<PAGE>
FORM 8K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
STRATEGIC DISTRIBUTION, INC.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report covering an event
dated January 28, 1997 on Form 8-K as set forth in pages attached hereto:
(List all such items, financial statements, exhibits or other portions
amended)
The registrant is hereby making its initial filing of the financial
statements required to be filed pursuant to Items 7(a) and (b) of the above
referenced Form 8-K Report, as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Report of Wallingford McDonald Fox & Co., P.C.as to INTERMAT
International Materials Management Engineers, Inc.:
Balance Sheet as of December 31, 1996
Statement of Operations and Retained Earnings for the year
ended December 31, 1996
Statement of Cash Flows for the year ended December 31, 1996
Notes to financial statements.
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(b) Pro forma combined financial information (unaudited) of Strategic
Distribution, Inc. and Subsidiaries
(i) Pro Forma Combined Balance Sheet as of December 31, 1996
(ii) Notes to Pro Forma Combined Balance Sheet
(iii) Pro Forma Combined Statement of Operations for the year ended
December 31, 1996
(iv) Notes to Combined Pro Forma Statement of Operations
(c) Exhibit-
23.1 Consent of Wallingford, McDonald, Fox & Co., P.C., independent
public accountants, dated April 8, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATEGIC DISTRIBUTION, INC.
Date: April 8, 1997 By: /s/ Andrew M. Bursky
---------------------------
Andrew M. Bursky
Chairman of the Board
<PAGE>
INTERMAT
International Materials Management
Engineers, Inc.
FINANCIAL REPORT
DECEMBER 31, 1996
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
Financial Statements
Balance sheet 2
Statement of operations and retained earnings 3
Statement of cash flows 4
Notes to financial statements 5-9
<PAGE>
INTERMAT
- -------------------------------------------------------------------------------
Board of Directors
INTERMAT
International Materials Management
Engineers, Inc.
Houston, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of INTERMAT International
Materials Management Engineers, Inc. d/b/a INTERMAT as of December 31, 1996 and
the related statements of operations and retained earnings, and cash flows for
the year 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 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 INTERMAT International
Materials Management Engineers, Inc. d/b/a INTERMAT as of December 31, 1996 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
WALLINGFORD, MCDONALD, FOX & CO., P.C.
Houston, Texas
February 21, 1997
<PAGE>
INTERMAT
International Materials Management Engineers, Inc.
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,862
Accounts receivable 988,528
Retainage receivable (Note 2) 197,436
Other receivables 31,896
Other prepaid expenses 3,237
-----------
Total current assets 1,227,959
-----------
PROPERTY AND EQUIPMENT
Office furniture and equipment 876,818
Capitalized software costs 234,395
Leasehold improvements 44,348
-----------
1,155,561
-----------
Less accumulated depreciation and amortization 732,224
-----------
423,337
OTHER ASSETS
Cash surrender value - insurance policies 36,348
Deposits and other assets 5,930
-----------
42,278
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$ 1,693,574
-----------
-----------
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 413,281
Note payable - bank line of credit (Note 3) 400,000
Loans from stockholders (Note 4) 250,000
Accrued salaries and payroll taxes 65,761
Accrued vacation 174,563
Deferred revenue (Note 5) 123,750
-----------
Total current liabilities 1,427,355
-----------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8, and 9)
STOCKHOLDERS' EQUITY
Capital stock; no par value; 500,000 shares authorized;
4,300 shares issued and outstanding 4,300
Retained earnings (Note 5) 261,919
-----------
266,219
-----------
$ 1,693,574
-----------
-----------
The Notes to Financial Statements are an integral part of this statement.
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<PAGE>
INTERMAT
International Materials Management Engineers, Inc.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended December 31, 1996
Revenue $ 4,460,241
Direct costs 2,260,736
-----------
Gross profit 2,199,505
-----------
Administrative and general expenses 2,720,998
Depreciation expense 112,470
-----------
Total expenses 2,833,468
-----------
Loss from operations (633,963)
-----------
Other income and (expense):
Interest income 1,415
Interest expense (43,519)
Other expense (10,041)
-----------
Other income (expense), net (52,145)
-----------
Net loss (686,108)
Retained earnings at beginning of year (Note 5) 948,027
-----------
Retained earnings at end of year $ 261,919
-----------
-----------
The Notes to Financial Statements are an integral part of this statement.
