<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A, NO. 3
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Amending Items 7 and 13
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-13324
JUDICATE, INC.
(Name of business issuer in its charter)
Delaware 23-2257354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Walnut Street, Suite 1300, Philadelphia, PA 19102
(Address of principal executive offices) (Zip Code)
(215) 546-6200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, $.0001 Par Value
--------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO ____
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
/ /
The Company's gross revenues for calendar year 1994 were $844,025.
As of April 7, 1995, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $12,787,860.(1)
As of April 7, 1995, there were 11,995,749 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format
YES NO X
----
----------------------
(1) Calculated by excluding all shares held by owners of 5% or more of the
stock.
<PAGE>
JUDICATE, INC.
INDEX PAGE
----- ----
PART II
ITEM 7. FINANCIAL STATEMENTS 4
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 5
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Revised Financial Statements and supplementary financial information
follow ITEM 13 herein.
4
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
1. Financial Statements and Financial Statement Schedules -
See the index to the financial statements on page F-1.
2. The following financial statement schedules are included
in this report:
(i) Schedule V - Property, Plant and Equipment.
(ii) Schedule VI - Accumulated depreciation, depletion
and amortization of property, plant and equipment.
All other schedules are not included because they are
either not applicable or the required information is
included in the financial statements or notes thereto.
3. See Index to Exhibits on page E-1.
(b) Report on Form 8-K.
The following reports on Form 8-K (the "FORM") were filed
during the last quarter of 1994 through the date hereof:
5
<PAGE>
(1) Form 8-K dated November 28, 1994 containing
information responsive to Item 4 of the Form.
(2) Form 8-K dated November 29, 1994 containing
information responsive to Item 5 of the Form.
(3) Form 8-K dated March 31, 1995 containing
information responsive to Items 1, 2 and 7 of the
Form, as amended by Form 8-K/A, No.1 dated March
31, 1995.
6
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page to Page
------------
<S> <C>
Pro Forma:
Pro Forma Condensed Combined Financial Statements [Unaudited] F-3..F-4
Pro Forma Condensed Combined Balance Sheet as of
December 31, 1994 [Unaudited] . . . . . . . . . . . . . . . . F-5..F-6
Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1994 [Unaudited]. . . . . . . . . . . F-7
Adjustments to Pro Forma Condensed Combined Financial
Statements [Unaudited]. . . . . . . . . . . . . . . . . . . . F-8..F-10
FINANCIAL STATEMENTS:
Report of Independent Auditors. . . . . . . . . . . . . . . . F-11
Consolidated Balance Sheet as of December 31, 1994. . . . . . F-12
Consolidated Statement of Operations for the year ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . F-13
Consolidated Statement of Changes in Stockholders' Equity
for the year ended December 31, 1994 . . . . . . . . . . . . F-14
Consolidated Statement of Cash Flows for the year ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . F-15 . F-16
Notes to Consolidated Financial Statements. . . . . . . . . . F-17 . F-26
Independent Auditors' Report. . . . . . . . . . . . . . . . . F-27 F-29
Balance Sheets - December 31, 1993 and December 31, 1992. . . F-30
Statements of Operations for the year ended December 31,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . F-31
Statements of Changes in Shareholders' Equity for the years
ended December 31, 1993 and 1992 . . . . . . . . . . . . . . F-32
Statements of Cash Flows for the years ended December 31,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . *F-33 F-34
Notes to Financial Statements . . . . . . . . . . . . . . . . *F-35 F-44
FINANCIAL STATEMENT SCHEDULES:
Schedule V - Property, Plant and Equipment for the years ended
December 31, 1993 and 1992. . . . . . . . . . . . . . . . . . *S-1
</TABLE>
F-1
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Schedule VI - Accumulated Depreciation , Depletion and Amortization
of Property, Plant and Equipment for the years ended December 31, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . *S-2
</TABLE>
All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in the notes thereto. Columns omitted from schedules filed have
been omitted because the information is not applicable.
F-2
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
-------------------------------------------------------------------------------
The following pro forma condensed combined balance sheet as of December 31, 1994
and the combined statement of operations for the year then ended give effect to
Judicate, Inc. ["Judicate" or the "Company"] completing the following
transactions:
(i) In March and April 1995, the Company consummated a private placement of its
securities. Fifty-eight units of Company securities [each unit consisting
of 20,000 shares of Company common stock] were sold through a placement
agent. The net proceeds to the Company from the placement of these
securities was approximately $1,523,000, after deducting placement agent
fees of approximately $217,000. The placement agent also received a
portion of its fee in the form of 116,000 options to purchase Company
common stock at an exercise price of $3.50 per share. These options
expire March 31, 2000.
(ii) As of the close of business on March 31, 1995, the Company acquired 100% of
the stock of Quest Electronic Hardware, Inc. ["Quest"], a privately owned
Company, in exchange for a 25% interest in Judicate, Inc. on a fully
diluted basis. Such acquisition was effected pursuant to a share
acquisition agreement, dated as of November 29, 1994. Pursuant to the
Share Agreement, the Company issued, at the closing of the transaction,
3,871,944 newly issued, fully-paid and non-assessable shares of common
stock of the Company, in exchange for all of the issued and outstanding
shares of common stock of Quest. As required by the Share Agreement, this
number represented 25% of the outstanding Common Stock of the Company on
a fully diluted basis. The Company will account for such acquisition using
purchase method of accounting.
(ii) Simultaneously with the foregoing events, Quest acquired the fasteners
distribution business [the "Fasteners Business"] of Arrow Electronics,
Inc., a New York corporation ["Arrow"]. Such acquisition was effected
pursuant to a Purchase of Assets Agreement, dated as of November 29, 1994,
by and between Quest and Arrow [the "Purchase Agreement"]. Under the
Purchase Agreement, Quest acquired the assets of Arrow used exclusively in
connection with Arrow's operations of the Fasteners Business. Such assets
include, but are not limited to, machinery, equipment, furniture, motor
vehicles and other personal property, inventories, rights [including
accounts receivable] under contracts, agreements, leases, permits and
licenses [to the extent assignable], expensed items, price lists and other
documents. The Company intends to use the acquired assets to continue the
business of the Fasteners Business.
The purchase for the acquisition of the Fasteners Business was a negotiated
fixed price. The price consisted of a cash payment of approximately $5
million plus the assumption of certain liabilities of the Fasteners
Business. As more fully described below, the purchase price was funded
through a combination of proceeds of borrowings under a Loan and Security
Agreement [as defined below], the proceeds from the
F-3
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
-------------------------------------------------------------------------------
sale of the Company's securities under a private placement and available
cash.
Under a Loan and Security Agreement, dated as of March 31, 1995, by and
between Quest and Silicon Valley Bank [the "Loan Agreement"], Quest
borrowed $2.2 million to partially fund the acquisition of the Fasteners
Business. In order to secure the obligations of Quest under the Loan
Agreement, the Company entered into a Stock Pledge Agreement, dated as of
March 31, 1995, with Silicon Valley Bank [the "Bank"]. Under the terms
of said agreement, the Company pledged to the Bank the shares of capital
stock of Quest which the Company held at such date and in which the
Company may thereafter acquire an interest. In addition, Quest granted a
security interest in substantially all of its assets to the Bank.
An additional portion of the funds for the purchase price for the
Fasteners Business [approximately $1.5 million] was provided from the
proceeds of the private placement of noted in (i) above. The balance of
the cash portion of the purchase price for the Fasteners Business was
provided by available cash.
(iv) In March and April 1995, the Company received the proceeds of short-term
financing in the amount of $300,000.
The pro forma information is based on the historical financial statements of
the Company, giving effect to the transactions under the purchase method of
accounting and assumptions and adjustments in the accompanying notes to the pro
forma financial statements. The pro forma balance sheet assumes that the
transactions occurred as of the balance sheet date.
The pro forma statements of operations give effect to these transactions as if
they had occurred at the beginning of the fiscal years presented [i.e. January
1, 1994] and were carried forward through the interim periods presented. The
historical statements of operations will reflect the effects of these
transactions from the date on which they occurred.
The pro forma combined statements have been prepared by the Company's management
based upon the historical financial statements of the Company and these pro
forma statements may not be indicative of the results that actually would have
occurred if the combinations had been in effect on the dates indicated or which
may be obtained in the future. The pro forma financial statements should be
read in conjunction with the financial statements and notes of the Company as
contained in annual report Form 10-KSB filed with Securities and Exchange
Commission.
