U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No fee required, effective October 7, 1996]
For the fiscal year ended March 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No fee required]
For transition period from __________ to __________
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Commission File Number: 0-16753
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INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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Delaware 58-1722085
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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130 Cedar Street, Fourth Floor, New York, NY 10006
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(Address of Principal Executive Offices) (Zip Code)
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(212) 306-6100
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(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered under Section 12(g) of the Exchange Act:
Title of Class
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Class A Common Stock, $.04 par value
Redeemable Class A Warrants
Redeemable Class B Warrants
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Indicate by checkmark whether the registrant: (1) has filed all reports 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 [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average of the bid and asked prices of the
Registrant's Class A Common Stock on the NASDAQ National Market on June 27,
1997, was approximately $6,974,000.
At June 27, 1997, the Registrant had outstanding 5,579,552 shares of Class
A Common Stock.
Part III incorporates information by reference to the registrant's
definitive proxy statement for its 1997 Annual Meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1997.
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INDEX
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PAGE
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PART I
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ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 4
ITEM 3 LEGAL PROCEEDINGS 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 5
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PART II
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ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 6
ITEM 6 SELECTED FINANCIAL DATA 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES 14
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PART III
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ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 15
ITEM 11 EXECUTIVE COMPENSATION 15
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
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PART IV
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ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 16
SIGNATURES 18
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
AND SCHEDULES 19
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PART I
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ITEM 1. BUSINESS
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INTRODUCTION
Information Management Technologies Corporation ("IMTECH" or the
"Company") provides information processing and facilities management services
such as research report printing, imaging and distribution services, electronic
imaging, CD-ROM based electronic microfiche, litigation duplication, numbering
and imaging services and complex distribution 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.
Specifically, the Company's outsourcing services include two and four
color digital printing, imaging of printed materials to CD-ROM, electronic fiche
and/or laser printing, intelligent inserting, high volume duplication,
electronic publishing, document fulfillment, micrographics, data processing and
distribution services. Litigation duplication services range from high speed
litigation duplication to on and off line numbering, scanning and imaging,
electronic storage onto CD-ROM, accurate bar coding and other traditional
litigation document processing services. The Company's outsourcing and
litigation support services are generally performed at its Regional Service
Center ("RSC") in New York City. Facilities management services include
independent management of client systems for providing document duplication,
distribution and word processing.
The Company currently holds a 16% ownership interest in INSCI Corp.
("INSCI"), its former majority-owned subsidiary (a NASDAQ small cap company).
INSCI develops, markets and supports computer software that utilizes magnetic,
optical and CDR disk storage technologies. Used with compatible hardware, the
software is able to archive, index, retrieve, print and fax computer generated
documents such as invoices, statements, reports and transaction data.
SERVICES
FACILITIES MANAGEMENT SERVICES
The Company's facility management services, which may be provided on-site in a
variety of departments at a customer's facility or at IMTECH's RSC, include the
following:
* Duplication management - in connection with this service, the Company
provides personnel and equipment required to perform standard copying of
original printed documents and their subsequent sorting, inserting,
binding, packaging and distribution.
* Electronic publishing and word processing management - IMTECH provides the
software in addition to the personnel and equipment necessary to create
and print customized documents directly from magnetic media with near
typeset appearance and quality, integrate word processing produced files
into these documents and reproduce, bind, package and distribute them as
electronically published documents.
* Distribution services - for these type of services the Company provides
the equipment, systems and personnel to process, track and distribute time
sensitive materials.
Under a typical facilities management contract, IMTECH assumes complete
management and operating responsibility for a customer's in-house duplication,
word processing and/or other administrative functions located or performed on
the client's premises. The fees established for the facilities management
services are generally agreed upon in advance and set forth in the facility
management contract.
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ITEM 1. BUSINESS (Continued)
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FACILITIES MANAGEMENT SERVICES (Continued)
The Company generally provides the personnel, equipment and systems required to
perform the agreed-upon services on-site at the customer's facilities. In many
instances, upon commencement of a facility management contract, IMTECH will
assume from its customer, responsibility for the employment of the existing
personnel. In addition, the Company provides all of the necessary equipment and
bears the related expenditures. In many cases, the Company assumes ownership of
the customer's existing equipment, and when economically feasible, IMTECH will
assume the customer's existing lease obligations. Backup resources are
maintained at IMTECH's RSC to handle unusual work loads, or for disaster
recovery purposes occurring at the facility management sites within the region.
During the year ended March 31, 1997, IMTECH realized revenues of
approximately $893,000 generated from seven facility management contracts. Five
of the contracts had initial terms expiring in 1996 and one in 1997. Due to
increased competition from larger companies in the facility management market
and a continuing decrease in the Company's operating margins related to that
business, management has elected not to pursue renewal of the agreements.
OUTSOURCING
The Company provides outsourcing services from its RSC in New York City
primarily to financial, legal, institutional and commercial clients. Those
services include corporate bureau services that have historically been
outsourced or produced "in-house". The following specifies the types of
outsourcing services the RSC provides to clients in New York City metropolitan
area:
* Research report services with document imaging - IMTECH produces and
distributes reports developed by research analysts at brokerage firms or
securities departments at banks. In addition, the Company can provide
clients with CD-ROM storage of their reports printed at their request.
* Duplication - the RSC can generate high volume black and white or color
document duplication using state of the art digital xerographic equipment
for print-on-demand or rapid processing of time sensitive documents.
* Laser printing - the Company utilizes equipment that laser prints
documents directly from magnetic tape, cartridge disk or electronic
transmission. Laser printed documents typically include customer
statements, confirmations, reports, catalogs and manuals.
* Offset printing - as part of the Company's core printing production
services, the RSC can perform all traditional, color, lithographic and
offset printing. To meet the demand of cost effective, low volume, high
quality digital printing, the Company purchased a Heidelberg Quickmaster
DI Digital Printing Press (the "Heidelberg"). The Heidelberg is one of the
newest, most technologically advanced sheetfed press system available in
the printing trade today. The press allows IMTECH to offer its clients
high quality, four color print capabilities that are extremely cost
effective and ideal for meeting the increasing needs of the competitive
financial research report market. As a complete digital printing system,
the Heidelberg guarantees faster turnaround by consolidating and reducing
pre-press and setup time by recognizing various data formats that would
otherwise require conversion to a standard pre-press format.
* Electronic publishing - IMTECH's electronic publishing department can
create and print customized documents directly from magnetic media with
near typeset appearance and quality, integrate word processing into these
documents and reproduce, bind, package and distribute them as
electronically published documents.
2
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ITEM 1. BUSINESS (Continued)
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OUTSOURCING (Continued)
* Finishing services - the Company provides the standard printed, laser or
duplicated document finishing services such as perfect binding,
plastikoiling, velobinding, saddle stitching and padding.
* Distribution services - distribution services include intelligent and
selective inserting of multi-page documents into envelopes, traditional
inserting, packaging, mailing and shipping of completed work.
LITIGATION DUPLICATION SERVICES
The Company's litigation duplication division utilizes state of the art
equipment located at its RSC to perform high volume duplication and other
document processing related services primarily to companies in the corporate and
legal business environment. The typical litigation support services, which use
the most recently developed technology, include on and off line numbering in red
and black, scanning and imaging, electronic storage of information and documents
on CD-ROM, accurate bar coding and traditional finishing services, such as
binding, addressing, inserting and mailing.
MARKETING AND SALES
The Company employs a sales force that is currently located at its RSC in
New York City. Together and as a whole, members of management who are involved
with sales, facilities management, outsourcing services and litigation
duplication continually increase their marketing efforts on behalf of IMTECH
directed toward major financial, manufacturing, legal, accounting and other
medium to large service companies located in New York City and the surrounding
metropolitan area (New Jersey, Southeast Connecticut and Westchester County).
The Company's advertising and promotional efforts include participation in
selected trade shows, general advertising, articles in pertinent trade
publications, direct mailings and, commencing in March 1997, the publication and
wide selected distribution of a Company newsletter called "24/7". The newsletter
is distributed as a no cost service to existing and potential IMTECH clients and
broad based investor groups. Produced and published completely in-house
utilizing the newly acquired Heidelberg digital printing press, the newsletter
is devoted to maintaining a channel of communication that keeps clients and
investors aware of developments within the Company.
To further broaden its abilities to provide superior and complete service
and pursue clients beyond its primary metropolitan area marketplace, in fiscal
year 1997, IMTECH developed strategic alliances with Blitz Systems, Inc.
("Blitz") and Research Distribution Services, Inc. ("RDS"). Blitz, through its
versatility of services, has been instrumental in assisting the Company in
introducing technologically advanced concepts to research print production and
distribution. RDS developed an "intelligent" distribution process that
physically consolidates multiple subscriptions by a single subscriber into
single envelope. The strategic alliance between IMTECH, Blitz and RDS offers
clients a seamless process of receiving and managing data for print production
and subsequent distribution. Each company in the alliance is a specialist, and
depends on the others to maintain a high level of client satisfaction. Working
together, the three companies offers clients reliable, expedient and cost
effective service from the point of production to final destination.
COMPETITION
Management is aware that the Company operates in a market that contains
several large direct competitors, as well as many smaller regionally based
companies, that provide services similar to IMTECH. Two key competitors that
management believes have substantially greater financial resources and
facilities than the Company are Pitney Bowes Management Services and Xerox
Business Centers, both of whom provide facility management and/or outsourcing
services. IMTECH competes with those companies primarily on the basis of price
and quality of performance.
3
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ITEM 1. BUSINESS (Continued)
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COMPETITION (Continued)
Management's efforts are directed toward maintaining strong employee training
and competitive compensation programs to enable the Company to continue to
provide its customers with the high quality service and personnel necessary to
maintain the competitive advantage.
EMPLOYEES
As of March 31, 1997, the Company employed approximately 125 personnel as
compared to 165 at March 31, 1996. The Company has no collective bargaining
agreements with any personnel and considers its relationships with all of its
employees to be in good standing.
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ITEM 2. PROPERTIES
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The Company leases its executive offices and RSC facilities (approximately
32,000 square feet), located at 130 Cedar Street, New York, NY, under a lease
expiring in July 2003. The rental payments under the lease agreement are subject
to annual cost of living and maintenance increases. In addition, the Company
occupies 1,000 square feet of space at a midtown Manhattan location under a
sublease agreement.
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ITEM 3. LEGAL PROCEEDINGS
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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
an order 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 March 31, 1997, the penalty amount had
not yet been assessed.
4
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ITEM 3. LEGAL PROCEEDINGS (Continued)
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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 16% 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. 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 decided in the agreement,
to recover the stock and seek punitive damages from CRG.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
5
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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The Company's Class A common stock is traded in the over-the-counter
market and included in the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system. Also traded in the over-the-counter market and
quoted on NASDAQ are the Company's Redeemable Class A Warrants. The symbols in
the NASDAQ system for the Class A common stock and Class A Warrants are "IMTKA"
and "IMTKW", respectively. The following table sets forth the range of the high
and low closing bid prices for the Company's Class A common stock and Class A
Warrants for the three most recently completed years ended March 31, 1997, 1996
and 1995, as reported in the NASDAQ stock market reports. The prices listed in
the following table represent prices between dealers, and do not include
provisions for retail markups, markdowns or commissions. Consequently, they may
not represent actual transactions.
