<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/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, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No fee required]
For transition period from __________ to __________
Commission File Number: 0-16753
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 58-1722085
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
130 Cedar Street, Fourth Floor, New York, NY 10006
(Address of Principal Executive Offices) (Zip Code)
(212) 306-6100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of Class
Class A Common Stock, $.04 par value
Redeemable Class A Warrants
Redeemable Class B Warrants
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 common equity 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 25,
1998, was approximately $5,066,846.
At June 25, 1998, the Registrant had outstanding 5,789,846 shares of
Class A Common Stock.
Part III incorporates information by reference to the registrant's
definitive proxy statement for its 1998 Annual Meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1998.
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IMTECH
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INDEX
Page
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PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 5
ITEM 3 LEGAL PROCEEDINGS 6
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 7
ITEM 6 SELECTED FINANCIAL DATA 8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS 9
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES 17
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 18
ITEM 11 EXECUTIVE COMPENSATION 18
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 18
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 19
SIGNATURES 20
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND
SCHEDULES 21
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IMTECH
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Information Management Technologies Corporation ("IMTECH" or the
"Company") provides graphic communications to financial institutions such as
banks and brokerage firms, as well as, to medium and large service
organizations within such industries as accounting, law and finance. The
Company's core business is the production and subsequent distribution of time
sensitive printed financial research, financial reports and marketing
materials. In addition, the Company provides facility management services
which include mail room and copy center management.
The Company's graphic communications services include digital
communications, two and four color digital printing, intelligent inserting,
high volume duplication, graphic design, electronic publishing, document
fulfillment, micrographics, data processing, as well as bindery and
distribution services. The Company's printing and distribution services are
generally performed at its Regional Service Center ("RSC") located in
downtown New York City. The facilities management services include
independent management of client systems for providing document duplication,
distribution and mail room management.
The Company currently holds an 8% ownership interest in INSCI Corp.
("INSCI"), its former majority-owned subsidiary (a NASDAQ small cap company).
SERVICES
GRAPHIC COMMUNICATIONS SERVICES
The Company provides printing, distribution and support services from
its RSC in New York City primarily to financial, legal, institutional and
commercial clients. In addition, the Company provides corporate service
bureau services that have historically been outsourced or produced
"in-house". The following specifies the types of printing, distribution and
support services traditionally outsourced to IMTECH's RSC for clients in the
New York City metropolitan area:
Graphic Design and Electronic Publishing Services - IMTECH's Electronic
Publishing "(EPU") department has the ability to create and enhance
electronic documents on demand through the use of state of the art desktop
publishing software in both MAC and PC versions. The EPU department is
networked and has multiple electronic data processing capabilities. IMTECH
provides a variety of services related to EPU such as file intervention, file
data conversion and manipulation, developing corporate identities, graphic
design and lay out, typesetting ,and image storaging. The EPU department also
has the ability to scan images and output printed proofs. The EPU department
serves as the control center for the digital printing and the electronic file
transfer to film processes. As a result of the EPU department's technological
capabilities, IMTECH is equipped to produce or receive electronic data files
to accommodate almost every need.
Digital Printing Services - In March 1997, the Company purchased a networked
Heidelberg Quickmaster DI 46 ("Heidelberg") digital printing press to meet the
growing demand for short run, high quality four color process and spot color
digital printing. The Heidelberg has the ability to print directly from
electronic data files, recognize various data formats and adjust color on the
press electronically. The Heidelberg also has image storage and data processing
image adjustment capabilities.
1
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IMTECH
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ITEM 1. BUSINESS (Continued)
GRAPHIC COMMUNICATIONS SERVICES (Continued)
The Heidelberg press is perfectly suited for printing mailers, covers,
marketing brochures, inserts, seasonal reports, catalogues and a variety of
other products at a lower cost with superior quality and quicker turn around
time than traditional offset printing. The Heidelberg is the most
technologically advanced sheetfed press available in the printing industry
today. The press is ideal for meeting the increase in demand for the use of
more color in financial research reports and gives clients increased options
of communicating their messages to their clients.
Offset Printing Services - The Company operates a traditional offset printing
facility that comprises both web and sheetfed presses in a variety of format
sizes. The printing facility includes a technologically advanced pre- press
department which allows the Company to receive electronic data files in
various formats and output the electronic data files to film. The pre-press
department is networked and has multiple electronic data platform
capabilities. The versatility of the Company's offset printing presses and
technological advancement of its pre-press department gives IMTECH the
ability to service its clients' traditional offset printing and on demand
needs efficiently.
Duplication Services - The Duplication department employs the use of three
networked hi-speed Xerographic Docutech document duplicators ("Docutechs"),
which have the ability to receive and duplicate electronic data files. The
speed at which the Docutechs produce duplicated documents allows the Company
to service its clients' print-on-demand needs for time sensitive documents in
a timely and efficient manner. The Duplication department also employs the
use of state-of-the-art "Docucolor" digital color copying equipment.
Financial Research Report Production Services - The Company utilizes a
variety of methods for producing high quality, time sensitive financial
research printed material published by medium to large financial institutions
and brokerage firms. Those methods are dedicated to producing and
distributing the time sensitive research reports and other financial reports
in a timely fashion with superior quality. IMTECH is able to do so primarily
through maintaining a strategic alliance with two New York based service
providers, Blitz Systems, Inc. and Research Distribution Services, Inc. (See
"Marketing and Sales"). As a result, IMTECH offers its clients a
"one-stop-shop" solution to their printing needs.
Outsourcing Services - The Company provides document production and
distribution services traditionally performed in-house to organizations that
do not have the resources to do so within. These services allow IMTECH's
clients to concentrate on operating their business while enjoying significant
cost savings and high quality service.
Bindery and Finishing Services - The Company provides several types of
document binding and finishing services such as saddle stitching, folding,
perfect binding, velo binding, tape binding, plastikoiling, GBC binding, and
padding.
Fulfillment and Distribution Services - The Company provides fulfillment and
distribution services which includes intelligent and selective inserting of
multi-page documents into envelopes, traditional inserting, ink-jet labeling,
mail merging, packaging, branch distributing and shipping.
2
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IMTECH
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ITEM 1. BUSINESS (Continued)
FACILITIES MANAGEMENT SERVICES
The Company's facility management division, which provides its services
on-site at a customer's facility or at IMTECH's RSC, serves as an outsourcing
option to many organizations who do not have the resources to maintain and
operate mail rooms or copy centers from within. More specifically, the
facilities services can include:
Mail Room Operations - includes sorting and delivery of both incoming and
outgoing mail, administration and tracking of overnight and same day
deliveries, etc.
Airline Ticket Distribution - includes processing, packaging and standard
delivery of airline tickets, as well as, distribution of tickets to and from
host companies and their clients.
Copy Center, Warehousing and Reception Services
Under a typical facilities management contract, IMTECH assumes complete
management and operating responsibility for a customer's in-house
duplication, distribution 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.
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, 1998, IMTECH realized revenues of
approximately $744,000 generated from four facility management contracts.
During April and May of 1998, the Company executed two new facilities
contracts which will generate an estimated $300,000 in annual revenues for
the fiscal year ended March 31, 1999.
MANAGEMENT INFORMATION SYSTEMS
The Company's production facilities, client service department and
corporate administration department have the ability to share work flow
information through the use of customized proprietary networked software. The
software includes a Work Order Tracking System ("WOTS") and various other
management information systems modules. WOTS is a production work flow
information database which records and maintains historical information about
the Company's print jobs. While logged into the WOTS (via the Company's
hosted internet web-site), users and clients can track the production status
of a particular print job. In addition, WOTS provides the Company with the
ability to ear mark specialized project requirements on a job-by-job basis.
One of the more valuable reporting features of the WOTS is the ability to
track raw material inventory usage and machine man hours by print job.
Reports can be generated to inform management about production capacity and
machine utilization issues.
3
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IMTECH
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ITEM 1. BUSINESS (Continued)
MANAGEMENT INFORMATION SYSTEMS (Continued)
The WOTS can be accessed by users by logging into the Company's
web-site, located at http:\[email protected]. Besides the WOTS, the IMTECH
web-site hosts a variety of different sub-sites which allow customers/clients
to: obtain price quotes for print jobs; access corporate and financial
information of the Company; respond to open job position postings; etc.
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, graphic communications and
outsourcing services continually increase their marketing efforts on behalf
of IMTECH directed toward major financial, 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).
Supported by a major investment in recent years in advanced infrastructure
technology, IMTECH has been able to expand its client base beyond the New
York City Metropolitan area, and as a result, currently services clients in
Philadelphia, PA, Washington, DC, Denver, Colorado, and internationally in
such places as London, Asia, Mexico, Hong Kong and South America.
The Company's advertising and promotional efforts include participation
in selected trade shows, general advertising, articles in pertinent trade
publications, direct mailings and the publication and wide 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
IMTECH maintains strategic alliances with Blitz Systems, Inc. ("Blitz") and
Research Distribution Services, Inc. ("RDS"). Blitz, through its versatility
of services, is instrumental in assisting the Company in introducing
technologically advanced concepts to research print production and
distribution. RDS employs the use of an "intelligent" distribution process
that physically consolidates multiple subscriptions by a single subscriber
into a single envelope. The strategic alliance among 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 offer clients reliable,
expedient and cost effective services from the point of production to final
destination.
BUSINESS STRATEGY
The Company recognizes that the landscape of the graphics communication
industry is constantly changing, and so is the competitiveness within. In
response to the changing environment, the Company has embarked on a three
tiered strategic plan to achieve and sustain growth and remain competitive
within the financial research and commercial printing industry. Management
believes that in order to survive the deep discounting by competitors and
address the increasing frequency of mergers by clients, the Company must grow
in size by: 1) acquiring other companies; 2) establishing and maintaining
strategic business alliances; and 3) taking advantage of outsourcing
opportunities.
4
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IMTECH
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ITEM 1. BUSINESS (Continued)
BUSINESS STRATEGY (Continued)
In February 1998, IMTECH signed letters of intent to purchase KRL Litho,
Inc., d/b/a The Skillcraft Group ("Skillcraft"), a New York based commercial
and financial research printer and Research Distribution Services, Inc.
("RDS"), a provider of intelligent fulfillment and distribution services to
the research report production industry. Management believes that the
Skillcraft acquisition is the most vital piece to the overall growth strategy
for IMTECH. Skillcraft's production equipment configuration is complementary
to that of IMTECH's. The result of combining the varied equipment
configurations and exploiting IMTECH's investment in technology and
infrastructure will expand production capabilities and provide economies of
scale and efficiencies that will allow the combined companies to maximize
profits while offering clients a variety of solutions to their research
report production requirements.
Along with IMTECH's strategic business alliance with Blitz Systems,
Inc., Skillcraft maintains an alliance with a London based financial research
printer, which will broaden the industry presence of the combined companies
into the global market and provide opportunities to increase the client base.
The Company is currently negotiating with both Skillcraft and RDS to
finalize the terms of the proposed acquisitions. However, IMTECH is
continuing its search to acquire additional potential companies which will
conform to management's growth strategy.
COMPETITION
Management is aware that the Company operates in a market that is highly
competitive and 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 Bowne & Co. and Xerox
Business Centers, both of whom provide facility management and/or outsourcing
services. IMTECH competes with these companies primarily on the basis of
price and quality of performance.
