SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
MARCH 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM __________ TO __________
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COMMISSION FILE NUMBER: 0-16753
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INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 58-1722085
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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130 CEDAR STREET, FOURTH FLOOR, NEW YORK, NY 10006
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(Address of Principal Executive Offices) (Zip Code)
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(212) 306-6100
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(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered under Section 12(g) of the Exchange Act:
Title of Class
CLASS A COMMON STOCK, $.04 PAR VALUE
REDEEMABLE CLASS A WARRANTS / REDEEMABLE CLASS B WARRANTS
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Indicate by checkmark whether the registrant: (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X]
The aggregate market value of the voting 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 Bulletin Board on June
17, 1999, was approximately $1,859,718.
At June 17, 1999, the Registrant had outstanding 15,497,647 shares of
Class A Common Stock.
Part III incorporates information by reference to the registrant's
definitive proxy statement for its 1999 Annual Meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1999.
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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INDEX TO FORM 10-K REPORT
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PAGE
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PART I:
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 6
ITEM 3 LEGAL PROCEEDINGS 6
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
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PART II:
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 8
ITEM 6 SELECTED FINANCIAL DATA 10
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 20
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES 20
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PART III:
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21
ITEM 11 EXECUTIVE COMPENSATION 21
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 21
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 21
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PART IV:
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 22
SIGNATURES 24
TABLE OF CONTENTS TO FINANCIAL STATEMENTS
AND SCHEDULES 25
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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PART I
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ITEM 1. BUSINESS
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INTRODUCTION
Information Management Technologies Corporation ("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.
On July 24, 1998, IMTECH consummated its acquisition of KRL Litho, Inc.
d/b/a "The Skillcraft Group" ("Skillcraft"). Skillcraft, like IMTECH, provides
graphic communications services including financial research report printing,
commercial printing, and graphic arts design and fulfillment services to
financial and commercial organizations located primarily in the New York
Metropolitan area. Skillcraft's production equipment is complementary to that of
its parent, IMTECH. Continuing with management's growth strategy, IMTECH, on
November 13, 1998 completed its acquisition of RDS, Research Distribution
Services, Inc. ("RDS") subject to certain post-closing matters. RDS provides
intelligent fulfillment and distribution services to the research report
production industry. IMTECH and its three wholly owned subsidiaries, Halcon
Acquisition Corp. ("Halcon"), Skillcraft and RDS (collectively known as the
"Company") operate as separate divisions and do business under the name
SkillTech Global Graphics & Communications ("SkillTech"). Halcon is a
holding company and has no active operations. Hereafter, IMTECH, Skillcraft and
RDS collectively may be referred to as the "Company" or "SkillTech".
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
IMTECH, the South Printing Facility known as "SkillTech South" or ("RSC") and at
Skillcraft, the North Printing Facility known as "SkillTech North", both of
which are located in downtown New York City. The facilities management services
include independent, on-site management of client systems for providing document
duplication, distribution and mailroom management.
The Company as of March 31, 1999 held a 6% 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
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
SkillTech for clients in the New York City metropolitan area:
1
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 1. BUSINESS (CONTINUED)
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GRAPHIC COMMUNICATIONS SERVICES (CONTINUED)
GRAPHIC DESIGN AND ELECTRONIC PUBLISHING SERVICES. The Company'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. The Company 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,
SkillTech is equipped to produce or receive electronic data files to accommodate
almost every need.
DIGITAL PRINTING SERVICES. As part of its current production capabilities the
Company deploys the use of technologically advanced networked digital printing
equipment to meet the demand for short run, high quality four color process and
spot color digital printing. The digital equipment has the ability to print
directly from electronic data files, recognize various data formats and adjust
color on the press electronically. In addition, the digital equipment can store
images and process data image adjustments on-line. This type of equipment 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. With the use of the digital printing equipment, the Company can
ideally meet the increase in demand for the use of more color in financial
research reports and give its clients increased options of communicating their
messages to their customers.
OFFSET PRINTING SERVICES. The Company operates traditional offset printing
facilities that comprise of both web and sheet fed presses in a variety of
format sizes. The printing facilities include technologically advanced pre-press
departments, which allow the Company to receive electronic data files in various
formats and output the electronic data files to film. The pre-press departments
are networked and have multiple electronic data platform capabilities. The
versatility of the Company's offset printing presses and technological
advancement of its pre-press departments gives SkillTech the ability to service
its clients' traditional offset printing and on demand needs efficiently.
DUPLICATION SERVICES. The Duplication division employs the use of three
networked hi-speed Xerographic Docutech document duplicators ("Docutech"), which
have the ability to receive and duplicate electronic data files. The speed at
which the Docutech 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 division 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. As a result, the Company offers its clients a "one-stop-shop"
solution to their printing needs.
2
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 1. BUSINESS (CONTINUED)
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GRAPHIC COMMUNICATIONS SERVICES (CONTINUED)
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 SkillTech'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.
FACILITIES MANAGEMENT SERVICES
The Company's facility management division, which provides the majority
of its services on-site at a customer's facility, 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, the Company's
Facilities division 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 a 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, the Company 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, the customer's existing lease obligations. Backup
resources are maintained at SkillTech South to handle unusual workloads, or for
disaster recovery purposes occurring at the facility management sites within the
region.
3
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 1. BUSINESS (CONTINUED)
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MANAGEMENT INFORMATION SYSTEMS
The Company's production facilities, client service department and
corporate administration department have the ability to share workflow
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 workflow
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.
Users can access the WOTS by logging into the Company's web-site,
located at http:\www.sggc.com. Besides the WOTS, the 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
SkillTech North. 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 the Company
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, the Company
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, CO, 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, and articles in pertinent trade
publications and direct mailings. During the years ended March 31, 1999, 1998
and 1997, the Company's largest customers (1, 2 and 2, respectively) accounted
for approximately 25%, 40% and 38% of total revenues. At March 31, 1999, 1998
and 1997 those same customers had accounts receivable balances in the aggregate
of approximately $380,000, $441,000 and $156,000, respectively.
To further broaden its abilities to provide superior and complete
service and pursue clients beyond its primary metropolitan area marketplace the
Company maintains a strategic alliance with Blitz Systems, Inc. ("Blitz").
Blitz, through its versatility of services, is instrumental in assisting the
Company in introducing technologically advanced concepts to research print
production and distribution. The strategic alliance with SkillTech and Blitz
offers clients a seamless process of receiving and managing data for print
production and subsequent distribution. Both organizations in the alliance are
specialists, and each depends on the other to maintain a high level of client
satisfaction. Working together, the two organizations offer clients reliable,
expedient and cost-effective services from the point of production to final
destination. [See Note H-Related Party Transaction]
4
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 1. BUSINESS (CONTINUED)
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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.
As a step to implementing its business model, IMTECH completed the
acquisitions of KRL Litho, Inc. (also known as "Skillcraft)" and RDS, Research
Distribution Services, Inc. ("RDS"). Skillcraft, like IMTECH, provides graphic
communications services including financial research report printing, commercial
printing, graphic art design services to financial and commercial organizations,
while RDS provides technologically advanced fulfillment and distribution
services to complete the print production process. The acquisitions have not
only increased the revenue base of the organization as a whole but have also
expanded the Company's production capabilities to provide economies of scale and
efficiencies that would allow SkillTech to maximize profits while offering its
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 has broadened the industry presence of the combined organization
into the global market to provide additional opportunities of increasing the
Company's client base further.
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 the
SkillTech organization. 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. SkillTech 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, 1999, the Company employed 147 personnel as compared to
100 at March 31, 1998. Skillcraft is party to collective bargaining agreements
with four local printers' unions; (1) the Graphics Communications International
Union Local 119B-43B; (2) the Graphic Communications Union No. 23; (3) the
Graphic Communications Union Local No. 51; and (4) the New York Typographical
Union No. 6. The Company considers its relationships with all of its employees
to be in good standing.
5
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 2. PROPERTIES
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The Company leases its executive offices and its SkillTech South
printing facility (approximately 32,000 square feet), located at 130 Cedar
Street, New York, NY, under a lease expiring in July 2003. The SkillTech North
printing facility occupies space (approximately 24,000 square feet) at 480 Canal
Street, New York, NY, under a lease expiring in August 2002. The rental payments
under both of the lease agreements are subject to annual cost of living and
maintenance increases.
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ITEM 3. LEGAL PROCEEDINGS
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In November 1995, IMTECH 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 its
free trading Class A Common Stock plus 500,000 options to purchase 500,000
shares of its Class A Common Stock at exercise prices ranging from $1.75 to
$3.06 per share for a period of five years. IMTECH elected to pay CRG by issuing
171,000 shares of Class A Common Stock. Initially, IMTECH delivered to CRG
92,250 shares of the freely traded Class A Common Stock, which it borrowed from
a number of shareholders. IMTECH 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
has asserted a claim for the balance of the shares. IMTECH has disputed the
claim based upon the position that CRG did not perform under the provisions of
the service contract.
While the Company has not commenced legal action to recover the shares
of stock and/or monetary and/or punitive damages from CRG, the Company is
considering the cost of commencing an action as related to the chances of a
monetary recovery from CRG as it understands that CRG has been the subject of a
regulatory inquiry concerning the conduct of its business.
Harold Russell ("Russell") has filed an action in the New York State
Supreme Court against the Company, claiming the aggregate sum of $3,750,000, in
addition to interest and attorney's fees, alleging that the Company has made no
payments pursuant to the installment promissory note issued to Russell as a
result of the purchase of Skillcraft by IMTECH. The Company is contesting the
action filed by Russell as the promissory note issued by the Company to Russell
is being held in escrow and subject to escrow agreement. Additionally, the
Company has denied that he is entitled to the sum claimed by him based upon the
claim of fraud and misrepresentation with respect to the purchase of his stock
ownership in Skillcraft. Motions before the court by both the Company and Mr.
Russell are currently pending. Additionally, Russell has served a notice of
intent to arbitrate, before the American Arbitration Association, asserting a
claim that the Company and Halcon Acquisition Corp., a wholly owned subsidiary
of the Company, violated his employment agreement by terminating his employment.
The Company's subsidiary, Halcon, terminated his employment agreement based upon
allegations of fraud in the inducement by Russell in entering into the
employment agreement which was related to the acquisition of the Skillcraft
shares of stock from Mr. Russell. The Company has filed a motion to stay the
arbitration based upon technical and other grounds and is awaiting the Court's
decision.
The Company filed an action in the New York State Supreme Court (New
York County) against Russell. The action is for damages sustained by the Company
as a result of alleged fraud and intentional misrepresentation with respect to
the purchase of stock from Mr. Russell on July 24, 1998, wherein the Company
purchased all of the issued and outstanding common stock of Skillcraft. The
Company has claimed compensatory and punitive damages in the sum of $12,500,000
and $10,000,000, respectively. An additional claim for recision and damages has
also been asserted against Russell. Russell is contesting the Company
6
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
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claims and denies the allegations asserted by the Company. Russell has made a
motion to dismiss the Company's complaint and the Company is awaiting the
Court's Decision.
On May of 1999, a Company known as Amplicon, Inc. ("Amplicon")
commenced an action against the Company in the United States District Court for
the Southern District of New York alleging violation of an equipment lease by
and between Amplicon and the Company. The Company leased a Heidelberg Four Color
Quick Master Printing Press and related equipment by executing a lease/purchase
agreement with Amplicon. The Amplicon claim is that the Company is obligated to
pay the sum of $345,405, the balance of the payments due under the lease and, in
addition, is required to agree with Amplicon on the termination of the lease as
to the purchase price for the equipment. The Company secured all payments under
the lease by posting a standby letter of credit in favor of Amplicon
guaranteeing that all payments under the lease were to be made.
Additionally, Amplicon commenced an action to obtain an order of
seizure of the equipment claiming that Amplicon is entitled to possession of the
leased equipment, and that in the event of default in payments, Amplicon can
proceed to recover possession of the equipment. The Company is contesting the
matter as the Company has asserted its answer to the complaint in that the lease
is subject to an arbitration provision and, in addition, that representatives of
Amplicon misrepresented to the Company and committed acts of fraud by their
misrepresentation in having the Company execute a lease agreement which was
inconsistent with the written lease proposal provided by Amplicon to the Company
prior to the execution of the lease purchase agreement. The action is currently
pending before the Court.
The Company completed a private placement offering under Regulation D
on July 24, 1998 for the sum of $4,000,000. The offering involved the issuance
of an 12% convertible debenture which provided for the right of the holder of
the debenture, in addition to receiving interest payments, to also receive 10%
of the profits of the Company. The terms of the convertible debenture is for a
period of five years with the right of the holder to convert the debenture into
shares of Class A common stock of the Company, at any time during the term of
the debenture. The right of conversion granted to the holder the right to
convert the note into either 40% of the issued and outstanding Class A common
stock for the conversion within the first year or up to 70% of the issued and
outstanding Class A common stock thereafter. In April, 1999, the holders of the
promissory note declared the Company in default of nonpayment of monetary
interest during the first year of the note, and it is the Company's position
that based upon the terms and conditions of the promissory note, that the
principal ($4,000,000) of the note as per the terms of the note is payable in
shares of Class A common stock of the Company. As of the current date, the
holders of the notes have not taken any action with respect to their notice of
default.
The Company issued a promissory note to Harry Markovits, a former
director of the Company. The balance due on the promissory note is approximately
$133,000. Mr. Markovits passed away in April of 1998 and the note was
transferred to his estate. The estate has asserted a claim for the sum of
$133,000 plus interest due and that the Company has defaulted in payment of the
note. Additionally, the agreement with Mr. Markovits required that the Company
deliver to him 50,000 shares of the common stock of a Company known as INSCI
Corp.,which is currently held in escrow. Mr. Markovits was further granted a
subordinate UCC lien on the assets of the Company to secure the repayment of the
promissory note. The lien granted to Mr. Markovits is a lien subordinated to the
Company's principal lender, MTB Bank.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
7
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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The Company's Class A common stock is traded in the over-the-counter
market and included in the National Association of Securities Dealers Electronic
Bulletin Board. Also traded in the over-the-counter market and on the Electronic
Bulletin Board is the Company's Redeemable Class A Warrants. The symbols in the
Electronic Bulletin Board system for the Class A common stock and Class A
Warrants are "IMTKA" and "IMTKW", respectively. The 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,
1999, 1998 and 1997, as reported on the NASD's Electronic Bulletin Board.
The Company was advised by the NASDAQ Stock Market, Inc. ("NASDAQSM")
that it no longer meets the current NASDAQSM listing requirements for continued
listing on the NASDAQSM SmallCap Stock Market. Continued inclusion on the
NASDAQSM SmallCap Stock Market generally requires that (i) the Company maintains
at least $2,000,000 in tangible net assets; or (ii) $35,000,000 in market
capitalization; or (iii) net income of at least $500,000 in two of the three
prior years. Additionally, the Company is required to maintain at least 500,000
shares in the public float valued at $1,000,000 or more, a minimum common stock
bid price of $1.00, at least two active market makers, and at least 300
shareholders of its stock. On the close of business, January 14, 1999, the
Company received notification from NASDAQSM that it was not in compliance with
the tangible net assets and dollar price listing rules and therefore decided to
relocate the Company's securities from its SmallCap stock market to the
over-the-counter market on the NASD's "Electronic Bulletin Board". As a result,
the liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysis and the news media's
coverage of the Company and lower prices for the Company's securities than might
otherwise be attained. 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.
