SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 16, 1999
INFINITE GROUP, INC.
---------------------------------------------
(Exact name of Registrant as specified in
its charter)
DELAWARE 0-21816 52-1490422
- ------------------------------ ----------------------- ----------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2364 Post Road, Warwick, RI 02886
- --------------------------------------- ------------------------
(Address of principal executive office) (Zip Code)
(401) 738-5777
----------------------------------------------------
Registrant's telephone number, including area code:
N/A
----------------------------------------------------
(Former name or former address, if changed since
last report)
<PAGE>
Item 2. Acquisition and Disposition of Assets.
On April 16, 1999, Infinite Group, Inc. (the "Registrant") acquired 100%
of the outstanding capital stock of Osley & Whitney ("O&W"), a Massachusetts
corporation, from its stockholders. The aggregate consideration paid for the
capital stock of O&W was $1.5 million, payable $300,000 in cash and $1,200,000
pursuant to three-year 8.0% promissory notes of the Registrant.
O&W, whose operations are based in Westfield, Massachusetts, is a 49
year-old plastic injection mold building company with approximately 50
employees.
In connection with the transaction, the Registrant entered into employment
agreements with each of John T. Monahan and Roger Poirier, former shareholders
of O&W, for five-year terms.
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits.
Financial Statements, Pro-Forma Financial Information (filed herewith).
Osley & Whitney, Inc. Audited Financial Statements - August 2, 1998
Osley & Whitney, Inc. Financial Statements - March 28, 1999 (unaudited)
Infinite Group, Inc. and Osley & Whitney, Inc. Proforma Combined Financial
Statements - December 31, 1998 (unaudited) and March 31, 1999 (unaudited)
Exhibits.
Exhibit A -- Form of Stock Purchase Agreement dated as of April 16, 1999
by and among the stockholders of Osley & Whitney, Inc. and Infinite Group, Inc.
(previously filed)
SIGNATURE
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.
INFINITE GROUP, INC.
By: /s/ Clifford G. Brockmyre
----------------------------------
Clifford G. Brockmyre
Chief Executive Officer
Date: June 28, 1999
<PAGE>
FINANCIAL STATEMENTS
OSLEY & WHITNEY, INC.
================================================================================
AUGUST 2, 1998
with
INDEPENDENT AUDITOR'S REPORT
<PAGE>
OSLEY & WHITNEY, INC.
CONTENTS
================================================================================
Page
----
Independent Auditor's Report ........................................... 1
Financial Statements:
Balance Sheet..................................................... 2
Statement of Operations and Retained Earnings..................... 3
Statement of Cash Flows........................................... 4
Notes to Financial Statements........................................... 5 - 11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Osley & Whitney, Inc.
We have audited the accompanying balance sheet of Osley & Whitney, Inc. as
of August 2, 1998, and the related statements of operations and retained
earnings, and cash flows for the year then ended. 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 financial position of Osley & Whitney, Inc. as of
August 2, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
May 14, 1999
Buffalo, New York
1
<PAGE>
OSLEY & WHITNEY, INC.
BALANCE SHEET
August 2, 1998
================================================================================
ASSETS 1998
----
Current assets:
Cash $ 99,036
Accounts receivable 517,271
Inventory:
Raw materials 110,557
Work in progress 523,657
----------
634,214
Prepaid expenses 18,563
Deferred income taxes 24,653
----------
Total current assets 1,293,737
Cash value of life insurance 170,080
Due from officer 204,716
Property, plant and equipment, net 664,574
Prepaid pension costs 795,443
----------
Total assets $3,128,550
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 285,000
Accounts payable 129,458
Accrued liabilities 263,771
Accrued income taxes 41,500
Customer deposits 737,799
Current maturities of long-term debt 103,630
----------
Total current liabilities 1,561,158
Long-term debt 672,181
Deferred income taxes 211,653
----------
Total liabilities 2,444,992
Shareholders' equity:
Common stock, no par value, 1,000 shares authorized,
100 issued and outstanding 100,000
Retained earnings 583,558
----------
Total shareholders' equity 683,558
----------
Total liabilities and shareholders' equity $3,128,550
==========
See accompanying notes.
2
<PAGE>
OSLEY & WHITNEY, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For the Year Ended August 2, 1998
================================================================================
1998
----
Net sales $ 5,258,983
Cost of sales 4,506,720
-----------
Gross profit 752,263
Selling and administrative expenses:
Selling 263,311
Administrative 399,832
-----------
663,143
-----------
Operating profit 89,120
Non-operating expenses:
Interest expense 101,531
Other 3,766
-----------
105,297
-----------
Loss before income taxes (16,177)
Income tax benefit 15,900
-----------
Net loss (277)
Retained earnings, beginning of year 583,835
-----------
Retained earnings, end of year $ 583,558
===========
See accompanying notes.
