<PAGE> 1
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)
MAY 12, 1999 (FEBRUARY 26, 1999)
THE SOURCE INFORMATION MANAGEMENT COMPANY
(Exact name of Registrant as specified in its charter)
MISSOURI
(State or Other Jurisdiction of Incorporation)
1-13437 43-1710906
(Commission File Number) (IRS Employer Identification No.)
11644 LILBURN PARK ROAD, ST. LOUIS, MISSOURI 63146
(Address of principal executive offices) (Zip Code)
(314) 995-9040
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
The Source Information Management Company ("Registrant") hereby files
Amendment No. 1 to its Form 8-K filed on March 11, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Attached hereto are the audited combined balance sheets of MYCO, Inc. and
RY, Inc. as of December 31, 1998 and 1997 and the related combined statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. Also attached is unaudited pro forma condensed combined financial
information, which includes the unaudited pro forma balance sheet as of January
31, 1999 and the related unaudited pro forma statement of operations for the
year then ended. The unaudited pro forma condensed combined financial
information gives effect to the acquisition of MYCO, Inc. and RY, Inc. as if the
acquisiton had occurred February 1, 1998, combining the balance sheets of the
Registrant at January 31, 1999 with those of MYCO, Inc. and RY, Inc. at December
31, 1998, and also gives effect in the combined statement of operations to the
Registrant's acquisition on January 7, 1999, of U.S. Marketing Securities, Inc.
The Registrant has determined that audited and pro forma financial
statements and exhibits are not required to be filed for the acquisition of
Chestnut Display Systems, Inc. and its affiliate, Chestnut Display Systems
(North), Inc. because none of the conditions of Section 210.1-02(w) of
Regulation S-X exceeds 20% with respect to this acquisiton.
(a) Financial Statements of Business Acquired
(i) Independent Auditors' Report.
(ii) Combined Balance Sheets of MYCO, Inc. and RY, Inc. as of
December 31, 1998 and 1997.
(iii) Combined Statements of Operations of MYCO, Inc. and RY, Inc.
for the years ended December 31, 1998 and 1997.
(iv) Combined Statements of Changes in Stockholders' Equity of
MYCO, Inc. and RY, Inc. for the years ended December 31,
1998 and 1997.
(v) Combined Statements of Cash Flows of MYCO, Inc. and RY, Inc.
for the years ended December 31, 1998 and 1997.
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Balance Sheet as of January 31, 1999.
(ii) Unaudited Pro Forma Statement of Operations for the year ended
January 31, 1999.
(c) Exhibits
See the Exhibit Index attached hereto and incorporated herein by reference.
<PAGE> 3
MYCO, INC.
RY, INC.
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE> 4
MYCO, INC.
RY, INC.
DECEMBER 31, 1998 AND 1997
CONTENTS
Page
Independent auditors' report ............................................ 1
Financial statements:
Combined balance sheets ............................................. 2
Combined statements of operations ................................... 3
Combined statements of changes in stockholders'
equity ......................................................... 4
Combined statements of cash flows ................................... 5-6
Notes to combined financial statements .............................. 7-17
<PAGE> 5
[LETTERHEAD ALTSCHULER, MELVOIN AND GLASSER LLP]
Independent Auditors' Report
To the Stockholders and Director
Myco, Inc. and RY, Inc.
Rockford, Illinois
We have audited the accompanying combined balance sheets of Myco, Inc. and Ry,
Inc. as of December 31, 1998 and 1997, and the related combined statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Companies'
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 Myco, Inc. and Ry, Inc. as of
December 31, 1998 and 1997, and the results of its operations and it cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Altschuler, Melvoin & Glasser LLP
Rolling Meadows, Illinois
May 3, 1999
<PAGE> 6
MYCO, INC.
