UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 19, 1996
Pacific Animated Imaging Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-12536 11-2964894
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
326 First Street, Suite 100, Annapolis, Maryland 21403
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (410) 263-7761
-----------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits:
This amendment No. 1 to the current report is filed on Form 8-K/A by Pacific
Animated Imaging Corporation ("the Company") and amends the Current Report on
Form 8-K filed by the Company on August 2, 1996. Only those items which are
amended are set forth herein.
(a) Financial Statements of U.S. Technologies, Inc.
Report of Coopers & Lybrand, L.L.P., independent accountants
Report of Lanese & Associates, Inc., independent accountants
Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995
Statements of Operations for the six months ended June 30, 1996 and
1995 (unaudited) and the years ended December 31, 1995 and 1994
Statements of Stockholders' Deficit for the years ended December 31,
1995 and 1994 and the six months ended June 30, 1996
Statements of Cash Flows for the six months ended June 30, 1996 and
1995 (unaudited) and the years ended December 31, 1995 and 1994
Notes to Financial Statements
(b) Proforma Financial Information
Unaudited Pro Forma Consolidated Balance Sheet as of June 30 1996
Unaudited Pro Forma Consolidated Statements of Operations for the
six months ended June 30, 1996
Unaudited Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1995
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits
Exhibit No. Item
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Lanese & Associates, Inc.
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
U.S. Technologies, Inc.
We have audited the balance sheet of U.S. Technologies, Inc. (the
Company) as of December 31, 1995, and the related statements of operations,
stockholder's deficit, and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The statements of operations, stockholder's deficit and cash flows
of the Company for the year ended December 31, 1994 were audited by other
auditors, whose report dated March 10, 1995, expressed an unqualified opinion on
those statements, before the restatement described in Note 11.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial operating losses
since its inception, a deficit in working capital of $591,169, an accumulated
deficit of $527,136, and failed to repay all amounts due under its line of
credit by the maturity date in June 1996. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans with regard to these matters are also described in Notes 1, 4 and 10. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We also audited the adjustments described in Note 11 that were applied
to restate the statements of operations, stockholder's deficit and cash flows of
the Company for the year ended December 31, 1994. In our opinion, such
adjustments are appropriate and have been properly applied to the 1994 financial
statements.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
September 27, 1996, except for Note 1
for which the date is November 8, 1996
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Shareholder
of U.S. Technologies, Inc.:
We have audited the accompanying statements of operations,
stockholder's deficit, and cash flows of U.S. Technologies, Inc. (the
Company) for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of the Company's operations and
its cash flows for the year ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Note 11 to the financial statements, the Company
restated its accumulated deficit as of December 31, 1994 as a result of the
write-off of $119,596 of software development costs inappropriately capitalized
during 1994.
Nicholas Lanese, C.P.A.
Riverview, FL
March 10, 1995
4
<PAGE>
U.S. TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(unaudited) 1995
--------------------- ---------------------
ASSETS
<S> <C>
Cash $ 12,771 $ --
Accounts receivable, net of allowance for doubtful
accounts of $33,760 and $39,761, respectively 154,091 489,049
Inventory 31,357 35,072
Prepaid expenses and other current assets -- 7,985
--------------------- ---------------------
Total current assets 198,219 532,106
Furniture and equipment 449,156 439,106
Less accumulated depreciation (167,435) (140,435)
-------------------- ---------------------
Net property and equipment 281,721 298,671
Deposits and other assets 18,249 18,249
--------------------- ---------------------
$ 498,189 $ 849,026
===================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses $ 359,033 $ 713,400
Deferred revenue 116,382 93,912
Line of credit 347,719 284,287
Current portion, long term debt 33,331 31,676
--------------------- ---------------------
Total current liabilities 856,465 1,123,275
Long-term note payable to bank 36,255 53,480
Shareholder loan 122,786 101,038
Other liabilities 75,000 --
--------------------- ---------------------
Total liabilities 1,090,506 1,277,793
Common stock, $1 par value; 7,500 authorized
shares; 7,500 shares issued and outstanding
at June 30, 1996 and December 31, 1995 7,500 7,500
Additional paid-in capital 90,869 90,869
Accumulated deficit (690,686) (527,136)
-------------------- ---------------------
Total stockholders' deficit (592,317) (428,767)
--------------------- ---------------------
$ 498,189 $ 849,026