F-4
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1994.
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
FASTENERS PRO FORMA PRO FORMA
JUDICATE QUEST BUSINESS ADJUSTMENTS COMBINED
ASSETS:
CURRENT ASSETS:
Cash $1,521 $ 1 $ 5 $ 1,523 [1] $550
2,200 [3]
(5,000)[4]
300 [6]
Accounts Receivable - Net 72 -- 763 -- 835
Inventories -- -- 2,042 -- 2,042
Other Current Assets 56 15 -- -- 71
Other Receivables 109 -- -- (109)[5] --
Due from Related Parties -- -- 850 (850)[4] --
------ ----- ------ ------ -------
TOTAL CURRENT ASSETS 1,758 16 3,660 (1,936) 3,498
PROPERTY AND EQUIPMENT - NET 50 109 60 40 [4] 249
(10)[4]
GOODWILL -- -- -- 3,871 [2] 6,509
2,638 [4]
OTHER ASSETS 65 -- -- -- 65
------ ----- ------ ------ -------
TOTAL ASSETS $1,873 $ 125 $3,720 $4,603 $10,321
------ ----- ------ ------ -------
------ ----- ------ ------ -------
F-5
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF DECEMBER 31, 1994.
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
FASTENERS PRO FORMA PRO FORMA
JUDICATE QUEST BUSINESS ADJUSTMENTS COMBINED
LIABILITIES, STOCKHOLDERS' EQUITY AND NET WORTH:
CURRENT LIABILITIES:
Accounts Payable $ 270 $ -- $ 384 $ -- $ 654
Accrued Expenses 18 -- 154 -- 172
Loans Payable - Financial
Institution -- -- -- 550 [3] 550
Short-Term Financing -- -- -- 300 [6] 300
Other Payable -- 15 -- -- 15
Other Current Liabilities 31 109 -- (109)[5] 31
-------- ----- ------ ------- --------
Total Current Liabilities 319 124 538 741 1,722
-------- ----- ------ ------- --------
LONG-TERM DEBT -- -- -- 1,650 [3] 1,650
-------- ----- ------ ------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock 1 -- -- -- 1
Common Stock 1 1 -- (1)[2] 1
Additional Paid-in Capital 17,260 -- -- 1,523 [1] 22,655
3,872 [2]
Accumulated Deficit (15,708) -- -- -- (15,708)
-------- ----- ------ ------- --------
TOTAL STOCKHOLDERS' EQUITY 1,554 1 -- 5,394 6,949
-------- ----- ------ ------- --------
NET WORTH -- -- 3,182 (3,182) --
-------- ----- ------ ------- --------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND NET WORTH $ 1,873 $ 125 $3,720 $ 4,603 $ 10,321
-------- ----- ------ ------- --------
-------- ----- ------ ------- --------
F-6
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1994.
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
FASTENERS PRO FORMA PRO FORMA
JUDICATE QUEST BUSINESS ADJUSTMENTS COMBINED
SALES $ 844 $ -- $ 7,699 $ -- $ 8,543
COST OF SALES 273 -- 4,453 -- 4,726
-------- ----- ------ ------- -------
GROSS PROFIT 571 -- 3,246 -- 3,817
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,212 -- 1,763 9 [A] 3,231
163 [B]
84 [E]
-------- ----- ------ ------- -------
OPERATING [LOSS] INCOME (641) -- 1,483 (256) 586
INTEREST EXPENSE -- -- -- 199 [C] 226
27 [D]
-------- ----- ------ ------- -------
[LOSS] INCOME BEFORE
INCOME TAXES (641) -- 1,483 (482) 360
INCOME TAXES -- -- 572 (572)[F] --
-------- ----- ------ ------- -------
NET [LOSS] INCOME $ (641) $ -- $ 911 $ 90 $ 360
-------- ----- ------ ------- -------
-------- ----- ------ ------- -------
[LOSS] INCOME PER COMMON
SHARE:
Primary $ (.23) $ .05
-------- -------
-------- -------
Fully Diluted N/A $ .03
-------- -------
-------- -------
F-7
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
ADJUSTMENTS TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS:
[1] To reflect the private placement of Judicate securities through the April
3, 1995 closing.
Net Proceeds $ 1,523
--------
--------
[2] To reflect the issuance of 3,872 shares of common stock to effect the
purchase of Quest. Such shares are restricted and are valued at $1.00 per
share, an approximate 50% discount to market price on March 31, 1995. The
total purchase price is $3,872 and $3,871 has been allocated to goodwill.
Current Long-Term
[3] To reflect bank loans extended to Quest $ 550 $ 1,650
------- --------
------- --------
The term loan acquisition debt is to be paid-off in quarterly
installments of $137.50.
[4] To allocate the purchase cost of the Fasteners Business to acquired net
assets at fair value and to reflect resulting goodwill from the
acquisition of the Fasteners Business:
Pro Forma Adjustment
Accounts Receivable - Net $ 763
Inventories 2,042
Property and Equipment 90
Other Assets 5
Goodwill 2,638
Liabilities (538)
PURCHASE COST - CASH $ 5,000 $ 5,000
------- --------
------- --------
Pro Forma entry [4] reflects the following:
Difference between net book value and fair value of assets acquired:
Property and Equipment:
Per Historicals $ 60
Property Not Acquired 10 $ (10)
------- --------
------- --------
Net Book Value 50
Fair Market Value 90
-------
Pro Forma Adjustment $ 40
--------
--------
Receivable Not Purchased:
Pro Forma Adjustment $ (850)
--------
--------
Recording of Goodwill $ 2,638
--------
--------
F-8
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
ADJUSTMENTS TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
BALANCE SHEET ADJUSTMENTS [CONTINUED]:
The property and equipment is to be depreciated over 10 years under the
straight-line method, and goodwill is to be amortized over forty years
under the straight-line method.
[5] To eliminate intercompany balances $ 109
-------
-------
[6] To reflect short-term financing extended to Judicate $ 300
-------
-------
F-9
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
ADJUSTMENTS TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[IN THOUSANDS] [UNAUDITED]
-------------------------------------------------------------------------------
INCOME STATEMENT ADJUSTMENTS:
[A] To reflect additional charges for depreciation:
Annual
------
Fasteners business assets purchased at fair market $ 90
------
Depreciation straight-line for ten years $ 9 $ 9
------
------
[B] To reflect additional charges for amortization of
goodwill $ 163
------
------
[C] To record interest on acquisition debt:
The term loan acquisition debt is to be paid off
in quarterly installments of $137.50 $ 199
------
------
The average interest rate expected to be incurred on
the acquisition debt is 10.5%.
[D] To record interest on short-term financing $ 27
------
------
The average interest rate expected to be incurred on
the short-term financing is 9%.
[E] To record net additional G & A charges:
Estimated additional general and
administrative charges related to the Fasteners
Business $ 84
------
------
The statement of operations of the Fasteners Business does not include
charges for general and administrative services that were provided by
Arrow, but does include charges for certain costs that are not expected
to be incurred in the future. If The Fasteners Business had been a stand
alone entity as of the beginning of the period presented, it is estimated
that the net amount of such costs would have resulted in additional charges
of approximately $84.
[F] To reflect utilization of net operating loss carryforward: $ 572
------
------
. . . . . . . . .
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Judicate, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Judicate,
Inc. and its subsidiaries as of December 31, 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year 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 audit.
We conducted our audit 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
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Judicate, Inc. and its subsidiaries as of December 31, 1994, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
April 10, 1995
F-11
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994.
-------------------------------------------------------------------------------
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $1,520,730
Accounts Receivable - Net of Allowance for Doubtful
Accounts of $208,286 72,201
Other Current Assets 55,445
Other Receivable 109,480
----------
TOTAL CURRENT ASSETS 1,757,856
----------
PROPERTY AND EQUIPMENT - NET 50,069
----------
OTHER ASSETS:
Deposits 40,202
Other Assets 25,000
----------
TOTAL OTHER ASSETS 65,202
----------
TOTAL ASSETS $1,873,127
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 287,954
Other Current Liabilities 30,797
----------
TOTAL CURRENT LIABILITIES 318,751
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value; Authorized 1,000,000 Shares:
Series A Convertible, Authorized 900,000 Shares; Issued and
Outstanding 140,000 Shares; $140,000 Liquidation Value 1,400
Common Stock, $.0001 Par Value; Authorized 20,000,000
Shares, Issued and Outstanding 6,733,805 Shares 673
Additional Paid-in Capital 17,260,549
Accumulated Deficit (15,708,246)
----------
TOTAL STOCKHOLDERS' EQUITY 1,554,376
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,873,127
----------
----------
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1994.
