<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
Commission file number: 33-24464-NY
IMTEK OFFICE SOLUTIONS, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2958856
---------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2111 Van Deman Street, Suite 100, Baltimore, MD 21224
---------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (410) 633-5700
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 7,538,361 shares as of January
31, 1998.
<PAGE>
INDEX
IMTEK OFFICE SOLUTIONS, INC.
PART I. Financial Information
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets - December 31, 1997
and September 30, 1996
Consolidated Statements of Income - Three months
ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Three months
ended December 31, 1997 and 1996
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition and Liquidity
PART II. Other Information
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8K
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition and Liquidity
RESULTS OF OPERATIONS
The Company, as previously discussed, effectively commenced operations during
April 1997. Prior to then, the Company, and its predecessor, was a development
stage company with no operations. Thus, there is no meaningful comparison to
prior quarter and year financial results of operations and financial condition
and liquidity.
During the quarter ended December 31, 1997, the Company's first quarter of
fiscal year 1998, the Company effectively created two (2) business segments.
The first segment, representing the core computing of the business, is the sale,
retail and wholesale, of office products, copier sales and service, the
rebuilding and rental of high volume copiers and duplicators, and commercial
printing and copying. The Company refers to this segment as "Office Solutions".
The second segment is referred to as "Merchant Banking". This segment consists
principally of specialty finance services, including copier and office equipment
leasing, accounts receivable financing, and factoring and viatical settlements.
During the first quarter, the Company generated consolidated gross revenue of
approximately $6.6 million dollars. Approximately 24.5% of the gross revenue
was derived from the Office Solutions segment, while the remaining 75.5% of
gross revenue was contributed by the
<PAGE>
Merchant Banking segment.
The Company generated an increase in gross revenue of approximately $5,363,000
on a 437% increase, during the quarter ended December 31, 1997, as compared to
the previous year, which ended September 30, 1997. Additionally, cost of goods
sold increased by 356%, or $3,840,400 over the prior year. Finally, selling and
general and administrative expenses increased by $1,043,882, or 846% during the
quarter ended December 31, 1997, as compared to the year ended September 30,
1997.
The Company's consolidated gross profit was 25.4% for the first quarter. The
Office Solution segment contributed approximately 48% of the Company's gross
profit, while the Merchant Banking segment contributed the remaining 52% of the
Company's gross profit.
Within the Office Solutions segment, the office equipment servicing and sales
division, including rentals, contributed a gross margin of approximately 40.2%
on gross revenue of $947,400. The litigation support division contributed gross
profit of approximately $344,000, or 67.1%, on the division's gross revenue of
approximately $515,300.
The Prepress Printing division contributed gross revenue of $150,900, with a
gross profit margin of 49.3%.
Selling and general expense, on a consolidated basis, was approximately
$1,167,000 for the first quarter. The Office Solutions segment accounted for
approximately 86.5% of these costs.
<PAGE>
The Merchant Banking segment was responsible for the remaining 13.5% of salary
and general expenses.
During the quarter, management elected to invest additional resources into two
operating centers within two divisions of the Office Solution segment. These
additional resources, such as additional personnel and equipment, were provided
to expand one operating center within the litigation support division and one
operating center within the office equipment division. Management believes that
these additional applied resources will better position the operating centers
for increased revenue and profit in subsequent quarters. However, the
investment during the quarter significantly impacted the operating performance
of the operations and contributed to the Office Solution segment operating loss
of approximately $217,000. Management continues to monitor the operating centers
and presently does not anticipate the need for additional resources. Management
anticipates that these centers may experience an increase in selling and
advertising expense in future quarters.
During the quarter, as in previous periods, the Company's officers and
management elected not to receive remuneration except for one member who
received compensation of approximately $17,000. Effective with the Company's
second quarter, beginning on January 1, 1998, the Company's officers and
management will begin receiving remuneration. The average quarterly cost is
expected to approximate $150,000 per quarter, before taking account of any bonus
plans. Also, during the quarter, the Company did not incur significant
corporate/headquarter expenses. The Company was able to utilize resources
provided to it from another entity owned by certain of the Company's officers at
minimal or no cost.
<PAGE>
Corporate, or headquarters expenses, such as rent, facilities expense, and other
such common expenses, are anticipated to commence during the second quarter, as
the Company continues to expand. Management anticipates these expenses to be
below industry average.
Income from operations, before federal and state income tax, was $504,000, or
7.65%, of gross revenue. The Office Solutions segment provided pretax operating
loss of approximately $217,000, or 3.3%, of gross revenue. The Merchant Banking
segment provided approximately $720,250 of pretax profit, or approximately 11%
of gross revenue.