3
<PAGE>
OSLEY & WHITNEY, INC.
STATEMENT OF CASH FLOWS
For the Year Ended August 2, 1998
===============================================================================
1998
----
Cash flows from operating activities:
Net loss $ (277)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 120,898
Deferred income taxes (51,600)
Change in assets and liabilities:
Accounts receivable 401,320
Inventory 197,367
Prepaid expenses (17,220)
Prepaid pension costs (68,749)
Accounts payable (433,673)
Accrued liabilities 49,374
Customer deposits 129,507
---------
Net cash provided by operating activities 326,947
Cash flows from investing activities:
Capital expenditures (351,102)
Cash surrender value of officer life insurance (10,281)
---------
Net cash used in investing activities (361,383)
Cash flows from financing activities:
Net repayments under lines of credit (109,000)
Borrowings on long-term debt 288,400
Payments on long-term debt (115,922)
Repayment of loan on cash value of life insurance (40,000)
---------
Net cash provided by financing activities 23,478
---------
Net decrease in cash (10,958)
Cash - beginning of year 109,994
---------
Cash - end of year $ 99,036
=========
See accompanying notes.
4
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 1. - SIGNIFICANT ACCOUNTING POLICIES
Organization - Osley & Whitney, Inc. (the Company), a Massachusetts
Corporation, manufactures molds. The Company sells primarily to other
manufacturing companies throughout the United States. The Company grants credit
to substantially all of its customers. It is the Company's policy to require a
deposit equal to approximately 30% of the total sale price on all orders.
Management has determined that a reserve for uncollectible accounts receivable
is not necessary.
Fiscal Year - The fiscal year of the Company, consisting of 52/53 weeks,
ends on the Sunday nearest to July 31. In 1998, the year end date was August 2
and consists of 52 weeks.
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.
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment - Property, plant and equipment are recorded
at cost. Depreciation is charged to operations over the estimated useful lives
of the respective assets using principally accelerated methods. Depreciation
expense for the year ended August 2, 1998 totaled $120,898. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is credited or
charged to income for the period. The cost of maintenance and repairs is charged
to expense as incurred; significant renewals and betterments are capitalized.
Income Taxes - The Company recognizes amounts of tax currently payable and
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Income Recognition - Anticipated losses are recognized in full when such
losses become known. Customer deposits received in advance are recorded as
liabilities until the job has been completed.
Cash Flows - Cash paid during the year ended August 2, 1998 for interest
amounted to $108,069.
5
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 1. - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist of cash accounts in
financial institutions. Although deposits exceed federally insured limits,
management does not anticipate non-performance by the financial institutions.
Sales to three customers accounted for approximately $3,433,000 or 65% of
net sales for the year ended August 2, 1998. At August 2, 1998, accounts
receivable from these same customers approximate 66% of total accounts
receivable.
NOTE 2. - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
Land and improvements $ 58,625
Buildings and improvements 304,206
Machinery and equipment 1,687,322
----------
2,050,153
Less accumulated depreciation 1,385,579
----------
$ 664,574
==========
NOTE 3. - DUE FROM OFFICER
Due from officer of $204,716 represents premiums paid by the Company on a
life insurance policy (the Policy), which is owned by an officer of the Company.
Under the terms of a related agreement, the Company is entitled to receive a
portion of the death benefits provided under the Policy equal to the total
amount of related premiums paid by the Company. This receivable is
collateralized by the death benefits under the Policy.
NOTE 4. - LINES OF CREDIT
The Company maintains a $350,000 and a $100,000 bank lines of credit,
which bear interest at the bank's prime rate plus .75% (9.25% at August 2,
1998). As of August 2, 1998, amounts outstanding under these lines were $280,000
and $5,000, respectively. The lines are collateralized by substantially all of
the Company's assets. In addition, the Company has a non-revolving equipment
line of credit up to $500,000 bearing interest at the bank's prime rate plus 1%
(9.5% at August 2, 1998). At August 2, 1998, $287,801 in bank loans were
outstanding under this line. The equipment line is collateralized by
substantially all of the Company's assets.
Subsequent to year end the Company refinanced the lines of credit. The
outstanding balances were repaid and a new agreement was signed with another
financial institution. The new agreement provides for borrowings of up to
$500,000 at the bank's prime rate plus .5% The new line is collateralized by
substantially all of the Company's assets.
