<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K (DATED JULY 24, 1998)
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------------------------------------------
SEPTEMBER 30, 1998
---------------------------------------------------------------
Date of Report (Date of earliest event reported)
---------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
------------------------------------------
DELAWARE
------------------------------------------
(State or Other Jurisdiction of Incorporation)
------------------------------------------
- -------------------------------- -----------------------------
01-6753 58-1722085
- -------------------------------- -----------------------------
(Commission File Number) (IRS Employer Identification No.)
- -------------------------------- -----------------------------
- ---------------------------------------- -----------------------------
130 CEDAR STREET, NEW YORK, NY 10006
- ---------------------------------------- -----------------------------
(Address of Principal Executive Offices) (Zip Code)
- ---------------------------------------- -----------------------------
----------------------------------------------------
(212) 306-6100
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Registrant supplements its Form 8-K (dated July 24, 1998) filed
on July 31, 1998 regarding its July 24, 1998 acquisition of all of the issued
and outstanding common stock of the company known as KRL Litho, Inc. d/b/a
The Skillcraft Group ("KRL") from Mr. Harold Russell and Mr. Jeffrey Craugh.
The Company incorporates by reference the 8-K filing dated July 24,
1998 (filed on July 31, 1998) as well as the financial statements and exhibits
annexed hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
(1) Audited financial statements of KRL Litho, Inc. as of and For the
Fiscal Year Ended December 31, 1997
(2) Audited financial statements of KRL Litho, Inc. as of and For the
Six Months Ended June 30, 1998
(B) EXHIBITS
(1) Consolidated Pro Forma Condensed Balance Sheet as of March 31, 1998
(2) Consolidated Pro Forma Condensed Statement of Operations For the
Fiscal Year Ended March 31, 1998
(3) Summary of Pro Forma Adjustments For the Fiscal Year Ended
March 31, 1998
(4) Consolidated Pro Forma Condensed Balance Sheet as of June 30, 1998
(5) Consolidated Pro Forma Condensed Statement of Operations For the
Three Months Ended June 30, 1998
(6) Summary of Pro Forma Adjustments For the Three Months Ended
June 30, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: New York, New York
September 30, 1998 INFORMATION MANAGEMENT
TECHNOLOGIES CORPORATION
-------------------------------------
(Registrant)
/s/ Joseph Gitto
-------------------------------------
Joseph Gitto,
President and Chief Financial Officer
<PAGE>
KRL LITHO, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
KRL LITHO, INC.
FINANCIAL STATEMENTS
INDEX
PAGE
Independent Auditor's Report 1
Balance Sheet as of December 31, 1997 and 1996 2
Statement of Income and Retained Earnings
for the Years Ended December 31, 1997 and 1996 3
Statement of Cash Flows for the Years Ended
December 31, 1997 and 1996 4
Notes to Financial Statements 5
<PAGE>
[LETTERHEAD OF HOWARD B. JACOBSON, C.P.A., P.C.]
REPORT OF INDEPENDENT AUDITOR
-----------------------------
Board of Directors
KRL Litho, Inc.
New York, New York
I have audited the accompanying balance sheets of KRL Litho, Inc. as of
December 31, 1997 and 1996, and the related statements of income and retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of KRL Litho, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Howard B. Jacobson, C.P.A., P.C.
Bayside, New York
April 24, 1998
<PAGE>
KRL LITHO, INC.