[THIS SPACE INTENTIONALLY LEFT BLANK--PLEASE REFER TO CHART ON NEXT PAGE]
8
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (CONTINUED)
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<TABLE>
<CAPTION>
---------------------------------- -----------------------------------------------------
CLASS A COMMON STOCK CLASS A WARRANTS
("IMTKA") ("IMTKW")
-----------------------------------------------------
HIGH LOW HIGH LOW
---------------------------------- ------------- ------------- -------------- ----------
YEAR ENDED MARCH 31, 1999:
<S> <C> <C> <C> <C>
First quarter 1 3/4 7/16 3/16 1/16
Second quarter 1 5/16 9/16 3/16 1/16
Third quarter 3/4 3/16 1/16 -
Fourth quarter 5/16 1/8 - -
---------------------------------- ------------- ------------- -------------- ----------
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
---------------------------------- ------------- ------------- -------------- ----------
</TABLE>
At June 19, 1999, there were approximately 3,100 holders of record of
the Company's Class A common stock, not including individuals with beneficial
ownership interest.
9
<PAGE>
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1999 includes the consolidated results of the
Company's wholly owned subsidiaries, Skillcraft and RDS, since the dates of
acquisition.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1999 1998 1997 1996 1995
(IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Revenues $ 17,863 $ 9,488 $ 10,715 $ 11,806 $ 14,048
Loss from operations (7,925) (1,873) (1,262) (1,808) (1,220)
Income (loss) from continuing
operations (8,766) (2,313) 446 (5,188) (3,891)
Loss from discontinued operations -- -- -- (391) (1,773)
Net income (loss) (8,766) (2,313) 446 (5,579) (5,664)
Preferred stock dividends 238 270 258 -- --
Net income (loss) applicable to
common stockholders (9,004) (2,583) 188 (5,579) (5,664)
Basic and diluted earnings (loss) per
share from continuing operations $ (.86) $ (.46) $ .04 $ (1.65) $ (2.05)
Basic and diluted earnings (loss) per
share from discontinued operations -- -- -- $ (.12) $ (.64)
-------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Total assets $ 11,273 $ 6,502 $ 8,430 $ 7,767 $ 9,593
Long-term obligations 8,108 2,812 1,496 3,524 4,497
Stockholders' equity (deficiency)[1] (7,313) 384 3,664 (858) 1,169
-------------------------------------------------------------------------------------------------
<FN>
[1] The Company has not paid dividends since its inception.
</FN>
</TABLE>
10
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS
The following schedule sets forth the percentage relationship of
significant items of the Company's results of operations to revenues. The
financial data for the fiscal year ended March 31, 1999 includes the
consolidated results of the Company's wholly owned subsidiaries, Skillcraft and
RDS, since the dates of acquistion:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1999 1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100% 100% 100%
Cost of sales 75 77 79
-------------------------------------------
Gross profit 25 23 21
Operating expenses:
Selling, general & administrative 36 43 28
Asset impairment charges 32 - -
Amortization of goodwill 1 - -
Other costs - - 5
-------------------------------------------
Loss from operations (44) (20) (12)
Other (income) expenses:
Interest expense, net 5 3 1
Amortization of beneficial conversion from
convertible debt - 4 1
Gain on sale of INSCI Corp. stock - (3) (19)
Equity in net loss of INSCI Corp. - - 2
-------------------------------------------
Net income (loss) (49) (24) 3
Preferred stock dividends 1 3 2
-------------------------------------------
Net income (loss) applicable to common
stockholders (50)% (27)% 1%
---------------------------------------------------- ===========================================
</TABLE>
11
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
FISCAL YEAR 1999 AS COMPARED TO FISCAL YEAR 1998
During the Fiscal year ended March 31, 1999 (Fiscal 1999), the Company
generated consolidated revenues of $17,863,000, of which IMTECH reported
approximately $9,761,000 or 55% of consolidated revenues compared to revenues of
$9,488,000 for the fiscal year ended March 31, 1998 ("Fiscal 1998"). Skillcraft
generated approximately $7,857,000 or 44% of consolidated revenues. RDS, which
was acquired at the end of November 1998, generated $245,000 of consolidated
revenues, or 1%. Revenues for Fiscal 1999 increased by approximately $8,375,000
or 88%. The Skillcraft acquisition accounted for $7,857,000 or 94% of the
increase while IMTECH's RSC division increased by $601,000 or 7%. IMTECH's RSC
Division accounted for approximately $9,183,000 or 51% of consolidated revenues
for Fiscal 1999.
The net increase in revenues generated by the Skillcraft and RDS
acquisitions, as well as the growth at IMTECH's RSC division were partially
offset by decreases in revenues of $165,000 or 22% from Fiscal 1999 revenues of
$579,000 compared to revenues of $744,000 in Fiscal 1998 in the Company's
Facilities Management Division [FACM]. The decrease in FACM revenues is a result
of management's continued policy not to renew certain FACM contracts as a result
of competitive pricing which reduced operating margins below management's
requirements. In addition, the Company's now defunct litigation duplication
division had revenues of $163,000 in Fiscal 1998.
The Company's consolidated cost of sales were $13,338,000 (or 75% of
revenues) for the Fiscal year ended March 31,1999, an increase of $6,014,000 or
82% from cost of sales of $7,324,000 or 77% of revenue in Fiscal 1998. A
majority of the increase in consolidated cost of sales is attributed to the
acquisition of the Company's wholly owned subsidiaries Skillcraft and RDS
acquired during the past Fiscal year. The cost of sales of the acquired
Companies contributed $6,654,000 or 50% of the total cost. The net increase in
consolidated cost of sales was offset by a decrease in cost of sales of IMTECH
of $640,000 or 9% to $6,684,000 or 68% for Fiscal 1999 compared to cost of sales
of $7,324,000 or 77% for Fiscal 1998. The decrease in the cost of sales reported
by IMTECH is primarily attributable to cost savings realized from the reduction
of IMTECH's labor force and related costs from the prior year period, as well as
from synergies achieved through the Skillcraft acquisition, whereby the Company
is able to produce certain large client projects on Skillcraft's larger presses
which give clients quicker turn times on their jobs and reduced the level of
overtime and related costs at the IMTECH facility.
For Fiscal 1999, the Company reported gross profit of $4,526,000 or 25%
on a consolidated basis; an increase of $2,361,000 or 109% from gross profits of
$2,165,000 or 23% in Fiscal 1998. Gross profits for Fiscal 1999 were $3,079,000
or 32% of IMTECH's revenue, $1,382,000 or 18% of Skillcraft's revenue and
$65,000 or 26% of RDS revenue. Gross profits at IMTECH increased by $912,000 or
42% to $3,077,000 or 32% for Fiscal 1999 compared to gross profits of $2,165,000
or 23% in Fiscal 1998. The increase in gross profits at IMTECH is directly
attributable to the synergies the Company envisioned with its acquisition of the
Skillcraft group, whereby the Company through the use of its internally
developed WOTS system, manages workflow of projects to ensure that projects are
produced at the most cost efficient facility for that particular project. These
increased gross profits were impacted by the deterioration of the business
acquired in the Skillcraft acquisition. Due to the loss of large commercial
accounts and certain profitable financial clients (see details in legal
proceedings and liquidity analysis) gross profits at Skillcraft were $1,382,000
or just 18% of sales produced at the Skillcraft facility.
12
<PAGE>
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
FISCAL YEAR 1999 AS COMPARED TO FISCAL YEAR 1998 (CONTINUED)
Consolidated operating expenses were $12,451,000 or 69% of Fiscal 1999
revenue, an increase of $8,414,000 from consolidated operating expenses of
$4,037,000, in Fiscal 1998.
Selling General and Administrative ("S, G & A") expenses for Fiscal
1999 were $6,505,000 or 36% of consolidated sales, an increase of $2,467,000 or
61% from S, G & A expenses of $4,037,000 in Fiscal 1998. S, G & A costs of
$1,820,000 and $95,000 relate to the acquisition of Skillcraft and RDS,
respectively. In addition, during fiscal 1999, the Company took additional
charges related to the deterioration of the Skillcraft business (see litigation
proceedings and liquidity analysis). To properly reflect the current business of
Skillcraft, the Company added to its accounts receivable reserve, took a write
down of certain inventory items, as well as charges related to compensation
increases and contract commitments to senior managers and staff for promises
left unfulfilled by the previous owners. S, G & A expenses at IMTECH were
$4,590,000 or 26% of consolidated revenues, an increase of $553,000 or 14% from
S, G & A expenses of $4,037,000 or 43% in fiscal 1998. Included in this increase
at IMTECH were costs for professional fees and services related to the
integration of Skillcraft, fees to Kaplan and Associates and related option
expense amortization as the Company hired a financial public relations firm to
create a broader interest in its stock and its attempt to stay listed on the
NASDAQ small cap market, as well as additional costs in technology and human
resources as the Company increased its management infrastructure to meet the
demands of pursuing, completing and integrating its newly acquired wholly owned
subsidiaries.
During Fiscal 1999, the Company recorded amortization of goodwill of
$204,000 or 1% of consolidated revenues in fiscal 1999. In addition, at March
31, 1999, due to the ongoing operating difficulties at the Company's Skillcraft
facility because of the ongoing litigation with Harold Russell, the Company
wrote off the entire amount of unamortized goodwill of $5,661,610 related to its
July 1998 acquisition of Skillcraft. Reference is made to the legal proceedings,
liquidity and capital analysis sections for details of the operating
difficulties experienced since the Skillcraft acquisition. [See Notes A, C, F, P
& R]
Consolidated Interest Expense for fiscal 1999 was $841,000 or 5% of
consolidated revenues. The increase in interest expense for the combined
organizations was attributable to interest costs incurred as a result of
increased borrowing under a credit arrangement with MTB Bank, which in the
aggregate amounted to $513,000. In addition, the Company incurred interest
expense of $328,000 for fiscal 1999 relating to the 12% subordinated convertible
debentures issued in connection with the July 1998 acquisition of Skillcraft.
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.
To comply with the Securities and Exchange Commission position
announced in March 1997 regarding the accounting for the beneficial conversion
feature attached to certain convertible debt instruments, IMTECH
13
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
FISCAL YEAR 1999 AS COMPARED TO FISCAL YEAR 1998 (CONTINUED)
recorded an interest charge of approximately $444,000 (5% of total 1997
revenues) for the twelve months ended March 31, 1998.
In Fiscal 1999, the Company recorded a dividend of $235,000 or 1% of
consolidated revenues (paid in common stock) on its 12% Preferred Stock. During
the third quarter of fiscal 1999, the Company undertook an effort to arrange for
a standstill agreement with its 23 preferred stockholders. As of March 31,1999,
six preferred holders agreed to the standstill agreement. The remaining
preferred holders are in the process of being converted into shares of the
Company's Class A Common Stock under the provision of the exchange terms of the
Preferred Stock Agreement and were presented as converted in the accompanying
consolidated financial statements. [see note K].
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.
14
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
FISCAL YEAR 1998 AS COMPARED TO FISCAL YEAR 1997 (CONTINUED)
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.
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.
15
<PAGE>
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The schedule below sets forth the Company's cash flow activities for the fiscal
years ended March 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
-------------------------- -------------- ---------------- ----------------
YEAR ENDED MARCH 31, 1999 1998 1997
-------------------------- -------------- ---------------- ----------------
<S> <C> <C> <C>
Operating activities $ (408,000) $ (256,000) $ (1,572,000)
Investing activities (5,039,000) (370,000) 1,689,000
Financing activities 5,447,000 (603,000) (900,000)
-------------- ---------------- ----------------
Net decrease in cash and
cash equivalents $ -- $ (1,229,000) $ (783,000)
-------------------------- -------------- ---------------- ----------------
</TABLE>
OPERATIONS
During the fiscal year ended March 31, 1999, the Company incurred a
loss from operations before depreciation, amortization, asset impairment and
other non-cash charges of approximately $1,067,000.
INVESTING ACTIVITIES
Net cash used as a result of investing activities amounted to
approximately $5,039,000 for the fiscal year ended March 31, 1999, and is
primarily attributable to cash used for capital expenditures of approximately
$642,000 and aggregate payments of approximately of $4,397,000 for the purchase
of both Skillcraft and RDS, net of approximately $507,000 of cash acquired in
the acquisitions.
FINANCING ACTIVITIES
During the fiscal year ended March 31, 1999 the Company provided net
cash for financing activities of approximately $5,448,000, which was a result in
part to the following:
- -- The Company borrowing net proceeds of approximately $920,000 from MTB Bank
under its current credit agreement;
- -- The utilization of a bank overdraft of approximately $323,000;
- -- The receipt of proceeds totaling $4,000,000 from the issuance of 12%
subordinated convertible debentures in connection with a July 1998 private
placement; which proceeds were used directly for the acquisition of
Skillcraft.
16
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
FINANCING ACTIVITIES (CONTINUED)
- -- The receipt of proceeds of $1,300,000 from GE Capital Corporation in the form
of a term loan; whose proceeds were used to finance the acquisition of
Skillcraft.
- -- Cash in the aggregate of approximately $1,030,000 was used to repay capital
lease obligations of approximately $326,000 and other long-term debt
obligations of approximately $704,000;
- -- The Company incurred costs for securing equity placements during 1999 of
$15,000.
CAPITAL RESOURCES
As of March 31, 1999 the Company had a working capital deficiency of
approximately $6,053,000.
In November 1997, IMTECH entered into a 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 agreement was subsequently amended in August 1998 to include the
acquisition of Skillcraft. The amended agreement increased the company's
borrowing capacity to $2,500,000. MTB, as part of the increase in the credit
agreement has made available under the borrowing formula, 80% of eligible
accounts receivable less a reserve of $750,000.
IMTECH's management is constantly focused on investing its capital and
labor in its production infrastructure by introducing cutting edge technology in
conjunction with investments in state-of-the-art production equipment. These
efforts are designed to stream line the IMTECH operations and enable it to
service its clients economically and more efficiently, as well as, to broaden
the scope of services it offers. In addition, IMTECH has embarked on an
extensive marketing campaign to create an awareness in the financial research
community. However, the changing environment of the financial research printing
industry requires that IMTECH take certain measures to ensure its ability to
stay competitive and continue to build a business platform for future growth.
Over the past year, IMTECH 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 a 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 response to these evolving market conditions, on July 24, 1998,
IMTECH acquired all of the issued and outstanding common stock of KRL Litho,
Inc., d/b/a The Skillcraft Group ("Skillcraft") for a price of approximately
$8,772,000, which consisted of a purchase price of $9,000,000 less working
capital adjustments of $228,000.
Skillcraft provides graphic communications services including financial
research report printing, commercial printing, graphics arts design and various
fulfillment services to financial and commercial organizations located primarily
in the New York Metropolitan area. In addition, on November 13, 1998, IMTECH
acquired all of the issued and outstanding common stock of RDS Research
Distribution Services, Inc. ("RDS") for a purchase price of $1,060,000.
