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: January 31, 2001
EMTEC, INC.
(Exact name of Registrant as specified in its charter)
Delaware 2-54020 87-0273300
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
817 East Gate Drive
Mount Laurel, New Jersey 08054
(Address of principal executive offices)
Registrant's telephone number: (856) 235-2121
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
The financial statements required by Item 7(a) comprise pps. F-1 - F-21
of this Report.
(b) Pro forma Financial Information
The pro forma financial information required by Item 7(b) comprise pps.
F-26 - F-31 of this Report.
(c) Exhibits:
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger and
Reorganization dated as of
December 14, 2000 between
American Geological Enterprises,
Inc. and Emtec, Inc.*
- -------------
* Heretofore filed.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-1
Balance Sheets at March 31, 2000 and 1999 F-2
Statements of Operations for the Fiscal Years
ended March 31, 2000, 1999 and 1998 F-4
Statements of Shareholders' Equity for the Fiscal Years
ended March 31, 2000, 1999 and 1998 F-5
Statements of Cash Flows for the Fiscal Years
ended March 31, 2000, 1999 and 1998 F-6
Notes to Financial Statements F-7
Balance Sheets at December 31, 2000 and 1999 (unaudited) F-17
Statements of Operations for the Nine Months
ended December 31, 2000 and 1999 (unaudited) F-19
Statements of Cash Flows for the Nine Months
ended December 31, 2000 and 1999 (unaudited) F-20
Notes to Financial Statements (unaudited) F-21
Introduction to Pro Forma Statements (unaudited) F-26
Pro Forma Balance Sheet - December 31, 2000 (unaudited) F-27
Pro Forma Statement of Operations -
March 31, 2000 and December 31, 1999 (unaudited) F-28
Pro Forma Statement of Operations -
December 31, 2000 and September 30, 2000 (unaudited) F-29
Notes to Pro Forma Financial Statements (unaudited) F-30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Emtec, Inc.
817 Eastgate Drive
Mount Laurel, NJ 08054
We have audited the accompanying balance sheets of Emtec, Inc. as of
March 31, 2000 and 1999 and the related statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
2000. 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 audits 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 Emtec, Inc. at March
31, 2000 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended March 31, 2000 in conformity with
generally accepted accounting principles.
/s/ BARATZ & ASSOCIATES, P.A.
June 22, 2000
January 17, 2001 (Subsequent Event)
F-1
EMTEC, INC.
BALANCE SHEETS
MARCH 31, 2000 AND 1999
2000 1999
---- ----
Assets
Current Assets
Cash and cash equivalents $ 686,413 $ 832,606
Marketable securities 7,086 -
Receivables:
Trade, less allowance
for doubtful accounts
of $368,058 in 2000
and $209,397 in 1999 16,313,411 21,067,992
Others 1,710,003 3,178,703
Inventories 1,091,463 954,317
Prepaid expenses 459,690 132,483
---------- ----------
Total Current Assets 20,268,066 26,166,101
---------- ----------
Property and Equipment
Equipment 2,108,549 1,575,520
Furniture and fixtures 221,536 163,663
Leasehold improvements 107,917 77,788
Vehicles 54,714 59,742
---------- ----------
2,492,716 1,876,713
Less accumulated depreciation 1,551,092 1,348,488
---------- ----------
Net Property and Equipment 941,624 528,225
---------- ----------
Other Assets 191,482 216,399
---------- ----------
Total Assets $ 21,401,172 $ 26,910,725
========== ==========
The accompanying notes are an integral part of
these financial statements.
F-2
EMTEC, INC.