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 a competitive advantage.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 100 personnel
as compared to 125 as of March 31, 1997. The Company has no collective
bargaining agreements with any personnel and considers its relationships with
all of its employees to be in good standing.
ITEM 2. PROPERTIES
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.
5
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IMTECH
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ITEM 3. LEGAL PROCEEDINGS
In January 1994, IMTECH received correspondence from the U.S. Department
of Labor ("DOL") stating its intent to penalize the Company in connection
with its investigation of past IMTECH employee benefit plans. The DOL
determined that for certain plan years in question, the Company did not file
the proper financial information required. In October 1997, the DOL and the
Company reached a settlement for $25,000, which is payable in twelve monthly
installments of $2,083 through November 1998.
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 its 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 repaid the shareholders by making cash interest
payments at a rate of 10% per annum, in addition to making cash payments for
the borrowed shares. The balance of the 78,750 shares were not remitted to
CRG. CRG has 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 considering
instituting legal action to recover the stock and to seek punitive damages
from CRG.
The Company has agreed to use its best efforts to file a registration
statement for certain convertible security holders for their underlying
shares of Class A Common Stock. While the Company has filed a registration
statement on Form S-3 with the Securities and Exchange Commission ("SEC") as
was required under various agreements with convertible security holders, it
is possible the holders of these securities may assert a claim against the
Company based on the Company's failure to timely comply with the registration
requirements for certain convertible security holders.
The Company is currently negotiating with its landlord to reduce its
rent covering the RSC facility. The landlord has claimed certain defaults by
the Company in its lease. In addition, the landlord has requested that the
Company post a letter of credit in the amount of $100,000 with a financial
institution for additional rent security. There are no assurances that the
Company will be successful in its attempts to re-negotiate its lease and
reduce its monthly rent obligation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
6
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IMTECH
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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, 1998, 1997 and 1996, 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.
<TABLE>
<CAPTION>
Class A Class A
Common Warrants
Stock
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Year ended March 31, 1998:
First quarter 1 3/8 17/32 11/32 1/8
Second quarter 2 11/16 1 19/32 1/8
Third quarter 2 3/8 9/16 11/32 1/32
Fourth quarter 1 3/8 9/16 7/32 1/16
Year ended March 31, 1997:
First quarter 2 15/16 1 3/8 1/2 9/32
Second quarter 2 7/8 1 7/16 9/16 3/16
Third quarter 1 13/16 3/4 17/64 1/8
Fourth quarter 1 21/32 3/4 5/16 1/8
Year ended March 31, 1996:[1]
First quarter 3 1/16 1 3/4 5/16 3/16
Second quarter 3 9/16 2 3/16 15/32 3/16
Third quarter 3 1/8 2 11/16 3/8
Fourth quarter 2 7/8 2 7/16 3/16
</TABLE>
At June 26, 1998, there were approximately 1,515 holders of record of the
Company's Class A common stock, not including individuals with beneficial
ownership interest.
[1] The stock prices have been adjusted to give effect to the four-for-one
reverse stock split which occurred in June 1995.
7
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IMTECH
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ITEM 6. SELECTED FINANCIAL DATA
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 year ended March 31, 1994 include the consolidated
results of the Company's former majority-owned subsidiary, INSCI Corp.
<TABLE>
<CAPTION>
For the Years Ended March 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement (,000):
Revenues $ 9,488 $ 10,715 $ 11,806 $ 14,048 $ 27,507
Operating loss (1,873) (1,262) (1,808) (1,220) (2,723)
Income (loss) from continuing
operations (2,313) 446 (5,188) (3,891) (3,813)
Loss from discontinued operations -- -- (391) (1,773) --
Net income (loss) (2,313) 446 (5,579) (5,664) (3,813)
Preferred stock dividends 270 258 -- -- --
Net income (loss) applicable to common
stockholders (2,583) 189 (5,579) (5,664) (3,813)
Basic and diluted earnings (loss) per
share from continuing operations (.46) .04 (1.65) (2.05) (1.91)
Basic and diluted loss per share
from discontinued operations -- -- (.12) (.64) --
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet (,000):
Total assets $ 6,502 $ 8,430 $ 7,767 $ 9,593 $ 12,868
Long-term obligations 2,812 1,496 3,524 4,497 5,512
Stockholders' equity (deficiency) [1] 384 3,664 (858) 1,169 441
</TABLE>
[1] The Company has not paid dividends since its inception.
8
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IMTECH
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS
The following schedule sets forth the percentage relationship of
significant items of the Company's results of operations to revenues:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues 100 % 100 % 100 %
Cost of sales 77 79 77
Gross profit 23 21 23
Operating expenses:
Selling, general and administrative 43 28 34
Termination of facility contract -- -- 1
Lease agreement buyout -- -- 3
Other costs -- 5 -
Loss from operations (20) (12) (15)
Other (income) expenses:
Interest expense, net 3 1 5
(Gain) loss from sale of INSCI stock (3) (19) 1
Interest amortization of beneficial
conversion feature attached to 12%
secured promissory notes 4 1 8
Equity in net loss of INSCI Corp. -- 2 12
Credit facility buyout -- -- 3
Income (loss) from continuing operations (24) 3 (44)
Loss from discontinued operations -- -- (3)
Net income (loss) (24) 3 (47)
Preferred stock dividends 3 2 --
Net income (loss) applicable to common
stockholders (27) % 1 % (47) %
</TABLE>
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IMTECH
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
FISCAL YEAR 1998 AS COMPARED TO FISCAL YEAR 1997
During the fiscal year ended March 31, 1998, the Company reported
revenues of approximately $9,488,000, a decrease of $1,227,000 (or 11%) from
revenues of approximately $10,715,000 generated for the fiscal year ended
March 31, 1997.
The decrease in revenues is attributable in part to management's
decision not to renew certain Facility Management agreements as they became
due, since competitive pricing of the contracts reduced operating margins
below management's requirements. In addition, the Company decided to
strategically eliminate certain ancillary production services which required
the expenditure of both resources and capital which management believed could
be deployed more efficiently in IMTECH's core business. The decrease in
revenues was offset by an increase in the Company's core financial research
printing client base. As of March 31, 1998, there were four (4) facility
management agreements in effect, a decrease of one (1) from five (5) facility
management agreements in place at March 31, 1997.
Revenues generated from the Company's Regional Service Center ("RSC")
operations decreased by $465,000 (or 5%) to approximately $8,581,000, (which
represents 90% of total 1998 revenues) when compared to revenues of
approximately $9,046,000, (84% of total 1997 revenues) reported for the year
ended March 31, 1997. Revenues generated from the Company's' Facility
Management division for the fiscal year ended March 31, 1998 amounted to
approximately $744,000 (8% of total 1998 revenues); a decrease of $149,000,
(or 17%) from revenues of approximately $893,000 (8% of total 1997 revenues)
generated for the fiscal year 1997. Revenues from the Company's Litigation
Duplication division, which wound down during 1998, totaled approximately
$163,000, which represents 2% of total revenues reported for fiscal year
1998; a decrease of approximately $613,000 (or 79%) from revenues reported
during 1997 of approximately $776,000 (7% of total 1997 revenues) . The
Litigation Duplication division was effectively shut down as of the end of
fiscal year 1998.
The Company's cost of sales decreased by $1,165,000 (or 14%) to
approximately $7,324,000 (which represents 77% of total 1998 revenues), as
compared to cost of sales of approximately $8,489,000 (79% of total 1997
revenues) reported for the fiscal year ended March 31, 1997. The decrease in
costs to produce and resulting improvement of operating margins is directly
attributable to management's continuing effort to stream line the Company's
production process. Consequently, during 1998, management instituted programs
to reduce production staff and gain cost efficiencies through investments in
the Company's production infrastructure.
For the fiscal year ended March 31, 1998, the Company reported selling,
general and administrative ("SG&A") expenses of approximately $4,037,000
(which represents 43% of total 1998 revenues); an increase of $1,099,000 (or
37%) from SG&A expenses reported during fiscal year 1997 of approximately
$2,938,000, which represented 27% of total revenues reported for fiscal year
1997. The increase in SG&A expenses for fiscal year 1998 when compared to the
prior period is a result of increases in professional costs such as legal
fees, accounting and compliance fees and consulting fees, which totaled
approximately $582,000. In addition, charges of approximately $271,000 were
incurred which were directly related to the termination of various contracts
and resulting related severance payments, project completion costs and a loss
on sale of production equipment.
Operating expenses, in total, for fiscal year 1997 included a charge of
$550,000, (5% of 1997 revenues) to reflect expenses incurred in connection
with management's plan to restructure its work force and redeploy various
operating assets.
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IMTECH
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
FISCAL YEAR 1998 AS COMPARED TO FISCAL YEAR 1997 (Continued)
Interest expense charged to operations for the year ended March 31, 1998
amounted to approximately $273,000 (3% of total revenues); an increase of
$139,000 from interest expense of approximately $134,000 (1% of 1997
revenues) reported for the fiscal year ended March 31, 1997. The increase is
primarily attributable to finance and interest costs incurred to establish
and maintain the new credit arrangement with MTB Bank.
During fiscal year 1998, the Company sold and exchanged 200,435 shares
of stock in INSCI Corp., its former majority-owned subsidiary, resulting in a
realized gain of approximately $278,000. During the prior year period, the
Company recorded a gain of $2,089,000 from the sale of shares of INSCI Corp.
stock.
In accordance with the Securities and Exchange Commission ("SEC")
position announced in March 1997 of accounting for the beneficial conversion
feature of debt instruments, the Company recorded an interest charge of
approximately $444,000 and $89,000 for fiscal years ended March 31, 1998 and
1997, respectively.
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 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. 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 $375,000, or 33%, to
revenues of $776,000 (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 $1,604,000, or 22%, to approximately $9,046,000 (84% of total
revenues) for the fiscal year ended March 31, 1997; compared to revenues of
$7,443,000 (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.
11
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996 (Continued)
Selling, general and administrative costs ("SG&A") for the year ended
March 31, 1997 amounted to approximately $2,938,000 (or 27% 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
$134,000 (or 1% of total revenues), a decrease of $426,000, or 76%, 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 includes a charge of $900,000 of additional interest. 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.
LIQUIDITY AND CAPITAL RESOURCES
The schedule below sets forth the Company's cash flow activities for the
fiscal years ended March 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
For the Years Ended March 31,
1998 1997 1996
-------------- --------------- ----------------
<S> <C> <C> <C>
Operating activities $ (402,000) $ (1,352,000) $ (926,000)
Investing activities (224,000) 1,469,000 1,275,000
Financing activities (603,000) (900,000) 1,663,000
-------------- --------------- ----------------
Increase (decrease) in cash
and cash equivalents $ (1,229,000) $ (783,000) $ 2,012,000
-------------- --------------- ----------------
-------------- --------------- ----------------
</TABLE>
12
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
OPERATIONS
During the fiscal year ended March 31, 1998, the Company used net cash of
approximately $402,000 for operating activities, which was attributable in part
to the following:
* A decrease in revenues of approximately $1,227,000 coupled with a decrease
in accounts receivable of approximately $39,000;
* A decrease in total cost of sales of approximately $1,165,000 together with
an increase in accounts payable and other accrued liabilities of
approximately $244,000, which in the aggregate, resulted in a cash savings
of approximately $1,409,000; and
* An increase in operating expenses of approximately $549,000 coupled with an
increase in interest expense of approximately $139,000, of which resulted
in a use of cash of approximately $688,000.