RY, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 76,626 $ 317,062
Accounts receivable-trade 4,348,527 3,616,318
Allowance for doubtful accounts (127,946) (79,250)
Due from stockholder 64,910 177,881
Accounts receivable-employees 3,882 2,493
Inventory 1,338,130 2,111,273
Prepaid expenses 103,637 108,647
Refundable state replacement tax 19,519 1,513
------------ ------------
Total current assets 5,827,285 6,255,937
------------ ------------
Property and equipment, net of
accumulated depreciation 6,666,152 6,538,305
------------ ------------
Property held for resale 151,002
------------ ------------
Other Assets:
Deposits 200 200
Unamortized financing costs 128,025 132,155
------------ ------------
Total other assets 128,225 132,355
------------ ------------
Total assets $ 12,621,662 $ 13,077,599
============ ============
</TABLE>
<PAGE> 7
LIABILITIES AND
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current Liabilities:
Current portion of long-term
debt $ 4,228,872 $ 545,887
Current portion-capital lease
obligation 13,000
Note payable line of credit 1,850,000 1,950,000
Accounts payable-trade 1,923,979 1,535,534
Dividends payable 1,500,000
Accrued real estate tax 159,072 122,654
Accrued payroll, bonuses and
related fringe benefits 1,175,169 375,734
----------- -----------
Total current liabilities 10,850,092 4,529,809
Long-term debt, net of current
portion 15,573 4,167,391
Capital lease obligation, net of
current portion 50,723
----------- -----------
Total liabilities 10,916,388 8,697,200
Commitments and contingencies
Stockholders' Equity:
Common stock 1,133 1,133
Additional paid-in capital 283,087 283,087
Retained earnings 1,421,054 4,096,179
----------- -----------
Total stockholders' equity 1,705,274 4,380,399
----------- -----------
Total liabilities and
stockholders' equity $12,621,662 $13,077,599
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
-2-
<PAGE> 8
MYCO, INC.
RY, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 20,348,596 $ 13,604,150
Cost of goods sold 14,759,197 9,172,193
------------ ------------
Gross profit 5,589,399 4,431,957
------------ ------------
Operating Expenses:
Product development 423,845 469,901
Selling 1,572,981 1,328,028
Administrative 4,242,456 2,927,899
------------ ------------
Total operating expenses 6,239,282 4,725,828
------------ ------------
Loss from operations (649,883) (293,871)
------------ ------------
Other income or (expense):
Miscellaneous income (expense) (59,942) 18,795
Interest expense (348,913) (292,209)
Interest income 9,975 41,405
Loss on sale of equipment (36,945) (4,890)
------------ ------------
Total other expense (435,825) (236,899)
------------ ------------
Loss before
income taxes (1,085,708) (530,770)
------------ ------------
Provision for income taxes:
State income tax (benefit) (15,338) (6,962)
------------ ------------
Net loss $ (1,070,370) $ (523,808)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
-3-
<PAGE> 9
MYCO, INC.
RY, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Addt'l
-------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996,
as previously reported 1,133 $ 1,133 $ 283,087 $ 4,883,676 $ 5,167,896
Prior period adjustment (147,173) (147,173)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996,
as restated 1,133 1,133 283,087 4,736,503 5,020,723
Net loss for the year (523,808) (523,808)
Dividends (116,516) (116,516)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 1,133 1,133 283,087 4,096,179 4,380,399
----------- ----------- ----------- ----------- -----------
Net loss for the year (1,070,370) (1,070,370)
Dividends (1,604,755) (1,604,755)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 1,133 $ 1,133 $ 283,087 $ 1,421,054 $ 1,705,274
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE> 10
MYCO, INC.
RY, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(1,070,370) $ (523,808)
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 554,828 494,555
Loss on sale of equipment 36,945 4,890
(Increase) decrease in accounts receivable (683,513) 430,850
(Increase) decrease in due from stockholder 112,971 (177,500)
(Increase) decrease in accounts receivable
- employees (1,389)
(Increase) decrease in inventory 796,420 (1,363,043)
(Increase) decrease in prepaid expenses (18,267) 11,897
(Increase) decrease in refundable state
replacement tax (18,006)
Increase in accounts payable and
accrued expenses 1,237,024 951,682
----------- -----------
Total adjustments 2,017,013 353,331
----------- -----------
Net cash (used) provided by operating
activities 946,643 (170,477)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (634,073) (1,748,602)
Proceeds from sale of equipment 130,277 20,800
Proceeds from sale of investments 1,132,087
----------- -----------
Net cash used by investing activities (503,796) (595,715)
----------- -----------
Cash flows from financing activities:
Proceeds (repayment) of line of credit, net (100,000) 1,675,000
Repayment of long-term debt (468,833) (477,160)
Repayment of capital lease obligation (9,696)
Cash dividends paid (104,754) (586,742)
Proceeds from long-term debt 200,000
----------- -----------
Net cash provided (used) by financing
activities (683,283) 811,098
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
-5-
<PAGE> 11
MYCO, INC.
