<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 8-K/A FILED ON MAY 14, 1996 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment to Application or Report Filed
Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Amendment No. 1 to Current Report on Form 8-K
(Date of earliest event reported: February 29, 1996)
dated March 15, 1996.
Judge Imaging Systems, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-18248 06-1184427
-------- ------- ----------
(State or other (commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004
-----------------------------------------------------------
(Address of principal executive Offices)
Registrant's telephone number, including area code: (610) 667-1190
DataImage, Inc., 1010 Wethersfield Avenue, Hartford, CT 06114-3149
-------------------------------------------------------------------
(Former name and address of registrant)
<PAGE>
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K (date
of earliest event reported: February 29, 1996) dated March 15, 1996, as set
forth in the pages attached hereto:
Item 5. Other Events.
Effective February 29, 1996, the registrant changed its name from
DataImage, Inc. to Judge Imaging Systems, Inc. with a new principal place of
business of Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania, 19004.
As reported in Registrant's 1995 10-KSB, at the effective time of
the merger, the following individuals were elected as officers of the Company:
Martin E. Judge, Jr., chief executive officer, Wendy Greenberg, president,
Margaret E. Sulpazo, treasurer, Lynn Handel, chief financial officer, Katherine
A. Wiercinski, secretary, Michael A. Dunn, vice president, and Raymond Sozzi,
chief operating officer.
The employment of Raymond Sozzi as chief operating officer and Lynn
Handel as chief financial officer terminated on April 18, 1996 and April 23,
1996, respectively. On May 1, 1996, the Registrant employed Jeffrey J. Andrews
as its chief financial officer. Mr. Sozzi's duties as chief operating officer
have been reassigned to other executives.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
FINANCIAL INFORMATION
(a) Financial Statements of Business Acquired. Exhibit C - Financial Statements
of Judge Computer Corporation for the years ended December 31, 1995 and 1994 and
the Report of Messrs. Rudolph, Palitz LLP thereon.
(b) Pro Forma Financial Information. Exhibit D - DataImage, Inc. Pro-Forma
Financial Statements (unaudited) for the year ended December 31, 1995.
-2-
<PAGE>
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.
JUDGE IMAGING SYSTEMS, INC.
Date: May 14, 1996 By: /s/ Martin E. Judge, Jr.
------------ -------------------------
Martin E. Judge, Jr.
Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit Page
- --------- ---------------------- ----
Exhibit C - Financial Statements of Judge
Computer Corporation for the years ended
December 31, 1995 and 1994 and the Report
of Messrs. Rudolph, Palitz LLP thereon.
Exhibit D - DataImage, Inc. Pro-Forma
Financial Statements (unaudited) for the
year ended December 31, 1995.
-4-
<PAGE>
EXHIBIT C
---------
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
YEARS ENDED
DECEMBER 31, 1995 AND 1994
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
YEARS ENDED
DECEMBER 31, 1995 AND 1994
C O N T E N T S
<TABLE>
<CAPTION>
PAGE(s)
------
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF SHAREHOLDERS' DEFICIENCY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-15
</TABLE>
<PAGE>
[LETTERHEAD OF RUDOLPH, PALITZ LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Judge Imaging Systems, Inc.
(Formerly Judge Computer Corporation)
Moorestown, New Jersey
We have audited the accompanying balance sheet of Judge Imaging Systems, Inc.
(formerly Judge Computer Corporation) as of December 31, 1995, and the related
statements of operations, shareholders' deficiency, and cash flows for the years
ended December 31, 1995 and 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Judge Imaging Systems, Inc.
(formerly Judge Computer Corporation) as of December 31, 1995, and the results
of its operations and its cash flows for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company executed an
Agreement and Plan of Merger with DataImage, Inc. on December 1, 1995. The
merger was completed on February 29, 1996.
/s/ Rudolph, Palitz LLP
March 20, 1996
Plymouth Meeting, PA
- 1 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 11,310
Accounts receivable, net of allowance for
doubtful accounts of $23,000 1,471,916
Note receivable, DataImage, Inc. 50,000
Inventories 515,099
Prepaid expenses and other 273,672
----------
Total current assets 2,321,997
----------
PROPERTY AND EQUIPMENT
Computer equipment and software 279,363
Furniture and fixtures 80,771
Leasehold improvements 10,899
Vehicles 10,681
----------
381,714
Less: accumulated depreciation and amortization 186,844
----------
Net property and equipment 194,870
----------
OTHER ASSETS
Security deposits 14,063
----------
$2,530,930
==========
</TABLE>
See Notes to Financial Statements.
