixtures 5
Computers and office equipment 7
Leasehold improvements 5
10
Maintenance and repairs are charged to income as incurred. The
asset and related accumulated depreciation accounts are
relieved in respect of items replaced, retired or otherwise
disposed of.
The inherent uncertainties in the estimates of the useful
lives and pattern of usage, make it at least reasonably
possible that the Company's estimates of depreciation and
amortization could change in the near term.
7
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The provision for income taxes is based on the elements of
income and expenses as reported in the accompanying statements
of income and retained earnings.
Deferred tax liabilities and assets are determined based on
the difference between the financial statements carrying
amounts and tax bases of assets and liabilities using enacted
rates in effect in the years in which the differences are
expected to reverse.
DEFERRED OFFERING COSTS
Deferred offering costs relate to costs incurred through
September 30, 1999 with respect to a proposed initial public
offering of the Company's securities. Total costs incurred
with respect to the proposed public offering totalled
$520,300. During the six months ended March 31, 2000, the
Company and the Underwriter agreed to terminate the proposed
initial public offering. In November of 1999, the Company
engaged a placement agent to arrange for a private placement
of its securities. Accordingly, $370,300 of such deferred
costs were written-off during the fourth quarter ended
September 30, 1999, leaving a balance of $150,000. During the
six months ended March 31, 2000, an additional $209,623 in
offering costs were incurred with respect to the aborted
offering, all of which were expensed during the six months
ended March 31, 2000.
DEFERRED FINANCING COSTS
Deferred financing costs consist of (i) a non-cash cost valued
at $840,000, attributable to the issuance of 210,000 shares of
common stock in connection with a Private Placement completed
in May of 1999 and (ii) expenses related to such financing
approximating $85,000. The deferred financing costs were
amortized over the nine-month period commencing May 1, 1999.
Amortization of the deferred financing costs for the six
months ended March 31, 2000 was $411,111.
REVENUE RECOGNITION
Substantially all revenues are derived from the performance of
video and commercial film production and post production work.
Revenue is recognized at the time services are rendered.
8
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs are charged to operations when incurred.
Advertising expense for the six months ended March 31, 1999
and 2000 totalled $1,000 and $2,078, respectively.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company accounts for its stock-based
compensation arrangements pursuant to APB Opinion No. 25,
"Accounting for Stock Issued to Employees." In accordance with
the provisions of SFAS No. 123, the Company discloses the pro
forma effects of accounting for these arrangements using the
minimum value method to determine fair value.
EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing
net income available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share ("Diluted EPS") gives effect to all
dilutive potential common shares outstanding during a period.
In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from
the conversion of common stock equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the recoverability of long-lived assets
by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them.
At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair values. Based on these
evaluations, there were no adjustments to the carrying value
of long-lived assets.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform
with the current year presentation.
9
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - JOINT VENTURE
In November 1998, the Company and an unrelated corporation
organized Flicker FX at SMA, LLC and entered into a joint
venture agreement to provide the production of television,
film and multimedia graphics products. The agreement provides
for, among other things: (i) that until the joint venture
achieves sufficient revenues to fund its operations, the
Company shall contribute start-up capital funds and guaranteed
annual salaries and benefits aggregating $550,000, of which
$50,000 is to each of the Company's two principal
shareholders; (ii) use of the Company's equipment and
facilities; and (iii) that the operating profits, as defined,
shall be allocated 60% to the Company. On May 5, 2000, the
Company terminated the agreement as the joint venture did not
achieve certain defined financial goals. Accordingly, the
Company accrued $23,077 as of March 31, 2000, and $40,385 as
of May 5, 2000, in full settlement of any and all sums due
under the agreement.
The results of operations of the joint venture have been
consolidated in the accompanying unaudited financial
statements in accordance with the Accounting Principles Board
Release No. 51.
NOTE 3 - PROPERTY AND EQUIPMENT - NET
Property and equipment consisted of the following:
Property held under capital leases $ 5,879,481
Machinery and equipment 4,074,238
Leasehold improvements 1,396,284
Office equipment 251,587
Furniture and fixtures 109,054
------------
11,710,644
Less: Accumulated depreciation (8,308,302)
------------
Property and Equipment - Net $ 3,402,342
============
The property under capital leases had a net book value of
$2,195,376 at March 31, 2000.
Depreciation and amortization of property and equipment for
the six months ended March 31, 1999 and 2000 amounted to
$854,289 and $774,342, respectively.
10
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 4 - OTHER ASSETS
In connection with an operating lease for its office space,
the Company has $58,936 in a non-interest bearing account with
the landlord as security.
In connection with the purchase of equipment under a capital
lease, the Company placed $100,000 on deposit with the lender.
The agreement provides that the lender shall accrue interest
at the rate of 3.5% per annum. Included in other assets is
$108,532 related to this deposit at March 31, 2000.