-------------------------------------------------------------------------------
FEE INCOME $ 844,025
---------
OPERATING COSTS AND EXPENSES:
Cost of Services 272,660
Sales and Marketing Expenses 330,018
General and Administrative Expenses 831,510
Provision for Doubtful Accounts 50,918
---------
TOTAL OPERATING COSTS AND EXPENSES 1,485,106
---------
LOSS FROM OPERATIONS (641,081)
---------
OTHER INCOME [EXPENSE]:
Interest Expense (34,222)
Interest Income 34,270
---------
TOTAL OTHER INCOME 48
---------
NET LOSS $(641,033)
---------
---------
LOSS PER COMMON SHARE $ (.23)
---------
---------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE YEAR 2,793,402
---------
---------
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE
YEAR ENDED DECEMBER 31, 1994.
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1994 880,000 $ 8,800 1,758,077 $177 $15,882,538 $(15,067,213)
Issuance of Shares:
Conversion of
Preferred Shares to
Common Stock (740,000) (7,400) 1,480,000 148 7,251 --
Exercise of Warrants -- -- 718,704 71 413,411 --
Common Stock Issued
to Placement Agent in
Lieu of Fees in
Connection with
Exercise of Warrants -- -- 61,824 6 -- --
Shares Issued in Private
Placement -- -- 2,515,200 251 957,349 --
Common Stock Issued
to Placement Agent in
Lieu of Fees in
Connection with
Private Placement -- -- 200,000 20 -- --
Net Loss for the Year -- -- -- -- -- (641,033)
--------- ------- ----------- ---- ----------- ------------
Balance -
December 31, 1994 140,000 $ 1,400 6,733,805 $673 $17,260,549 $(15,708,246)
--------- ------- ----------- ---- ----------- ------------
--------- ------- ----------- ---- ----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1994.
---------------------------------------------------------------------------
Operating Activities:
Net Loss $ (641,033)
----------
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 58,412
Write-Down of Assets 136,335
Provision for Doubtful Accounts 50,918
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (19,091)
Other Current Assets 62,518
Deposits (18,184)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 4,374
Other Current Liabilities (18,150)
----------
Total Adjustments 257,132
----------
Net Cash - Operating Activities (383,901)
----------
Investing Activities:
Other Receivable (109,480)
----------
Financing Activities:
Proceeds from the Issuance of Common Stock 957,600
Proceeds from the Exercise of Warrants 413,482
----------
Net Cash - Financing Activities 1,371,082
----------
Net Increase in Cash and Cash Equivalents 877,701
Cash and Cash Equivalents - Beginning of Year 643,029
----------
Cash and Cash Equivalents - End of Year $1,520,730
----------
----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 34,222
Income Taxes $ --
See Notes to Consolidated Financial Statements.
F-15
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1994.
---------------------------------------------------------------------------
Supplemental Schedule of Noncash Investing and Financing Activities:
In 1994, the Company adjusted property and equipment to lower of cost or
market value as follows:
Cost of Property Written Down $ 340,153
Accumulated Depreciation (178,818)
---------
Net Book Value 161,335
Estimated Fair Market Value 25,000
---------
Adjustment for Write-Down $ 136,335
---------
---------
During 1994, the Company issued 200,000 shares of common stock to an
underwriter in lieu of fees in connection with a private placement.
Additionally, 61,824 shares of common stock were issued to the same
underwriter in lieu of fees in connection with the exercise of warrants.
The Company issued 1,480,000 shares of common stock upon conversion of
740,000 preferred shares during the year.
See Notes to Consolidated Financial Statements.
F-16
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
[1] Description of Business and Summary of Significant Accounting Policies
Description of Business
Judicate, Inc. ["Judicate" or the "Company"] provides a broad range of
alternate dispute resolution ["ADR"] services, including non-binding
mediations [which consist of judicial settlement conferences and "pure"
mediations] and binding arbitrations, to assist private parties in settling
civil disputes. Arbitration and mediation services are headed by one of the
judges currently on Judicate's judicial panel. The Company has two
wholly-owned subsidiaries which were formed in 1993. Both of these
subsidiaries were inactive during the year and neither of these subsidiaries
had any assets or liabilities.
Summary of Significant Accounting Policies
Consolidation - The financial position and results of operations of all
majority owned subsidiaries are consolidated in these financial statements.
As noted above, the Company's subsidiaries were inactive during the year ended
December 31, 1994, and had no assets or liabilities on that date.
Accordingly, the subsidiaries had no effect on the consolidated financial
statements.
Revenue Recognition - Judicate recognizes income when earned. Certain
non-refundable fees, for which the Company is not required to render any
further services, are recognized as income when received as the earnings
process in regard to such fees has been completed. Revenues from proceedings
[arbitrations and mediations] are recognized as income when the proceeding is
conducted. Proceeding fees received prior to the conference are recorded as
deferred revenue. Such deferred revenue amounted to $9,720 at December 31,
1994 and is included in other current liabilities.
Cash and Cash Equivalents - The Company considers certain highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Concentrations of Credit Risk - Financial instruments that potentially subject
the Company to concentration of credit risk consist primarily of temporary
cash investments and trade receivables. The Company's customers are located
throughout the country with concentrations in the Northeast. The Company
performs on-going credit evaluations of its customers and generally does not
require collateral. The Company maintains reserves for potential credit
losses and such losses have been within managements' expectations.
The Company invests its excess cash in deposits with commercial banks which
are federally insured up to $100,000 per bank. As of December 31, 1994, the
Company had approximately $523,000 of cash deposits in excess of federally
insured limits.
Property and Equipment and Depreciation - Property and equipment are recorded
at cost. Expenditures for normal repairs and maintenance are charged to
earnings as incurred. When assets are retired or otherwise disposed, their
costs and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are included in operations. Depreciation and
amortization are recorded using the straight-line method over the estimated
lives of the related asset or the remaining lease term.
F-17
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
---------------------------------------------------------------------------
[1] Description of Business and Summary of Significant Accounting Policies
[Continued]
Estimated useful lives are as follows:
Office Equipment 5 Years
Computer Equipment 3 - 5 Years
Furniture and Fixtures 5 Years
Leasehold Improvements 5 Years
Cost in Excess of Net Assets of Business Acquired- The cost in excess net
assets of business acquired will be amortized on a straight-line basis over 40
years. The Company has concluded that the cost in excess of net assets of
business acquired has an indeterminable life based on historic, current, and
projected operating results of the business acquired. [See Note 14]. The
Company's policy is to record an impairment loss against the balance of the
net unamortized cost in excess of net assets of business acquired in the
period when it is determined that the carrying amount of the assets may not be
recoverable. At each balance sheet date, the Company evaluates the
realizability of the asset for each subsidiary having a material balance.
This determination is based on an evaluation of such factors as the occurrence
of a significant event, a significant change in the environment in which the
business operates or, if the expected future non-discounted cash flow of the
subsidiary would become less than the carrying amount of the asset. The
Company's historic recurring losses and negative cash flows from operations
have been abated and, accordingly, management believes these factors will not
negatively impact the profits and cash flows of the business acquired.
F-18
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
---------------------------------------------------------------------------
[2] Going Concern Considerations
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
As shown in the consolidated financial statements, the Company incurred a net
loss of $641,033 and generated negative cash flows from operations of $383,901
for the year ended December 31, 1994, and has accumulated a deficit to that
date of $15,708,246. The continuation of the Company as a going concern was
dependent upon its ability to obtain additional financing and the expansion of
its operations into new lines of business which would generate revenues and
provide cash flow from operations. All of these factors had raised substantial
doubt about the ability of the Company to continue as a going concern.
Such substantial doubt has been alleviated due to the Company's acquisitions
described in Note 14, which will effectuate its expansion of its operations
into new lines of business, which management believes will generate
significant revenues and positive cash flows from operations. The
acquisitions were partially financed by a private placement of Company
securities and, through bank financing, both of which are described in Note. 14.