During the quarter, on a consolidated basis, the Company provided an income tax
provision of $210,000. Thus, the Company's effective tax rate was 31.9% for the
quarter. Because of the tax impact of special transactions and depending upon
the Company's consolidated net income or loss level, this rate may vary
dramatically.
<PAGE>
ACQUISITIONS
During the quarter the Company, in compliance with its expansion and growth
plans, acquired a total of 7 entities. Of the 7 acquisitions, 3 were accounted
for under the purchase method of accounting, consisting principally of stock for
stock exchange and only nominal (approximately $145,000) asset and liability
acquisition. Specifically, the Company acquired cash of approximately $90,000
and accounts receivable of approximately $55,000.
In addition to the three stock for stock acquisitions, the Company acquired 4
other entities during the first quarter.
These four acquisitions were accounted for under the purchase method of
accounting, in which the Company acquired total assets of approximately $2
million dollars. Specifically, the Company recognized approximately $1,283,000
in restricted cash, $84,000 in accounts receivable, $206,500 in inventory,
$109,000 in prepaid assets, $194,500 in property, plant and equipment, and
goodwill of $220,600.
<PAGE>
SECURITIES OFFERING
On January 10, 1998, the Company issued a Private Offering Memorandum, (POM)
wherein the Company is attempting to privately sell a maximum of 75,000 shares
of Series A Convertible Preferred Stock. As of February 21, 1998, no shares
sales have been consummated.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The Company's operating activities produced positive cash flow of $233,244
during the quarter. On a consolidated basis, the Company used approximately
$25,450 in cash for operations. Investing activities consumed an additional
$386,200 of cash, while the Company's financing activities produced positive
cash flow of $644,900.
During the quarter, total assets, on a consolidated basis, increased from
$1,007,339 to $5,327,816, an increase of $4,320,477, or approximately 429%.
This increase is principally in response to commencement of operations, such
that the revenue increase of 437% corresponds to increases in inventory and
accounts receivable. A significant component of the total asset increase
relates to the Merchant Banking segment. Specifically, within this expanding
segment, the Company recognized a $313,000 increase in prepaid assets, which
relates to advances of funds for the payment of sales commissions to certain
agents, principally financial planners, who identify potential customers for the
Company's viatical settlement business. Additionally, the viatical settlement
component of the business generated a restricted cash balance of $2,353,649.
This restricted cash is received in advance of settlements from third party
purchasers. The cash is placed in an escrow account and is released upon
settlement of the viatical process.
Accounts receivable, on a consolidated basis, increased by $460,338, or 117%
during the quarter. This increase is principally in response to the Company's
sales volume increases and overall expansion of business operations, and to a
lesser extent, the increase in accounts
<PAGE>
receivable due to acquisition.
Consistent with an increase in sales, along with purchases from acquisitions,
inventory increased by $266,664, or 54.9%. During the quarter the Company in
effect decreased its inventory - inventories did not increase in proportion to
revenue volume increases.
Also during the quarter, the Company expended approximately $301,600 for
property, plant and equipment. With the commencement of significant operations,
the Company expended approximately $200,000, $40,000 of which had previously
been on deposit by the Company, for the acquisition of computer hardware and
software. The Company anticipates approximately $125,000 of additional computer
costs, which will principally be incurred during the second quarter. The
remaining $100,000 of purchases in the first quarter relate principally to
office furniture and fixtures, as operating units are established and adequately
staffed.
Accounts payable and other current liabilities increased during the quarter by
$1,343,200, or 576%. Approximately $202,000, or 15%, of the increase is in
direct response to the Company's acquisition of debt obligations associated with
its acquisition during the quarter. Furthermore, the Company has accrued
$230,600 for taxes payable. Other increases in current liabilities are in line
with the sales volume increases.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. Other Information
A. Private Placement Offering Memorandum
Effective January 10, 1998, the Company issued a private placement
memorandum offering 75,000 shares of Series A Convertible Preferred
Stock on a best efforts, 5,000 share minimum, 75,000 share maximum
basis at a price of $100.00 (one-hundred dollars) per share. The
shares carry an annual dividend rate of 9.0%. The dividends will
accrue daily and are payable annually beginning October 1, 2001. The
shares may be converted into shares of Company Common Stock beginning
91 days following the issue date of the shares, on a sliding scale, as
more fully detailed within the memorandum. The shares will be non-
voting. The Company may, however, redeem the shares beginning 91 days
after the issue date. The redemption price is $100 (one-hundred
dollars) per share. In the event the Company notified a shareholder of
an intended redemption, the shareholder would have 30 days in which to
exercise their right to convert to Common Stock. The Company intends
to use the proceeds, if any, primarily for acquisitions, and to a
lesser extent, to meet short-term working capital requirements.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
A. Change in Registrant's Certifying Accountant dated as of October
24, 1997.