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 2A, 2G and 2H) $ 281,427 $ 861,400
Accounts receivable, net of allowance for doubtful
accounts of $207,277 in 1997 (Notes 2G and 3) 2,377,140 949,017
Inventory (Notes 2B and 3) 269,200 182,000
Other current assets 36,252 28,699
----------- -----------
Total current assets 2,964,019 2,021,116
----------- -----------
PROPERTY AND EQUIPMENT - AT COST: (NOTES 2C AND 4)
Production - machinery and equipment 1,178,007 749,750
Production - computers and software 300,615 34,134
Leasehold improvements 62,641 -0-
Office equipment and fixtures 112,206 112,206
----------- -----------
Total property and equipment 1,653,469 896,090
Less accumulated depreciation and amortization 793,606 547,745
----------- -----------
Net property and equipment 859,863 348,345
----------- -----------
Intangible assets net of accumulated amortization (Note 2D) 33,889 -0-
----------- -----------
TOTAL ASSETS $ 3,857,771 $ 2,369,461
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Loan payable - bank (Note 3) $ 181,649 $ -0-
Equipment notes payable (Note 4) 168,438 76,013
Accounts payable 691,795 656,201
Income taxes payable (Note 6) 45,853 80,972
Accrued expenses and other current liabilities 431,852 183,920
----------- -----------
Total current liabilities 1,519,587 997,106
----------- -----------
Equipment notes payable (Note 4) 456,383 184,440
Loan payable - stockholder (Note 5) 150,000 -0-
----------- -----------
Total long-term liabilities 606,383 184,440
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 10 shares 10,000 10,000
Retained earnings 1,721,801 1,177,915
----------- -----------
Total stockholder's equity 1,731,801 1,187,915
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,857,771 $ 2,369,461
=========== ===========
</TABLE>
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-2-
<PAGE>
KRL LITHO, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues (Note 2E) $ 13,773,284 $ 9,228,208
Cost of sales 9,261,574 5,995,636
------------ -----------
Gross profit 4,511,710 3,232,572
Selling, general and administrative expenses 3,211,121 2,109,222
------------ -----------
Income from operations 1,300,589 1,123,350
Interest expense, net 21,493 16,101
------------ -----------
Income before provision for income taxes 1,279,096 1,107,249
Provision for income taxes (Note 6) 133,008 101,496
------------ -----------
Net income 1,146,088 1,005,753
Distributions to stockholder (602,202) (192,707)
Retained earnings - beginning of year 1,177,915 364,869
------------ -----------
Retained earnings - end of year $ 1,721,801 $ 1,177,915
============ ===========
</TABLE>
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
KRL LITHO, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,146,088 $ 1,005,753
Adjustments to reconcile:
Depreciation and amortization 251,972 149,575
Accounts receivable (1,428,123) 94,886
Inventory (87,200) 6,600
Other current assets (7,553) 47,095
Accounts payable 35,594 (369,103)
Accrued expenses and other current liabilities 212,813 37,586
------------ -----------
Net cash provided by operating activities 123,591 972,392
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (757,379) (63,489)
Increase in intangible assets (40,000) -0-
------------ -----------
Net cash applied to investing activities (797,379) (63,489)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan, less repayments 181,649 -0-
Additional equipment notes, less repayments 364,368 (54,639)
Additional stockholder loans, less repayments 150,000 (25,531)
Distributions to stockholder (602,202) (192,707)
Repayment of loans to related company -0- (100,000)
------------ -----------
Net cash provided by (applied to) financing activities 93,815 (372,877)
------------ -----------
Net change in cash and cash equivalents (579,973) 536,026
Cash and cash equivalents at beginning of year 861,400 325,374
------------ -----------
Cash and cash equivalents at end of year $ 281,427 $ 861,400
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest expense $ 38,956 $ 33,974
============ ===========
Income taxes $ 205,386 $ 41,810
============ ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company incurred equipment notes
payable in the amount of $591,648.
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-4-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - THE COMPANY
KRL Litho, Inc. (the "Company") was organized in New York
State in June, 1989. The Company provides high quality multi-color
printing services to commercial organizations located primarily in
the New York Metropolitan area.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. CASH AND CASH EQUIVALENTS
For the purposes of reporting cash flows, the Company
considers all highly liquid investments with an original
maturity date of three months or less to be cash
equivalents. Cash equivalents are carried at cost plus
accrued interest which approximates fair market value. At
December 31, 1997 and 1996, cash equivalents included funds
deposited in certificates of deposit with a bank and a
liquid asset account with a financial institution.
B. INVENTORY
Inventory consists primarily of paper, toner and inks and
is stated at the lower of cost, determined on the first-in,
first-out (FIFO) method, or market.
C. PROPERTY AND EQUIPMENT
Depreciation of capital assets is provided to relate the
cost of these assets to operations over their estimated
useful lives. Management is of the opinion that asset
values decline rapidly and has therefore elected to use the
double declining balance method of depreciation for
production equipment, computer hardware and software, and
furniture and fixtures, over estimated useful lives ranging
from five to seven years. Leasehold improvements are
depreciated using the straight line method over the
remaining term of the lease.
Repairs and maintenance are charged to operations in the
period incurred, and major repairs and improvements which
significantly extend the lives of the assets are
capitalized, and depreciated over their estimated useful
lives. When assets are retired or disposed the cost and
accumulated depreciation or amortization are removed from
the accounts, and any gain or loss is recognized in the
current period's earnings.
D. INTANGIBLE ASSETS
Intangible assets consist of goodwill and a non-compete
agreement and are amortized over 15 years and 5 years
respectively.
-5-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. REVENUES
Revenue is recorded when services are performed or upon
delivery of finished product.
F. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
results could differ from those estimates.
G. 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 and certificates of
deposit at one bank and cash equivalents in a liquid asset
account 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 on going credit evaluations of its
customers and records reserves for potentially
uncollectible accounts receivable. Accounts receivable
consist mainly of customers within the Company's geographic
area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and
trade receivables and payables. 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.