===================== =====================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
U.S. TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended
(Unaudited) December 31,
----------------------------------- ------------------------------------
1996 1995 1995 1994
---------------- ---------------- ---------------- ---------------
<S> <C>
Revenues
Service fees $ 993,864 $ 745,605 $ 1,865,942 $ 731,758
Product sales 336,277 1,818,872 2,787,023 4,602,271
---------------- ---------------- ---------------- ---------------
Total revenues 1,330,141 2,564,477 4,652,965 5,334,029
Operating expenses
Cost of service fees 593,617 457,410 1,218,392 943,345
Cost of product sales 272,614 1,451,212 2,289,646 3,352,119
Research and development -- 68,540 204,809 160,974
Selling, general and administrative 610,701 552,065 1,250,010 1,009,818
---------------- ---------------- ---------------- ---------------
Total operating expenses 1,476,932 2,529,227 4,962,857 5,466,256
---------------- ---------------- ---------------- ---------------
(Loss) income from operations (146,791) 35,250 (309,892) (132,227)
Interest expense & other (16,759) (15,168) (43,320) (22,575)
---------------- ---------------- ---------------- ---------------
Net (loss) income $ (163,550) $ 20,082 $ (353,212) $ (154,802)
================ ================ ================ ===============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
U.S. TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------- ------------- ----------------- ----------------- -----------------
<S> <C>
Balance, December 31, 1993 7,500 $ 7,500 $ 90,869 $ (19,122) $ 79,247
Net loss -- -- -- (154,802) (154,802)
------------- ------------- ----------------- ----------------- -----------------
Balance, December 31, 1994 7,500 7,500 90,869 (173,924) (75,555)
Net loss -- -- -- (353,212) (353,212)
------------- ------------- ----------------- ----------------- -----------------
Balance, December 31, 1995 7,500 7,500 90,869 (527,136) (428,767)
------------- ------------- ----------------- ----------------- -----------------
Net loss (Unaudited) -- -- -- (163,550) (163,550)
------------- ------------- ----------------- ----------------- -----------------
Balance, June 30, 1996 (Unaudited) 7,500 $ 7,500 $ 90,869 $ (690,686) $ (592,317)
============= ============= ================= ================= =================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
U.S. TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30, Year ended
(Unaudited) December 31,
--------------------------------- ---------------------------------
1996 1995 1995 1994
-------------- --------------- --------------- ---------------
<S> <C>
Cash flows from operating activities
Net loss (163,550) 20,082 $ (353,212) $ (154,802)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 27,000 26,998 95,825 41,682
Bad debt expense (6,001) 1,760 37,761 3,978
Decrease (increase) in assets
Accounts receivable 340,960 (428,557) (151,276) (125,840)
Inventory 3,715 (20,545) (10,574) 38,640
Prepaid expenses and other current assets 7,985 (2,626) 15,487 --
Other assets -- (3,389) (5,854) (12,394)
Increase (decrease) in liabilities
Accounts payable and accrued liabilities (354,367) 295,525 332,778 146,885
Deferred revenue 22,469 (73,084) 20,829 73,084
Other liabilities 75,000 -- -- --
-------------- --------------- --------------- ---------------
Net cash (used in) provided by operating activities (46,789) (183,836) (18,236) 11,233
-------------- --------------- --------------- ---------------
Cash flows from investing activities
Capital expenditures (10,050) (40,629) (168,714) (186,973)
-------------- --------------- --------------- ---------------
Net cash used in investing activities (10,050) (40,629) (168,714) (186,973)
-------------- --------------- --------------- ---------------
Cash flows from financing activities
Proceeds from shareholder loan 23,000 50,000 121,324 --
Repayments of shareholders loan (1,252) (30,375) (39,248) (49,902)
Proceeds from long-term debt -- 100,000 100,000 100,000
Payments on long-term debt (15,570) (80,556) (95,399) (19,444)
Proceeds from line of credit, net 63,432 150,000 42,583 174,862
-------------- --------------- --------------- ---------------
Net cash provided by financing activities 69,610 189,069 129,260 205,516
-------------- --------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents 12,771 (35,396) (57,690) 29,776
Cash, beginning of year 0 57,690 57,690 27,914
-------------- --------------- --------------- ---------------
Cash, end of year $ 12,771 $ 22,294 $ 0 $ 57,690
============== =============== =============== ===============
Supplemental disclosures of cash paid:
Interest $ 16,759 $ 15,168 $ 43,320 $ 22,575
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
U.S. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Description of Business. U.S. Technologies, Inc. (the "Company "),
founded in 1992, is a full service computer systems integration company. The
Company provides computer equipment, integration and support services, and
develops and sells client-specific software products. The Company specializes in
office automation, work group and work flow computing solutions, document
management/imaging solutions, and related consulting services. Their client base
includes insurance companies, financial institutions, healthcare firms and other
companies which operate mainframe or mid-range computers primarily throughout
the state of Florida.