RY, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net increase (decrease) in cash and
cash equivalents (240,436) 44,906
Cash and cash equivalents at beginning of year 317,062 272,156
----------- -----------
Cash and cash equivalents at end of year $ 76,626 $ 317,062
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 348,913 $ 292,209
=========== ===========
Supplemental disclosure of non-cash financing
activities:
Capital lease obligation for purchase of
equipment (Note 7) $ 73,419
===========
Dividends payable $ 1,500,000
===========
</TABLE>
The accompanying notes are an integral part of these statements
-6-
<PAGE> 12
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
------------------
Myco, Inc. (the "Company") designs, manufactures and sells wire racks
for retail displays used by customers in the publishing, gum and candy,
and distribution industries. The Company's products are sold throughout
the United States. RY, Inc. leases operating facilities to Myco, Inc.
Myco, Inc. is owned by an individual stockholder and related family
trust. RY, Inc. is 100% owned by the same individual stockholder.
Principles of Combination
-------------------------
The combined financial statements include Myco, Inc. and RY, Inc. All
significant intercompany transactions and balances have been eliminated
in the combined financial statements.
Prior to 1998 Myco, Inc. and RY, Inc. presented separate financial
statements for financial reporting purposes. The accompanying 1998 and
1997 combined financial statements are presented to clearly present the
results of the companies' combined operations and financial position.
The following is a reconciliation of the net operating results that
Myco, Inc. and RY, Inc. reported in 1997 and would have reported in
1998 on a separate basis to the amounts reported in the combined
financial statements.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net income (loss)
Myco, Inc. $(1,499,707) $ (473,035)
RY, Inc. 429,337 276,004
----------- -----------
(1,299,026) (197,031)
Prior period adjustments (326,777)
----------- -----------
Combined loss $(1,070,370) $ (523,808)
=========== ===========
</TABLE>
Inventory
---------
Inventories are valued at the lower of cost or market, under the
first-in, first-out (FIFO) method.
-7-
<PAGE> 13
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - continued
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed
using accelerated and straight line methods over the useful lives of
the assets for financial reporting purposes.
The estimated useful lives of the assets are as follows:
<TABLE>
<CAPTION>
Useful Life
-----------
<S> <C>
Vehicles 5 years
Office equipment 5-7 years
Electronic equipment 5-7 years
Machinery and equipment 3-7 years
Furniture and fixtures 5-7 years
Buildings and improvements 39 years
</TABLE>
Unamortized Financing Costs
---------------------------
Unamortized financing costs are amortized on the interest method basis
over the term of the note.
Sales Recognition
-----------------
The Company generally records sales at the time display racks are
completed and shipped to its customers.
Custom retail orders are usually manufactured, shipped and billed over
periods ranging from one to four months based on approved customer
purchase orders.
The Company also enters into contracts with certain customers for the
manufacture of custom made racks that are warehoused in a designated
area of its premises at the customer's request. Delivery schedules are
provided by the customer. The purchase agreement provides for billings
at the time the goods are completed and placed in storage. Payment is
made in the ordinary course of business on the Company's normal sales
terms. In its custodial capacity, the Company then ships the display
racks over an extended time period as the customer designates.
Estimates
---------
The process of preparing financial statements in conformity with
generally accepted accounting principles requires
-8-
<PAGE> 14
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - continued
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.
Income Taxes
------------
Effective January 1, 1987, Myco, Inc. elected by consent of its
shareholder to be taxed under the provisions of subchapter S of the
Internal Revenue Code. Under those provisions, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual Federal income taxes on their
respective shares of the Company's taxable income. In addition
effective upon inception, RY, Inc. elected by consent of its
shareholder to be taxed under the provisions of subchapter S of the
Internal Revenue Code.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand and in banks. The
Company also considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Estimation of Fair Values
-------------------------
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
Short-term financial instruments are valued at their carrying amounts
included in the balance sheets, which are reasonable estimates of fair
value due to the relatively short period to maturity of the
instruments. This approach applies to cash and cash equivalents,
receivables, and certain other liabilities.