I. 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 years ended December 31, 1997 and
1996.
-6-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - BANK NOTE PAYABLE
In March 1997, the Company entered into a one year
credit arrangement with a bank. According to the terms of the
credit arrangement, the Company can borrow up to a maximum of
$200,000 under a revolving line of credit (the "line"). All
outstanding obligations under the line bear interest at the bank's
prime rate plus one percent (1%) and are collateralized by the
Company's accounts receivable, inventory and a personal guarantee
by the sole stockholder. At December 31, 1997, the Company was
indebted to the bank for outstanding obligations under the line in
the amount of $181,649. Interest charged to operations for the
year ended December 31, 1997 amounted to $9,004.
NOTE 4 - EQUIPMENT NOTES PAYABLE
Equipment notes payable represent obligations secured
by certain equipment having aggregate book values at December 31,
1997 and 1996 in the amounts of $570,427 and $247,641
respectively. The notes are payable in monthly installments,
including interest at rates ranging from 8.9% to 11.5%, in the
aggregate amounts of $20,588 and $8,378 for 1997 and 1996
respectively. The notes expire at varying dates through
August, 2002.
Future maturities of equipment notes payable for each of the next
five years, and in the aggregate, are as follows:
Year ending December 31,
1998 $ 219,265
1999 191,479
2000 173,860
2001 113,509
2002 44,359
----------
Note repayments 742,472
Less: amount representing interest 117,651
Less: current portion 168,438
----------
Net long-term portion $ 456,383
==========
NOTE 5 - STOCKHOLDER'S LOANS
The loan payable to the sole stockholder represents unsecured
advances made to the Company which bear interest at the prime
rate.
-7-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - INCOME TAXES
The Company's stockholder has elected, under the
provisions of the Internal Revenue Code, to have the Company taxed
as a subchapter "S" corporation. Under these provisions there is
no federal income tax paid by the corporation. The Company's
income (or loss) is passed through directly to the stockholder and
taxed on the stockholder's personal income tax return.
Accordingly, there is no provision for federal income taxes. The
provision for income taxes for the years ended December 31, 1997
and 1996 consist of state and local taxes.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASE
The Company operates its office, sales, production and
manufacturing facilities within leased premises in New
York City, New York. The lease term is ten years which
expires August 31, 2002. The lease includes annual
escalations for real estate taxes and operating expenses
based on the Consumer Price Index. There are no specified
renewal terms.
Future minimum annual rentals excluding escalations over
the lease term are as follows:
Year ending December 31,
1998 $ 253,750
1999 253,750
2000 253,750
2001 253,750
2002 169,167
-----------
Total $ 1,184,167
===========
B. EMPLOYEE BENEFIT PLANS
The Company has a qualified defined
contribution profit sharing plan which covers employees
not included under the collective bargaining agreements in
effect with the printing industry unions. The benefit is
based on years of service and compensation. The plan is
entirely subjective and the Company can contribute an
amount ranging form 0% to 15% of compensation per annum.
The cost for the plan years ending December 31, 1997 and
1996 was $55,000 and $54,000 respectively.
The Company also has collective bargaining
agreements with several local printing industry unions. At
December 31, 1997 the contracts had expired and
negotiations to renew the contracts were in progress. The
Company anticipates the contract provisions to be settled
shortly. The Company continues to pay union benefits at
the prior contract rate and anticipates only minor
changes. No provision has been made in these financial
statements for the effects of new union contracts.
-8-
<PAGE>
KRL LITHO, INC.
FINANCIAL STATEMENTS
JUNE 30, 1998
<PAGE>
KRL LITHO, INC.
FINANCIAL STATEMENTS
INDEX
PAGE
Report of Independent Auditor 1
Balance Sheet as of June 30, 1998 2
Statement of Income and Retained Earnings
for the Six Months Ended June 30, 1998 3
Statement of Cash Flows for the Six
Months Ended June 30, 1998 4
Notes to Financial Statements 5
<PAGE>
[LETTERHEAD OF HOWARD B. JACOBSON, C.P.A., P.C.]
REPORT OF INDEPENDENT AUDITOR
Board of Directors
KRL Litho, Inc.
New York, New York
I have audited the accompanying balance sheet of KRL Litho, Inc. as of June
30, 1998, and the related statements of income and retained earnings, and cash
flows for the six months then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KRL Litho, Inc. as of June 30,
1998, and the results of its operations and its cash flows for the six months
then ended, in conformity with generally accepted accounting principles.
/s/ Howard B. Jacobson, C.P.A., P.C.
