SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 2 TO FORMS 8-K (DATED JULY 24, 1998 AND NOVEMBER 13, 1998)
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
MARCH 8, 1999
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
INFORMATION MANAGEMENT TECHNOLOGIES CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
01-6753 58-1722085
- ---------------------------------------- ---------------------------------------
(Commission File Number) (IRS Employer Identification No.)
130 CEDAR STREET, NEW YORK, NY 10006
- ---------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 306-6100
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Registrant amends its From 8-K/A filed on September 30, 1998 which
supplemented its Form 8-K (dated July 24, 1998) filed on July 31, 1998 regarding
the Registrant's acquisition of all of the issued and outstanding common stock
of the company known as KRL Litho, Inc. d/b/a The Skillcraft Group ("KRL") from
Mr. Harold Russell and Mr. Jeffrey Craugh.
In addition, the Registrant amends its Form 8-K/A filed on January 28,
1999 which supplemented its Form 8-K (dated November 13, 1998) filed on November
23, 1998 regarding the Registrant's acquisition of all of the issued and
outstanding common stock of the company known as RDS Research Distribution
Services, Inc. ("RDS") from its sole stockholder, Mr. Matti Kon.
The Company incorporates by reference the 8-K filing dated July 24,
1998 (filed on July 31, 1998), the 8-K filing dated November 13, 1998 (filed on
November 23, 1998), the Registrant's Form 10-Q for the quarter ended September
30, 1998 (filed on November 16, 1998) and the financial statements and exhibits
annexed hereto.
ITEM 7. FINANCIAL STATEMENTS ABD EXHIBITS
A) FINANCIAL STATEMENTS
(1) Audited financial statements of KRL Litho, Inc. as of and For the
Year Ended December 31, 1997
(2) Audited financial statements of RDS Research Distribution Services,
Inc. as of and For the Year Ended December 31, 1997
(3) Audited financial statements of RDS Research Distribution Services,
Inc. as of and For the Six Months Ended June 30, 1998
(4) Audited financial statements of RDS Research Distribution Services,
Inc. as of and For the Ten Months Ended October 31, 1998
B) EXHIBITS
(1) Consolidated Pro Forma Condensed Statement of Operations For the
Fiscal Year Ended March 31, 1998
(2) Summary of Pro Forma Adjustments For the Fiscal Year Ended March
31, 1998
(3) Consolidated Pro Forma Condensed Balance Sheet as of September 30,
1998
(4) Consolidated Pro Forma Condensed Statement of Operations For the
Six Months Ended September 30, 1998
(5) Summary of Pro Forma Adjustments For the Six Months Ended September
30, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: New York, New York
March 8, 1999 INFORMATION MANAGEMENT
TECHNOLOGIES CORPORATION
(Registrant)
/s/ JOSEPH GITTO
---------------------------------
Joseph Gitto,
President and Chief Financial Officer
<PAGE>
KRL LITHO, INC.
---------------
FINANCIAL STATEMENTS
--------------------
DECEMBER 31, 1997
-----------------
<PAGE>
KRL LITHO, INC.
FINANCIAL STATEMENTS
INDEX
-----
PAGE
----
Independent Auditor's Report 1
Balance Sheet as of December 31, 1997 and 1996 2
Statement of Income and Retained Earnings
for the Years Ended December 31, 1997 and 1996 3
Statement of Cash Flows for the Years Ended
December 31, 1997 and 1996 4
Notes to Financial Statements 5
<PAGE>
HBJ HOWARD B. JACOBSON, C.P.A., P.C.
CERTIFIED PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
33-21 Francis Lewis Blvd.
Bayside, New York 11358
Phone (718) 886-8210
FAX (718) 886-8215
REPORT OF INDEPENDENT AUDITOR
-----------------------------
Board of Directors
KRL Litho, Inc.
New York, New York
I have audited the accompanying balance sheets of KRL Litho, Inc. as of
December 31, 1997 and 1996, and the related statements of income and retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of KRL Litho, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ HOWARD B. JACOBSON, C.P.A., P.,C.
- -------------------------------------
Howard B. Jacobson, C.P.A., P.,C.
Bayside, New York
April 24, 1998
<PAGE>
KRL LITHO, INC.