Because the interest rates on the majority of the Company's debt
instruments fluctuate with changes in the market rate of interest, the
carrying value of the debt instruments are considered equivalent with
their fair value.
-9-
<PAGE> 15
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - CONCENTRATIONS OF CREDIT RISK:
The Companies maintain their cash in bank deposit accounts that, at
times, may exceed federally insured limits. The Companies have not
experienced any losses in such accounts. Management believes that the
Companies are not exposed to any significant credit risk on cash and
cash equivalents.
The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. Management does not believe any
significant credit risk exists at December 31, 1998 and 1997 on their
accounts receivable.
NOTE 3 - INVENTORY:
Inventory at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 413,789 $ 515,470
Work in process 191,238 908,587
Finished goods 733,103 687,216
---------- ----------
$1,338,130 $2,111,273
========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT:
At December 31, 1998 and 1997 property and equipment are summarized by
major classification as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Vehicles $ 131,813 $ 184,990
Office equipment 317,550 316,471
Electronic equipment 521,588 435,246
Machinery and equipment 2,432,903 2,183,175
Furniture and fixtures 87,256 82,000
Building and improvements 5,895,754 5,568,349
Land 330,467 330,467
---------- ----------
9,717,331 9,100,698
Less-accumulated depreciation 3,051,179 2,562,393
---------- ----------
$6,666,152 $6,538,305
========== ==========
</TABLE>
-10-
<PAGE> 16
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - PROPERTY AND EQUIPMENT: - continued
Depreciation expense for the years ended December 31, 1998 and 1997 was
$550,698 and $487,910, respectively.
NOTE 5 - PROPERTY HELD FOR RESALE:
Property held for resale at December 31, 1997 consists of a robotic
welder purchased for the Company's manufacturing process that was sold
in 1998.
NOTE 6 - BANK NOTE PAYABLE - LINE OF CREDIT:
On July 1, 1998, the Company executed a ninth amended and restated
revolving credit note in the amount of $2,250,000 expiring June 30,
1999, secured by substantially all assets of the Company and a personal
guarantee by the individual stockholder. Interest is payable at 1/4%
below the bank's prime lending rate. Aggregate draws on this line of
credit are limited to 80% of eligible accounts receivable plus 35% of
eligible inventory less $775,000. Borrowing under the line at December
31, 1998 and 1997 amounted to $1,850,000 and $1,950,000, respectively.
In accordance with the guarantee and the line of credit agreements, the
Company is subject to restrictive covenants, the significant items
being minimum net worth, restrictions as to dividend payouts, and
certain financial ratios. At December 31, 1998, the Company is in
violation of certain covenants, and has not received a waiver from the
bank regarding these covenants.
The weighted average interest rate on this borrowing was 8.6% in 1998
and 6.6% in 1997.
NOTE 7 - LONG-TERM DEBT:
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Notes Payable - Former Stockholders -
-------------------------------------
collateralized by a security interest in
367.5 shares of Myco Inc. Corporation
stock repurchased by the Company
Payable in aggregate monthly installments
of $7,903.77 including principal and
interest at a rate of 12% per annum until
March 1, 2000 $ 102,778 $180,168
</TABLE>
-11-
<PAGE> 17
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - LONG-TERM DEBT: - continued
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Bank Note Payable - Equipment -
-------------------------------
collateralized by a security interest in
the equipment purchased with the note
proceeds. Payable in monthly principal
installments of $4,166.67 plus accrued
interest at a rate of 4% per annum until
October 1, 2001 141,667 191,667
Note Payable - Bank - collateralized by
--------------------
an interest in the property. Payable in
monthly principal and interest
installments of $11,867 at a rate of
7.15% per annum. This note was repaid in
1998 341,443
Industrial Revenue Bonds 4,000,000 4,000,000
------------------------
- See below
Less-current portion (4,228,872) (545,887)
----------- -----------
$ 15,573 $ 4,167,391
=========== ===========
</TABLE>
On January 30, 1995, the City of Rockford issued $4,000,000 of its
Industrial Project Revenue Bonds, Series 1995, and the proceeds were
deposited with the Amalgamated Bank of Chicago, as trustee. The
Company's bank has issued an irrevocable direct pay letter of credit
for $4,100,000 to the Company. The bonds are secured by the trustee's
indenture and the $4,100,000 letter of credit. The letter of credit is
collateralized by substantially all of the assets of Myco, Inc. and RY,
Inc. The proceeds were used by the Company to fund capital
expenditures. The bonds bear interest at a variable weekly rate
(approximately 80% of the U.S. Treasury rate) not to exceed 15% per
annum. The bonds mature on January 1, 2030. The letter of credit
matures on June 30, 2000.