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Class A Class A
Common Warrants
Stock
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High Low High Low
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Year ended March 31, 1997
First quarter 215/16 13/8 1/2 9/32
Second quarter 27/8 17/16 9/16 3/16
Third quarter 113/16 3/4 17/64 1/8
Fourth quarter 121/32 3/4 5/16 1/8
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Year ended March 31, 1996 **
First quarter 31/16 13/4 5/16 3/16
Second quarter 39/16 23/16 15/32 3/16
Third quarter 31/8 2 11/16 3/8
Fourth quarter 27/8 2 7/16 3/16
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Year ended March 31, 1995
First quarter 13/4 113/16 11/16 15/32
Second quarter 113/16 23/32 13/32 3/16
Third quarter 5/8 3/16 5/32 3/16
Fourth quarter 5/8 7/32 5/16 3/16
At June 27, 1997, there were approximately 1,409 holders of record of the
Company's Class A common stock, not including individuals with beneficial
ownership interest.
** The stock prices have been adjusted to give effect to the four-for-one
reverse stock split which occurred in May 1995.
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ITEM 6. SELECTED FINANCIAL DATA
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The selected financial data set forth below has been derived from the
Company's audited financial statements. It should be read in conjunction with,
and is qualified by reference to, the financial statements and accompanying
notes included elsewhere in this report. The selected financial data for the
fiscal years ended March 31, 1994 and 1993 include the consolidated results of
the Company's former majority-owned subsidiary, INSCI Corp.
<TABLE>
<CAPTION>
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For the Years Ended March 31,
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1997 1996 1995 1994 1993
--------- --------- -------- -------- ---------
(,000) (,000) (,000) (,000) (,000)
<S> <C> <C> <C> <C> <C>
Income Statement:
Revenues $ 10,715 $ 11,806 $ 14,048 $ 27,507 $ 23,103
Operating loss (1,262) (1,808) (1,220) (2,723) (2,017)
Income (loss) from continuing
operations 189 (5,188) (3,891) (3,813) (2,964)
Loss from discontinued operations - (391) (1,773) - -
Net income (loss) 189 (5,579) (5,664) (3,813) (2,964)
Net income (loss) per share from
continuing operations .04 (1.65) (1.41) (1.91) (.36)
Net income (loss) per share from
discontinued operations - (.12) (.64) - -
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As of March 31,
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1997 1996 1995 1994 1993
--------- --------- -------- -------- ----------
(,000) (,000) (,000) (,000) (,000)
Balance Sheet:
Total assets $ 8,430 $ 7,767 $ 9,593 $ 12,868 $ 10,979
Long-term obligations 1,496 3,524 4,497 5,512 5,816
Redeemable preferred stock - - - - 2,481
Stockholders' equity (deficiency) [1] 3,664 (858) 1,169 441 (2,544)
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</TABLE>
[1] The Company has not paid dividends since its inception.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
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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:
<TABLE>
<CAPTION>
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For the Years Ended March 31,
---------------------------------------
1997 1996 1995
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<S> <C> <C> <C>
Revenues 100 % 100 % 100 %
---------------------------------------------------
Cost of sales 79 77 76
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Gross profit 21 23 24
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Operating expenses:
Selling, general and administrative 28 34 28
---------------------------------------------------
Termination of facility contract - 1 -
---------------------------------------------------
Lease agreement buyout - 3 -
---------------------------------------------------
Write-down of property and equipment - - 5
---------------------------------------------------
Other costs 5 - -
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Loss from operations (12) (15) (9)
---------------------------------------------------
Other (income) expenses:
Interest expense, net 4 5 3
---------------------------------------------------
(Gain) loss from sale of INSCI stock (19) 1 -
---------------------------------------------------
Interest on beneficial conversion of 12%
secured notes 1 8 -
---------------------------------------------------
Equity in net loss of INSCI Corp. 1 12 16
---------------------------------------------------
Credit facility buyout - 3 -
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Income (loss) from continuing operations 1 (44) (28)
---------------------------------------------------
Loss from discontinued operations - (3) (13)
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Net income (loss) 1 % (47) % (41) %
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (Continued)
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FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996
During the fiscal year ended March 31, 1997, the Company reported revenues
of approximately $10,715,000, a decrease of $1,091,000 from revenues of
$11,806,000 reported during the fiscal year ended March 31, 1996.
The decrease in revenues is primarily attributable to management's
decision not to renew certain Facility Management contracts as they became due.
Competitive pricing of the contracts reduced operating margins below
management's expectations. At of March 31, 1997, there were five Facility
Management contracts in effect as compared to seven in effect at March 31, 1996.
Revenues from Facility Management contracts amounted to approximately $893,000
(or 8% of total revenues) for the fiscal year ended March 31, 1997; a decrease
of approximately $2,319,000, or 72%, from revenues of Facility Management
contracts of approximately $3,212,000 (27% of total 1996 revenues) generated for
the fiscal year ended March 31, 1996. The Company executed a contract renewal
with its largest Facility client for an additional one year period, and is in
the process of pursuing other Facility Management arrangements with terms more
favorable to the Company. The decrease in total revenues from 1996 to 1997 is
also attributable in part to a decrease in the revenues generated by the
Company's Litigation Duplication division, which decreased approximately
$376,000, or 33%, to revenues of $775,000 (7% of total revenues), as compared to
revenues of $1,151,000 (10% of total 1996 revenues) reported for the fiscal year
ended March 31, 1996.
Revenues from the Company's Regional Service Center ("RSC") operations
increased $1,596,000, or 21%, to approximately $9,038,000 (84% of total
revenues) for the fiscal year ended March 31, 1997; compared to revenues of
$7,442,000 (63% of total 1996 revenues) reported for the fiscal year ended March
31, 1996. The Company deployed the majority of its financial and human resources
towards expanding the Company's market share in its core research printing
market, the main product of the RSC division.
Cost of sales decreased by $569,000, or 6%, to approximately $8,489,000,
(or 79% of total revenues) for the fiscal year ended March 31, 1997, as compared
to cost of sales of approximately $9,058,000 (or 77% of total revenues) reported
for the fiscal year ended March 31, 1996. The decrease is attributable to a
reduction in personnel costs, equipment leases and various other production
expenses.
Selling, general and administrative costs ("SG&A") for the year ended
March 31, 1997 amounted to approximately $2,938,000 (or 28% of total revenues),
a decrease of approximately $1,167,000, or 28%, from SG&A of $4,105,000 (34% of
total 1996 revenues) reported during fiscal year ended March 31, 1996. The cost
reductions are primarily attributable to a decrease in overhead, (specifically,
personnel costs), and service charges related to the Company's terminated
revolving credit facility, as well as decreases in consulting fees and other
professional costs.
During the fiscal year ended March 31, 1997, the Company recorded a charge
of $550,000 to account for costs incurred in connection with management's plan
to restructure its work force and redeploy various operating assets which it
believes will enable the Company to become more competitive and efficient.
Interest expense for the year ended March 31, 1997 was approximately
$392,000 (or 4% of total revenues), a decrease of approximately $168,000, or
30%, from interest expense of approximately $560,000 (which represented 5% of
total 1996 revenues) reported for the year ended March 31, 1996. In accordance
with the Securities and Exchange Commission's ("SEC") position, announced in
March 1997, of accounting for the beneficial conversion feature of debt
instruments, the Company recorded an additional interest charge of approximately
$89,000. The statement of operations for the year ended March 31, 1996 has been
adjusted to reflect the retroactive application of the SEC's position, and
therefore, a charge of $900,000 of additional interest was included in
operations for the year then ended.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (Continued)
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FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996 (Continued)
The additional interest charge represents the amortization of the conversion
feature which is calculated as the difference between the conversion price and
the fair value of the common stock into which the debt instruments are
convertible.
During the fiscal year ended March 31, 1997, the Company realized a net
gain of approximately $2,089,000 from the sale of INSCI Corp. stock, its former
majority-owned subsidiary as compared to a loss of $73,500 reported in 1996. As
of March 31, 1997, the Company held a 16% ownership interest in INSCI Corp.
FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995
During the fiscal year ended March 31, 1996, the Company reported revenues
of approximately $11,806,000, a decrease of approximately $2,242,000, or 16%,
from revenues of $14,048,000 generated during fiscal year ended March 31, 1995.
The decrease in total revenues was primarily attributable to a reduction
of revenues from the Company's RSC operations of approximately $1,892,000 (a 20%
decrease), to revenues of $7,443,000 in fiscal year ended March 31, 1996, as
compared to revenues of $9,335,000 reported for the fiscal year ended March 31,
1995. During the fiscal year ended March 31, 1995, the Company lost its largest
client (Kidder Peabody & Co., Inc.) as a result of a merger. The decrease in
revenues from the RSC operations was a direct result of losing the client. The
Company did however replace 75% of the revenues lost during the fiscal year
ended March 31, 1996. Also attributable to the decline in total revenues from
1995 to 1996, was the decrease in revenues from the Company's Facility
Management operations, of approximately $854,000, or 21%, to revenues of
$3,212,000 for the fiscal year ended March 31, 1996, as compared to revenues of
$4,066,000 reported during fiscal year ended March 31, 1995. At March 31, 1996,
there were seven Facilities contracts in effect as compared to twelve in 1995.
The Company elected not to renew certain contracts as they became due because of
competitive pricing. In addition, the operating margins of the facility
arrangements which expired did not meet management's expectations. During the
fourth quarter of fiscal year ended March 31, 1996, the Company was not
successful in renewing a Facility contract with American Express ("AMEX"), which
accounted for approximately $1.8 million of revenue. Revenues generated from the
Company's Litigation Duplication operations increased by approximately $504,000,
or 78%, to $1,151,000 in fiscal year ended March 31, 1996, as compared to
revenues of $647,000 reported for the year ended March 31, 1995.
Cost of sales for the Company during the fiscal year ended March 31, 1996
was approximately $9,058,000 (77% of total revenues), a decrease of $1,584,000
from cost of sales of $10,642,000 (76% of total 1995 revenues) reported in
fiscal year ended March 31, 1995. The decrease was a result of reductions in
direct material costs of approximately $97,000, production salaries of $626,000
and equipment maintenance costs of $225,000, reflective of the decline in volume
that resulted from the loss in business.
Selling, general and administrative costs ("SG&A") for the year ended
March 31, 1996 were approximately $4,105,000 (or 35% of total 1996 revenues), an
increase of approximately $229,000, or 6%, from SG&A of $3,876,000, or 28%,
reported during the fiscal year ended March 31, 1995. Although there was a
reduction in administrative personnel, any savings realized in SG&A for the
fiscal year ended March 31, 1996 were offset by costs incurred by the Company to
improve the technology employed to service clients more efficiently. Included in
SG&A for the fiscal year ended March 31, 1995 was a charge of $50,000 which
related to the settlement of litigation with Marine Midland.