[3] Other Receivable
Other receivable represents a short-term non-interest bearing advance to
another entity, which the Company subsequently acquired [see Note 14].
[4] Property and Equipment
Property and equipment consisted of the following as of December 31, 1994:
1994
-------
Office Equipment $299,558
Computer Equipment 187,332
Furniture and Fixtures 162,981
Leasehold Improvements 18,305
--------
Total 668,176
Less: Accumulated Depreciation and Amortization 618,107
--------
Total $ 50,069
--------
--------
Depreciation and amortization expense for the year ended December 31, 1994 was
$58,412.
Additionally, various office equipment, computer equipment and furniture and
fixtures previously used in operations have been segregated and included in
other assets at the lower of their cost or market value at December 31, 1994.
Specifically, equipment held for lease and idle equipment having an aggregate
book value of $161,335 [aggregate cost of $340,153 net of accumulated
depreciation of $178,818] at December 31, 1994, was determined to have a net
realizable value of $25,000 at that date. As a result, general and
administrative expenses shown in the statement of operations for the year
ended December 31, 1994 include a charge of $136,335 to reflect this write-
F-19
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
---------------------------------------------------------------------------
[4] Property and Equipment [Continued]
down. The lease for the leased equipment commenced in December 1993.
However, as the Company received no lease payments during 1994, and as it
estimated the costs to repossess the equipment to be prohibitive, it
determined at the end of that year that the value of such leased equipment had
diminished significantly. Idle equipment was written-down to net realizable
value at the end of 1994, based upon management's updated assessment of the
projected need for the equipment in ongoing operations and its inability,
during the year, to otherwise dispose of the equipment.
[5] Description of Securities
Common Stock - Each share of common stock entitles the holder thereof to one
[1] vote on all matters submitted to stockholders. There are no preemptive,
conversion, redemption or cumulative voting rights applicable to the common
stock. The outstanding shares of the common stock are fully paid and
non-assessable.
Preferred Stock - The Company is authorized to issue 1,000,000 shares of
preferred stock, par value $.01 per share. Of these authorized shares, the
Board of Directors has established a Series A Preferred Stock.
Series A Preferred Stock - The number of shares of Series A Preferred Stock
authorized to be issued is 900,000 shares. 140,000 shares were issued and
outstanding as of December 31, 1994.
Subject to certain exceptions, summarized below, the holders of Series A
Preferred Stock are not entitled to vote on matters submitted to the
stockholders of the Company.
In the event of the liquidation, dissolution or winding up of the Company, the
shares of Series A Preferred Stock are entitled to a liquidation preference
before any distribution to other classes or series of stock of $1.00 per
share. Each share of Series A Preferred Stock is convertible, without further
consideration, into two [2] shares of common stock. During 1994, 740,000
shares of preferred stock were converted to common stock. Holders of Series A
Preferred Stock will be entitled to dividends when and as declared by the
Board of Directors. However, the Company has not paid any dividends on the
Series A Preferred Stock and does not expect to do so in the foreseeable
future.
F-20
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
---------------------------------------------------------------------------
[6] Stock Options
Under various plans, the Company may grant stock options to key executive,
management and judicial personnel. Transactions under the various stock
option and incentive plans during 1994 were as follows:
Shares Under Option
December 31, 1994
Incentive Non-Incentive
--------- -------------
Outstanding at Beginning of Year 17,829 46,835
Options Granted 550,000 466,758
Options Exercised -- --
Options Cancelled and Terminated (13,360) --
-------
Outstanding [1] 554,469 513,593
------- -------
------- -------
[1] With exercise prices ranging from $.384 to $33.75 per share, giving
effect to the one-for-fifteen reverse stock split, which occurred on December
17, 1993.
[7] Warrants
The Company has issued various series of warrants to purchase shares of its
common stock.
Series I Warrants - Each Series I Warrant entitles the registered holder to
purchase 2.511 shares of common stock at a price of $1.80 per share on or
before June 30, 1996. Any warrant not exercised by that date will be null and
void. At December 31, 1994, there were 25,760 Series I Warrants outstanding.
In March 1994, as an inducement to raise capital, the Company offered holders
of the Series I Warrants the right to exchange each warrant for three Series
II Warrants which were exercisable at $.625 per share. The exchange offer
expired on April 30, 1994. Pursuant to the exchange offer, the Company
received net proceeds of $413,482 upon the issuance of 718,704 shares of its
common stock. Additionally, the Company issued 61,824 shares of its common
stock to an underwriter in lieu of fees in connection with this transaction.
Said shares represented an amount equal to 10% of the aggregate shares sold in
connection with this transaction. At December 31, 1994, all Series II
Warrants had been exercised.
Series III Warrants - In connection with the December 1994 private placement,
2,200,000 Series III Warrants were issued. Each Series III Warrant entitles
the registered holder to purchase one share of common stock at an exercise
price of $.35 per share. The warrants expire November 14, 2004, and any
warrant not exercised by that date will be null and void. At December 31,
1994, there were 2,200,000 Series III Warrants outstanding.
F-21
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
---------------------------------------------------------------------------
[8] November Private Placement
In November 1994, the Company issued 2,515,200 shares of its common stock in a
private offering, 2,000,000 shares of which were sold through a placement
agent. Net proceeds from the offering amounted to $957,600. As additional
consideration for common shares issued, one of the purchasers rendered 103,040
Series I Warrants to the Company for cancellation. Additionally, 200,000
shares of Company common stock and warrants to purchase 200,000 shares of
Company common stock at an exercise price of $.35 per share were issued to the
placement agent in lieu of fees in connection with this transaction. Said
shares and warrants represented an amount equal to 10% of the units sold
through the placement agent in the private offering.
[9] Commitments and Contingencies
Leases - The Company leases office space under an operating lease which
expires in February 1996. The Company also leases office equipment under
non-cancelable operating leases which expire through April 1999. The
statement of operations includes rent expense recognized on a straight-line
basis over the term of the leases.
Minimum annual rental payments under non-cancelable operating leases as of
December 31, 1994 are as follows:
Years Ending
December 31,
------------
1995 $52,702
1996 7,615
1997 3,120
1998 2,427
1999 809
Thereafter --
-------
Total $66,673
-------
-------
Rental expense of $65,070 has been charged to operations for the year ended
December 31, 1994.
Litigation - In 1991, the Company commenced a lawsuit against three of its
former employees and their then current employer. The lawsuit alleges that
the defendants wrongfully took numerous Company files, documents and other
papers containing confidential information, that the former employees breached
their duty of good faith to the Company and tortuously interfered with the
Company's prospective contractual and business relations and engaged in unfair
competition. The defendants asserted several counterclaims alleging that
Company personnel have made false statements regarding defendants, that the
Company refused to pay commissions, pay other forms of compensation and issue
stock options promised to the former employees. The defendants sought damages
of approximately $2,000,000 plus additional unspecified damages and costs.
On September 7, 1994 and January 9, 1995, partial settlements were made and
mutual releases were exchanged among two of the former employees, their
current employer, and the Company. A trial in the proceeding against the
third employee is scheduled to commence in late April 1995 [See Note 15].
Counsel for the Company has advised that at this stage in the proceedings,
counsel cannot offer
F-22
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, Sheet #7
---------------------------------------------------------------------------
[9] Commitments and Contingencies [Continued]
an opinion as to the probable outcome. The Company and Counsel believe the
counterclaim is without merit and the Company intends to vigorously defend its
position.
During 1993, a former employee of the Company filed a complaint of
discrimination against the Company. The complaint alleges that the employees'
employment was terminated pursuant to a sexually discriminatory reduction of
the Company's workforce. An estimate of the possible loss or range of loss in
regard to this matter cannot be made. Management believes there is no basis
for such action, and there has been no material change in this action to date.
In July 1994, a complaint was filed against the Company, charging the Company
with breach of contract and breach of fiduciary duty. The complaint seeks
damages in the amount of $262,290. The Company filed a motion to dismiss the
federal court action for lack of jurisdiction and failure to state a cause of
action. The parties stipulated to transfer the action to state court. The
plaintiffs have not re-filed the action in state court and currently there is
no action pending. Counsel to the Company is unable to render an opinion as
to the possible outcome of this matter. The Company believes the complaint is
without merit and intends to vigorously defend its position.