Fees related to the letter of credit are 1.00% per annum of the
outstanding bond principal plus accrued interest. Letter of credit fees
for 1998 and 1997 amounted to $66,617 and $41,306, respectively.
On January 1, 1995, the Company entered into a reimbursement agreement
with the bank in conjunction with the bond issuance. The agreement,
enforceable pursuant to the terms of the loan
-12-
<PAGE> 18
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - LONG-TERM DEBT: - continued
agreement and Indenture of Trust, requires the Company, unless waived
in writing by the bank, to redeem $300,000 of bond principal annually.
At December 31, 1998, the Company is not in compliance with the
covenants discussed in Note 6 and has not received a waiver from the
bank. As a result, these bonds have been classified as current
liabilities.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company rented warehouse space under operating lease agreements
that expired May 31, 1998 and August 25, 1998, with monthly rentals of
$18,749 and $11,016. Rental expense charged to operations for the years
ended December 31, 1998 and 1997 was $277,061 and $291,235,
respectively.
The Company rents equipment under an operating lease agreement expiring
November 30, 2001, with a monthly rental of $2,072. Rental expense
charge to operations for the years ended December 31, 1998 and 1997 was
$24,864 and $24,864, respectively.
The Company rents phone equipment under a capital lease expiring March,
2003, with a monthly rental of $1,507.
Following is a schedule of future minimum payments required under the
aforementioned leases as of December 31, 1998.
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Lease Lease
------------ ------- ---------
<S> <C> <C>
1999 $18,084 $24,864
2000 18,084 24,864
2001 18,084 22,792
2002 18,084
2003 3,014
------- -------
Total minimum lease payments 75,350 $72,520
=======
Less amount representing interest 11,627
-------
Present value of minimum lease payments 63,723
-------
Less: current portion 13,000
-------
$50,723
=======
</TABLE>
-13-
<PAGE> 19
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES: - continued
Capital lease amortization expense is included in depreciation expense.
In 1995, the Company entered into an agreement with The Source
Information Management Company ("Source"), that is renewable annually
for one year terms. Either party can terminate the agreement without
cause. The Source acts as a consultant for retail chains on rack
design, placement and slotting fees. The Source provides the Company
with new retail programs and acts as a liaison between the Company and
its customers.
Included in administrative expenses in the accompanying 1998 and 1997
statements of operations are consulting fees of $609,611 and $547,000
incurred under this agreement.
NOTE 9 - COMMON STOCK:
Common stock at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Shares Issued
and
Outstanding Amount
------------- ------
<S> <C> <C>
Myco, Inc.
Authorized 10,000 shares
no par value 133 $ 133
Ry, Inc.
Authorized 10,000 shares
no par value 1,000 1,000
------
$1,133
======
</TABLE>
NOTE 10 - MAJOR SUPPLIERS:
The Company purchased more than 10% of its paneling and wire from two
suppliers. Purchases from these two suppliers for 1998 and 1997,
respectively, totalled $1,971,063 and $1,610,000.
-14-
<PAGE> 20
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - MAJOR CUSTOMER:
During 1998 and 1997, the Company derived approximately 45% and 22% of
its total revenue from a single national retailer.
NOTE 12 - 401(k) PLAN:
The Company has a 401(k) saving and investment plan covering all
eligible employees. The Company matches the first 3% of gross pay
contributed by employees. Profit sharing contributions are at the
discretion of the Board of Directors. There were no discretionary
contributions made in 1998 and 1997. Matching contributions for the
years ended December 31, 1998 and 1997 were $71,431 and $61,307,
respectively.
NOTE 13 - SELF INSURANCE:
The Company is self insured for a portion of its health insurance
claims. An insurance policy limits the aggregate claims the Company may
potentially pay to $15,000 per individual per year not to exceed
approximately $50,000 in the aggregate per year. A provision has been
made for incurred claims not reported amounting to $93,824 and $94,869
as of December 31, 1998 and 1997, respectively, based upon a review by
the Company of subsequent claim payments.