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
-------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Notes 2A, 2G and 2H) $ 281,427 $ 861,400
Accounts receivable, net of allowance for doubtful
accounts of $207,277 in 1997 (Notes 2G and 3) 2,377,140 949,017
Inventory (Notes 2B and 3) 269,200 182,000
Other current assets 36,252 28,699
---------- ----------
Total current assets 2,964,019 2,021,116
---------- ----------
PROPERTY AND EQUIPMENT - AT COST: (NOTES 2C AND 4)
Production - machinery and equipment 1,178,007 749,750
Production - computers and software 300,615 34,134
Leasehold improvements 62,641 -0-
Office equipment and fixtures 112,206 112,206
---------- ----------
Total property and equipment 1,653,469 896,090
Less accumulated depreciation and amortization 793,606 547,745
---------- ----------
Net property and equipment 859,863 348,345
---------- ----------
Intangible assets net of accumulated
amortization (Note 2D) 33,889 -0-
---------- ----------
TOTAL ASSETS $3,857,771 $2,369,461
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Loan payable - bank (Note 3) $ 181,649 $ -0-
Equipment notes payable (Note 4) 168,438 76,013
Accounts payable 691,795 656,201
Income taxes payable (Note 6) 45,853 80,972
Accrued expenses and other current liabilities 431,852 183,920
---------- ----------
Total current liabilities 1,519,587 997,106
---------- ----------
Equipment notes payable (Note 4) 456,383 184,440
Loan payable - stockholder (Note 5) 150,000 -0-
---------- ----------
Total long-term liabilities 606,383 184,440
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 10 shares 10,000 10,000
Retained earnings 1,721,801 1,177,915
---------- ----------
Total stockholder's equity 1,731,801 1,187,915
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,857,771 $2,369,461
========== ==========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-2-
<PAGE>
KRL LITHO, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Revenues (Note 2E) $ 13,773,284 $ 9,228,208
Cost of sales 9,261,574 5,995,636
------------ ------------
Gross profit 4,511,710 3,232,572
Selling, general and
administrative expenses 3,211,121 2,109,222
------------ ------------
Income from operations 1,300,589 1,123,350
Interest expense, net 21,493 16,101
------------ ------------
Income before provision for income taxes 1,279,096 1,107,249
Provision for income taxes (Note 6) 133,008 101,496
------------ ------------
Net income 1,146,088 1,005,753
Distributions to stockholder (602,202) (192,707)
Retained earnings - beginning of year 1,177,915 364,869
------------ ------------
Retained earnings - end of year $ 1,721,801 $ 1,177,915
============ ============
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-3-
<PAGE>
KRL LITHO, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,146,088 $ 1,005,753
Adjustments to reconcile:
Depreciation and amortization 251,972 149,575
Accounts receivable (1,428,123) 94,886
Inventory (87,200) 6,600
Other current assets (7,553) 47,095
Accounts payable 35,594 (369,103)
Accrued expenses and other current liabilities 212,813 37,586
----------- -----------
Net cash provided by operating activities 123,591 972,392
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (757,379) (63,489)
Increase in intangible assets (40,000) -0-
Net cash applied to investing activities (797,379) (63,489)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loan, less repayments 181,649 -0-
Additional equipment notes, less repayments 364,368 (54,639)
Additional stockholder loans, less repayments 150,000 (25,531)
Distributions to stockholder (602,202) (192,707)
Repayment of loans to related company -0- (100,000)
----------- -----------
Net cash provided by (applied to)
financing activities 93,815 (372,877)
----------- -----------
Net change in cash and cash equivalents (579,973) 536,026
Cash and cash equivalents at beginning of year 861,400 325,374
----------- -----------
Cash and cash equivalents at end of year $ 281,427 $ 861,400
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the year for:
Interest expense $ 38,956 $ 33,974
=========== ===========
Income taxes $ 205,386 $ 41,810
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES ON NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------------------------------
During the year ended December 31, 1997, the Company incurred equipment
notes payable in the amount of $591,648.
The Auditor's report and accompanying notes are an integral part of
these financial statements.
-4-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - THE COMPANY
-----------
KRL Litho, Inc. (the "Company") was organized in New York State in
June, 1989. The Company provides high quality multi-color printing
services to commercial organizations located primarily in the New
York Metropolitan area.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of reporting cash flows, the Company considers all
highly liquid investments with an original maturity date of three
months or less to be cash equivalents. Cash equivalents are carried
at cost plus accrued interest which approximates fair market value.
At December 31, 1997 and 1996, cash equivalents included funds
deposited in certificates of deposit with a bank and a liquid asset
account with a financial institution.
B. INVENTORY
---------
Inventory consists primarily of paper, toner and inks and is stated
at the lower of cost, determined on the first-in, first-out (FIFO)
method, or market.
C. PROPERTY AND EQUIPMENT
----------------------
Depreciation of capital assets is provided to relate the cost of
these assets to operations over their estimated useful lives.
Management is of the opinion that asset values decline rapidly and
has therefore elected to use the double declining balance method of
depreciation for production equipment, computer hardware and
software, and furniture and fixtures, over estimated useful lives
ranging from five to seven years. Leasehold improvements are
depreciated using the straight line method over the remaining term
of the lease.
Repairs and maintenance are charged to operations in the period
incurred, and major repairs and improvements which significantly
extend the lives of the assets are capitalized, and depreciated over
their estimated useful lives. When assets are retired or disposed
the cost and accumulated depreciation or amortization are removed
from the accounts, and any gain or loss is recognized in the current
period's earnings.
D. INTANGIBLE ASSETS
-----------------
Intangible assets consist of goodwill and a non-compete agreement
and are amortized over 15 years and 5 years respectively.
-5-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. REVENUES
--------
Revenue is recorded when services are performed or upon delivery of
finished product.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
G. CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable.
The Company maintains cash balances and certificates of deposit at
one bank and cash equivalents in a liquid asset account with one
financial institution. Accounts at the banks and financial
institution are insured by the Federal Deposit Insurance Corporation
(FDIC) and the Securities Investor Protection Corporation (SIPC) up
to $100,000 and $500,000 respectively.
The Company performs on going credit evaluations of its customers
and records reserves for potentially uncollectible accounts
receivable. Accounts receivable consist mainly of customers within
the Company's geographic area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments consist of cash and trade
receivables and payables. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively
short period of time between the origination of the instruments and
their expected realization.
I. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In the event that facts and circumstances indicate that the cost of
an asset may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to
market or discounted cash flow value is required. No such
write-downs were required for the years ended December 31, 1997 and
1996.
-6-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - BANK NOTE PAYABLE
-----------------
In March 1997, the Company entered into a one year credit
arrangement with a bank. According to the terms of the credit
arrangement, the Company can borrow up to a maximum of $200,000
under a revolving line of credit (the "line"). All outstanding
obligations under the line bear interest at the bank's prime rate
plus one percent (1%) and are collateralized by the Company's
accounts receivable, inventory and a personal guarantee by the sole
stockholder. At December 31, 1997, the Company was indebted to the
bank for outstanding obligations under the line in the amount of
$181,649. Interest charged to operations for the year ended December
31, 1997 amounted to $9,004.
NOTE 4 - EQUIPMENT NOTES PAYABLE
-----------------------
Equipment notes payable represent obligations secured by certain
equipment having aggregate book values at December 31, 1997 and 1996
in the amounts of $570,427 and $247,641 respectively. The notes are
payable in monthly installments, including interest at rates ranging
from 8.9% to 11.5%, in the aggregate amounts of $20,588 and $8,378
for 1997 and 1996 respectively. The notes expire at varying dates
through August, 2002.