17
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CAPITAL RESOURCES (CONTINUED)
RDS is a New York based provider of intelligent fulfillment and
distribution services to the research report production industry. The
acquisitions of both Skillcraft and RDS provide a business platform capable of
protecting IMTECH against declines of market share in the printing industry, and
establishes a basis for continued future growth. IMTECH and its two wholly owned
subsidiaries, Skillcraft and RDS (collectively known as the "Company"), operate
as separate divisions doing business as Skilltech Global Graphics and
Communications ("SkillTech"). By creating a new organization that can provide
complete financial research and commercial printing services, the Company
believed it would be more competitive in its existing markets and would expand
its production capabilities to create new products and market opportunities. In
addition, Skillcraft's affiliation with a London based printer would assist the
Company in establishing a global presence.
IMTECH paid approximately $4,772,000 at the Skillcraft closing and
issued promissory notes to its sellers in the aggregate amount of $4,000,000
payable in forty (40) equal monthly installments of $100,000, commencing in
November 1998. The funds for the $4,772,000 down payment were raised through a
private placement completed by IMTECH whereby it issued 12% subordinated
convertible debentures for the aggregate amount of $4,000,000, and executing a
secured promissory note for proceeds of $1,300,000 borrowed from General
Electric Capital Corporation ("GE"). For the net assets of RDS, IMTECH paid
$36,000 of the required $60,000 at closing and issued a promissory note to the
seller of RDS in the amount of $1,000,000, payable in forty (40) equal monthly
installments of $25,000 scheduled to commence in December 1998. The Company as
of March 31,1999 has not remitted the remaining $24,000 due at closing and has
not made any payments toward its note obligation on the RDS purchase. Excess
funds raised over the minimum down payments required at the closing of the
acquisitions were used for the immediate working capital requirements of the
combined organization.
The Company is continuing to identify and pursue additional potential
acquisition candidates to respond to the changing environment of the financial
research printing industry. Industry 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 larger entities coupled
with the price-cutting by competitors to garner more market share has
contributed toward IMTECH's past operating difficulties.
In January 1999, management undertook certain measures to address
losses incurred from the deterioration of business at the Skillcraft facility as
a result of the alleged fraud and misrepresentation by Russell in the conveyance
of Skillcraft. Despite these operating difficulties the Company tried to begin
leveraging the strengths of the combined companies. Accordingly, management has
consolidated and streamlined the operations of the organization's daytime
(first) shifts. Additionally, the Company was able to obtain certain concessions
from its unions to adjust other production shifts to minimize the amount of
overtime costs incurred without affecting workloads during peak production
periods.
18
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CAPITAL RESOURCES (CONTINUED)
Management has also scaled back and eliminated certain professional
consulting services, which were utilized during the integration of the personnel
of IMTECH, Skillcraft and RDS immediately following the acquisitions.
In addition, the Company undertook the termination of employees who
served similar roles in the respective companies to reflect the severe decline
in sales. The Company also eliminated or scaled back certain other public
relation, professional and technology related agreements. In addition, the
Company's Chairman and CEO, Matti Kon, and its President and CFO, Joseph Gitto,
reduced their compensation arrangements by $50,000 each per annum. Members of
the Company's senior management agreed to concessions of 10% of their annual
compensation. In addition, the Company has suspended interest payments to
certain investor groups. The Company's management believes that it is improbable
to maintain all of these concessions for an extended period. The Company is
exploring various financial alternatives, including a capital infusion and has
retained a financial advisor to assist the Company in evaluating financial
strategies or alternatives. Management believes that because of the severe
downturn in its business, directly attributable to the allegations against Mr.
Russell, that the Company will not be able to attain profitability with two
operating locations and believes that the improvement in its gross profits
achieved in fiscal 1999 will begin to deteriorate as the Company has to support
increasing idle capacity. If the Company is unable to secure the financing
required to consolidate its operations and curtail its losses and protect its
profit margins, the Company may be forced to find an acquirer for the business
or pursue other remedies.
NEW ACCOUNTING STANDARDS
During the fiscal year ended March 31, 1999, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new standards for reporting and
displaying comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
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.
19
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Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
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 it 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 implemented procedures to
safeguard against the Year 2000 conversion problem. The cost of the
implementation of the Year 2000 safeguards was not material to the Company as a
whole. 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.
- --------------------------------------------------------------------------------
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 26 hereof.
- --------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
- --------------------------------------------------------------------------------
None.
20
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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 1999 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1999 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 1999 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1999 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 1999 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1999 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 1999 annual meeting of stockholders to be
filed with the Commission within 120 days following March 31, 1999 under the
caption "Certain Relationships and Related Transactions" and is incorporated
herein by this reference as if set forth in full herein.
21
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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 26 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 26 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, 1998 and June 29, 1999, the Company
filed with the Commission reports on Form 8-K as follows:
1. A report of Form 8-K/A, dated June 18, 1998 was filed with the
Commission on June 23, 1998, supplementing the Form 8-K, dated
March 20, 1998 reporting the terms of the 12% Secured Convertible
Promissory Notes issued by the Company.
2. A report on Form 8-K, dated July 24, 1998, was filed with the
Commission on July 31, 1998 reporting the acquisition by IMTECH of
all of the issued and outstanding common stock of KRL Litho, Inc.,
d/b/a The Skillcraft Group ("Skillcraft").
3. A report on Form 8-K, dated July 24, 1998, was filed with the
Commission on August 3, 1998 reporting the completion of outside
financing in the form of $4,000,000 of 12% Convertible
Subordinated Debentures and a $1,300,000 equipment financing
arrangement with GE Capital Corporation.
4. A report on Form 8-K, dated August 13, 1998, was filed with the
Commission on August 31, 1998 reporting an amendment to the
Company's credit facility with MTB Bank.
5. A report on Form 8-K/A, dated September 30, 1998, was filed with
the Commission on September 30, 1998 supplementing the Form 8-K,
dated July 24, 1998 reporting the acquisition by IMTECH of all of
the issued and outstanding common stock of Skillcraft.
6. A report on Form 8-K, dated November 13, 1998, was filed with the
Commission on November 23, 1998 reporting the acquisition by
IMTECH of all of the issued and outstanding common stock of RDS,
Research Distribution Services, Inc. ("RDS").
7. A report on Form 8-K/A, dated January 27, 1999, was filed on
January 28, 1999 supplementing the Form 8-K, dated November 13,
1998 reporting the acquisition by IMTECH of all of the issued and
outstanding common stock of RDS.
22
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
- --------------------------------------------------------------------------------
[b] REPORTS ON FORM 8-K (CONTINUED)
During the period between April 1, 1998 and June 29, 1999, the Company
filed with the Commission reports on Form 8-K as follows:
8. A report on Form 8-K/A, Amendment No. 2, dated March 8, 1999, was
filed with the Commission on March 10, 1999 amending Forms 8-K/A,
dated September 30, 1998 and January 27, 1999 which supplemented
Forms 8-K, dated July, 24, 1998 and November 13, 1998,
respectively, reporting the acquisitions of Skillcraft and RDS.
9. A report on Form 8-K, dated April 5, 1999, was filed with the
Commission on April 5, 1999 reporting a court stipulation and
order for the Company to issue Class A common shares as a result
of the conversion of the outstanding 12% Convertible Preferred
Stock.
23
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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/ MATTI KON
-------------
Matti Kon,
Chief Executive Officer
By: /S/ JOSEPH A. GITTO, JR.
------------------------
Joseph A. Gitto, Jr.,
President and Chief
Financial Officer
DATED: NEW YORK, NEW YORK
JUNE 29, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Matti Kon and/or 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.
- --------------------------------------------------------------------------------
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------
/S/ MATTI KON Chairman, Chief Executive Officer June 29, 1999
- ----------------------- & Director
Matti Kon
/S/JOSEPH A. GITTO, JR. President, Chief Financial Officer June 29, 1999
- ----------------------- & Director
Joseph A. Gitto
/S/ DALE L. HIRSCHMAN Director June 29, 1999
- -----------------------
Dale L. Hirschman
/S/ KENNETH J. BUETTNER Director June 29, 1999
- -----------------------
Kenneth J. Buettner
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULES
- --------------------------------------------------------------------------------
PAGE
FINANCIAL STATEMENTS:
Report of Independent Accountants F-1
Consolidated Balance Sheets as of March 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years Ended March 31, 1999,
1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years
Ended March 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1999, F-6
1998 and 1997
Consolidated Notes to Financial Statements F-8
FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts F-31
- --------------------------------------------------------------------------------
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 THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING
NOTES THERETO.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
THE STOCKHOLDERS AND
BOARD OF DIRECTORS OF
INFORMATION MANAGEMENT TECHNOLOGIES
CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION and its subsidiaries as of March
31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for each of the three years in
the period ended March 31, 1999. These consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION AND SUBSIDIARIES as of March 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles.
We have also audited Schedule II for the years ended March 31, 1999,
1998 and 1997. In our opinion, this schedule presents fairly the information
required to be set forth therein.
The accompanying consolidated financial statements and schedule have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note A to the consolidated financial statements, the Company has
sustained substantial losses in the last two years, 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 consolidated financial
statements. The consolidated 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 9, 1999
F-1
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
MARCH 31, 1999 1998
- --------------------------------------------------------------------------------------------
ASSETS [Notes E, H and J]:
Current assets:
<S> <C> <C>
Cash - restricted [Note G] $ 225,511 $ 126,068
Accounts receivable, net of allowance for doubtful
accounts of $225,000 and $99,000 at March 31,
1999 and 1998, respectively [Notes B and O]
3,426,055 1,302,212
Inventory [Note B]
648,524 230,144
Due from related parties [Note H]
-- 329,088
Prepaid expenses and other current assets
124,252 231,615
----------- -----------
Total current assets
4,424,342 2,219,127
----------- -----------
Property and equipment - at cost [Notes B, E, F and G]:
Production equipment
6,342,871 3,314,525
Computer software applications
782,329 439,676
Furniture and fixtures
488,069 359,490
Leasehold improvements
771,278 679,975
Computer equipment
902,836 713,871
----------- -----------
9,287,383 5,507,537
Less: Accumulated depreciation and amortization
4,796,973 2,395,999
----------- -----------
Net property and equipment
4,490,410 3,111,538
----------- -----------
Other assets:
Cash - restricted [Note G]
228,671 378,202
Investment in INSCI Corp. [Note D]
1,117,332 436,032
Goodwill, net of accumulated amortization and impairment of
$5,945,781 at March 31, 1999 [Notes B, C and R]
729,394 --
Deposits and other [Note B]
282,737 356,689
----------- -----------
Total other assets
2,358,134 1,170,923
----------- -----------
$11,272,886 $ 6,501,588
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MARCH 31, 1999 1998
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
<S> <C> <C>
Cash overdraft $ 413,449 $ 90,417
Loan payable - bank [Note E] 1,845,639 --
Current maturities of long-term debt [Note F] 4,260,405 266,925
Current maturities of long-term capital lease
obligations [Note G] 310,184 363,795
Accounts payable 2,374,702 1,606,549
Due to related party [Note H] 112,249 255,213
Accrued salaries 198,304 138,865
Accrued expenses and other current liabilities 962,170 583,586
------------ ------------
Total current liabilities 10,477,102 3,305,350
------------ ------------
Loan payable - bank [Note E] -- 925,975
Long-term debt, less current maturities [Note F] 2,465,257 21,607
Capital lease obligations, less current maturities
[Note G] 319,637 614,354
Deferred rent [Note I] 332,630 365,351
Convertible obligations [Note J] 4,990,800 884,800
Commitments and contingencies
[Notes E through G, I, J, M and N]
Stockholders' equity (deficiency):
12% convertible preferred stock [Note K]:
Authorized - 3,000,000 shares at $1.00 par value;
463,673 and 2,660,733 shares issued and outstanding
at March 31, 1999 and 1998, respectively; ($463,673
and $2,660,733 of aggregate liquidation value as of
March 31, 1999 and 1998, respectively) 463,673 2,660,733
Class "A" common stock and capital in excess of
$.04 par value [Note M]:
Authorized - 100,000,000 shares;
15,497,647 and 5,789,846 shares issued and
outstanding at March 31, 1999 and 1998, respectively 35,094,747 32,271,821
Accumulated deficit (42,870,960) (34,548,403)
------------ ------------
Total stockholders' equity (deficiency) (7,312,540) 384,151
------------ ------------
$ 11,272,886 $ 6,501,588
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues [Notes B and O] $ 17,863,466 $ 9,488,340 $ 10,714,711
Cost of sales 13,337,690 7,323,641 8,488,716
------------ ------------ ------------
Gross profit 4,525,776 2,164,699 2,225,995
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 6,504,914 4,037,474 2,937,712
Goodwill impairment [Note R] 5,661,610 -- --
Amortization of goodwill [Notes B and C] 284,171 -- --
Other costs [Note S] -- -- 550,000
------------ ------------ ------------
Total operating expenses 12,450,695 4,037,474 3,487,712
------------ ------------ ------------
Loss from operations (7,924,919) (1,872,775) (1,261,717)
Other (income) expenses:
Interest expense, net 840,988 273,435 134,247
Interest amortization of beneficial conversion
feature attached to 12% convertible secured
promissory notes [Notes B and J] -- 444,444 88,889
Gain from the sale of INSCI Corp. stock [Note D] -- (277,785) (2,089,020)
Equity in net loss of INSCI Corp. -- -- 158,030
------------ ------------ ------------
Net other (income) expenses 840,988 440,094 (1,707,854)
------------ ------------ ------------
Net income (loss) (8,765,907) (2,312,869) 446,137
Preferred stock dividends 237,950 270,159 257,520
------------ ------------ ------------
Net income (loss) applicable to common stockholders $ (9,003,857) $ (2,583,028) $ 188,617
============ ============ ============
Earnings (loss) per share [Note Q]:
Basic $ (0.86) $ (0.46) $ 0.04
Diluted $ (0.86) $ (0.46) $ 0.04
Shares used in computing earnings (loss) per share:
Basic 10,498,899 5,589,483 5,129,143
Diluted 10,498,899 5,589,483 5,129,143
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
SHARES OF CLASS "A" COMMON STOCK
[Note M]
<S> <C> <C> <C>
Beginning balance 5,789,846 5,579,552 3,535,078
Issuance of common stock from preferred stock conversion 9,372,653 210,294 --
Issuance of common stock for services -- -- 60,000
Issuance of common stock from debenture conversion -- -- 1,883,643
Transfer agent administration error 335,148 -- 100,831
------------ ------------ ------------
Ending balance 15,497,647 5,789,846 5,579,552
============ ============ ============
SHARES OF 12% CONVERTIBLE PREFERRED STOCK
[Note K]
Beginning balance 2,660,733 2,534,100 2,026,580
Preferred stock dividends-in kind 132,990 270,159 257,520
Issuance of common stock from preferred stock conversion (2,330,050) (143,526) --
Issuance of preferred stock from debenture conversion -- -- 250,000