BALANCE SHEETS
MARCH 31, 2000 AND 1999
2000 1999
---- ----
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit $ 8,310,741 $ 5,754,814
Due to related parties 19,000 19,000
Accounts payable 8,182,484 15,336,735
Income taxes payable - 10,555
Customer deposits 358,000 634,000
Accrued liabilities 1,145,599 1,904,750
Deferred revenue 1,142,551 643,853
---------- ----------
Total Current Liabilities 19,158,375 24,303,707
---------- ----------
Shareholders' Equity
Common stock, no par value;
25,000,000 shares authorized;
5,704,683 shares issued at
March 31, 2000 and 1999 1,431,171 1,431,171
Accumulated other comprehensive income 1,776 -
Retained Earnings 872,850 1,175,847
---------- ----------
2,305,797 2,607,018
Less cost of treasury stock (240,000 shares) 63,000 -
---------- ----------
Total Shareholders' Equity 2,242,797 2,607,018
---------- ----------
Total Liabilities and
Shareholders' Equity $ 21,401,172 $ 26,910,725
========== ==========
The accompanying notes are an integral part of
these financial statements.
F-3
EMTEC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
Revenues
Procurement services $ 87,235,968 $ 81,832,879 $ 66,841,655
Service and consulting 13,516,522 9,850,167 10,431,828
----------- ----------- ----------
Total Revenues 100,752,490 91,683,046 77,273,483
----------- ----------- ----------
Cost of Revenues
Procurement services 77,921,447 71,698,058 58,032,630
Service and consulting 10,188,181 7,665,474 8,458,852
----------- ----------- -----------
Total Cost of Revenues 88,109,628 79,363,532 66,491,482
----------- ----------- -----------
Gross Profit
Procurement services 9,314,521 10,134,821 8,809,025
Service and consulting 3,328,341 2,184,693 1,972,976
----------- ----------- -----------
Total Gross Profit 12,642,862 12,319,514 10,782,001
----------- ----------- -----------
Operating Expenses
Selling, general and
administrative expenses 10,890,841 10,370,696 9,645,916
Termination costs 74,480 127,412 -
Interest expense 679,286 713,853 681,853
Startup costs, E-Business 355,933 - -
---------- ----------- -----------
Total Operating Expenses 12,000,540 11,211,961 10,327,769
----------- ----------- -----------
Income from Continuing Operations
before income taxes 642,322 1,107,553 454,232
Income Taxes 326,318 136,085 -
----------- ----------- -----------
Income from Continuing Operations,
net of income taxes 316,004 971,468 454,232
Loss from Discontinued Operations,
net of income taxes ( 618,030) ( 171,528) ( 434,472)
Loss from sale of Discontinued
Operations, net of income taxes ( 971) - -
----------- ----------- -----------
Net Income (Loss) $ ( 302,997) $ 799,940 $ 19,760
=========== =========== ==========
Income per share from Continuing
Operations {basic and diluted} $ 0.056 $ 0.170 $ 0.080
Net Income (Loss) per share
{basic and diluted} $( 0.054) $ 0.140 $ 0.003
Weighted Average Number of Shares
Outstanding {basic and diluted} 5,642,875 5,704,683 5,704,683
The accompanying notes are an integral part of
these financial statements.
F-4
EMTEC, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
Accumulated
Common Stock Retained Comprehensive Treasury Comprehensive Total
Shares Amount Earnings Income Stock Income Equity
------ ------ -------- -------------- -------- ------------- -----------
Balance, April 1, 1997 5,704,683 $ 1,431,171 $ 356,147 $ $ $ $ 1,787,318
Net Income for the year 19,760 19,760
---------- ---------- --------- -----------
Balance, March 31, 1998 5,704,683 $ 1,431,171 $ 375,907 1,807,078
Net Income for the year 799,940 799,940
---------- ---------- --------- -----------
Balance, March 31, 1999 5,704,683 1,431,171 1,175,847 2,607,018
Net Loss for the year ( 302,997) ( 302,997)
Unrealized Gain on
Marketable Securities 1,776 $ 1,776 1,776
=====
Acquisition of
Treasury Stock ( 240,000) (63,000) ( 63,000)
----------- --------- --------- ------- -------- -----------
Balance, March 31, 2000 5,464,683 $ 1,431,171 $ 872,850 $ 1,776 $(63,000) $ 2,242,797
========== ========= ========= ======= ======== ===========
The accompanying notes are an integral part of
these financial statements.