6
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 5. - LONG-TERM DEBT
Long-term debt consists of the following:
Mortgage loan, payable in monthly principal
installments of $1,971 plus interest through May 2000
when a balloon payment of approximately $355,000 is
due. Interest is payable at the prime rate plus 1.25%
(9.75% at August 2, 1998). (A) $ 397,906
Bank loan, payable in monthly installments of $2,800
plus interest through October 2002. Interest is
payable at the prime rate plus 1% (9.5% at August 2,
1998). (B) 142,800
Bank loan, payable in monthly principal installments
of $4,222 plus interest through January 2001. Interest
is payable at the prime rate plus 1% (9.5% at August
2, 1998). (B) 123,334
Bank loan, payable in monthly installments of $1,335
plus interest through May 2003. Interest is payable at
the prime rate plus .75% (9.25% at August 2, 1998). (B) 77,427
Bank loan, payable in monthly installments of $417
plus interest through November 2002. Interest is
payable at the prime rate plus 1% (9.5% at August 2,
1998). (B) 21,667
Installment loan, payable in monthly installments of
$391, including interest at the rate of 9.99% per
annum through September 2001. 12,677
---------
775,811
Less current portion 103,630
---------
$ 672,181
=========
(A) Subsequent to year end the Company refinanced the mortgage loan. The
outstanding balance was repaid and a new agreement was established
with another financial institution. The new agreement was for the
principal sum of $700,000 plus interest at a rate of 7.75% through
April of 2006 when a balloon payment of approximately $566,000 is
due.
(B) Subsequent to year end the Company refinanced these bank loans. The
outstanding balances were repaid and a new term loan agreement was
established with another financial institution. The new agreement
was for the principal sum of $500,000 plus interest at a rate of
7.75% through April of 2006.
7
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 5. - LONG-TERM DEBT
The following annual maturities reflect the repayment terms of the
existing debt under the refinanced agreements:
1999 - $ 103,630
2000 - 72,613
2001 - 78,445
2002 - 84,749
2003 - 91,552
Thereafter - 344,822
----------
$ 775,811
==========
Substantially all of the assets of the Company, with the exception of
amounts due from officer, are pledged as collateral on the loans.
NOTE 6. - INCOME TAXES
Income tax (expense) benefit for the year ended August 2, 1998 consists of
the following:
Federal income taxes:
Current $ (7,000)
Deferred 36,000
State income taxes:
Current (28,700)
Deferred 15,600
----------
$ 15,900
==========
8
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 6. - INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to deferred tax
assets and liabilities at August 2, 1998 are as follows:
Deferred tax assets:
Inventory $ 4,600
Net operating loss carryforwards 116,000
Accrued officers' bonus 20,100
AMT credit carryforwards 5,300
Other credit carryforwards 15,900
----------
161,900
----------
Deferred tax liabilities:
Property, plant and equipment (28,600)
Prepaid pension cost (320,300)
----------
(348,900)
----------
Net deferred tax liability $ (187,000)
==========
At August 2, 1998, the Company has approximately $297,000 of federal net
operating loss and $182,000 of state net operating loss carryforwards available
to reduce future federal income taxes. These carryforwards will begin to expire
in the year 2007.
NOTE 7. - PENSION PLAN
The Company has a contributory defined benefit pension plan covering all
salaried and hourly employees that are scheduled to work at least 1,000 hours
per year. The Company's policy is to fund pension costs accrued.
Periodic pension expense (income) for 1998 included the following
components:
Service cost - benefits earned during the year $ 97,248
Interest cost on projected benefit obligation 291,501
Actual return on plan assets (653,323)
Net amortization and deferral 195,825
----------
$ (68,749)
==========
Net periodic pension income is included in cost of sales on the statement
of operations and retained earnings.
9
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 7. - PENSION PLAN (CONTINUED)
Assumptions used in the accounting for the pension income in 1998 were as
follows:
Weighed average discount rate 7.50%
Salary increase rate 5.50%
Expected long-term rate of return on plan assets 10.00%
The funded status of the plan as of August 2, 1998 is as follows:
Projected benefit obligation:
Vested benefits $(3,344,955)
Nonvested benefits (123,526)
-----------
Accumulated benefit obligation $(3,468,481)
===========
Projected benefit obligation (4,882,400)
Plan assets, consisting primarily of common
stock and insurance contracts 5,123,141
-----------
Plan assets in excess of obligation 240,741
Unrecognized net obligation being
recognized over 15 years (243,272)
Unrecognized net loss 413,409
Unrecognized prior service cost 384,565
-----------
Prepaid pension cost $ 795,443
===========
The Financial Accounting Standards Board released Statement of Financial
Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" in February 1998. This statement amends the disclosures
required regarding pensions and is effective for fiscal years beginning after
December 15, 1997. The adoption of this statement by the Company is not expected
to have a material impact on the Company's financial statements.