- 2a -
<PAGE>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Equipment notes payable, current portion $ 15,150
Accounts payable and accrued expenses 891,829
Payroll and sales taxes payable 112,336
Advances from shareholders 139,906
Deferred revenue 46,111
-----------
Total current liabilities 1,205,332
-----------
NOTE PAYABLE, BANK 1,538,425
-----------
DUE TO AFFILIATE 1,450,450
-----------
EQUIPMENT NOTES PAYABLE, NET OF CURRENT PORTION 53,233
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common stock ($.005 par value, 15,000,000 shares
authorized, 6,900,577 shares issued and outstanding) 34,503
Preferred stock ($.10 par value, 10,000,000 shares
authorized, 3,665,770 shares issued and outstanding) 366,577
Additional paid-in capital 524,433
Accumulated deficit (2,642,023)
-----------
Total shareholders' deficiency (1,716,510)
-----------
$2,530,930
===========
</TABLE>
- 2b -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
NET REVENUES $8,699,781 $3,773,336
COST OF REVENUES 6,712,389 3,039,009
----------- -----------
GROSS PROFIT 1,987,392 734,327
----------- -----------
OPERATING EXPENSES
Selling 1,561,354 831,833
General and administrative 472,194 415,935
----------- -----------
Total operating expenses 2,033,548 1,247,768
----------- -----------
OPERATING LOSS (46,156) (513,441)
----------- -----------
OTHER (EXPENSES):
Interest expense (191,466) (153,166)
Other expenses (34,836) -
----------- -----------
Total other (expenses) (226,302) (153,166)
----------- -----------
NET LOSS BEFORE PREFERRED DIVIDENDS (272,458) (666,607)
PREFERRED DIVIDENDS EARNED (18,329) (18,329)
----------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($ 290,787) ($ 684,936)
=========== ===========
NET LOSS PER SHARE AND FULLY DILUTED
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($.04) ($.10)
==== ====
</TABLE>
See Notes to Financial Statements.
- 3 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------ --------------- PAID - IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 6,489,250 $ 32,446 3,665,770 $ 366,577 $519,433 ($1,702,958) ($ 784,502)
NET LOSS - - - - - (666,607) (666,607)
--------- -------- --------- --------- -------- ---------- ----------
BALANCE,
DECEMBER 31, 1994 6,489,250 32,446 3,665,770 366,577 519,433 (2,369,565) (1,451,109)
ISSUANCE OF
COMMON SHARES 411,327 2,057 - - 5,000 - 7,057
NET LOSS - - - - - (272,458) (272,458)
--------- -------- --------- --------- -------- ---------- ----------
BALANCE,
DECEMBER 31, 1995 6,900,577 $34,503 3,665,770 $366,577 $524,433 ($2,642,023) ($1,716,510)
========= ======= ========= ======== ======== ========== ==========
</TABLE>
See Notes to Financial Statements.
- 4 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($ 272,458) ($666,607)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 37,194 33,618
Provision for uncollectible accounts 23,000 36,396
Stock compensation 6,000 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (787,875) (203,010)
Inventories (282,394) 127,518
Prepaid expenses and other (249,667) 8
(Decrease) increase in:
Accounts payable and accrued expenses 396,125 194,902
Payroll and sales taxes payable (76,277) 114,485
Deferred revenue 11,960 (39,546)
----------- ----------
Net cash used in operating activities (1,194,392) (402,236)
----------- ----------
INVESTING ACTIVITIES
Net cash used in investing activities,
purchases of property and equipment (91,677) (22,756)
----------- ----------
FINANCING ACTIVITIES
Loan to DataImage, Inc. (50,000) -
Repayments of advances from shareholders (49,793) (64,028)
Principal payments on equipment note borrowings (7,973) (7,462)
Advances from affiliate, net 111,136 245,999
Proceeds from note payable, bank 1,289,170 249,255
Issuance of common stock 1,057 -
----------- ----------
Net cash provided by financing activities 1,293,597 423,764
----------- ----------
INCREASE (DECREASE) IN CASH 7,528 (1,228)
CASH, JANUARY 1, 3,782 5,010
----------- ----------
CASH, DECEMBER 31, $ 11,310 $ 3,782
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 190,000 $ 145,000
=========== ==========
</TABLE>
See Notes to Financial Statements.