10
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995 (Continued)
During the fiscal year ended March 31, 1996, the Company incurred interest
expense of approximately $560,000, as compared to $484,000 reported for 1995.
The increase was due largely to additional borrowings by the Company under its
revolving credit facility during the year ended March 31, 1996. In addition, the
increase was due in part to interest charges paid to vendors from trade payable
financing. The statement of operations for the year ended March 31, 1996 was
adjusted to reflect the retroactive application of the SEC's position regarding
the accounting for the beneficial conversion feature related to convertible
debt, and therefore, a charge of $900,000 of additional interest was included in
operations for the year then ended.
Other income and/or charges reported during the fiscal years ended March
31, 1996 and 1995 are summarized as follows:
o During fiscal year 1996, the Company negotiated with its landlord to
return approximately 20,000 square feet of previously occupied space. In
that connection, the Company recorded a charge of approximately $377,000
which represented a buyout fee against the lease agreement for the space
returned.
o During fiscal year 1996, the Company sold 350,000 shares of restricted
INSCI Corp. (its former majority-owned subsidiary) common stock and
received net proceeds of $262,500. The transaction resulted in a loss
charged to continuing operations of $73,500.
o During March 1996, the Company terminated its credit facility arrangement
with BNY Financial, and as a result incurred a charge of approximately
$395,000 as an early termination fee.
o During fiscal year 1996, the Company recorded a charge of approximately
$391,000 (3% of total 1996 revenues) to reflect the write-off of the
assets and liabilities which remained from a discontinued segment that was
disbanded in the fiscal year ended March 31, 1995.
o In January 1996, the Company's ownership in INSCI Corp. was reduced to
38%, as compared to the majority ownership IMTECH maintained in fiscal
1995. As a result, the investment in INSCI Corp. was accounted for under
the equity method for the fiscal year ended March 31, 1996. Since the
Company included INSCI's results on a consolidated basis in 1995,
management restated the presentation of the financial statements for the
fiscal year ended March 31, 1995 to conform to the 1996 presentation. In
that respect, the Company recorded equity in the net loss in INSCI Corp.
of approximately $1,452,000 and $2,187,000 for the years ended March 31,
1996 and 1995, respectively.
o During the fiscal year ended March 31, 1995, the Company recorded a charge
of $750,000 to write down property and equipment. A review of the records
underlying the Company's property and equipment caused management to
conclude that certain assets listed in the records were not owned by the
Company.
11
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The schedule below sets forth the Company's cash flow activities for the fiscal
years ended March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
For the Years Ended March 31,
-------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities $ (1,510,000) $ (926,000) $ (1,364,000)
Investing activities 1,440,000 1,275,000 2,198,000
Financing activities (713,000) 1,663,000 (875,000)
-----------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents $ (783,000) $ 2,012,000 $ (41,000)
===================================================================================
</TABLE>
During the fiscal year ended March 31, 1997, the net cash used in
operating activities amounted to approximately $1,510,000. The net outlay was
primarily attributable to a decrease in revenues of $1,100,000, as well as a
reduction in accrued liabilities of approximately $783,000 which were paid off
during the year ended March 31, 1997. These net cash uses were offset in part by
a decrease in accounts receivable of approximately $75,000.
Net cash provided by investing activities amounted to approximately
$1,440,000. The net inflow of cash from investing activities consists of net
proceeds of approximately $2,258,000 from the sale of INSCI Corp. stock, offset
by cash expended for the purchase of capital assets of approximately $568,000
and a loan made to Blitz in the amount of $250,000.
Net cash used in financing activities amounted to approximately $713,000,
and consists of the following components:
1) A $640,000 pay down of the Company's credit facility with BNY
Financial;
2) Repayments of capital lease obligations of $345,000; and
3) Repayments of long-term debt of $627,000.
These repayments were offset in part by proceeds the Company received from the
issuance of 12% convertible secured promissory notes in the amount of $900,000
offered as part of a private placement which was completed in February 1997.
At of March 31, 1997, the Company had working capital of approximately
$217,000.
In December 1996, the Company's Board of Directors appointed Mr. Matti Kon
as the Company's Chief Executive Officer. Together with the Company's management
team, Mr. Kon has been instrumental in the Company's efforts to restructure its
work force, redeploy capital assets and strengthen IMTECH's overall
infrastructure.
12
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS (Continued)
- - --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (Continued)
A large part of management's strategic plan for restructure focuses on the
use of cutting edge technology to streamline the flow of communications between
the Company and its clients. The enhanced technology will also increase the
Company's production capabilities. During the fourth quarter of the fiscal year
ended March 31, 1997, the Company designed and implemented a Work Order Tracking
System ("WOTS"). The WOTS allows the Company to track a print job through the
production cycle, utilizing advanced bar coding and scanning systems. A key
advance that the WOTS will provide is the ability to allow clients to check
their job status through access on the Company's website (email:
[email protected]). Also available on the website is the ability to receive
quotes for future projects; receive publicly released historical corporate
financial information of the Company; and the ability to leave messages via an
e-mail server.
To create an awareness to the members of the financial research printing
community, the Company initiated an extensive marketing campaign to inform the
industry about the technologically advanced printing capabilities and services
IMTECH has to offer to clients. The marketing campaign includes the distribution
of an IMTECH monthly newsletter, in addition to various other promotional
material. The Company has realized an increase in prospective client activity
from these initiatives.
During the fourth quarter of the fiscal year ended March 31, 1997 and the
first quarter of fiscal year ended 1998, the Company invested approximately
$1,200,000 on the purchase of state-of-the-art production equipment. As part of
that investment, the Company acquired a Heidelberg Digital DI 4 color printing
press. IMTECH is the only research printer to date located in the New York
metropolitan area to make such an investment. As a result of the capital
investment, the Company has expanded its production capabilities to be able to
offer computer to plate, direct to file processing and full digital printing
services. Management believes by investing in cutting edge printing technology
the Company will expand its geographic market and revenue streams.
During the fiscal year ended March 31, 1997, the Company paid down or
converted approximately $2,800,000 in long-term debt obligations. IMTECH is not
subject to any lending restrictions or covenants, and as a result, the assets of
the Company are completely unencumbered, except for the 500,000 shares of INSCI
common stock that is pledged as collateral for the 12% convertible secured
promissory notes. The Company has the ability and resources to raise additional
capital through financing of its receivables or by further divesting its 16%
ownership interest in INSCI Corp.
Management believes that the investments made to date in the
infrastructure of the Company will enable it to remain competitive in the short
run, but realizes that further investments in production equipment and expansion
capital for potential mergers and/or acquisitions, will be necessary for it to
remain competitive and achieve its growth targets during the fiscal years to
come.
13
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- - --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION 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 the 12%
convertible secured promissory notes issued in February 1997 and recognized a
portion of it as interest expense for the year ended March 31, 1997.
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.
- - --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - --------------------------------------------------------------------------------
The information required by this Item is incorporated by reference to the
Table of Contents to the Financial Statements and Schedules which appears on
page 19 hereof.
- - --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- - --------------------------------------------------------------------------------
None.
14
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PART III
- - --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - --------------------------------------------------------------------------------
The information required by this Item will be included in the Company's
proxy statement with respect to its 1997 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1997 under the
captions "Election of Directors," and "Directors and Executive Officers of the
Registrant" and is incorporated herein by this reference as if set forth in full
herein.
- - --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
The information required by this Item will be included in the Company's
proxy statement with respect to its 1997 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1997 under the
captions "Summary Compensation Table," "Option Grants in Last Fiscal Year,"
"Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values" and "Directors Compensation" and is incorporated herein by this
reference as if set forth in full herein.
- - --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- - --------------------------------------------------------------------------------
The information required by this Item will be included in the Company's
proxy statement with respect to its 1997 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1997 under the
caption "Security Ownership of Certain Beneficial Owners" and is incorporated
herein by this reference as if set forth in full herein.
- - --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------------------------------
The information required by this Item will be included in the Company's
proxy statement with respect to its 1997 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1997 under the
caption "Certain Relationships and Related Transactions" and is incorporated
herein by this reference as if set forth in full herein.
15
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PART IV
- - --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
- - --------------------------------------------------------------------------------
[a](1) Financial Statements
Incorporated by reference to the Table of Contents to Financial
Statements and Schedules on page 19 of this report Form 10-K.
[a](2) Financial Statement Schedules
Incorporated by reference to the Table of Contents to Financial
Statements and Schedules on page 19 of this report Form 10-K.
[a](3) Exhibits
Incorporated by reference to the Index of Exhibits appearing at the end
of this report on Form 10-K.
[b] Reports on Form 8-K
During the period between April 1, 1996 and June 27, 1997, the Company
filed with the Commission reports on Form 8-K as follows:
1) A report on Form 8-K, dated April 11, 1996, reporting the early
termination of the Company's revolving credit facility with BNY
Financial was filed with the Commission.
2) A report on Form 8-K, dated April 25, 1996, was filed with the
commission announcing the appointment of new officers.
3) A report on Form 8-K, dated May 15, 1996, reporting the
conversion by Infinity Investors of a portion of the Company's
6% convertible debentures was filed with the Commission.
4) A report on Form 8-K/A was filed with the Commission by the
Company on July 25, 1996 updating the original conversion of the
Company's 6% convertible debentures by Infinity Investors.
5) A report on Form 8-K , dated September 16, 1996, was filed with
the Commission reporting the sale of 600,000 shares of INSCI
Corp. stock.
6) A report on Form 8-K, dated October 3, 1996, was filed with the
Commission reporting the extension and repricing of the
Company's Class A Warrants.
7) A report on Form 8-K, dated November 22, 1996, was filed with
the Commission reporting the resignation of Mr. Christopher D.
Holbrook as an Officer and Director of the Company.
16
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================================================================================
- - --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
- - --------------------------------------------------------------------------------
[b] Reports on Form 8-K (Continued)
8) A report on Form 8-K, dated December 5, 1996, was filed with the
Commission reporting the appointment of Mr. Matti Kon as Chief
Executive Officer and Board member.
9) A report on Form 8-K, dated March 20, 1997, was filed with the
Commission announcing the issue of $900,000 of convertible
secured promissory notes in connection with a February 1997
private placement.
10) 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.
11) 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.
12) 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.
17
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================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 June 27, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Matti Kon, as his attorney-in-fact, with the
power of substitution, for him in any attached and all capacities, to sign any
amendments to this report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
- - --------------------------------- ---------------------------- -----------------
Signature Title Date
- - --------------------------------- ---------------------------- -----------------
/S/ MATTI KON Chairman, Chief Executive June 27, 1997
- - --------------------------------- Officer, Director
Matti Kon
/S/ JOSEPH A. GITTO, JR. President, Chief Financial June 27, 1997
- - --------------------------------- Officer, Director
Joseph A. Gitto, Jr.