On October 24, 1997, the Company filed a report on Form 8-K announcing
the change in certifying accountants.
B. Exhibits.
The following is filed as an exhibit to this Form 10-Q:
Exhibit 3.0 - Certificate of Designation of Series A Convertible
Preferred Stock.
Exhibit 3.1 - Certificate of Amendment to Certificate of
Incorporation.
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 thereunto duly authorized.
IMTEK OFFICE SOLUTIONS, INC.
March 2, 1998 By: /s/ EDWIN C. HIRSCH
-------------------------------------
Edwin C. Hirsch, President
(Principal Accounting Officer)
March 2, 1998 By: /s/ BRAD THOMPSON
--------------------------------------
Brad Thompson, Chief Financial
Officer (Principal Financial Officer)
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED BALANCE SHEETS
================================================================================
ASSETS
------
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- --------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 262,362 $ 29,118
Accounts receivable (less allowance for
doubtful accounts of $4,000) 853,400 393,062
Inventory 752,325 485,661
Notes receivable - related parties 23,975 20,466
Notes receivable - other 5,075 5,075
Deposit on equipment - 40,000
Prepaid expenses 3,479 -
Prepaid commissions 312,928 -
---------- ----------
Total current assets 2,213,544 973,382
PROPERTY AND EQUIPMENT - at cost 337,300 35,740
Less: accumulated depreciation 10,215 1,783
---------- ----------
327,085 33,957
RESTRICTED CASH 2,353,649 -
INTANGIBLE ASSETS - net 308,894 2,142
DEPOSITS AND OTHER ASSETS 124,644 -
---------- ----------
$5,327,816 $1,007,339
========== ==========
</TABLE>
================================================================================
See consolidated notes to financial statements.
<PAGE>
================================================================================
LIABILITIES
-----------
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- --------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 50,000 $ -
Current maturities of long-term debt 152,271 -
Accounts payable - trade 599,133 81,825
Accounts payable - related party - 73,063
Accrued expenses 74,269 35,411
Advances 464,781 -
Income taxes payable 230,600 20,600
Notes payable - related party 5,397 22,368
---------- ----------
Total current liabilities 1,576,451 233,267
CUSTOMER ESCROW ACCOUNTS 2,353,649 -
LONG-TERM DEBT 329,584 -
STOCKHOLDERS' EQUITY
Common stock - par value $.000001,
250,000,000 shares authorized,
7,538,361 (5,000,000 at September 30, 1997)
shares issued and outstanding 7 5
Paid-in capital 792,415 792,415
Retained earnings (deficit) 275,710 (18,348)
---------- ----------
1,068,132 774,072
---------- ----------
$5,327,816 $1,007,339
========== ==========
</TABLE>
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
December 31, December 31,
1997 1996
------------- -------------
(unaudited) (audited)
<S> <C> <C>
REVENUES
Office Solutions $1,613,637 $ -
Merchant Banking 4,976,894 -
---------- ----------
6,590,531 -
COST OF REVENUES
Office Solutions 812,520 -
Merchant Banking 4,106,644 -
---------- ----------
4,919,164 -
---------- ----------
GROSS PROFIT 1,671,367 -
SELLING AND GENERAL EXPENSE 1,167,309 -
---------- ----------
INCOME BEFORE INCOME TAXES 504,058 -
INCOME TAXES 210,000 -
---------- ----------
NET INCOME $ 294,058 $ -
========== ==========
NET INCOME PER SHARE
Primary $ 0.01 $ -
========== ==========
Fully Diluted $ 0.01 $ -
========== ==========
Weighted Average Shares Outstanding 6,269,131 -
========== ==========
</TABLE>
================================================================================
See notes to consolidated financial statements.