- 5 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1. CONTINUITY OF BUSINESS AND BUSINESS COMBINATION
On September 13, 1995, Judge Computer Corporation ("Judge") and
DataImage, Inc. ("DataImage") signed a Letter of Intent which
contemplated the merger of Judge into DataImage, Inc. with the current
Judge shareholders acquiring the majority ownership position in
DataImage. DataImage develops and markets standardized and custom
software products and systems for the mass storage, electronic
management and retrieval of information.
On December 1, 1995, Judge Computer Corporation and DataImage, Inc.
executed an Agreement and Plan of Merger ("The Merger Agreement"). The
Merger Agreement provides for each DataImage shareholder to receive one
share of new Common Stock in the surviving corporation (DataImage) in
exchange for every 31.960868 shares of outstanding DataImage Common
Stock. Each holder of Judge Common Stock was to receive shares of Common
Stock of the surviving corporation. The number of shares of surviving
corporation Common Stock to be received by Judge shareholders was to
vary depending upon the number of shares of Judge Series A Preferred
Stock (Notes 9 and 15) to be acquired by investors in a contemplated
private placement to be conducted by Judge prior to the closing (Note
15). The ratios ranged from 2.582 shares of Judge Common Stock for one
share of surviving corporation (DataImage, Inc.) Common Stock (if the
minimum amount of $600,000 was to be raised), to 3.074 to one (if the
maximum amount of $1,500,000 was to be raised). Dividends on the Judge
Series A Preferred Stock are to accrue and cumulate at an annual rate of
7% on the stated value of the Series A Preferred, provided that at least
$1,000,000 of shares were to be sold in the contemplated private
placement. Additionally, each share of Judge Series A Preferred Stock
issued in the Judge private placement was to receive one share of Series
A of the surviving corporation. The shares were to be convertible into
one share of surviving corporation Common at any time and to require
mandatory conversion at time of a public offering in excess of $5
million. The stock also has specific antidilution, demand and piggy-back
registration rights.
The net effect of the above transactions was to have outstanding
shares of Judge Common Stock and Judge Series A Convertible Preferred
Stock converted into approximately 95% of the voting capital of the
surviving corporation. As a result, the business combination was to be
accounted for as a "reverse acquisition" whereby Judge, in substance,
was to acquire DataImage, allocating the fair value of Judge stock
exchanged over the relative fair value of assets and liabilities of
DataImage (assumed to equal its book value) prior to Judge being merged
into DataImage (surviving corporation). No value was to be ascribed to
DataImage's net loss carryforwards as a result of limitations on these
carryforwards subsequent to the change in control. DataImage was to
remain a registrant under the Securities and Exchange Commission Rules.
- 6 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1. CONTINUITY OF BUSINESS AND BUSINESS COMBINATION (Continued)
Judge Series B Preferred Stock (issued subsequent to
December 31, 1995 and immediately prior to the Merger) (Note 15) was to
be exchanged for shares of the surviving corporations Series B Preferred
Stock. This stock was not considered in the 95% control requirement for
the former Judge shareholders. The Series B Preferred stockholders were
to be entitled to receive a cumulative dividend of 10% per annum; the
stock was to be redeemed in part or in full contingent upon the dollar
value of the proceeds of any secondary offering of the surviving
corporation (Note 15).
On February 29, 1996, the merger was completed on substantially the
same terms and conditions as discussed above.
Judge and DataImage anticipate that the proposed merger transaction
will qualify as a "reorganization" pursuant to Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that Judge
and DataImage will each be a party to the reorganization within the
meaning of Section 368(b) of the Code. Judge and DataImage further
anticipate that no gain or loss will be recognized by Judge or
DataImage by reason of the merger.