F-5
EMTEC, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
2000 1999 1998
---- ---- ----
Cash Flows From Operating Activities
Net (loss) income for the year $( 302,997) $ 799,940 $ 19,760
Adjustments to Reconcile Net (Loss)
Income To Net Cash Provided By
Operating Activities
Depreciation and amortization 387,061 382,425 369,704
Loss on sale of discontinued operations 971 - -
Changes In Operating Assets and
Liabilities
Increase in marketable securities ( 7,086) - -
Decrease (increase) in receivables 6,223,281 (11,428,201) 375,586
(Increase) decrease in inventories ( 137,146) 230,557 273,840
(Increase) decrease in prepaid expenses ( 327,207) 78,585 ( 120,136)
Decrease in other assets 5,832 8,452 -
(Decrease) increase in accounts payable (7,154,251) 9,204,112 226,478
(Decrease) increase in income taxes payable ( 10,555) 10,555 -
(Decrease) increase in customer deposits ( 276,000) 331,000 -
(Decrease) increase in accrued liabilities ( 759,151) 409,777 244,753
Increase in deferred revenue 498,698 324,342 81,031
------------ ------------ -----------
Net Cash (Used In) Provided By
Operating Activities (1,858,550) 351,544 1,471,016
------------ ------------ -----------
Cash Flows Used In Investing Activities
Purchase of equipment ( 824,280) ( 197,079) ( 372,193)
Proceeds from sale of equipment 43,710 - -
------------ ------------- -----------
Net Cash Used In Investing Activities ( 780,570) ( 197,079) ( 372,193)
------------ ------------ -----------
Cash Flows From Financing Activities
Net increase (decrease) in line of credit 2,555,927 207,832 ( 724,050)
Repayments to related parties - ( 148,654) ( 198,206)
Debt reduction - ( 19,482) ( 37,566)
Purchased treasury stock ( 63,000) - -
------------ ------------- -----------
Net Cash Provided By (Used In)
Financing Activities 2,492,927 39,696 ( 959,822)
------------ ------------ -----------
Net (Decrease) Increase in
Cash and Cash Equivalents ( 146,193) 194,161 139,001
Beginning Cash and Cash Equivalents 832,606 638,445 499,444
------------ ------------ -----------
Ending Cash and Cash Equivalents $ 686,413 $ 832,606 $ 638,445
============ ============ ===========
The accompanying notes are an integral part of
these financial statements.
F-6
EMTEC, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
1. Organization and Summary of Significant Accounting Policies
Organization
Emtec, Inc. (the Company) is an e-business solutions provider that
implements the complex, highly integrated systems required for effective
e-business solutions. Emtec's solutions enable its customers to exchange
information with their partners and customers in a purely digital format,
making them more efficient and effective, thereby giving them a competitive
advantage. The company offers the following services to its customers:
e-business strategy consulting
web self service solutions
business relationship management
marketplace connectivity
e-infrastructure design and integration
configuration management
enterprise data management
resource optimization solutions
lifecycle management of IT infrastructure
Emtec's customers are primarily Fortune 2000 and other large and mid-sized
companies located principally in the Mid-Atlantic and Southeastern United
States. The Company, a NJ corporation formed at April 1, 1995, resulted from
mergers in 1995 and 1996 of three information technology companies that were
originally founded between 1980 and 1983.
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 may differ from those estimates.
Revenue Recognition
The sale of computer hardware and prepackaged software (procurement
services) is recognized when products are shipped to or installed at
customer locations, which is also when title passes to customers. Service
and consulting revenues represent services provided to customers for
information systems design, configuration, installation and support and are
recognized as services are rendered over the service or contract period.