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Period From September 30 to December 31, 1997
================================================================================
<TABLE>
<CAPTION>
Common Stock Retained Total
------------------ Paid-in Earnings Shareholders'
Shares Amount Capital (Deficit) Equity
---------- ------ -------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -
September 30, 1997 $5,000,000 $ 5 $792,415 $(18,348) $ 774,072
Exchange of stock
for acquisitions 2,538,361 2 - - 2
Net income for
the period - - - 294,058 294,058
---------- ------ -------- -------- ----------
BALANCE -
December 31, 1997 $7,538,361 $ 7 $792,415 $275,710 $1,068,132
========== ====== ======== ======== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Quarter Ended Year Ended
December 31, September 30,
1997 1997
-------------- --------------
(unaudited) (audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 294,058 $ 58,367
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation and amortization 8,432 3,925
Changes in assets and liabilities
Increase in accounts receivable (460,338) (26,210)
Increase in inventory (266,664) (131,950)
Increase in prepaid expenses (316,407) -
Increase (Decrease) in accounts payable 444,245 154,888
Increase in accrued expenses 61,225 35,411
Increase in income taxes payable 210,000 20,600
--------- ---------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (25,449) 105,031
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (301,560) (25,740)
Cash deposits and other assets (84,644) (40,000)
--------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (386,204) 75,740
CASH FLOWS FROM FINANCING ACTIVITIES
Intangible asset (308,894) -
Paid-in capital - 2,994
Cash received for issuance in common stock 2 6
Proceeds from borrowing and advances 957,298 22,368
Notes receivable advances (3,509) (25,541)
--------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 644,897 (173)
INCREASE IN CASH 233,244 29,118
CASH - Beginning 29,118 -
--------- ---------
CASH - Ending $ 262,362 $ 29,118
========= =========
</TABLE>
================================================================================
See notes to consolidated financial statements.
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
December 31, December 31,
1997 1996
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 294,058 $ -
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation and amortization 8,432 -
Changes in assets and liabilities
Increase in accounts receivable (460,338) -
Increase in inventory (266,664) -
Increase in prepaid expenses (316,407) -
Increase (Decrease) in accounts payable 444,245 -
Increase in accrued expenses 61,225 -
Increase in income taxes payable 210,000 -
--------- -------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (25,449) -
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property and equipment (301,560) -
Cash deposits and other assets (84,644) -
--------- -------
NET CASH USED BY
INVESTING ACTIVITIES (386,204) -
CASH FLOWS FROM FINANCING ACTIVITIES
Intangible asset (308,894) (2,453)
Paid-in capital - 3,000
Cash received for issuance in common stock 2 -
Proceeds from borrowing and advances 957,298 -
Notes receivable advances (3,509) -
--------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 644,897 547
INCREASE IN CASH 233,244 547
CASH - Beginning 29,118 -
--------- -------
CASH - Ending $ 262,362 $ -
========= =======
</TABLE>
================================================================================
See notes to consolidated financial statements.
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE A - SUMMARY OF ACCOUNTING POLICIES
- ---------------------------------------
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Nature of business
The Company is a regional supplier of equipment products and services used by
offices to manage information and documents. The Company also provides a
variety of specialty finance and merchant banking services. The Company
conducts business in the Baltimore, Washington, DC, Richmond and Tidewater,
Virginia metropolitan areas and grants credit to customers in those regions.
The Company changed its name from Spectrum Equities, Inc. to Imtek Office
Solutions, Inc. in April 1997.
2. Principles of consolidation and basis of presentation
The accompanying consolidated financial statements as of December 31, 1997,
reflects the accounts of Imtek Funding, Inc. and Imtek Services, Inc., both
wholly owned subsidiaries. All inter-company transactions have been
eliminated in consolidation.
The accompanying consolidated balance sheet as of December 31, 1997,
consolidated statements of earnings for the three months ended December 31,
1997, the consolidated statement of shareholders' equity for the three months
ended December 31, 1997, and the consolidated statement of cash flows for the
three months ended December 31, 1997 and 1996 are unaudited. In the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of operations for the
interim periods presented have been reflected in the accompanying
consolidated financial statements. The result of operations for interim
periods presented herein are not necessarily indicative of the results which
may be expected for the entire fiscal year.
3. Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM EQUITIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
================================================================================
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
- ---------------------------------------------------
4. Inventory
Inventories consist principally of copy machines, facsimiles, duplicators and
parts and supplies used in the maintenance of office machines and consumable
supplies. Inventories are stated at lower of cost or market using the first-
in, first-out (FIFO) method.
5. Property, plant and equipment
The Company provides depreciation for financial statement and income tax
purposes over the estimated useful lives of the fixed assets using the
straight-line method. Expenditures for maintenance and repairs are charged to
income in the period the charge is incurred. Depreciation expense for the
year was $8,432.
The annual rates of depreciation range from 2.5% for buildings, 10.00% for
machinery and equipment, and 10% to 33.33% for furniture, fixtures and
transportation equipment. These rates correspond to useful lives that range
from 40 years for buildings, 10 years for machinery and equipment, and from 3
to 10 years for furniture and transportation equipment.
6. Intangible assets
Intangible assets consisted principally of organizational costs of $24,700,
goodwill acquired from the purchase of a merchant banking operation of
$227,000, and covenants not to compete of $30,000. These costs are being
amortized over sixty months.
7. 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 reporting period.
Actual results could differ from those estimates.