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INTERMAT
International Materials Management Engineers, Inc.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
OPERATING ACTIVITIES
Net loss $ (686,108)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 161,470
Loss on retirement and write-down of assets 87,041
Changes in operating assets and liabilities:
Increase in accounts receivable and retainage receivable (199,008)
Increase in other receivables (12,103)
Decrease in work-in-process 42,551
Decrease in other prepaid expenses 24,671
Increase in accounts payable and accrued expenses 239,808
Increase in accrued liabilities and expenses 23,458
Decrease in deferred revenue (62,936)
-----------
Net cash used in operating activities (381,156)
-----------
INVESTING ACTIVITIES
Purchase of property and equipment (131,433)
Notes receivable - stockholders and officers 25,000
Decrease in other assets 9,221
Proceeds from sale of property and equipment 1,849
-----------
Net cash used in investing activities (95,363)
-----------
FINANCING ACTIVITIES
Proceeds from short-term borrowings 150,000
Loans from stockholders 250,000
-----------
Net cash provided by financing activities 400,000
-----------
Decrease in cash and cash equivalents (76,519)
Cash and cash equivalents at beginning of year 83,381
-----------
Cash and cash equivalents at end of year $ 6,862
-----------
-----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 43,519
Income taxes -
The Notes to Financial Statements are an integral part of this statement.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY:
INTERMAT International Materials Management Engineers, Inc., d/b/a/
INTERMAT (the "Company") provides cataloging services utilizing a
standard modifier dictionary and related software programs which
assist companies with their materials management, purchasing,
warehousing, inventory control, and maintenance and repair function.
INTERMAT's primary clients include electric utility companies,
petrochemical complexes, food and beverage plants, and paper
manufacturing plants.
CASH AND CASH EQUIVALENTS:
Cash equivalents include demand deposits in banks, money market
accounts, and highly liquid investments with maturities of 90 days or
less.
PROPERTY AND EQUIPMENT:
Equipment is recorded at cost. Additions, improvements and major
renewals are capitalized. Maintenance and repairs are expensed as
incurred. Depreciation is computed primarily using accelerated methods
over the estimated useful lives of the assets as follows: office
furniture and fixtures - 5 to 7 years; software and computer equipment
- 4 to 5 years; leasehold improvements - 10 years. Depreciation
expense totaled $112,470 for the year ended December 31, 1996.
REVENUE RECOGNITION:
Revenues from cataloging services are generally recognized through
monthly progress billings as contract milestones are reached or work
is completed. Direct costs on contracts in progress are recorded as
work-in-process until related billings are rendered to the customer.
Where contracts allow for advance billings, such billings are recorded
as "deferred revenue" until such services are actually rendered or
products delivered to the customer. Revenues from sales of software
licensing are generally recognized upon product delivery to the
customer.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE COSTS:
Computer software costs that are classified as research and
development costs are expensed when incurred. These costs include the
costs of planning, product design, program design, and other costs
incurred in establishing technological feasibility. Subsequent to the
determination of technological feasibility, costs are capitalized in
accordance with Financial Accounting Standard No. 86 - Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Capitalization of computer software costs is discontinued
when the product is available to be sold, leased, licensed, or
otherwise marketed. The Company's policy is to amortize capitalized
software costs by the greater of the ratio that current gross revenues
for the product bear to the total of current and projected future
gross revenues for the products, or the straight-line method over the
remaining estimated economic life of the product. Unamortized computer
software costs at December 31, 1996 totaled $145,112. Amortization
expense totaled $49,000 for the year ending December 31, 1996 and is
included in direct costs in the statement of operations. In addition
to the amortization expense noted above, the Company charged $77,000
in 1996 to general and administrative expense relating to a
capitalized amount which was written down to net realizable value.