The Company's financial statements for the year ended December 31, 1995
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $353,212 for the year ended
December 31, 1995, and as of December 31, 1995 had an accumulated deficit of
$527,136. In addition, the Company was in default of its line of credit with a
commercial bank as a result of a failure to repay all amounts due under the line
of credit by the maturity date in June 1996. Presently, the Company does not
have adequate resources to fund its debt service or support operations.
Management recognizes that the Company must generate additional resources to
enable it to continue operations. In July 1996, the Company merged with Pacific
Animated Imaging Corporation (see Note 10 - Subsequent Events) and restructured
its line of credit (see Note 4 - Line of Credit). In addition, in October 1996,
the Company was approved as an IBM industry remarketer for both the AS/400 and
RS/6000 midrange computer platforms to be sold as a part of the Company's
groupware, I-net, data warehousing, and client/server solutions delivered to
clients. However, no assurances can be given that these measures, even if
successful, will ensure the continued existence of the Company. The Company's
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Revenue from hardware and software sales is
recognized on delivery. Software products generally are delivered without post
sale vendor obligations and without a significant obligation to the customer.
Revenues from consulting and training services are recognized as services are
performed. Deferred revenue represents amounts advanced by customers with
respect to hardware or software products, consulting or education services.
These amounts are recognized as revenue upon delivery of the products or
services.
Software Development Costs. Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Cost of Computer Software to be Sold,
Leased or Otherwise Marketed" requires the capitalization of certain software
development costs once technological feasibility is established, which the
Company generally defines as the completion of a working model. Capitalization
ceases when the products are available for general release to customers, at
which time amortization of the capitalized costs begins on a straight-line basis
over the estimated product life, or on the ratio of current revenues to total
projected product revenues, whichever is greater. To date, software development
costs qualifying for capitalization have been insignificant. Accordingly, the
Company has not capitalized any software development costs with respect to its
continuing operations.
9
<PAGE>
U.S. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
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 reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. The Company provides hardware, software and
performs services to its customers which are located primarily throughout
Florida. The Company provides credit in the normal course of business and, to
date, has not experienced significant losses related to receivables from
individual customers or groups of customers in a particular industry or
geographic area. Due to these factors management believes no additional credit
risk beyond amounts provided for in the doubtful account allowance is inherent
in the Company's accounts receivable.
Inventory. Inventory consists primarily of miscellaneous computer
components and is stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are principally three to seven years.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful life of the improvements or the
remaining lease term. When assets are retired or disposed, the cost and the
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in operations for the period.
Income Taxes. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Fair Value of Financial Instruments. During 1995, the Company adopted
SFAS No. 107, "Disclosure of Fair Value of Financial Instruments". The
Company believes that for all financial instruments, as defined by SFAS No.
107, the carrying amount, as reported in the balance sheet approximates fair
value.
Interim Financial Information. The financial information presented as of
June 30, 1996 and for the six months ended June 30, 1996 and 1995 is unaudited.
In the opinion of management, this unaudited financial information contains all
adjustments (which consists of only normal, recurring adjustments) necessary for
a fair presentation. Operating results for the six months ended June 30, 1996
and 1995 are not necessarily indicative of results that may be expected for a
full year.
Reclassifications. Certain amounts in the 1994 financial statements
have been reclassified to conform to the 1995 presentation.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of June 30, 1996
(unaudited) and December 31, 1995 consist of the following:
10
<PAGE>
U.S. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 December 31,
(unaudited) 1995
Accounts payable $309,634 $554,025
Payroll and related expenses 29,739 25,598
Commissions 11,109 57,985
State sales taxes 8,551 28,846
Other -- 46,946
----------- ----------
$ 359,033 $ 713,400
=========== =========
4. LINE OF CREDIT
The Company maintains a revolving line of credit with a bank to fund
short term working capital needs. As of December 31, 1995, the maximum available
under this arrangement is $350,000 with interest at the bank's prime rate plus
1 1/2%. This line of credit is collateralized by accounts receivable as well
as the personal guarantee of the sole stockholder. The line of credit matured
in June 1996 and as a result of a failure to repay all amounts due, the Company
was in default of its line of credit. In July 1996, in connection with
the acquisition of the Company (see Note 10 - Subsequent Events), this
line of credit was renegotiated. Under the revised terms, the maximum
available under this arrangement remains $350,000; however, the interest is at
the bank's prime rate plus 2% and requires twelve monthly principal payments
of $5,833 plus interest. The remaining unpaid principal balance is due and
payable on August 18, 1997. As of June 30, 1996 and December 31, 1995, the
outstanding balances of $347,719 and $284,287, respectively, were classified as
current obligations.