10
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
================================================================================
NOTE 8. - OPERATING LEASES
The Company leases equipment under four operating leases. Rental expense
under these leases amounted to approximately $34,000 in 1998. Approximate future
rental payments on these operating leases are as follows:
1999 $ 30,600
2000 12,800
2001 7,400
---------
$ 50,800
=========
NOTE 9. - SUBSEQUENT EVENTS
On April 16, 1999, all of the outstanding common stock of the Company was
acquired by Infinite Group, Inc. (Infinite). The gross purchase price of $1.5
million consisted of cash in the amount of $300,000 and $1.2 million in
promissory notes payable over three years with interest at 8% to the previous
shareholders. The combination was accounted for by Infinite using the purchase
method of accounting.
11
<PAGE>
REVIEWED
FINANCIAL STATEMENTS
OSLEY & WHITNEY, INC.
================================================================================
MARCH 28, 1999
<PAGE>
OSLEY & WHITNEY, INC.
CONTENTS
================================================================================
Page
----
Accountants' Review Report ............................................. 1
Financial Statements:
Balance Sheet..................................................... 2
Statement of Operations and Retained Earnings..................... 3
Statement of Cash Flows........................................... 4
Notes to Financial Statements........................................... 5 - 10
<PAGE>
To the Shareholders of
Osley & Whitney, Inc.
We have reviewed the accompanying balance sheet of Olsey & Whitney, Inc.
as of March 28, 1999, and the related statements of operations and retained
earnings, and cash flows for the eight month period then ended, in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All of the information
included in these financial statements is the representation of the management
of Osley & Whitney, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
May 14, 1999
Buffalo, New York
1
<PAGE>
OSLEY & WHITNEY, INC.
BALANCE SHEET
March 28, 1999
See Accountants' Review Report
================================================================================
ASSETS
Current assets:
Cash $ 26,174
Accounts receivable 248,635
Inventory:
Raw materials 115,325
Work in progress 730,264
----------
845,589
Prepaid expenses 4,727
Deferred income taxes 34,230
----------
Total current assets 1,159,355
Cash value of life insurance, net of loans
in the amount of $30,000 149,753
Due from officer 204,716
Property, plant and equipment, net 636,253
Prepaid pension costs 784,228
----------
Total assets $2,934,305
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 433,000
Accounts payable 460,037
Accrued liabilities 175,804
Accrued income taxes 35,170
Customer deposits 495,128
Current portion of long term debt 71,226
----------
Total current liabilities 1,670,365
Long-term debt 968,250
Deferred income taxes 9,098
----------
Total liabilities 2,647,713
Shareholders' equity:
Common stock, no par value, 1,000 shares authorized,
100 issued and outstanding 100,000
Retained earnings 186,592
----------
Total shareholders' equity 286,592
----------
Total liabilities and shareholders' equity $2,934,305
==========
See accompanying notes.
2
<PAGE>
OSLEY & WHITNEY, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINS
For the Period Ended March 28, 1999
See Accountants' Review Report
================================================================================
Net sales $ 2,519,857
Cost of sales 2,683,778
-----------
Gross loss (163,921)
Selling and administrative expenses:
Selling 151,743
Administrative 224,229
-----------
375,972
-----------
Operating loss (539,893)
Nonoperating income (expense):
Interest expense (69,412)
Other 207
-----------
(69,205)
-----------
Loss before income tax benefit (609,098)
Income tax benefit 212,132
-----------
Net loss (396,966)
Retained earnings, beginning of period 583,558
-----------
Retained earnings, end of period $ 186,592
===========
See accompanying notes.
3
<PAGE>
OSLEY & WHITNEY, INC.
STATEMENT OF CASH FLOWS
For the Period Ended March 28, 1999
See Accountants' Review Report
================================================================================
1999
----
Cash flows from operating activities:
Net loss $(396,966)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 88,522
Deferred income tax benefit (212,132)
Change in assets and liabilities:
Accounts receivable 268,636
Inventory (211,375)
Prepaid expenses 13,836
Prepaid pension costs 11,215
Accounts payable 330,579
Accrued liabilities (94,297)
Customer deposits (242,671)
---------
Net cash used in operating activities (444,653)
Cash flows from investing activities:
Capital expenditures (60,201)
Cash surrender value of officer life insurance, net of loans 20,327
---------
Net cash used in investing activities (39,874)
Cash flows from financing activities:
Net borrowings under lines of credit 148,000
Borrowings on long-term debt 350,000
Payments on long-term debt (86,335)
---------
Net cash provided by financing activities 411,665
---------
Net decrease in cash (72,862)
Cash - beginning of period 99,036
---------
Cash - end of period $ 26,174
=========
See accompanying notes.
4
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 1. - SIGNIFICANT ACCOUNTING POLICIES
Organization - Osley & Whitney, Inc. (the Company), a Massachusetts
Corporation, manufactures molds. The Company sells primarily to other
manufacturing companies throughout the United States. The Company grants credit
to substantially all of its customers. It is the Company's policy to require a
deposit equal to approximately 30% of the total sale price on all orders.