INVESTING ACTIVITIES
Net cash used as a result of investing activities amounted to
approximately $224,000, and is primarily attributable to cash used for
capital expenditures of approximately $542,000, offset by a decrease in
amounts due from affiliates of approximately $146,000. In addition, proceeds
of approximately $130,000 were generated from the sale of INSCI Corp. stock.
FINANCING ACTIVITIES
During the fiscal year ended March 31, 1998 the Company used net cash
for financing activities of approximately $603,000, which was a direct result
of: 1) the Company borrowing net proceeds of approximately $926,000 from MTB
Bank under a credit agreement entered into in November 1997; 2) the
utilization of a bank overdraft of approximately $90,000; and 3) the net
issuance of long-term debt of $90,000. In addition, cash in the aggregate of
approximately $1,074,000 was used for the repayment of capital lease
obligations of approximately $382,000 and other long-term debt obligations of
approximately $692,000. The Company also incurred costs of securing equity
placements during 1998 of approximately $130,000, and deposited approximately
$504,000 into a certificate of deposit account with Atlantic Bank of NY to
secure obligations under a certain lease agreement for production equipment.
CAPITAL RESOURCES
As of March 31, 1998 the Company had a working capital deficiency of
approximately $1,086,000 as compared to working capital of approximately
$412,000 at March 31, 1997.
13
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
CAPITAL RESOURCES (Continued)
In November 1997, the Company entered into a two year secured credit
arrangement with MTB Bank (the "Bank"). Under the credit arrangement, IMTECH
is allowed to borrow up to 80% of eligible accounts receivable and 35% of
eligible paper inventory (up to a maximum of $50,000), both of which in the
aggregate cannot exceed a total of $1,500,000 (including $250,000 in
outstanding letters of credit) at any one time. The credit facility has
provided a key source of working capital to the Company.
In January 1998, the Company generated working capital through sources
such as individual loans and the sale of INSCI Corp. common stock. In
addition, the Company filed a form S-3 Registration Statement in accordance
with the Securities Act of 1933 on December 23, 1997 (amended on January 14,
1998 and May 14, 1998). The registration statement covers the subsequent
resale or offer for sale of all of the Company's outstanding Class A Common
Stock and certain shares issuable upon exercise or conversion of certain
options, warrants, convertible debt and preferred stock. When the
registration statement is declared effective, the Company will only receive
proceeds upon exercise or conversion of the convertible securities for the
underlying shares of Class A Common Stock included in the registration. In
the event the Company receives proceeds, they will be used for working
capital purposes.
During the fiscal year ended March 31, 1998, the Company's management
focused on investing its capital and human resources in the Company's
production infrastructure, introducing cutting edge technology in conjunction
with investments in state-of-the-art production equipment, such as the
Heidelberg Quickmaster DI 46, 4-color digital printing press. These efforts
were designed to streamline the Company's operations and enable it to service
its clients economically and more efficiently, as well as to broaden the
scope of services the Company offered. In addition, the Company embarked on
an extensive marketing campaign to create a greater awareness in the
financial research community.
However, the changing environment of the financial research printing
industry requires that the Company take certain measures to ensure its
ability to stay competitive and continue to build a business platform for
future growth. Over the last year, the Company has been witness to the merger
of many of its clients. These mergers have created a perception in the
financial research printing industry that a larger printer is needed to meet
the resulting printing demand.
The creation of these larger combined entities, along with the emergence
of the presence of European banks in the U.S. brokerage industry, has created
a need to establish a global presence to remain competitive. In addition,
price cutting by competitors who failed to invest in technology and new
equipment, and efforts of competitors to try to garner more market share
through deep discounting, have recently put pressure on operating margins and
have forced companies in the industry to seek every possible efficiency to
stay competitive.
In response to these evolving market conditions, in February 1998, the
Company signed letters of intent to purchase KRL Litho, Inc. (known as
"Skillcraft") and Research Distribution Services, Inc. ("RDS"). The
acquisition of Skillcraft is intended to provide a business platform capable
of protecting the Company against further declines of market share in the
printing industry, and to establish a basis for future growth. By creating a
new organization that can provide both financial research and commercial
printing services, the Company will be more competitive in its existing
markets and expand its production capabilities to create new products and
market opportunities.
14
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
CAPITAL RESOURCES (Continued)
In addition, Skillcraft's affiliation with a London based printer
assists the Company in establishing a global presence. The addition of RDS to
the combination of IMTECH and Skillcraft creates a company that is poised to
compete efficiently in this evolving market and offer clients a one-stop-shop
for their research report production needs.
The Company received stockholder approval to raise the financing
required to perform the proposed acquisitions at its Annual Meeting of
Shareholders held on May 26, 1998. Management's proposed financing plan calls
for the Company to raise a minimum of $4,000,000 and a maximum of $7,500,000
through a private placement of debentures convertible into the Company's
Class A common stock. As of the date of this Form 10-K report, the Company
has received firm commitments for the issuance of $4,000,000 of the
convertible debentures. The Company has secured a commitment from a lending
institution to advance IMTECH an additional $1,300,000 toward the proposed
acquisitions, which will be collateralized by the unencumbered equipment of
the combined companies. In addition, management is negotiating with several
other lending institutions to establish a working capital credit facility for
the proposed acquired companies.
The Company is currently in negotiations with both Skillcraft and RDS to
finalize the terms of the proposed acquisitions. Accordingly, the terms of
the proposed acquisitions have not been publicly disclosed. The proposed
acquisitions will require the Company to remit a cash down payment at
closing, with the balance of the combined purchase price payable over forty
(40) monthly installment payments including interest. Funds which are raised
in excess of the minimum down payment required at closing of the acquisitions
will be used for the immediate working capital requirements of the combined
companies. (Reference is made to the Company's Schedule 14A, filed on April
30, 1998, for further details of the proposed acquisition financing.)
The Company is also in the process of identifying and pursuing
additional potential acquisition candidates to respond to the changing
environment of the financial research printing industry, which over the past
year, has witnessed the merger of many of its clients. The mergers have
created a perception in the financial research printing industry that larger
printers are needed to meet the resulting printing demands. The creation of
the combined entities coupled with price cutting by competitors to garner
more market share has contributed toward IMTECH's operating difficulties.
Management believes that its plans to perform key acquisitions as discussed
above will help IMTECH survive the changing market conditions, respond to the
client mergers and remain competitive within the industry. (See "Business
Strategy" under ITEM 1.)
NEW ACCOUNTING STANDARDS
During the year ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
("EPS"). Under SFAS No. 128 public companies and entities with complex
capital structures are required to present basic and diluted EPS on the face
of the income statement. SFAS No. 128 replaces the presentation of primary
EPS with a presentation of basic EPS and, if applicable, diluted EPS. Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised or
converted and the resulting additional common shares are dilutive (their
inclusion decreases the amount of EPS).
15
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (Continued)
NEW ACCOUNTING STANDARDS (Continued)
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" was issued. SFAS No. 130 establishes
new standards for reporting comprehensive income and its components. The
Company will adopt SFAS No. 130 in the first quarter of fiscal year ending
March 31, 1999. The Company expects that the comprehensive income will not
differ materially from net income (loss) applicable to common stockholders.
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.
YEAR 2000 COMPUTER SOFTWARE CONVERSION
The Company relies on numerous computer programs in its day to day
business. Older computer programs use only two digits to identify a year in
its date field. As a result, when the Company has to identify the year 2000,
the computer will think its means the year 1900 and the operation attempting
to be performed may fail or crash resulting in the potential interference in
the operations of the Company's business. The Company has formulated plans to
safeguard against the Year 2000 conversion problem. The cost of the
implementation of the Year 2000 safeguards will not be material to the
Company.
In addition, the Company has had communications with all of its major
customers and suppliers to determine the extent to which the Company's
interface systems are vulnerable to any failure by third parties to upgrade
their own software. The Company believes that its large customers and
suppliers are addressing the issues and will timely adjust their systems.
However, if such modifications are not made by its vendors or customers, or
are not completed in a timely manner, the Company's operations could
adversely be affected.
FORWARD LOOKING INFORMATION
This Form 10-K report contains "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are based on management's expectations, estimates,
projections and assumptions. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," and variations of such words and
similar expressions are intended to identify such forward looking statements
which include, but are not limited to, projections of revenues, earnings and
cash flows. These forward looking statements are subject to risks and
uncertainties which could cause the Company's actual results or performance
to differ materially from those expressed or implied in such statements.
These risks and uncertainties include, but are not limited to, the following:
the Company's successful execution of internal performance plans; performance
issues with key suppliers; subcontractors and business partners; legal
proceedings; product demand and market acceptance risks; the effect of
economic conditions; the impact of competitive products and pricing; product
development; commercialization and technological difficulties; and capacity
and supply constraints or difficulties
16
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 appear
on page 18 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
[ The Remainder of This Page is Intentionally Left Blank ]
17
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 1998 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1998 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 1998 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1998 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 1998 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1998 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 1998 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1998 under the
caption "Certain Relationships and Related Transactions" and is incorporated
herein by this reference as if set forth in full herein.
18
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 21 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 21 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, 1997 and June 29,
1998, the Company filed with the Commission reports on Form 8-K as
follows:
1) A report on Form 8-K, dated April 21, 1997, reporting the resignation
of Mr. Robert Oxenberg as the Chairman of the Board of Directors of
the Company.
2) A report on Form 8-K, dated April 22, 1997, was filed with the
commission extending the expiration date and exercise price of the
issued and outstanding Class A and Class B Warrants of the Company.
3) A report on Form 8-K, dated June 9, 1997, reporting the resignation of
Mr. Bruce Arnstein from the Board of Directors of the Company.
4) A report on Form 8-K, dated June 18, 1997, was filed with the
commission appointing Mr. Harry Markovits as a member of the Board of
the Directors of the Company.
5) A report on Form 8-K , dated November 13, 1997, was filed with the
Commission reporting the execution of an accounts receivable credit
arrangement between the Company and MTB Bank.
6) A report on Form 8-K, dated February 2, 1998, was filed with the
Commission announcing the appointment of Ms. Dale L. Hirschman and Mr.
Kenneth J. Buettner as members to the Board of Directors of the
Company.
7) A report on Form 8-K, dated March 5, 1998, was filed with the
Commission announcing the resignation of Mr. Harry Markovits as a
member of the Board of Directors of the Company.
8) A report on Form 8-K/A, dated June 18 , 1998, was filed with the
Commission supplementing the Form 8-K, dated March 20, 1997 reporting
the terms of the 12% Secured Convertible Promissory Notes issued by
the Company.