The net carrying amount of its capitalized software costs and
subsequent realization is subject to management estimates and
uncertainty. The estimates and uncertainty relate to the projection of
future years' revenues and useful lives that are made at the date of
the financial statements. Conditions and circumstances may change that
could cause such estimates to change.
PROFIT SHARING PLAN AND 401(k) PLAN:
The Company has a profit sharing plan and a 401(k) plan covering
substantially all its employees. Contributions to the plans are
determined by the Board of Directors. Employer contributions vest
ratably over seven years. For the year ended December 31, 1996, the
Company contributed $26,610 to the 401(k) plan. There were no
contributions in 1996 to the profit sharing plan.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are subject to concentrations
of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company provides cataloging services to
utility, petrochemical, food and beverage, and paper companies in
various states (66% of revenue, 58% of receivables), Saudi Arabia (11%
of revenue, 22% of receivables) , South Africa (8% of revenue, 3% of
receivables), Canada (7% of revenue, 17% of receivables), and other
foreign countries (8% of revenue). A breakdown of service revenue for
1996 by customer types is as follows:
Utilities 31%
Petrochemical 32%
Food and beverage 15%
Paper 7%
Other 15%
Collateral is not required for credit extended to the Company's
customers.
ASSET VALUATION:
The carrying amount of long-life assets is reviewed periodically. If
the asset carrying amount is not recoverable, the asset is considered
to be impaired and the value is adjusted.
VACATION ACCRUAL:
The Company records a liability for employees' compensation for future
absences as earned. The Company's policy is to allow an employee to
carry over an amount equal to the previous year's earned balance plus
one week. Management, at its discretion, may allow a carryover amount
in excess of the normal amount.
MANAGEMENT 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 such financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 2. RETAINAGE RECEIVABLE
Retainage receivable at December 31, 1996 represents the amount
withheld by the Company's customers in accordance with the terms of
the contracts. Retainage is deducted from the monthly invoices
rendered by the Company and held until successful completion of the
project. Of the total retainage receivable of $197,436 at December 31,
1996, $185,956 is retained by two companies in Saudi Arabia. Prior to
the release of the retainage by these companies, the Saudi Arabian
Department of Zakat and Income Tax must review the contracts for
proper payment of taxes, if any. Management of the Company expects the
review process to be completed in 1997 and the amounts collected in
full.
NOTE 3. NOTE PAYABLE - BANK LINE OF CREDIT
Note payable of $400,000 at December 31, 1996 consists of amounts
drawn on a bank line of credit. Interest is payable quarterly at bank
prime (7.75%) plus 1%. Principal is due at maturity on March 29, 1997.
The note is collateralized by accounts receivable and is guaranteed by
the stockholders of the Company. The note has a maximum borrowing
limit of $400,000.
The Company is subject to various financial and operating covenants
related to its bank line of credit agreement. At December 31, 1996,
the Company was not in compliance with those covenants. On January 28,
1997, the line of credit was repaid in full in connection with the
sale of the Company. See Note 9.
NOTE 4. LOANS FROM STOCKHOLDERS
Loans from stockholders at December 31, 1996 represent amounts
advanced to the Company under note agreements that bear interest at
8.5%. Interest is payable quarterly with principal due upon demand.
The notes are unsecured. Interest paid to the related parties totaled
$19,165 in 1996. On January 28, 1997, the loans were repaid in full in
connection with the sale of the Company. See Note 9.
NOTE 5. PRIOR PERIOD ADJUSTMENT
Retained earnings at the beginning of 1996 was adjusted to correct the
recognition of deferred revenue in prior years. The effect of the
adjustment was to increase beginning deferred revenue and to decrease
beginning retained earnings by $144,425.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 6. INCOME TAXES
The Company has elected to be treated as an S Corporation under the
Internal Revenue Code. Under this provision, the net taxable income of
the Company and any related tax credits are deemed to pass
proportionately to the stockholders and are included in their personal
returns even though such net taxable income or tax credits may not
actually have been distributed. Accordingly, no tax provision has been
made in the financial statements since the income tax is a personal
obligation of the stockholders.
