<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT INFORMATION
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 7, 1997
Algorhythm Technologies Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-25276 88-0320364
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5310 NW 33rd Avenue, Ft. Lauderdale, FL 33309
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954)739-7005
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
7. Financial Statements and Exhibits.
In connection with the Company's acquisition of A.D.S. Advertising
Corporation d/b/a The Smith Agency on Novmeber 7, 1997, which was reported in
the Company's 10-QSB for the period ended September 30, 1997 the following
financial statements are being filed:
a. Financial Statements of businesses acquired:
Independent Auditors' report of MA Cabrera & Company, CPAs
Balance sheet for the years ended December 31, 1996 and December 31, 1995.
Statements of Operations for the years ended December 31, 1996, December
31, 1995 and December 31, 1994.
Statements of Stockholder's Equity (Deficit) for the years ended December
31, 1996, December 31, 1995 and December 31, 1994.
Statements of Cash Flows for the years ended December 31, 1996, December
31, 1995 and December 31, 1994.
Notes to Financial Statements for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994.
2
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
ALGORHYTHM TECHNOLOGIES CORPORATION
--------------------------------------------------
REGISTRANT
Dated: January 6, 1998 s/Anderw Smith
---------------------------------------------------
ANDREW SMITH, President
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of ADS Advertising Corporation
D/B/A The Smith Agency
We have audited the accompanying balance sheets of ADS Advertising Corporation,
D/B/A The Smith Agency (a Florida corporation and a Subchapter S corporation) as
of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1996, 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 ADS Advertising Corporation
D/B/A The Smith Agency as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
M. A. Cabrera & Company, P. A.
Plantation, Florida
December 17, 1997
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash..................................................................................... $ 321 $ 397
Accounts receivable:
Trade, net of allowance for doubtful accounts of $6,161 in 1996 and $15,161 in 1995..... 120,252 207,612
Other.................................................................................... 12,000 15,000
---------- ----------
Total current assets..................................................................... 132,573 223,009
PROPERTY AND EQUIPMENT, NET............................................................... 33,749 16,873
OTHER ASSETS.............................................................................. 5,186 32,736
---------- ----------
Total assets........................................................................... $ 171,508 $ 272,618
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable.............................................................................. $ 145,432 $ 80,913
Accounts payable.......................................................................... 241,156 163,387
Accrued expenses.......................................................................... 85,833 114,988
---------- ----------
Total current liabilities............................................................... 472,421 359,288
COMMITMENTS AND CONTINGENCIES............................................................. -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value per share 6,500 shares authorized, 110 shares issued and
outstanding............................................................................. 110 110
Additional paid-in-capital................................................................ 9,890 9,890
Accumulated deficit....................................................................... (310,913) (96,670)
---------- ----------
Total stockholder's equity (deficit)..................................................... (300,913) (86,670)
---------- ----------
Total liabilities and stockholder's equity (deficit).................................... $ 171,508 $ 272,618
---------- ----------
---------- ----------
</TABLE>
See Independent Auditors' Report.
The accompanying Notes to Financial
Statements are an integral part of these statements.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SALES................................................................... $ 1,491,229 $ 1,465,895 $ 1,262,815
COST OF SALES........................................................... 1,077,191 1,029,886 739,852
------------ ------------ ------------
GROSS PROFIT ON SALES................................................. 414,038 436,009 522,963
EXPENSES:
Payroll and related costs.............................................. 340,083 278,670 381,919
Rents.................................................................. 48,503 57,006 61,851
Depreciation and amortization.......................................... 6,890 4,347 3,749
General and administrative............................................. 138,938 104,126 155,764
------------ ------------ ------------
Total expenses........................................................ 534,414 444,149 603,283
------------ ------------ ------------
Loss from operations before other income (expense).................... (120,376) (8,140) (80,320)
OTHER INCOME (EXPENSE):
Interest income........................................................ -- 89 672
Interest expense....................................................... (7,978) (2,490) (735)
Gain (Loss) on disposition of assets................................... (17,042) -- --
------------ ------------ ------------
Total other income (expense).......................................... (25,020) (2,401) (63)
------------ ------------ ------------
NET LOSS.............................................................. $ (145,396) $ (10,541) $ (80,383)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Independent Auditors' Report.