Management has determined that a reserve for uncollectible accounts receivable
is not necessary.
Fiscal Period - The fiscal period of the Company ends on the Sunday
nearest to the end of the period. Accordingly, the fiscal period for this report
ends on March 28, 1999 and consists of 34 weeks.
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.
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment - Property, plant and equipment is recorded
at cost. Depreciation is charged to operations over the estimated useful lives
of the respective assets using principally accelerated methods. Depreciation
expense for the period totaled $88,522. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is credited or charged to income for the
period. The cost of maintenance and repairs is charged to expense as incurred;
significant renewals and betterments are capitalized.
Income Taxes - The Company recognizes amounts of tax currently payable and
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Income Recognition - Income is recognized when molds are shipped and
accepted by customers. Customer deposits received in advance are recorded as
liabilities until the job has been completed.
Cash Flows - Cash paid during the period ended March 28, 1999 for interest
amounted to $61,511.
Concentration of Credit Risk - Sales to three customers accounted for
approximately $1,970,000 or 78% of net sales for the period ended March 28,
1999. At March 28, 1999, accounts receivable from these same customers
approximate 67% of total accounts receivable. It is the Company's policy to
require a deposit on all orders equal to approximately thirty percent of the
total sales price.
5
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 2. - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
Land and improvements $ 58,625
Buildings and improvements 319,703
Machinery and equipment 1,732,026
----------
2,110,354
Less accumulated depreciation 1,474,101
----------
$ 636,253
==========
NOTE 3. - DUE FROM OFFICER
Due from officer of $204,716 represents premiums paid by the Company on a
life insurance policy (the Policy), which is owned by an officer of the Company.
Under the terms of a related agreement, the Company is entitled to receive a
portion of the death benefits provided under the Policy equal to the total
amount of related premiums paid by the Company. This receivable is
collateralized by the death benefits under the Policy.
NOTE 4. - LINES OF CREDIT
The Company maintains a $350,000 and a $100,000 bank lines of credit,
which bear interest at the bank's prime rate plus .75% (8.5% at March 28, 1999).
As of March 28, 1999, amounts outstanding under these lines were $343,000 and
$90,000, respectively. The lines are collateralized by substantially all of the
Company's assets. In addition, the Company has a nonrevolving equipment line of
credit up to $500,000 bearing interest at the bank's prime rate plus 1% (8.75%
at March 28, 1999). At March 28, 1999, $228,289 in bank loans were outstanding
under this line. The equipment line is collateralized by substantially all of
the Company's assets.
Subsequent to March 28, 1999 the Company refinanced the lines of credit.
The outstanding balances were repaid and a new agreement was signed with another
financial institution. The new agreement provides for borrowings of up to
$500,000 at the bank's prime rate plus .5%. The new line is collateralized by
substantially all of the Company's assets.
6
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 5. - LONG-TERM DEBT
Long-term debt consists of the following:
Mortgage loan, payable in monthly principal
installments of $1,971 plus interest through May 2000
when a balloon payment of approximately $355,000 is
due. Interest is payable at the prime rate plus 1.25%
(9% at March 28, 1999). (A) $ 384,110
Bank loan, payable in monthly installments of $2,800
plus interest through October 2002. Interest is
payable at the prime rate plus 1% (8.75% at March 28,
1999). (B) 120,400
Bank loan, payable in monthly principal installments
of $4,222 plus interest through January 2001. Interest
is payable at the prime rate plus 1% (8.75% at March
28, 1999). (B) 89,555
Bank loan, payable in monthly installments of $1,335
plus interest through May 2003. Interest is payable at
the prime rate plus .75% (8.5% at March 28, 1999). (B) 66,747
Bank loan, payable in monthly installments of $417
plus interest through November 2002. Interest is
payable at the prime rate plus 1% (8.75% at March 28,
1999). (B) 18,334
Installment loan, payable in monthly installments of
$391, including interest at the rate of 9.99% per
annum through September 2001. 10,330
Note payable to Infinite (see Note 9), bearing
interest at 8.75% payable February 2000. 200,000
7
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 5. - LONG-TERM DEBT (CONTINUED)
Bank loan, requiring monthly interest payments at the
prime rate plus .75% (8.5% at March 28, 1999) through
December 1999 and thereafter payable in monthly
installments of $2,500 plus interest through December
2004. (B) 150,000
----------
1,039,476
Less current portion 71,226
----------
$ 968,250
==========
(A) Subsequent to March 28, 1999 the Company refinanced the mortgage
loan. The outstanding balance was repaid and a new agreement was
established with another financial institution. The new agreement
was for the principal sum of $700,000 plus interest at a rate of
7.75% through April of 2006 when a balloon payment of approximately
$566,000 is due.