5. LONG-TERM NOTE PAYABLE
Long-term note payable as of June 30, 1996 (unaudited) and December 31,
1995 consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(unaudited) 1995
<S> <C>
Note payable to bank in monthly payments of
$3,222, including interest at 9.75% through
June 1998; collateralized by equipment,
inventory, and accounts receivable $69,586 $85,156
Less current portion (33,331) (31,676)
-------- --------
Long-term note payable to bank, less current portion $ 36,255 $ 53,480
======== ========
</TABLE>
The annual maturities of the note payable subsequent to December 31,
1995 are as follows: 1996, $31,676; 1997, $34,989; 1998, $18,491.
6. RELATED PARTY TRANSACTION - SHAREHOLDER LOAN
The Company's sole stockholder advanced amounts to the Company to fund
working capital needs. The amounts due are non-interest bearing and are to be
repaid upon availability of funds. In July 1996, in connection with the
acquisition of the Company (see Note 10 - Subsequent Events), the advanced
amounts were to be repaid after all amounts due to the bank are repaid in full
by the Company. Accordingly, these loans are considered long-term obligations.
Amounts due to stockholder as of June 30, 1996 and December 31, 1995 were
$122,786 and $101,038, respectively.
11
<PAGE>
U.S. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES
The Company has reported its taxable income on a cash basis for the
periods presented in these financial statements.
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities as of June 30, 1996 (unaudited)
and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(unaudited) 1995
<S> <C>
Accounts receivable $(74,913) $(185,643)
Accounts payable and accrued expenses 123,279 267,776
Deferred revenue 44,179 35,649
Depreciation and amortization (18,334) (18,334)
Net operating loss carryforwards 150,824 86,064
Other 687 687
----------- -------------
Total deferred tax asset (liabilities) 225,722 186,199
Valuation allowance (225,722) (186,199)
----------- -------------
Net deferred tax asset (liabilities) -- --
=========== =============
</TABLE>
As of June 30, 1996, the Company has net operating loss carryforwards of
approximately $397,000 which expire beginning in 2008. As a result of certain
changes in ownership in July 1996 (see Note 10 - Subsequent Events), the use of
these carryforwards to offset future taxable income may be limited.
8. LEASES
As of December 31, 1995, the Company leased certain office space in
Tampa, Orlando, and Ft. Lauderdale under separate noncancelable operating
leases. These leases will expire in June 1999, May 2000, and April 1997,
respectively. The agreements generally require that the Company pay applicable
utility, property taxes and insurance costs. The Company also leases an
automobile under a noncancelable operating lease. The lease expires during 1998.
The Company is responsible for automobile maintenance. Effective in 1996, the
Company entered into a 5-year lease for a Luxury Suite at the Yankees' Stadium
in Tampa. The future annual minimum rental payments under these leases at
December 31, 1995 are as follows: 1996, $110,546; 1997, $100,747; 1998, $84,108;
1999, $64,191; 2000, $30,504. Rental expense for the years ended December 31,
1995 and 1994, was approximately $75,000 and $40,000, respectively.
9. COMMITMENTS
In connection with the development of a certain software product, the
Company has entered into a royalty agreement with a developer that requires the
Company to pay approximately one-third of gross revenue from sales of the
product. Amounts are payable once a certain amount advanced to the developer has
been recovered. As of June 30, 1996 and December 31, 1995, no amounts have been
accrued or paid to the developer.
12
<PAGE>
U.S. TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
10. SUBSEQUENT EVENTS
Effective July 19, 1996, the Company merged with U.S. Technologies, Inc.