19
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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: New York, New York
June 29, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph Gitto, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ MATTI KON Chairman, Chief Executive Officer, June 29, 1998
- --------------------------------------------- Director
Matti Kon
/S/JOSEPH A. GITTO President, Chief Financial Officer, June 29, 1998
- --------------------------------------------- Director
Joseph A. Gitto
/S/ DALE L. HIRSCHMAN Director June 29, 1998
- ---------------------------------------------
Dale L. Hirschman
/S/ KENNETH J. BUETTNER Director June 29, 1998
- ---------------------------------------------
Kenneth J. Buettner
</TABLE>
20
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants F-1
Balance Sheets as of March 31, 1998 and 1997 F-2
Statements of Operations for the Years Ended
March 31, 1998, 1997 and 1996 F-4
Statements of Stockholders' Equity (Deficiency)
for the Years Ended March 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996 F-8
Notes to Financial Statements F-11
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts F-30
</TABLE>
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.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998 and 1997, and the
related statements of operations, stockholders' equity (deficiency), and cash
flows for each of the three years in the period ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, the
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, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
We have also audited Schedule II for the years ended March 31, 1998,
1997 and 1996. In our opinion, this schedule presents fairly the information
required to be set forth therein.
The accompanying financial statements and schedule have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note A to the financial statements, the Company has sustained substantial
losses in two out of the three most recent years (including the year ended
March 31, 1998), has experienced a deficiency in cash flows from operations
in each of its last three fiscal years and has a working capital deficiency
that raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note A to the accompanying financial statements. The financial
statements and schedule do not include any adjustments that might result from
the outcome of this uncertainty.
/S/MAHONEY COHEN & COMPANY, CPA, P.C.
Mahoney Cohen & Company, CPA, P.C.
New York, New York
June 8, 1998
F-1
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Balance Sheets
March 31, 1998 and 1997
ASSETS
(Note D)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents
(Notes B-2 and B-6) $ -- $ 1,228,819
Cash - restricted (Note H) 126,068 --
Accounts receivable, net of allowance for
doubtful accounts of $99,200 at March 31,
1998 and $36,800 at March 31, 1997
(Notes B-6 and N) 1,302,212 1,331,428
Inventory (Note B-3) 230,144 281,729
Due from affiliate (Note G) 329,088 250,000
Prepaid expenses and other current assets 231,615 590,224
----------- -----------
Total current assets 2,219,127 3,682,200
----------- -----------
Property and equipment - at cost (Notes B-4
and H)
Production equipment 3,314,525 2,548,699
Computer software applications 439,676 242,932
Furniture and fixtures 359,490 459,696
Leasehold improvements 679,975 609,888
Computer equipment 713,871 806,066
----------- -----------
5,507,537 4,667,281
Less: Accumulated depreciation and
amortization 2,395,999 2,065,833
----------- -----------
Net property and equipment 3,111,538 2,601,448
----------- -----------
Other assets:
Deposits and other (Note B-5) 356,689 364,405
Cash - restricted (Note H) 378,202 --
Investment in INSCI Corp. (Note C) 436,032 1,782,108
----------- -----------
Total other assets 1,170,923 2,146,513
----------- -----------
$ 6,501,588 $ 8,430,161
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Balance Sheets
March 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Current liabilities:
Cash overdraft $ 90,417 $ --
Convertible debt (Note E) -- 380,000
Current maturities of long-term debt
(Note F) 266,925 288,329
Current maturities of long-term capital lease
obligations (Note H) 363,795 280,878
Accounts payable 1,606,549 1,449,241
Due to affiliate (Note G) 255,213 29,925
Accrued salaries 138,865 157,820
Accrued expenses and other current liabilities 583,586 684,221
------------ ------------
Total current liabilities 3,305,350 3,270,414
Loan payable - bank (Note D) 925,975 --
Long-term debt, less current maturities (Note F) 906,407 900,000
Capital lease obligations, less current
maturities (Note H) 614,354 213,002
Deferred rent (Note I) 365,351 382,677
------------ ------------
Total long-term obligations 2,812,087 1,495,679
------------ ------------
Commitments and contingencies (Notes D through
K and O)
Stockholders' equity (Notes F, K and M):
12% Convertible preferred stock (Note L):
Authorized - 3,000,000 shares at $1.00 par
value; 2,660,733 and 2,534,100 shares issued
and outstanding at March 31, 1998 and 1997,
respectively ($2,660,733 and $2,534,100 of
aggregate liquidation value as of March 31,
1998 and 1997, respectively) 2,660,733 2,534,100
Class "A" common stock:
Authorized - 100,000,000 shares at $.04 par
value; 5,789,846 and 5,579,552 shares issued
and outstanding at March 31, 1998 and 1997,
respectively 231,594 223,182
Additional paid-in capital 32,040,227 31,528,477
Unrealized gain from investment in securities
available for sale (Note C) 430,831 1,774,515
Accumulated deficit (34,979,234) (32,396,206)
------------ ------------
Total stockholders' equity 384,151 3,664,068
------------ ------------
$ 6,501,588 $ 8,430,161
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Operations
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues (Note N) $ 9,488,340 $10,714,711 $11,805,891
Cost of sales 7,323,641 8,488,716 9,057,533
------------ ------------ ------------
Gross profit 2,164,699 2,225,995 2,748,358
Operating expenses:
Selling, general and administrative 4,037,474 2,937,712 4,104,526
Termination of facility contract -- -- 75,000
Lease agreement buy-out (Note I) -- -- 376,826
Other costs (Note R) -- 550,000 --
------------ ------------ ------------
Total operating expenses 4,037,474 3,487,712 4,556,352
------------ ------------ ------------
Loss from operations (1,872,775) (1,261,717) (1,807,994)
Other (income) expenses:
Interest expense, net 273,435 134,247 559,710
(Gain) loss from sale of INSCI Corp.
stock (Note C) (277,785) (2,089,020) 73,500
Interest amortization of beneficial
conversion feature attached to 12%
convertible secured promissory
notes (Notes B-10 and F-3) 444,444 88,889 900,000
Equity in net loss of INSCI Corp. -- 158,030 1,452,000
Credit facility buy-out -- -- 394,614
------------ ------------ ------------
Net other (income) expenses 440,094 (1,707,854) 3,379,824
------------ ------------ ------------
Income (loss) from continuing
operations (2,312,860) 446,137 (5,187,818)
Loss from discontinued operations
(Note Q) -- -- (390,696)
------------ ------------ ------------
Net income (loss) (2,312,860) 446,137 (5,578,514)
Preferred stock dividends 270,159 257,520 --
------------ ------------ ------------
Net income (loss) applicable to
common stockholders $(2,583,028) $ 188,617 $(5,578,514)
------------ ------------ ------------
------------ ------------ ------------
Basic and diluted earnings (loss)
per share applicable to common
stockholders (Note P):
From continuing operations $ (0.46) $ 0.04 $ (1.65)
------------ ------------ ------------
------------ ------------ ------------
From discontinued operations $ -- $ -- $ (0.12)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of shares
outstanding (Note P) 5,589,483 5,129,143 3,139,758
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Stockholders' Equity (Deficiency)
For the Years Ended March 31, 1998, 1997 and 1996
<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, 1995 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-5
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Stockholders' Equity (Deficiency)
(Continued)
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
Class A Common Stock Preferred Stock 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 $2,206,580 $ -- $29,558,530 $(32,584,823) $ (858,310)
Preferred stock dividends -- -- 257,520 257,520 -- -- (257,520) --
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 -- -- 250,000 250,000 -- -- -- 250,000
Transfer agent administration
error 100,831 6,033 -- -- -- (6,033) -- --
Costs associated with various
registrations and private
placements -- -- -- -- -- (187,563) -- (187,563)
Valuation of investment in
securities available for
sale -- -- -- -- 1,774,515 -- -- 1,774,515
Amortization of beneficial
conversion feature attached
to 12% convertible secured
promissory notes -- -- -- -- -- 88,889 -- 88,889
Net income -- -- -- -- -- -- 446,137 446,137
--------- -------- --------- ---------- ---------- ----------- ------------ ----------
Balance at March 31, 1997
(carried forward) 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-6
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Stockholders' Equity (Deficiency)
(Concluded)
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
Class A Common Stock Preferred Stock Additional
---------- --------- --------- ---------- Unrealized Paid-in
Shares Amount Shares Amount Gain (Loss) Capital
---------- --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997
(brought forward) 5,579,552 $223,182 2,534,100 2,534,100 $1,774,515 $31,528,477
Preferred stock dividends -- -- 270,159 270,159 -- --
Issuance of common stock from
preferred stock conversion 210,294 8,412 (143,526) (143,526) -- 135,114
Costs associated with various
registrations -- -- -- -- -- (130,210)
Valuation of investment in
securities available for sale -- -- -- -- (1,343,684) --
Non-employee compensation expense
from stock options granted
during the year -- -- -- -- -- 62,402
Amortization of beneficial
conversion feature
attached to 12% convertible
secured promissory notes -- -- -- -- -- 444,444
Net loss -- -- -- -- -- --
----------- --------- --------- ---------- ----------- -------------
Balance at March 31, 1998 5,789,846 $231,594 2,660,733 $2,660,733 $430,831 $32,040,227
----------- --------- --------- ---------- ----------- ------------
----------- --------- --------- ---------- ----------- ------------
Total
Stockholders'
Accumulated Equity
Deficit (Deficiency)
------------- -------------
<S> <C> <C>
Balance at March 31, 1997
(brought forward) $(32,396,206) $3,664,068
Preferred stock dividends (270,159) --
Issuance of common stock from
preferred stock conversion -- --
Costs associated with various
registrations -- (130,210)
Valuation of investment in
securities available for sale -- (1,343,684)
Non-employee compensation expense
from stock options granted
during the year -- 62,402
Amortization of beneficial
conversion feature
attached to 12% convertible
secured promissory notes -- 444,444
Net loss (2,312,869) (2,312,869)
------------- -----------
Balance at March 31, 1998 $(34,979,234) $ 384,151
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Cash Flows
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,312,869) $ 446,137 $(5,578,514)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 865,408 456,579 458,741
Amortization of consulting fees 72,500 183,628 69,000
Non-employee compensation expense from stock options
granted during the year 62,402 -- --
Amortization of beneficial conversion feature related to
convertible debt 444,444 88,889 900,000
Property-in-kind interest paid on 12% convertible
secured promissory notes 94,800 9,000 --
Equity in net loss of INSCI Corp. -- 158,030 1,452,000
(Gain) loss from sale of INSCI Corp. stock (277,785) (2,089,020) 73,500
Provision for doubtful accounts 68,143 -- 48,115
Deferred rent (17,326) 14,183 (200,954)
Loss from the sale of property and equipment 47,740 -- --
Write--off of net assets of discontinued operations -- -- 185,331
Changes in assets and liabilities:
Accounts receivable (38,927) 75,303 1,177,813
Inventory 51,585 21,405 75,390
Prepaid expenses and other current assets 286,109 63,562 (300,873)
Deposits and other assets 7,716 (16,769) 231,143
Accounts payable 413,050 (5,774) 692,673
Accrued salaries (18,955) 1,813 (58,993)
Deferred revenue -- (129,090) (424,933)
Other accrued expenses and current liabilities (150,391) (629,972) 274,327
------------- ------------ ------------
Net cash used in operating activities (402,356) (1,352,096) (926,234)
------------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (541,704) (568,390) (56,456)
Net increase in amounts due from affiliates (79,088) (250,000) --
Net increase in amounts due to affiliates 225,288 29,925 --
Proceeds from the sale of INSCI Corp. stock 129,933 2,258,072 331,129
Proceeds from the sale of property and equipment 42,000 -- --
Repayments by INSCI Corp. -- -- 1,000,000
------------- ------------ ------------
Net cash provided by (used in) investing activities (223,571) 1,469,607 1,274,673
------------- ------------ ------------
Totals carried forward $ (625,927) $ 117,511 $ 348,439
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Cash Flows
(Continued)
For the Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Totals brought forward $ (625,927) $ 117,511 $ 348,439
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under bank credit facility 925,975 (640,056) (479,442)
Financing from bank overdraft 90,417 -- (268,881)
Proceeds from bank issuance of short-term debt and options -- -- 176,852
Net proceeds from issuance of long-term debt 90,000 900,000 2,340,185
Repayments of convertible debt (380,000) -- --
Repayments of long-term debt (312,457) (627,328) --
Payments of capital lease obligations (382,347) (345,305) (529,721)
Repayment of BNY warrant -- -- (200,000)
Cash deposited into a restricted Certificate of Deposit
account with a bank (504,270) -- --
Proceeds from equity placements and the exercise of
options and warrants -- -- 624,128
Costs associated with equity placements and registrations (130,210) (187,563) --
----------- ----------- -----------
Net cash provided by (used in) financing activities (602,892) (900,252) 1,663,121
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,228,819) (782,741) 2,011,560
Cash and cash equivalents, beginning of year 1,228,819 2,011,560 --
----------- ----------- -----------
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 $ 303,717 $ 94,450 $ 355,852
----------- ----------- -----------
----------- ----------- -----------
Income taxes $ -- $ -- $ 11,592
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Cash Flows
(Concluded)
For the Years Ended March 31, 1998, 1997 and 1996
Supplemental Disclosures of Non-Cash Investing and Financing Activities
During the fiscal year ended March 31, 1998:
One holder of the Company's 12% convertible preferred stock elected to
convert his 143,526 shares of preferred stock into 210,294 shares of the
Company's Class A Common Stock.