Chairman, Chief Executive June 27, 1997
- - --------------------------------- Officer, Director
Robert H. Oxenberg **
President, Chief Operating June 27, 1997
- - --------------------------------- Officer, Director
Christopher D. Holbrook **
Director June 27, 1997
- - ---------------------------------
Bruce Arnstein **
** These gentlemen have resigned their positions with the Company. None of
them have any disagreements with the Company in regards to matters
affecting the Company's operations, policies and practices and/or
financial statements.
18
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- - --------------------------------------------------------------------------------
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
- - --------------------------------------------------------------------------------
PAGE
----
FINANCIAL STATEMENTS:
Report of Independent Accountants F-1
Balance Sheets as of March 31, 1997 and 1996 F-2
Statements of Operations for the Years Ended
March 31, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity (Deficiency)
for the Years Ended March 31, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995 F-8
Notes to Financial Statements F-11
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts F-26
Schedules not listed in the above table of contents have been omitted
because they do not apply or are not required or the information required to be
set forth therein is included in the financial statements and accompanying notes
thereto.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
Information Management Technologies
Corporation
We have audited the accompanying balance sheets of Information Management
Technologies Corporation as of March 31, 1997 and 1996, and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Information Management
Technologies Corporation as of March 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
As described in Note B(12) to the financial statements, the Company
changed its method of accounting for the beneficial conversion feature of
convertible debentures in 1996 to comply with the Securities and Exchange
Commission staff's position of retroactive application of this accounting
practice.
Our previous report on the 1996 financial statement, dated June 19, 1996,
included an explanatory paragraph that described the uncertain outcome of an
investigation by the Securities and Exchange Commission. As explained in Note N
to the financial statements, that investigation has been terminated on September
10, 1996.
We have also audited Schedule II for the years ended March 31, 1997, 1996
and 1995. In our opinion, this schedule presents fairly the information required
to be set forth therein.
/s/ Mahoney Cohen & Company, CPA, P.C.
MAHONEY COHEN & COMPANY, CPA, P.C.
New York, New York
June 12, 1997
F-1
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Information Management Technologies Corporation
BALANCE SHEETS
ASSETS
March 31,
----------------------
1997 1996
---------- ----------
CURRENT ASSETS
Cash and cash equivalents (Notes B-2 and B-7) $1,228,819 $2,011,560
Accounts receivable, net of allowance for doubtful
accounts of $36,800 at March 31, 1997 and
$104,500 at March 31, 1996 (Notes B-7 and L) 1,331,428 1,406,731
Inventory (Note B-3) 281,729 303,133
Note receivable - related party (Note F) 54,886 --
Prepaid expenses and other current assets (Note M) 590,224 972,214
---------- ----------
Total current assets 3,487,086 4,693,638
PROPERTY AND EQUIPMENT - AT COST
(Notes B-4 and G)
Production equipment 2,548,699 5,102,268
Software 242,932 295,128
Furniture and fixtures 459,696 399,899
Leasehold improvements 609,888 461,089
Computer equipment 806,066 1,101,323
---------- ----------
4,667,281 7,359,707
Less: Accumulated depreciation and amortization 2,065,833 5,013,249
---------- ----------
Net property and equipment 2,601,448 2,346,458
---------- ----------
OTHER ASSETS
Note receivable - related party (Note F) 195,114 --
Deposits and other assets (Note B-5) 364,405 347,636
Investment in INSCI Corp. (Note C) 1,782,108 379,057
---------- ----------
Total other assets 2,341,627 726,693
---------- ----------
TOTAL ASSETS $8,430,161 $7,766,789
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
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Information Management Technologies Corporation
BALANCE SHEETS (Concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
March 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Bank credit facility (Note E-2) $ -- $ 640,056
Current debt (Note D) 380,000 431,975
Current maturities of long-term debt (Note E) 288,329 497,328
Current maturities of long-term capital lease
obligations (Note G) 280,878 333,728
Accounts payable 1,479,166 1,455,015
Accrued salaries 157,820 156,007
Deferred revenue -- 129,090
Other accrued liabilities 684,221 1,457,798
------------ ------------
Total current liabilities 3,270,414 5,100,997
LONG-TERM DEBT, less current maturities
(Note E) 900,000 2,793,329
DEFERRED RENT (Note H) 382,677 368,494
CAPITAL LEASE OBLIGATIONS, less current maturities 213,002 362,279
(Note G)
------------ ------------
Total long-term liabilities 1,495,679 3,524,102
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes D through K and M)
STOCKHOLDERS' EQUITY (DEFICIENCY)
(Notes E, J and K)
12% Preferred Stock - authorized 3,000,000 shares at
$1.00 par value; 2,534,100 and 2,026,580 shares
issued and outstanding at March 31, 1997 and
and 1996, respectively 2,534,100 2,026,580
Class A common stock - authorized 100,000,000 shares
at $.04 par value; 5,579,552 and 3,535,078 shares
issued and outstanding at March 31, 1997 and
1996, respectively 223,182 141,403
Additional paid-in capital 31,528,477 29,558,530
Unrealized gain from investment in securities available
for sale (Note C) 1,774,515 --
Accumulated deficit (32,396,206) (32,584,823)
------------ ------------
Total stockholders' equity (deficiency) 3,664,068 (858,310)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 8,430,161 $ 7,766,789
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
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Information Management Technologies Corporation
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Revenues (Note L) $10,714,711 $11,805,891 $ 14,047,883
Cost of sales 8,488,716 9,057,533 10,641,843
----------- ----------- ------------
Gross profit 2,225,995 2,748,358 3,406,040
Operating expenses:
Selling, general and administrative 2,937,712 4,104,526 3,875,693
Termination of facility contract -- 75,000 --
Lease agreement buyout (Note H) -- 376,826 --
Write-down of property and equipment -- -- 750,000
Other costs (Note O) 550,000 -- --
----------- ----------- ------------
Total operating expenses 3,487,712 4,556,352 4,625,693
----------- ----------- ------------
Loss from operations (1,261,717) (1,807,994) (1,219,653)
Other (income) expenses:
Interest expense, net 391,767 559,710 484,320
(Gain) loss from sale of stock in INSCI Corp. (Note C) (2,089,020) 73,500 --
Interest - beneficial conversion - convertible debt
(Notes B-12 and E-6) 88,889 900,000 --
Equity in net loss of INSCI Corp. 158,030 1,452,000 2,187,411
Credit facility buyout -- 394,614 --
----------- ----------- ------------
Net other (income) expenses (1,450,334) 3,379,824 2,671,731
----------- ----------- ------------
Income (loss) from continuing operations 188,617 (5,187,818) (3,891,384)
Loss from discontinued operations (Note N) -- (390,696) (1,772,722)
----------- ----------- ------------
Net income (loss) $ 188,617 $(5,578,514) $ (5,664,106)
=========== =========== ============
Income (loss) per share from continuing operations
(Note B-6) $ 0.04 $ (1.65) $ (1.41)
Loss per share from discontinued operations (Note B-6) -- (0.12) (0.64)
----------- ----------- ------------
Net income (loss) per share (Note B-6) $ 0.04 $ (1.77) $ (2.05)
=========== =========== ============
Weighted average number of shares outstanding 5,129,143 3,139,758 2,762,072
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
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Information Management Technologies Corporation
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the Years Ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Total
Class A Common Stock Preferred Stock Additional Stockholders'
-------------------- ------------------ Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
-------- -------- --------- ------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1994 2,762,077 $108,557 -- $ -- $21,674,671 $(21,342,203) $ 441,025
Initial public offering of INSCI
common stock -- -- -- -- 6,240,224 -- 6,240,224
Conversion of INSCI warrants to IMTECH stock 16,055 2,568 -- -- (2,568) -- --
Value assigned to options granted in
connection with bridge financing -- -- -- -- 155,000 -- 155,000
Costs associated with various registrations
and private placements -- -- -- -- (2,647) -- (2,647)
Net loss -- -- -- -- -- (5,664,106) (5,664,106)
--------- -------- --------- -------- ----------- ------------ ----------
Balance at March 31, 1995 (carried forward) 2,778,132 $111,125 -- $ -- $28,064,680 $(27,006,309) $1,169,496
--------- -------- --------- -------- ----------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
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Information Management Technologies Corporation
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Continued)
For the Years Ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Total
Class A Common Stock Preferred Stock Additional Stockholders'
---------------------- -------------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
---------- -------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 (brought
forward) 2,778,132 $111,125 -- $ -- $28,064,680 $(27,006,309) $ 1,169,496
Exercise of stock options 125,000 5,000 -- -- 113,360 -- 118,360
Transfer agent administration error 144,196 5,768 -- -- -- -- 5,768
Issuance of common stock under
Regulation "S" - Fondo 287,750 11,510 -- -- 238,490 -- 250,000
Issuance of common stock under
Regulation "S" - Oportunidad 200,000 8,000 -- -- 242,000 -- 250,000
Issuance of preferred stock from
debenture conversion -- -- 2,026,580 2,026,580 -- -- 2,026,580
Amortization of beneficial conversion
feature related to convertible debt -- -- -- -- 900,000 -- 900,000
Net loss -- -- -- -- -- (5,578,514) (5,578,514)
--------- -------- --------- ---------- ----------- ------------ -----------
Balance at March 31, 1996 (carried forward) 3,535,078 $141,403 2,026,580 $2,026,580 $29,558,530 $(32,584,823) $ (858,310)
--------- -------- --------- ---------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
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Information Management Technologies Corporation
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Concluded)
For the Years Ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Class A Common Stock Preferred Stock Total
-------------------- -------------------- Additional Stockholders'
Unrealized Paid-in Accumulated Equity
Shares Amount Shares Amount Gain Capital Deficit (Deficiency)
-------- -------- -------- ---------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996
(brought forward) 3,535,078 $141,403 2,026,580 $2,026,580 $ -- $ 29,558,530 $(32,584,823) $ (858,310)
Issuance of common stock
for services 60,000 2,400 -- -- -- 48,000 -- 50,400
Issuance of common stock
from debenture conversion -
Infinity Investors 1,883,643 73,346 -- -- -- 2,026,654 -- 2,100,000
Issuance of preferred stock
from debenture conversion -- -- 507,520 507,520 -- -- -- 507,520
Transfer agent administration
error 100,831 6,033 -- -- -- (6,033) -- --
Costs associated with various
registrations and private
placements -- -- -- -- -- (187,563) -- (187,563)
Unrealized gain from investment
in securities available for
sale -- -- -- -- 1,774,515 -- -- 1,774,515
Amortization of beneficial
conversion feature related
to convertible debt -- -- -- -- -- 88,889 -- 88,889
Net income -- -- -- -- -- -- 188,617 188,617
--------- -------- --------- ---------- ---------- ------------ ------------ -----------
Balance at March 31, 1997 5,579,552 $223,182 2,534,100 $2,534,100 $1,774,515 $ 31,528,477 $(32,396,206) $ 3,664,068
========= ======== ========= ========== ========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
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Information Management Technologies Corporation
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 188,617 $(5,578,514) $(5,664,106)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Write-down of property and equipment -- -- 750,000
Depreciation and amortization 456,579 458,741 558,975
Amortization of loan and consulting fees 183,628 69,000 65,675