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
The Company derives its revenues from computer sales, repairs,
maintenance and providing system integration for document management,
imaging and workflow, principally in the mid-atlantic region of the
Country.
The Company is a 34% owned subsidiary of Judge, Inc., a Company who,
along with its 100% owned subsidiaries, provides engineers and other
technical professionals on a temporary and permanent basis. The
remaining 66% is owned by individuals who are also shareholders of
Judge, Inc.
- 7 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets, generally three to seven years. Leasehold improvements
are amortized over the shorter of the lives of the improvements or the
term of the lease.
Depreciation and amortization related to property and equipment
amounted to $37,194 in 1995 and $33,618 in 1994.
Revenue Recognition and Deferred Revenues
Revenues are recorded as income in the period in which the
merchandise is shipped or the services are rendered. Revenues billed in
advance for warranties and maintenance contracts are deferred and
recorded as income in the period in which the services are rendered.
Cash
The Company maintains its cash balances at financial institutions.
These balances are insured by the Federal Deposit Insurance Corporation
up to $100,000 at each institution.
Inventories
Inventories of computer and related supplies and equipment held for
resale are valued at the lower of cost (first-in, first-out) or market.
Included in cost of sales are inventory write-downs of approximately
$52,000 and $40,000 for the years ended December 31, 1995 and 1994,
respectively.
Income Taxes
Deferred taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("Statement") No. 109, "Accounting for
Income Taxes".The Statement requires the use of the liability method to
account for income taxes. Deferred income taxes are provided for the
difference between the tax basis of an asset or liability and its
reported amount in the financial statements at the currently enacted tax
rates that are expected to be in effect when the taxes are actually paid
or recovered.
- 8 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
Deferred income taxes arise principally from temporary differences
between financial and income tax reporting, including differences
relating to depreciation methods used, amounts recorded for inventory
capitalization, the availability of net operating loss carryforwards and
certain other differences.
Deferred income tax assets are reduced by a valuation allowance
when, based on the weight of evidence available, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized.
Self-Insurance
The Company and certain affiliates are self-insured for health care
claims for eligible active employees. The affiliated group is liable for
aggregate claims up to approximately $310,000 annually. Self-insurance
costs are accrued based upon the aggregate of the liability for reported
claims and an estimated liability for claims incurred but not reported.
Reclassifications
Certain items in the 1994 financial statements have been
reclassified to conform with the 1995 presentation.
Management's 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 reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 3. NOTE RECEIVABLE, DATAIMAGE, INC.
As a condition of the Letter of Intent (Note 1), the Company
provided a $50,000 bridge loan, with interest at 11%, to DataImage to
fund ongoing operations and working capital requirements through the
date of the expected closing. The loan is secured by certain assets of
DataImage. As a result of the merger, no interest was charged on this
loan.
- 9 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 4. NOTE PAYABLE, BANK
During 1995, the Company consolidated its line of credit along with
certain affiliated entities' lines into a $5,500,000 line of credit.
Outstanding borrowings relating to Judge Computer Corporation at
December 31, 1995 were $1,538,425. Interest on the line is prime plus 1%
(9.5% at December 31, 1995). Maximum borrowings under the new facility
are limited to 80% of qualified accounts receivable, as defined. The
line of credit is due in full on May 31, 1997, is collateralized by
substantially all of the Company's assets as well as substantially all
of Judge, Inc.'s and Judge Technical Services, Inc.'s assets, is
personally guaranteed by certain shareholders and certain affiliated
companies and is subject to certain financial covenants. In addition,
the Company as well as each of its affiliates is jointly and severally
responsible for all of the debt outstanding under the line.
Interest expense for all debt obligations, including equipment notes
payable (Note 5), advances from shareholders (Note 6) and related party
transactions (Note 7), totaled approximately $191,500 for 1995 and
$153,000 for 1994.
NOTE 5. EQUIPMENT NOTES PAYABLE
Equipment notes payable consist of various equipment notes payable
in monthly installments currently aggregating $1,698, including interest
at various rates, through March 2000.
Annual maturities of equipment notes payable are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1996 $ 15,150
1997 16,472
1998 17,947
1999 18,226
2000 588
--------
$ 68,383
========
</TABLE>
- 10 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 6. ADVANCES FROM SHAREHOLDERS
The Company had advances of $139,906 from individual shareholders at
December 31, 1995. The advances have no formal repayment terms.
