SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For transition period from __________ to __________
Commission File Number: 0-16753
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 58-1722085
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
130 Cedar Street, Fourth Floor, New York, NY 10006
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(Address of Principal Executive Offices) (Zip Code)
(212) 306-6100
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At August 13, 1997, the Registrant had outstanding 5,579,552 shares of
Class A Common Stock.
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INDEX
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PAGE
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PART I FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 17
CONDITION AND RESULTS OF OPERATIONS
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PART II OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS 21
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
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PART I
FINANCIAL INFORMATION
ITEM 1. INDEX TO FINANCIAL STATEMENTS
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PAGE
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Balance Sheets as of June 30, 1997 and March 31, 1997 2
Statements of Operations for the Three Months Ended June 30, 4
1997 and 1996
Statements of Cash Flows for the Three Months Ended June 30, 5
1997 and 1996
Notes to Financial Statements 6
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Information Management Technologies Corporation
BALANCE SHEETS
ASSETS
----------- ------------
June 30, March 31,
1997 1997
----------- ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 394,269 $1,228,819
Accounts receivable, net of allowance for doubtful
accounts of $48,232 at June 30, 1997 and
$36,800 at March 31, 1997 1,432,438 1,331,428
Inventory 264,982 281,729
Note receivable - related party 55,977 54,886
Prepaid expenses and other current assets 782,551 590,224
---------- ----------
Total current assets 2,930,217 3,487,086
PROPERTY AND EQUIPMENT - AT COST
Production equipment 2,975,476 2,548,699
Software 285,008 242,932
Furniture and fixtures 482,229 459,696
Leasehold improvements 646,872 609,888
Computer equipment 819,946 806,066
---------- ----------
5,209,531 4,667,281
Less: Accumulated depreciation and amortization 2,185,833 2,065,833
---------- ----------
Net property and equipment 3,023,698 2,601,448
---------- ----------
OTHER ASSETS
Note receivable - related party 180,672 195,114
Deposits and other assets 479,526 364,405
Investment in INSCI Corp. 1,452,329 1,782,108
---------- ----------
Total other assets 2,112,527 2,341,627
---------- ----------
TOTAL ASSETS $8,066,442 $8,430,161
========== ==========
The accompanying notes are an integral part of these financial statements.
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Information Management Technologies Corporation
BALANCE SHEETS (Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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June 30, March 31,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current debt $ 380,000 $ 380,000
Current maturities of long-term debt 331,004 288,329
Current maturities of long-term capital lease obligations 253,515 280,878
Accounts payable 1,313,433 1,479,166
Accrued salaries 74,087 157,820
Other accrued liabilities 726,398 684,221
------------ ------------
Total current liabilities 3,078,437 3,270,414
LONG-TERM DEBT, less current maturities 790,000 900,000
DEFERRED RENT 380,847 382,677
CAPITAL LEASE OBLIGATIONS, less current maturities 434,012 213,002
------------ ------------
Total long-term liabilities 1,604,859 1,495,679
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
12% Preferred Stock - authorized 3,000,000 shares at
$1.00 par value; 2,534,100 shares issued and
outstanding at June 30, 1997 and March 31, 1997 2,534,100 2,534,100
Class A common stock - authorized 100,000,000 shares
at $.04 par value; 5,579,552 shares issued and
outstanding at June 30, 1997 and March 31, 1997 223,182 223,182
Additional paid-in capital 31,795,144 31,528,477
Unrealized gain from investment in securities available
for sale 1,452,329 1,774,515
Accumulated deficit (32,621,609) (32,396,206)
------------ ------------
Total stockholders' equity 3,383,146 3,664,068
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,066,442 $ 8,430,161
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Information Management Technologies Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
-------------------------
Three Months Ended
June 30,
------------------------
1997 1996
----------- ----------
Revenues $ 2,564,928 $2,606,118
Cost of sales 1,917,956 1,755,063
----------- ----------
Gross profit 646,972 851,055
Operating expenses:
Selling, general and administrative expenses 509,212 678,200
----------- ----------
Income from operations 137,760 172,855
Other (income) expenses:
Interest expense, net 96,496 97,521
Interest - beneficial conversion - convertib 266,667 --
Equity in net (income) of INSCI Corp. -- (25,080)
----------- ----------
Net other expense 363,163 72,441
----------- ----------
Net income (loss) $ (225,403) $ 100,414
=========== ==========
Net income (loss) per share $ (0.04) $ 0.03
=========== ==========
Weighted average number of shares outstanding 5,579,552 3,937,684
=========== ==========
The accompanying notes are an integral part of these financial statements.