Bayside, New York
July 24, 1998
<PAGE>
KRL LITHO, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS
1998
-----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 2A, 2G and 2H) $ 419,455
Accounts receivable, net of allowance for doubtful
accounts in the amount of $207,277 (Notes 2G and 3) 2,414,784
Inventory (Notes 2B and 3) 199,246
Other current assets 73,267
-----------
Total current assets 3,106,752
PROPERTY AND EQUIPMENT - AT COST: (NOTES 2C AND 4)
Production - machinery and equipment 1,202,626
Production - computers and software 314,528
Leasehold improvements 62,641
Office equipment and fixtures 113,841
-----------
Total property and equipment 1,693,636
Less accumulated depreciation and amortization 952,230
-----------
Net property and equipment 741,406
-----------
Intangible assets net of accumulated amortization (Note 2D) 30,222
-----------
TOTAL ASSETS $ 3,878,380
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Loan payable - bank (Note 3) $ 348,868
Equipment notes payable (Note 4) 179,587
Accounts payable 627,131
Income taxes payable (Note 6) 18,512
Accrued expenses and other current liabilities 491,157
-----------
Total current liabilities 1,665,255
-----------
Equipment notes payable (Note 4) 349,194
Loan payable - stockholder (Note 5) 150,000
-----------
Total long-term liabilities 499,194
-----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 10 shares 10,000
Retained earnings 1,703,931
-----------
Total stockholder's equity 1,713,931
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,878,380
===========
</TABLE>
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-2-
<PAGE>
KRL LITHO, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
1998
-----------
Revenues (Note 2E) $ 6,988,058
Cost of sales 5,184,408
-----------
Gross profit 1,803,650
Selling, general and administrative expenses 1,569,718
-----------
Income from operations 233,932
Interest expense, net 33,345
-----------
Income before provision for income taxes 200,587
Provision for income taxes (Note 6) 18,512
-----------
Net income 182,075
Distributions to stockholder (199,945)
Retained earnings - beginning of period 1,721,801
-----------
Retained earnings - end of period $ 1,703,931
===========
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-3-
<PAGE>
KRL LITHO, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 182,075
Adjustments to reconcile:
Depreciation and amortization 162,292
Accounts receivable (37,644)
Inventory 69,954
Other current assets (37,015)
Accounts payable (64,664)
Accrued expenses and other current liabilities 31,964
-----------
Net cash provided by operating activities 306,962
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (40,167)
Net cash applied to investing activities (40,167)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan, less repayments 167,219
Equipment note repayments (96,041)
Distributions to stockholder (199,945)
-----------
Net cash applied to financing activities (128,767)
-----------
Net change in cash and cash equivalents 138,028
Cash and cash equivalents at beginning of period 281,427
-----------
Cash and cash equivalents at end of period $ 419,455
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 39,784
===========
Income taxes $ 85,414
===========
</TABLE>
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES
None
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-4-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - THE COMPANY
KRL Litho, Inc. (the "Company") was organized in New York
State in June, 1989. The Company provides high quality multi-color
printing services to commercial organizations located primarily in
the New York Metropolitan area.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. CASH AND CASH EQUIVALENTS
For the purposes of reporting cash flows, the Company
considers all highly liquid investments with an original
maturity date of three months or less to be cash
equivalents. Cash equivalents are carried at cost plus
accrued interest which approximates fair market value. At
June 30, 1998 cash equivalents included funds deposited in
certificates of deposit with a bank and a liquid asset
account with a financial institution.
B. INVENTORY
Inventory consists primarily of paper, toner and ink and is
stated at the lower of cost, determined on the first-in,
first-out (FIFO) method, or market.
C. PROPERTY AND EQUIPMENT
Depreciation of capital assets is provided to relate the
cost of these assets to operations over their estimated
useful lives. Management is of the opinion that asset
values decline rapidly and has therefore elected to use the
double declining balance method of depreciation for
production equipment, computer hardware and software, and
furniture and fixtures, over estimated useful lives ranging
from five to seven years. Leasehold improvements are
depreciated using the straight line method over the
remaining term of the lease.
Repairs and maintenance are charged to operations in the
period incurred. Major repairs and improvements which
significantly extend the lives of the assets are
capitalized, and depreciated over their estimated useful
lives. When assets are retired or disposed the cost and
accumulated depreciation or amortization are removed from
the accounts, and any gain or loss is recognized in the
current period's earnings.
D. INTANGIBLE ASSETS
Intangible assets consist of goodwill and a non-compete
agreement and are amortized over 15 years and 5 years
respectively.
-5-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. REVENUES
Revenue is recorded when services are performed or upon
delivery of finished product.
F. USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
results could differ from those estimates.
G. 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 and certificates of
deposit at one bank and cash equivalents in a liquid asset
account with one financial institution. Accounts at the
bank 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 on going credit evaluations of its
customers and records reserves for potentially
uncollectible accounts receivable. Accounts receivable
consist mainly of customers within the Company's geographic
area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and
trade receivables and payables. 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.