NOTE 14 - PRIOR PERIOD ADJUSTMENTS:
The accompanying financial statements for 1997 have been restated. The
effect of the restatement was to decrease net income for 1997 by
$326,777. Retained earnings at the beginning of 1997 have been adjusted
for the effects of
-15-
<PAGE> 21
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 14 - PRIOR PERIOD ADJUSTMENTS: - continued
this restatement on prior years. The following is a summary of these
changes:
<TABLE>
<CAPTION>
Retained Earnings Net Income
January 1, 1997 December 31, 1997
----------------- -----------------
<S> <C> <C>
Revenue recognition $ 27,438 $ (71,963)
Capitalization of
property and equipment 103,966 19,498
Operating expenses 15,769 (274,312)
--------- ---------
Total $ 147,173 $(326,777)
========= =========
</TABLE>
NOTE 15 - SUBSEQUENT EVENT:
On February 26, 1999, the owners of Source and Myco, Inc. and RY, Inc.
signed an asset purchase agreement. The agreement provides for the sale
of all the assets of Myco, Inc. and RY, Inc. in exchange for cash and
assumption of certain liabilities as described in the asset purchase
agreement.
NOTE 16 - IMPACT OF THE YEAR 2000 ISSUE (UNAUDITED):
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Year 2000 problem is
the result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Costs of addressing potential
problems are not expected to have a material adverse impact on the
Company's financial position, results of operations or cash flows in
future periods. The Company has no information that indicates that any
significant vendors may be unable to sell to them because of Year 2000
compliance problems, any significant customers may be unable to
purchase
-16-
<PAGE> 22
MYCO, INC.
RY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 16 - IMPACT OF THE YEAR 2000 ISSUE (UNAUDITED): - continued
from them because of Year 2000 compliance problems or any significant
service providers may be unable to provide services to them because of
Year 2000 compliance problems. However, if the Company or its vendors,
customers or service providers are unable to resolve such processing
issues in a timely manner, it could result in a material financial
risk. Accordingly, the Company plans to devote the necessary resources
to resolve all significant Year 2000 issues in a timely manner.
-17-
<PAGE> 23
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On February 26, 1999, the Source Information Management Company, Inc. (Source)
acquired substantially all the assets and assumed certain liabilities of MYCO,
Inc. (MYCO) and RY, Inc. (RY) for $12,000,000 and 134,615 shares of common stock
with a market value of $875,000 (based on the closing price quoted on NASDAQ on
November 18, 1998). The acquisition has been accounted for under the purchase
method of accounting.
The Pro Forma Condensed Combined Financial information (i) gives effect to the
transaction, (ii) gives effect, in the Combined Statement of Operations for the
year ended January 31, 1999, to the acquisition, in January 1999, of all the
outstanding stock of U.S. Marketing Services, Inc. (US Marketing), the holding
company of Brand Manufacturing Corporation (Brand) and T.C.E. Corporation (TCE)
for stock with a market value of $26,282,000, and (iii) includes the adjustments
described in the notes hereto.
The Pro Forma Condensed Combined Balance Sheet was prepared as if the above
transaction occurred on January 31, 1999, combining the balance sheets of Source
at January 31, 1999 with that of MYCO and RY at December 31, 1998.
The Pro Forma Condensed Combined Statement of Operations give effect to the
above transaction as if it had occurred at the beginning of the earliest period
presented.
The following period is presented:
<TABLE>
<CAPTION>
Year Ended January 31, 1999
- -----------------------------------------------------------------------------------------------------
<S> <C>
Source February 1, 1998 through January 31, 1999
Combined US Marketing, Brand and TCE February 1, 1998 through January 6, 1999 (period prior to
acquisition by Source)
Combined MYCO and RY January 1, 1998 through December 31, 1998
- -----------------------------------------------------------------------------------------------------
</TABLE>
The combined results of US Marketing, Brand and TCE include the results of Brand
and TCE for the period prior to acquisition by US Marketing.
The Pro Forma Condensed Combined Financial Information is unaudited and not
necessarily indicative of the consolidated results which actually would have
occurred if the above transaction would have been consummated at the beginning
of the periods presented, nor does it purport to present the future financial
position and results of operations for future periods. The Pro Forma Condensed
Consolidated Financial Information gives effect to the acquisition and is based
upon estimated allocations of the purchase price and includes all adjustments
described in the notes thereto.