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Information Management Technologies Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
-------------------------
Three Months Ended
June 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (225,403) $ 100,414
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 120,000 103,642
Amortization of loan and consulting fees 28,135 --
Amortization of beneficial conversion feature related
to convertible debt 266,667 --
Equity in net income of INSCI Corp. -- (25,080)
Provision for doubtful accounts 18,025 (43,717)
Deferred rent (1,830) 1,781
Changes in assets and liabilities:
Accounts receivable (119,035) (104,214)
Inventory 16,747 (144,910)
Prepaid expenses and other current assets,
deposits and other (335,583) 10,281
Accounts payable, accrued expenses and other
current liabilities (88,005) (1,048,869)
----------- -----------
Net cash used in operating activities (320,282) (1,150,672)
----------- -----------
Cash flows from investing activities
Capital expenditures (232,249 (96,588)
Repayments from loan to related party 13,351 --
Repayments by INSCI Corp. -- 25,500
----------- -----------
Net cash used in investing activities (218,898) (71,088)
----------- -----------
Cash flows from financing activities
Financing from cash overdraft -- 195,035
Net repayments under bank credit facility -- (640,056)
Net proceeds from issuance of long-term debt 90,000 --
Payments of capital lease obligations (116,353) (44,077)
Repayments of long-term debt (269,017) (300,702)
----------- -----------
Net cash used in financing activities (295,370) (789,800)
----------- -----------
Net decrease in cash and cash equivalents (834,550 (2,011,560)
Cash and cash equivalents, beginning of year 1,228,819 2,011,560
----------- -----------
Cash and cash equivalents, end of period $ 394,269 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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THE COMPANY
Information Management Technologies Corporation (referred to as "IMTECH"
or the "Company") was incorporated in 1986 in the State of Delaware. The Company
provides information processing and facilities management services to financial,
legal, accounting and other medium to large service organizations which operate
in business environments that are characterized by substantial information
processing, communications and document administration requirements. The
Company's customer base is principally located in New York City and the
surrounding metropolitan area, such as New Jersey, Southeast Connecticut and
Westchester County. The Company has also begun to service clients in
Pennsylvania, the midwest and in Europe, as a result of strategic alliances with
two New York based service providers. The alliances allow IMTECH to offer its
clients a smooth process of receiving and managing data for print production and
subsequent distribution.
The Company holds a 12% ownership interest in INSCI Corp. ("INSCI") at
June 30, 1997. At June 30, 1996, the Company held a 38% ownership interest in
INSCI. The investment in INSCI was accounted for under the equity method through
the period when the Company owned more than 20% of the common stock in INSCI.
When the Company's investment in INSCI decreased below 20% the investment in
INSCI was accounted for under the "Securities Available For Sale" method as
promulgated by Statement of Financial Accounting Standards ("SFAS") No. 115.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") established
for interim financial information and Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures
required by GAAP for complete financial statements. Management believes however
that all of the adjustments considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ended March 31, 1998. For further information, refer to the financial
statements and disclosures thereto included in the Company's annual report on
Form 10-K for the year ended March 31, 1997.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies that
have been applied on a consistent basis in the preparation of the accompanying
financial statements:
1. Revenue Recognition
Revenue is recorded when services are performed or upon delivery of the
product.
2. Cash and Cash Equivalents
For the purposes of reporting cash flows (presented under the indirect
method), the Company considers all highly liquid investments with
insignificant interest rate risk and an original maturity of three months or
less to be cash equivalents. The cash equivalents are carried at cost which
approximates fair value. At June 30, 1997, cash equivalents included funds
deposited in a liquid asset fund with a financial institution.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3. Inventory
Inventory consists primarily of paper, toner and inks, and is stated at the
lower of cost (determined by the first-in, first-out method) or market.
4. Property and Equipment
Depreciation of capital assets is provided to relate the cost of the
depreciable assets to operations over their estimated useful service lives.
In that connection, production equipment, computer hardware and software and
furniture and fixtures are depreciated by the straight-line method over
estimated useful lives ranging from five to seven years. Leasehold
improvements are amortized by the straight-line method over the lesser of the
lease term or estimated useful lives of the improvements. Major additions and
betterments are capitalized and repairs and maintenance are charged to
operations in the period incurred. At the time of disposal of any property
and equipment, the cost and accumulated depreciation or amortization are
removed from the accounts and any resulting gain or loss is recognized in the
current period's earnings.
5. Deferred Financing Costs
Costs incurred to secure financing arrangements are included in deposits and
other assets in the balance sheets. The costs are amortized over the life of
the related credit facilities, which range from 24 to 110 months.
6. Income (Loss) Per Share
Net income (loss) per share is calculated on the basis of the weighted
average of number shares outstanding during the period. The effect on net
income (loss) per share of the stock options and warrants outstanding is
antidilutive and is not included in the calculation of the weighted average
number of shares outstanding.
7. Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash and accounts receivable.
The Company maintains cash balances at various banks and places its temporary
cash investments in a liquid asset fund with one financial institution.
Accounts at the banks and financial institution are insured by the Federal
Deposit Insurance Corporation (FDIC) and the Securities Investor Protection
Corporation (SIPC) up to $100,000 and $500,000, respectively.
The Company performs ongoing credit evaluations of its customers and records
reserves for potentially uncollectible accounts receivable which are deemed
credit risks as determined by management. Accounts receivable consist of
geographically and industry dispersed customers.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
8. Use of Estimates
The preparation of the accompanying financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
9. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, trade receivables and
payables and debt instruments. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively short
period of time between the origination of the instruments and their expected
realization. The carrying amount of the debt is based on the current market
interest rates being paid, and as a result, it approximates fair value.
10.Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market or discounted cash flow value is
required. No such write-downs were required for the three months ended June
30, 1997.
11.Accounting for Stock Options
Prior to April 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. APB No. 25 requires that compensation expense be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. During the fiscal year ended March 31, 1997, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB No. 25 and provide pro
forma net income (loss) and pro forma income (loss) per share disclosures for
employee stock option grants made from 1995 forward as if the
fair-valued-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide pro forma disclosure provisions of SFAS No. 123.
12.Convertible Debt
The beneficial conversion feature of certain outstanding convertible
securities is accounted for as additional interest to the holders and
amortized over the period from the date of issue through the date the
securities first become convertible. This policy conforms to the accounting
for these transactions announced by the Securities and Exchange Commission
("SEC") Staff in March 1997.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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INVESTMENT IN INSCI CORP.