Amortization of goodwill -- -- 4,873
Amortization of beneficial conversion feature related
to convertible debt 88,889 900,000 --
Interest paid on issuance of preferred stock 232,520 130,580 --
Accretion of interest on current debt -- -- 32,292
(Gain) loss on sale on INSCI Corp. stock (2,089,020) 73,500 --
Equity in net loss of INSCI Corp. 158,030 1,452,000 2,187,411
Write-off of net assets of discontinued operations -- 185,331 --
Provision for doubtful accounts -- 48,115 209,169
Deferred rent 14,183 (200,954) 302,653
Changes in assets and liabilities:
Accounts receivable 75,303 1,177,813 400,377
Inventory 21,405 75,390 14,197
Prepaid expenses and other current assets 63,562 (300,873) 147,506
Deposits and other assets (16,769) 231,143 (107,872)
Accounts payable 24,151 692,673 (161,897)
Accrued salaries 1,813 (58,993) 84,093
Deferred revenue (129,090) (424,933) 168,103
Customer deposits -- -- (210)
Other accrued liabilities (783,535) 143,747 (355,443)
----------- ----------- -----------
Net cash used in operating activities (1,509,734) (926,234) (1,364,204)
----------- ----------- -----------
Cash flows from investing activities
Capital expenditures (568,390) (56,456) (214,348)
Proceeds from the sale of stock in INSCI Corp. 2,258,072 331,129 --
Loan to related party (250,000) -- --
Advances to INSCI Corp. -- -- (38,095)
Repayments by INSCI Corp. -- 1,000,000 2,450,585
----------- ----------- -----------
Net cash provided by investing
activities 1,439,682 1,274,673 2,198,142
----------- ----------- -----------
Totals carried forward $ (70,052) $ 348,439 $ 833,938
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
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Information Management Technologies Corporation
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Years Ended March 31,
-------------------------------------
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Totals brought forward $ (70,052) $ 348,439 $ 833,938
Cash flows from financing activities
Net repayments under bank credit facility (640,056) (479,442) (415,441)
Financing from bank overdraft -- (268,881) 268,881
Proceeds from bank issuance of short-term debt
and options -- 176,852 250,000
Proceeds from issuance of long-term debt 900,000 2,340,185 --
Repayments of long-term debt (627,328) -- (79,617)
Payments of capital lease obligations (345,305) (529,721) (499,236)
Repayment of BNY warrant -- (200,000) --
Payment of stockholder loan -- -- (185,900)
Proceeds from equity placements and the exercise of
options and warrants -- 624,128 --
Costs associated with equity placements and preferred
stock redemptions -- -- (213,500)
----------- ----------- ---------
Net cash provided by (used in)
financing activities (712,689) 1,663,121 (874,813)
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents (782,741) 2,011,560 (40,875)
Cash and cash equivalents, beginning of year 2,011,560 -- 40,875
----------- ----------- ---------
Cash and cash equivalents, end of year $ 1,228,819 $ 2,011,560 $ --
=========== =========== =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 94,450 $ 355,852 $ 387,518
=========== =========== =========
Income taxes $ -- $ 11,592 $ 2,166
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
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Information Management Technologies Corporation
STATEMENTS OF CASH FLOWS
(Concluded)
Supplemental Disclosures of Non-Cash Investing and Financing Activities
During the fiscal year ended March 31, 1997:
The holder of the Company's $2,100,000 6% convertible debenture issued in
March 1996 elected to convert the debt into 1,883,643 shares of Class A
common stock.
Holders of the Company's 12% subordinated convertible debentures elected to
convert $250,000 of debentures into shares of the Company's 12% preferred
stock.
The Company repaid a short-term note valued at $51,975 by issuing INSCI Corp.
stock.
The Company incurred capital lease obligations of approximately $144,000.
During the fiscal year ended March 31, 1996:
The Company issued 171,000 shares of Class A common stock valued at $502,000
for services rendered over a three year period.
The Company negotiated with one of its primary suppliers to convert $545,000
of trade payables into a two year interest bearing note.
Holders of the Company's 12% subordinated convertible debentures elected to
convert $1,896,000 in debentures into shares of the Company's 12%
preferred stock.
The Company incurred capital lease obligations of approximately $405,000.
During the fiscal year ended March 31, 1995:
BNY notified the Company that it would exercise its right to "put" the
$200,000 warrant back to the Company.
The Company negotiated with several key vendors to convert $148,821 of trade
payables into twelve month notes.
The Company incurred capital lease obligations of approximately $311,000.
The accompanying notes are an integral part of these financial statements.
F-10
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE A - 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 (See Note F). 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 16% ownership interest in INSCI Corp. ("INSCI") at
March 31, 1997. At March 31, 1996 and 1995, the Company held a 38% and 64%
ownership interest in INSCI, respectively. 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 promogulated by Statement of Financial
Accounting Standards ("SFAS") No. 115.
NOTE B - 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 March 31, 1997, cash equivalents
included funds deposited in a liquid asset fund with a financial
institution.
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.
F-11
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
4. Property and Equipment (Continued)
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, which amounted to
approximately $98,000 and $53,000, net of accumulated amortization of
approximately $38,000 and $13,000 as of March 31, 1997 and 1996,
respectively, 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 fiscal year. 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 (See Note B-2) 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.
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.
F-12
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 fiscal year ended
March 31, 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 outstanding convertible secured
promissory notes payable (See Note E-6) is accounted for as additional
interest to the note 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.
The statement of operations for the fiscal year ended March 31, 1996 has
been adjusted to include a $900,000 interest charge from the beneficial
conversion feature related to convertible debentures to comply with the
staff's position of retroactive application of this accounting practice.
As a result, net loss per share has been increased from ($1.49) to
($1.77).
F-13
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE C - INVESTMENT IN INSCI CORP.
The Company holds a 16% ownership interest in INSCI, its former
majority-owned subsidiary. At March 31, 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.
(636,467 shares) $ 7,593 $1,782,108 $1,774,515
================================================================================
The investment is accounted for under the "Securities Available For Sale" method
as promogulated 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
March 31, 1996 and 1995, the Company had a 38% and a 64% ownership interest in
INSCI, respectively. INSCI's financial position and the results of its
operations for the years ended March 31, 1996 and 1995 were as follows (in
,000):
---------- ----------
1996 1995
-------------------------------------------------------------------
Net sales $ 7,913 $ 7,188
======= =======
Net loss $ (1,452) $ (3,113)
======= =======
Total assets $ 5,223
=======
Total liabilities $ 2,704
Total stockholders' equity 2,519
=======
Total liabilities and stockholders' equity $ 5,223
=======
Investment in INSCI Corp. $ 379
=======
NOTE D - CURRENT DEBT
At March 31, 1997 and 1996, current debt consisted of:
------------- ------------
1997 1996
-------------------------------------------------------------------------
Loan-option note payable [1] $ - $ 51,975
12% subordinated convertible
debentures [2] 380,000 380,000
----------- ------------
$ 380,000 $ 431,975
=========== ============
[1] In January 1995, the Company obtained financing under a series of
loan-option agreements with five individuals in the aggregate of $250,000.
The loans were payable in one year and bore interest at a per annum rate
of 9%. In January 1996, the Company repaid $200,000 of the outstanding
loans plus accrued interest ( to four out of the five individuals). During
the fiscal year ended March 31, 1997, the remaining loan-option holder was
repaid in shares of INSCI stock, at his request.
F-14
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE D - CURRENT DEBT (Continued)
[2] 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. Interest charged to operations for the years ended
March 31, 1997 and 1996 amounted to approximately $46,000 and $9,000,
respectively.
NOTE E - LONG-TERM DEBT
At March 31, 1997 and 1996, long-term debt obligations consisted of the
following:
----------------------------
March 31,
----------------------------
1997 1996
----------------------------------------------------------------------------
12% convertible subordinated debentures [1] $ - $ 405,000
Revolving bank credit and term facility [2] - 240,185
Trade payable conversion note [5] 288,329 545,472
6% convertible debenture [3], [6] - 2,100,000
12% convertible secured notes [4], [6] 900,000 -
---------- -----------
1,188,329 3,290,657
Less: Current maturities 288,329 497,328
---------- -----------
Total long-term debt $ 900,000 $ 2,793,329
---------- -----------
[1] During the fiscal year ended March 31, 1992, the Company received proceeds
totaling $2,301,000 from a private placement whereby it issued 12%
convertible subordinated debentures. Originally, the debentures were
convertible into Class A common stock of IMTECH at any time prior to
maturity at a price of $10.00 per share. In December 1995, the Company
established an exchange program which allowed the debenture holders to
receive $1.00 of preferred stock for every $1.00 of debentures. As of
March 31, 1996, the debenture holders converted $1,896,000 of debentures
into preferred stock.
During the fiscal year ended March 31, 1997, $250,000 of debentures were
converted into the Company's 12% preferred stock, and the remainder of the
debentures were redeemed. Interest from the debentures charged to
operations for the years ended March 31, 1997, 1996 and 1995 was
approximately $16,000, $210,000 and $276,000, respectively.
[2] During fiscal year ended March 31, 1996, the Company maintained a credit
facility arrangement with BNY Financial Corp. ("BNY") under which BNY
advanced the Company funds at a rate of 2% above the prime rate. As part
of the financing arrangement, the Company granted BNY a warrant to
purchase 100,000 shares of IMTECH's Class A common stock at an exercise
price equal to 80% of the market value on the date of grant. In addition,
the Company granted BNY the right to "put" the warrant back to the Company
if the warrant remained unexercised. In April of 1995, the Company
commenced payment of the warrant upon BNY's notification that it was going
to exercise the "put" option.
F-15
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Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE E - LONG-TERM DEBT (Continued)
[2] (Continued)
On April 10, 1996, the Company terminated its financing arrangement with
BNY. The Company paid approximately $1,500,000 to BNY in full satisfaction
of all outstanding loans, advances and debt obligations, including the
"put" back warrant. In addition, the Company paid a termination fee of
$75,000, and received a release from BNY of all collateral pledged as
security for the lending agreement.
[3] In March 1996, the Company issued a two year 6% convertible debenture in
exchange for $2,100,000. The debenture was issued to a company called
Infinity Investors Ltd. ("Infinity"), under Regulation "S" of the
Securities Act, and it entitled Infinity to convert the debenture
principal plus accrued interest into Class A common stock of the Company
at a 30% discount to the market rate based on a five day average trading
price at the time of conversion. Interest charged to operations for the
years ended March 31, 1997 and 1996 amounted to $25,212 and $9,100,
respectively.
During the fiscal year ended March 31, 1997, the debentures were
completely converted, and as a result, the Company issued 1,833,643 shares
of Class A common stock.