While it is not feasible to predict the outcome of all pending suits and
claims, based on the most recent review by management of these matters,
management is of the opinion that their ultimate disposition will not have a
material adverse effect upon the consolidated financial position, liquidity or
results of operations of the Company.
[10] Income Taxes
The Company has net operating loss carryforwards of approximately $12.8
million as of December 31, 1994, expiring in the years 1999 through 2008.
Statement of Financial Accounting Standards [SFAS] No. 109, "Accounting for
Income Taxes," which was adopted by the Company on January 1, 1993 requires
the establishment of a deferred tax asset for all deductible temporary
differences and operating loss carryforwards. The deferred tax asset
attributable to operating loss carryforwards amounted to approximately
5,500,000 at December 31, 1994. Because of the uncertainties surrounding the
generation of future taxable income, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant to
SFAS No. 109. Accordingly, no deferred tax asset is reflected in these
financial statements.
F-24
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
---------------------------------------------------------------------------
[10] Income Taxes [Continued]
The approximate amount of the carryforwards and their expiration dates as of
December 31, 1994 are as follows:
Expiring in Net
Years Ending Operating Loss Investment
December 31, Carryforwards Tax Credits
------------ ------------- -----------
1999 $278,000 $1,500
2000 536,000 4,500
2001 1,243,000 --
2002 1,414,000 --
2003 1,574,000 --
2004 1,100,000 --
2005 579,000 --
2006 782,000 --
2007 2,945,000 --
2008 2,336,000 --
----------- ------
$12,787,000 $6,000
----------- ------
----------- ------
[11] Loss Per Share
Loss per share is determined by dividing the net loss by the weighted average
number of common shares outstanding during the year. The weighted average
number of common shares issued and outstanding for the year ended December 31,
1994 was 2,793,402. The weighted average number of shares have not been
adjusted for assumed conversion of stock options or warrants or any other
common stock equivalents since the effect of such conversion would be
anti-dilutive.
[12] Proposed Acquisitions
On December 7, 1994, the Company reached an agreement in principle with the
stockholders of Touche Manufacturing Company, Inc. ["TMCI"] and Touche
Electronics, Inc. ["TEI"] to acquire all of outstanding stock of TMCI and TEI.
At December 31, 1994, the Company has advanced $25,000 to TMCI as a good faith
deposit in connection with the proposed transaction. Such amount is included
in deposits at that date. Subsequent to December 31, 1994, the agreement in
principle expired. There can be no assurance that the acquisitions will be
consummated.
[13] New Authoritative Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards [SFAS] No.
109, "Accounting for Income Taxes," on January 1, 1993. Since that
implementation, the Financial Accounting Standards Board has issued eleven new
authoritative accounting pronouncements [SFAS's]. These new pronouncements
either do not apply to the Company, or will be implemented when the Company
engages in applicable transactions, such as making investments in certain debt
and equity securities, at which time the Company will implement SFAS No. 115.
None of these potentially applicable accounting pronouncements is anticipated
to have a material impact on the Company's financial statements.
F-24
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
---------------------------------------------------------------------------
[14] Subsequent Events
Private Placement - In March and April 1995, the Company, through a placement
agent, consummated the sale of fifty-eight units of its securities at a gross
sales price of $30,000 per unit. Each unit consisted of 20,000 shares of
Company common stock. The net proceeds to the Company, after placement fee
expenses of $217,500, were $1,522,500. The placement agent also received a
portion of its fee in the form of 116,000 options to purchase Company common
stock at an exercise price of $3.50 per share. These options expire March 31,
2000.
Acquisitions - As of the close of business on March 31, 1995, the Company
acquired 100% of the stock of Quest Electronic Hardware, Inc. ["Quest"], a
privately owned Company, in exchange for a 25% interest in Judicate, Inc. on a
fully diluted basis. Such acquisition was effected pursuant to a share
acquisition agreement, dated as of November 29, 1994. Pursuant to the Share
Agreement, the Company issued, at the closing of the transaction, 3,871,944
newly issued, fully-paid and non- assessable shares of common stock of the
Company, in exchange for all of the issued and outstanding shares of common
stock of Quest. As required by the Share Agreement, this number represented
25% of the outstanding Common Stock of the Company on a fully diluted basis.
The Company will account for such acquisition using purchase method of
accounting.
Simultaneously with the foregoing events, Quest acquired the fasteners
distribution business [the "Fasteners Business"] of Arrow Electronics, Inc., a
New York corporation ["Arrow"]. Such acquisition was effected on March 31,
1995, pursuant to a Purchase of Assets Agreement, dated as of November 29,
1994, by and between Quest and Arrow [the "Purchase Agreement"]. Under the
Purchase Agreement, Quest acquired the assets of Arrow used exclusively in
connection with Arrow's operations of the Fasteners Business. Such assets
include, but are not limited to, machinery, equipment, furniture, motor
vehicles and other personal property, inventories, rights [including accounts
receivable] under contracts, agreements, leases, permits and licenses [to the
extent assignable], expensed items, price lists and other documents. The
Company is using the acquired assets to continue the business of the Fasteners
Business.
The purchase for the acquisition of the Fasteners Business was a negotiated
fixed price. The price consisted of a cash payment of approximately $5
million plus the assumption of certain liabilities of the Fasteners Business.
As more fully described below, the purchase price was funded through a
combination of proceeds of borrowings under a Loan and Security Agreement [as
defined below], the proceeds from the sale of the Company's securities under a
private placement and available cash.
Under a Loan and Security Agreement, dated as of March 31, 1995, by an between
Quest and Silicon Valley Bank [the "Loan Agreement"], Quest borrowed $2.2
million to partially fund the acquisition of the Fasteners Business. In order
to secure the obligations of Quest under the Loan Agreement, the Company
entered into a Stock Pledge Agreement, dated as of March 31, 995, with Silicon
Valley Bank [the "Bank"]. Under the terms of said agreement, the Company
pledged to the Bank the shares of capital stock of Quest which the Company
held at such date and in which the Company may thereafter acquire an interest.
In addition, Quest granted a security interest in substantially all of its
assets to the Bank.
An additional portion of the funds for the purchase price for the Fasteners
Business [approximately $1.5 million] was provided from the proceeds of the
private placement of noted above. The balance of the cash portion of the
purchase price for the Fasteners Business was provided by available cash.
F-25
<PAGE>
JUDICATE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
---------------------------------------------------------------------------
[14] Subsequent Events [Continued]
Pursuant to employment agreements dated November 29, 1994, by and between
Quest and two individuals, Quest has agreed to employ the individuals in
executive positions for a period of five (5) years unless terminated pursuant
to the terms of the agreements. In consideration of the services to be
provided by the executives, the Company is to compensate the executives at a
combined rate of $200,000 per annum during the term of the employment
agreements.
[15]Subsequent Event [Unaudited] Subsequent to the Date of the Report of
Independent Auditors
Litigation - On May 4, 1995, a settlement was agreed to between the Company
and the third employee described in Note 9. Upon execution of a mutual
release, the action is expected to be discontinued with prejudice.
. . . . . . . . . .
F-26
<PAGE>
JUDICATE, INC.
-----------------------------------------------------------
Financial Statements
Years Ended December 31, 1993 and 1992
F-27
[LOGO OF Goldenberg / Rosenthal]
<PAGE>
[LETTERHEAD OF GOLDENBERG / ROSENTHAL]
Independent Auditor's Report
February 18, 1994
Stockholders and Board of Directors
Judicate, Inc.
New York, New York
We have audited the accompanying balance sheets of JUDICATE,
INC. as of December 31, 1993 and 1992, and the related statements of operations,
of changes in shareholders' equity and of cash flows and the financial statement
schedules listed under Item 13(a)(2) of the Company's annual report on Form
10-KSB for the years then ended. 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 audits
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 incudes 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 JUDICATE,
INC. as of December 31, 1993 and 1992, and the results of its operations,
shareholders' equity and cash flows for the years then ended, in conformity with
generally accepted accounting principles. The financial statement schedules
referred to above are fairly stated in all material respects in relation to the
financial statements taken as a whole.
F-28
<PAGE>
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring losses and has
experienced negative cash flows from operations that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Goldenberg / Rosenthal
Philadelphia, Pennsylvania
F-29
<PAGE>
JUDICATE, INC.