Interest is charged monthly at various rates (from prime plus 1% to a
fixed rate of 12%). Interest expense related to these advances was
approximately $18,000 in 1995 and $22,000 in 1994.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company had advances from Judge, Inc. and Judge Technical
Services, Inc. (Note 2) amounting to $1,450,450 at December 31, 1995.
These advances accrue interest at prime plus 1% (which interest
amounted to approximately $84,000 in 1995 and $110,000 in 1994). No
interest was charged on these advances during the second half of 1995.
The advances have no formal repayment terms. Subsequent to
December 31, 1995, these advances were converted to preferred stock
(Notes 1 and 15).
During 1995, the Company billed a subsidiary of Judge, Inc. for
consulting and related technical advisory services in the amount of
$480,000. Such amount is included in net revenues in the accompanying
statement of operations. During 1995 and 1994, the Company sold
approximately $199,400 and $194,000, respectively, of computer related
equipment to Judge, Inc. and/or its subsidiaries.
During 1994, the Company provided certain management and
administrative services to Judge, Inc. and certain of Judge, Inc.'s
wholly-owned subsidiaries amounting to $402,000. This amount, which has
been recorded as a reduction of the Company's general and
administrative expenses in 1994, represented a reimbursement to the
Company by these affiliates for various general and administrative
expenses, including compensation paid to the Company's President. No
such compensation or reimbursement related to the Company's President's
salary was recorded in the 1995 financial statements.
NOTE 8. COMMON STOCK
During 1993, the Company issued warrants to an investment advisor of
the Company for the purchase of common stock for the amount of shares
necessary to bring such warrant holder's ownership to 2% of the
Company, if the warrants were to be exercised. The exercise price of
the warrants is par value ($.005). During 1995, 211,327 of common
shares were issued relating to such warrants.
- 11 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 8. COMMON STOCK (Continued)
Pursuant to an employment agreement dated July 1993 and a subsequent
amendment, the Company issued 200,000 shares of common stock to an
employee in 1995. Although such shares were not issued until 1995, the
calculations of net loss per share for 1995 and 1994 (Note 14) reflect
the commitment to issue those shares for those respective years. The
Company recorded compensation expense in the amount of $6,000 in 1995
and $ -0 - in 1994 related to the issuance of such shares.
NOTE 9. PREFERRED STOCK
During 1991, the capital structure of the Company was modified to
authorize the issuance of 10,000,000 shares of $.10 par value preferred
stock. During 1991, $100,000 of debentures and $266,577 of investor
loans were converted to 1,000,000 and 2,665,770 shares of preferred
stock, respectively.
Holders of preferred stock are entitled to vote as a single class
with the holders of the Company's common stock. In addition, holders of
preferred stock are entitled to receive cumulative dividends at the
annual rate of $.005 per share. Cumulative dividends in arrears at
December 31, 1995 were approximately $74,000. No dividends were
declared or paid in 1995 or 1994. Preferred stock may be redeemed by
the Company at any time for face value plus all accrued but unpaid
dividends to the date set for redemption. In addition, preferred
stockholders have the right to convert their preferred stock into
common stock.
Subsequent to December 31, 1995, the Company's Board of Directors
resolved to increase the authorized preferred stock by 1,150,000 shares
and divide such shares into 1,125,000 shares of Series A Convertible
Preferred Stock, par value of $.01, and 25,000 shares of Series B
Preferred Stock, par value $.01.
NOTE 10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During 1995, sales to two customers each exceeded 10% of the
Company's revenues and cumulatively totaled $2,071,000 (24% of total
sales). At December 31, 1995, trade accounts receivable include
$482,000 from these two customers.
At December 31, 1994, trade accounts receivable include $69,000 from
a customer. Sales to this customer exceeded 10% of the Company's 1994
revenues.
- 12 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11. COMMITMENTS
During 1990, the Company entered into a five-year non-cancelable
operating lease, expiring February 15, 1995, for the rental of an
office facility. The lease has been extended to February 29, 1997. The
Company also leases office space from an affiliated company on a
month-to-month basis. The Company paid this affiliate $23,500 in 1995.