------------ ------------ ------------
Ending balance 463,673 2,660,733 2,534,100
============ ============ ============
PAR VALUE OF CLASS "A" COMMON STOCK AND CAPITAL IN EXCESS
OF PAR VALUE
Beginning balance $ 32,271,821 $ 31,751,659 $ 29,699,933
Costs associated with various registrations and placements (15,000) (130,210) (187,563)
Stock options granted to preferred stockholders 86,260 -- --
Issuance of common stock from debenture conversion 302,840 -- 2,100,000
Issuance of common stock from preferred stock conversion 2,330,050 143,526 --
Non-employee compensation from the grant of stock options
(of which $36,252 is prepaid in 1999) 118,776 62,402 --
Non-employee compensation from the issuance of common
stock -- -- 50,400
Amortization of beneficial conversion feature attached to
convertible debt -- 444,444 88,889
------------ ------------ ------------
Ending balance 35,094,747 32,271,821 31,751,659
------------ ------------ ------------
PAR VALUE OF 12% CONVERTIBLE PREFERRED STOCK
Beginning balance 2,660,733 2,534,100 2,026,580
Preferred stock dividends-in kind 132,990 270,159 257,520
Issuance of common stock from preferred stock conversion (2,330,050) (143,526) --
Issuance of preferred stock from debenture conversion -- -- 250,000
------------ ------------ ------------
Ending balance 463,673 2,660,733 2,534,100
------------ ------------ ------------
ACCUMULATED DEFICIT
Beginning balance (34,548,403) (30,621,691) (32,584,823)
Comprehensive income (loss):
Net income (loss) (8,765,907) (2,312,869) 446,137
Other comprehensive income (loss) 681,300 (1,343,684) 1,774,515
------------ ------------ ------------
Total comprehensive income (loss) (8,084,607) (3,656,553) 2,220,652
------------ ------------ ------------
Preferred stock dividends (237,950) (270,159) (257,520)
------------ ------------ ------------
Ending balance (42,870,960) (34,548,403) (30,621,691)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) $ (7,312,540) $ 384,151 $ 3,664,068
============ ============ ============
ACCUMULATED OTHER COMPREHENSIVE INCOME
[Note B]
Beginning balance $ 430,831 $ 1,774,515 $ --
Other comprehensive income (loss):
Valuation of investment in securities available for sale 681,300 (1,343,684) 1,774,515
------------ ------------ ------------
Ending balance $ 1,112,131 $ 430,831 $ 1,774,515
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(8,765,907) $(2,312,869) $ 446,137
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 1,300,171 865,408 456,579
Amortization of goodwill 284,171 -- --
Amortization of consulting fees 171,286 72,500 183,628
Goodwill impairment 5,661,610 -- --
Non-employee compensation from stock option grants 82,524 62,402 --
Non-employee compensation from the issuance of
common stock -- -- 50,400
Amortization of beneficial conversion from convertible debt -- 444,444 88,889
Property-in-kind interest paid on convertible debt 96,000 94,800 9,000
Gain from the sale of INSCI Corp. stock -- (277,785) (2,089,020)
Equity in net loss of INSCI Corp. -- -- 158,030
Provision for doubtful accounts, net 126,000 62,200 --
Deferred rent (32,721) (17,326) 14,183
Loss from the sale of property and equipment -- 47,740 --
Changes in assets and liabilities, net of effects of purchased
businesses:
Accounts receivable 563,452 (32,984) 75,303
Inventory (219,134) 51,585 21,405
Prepaid expenses and other current assets 91,468 286,109 63,562
Deposits and other assets 133,499 7,716 (16,769)
Accounts payable 1,195,242 413,050 (5,774)
Accrued salaries (51,925) (18,955) 1,813
Deferred revenue -- -- (129,090)
Accrued expenses and current liabilities (1,228,327) (150,391) (680,372)
Due from/to related parties 184,154 146,200 (220,075)
----------- ----------- -----------
Net cash used in operating activities (408,437) (256,156) (1,572,171)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (642,413) (541,704) (568,390)
Acquisition of businesses, net of cash acquired (4,396,755) -- --
Proceeds from the sale of INSCI Corp. stock -- 129,933 2,258,072
Proceeds from the sale of property and equipment -- 42,000 --
----------- ----------- -----------
-----------
Net cash provided by (used in) investing activities (5,039,168) (369,771) 1,689,682
----------- ----------- -----------
Cash flows from financing activities:
Financing from cash overdraft 323,032 90,417 --
Net borrowings (repayments) under bank credit facility 919,665 925,975 (640,056)
Net proceeds from the issuance of convertible obligations 4,000,000 90,000 900,000
Proceeds from long-term debt borrowings 1,300,000 -- --
Redemption of convertible debt -- (380,000) --
Repayments of long-term debt (703,514) (312,457) (627,328)
Payments of capital lease obligations (326,489) (382,347) (345,305)
Cash withdrawn from restricted certificate of deposit account
used to repay capital lease obligations (50,089) -- --
Cash deposited into a restricted certificate of deposit account -- (504,270) --
Costs associated with equity placements and registrations (15,000) (130,210) (187,563)
----------- ----------- -----------
Net cash provided by (used in) financing activities 5,447,605 (602,892) (900,252)
----------- ----------- -----------
Net decrease in cash and cash equivalents -- (1,228,819) (782,741)
Cash and cash equivalents, beginning of year -- 1,228,819 2,011,560
----------- ----------- -----------
Cash and cash equivalents, end of year $ -- $ -- $ 1,228,819
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Information Management Technologies Corporation and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 737,550 $ 303,717 $ 94,450
------------------------------------
Acquisitions [Note C]:
Fair value of net assets acquired $9,831,978
Debt issued 5,000,000
----------
Sub-total 4,831,978
Cash paid for costs of acquisition 72,000
----------
Total cash paid 4,903,978
Less: cash acquired 507,223
------------------------------------
Net cash paid for acquisitions $4,396,755
====================================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Conversion of trade payables into promissory notes $1,092,169 $ 312,660
Property-in-kind dividends issued on the 12% preferred stock $ 132,990 $ 270,159 $ 257,520
Dividends accrued on the 12% preferred stock $ 18,700
Stock options granted to preferred stockholders $ 86,260
Property-in-kind interest paid on the 12% convertible notes $ 96,000 $ 94,800 $ 9,000
Capital lease obligations incurred $ 28,250 $ 947,312 $ 144,000
Debt issued from acquisitions $5,000,000
Redemption of 12% convertible notes for shares of INSCI Corp. stock $ 200,000
Conversion of the 6% debentures into Class A common stock $2,100,000
Conversion of the 12% subordinated debentures into preferred stock $ 250,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE A. THE COMPANY
DESCRIPTION OF BUSINESS. Information Management Technologies Corporation
(referred to as "IMTECH") 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. IMTECH also services clients in Pennsylvania, the
Midwest, and as a result of a strategic alliance with a London based service
provider, in Europe as well.
On July 24, 1998, IMTECH consummated its acquisition of KRL Litho, Inc. d/b/a
"The Skillcraft Group" ("Skillcraft"). Skillcraft, like IMTECH, provides graphic
communications services including financial research report printing, commercial
printing, and graphic arts design and fulfillment services to financial and
commercial organizations located primarily in the New York Metropolitan area.
Skillcraft's production equipment is complementary to that of its parent,
IMTECH. In addition, IMTECH, on November 13, 1998 consummated its acquisition of
RDS, Research Distribution Services, Inc. ("RDS"). RDS provides intelligent
fulfillment and distribution services to the research report production
industry. The business combinations were accounted for under the Purchase Method
of accounting as promulgated by Accounting Principles Bulletin Opinion No. 16,
"Business Combinations". IMTECH and its three wholly-owned subsidiaries, Halcon
Acquisition Corp., Skillcraft and RDS (collectively known as the "Company")
operate as separate divisions and do business under the name of SkillTech Global
Graphics & Communications ("SkillTech"). Halcon is a holding company and has no
active operations. Hereafter, IMTECH, Skillcraft and RDS collectively may be
referred to as the "Company" or "SkillTech".
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
IMTECH, the South Printing Facility known as "SkillTech South" and at
Skillcraft, the North Printing Facility known as "SkillTech North", both of
which are located in downtown New York City. The facilities management services
include independent, on-site management of client systems for providing document
duplication, distribution and mailroom management.
The Company holds a 6% ownership interest in INSCI Corp. ("INSCI") at March 31,
1999. At March 31, 1998 and 1997, the Company held an 8% and 16% 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 promulgated by Statement of Financial Accounting Standards
("SFAS") No. 115.
PRINCIPLES OF CONSOLIDATION. The financial statements include the accounts of
IMTECH and its wholly -owned subsidiaries, Skillcraft, RDS and Halcon. All
significant inter-company transactions and balances have been eliminated.
F-8
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE A. THE COMPANY (CONTINUED)
BASIS OF PRESENTATION AND MANAGEMENT'S PLANS. 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 the last two
years 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 $6,053,000 as of March 31, 1999. Management has begun to evaluate
opportunities to obtain additional financing to provide sufficient working
capital and other resources to meet current obligations as they become due. In
addition, management has taken certain measures to leverage the strength of the
combined companies.
As a first step to implementing its business plan, IMTECH completed the
acquisitions of KRL Litho, Inc. (also known as "Skillcraft") and RDS, Research
Distribution Services, Inc. ("RDS"). The acquisitions have increased the revenue
base of the organization as a whole and have also expanded the Company's
production capabilities to provide economies of scale and efficiencies that now
allow SkillTech to maximize profits while offering its clients a variety of
solutions to their research report production requirements. However, because of
the deterioration of the acquired Skillcraft business (See Note P) the Company
has experienced a severe downturn in its business.
In January 1999, management undertook certain measures to begin leveraging the
strength of the combined companies and address at the same time, its declining
business at Skillcraft. Accordingly, management has consolidated and streamlined
the operations of the organization's daytime (first) shifts. Additionally, the
Company was able to obtain certain concessions from its unions to adjust other
production shifts to minimize the amount of overtime costs incurred without
affecting workloads during peak production periods. Management has also scaled
back and eliminated certain professional services, which were utilized during
the integration of the personnel of IMTECH, Skillcraft and RDS immediately
following the acquisitions. In addition, the Company undertook the termination
of employees who served similar roles in the respective companies to reflect the
severe downturn in work. The Company also eliminated or scaled back certain
other public relation, professional and technology related agreements. In
addition, the Company's Chairman and CEO, Matti Kon, and its President and CFO,
Joseph Gitto, reduced their compensation arrangements by 25% or $50,000 each per
annum. Members of the Company's senior management agreed to concessions of 10%
of their annual compensation. In addition, the Company has suspended interest
payments to certain investor groups. The Company's management believes that it
is improbable to maintain all of these concessions for an extended period. The
Company is exploring various financial alternatives, including a capital
infusion, and has retained a financial advisor to assist the Company in
evaluating financial strategies or alternatives. Management believes because of
the severe downturn in its business, directly attributable to the allegations
against Mr. Russell, that the Company will not be able to attain profitability
with two operating locations and believes that the improvement in its gross
profits achieved in fiscal 1999 will begin to deteriorate as the Company has to
support increasing idle capacity. If the Company is unable to secure the
financing required to consolidate its operations and curtail its losses and
protect its profit margins, the Company may be forced to find an acquirer for
the business or pursue other remedies.
During the year ended March 31, 1999, MTB Bank, the Company's main
lender, amended their credit arrangement with IMTECH to include the eligible
trade accounts receivable of Skillcraft and increased the borrowing base of the
credit line to $2,500,000, subject to a $750,000 reserve against eligible
receivables.
F-9
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
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:
REVENUE RECOGNITION. The Company recognizes revenue when services are performed
or at the time the products are delivered to its customers.
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.
CASH EQUIVALENTS. The Company considers all highly liquid temporary cash
investments with insignificant interest rate risk and an original maturity of
three months or less to be cash equivalents. Cash equivalents include funds
deposited in a money market account at a financial institution. For reporting
purposes, such cash equivalents are stated at cost plus accrued interest which
approximates fair value.
INVENTORY. Inventory consists primarily of paper, toner and inks, and is stated
at the lower of cost or market, cost being determined on a first-in, first-out
basis.
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 betterment's 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 is removed from the accounts and any resulting gain
or loss is recognized in the current period's operations.
LONG-LIVED ASSETS. The Company reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount (See Note R).
GOODWILL. In connection with the acquisitions of Skillcraft and RDS, IMTECH
recorded goodwill resulting from the excess of the purchase price over the fair
value of net assets acquired. Goodwill is amortized on a straight-line basis
over an estimated life of fifteen (15) years (See Note C and Note R).
DEFERRED FINANCING COSTS. Costs incurred to secure financing arrangements are
included in deposits and other assets in the consolidated balance sheets. The
costs, which amounted to approximately $164,000 and $194,000, net of accumulated
amortization of approximately $71,000 and $49,500 as of March 31, 1999 and 1998,
respectively, are amortized over the life of the related credit facilities,
which range from 11 to 110 months.
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 money market funds with financial
institutions. Accounts at the banks and financial institutions are insured by
the Federal Deposit Insurance
F-10
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
non-collectible 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments consist
of trade receivables and payables and debt instruments. The carrying amount of
cash and approximates their fair values trade receivables and payables. The
carrying amount of the debt is based on the current market interest rates being
paid, and as a result, it approximates fair value.
CONVERTIBLE DEBT. The beneficial conversion feature of the outstanding 12%
convertible secured promissory notes payable (See Note J) has been 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.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
COMPREHENSIVE INCOME. During the first quarter of fiscal year ended March 31,
1999, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income". SFAS No. 130 established new
standards for reporting comprehensive income and its components. Other
comprehensive income (loss) refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' equity. The Company's other comprehensive
income (loss) is comprised of unrealized gains (losses) arising from the
valuation of the investment in the stock on INSCI Corp. which is accounted for
as a security available for sale. The consolidated financial statements have
been reclassified for all periods presented for comparative purposes. (See Note
D).
[ THIS SECTION IS INTENTIONALLY LEFT BLANK ]
F-11
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE C. ACQUISITIONS
On July 24, 1998, IMTECH acquired all of the issued and outstanding common stock
of KRL Litho, Inc. d/b/a "The Skillcraft Group" ("Skillcraft"). Skillcraft, like
IMTECH, provides graphic communications services including financial research
report printing, commercial printing, and graphic arts design and fulfillment
services to financial and commercial organizations located primarily in the New
York Metropolitan area. Skillcraft's production equipment is complementary to
that of its parent, IMTECH. The aggregate purchase price of approximately
$8,772,000 consisted of cash of $4,772,000 at closing and $4,000,000 of a
non-interest bearing promissory notes issued to the principal owners of
Skillcraft. The notes are payable in forty (40) equal monthly installments of
$100,000 including interest at an imputed per annum rate of 10.5%, commencing on
October 1, 1999 (See Note F).
On November 13, 1998, IMTECH acquired all of the issued and outstanding common
stock of RDS, Research Distribution Services, Inc. ("RDS"). RDS provides
intelligent fulfillment and distribution services to the research report
production industry. The aggregate purchase price of $1,060,000 consisted of
cash of $60,000 of which $36,000 was paid at closing and $1,000,000 in the form
of a non-interest bearing promissory note issued to the principal owner of RDS.
The note is payable in forty (40) equal monthly installments of $25,000
including interest at an imputed per annum rate of 10.5%, commencing on December
1, 1998 (See Note F). The Company still owes the remaining $24,000 which was due
at closing.