In connection with an operating lease for additional office
space entered into in September 1999, the Company placed
$73,000 in a non-interest bearing account with the landlord as
security.
NOTE 5 - NOTE PAYABLE - PRIVATE PLACEMENT
In May of 1999, the Company completed a Private Placement,
pursuant to which the Company sold 7 units for aggregate gross
proceeds to the Company of $700,000. Each unit consists of (i)
a $100,000 promissory note bearing interest at 10% per annum,
payable the earlier of nine months from the issuance date, or
the closing of an initial public offering of the Company's
securities and (ii) 30,000 shares of the Company's common
stock. The 210,000 shares of common stock issued in connection
with this financing were valued at $840,000 and have been
amortized as interest expense over the initial term of the
notes, as discussed in Note 1. Costs incurred in connection
with the Private Placement include a $70,000 fee to the
placement agent, approximately $10,000 in legal fees and
warrants to the placement agent to purchase 21,000 shares of
the Company's common stock at an exercise price equal to 120%
of the initial public offering price.
NOTE 6 - LONG-TERM DEBT
On March 30, 2000, the revolving credit facility was converted
to a term loan, aggregating $250,000, which bears interest at
9.75% per annum, and is payable in 36 equal, consecutive
monthly payments of principal and interest of $8,037 each.
Substantially all of the assets of the Company are pledged to
collateralize the indebtedness.
In addition, the Company has a $250,000 term loan agreement,
dated June 4, 1997, providing for 36 equal monthly payments of
principal and interest of $8,037. The loan bears interest at
9.75% per annum. Substantially all of the assets of the
Company are pledged to collateralize the indebtedness.
11
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - LONG-TERM DEBT (CONTINUED)
Long-term debt consisted of the following:
2000 - $250,000 term loan - bank, with interest at
9.75% requiring monthly payments of principal
and interest of $8,037 for 36 months. $ 250,000
1997 - $250,000 term loan - bank, with interest
at 9.75% requiring monthly payments of principal
and interest of $8,037 for 36 months. 25,021
Obligations under capital leases collateralized
by the related equipment (see Note 10) 2,219,165
----------
Total 2,494,186
Less: Current maturities 1,319,938
----------
Long-Term Debt $1,174,248
==========
Aggregate maturities required on long-term debt are as
follows:
Years Ended
March 31,
------------
2001 $1,319,938
2002 926,634
2003 247,614
----------
$2,494,186
==========
12
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - INCOME TAXES
Components of the provision for income taxes are as follows:
For the Six Months Ended
March 31,
--------------------------------
1999 2000
------------- -------------
Current:
Federal $ 19,000 $ -
State and local 15,000 2,085
------------- -------------
34,000 2,085
------------- -------------
Totals $ 34,000 $ 2,085
============= =============
The Company has consolidated net operating loss carryforwards
of approximately $1,500,000 for federal and state income tax
purposes, which expire in September of 2020.
The tax effects of the significant temporary differences that
comprise the deferred tax assets and liabilities are as
follows:
Assets:
Accounts receivable $ 11,890
Net operating loss carryforward 380,000
-----------
Gross deferred tax assets 391,890
Less: Valuation allowance (85,000)
-----------
Net deferred tax assets 306,890
Liabilities:
Property and equipment 292,000
-----------
Net deferred tax liabilities $ 14,890
===========
A valuation allowance of $85,000 has been provided during the
six months ended March 31, 2000 for the net operating losses
not expected to be realized in the future.
13
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory income tax rate to
the Company's effective tax rate as reported is as follows:
For the Six Months Ended
March 31,
------------------------
1999 2000
----------- -----------
Taxes at federal statutory rate 34% (34)%
State and local income taxes - net of
federal tax benefit 11 -
Increase in valuation allowance - (34)
----------- -----------
Effective income tax rate 45% -%
=========== ==========
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan, which covers
substantially all full time employees who meet certain service
requirements and are not covered by the union pension plan as
disclosed below. During the six months ended March 31, 1999
and 2000, the Company did not make any contributions to this
plan.
The Company has several employees covered by a union
sponsored, multi- employer pension plan. The Company
contributed and charged to expense $7,620 and $6,041 for the
six months ended March 31, 1999 and 2000, respectively. The
contributions are determined in accordance with provisions of
the plan and are generally based on the number of hours
worked.
The Company adopted a non-contributory 401K plan effective
January 1, 1998. The plan covers all non-union employees who
are at least 21 years of age with no minimum service
requirements. There were no contributions to the plan for
either of the six months ended March 31, 1999 and 2000.
NOTE 9 - SHAREHOLDERS' LOANS PAYABLE
In August 1995, pursuant to one promissory note agreement, the
two principal shareholders of the Company loaned the Company
$103,772. The promissory note provides for 60 monthly payments
of $2,093, inclusive of interest at 7% per annum, commencing
December 1995 and is unsecured. Interest paid on such debt
during the six months ended March 31, 1999 and 2000 amounted
to $1,604 and $744, respectively.