I. 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 write-downs were
required for the six months ended June 30, 1998.
-6-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 - BANK NOTE PAYABLE
In March 1998, the Company renewed a one year credit
arrangement with a bank. According to the terms of the credit
arrangement, the Company can borrow up to a maximum of $400,000
under a revolving line of credit (the "line"). All outstanding
obligations under the line bear interest at the bank's prime rate
plus one percent (1%) and are collateralized by the Company's
accounts receivable, inventory and a personal guarantee by the
sole stockholder. At June 30, 1998, the Company was indebted to
the bank for outstanding obligations under the line in the amount
of $348,869. Interest charged to operations for the six months
ended June 30, 1998 amounted to $12,299. See Note 8 - Subsequent
Events.
NOTE 4 - EQUIPMENT NOTES PAYABLE
Equipment notes payable represent obligations secured
by certain equipment having aggregate book values at June 30, 1998
in the amounts of $418,467. The notes are payable in monthly
installments, including interest at rates ranging from 8.9% to
11.5%, in the aggregate amount of $15,957. The notes expire at
varying dates through August, 2002.
Future maturities of equipment notes payable in the
aggregate, are as follows:
Year ending December 31,
1998 (six months) $ 95,740
1999 191,479
2000 173,860
2001 113,509
2002 44,359
----------
Note repayments 618,947
Less: amount representing interest 90,166
Less: current portion 179,587
----------
Net long-term portion $ 349,194
==========
NOTE 5 - STOCKHOLDER'S LOANS
The loan payable to the sole stockholder represents
unsecured advances made to the Company which bear interest at the
prime rate.
NOTE 6 - INCOME TAXES
The Company's stockholder has elected, under the
provisions of the Internal Revenue Code, to have the Company taxed
as a subchapter "S" corporation. Under these provisions there is
no federal income tax paid by the corporation. The Company's
income (or loss) is passed through directly to the stockholder and
taxed on the stockholder's personal income tax return.
Accordingly, there is no provision for federal income taxes. The
provision for income taxes for the six months ended June 30, 1998
consists of state and local taxes.
-7-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 7 - COMMITMENTS AND CONTINGENCIES
A. OPERATING LEASE
The Company operates its office, sales, production and
manufacturing facilities within leased premises in New
York City, New York. The lease term is ten years which
expires August 31, 2002. The lease includes annual
escalations for real estate taxes and operating expenses
based on the Consumer Price Index. There are no specified
renewal terms.
Future minimum annual rentals excluding escalations over
the lease term are as follows:
Year ending December 31,
1998 (six months) $ 126,875
1999 253,750
2000 253,750
2001 253,750
2002 169,167
-----------
Total $ 1,057,292
===========
B. EMPLOYEE BENEFIT PLANS
The Company has a qualified defined
contribution profit sharing plan which covers employees
not included under the collective bargaining agreements in
effect with the printing industry unions. The benefit is
based on years of service and compensation. The plan is
entirely subjective and the Company can contribute an
amount ranging form 0% to 15% of compensation per annum.
There was no contribution for the six months ended June
30, 1998.
The Company also has collective bargaining
agreements with several local printing industry unions. At
December 31, 1997 the contracts had expired and
negotiations to renew the contracts began. At June 30,
1998 negotiations for certain contracts remain in
progress. The Company anticipates the contract provisions
to be settled shortly. The Company continues to pay union
benefits at the prior contract rate and anticipates only
minor changes. No provision has been made in these
financial statements for the effects of new union
contracts.
NOTE 8 - SUBSEQUENT EVENTS
On July 24, 1998 all of the Company's issued and
outstanding common stock was purchased by Halcon Acquisition
Corp., a wholly owned subsidiary of Information Management
Technologies Corporation. The Company's former sole stockholder
will continue in his present position as the chief executive
officer of KRL Litho, Inc., as will the Company's other top
managers. As part of the stock purchase agreement the Company is
required to satisfy its outstanding obligations under the bank
line of credit.