The Company holds a 12% ownership interest in INSCI, its former
majority-owned subsidiary. At June 30, 1997, the carrying value and estimated
fair market value of the Company's investment in INSCI is as follows:
------------------------------------------
Cost Basis Market Value Unrealized Gain
------------------------------------------
Investment in INSCI Corp. (518,689 - $1,452,329 $1,452,329
shares)
================================================================================
The investment is accounted for under the "Securities Available For Sale" method
as promulgated by SFAS No. 115. As a result, the investment is carried at fair
market value. During the second quarter of fiscal year 1997, the Company sold
703,000 shares of INSCI Corp. stock. Prior to that sale, IMTECH owned a 38%
interest in INSCI, whose results were accounted for under the equity method. At
June 30, 1997, 400,000 shares of the INSCI stock is pledged as collateral for
the outstanding 12% convertible secured promissory notes issued in connection
with the February 1997 private placement offering of $1,000,000. However, the
Company has the right to receive the return of 100,000 shares of the pledged
stock in the event it becomes required in order for IMTECH to obtain financing.
CURRENT DEBT
At June 30, 1997 and March 31, 1997, current debt consisted of:
----------------------
June 30, March 31,
1997 1997
-----------------------------------------------------------------------
12% subordinated convertible debentures $ 380,000 $ 380,000
========= =========
In connection with a private placement completed in January 1996, the Company
issued $380,000 in subordinated convertible debentures. The debentures accrue
interest at a per annum rate of 12% and entitle the holders to convert the
debentures plus accrued interest into Class A common stock of the Company at a
price per share of $1.50. The debentures mature in January 1998.
LONG-TERM DEBT
At June 30, 1997 and March 31, 1997, long-term debt obligations consisted
of the following:
--------------------------
June 30, March 31,
1997 1997
-------------------------------------------------------------------------
Trade payables conversion notes [2] $ 331,004 $ 288,329
12% convertible secured notes [1], [3] 790,000 900,000
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1,121,004 1,188,329
Less: Current maturities 331,004 288,329
---------- ----------
Total long-term debt $ 790,000 $ 900,000
========== ==========
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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LONG-TERM DEBT (Continued)
[1]In connection with a February 1997 private placement offering, the Company
issued convertible secured promissory notes in exchange for proceeds of
$1,000,000 (of which $900,000 was received in the prior fiscal year and the
balance of $100,000 was received during the three months ended June 30, 1997)
as part of a private placement offering. The notes bear interest at a per
annum rate of 12%, and at the option of IMTECH, the interest can either be
paid in cash or in the Company's Class A common stock. The notes are secured
by a pledge of 400,000 shares of INSCI Corp. stock. The Company has the
right, under the pledge agreement, to receive the return of 100,000 shares of
the pledged stock in the event it becomes required in order for IMTECH to
obtain a credit line or enter into a lease agreement for equipment. The notes
can be converted into Class A common stock of the Company at a 40% discount
to the previous five day average closing price, subject to certain conversion
limitations as set forth in the placement memorandum. The right of conversion
permits the holders the right to convert up to a maximum of 10% of their note
holdings in any month for a period of three years from the effective date of
registration for the shares of Class A common stock underlying the notes. At
the end of the three year conversion period the notes are subject to a
mandatory conversion. The Company agreed to use its best efforts to file a
registration statement for the shares and warrants underlying the notes
within 180 days from the date of issue. In addition, each $1.00 principal
amount of the notes entitles the holders to one warrant to purchase one share
of IMTECH's Class A common stock at a 40% discount to the previous five day
average closing price prior to the conversion of the warrants. The Company
has granted cost-free demand and "piggyback" registration rights with respect
to the stock underlying the notes issued to the holders.
[2]In June 1997 and March 1996, the Company negotiated with two of its key
suppliers to convert $111,692 and $545,472 of accounts payable, respectively,
into unsecured installment promissory notes. The notes are payable in monthly
aggregate installments of $35,292 including interest at a per annum rates
ranging from 8.5% to 11.5%.
[3]In an Emerging Issues Task Force ("EITF") meeting sponsored by the Financial
Accounting Standards Board, held on March 13, 1997, the Securities and
Exchange Commission ("SEC") announced their position on the accounting for
the issuance of convertible debt securities with a nondetachable conversion
feature that is "in-the-money" at the date of issue. Those securities are
usually convertible into common stock at the lower of a conversion rate fixed
at the date of issue or a fixed discount to the common stock's market price
at the date of conversion, creating a "beneficial conversion feature". The
SEC believes that the beneficial conversion feature should be recognized and
measured by allocating a portion of the proceeds equal to the intrinsic value
of that feature to additional paid-in capital. The amount is calculated at
the date of issue as the difference between the conversion price and the fair
value of the common stock into which the security is convertible. The
discount resulting from the allocation of the proceeds, in effect, increases
the interest rate of the security and should therefore be amortized as a
charge to interest expense over the period from the date the security is
issued to the date it first becomes convertible. The beneficial conversion
feature of the convertible secured promissory notes above is accounted for as
additional interest expense. For the three months ended June 30, 1997,
additional interest expense of approximately $267,000 was charged to
operations.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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RELATED PARTY TRANSACTIONS
BLITZ SYSTEMS, INC.
IMTECH is party to a consulting agreement with Blitz Systems, Inc.