(B) Subsequent to March 28, 1999 the Company refinanced these bank
loans. The outstanding balances were repaid and a new term loan
agreement was established with another financial institution. The
new agreement was for the principal sum of $500,000 plus interest at
a rate of 7.75% through April of 2006.
The following annual maturities reflect the repayment terms of the
existing debt under the refinanced agreement:
2000 - $ 71,226
2001 - 76,944
2002 - 83,127
2003 - 89,802
2004 - 97,010
Thereafter - 621,367
----------
$1,039,476
==========
NOTE 6. - INCOME TAXES
Income tax benefit for the period ended March 28, 1999 consists of the
following:
Federal income taxes:
Deferred $ 170,951
State income taxes:
Deferred 41,181
----------
$ 212,132
==========
8
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 6. - INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to deferred tax
assets and liabilities at March 28, 1999 are as follows:
Deferred tax assets:
Inventory $ 4,027
Net operating loss carryforwards 340,067
Accrued officers' bonus 30,203
AMT credit carryforwards 1,838
Other credit carryforwards 5,707
----------
381,842
----------
Deferred tax liabilities:
Property, plant and equipment (40,901)
Prepaid pension cost (315,809)
----------
(356,710)
----------
Net deferred tax asset $ 25,132
==========
At March 28, 1999, the Company has approximately $862,000 of federal net
operating loss and $747,000 of state net operating loss carryforwards available
to reduce future federal income taxes. These carryforwards will begin to expire
in the year 2007.
NOTE 7. - PENSION PLAN
The Company has a contributory defined benefit pension plan covering all
salaried and hourly employees that are scheduled to work at least 1,000 hours
per year. The Company's policy is to fund pension costs accrued.
The following sets forth the funded status of the Plan at March 28, 1999:
Projected benefit obligation $5,634,111
Plan assets at fair value 5,298,193
----------
Plan assets deficient of projected benefit
obligations $ (335,918)
==========
9
<PAGE>
OSLEY & WHITNEY, INC.
NOTES TO THE FINANCIAL STATEMENTS
===============================================================================
NOTE 7. - PENSION PLAN (CONTINUED)
The following is a summary of the activity in the Plan and the accrued
pension liability and benefit costs recognized in the accompany financial
statements:
Prepaid pension costs $ 784,228
==========
Benefit cost $ 11,215
==========
Employer contributions $ --
==========
Benefits paid $ 119,582
==========
The major assumptions used in the calculation of the pension obligation
were as follows:
Discount rate 6.5%
Expected long-term rate of return on plan assets 10.0%
Rate of increase in compensation 5.5%
NOTE 8. - OPERATING LEASES
The Company leases equipment under four operating leases. Rental expense
under these leases amounted to approximately $22,000 for the period. Approximate
future rental payments on these operating leases are as follows:
2000 $ 16,700
2001 9,900
2002 2,500
---------
$ 29,100
=========
NOTE 9. - SUBSEQUENT EVENTS
On April 16, 1999, all of the outstanding common stock of the Company was
acquired by Infinite Group, Inc. (Infinite). The gross purchase price of $1.5
million consisted of cash in the amount of $300,000 and $1.2 million in three
year 8% promissory notes payable to the previous shareholders. The combination
was accounted for by Infinite using the purchase method of accounting.
10
<PAGE>
INFINITE GROUP, INC. AND
OSLEY & WHITNEY, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
BASIS OF COMBINATION - PRO FORMA
The accompanying combined financial statements present on a pro forma
basis the combined balance sheet and the statement of combined operations of
Infinite Group, Inc. (Infinite) and Osley & Whitney, Inc. (O&W) (acquired by
Infinite in April, 1999). Proforma adjustments for the balance sheet were
computed assuming the acquisition was consummated as of the balance sheet date.
Proforma adjustments for the statements of operations were computed as if the
acquisition had taken place as of the beginning of the period presented.
On April 16, 1999, Infinite acquired 100% of the outstanding capital stock
of O&W, a Massachusetts corporation, from its stockholders. The aggregate
consideration paid for the capital stock of O&W was $1.5 million, payable
$300,000 in cash and $1,200,000 of promissory notes payable over three years
with interest at 8.0%.
The pro forma combined financial statements are derived from historical
financial statements which have been adjusted on a pro forma basis for certain
transactions and assumptions (pro forma adjustments) discussed in the
accompanying notes to the pro forma combined financial statements.
The pro forma combined financial statements of Infinite and O&W as of and
for the year ended December 31, 1998 and for the three months ended March 31,
1999 are not necessarily indicative of the financial position or actual
operating results which would have occurred had the acquisition taken place on
January 1, 1998 or of future operations of the combined companies. In the
opinion of management, all adjustments considered necessary for fair
presentation of the pro forma combined financial statements have been included.