-8-
<PAGE>
Exhibit (1)
IMTECH CORP.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adj. Pro Forma
Statements Adjustments Ref. Results
------------ ------------ ---- ------------
[1] [2]
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 281,427 $ 2,269,832 A) $ 2,551,259
Accounts receivable, net 3,679,352 201,293 B) 3,880,645
Other current assets 1,222,367 - 1,222,367
------------ ------------ ------------
Total current assets 5,183,146 2,471,125 7,654,271
------------ ------------ ------------
Property and equipment - at cost 7,161,006 340,928 C) 7,501,934
Less: Accumulated depreciation and amortization 3,189,605 48,704 D) 3,238,309
------------ ------------ ------------
Net property and equipment 3,971,401 292,224 4,263,625
------------ ------------ ------------
Goodwill, net of accumulated amortization - 5,695,059 E) 5,695,059
Other assets 1,204,812 607,853 F) 1,812,665
------------ ------------ ------------
$ 10,359,359 $ 9,066,261 $ 19,425,620
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,298,344 $ (5,707) B) $ 2,292,637
Other current liabilities 2,526,593 342,866 G) 2,869,459
------------ ------------ ------------
Total current liabilities 4,824,937 337,159 5,162,096
------------ ------------ ------------
Long-term debt 2,533,670 1,159,651 H) 3,693,321
Sellers' notes payable - 3,400,000 I) 3,400,000
Convertible debt 884,800 4,000,000 J) 4,884,800
------------ ------------ ------------
Total long-term obligations 3,418,470 8,559,651 11,978,121
------------ ------------ ------------
Stockholders' equity:
12% convertible preferred stock 2,660,733 - 2,660,733
Additional paid-in capital 32,040,227 - 32,040,227
Accumulated deficit (33,257,433) 179,451 K) (33,077,982)
Other stockholder's equity 672,425 (10,000) L) 662,425
------------ ------------ ------------
Total stockholders' equity 2,115,952 169,451 2,285,403
------------ ------------ ------------
$ 10,359,359 $ 9,066,261 $ 19,425,620
============ ============ ============
</TABLE>
- ---------------------------
[1] Consolidated Balance Sheet amounts of IMTECH Corp. as of March 31, 1998 and
and its wholly-owned subsidiary KRL Litho, Inc. as of December 31, 1997.
[2] See Summary of Pro Forma Adjustments for the Fiscal Year Ended
March 31, 1998 on Exhibit 3.
<PAGE>
Exhibit (2)
IMTECH CORP.
CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adj. Pro Forma
Statements Adjustments Ref. Results
------------ ------------ ---- ------------
[1] [2]
<S> <C> <C> <C> <C>
Revenues $ 23,261,624 $ - $ 23,261,624
Cost of sales 16,585,215 (2,046,296) M) 14,538,919
------------ ------------ ------------
Gross profit 6,676,409 2,046,296 8,722,705
Operating expenses 6,970,810 (732,000) N) 6,238,810
Interest expense, net 739,372 605,464 O) 1,344,836
Amortization of goodwill - 406,790 E) 406,790
------------ ------------ ------------
Income (loss) from continuing operations (1,033,773) 1,766,042 732,269
Loss from discontinued operations - 600,000 M) 600,000
------------ ------------ ------------
Income (loss) before income taxes (1,033,773) 1,166,042 132,269
Provision for income taxes 133,008 (133,008) G) -
------------ ------------ ------------
Net income (loss) (1,166,781) 1,299,050 132,269
Preferred stock dividends 270,159 - 270,159
Distributions to stockholder 602,202 (602,202) A) -
------------ ------------ ------------
Net income (loss) applicable to common
stockholders $ (2,039,142) $ 1,901,252 $ (137,890)
============ ============ ============
Basic and diluted earnings per share applicable
to common stockholders $ (0.36) $ (0.02)
============ ============
Weighted average number of shares outstanding 5,589,483 5,589,483
============ ============
</TABLE>
- -------------------------------
[1] Includes the Consolidated Results of Operations of IMTECH Corp. For the
Fiscal Year Ended March 31, 1998 and its wholly-owned subsidiary KRL Litho,
Inc. For the Fiscal Year Ended December 31, 1997.
[2] See Summary of Pro Forma Adjustments for the Fiscal Year Ended March 31,
1998 on Exhibit 3.
<PAGE>
Exhibit (3)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- --------- -------------------------------------------------------------------------- -------------
Adj. Description of Adjustment Amount
Ref.