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................................... $ (145,396) $ (10,541) $ (80,383)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation and amortization............................................. 6,890 4,347 3,749
Bad Debts................................................................. 56 15,000 26,000
(Increase) Decrease In:
Accounts receivable--trade................................................. 87,304 (68,507) 70,860
Accounts receivable--other................................................. 3,000 (3,800) --
Other assets............................................................... 27,550 (3,956) 4,853
Increase (Decrease) In:
Accounts payable........................................................... 77,769 89,963 5,752
Accrued expenses........................................................... (29,155) 68,390 5,594
----------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 28,018 90,896 36,425
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................................... (23,766) (16,880) --
----------- ---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES................................... (23,766) (16,880) --
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under note payable................................ 64,519 (2,290) (2,267)
Distributions to shareholder................................................ (68,847) (71,679) (35,535)
----------- ---------- ----------
NET CASH (USED) BY FINANCING ACTIVITIES................................... (4,328) (73,969) (37,802)
----------- ---------- ----------
NET INCREASE (DECREASE).................................................. (76) 47 (1,377)
CASH AT THE BEGINNING OF THE YEAR............................................ 397 350 1,727
CASH AT THE END OF THE YEAR.................................................. $ 321 $ 397 $ 350
----------- ---------- ----------
----------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Year for:
Interest................................................................... $ 7,572 $ 2,568 $ 298
----------- ---------- ----------
----------- ---------- ----------
Income taxes............................................................... $ -- $ -- $ --
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Independent Auditors' Report.
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
RETAINED
COMMON ADDITIONAL EARNINGS
STOCK PAID IN CAPITAL (DEFICIT)
----------- --------------- -----------
<S> <C> <C> <C>
Balances at January 1, 1994............................................... $ 110 $ 9,890 $ 101,468
Net loss for 1994........................................................ -- -- (80,383)
Distributions to stockholders............................................ -- -- (35,535)
----- ------ -----------
Balances at December 31, 1994............................................. 110 9,890 (14,450)
Net loss for 1995........................................................ -- -- (10,541)
Distributions to stockholders............................................ -- -- (71,679)
----- ------ -----------
Balances at December 31, 1995............................................. 110 9,890 (96,670)
Net loss for 1996........................................................ -- -- (145,396)
Distributions to stockholders............................................ -- -- (68,847)
----- ------ -----------
Balances at December 31, 1996............................................. $ 110 $ 9,890 $ (310,913)
----- ------ -----------
----- ------ -----------
</TABLE>
See Independent Auditors' Report.
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies of ADS Advertising Corporation
D/B/A The Smith Agency (the Company) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management, who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the accompanying financial statements.
Business Activity
ADS Advertising Corporation D/B/A The Smith Agency was incorporated it the
State of Florida on May 20, 1983. The Company is engaged as a multimedia
marketing consultant and advertising agency. The Company's corporate
headquarters are located in Fort Lauderdale, Florida.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash and/or cash equivalents.
Property and Equipment
Property and equipment are carried at cost. The cost of property and
equipment is depreciated over the estimated useful lives of the related
assets. The costs of leasehold improvements are depreciated (amortized)
over the lesser of the length of the related leases or the estimated useful
lives of the assets. Depreciation is computed on the straight-line method
for financial reporting purposes and on the accelerated cost recovery
system method for income tax purposes.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
Income Taxes
The Company, with the consent of all of its shareholders, has elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the Company does not provide for or pay Federal and
certain State corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual Federal and State income taxes, if
any, on their share of the Company's taxable income.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Allowance for Bad Debts
The Companies provide an allowance doubtful accounts, as needed, for
accounts deemed uncollectible.
Concentration of Credit Risk
During the normal course of business the Companies extend unsecured credit
to its customers. Certain customers because of the Companies' size, nature
of its business and credit policies across different industries and
geographic areas can compromise at a point in time significant portion of
such accounts receivable. See Note G.
NOTE B - PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
1996 1995
---- ----
Equipment $ 45,542 $ 23,472
Leasehold improvements 3,691 3,691
Furniture and fixtures 49,662 47,966
-------- --------
98,895 75,129
Accumulated depreciation 65,146 58,256
-------- --------
$ 33,749 $ 16,873
-------- --------
-------- --------
NOTE C - OTHER ASSETS
The components of other assets are as follows:
1996 1995
---- ----
Deposits $ 5,186 $ 7,094
Investment in Videotape Supply, Inc. - 25,642
--------- ---------
$ 5,186 $ 32,736
--------- ---------
--------- ---------
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE C - OTHER ASSETS (CONTINUED)
During 1994, the Company invested $25,642 for a 42.5% interest in Videotape
Supply Company, Inc.. Videotape Supply Company, Inc. is a supplier to the
Company of blank video tapes used in the production within the normal course of
business. Management has determined that prices are established at fair market
value for this inventory. The carrying value for this investment and subsequent
distribution has been at cost. The effects of using this method approximate
those of the equity method. See Note H.