The future annual minimum lease payments, including common area
charges, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1996 $63,000
1997 10,500
-------
$73,500
=======
</TABLE>
Rent expense, including common area charges and utilities, was
approximately $94,000 for the year ended December 31, 1995 and $74,000
for the year ended December 31, 1994.
NOTE 12. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," on January 1, 1993.
The net deferred tax asset at December 31, 1995 and 1994, includes
the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax asset $ 945,000 $ 877,000
Valuation allowance for
deferred tax asset (945,000) (877,000)
--------- ---------
$ - $ -
========= =========
</TABLE>
- 13 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12. INCOME TAXES (Continued)
The tax effect of major temporary differences that give rise to the
Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards $934,000 $840,000
Other 11,000 37,000
-------- --------
$945,000 $877,000
======== ========
</TABLE>
As a result of operating losses, no provision for income taxes was
required in 1995 and 1994.
For income tax reporting purposes, as of December 31, 1995, the
Company has unused operating loss carryforwards of approximately
$2,335,000, that begin expiring in 2002, and which may be applied
against future taxable income.
NOTE 13. RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan covering substantially
all eligible employees. Employees may contribute a percentage of their
pre-tax salary to the Plan. The Company has the option to make a
discretionary contribution. During 1995, the Company did not make any
discretionary contribution to the Plan. During 1994, the Company
recorded a discretionary contribution of $5,000 to the Plan.
NOTE 14. NET LOSS PER SHARE AMOUNTS
Net loss per share and fully diluted net loss per share attributable
to common shareholders is based on the weighted average number of
shares of common stock outstanding during the periods. The assumed
conversion of certain convertible preferred stock and certain common
stock warrants have not been considered in the calculations of loss per
share, since the effect of such conversions/exercise would be
antidilutive. The weighted average number of shares outstanding during
the years ended December 31, 1995 and 1994 were 6,595,000 and
6,549,250, respectively.
- 14 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 15. SUBSEQUENT EVENTS
As further discussed in Note 1, the Merger transaction with
DataImage, Inc. was consummated effective February 29, 1996.
Subsequent to December 31, 1995, the Company raised approximately
$1,097,000 (exclusive of related costs) in a private placement offering
of Series A Convertible Preferred Stock. 822,628 shares were issued in
the offering at a price per share of $1.33. The Preferred A Stock is
convertible at the holder's option, and conversion is mandatory at the
time of a subsequent public offering of common stock in excess of $5
million dollars. The Preferred Stock carries a cumulative dividend of
7% per year and holders will have a liquidation preference prior to the
common stock shareholders and all other existing classes. In the event
Judge Imaging Systems, Inc. (the surviving company) has not closed on a
subsequent public offering by the eighth anniversary of the merger,
then the Company will have the right to redeem the stock.
Subsequent to December 31, 1995 and at the effective time of the
Merger (Note 1), $1,520,000 of advances from Judge, Inc./Judge
Technical Services, Inc. were converted into 1,500 shares of Company
Series B Preferred Stock (the "shares"). The shares are not
convertible, nor do they have any liquidation preference and carry a
10% cumulative annual dividend. Dividend payments are permitted,
contingent upon certain profit goals set forth by the Company. Partial
and full redemption of the $1,520,000 face amount is permitted,
contingent upon the dollar value of proceeds raised in a subsequent
public offering. Subsequent to the closing of the Merger, such shares
shall be converted into 1,500 shares of Series B Preferred Stock of the
surviving corporation from the merger. The surviving corporation shares
shall have the same rights and privileges as the predecessor shares,
and is mandatorily redeemable.
NOTE 16. STATEMENTS OF CASH FLOWS
Supplemental Disclosure of Noncash Financing Transactions:
During 1995, the Company entered into certain financing arrangements
for the purchase of property and equipment in the amount of
approximately $71,000.