Future maturities of equipment notes payable for each of the next
five years, and in the aggregate, are as follows:
Year ending December 31,
1998 $ 219,265
1999 191,479
2000 173,860
2001 113,509
2002 44,359
----------
Note repayments 742,472
Less: amount representing interest 117,651
Less: current portion 168,438
----------
Net long-term portion $ 456,383
==========
NOTE 5 - STOCKHOLDER'S LOANS
-------------------
The loan payable to the sole stockholder represents unsecured
advances made to the Company which bear interest at the prime rate.
-7-
<PAGE>
KRL LITHO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - INCOME TAXES
------------
The Company's stockholder has elected, under the provisions of the
Internal Revenue Code, to have the Company taxed as a subchapter "S"
corporation. Under these provisions there is no federal income tax
paid by the corporation. The Company's income (or loss) is passed
through directly to the stockholder and taxed on the stockholder's
personal income tax return. Accordingly, there is no provision for
federal income taxes. The provision for income taxes for the years
ended December 31, 1997 and 1996 consist of state and local taxes.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
-----------------------------
A. OPERATING LEASE
---------------
The Company operates its office, sales, production and manufacturing
facilities within leased premises in New York City, New York. The
lease term is ten years which expires August 31, 2002. The lease
includes annual escalations for real estate taxes and operating
expenses based on the Consumer Price Index. There are no specified
renewal terms.
Future minimum annual rentals excluding escalations
over the lease term are as follows:
Year ending December 31,
1998 $ 253,750
1999 253,750
2000 253,750
2001 253,750
2002 169,167
-----------
Total $ 1,184,167
===========
B. EMPLOYEE BENEFIT PLANS
----------------------
The Company has a qualified defined contribution profit sharing plan
which covers employees not included under the collective bargaining
agreements in effect with the printing industry unions. The benefit
is based on years of service and compensation. The plan is entirely
subjective and the Company can contribute an amount ranging form 0%
to 15% of compensation per annum. The cost for the plan years ending
December 31, 1997 and 1996 was $55,000 and $54,000 respectively.
The Company also has collective bargaining agreements with several
local printing industry unions. At December 31, 1997 the contracts
had expired and negotiations to renew the contracts were in
progress. The Company anticipates the contract provisions to be
settled shortly. The Company continues to pay union benefits at the
prior contract rate and anticipates only minor changes. No provision
has been made in these financial statements for the effects of new
union contracts.
-8-
<PAGE>
RDS,
----
RESEARCH DISTRIBUTION SERVICES, INC.
------------------------------------
FINANCIAL STATEMENTS
--------------------
DECEMBER 31, 1997
-----------------
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
FINANCIAL STATEMENTS
INDEX
-----
PAGE
----
Independent Auditor's Report 1
Balance Sheet as of December 31, 1997 and 1996 2
Statement of Income and Retained Earnings
for the Years Ended December 31, 1997 and 1996 3
Statement of Cash Flows for the Years Ended
December 31, 1997 and 1996 4
Notes to Financial Statements 5
<PAGE>
HBJ HOWARD B. JACOBSON, C.P.A., P.C.
CERTIFIED PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
33-21 Francis Lewis Blvd.
Bayside, New York 11358
Phone (718) 886-8210
FAX (718) 886-8215
REPORT OF INDEPENDENT AUDITOR
-----------------------------
Board of Directors
RDS, Research Distribution Services, Inc.
New York, New York
I have audited the accompanying balance sheets of RDS, Research
Distribution Services, Inc. as of December 31, 1997 and 1996, and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of RDS, Research
Distribution Services, Inc. as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ HOWARD B. JACOBSON, C.P.A., P.,C.
- -------------------------------------
Howard B. Jacobson, C.P.A., P.,C.
Bayside, New York
April 24, 1998
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
------
1997 1996
-------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Notes 2A, 2G and 2H) $118,947 $ 45,609
Accounts receivable (Notes 2G and 2H) 269,470 54,637
Other current assets 1,950 3,891
-------- --------
Total current assets 390,367 104,137
-------- --------
PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B)
Production - computers and equipment 150,467 129,250
Less accumulated depreciation and amortization 33,393 11,707
-------- --------
Net property and equipment 117,074 117,543
-------- --------
OTHER ASSETS:
Security deposits 7,782 7,782
Intangible assets net of accumulated
amortization (Note 2C) 2,382 3,228
-------- --------
Total other assets 10,164 11,010
-------- --------
TOTAL ASSETS $517,605 $232,690
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 11,700 $ 13,914
Income taxes payable (Notes 2D and 4) 20,152 704
Accrued expenses and other
current liabilities 14,877 11,328
Deferred income taxes (Notes 2D and 4) 125,004 2,022
-------- --------
Total current liabilities 171,733 27,968
-------- --------
Loan payable - stockholder's (Note 3) -0- 50,000
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 30 shares 40,000 40,000
Paid-in-capital 110,000 110,000
Retained earnings 195,872 4,722
-------- --------
Total stockholder's equity 345,872 154,722
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $517,605 $232,690
======== ========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-2-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenues (Note 2E) $ 876,753 $ 243,637
Cost of sales 292,439 117,824
--------- ---------
Gross profit 584,314 125,813
Selling, general and administrative expenses 246,780 112,466
--------- ---------
Income from operations 337,534 13,347
Interest expense 3,250 4,333
--------- ---------
Income before provision for income taxes 334,284 9,014
Provision for income taxes (Notes 2D and 4) 143,134 2,726
--------- ---------
Net income 191,150 6,288
Retained earnings (deficit) -
beginning of year 4,722 (1,566)
--------- ---------
Retained earnings - end of year $ 195,872 $ 4,722
========= =========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-3-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 191,150 $ 6,288
Adjustments to reconcile:
Depreciation and amortization 22,532 12,427
Accounts receivable (214,833) (54,637)
Other current assets 1,941 (3,891)
Accounts payable (2,214) 13,914
Accrued expenses and other current liabilities 22,997 10,753
Deferred income taxes 122,982 2,022
--------- ---------
Net cash provided by (applied to)
operating activities 144,555 (13,124)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (21,217) (129,250)
Increase in intangible assets -0- (7,782)
Net cash (applied to) investing activities (21,217) (137,032)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -0- 150,000
Stockholder loan repayments (50,000) (30,000)
Net cash provided by (applied to)
financing activities (50,000) 120,000
--------- ---------
Net change in cash and cash equivalents 73,338 (30,156)
Cash and cash equivalents at beginning of year 45,609 75,765
--------- ---------
Cash and cash equivalents at end of year $ 118,947 $ 45,609
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the year for:
Interest expense $ 3,250 $ 4,333
========= =========
Income taxes $ 20,152 $ 704
========= =========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-4-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - THE COMPANY
-----------
RDS, Research Distribution Services, Inc. (the "Company") was
organized in New York State in September, 1995. The Company provides
mail fulfillment services to the research departments of financial
institutions located primarily in the New York Metropolitan area.