BALANCE SHEETS
December 31
-----------------
ASSETS 1993 1992*
---- -----
Current assets
Cash and cash equivalents $643,029 $624,534
Accounts receivable, net of allowance for
doubtful accounts of $104,000 in 1993
and $136,000 in 1992 104,028 474,078
Prepaid insurance 72,544 45,723
Other current assets 22,056 19,299
---------- ----------
Total current assets 841,657 1,163,634
---------- ----------
Property and equipment, net 79,059 448,348
---------- ----------
Other assets
Deposits 22,018 33,073
Equipment held for lease, net 90,757 -
Idle equipment, net 100,000 -
---------- ----------
212,775 33,073
---------- ----------
$1,133,491 $1,645,055
========== ==========
December 31
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1993 1992*
---- -----
Current liabilities
Accounts payable and accrued expenses $ 258,330 $ 588,279
Accrued payroll and taxes 13,643 104,756
Deferred revenue 26,450 37,175
--------- ---------
Total current liabilities 298,423 730,210
Deferred rent payable 10,766 78,964
--------- ---------
Total liabilities 309,189 809,174
--------- ---------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value;
Authorized 1,000,000 shares
Issued and outstanding 880,000 shares
in 1993 8,800 -
Common stock, $.0001 par value;
Authorized 300,000,000 shares in 1993
30,000,000 shares in 1992
Issued and outstanding 1,758,077 shares
in 1993 and 1,266,968 shares in 1992 177 128
Additional paid-in capital 15,882,538 13,598,468
Accumulated deficit (15,067,213) (12,706,116)
Less unearned compensation - (56,599)
Total shareholders' equity 824,302 835,881
----------- ---------
$ 1,133,491 $ 1,645,055
* Reclassified to conform with the presentation for 1993.
See notes to financial statements
F-30
<PAGE>
JUDICATE, INC.
STATEMENTS OF OPERATIONS
Year Ended December 31
----------------------
1993 1992
---- ----
Fee income $ 2,576,598 $ 4,558,725
------------ -----------
Operating costs and expenses
Cost of services 780,715 1,051,075
Sales and marketing expenses 1,127,188 1,940,487
General and administrative expenses 2,757,889 4,446,912
Financial consultation and other
management services 281,250 -
------------ -----------
4,947,042 7,438,474
------------ -----------
Loss from operations (2,370,444) (2,879,749)
------------ -----------
Other income (expense)
Realized loss on sale of assets - (2,211)
Interest income 9,347 18,871
------------ -----------
9,347 16,660
------------ -----------
Net loss $ (2,361,097) $(2,863,089)
============ ===========
Loss per common share ($1.70) ($2.84)
============ ===========
Weighted average number of common shares
outstanding during the year 1,392,758 1,008,175
============ ===========
See notes to financial statements
F-31
<PAGE>
JUDICATE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ ------------------ Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 - $ - 857,947 $ 86 $ 10,991,992 $ (9,843,027)
Issuance of shares
Net proceeds from exercise of warrants at
$9.375 per share to purchase shares of common stock - - 115,400 12 1,070,613 -
Exercise of options at $7.50 to $21.45 per share to
purchase common stock - - 285,621 29 1,496,853 -
Common stock issued to settle liabilities - - 8,000 1 39,080 -
Net loss for the year - - - - - (2,863,089)
----------- ------- --------- ----- ------------ -------------
Balance, December 31, 1992 - - 1,266,968 128 13,598,468 (12,706,116)
Issuance of shares
Net proceeds from the issuance of preferred stock 800,000 8,000 - - 792,000 -
Shares issued in connection with private placement 80,000 800 - - 79,200 -
Net proceeds from the issuance of common stock
and warrants at $5.625 per share - - 222,442 22 1,138,278 -
Exercise of options at $6.00 to $12.15 per share to
purchase common stock - - 18,667 2 140,649 -
Common stock issued in exchange for services - - 250,000 25 281,225 -
Costs associated with private placement - - - - (147,282) -
Net loss for the year - - - - - (2,361,097)
----------- ------- --------- ----- ------------ -------------
Balance, December 31, 1993 880,000 $ 8,800 1,758,077 $ 177 $ 15,882,538 $ (15,067,213)
=========== ======= ========= ===== ============ =============
</TABLE>
See notes to financial statements
F-32
<PAGE>
JUDICATE, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in
Cash and Cash Equivalents
-------------------------
Year Ended December 31
----------------------
1993 1992
---- ----
Cash flows from operating activities
Net loss $ (2,361,097) $ (2,863,089)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 124,541 141,488
Realized loss on sale of assets 62,001 2,211
Common stock issued in exchange for services 281,250 -
Decrease in allowance for doubtful accounts (32,000) (214,000)
Amortization of deferred compensation 56,599 192,659
(Increase) decease in assets
Accounts receivable 402,050 243,753
Prepaid expenses and deposits (18,524) (59,569)
Increase (decrease) in accounts payable
and accrued expenses, deferred
revenue and other liabilities (499,984) 186,974
------------ ------------
Net cash used in operating activities (1,985,164) (2,369,573)
------------ ------------
Cash flows from investing activities,
Acquisition of property and equipment (8,010) (183,654)
------------ ------------
Cash flows from financing activities
Proceeds from the issuance of common stock 1,138,300 1,070,625
Proceeds from the issuance of preferred stock 800,000 -
Exercise of stock options 140,651 1,496,882
Costs associated with private placement (67,282) -
------------ ------------
Net cash provided by financing activities 2,011,669 2,567,507
------------ ------------
Increase in cash and cash equivalents 18,495 14,280
Cash and cash equivalents, beginning of year 624,534 610,254
------------ ------------
Cash and cash equivalents, end of year $ 643,029 $ 624,534
============ ============
(continued)
See notes to financial statements
F-33
<PAGE>
JUDICATE, INC.
STATEMENTS OF CASH FLOWS
(continued)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
1993
In 1993, the Company abandoned property and recognized a loss of $62,001 as
follows:
Cost of property abandoned $ 108,226
Accumulated depreciation (46,225)
----------
Loss recognized $ 62,001
==========
Additionally, the Company segregated from property and equipment various
assets as follows:
Equipment
Held for Idle
Rental Equipment Total
------ --------- -----
Cost $ 147,110 $ 193,043 $ 340,153
Accumulated depreciation (56,353) (93,043) (149,396)
---------- ---------- ----------
$ 90,757 $ 100,000 $ 190,757
========== ========== ==========
The Company issued 80,000 shares of preferred stock to an underwriter in lieu
of fees in connection with a private placement during the year.
The Company issued 250,000 shares of common stock in exchange for consulting
services.
1992
In 1992, the Company issued 120,000 shares of common stock to settle an
outstanding liability of $39,081.
See notes to financial statements
F-34
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Judicate, Inc. ("Judicate") provides a broad range of
alternate dispute resolution ("ADR") services, including non-binding
mediations (which consist of judicial settlement conferences and "pure"
mediations) and binding arbitrations, to assist private parties in
settling civil disputes. Arbitration and mediation services are headed by
one of the judges currently on Judicate's judicial panel. The Company has
two wholly-owned subsidiaries which were formed in 1993. Both of these
subsidiaries were inactive during the year and neither of these
subsidiaries had any assets or liabilities.
Summary of Significant Accounting Policies
Revenue Recognition
Judicate recognizes income when earned. The Company
recognizes revenues from proceedings (arbitrations and mediations) when
the proceeding is conducted, or earlier if fees become non-refundable.
Proceeding fees received prior to the conference are recorded as deferred
revenue.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
an initial maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company's customers are located throughout the country
with concentrations in the Northeast. The Company performs on-going credit
evaluations of its customers and generally does not require collateral.
The Company maintains reserves for potential credit losses and such losses
have been within management's expectations.
The Company invests its excess cash in deposits with
commercial banks which are federally insured up to $100,000 per bank. As
of December 31, 1993, the Company had approximately $265,000 of cash
deposits in excess of federally insured limits.
F-35
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment and equipment held for lease is
recorded at cost. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in operations. Depreciation and
amortization are recorded using the straight-line method over the
estimated useful life of the asset.
Computer Software Development Costs
Computer software development costs for enhancing and
modifying the Company's general management information systems are
expensed in the period incurred.