<PAGE> 24
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JANUARY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Combined Pro Forma
Source MYCO and RY Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash $ 753 $ 77 $ (753)(1) $ 77
Trade receivables, net of allowance 32,593 4,221 - 36,814
Income taxes receivable 263 19 - 282
Inventory 1,396 1,338 125 (2) 2,859
Other current assets 263 172 - 435
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 35,268 5,827 (628) 40,467
- --------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, net 3,334 6,666 (150)(2) 9,850
- --------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization 29,608 - 9,178 (2) 38,786
Deferred tax asset 7 - - 7
Other 790 128 - 918
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 30,405 128 9,178 39,711
- --------------------------------------------------------------------------------------------------------------------
$69,007 $12,621 $ 8,400 $90,028
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits $ 2,877 $ - $ - $ 2,877
Notes payable - 1,850 11,547 (4) 13,397
Accounts payable and accrued expenses 3,728 3,258 (817)(3) 6,169
Deferred revenue 3,129 - - 3,129
Due to retailers 2,737 - - 2,737
Deferred income taxes 718 - - 718
Dividends payable - 1,500 (1,500)(3) -
Current maturities of long-term debt 66 4,242 - 4,308
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 13,255 10,850 9,230 33,335
LONG-TERM DEBT, less current maturities 3,442 66 - 3,508
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 16,697 10,916 9,230 36,843
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Contributed capital:
Common stock 117 1 - (5) 118
Preferred stock 15 - - 15
Additional paid-in capital 46,452 283 591 (6) 47,326
- --------------------------------------------------------------------------------------------------------------------
Total contributed capital 46,584 284 591 47,459
Retained earnings 5,767 1,421 (1,421)(7) 5,767
- --------------------------------------------------------------------------------------------------------------------
Total contributed capital and retained earnings 52,351 1,705 (830) 53,226
Less Treasury Stock (41) - - (41)
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 52,310 1,705 (830) 53,185
- --------------------------------------------------------------------------------------------------------------------
$69,007 $12,621 $ 8,400 $90,028
====================================================================================================================
</TABLE>
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<S> <C>
(1) To record decrease in cash to finance acquisition of MYCO and RY $ 753
(2) To reflect the acquisition of MYCO and RY and the allocation of purchase
price on the basis of the fair values of the assets acquired and
liabilities assumed. The components of the purchase price and its
allocation are as follows:
Cash paid, including direct costs of $300 $ 12,300
Market value of Source common stock issued (based on the closing price
quoted on NASDAQ on November 18, 1998) 875
Allocation of purchase price:
Stockholders' equity of MYCO and RY ($1,705+$817+$1,500) (4,022)
Increase in inventory to fair value (125)
Decrease in property, plant and equipment to fair value 150
- -------------------------------------------------------------------------------------------------------
Cost in excess of net assets acquired $ 9,178
----------
(3) To eliminate liabilities not assumed by Source:
(i) Bonuses payable $ (817)
(ii) Dividends payable (1,500)
- -------------------------------------------------------------------------------------------------------
$ (2,317)
(4) To record increase in short-term debt to finance acquisition of MYCO and RY
$ 11,547
- -------------------------------------------------------------------------------------------------------
(5) To reflect:
(i) the par value of Source common stock issued $ 1
(ii) the elimination of historical equity balance of MYCO and RY (1)
- -------------------------------------------------------------------------------------------------------
$ -
==========
(6) To reflect:
(i) the excess of the market value over the par value of the Source
common stock issued $ 874
(iv) the elimination of the historical equity balance of MYCO and RY
(283)
- -------------------------------------------------------------------------------------------------------
$ 591
==========
(7) To reflect the elimination of historical equity balances of MYCO and RY $ (1,421)
----------
=======================================================================================================
</TABLE>
<PAGE> 26
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical US Marketing, Combined Pro Forma
Source Brand and TCE MYCO and RY Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $21,100 $12,439 $20,349 $ - $53,888
COST OF REVENUES 11,268 7,427 14,759 - 33,454
- -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 9,832 5,012 5,590 - 20,434
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 2,949 6,567 6,239 (940) (1) 14,815
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 6,883 (1,555) (649) 940 5,619
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 29 64 10 - 103
Interest expense (331) (917) (349) (55) (2) (1,652)
Other (47) (22) (97) 430 (3) 264
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (349) (875) (436) 375 (1,285)
- -------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST - (421) - 421 (4) -
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 6,534 (2,851) (1,085) 1,736 4,334
INCOME TAX EXPENSE (BENEFIT) 2,667 189 (15) (592) (5) (6) 2,249
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,867 ($ 3,040) ($ 1,070) $2,328 $ 2,085
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Basic $ .42 $ .22
Diluted $ .40 $ .21
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 9,132 9,267
Diluted 9,776 9,911
===============================================================================================================================
</TABLE>
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(Dollars in Thousands)
The Pro Forma Combined Statements of Operations reflect the adjustments for the
Acquisitions as of February 1, 1998.