During 1996, the Company had one account and has since added several
more.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of reporting cash flows, the Company considers all
highly liquid investments with an original maturity date of three
months or less to be cash equivalents. Cash equivalents are carried
at cost plus accrued interest which approximates fair market value.
At December 31, 1997 and 1996, cash equivalents included funds
deposited in certificates of deposit with a bank.
B. PROPERTY AND EQUIPMENT
----------------------
Depreciation of capital assets is provided to relate the cost of
these assets to operations over their estimated useful lives.
Management has elected to use the straight line method of
depreciation for production equipment, computer hardware and
software, and furniture and fixtures, over estimated useful lives
ranging from five to seven years.
Repairs and maintenance are charged to operations in the period
incurred, and major repairs and improvements which significantly
extend the lives of the assets are capitalized, and depreciated over
their estimated useful lives. When assets are retired or disposed
the cost and accumulated depreciation or amortization are removed
from the accounts, and any gain or loss is recognized in the current
period's earnings.
C. INTANGIBLE ASSETS
-----------------
Intangible assets consist of initial start up costs and are
amortized over a period of 5 years.
D. INCOME TAXES
------------
Deferred income taxes arise from temporary differences resulting
from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as
current or non-current, depending on the classification of the
assets and liabilities to which they relate. Deferred taxes arising
from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
-5-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. REVENUES
--------
Revenue is recorded when services are performed or upon delivery of
finished product.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
G. CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable.
The Company maintains cash balances and certificates of deposit at
one bank. Accounts at the bank are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000.
The Company performs on going credit evaluations of its customers
and records reserves for potentially uncollectible accounts
receivable. Accounts receivable consist mainly of customers within
the Company's geographic area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments consist of cash and trade
receivables and payables. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively
short period of time between the origination of the instruments and
their expected realization.
I. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In the event that facts and circumstances indicate that the cost of
an asset may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to
market or discounted cash flow value is required. No such
write-downs were required for the years ended December 31, 1997 or
December 31, 1996.
-6-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - STOCKHOLDER'S LOANS
-------------------
The stockholder loan payable represents unsecured advances made to
the Company which bear interest at ten (10) percent.
NOTE 4 - INCOME TAXES
------------
Income tax expense consists of the following:
1997 1996
---------- ----------
Federal tax $ 79,953 $ 1,110
State and local taxes 63,181 1,616
---------- ---------
Total income tax expense 143,134 2,726
Less deferred tax liability (122,982) (2,022)
---------- ---------
Taxes due currently $ 20,152 $ 704
========== =========
The differences giving rise to the deferred tax liability result
primarily from the use of cash-basis accounting for income tax
purposes and accrual basis accounting for financial reporting
purposes. The cash basis of accounting reports income in the period
when actually received and expenses in the period when actually
disbursed. The accrual basis of accounting reports income in the
period in which it is earned and expenses in the period in which
they are incurred.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASE
---------------
The Company operates its office, sales and production facilities
within sub-leased premises in New York City, New York. The lease
term is month to month. There is an informal agreement with the
landlord to pay one-third of any rent increases or escalations he
incurs. There are no renewal terms. Monthly rent is approximately
$4,700.
-7-
<PAGE>
RDS,
----
RESEARCH DISTRIBUTION SERVICES, INC.
------------------------------------
FINANCIAL STATEMENTS
--------------------
JUNE 30, 1998
-------------
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
FINANCIAL STATEMENTS
INDEX
-----
PAGE
----
Report of Independent Auditor 1
Balance Sheet as of June 30, 1998 2
Statement of Income and Retained Earnings
for the Six Months Ended June 30, 1998 3
Statement of Cash Flows for the
Six Months Ended June 30, 1998 4
Notes to Financial Statements 5
<PAGE>
HBJ HOWARD B. JACOBSON, C.P.A., P.C.
CERTIFIED PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
33-21 Francis Lewis Blvd.
Bayside, New York 11358
Phone (718) 886-8210
FAX (718) 886-8215
REPORT OF INDEPENDENT AUDITOR
Board of Directors
RDS, Research Distribution Services, Inc.
New York, New York
I have audited the accompanying balance sheet of RDS, Research
Distribution Services, Inc. as of June 30, 1998, and the related statements of
income and retained earnings, and cash flows for the six months then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of RDS, Research
Distribution Services, Inc. as of June 30, 1998, and the results of its
operations and its cash flows for the six months then ended, in conformity with
generally accepted accounting principles.
/s/ HOWARD B. JACOBSON, C.P.A., P.,C.