- 15 -
<PAGE>
EXHIBIT D
---------
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidating financial statements give
effect to the business combination (which occurred on February 29, 1996) between
DataImage, Inc. (DataImage) and Judge Computer Corporation, with DataImage
being the surviving corporation, and which was renamed Judge Imaging Systems,
Inc. The pro forma balance sheet gives effect to the business combination as if
it occurred on December 31, 1995. The pro forma balance sheet is presented for
informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the business
combination had been consummated at December 31, 1995. The pro forma statement
of operations for 1995 gives effect to the merger as if it occurred on January
1, 1995. The pro forma statement of operations is also presented for
informational purposes only and does not purport to be indicative of the results
of operations that actually would have resulted if the business combination had
been consummated at January 1, 1995. The pro forma adjustments primarily relate
to various equity transactions which occurred subsequent to December 1995 and/or
which occurred prior to the actual date of the combination. These pro forma
financial statements should be read in conjunction with the separate historical
financial statement of DataImage and Judge Computer Corporation and notes
thereto, which are included in Judge Imaging Systems, Inc.'s 1995 Form 10-KSB.
<PAGE>
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
PRO FORMA CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
JUDGE COMPUTER PRO FORMA CONSOLIDATED
CORPORATION DATAIMAGE, INC. ADJUSTMENTS DECEMBER 31, 1995
-------------- -------------- ----------- -----------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,310 $ 86,673 (2) $ 1,097,000 $ 1,048,533
(3) (146,000)
(5) (450)
Accounts receivable, net of allowance for
doubtful accounts 1,471,916 8,936 - 1,480,852
Other receivables 50,000 - (1) (50,000) 0
Inventories 515,099 42,185 - 557,284
Prepaid expenses and other 273,672 24,863 (3) (129,000) 169,535
---------------------------------------------------------------------------
Total current assets 2,321,997 162,657 771,550 3,256,204
PROPERTY AND EQUIPMENT, NET 194,870 157,351 - 352,221
OTHER ASSETS, Security Deposits 14,063 5,540 - 19,603
---------------------------------------------------------------------------
Total assets $ 2,530,930 $ 325,548 $ 771,550 $ 3,628,028
---------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes Payable - $ 484,497 (4) ($434,497) 0
(1) (50,000)
Equipment note payable,
current portion $ 15,150 - $15,150
Accounts payable and accrued expenses 1,004,165 255,509 (3) (65,000) 1,194,674
Advances from shareholders 139,906 - - 139,906
Deferred Revenue 46,111 173,414 - 219,525
---------------------------------------------------------------------------
Total current liabilities 1,205,332 913,420 (549,497) 1,569,255
----------------------------------------------------------------------------
EQUIPMENT NOTE PAYABLE NET OF CURRENT PORTION 53,233 - - 53,233
---------------------------------------------------------------------------
BANK NOTE PAYABLE, LONG-TERM 1,538,425 - - 1,538,425
---------------------------------------------------------------------------
DUE TO AFFILIATE 1,450,450 - (5) (1,450,450) 0
---------------------------------------------------------------------------
MANDATORILY REDEEMABLE
PREFERRED STOCK - - (5) 1,450,000 1,450,000
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock 34,503 40,100 (4) 39,802 39,801
(6) (74,604)
Preferred Stock 366,577 (2) 1,097,000 1,097,000
(6) (366,577)
Additional paid-in capital 524,433 6,354,141 (4) 394,695 522,337
(3) (210,000)
(6) (6,540,932)
Retained Earnings (deficit) (2,642,023) (6,982,113)(6) 6,982,113 (2,642,023)
---------------------------------------------------------------------------
Total shareholders' equity (1,716,510) (587,872) 1,321,497 (982,885)
(deficiency)
---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 2,530,930 $ 325,548 $ 771,550 $ 3,628,028
---------------------------------------------------------------------------
</TABLE>
<PAGE>
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
NOTE 1. Adjustment to eliminate loan from Judge Computer Corporation to
DataImage, Inc.
NOTE 2. Adjustment to record the sale through a private placement of
$822,628 shares of Judge A Preferred Stock at $1.333333 per share. The
stock has a cumulative dividend at an annual rate of 7% provided that
the surviving entity closes a secondary public offering. Each share of
the Judge A Preferred Stock became one share of the surviving entity's
Series A Preferred Stock with identical rights and terms of the original
issue. The stock is convertible into one share of the surviving entity's
common stock.
NOTE 3. Adjustment to record approximate costs of the merger, the sale of
Judge A Preferred Stock by Judge Computer Corporation and the conversion
of debt to equity by DataImage, Inc.