NOTE 7. OPERATING LEASES
The Company leases office facilities and office equipment under
long-term lease agreements which have been classified as operating
leases. Minimum future lease payments under these leases are as
follows:
1997 $ 160,996
1998 51,500
1999 11,332
2000 9,043
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Total $ 232,871
----------
----------
Rent expense for the year ended December 31, 1996 totaled $156,147.
NOTE 8. COMMITMENTS
In 1996, the Company began developing a new version of its standard
modifier dictionary and related software templates and programs. The
Company estimates spending approximately $500,000 in 1997 on these
projects.
NOTE 9. SUBSEQUENT EVENTS
On January 28, 1997, the Company merged into a subsidiary of a
publicly traded corporation. The parties intend to treat the
transaction as a sale of assets for tax purposes.
Prior to the merger on January 28, 1997, the Board of Directors of
Intermat terminated employment agreements with key management
employees. The employees were given $4.4 million of consideration for
the termination of the agreements.
------------------------------------------
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<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Pro Forma Combined Financial Information
December 31, 1996
(unaudited)
On January 28, 1997, Strategic Distribution, Inc. (the "Company") acquired all
of the issued and outstanding common stock of INTERMAT International Materials
Management Engineers, Inc. ("INTERMAT"), a Texas corporation that provides
cataloging services and develops and supplies software for maintenance, repair
and operations ("MRO") inventory cataloging. The Company intends to continue to
use INTERMAT's assets in connection with its business of providing proprietary
industrial supply procurement and handling solutions. The purchase price (which
was determined as the result of arms-length negotiations between the parties)
consisted of $10,800,000 in cash, a promissory note in the amount of $1,400,000
and 625,000 newly issued shares of the Company's common stock valued at
$2,406,250. Concurrent with the closing, the Company paid off INTERMAT's
outstanding bank note in the amount of $400,000 and INTERMAT's loan from a
stockholder in the amount of $250,000.
The pro forma combined balance sheet gives effect to the acquisition as if
INTERMAT was purchased on December 31, 1996. The pro forma combined statement
of operations for the year ended December 31, 1996 gives effect to the
acquisition of INTERMAT as if the transaction occurred on January 1, 1996.
The pro forma financial information is not necessarily indicative of the results
that actually would have occurred had the transaction been in effect on the date
and for the period indicated or which may result in the future.
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Pro Forma Combined Balance Sheet
December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
As included in
the Company's
1996 Report Pro Forma Adjustments Pro Forma
on ---------------------------------
Form 10-K INTERMAT Debit Credit Combined
-------------- ------------ ---------------- --------------- ------------
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 35,498,289 $ 6,862 $ 10,800,000(a) $ 24,055,151
650,000(b)
Accounts receivable, net 17,910,400 1,185,964 19,096,364
Inventories 15,719,959 - - 15,719,959
Prepaid expenses and other current assets 435,842 35,133 470,975
Deferred tax asset 1,382,000 - - 1,382,000
------------- ----------- ------------
Total current assets 70,946,490 1,227,959 60,724,449
Property and equipment, net 2,250,793 423,337 2,674,130
Net assets of discontinued operations 16,613,963 - - 16,613,963
Excess of costs over fair value of assets 2,525,388 - - $ 14,806,250(a) 14,766,250(c) 2,565,388
Other intangible assets 14,500,031(c) 8,000,000(d) 6,500,031
Other assets 45,657 42,278 87,935
------------- ----------- ------------
Total assets $ 92,382,291 1,693,574 89,165,896
------------- ----------- ------------
------------- ----------- ------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 17,477,131 $ 777,355 200,000(a) $ 18,454,486
Note payable, bank - - 400,000 400,000(b) - -
Loan from stockholder - - 250,000 250,000(b) - -
Current portion of long-term debt 21,542 - - 21,542
------------- ----------- ------------
Total current liabilities 17,498,673 1,427,355 18,476,028
Long-term debt 587,188 - - 587,188
Subordinated debt - - - - 1,400,000(a) 1,400,000
Deferred tax liability 342,000 - - 342,000
------------- ----------- ------------
Total liabilities 18,427,861 1,427,355 20,805,216
------------- ----------- ------------
Stockholders' equity 73,954,430 266,219 8,000,000(d) 2,406,250(a) 68,360,680
------------- ----------- ------------
266,219(c)
------------- ----------- ------------ ------------- ------------
Total liabilities and stockholders' equity $ 92,382,291 $ 1,693,574 $ 38,222,500 $ 38,222,500 $ 89,165,896
------------- ----------- ------------ ------------- ------------
------------- ----------- ------------ ------------- ------------
</TABLE>
See notes to Pro Forma Combined Balance Sheet
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Pro Forma Combined Balance Sheet
(unaudited)
1. BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet gives effect to the
acquisition of INTERMAT as if INTERMAT was purchased on December 31, 1996.