14
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES
The Company leases various production and post-production
equipment under capital leases expiring at various dates
through 2003. Interest rates on these leases vary from
approximately 8% to 15% and are imputed based on the Company's
incremental borrowing rate at inception of the lease or the
lessor's implicit rate of return. Substantially all of the
capital lease obligations have been personally guaranteed by
the two principal shareholders of the Company.
The Company leases space utilized as a production facility and
office space in New York City under an operating lease
expiring in December 2005. The lease provides for monthly
rental payments of $27,083 through September 1, 2000, and
$29,333 thereafter through expiration. The lease contains
escalation clauses relating to increases in real property
taxes as well as certain maintenance costs and has been
personally guaranteed by the two principal shareholders of the
Company.
On September 30, 1999, the Company entered into an agreement
to lease space to be utilized as a production and office
facility in New York City expiring in August 2004. The lease
provides for monthly rental payments of $24,333 ($19,333,
including a first year rent concession) through August 30,
2000 and increases of 3.5% annually thereafter through
expiration. The lease contains escalation clauses relating to
increases in real property taxes as well as certain
maintenance costs.
In addition, the Company leases a studio for the production of
commercial video tapes and films and storage facility for film
production equipment under an operating lease expiring in May
2000, with monthly rental payments of $2,800. The lease
provides that payment of all real estate taxes imposed and
utility costs shall be borne by the Company.
The Company also leases a storage facility in New Jersey on a
month-to-month basis at a rate of $995 per month.
15
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
LEASES (CONTINUED)
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Years Ended Obligations Under
March 31, Operating Leases Capital Leases
--------- ---------------- --------------
<S> <C> <C>
2001 $ 644,312 $ 1,319,938
2002 660,390 976,866
2003 671,184 161,187
2004 682,355 -
2005 491,615 -
------------ ------------
Total minimum obligations $ 3,149,856 2,457,991
============
Less: Amount representing
interest expense 238,826
------------
Present value of minimum
lease payments 2,219,165
Less: Current portion 1,173,451
------------
Long-Term Portion $ 1,045,714
============
</TABLE>
Rent expense relating to the operating leases included in
general and administrative expenses amounted to $190,397 and
$299,233 for the six months ended March 31, 1999 and 2000,
respectively.
EMPLOYMENT AGREEMENTS
Effective January 1, 2000, the Company entered into amended
five-year employment agreements with three officers of the
Company. Each employment agreement provides for, among other
things, a base salary of $125,000 per year commencing May 4,
2000, increasing to $250,000 per year commencing January 1,
2000. The agreements also provide for annual increases for
costs of living.
In addition, in May of 1999, the Company entered into
employment contracts with two of its key technicians, one for
a five-year term providing for a base salary of $175,000 per
year and a second contract for a three-year term providing for
a base salary of $230,000 per year.
16
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
CONSULTING AGREEMENTS
In July of 1999, the Company entered into an agreement with a
consultant providing for the supervision of the design,
construction and operation of an audio post production
facility. The agreement provides for weekly payments of $2,500
beginning July 15, 1999 and ending May 8, 2000.
In August of 1999, the Company entered into an agreement with
a consultant providing for assistance in its sales and
marketing efforts in the area of digital audio. The agreement
provides for monthly payments of $3,200, from August 1, 1999
to May 15, 2000, and reimbursement of expenses.
In May of 2000, the Company will compensate the consultants an
aggregate of $9,500 to terminate the above two agreements
entered into during July and August of 1999.
CASH AND CASH EQUIVALENTS
At March 31, 2000, the Company had bank balances in excess of
federally insured limits totalling $25,305.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company
to concentrations of credit risk, are primarily cash and cash
equivalents and trade accounts receivable.
With respect to trade receivables, ongoing credit evaluations
of customers' financial condition are performed and generally,
no collateral is required. The Company maintains a reserve for
potential credit losses and such losses, in the aggregate,
have not exceeded management's expectations.
At March 31, 2000, one customer accounted for approximately
14% of the accounts receivable balance. For the six months
ended March 31, 1999, one customer accounted for approximately
11% of net revenues. No one customer accounted for more than
10% of net revenues during the six months ended March 31,
2000.
17
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 - STOCKHOLDERS' EQUITY
REORGANIZATION
In April of 1999, the shareholders of S.M.A. Real Time Inc.
authorized an amendment to its Certificate of Incorporation to
increase the authorized number of common shares from 1,000,000
to 50,000,000, to amend the par value of the common stock from
no par to a par value of $.0001, and to effect a 50-for-1
stock split applicable to all issued and outstanding shares of
S.M.A. Real Time Inc.'s common stock, increasing the issued
and outstanding shares of common stock to 1,250,000.