- -------------------------------------
Howard B. Jacobson, C.P.A., P.,C.
Bayside, New York
July 24, 1998
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS
------
1998
--------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents (Notes 2A, 2G and 2H) $101,409
Accounts receivable (Notes 2G and 2H) 343,581
Other current assets 2,250
--------
Total current assets 447,240
PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B)
Production - computers and equipment 151,624
Less accumulated depreciation and amortization 45,355
Net property and equipment 106,269
OTHER ASSETS:
Security deposits 7,782
Intangible assets net of accumulated
amortization (Note 2C) 1,959
--------
Total other assets 9,741
TOTAL ASSETS $563,250
========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 11,950
Income taxes payable (Notes 2D and 3) 20,152
Accrued expenses and other current liabilities 10,884
Deferred income taxes (Notes 2D and 3) 139,584
--------
Total current liabilities 182,570
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 30 shares 40,000
Paid-in-capital 110,000
Retained earnings 230,680
--------
Total stockholder's equity 380,680
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $563,250
========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-2-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1998
1998
----
<S> <C>
Revenues (Note 2E) $541,801
Cost of sales 372,852
Gross profit 168,949
Selling, general and administrative expenses 119,461
Income from operations 49,488
Interest income 580
Income before provision for income taxes 50,068
Provision for income taxes (Notes 2D and 3) 15,260
--------
Net income 34,808
Retained earnings - beginning of period 195,872
--------
Retained earnings - end of period $230,680
========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-3-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1998
----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 34,808
Adjustments to reconcile:
Depreciation and amortization 12,385
Accounts receivable (74,111)
Other current assets (300)
Accounts payable 250
Accrued expenses and other current liabilities (3,993)
Deferred income taxes 14,580
---------
Net cash (applied to) operating activities (16,381)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (1,157)
Net cash (applied to) investing activities (1,157)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities -0-
Net change in cash and cash equivalents (17,538)
Cash and cash equivalents - beginning of period 118,947
---------
Cash and cash equivalents - end of period $ 101,409
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the year for:
Interest expense $ -0-
Income taxes $ 680
=========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-4-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - THE COMPANY
-----------
RDS, Research Distribution Services, Inc. (the "Company") was
organized in New York State in September, 1995. The Company provides
mail fulfillment services to the research departments of financial
institutions located primarily in the New York Metropolitan area.
The Company currently provides services to four clients.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of reporting cash flows, the Company considers all
highly liquid investments with an original maturity date of three
months or less to be cash equivalents. Cash equivalents are carried
at cost plus accrued interest which approximates fair market value.
At June 30, 1998, cash equivalents included funds deposited in
certificates of deposit with a bank.
B. PROPERTY AND EQUIPMENT
----------------------
Depreciation of capital assets is provided to relate the cost of
these assets to operations over their estimated useful lives.
Management has elected to use the straight line method of
depreciation for production equipment, computer hardware and
software, and furniture and fixtures, over estimated useful lives
ranging from five to seven years.
Repairs and maintenance are charged to operations in the period
incurred. Major repairs and improvements which significantly extend
the lives of the assets are capitalized, and depreciated over their
estimated useful lives. When assets are retired or disposed the cost
and accumulated depreciation or amortization are removed from the
accounts, and any gain or loss is recognized in the current period's
earnings.
C. INTANGIBLE ASSETS
-----------------
Intangible assets consist of initial start up costs and are
amortized over a five year period.
D. INCOME TAXES
------------
Deferred income taxes arise from temporary differences resulting
from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as
current or non-current, depending on the classification of the
assets and liabilities to which they relate. Deferred taxes arising
from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
-5-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. REVENUES
--------
Revenue is recorded when services are performed or upon delivery of
finished product.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
G. CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable.
The Company maintains cash balances and certificates of deposit at
one bank. Accounts at the bank are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000.
The Company performs on going credit evaluations of its customers
and records reserves for potentially uncollectible accounts
receivable. Accounts receivable consist mainly of customers within
the Company's geographic area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments consist of cash and trade
receivables and payables. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively
short period of time between the origination of the instruments and
their expected realization.
I. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In the event that facts and circumstances indicate that the cost of
an asset may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to
market or discounted cash flow value is required. No such
write-downs were required for the six months ended June 30, 1998.
-6-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 - INCOME TAXES
Income tax expense consists of the following:
1998
----
Federal tax $ 6,143
State and local taxes 9,117
---------
Total income tax expense 15,260
Less deferred tax liability (14,580)
Taxes due currently $ 680
=========
The differences giving rise to the deferred tax liability result
primarily from the use of cash-basis accounting for income tax
purposes and accrual basis accounting for financial reporting
purposes. The cash basis of accounting reports income in the period
when actually received and expenses in the period when actually
disbursed. The accrual basis of accounting reports income in the
period in which it is earned and expenses in the period in which
they are incurred.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASE
---------------
The Company operates its office, sales and production facilities
within sub-leased premises in New York City, New York. The lease
term is month to month. There is an informal agreement with the
landlord to pay one-third of any rent increases or escalations he
incurs. There are no renewal terms. Monthly rent is approximately
$4,700.
NOTE 5 - SUBSEQUENT EVENTS
-----------------
On July 31, 1998 all of the Company's issued and outstanding common
stock was purchased by Halcon Acquisition Corp., a wholly owned
subsidiary of Information Management Technologies Corporation. The
Company's former sole stockholder will continue in his present
position as the chief executive officer of RDS, Research
Distribution Services, Inc., as will the Company's other top
managers.
-7-
<PAGE>
RDS,
----
RESEARCH DISTRIBUTION SERVICES, INC.