The funds for the cash components of the aggregate purchase price for Skillcraft
were raised through a private placement completed by IMTECH whereby it issued
12% subordinated convertible debentures for the aggregate amount of $4,000,000
(See Note J), and executed a secured promissory note for proceeds of $1,300,000
borrowed from General Electric Capital Corporation ("GE"). (See Note F).
The business combinations were accounted for under the Purchase Method of
accounting as promulgated by Accounting Principles Bulletin Opinion No. 16,
"Business Combinations". Accordingly, the results of operations of Skillcraft
and RDS are included in the Company's consolidated financial statements from the
dates of acquisition. The amounts allocated to the assets acquired less the
liabilities assumed for both Skillcraft and RDS exceeded their aggregate
purchase price by approximately $6,675,000, which is classified as goodwill in
the balance sheet as of March 31, 1999 and amortized on a straight-line basis
over an estimated life of fifteen (15) years. As a result of the ongoing
operating difficulties at the acquired Skillcraft facility, the Company at March
31, 1999 wrote off the entire amount of unamortized goodwill ($5,661,610)
attributable to the Skillcraft acquisition.
The following represents the unaudited pro forma consolidated results of
operations for the years ended March 31, 1999 and 1998, as if IMTECH, Skillcraft
and RDS had been combined as of the beginning of the periods presented. The
unaudited pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the combined results of operations of future
periods or the results that actually would have occurred had IMTECH, Skillcraft
and RDS been a combined company during the periods specified.
F-12
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE C. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
------------------------------------------------------ -------------- --------------
YEAR ENDED MARCH 31, 1999 1998
-------------- --------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (Pro Forma Unaudited)
------------------------------------------------------ -------------- --------------
<S> <C> <C>
Revenues $ 22,662 $ 24,138
------------------------------------------------------ --------- ---------
Net loss (8,940) (2,296)
------------------------------------------------------ --------- ---------
Net loss applicable to common stockholders $ (9,178) $ (2,566)
------------------------------------------------------ ========= =========
Earnings (loss) per share:
Basic and Diluted $(.87) $(.46)
------------------------------------------------------ --------- ---------
</TABLE>
NOTE D. INVESTMENT IN INSCI CORP.
The Company at March 31, 1999 held a 6% 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. 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, 1998 and 1997, the
Company had an 8% and a 16% ownership interest in INSCI, respectively. At March
31, 1999 and 1998, the carrying value and estimated fair market value of the
Company's investment in INSCI are as follows:
--------------------------------------------- ------------- -------------
MARCH 31, 1999 1998
--------------------------------------------- ------------- -------------
Number of shares held 436,032 436,032
Cost basis of shares held $ 5,201 $ 5,201
Market value of shares at March 31, $1,117,332 $436,032
Unrealized gain $1,112,131 $430,831
--------------------------------------------- ------------- -------------
At March 31, 1999 and 1998, all of the shares of INSCI Corp. stock referred to
above are pledged as collateral securing the outstanding 12% convertible secured
promissory notes (339,497 shares)and the Company's outstanding obligations under
its credit arrangement with MTB Bank (66,535 shares) and other pledge
obligations (30,000 shares) (See Note E), respectively. (Also see Note
T-Subsequent Events).
F-13
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE E. LOAN PAYABLE - BANK
The Company maintains a secured credit arrangement with MTB Bank (the "Bank")
which expires in October 1999. Under the provisions of the credit arrangement,
the Company can borrow up to 80% of the eligible accounts receivable of IMTECH
and Skillcraft and 35% of the eligible paper inventory of IMTECH (up to a
maximum of $50,000), both of which in the aggregate cannot exceed a total of
$2,500,000 (including $250,000 in outstanding letters of credit) at any one
time. The Bank, as part of the increase in the credit agreement has made
available under the borrowing formula, 80% of eligible accounts receivable less
a reserve of $750,000. All outstanding obligations under the arrangement bear
interest at the bank's prime rate (7.75% at March 31, 1999) plus two percent
(2%). At March 31, 1999, the Company was indebted to the Bank for outstanding
obligations totaling approximately $1,846,000. 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
and Skillcraft as collateral for all indebtedness outstanding under the
arrangement. IMTECH, Skillcraft and RDS have executed cross-corporate
guarantees.
IMTECH has issued an aggregate of 50,000 warrants to the Bank which entitles
them to purchase 50,000 shares of IMTECH Class A Common stock at prices ranging
from $1.00 to $1.81 per share, exercisable until November 2000.
The credit arrangement contains a minimum tangible net worth ("net worth")
covenant of $2,000,000 as of March 31, 1999, which has been waived.
NOTE F. LONG-TERM DEBT
At March 31, 1999 and 1998, long-term debt obligations consisted of the
following:
------------------------------------- ---------------- -----------------
MARCH 31, 1999 1998
------------------------------------- ---------------- -----------------
Trade payable conversion notes [1] $ 949,804 $288,532
Equipment notes payable [2] 1,583,140 -
Sellers' notes payable [3] 4,192,718 -
----------- ---------
6,725,662 288,532
Less: Current maturities 4,260,405 266,925
----------- ---------
Total long-term debt $2,465,257 $ 21,607
=========== =========
- --------------------------------------------------------------------------------
[1] The Company has negotiated with three of its key vendors to convert
$1,440,461 of trade payables into installment promissory notes maturing on
various dates through July 2000. The notes are unsecured and payable in
weekly and monthly installments of $13,884 and $31,530, respectively,
including interest at per annum rates ranging from 8.5% to 16.0%. Interest
charged to operations for the year ended March 31, 1999 amounted to
approximately $39,500.
[2] As part of the capital raised to consummate the acquisition of Skillcraft,
IMTECH borrowed the sum of $1,300,000 from General Electric Capital Corp.
("GE"), which is evidenced by a promissory note maturing in July 2003. The
note is payable in equal monthly installments of $28,020 including interest
at a per annum rate of 10.9%. The note is collateralized by a first lien
and security interest in certain production equipment of both IMTECH and
Skillcraft, and a cross-corporate guaranty by both companies. Interest from
the GE note charged to operations for the year ended March 31, 1999
amounted to approximately $84,300.
F-14
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE F. LONG-TERM DEBT (CONTINUED)
[2] (Continued)
Skillcraft financed $712,435 of production equipment purchases by issuing
three promissory notes maturing on various dates through August 2002. The
notes ,which are secured by the related equipment, are payable monthly in
equal aggregate installments of $15,957 including interest at per annum
rates ranging from 8.76% to 10.74%. Interest charged to operations for the
year ended March 31, 1999 amounted to approximately $33,700.
[3] On July 24, 1998, IMTECH acquired all of the issued and outstanding common
stock of KRL Litho, Inc. d/b/a "The Skillcraft Group" ("Skillcraft"). The
aggregate purchase price of approximately $8,772,000 consisted of cash of
$4,772,000 at closing and $4,000,000 of a non-interest bearing unsecured
promissory notes issued to the principal owners of Skillcraft; Mr. Harold
Russell ("Mr. Russell") and Mr. Jeffrey Craugh ("Mr. Craugh"). The notes
are payable as follows: $3,633,320 payable to Mr. Russell in forty (40)
equal monthly installments of $90,833 including interest at an imputed per
annum rate of 10.5%, commencing on November 1, 1998; and $366,680 payable
to Mr. Craugh in forty (40) equal monthly installments of $9,167 including
interest at an imputed per annum rate of 10.5%, also commencing on November
1, 1998. Interest charged to operations from the Skillcraft sellers' notes
for the year ended March 31, 1999 amounted to approximately $12,600.
On November 12, 1998, the Company filed an action in the New York State
Supreme Court against Mr. Russell. The action is for damages suffered by
the Company as a result of fraud and intentional misrepresentation with
respect to the Stock Purchase Agreement related to the acquisition of
Skillcraft by IMTECH. The Company has claimed compensatory and punitive
damages. An additional claim for recission and damages has also been
asserted against Mr. Russell. Mr. Russell subsequently filed an action in
the New York State Supreme Court against the Company, claiming the
aggregate sum of approximately $3,750,000, in addition to interest and
attorney's fees, alleging that the Company has made no payments pursuant to
the installment promissory note issued to Mr. Russell as a result of the
purchase of Skillcraft by IMTECH. The Company is contesting the action
filed by Mr. Russell and has denied that he is entitled to the sum claimed
by him based upon the claim of fraud and misrepresentation with respect to
the purchase of his stock ownership in Skillcraft. As a result of the
litigation surrounding the Skillcraft acquisition as it involves Mr.
Russell only, the Company has not made any installment payments due on Mr.
Russell's promissory note. In addition, the Company does not intend to
remit any installment payments until a settlement or decision is reached
regarding the litigation. The full amount of the principal due on Mr.
Russell's note has been classified as a current liability in the balance
sheet as of March 31, 1999. Since the Company has suspended payment
and have been declared in default by Mr. Russell (See Note P).
On November 13, 1998, IMTECH acquired all of the issued and outstanding
common stock of RDS, Research Distribution Services, Inc. ("RDS"). The
aggregate purchase price of $1,060,000 consisted of cash of $60,000 at
closing (of which $36,000 was remitted and $24,000 is still outstanding)
and $1,000,000 in the form of a non-interest bearing unsecured promissory
note issued to the principal owner of RDS, Mr. Matti Kon (the Chief
Executive Officer of the Company). The note is payable in forty (40) equal
monthly installments of $25,000 including interest at an imputed per annum
rate of 10.5%, commencing on December 1, 1998. Mr. Kon has waived his right
to receive the installment payments due on his note and allowed the Company
to reallocate the funds toward the immediate working capital needs of the
Company until September 30, 1999.
F-15
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE F. LONG-TERM DEBT (CONTINUED)
As of March 31, 1999, maturities of long-term debt are as follows:
------------------------------ --------------
YEAR ENDING MARCH 31,
------------------------------ --------------
2000 $4,260,405
2001 1,041,310
2002 715,443
2003 598,688
2004 109,816
------------------------------ --------------
$6,725,662
============================== ==============
NOTE G. CAPITAL LEASE OBLIGATIONS
The Company is the lessee of various production equipment under non-cancelable
capital leases expiring in various years through 2003. 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).
At March 31, 1999 and 1998, the book value of the equipment under capital leases
was approximately $976,000 and $1,309,000, respectively. Minimum future lease
payments under capital leases as of March 31, 1999 and for each of the next four
years in the aggregate are as follows:
--------------------------------------------------- -----------------
YEAR ENDING MARCH 31,
--------------------------------------------------- -----------------
2000 $378,433
2001 243,274
2002 96,676
2003 22,502
--------------------------------------------------- -----------------
Total minimum lease payments 740,885
Less: Amount representing interest 111,064
Less: Current portion 310,184
--------------------------------------------------- -----------------
Present value of long-term capital $319,637
lease obligations
--------------------------------------------------- -----------------
At March 31, 1999 and 1998, the Company had $454,182 and $504,270 respectively
in 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 Company in accordance with the following
schedule may draw the funds':
F-16
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE G. CAPITAL LEASE OBLIGATIONS (CONTINUED)
----------------------------------- ----------------------------------
MATURITY DATE AVAILABLE FOR
RELEASE
----------------------------------- ----------------------------------
MARCH 1999 MARCH 1998
September 30, 1999 $225,511 $126,068
September 30, 2000 228,671 378,202
----------------------------------- ---------------- -----------------
Total cash - restricted 454,182 504,270
Less: Current portion 225,511 126,068
----------------------------------- ---------------- -----------------
Cash - restricted - long-term $228,671 $378,202
=================================== ================ ================
NOTE H. RELATED PARTY TRANSACTIONS
AFFILIATES. IMTECH is party to a consulting agreement with Blitz Systems, Inc.
("Blitz"), a company owned 100% by the Chief Executive Officer of the Company,
which expires in October 1999. Blitz is a computer systems consulting firm
specializing in developing total business solutions for business management
systems. Blitz's responsibilities under the contract are to reengineer,
reorganize and run the day-to-day operations of Skilltech's data processing
department and provide custom programming (WOTS etc.) and support for these
programs at a cost of $59,000 per month. More specifically, Blitz provides
extensive technical support for many of the organization's clients on-site and
is responsible for analyzing, designing and developing customized database
systems as required by management. Fees paid to Blitz under the contract, which
include costs for systems hardware and software, for the years ended March 31,
1999, 1998 and 1997 amounted to approximately $850,000, $602,000 and $489,000,
respectively.
In December 1996, IMTECH provided Blitz with a loan in the amount of $250,000.
The loan was evidenced by an unsecured promissory note payable in forty-eight
(48) equal monthly installments of $6,162 including interest at 8.5%, through
March 2001.
During the fiscal years ended March 31, 1999 and 1998, the Company performed
printing services for Blitz which amounted to revenues of approximately $25,000
and $101,000, respectively.
Prior to the acquisition of RDS by IMTECH, the two companies were party to a
service agreement whereby RDS provided mailing list database management,
fulfillment, mailing and related services to IMTECH under a contract which cost
IMTECH a monthly minimum of $22,500. Total fees under the agreement charged to
operations for the years ended March 31, 1999 and 1998 and 1997 amounted to
$157,500, $270,288 and $67,500, respectively.
In conjunction with the closing of the RDS acquisition in November 1998 and in
accordance with the terms of the related RDS Stock Purchase Agreement, the
outstanding balances of the Blitz note receivable, the unpaid accounts
receivable from the printing services provided to Blitz and the unpaid fees
owing to RDS by IMTECH, pre-acquisition, were netted and eliminated as agreed
upon by IMTECH and Mr. Matti Kon, the former principal owner of RDS. Any
subsequent inter-company transactions between IMTECH and its wholly -owned
subsidiary, RDS, have been eliminated in consolidation.
F-17
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE H. 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 including 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, which
at March 31, 1999 amounts to approximately $133,000, is evidenced by a
promissory note that bears interest at 8.25% per annum and is collateralized by
a subordinate lien on the assets of IMTECH. In addition, during the year ended
March 31, 1998, 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 I. OPERATING LEASES
The Company leases its executive and South Printing Facility space
(approximately 32,000 square feet) in a building located at 130 Cedar Street in
New York City, under a non-cancelable lease expiring in July 2003. In addition,
the Company leases space for its North Printing Facility (approximately 24,000
square feet) in a building located at 480 Canal Street, also in New York City,
under a non-cancelable lease expiring in August 2002. The rental payments under
both leases are subject to annual cost of living and maintenance increases. Rent
expense charged to operations for the years ended March 31, 1999, 1998 and 1997
amounted to approximately $622,000, $500,000 and $494,000, respectively.
Generally accepted accounting principles require that rental payments under a
non-cancelable 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, 1999, 1998 and 1997 to
reflect the difference between the actual rent paid versus the rent expense
adjusted for the straight-lined rent. Consequently, deferred rent of
approximately $333,000 and $365,000 is reflected in the accompanying
consolidated balance sheets as of March 31, 1999 and 1998, respectively.