("Blitz"), a company owned 100% by the Chief Executive Officer of IMTECH. Blitz
is a computer systems consulting firm specializing in developing total business
solutions for business management systems. During the year ended March 31, 1997,
the Company renewed the agreement for one year (November 1, 1996 through October
31, 1997), at a base consulting fee of $520,000 per annum plus the cost of
related computer hardware and software. Prior to fiscal year 1997, Blitz had
performed computer consulting services for IMTECH on a month-to-month basis.
Blitz's responsibilities under the contract are to reengineer, reorganize and
run the day-to-day operations of IMTECH's data processing department. In
addition, Blitz is to (1) provide extensive technical support for many of
IMTECH's clients on-site; (2) analyze, design and develop customized database
systems as required by the management of IMTECH; and (3) provide support for the
Company's Xerox 9700 laser printing system and related programming. Fees paid to
Blitz and charged to operations for the three months ended June 30, 1997
amounted to approximately $160,200.
In December 1996, IMTECH provided Blitz with a secured loan in the amount of
$250,000. The loan is evidenced by a Secured Promissory Note and collateralized
by a security interest on the accounts receivable, equipment and tangible and
intangible assets of Blitz up to $250,000. On April 30, 1997, Blitz commenced
repayment of the note on an installment basis over a forty-eight month period at
$6,162 per month including interest at 8.5%, through March 2001.
RESEARCH DISTRIBUTION SERVICES, INC.
In November 1996, the Company entered into a service agreement with
Research Distribution Services, Inc. ("RDS"), a company owned by the Chief
Executive Officer of IMTECH. Under the contract, RDS is to provide mailing list
database management, fulfillment, mailing and related services to IMTECH for a
period of one year. The contract runs from January 1, 1997 through December 31,
1997, at a monthly minimum cost to IMTECH of $22,500 (based on minimum average
fulfillment levels as stipulated in the agreement). Total fees charged to
operations for the three months ended June 30, 1997 amounted to approximately
$67,800.
CAPITAL LEASE OBLIGATIONS
The Company is the lessee of various high speed duplicating equipment
under noncancellable capital leases expiring in various years through 2002. The
assets and liabilities under the capital leases are recorded at the lower of the
present value of the minimum lease payments (based on interest rates ranging
from 10% to 26%) or the fair value of the assets. The assets are depreciated
over the lower of their related lease terms or their estimated productive lives.
At June 30, 1997 and March 31, 1996, the book value of the equipment under
capital leases was approximately $1,171,000 and $901,000, respectively.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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OPERATING LEASE
The Company leases its executive and regional service center facilities
(approximately 32,000 square feet) in a building located at 130 Cedar Street in
New York City, under a lease expiring in July 2003. The rental payments under
the lease are subject to annual cost of living and maintenance increases. In
June 1995, the Company renegotiated the terms of the lease for 130 Cedar Street
to reflect the return of 20,000 square feet of previously occupied space. A
lease buyout agreement was executed which required IMTECH to pay a fixed fee of
approximately $377,000 in full satisfaction of the previously leased space.
Generally accepted accounting principles require that rental payments
under a noncancellable lease with scheduled rent increases be recognized on a
straight-line basis over the lease term. As a result, additional rent expense
has been recognized for the three months ended June 30, 1997 and 1996.
Consequently, deferred rent of approximately $380,800 and $382,700 representing
pro-rata future payments is reflected in the accompanying balance sheets as of
June 30, 1997 and March 31, 1997, respectively.
Minimum future rental payments under the noncancellable operating lease at
June 30, 1997 were as follows:
----------------------------
For the Year Ended March 31,
---------------------------------------
1998 - Remaining $ 374,900
1999 512,000
2000 528,000
2001 544,600
2002 579,800
Thereafter 775,000
-----------
$ 3,314,300
===========
INCOME TAXES
Deferred income tax assets and liabilities are computed as the difference
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
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Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
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INCOME TAXES (Continued)
At March 31, 1997, the Company had net operating loss carryforwards
("N.O.L.'s") totaling $13,785,000 available to offset future federal and state
taxable income through 2011 as follows:
------------- ----------
N.O.L.'s Expiring
---------------------------------------------
March 31,
1989 $ 2,209,000 2004
1990 2,405,000 2005
1991 1,407,000 2006
1992 1,628,000 2007
1994 284,000 2009
1995 1,350,000 2010
1996 4,502,000 2011
------------
$ 13,785,000
============
The tax benefits resulting from the N.O.L.'s have been fully reserved because
the likelihood of their realization could not be determined.
COMMON STOCK OPTIONS
NON-QUALIFIED STOCK OPTION PLAN
In August 1987, the Board of Directors approved and adopted a Non-Qualified
Stock Option plan ("NQSO"). Under the NQSO plan, individuals determined to be
key persons whom the Company relies on for the successful conduct of its
business, as determined by the Compensation Committee, are granted options to
purchase IMTECH's Class A common stock. There are 4,000,000 shares reserved
for grant under the NQSO plan. At June 30, 1997, options to purchase
approximately 1,866,000 shares of Class A common stock were outstanding and
approved for grant under the NQSO plan at exercise prices ranging from $1.00
to $9.90 per share.
INCENTIVE STOCK OPTION PLAN
In August of 1987, the Board of Directors adopted the Company's Incentive
Stock Option plan ("ISO"). The ISO plan allows the Company to grant to
employees determined to be key personnel by management, incentive stock
options under the guidelines of Section 422 of the Internal Revenue Code. The
plan is available to all of the Company's employees, including officers and
employee directors, and is intended to be used by management to attract and
retain key employees. The ISO is administered by the Compensation Committee,
who establishes the terms of the options granted including their exercise
prices, the dates of grant and number of shares subject to options.