------------------------------------
FINANCIAL STATEMENTS
--------------------
OCTOBER 31, 1998
----------------
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
FINANCIAL STATEMENTS
INDEX
-----
PAGE
----
Report of Independent Auditor 1
Balance Sheet as of October 31, 1998 2
Statement of Income and Retained Earnings
for the Ten Months Ended October 31, 1998 3
Statement of Cash Flows for the
Ten Months Ended October 31, 1998 4
Notes to Financial Statements 5
<PAGE>
HBJ HOWARD B. JACOBSON, C.P.A., P.C.
CERTIFIED PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
33-21 Francis Lewis Blvd.
Bayside, New York 11358
Phone (718) 886-8210
FAX (718) 886-8215
REPORT OF INDEPENDENT AUDITOR
Board of Directors
RDS, Research Distribution Services, Inc.
New York, New York
I have audited the accompanying balance sheet of RDS, Research
Distribution Services, Inc. as of October 31, 1998, and the related statements
of income and retained earnings, and cash flows for the ten months then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of RDS, Research
Distribution Services, Inc. as of October 31, 1998, and the results of its
operations and its cash flows for the ten months then ended, in conformity with
generally accepted accounting principles.
/s/ HOWARD B. JACOBSON, C.P.A., P.,C.
- -------------------------------------
Howard B. Jacobson, C.P.A., P.,C.
Bayside, New York
November 11, 1998
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
BALANCE SHEET
OCTOBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
------
1998
----
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents (Notes 2A, 2G and 2H) $ 87,768
Accounts receivable (Notes 2G and 2H) 398,511
Other current assets 15,650
--------
Total current assets 501,929
PROPERTY AND EQUIPMENT - AT COST: (NOTE 2B)
Production - computers and equipment 151,624
Less accumulated depreciation and amortization 53,329
Net property and equipment 98,295
OTHER ASSETS:
Security deposits 7,782
Intangible assets net of accumulated
amortization (Note 2C) 1,677
--------
Total other assets 9,459
TOTAL ASSETS $609,683
========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 27,950
Income taxes payable (Notes 2D and 3) 680
Accrued expenses and other current liabilities 15,790
Deferred income taxes (Notes 2D and 3) 169,261
--------
Total current liabilities 213,681
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDER'S EQUITY:
Common stock, no par value
Authorized 200 shares
Issued and outstanding 30 shares 40,000
Paid-in-capital 110,000
Retained earnings 246,002
--------
Total stockholder's equity 396,002
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $609,683
========
</TABLE>
The Auditor's report and accompanying notes are an integral part
of these financial statements.
-2-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
1998
----
<S> <C>
Revenues (Note 2E) $948,166
Cost of sales 662,952
Gross profit 285,214
Selling, general and administrative expenses 210,562
Income from operations 74,652
Interest income 943
Income before provision for income taxes 75,595
Provision for income taxes (Notes 2D and 3) 25,465
--------
Net income 50,130
Retained earnings - beginning of period 195,872
--------
Retained earnings - end of period $246,002
========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-3-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
1998
---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 50,130
Adjustments to reconcile:
Depreciation and amortization 20,641
Accounts receivable (129,041)
Other current assets (13,700)
Accounts payable 16,250
Accrued expenses and other current liabilities (19,239)
Deferred income taxes 44,937
---------
Net cash (applied to) operating activities (30,022)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (1,157)
Net cash (applied to) investing activities (1,157)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities -0-
Net change in cash and cash equivalents (31,179)
Cash and cash equivalents - beginning of period 118,947
----------
Cash and cash equivalents - end of period $ 87,768
==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the period for:
Interest expense $ -0-
Income taxes $ 680
=========
</TABLE>
The Auditor's report and accompanying notes are an integral
part of these financial statements.
-4-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1 - THE COMPANY
-----------
RDS, Research Distribution Services, Inc. (the "Company") was
organized in New York State in September, 1995. The Company provides
mail fulfillment services to the research departments of financial
institutions located primarily in the New York Metropolitan area.
The Company currently provides services to four clients.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of reporting cash flows, the Company considers all
highly liquid investments with an original maturity date of three
months or less to be cash equivalents. Cash equivalents are carried
at cost plus accrued interest which approximates fair market value.
At October 31, 1998, cash equivalents included funds deposited in
certificates of deposit with a bank.
B. PROPERTY AND EQUIPMENT
----------------------
Depreciation of capital assets is provided to relate the cost of
these assets to operations over their estimated useful lives.
Management has elected to use the straight line method of
depreciation for production equipment, computer hardware and
software, and furniture and fixtures, over estimated useful lives
ranging from five to seven years.
Repairs and maintenance are charged to operations in the period
incurred. Major repairs and improvements which significantly extend
the lives of the assets are capitalized, and depreciated over their
estimated useful lives. When assets are retired or disposed the cost
and accumulated depreciation or amortization are removed from the
accounts, and any gain or loss is recognized in the current period's
earnings.
C. INTANGIBLE ASSETS
-----------------
Intangible assets consist of initial start up costs and are
amortized over a five year period.
D. INCOME TAXES
------------
Deferred income taxes arise from temporary differences resulting
from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as
current or non-current, depending on the classification of the
assets and liabilities to which they relate. Deferred taxes arising
from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
-5-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
E. REVENUES
--------
Revenue is recorded when services are performed or upon delivery of
finished product.
F. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
G. CONCENTRATION OF CREDIT RISK
----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable.
The Company maintains cash balances and certificates of deposit at
one bank. Accounts at the bank are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000.
The Company performs on going credit evaluations of its customers
and records reserves for potentially uncollectible accounts
receivable. Accounts receivable consist mainly of customers within
the Company's geographic area.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company's financial instruments consist of cash and trade
receivables and payables. The carrying amount of cash and short-term
instruments approximates their fair values because of the relatively
short period of time between the origination of the instruments and
their expected realization.
I. IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
In the event that facts and circumstances indicate that the cost of
an asset may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared
to the asset's carrying amount to determine if a write-down to
market or discounted cash flow value is required. No such
write-downs were required for the ten months ended October 31, 1998.