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM SECURITIES)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
- ---------------------------------------------------
8. Income taxes
The Company provides for income taxes based upon income reported for
financial reporting purposes. For the year ended September 30, 1997 and the
quarter ended December 31, 1997, there were no charges to expenses or
earnings which differed as to the timing of their reporting for income tax
purposes.
9. Earnings per share
Primary earnings per share of approximately $0.01 are based on the weighted
average number of shares outstanding.
There is no fully diluted earnings per share because there were no
convertible debentures, stock options or warrants outstanding during the
period.
NOTE B - BUSINESS ACQUISITION
- -----------------------------
During the three months ended December 31, 1997, the Company acquired the assets
of seven unrelated businesses. These acquisitions were accounted for as
purchases with consideration totaling approximately $628,000. The results of
the acquired entities are included in the accompanying consolidated statement of
earnings since the effective date of each acquisition.
NOTE C - NOTES RECEIVABLE
- -------------------------
The Company advanced monies to CMS Holdings, Inc. (CMS), an entity controlled by
certain of the Company's officers. This note of $23,975 is unsecured, due on
demand with interest at an annual rate of 10%, receivable quarterly.
The other notes receivable is unsecured and due on demand with interest at an
annual rate of 10%.
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM SECURITIES)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
NOTE D - RESTRICTED CASH
- ------------------------
The Company's merchant banking subsidiary prefunds certain purchases with monies
received from third party purchasers. These funds are collected in an escrow
account and released upon settlement of the transactions.
NOTE E - ADVANCES AND PREPAID COMMISSIONS
- -----------------------------------------
The Company's merchant banking subsidiary is entitled to an advance of certain
funds to assist in paying commission to certain agents, (predominantly financial
planners). Commissions are expensed upon settlement of transactions.
NOTE F - NOTE PAYABLE
- ---------------------
The Company assumed a line of credit faculty in the amount of $50,000 in one of
its acquisitions. This faculty bears interest at prime plus one percent, is
unsecured, and payable on demand.
NOTE G - LONG-TERM DEBT
- -----------------------
Long-term debt consists of:
Note payable to bank $ 35,536
Note payable to affiliate 250,549
Notes payable to owners of acquired companies 122,770
Other 73,000
--------
481,855
Less: current maturities 152,271
--------
$329,584
========
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM SECURITIES)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
NOTE G - LONG-TERM DEBT - Continued
- -----------------------------------
The note payable to bank is due in monthly installments of approximately $900
including interest at 7-1/2% per annum. This note is secured by certain
inventory and other assets totaling approximately $150,000.
The note payable to affiliate is with a lending institution owned by certain of
the Company's officers. This note is secured by specific accounts receivable,
and bears interest at 15% per annum, payable quarterly, with a balloon principal
repayment due November 2001.
The notes payable to former owners bear interest at 7% and are payable
throughout 1998. These notes are unsecured.
Other notes payable were assumed by the Company in one of its acquisitions.
These notes are unsecured and are payable in monthly installments of
approximately $2,000 including interest at 11%. These notes mature January
2001.
Approximate aggregate maturities of long-term debt for the four years ending
September 30 are as follows:
1998 $152,270
1999 32,200
2000 35,000
2001 262,384
NOTE H - RECONCILIATION OF SEGMENT INFORMATION
- ----------------------------------------------
TO CONSOLIDATED AMOUNTS
-----------------------
Information for reportable segments relating to the Company consolidated totals
as follows:
Segments
-----------------------
Office Merchant Consolidated
Solutions Banking Totals
----------- ---------- ------------
Revenues $1,613,637 $4,976,894 $6,590,531
Cost of revenues 812,520 4,106,644 4,919,164
Gross profit 801,117 870,250 1,671,367
Segment profit (loss) before tax (216,192) 720,250 504,058
Segment assets 1,622,289 3,705,527 5,327,816
================================================================================
<PAGE>
IMTEK OFFICE SOLUTIONS, INC.
(FORMERLY SPECTRUM SECURITIES)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
NOTE I - PREFERRED STOCK OFFERING
- ---------------------------------
In November 1997, the Company's Board of Directors approved the issuance of a
private placement memorandum for an offering of up to $7,500,000 of convertible
preferred stock, which the company intends to use to funds acquisitions.
================================================================================
<PAGE>
EXHIBIT 3.0
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
IMTEK OFFICE SOLUTIONS, INC.
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is IMTEK
OFFICE SOLUTIONS, INC.