NOTE 4. Adjustment to record conversion of DataImage, Inc.'s Canaan Capital
stockholders' notes payable to common stock as follows:
<TABLE>
<CAPTION>
Additional
Paid-in
Par Value Capital Total
--------- ---------- --------
<S> <C> <C> <C>
Conversion as of date of merger transaction $39,802 $394,695 $434,497
------- -------- --------
</TABLE>
-3-
<PAGE>
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
NOTE 5. Adjustments for conversion of Judge Computer Corporation's liability
to an affiliate in exchange for Series B Preferred Stock. Each of the
shares issued by Judge in satisfaction of the debt has a stated value of
$1,000 representing $1,000 of the principal and the interest on notes
satisfied by the issuance of the preferred shares; partial shares were
paid out in cash. The preferred stock carries a 10% per annum cumulative
annual dividend. In conjunction with the business combination, the Judge
Series B Preferred was exchanged for Series B Preferred of the surviving
corporation with identical rights and terms. The stock must be redeemed
out of the proceeds of any public offerings or within ten year,
whichever occurs first.
NOTE 6. Adjustment to reflect accounting for business combination as a
"reverse acquisition" in which Judge Computer Corporation (Judge), in
substance, acquired DataImage, due to the fact that Judge's former
shareholders obtained approximately 95% of the voting control of
DataImage. Judge merged into DataImage with DataImage being the
surviving corporation. It is assumed that the fair value of Judge's
exchanged shares equals the fair value of DataImage's assets and
liabilities as of February 29, 1996, the date of consummation of the
combination (which fair value is assumed to be its book value) and no
benefit (asset) has been established for any of DataImage's tax loss
carryforwards. The number of common shares outstanding of the surviving
corporation after the merger is as follows:
<TABLE>
<CAPTION>
Par
Shares Value
------ -----
<S> <C> <C>
Prior DataImage Shareholders
(7,990,217/31.960868 - exchange ratio) 250,000 $ 2,500
Prior Judge Shareholders
(10,566,347/2.832693723 - exchange ratio) 3,730,141 37,301
--------- -------
3,980,141 $39,801
========= =======
</TABLE>
As a result of the above, Judge Computer common stock is restated in
terms of the surviving corporation.
-4-
<PAGE>
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
JUDGE COMPUTER PRO FORMA CONSOLIDATED
CORPORATION DATAIMAGE, INC. ADJUSTMENTS DECEMBER 31, 1995
-------------- --------------- ------------ -----------------
<S> <C> <C> <C> <C>
Net Revenues $8,699,781 $1,284,333 $9,984,114
Cost of Revenues 6,712,389 800,841 7,513,230
-------------- ---------- ----------- ----------
Gross Profit 1,987,392 483,492 2,470,884
Operating Expenses,
Selling, general and
administration 2,033,548 437,904 2,471,452
-------------- ---------- ----------- ----------
Operating Profit (loss) (46,156) 45,588 (568)
Other Income (Expenses), net (226,302) (55,289)(1) 49,219 (232,372)
-------------- ---------- ----------- ----------
Net Income (loss) ($272,458) ($9,701) $49,219 ($232,940)
-------------- ---------- ----------- ----------
Net loss per share attributable
to common shareholders ($0.11)
----------
Weighted average number of common
shares outstanding 3,980,141
----------
</TABLE>
-5-
<PAGE>
JUDGE IMAGING SYSTEMS, INC. (FORMERLY DATAIMAGE, INC.)
NOTES TO PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
NOTE 1. To adjust interest expense due to the conversion of DataImage,
Inc.'s Canaan Capital stockholders' notes payable to common stock.
NOTE 2. Net loss per share of common stock is calculated as follows
(reflecting 822,628 convertible shares of Series A Preferred stock
issued in the pro forma consolidating balance sheet):
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
------------------
<S> <C>
Net loss ($ 232,940)
7% cumulative dividend on Series
A Preferred Stock (76,790)
Less 10% cumulative dividends on
Series B Preferred Stock (145,045)
----------
($ 454,775)
----------
Weighted average number of shares 3,980,141
----------
Net loss per share attributable to
common Shareholders ($ .11)
----------
</TABLE>
-6-