The pro forma adjustments do not reflect any operating efficiencies or cost
savings which management of Infinite believes are achievable with respect to the
combined companies through eliminating duplicative functions and realigning
business practices.
The pro forma balance sheet adjustments include those necessary to record
Infinite's acquisition of O&W (including related adjustments required under
purchase accounting) and the elimination of deferred taxes recorded on O&W
historically. Certain reductions in pro forma earnings for the period January 1,
1998 through December 31, 1998 (see following pro forma statement of combined
earnings) have not been recorded as an adjustment to stockholders' deficit in
the pro forma combined balance sheet; had such earnings been recognized and
recorded, stockholders' equity would have been reduced by approximately
$363,000.
1
<PAGE>
INFINITE GROUP, INC. AND
OSLEY & WHITNEY, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
================================================================================
BASIS OF COMBINATION - HISTORICAL FINANCIAL STATEMENTS
Infinite includes combined assets, liabilities and shareholders' deficit
as of December 31, 1998 for Infinite, HGG Laser Fare, Inc., Express Tool, Inc.
and Mound Laser and Photonics Center, Inc. For further information, refer to the
March 1999 filing of the Annual Report on Form 10-KSB, which includes audited
financial statements and related notes.
O&W includes assets, liabilities and shareholders' equity of Olsey &
Whitney, Inc. as of December 31, 1998.
PRO FORMA ADJUSTMENTS AND ELIMINATIONS
(A) To record the purchase of O&W, for the aggregate consideration of
$1,500,000, consisting of cash of $300,000 and promissory notes in
the amount of $1,200,000 payable over three years with interest at
8.0%; to allocate purchase price including adjusting the assets and
liabilities of O&W to fair value; to adjust the pension asset
relating to the defined benefit pension plan to the excess of plan
assets over the projected benefit obligation; and to closeout the
O&W equity accounts.
Cash $ (300,000)
Property and equipment - O&W, to adjust
to fair value 884,024
Prepaid pension asset 9,162
Other assets (24,653)
Long term debt 1,200,000
Other liabilities (211,653)
Common stock - O&W (100,000)
Retained earnings - O&W (319,814)
2
<PAGE>
INFINITE GROUP, INC. and OSLEY & WHITNEY, INC.
PROFORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Osley & Proforma
Infinite Whitney Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash & cash equivilants $ 1,010,736 11,575 (300,000) A $ 722,311
Accounts receivable, net 1,093,414 403,811 1,497,225
Inventories 193,412 858,485 1,051,897
Other current assets 1,136,075 28,143 (24,653) A 1,139,565
----------- ----------- ----------- -----------
3,433,637 1,302,014 (324,653) 4,410,998
Property and equipment, net 4,442,338 667,368 884,024 A 5,993,730
Notes receivable - stockholders 47,102 204,716 251,818
Other intangible assets 503,424 503,424
Accumulated amortization (160,859) (160,859)
CSV - Officer Life 140,080 140,080
Prepaid pension costs 795,443 9,162 A 804,605
Other investment 250,000 250,000
----------- ----------- ----------- -----------
$ 8,515,642 $ 3,109,621 $ 568,533 $12,193,796
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts & notes payable $ 1,694,086 437,799 $ 2,131,885
Other current liabilities 567,865 1,537,827 (211,653) A 1,894,039
----------- ----------- ----------- -----------
$ 2,261,951 $ 1,975,626 $ (211,653) 4,025,924
Long term obligations 2,301,862 714,181 1,200,000 A 4,216,043
Notes payable - stockholders 601,955 601,955
Common stock 2,673 100,000 (100,000) A 2,673
Additional paid-in capital - common stock 20,210,268 20,210,268
Additional paid-in capital - warrants 555,585 555,585
Accumulated deficit (17,418,652) 319,814 (319,814) A (17,418,652)
----------- ----------- ----------- -----------
$ 8,515,642 $ 3,109,621 $ 568,533 $12,193,796
=========== =========== =========== ===========
</TABLE>
3
<PAGE>
INFINITE GROUP, INC. AND
OSLEY & WHITNEY, INC.
NOTES TO PRO FORMA STATEMENT OF COMBINED OPERATIONS
(UNAUDITED)
For the Year Ended December 31, 1998
================================================================================
BASIS OF COMBINATION HISTORICAL FINANCIAL STATEMENTS
Infinite operating results represent the combined historical operating
results as reported by Infinite, HGG Laser Fare, Inc., Express Tool, Inc. and
Mound Laser and Photonics Center, Inc. for the year ending December 31, 1998.
For further information, refer to the March 1999 filing of the Annual Report
Form 10-KSB, which includes audited financial statements and related notes.
O&W includes results of operations for the twelve-month period ended
December 31, 1998
PRO FORMA ADJUSTMENTS
(B) Pension Expense
To adjust pension expense to give effect to the recognition of the
revised pension asset at the date of acquisition.