The Company exchanged 117,000 shares of INSCI Corp. stock for the
repayment of $200,000 of principal plus interest of the 12% convertible
secured promissory notes issued in connection with a February 1997 private
placement.
The Company negotiated with two of its key vendors to convert $312,660 of
trade payables into interest bearing installment promissory notes.
The Company issued stock dividends on its 12% convertible preferred stock
in the amount of $270,159.
The Company paid property-in-kind interest of $94,800 on the outstanding
12% convertible secured promissory notes.
The Company incurred capital lease obligations of $947,312.
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 issued INSCI
Corp. stock.
The Company issued stock dividends on its 12% convertible preferred stock
in the amount of $257,520.
The Company paid property-in-kind interest of $9,000 on the outstanding
12% convertible secured promissory notes.
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.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Statements of Cash Flows
(Concluded)
For the Years Ended March 31, 1998, 1997 and 1996
Supplemental Disclosures of Non-Cash Investing and Financing Activities
During the fiscal year ended March 31, 1998:
One holder of the Company's 12% convertible preferred stock elected to
convert his 143,526 shares of preferred stock into 210,294 shares of the
Company's Class A Common Stock.
The Company exchanged 117,000 shares of INSCI Corp. stock for the
repayment of $200,000 of principal plus interest of the 12% convertible
secured promissory notes issued in connection with a February 1997 private
placement.
The Company negotiated with two of its key vendors to convert $312,660 of
trade payables into interest bearing installment promissory notes.
The Company issued stock dividends on its 12% convertible preferred stock
in the amount of $270,159.
The Company paid property-in-kind interest of $94,800 on the outstanding
12% convertible secured promissory notes.
The Company incurred capital lease obligations of $947,312.
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 issued INSCI
Corp. stock.
The Company issued stock dividends on its 12% convertible preferred stock
in the amount of $257,520.
The Company paid property-in-kind interest of $9,000 on the outstanding
12% convertible secured promissory notes.
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.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Schedule II
Valuation and Qualifying Accounts
For the Years Ended March 31, 1998, 1997 and 1996
<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, 1998 $ 36,800 $ 82,373 $ -- $ 20,009 $ 99,164
-------- -------- ------------ --------- --------
-------- -------- ------------ --------- --------
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
-------- -------- ------------ --------- --------
-------- -------- ------------ --------- --------
Accumulated amortization of cost
in excess of net assets acquired:
Year ended March 31, 1998 $ -- $ -- $ -- $ -- $ --
-------- -------- ------------ --------- --------
-------- -------- ------------ --------- --------
Year ended March 31, 1997 $255,059 $ -- $ -- $255,059 $ --
-------- -------- ------------ --------- --------
-------- -------- ------------ --------- --------
Year ended March 31, 1996 $255,059 $ -- $ -- $ -- $255,059
-------- -------- ------------ --------- --------
-------- -------- ------------ --------- --------
</TABLE>
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE A - THE COMPANY
OPERATIONS
Information Management Technologies Corporation (referred to as "IMTECH" or
the "Company") was incorporated in 1986 in the State of Delaware. IMTECH
provides graphic communications to financial institutions such as banks and
brokerage firms, as well as, to medium and large service organizations within
such industries as accounting, law and finance. The Company's core business is
the production and subsequent distribution of time sensitive printed financial
research, financial reports and marketing materials. In addition, the Company
provides facility management services which include mail room and copy center
management. 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 also services clients in Pennsylvania, the
midwest, and as a result of strategic alliances with two New York based service
providers, in Europe as well (See Note G). 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 an 8% ownership interest in INSCI Corp. ("INSCI") at
March 31, 1998. At March 31, 1997 and 1996, the Company held a 16% and 38%
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.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate the continuation of
the Company as a going concern. However, the Company has sustained substantial
losses in two out of the three most recent years (including the year ended March
31, 1998) and has experienced a deficiency in cash flows from operations in each
of its last three years. The Company had a working capital deficiency of
approximately $1,086,000 as of March 31, 1998.
Management has implemented plans to perform strategic acquisitions and
obtain additional financing to provide sufficient working capital and other
resources to meet current obligations as they come due. In February 1998, IMTECH
signed letters of intent to purchase KRL Litho, Inc., d/b/a The Skillcraft Group
("Skillcraft"), a New York based commercial and financial research printer and
Research Distribution Services, Inc. ("RDS"), a provider of intelligent
fulfillment and distribution services to the research report production
industry. The acquisition of Skillcraft is intended to provide a business
platform capable of protecting the Company against further declines of market
share in the printing industry, and to establish a basis for future growth. By
creating a new organization that can provide both financial research and
commercial printing services, the Company will be more competitive in its
existing markets and expand its production capabilities to create new products
and market opportunities. In addition, Skillcraft's affiliation with a London
based printer assists the Company in establishing a global presence. The
addition of RDS to the combination of IMTECH and Skillcraft creates a combined
entity that is better inclined to compete efficiently in this evolving market.
F-11
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE A - THE COMPANY (Continued)
BASIS OF PRESENTATION (Continued)
The Company received stockholder approval to raise the financing required
to perform the proposed acquisitions at its Annual Meeting of Shareholders held
on May 26, 1998. Management's proposed financing plan calls for the Company to
raise a minimum of $4,000,000 and a maximum of $7,000,000 through a private
placement of debentures convertible into the Company's Class A common stock. As
of the date of this Form 10-K report, the Company has received firm commitments
for the issue of $4,000,000 of the convertible debentures. The Company has
secured a commitment from a lending institution to advance IMTECH an additional
$1,300,000 toward the proposed acquisitions, which will be collateralized by the
unencumbered equipment of the combined companies. In addition, management is
negotiating with several other lending institutions to establish a working
capital credit facility for the proposed acquired companies.
The Company is currently in negotiations with both Skillcraft and RDS to
finalize the terms of the proposed acquisitions. Accordingly, the terms of the
proposed acquisitions have not been publicly disclosed. The proposed
acquisitions will require the Company to remit a cash down payment at closing,
with the balance of the combined purchase price payable over forty (40) monthly
installment payments including interest. Funds which are raised in excess of the
minimum down payment required at closing of the acquisitions will be used for
the immediate working capital requirements of the combined companies.
The Company is also in the process of identifying and pursuing additional
potential acquisition candidates to respond to the changing environment of the
financial research printing industry, which over the past year, has witnessed
the merger of many of its clients. The mergers have created a perception in the
financial research printing industry that larger printers are needed to meet the
resulting printing demands. The creation of the combined entities coupled with
price cutting by competitors to garner more market share has contributed toward
IMTECH's operating difficulties. Management believes that its plans to perform
key acquisitions as discussed above will help IMTECH survive the changing market
conditions, respond to the client mergers and remain competitive within the
industry.
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
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. Cash equivalents includes funds deposited in a
money market account at a financial institution.
F-12
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3. Inventory
Inventory consists primarily of paper, toner and inks, and is stated at the
lower of cost (determined by the first-in, first-out method) or market.
4. Property and Equipment
Expenditures for capital assets are recorded at cost. Depreciation of
capital assets is provided to relate the cost of the depreciable assets to
operations over their estimated useful service lives. In that connection,
production equipment, computer hardware and software and furniture and
fixtures are depreciated by the straight-line method over estimated useful
lives ranging from five to seven years. Leasehold improvements are
amortized by the straight-line method over the lesser of the lease term or
estimated useful lives of the improvements. Major additions and betterments
are capitalized and repairs and maintenance are charged to operations in
the period incurred. At the time of disposal of any property and equipment,
the cost and accumulated depreciation or amortization are removed from the
accounts and any resulting gain or loss is recognized in the current
period's operations.
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 $194,000 and $98,000, net of accumulated amortization of
approximately $49,500 and $38,000 as of March 31, 1998 and 1997,
respectively, are amortized over the life of the related credit facilities,
which range from 24 to 110 months.
6. 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. The Company generally
does not require collateral for its accounts receivable. Accounts
receivable consist of geographically and industry dispersed customers.
7. Use of Estimates
The preparation of the 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 period. Actual results could differ from those estimates.
F-13
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
8. 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.
9. 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.
10. Convertible Debt
The beneficial conversion feature of the outstanding convertible secured
promissory notes payable (See Note F-3) is accounted for as additional
interest to the holders and amortized over the period from the date of
issue through the date the securities first become convertible. This policy
conforms to the accounting for these transactions announced by the
Securities and Exchange Commission (`SEC") Staff in March 1997.
11. Reclassification
Certain 1996 and 1997 amounts have been reclassified to conform to the 1998
presentation. Accordingly, preferred stock dividends of $257,520 issued for
the year ended March 31, 1997 have been reclassified separately on the face
of the statement of operations. The reclassification has no effect on the
presentation of the Company's financial position or income (loss) per share
applicable to common stockholders for the period presented.
12. New Financial Accounting Standards
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" was issued. SFAS No. 130 establishes new
standards for reporting comprehensive income and its components. The
Company will adopt SFAS No. 130 in the first quarter of fiscal year ended
March 31, 1999. The Company expects that the comprehensive income will not
differ materially from net income (loss) applicable to common stockholders.
NOTE C - INVESTMENT IN INSCI CORP.
The Company holds an 8% ownership interest (investment) in INSCI, its
former majority-owned subsidiary. The investment is accounted for under the
"Securities Available For Sale" method as promulgated by SFAS No. 115. As a
result, the investment is carried at fair market value.
F-14
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE C - INVESTMENT IN INSCI CORP. (Continued)
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,
1997 and 1996, the Company had a 16% and a 38% ownership interest in INSCI,
respectively. For the year ended March 31, 1996 INSCI had net sales of
approximately $7,913,000 and a net loss of approximately $1,452,000.