-6-
<PAGE>
RDS, RESEARCH DISTRIBUTION SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 3 - INCOME TAXES
------------
Income tax expense consists of the following:
Federal tax $ 11,543
State and local taxes 13,922
---------
Total income tax expense 25,465
Less deferred tax liability 24,785
Taxes due currently $ 680
=========
The differences giving rise to the deferred tax liability result
primarily from the use of cash-basis accounting for income tax
purposes and accrual basis accounting for financial reporting
purposes. The cash basis of accounting reports income in the period
when actually received and expenses in the period when actually
disbursed. The accrual basis of accounting reports income in the
period in which it is earned and expenses in the period in which
they are incurred.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASE
---------------
The Company operates its office, sales and production facilities
within sub-leased premises in New York City, New York. The lease
term is month to month. There is an informal agreement with the
landlord to pay part of any rent increases or escalations. There are
no renewal terms. Monthly rent is approximately $4,700.
NOTE 5 - SUBSEQUENT EVENTS
-----------------
The Company's sole stockholder entered into an agreement to sell all
of the Company's issued and outstanding common stock to Halcon
Acquisition Corp., a wholly owned subsidiary of Information
Management Technologies Corporation. The Company's former sole
stockholder will continue in his present position as the chief
executive officer of RDS, Research Distribution Services, Inc., as
will the Company's other top managers. The sale took place November
11, 1998.
-7-
<PAGE>
IMTECH CORP. EXHIBIT (1)
Consolidated Pro Forma Condensed Statement of Operations
For the Fiscal Year Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
RDS, Research
Distribution
IMTECH Corp. KRL Litho, Inc. Services, Inc. Combined
Year Ended Year Ended Year Ended Historical Pro Forma Adj. Pro Forma
31-Mar-98 31-Dec-97 31-Dec-97 Statements Adjustments Ref. Results
------------ --------------- -------------- ------------- ----------- ----- ---------
[1]
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,488,340 $13,773,284 $ 876,753 $ 24,138,377 $ - $24,138,377
Cost of sales 7,323,641 9,261,574 292,439 16,877,654 48,704 A) 16,926,358
------------ ------------ ---------- ------------- ------------- -----------
Gross profit 2,164,699 4,511,710 584,314 7,260,723 (48,704) 7,212,019
Operating expenses 3,759,689 3,211,121 246,780 7,217,590 - 7,217,590
Interest expense, net 717,879 21,493 3,250 742,622 984,636 B) 1,727,258
Amortization of goodwill - - - - 443,928 C) 443,928
------------ ------------ ---------- ------------- ------------- -----------
Income (loss) before income taxes (2,312,869) 1,279,096 334,284 (699,489) (1,477,268) (2,176,757)
Provision for income taxes - 133,008 143,134 276,142 (276,142)D) -
------------ ------------ ---------- ------------- ------------- -----------
Net income (loss) (2,312,869) 1,146,088 191,150 (975,631) (1,201,126) (2,176,757)
Preferred stock dividends 270,159 - - 270,159 - 270,159
------------ ------------ ---------- ------------- ------------- -----------
Net income (loss) applicable to
common stockholders $ (2,583,028) $ 1,146,088 $ 191,150 $ (1,245,790) $ (1,201,126) $(2,446,916)
============ ============ ========== ============= ============ ===========
Basic and diluted earnings per share
applicable to common stockholders $ (0.46) $ (0.22) $ (0.44)
========== ========= =========
Weighted average number of shares
outstanding 5,589,483 5,589,483 5,589,483
========== ========= =========
<FN>
- -----------------------------------------------------
[1] See Summary of Pro Forma Adjustments for the Fiscal Year Ended March 31,
1998 on Exhibit 2.
</FN>
</TABLE>
<PAGE>
EXHIBIT (2)
SUMMARY OF PRO FORMA ADJUSTMENTS
--------------------------------
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
- --------- ------------------------------------------------------- -----------
Adj. Description of Adjustment Amount
Ref.
- --------- ------------------------------------------------------- -----------
<S> <C>
A) Additional depreciation for bump-up in the
fixed assets of KRL to fair market value
as a result of an allocation of the excess
of the purchase price over the net assets
of KRL acquired 48,704
=======
B) Interest expense accrued on the debt issued
for the financing related to the acquisitions:
Interest on the 12% convertible debentures 480,000
Interest on the term loan payable to GE Capital Corp. 125,464
Interest on the notes payable to the sellers of KRL 303,338
Interest on the note payable to the seller of RDS 75,834
-------
984,636
=======
C) Amortization of the goodwill resulting from the
purchase of KRL and RDS 443,928
=======
D) Decrease in income taxes expense resulting
from the utilization of the existing
Net Operating Loss Carryforwards of the Registrant 276,142
=======
</TABLE>
<PAGE>
IMTECH CORP. EXHIBIT (3)
Consolidated Pro Forma Condensed Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
RDS, Research
Distribution Combined
IMTECH Corp. Services, Inc. Historical Pro Forma Adj. Pro Forma
30-Sep-98 31-Oct-98 Statements Adjustments Ref. Results
-------------- -------------- ---------- ----------------- ------------
[1] [2]
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 92,970 $ 87,768 $ 180,738 $ (60,000) A) $ 120,738
Accounts receivable, net 3,621,681 398,511 4,020,192 (333,950) B) 3,686,242
Other current assets 1,875,968 15,650 1,891,618 - 1,891,618
------------ ---------- ------------- ---------- ------------
Total current assets 5,590,619 501,929 6,092,548 (393,950) 5,698,598
------------ ---------- ------------- ---------- ------------