[4] On February 27, 1997, the Company issued convertible secured promissory
notes in exchange for proceeds of $900,000 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
500,000 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. The Company will make its best efforts to file a
registration statement for the shares underlying the notes within 180 days
from the date of issue. The notes will be automatically converted at the
end of the three year conversion period. 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.
Interest charged to operations for the year ended March 31, 1997 amounted
to $9,000.
[5] In March 1996, the Company negotiated with one of its key suppliers to
convert $545,472 of payables to a two year unsecured installment
promissory note. The note is payable in twenty-four monthly installments
of $25,550 including interest at a per annum rate of 11.5%. Interest
charged to operations for the year ended March 31, 1997 amounted to
$49,456. The Company is current with the scheduled payments.
[6] 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.
F-16
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE E - LONG-TERM DEBT (Continued)
[6] (Continued)
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 years ended March 31, 1997 and
1996, additional interest expense of approximately $89,000 and $900,000,
respectively, was charged to operations.
NOTE F - RELATED PARTY TRANSACTIONS
INSCI CORP.
In April 1994, INSCI Corp., the Company's then majority-owned subsidiary
(See Note C), completed a public offering ("IPO") of $1,250,000 units for which
IMTECH received net proceeds of approximately $7,200,000. Out of the proceeds
raised from the IPO, INSCI used $2,327,000 as partial repayment toward its
indebtedness to IMTECH. Unpaid principal due to IMTECH was converted into 41,343
shares of INSCI preferred stock.
In December 1994, IMTECH converted 25,000 shares of INSCI preferred stock
into 500,000 shares of INSCI common stock at a rate of 20 INSCI common shares
for each share of preferred stock held. In June 1995, IMTECH redeemed the
remaining 16,343, shares of INSCI preferred stock for $1,000,000.
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 all 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 cost to IMTECH of $40,000 per month. 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 year ended
March 31, 1997 amounted to approximately $489,000.
F-17
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE F - RELATED PARTY TRANSACTIONS (Continued)
BLITZ SYSTEMS, INC. (Continued)
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
all tangible and intangible rights of Blitz, which the Company is currently in
the process of perfecting. According to the terms of the loan agreement, by no
later than April 30, 1997, Blitz had the option to exchange 50% of the
outstanding shares of Research Distribution Services, Inc., a company owned 100%
by the sole stockholder of Blitz, or repay the loan on an installment basis with
interest at the prime rate. On April 30, 1997, Blitz commenced payment 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 paid to RDS and
charged to operations for the year ended March 31, 1997 amounted to $67,500.
NOTE G - 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
(See Note B-4). At March 31, 1997 and 1996, the book value of the equipment
under capital leases was approximately $901,000 and $1,212,000, respectively.
Minimum future lease payments under capital leases as of March 31, 1997
and for each of the next five years and in the aggregate are as follows:
----------------------------
Year Ending March 31,
---------------------------------------------------------------------
1998 $ 357,580
1999 159,965
2000 51,625
2001 51,625
2002 12,909
----------
Total minimum lease payments 633,704
Less: Amount representing interest 139,824
Less: Current portion 280,878
----------
Present value of long-term capital lease obligations $ 213,002
==========
F-18
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE H - 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 noncancellable lease expiring in July 2003. The rental
payments under the lease are subject to annual cost of living and maintenance
increases. Rent expense charged to operations for the years ended March 31,
1997, 1996 and 1995 amounted to approximately $494,000, $629,000 and $1,013,000,
respectively. 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 years ended March 31, 1997, 1996 and 1995.
Consequently, deferred rent of approximately $383,000 and $368,000 representing
pro-rata future payments is reflected in the accompanying balance sheets as of
March 31, 1997 and 1996, respectively.
Minimum future rental payments under the noncancellable operating lease as
of March 31, 1997 are as follows:
----------------------------------
For the Year Ended March 31,
------------------------------------------------
1998 $ 496,600
1999 512,000
2000 528,000
2001 544,600
2002 579,800
Thereafter 775,000
-----------
$ 3,436,000
===========
NOTE I - 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.
F-19
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE I - INCOME TAXES (Continued)
At March 31, 1997, the Company has 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
============
In 1997 the Company utilized approximately $189,000 of N.O.L.'s to reduce
taxable income to zero. Accordingly, the Company has not recorded a provision
for income taxes for the year ended March 31, 1997. The tax benefits resulting
from the N.O.L.'s have been fully reserved because the likelihood of their
realization could not be determined.
NOTE J - COMMON STOCK
In May 1995, with the approval of its shareholders, the Company recorded a
four-for-one reverse stock split of IMTECH's Class A common stock. In addition,
the shareholders approved an increase in the par value of the Class A common
stock from $.01 to $.04. The number of shares authorized under the Company's
stock option plans, as stated in Note K, increased. Accordingly, all references
to the number of shares outstanding have been adjusted for all of the periods
presented to give effect to the aforementioned reverse stock split.
In November 1995, the Company entered into a loan arrangement with a
foreign entity known as Fondo De Adquisciones E Inversiones Internationales XL,
S.A. ("Fondo"), whereby Fondo loaned IMTECH the sum of $250,000, which bore
interest at a per annum rate of 15%, in exchange for a convertible subordinated
debenture. In December 1995, in accordance with the terms of the loan agreement,
Fondo converted the debenture into shares of the Company's Class A common stock
at a per share price of $.875. As a result of the conversion, 285,750 shares of
IMTECH Class A common stock was issued under Regulation "S" of the Securities
Act.
In January 1996, the holders of options issued as a result of the January
1995 loan-option agreements (See Note D-1), exercised 125,000 options to
purchase 125,000 shares of the Company's Class A common stock at an exercise
price of $.04 per share.
In January 1996, the Company sold 200,000 shares of its Class A common
stock for total proceeds of $250,000 ($1.25 per share price), to a company known
as C.A. Opprtunidad S.A. under the rules of Regulation "S" of the Securities
Act.
F-20
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE J - COMMON STOCK (Continued)
In March 1996, the Company issued a two year 6% convertible debenture in
exchange for $2,100,000. The debenture was issued to a company called Infinity
Investors Ltd. ("Infinity"), under Regulation "S" of the Securities Act, and it
entitled Infinity to convert the debenture principal plus accrued interest into
Class A common stock of the Company at a 30% discount to the market based on a
five day average trading price at the time of conversion. During the fiscal year
ended March 31, 1997, the debenture was completely converted, and as a result,
the Company issued 1,833,643 shares of Class A common stock at an average per
share price of $1.15.
During the fiscal year ended March 31, 1997, the Company issued 60,000
shares of its Class A common stock in exchange for promotional services valued
at $50,400.
NOTE K - 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 March 31,
1997, options to purchase approximately 1,766,000 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
Also 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. 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 March 31, 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.
F-21
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE K - STOCK OPTIONS (Continued)
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 March 31, 1997, there
were no options outstanding under the DO plan.
The following is a summary of the stock option activity for the three
years ended March 31, 1997 (in ,000):
<TABLE>
<CAPTION>
----------------- ------------------ ---------------- -----------------
NQSO ISO DO Other
- - --------------------------------------------------------- ------------------ ---------------- -----------------
[a] [b] [a] [b] [a] [b] [a] [b]
-------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at April 1, 1994 279 8.18 272 2.08 60 3.13 20 10.00
Granted - 300 .33 - - -
Canceled (58) 1.69 (104) .33 (45) 3.13 - -
------ ------- ------- -----
Outstanding at March 31, 1995 221 9.90 468 5.85 15 3.13 20 10.00
Granted 1,195 2.07 878 2.16 - - -
Canceled - - - (20) 10.00
------ ------- ------- -----
Outstanding at March 31, 1996 1,416 3.29 1,346 3.44 15 3.13 - -
Granted 350 1.68 1,125 1.24 - - -
Canceled - (125) 1.88 (15) 3.13 - -
------ ------ ------ -----
Outstanding at March 31, 1997 1,766 2.97 2,346 2.47 - - -
--------------------------------------------------------------------------------------------------------------
Exercisable at March 31, 1997 1,016 2.09 954 1.53 - - - -
--------------------------------------------------------------------------------------------------------------
</TABLE>
[a] = Number of options.
[b] = Weighted average exercise price per share.
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.
F-22
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE K - STOCK OPTIONS (Continued)
Stock-Based Compensation (Continued)
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 using the Black-Scholes option pricing model, the pro forma
effect would have been:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
For the Years Ended March 31,
------------ ------------
1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) applicable to common shares - as reported 188,617 (5,578,514)
Net income (loss) applicable to common shares - pro forma (560,483) (6,059,414)
Net income (loss) per common share - as reported .04 (1.77)
Net income (loss) per common share - pro forma (.11) (1.93)
</TABLE>
The fair value of each option grant is calculated using the following weighted
average assumptions:
-----------------------------------------------------------------------------
For the Years Ended March 31,
------------ ----------
1997 1996
----------------------------------------------------------------------------
Expected life (in years) 5 5
Interest rate 6.01% 5.86%
Volatility 287% 286%
Dividend yield - -
NOTE L - MAJOR CUSTOMERS
During the years ended March 31, 1997 and 1996, sales to the two largest
customers of the Company accounted for approximately 38% and 39% of total
revenue, respectively. During the year ended March 31, 1995, sales to three of
the Company's largest customers accounted for 56% of the total revenue for that
year. At March 31, 1997 and 1996, the two largest customers of the Company had
accounts receivable balances in the aggregate of approximately $156,000 and
$120,000, respectively.
F-23
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE M - CONTINGENCIES
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION
In September 1992, IMTECH and INSCI Corp., the Company's then
majority-owned subsidiary (See Note C), (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 an order 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 16% 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 March 31,
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.
F-24
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE M - 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 a some of 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 has an initial
one year term and provides for an annual base salary of $140,000. 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 decided in the agreement, to recover the stock and seek punitive
damages from CRG.
F-25
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
Notes to Financial Statements
March 31, 1997, 1996 and 1995
================================================================================
NOTE N - DISCONTINUED OPERATIONS
During the fiscal year ended March 31, 1995, the Company discontinued its
Litigation Support Services division, which generated sales of approximately
$1,563,000 and recorded a net loss of approximately $1,773,000 for that year.
The discontinued division wound down its operations during the fiscal year ended
March 31, 1996, and as a result, the Company recorded a final charge of
approximately $390,000 to write off the remaining assets.
NOTE O - OTHER COSTS
During the third quarter of fiscal year ended March 31, 1997, management
adopted a formal plan to restructure IMTECH's work force and redeploy the
operating assets of the Company. Management's intentions are to make the Company
operate more efficiently and remain competitive in the research printing market.
In accordance with the restructuring plan, the Company recorded a charge of
$550,000 for the year ended March 31, 1997 to account for the costs incurred to
reorganize the work force and redeploy the production equipment, summarized as
follows:
Severance payments $ 259,000
Payroll taxes and benefits 77,000
Consulting fees 131,000
Asset redeployment costs 83,000
----------
$ 550,000
====================================================
During the year ended March 31, 1997, the Company paid approximately $400,000 of
the costs detailed in the schedule above and had a reserve in the amount of
$150,000 included in other accrued liabilities appearing on the balance sheet,
which is expected to cover any remaining costs that will be paid subsequent to
March 31, 1997.
