SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report
(Date of earliest event reported)
January 25, 2002
IMAGING TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-12641 33-0021693
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
15175 Innovation Drive
San Diego, California 92128
(Address of Principal Executive Offices)
(858) 613-1300
(Registrant's telephone number, including area code):
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
1
ITEM 2. ACQUISITION OF ASSETS
(a) On November 12, 2001, Imaging Technologies Corporation ("ITEC" or the
"Company") acquired all of the outstanding shares of SourceOne, Inc.
("SourceOne") from Neotactix, Inc. for $750,000. ITEC paid $250,000 in
cash at Closing. $200,000 of these funds were provided by outside
investors in the form of a promissory note convertible into shares of
ITEC common stock, the number of which will be determined by a formula
applied to the market price of the shares at the time that the
promissory note is converted. The balance is payable in cash or stock on
a quarterly payment schedule beginning in April 2002. The Company has
agreed to register all shares subsequent to filing of audited financial
statements related to the acquisition on Form 8-K within 60 days of this
filing.
The purchase price was determined through analysis of SourceOne's
recent, unaudited financial performance. SourceOne, through September
30, 2001, had losses of approximately $220 thousand on 6-month revenues
of approximately $25 million. The total purchase price was arrived at
through negotiations. The assets of SourceOne consist of cash, accounts
receivable, and pre-paid insurance premiums.
SourceOne is a professional employer organization ("PEO") that provides
comprehensive personnel management services, including benefits and
payroll administration, health and workers' compensation insurance
programs, personnel records management, and employer liability
management.
On November 13, 2001, the registrant issued a press release, a copy of
which is attached as Exhibit 99.1 to this Form 8-K and incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Audited Financial Statements of SourceOne Group, LLC.
INDEX
PAGE
INDEPENDENT AUDITORS' REPORT 3
BALANCE SHEET 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF MEMBERS DEFICIT 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8-10
2
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
SOURCE ONE GROUP, LLC
We have audited the accompanying consolidated balance sheet of SOURCE ONE GROUP,
LLC and Subsidiary as of October 31, 2001, and the related consolidated
statements of operations, members' deficit and cash flows for the initial period
from February 1, 2001 (inception) to October 31, 2001. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SOURCE
ONE GROUP, LLC and Subsidiary as of October 31, 2001, and the consolidated
results of its operations and its cash flows for the initial period from
February 1, 2001 (inception) to October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discusses in Note 9 to the financial
statements, the Company has suffered recurring losses from operations and has a
deficit in working capital. This raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 9. These financial statement do not include any
adjustments that might result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
January 23, 2002
3
SOURCE ONE GROUP, LLC
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 2001
ASSETS
Current assets
Cash and cash equivalents $ 215,114
Accounts receivable
Trade 47,869
Unbilled 1,114,120
Prepaid expenses 9,792
---------
Total current assets 1,386,895
Property and equipment, net 20,730
Other assets 196,577
---------
Total assets $ 1,604,202
=========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities
Accounts payable $ 98,952
Payroll taxes and other payroll deductions payable 347,459
Accrued worksite employee payroll expense 1,031,378
Notes payable - related parties 200,000
Other accrued liabilities 212,845
---------
Total current liabilities 1,890,634
Members' deficit (286,432)
---------
TOTAL LIABILITIES AND MEMBERS'DEFICIT $ 1,604,202
=========
The accompanying notes are an integral part of the financial statements.
4
SOURCE ONE GROUP, LLC
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
FEBRUARY 1, 2001 (INCEPTION) TO OCTOBER 31, 2001
Revenue $ 29,973,706
------------
Direct costs
Salaries and wages of worksite employees 25,818,651
Benefits and payroll taxes 3,566,753
------------
29,385,404
Gross profit 588,302
------------
Operating expenses
Salaries, wage and payroll taxes 479,550
General and administrative expenses 306,413
Commissions 83,004
Depreciation 5,005
------------
873,972
Loss from operations (285,670)
Interest expense, net 9,704
------------
Net loss $ (295,374)
=============
The accompanying notes are an integral part of the financial statements.