NOTE D - NOTE PAYABLE
1996 1995
---- ----
Note Payable - financial institution line-
of-credit (maximum borrowings of $100,000),
interest only payable monthly at prime
plus 1.5%, principal payments on demand,
collateralized by accounts receivable, furniture,
equipment and personal guarantee of the
stockholder. $ 145,432 $ 80,913
--------- --------
--------- --------
Principal payments on note payable are as follows:
Years ending
December 31, Amount
------------ ------
1997 $ 145,432
---------
---------
NOTE E - LEASES
The Company has entered into several long-term leases for the office and various
equipment leases with monthly payments ranging from $212 to $2,898. These
leases are classified as operating leases.
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE E - LEASES (CONTINUED)
The future minimum rental payments required under long-term non-cancelable
leases during the years ended December 31, may be summarized as follows:
1997 $ 47,802
1998 46,404
1999 46,404
2000 40,738
2001 and thereafter 2,898
Total rental expense for all operating leases for the years ended December 31,
1996, 1995 and 1994 amount to $48,503, $57,006 and $61,851 respectively.
NOTE F - PROFIT SHARING PLAN
In 1993, the Company established a profit sharing plan (the Plan) offered to
employees who have attained age 21 and worked at least one thousand hours per
year and have more than six months of service. Contributions under the Plan are
discretionary and are determined annually by the Company's Board of Directors.
The Company has not funded the plan for years ended December 31, 1996, 1995 and
1994.
NOTE G - MAJOR CUSTOMERS
For the year ended December 31, 1996, approximately 84% of the Company's
revenues were derived from three major customers as follows:
December 31,
1996 1996
Customer Location Revenues Percent Receivables
- -------- -------- -------- ------- -----------
A Southeastern U. S. A. $ 547,822 37% $ 1,436
B Southeastern U. S. A. 358,034 24% 5,988
C Southeastern U. S. A. 350,081 23% 40,253
----------- ------- --------
$ 1,255,937 84% $ 47,677
----------- ------- --------
----------- ------- --------
For the year ended December 31, 1995, approximately 82% of the Company's
revenues were derived from three major customers as follows:
<PAGE>
ADS Advertising Corporation
D/B/A The Smith Agency
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE G - MAJOR CUSTOMERS (CONTINUED)
December 31,
1995 1995
Customer Location Revenues Percent Receivables
- -------- -------- -------- ------- -----------
A Southeastern U. S. A. $ 762,078 52% $109,516
B Southeastern U. S. A. 249,766 17% 53,748
C Southeastern U. S. A. 184,690 13% -
----------- ------- --------
$1,196,534 82% $163,264
----------- ------- --------
----------- ------- --------
The information for 1994 relating to major customers is not readily available.
Management believes that the dependence on these three major customers existed
in 1994 as well, and that the information for 1995 and 1996 would be reflective
of the 1994 year.
NOTE H - RELATED PARTIES
Videotape Supply Company, Inc.
The Company invested $25,642 in 1994 for a 42.5% interest in Videotape
Supply Company, Inc.. During the carrying period, the Company has
advanced monies not exceeding $15,000. The carrying value for this
investment has been at cost. The effects of using this method
approximate those of the equity method.
In February of 1996, the Company sold its interest to the other
stockholder of Videotape Supply Company, Inc. for $8,600 and repayment
of the monies advanced as short term non-interest bearing loans,
amounting to $15,000.
Note Payable
The stockholder has personally guaranteed the debt of the Company.
NOTE I - PLAN OF ACQUISITION AND SUBSEQUENT EVENTS
In October, 1997, the Company entered into an agreement to be acquired by
Algorythm Technologies Corporation F/K/A Nitros Franchise Corporation and
Digimedia USA, Inc.. The terms of this agreement call for Algorythm to acquire
all the authorized shares of the Company in exchange for 2,300,000 shares of
Algorythm restricted common stock with an effective date of November 7, 1997
thereby making the Company a wholly owned subsidiary of Algorythm. With this
acquisition of the Company, the stockholder was given a five year employment
agreement.
Both parties of this acquisition believe they will enjoy synergistic effects in
developing their target market groups. Upon the acquisition being completed,
the Company (ADS Advertising Corporation) will terminate its Subchapter S
election under the Internal Revenue Code.