Prior to April of 1999, the Company included SMA Visual
Effects Corp. and Fly Films, Inc., two wholly-owned
subsidiaries. In April of 1999, the shareholders of each of
the companies authorized (i) the merger of SMA Visual Effects
Corp. and Fly Films, Inc. with SMA Video, Inc. and (ii) the
exchange of all of their common shares of SMA Video, Inc. for
1,250,000 post split common shares of S.M.A. Real Time Inc.
These transactions were effected in April of 1999 and, as a
result, the issued and outstanding shares of S.M.A. Real Time
Inc. common stock increased to 2,500,000 as of April 30, 1999
and SMA Video, Inc. became a wholly-owned subsidiary of S.M.A.
Real Time Inc.
On May 10, 1999, the stockholders of S.M.A. Real Time Inc.
authorized a 1.396- to-1 stock split of its common shares,
which increased the outstanding common shares of S.M.A. Real
Time Inc. to 3,490,000 as of such date. All common shares and
related per-share data, reflected in the accompanying
financial statements and notes thereto, have been adjusted to
give retroactive effect to the above reorganization
transactions.
STOCK OPTIONS
In May of 1999, the Board of Directors and the stockholders of
the Company approved the 1999 Stock Option Plan (the "Plan"),
which provides for the granting of up to 500,000 shares of
common stock, pursuant to which officers, employees, directors
and consultants are eligible to receive incentive and/or
nonstatutory stock options. Options granted under the Plan are
exercisable for a period of up to 10 years from date of grant
at an exercise price which is not less than the fair value on
date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their
exercise price may not be less than 110% of the fair value of
the common stock at date of grant. The Plan provides for the
options to include vesting provisions. 366,000 options were
granted during the six months ended March 31, 2000 at an
exercise price of $3.00 per share. Of the 366,000 options
granted, 83,333 vested immediately and the balance vests as
follows: (i) 83,333 per year in each of the following three
years and (ii) 32,668 in the fifth year.
18
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 - STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
The weighted average fair value at date of grant for options
granted during the six months ended March 31, 2000 was $0.82
per share. The fair value was estimated on the date of the
grant using the Black-Scholes option-pricing model with the
following assumptions:
Expected dividend yield 0%
Expected volatility 0%
Risk-free interest rate 6.5%
Expected term in years 5
If the Company had adopted the provisions of SFAS No. 123, the
impact of the vested options on reported net loss and loss per
share would have been as follows:
Net Loss $ 68,333
========
Loss Per Share $ .02
========
PREFERRED STOCK
In May of 1999, the Company authorized the issuance of up to
10,000,000 shares of preferred stock - par value $.0001 per
share. The Board of Directors has the authority to issue the
preferred stock in one or more series and to determine the
powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to
fix the number of shares constituting any series and the
designation of such series, without any further vote or action
by the stockholders.
19
<PAGE>
S.M.A. REAL TIME INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 12 - SUBSEQUENT EVENT
On May 4, 2000, the Company agreed to sell 55% of its Class A
voting common shares and 43.75% of its Class B non-voting
common shares, together representing a 50% interest in its
equity securities, to PSA, Inc. for the following
consideration, aggregating approximately $22 million:
$5,000,000 in cash on May 4, 2000
$5,000,000 due October 4, 2000
1,958,824 shares of common stock of PSA, Inc. valued
at $12,000,000
PSA, Inc. is a holding company for entities comprising its
proposed broad-based internet and global travel and
transportation services network that will include global
electronic commerce ("E-Commerce"), international tour
services, air transportation, and Internet television
broadcast. PSA, Inc. is headquartered in Los Angeles,
California and its common stock is traded in the over-the-
counter market and is quoted through the NASD OTC Bulletin
Board under the symbol "PSAX".
Expenses in connection with this transaction approximated
$300,000, of which $150,000 was accrued for as of March 31,
2000. The use of proceeds includes repayment of principal,
interest and fees related to the promissory notes totalling
$850,000. The balance of this financing is intended to be used
for machinery and equipment and real estate acquisitions and
working capital.
Concurrent with the stock sale, in May of 2000, the Company
effected a recapitalization plan, in which the 50,000,000
authorized common shares were divided into 25,000,000
authorized Class A common shares (voting) and 25,000,000
authorized Class B common shares (non-voting). Further, the
then existing 3,700,000 issued and outstanding common shares
were exchanged for 1,850,000 Class A common shares and
1,850,000 Class B common shares.
Effective with the receipt of the balance of the consideration
of this stock sale, 55% of the Class A voting common shares
will be owned and controlled by PSA, Inc.
20
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSA, Inc.
By: /s/ David E. Walsh
----------------------
President, Chief Executive Officer
Dated: July 18, 2000