Acquisition Corporation, a wholly owned subsidiary of Pacific Animated Imaging
Corporation ("PAI") in a transaction accounted for as a purchase. As a result,
PAI is now the 100% owner of the Company. Consideration at the time of purchase
amounted to $592,317 which represents the excess of the Company's liabilities
over its assets as of the date of the merger. In addition, the former 100% owner
of the Company has the ability to earn up to 31,068 shares of PAI common stock
(the market value of which was $400,000 as of the date of the merger) provided
certain financial milestones are met over a 37-month period pursuant to a
Performance Standard Agreement effective as of the date of the merger. In
addition, PAI made a commitment to provide capital to the Company of $500,000
over an eight-month period, beginning in July 1996, of which $75,000 was
advanced prior to the closing of the merger.
In connection with the acquisition of the Company, PAI established a
Phantom Stock Plan (the "Plan") for the Company's key employees. Pursuant to the
Plan, the Company's key employees have the ability to earn up to 46,602 shares
of PAI common stock, the market value of which was $600,000 as of the date of
the merger. The ability to earn these shares is subject to the same financial
milestones as referred to above.
In connection with the acquisition of the Company, the former 100% owner
of the Company entered into an employment agreement with PAI for a three year
period, automatically renewable for one year periods following the termination
date at the option of either party. This agreement requires annual compensation
of $100,000.
11. RESTATEMENT
The Company restated its net loss for the year ended December 31, 1994
and its accumulated deficit as of December 31, 1994 as a result of the write-off
of $119,596 of software development costs inappropriately capitalized during
1994. These costs were written off since it was determined that technological
feasibility, as defined by SFAS No. 86, was not established at the time the
costs were capitalized. The impact on previously reported net loss and
accumulated deficit for the year ended and as of December 31, 1994 is as
follows:
Net loss Accumulated deficit
As previously reported $ (35,206) $ (54,328)
Effect of restatement (119,596) (119,596)
---------- -----------
As restated $(154,802) $(173,924)
========= ==========
13
<PAGE>
Item 7 (b). Unaudited Pro Forma Financial Statements
The following Unaudited Pro Forma Consolidated Financial Statements illustrate
the effect of Pacific Animated Imaging Corporation's acquisition of U.S.
Technologies, Inc. (the "Acquisition"), accounted for as a purchase. The
Unaudited Pro Forma Consolidated Balance Sheet is prepared as of June 30, 1996
and illustrates the effects of the Acquisition as if it occurred on that date.
The Unaudited Pro Forma Consolidated Statements of Operations are prepared for
the six months ended June 30, 1996 and the year ended December 31, 1995 and
illustrate the effects of the Acquisition as if it had occurred as of January 1,
1995.
14
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION AND U.S. TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Pacific Animated
Imaging Corporation U.S. Technologies Adjustments Consolidated
<S> <C>
Cash and cash equivalents $2,641,389 $12,771 -- $2,654,160
Investment in U.S. government securities 474,144 -- -- 474,144
Accounts receivable, net 201,431 154,091 -- 355,522
Inventory -- 31,357 -- 31,357
Prepaid expenses and other current assets 95,186 -- (75,000) (1) 20,186
------------- ------------ ------------ ------------
Total current assets 3,412,150 198,219 (75,000) 3,535,369
Computers, furniture and equipment 638,514 449,156 (167,435) (1) 920,235
Less accumulated depreciation (286,771) (167,435) 167,435 (1) (286,771)
------------ ------------
------------- ------------
Net property and equipment 351,743 281,721 -- 633,464
Goodwill -- -- 592,317 (2) 592,317
Other assets 136,433 18,249 -- 154,682
------------- ------------ ------------ ------------
$3,900,326 $498,189 $517,317 $4,915,832
============= ============ ============ ============
Accounts payable and accrued expenses $251,171 $359,033 116,382 (1) $726,586
Deferred revenue and customer deposits 80,306 116,382 (116,382) (1) 80,306
Line of credit -- 347,719 -- 347,719
Current portion, long term debt -- 33,331 -- 33,331
Other current liabilities 73,853 -- -- 73,853
------------- ------------ ------------ ------------
Total current liabilities 405,330 856,465 -- 1,261,795
Long-term note payable to bank -- 36,255 -- 36,255
Shareholder loan -- 122,786 -- 122,786
Other liabilities 27,439 75,000 (75,000) (1) 27,439
------------- ------------ ------------ ------------
Total liabilities 432,769 1,090,506 (75,000) 1,448,275
------------- ------------ ------------ ------------