Minimum future rental payments under the non-cancelable operating lease as of
March 31, 1999 are as follows:
-------------------------- -----------------
FOR THE YEAR ENDING
MARCH 31,
-------------------------- -----------------
2000 $ 760,600
2001 777,200
2002 794,500
2003 676,700
2004 195,300
-------------------------- -----------------
$3,204,300
-------------------------- -----------------
F-18
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE J. CONVERTIBLE OBLIGATIONS
12% MANDATORY CONVERTIBLE SECURED PROMISSORY NOTES. In connection with a
February 1997 private placement, IMTECH 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 management, can either be paid in cash or in the Company's Class A
common stock. The notes were secured initially 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 E). In addition, in November 1997,
the Company received the return of 33,968 shares of INSCI Corp. stock which were
sold pursuant to Rule 144, and the proceeds were used to purchase equipment. In
addition, the Company pledged 30,000 shares to a financial advisor to the
Company. At March 31, 1999 and 1998, 369,497 shares of INSCI Corp. stock
remained as collateral which is 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 date of issue. The
notes will be automatically converted at the end of the three-year period. In
addition, each $1.00 principal amount of the notes entitles the holders to one
warrant to purchase one share of the Company'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 years ended
March 31, 1999, 1998 and 1997 amounted to $96,000, $94,800 and $9,000,
respectively. [See Note T-Subsequent Events]
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.
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 was 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. [See Note
T-Subsequent Events]
12% SUBORDINATED MANDATORY CONVERTIBLE DEBENTURES. To finance part of the
acquisition funding for the purchase of Skillcraft (See Note C), on July 24,
1998, IMTECH issued 12% subordinated convertible debentures (the "Debentures")
in the aggregate amount of $4,000,000. The Debentures are convertible into
shares of IMTECH Class A Common Stock and bear interest at a rate of 12% per
annum in addition to providing debenture holders 10% of consolidated profits for
a period of five (5) years commencing from the date of closing of the
acquisition. The debentures have an automatic mandatory conversion at the
expiration of the five-year term.
F-19
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE J. CONVERTIBLE OBLIGATIONS (CONTINUED)
The debenture holders can elect to convert the Debentures into shares of Class A
Common stock at any time during the five (5) year term subject to certain
conversion provisions, which could allow them to convert their holdings into a
range of 20% to 70% of the then outstanding common stock during the first twelve
months of the placement. Upon conversion, or redemption on the due date of the
Debentures, the debenture holders will be entitled to receive 10% of the
Company's then outstanding Class A Common Stock with anti-dilution protection.
The Debentures are collateralized by a subordinated lien on the assets of
Skillcraft and RDS. Interest expense charged to operations for the year ended
March 31, 1999 amounted to $328,000. [See Note T-Subsequent Events]
NOTE K. 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 in kind of
dividends 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 had a right to convert 100% of their Preferred Stock
which was not yet converted into shares of Class A common stock. As of March 31,
1999, the shares of Class A common stock underlying the Preferred Stock were not
registered in accordance with the terms of the exchange offering.
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 to be issued upon exercise or conversion of certain options,
warrants, convertible debt and the conversion of the Preferred Stock. Amendments
to the Form S-3 Registration were filed subsequently on both January 14, 1998
and May 14, 1998; however, the registration was not declared effective. The
Company withdrew the Registration Statement under the belief that the underlying
securities covered by the Registration are believed to be exempt under Rule 144
and/or 144(k) of the Securities Act of 1933.
As a result of a change in the Rule 144 and 144(k) exemption regulations, the
preferred stockholders could 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. On October 15, 1998, fourteen preferred
stockholders who qualified for the exemption under Rule 144(k) elected to
convert their shares of preferred stock. As a result, the Company converted
2,330,050 shares of the Preferred Stock into 9,372,653 shares of IMTECH Class A
common stock (See Note M) at a 30% discount to the 20-day average trading market
price of the Class A stock up to the date of conversion.
F-20
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE K. 12% CONVERTIBLE PREFERRED STOCK (CONTINUED)
Six holders of the preferred stock have agreed not to convert their preferred
shares at this time in accordance with a StandStill Agreement (the "Stand
Still"). For agreeing to the StandStill, the preferred holders will accrue
dividends at a rate of 12% for an additional eighteen (18) months through March
15, 2000. The dividends will be paid quarterly in shares of the Company's Class
A Common stock. In addition, these preferred holders received from the Company
the number of Class A common stock options (the "options") equal to one half
(1/2) of the amount of preferred shares owned. The options have an exercise
price of $2.00 and are exercisable for a period of five (5) years. The remaining
holders who did not elect to execute the standstill agreement will be issued
shares under the terms of the conversion procedures of the preferred agreement.
As a result, for the year ended March 31, 1999, the Company recorded a dividend
of approximately $86,000 representing the value of the options granted to the
Standstill Holders on October 15, 1998 (See Note N).
NOTE L. INCOME TAXES
IMTECH and its wholly- owned subsidiaries, Skillcraft and RDS, report income
taxes on a consolidated basis for federal income tax purposes, and file separate
returns for state and local income tax purposes.
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,
1999, the Company has net operating loss carryforward ("N.O.L.'s") totaling
$20,838,000 available to offset future federal and state taxable income through
2014 as follows:
----------------- --------------- ------------------
MARCH 31, N.O.L.'S EXPIRING
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 2,248,000 2013
1999 5,062,000 2014
-----------
$20,838,000
===========
The Tax Reform Act of 1986 enacted a complex set of regulations limiting the
utilization of net operating loss carryforward to offset future taxable income
following a corporate "ownership change." The Company's ability to utilize its
net operating loss carryforward 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.
F-21
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE L. INCOME TAXES (CONTINUED)
In 1997, the Company utilized approximately $446,000 of N.O.L.'s to reduce
taxable income to zero. Accordingly, the Company did not record 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 can not be determined.
NOTE M. CLASS A COMMON STOCK
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.
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 N. 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 on whom the Company relies 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, 1999, options to acquire a total of 2,691,271 shares of Class A Common
Stock were outstanding or approved for grant under the NQSO Plan, at exercise
prices ranging from $.74 to $2.50 per share.
Six holders of the Company's 12% convertible preferred stock agreed not to
convert their preferred shares in accordance with a StandStill Agreement (the
"StandStill") (See Note K). For agreeing to the StandStill, the preferred
holders, in addition to receiving interest at a rate of 12% for an additional
eighteen (18) months, were granted by the Company the number of non-qualified
stock options equal to one half (1/2) of the amount of their preferred holdings
on October 15, 1998, which amounted to 231,838 options. The options have an
exercise price of $2.00 and are exercisable for a period of five (5) years. As a
result, for the year ended March 31, 1999, the Company recorded a dividend of
approximately $86,000 representing the value of the options granted to the
Standstill Holders on October 15, 1998.
F-22
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE N. STOCK OPTIONS (CONTINUED)
INCENTIVE STOCK OPTION PLAN. In August 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, 1999, options to purchase 2,810,625 shares of
IMTECH's Class A common stock were outstanding and approved for grant under the
ISO Plan at exercise prices ranging from $.83 to $6.75 per share.
DIRECTORS OPTION PLAN. In October 1988, the Board of Directors adopted the
Directors Option ("DO") plan, which was authorized by the stockholders on
December 19, 1988, and was subsequently amended in October 1992. The purpose of
the DO plan is to help IMTECH retain the services of qualified non-officer or
non-employee directors, who are considered essential to the business progress of
the Company. Under the DO plan, options are granted only on the date of the
annual stockholders' meeting held once every calendar year. A total of 1,500,000
shares of the Company's Class A common stock has been reserved for grant under
the DO plan. There are no options outstanding under the DO plan.
[THIS SECTION IS INTENTIONALLY LEFT BLANK]
F-23
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE N. STOCK OPTIONS (CONTINUED)
The following summarizes the activity of the stock options for the three years
ended March 31, 1999 (in ,000):
<TABLE>
<CAPTION>
- ------------------------------------ ------------------------ ----------------------- ------------------------
NQSO ISO DO
------------------------ ----------------------- ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Options Price Per Options Price Per Options Price Per
Share Share Share
(,000) ($) (,000) ($) (,000) ($)
- ------------------------------------ ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at April 1, 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 -
-
Granted 367 1.85 480 .95 -
-
Canceled (8) 9.88 (3) 5.20 -
-
----------- ------------ ----------- ----------- ------------ -----------
OUTSTANDING AT MARCH 31, 1999 2,691 1.59 2,811 1.51 - -
----------- ------------ ----------- ----------- ------------ -----------
EXERCISABLE AT MARCH 31, 1999 2,503 1.62 2,697 1.36 - -
----------- ------------ ----------- ----------- ------------ -----------
Weighted average fair value of
options granted during the .59 .73
year
------------------------ -----------------------
Weighted average remaining
life of options granted 2 years 5 years
during the year
==================================== =========== ============ =========== ===========
</TABLE>
STOCK-BASED COMPENSATION. The Company has adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". The pronouncement requires entities to recognize as
compensation expense over the vesting period the fair value of stock-based
awards on the date of grant. Alternatively SFAS, No. 123 allows entities to
continue to apply the provisions of APB No. 25 and provide pro forma net income
and pro forma income (loss) per share disclosures for employee stock option
grants made from 1995 forward as if the fair-valued-based method defined in SFAS
No. 123 had been applied. The Company has elected to adopt the disclosure-only
provisions of SFAS No. 123, and as described above, continues to apply APB No.
25 to account for stock options. Accordingly, compensation expense is recognized
for stock options granted to employees 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 years ended March 31, 1999 and
1998, the Company granted a total of 367,000 and 1,255,000 of stock options,
respectively, under the NQSO Plan to non-employees. As a result, non-employee
compensation expense of approximately $83,000 and $62,000 was charged to
operations during the years ended March 31, 1999 and 1998, respectively. In
addition, during the year ended March 31, 1999, the Company granted a total of
480,000 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.
F-24
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE N. STOCK OPTIONS (CONTINUED)
STOCK-BASED COMPENSATION. (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options.
Had compensation expense been determined as provided in SFAS No. 123 for stock
options using the Black-Scholes option pricing model, the pro forma effect would
have been:
<TABLE>
<CAPTION>
-------------------------------------------------------------- --------------- --------------- --------------
FOR THE YEARS ENDED MARCH 31, 1999 1998 1997
-------------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Net income (loss) applicable to common shares - as reported $(9,003,857) $(2,583,028) $188,617
Net (loss) applicable to common shares - pro forma $(9,013,457) (2,740,613) (560,483)
Net income (loss) per common share - as reported (.86) (.46) .04
Net (loss) per common share - pro forma (.86) (.49) (.11)
-------------------------------------------------------------- --------------- --------------- --------------
The fair value of each option grant is calculated using the following weighted
average assumptions:
-------------------------------------------------------------- --------------- --------------- -------------
FOR THE YEARS ENDED MARCH 31, 1999 1998 1997
Expected life (in years) 3.74 5 5
Interest rate 5.26% 5.83% 6.01%
Volatility 127.62% 36.13% 287%
Dividend yield - - -
-------------------------------------------------------------- --------------- --------------- --------------
</TABLE>
NOTE O. MAJOR CUSTOMERS
During the years ended March 31, 1999, 1998 and 1997, the Company's largest
customers (1, 2, and 2 respectively), accounted for approximately 25%, 40% and
38% of total revenues. At March 31, 1999, 1998 and 1997, those same customers
had accounts receivable balances in the aggregate of approximately $380,000,
$441,000 and $156,000, respectively.
NOTE P. 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.
F-25
<PAGE>
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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE P. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 to be issued 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 subsequently amended with Mr. Kon which provides
for a base annual salary of $250,000 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 expired 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 and extend his
options 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 vested after the completion of Mr. Kon's second year of service and are
exercisable until December 31, 1999.
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. As noted
previously, Messrs. Kon and Gitto have agreed to reductions in their
compensation of $50,000 respectively effective March 1999.
In November 1995, IMTECH 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 its
free trading Class A Common Stock plus 500,000 options to purchase 500,000
shares of its Class A Common Stock at exercise prices ranging from $1.75 to
$3.06 per share for a period of five years. IMTECH elected to pay CRG by issuing
171,000 shares of Class A Common Stock. Initially, IMTECH delivered to CRG
92,250 shares of the freely traded Class A Common Stock, which it borrowed from
a number of shareholders. IMTECH 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. IMTECH has disputed the
claim based upon the position that CRG did not perform under the provisions of
the service contract.
While the Company has not commenced legal action to recover the shares of stock
and/or monetary and/or punitive damages from CRG, the Company is considering the
cost of commencing an action as related to the chances of a monetary recovery
from CRG.
In August 1998, IMTECH entered into a one-year service agreement with a company
known as Barry Kaplan Associates ("BKA"). According to the terms of the
agreement, BKA is to provide IMTECH with financial public relations services
related to promoting the Company and its stock. As consideration for their
services under the agreement, BKA will receive a monthly fee of $5,000, plus
pre-approved out-of-pocket expenses. In addition, BKA was granted 110,000
options to purchase 110,000 shares of the Company's Class A Common stock at an
F-26
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE P. COMMITMENTS AND CONTINGENCIES (CONTINUED)
exercise price of $1.25 per share for a period of two years commencing September
1, 1998. During the fiscal year ended March 31, 1999, the Company incurred a
non-cash charge to operations of approximately $73,000 representing non-employee
compensation resulting from the grant of options to BKA. As part of the
Company's cost reduction plan, BKA has agreed to a 120-day reduction on its
contract to $3,000 per month.
The Company agreed under various agreements with convertible security holders
to file a registration statement on Form S-3 for their underlying shares of
Class A Common Stock. Since the Company withdrew its registration statement (and
amendments thereto) (See Note K), it is possible the holders of these securities
may assert a claim against the Company based on the Company's failure to comply
with the registration requirements.
The Company is currently negotiating with its landlord to reduce its rent
covering South Printing 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, or resolve the claim of additional rent by the
landlord.
The Company was advised by the NASDAQ Stock Market, Inc. ("NASDAQSM") that it no
longer meets the current NASDAQSM listing requirements for continued listing on
the NASDAQSM SmallCap Stock Market. Continued inclusion on the NASDAQSM SmallCap
Stock Market generally requires that (i) the Company maintains at least
$2,000,000 in tangible net assets; or (ii) $35,000,000 in market capitalization;
or (iii) net income of at least $500,000 in two of the three prior years.
Additionally, the Company is required to maintain at least 500,000 shares in the
public float valued at $1,000,000 or more, a minimum common stock bid price of
$1.00, at least two active market makers, and at least 300 shareholders of its
stock. On the close of business, January 14, 1999, the Company received
notification from NASDAQSM that it was not in compliance with the tangible net
assets and dollar price listing rules and therefore decided to relocate the
Company's securities from its SmallCap stock market to the over-the-counter
market on the NASD's "Electronic Bulletin Board". As a result, the liquidity of
the Company's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, reduction in security analysis and the news media's coverage of
the Company and lower prices for the Company's securities than might otherwise
be attained.