2. The Certificate of Incorporation of the Company (the "Certificate of
Incorporation") authorizes the issuance of Five Million (5,000,000) shares of
preferred stock, $.01 par value per share, and expressly vests in the Board of
Directors of the Company the authority provided therein to issue any or all
undesignated preferred shares in one or more series and by resolution or
resolutions to establish the designation and number and to fix the relative
rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a series of preferred stock to be designated as "Series A Convertible
Preferred Stock":
RESOLVED, that 75,000 authorized but undesignated shares of preferred stock
of the Company shall be designated Series A Convertible Preferred Stock, $.01
par value per share, and shall possess the rights and preferences set forth
below:
Section 1. Designation and Amount. 75,000 shares of the Company's
authorized but undesignated preferred stock shall be designated as Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") par
value $.01 per share. The Series A Convertible Preferred Stock shall have a
stated value of $100.00 per share (the "Original Series A Convertible Issue
Price").
Section 2. Rank. The Series A Convertible Preferred Stock shall rank: (I)
junior to any other class or series of capital stock of the Company hereafter
created specifically ranking by its terms senior to the Series A Convertible
Preferred Stock (collectively, the "Senior Securities"); (ii) prior to all of
the Company's Common Stock ("Common Stock"); (iii) prior to any class or series
of capital stock of the Company hereafter created specifically ranking by its
terms junior to any Series A Convertible Preferred Stock (collectively, with the
Common Stock, "Junior Securities"); and (iv) on parity with any class or series
of capital stock of the Company hereafter created specifically ranking by its
terms on parity with the Series A Convertible Preferred Stock ("Parity
Securities") in each case as to distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (all
such distributions being referred to collectively as "Distributions").
Section 3. Dividends. The holders of the then outstanding Series A
Convertible Preferred Stock shall be entitled to receive, when and as declared
by the Board of Directors, out of any funds
<PAGE>
legally available therefor, cumulative dividends at the annual rate of $9.00 per
share, payable in cash annually on each January 1, commencing on January 1,
1998. Such dividends shall accrue on each share from December 1, 1997 or
original issue date, whichever occurs later, and shall accrue from day to day,
whether or not earned or declared. Such dividends shall be cumulative so that,
except as provided in paragraph 5(f) below, if such dividends in respect of any
previous or current annual dividend period, at the annual rate specified above,
shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the deficiency shall first be fully paid before any dividend
or other distribution shall be paid on or declared and set apart for the Junior
Securities. Any accumulation of dividends on the Series A Convertible Preferred
Stock shall not bear interest.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series A Convertible Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities but in parity with
any distribution to Parity Securities, an amount per share equal to the sum of
(I) $100.00 and (ii) all accrued and unpaid dividends thereon, whether or not
earned or declared, and no more. If upon the occurrence of such event, and after
payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the Holders
of the Series A Convertible Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series A Convertible Preferred Stock and the
Parity Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series A Convertible Preferred Stock and the Parity Securities, pro rata, based
on the respective liquidation amounts to which the Holders of each such series
are entitled by the Company's Articles of Incorporation and any certificate(s)
of designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Articles of Incorporation
including any duly adopted certificate(s) of designation.
Section 5. Conversion. The record Holders of this Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Each record Holder of Series A Convertible
Preferred Stock shall be entitled (at the times set forth below) to convert (in
multiples of one preferred share) any or all of the shares of Series A
Convertible Preferred Stock held by such Holder at any time after ninety (90)
days following the date of the last closing of a purchase and sale of Series A
Convertible Preferred Stock that occurs pursuant to the offering of the Series A
Convertible Preferred Stock by the Company (the "Last Closing Date"), into
that number of fully-paid and non-assessable shares
2
<PAGE>
of Common Stock of the Company calculated in accordance with the following (the
"Conversion Rate"):
Days Between Last
Closing Date and Number of Shares of
Company's Receipt of Common Stock to be
Notice of Conversion Issued Upon Conversion
-------------------- ----------------------
91 to 180 days 12 shares
181 to 270 days 13 shares
271 to 360 days 14 shares
361 to 450 days 15 shares
451 to 540 days 16 shares
541 to 630 days 17 shares
631 to 720 days 18 shares
721 to 810 days 19 shares
811 to 900 days 20 shares
Over 900 days 21 shares
(b) Mechanics of Conversion. Before any holder of Series A
Convertible Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for the Common
Stock, and shall give written notice to the Company (the "Notice of Conversion")
at such office that he elects to convert the same and shall state therein the
number of shares of Series A Convertible Preferred Stock being converted.
Thereupon the Company shall promptly issue and deliver at such office to such
holder of Series A Convertible Series A Convertible Preferred Stock a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series A Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(I) Lost or Stolen Certificates. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company and its Transfer Agent, and upon
surrender and cancellation of the Preferred Stock Certificate(s), if mutilated,
the Company shall execute and deliver new Preferred Stock Certificate(s) of like
tenor and date. However, Company shall not be obligated to re-issue such lost or
stolen Preferred Stock Certificates if Holder contemporaneously requests Company
to convert such Series A Convertible Preferred Stock into Common Stock.