13
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================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
================================================================================
COMMON STOCK OPTIONS (Continued)
INCENTIVE STOCK OPTION PLAN (Continued)
The exercise prices of all of the options granted under the ISO plan must be
equal to no less than the fair market value of the Class A common stock on
the date of grant, and the terms of the options may not exceed ten years.
3,000,000 shares of IMTECH Class A common stock are reserved under the ISO
plan for grant. For any stockholder who may own more than 10% of the
Company's outstanding voting shares, the exercise price of options received
under the ISO plan must be at least equal to 110% of the fair market value of
the Class A common stock on the date of grant, and the term of the options
must not exceed five years. At June 30, 1997, options to purchase
approximately 2,346,000 shares of IMTECH's Class A common stock were
outstanding and approved for grant under the ISO plan at exercise prices
ranging from $1.88 to $5.85 per share.
DIRECTORS OPTION PLAN
In October 1988, the Board of Directors adopted the Directors Option ("DO")
plan, which was authorized by the stockholders' on December 19, 1988, and was
subsequently amended in October 1992. The purpose of the DO plan is to help
IMTECH retain the services of qualified non-officer or non-employee
directors, who are considered essential to the business progress of the
Company. Under the DO plan, options are granted only on the date of the
annual stockholders' meeting held once every calendar year. A total of
1,500,000 shares of the Company's Class A common stock has been reserved for
grant under the DO plan. At June 30, 1997, there were no options outstanding
under the DO plan.
STOCK-BASED COMPENSATION
During the fiscal year ended March 31, 1997, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation". The pronouncement requires
entities to recognize as compensation expense over the vesting period the fair
value of stock-based awards on the date of grant. Alternatively SFAS No. 123
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income and pro forma income (loss) per share disclosures for
employee stock option grants made from 1995 forward as if the fair-valued-based
method defined in SFAS No. 123 had been applied. The Company has elected to
adopt the disclosure-only provisions of SFAS No. 123, and as described above,
will continue to apply APB No. 25 to account for stock options. Had compensation
expense been determined as provided in SFAS No. 123 for stock options the pro
forma effect on the financial statements for the three months ended June 30,
1997 would have been immaterial.
14
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================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
================================================================================
CONTINGENCIES
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION
In September 1992, IMTECH and INSCI Corp., the Company's then
majority-owned subsidiary, (collectively known as the "Companies"), reached an
agreement with the Securities and Exchange Commission ("SEC") to conclude and
settle an informal investigation of the Companies. The Companies, without
admitting or denying any of the allegations made by the SEC in its complaint,
and without trial or final adjudication of the allegations made, consented to
the entry of a five year order, (which expires September 30, 1997), enjoining
IMTECH and INSCI from future violations of certain provisions of the federal
securities laws and the rules and regulations thereunder. The settlement may
adversely affect the Companies by restricting their ability to raise funds from
individuals located in certain significant states. The impact of the
restrictions may prevent both IMTECH and INSCI from conducting future public
offerings or private placements to raise capital.
On April 3, 1995, the SEC issued a private order of the investigation of
both IMTECH and INSCI, the Company's then majority-owned subsidiary (which
IMTECH currently holds a 12% ownership interest in), and their officers and
directors for the period March 1994 through April 13, 1995. The order of
investigation inquired into whether the Companies and their then officers and
directors violated the following Rules of the Securities Exchange Act of 1934:
Rule 10b-5; Section 13(a) and Rules 12b-20, 13a-11 and 13a-13, failure to file
annual reports and other required information of the SEC rules and regulations;
Section 13(b)3, failure to maintain proper books and records; Section
13(b)(2)(a), Rules 13b-1 and 13b-2, falsification or caused to be falsified
books and records of the Companies. On September 10, 1996, the SEC informed
IMTECH that the staff inquiry related to those matters had been terminated and
no action had been recommended at that time.
EMPLOYEE BENEFIT PLANS
In January 1994, the Company received correspondence from the United
States Department of Labor (the "DOL") stating their intent to penalize the
Company in connection with an investigation of past IMTECH employee benefit
plans (prior to April 1, 1992). The DOL concluded that for one of the plan years
in question, the Company did not file the proper financial information required.
As a result, the DOL states in their correspondence that they intend to penalize
the Company for the amount of $50,000 regarding their findings. As of June 30,
1997, the penalty amount had not yet been assessed.
In January 1996, the Company implemented a 401(k) plan covering all
eligible employees (personnel with twelve consecutive months of service).
Employer contributions to the plan are based on the discretion of management.
Employees can elect to contribute up to a maximum of 15% of their salaries to
the plan. Since its inception, IMTECH has not made any contributions to the
plan, matching or otherwise.
REGISTRATION RIGHTS
The Company has granted, without cost, demand and "piggyback" registration
rights with respect to the stock underlying securities issued or issuable to the
holders of certain outstanding warrants and shares of the Company. Although the
Company has agreed to register the underlying shares with respect to these
securities, no registration statement has been filed as of the current time.
Consequently, the security holders may assert a potential claim against the
Company for damages.