- --------- -------------------------------------------------------------------------- -------------
<S> <C> <C>
A) Cash savings from a decrease in the salary paid to the former President 350,000
and majority stockholder of KRL
Cash savings from the add-back of distributions paid to the majority 602,202
stockholder of KRL
Cash savings from the cancellation of a fulfillment services contract 270,000
Excess cash from the acquisition financing 343,511
One year's interest payable to GE Capital Corp., who provided a portion (125,464)
of the acquisition financing
Cost savings realized as a result of efficiencies gained as if the
acquisition had taken place in the prior fiscal year:
Purchases of raw materials 975,000
Overtime wages 250,000
Professional fees and insurance costs 175,000
Interest paid on 12% convertible debentures issued in connection with (480,000)
acquisition financing
Reclassification of cash overdraft balances (90,417)
-------------
2,269,832
=============
B) Elimination of intercompany receivable and payable balances (5,707)
Adjustment to decrease reserve for losses from accounts receivable on
the books and records of KRL 207,000
-------------
201,293
=============
C) Bump-up in fixed assets to fair market value as a result of an
allocation of the excess of the purchase price over the net assets of
KRL acquired 340,928
=============
D) Depreciation adjustment for bump-up in fixed assets noted in adjustment
C. above 48,704
=============
E) Goodwill arising from the purchase of net assets of KRL 6,101,849
Amortization of the goodwill (406,790)
=============
5,695,059
=============
F) Deferred interest portion of the notes payable to the sellers of KRL
607,853
=============
<PAGE>
EXHIBIT (3)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
(CONTINUED)
- --------- -------------------------------------------------------------------------- -------------
Adj. Description of Adjustment Amount
Ref.
- --------- -------------------------------------------------------------------------- -------------
G) Current portion of term loan payable to GE Capital Corp., who provided 140,349
a portion of the acquisition funding
Current portion of the notes payable to the sellers of KRL 600,000
Income tax savings resulting from the utilization of the existing Net (133,008)
Operating Losses Carryforwards of the Registrant
Payment to release tax liens of the Registrant made upon closing of the (174,058)
KRL acquisition
Reclassification of cash overdraft balances (See A. above) (90,417)
=============
342,866
=============
H) Long-term portion of the term loan payable to GE Capital Corp., who
provided a portion of the acquisition financing 1,159,651
=============
I) Long-term portion of the notes payable to the sellers of KRL 3,400,000
=============
J) 12% convertible debentures issued in connection with a private
offering; the proceeds of which were used to finance a portion of the
acquisition of KRL 4,000,000
=============
K) Elimination of the retained earnings of KRL in accordance with the
Generally Accepted Accounting Principles which govern the accounting
treatment of a business combination accounted for as a Purchase
(1,721,801)
Net effect on accumulated deficit of the pro forma adjustments herein
1,901,252
=============
179,451
=============
L) Elimination of the common stock of KRL in accordance with K. above
(10,000)
=============
<PAGE>
EXHIBIT (3)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
(CONCLUDED)
- --------- -------------------------------------------------------------------------- -------------
Adj. Description of Adjustment Amount
Ref.
- --------- -------------------------------------------------------------------------- -------------
M) One year's depreciation adjustment for the bump-up in fixed assets as
noted in adjustment C. above 48,704
Loss from the discontinuation of a division of KRL (600,000)
Cost savings realized as a result of efficiencies gained as if the
acquisition had taken place in the prior fiscal year:
Purchases of raw materials (975,000)
Overtime wages (250,000)
Cancellation of a fulfillment services contract (See A. above) (270,000)
=============
(2,046,296)
=============
N) Cost savings realized as a result of the acquisition, as noted in A.
and M. above:
Decrease in the salary of the former President and majority
stockholder of KRL (350,000)
Professional fees and insurance costs (175,000)
Adjustment to decrease reserve for losses from accounts receivable as
noted in adjustment B. above (207,000)
-------------
(732,000)
=============
O) Interest expense accrued on the debt issued for the financing related
to the acquisition:
Interest on the 12% convertible debentures 480,000
Interest on the term loan payable to GE Capital Corp. 125,464
=============
605,464
=============
</TABLE>
<PAGE>
Exhibit (4)
IMTECH CORP.
CONSOLIDATED PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adj. Pro Forma
Statements Adjustments Ref. Results
------------ ------------ ---- ------------
[1] [2]
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,551,259 $ 84,390 A) $ 2,635,649
Accounts receivable, net 3,880,645 (89,505) B) 3,791,140
Other current assets 1,222,367 - 1,222,367
------------ ------------ ------------
Total current assets 7,654,271 (5,115) 7,649,156
------------ ------------ ------------
Property and equipment - at cost 7,501,934 - 7,501,934
Less: Accumulated depreciation and amortization 3,238,309 12,176 C) 3,250,485
------------ ------------ ------------
Net property and equipment 4,263,625 (12,176) 4,251,449
------------ ------------ ------------
Goodwill, net of accumulated amortization 5,695,059 (101,697) D) 5,593,362
Other assets 1,812,665 - 1,812,665
------------ ------------ ------------
$ 19,425,620 $ (118,988) $ 19,306,632
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,292,637 $ (89,505) B) $ 2,203,132
Other current liabilities 2,869,459 - 2,869,459
------------ ------------ ------------
Total current liabilities 5,162,096 (89,505) 5,072,591
------------ ------------ ------------
Long-term debt 3,693,321 - 3,693,321
Sellers' notes payable 3,400,000 - 3,400,000
Convertible debt 4,884,800 - 4,884,800
------------ ------------ ------------
Total long-term obligations 11,978,121 - 11,978,121
------------ ------------ ------------
Stockholders' equity:
12% convertible preferred stock 2,660,733 - 2,660,733
Additional paid-in capital 32,040,227 - 32,040,227
Accumulated deficit (33,077,982) (29,483) F) (33,107,465)
Other stockholder's equity 662,425 - 662,425
------------ ------------ ------------
Total stockholders' equity 2,285,403 (29,483) 2,255,920
------------ ------------ ------------
$ 19,425,620 $ (118,988) $ 19,306,632
============ ============ ============
</TABLE>
[1] Consolidated Pro Forma Balance Sheet amounts of IMTECH Corp. and its
wholly-owned subsidiary KRL Litho, Inc. as of March 31, 1998.