Harold Russell ("Russell") has filed an action in the New York State Supreme
Court against the Company, claiming the aggregate sum of $3,750,000, in addition
to interest and attorney's fees, alleging that the Company has made no payments
pursuant to the installment promissory note issued to Russell as a result of the
purchase of Skillcraft by IMTECH. The Company is contesting the action filed by
Russell as the promissory note issued by the Company to Russell is being held in
escrow and subject to escrow agreement. Additionally, the Company has denied
that he is entitled to the sum claimed by him based upon the claim of fraud and
misrepresentation with respect to the purchase of his stock ownership in
Skillcraft. Motions before the court by both the Company and Mr. Russell are
currently pending. Additionally, Russell has served a notice of intent to
arbitrate, before the American Arbitration Association, asserting a claim that
the Company and Halcon Acquisition Corp. ("Halcon"), a wholly owned subsidiary
of the Company, violated his employment agreement by terminating his employment.
The Company's subsidiary, Halcon, terminated his employment agreement based upon
allegations of fraud in the inducement by Russell in entering into the
employment agreement which was related to the acquisition of the Skillcraft
shares of stock from Mr. Russell. The Company has filed a motion to stay the
arbitration based upon technical and other grounds and is awaiting the Court's
decision.
The Company filed an action in the New York State Supreme Court (New York
County) against Russell. The action is for damages sustained by the Company as a
result of alleged fraud and intentional misrepresentation with respect to the
purchase of stock from Mr. Russell on July 24, 1998, wherein the Company
purchased all of
F-27
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE P. COMMITMENTS AND CONTINGENCIES (CONTINUED)
the issued and outstanding common stock of Skillcraft. The Company has claimed
compensatory and punitive damages in the sum of $12,500,000 and $10,000,000,
respectively. An additional claim for recission and damages has also been
asserted against Russell. Russell is contesting the Company claims and denies
the allegations asserted by the Company. Russell has made a motion to dismiss
the Company's complaint and the Company is awaiting the Court's Decision.
In May of 1999, a Company known as Amplicon, Inc. ("Amplicon") commenced an
action against the Company in the United States District Court for the Southern
District of New York alleging violation of an equipment lease by and between
Amplicon and the Company. The Company leased a Heidelberg Four Color Quick
Master Printing Press and related equipment by executing a lease/purchase
agreement with Amplicon. The Amplicon claim is that the Company is obligated to
pay the sum of $345,405, the balance of the payments due under the lease and, in
addition, is required to agree with Amplicon on the termination of the lease as
to the purchase price for the equipment. The Company secured all payments under
the lease by posting a standby letter of credit in favor of Amplicon
guaranteeing that all payments under the lease were to be made.
Additionally, Amplicon commenced an action to obtain an order of seizure of the
equipment claiming that Amplicon is entitled to possession of the leased
equipment, and that in the event of default in payments, Amplicon can proceed to
recover possession of the equipment. The Company is contesting the matter as the
Company has asserted its answer to the complaint in that the lease is subject to
an arbitration provision and, in addition, that representatives of Amplicon
misrepresented to the Company and committed acts of fraud by their
misrepresentation in having the Company execute a lease agreement which was
inconsistent with the written lease proposal provided by Amplicon to the Company
prior to the execution of the lease purchase agreement. The action is currently
pending before the Court.
The Company completed a private placement offering under Regulation D on July
24, 1998 for the sum of $4,000,000. The offering involved the issuance of a 12%
convertible debenture which provided for the right of the holder of the
debenture, in addition to receiving interest payments, to also receive 10% of
the profits of the Skillcraft division of the Company. The terms of the
convertible debenture is for a period of five years with the right of the holder
to convert the debenture into shares of Class A common stock of the Company, at
any time during the term of the debenture. The right of conversion granted to
the holder the right to convert the note into either 40% of the issued and
outstanding Class A common stock for the conversion within the first year or up
to 70% of the issued and outstanding Class A common stock thereafter. In April,
1999, the holders of the promissory note declared the Company in default of
nonpayment of monetary interest during the first year of the note, and it is the
Company's position that based upon the terms and conditions of the promissory
note, that the principal ($4,000,000) of the note as per the terms of the note
is payable in shares of Class A common stock of the Company. As of the current
date, the holders of the notes have not taken any action with respect to their
notice of default.
The Company issued a promissory note to Harry Markovits, a former director of
the Company. The balance due on the promissory note is approximately $133,000.
Mr. Markovits passed away in April of 1998 and the note was transferred to his
estate. The estate has asserted a claim for the sum of $133,000 plus interest
due and that the Company has defaulted in payment of the note. Additionally, the
agreement with Mr. Markovits required that the Company deliver to him 50,000
shares of the common stock of INSCI Corp., which is held in escrow. Mr.
Markovits was further granted a subordinate UCC lien on the assets of the
Company to secure the repayment of the promissory note. The lien granted to Mr.
Markovits is a lien subordinated to the Company's principal lender, MTB Bank.
F-28
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE Q. 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 anti-dilutive
for all periods presented and therefore not included in the calculation of the
weighted-average number of Class A Common shares outstanding.
NOTE R. GOODWILL IMPAIRMENT
During the year ended March 31, 1999, the Company recorded a $5,661,610 charge
related to the impairment of its long-lived assets. The charge, in whole, was
attributable to the impairment of the goodwill associated with the acquisition
of Skillcraft (See Notes A,C,F and P). Immediately following the acquisition,
Skillcraft suffered a decrease in revenues of approximately 30% as a result of
unrecoverable lost business from the attrition of certain key customers.
Management believes that the lost volume has caused Skillcraft's expected future
cash flows to be less than its carrying amount.
NOTE S. 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 re-deploy 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 re-deploy the production equipment, summarized as
follows:
--------------------------------- -- ----------
Severance payments $ 259,000
Payroll taxes and benefits 77,000
Consulting fees 131,000
Asset redeployment costs 83,000
-- ----------
$ 550,000
================================= == =========
F-29
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
Information Management Technologies Corporation and Subsidiaries
March 31, 1999, 1998 & 1997
- --------------------------------------------------------------------------------
NOTE T. SUBSEQUENT EVENTS
[1] 12% CONVERTIBLE NOTES
In April 1999 the Company was notified by one of its 12% convertible note
holders that based on NASDAQ's notification on January 14, 1999 regarding
the Company's failure to maintain minimum listing requirements and the
Company's subsequent inability to satisfy those requirements within 60 days
of such notice, that the Company was in default of the provisions contained
within its 12% note agreements.
In the event of default, note holders maintained the right to possess the
collateral (339,497) shares of INSCI stock to satisfy the outstanding
obligation. The Company has negotiated with the note holders in total,
whereby the Company was afforded the opportunity to liquidate the
collateral in an orderly fashion to protect its remaining investments in
INSCI while satisfying its obligation to note holders. Under the terms of
the settlement, one holder agreed to accept 164,666 shares of INSCI stock
and 1,218,000 shares of IMTECH stock in satisfaction of his $600,000
principal and $124,000 in accrued interest respectively. The remaining two
note holders agreed to receive the return in the aggregate of $200,000
principal in cash and accrued interest of 13,309 shares of INSCI common
stock.
[2] 12% MANDATORY CONVERTIBLE DEBENTURES
In April 1999, the Company received notification from its 12% mandatory
convertible debenture ("debenture") holders that the Company was in default
of its interest payments to the debenture holders. Under the terms of the
debenture agreement, under a notice of default, repayment of principal, can
only be paid in shares of Class A Common Stock. The Company has a period of
50 days to cure the default or tender the equivalent shares as repayment in
principal. Should the Company not cure the default, under the conversion
provisions of the debenture agreement, debenture holders would receive
shares equal to 40% of the outstanding float.
[3] SACHS LITIGATION
Robert Sachs represents a group of investors who invested in IMTECH
in 1995 and received the right to convert their 12% convertible
preferred stock into shares of Class A common stock of the Company at a
discount to the market. Mr. Sachs instituted an action in the United States
District Court for the Southern District of New York, and the matter was
settled based upon Mr. Sach's group receiving an aggregate of 4,569,173
shares of Class A common stock, or approximately 36% of the issued and
outstanding shares of Common Stock of the Company.
F-30
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
YEARS ENDED MARCH 31, 1999 1998 1997
- --------------------------------------------------------------------------------------
A) ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C>
B) Balance at the beginning of year $ 99,000 $ 36,800 $ 104,500
C) Additions:
Charged to costs and expenses 346,355 82,373 34,660
D) Deductions:
Amounts written off during the year 220,355 20,173 102,360
------------------------------------
E) Balance at the end of the year $ 225,000 $ 99,000 $ 36,800
====================================
A) ACCUMULATED AMORTIZATION OF COST IN EXCESS
OF NET ASSETS ACQUIRED:
B) Balance at the beginning of year $ -- $ -- $ 255,059
C) Additions:
Acquisitions of businesses 6,675,175 -- --
D) Deductions:
Amortization and impairment charges 5,945,781 -- 255,059
====================================
E) Balance at the end of the year $ 729,394 $ -- $ --
====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-31
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
The following exhibits are filed as part of, or incorporated by
reference into, this report on Form 10-K, as indicated below (footnote
explanations are at end of index):
3.1 Certificate of Incorporation of the Company, as filed on December 24,
1986, amended October 16, 1987, amended July 20, 1989 and as amended
December 14, 1989.11/
3.2 Certificate of Incorporation of the Company as amended June 13, 1995 and
amended June 28, 1995.20/ ---
3.3 Certificate of Incorporation of the Company as amended November 30,
1995.46/
3.4 Bylaws of the Company.1/
4.1 Unit Purchase Option for 46,300 units, dated April 6, 1988, issued to D.H.
Blair & Co., Inc.8/ --
4.2 Unit Purchase Option for 32,000 units, dated April 5, 1988, issued to
Parliament Hill Capital Corp.8/ --
4.3 Unit Purchase Option for 500 units, dated April 6, 1988, issued to David
Nachamie.8/ --
4.4 Unit Purchase Option for 500 units, dated April 6, 1988, issued to Vincent
Coakley.8/ --
4.5 Unit Purchase Option for 500 units, dated April 6, 1988, issued to Michael
Siciliano.8/ --
4.6 Unit Purchase Option for 200 units, dated April 6, 1988, issued to Allison
Brown.8/ --
4.7 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated April 6, 1988.8/ --
4.8 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated February 23, 1989.9/ --
4.9 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated May 22, 1990.11/ ---
4.10 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated August 16, 1990.12/
4.11 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated March 25, 1991.16/
4.12 Form of Convertible Subordinated Debenture issued in connection with the
Company's private placement completed in November 1991.17/
4.13 Form of Convertible Subordinated Note issued in connection with INSCI
Corp. private placement completed in June 1992.17/
4.14 Warrant Agreement by and among the Company, D.H. Blair & Co., Inc. and the
Warrant Agent, dated February 1, 1993 as amended by Supplemental Agreement
to Amend Warrant Agreement, dated June 27, 1993.18/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
4.15 Loan Option Agreement, dated January 17, 1995, issued to Shor Yeshev.20/
4.16 Loan Option Agreement, dated January 17, 1995, issued to Raquel
Grunwald.20/
4.17 Loan Option Agreement, dated January 17, 1995, issued to Lou Gurman.20/
4.18 Loan Option Agreement, dated January 17, 1995, issued to Dynamic
Control.20/
4.20 Extension of expiration date and repricing of Class A and Class B Warrants
65/
4.19 Loan Option Agreement, dated January 17, 1995, issued to Dr. Rona
Krinick.20/
9.1 Voting Agreement between D.H. Blair & Co., Inc. and Pierce Lowrey, Jr.
dated February 23, 1989 accompanied by a schedule of seven other
substantially identical agreements reflecting parties' names and amount of
securities subject to the agreements.10/
9.2 Voting Agreement between D.H. Blair & Co., Inc. and Gerald E. Dorsey.18/
9.3 Voting Agreement between the Company and Pierce Lowrey, Jr.19/
10.1 Employment Agreement dated as of September 1, 1987 between the Company and
Pierce Lowrey, Jr.1/ --
10.2 Escrow Agreement by and among the Company, the existing stockholders, and
the Escrow Agent..8/
10.3 Amended and Restated 1987 Incentive Stock Option Plan.10/
10.4 Amended and Restated 1987 Non-Qualified Stock Option Plan.8/
10.5 Sublease dated September 7, 1988, between the Company and Kidder,
Peabody & Co., Inc. for the Company's facilities at 130 Cedar Street,
New York, NY with lease attached thereto.10/
10.6 Lease dated November 2, 1988, between the Company and Carol Gaynor,
Marguerite K. Lewis and William A. Goldstein, as Trustees for
additional facilities at 130 Cedar Street, New York, N.Y.10/
10.7 Lease dated August 19, 1987, between the Company and California State
Teacher's Retirement System for the Company's facilities at Six
Piedmont Center, Suite 100, Atlanta, Georgia.1/
10.8 Form of Facilities Management Agreement.1/
10.9 Form of Service Agreement.1/
10.10 Employment Agreement dated January 1, 1988 between the Company and Ronald
A. Bibbo..3/
10.11 Non-Compete Agreement September 3, 1986 by and among Datacopi, Inc., NCR
Corporation, and Pierce L. Lowrey, JR.2/
10.12 Line of Credit for the Company with the Robinson-Humphrey Company, Inc.2/
10.13 Agreement for sale of 150,000 shares of Class B Common Stock between the
Company and Pierce Lowrey, Jr.2/ --
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.14 Subscription Agreement for Ronald A. Bibbo.2/