15
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================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
June 30, 1997
================================================================================
CONTINGENCIES (Continued)
EMPLOYMENT AGREEMENTS
In December 1996, the Board of Directors appointed Matti Kon as the
Company's Chief Executive Officer. Consequently, the Company entered into an
employment agreement with Mr. Kon which provides for a base annual salary of
$200,000 plus an incentive bonus equal to 20% of operating income as reported in
the annual 10-K document, up to a maximum of $500,000. The agreement has an
initial one year term and awarded Mr. Kon 500,000 options to purchase 500,000
shares of the Company's Class A common stock at an exercise price of $1.18 per
share as a signing bonus. In the event the employment agreement is renewed for
an additional one year term, Mr. Kon will be entitled to receive an additional
500,000 options to purchase 500,000 shares of Class A common stock at his
original exercise price. The agreement further provides that Mr. Kon has the
right to devote his time and attention to his other business interests.
The Company has entered into an employment agreement with Mr. Joseph
Gitto, its President and Chief Financial Officer. The agreement, as amended in
July 1997, has an initial one year term and provides for an annual base salary
of $165,000. In addition, Mr. Gitto is entitled to an incentive bonus equal to
15% of operating income as reported in the annual 10-K document, up to a maximum
of $150,000, and has been awarded 600,000 options to purchase 600,000 shares of
the Company's Class A Common stock at exercise prices ranging from $1.25 to
$1.88 per share.
OTHER
In November 1995, the Company entered into a three year service agreement
with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH
with promotional and brokerage communication services related to the marketing
of the Company's stock. As consideration for their services, IMTECH was to pay
CRG the sum of $300,000 or 171,000 shares of the Company's free trading Class A
common stock plus 500,000 options to purchase 500,000 shares of Class A common
stock at exercise prices ranging from $1.75 to $3.06 per share for a period of
five years.
The Company elected to pay CRG by issuing 171,000 shares of Class A common
stock. The Company made an initial payment to CRG of 92,250 shares of freely
traded Class A common stock which IMTECH borrowed from a number of shareholders.
The Company agreed to repay the shareholders by making interest payments at a
rate of 10% per annum in addition to returning the borrowed shares plus one
additional share of Class A common stock for each ten shares of borrowed stock
(an aggregate of 9,250 additional shares). The Company further agreed to grant
cost free registration rights to each lender for the additional shares as a
result of the loan transaction. The balance of the 78,750 shares was not
remitted to CRG. CRG asserted a claim for the balance of the shares. The Company
has disputed the claim based upon the position that CRG did not perform under
the provisions of the service contract. The Company is currently in the process
of instituting legal action, in the state of Florida based upon the jurisdiction
which was recited in the agreement, to recover the stock and seek punitive
damages from CRG.
16
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- - --------------------------------------------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS
The following schedule sets forth the percentage relationship of
significant items of the Company's results of operations to revenues:
===================================================================
For the Three Months
Ended June 30,
======================
1997 1996
===================================================================
Revenues 100 % 100 %
Cost of sales 75 67
-------------------------------------------------------------------
Gross profit 25 33
Operating expenses:
Selling, general and administrative 20 26
-------------------------------------------------------------------
Income from operations 5 7
Other (income) expenses:
Interest expense, net 4 4
Interest on beneficial conversion of 10 -
12% secured notes
Equity in net income of INSCI Corp. - (1)
-------------------------------------------------------------------
Net other expense 14 3
-------------------------------------------------------------------
Net income (loss) (9) % 4 %
===================================================================
17
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
THREE MONTHS ENDED 6/30/97 AS COMPARED TO THE THREE MONTHS ENDED 6/30/96
During the three months ended June 30, 1997, the Company reported revenues
of approximately $2,565,000, a decrease of $41,000 (or 2%) from revenues of
approximately $2,606,000 reported during the three months ended June 30, 1996.
The decrease in revenues was primarily attributable to decreased revenues from
the Company's Litigation Duplication ("Lit Dup") division (a non-core profit
center). Revenues generated from the Company's Lit Dup division amounted to
approximately $103,000 (4% of total revenues for the three months ended June 30,
1997) ; a decrease of $193,000 (or 65%) from revenues of approximately $296,000
(11% of total June 30, 1996 revenues) reported for the three months ended June
30, 1996. As of June 30, 1997, the Company was party to eight (8) Facility
Management contracts, as compared to six (6) of such agreements at June 30,
1996. Revenues generated from the Company's Facility Management division for the
three months ended June 30, 1997 amounted to approximately $210,000 (8% of total
June 30, 1997 revenues); a decrease of $92,000 (or 30%) from Facility revenues
of $302,000 (12% of total June 30, 1996 revenues) reported for the three months
ended June 30, 1996.
Revenues from the Company's Regional Service Center ("RSC") operations
increased approximately $244,000 (or 12%) to approximately $2,252,000 (88% of
total revenues) for the three months ended June 30, 1997; compared to RSC
revenues of approximately $2,008,000 (77% of total June 1996 revenues) reported
for the three months ended June 30, 1996.
Cost of sales for the three months ended June 30, 1997 amounted to
approximately $1,918,000 (75% of total revenues) ; an increase of $163,000 (or
9%) from cost of sales of approximately $1,755,000 (67% of total June 1996
revenues) reported for the three months ended June 30, 1996. The increase in
cost of sales relates directly to increases in the Company's purchases and
consumption of paper and related supplies (of approximately $231,000) used in
print production as IMTECH's emphasis continues to shift more toward Research
Report printing and away from facility management services (with the exception
of off-site Facility Management relationships). The increase in production
material levels was offset by a decrease (of approximately $70,000) in personnel
and related costs as the Company continued to redeploy and streamline its core
production staff.