2. REALIZATION OF ASSETS
The accompanying financial statements have been prepared
on a going-concern basis which contemplates the continuation of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. Accordingly, the financial statements do not
give effect to the adjustments, if any, that may be necessary should the
Company be unable to continue as a going-concern and, therefore, be
required to realize its assets, satisfy its liabilities, contingent
obligations and commitments in other than the normal course of business
and at amounts different from those in the financial statements.
The Company has incurred continued losses since inception
and a loss of $2,361,097 for the year ended December 31, 1993. In
addition, the Company used $1,985,164 of cash in operations during 1993.
The Company also had a loss of $2,863,089 and used cash in operations of
$2,369,573 in 1992.
Management has attempted to improve the Company's
operating results by reducing non-essential expenditures, and improving
the Company's collection efforts. Management believes that with these
changes, the Company will be able to continue as a going-concern. There
can be no assurance, however, that management's operating plans will be
fully realized.
F-36
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
3. INCOME FROM CURTAILING BUSINESS OPERATIONS
During 1993, the Company ceased operations in California
and significantly reduced its New York operations. As a result of these
actions, the Company recognized the following restructuring costs:
Loss on abandonment of
property and equipment $ 62,001
Severance payroll and other
related costs 142,000
---------
$ 204,001
=========
Concurrent with these actions the Company, was able to
terminate leases in both California and New York. The Company reached
agreements with both landlords whereby for payments aggregating $79,750,
the Company was able to satisfy outstanding liabilities (with the
landlords) of $354,744, resulting in a gain of $274,994.
The net gain of $70,993 has been recognized as income from
curtailing business operations.
Effective January 1, 1994, equipment costing $147,110 was
leased to former employees of the California office (see Note 4).
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of
December 31, 1993 and 1992:
1993 1992
---- ----
Office equipment $ 299,558 $ 489,028
Computer equipment 187,332 346,587
Furniture and fixtures 162,980 236,597
Leasehold improvements 18,305 36,333
--------- ----------
668,175 1,108,545
Less accumulated depreciation and
amortization 589,116 660,197
--------- ----------
$ 79,059 $ 448,348
========= ==========
F-37
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT (continued)
Additionally, various office equipment, computer equipment
and furniture and fixtures previously used in operations have been
segregated and included in other assets as of December 31, 1993. These
assets aggregating $90,757 (net of accumulated depreciation of $56,353)
are currently being leased by outside parties (see Note 3).
Assets in the amount of $100,000 (net of accumulated
depreciation of $93,043) are not currently used in operations, and have
been segregated as idle equipment until management determines the ultimate
disposition of this property. The Company will not depreciate this
property unless it is used in operations.
Depreciation and amortization expense for the years
ended December 31, 1993 and 1992 was $124,541 and $141,488, respectively.
5. SHAREHOLDERS' EQUITY
Common Stock
On December 17, 1993, the shareholders approved a
one-for-fifteen reverse stock split of the Company's common stock. Shares
and per share data have been restated for all periods presented to give
effect to the reverse stock split.
Preferred Stock
The Board of Directors of the Company, without further
action of the shareholders, is authorized to issue 1,000,000 shares of
preferred stock in one or more series and to determine the voting rights
(including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion privileges,
redemption and other rights.
During 1993, the Company issued 800,000 shares of
preferred stock and raised $800,000 in a private placement offering.
Additionally, the Company issued 80,000 shares of preferred stock to a
related party in exchange for services associated with the placement of
the preferred stock. Each share of preferred stock is convertible into two
shares of common stock effective January 1, 1994.
F-38
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
6. STOCK OPTIONS
Under various plans, the Company may grant stock options
to key executive, management and judicial personnel. Transactions under
the various stock option and incentive plans during 1993 and 1992 were as
follows:
1 9 9 3 1 9 9 2
--------------------- -----------------------------
Non- Non-
Incentive Incentive Incentive Incentive Other
--------- --------- --------- --------- -----
Outstanding at
Beginning of year 100,090 417,613 30,990 894,333 100,000
Options granted - - 74,667 236,667 -
Options exercised 18,667 - (5,567) (180,054) (100,000)
Options cancelled
and terminated (100,928) (370,778) - (533,333) -
-------- -------- ------- -------- --------
17,829 46,835 100,090 417,613 -
======== ======== ======= ======== ========
The above stock options are granted at prices equal to at
least market price on the date of the grant. Options outstanding as of
December 31, 1993 and 1992 ranged in price from $7.95 to $33.75 per share.
Options exercised ranged in price from $6.00 to $12.15 per share during
1993 and from $7.50 to $21.45 per share during 1992.
Subsequent to December 31, 1993, the Company granted
options to various management personnel and consultants as follows:
Number Price
of per
Options Share
------- -----
Officers and directors 310,000 $.625 to $1.5625
Consultants 350,000 .625
7. WARRANTS
Series D Warrants
The Company had 8,655 Common Stock Purchase Warrants
Series D (the "Series D Warrants") outstanding, each of which entitled the
holder to purchase 13.33 shares of Common Stock at a price of $9.375 per
share for an aggregate of 115,400 shares. The expiration date of the
Series D Warrants was extended from February 28, 1992 to April 30, 1992.
In 1992, all of these warrants were exercised.
F-39
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
7. WARRANTS (continued)
Series I Warrants
In June, 1993, in connection with a private placement, the
Company issued 222,442 common stock purchase Series I Warrants, (including
20,240 to a related party), each of which entitles the holder to purchase
a share of common stock at a price of $7.50. These warrants expire June
30, 1996. As of December 31, 1993, none of these warrants were exercised.
The issuance of preferred stock triggered the
anti-dilution provision of the Series I Warrants. As a result, the warrant
exercise price per share was reduced to $4.53 per share and the warrants
issued increased to 368,364.
Subsequent to December 31, 1993, as an inducement to raise
capital, the Company offered the holders of the Series I Warrants the
right to exchange these warrants for three Series II Warrants which are
exercisable at $.625 per share. The Series II Warrants must be exercised
by April 30, 1994. The Company has raised $200,000 through April 5, 1994
as a result of this exchange.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under operating leases
which expire through June, 1997, one of which provides for a free rent
period, annual increases in rent payments and additional payments for
increases in real estate taxes and operating expenses. The statements of
operations include rent expense recognized on a straight-line basis over
the term of the leases. An obligation of $10,766 representing deferred
rent payable as of December 31, 1993 is included in the accompanying
balance sheet.
Minimum annual rental payments under a noncancellable
operating lease as of December 31, 1993 are as follows:
Year Ending December 31
-----------------------
1994 $ 95,000
1995 102,000
1996 110,000
1997 56,000
--------
$363,000
========
F-40
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (continued)
Rental expense of $359,904 and $450,642 for 1993 and 1992,
respectively, has been charged to operations and is net of sublease rental
income, from a related party, of $-0- and $71,529 for 1993 and 1992,
respectively.
Litigation
The Company is a plaintiff in a lawsuit against three
former employees and their affiliated company. The lawsuit alleges that
the defendants wrongfully took numerous Company files, documents and other
papers containing confidential information, that the former employees
breached their duty of good faith to the Company and tortuously interfered
with the Company's prospective contractual and business relations and
engaged in unfair competition. The defendants asserted several
counterclaims alleging that Company personnel have made false statements
regarding defendants, that the Company refused to pay commissions, pay
other forms of compensation and issue stock options promised to the former
employees. The defendants seek damages of approximately $2,000,000,
additional unspecified damages and costs. Counsel for the Company has
advised that at this stage in the proceedings, counsel cannot offer an
opinion as to the probable outcome. The Company and counsel believe the
counterclaim is without merit and the Company intends to vigorously defend
its position.
Settlement With Former Officers
In 1993, the Company reached a settlement with its former
president concerning a lawsuit alleging that the Company did not have just
cause for his discharge. Under the agreement, the former president
received $34,800 in exchange for the release and surrender of all options,
warrants (except for Series I Warrants) or any other claims or rights to
purchase the Company's common stock.
Additionally, as part of severance packages with former
officers, the Company forgave approximately $55,000 of outstanding debts.
These amounts are included in general and administrative expenses in 1993.
During 1992, the Company reached a settlement with a
former officer concerning a lawsuit alleging that the Company did not have
just cause for his discharge and termination of his employment agreement.