5
SOURCE ONE GROUP, LLC
(A Development Stage Company)
CONSOLIDATED STATEMENT OF MEMBERS' DEFICIT
FEBRUARY 1, 2001 (INCEPTION) TO OCTOBER 31, 2001
$ -
Balance, February 1, 2001
Member contributions 8,942
Net loss (295,374)
------------
Balance, October 31, 2001 $ (286,432)
===========
The accompanying notes are an integral part of the financial statements.
6
SOURCE ONE GROUP, LLC
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FEBRUARY 1, 2001 (INCEPTION) TO OCTOBER 31, 2001
Cash flows from operating activities:
Net loss $ ( 295,374)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation 5,005
Bad debt expense 53,069
Non-cash interest expense 8,942
Changes in operating costs and liabilities:
Accounts receivable (1,215,057)
Prepaid expenses ( 9,792)
Other assets ( 196,577)
Accounts payable 98,952
Payroll taxes and other payroll deductions payable 347,459
Accrued worksite employee payroll expense 1,031,377
Other accrued liabilities 212,845
-----------
Net cash provided by operating activities 40,849
-----------
Cash flows from investing activities:
Purchase of property and equipment ( 25,735)
-----------
Net cash used in investing activities ( 25,735)
Cash flows from financing activities:
Note payable - related party 200,000
-----------
Net cash provided by financing activities 200,000
Net increase in cash and cash equivalents 215,114
Cash and cash equivalents - February 1, 2001 -
Cash and cash equivalents - October 31, 2001 $ 215,114
============
Supplemental cash flow information:
Cash paid for:
Interest $ 762
============
Income taxes $ -
============
The accompanying notes are an integral part of the financial statements.
7
SOURCE ONE GROUP, LLC
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
---------------------------------
Source One Group, LLC, (the "Company), was formed under the laws of the State of
Virginia on February 1, 2001. The Company is a professional employer
organization (PEO) that provides a comprehensive personnel management system
encompasssing a broad range of services including benefits and payroll
administration, medical and workers' compensation insurance programs, personnel
records management and employer liability management.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Intercompany accounts and transactions
have been eliminated in consolidation.
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC and SPIC insured levels at
various times during the year.
Financial instruments that could potentially subject the Company to
concentration of credit risk include accounts receivable. The Company generally
requires clients to pay invoices for service fees no later than one day prior to
the applicable payroll date. As such, the Company generally does not require
collateral.
Property and Equipment
----------------------
Property and equipment is recorded at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on a straight-line basis over three years.
Maintenance and repairs are expensed as incurred; additions and betterments are
capitalized.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts receivable, notes
receivable, accounts payable and accrued expenses and income taxes payable
approximates fair value due to the relatively short maturity of these
instruments.
Long-Lived Assets
-----------------
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recovery of assets to be held and used is measured by a comparison
of the carrying amount of the assets to the future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less the cost
to sell.
8
SOURCE ONE GROUP, LLC
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PEO Service Fees and Worksite Employee Payroll Costs
----------------------------------------------------
The Company's revenue consists of service fees paid by its clients under its
Client Service Agreements. In consideration for payment of such service fees,
the Company agrees to pay the following direct costs associated with the
worksite employees: (i) salaries and wages; (ii) employment-related taxes; (iii)
employee benefit plan premiums; and (iv) workers' compensation insurance
premiums. The Company accounts for PEO service fees and the related direct
payroll costs using the accrual method. Under the accrual method, PEO service
fees relating to worksite employees with earned but unpaid wages at the end of
each period are recognized as unbilled revenues and the related direct payroll
costs for such wages are accrued as a liability during the period in which wages
are earned by the worksite employee. Subsequent to the end of each period, such
wages are paid and the related PEO service fees are billed. Unbilled receivables
at October 31, 2001, are net of prepayments received of $135,384.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
$ 10,000
Furniture and fixtures
Computers and other equipment 15,735
---------
25,735
Accumulated depreciation 5,005
---------
Property and equipment, net $ 20,730
=========
NOTE 3 - OTHER ASSETS
Other assets consist primarily of a deposit for workers compensation insurance
premiums of $184,802.
NOTE 4 - NOTES PAYABLE
As of October 31, 2001, notes payable consists of a demand note payable of
$200,000 to a principal member of the LLC, unsecured and bearing no interest.
Interest is imputed at 8%. As of October 31, 2001, an expense of $8,942 was
accrued and recorded as additional members' contribution.