10.15 Cease and Desist Agreement between the Company and Independent Printing
Company, Inc.3/
10.16 Settlement Agreement between the Company and Mathias & Carr, Inc.3/
10.17 Line of Credit for the Company with the First National Bank of Atlanta.3/
10.18 March 31, 1988 accrued salary waiver between Pierce Lowrey, Jr. and the
Company.7/ --
10.19 Letter Agreement between the Company and D.H. Blair & Co., Inc. regarding
merger and acquisition consulting
services, dated April 13, 1988.8/
10.20 Consulting Agreement between the Company and D.H. Blair & Co., Inc. dated
April 13, 1988.8/
10.21 Facilities Management Agreement dated June 6, 1988 by and between the
Company and Manufacturers Hanover Trust Company, with Addendum thereto,
dated July 1988.8/
10.22 Facilities Management Agreement, dated September 7, 1988, by and
between the Company and Kidder, Peabody & Co., Inc., and related
agreements and documents.8/
10.23 Directors Option Plan.10/
10.24 Employment Agreement, dated May 1, 1988, between the Company and Ray
Miller, with attachments and exhibits.10/ ---
10.25 Stock Option Agreement, dated May 1, 1988, between the Company and Ray L.
Miller.10/
10.26 Agency Agreement, dated January 30, 1989, between the Company and D.H.
Blair & Co., Inc. 10/ ---
10.27 Unit Purchase Option for 2.55 Private Placement units, dated February 23,
1989, issued to D.H. Blair & Co., INC.10/ -------
10.28 May 1, 1989 letter regarding salary waiver from Pierce Lowrey, Jr. to the
Company.10/ ---
10.29 Assignment Agreement, dated May 24, 1989 between the Company and Pierce
Lowrey Jr. regarding assignment of claims against Ronald A. Bibbo.10/ ---
10.30 Asset Purchase Agreement, dated May 5, 1989, between Jon Rothenberg &
Associates and the Company, with related documents and agreements.10/
10.31 Promissory Note in the original principal amount of $100,000 dated June 9,
1989 payable by the Company to Pierce Lowrey, Jr.10/ ---
10.32 Commitment Letter, dated July 17, 1989, from Pierce Lowrey, Jr. to the
Company with respect to additional loans to the Company.10/
10.33 Employment Agreement, dated December 15, 1989, between the Company and
John Hoffman.11/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.34 Credit Agreement, dated August 1, 1989, as amended, by and between the
Company and State Street Bank and Trust Company.11/ ---
10.35 $750,000 Loan Commitment, Master Note and Security Agreement by and
between Pierce Lowrey, Jr. and the Company, dated March 1, 1990.11/ ---
10.36 Asset Purchase Agreement by and between Imtech Optical Systems, Inc. and
Acctex Information Systems, Inc., dated December 29, 1989.11/
10.37 Distribution Agreement between the Company and the Vault Company dated,
June 25, 1990.13/
10.38 Letter Agreement, dated May 15, 1990 from D.H. Blair & Co., Inc. to the
Company regarding amendment to Unit Purchase Option ,dated February 23,
1989.14/
10.39 Letter Agreement between the Company and D.H. Blair & Co., Inc. regarding
1990 Bridge Loan, dated May 22, 1990.14/
10.40 Form of 12% Subordinated Promissory Note issued in connection with 1990
Bridge Loan.1 -
10.41 Asset Purchase Agreement between the Company and IMTECH Atlanta, Inc.15/
10.42 Form of Subordinated Promissory Note issued in connection with the
Company's private placement completed in February 1991.16/
10.43 Accounts Financing Agreement [Security Agreement] (with Supplements) and
$100,000 Term Notes between the Company and Congress Financial
Corporation, dated May 3, 1991, and $500,000 Letter of Credit from the
First National Bank of Atlanta, dated May 2, 1991.16/
10.44 Warrant Agreements between the Company and Pierce Lowrey, Jr. dated
February 1, 1991, February 5, 1991 and February 28, 1991 for 425,000
shares, 125,000 shares and 153,000 shares, respectively.16/
10.45 Share Purchase Option for 243,750 shares of Class A Common Stock, dated
April 26, 1991, between the Company and D.H. Blair & Co., Inc.16/ ---
10.46 Form of Share Purchase Option issued in connection with INSCI Corp.
private placement in July 1991.17/ ---
10.47 Form of Warrant issued in connection with INSCI Corp. private placement
completed in January 1992.17/
10.48 Form of Unit Exchange Agreement issued in connection with INSCI Corp.
private placement completed in January 1992.17/
10.49 Form of Warrant issued in connection with INSCI Corp. private placement
completed in June 1992.17/
10.50 Consulting Agreement, dated March 8, 1993, by and between INSCI Corp. and
the Raymond Group, Inc.18/ ---
10.51 Lease Agreement, dated May 31, 1993, by and between INSCI Corp. and
Connecticut General Life Insurance COMPANY.18/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.52 Settlement Agreement with the SEC, dated September 30, 1992.18/
10.53 Consulting Agreement by and between the Company and Edward I. Rosen, dated
April 1, 1993.18/
10.54 First Amendment to Director's Stock Option Plan, dated October 20,
1992.18/
10.55 Lease Agreement between the Company and A.J. Goldstein & Co., Inc. for
premises located at 130 Cedar Street, New York, New York 1006, dated
October 7, 1993.17/ ---
10.56 Loan Agreement (and supplemental documentation) between BNY Financial
Corp., the Company, INSCI Corp. and Imtech Litigation Support Systems,
Inc.32/
10.57 INSCI Corp. 1992 Stock Option Plan 28/
10.58 INSCI Corp. 1992 Directors Option Plan.28/
10.59 INSCI Corp. 1992 Advisory Committee Plan.28/
10.60 INSCI Corp. Accounts Financing Agreement between INSCI Corp. and Congress
Financial Corporation, and related documents.28/
10.61 INSCI Corp. Form of 1991 Option.28/
10.62 INSCI Corp. Form of 1992 Warrants.28/
10.63 INSCI Corp. Form of 1992 Convertible Subordinated Notes.28/
10.64 INSCI Corp. Form of 1992 Contingent Warrants.28/
10.75 INSCI Corp. Form of 1993 Warrant - Version A.30/ ---
10.76 INSCI Corp. Form of 1993 Release Agreement.30/
10.77 INSCI Corp. Form of Management Agreement between INSCI Corp. and
IMTECH.28/
10.78 INSCI Corp. Form of Tax Sharing Agreement between INSCI Corp. and
IMTECH.28/
10.79 Form of Indemnification Agreement with INSCI Corp.'s Directors.28/
10.80 Marketing Associate Solution Alliance Agreement between UNISYS Corp. and
INSCI Corp.28/
10.81 Data General Value Added Reseller Discount Purchase Agreement.28/
10.82 Data General Optical Systems and Software Agreement.28/
10.83 Distribution Agreement between Fiserv CIR, Inc. and INSCI Corp.28/
10.84 Lease Agreement relating to INSCI Corp.'s White Plains, NY
headquarters.29/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.85 Forms of Customer License Agreements used by INSCI Corp.29/
10.86 Forms of Employee Confidentiality Agreements used by INSCI Corp.29/
10.87 Nondisclosure and Noncompetition Agreement between INSCI Corp., the
Company and Mason Grisby.29/
10.88 Form of 1993 Warrant; Version B.30/
10.89 Employment Agreement between INSCI Corp. and John L. Gillis.30/
10.90 Employment Agreement between INSCI Corp. and Kris Canekeratne.30/
10.91 Form of 1993 Exchange Agreement and Investor Suitability
Representations.30/ ---
10.92 Form of 1993 Conversion Agreement.30/
10.93 Waivers by Congress Financial Corp.30/
10.94 License Agreement between Bull HN Information Systems, Inc. and INSCI
Corp.30/
10.95 Preferred stock Subscription Agreement between INSCI Corp. and the Company
relating to preferred stock.19/
10.96 Business Partner Agreement between International Business Machines Corp.
and INSCI Corp.32/
10.97 Waiver by BNY Financial Corp.31/
10.98 Stock Escrow Agreement between INSCI Corp., the Company and First Union
National Bank of North Carolina (as escrow agent).32/ ---
10.99 Promissory Note and Security Agreement in favor of INSCI Corp. from John
L. Gillis and Sandra Gillis, in the original principal amount of
$150,000.19/
10.100 Stock Pledge Agreement by John L. Gillis and Sandra Gillis, in favor of
INSCI Corp.19/
10.101 April 1993 Private Placement term sheet and exhibits.19/
10.102 December 1993 Litigation Support Systems, Inc. Private Placement
documents.19/ ---
10.103 Consulting Agreement between the Company and Boulder Financial Group,
Ltd.19/
10.104 Amendment to loan Agreement between BNY Financial Corp. and
Registrant.19/
10.105 Amendment to Loan Agreement between NY Financial Corp. and Registrant.19/
10.106 BNY Agreement with Registrant.20/
10.107 Preferred Stock Redemption Agreement.20/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
10.108 Employment Agreement between IMTECH and Christopher D. Holbrook.34/
10.109 Employment Agreement between IMTECH and Joseph A. Gitto, Jr.34/
10.110 Lease Agreement relating to INSCI's Westborough, Massachusetts
heaquarters.44/
10.111 Employment Agreement with Jack Steinkrauss.44/
10.112 Employment Agreement with John Gillis.44/
10.113 Employment Agreement with Kris Canckeratne.44/
10.114 Agreement for system purchase by Northern Trust Company.44/
10.115 Technology and Reseller Agreement with Elixir Technology.20/
10.116 Private Placement term sheet for offering of 90 day 10% subordinated
notes repayable in cash or shares of the Company's proposed 10%
convertible preferred stock.20/
10.117 First Amendments to Private Placement term sheet and exhibits.20/
10.118 Copy of modification of lease executed by the Company and A.J. Goldstein
& Co., Inc.45/
10.119 Form of Subordinated Convertible Debenture Exchange Agreement for 12%
convertible preferred stock.51/ ---
10.120 Agreement between the Company and the Corporate Relations Group for the
Company's corporate and stockholder public relations.52/
10.121 Form of Agreement by and between the Company and a shareholder with
respect to a loan of stock.53/ ---
10.122 Form of Subscription Agreement for 12% subordinated convertible
debentures.54/ ---
10.123 Offshore Convertible Debenture Subscription Agreement between the Company
and Infinity Investors, Ltd. and related agreement between the Company and
Alpine Capital Partners, Inc.60/62/
10.124 Termination of Asset-Based Financing Agreement with BNY Financial
Corp.56/
10.125 Form of Subscription Agreement with J. Michael Reisert, Inc.63/
10.126 Employment Agreement with Mr. Matti Kon.66/
10.127 12% Convertible Secured Promissory Note Private Placement Term Sheet with
exhibits64/ ---
10.128 Credit arrangement with MTB Bank 70/
10.129 Amendment to employment agreement with Mr. Matti Kon
10.130 Amendment to employment agreement with Mr. Joseph A. Gitto
<PAGE>
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FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
13.1 The Company's Annual Report to Security Holders for the year ended March
31, 1993.22/
13.2 Form 10-Q for the quarter ended June 30, 1993.23/
13.3 Form 10-Q for the quarter ended September 30, 1993.24/
13.4 Form 10-Q for the quarter ended December 31, 1993.25/
13.5 Form 10-Q/A (Amendment No. 1) for the quarter ended December 31, 1993.26/
---
13.6 Proxy Statement for the Company's 1993 Annual Shareholders' Meeting.27/
---
13.7 Form 10-Q for the quarter ended June 30, 1994.35/
13.8 Form 10-Q for the quarter ended September 30, 1994.36/
13.9 Form 10-Q for the quarter ended December 31, 1994.37/
13.10 Form 10-Q for the quarter ended June 30, 1995.47/
13.11 Form 10-Q for the quarter ended September 30, 1995.48/
13.12 Form 10-Q for the quarter ended December 31, 1995.49/
13.13 Form 10-Q for the quarter ended June 30, 1996.57/
13.14 Form 10-Q for the quarter ended September 30, 1996.58/
13.15 Form 10-Q for the quarter ended December 31, 1996.59/
13.16 Form 10-Q for the quarter ended June 30, 1997.67/
13.17 Form 10-Q for the quarter ended September 30, 1997.68/
13.18 Form 10-Q for the quarter ended December 31, 1997.69/
13.19 Form 10-Q for the quarter ended June 30, 1998.72/
13.20 Form 10-Q for the quarter ended September 30, 1998.73/
13.21 Form 10-Q for the quarter ended December 31, 1998.74/
16.1 Letter regarding dismissal of independent certified public accountant.38/
16.2 Letter regarding engagement of new independent certified public
accountant.39/
16.3 Letter regarding resignation of independent certified public
accountant.38/
16.4 Letter regarding potential prior period adjustment.41/
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
16.5 Letter regarding engagement of new independent certified public
accountant.42/
21.1 List of subsidiaries.20/
22.1 Proxy Statement for the Company's 1994 Annual Shareholders' Meeting.43/
---
22.2 Proxy Statement for the Company's 1995 Annual Shareholders' Meeting.50/
---
24.1 Powers of Attorney.20/
27.1 Financial data schedule
1/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Registration Statement on Form S-1, File No. 33-18245, as
filed with the Securities and Exchange Commission on October 30, 1987.
2/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 1 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
February 29, 1988.
3/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 2 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 15, 1988.
4/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 3 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 23, 1988.
5/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 4 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 24, 1988.
6/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 5 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
March 25, 1988.
7/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 6 to the Company's Registration Statement of Form S-1,
File No. 33-18245, as filed with the Securities and Exchange Commission on
April 5, 1988.
8/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended July 31,
1988.
9/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1989.
10/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Transition Report on Form 10-K for the eight month period
ended March 31, 1989.
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
11/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1990.
12/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
13/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Registration Statement of Form S-1, File No. 33-36185, as
filed with the Securities and Exchange Commission on August 2, 1990.
14/ Incorporated herein by reference to the Exhibit with the same description
to Amendment No. 1 to the Company's Registration Statement of Form S-1,
File No. 33-36185, as filed with the Securities and Exchange Commission on
October 18, 1990.
15/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 8-K, dated December 6, 1990.
16/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1991.
17/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1992.
18/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1993.
19/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1994.
20/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Report on Form 10-K for the fiscal year ended March 31,
1995.
21/ Filed with this report.
22/ Incorporated by reference herein to the Company's Annual Report to
Security Holders for the year ended March 31, 1993 as filed with the
Commission.
23/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993.
24/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
25/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
26/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q/A (Amendment No. 1) for the
quarter ended December 31, 1993.
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
27/ Incorporated herein by reference to the Exhibit with the same description
to the Proxy Statement for the Company's 1993 Annual Shareholders' Meeting
as filed with the Commission.
28/ Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on November 13, 1993.
29/ Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on December 2, 1993.
30/ Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on February 2, 1994.
31/ Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on March 15, 1994.
32/ Incorporated herein by reference to the Exhibit with the same description
of the INSCI Corp. Registration Statement of Form S-1, File No. 33-54558,
as filed with the Securities and Exchange Commission on March 25, 1994.
33/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 17, 1995.
34/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated March 3, 1995.
35/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994.
36/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
37/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994.
38/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated August 9, 1994.
39/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated August 15, 1994.
40/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 1, 1994.
41/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 14, 1994.
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
42/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated December 21, 1994.
43/ Incorporated herein by reference to the Exhibit with the same description
of the Company's Definitive Proxy Statement for the 1994 Annual
Shareholders' Meeting, as filed with the Commission.
44/ Incorporated herein by reference to the Exhibit with the same description
as filed by INSCI Corp. the majority owned subsidiary of the Registrant.
45/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated July 14, 1995.
46/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 30, 1995.
47/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995.
48/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
49/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995.
50/ Incorporated herein by reference to the Exhibit with the same description
of the Company's Definitive Proxy Statement for the 1995 Annual
Shareholders' Meeting, as filed with the Commission.
51/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated September 22, 1995.
52/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated October 24, 1995.
53/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 3, 1996.
54/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated January 22, 1996.
55/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated March 6, 1996.
56/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated April 11, 1996.
57/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996.
58/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
59/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
60/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated April 25, 1996.
61/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A (Amendment No. 1), dated July 25,
1996.
62/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated September 16, 1996.
63/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated December 5, 1996.
64/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated March 20, 1997.
65/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated April 22, 1997.
66/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A, dated January 3, 1997.
67/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
68/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
69/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997.
70/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, dated November 13, 1997.
71/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A, dated June 18, 1998.
72/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998.
73/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
74/ Incorporated herein by reference to the Exhibit with the same description
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998.
75/ Incorporated herein by reference to the Exhibit with the same description
of the Company's reports on Forms 8-K, dated July 24, 1998.
<PAGE>
- --------------------------------------------------------------------------------
FORM 10-K ANNUAL REPORT
Information Management Technologies Corporation
- --------------------------------------------------------------------------------
INDEX TO EXHIBITS
76/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, August 13, 1998.
77/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A, September 30, 1998.
78/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, November 13, 1998.
79/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A, January 27, 1999.
80/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K/A, March 8, 1999.
81/ Incorporated herein by reference to the Exhibit with the same description
of the Company's report on Form 8-K, April 5, 1999.
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