F-25
<PAGE>
I/M/T/E/C/H
================================================================================
Information Management Technologies Corporation
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - -----------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
[1] [2]
- - ---------------------------------------- -------------- -------------- -------------- --------------- --------------
Balance at Charged to Charged to Deductions - Balance
Description Beginning Costs and Other Describe at
of Year Expenses Accounts - End of Year
Describe
- - ---------------------------------------- -------------- -------------- -------------- -------------- --------------
[a]
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1997 $ 104,500 $ 34,660 $ - $ 102,360 $ 36,800
=========================================================================================
Year ended March 31, 1996 $ 56,385 $ 209,850 $ - $ 161,735 $ 104,500
=========================================================================================
Year ended March 31, 1995 $ 43,461 $ 127,158 $ - $ 114,234 $ 56,385
=========================================================================================
Accumulated amortization of cost in
excess of net assets acquired:
Year ended March 31, 1997 $ 255,059 $ - $ - $ 255,059 $ -
=========================================================================================
Year ended March 31, 1996 $ 255,059 $ - $ - $ - $ 255,059
=========================================================================================
Year ended March 31, 1995 $ 250,186 $ 4,873 $ - $ - $ 255,059
=========================================================================================
</TABLE>
[a] Represents amounts written off during the year.
F-26
<PAGE>
I/M/T/E/C/H
================================================================================
- - --------------------------------------------------------------------------------
INDEX TO EXHIBITS
- - --------------------------------------------------------------------------------
The following exhibits are filed as part of, or incorporated by reference
into, this report on Form 10-K, as indicated below (footnote explanations are at
end of index):
3.1 Certificate of Incorporation of the Company, as filed on December 24,
1986, amended October 16, 1987, amended July 20, 1989 and as amended
December 14, 1989.(11)
3.2 Certificate of Incorporation of the Company as amended June 13, 1995 and
amended June 28, 1995.(20)
3.3 Certificate of Incorporation of the Company as amended November 30,
1995.(46)
3.4 Bylaws of the Company.(1)
4.1 Unit Purchase Option for 46,300 units, dated April 6, 1988, issued to D.H.
Blair & Co., Inc.(8)
4.2 Unit Purchase Option for 32,000 units, dated April 5, 1988, issued to
Parliament Hill Capital Corp.(8)
4.3 Unit Purchase Option for 500 units, dated April 6, 1988, issued to David
Nachamie.(8)
4.4 Unit Purchase Option for 500 units, dated April 6, 1988, issued to Vincent
Coakley.(8)
4.5 Unit Purchase Option for 500 units, dated April 6, 1988, issued to Michael
Siciliano.(8)
4.6 Unit Purchase Option for 200 units, dated April 6, 1988, issued to Allison
Brown.(8)
4.7 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated April 6, 1988.(8)
4.8 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated February 23, 1989.(9)
4.9 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated May 22, 1990.(11)
4.10 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated August 16, 1990.(12)
4.11 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated March 25, 1991.(16)
4.12 Form of Convertible Subordinated Debenture issued in connection with the
Company's private placement completed in November 1991.(17)
4.13 Form of Convertible Subordinated Note issued in connection with INSCI
Corp. private placement completed in June 1992.(17)
4.14 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated February 1, 1993 as amended by Supplemental Agreement
to Amend Warrant Agreement, dated June 27, 1993.(18)
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4.15 Loan Option Agreement, dated January 17, 1995, issued to Shor Yeshev.(20)
4.16 Loan Option Agreement, dated January 17, 1995, issued to Raquel
Grunwald.(20)
4.17 Loan Option Agreement, dated January 17, 1995, issued to Lou Gurman.(20)
4.18 Loan Option Agreement, dated January 17, 1995, issued to Dynamic
Control.(20)
4.19 Loan Option Agreement, dated January 17, 1995, issued to Dr. Rona
Krinick.(20)
9.1 Voting Agreement between D.H. Blair & Co., Inc. and Pierce Lowrey, Jr.
dated February 23, 1989 accompanied by a schedule of seven other
substantially identical agreements reflecting parties' names and amount of
securities subject to the agreements.(10)
9.2 Voting Agreement between D.H. Blair & Co., Inc. and Gerald E. Dorsey.(18)
9.3 Voting Agreement between the Company and Pierce Lowrey, Jr.(19)
10.1 Employment Agreement dated as of September 1, 1987 between the Company and
Pierce Lowrey, Jr.(1)
10.2 Escrow Agreement by and among the Company, the existing stockholders, and
the Escrow Agent.(8)
10.3 Amended and Restated 1987 Incentive Stock Option Plan.(10)
10.4 Amended and Restated 1987 Non-Qualified Stock Option Plan.(8)
10.5 Sublease dated September 7, 1988, between the Company and Kidder, Peabody
& Co., Inc. for the Company's facilities at 130 Cedar Street, New York, NY
with lease attached thereto.(10)
10.6 Lease dated November 2, 1988, between the Company and Carol Gaynor,
Marguerite K. Lewis and William A. Goldstein, as Trustees for additional
facilities at 130 Cedar Street, New York, N.Y.(10)
10.7 Lease dated August 19, 1987, between the Company and California State
Teacher's Retirement System for the Company's facilities at Six Piedmont
Center, Suite 100, Atlanta, Georgia.(1)
10.8 Form of Facilities Management Agreement.(1)
10.9 Form of Service Agreement.(1)
10.10 Employment Agreement dated January 1, 1988 between the Company and Ronald
A. Bibbo.(3)
10.11 Non-Compete Agreement September 3, 1986 by and among Datacopi, Inc., NCR
Corporation, and Pierce L. Lowrey, Jr.(2)
10.12 Line of Credit for the Company with the Robinson-Humphrey Company, Inc.(2)
10.13 Agreement for sale of 150,000 shares of Class B Common Stock between the
Company and Pierce Lowrey, Jr.(2)
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10.14 Subscription Agreement for Ronald A. Bibbo.(2)
10.15 Cease and Desist Agreement between the Company and Independent Printing
Company, Inc.(3)
10.16 Settlement Agreement between the Company and Mathias & Carr, Inc.(3)
10.17 Line of Credit for the Company with the First National Bank of Atlanta.(3)
10.18 March 31, 1988 accrued salary waiver between Pierce Lowrey, Jr. and the
Company.(7)
10.19 Letter Agreement between the Company and D.H. Blair & Co., Inc. regarding
merger and acquisition consulting services, dated April 13, 1988.(8)
10.20 Consulting Agreement between the Company and D.H. Blair & Co., Inc. dated
April 13, 1988.(8)
10.21 Facilities Management Agreement dated June 6, 1988 by and between the
Company and Manufacturers Hanover Trust Company, with Addendum thereto,
dated July 1988.(8)
10.22 Facilities Management Agreement, dated September 7, 1988, by and between
the Company and Kidder, Peabody & Co., Inc., and related agreements and
documents.(8)
10.23 Directors Option Plan.(10)
10.24 Employment Agreement, dated May 1, 1988, between the Company and Ray
Miller, with attachments and exhibits.(10)
10.25 Stock Option Agreement, dated May 1, 1988, between the Company and Ray L.
Miller.(10)
10.26 Agency Agreement, dated January 30, 1989, between the Company and D.H.
Blair & Co., Inc.(10)
10.27 Unit Purchase Option for 2.55 Private Placement units, dated February 23,
1989, issued to D.H. Blair & Co., Inc.(10)
10.28 May 1, 1989 letter regarding salary waiver from Pierce Lowrey, Jr. to the
Company.(10)
10.29 Assignment Agreement, dated May 24, 1989 between the Company and Pierce
Lowrey Jr. regarding assignment of claims against Ronald A. Bibbo.(10)
10.30 Asset Purchase Agreement, dated May 5, 1989, between Jon Rothenberg &
Associates and the Company, with related documents and agreements.(10)
10.31 Promissory Note in the original principal amount of $100,000 dated June 9,
1989 payable by the Company to Pierce Lowrey, Jr.(10)
10.32 Commitment Letter, dated July 17, 1989, from Pierce Lowrey, Jr. to the
Company with respect to additional loans to the Company.(10)
10.33 Employment Agreement, dated December 15, 1989, between the Company and
John Hoffman.(11)
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10.34 Credit Agreement, dated August 1, 1989, as amended, by and between the
Company and State Street Bank and Trust Company.(11)
10.35 $750,000 Loan Commitment, Master Note and Security Agreement by and
between Pierce Lowrey, Jr. and the Company, dated March 1, 1990.(11)
10.36 Asset Purchase Agreement by and between Imtech Optical Systems, Inc. and
Acctex Information Systems, Inc., dated December 29, 1989.(11)
10.37 Distribution Agreement between the Company and the Vault Company dated,
June 25, 1990.(13)
10.38 Letter Agreement, dated May 15, 1990 from D.H. Blair & Co., Inc. to the
Company regarding amendment to Unit Purchase Option ,dated February 23,
1989.(14)
10.39 Letter Agreement between the Company and D.H. Blair & Co., Inc. regarding
1990 Bridge Loan, dated May 22, 1990.(14)
10.40 Form of 12% Subordinated Promissory Note issued in connection with 1990
Bridge Loan.(1)
10.41 Asset Purchase Agreement between the Company and IMTECH Atlanta, Inc.(15)
10.42 Form of Subordinated Promissory Note issued in connection with the
Company's private placement completed in February 1991.(16)
10.43 Accounts Financing Agreement [Security Agreement] (with Supplements) and
$100,000 Term Notes between the Company and Congress Financial
Corporation, dated May 3, 1991, and $500,000 Letter of Credit from the
First National Bank of Atlanta, dated May 2, 1991.(16)
10.44 Warrant Agreements between the Company and Pierce Lowrey, Jr. dated
February 1, 1991, February 5, 1991 and February 28, 1991 for 425,000
shares, 125,000 shares and 153,000 shares, respectively.(16)
10.45 Share Purchase Option for 243,750 shares of Class A Common Stock, dated
April 26, 1991, between the Company and D.H. Blair & Co., Inc.(16)
10.46 Form of Share Purchase Option issued in connection with INSCI Corp.
private placement in July 1991.(17)
10.47 Form of Warrant issued in connection with INSCI Corp. private placement
completed in January 1992.(17)