NOTE 5 - INCOME TAXES
The Company is a Limited Liability Company. As such, income or losses are taxed
directly to the individual members. Since the Company has incurred losses since
inception, there would be no income tax expense, on a proforma basis, if the
Company had been a corporation.
NOTE 6 - EMPLOYEE SAVINGS PLAN
The Company maintains a 401(K) employee savings plan. Eligible employees may
contribute up to 15% of earnings, up to the maximum permitted by law ($10,500
for 2001). Employee contributions are fully vested immediately. The Company does
not match any portion of employee contributions.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company occupies its office facilities pursuant to a sublease expiring June
30, 2002. Rental expense included in the financial statements is $40,896. The
future minimum rental payments is $32,000 for the eight months ended June 30,
2002.
Pursuant to its workers compensation insurance policy, the Company is liable for
the first $150,000 payable under each claim. The insurance carrier requires the
Company to maintain a loss reserve deposit of $500,000. At October 31, 2001, the
Company has a credit of $266,328 in the reserve account and has accrued $382,625
in losses. The net accrual of $116,297 has been included in Other Accrued
Liabilities.
9
NOTE 8 - SUBSEQUENT EVENTS
On November 11, 2001, the Company changed its name and status from SourceOne
Group, LLC to SourceOne, Inc.
On November 12, 2001, Imaging Technologies Corporation (ITEC), a publicly traded
company, acquired all of the outstanding shares of SourceOne, Inc. for $750,000.
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred operating
losses and has a working capital deficit at October 31, 2001. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Subsequent to October 31. 2001, the Company was acquired by a public
entity, as described in Note 8.
10
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(b) Pro forma financial information.
Following are pro forma financial statements reflecting the
acquisition of SourceOne by the Company. The information is
derived from the audited financial statements of the Company for
the year ended June 30, 2001, unaudited financial statements for
the quarter ended September 30, 2001; and the unaudited financial
statements of SourceOne from inception (February 2001) through
September 30, 2001.
This pro forma information was also provided in the Company's Form
10-Q/A report for the period ended September 30, 2001, filed on
December 5, 2001.
11
PRO FORMA CONSOLIDATED BALANCE SHEETS
in thousands Sept. 30, 2001
ITEC SourceOne Pro forma Pro forma
Unaudited Unaudited (2) Adjustments ITEC (1)
ASSETS
Current assets
Cash 36 431 - 467
Accounts receivable 574 234 - 808
Inventories 140 - - 140
Prepaid expenses and other 273 195 - 468
--------- --------- --------- ---------
Total current assets 1,023 860 - 1,883
Goodwill, net 569 - 531 1,100
Deposits and allowances - 83 - 83
Property and equipment, net 152 22 - 174
--------- --------- --------- ---------
Total assets 1,744 965 531 3,240
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
NET CAPITAL DEFICIENCY
Current liabilities
Borrowings under bank notes payable 4,018 - - 4,018
Short term debt 4,606 - - 4,606
Accounts payable 5,498 30 - 5,528
Accrued expenses 4,914 956 - 5,870
--------- --------- --------- ---------
Total current liabilities 19,036 986 - 20,022
Notes payable - - 500 500
--------- --------- --------- ---------
Total liabilities 19,036 986 500 20,022
--------- --------- --------- ---------
Stockholders' net capital deficiency
Series A preferred stock 420 - - 420
Common stock 865 - 10 875
Common stock warrants 541 - - 541
Paid-in capital 69,479 - - 69,479
Shareholder loans (105) 200 (200) (105)
Accumulated deficit (88,492) (221) 221 (88,492)
--------- --------- --------- ---------
Total shareholders' net capital deficiency (17,292) (21) 31 (17,282)
--------- --------- --------- ---------
1,744 965 531 3,240
========= ========= ========= =========
(1) Adjusted to reflect the consolidated balance sheets of ITEC and SourceOne
(2) From SourceOne Group's inception in February 2001
12
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
in thousands, except per share data Three months ended
September 30, 2001 Pro forma Pro forma
----------------------------
ITEC SourceOne Adjustments ITEC (1)