3
<PAGE>
(ii) No Fractional Shares. If any conversion of the Series A
Convertible Preferred Stock would create a fractional share of Common Stock to a
holder or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon conversion, shall be the next higher number of shares, or the Company may
at its option pay cash equal to fair value of the fractional share based on the
fair market value of one share of the Company's Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(c) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series A Convertible Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding Series A Convertible Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series A Convertible
Preferred Stock, the Company will immediately take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Rate.
(I) Adjustment Due to Stock Split, Stock Dividend, Etc. If, prior to
the conversion of all of the Series A Convertible Preferred Stock, the number of
outstanding shares of Common Stock is increased by a stock split, stock
dividend, or other similar event, the Conversion Rate shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a combination or reclassification of shares, or other similar event, the
Conversion Rate shall be proportionately increased.
(ii) Adjustment Due to Merger, Consolidation, etc. If, prior to the
conversion of all Series A Convertible Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the Company
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
(each a "Business Combination Event"), then the Holders of Series A Convertible
Preferred Stock shall thereafter have the right to receive upon conversion of
Series A Convertible Preferred Stock, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Series A Convertible Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Convertible Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Rate and of the number of shares issuable upon conversion of the
Series A Convertible Preferred Stock) shall thereafter be applicable, as nearly
as may be practicable in relation to any securities thereafter deliverable upon
the exercise hereof.
4
<PAGE>
(iii) No Fractional Shares. If any adjustment under this Section 5(e)
would require the issuance of a fractional share of Common Stock to a holder,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher full number of shares.
(e) Effect on Accrued and Unpaid Dividends. In the event that any
shares of Series A Convertible Preferred Stock shall be converted into Common
Stock, no accrued and unpaid dividends on such converted Series A Convertible
Preferred Stock shall be paid upon or after such conversion.
Section 6. Redemption by Company.
(a) Company's Right to Redeem at its Election. At any time,
commencing after ninety (90) days after the Last Closing Date, the Company shall
have the right, in its sole discretion, to redeem ("Redemption at Company's
Election"), from time to time, any or all of the Series A Convertible Preferred
Stock; provided (I) Company shall first provide thirty (30) days advance written
notice as provided in subparagraph 6(b)(ii) below (which can be given beginning
on the ninety first (91st) day after the Last Closing Date). If the Company
elects to redeem some, but not all, of the Series A Convertible Preferred Stock,
the Company shall redeem a pro-rata amount from each Holder of the Series A
Convertible Preferred Stock.
(I) Redemption Price At Company's Election. The "Redemption Price at
Company's Election" shall be an amount per share equal to the sum of (I) $100.00
and (ii) all accrued and unpaid dividends thereon, whether or not earned or
declared, and (iii) a Cash Call Premium based upon the elapsed time between the
Last Closing Date and the date of the Company's Notice of Redemption as follows:
Days Between Last
Closing Date and Cash
Company's Mailing Conversion
of Notice of Redemption Premium
----------------------- -------
91 to 180 days $ 2.00
181 to 270 days $ 4.00
271 to 360 days $ 6.00
361 to 450 days $ 8.00
451 to 540 days $10.00
541 to 630 days $12.00
631 to 720 days $14.00
721 to 810 days $16.00
811 to 900 days $18.00
Over 900 days $20.00
5
<PAGE>
(ii) Mechanics of Redemption at Company's Election. The Company shall
effect each such redemption by giving at least thirty (30) days prior written
notice ("Notice of Redemption") to the Holders of the Series A Convertible
Preferred Stock selected for redemption, by first class, mail, postage prepaid
at the address set forth on the stockholder records for the Series A Convertible
Preferred Stock. Such Notice of Redemption shall indicate (I) the number of
shares of Series A Convertible Preferred Stock that have been selected for
redemption, (ii) the date which such redemption is to become effective (the
"Date of Redemption At Company's Election") which shall not be less than 30 days
or greater than 60 days following the mailing of the Notice of Redemption and
(iii) the applicable Redemption Price At Company's Election, as defined in
(b)(I) above. Notwithstanding the above, Holder may convert into Common Stock,
prior to the close of business on the Date of Redemption at Company's Election,
any Series A Convertible Preferred Stock which it is otherwise entitled to
convert.