Property and equipment - at cost 8,034,756 151,624 8,186,380 - 8,186,380
Less: Accumulated depreciation and amortization 3,988,664 53,329 4,041,993 - 4,041,993
------------ ---------- ------------- ---------- ------------
Net property and equipment 4,046,092 98,295 4,144,387 - 4,144,387
------------ ---------- ------------- ---------- ------------
Goodwill, net of accumulated amortization 6,348,076 - 6,348,076 506,942 C) 6,855,018
Other assets 1,169,491 9,459 1,178,950 157,056 D) 1,336,006
------------ ---------- ------------- ---------- ------------
$17,154,278 $ 609,683 $ 17,763,961 $ 270,048 $ 18,034,009
============ ========== ============= ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,087,137 $ 27,950 $ 2,115,087 $ - $ 2,115,087
Other current liabilities 3,925,097 185,731 4,110,828 (33,950) E) 4,076,878
------------ ---------- ------------- ---------- ------------
Total current liabilities 6,012,234 213,681 6,225,915 (33,950) 6,191,965
------------ ---------- ------------- ---------- ------------
Long-term debt 3,417,444 - 3,417,444 - 3,417,444
Sellers' notes payable 2,473,839 - 2,473,839 700,000 F) 3,173,839
------------ ---------- ------------- ---------- ------------
Total long-term obligations 5,891,283 - 5,891,283 700,000 6,591,283
------------ ---------- ------------- ---------- ------------
Convertible debt 4,932,800 - 4,932,800 - 4,932,800
Stockholders' equity:
12% convertible preferred stock 2,783,493 - 2,783,493 - 2,783,493
Additional paid-in capital 32,185,977 110,000 32,295,977 (110,000) G) 32,185,977
Retained earnings (accumulated deficit) (35,259,430) 246,002 (35,013,428) (246,002) G) (35,259,430)
Other stockholder's equity 607,921 40,000 647,921 (40,000) G) 607,921
------------ ---------- ------------- ---------- ------------
Total stockholders' equity 317,961 396,002 713,963 (396,002) 317,961
------------ ---------- ------------- ---------- ------------
$17,154,278 $ 609,683 $ 17,763,961 $ 270,048 $ 18,034,009
============ ========== ============= ========== ============
<FN>
- ---------------------------------------------------------
[1] Includes the consolidated balance sheets of IMTECH Corp. and its wholly
owned subsidiary, KRL Litho, Inc., as of September 30, 1998. [2] See Summary of
Pro Forma Adjustments For the Six Months Ended September 30, 1998 on Exhibit 5.
</FN>
</TABLE>
<PAGE>
IMTECH CORP. EXHIBIT (4)
Consolidated Pro Forma Condensed Statement of Operations
For the Six Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
RDS, Research
Distribution
IMTECH Corp. Services, Inc.
Six Months Six Months Combined
Ended Ended Historical Pro Forms Adj. Pro Forma
30-Sep-98 30-Jun-98 Statements Adjustments Ref. Results
-------------- --------- ---------- ----------- ---- -------------
[1] [2]
<S> <C> <C> <C> <C> <C>
Revenues $ 10,690,759 $ 541,801 $ 11,232,560 $ - $ 11,232,560
Cost of sales 7,174,638 372,852 7,547,490 - 7,547,490
----------- ---------- ------------- ----------- -------------
Gross profit 3,516,121 168,949 3,685,070 - 3,685,070
Operating expenses 3,222,939 119,461 3,342,400 - 3,342,400
Interest expense, net 288,567 (580) 287,987 39,529 H) 327,516
Amortization of goodwill 68,941 - 68,941 159,117 I) 228,058
----------- ---------- ------------- ----------- -------------
Income (loss) before income taxes (64,326) 50,068 (14,258) (198,646) (212,904)
Provision for income taxes - 15,260 15,260 (15,260) J) -
----------- ---------- ------------- ----------- -------------
Net income (loss) (64,326) 34,808 (29,518) (183,386) (212,904)
Preferred stock dividends 122,760 - 122,760 - 122,760
----------- ---------- ------------- ----------- -------------
Net income (loss) applicable to common
stockholders $ (187,086) $ 34,808 $ (152,278) $ (183,386) $ (335,664)
=========== ========== ============= =========== =============
Basic and diluted earnings per share
applicable to common stockholders $ (0.03) $ (0.03) $ (0.06)
=========== ============= =============
Weighted average number of shares
outstanding 5,789,846 5,789,846 5,589,483
=========== ============= =============
<FN>
- ------------------------------------------------------
[1] Includes the consolidated results of operations of IMTECH Corp. and its
wholly owned subsidiary, KRL Litho, Inc., for the six months ended September 30,
1998. [2] See Summary of Pro Forma Adjustments for the Six Months Ended
September 30, 1998 on Exhibit 5.
</FN>
</TABLE>
<PAGE>
EXHIBIT (5)
SUMMARY OF PRO FORMA ADJUSTMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Adj. Description of Adjustment Amount
Ref.
- --------- ---------------------------------------------------------- ---------
<S> <C>
A) Cash remitted at closing for the purchase of RDS 60,000
========
B) Elimination of intercompany balances 333,950
========
C) Goodwill resulting from the purchase of RDS 506,942
========
D) Deferred interest of the notes
payable to the seller of RDS 157,056
========
E) Current portion of the note payable
to the seller of RDS 300,000
Elimination of intercompany balances
(See B. above) (333,950)
========
(33,950)
========
F) Long-term portion of the note payable
to the seller of RDS 700,000
========
G) Elimination of the equity of RDS in accordance
with Generally Accepted Accounting Principles
which provide guidance on the accounting
treatment of a business combination accounted
for as a purchase:
Additional paid-in capital
110,000
========
Retained earnings 246,002
========
Common stock 40,000
========
H) Interest expense accrued on the note
payable to the seller of RDS 39,529
========
I) Amortization of the goodwill 159,117
========
J) Decrease in income taxes expense
resulting from the utilization of the
existing Net Operating Loss Carryforwards
of the Registrant 15,260
========
</TABLE>