10.48 Form of Unit Exchange Agreement issued in connection with INSCI Corp.
private placement completed in January 1992.(17)
10.49 Form of Warrant issued in connection with INSCI Corp. private placement
completed in June 1992.(17)
10.50 Consulting Agreement, dated March 8, 1993, by and between INSCI Corp. and
the Raymond Group, Inc.(18)
10.51 Lease Agreement, dated May 31, 1993, by and between INSCI Corp. and
Connecticut General Life Insurance Company.(18)
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10.52 Settlement Agreement with the SEC, dated September 30, 1992.(18)
10.53 Consulting Agreement by and between the Company and Edward I. Rosen, dated
April 1, 1993.(18)
10.54 First Amendment to Director's Stock Option Plan, dated October 20,
1992.(18)
10.55 Lease Agreement between the Company and A.J. Goldstein & Co., Inc. for
premises located at 130 Cedar Street, New York, New York 1006, dated
October 7, 1993.(17)
10.56 Loan Agreement (and supplemental documentation) between BNY Financial
Corp., the Company, INSCI Corp. and Imtech Litigation Support Systems,
Inc.(32)
10.57 INSCI Corp. 1992 Stock Option Plan (28)
10.58 INSCI Corp. 1992 Directors Option Plan.(28)
10.59 INSCI Corp. 1992 Advisory Committee Plan.(28)
10.60 INSCI Corp. Accounts Financing Agreement between INSCI Corp. and Congress
Financial Corporation, and related documents.(28)
10.61 INSCI Corp. Form of 1991 Option.(28)
10.62 INSCI Corp. Form of 1992 Warrants.(28)
10.63 INSCI Corp. Form of 1992 Convertible Subordinated Notes.(28)
10.64 INSCI Corp. Form of 1992 Contingent Warrants.(28)
10.75 INSCI Corp. Form of 1993 Warrant - Version A.(30)
10.76 INSCI Corp. Form of 1993 Release Agreement.(30)
10.77 INSCI Corp. Form of Management Agreement between INSCI Corp. and
IMTECH.(28)
10.78 INSCI Corp. Form of Tax Sharing Agreement between INSCI Corp. and
IMTECH.(28)
10.79 Form of Indemnification Agreement with INSCI Corp.'s Directors.(28)
10.80 Marketing Associate Solution Alliance Agreement between UNISYS Corp. and
INSCI Corp.(28)
10.81 Data General Value Added Reseller Discount Purchase Agreement.(28)
10.82 Data General Optical Systems and Software Agreement.(28)
10.83 Distribution Agreement between Fiserv CIR, Inc. and INSCI Corp.(28)
10.84 Lease Agreement relating to INSCI Corp.'s White Plains, NY
headquarters.(29)
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10.85 Forms of Customer License Agreements used by INSCI Corp.(29)
10.86 Forms of Employee Confidentiality Agreements used by INSCI Corp.(29)
10.87 Nondisclosure and Noncompetition Agreement between INSCI Corp., the
Company and Mason Grisby.(29)
10.88 Form of 1993 Warrant; Version B.(30)
10.89 Employment Agreement between INSCI Corp. and John L. Gillis.(30)
10.90 Employment Agreement between INSCI Corp. and Kris Canekeratne.(30)
10.91 Form of 1993 Exchange Agreement and Investor Suitability
Representations.(30)
10.92 Form of 1993 Conversion Agreement.(30)
10.93 Waivers by Congress Financial Corp.(30)
10.94 License Agreement between Bull HN Information Systems, Inc. and INSCI
Corp.(30)
10.95 Preferred stock Subscription Agreement between INSCI Corp. and the
Company relating to preferred stock.(19)
10.96 Business Partner Agreement between International Business Machines Corp.
and INSCI Corp.(32)
10.97 Waiver by BNY Financial Corp.(31)
10.98 Stock Escrow Agreement between INSCI Corp., the Company and First Union
National Bank of North Carolina (as escrow agent).(32)
10.99 Promissory Note and Security Agreement in favor of INSCI Corp. from John
L. Gillis and Sandra Gillis, in the original principal amount of
$150,000.(19)
10.100 Stock Pledge Agreement by John L. Gillis and Sandra Gillis, in favor of
INSCI Corp.(19)
10.101 April 1993 Private Placement term sheet and exhibits.(19)
10.102 December 1993 Litigation Support Systems, Inc. Private Placement
documents.(19)
10.103 Consulting Agreement between the Company and Boulder Financial Group,
Ltd.(19)
10.104 Amendment to loan Agreement between BNY Financial Corp. and
Registrant.(19)
10.105 Amendment to Loan Agreement between NY Financial Corp. and
Registrant.(19)
10.106 BNY Agreement with Registrant.(20)
10.107 Preferred Stock Redemption Agreement.(20)
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10.108 Employment Agreement between IMTECH and Christopher D. Holbrook.(34)
10.109 Employment Agreement between IMTECH and Joseph A. Gitto, Jr.(34)
10.110 Lease Agreement relating to INSCI's Westborough, Massachusetts
heaquarters.(44)
10.111 Employment Agreement with Jack Steinkrauss.(44)
10.112 Employment Agreement with John Gillis.(44)
10.113 Employment Agreement with Kris Canckeratne.(44)
10.114 Agreement for system purchase by Northern Trust Company.(44)
10.115 Technology and Reseller Agreement with Elixir Technology.(20)
10.116 Private Placement term sheet for offering of 90 day 10% subordinated
notes repayable in cash or shares of the Company's proposed 10%
convertible preferred stock.(20)
10.117 First Amendments to Private Placement term sheet and exhibits.(20)
10.118 Copy of modification of lease executed by the Company and A.J. Goldstein
& Co., Inc.(45)
10.119 Form of Subordinated Convertible Debenture Exchange Agreement for 12%
convertible preferred stock.(51)
10.120 Agreement between the Company and the Corporate Relations Group for the
Company's corporate and stockholder public relations.(52)
10.121 Form of Agreement by and between the Company and a shareholder with
respect to a loan of stock.(53)
10.122 Form of Subscription Agreement for 12% subordinated convertible
debentures.(54)
10.123 Offshore Convertible Debenture Subscription Agreement between the Company
and Infinity Investors, Ltd. and related agreement between the Company
and Alpine Capital Partners, Inc.(60)(62)
10.124 Termination of Asset-Based Financing Agreement with BNY Financial
Corp.(56)
10.125 Form of Subscription Agreement with J. Michael Reisert, Inc.(63)
10.126 Employment Agreement with Mr. Matti Kon.(66)
10.127 12% Convertible Secured Promissory Note Private Placement Term Sheet with
exhibits(67)
13.1 The Company's Annual Report to Security Holders for the year ended March
31, 1993.(22)
13.2 Form 10-Q for the quarter ended June 30, 1993.(23)
13.3 Form 10-Q for the quarter ended September 30, 1993.(24)
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13.4 Form 10-Q for the quarter ended December 31, 1993.(25)
13.5 Form 10-Q/A (Amendment No. 1) for the quarter ended December 31,
1993.(26)
13.6 Proxy Statement for the Company's 1993 Annual Shareholders' Meeting.(27)
13.7 Form 10-Q for the quarter ended June 30, 1994.(35)
13.8 Form 10-Q for the quarter ended September 30, 1994.(36)
13.9 Form 10-Q for the quarter ended December 31, 1994.(37)
13.10 Form 10-Q for the quarter ended June 30, 1995.(47)
13.11 Form 10-Q for the quarter ended September 30, 1995.(48)
13.12 Form 10-Q for the quarter ended December 31, 1995.(49)
13.13 Form 10-Q for the quarter ended June 30, 1996.(57)
13.14 Form 10-Q for the quarter ended September 30, 1996.(58)
13.15 Form 10-Q for the quarter ended December 31, 1996.(59)
16.1 Letter regarding dismissal of independent certified public
accountant.(38)
16.2 Letter regarding engagement of new independent certified public
accountant.(39)
16.3 Letter regarding resignation of independent certified public
accountant.(38)
16.4 Letter regarding potential prior period adjustment.(41)
16.5 Letter regarding engagement of new independent certified public
accountant.(42)
21.1 List of subsidiaries.(20)
22.1 Proxy Statement for the Company's 1994 Annual Shareholders' Meeting.(43)
22.2 Proxy Statement for the Company's 1995 Annual Shareholders' Meeting.(50)
24.1 Powers of Attorney.(20)
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(1) Incorporated herein by reference to the Exhibit with the same description
to the Company's Registration Statement on Form S-1, File No. 33-18245, as
filed with the Securities and Exchange Commission on October 30, 1987.
(2) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 1 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
February 29, 1988.
(3) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 2 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 15, 1988.
(4) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 3 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 23, 1988.
(5) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 4 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 24, 1988.
(6) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 5 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 25, 1988.
(7) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 6 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
April 5, 1988.
(8) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended July 31,
1988.
(9) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1989.
(10) Incorporated herein by reference to the Exhibit with the same description
to the Company's Transition Report on Form 10-K for the eight month period
ended March 31, 1989.
(11) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1990.
(12) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
(13) Incorporated herein by reference to the Exhibit with the same description
to the Company's Registration Statement of Form S-1, File No. 33-36185, as
filed with the Securities and Exchange Commission on August 2, 1990.
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(14) Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 1 to the Company's Registration Statement of Form S-1,
File No. 33-36185, as filed with the Securities and Exchange Commission on
October 18, 1990.
(15) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 8-K, dated December 6, 1990.
(16) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1991.
(17) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1992.
(18) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1993.
(19) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1994.
(20) Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1995.
(21) Filed with this report.
(22) Incorporated by reference herein to the Company's Annual Report to
Security Holders for the year ended March 31, 1993 as filed with the
Commission.
(23) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993.
(24) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
(25) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
(26) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q/A (Amendment No. 1) for the
quarter ended December 31, 1993.
(27) Incorporated herein by reference to the Exhibit with the same description
to the Proxy Statement for the Company's 1993 Annual Shareholders' Meeting
as filed with the Commission.
(28) Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on November 13, 1993.
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(29) Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on December 2, 1993.
(30) Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on February 2, 1994.
(31) Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on March 15, 1994.
(32) Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on March 25, 1994.
(33) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 17, 1995.
(34) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated March 3, 1995.
(35) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994.
(36) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
(37) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994.
(38) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated August 9, 1994.
(39) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated August 15, 1994.
(40) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 1, 1994.
(41) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 14, 1994.
(42) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated December 21, 1994.
(43) Incorporated herein by reference to the Exhibit with the same description
of the Company's Definitive Proxy Statement for the 1994 Annual
Shareholders' Meeting, as filed with the Commission.
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(44) Incorporated herein by reference to the Exhibit with the same description
as filed by INSCI Corp. the majority owned subsidiary of the Registrant.
(45) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated July 14, 1995.
(46) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 30, 1995.
(47) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995.
(48) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
(49) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995.
(50) Incorporated herein by reference to the Exhibit with the same description
of the Company's Definitive Proxy Statement for the 1995 Annual
Shareholders' Meeting, as filed with the Commission.
(51) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated September 22, 1995.
(52) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated October 24, 1995.
(53) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 3, 1996.
(54) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 22, 1996.
(55) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated March 6, 1996.
(56) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated April 11, 1996.
(57) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996.
(58) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
(59) Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
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(60) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated April 25, 1996.
(61) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A (Amendment No. 1), dated July 25,
1996.
(62) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated September 16, 1996.
(63) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated December 5, 1996.
(64) Incorporated herein by reference to the Exhibit with the same description
of the Company's report on form 8-K, dated March 20, 1997.