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to effect any redemption or begin
any redemption procedure (including the delivery of any notice required by this
Section 6) under Section 6(a) or Section 6(b) unless it has:
(I) the full amount of the redemption price in cash, available in a
demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount of
the redemption price with a bank or similar financial institution; or
(iii) an agreement with any underwriter or investor willing to
purchase from the Company a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(iv) a combination of the items set forth in (I), (ii) and (iii)
above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
Each Holder submitting Preferred Stock being redeemed under this Section 6
shall send its Series A Convertible Preferred Stock Certificates so redeemed to
the Company, and the Company shall pay the applicable redemption price to that
Holder by within five (5) business days of the Company's receipt of Preferred
Stock Certificates representing the Series A Convertible Preferred Stock to be
redeemed. The Company shall not be obligated to deliver the redemption price
unless the Preferred Stock Certificates so redeemed are delivered to the
Transfer Agent, or, in the event one or more certificates have been lost,
stolen, mutilated or destroyed, the Holder has complied with Section 5(b)(I).
6
<PAGE>
Section 7. Voting Rights. The Holders of the Series A Convertible
Preferred Stock shall have no voting power whatsoever, and no Holder of Series A
Convertible Preferred Stock shall vote or otherwise participate in any
proceeding in which actions shall be taken by the Company or the shareholders
thereof or be entitled to notification as to any meeting of the shareholders
except as otherwise provided by the Delaware Business Corporation Act ("Delaware
Law").
To the extent that under Delaware Law the vote of the Holders of the Series
A Convertible Preferred Stock, voting separately as a class, is required to
authorize a given action of the Company, the affirmative vote or consent of the
Holders of at least a majority of the shares of the Series A Convertible
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Convertible
Preferred Stock (except as otherwise may be required under Delaware Law) shall
constitute the approval of such action by the class. To the extent that under
Delaware Law the Holders of the Series A Convertible Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series A Convertible Preferred Stock shall be entitled
to a number of votes equal to the number of shares of Common Stock into which it
is then convertible using the record date for the taking of such vote of
stockholders as the date as of which the Conversion Rate is calculated. Holders
of the Series A Convertible Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's by-
laws and applicable statutes.
Section 8. Status of Redeemed or Converted Stock. In the event any shares
of Series A Convertible Preferred Stock shall be redeemed or converted pursuant
to Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Company as Series A
Convertible Preferred Stock.
Signed on _________________, 1998
----------------------------------
Edwin C. Hirsch, President
Attest:
- ---------------------------
7
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
IMTEK OFFICE SOLUTIONS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is:
IMTEK OFFICE SOLUTIONS, INC.
2. Article III of the certificate of incorporation of the corporation
is hereby amended to read as follows:
Article III. The total number of shares of stock which the Corporation shall
have the authority to issue shall be 250,000,000 shares of Common Stock of the
par value of $.000001 per share and 5,000,000 shares of Preferred Stock of the
par value of $.01 per share.
The Preferred Stock may be issued from time to time in series. All Preferred
Stock shall be of equal rank and identical, except in respect to the particulars
that may be fixed by the board of directors. The board of directors is
authorized to fix, in the manner and to the full extent provided and permitted
by law, all provisions of the shares of each series of Preferred Stock set forth
below:
1. The distinctive designation of all series and the number of shares
that shall constitute those series;
2. The annual rate of dividends payable on the shares of all series and
the time, conditions and manner of payment;
3. The redemption price or prices, if any, for the shares of each, any
and all series.
4. The amount payable upon shares of each series in the event of
voluntary or involuntary liquidation and the relative priority of each
series in the event of liquidation.
5. The rights, if any, of the holders of shares of each series to convert
those shares into Common Stock and the terms and conditions of that
conversion.
<PAGE>
6. The voting rights, if any, of the holders of shares of each series.
3. The amendment of the certificate of incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation law of the State
of Delaware.
Signed on January , 1998
---------------------------------
Edwin C. Hirsch, President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMTEK OFFICE
SOLUTIONS, INC. DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 262,362
<SECURITIES> 0
<RECEIVABLES> 857,400
<ALLOWANCES> 4,000
<INVENTORY> 752,325
<CURRENT-ASSETS> 2,213,544
<PP&E> 347,515
<DEPRECIATION> 10,215
<TOTAL-ASSETS> 5,327,816
<CURRENT-LIABILITIES> 1,576,451
<BONDS> 329,584
0
0
<COMMON> 792,422
<OTHER-SE> 275,710
<TOTAL-LIABILITY-AND-EQUITY> 5,327,816
<SALES> 6,590,531
<TOTAL-REVENUES> 6,590,531
<CGS> 4,919,164
<TOTAL-COSTS> 6,086,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 504,058
<INCOME-TAX> 210,000
<INCOME-CONTINUING> 294,058
<DISCONTINUED> 0
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<NET-INCOME> 294,058
<EPS-PRIMARY> .01
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</TABLE>