<TABLE>
<CAPTION>
US Marketing, MYCO
Brand and TCE and RY Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) To reflect:
(i) portion of compensation expense for executive officers on the basis
of pre- and post acquisition arrangements as if they were effective
February 1, 1998 $ (663) $ (1,439) $ (2,102)
(ii) amortization of goodwill arising from the acquisitions, for the
period prior to the acquisitions (estimated life 20 years) 712 450 1,162
- -------------------------------------------------------------------------------------------------------------------------
$ 49 $ (989) $ (940)
======== ========= ==========
(2) To reflect:
(i) elimination of interest expense related to US
Marketing for the period prior to acquisition $ 939 $ - $ 939
(ii) additional interest expense at 8.5% related to
financing acquisition of MYCO and RY - (994) (994)
- -------------------------------------------------------------------------------------------------------------------------
$ 939 $ (994) $ (55)
======== ========= ==========
(3) To reflect the elimination of the amortization of the
deferred loan costs $ 430 $ - $ 430
- -------------------------------------------------------------------------------------------------------------------------
(4) To reflect the elimination of minority interests $ 421 $ - $ 421
(5) To adjust tax expense to reflect the income tax effects at the Company's
effective tax rate (after consideration of the nondeductibility of the
amortization of the cost in excess of net assets acquired) of the pro
forma adjustments to income before income taxes $ (644) $ (178) $ (822)
(6) To reflect the additional tax expense at statutory rates in connection
with the termination of S-Corporation status
on Brand and TCE in May 1998 $ 230 $ - $ 230
=========================================================================================================================
</TABLE>
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SOURCE INFORMATION
MANAGEMENT COMPANY
Date: May 12, 1999 By: /s/ W. Brian Rodgers
-------------------------------
W. Brian Rodgers
Chief Financial Officer
<PAGE> 29
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
1. Omitted - inapplicable.
2.1* Asset Purchase Agreement, dated as of February 1, 1999, by and
among Registrant, Chestnut Display Systems, Inc. and Chestnut
Display Systems (North), Inc., plus identification of omitted
schedules and exhibits and agreement to furnish supplementally
a copy of any omitted schedule or exhibit to the Securities
and Exchange Commission upon request.
2.2* Asset Purchase Agreement, dated as of February 26, 1999, by
and among Registrant, MYCO, Inc. and RY, Inc., plus
identification of omitted schedules and exhibits and agreement
to furnish supplementally a copy of any omitted schedule or
exhibit to the Securities and Exchange Commission upon
request.
2.3* Amendment to Asset Purchase Agreement, dated as of February
26, 1999, among Registrant, MYCO, Inc. and RY, Inc.
4. Omitted - inapplicable.
16. Omitted - inapplicable.
17. Omitted - inapplicable.
20. Omitted - inapplicable.
23.1 Consent of Altschuler, Melvoin and Glasser LLP.
24. Omitted - inapplicable.
27. Omitted - inapplicable.
99 Omitted - inapplicable.
- ----------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
[ALTSCHULER, MELVOIN AND GLASSER LLP LOGO]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Source Information Management Company
St. Louis, Missouri
We hereby consent to inclusion in this Current Report on Form 8-K and to
incorporation by reference in the Registration Statement on Form S-2 (No.
333-76979) and on Form S-8 (No. 333-16039) of The Source Information Management
Company of our report dated May 3, 1999, relating to the combined financial
statements of MYCO, Inc. and RY, Inc.
/s/ Altschuler, Melvoin and Glasser LLP
Rolling Meadows, Illinois
May 11, 1999