At March 31, 1998 and 1997, the carrying value and estimated fair market
value of the Company's investment in INSCI is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Shares 436,032 636,467
------------- --------------
------------- --------------
Cost basis $ 5,201 $ 7,593
------------- --------------
------------- --------------
Market value $ 436,032 $ 1,782,108
------------- --------------
------------- --------------
Unrealized gain $ 430,831 $ 1,774,515
------------- --------------
------------- --------------
</TABLE>
NOTE D - LOAN PAYABLE - BANK
In November 1997, IMTECH (the "Company") entered into a two year secured
credit arrangement, which expires in October 1999, with MTB Bank (the "Bank").
Under the credit arrangement, the Company can borrow up to 80% of eligible
accounts receivable and 35% of eligible paper inventory (up to a maximum of
$50,000), both of which in the aggregate cannot exceed a total of $1,500,000
(including $250,000 in outstanding letters of credit) at any one time. All
outstanding obligations under the arrangement bear interest at the bank's prime
rate (8.5% at March 31, 1998) plus two percent (2%). At March 31, 1998, the
Company was indebted to the Bank for outstanding obligations totaling
approximately $926,000. In conjunction with the execution of the credit
arrangement, the Company entered into a security agreement which grants the Bank
a security interest in substantially all of the assets of IMTECH as collateral
for all indebtedness outstanding under the arrangement.
In addition to the collateral secured as part of the security agreement,
the Company also pledged 66,535 shares of INSCI Corp. common stock to secure
payment of all outstanding obligations under the credit arrangement. In
connection with the closing of the credit arrangement, the Company issued a
warrant to the Bank which entitles MTB to purchase 25,000 shares of Class A
Common stock at $1.81 per share (the market price of the underlying shares on
the date of closing), exercisable until November 2000. Interest paid to the bank
for outstanding obligations under the credit arrangement during the fiscal year
ended March 31, 1998 amounted to approximately $36,000.
The credit arrangement contains a minimum tangible net worth ("net worth")
covenant of $2,000,000. At March 31, 1998, the Company was in default of the net
worth covenant. In June 1998, the Bank waived the net worth requirement as of
March 31, 1998.
F-15
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE E - CONVERTIBLE DEBT
At March 31, 1997, convertible debt consisted of $380,000 of 12%
subordinated debentures issued in connection with a private placement which was
completed in January 1996. The debentures accrued interest at a per annum rate
of 12% and entitled the holders to convert the debentures plus accrued interest
into shares of the Company's Class A common stock at a price per share of $1.50.
In January 1998, the Company redeemed the debentures, and as a result, none of
the debentures were converted into Class A common stock. Interest charged to
operations for the years ended March 31, 1998, 1997 and 1996 amounted to
approximately $37,000, $46,000 and $9,000, respectively.
NOTE F - LONG-TERM DEBT
At March 31, 1998 and 1997, long-term debt obligations consisted of the
following:
<TABLE>
<CAPTION>
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Trade payable conversion notes [1] $ 288,532 $ 288,329
12% convertible secured notes [2], [3] 884,800 900,000
------------ ------------
1,173,332 1,188,329
Less: Current maturities 266,925 288,329
------------ ------------
Total long-term debt $ 906,407 $ 900,000
------------ ------------
------------ ------------
</TABLE>
[1] 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 was 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. In
October 1997, at the request of the Company, the terms of the note were
revised to include additional outstanding payables, and as a result, the
note became payable in eighteen installments of $21,892 including interest
at 16% per annum through April 1999. Interest charged to operations for the
year ended March 31, 1998 amounted to approximately $34,000.
In addition, in July 1997, the Company negotiated with another of its key
vendors to convert approximately $112,000 of outstanding trade payables
into a one year unsecured installment promissory note. The note is payable
in twelve monthly installments of $9,742 including interest at a per annum
rate of 8.5% through June 1998. The note was satisfied on June 15, 1998.
Interest charged to operations for the fiscal year ended March 31, 1998
amounted to $4,800.
F-16
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE F - LONG-TERM DEBT (Continued)
[2] In connection with a February 1997 private placement, the Company issued
convertible secured promissory notes in exchange for proceeds of $1,000,000
(of which $900,000 was received during fiscal year ended March 31, 1997 and
the balance of $100,000 was received in May 1997). The notes bear interest
at a per annum rate of 12%, which at the option of IMTECH, 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 had
the right, under the pledge agreement, to receive the return of 100,000
shares of the pledged stock in the event it became required in order for
IMTECH to obtain a credit line or enter into a lease/purchase agreement for
equipment. In November 1997, the Company exercised that right and received
the return of 66,535 shares of INSCI Corp. stock which were used to pledge
as collateral for the outstanding obligations under the credit arrangement
with MTB Bank (See Note D). In addition, in November 1997, the Company
received the return of 33,435 shares of INSCI Corp. stock which were sold
pursuant to Rule 144, and the proceeds were used to purchase equipment.
Therefore, at March 31, 1998, 369,497 shares of INSCI Corp. stock remain as
collateral pledged against the notes. 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, prior to conversion, subject to certain conversion
limitations as set forth in the placement memorandum. The right of
conversion permits the holders 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. In December 1997, the Company filed a Form S-3 Registration
Statement in accordance with the Securities Act of 1933, which was amended
in January 1998 and again on May 14, 1998 (See Note O). 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. Paid-in-kind interest charged to operations for
the year ended March 31, 1998 and 1997 amounted to $94,800 and $9,000,
respectively.
In August 1997 the Company exchanged 117,000 shares of INSCI Corp. stock
for the repayment of $200,000 of principal, plus interest, of the
convertible secured promissory notes.
[3] In an Emerging Issues Task Force ("EITF") meeting sponsored by the
Financial Accounting Standards Board, held on March 13, 1997, the
Securities and Exchange Commission ("SEC") announced their position on the
accounting for the issuance of convertible debt securities with a
nondetachable conversion feature that is "in-the-money" at the date of
issue. Those securities are usually convertible into common stock at the
lower of a conversion rate fixed at the date of issue or a fixed discount
to the common stock's market price at the date of conversion, creating a
"beneficial conversion feature". The SEC's position is 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, and as a result, such interest charged to operations for
the years ended March 31, 1998 and 1997 amounted to approximately $444,000
and $89,000, respectively.
F-17
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE F - LONG-TERM DEBT (Continued)
As of March 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1999 $ 266,925
2000 21,607
2001 -
2002 884,800
---------------
$ 1,173,332
---------------
---------------
</TABLE>
NOTE G - RELATED PARTY TRANSACTIONS
DUE FROM AFFILIATES
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,
1998, the Company renewed the agreement for an additional year (November 1, 1997
through October 31, 1998), at a cost to IMTECH of $40,000 per month. Blitz's
responsibilities under the contract are to reengineer, reorganize and run the
day-to-day operations of IMTECH's data processing department. Specifically,
Blitz provides extensive technical support for many of IMTECH's clients on-site
and is responsible for analyzing, designing and developing customized database
systems as required by the management of IMTECH. Fees paid to Blitz under the
contract, which include costs for systems hardware and software, for the years
ended March 31, 1998 and 1997 amounted to approximately $602,000 and $489,000,
respectively.
In December 1996, IMTECH provided Blitz with a loan in the amount of
$250,000. On April 30, 1997, Blitz commenced payment of the loan on an
installment basis over a forty-eight month period at $6,162 per month including
interest at 8.5%, through March 2001.
During the fiscal year ended March 31, 1998, IMTECH performed printing
services for Blitz which amounted to approximately $101,000 of revenues. At
March 31, 1998, the $101,000 remains unpaid.
The Company is party to a service agreement with Research Distribution
Services, Inc. ("RDS"), a company in which the CEO of IMTECH is the majority
stockholder with controlling interest. Under the agreement, RDS is to provide
mailing list database management, fulfillment, mailing and related services to
IMTECH for a period of one year (January 1, 1998 through December 31, 1998) at a
monthly minimum cost of $22,500 (based on minimum average fulfillment levels as
stipulated in the agreement). Total fees under the agreement charged to
operations for the years ended March 31, 1998 and 1997 amounted to $270,288 and
$67,500, respectively. At March 31, 1998, total fees unpaid and owed to RDS by
IMTECH amounted to $255,213.
F-18
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE G - RELATED PARTY TRANSACTIONS (Continued)
OTHER
In September 1997, the Company received proceeds of $125,000 as a result of
a loan from an individual who performed consulting services for IMTECH, and was
also a member of the Board of Directors. The loan, which was paid in full in
November 1997 plus accrued interest of $2,792, was unsecured and bore interest
at a per annum rate of 12%.
The same individual, in January 1998, loaned IMTECH the sum of $200,000 for
working capital purposes. The loan is evidenced by an unsecured promissory note
which bears interest at 12% per annum. In addition, the Company sold this
individual 50,000 shares of INSCI Corp. stock for proceeds of $50,000, also used
for working capital purposes. In March 1998, the individual resigned his
position as a member of the Board of Directors.
NOTE H - 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 9% 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, 1998 and 1997, the book value of the equipment under
capital leases was approximately $1,309,000 and $901,000, respectively.
Minimum future lease payments under capital leases as of March 31, 1998 and
for each of the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31,
-----------
<S> <C>
1999 $ 469,251
2000 360,911
2001 243,274
2002 96,675
2003 22,501
------------
Total minimum lease payments 1,192,612
Less: Amount representing interest 214,463
Less: Current portion 363,795
------------
Present value of long-term capital
lease obligations $ 614,354
------------
------------
</TABLE>
F-19
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE H - CAPITAL LEASE OBLIGATIONS (Continued)
During the fiscal year ended March 31, 1998, the Company deposited a sum of
$504,270 into a Certificate of Deposit account ("CD") with a bank. The CD is
maintained as collateral for the Company's obligation under a lease for
production equipment. According to the terms of the CD, the funds may be drawn
by the Company in accordance with the following schedule:
<TABLE>
<CAPTION>
Available
for
Maturity Date Release
------------- ---------------
<S> <C>
September 30, 1999 $ 126,068
September 30, 2000 378,202
---------------
Total cash - restricted 504,270
Less: Current portion 126,068
---------------
Cash - restricted - long-term $ 378,202
---------------
---------------
</TABLE>
NOTE I - 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,
1998, 1997 and 1996 amounted to approximately $500,000, $494,000 and $629,000,
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, rent expense has been
increased or decreased for the years ended March 31, 1998, 1997 and 1996 to
reflect the difference between the actual rent paid versus the rent expense
adjusted for the straight-lined rent. Consequently, deferred rent of
approximately $365,000 and $383,000 representing pro-rata future payments is
reflected in the accompanying balance sheets as of March 31, 1998 and 1997,
respectively.
F-20
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE I - OPERATING LEASE (Continued)
Minimum future rental payments under the noncancellable operating lease as
of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
For the Year Ending
March 31,
-------------------
<S> <C>
1999 $ 512,000
2000 528,000
2001 544,600
2002 561,800
2003 579,800
2004 195,300
--------------
$ 2,921,500
--------------
--------------
</TABLE>
NOTE J - 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.