Common stock 151 7,500 (7,500) (2) 151
Additional paid-in capital 11,833,895 90,869 (90,869) (2) 11,833,895
Deferred compensation (174,515) -- -- (174,515)
Accumulated deficit (8,191,974) (690,686) 690,686 (2) (8,191,974)
------------- ------------ ------------ ------------
Total stockholders' deficit 3,467,557 (592,317) 592,317 3,467,557
------------- ------------ ------------ ------------
$3,900,326 $498,189 $517,317 $4,915,832
============= ============ ============ ============
</TABLE>
15
<PAGE>
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION AND U.S. TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Pacific Animated
Imaging Corporation U.S. Technologies Adjustments Consolidated
<S> <C>
Revenues $401,825 $1,330,141 -- $1,731,966
----------------- ---------------- -------------- ----------------
Operating expenses
Cost of revenues 485,608 866,231 -- 1,351,839
Research and development 123,770 -- -- 123,770
Selling, general and administrative 934,798 610,701 59,232 (2) 1,604,731
Write-off of purchased research
and development 289,330 -- -- 289,330
----------------- ---------------- -------------- -----------------
Total operating expenses 1,833,506 1,476,932 59,232 3,369,670
----------------- ---------------- -------------- -----------------
Loss from operations (1,431,681) (146,791) (59,232) (1,637,704)
Other income (expense) 82,045 (16,759) -- 65,286
----------------- ---------------- -------------- -----------------
Net loss ($1,349,636) ($163,550) ($59,232) ($1,572,418)
================= ================ ============== =================
Average number of common shares outstanding 1,450,473 7,500 1,450,473
================= ================ =================
Net loss per common share ($0.93) ($21.81) ($1.08)
================= ================ =================
</TABLE>
16
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION AND U.S. TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Pacific Animated
Imaging Corporation U.S. Technologies Adjustments Consolidated
<S> <C>
Revenues $708,652 $4,652,965 -- $5,361,617
---------------- ---------------- --------------- ---------------
Operating expenses
Cost of revenues 731,569 3,484,566 -- 4,216,135
Research and development 257,979 181,337 -- 439,316
Selling, general and administrative 1,707,521 1,250,010 118,463 (2) 3,075,994
---------------- ---------------- --------------- ---------------
Total operating expenses 2,697,069 4,915,913 118,463 7,731,445
---------------- ---------------- --------------- ---------------
Loss from operations (1,988,417) (262,948) (118,463) (2,369,828)
Other income (expense) 39,002 (90,264) -- (51,262)
---------------- ---------------- --------------- ---------------
Net loss ($1,949,415) ($353,212) ($118,463) ($2,421,090)
================ ================ =============== ===============
Average number of common shares outstanding 553,687 7,500 553,687
================ ================ ===============
Net loss per common share ($3.52) ($47.09) ($4.37)
================ ================ ===============
</TABLE>
17
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION AND U.S. TECHNOLOGIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
--------------------
(1) Consideration by Pacific Animated Imaging Corporation ("PAI") at the time of
purchase amounted to $592,317 which represents the excess of U.S.
Technologies' liabilities over its assets as of the date of the merger.
However, PAI made a commitment to provide capital to U.S. Technologies of
$500,000, of which $75,000 was advanced prior to June 30, 1996.
(2) Goodwill equaled U.S. Technologies total stockholder's deficit as of the
date of acquisition and is being amortized over 5 years. Therefore, amortization
of goodwill included in selling, general & administrative expenses for the six
months and the year ended June 30, 1996 and December 31, 1995, totaled $59,232
and $118,463, respectively.
18
<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.
PACIFIC ANIMATED IMAGING CORPORATION
Date: November 14, 1996 By: /s/ Suzanne C. Brown
----------------------
Suzanne C. Brown, CFO
19
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 8-K/A of our report, which contains an
explanatory paragraph regarding U.S. Technologies, Inc.'s ability to continue as
a going concern, dated September 27, 1996, except for Note 1 for which the date
is November 8, 1996, on our audit of the financial statements of U.S.
Technologies, Inc. as of December 31, 1995 and for the year then ended.
/s/ Coopers & Lybrand L.L.P.
November 14, 1996
Washington, D.C.
20
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 8-K/A of our report, dated March 10,
1995, on our audit of the financial statements of U.S. Technologies, Inc. for
the year ended December 31, 1994.
/s/ Lanese & Associates, Inc.
November 14, 1996
Riverview, FL