2. PRO FORMA ADJUSTMENTS
(a) To record the acquisition of INTERMAT by use of existing cash, a
promissory note, and 625,000 newly issued shares of common stock.
Related estimated acquisition costs have been accrued.
(b) To record the payment of INTERMAT's bank note payable and loan from
stockholder by use of existing cash.
(c) Purchase accounting adjustments to allocate excess purchase price to
identifiable assets.
(d) To record the impact of the write-off of acquired "In-Process Research
and Development" that was expensed in the first quarter of 1997.
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Pro Forma Combined Statement of Operations
December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
As included in
the Company's
1996 Report on Pro Forma Adjustments Pro Forma
Form 10-K INTERMAT Debit Credit Combined
-------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 92,422,964 $ 4,460,241 $ 96,883,205
Costs and expenses:
Cost of materials 74,841,500 - - 74,841,500
Operating wages and benefits 8,644,072 2,260,736 $ 80,000(a) 10,984,808
Other operating expenses 1,809,152 112,470 1,921,622
Selling, general and administrative expenses 11,084,154 2,731,039 829,000(a) 14,644,193
------------ ---------- ------------
Total costs and expenses 96,378,878 5,104,245 102,392,123
------------ ---------- ------------
Operating loss (3,955,914) (644,004) (5,508,918)
Interest expense (income), net (1,367,140) 42,104 843,750(b) (481,286)
------------ ------------ ----------- ----------- -------------
Net loss from continuing operations $ (2,588,774) $ (686,108) $ 1,752,750 $ - - $ (5,027,632)
------------ ------------ ----------- ----------- -------------
------------ ------------ ----------- ----------- -------------
Net loss per share from continuing operations $ (0.10) $ (0.19)
----------- -----------
----------- -----------
Average number of shares of common stock outstanding 26,449,079 27,074,079
----------- -----------
----------- -----------
</TABLE>
See notes to Pro Forma Combined Statement of Operations
<PAGE>
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Pro Forma Combined Statement of Operations
(unaudited)
1. BASIS OF PRESENTATION
The unaudited pro forma combined statement of operations for the year ended
December 31, 1996 gives effect to the acquisition of INTERMAT as if the
transaction occurred on January 1, 1996.
In-Process Research and Development, that was expensed in the first quarter
following the acquisition, has been excluded from the Pro Forma Statement
of Operations.
2. PRO FORMA ADJUSTMENTS
(a) Purchase accounting adjustments to conform to Accounting Principles
Board Opinion No. 16 "Business Combinations", relating to the
amortization of excess of cost over fair value of net assets acquired
and intangibles acquired including: (1) assembled workforce, (2)
customer list, (3) trademarks, and (4) technology.
Excess of cost over fair value of net assets acquired in the INTERMAT
transaction is amortized on a straight-line basis over 10 years.
Intangibles acquired are amortized on a straight line basis over
periods ranging from 4 to 10 years.
(b) Assumed financing cost (interest expense and interest income foregone)
as if the purchase of INTERMAT had taken place on January 1, 1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As the independent public accountants for INTERMAT International Material
Management Engineers, Inc., we hereby consent to the incorporation in this
Form 8K/A dated April 8, 1997 of Strategic Distribution, Inc. of our report
dated February 21, 1997 on our audit of the financial statements of INTERMAT
International Materials Management Engineers, Inc. as of and for the year
ended December 31, 1996.
WALLINGFORD, McDONALD, FOX & CO., P.C.
Houston, Texas
April 8, 1997