Selling, general and administrative ("S,G&A") costs for the three months
ended June 30, 1997 amounted to approximately $509,000 (20% of total June 1997
revenues); a decrease of $169,000 (or 25%) from SG&A of approximately $678,000
(26% of total revenues) reported for the three months ended June 30, 1996. The
reduction in SG&A is primarily attributable to a decrease in overhead as a
result of management's continuing efforts to make the Company operate more
efficiently.
Interest expense for the three months ended June 30, 1997 totaled
approximately $96,000 (4% of total revenues) which was consistent with the
interest reported for the three months ended June 30, 1996 of approximately
$97,000 (also 4% of total revenues at June 30, 1996). However, as a result of
complying with the Securities and Exchange Commission's ("SEC") position of
accounting for the beneficial conversion feature of debt instruments, announced
in March of 1997, the Company recorded an additional interest charge of
approximately $267,000 (10% of total June 30, 1997 revenues) for the three
months ended June 30, 1997. The additional interest charge, as it relates only
to the compliance of the SEC's position, and has no bearing on the operations of
the Company, represents the amortization of the conversion feature attached to
the 12% convertible secured promissory notes outstanding at June 30, 1997. The
interest is calculated as the difference between the conversion price and the
fair value of the common stock into which the notes are convertible.
18
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The schedule below sets forth the Company's cash flow activities for the three
months ended June 30, 1997 and 1996:
===================================================================
For the Three Months Ended
March 31,
=============================
1997 1996
===================================================================
Operating activities $ (320,000) $ (1,151,000)
Investing activities (219,000) (71,000)
Financing activities (295,000) (789,000)
-------------------------------------------------------------------
Decrease in cash and cash equivalents $ (834,000) $ (2,011,000)
===================================================================
During the first quarter ended June 30, 1997, net cash used in operating
activities amounted to approximately $320,000. The net outlay of cash was
attributable to increases in accounts receivable and prepaid expenses and
deposits of approximately $119,000 and $335,000, respectively. The net cash used
for the period was partially offset by an increase in accounts payable and
accrued liabilities of approximately $88,000.
Net cash used for investing activities totaled approximately $219,000. The
net outflow was primarily attributable to expenditures of capital assets which
amounted to approximately $232,000. The cash outflow was offset by scheduled
repayments from a loan to a related party.
Net cash used in financing activities amounted to approximately $295,000,
and consists of the following components:
1) Repayments of capital lease obligations of $116,000; and
2) Repayments of long-term debt of $269,000.
These repayments were offset in part by proceeds the Company received from the
issuance of 12% convertible secured promissory notes in the amount of $90,000
offered as part of a private placement which was completed in February 1997.
As of June 30, 1997 and 1996, the Company had a working capital deficiency
of approximately $148,000 and $38,000, respectively.
IMTECH has not pledged its assets except for the 400,000 shares of INSCI
common stock that is pledged as collateral for the 12% convertible secured
promissory notes. Management believes that the Company has the ability and
resources to raise additional capital through financing of its receivables or by
further divesting its ownership interest in INSCI Corp.
19
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
During the fiscal year ended March 31, 1997, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation". The pronouncement requires
entities to recognize as compensation expense over the vesting period the fair
value of stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income and pro forma income (loss) per share disclosures for
employee stock option grants made from 1995 forward as if the fair-valued-based
method defined in SFAS No. 123 had been applied. The Company has elected to
adopt the disclosure-only provisions of SFAS No. 123 and will continue to apply
APB No. 25 to account for stock options.
In an Emerging Issues Task Force ("EITF") meeting sponsored by the
Financial Accounting Standards Board held on March 13, 1997, the Securities and
Exchange Commission ("SEC") announced their position on the accounting for the
issuance of convertible debt securities with a nondetachable conversion feature
that is "in-the-money" at the date of issue. Those securities are typically
convertible into common stock at the lower of a conversion rate fixed at the
date of issue or a fixed discount to the common stock's market price at the date
of conversion, creating a "beneficial conversion feature". The SEC believes that
the beneficial conversion feature should be recognized and measured by
allocating a portion of the proceeds equal to the intrinsic value of that
feature to additional paid-in capital. The amount is calculated at the date of
issue as the difference between the conversion price and the fair value of the
common stock into which the security in convertible. The discount resulting from
the allocation of the proceeds, in effect, increases the interest rate of the
security and should therefore be amortized as a charge to interest expense over
the period from the date the security is issued to the date it first becomes
convertible. The Company calculated the beneficial conversion feature of certain
convertible debt and has accounted for it as additional interest expense for the
three months ended June 30, 1997 and 1996.
INFLATION
The Company has not experienced significant increases in the prices of
materials or in the payment of operating expenses as a result of inflation.
Although inflation has not been a significant factor to date, there can be no
assurances that it will not be in the future.
20
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================================================================================
PART II
OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- - --------------------------------------------------------------------------------
In September 1992, IMTECH and INSCI, the Company's then majority-owned
subsidiary (collectively known as the "Companies"), reached an agreement with
the Securities and Exchange Commission ("SEC") to conclude and settle an
informal investigation of the Companies. The Companies, without admitting or
denying any of the allegations made by the SEC in its complaint, and without
trial or final adjudication of the allegations made, consented to the entry of a
five year order, (which expires on September 30, 1997), enjoining IMTECH and
INSCI from future violations of certain provisions of the federal securities
laws and the rules and regulations thereunder. The settlement may adversely
affect IMTECH and INSCI by restricting their ability to raise funds from
individuals located in certain significant states. The impact of the
restrictions may prevent IMTECH and INSCI from conducting future public
offerings or private placements to raise capital. IMTECH and INSCI may also be
subject to contempt of court or other sanctions if they, at any time in the
future, engage in actions that are deemed to violate the consent judgment and
injunctions.