At March 31, 1998, the Company has net operating loss carryforwards
("N.O.L.'s") totaling $16,111,000 available to offset future federal and state
taxable income through 2013 as follows:
<TABLE>
<CAPTION>
March 31, N.O.L.'s Expiring
--------- ----------------- --------
<S> <C> <C>
1989 $ 2,398,000 2004
1990 2,405,000 2005
1991 1,407,000 2006
1992 1,628,000 2007
1995 1,188,000 2010
1996 4,502,000 2011
1998 2,583,000 2013
-----------------
$ 16,111,000
-----------------
-----------------
</TABLE>
F-21
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE J - INCOME TAXES (Continued)
The Tax Reform Act of 1986 enacted a complex set of regulations limiting
the utilization of net operating loss carryforwards to offset future taxable
income following a corporate "ownership change." The Company's ability to
utilize its net operating loss carryforwards would, in general, be limited if
there is a change in ownership in excess of fifty percent (50%). Although the
Company has not performed a detailed study, it does not believe that an
ownership change has taken place.
In 1997 the Company utilized approximately $446,000 of N.O.L.'s to reduce
taxable income to zero. Accordingly, the Company did 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 K - 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 M, decreased. 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, holders of options issued as a result of a January 1995
loan-option agreement 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. Opportunidad S.A. under the rules of Regulation "S" of the Securities
Act.
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.
F-22
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE K - COMMON STOCK (Continued)
In March 1998, one holder of the Company's 12% convertible preferred
stock elected to convert his shares of preferred stock. As a result, the Company
issued 210,294 shares of Class A common stock at a conversion price of $.6825
per share (which according to the terms of the preferred stock offering,
represents 70% of the average closing price of the Class A common stock for the
twenty days prior to the date of conversion).
NOTE L - 12% CONVERTIBLE PREFERRED STOCK
During 1992, the Company issued $2,301,000 in subordinated debentures
(the "debentures") to a group of debenture holders with interest at 10% per
annum. The debentures were due and payable in 1995. Thereafter, in 1995, the
Company entered into an exchange offering with the debenture holders wherein the
Company issued 12% Convertible Preferred Stock ("Preferred Stock") to each
debenture holder for an aggregate of 2,301,000 shares of Preferred Stock.
The terms of the Preferred Stock were approved by shareholders. The
Preferred Stock received by debenture holders provided for the payment of
interest at 12% per annum in addition to the right to convert a share of
Preferred Stock into a share of Class A common stock of the Company at 70% of
the 20-day average trading market price of the Company's Class A common stock at
the time of the conversion. Additionally, preferred stockholders were granted
cost-free registration rights with respect to the underlying shares of Class A
common stock.
The terms of the Preferred Stock further provided that holders could
only convert a percentage of the aggregate of their Preferred Stock until April
20, 1998 and, thereafter, for a period of 180 days until October 31, 1998,
holders of the Preferred Stock have a right to convert 100% of their Preferred
Stock that was not as yet converted into shares of Class A common stock.
On December 23, 1997, the Company filed with the Securities and
Exchange Commission a Form S-3 Registration Statement in accordance with the
Securities Act of 1933 for the purpose of registering all of the Company's Class
A common stock which will be offered for sale or resale (not eligible under Rule
144) and all other shares issuable upon exercise or conversion of certain
options, warrants, convertible debt and the conversion of the Preferred Stock.
Amendments to the Form S-3 Registration have been filed subsequently on both
January 14, 1998 and May 14, 1998; however, the registration has not yet been
declared effective.
Additionally, as a result of the change in the Rule 144 and 144(k)
exemption regulations, the preferred stockholders may qualify for the exemption
under Rule 144 depending upon each preferred shareholder's qualification status
with respect to an exemption under either of these rules. One of the 23
preferred stockholders qualified for the exemption under Rule 144(k) and on
March 15, 1998, that holder elected to convert his shares of preferred stock.
F-23
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE M - STOCK OPTIONS
NON-QUALIFIED STOCK OPTION PLAN
In August 1987, the Board of Directors approved and adopted a
Non-Qualified Stock Option ("NQSO") Plan. 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 (the
"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.
The exercise prices of the options granted under the NQSO Plan, which
are determined by the Committee in its sole discretion, may not be less than the
par value of the shares, or fifty percent of the fair market value of the shares
on the dates of grant. The Committee also determines the time periods during
which the NQSO's may be exercised, although in no event shall any NQSO's have an
expiration date later than ten (10) years from the date of its grant. As of
March 31, 1998, options to acquire a total of 2,331,933 shares of Class A Common
Stock were outstanding or approved for grant under the NQSO Plan, at exercise
prices ranging from $.74 to $9.88 per share.
INCENTIVE STOCK OPTION PLAN
In August of 1987, the Board of Directors adopted the Company's
Incentive Stock Option ("ISO") Plan. 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 Plan is administered by the 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 employee/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
ten years. As of March 31, 1998, options to purchase 2,333,750 shares of
IMTECH's Class A common stock were outstanding and approved for grant under the
ISO Plan at exercise prices ranging from $1.18 to $6.75 per share.
DIRECTORS OPTION PLAN
In October 1988, the Board of Directors adopted the Directors Option
("DO") plan, which was authorized by the stockholders on December 19, 1988, and
was subsequently amended in October 1992. The purpose of the DO plan is to help
IMTECH retain the services of qualified non-officer or non-employee directors,
who are considered essential to the business progress of the Company. Under the
DO plan, options are granted only on the date of the annual stockholders'
meeting held once every calendar year. A total of 1,500,000 shares of the
Company's Class A common stock has been reserved for grant under the DO plan. At
March 31, 1998, there were no options outstanding under the DO plan.
F-24
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE M - STOCK OPTIONS (Continued)
The following summarizes the activity the stock options for the three years
ended March 31, 1998 (in ,000):
<TABLE>
<CAPTION>
NQSO ISO DO
--------------------- ---------------------- -------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Options Price Per Options Price Per Options Price Per
Share Share Share
(,000) ($) (,000) ($) (,000) ($)
-------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at April 1, 1995 221 9.43 468 4.28 15 3.13
Granted 1,219 2.21 801 2.36 -- --
Canceled -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Outstanding at March 31, 1996 1,440 3.32 1,269 3.07 15 3.13
Granted 350 1.68 1,125 1.24 -- --
Canceled -- -- (125) 1.88 (15) 3.13
-------- -------- -------- -------- -------- --------
Outstanding at March 31, 1997 1,790 3.00 2,269 2.23 -- --
Granted 1,255 1.12 500 1.18 -- --
Canceled (713) 4.33 (435) 4.25 -- --
-------- -------- -------- -------- -------- --------
Outstanding at March 31, 1998 2,332 1.58 2,334 1.63 -- --
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Exercisable at March 31, 1998 1,688 1.52 1,684 1.52 -- --
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Weighted average fair value of
options granted during the $ .17 $ .03 --
year
----- ----- ----
----- ----- ----
Weighted average remaining
life of options granted 5 years 2 years --
during the year
----- ----- ----
</TABLE>
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-25
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE M - 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, continues to apply APB No. 25 to account for stock
options. Accordingly, compensation expense is recognized for stock options
granted only to the extent that the quoted market price of the Company's Class A
common stock on the date of grant exceeds the exercise price of the options.
During the fiscal year ended March 31, 1998, the Company granted a total of
1,255,000 of stock options under the NQSO Plan to non-employees. As a result,
non-employee compensation expense of approximately $62,000 was charged to
operations during 1998. In addition, during 1998, the Company granted a total of
500,000 stock options under the ISO Plan, all granted with exercise prices equal
to the quoted market price of the Class A common stock on the date of grant.
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,
--------------------------------------------
1998 1997 1996
------------ --------- ------------
<S> <C> <C> <C>
Net income (loss) applicable to common shares - as reported $ (2,583,028) $ 188,617 $ (5,578,514)
Net income (loss) applicable to common shares - pro forma (2,740,613) (560,483) (6,059,414)
Net income (loss) per common share - as reported (.46) .04 (1.77)
Net income (loss) per common share - pro forma (.49) (.11) (1.93)
</TABLE>
The fair value of each option grant is calculated using the following
weighted average assumptions:
<TABLE>
<CAPTION>
For the Years Ended March 31,
-----------------------------------
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Expected life (in years) 5 5 5
Interest rate 5.83% 6.01% 5.86%
Volatility 36.13% 287% 286%
Dividend yield -- -- --
</TABLE>
NOTE N - MAJOR CUSTOMERS
During the years ended March 31, 1998, 1997 and 1996, sales to the two
largest customers of the Company accounted for approximately 40%, 38% and 39% of
total revenues, respectively. At March 31, 1998, 1997 and 1996, the two largest
customers of the Company had accounts receivable balances in the aggregate of
approximately $441,000, $156,000 and $120,000, respectively.
F-26
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE O - COMMITMENTS AND CONTINGENCIES
EMPLOYEE BENEFIT PLANS
The Company sponsors 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 Company's Class A common stock underlying certain
warrants, options, notes and preferred stock (collectively known as "convertible
securities") issued or issuable to certain holders of convertible securities of
the Company.
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, up to a
maximum of $500,000. The agreement had 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. The options
vested after one year of service and expire in December 1998. The agreement
further provides that Mr. Kon has the right to devote his time and attention to
his other business interests. In January 1998, the Board of Directors elected to
renew Mr. Kon's contract for an additional two year period through December
1999. Consequently, Mr. Kon was awarded an additional 500,000 options to
purchase 500,000 shares of the Company's Class A Common stock at $1.18 per
share. The additional 500,000 options vest after the completion of Mr. Kon's
second year of service and are exercisable for one year following that date.
The Company has entered into an employment agreement with Mr. Joseph Gitto,
its President and Chief Financial Officer. The agreement, as amended in July
1997, expires in December 1999 and provides for an annual base salary of
$180,000. In addition, Mr. Gitto is entitled to an incentive bonus equal to 15%
of operating income, up to a maximum of $150,000. At the time of the original
agreement, Mr. Gitto was 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. The options vest over a three year period and expire in April
2000.
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.
F-27
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE O - COMMITMENTS AND CONTINGENCIES (Continued)
OTHER (Continued)
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 repaid the shareholders by making cash interest payments at a
rate of 10% per annum, in addition to making cash payments for the borrowed
shares. 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 considering instituting legal action to
recover the shares of stock and to seek punitive damages from CRG.
NOTE P - EARNINGS (LOSS) PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". Under SFAS No. 128 public
companies and entities with complex capital structures are required to present
basic and diluted EPS on the face of the income statement. SFAS No. 128 replaces
the presentation of primary EPS with a presentation of basic EPS and, if
applicable, diluted EPS. Basic EPS excludes dilution and is computed by dividing
income available to Class A Common stockholders by the weighted-average number
of Class A Common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
Class A Common stock are exercised or converted and the resulting additional
shares are dilutive (their inclusion decreases the amount of EPS). The effect on
earnings (loss) per share of the Company's outstanding stock options and
warrants, convertible debentures and notes and preferred stock is antidilutive
for all periods presented and therefore not included in the calculation of the
weighted-average number of Class A Common shares outstanding.
NOTE Q - 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 $391,000 to write off the remaining assets.