-------------------------------------------------------
Unaudited Unaudited(2)
Revenues
Sales of products 1,057 - - 1,057
Licenses and royalties 21 - - 21
PEO services - 13,412 - 13,412
------- ------- ------- -------
1,078 13,412 - 14,490
------- ------- ------- -------
Costs and expenses
Cost of products sold 598 - - 598
Cost of PEO services - 13,155 - 13,155
Selling, general and administrative 1,413 345 - 1,758
Research and development 72 - - 72
------- ------- ------- -------
2,083 13,500 - 15,583
------- ------- ------- -------
Loss from operations (1,005) (88) - (1,093)
------- ------- ------- -------
Other income (expense)
Interest and finance costs (177) - - (177)
Other - - - -
------- ------- ------- -------
(177) - - (177)
------- ------- ------- -------
Loss before income taxes (1,182) (88) - (1,270)
Income tax benefit (expense) - - - -
------- ------- ------- -------
Net loss (1,182) (88) - (1,270)
Preferred stock dividends - - - -
------- ------- ------- -------
Net loss (1,182) (88) - (1,270)
======== ======= ======= =======
Earnings (loss) per common share
Basic (0.01) (1.76) - (0.01)
======== ======= ======= =======
Diluted (0.01) (1.76) - (0.01)
======== ======= ======= =======
Weighted average of common shares 170,984 50 10,000 180,984
======== ======= ======= =======
Weighted average of common shares - diluted 170,984 50 10,000 180,984
======== ======= ======= =======
(1) Adjusted to reflect the consolidated statements of operations of ITEC and SourceOne
(2) From SourceOne Group's inception in February 2001
13
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
Six months
in thousands, except per share data Year ended ended
June 30, 2001 Sept. 30,2001 Pro forma Pro forma
--------------------------------
ITEC SourceOne Adjustments ITEC (1)
----------------------------------------------------------
Audited Unaudited (2)
Revenues
Sales of products 2,897 - - 2,897
Licenses and royalties 555 - - 555
PEO services - 25,083 - 25,083
---------- --------- -------- ----------
3,452 25,083 - 28,535
---------- --------- -------- ----------
Costs and expenses
Cost of products sold 2,742 - - 2,742
Cost of PEO services - 24,605 - 24,605
Selling, general and administrative 8,720 694 - 9,414
Research and development 250 - - 250
---------- --------- -------- ----------
11,712 25,299 - 37,011
---------- --------- -------- ----------
Loss from operations (8,260) (216) - (8,476)
---------- --------- -------- ----------
Other income (expense)
Interest and finance costs (1,628) (1) - (1,629)
Other - 4 - 4
(1,628) 3 - (1,635)
---------- --------- -------- ----------
Loss before income taxes (9,888) (213) - (10,101)
---------- --------- -------- ----------
Income tax benefit (expense) - - - -
---------- --------- -------- ----------
Net loss (9,888) (213) - (10,101)
Preferred stock dividends (21) - - (21)
---------- --------- -------- ----------
Net loss (9,909) (213) - (10,122)
========== ========= ======== =========
Earnings (loss) per common share
Basic (0.08) (4.26) - (0.07)
========== ========= ======== =========
Diluted (0.08) (4.26) - (0.07)
========== ========= ======== =========
Weighted average of common shares 131,488 50 10,000 141,488
========== ========= ======== =========
Weighted average of common shares
diluted 131,488 50 10,000 141,488
========== ========= ======== =========
(1) Adjusted to reflect the consolidated statements of operations of ITEC and SourceOne
(2) From SourceOne Group's inception in February 2001
14
EXHIBITS
Exhibit Number Description
-------------- -----------
99.1** Press release dated November 13, 2001 issued by the
registrant.
99.2* Acquisition Assignment Agreement, dated November 12, 2001,
between the Company and Neotactix, Inc. Incorporated by
reference to Exhibit 10(b) of Form 10-Q, dated November 13,
2001.
99.3* Acquisition Agreement, dated November 12, 2001, among
Neotactix, Inc., SourceOne Group, Inc., and certain
stockholders of SourceOne Group, Inc. Incorporated by
reference to Exhibit 10(c) of Form 10-Q, dated November 13,
2001.
* Filed herewith.
** Filed as part of the signature page of the original filing of this
Registration Statement.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 25, 2002
IMAGING TECHNOLOGIES CORPORATION
By: /S/ Brian Bonar
Name: Brian Bonar
Title: Chairman, President, and Chief Executive Officer
16