In January 1994, IMTECH received correspondence from the U.S. Department
of Labor ("DOL") stating their intent to penalize the Company in connection with
their investigation of past IMTECH employee benefit plans. The DOL determined
that for one of the plan years in question, the Company did not file the proper
financial information required. The DOL states in their correspondence that they
intend to penalize the Company for the amount of $50,000 regarding their
findings. As of June 30, 1997, the penalty amount had not yet been assessed.
On April 13, 1995, the SEC issued a private order of investigation of
IMTECH and INSCI, the Company's former majority-owned subsidiary (which IMTECH
currently holds a 12% ownership interest in), and their officers and directors
for the period March 1993 through April 1995. The order of investigation
inquired into whether the Companies and their then officers and directors
engaged in violations of Rule 10b-5 of the Securities Exchange Act of 1934 (the
"Exchange Act"), failed to file annual reports and other information as required
by the rules and regulations of the SEC in violation of Section 13(a) of the
Exchange Act and Rules 12b-20, 13a-11 and 13a-13, and failed to maintain proper
books and records in violation of Section 13(b)(2) of the Exchange Act or
falsified or caused to be falsified books and records of the Companies in
violation of Section 13(b)(2)(a), Rule 13b 2-1, and Rule 13b 2-2 of the Exchange
Act. On September 10, 1996, the SEC informed IMTECH and INSCI that the staff
inquiry related to those matters had been terminated and no action had been
recommended at that time.
In November 1995, the Company entered into a three year service agreement
with Corporate Relations Group, Inc. ("CRG"), whereby CRG was to provide IMTECH
with promotional and brokerage communication services. As consideration for
their services, IMTECH was to pay CRG the sum of $300,000 or 171,000 shares of
the Company's free trading Class A common stock plus 500,000 options to purchase
500,000 shares of Class A common stock at exercise prices ranging from $1.75 to
$3.06 per share for a period of five years. The Company elected to pay CRG by
issuing 171,000 shares of Class A common stock. Initially, the Company delivered
to CRG 92,250 shares of the freely traded Class A common stock which IMTECH
borrowed from a number of shareholders. The Company agreed to repay the
shareholders by making interest payments at a rate of 10% per annum in addition
to returning the borrowed shares plus one additional share of Class A common
stock for each ten shares of borrowed stock (an aggregate of 9,250 additional
shares). The Company further agreed to grant cost free registration rights to
each lender for the additional shares as a result of the loan transaction. The
balance of the 78,750 shares were not remitted to CRG. CRG asserted a claim for
the balance of the shares.
21
<PAGE>
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS (Continued)
- - --------------------------------------------------------------------------------
The Company has disputed the claim based upon the position that CRG did not
perform under the provisions of the service contract. The Company is currently
in the process of instituting legal action, in the state of Florida based upon
the jurisdiction which was recited in the agreement, to recover the stock and
seek punitive damages from CRG.
- - --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - --------------------------------------------------------------------------------
[a] Exhibits
No exhibits are being filed with this report.
[b] Reports on Form 8-K
During the period between April 1, 1997 and August 15, 1997, the Company
filed with the Commission reports on Form 8-K as follows:
1) A report on Form 8-K, dated April 21, 1997, was filed with the
Commission announcing the resignation of Mr. Robert Oxenberg as a
director of the Company, and the appointment of Mr. Matti Kon, CEO
and Director, as Chairman of the Board.
2) A report on Form 8-K, dated April 22, 1997, was filed with the
Commission announcing the extension of the expiration dates and
exercise price of the issued and outstanding Class A and Class B
Warrants of the Company.
3) A report on Form 8-K, dated June 9, 1997, was filed with the
commission announcing the resignation of Mr. Bruce Arnstein as
Director of the Company.
4) A report on Form 8-K, dated June 18, 1997, was filed with the
commission announcing the appointment of Mr. Harry Markovits as a
member of the Board of Directors.
22
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================================================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFORMATION MANAGEMENT TECHNOLOGIES
CORPORATION
By:/s/ Joseph A. Gitto Jr.
-------------------------------------
Joseph A. Gitto Jr.,
President and Chief Financial Officer
Dated August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 394,269
<SECURITIES> 0
<RECEIVABLES> 1,480,670
<ALLOWANCES> 48,232
<INVENTORY> 264,982
<CURRENT-ASSETS> 2,930,217
<PP&E> 5,209,531
<DEPRECIATION> 2,185,833
<TOTAL-ASSETS> 8,066,442
<CURRENT-LIABILITIES> 3,078,437
<BONDS> 790,000
2,534,100
0
<COMMON> 223,182
<OTHER-SE> 625,864
<TOTAL-LIABILITY-AND-EQUITY> 8,066,442
<SALES> 2,564,928
<TOTAL-REVENUES> 2,564,928
<CGS> 1,917,956
<TOTAL-COSTS> 1,917,956
<OTHER-EXPENSES> 491,187
<LOSS-PROVISION> 18,025
<INTEREST-EXPENSE> 363,163
<INCOME-PRETAX> (225,403)
<INCOME-TAX> 0
<INCOME-CONTINUING> (225,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,403)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