NOTE R - OTHER COSTS
In 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 were 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:
F-28
<PAGE>
IMTECH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information Management Technologies Corporation
("IMTECH")
Notes to Financial Statements
March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE R - OTHER COSTS (Continued)
<TABLE>
<CAPTION>
<S> <C>
Severance payments $ 259,000
Payroll taxes and benefits 77,000
Consulting fees 131,000
Asset redeployment costs 83,000
------------
$ 550,000
------------
------------
</TABLE>
NOTE S - PROPOSED ACQUISITIONS
In February 1998, the Company signed letters of intent to purchase KRL
Litho, Inc., d/b/a as The Skillcraft Group ("Skillcraft"), a New York based
commercial and financial research printer and Research Distribution Services,
Inc. ("RDS"), a provider of intelligent fulfillment and distribution services to
the research report production industry. The Company received shareholder
approval at its Annual Meeting of Shareholders held on May 26, 1998 to raise the
funding required for the proposed acquisitions.
The Company will purchase the net assets of Skillcraft and RDS for cash and
notes, and therefore the combination will be accounted for under the Purchase
Method of accounting as promulgated by Accounting Principles Bulletin Opinion
No. 16, "Business Combinations". The Company is currently in negotiations with
both Skillcraft and RDS to finalize the terms of the proposed purchase
acquisitions.
Subsequent to the purchase transactions, both Skillcraft and RDS will be
wholly-owned subsidiaries of IMTECH, and as a result, IMTECH, Skillcraft and RDS
will report financial position, results of operations and cash flows on a
consolidated basis. Consequently, all material intercompany accounts and
transactions will be eliminated in consolidation.
F-29
<PAGE>
Information Management Technologies Corporation
("IMTECH")
Schedule II
Valuation and Qualifying Accounts
For the Years Ended March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, 1998 $ 36,800 $ 82,373 $ -- $ 20,009 $ 99,164
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
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
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Accumulated amortization of cost
in excess of net assets acquired:
Year ended March 31, 1998 $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Year ended March 31, 1997 $255,059 $ -- $ -- $255,059 $ --
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Year ended March 31, 1996 $255,059 $ -- $ -- $ -- $255,059
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
F-30
<PAGE>
EXHIBIT 10.129
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT to Agreement dated December 5, 1996, by and between INFORMATION
MANAGEMENT TECHNOLOGIES CORPORATION (hereinafter referred to as "EMPLOYER"
and/or "IMTECH") and MATTI KON, residing at 211 Madison Avenue, Apt. 24-B,
New York, New York 10016 (hereinafter referred to as "EMPLOYEE").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties have entered into and Employment Agreement dated
October 28, 1996; and
WHEREAS, the parties are desirous of amending and supplementing the
Agreement; and
WHEREAS, the Amendment has been ratified by the Board of Directors of
EMPLOYER; and
WHEREAS, the parties are further desirous of expressing their rights and
responsibilities with respect to said Amendment.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS
AND CONDITIONS HEREINAFTER SET FORTH, THE PARTIES AGREE
AS FOLLOWS:
1
<PAGE>
FIRST: It is understood and agreed that the Agreement dated December 5,
1996, annexed hereto and made a part hereof, is ratified, and that the within
Amendment has been approved by the Board of Directors of EMPLOYER.
SECOND: The term of the above-mentioned Employment Agreement is extended
from December 5, 1997 until December 5, 1999, or for an additional period of
two (2) years.
THIRD: In the event that the Employment Agreement and/or Amendment is
terminated prior to December 5, 1999, as a result of a change in job title
and/or job description from EMPLOYEE's current position as Chief Executive
Officer of EMPLOYER or, in the further event that EMPLOYEE is terminated,
directly or indirectly, without cause by EMPLOYER, then in that event, it is
understood and agreed that EMPLOYEE will be entitled to be paid a minimum of
one year's salary compensation, or the sum of $200,000. Additionally,
EMPLOYEE reserves the right to put to EMPLOYER all vested but unexercised
stock options granted and issued to EMPLOYEE at $.33 per option with the
condition that the five day trading market average price of the Company's
stock as traded on NASDAQ is a minimum of $.33 higher than that of the
exercise price of the EMPLOYEE's option.
In the event that EMPLOYEE elects to utilize the put option granted to
him, EMPLOYEE will be provided to afford ten days' written notice to
2
<PAGE>
EMPLOYER on his right to put the options to EMPLOYER. EMPLOYER agrees to make
payment within 60 days from the date that the put option is exercised by
EMPLOYEE.
FOURTH: EMPLOYER acknowledges that EMPLOYEE's services are valuable to
EMPLOYER, and that EMPLOYER will take the necessary action to report the
within Amendment to EMPLOYEE's contract by a filing of said information with
the Securities and Exchange Commission on a Form 8-K Report.
FIFTH: Additionally, EMPLOYER agrees to pay to, or for EMPLOYEE, all
medical and life insurance benefits currently paid to and/or on behalf of
EMPLOYEE for a period of 18 months form the date of EMPLOYEE's termination or
severance from EMPLOYER. Employer further agrees to pay to employee, the
housing allowance currently paid to employer for a period of one (1) year
from termination.
SIXTH: In the event of any dispute concerning the within Amendment, then
and in that event, EMPLOYER and EMPLOYEE agree that each will abide by the
rules, regulations and decisions as made by a single arbitrator at the
American Arbitration Association in the City, State and County of New York.
SEVENTH: The within Amendment may not be changed, modified or altered,
without being executed by the parties, and the parties agree that the within
will be governed by the Laws of the State of New York.
EIGHTH: The parties acknowledge that counsel for EMPLOYER has been
requested to prepare the within Amendment, and that EMPLOYEE has consulted
with counsel of his own choice prior to entering into the within Amendment.
3
<PAGE>
In the event of notice is required, it shall be made as follows:
If to EMPLOYER, at
Information Management Technologies Corporation
130 Cedar Street
New York, NY 10006
If to EMPLOYEE, at
211 Madison Avenue, Apt. 24-B
New York, New York 10016
IN WITNESS WHEREOF, the parties have set their hands and seals on the
day, month and year first above written.
INFORMATION MANAGEMENT
TECHNOLOGIES CORPORATION
By: /s/ Joseph Gitto
-------------------------
Joseph Gitto
/s/ Matti Kon
-------------------------
Matti Kon
The within Amendment has been approved by the Board of Directors of
EMPLOYER.
/s/ Joseph Gitto
-------------------------
Joseph Gitto
/s/ Harry Markovits
-------------------------
Harry Markovits
4
<PAGE>
EXHIBIT 10.130
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT to Agreement dated October 28, 1996, by and between INFORMATION
MANAGEMENT TECHNOLOGIES CORPORATION (hereinafter referred to as "EMPLOYER"
and/or "IMTECH") and JOSEPH GITTO, residing at 78 Stuart Avenue, Malverne,
New York 11565 (hereinafter referred to as "EMPLOYEE").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties have entered into and Employment Agreement dated
October 28, 1996; and
WHEREAS, the parties are desirous of amending and supplementing the
Agreement; and
WHEREAS, the Amendment has been ratified by the Board of Directors of
EMPLOYER; and
WHEREAS, the parties are further desirous of expressing their rights and
responsibilities with respect to said Amendment.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL
COVENANTS AND CONDITIONS HEREINAFTER SET FORTH, THE
PARTIES AGREE AS FOLLOWS:
FIRST: It is understood and agreed that the Agreement dated
October 28, 1996, annexed hereto and made a part hereof, is ratified, and
that the within Amendment has been approved by the Board of Directors of
EMPLOYER.
SECOND: The term of the above-mentioned Employment Agreement is
extended from October 28, 1996 until December 5, 1999, or for an additional
period of two (2) years.
THIRD: In the event that the Employment Agreement and/or
Amendment is
1
<PAGE>
terminated prior to December 5, 1999, as a result of a change in job title
and/or job description from EMPLOYEE's current position as President of
EMPLOYER or, in the further event that EMPLOYEE is terminated, directly or
indirectly, without case by EMPLOYER, as a result of a merger, acquisition
or change in control of the EMPLOYER, then in that event, it is understood
and agreed that EMPLOYEE will be entitled to be paid a minimum of one year's
salary compensation, or the sum of $180,000. Additionally, EMPLOYEE reserves
the right to put to EMPLOYER all vested but unexercised stock options granted
and issued to EMPLOYEE at $.33 per option with the condition that the five
day trading market average price of the Company's stock as traded on NASDAQ
is a minimum of $.33 higher than that of the exercise price of the EMPLOYEE's
option.
In the event that EMPLOYEE elects to utilize the put
option granted to him, EMPLOYEE will be provided to afford ten days' written
notice to EMPLOYER on his right to put the options to EMPLOYER. EMPLOYER
agrees to make payment within 60 days from the date that the put option is
exercised by EMPLOYEE.
FOURTH: EMPLOYER acknowledges that EMPLOYEE'S services are
valuable to EMPLOYER, and that EMPLOYER will take the necessary action to
report the within Amendment to EMPLOYEE's contract by a filing of said
information with the Securities and Exchange Commission on a Form 8-K Report.
FIFTH: Additionally, EMPLOYER agrees to pay to, or for
EMPLOYEE, all medical and life insurance benefits currently paid to and/or on
behalf of EMPLOYEE for a period of 18 months from the date of EMPLOYEE's
termination or severance from EMPLOYER.
SIXTH: In the event of any dispute concerning the within
Amendment, then and in that event, EMPLOYER and EMPLOYEE agree that each will
abide by the rules, regulations and decisions as made by a single arbitrator
at the American Arbitration Association in the City, State
2
<PAGE>
and County of New York
SEVENTH: The within Amendment may not be changed, modified or
altered, without being executed by the parties, and the parties agree that
the within will be governed by the Laws of the State of New York.
EIGHTH: The parties acknowledge that counsel for EMPLOYER has
been requested to prepare the within Amendment, and that EMPLOYEE has
consulted with counsel of his own choice prior to entering into the within
Amendment.
In the event of notice is required, it shall be made as follows:
If to EMPLOYER, at
Information Management Technologies Corporation
130 Cedar Street
New York, NY 10006
If to EMPLOYEE, at
78 Stuart Avenue
Malverne, New York 11565
IN WITNESS WHEREOF, the parties have set their hands and seals on
the day, month and year first above written.
INFORMATION MANAGEMENT
TECHNOLOGIES CORPORATION
By: /s/ Matti Kon, CEO
----------------------------
/s/ Joseph Gitto
----------------------------
JOSEPH GITTO
The within Amendment has been approved by the Board of Directors of
EMPLOYER.
/s/ Matti Kon
----------------------------
MATTI KON
/s/ Harry Markovits
----------------------------
HARRY MARKOVITS
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000824578
<NAME> INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,401,376
<ALLOWANCES> 99,164
<INVENTORY> 230,144
<CURRENT-ASSETS> 2,219,127
<PP&E> 5,507,537
<DEPRECIATION> 2,395,999
<TOTAL-ASSETS> 6,501,588
<CURRENT-LIABILITIES> 3,305,350
<BONDS> 906,407
2,660,733
0
<COMMON> 231,594
<OTHER-SE> (2,508,176)
<TOTAL-LIABILITY-AND-EQUITY> 6,501,588
<SALES> 9,488,340
<TOTAL-REVENUES> 9,488,340
<CGS> 7,323,641
<TOTAL-COSTS> 7,323,641
<OTHER-EXPENSES> 4,037,474
<LOSS-PROVISION> 68,143
<INTEREST-EXPENSE> 444,444
<INCOME-PRETAX> (2,583,028)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,583,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,583,028)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