Under this agreement, the former officer was granted 15,000 options to
purchase common stock at $28.65 per share and vest at 5,000 per year,
provided that the former officer performs at least 200 hours of consulting
work during the year. These options are scheduled to expire on July 8,
1997. Concurrent with this settlement, the Company entered into a
consulting agreement with this individual for a three-year period
commencing July 1, 1992. Under the terms of this agreement, the former
officer receives compensation of three percent of all of the Company's
collected revenues from any of the Consultant's Programs. There were no
amounts earned under this program in 1993 or 1992.
F-41
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
9. INCOME TAXES
The Company adopted SFAS No. 109 "Accounting for Income
Taxes", effective January 1, 1993. This statement changes the criteria for
the recognition and measurement of deferred tax assets and liabilities,
including net operating loss carryforwards.
The cumulative effect of the change in accounting
principle is included in determining net income for 1993. Financial
statements for prior years have not been restated. The adoption of SFAS
No. 109 did not have a material effect on the 1993 consolidated financial
statements. The provision (benefit) for deferred income taxes results from
temporary differences which consist of different tax bases for assets and
liabilities than their reported amounts in the financial statements. Such
differences result in recognition of income or expense in different years
for tax and financial statement purposes. The sources of these differences
and the tax effect of each as of December 31, 1993 were as follows:
Net operating loss carryforwards $ 5,200,000
Valuation allowance (5,200,000)
-----------
Total net deferred tax asset $ -
===========
As of December 31, 1993, the Company had carryforward net
operating losses of approximately $13,000,000, expiring through 2008. In
addition, investment tax credits of approximately $6,000 are available to
apply against future income taxes, if any, and expire in 2000.
The carryforwards and their expiration dates as of
December 31, 1993 are as follows:
Expiring in Net Investment
Years Ending Operating Loss Tax
December 31, Carryforwards Credits
------------ ------------- -------
1999 $ 278,000 $1,500
2000 536,000 4,500
2001 1,243,000 -
2002 1,414,000 -
2003 1,574,000 -
2004 1,588,000 -
2005 579,000 -
2006 816,000 -
2007 2,972,000 -
2008 2,000,000 -
----------- ------
$13,000,000 $6,000
=========== ======
F-42
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
10. LOSS PER SHARE
Loss per share is determined by dividing the net loss
(after deducting preferred stock dividends) by the weighted average number
of common shares outstanding during the year. The weighted average number
of common shares issued and outstanding for the years ended December 31,
1993 and 1992 is 1,392,758 and 1,008,175, respectively. The weighted
average number of shares have not been adjusted for assumed conversion of
stock options or warrants or any other common stock equivalents since the
effect of such conversion would be anti-dilutive.
11. SUBSEQUENT EVENT
In January, 1994, the Company entered into an agreement
for financial consulting services. Under the terms of this agreement, the
Company issued 250,000 shares of common stock to a related party, which
represented consideration for prior years consulting. For financial
statement purposes this transaction has been valued at $281,250 which
represents the value of the shares on the date issued. This expense is
included in the 1993 statement of operations. In addition, the Company
granted 250,000 common stock options, to this consultant, for future
services. These options vest at various dates in 1994 and are exercisable
at $.625 per share over a five year period.
12. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
As of December 31, 1993, there were no accounting
pronouncements issued but not yet effective which would have a material
effect on the financial statements of the Company.
13. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The changes in the allowance for doubtful accounts were as
follows for the years ended December 31, 1993 and 1992:
1993 1992
---- ----
Balance, beginning of year $ 136,000 $ 350,000
Provision charged to operations 130,000 177,068
Accounts receivable charged-off (162,000) (391,068)
--------- ---------
Balance, end of year $ 104,000 $ 136,000
========= =========
F-43
<PAGE>
JUDICATE, INC.
NOTES TO FINANCIAL STATEMENTS
14. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31
----------------------
1993 1992
---- ----
Taxes, other than payroll and income taxes $22,056 $16,976
Advertising costs 19,990 11,203
F-44
<PAGE>
SCHEDULE V
JUDICATE, INC. AND SUBSIDIARY
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
------------------------------------------------------ --------------------------------------------------
Column A Column B Column C Column D Column E Column F Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Other Other
Changes Changes
Balance Add Balance Balance Add Balance
January 1, Additions (Deduct) December 31, January 1, Additions (Deduct) December
Classification 1993 at Cost Retirements Describe 1993 1992 at Cost Retirements Describe 31, 1992
-------------- ---- ------- ----------- -------- ---- ---- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office equipment $ 489,028 $ - $ (21,887) $ (167,583) $ 299,558 $426,492 $ 62,536 $ - $ - $ 489,028
Computer equipment 346,587 1,510 (18,644) (142,121) 187,332 296,150 50,437 - - 346,587
Furniture and fixtures 236,597 3,500 (47,303) (29,814) 162,980 202,249 34,348 - - 236,597
Leasehold improvements 36,333 3,000 (20,393) (635) 18,305 20,731 36,333 (20,731) - 36,333
---------- ------ --------- ---------- ---------- -------- -------- -------- -------- ----------
Sub-total 1,108,545 8,010 (108,227) (340,153) 668,175 945,622 183,654 (20,731) - 1,108,545
Equipment held for lease - - - 147,110 147,110 - - - - -
Idle equipment - - - 193,043 193,043 - - - - -
---------- ------ --------- ---------- ---------- -------- -------- -------- -------- ----------
$1,108,545 $8,010 $(108,227) $ - $1,008,328 $945,622 $183,654 $(20,731) $ - $1,108,545
========== ====== ========= ========== ========== ======== ======== ======== ======== ==========
</TABLE>
S-1
<PAGE>
SCHEDULE VI
JUDICATE, INC. AND SUBSIDIARY
ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
------------------------------------------------------ --------------------------------------------------
Column A Column B Column C Column D Column E Column F Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Additions Other Additions Other
Changed Changes Changed Changes
Balance to Cost Add Balance Balance to Cost Add Balance
January 1, and (Deduct) December 31, January 1, and (Deduct) December
Classification 1993 Expenses Retirements Describe 1993 1992 Expenses Retirements Describe 31, 1992
-------------- ---- ------- ----------- -------- ---- ---- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office equipment $ 309,447 $ 52,448 $ (9,383) $ (74,194) $ 278,318 $245,753 $ 63,694 $ - $ - $ -
Computer equipment 191,065 41,874 (7,993) (63,203) 161,743 145,325 45,740 - - 191,065
Furniture and fixtures 156,052 22,652 (23,331) (12,000) 143,373 128,736 27,316 - - 156,052
Leasehold improvements 3,633 7,567 (5,518) - 5,682 17,415 4,738 (18,520) - 3,633
---------- -------- --------- ---------- ---------- -------- -------- -------- -------- --------
Sub-total 660,197 124,541 (46,225) (149,397) 589,116 537,229 141,488 (18,520) - 660,197
Equipment held for lease - - - 56,354 56,354 - - - - -
Idle equipment - - - 93,043 93,043 - - - - -
---------- -------- --------- ---------- ---------- -------- -------- -------- -------- --------
$ 660,197 $124,541 $ (46,225) $ - $ 738,513 $537,229 $141,488 $(18,520) $ - $660,197
========== ======== ========= ========== ========== ======== ======== ======== ======== ========
</TABLE>
Note:
Depreciation and amortization are computed on a straight-line basis as
follows:
Equipment 5 years
Furniture and equipment 5 years
Leasehold improvements Shorter of 10 years or term of lease
S-2
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this amendment to this report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 15, 1995.
JUDICATE, INC.
By: /s/ STEPHEN J. DRESCHER
Stephen J. Drescher
Chairman and Chief Executive
Officer
In accordance with the Exchange Act, this amendment to this report
<PAGE>
has been signed below by the following persons on behalf of this registrant, and
in the capacities indicated on September 15, 1995.
/s/ STEPHEN J. DRESCHER
Stephen J. Drescher
Chairman, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ MILTON M. ADLER
Milton M. Adler
Treasurer, Secretary and
Controller (Principal Financial
and Accounting Officer)
Paul L. Burton, Director
/s/ MICHAEL MINKOFF
Michael Minkoff, Director
/s/ MITCHELL HYMOWITZ
Mitchell Hymowitz, Director
/s/ MARC POWELL
Marc Powell, Director
/s/ DOMINIC A. POLIMENI
Dominic A. Polimeni, Director