(See Exhibit 1.)
[2] See Summary of Pro Forma Adjustments For the Three Months Ended
June 30, 1998 on Exhibit 6.
<PAGE>
Exhibit (5)
IMTECH CORP.
CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adj. Pro Forma
Statements Adjustments Ref. Results
------------ ------------ ---- ------------
[1] [2]
<S> <C> <C> <C> <C>
Revenues $ 6,286,405 $ - $ 6,286,405
Cost of sales 4,208,541 (144,824) G) 4,063,717
------------ ------------ ------------
Gross profit 2,077,864 144,824 2,222,688
Operating expenses 1,883,948 (67,000) H) 1,816,948
Interest expense, net 94,325 139,610 I) 233,935
Amortization of goodwill - 101,697 D) 101,697
------------ ------------ ------------
Income from continuing operations 99,591 (29,483) 70,108
Loss from discontinued operations - - -
------------ ------------ ------------
Net income (loss) 99,591 (29,483) 70,108
Preferred stock dividends 61,380 - 61,380
------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ 38,211 $ (29,483) $ 8,728
============ ============ ============
Basic and diluted earnings per share applicable
to common stockholders $ 0.007 $ 0.002
============ ============
Weighted average number of shares outstanding 5,789,846 5,789,846
============ ============
</TABLE>
- ---------------------------
[1] Includes the Consolidated Results of Operations of IMTECH Corp. and its
wholly-owned subsidiary KRL Litho, Inc. For the Three Months Ended
June 30, 1998.
[2] See Summary of Pro Forma Adjustments For the Three Months Ended June 30,
1998 on Exhibit 6.
<PAGE>
Exhibit (6)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
- --------- -------------------------------------------------------------------------- -------------
Adj. Description of Adjustment Amount
Ref.
- --------- -------------------------------------------------------------------------- -------------
<S> <C> <C>
A) Cash savings from a decrease in the salary paid to the former President 6,500
and majority stockholder of KRL
Cash savings from the cancellation of a fulfillment services contract 67,500
Interest payable to GE Capital Corp., who provided a portion of the (19,610)
acquisition financing
Cost savings realized as a result of efficiencies gained as if the
acquisition had taken place in the prior fiscal year:
Purchases of raw materials 27,000
Overtime wages 62,500
Professional fees and insurance costs 60,500
Interest paid on 12% convertible debentures issued in connection with
acquisition financing (120,000)
-------------
84,390
=============
B) Elimination of intercompany receivable and payable balances 89,505
=============
C) Depreciation adjustment for bump-up in fixed assets to fair market
value resulting from the excess of the purchased price over the net
assets acquired of KRL 12,176
=============
D) Amortization of the goodwill 101,697
=============
F) Net effect on accumulated deficit of the pro forma adjustments herein
(29,483)
=============
G) Depreciation adjustment for the bump-up in fixed assets as noted in
adjustment C. above 12,176
Cost savings realized for the three months ended June 30, 1998 as a
result of efficiencies gained as if the acquisition had taken place in
the prior fiscal year:
Purchases of raw materials (27,000)
Overtime wages (62,500)
Cancellation of a fulfillment services contract (See A. above) (67,500)
=============
(144,824)
=============
<PAGE>
Exhibit (6)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(CONCLUDED)
- --------- -------------------------------------------------------------------------- -------------
Adj. Description of Adjustment Amount
Ref.
- --------- -------------------------------------------------------------------------- -------------
H) Cost savings realized as a result of the acquisition, as noted in A.
and M. above:
Decrease in the salary of the former President and majority
stockholder of KRL (6,500)
Professional fees and insurance costs (60,500)
=============
(67,000)
=============
I) Interest expense accrued on the debt issued for the financing related
to the acquisition:
Interest on the 12% convertible debentures 120,000
Interest on the term loan payable to GE Capital Corp. 19,610
=============
139,610
=============
</TABLE>