(C) Depreciation
To retroactively record the depreciation of the increased basis of
property and equipment for 1998 arising from the acquisition of O&W.
The estimated useful life of the property and equipment has been
estimated at 32 and 7, respectively.
(D) Interest Expense
To retroactively record the interest cost arising from borrowings to
finance the acquisition of O&W.
(E) Income Taxes
To eliminate deferred taxes recorded on O&W historically which are
offset by a valuation allowance on a combined basis.
4
<PAGE>
INFINITE GROUP, INC. and OSLEY & WHITNEY, INC.
PROFORMA STATEMENT OF COMBINED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Osley & Proforma
Infinite Whitney Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 7,396,105 $ 4,812,537 $12,208,642
Cost of goods sold 4,760,733 4,245,809 147,000 B 9,153,542
----------- ----------- ----------- -----------
Gross Profit 2,635,372 566,728 (147,000) 3,055,100
Research & Development 1,060,021 -- 1,060,021
Selling, general & administrative 2,191,786 543,922 2,735,708
Depreciation and amortization 628,861 132,898 73,000 C 834,759
----------- ----------- ----------- -----------
3,880,668 676,820 73,000 4,630,488
----------- ----------- ----------- -----------
(1,245,296) (110,092) (220,000) (1,575,388)
Other income 35,690 (3,637) 32,053
Interest expense 373,405 93,725 96,000 D 563,130
----------- ----------- ----------- -----------
Loss from contiuing operations
before income taxes (1,583,011) (207,454) (316,000) (2,106,465)
Income tax benefit (expense) 1,067,000 15,900 (51,600) E 1,031,300
----------- ----------- ----------- -----------
Loss from contiuing operation (516,011) (191,554) (367,600) (1,075,165)
=========== =========== =========== ===========
Loss from continuing operations
per share (0.20) (0.41)
=========== ===========
Weighted average number of common
shares outstanding 2,643,750 2,643,750
=========== ===========
</TABLE>
5
<PAGE>
INFINITE GROUP, INC. AND
OSLEY & WHITNEY, INC.
NOTES TO PRO FORMA STATEMENT OF COMBINED OPERATIONS
(UNAUDITED)
For the Period Ended March 31, 1999
================================================================================
BASIS OF COMBINATION HISTORICAL FINANCIAL STATEMENTS
Infinite operating results represent the combined historical operating
results as reported by Infinite, HGG Laser Fare, Inc., Express Tool, Inc. and
Mound Laser and Photonics Center, Inc. for the period ended March 28, 1999. For
further information, refer to the March 1999 filing of the Annual Report on Form
10-KSB, which includes audited financial statements and related notes.
O&W includes results of operations for the three month period ended March
31, 1999.
PRO FORMA ADJUSTMENTS
(F) Pension Expense
To adjust pension expense to give effect to the recognition of the
revised pension asset at the date of acquisition.
(G) Depreciation and Amortization
To retroactively record the depreciation of the increased basis of
property and equipment for 1998 arising from the acquisition of O&W.
The estimated useful life of the property and equipment has been
estimated at 32 and 7, respectively.
(H) Interest Expense
To retroactively record the interest cost arising from borrowings to
finance the acquisition of O&W.
(I) Income Taxes
To eliminate deferred taxes recorded on O&W historically which are
offset by a valuation allowance on a combined basis.
6
<PAGE>
INFINITE GROUP, INC. and OSLEY & WHITNEY, INC.
PROFORMA STATEMENT OF COMBINED OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Osley & Proforma
Infinite Whitney Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 1,236,002 $ 833,973 $ 2,069,975
Cost of goods sold 947,403 1,035,360 36,750 F 2,019,513
----------- ----------- ----------- -----------
Gross Profit 288,599 (201,387) (36,750) 50,462
Research & Development 408,843 -- 408,843
Selling, general & administrative 637,526 77,784 715,310
Depreciation and amortization 147,075 32,700 18,000 G 197,775
----------- ----------- ----------- -----------
1,193,444 110,484 18,000 1,321,928
----------- ----------- ----------- -----------
(904,845) (311,871) (54,750) (1,271,466)
Other income 17,352 14 17,366
Interest expense 111,417 33,497 24,000 H 168,914
----------- ----------- ----------- -----------
Loss from contiuing operations
before income taxes (998,910) (345,354) (78,750) (1,423,014)
Income tax benefit (expense) -- 212,132 (212,132) I --
----------- ----------- ----------- -----------
Loss from contiuing operation (998,910) (133,222) (290,882) (1,423,014)
=========== =========== =========== ===========
Loss from continuing operations
per share (0.39) (0.55)
=========== ===========
Weighted average number of common
shares outstanding 2,591,311 2,591,311
=========== ===========
</TABLE>
7