F-7
Trade Receivables
The Company provides an allowance for losses on trade receivables based on a
review of the current status of existing receivables and management's
evaluation of periodic aging of the accounts.
Other Receivables
Other receivables represent rebates, price protection receivables and
amounts due from vendors for purchase returns made in the ordinary course of
business.
Concentration of Credit Risk
The Company provides its services to a wide variety of commercial,
governmental and institutional customers. Financial instruments which
potentially subject the Company to concentrations of credit risk are cash
(and cash equivalents) and trade receivables. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
does not require collateral from its customers. The Company has not
experienced significant credit losses. The Company maintains deposit
accounts with high quality financial institutions; at times, such deposits
may exceed FDIC insurance limits.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost is based on standard costs generated principally by the most recent
purchase prices. The Company provides an inventory reserve for obsolescence
and deterioration based on a review of products and sales.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization for
financial accounting purposes is computed using the straight line method
over the estimated lives of the respective assets. Estimated lives are as
follows:
Computer equipment 3 years
Office equipment 5 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Vehicles 2 years
For income tax purposes, accelerated methods of depreciation are used.
Maintenance and repairs are charged to expense in the year incurred. When
properties are retired or otherwise disposed of the related cost and
accumulated depreciation are removed from the respective accounts and any
profit or loss on disposition is credited or charged to income.
F-8
Income Taxes
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than the enactment of changes in tax laws or rates. The Company
provides a valuation allowance for deferred tax assets for which it does not
consider realization of such assets to be more likely than not.
Valuation of Long Lived Assets
The Company evaluates its long lived assets by measuring the carrying amount
of the assets against the estimated undiscounted future cash flows
associated with them. If such evaluations indicate that the future
undiscounted cash flows of certain long lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values.
Advertising Costs
The Company charges advertising costs to expense as incurred. Advertising
expense for the years ended March 31, 2000, 1999 and 1998 was $426,605,
$324,070 and $ 139,671 respectively.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has adopted Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). APB
No. 25 provides that the compensation expense relative to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25
to provide a pro forma disclosure of the impact of applying the fair value
method of SFAS No. 123.
Net Income (Loss) per Share
The net income (loss) per share and the income per share from continuing
operations computations have been made in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128).
These per share computations use the weighted average number of shares
outstanding during the period. SFAS No. 128 requires a separate presentation
of diluted income per share from continuing operations and diluted net
income per share for the potential dilutive effect of securities such as
stock options. The Company maintains a stock option plan as outlined in Note
8. However, based upon the pricing of the options in excess of the
underlying value of the Company stock during the three years in the period
ended March 31, 2000, the stock options are antidilutive. Therefore, there
is no separate presentation of diluted net income per share.
F-9
2. Inventories
The components of inventories at March 31, 2000 and 1999 were as follows:
2000 1999
---- ----
Hardware, software and
accessories $ 1,089,635 $ 921,753
Service parts 177,315 180,154
--------- ---------
1,266,950 1,101,907
Less inventory reserve 175,487 147,590
--------- ---------
$ 1,091,463 $ 954,317
========= =========
Appropriate consideration has been given to deterioration, obsolescence and
other factors in evaluating net realizable value.
3. Financing Arrangements
The Company has available a $15,000,000 revolving line of credit under a
business financing agreement whereas the Company may borrow on 85% of its
eligible trade receivables and 95% on its eligible inventory value. Eligible
inventory value is defined as 100% of the total aggregate wholesale
inventory price financed by the creditor that is unsold and in the Company's
possession and control at each inventory report date. At March 31, 2000, the
Company had approximately $6,600,000 available under the terms of the
agreement. Interest on the borrowings is charged monthly at 0.50% over the
existing prime rate. Substantially all Company assets collateralize amounts
borrowed. The lending agreement contains financial covenants that require
the Company to maintain a minimum current ratio, a minimum total liabilities
to net worth ratio and minimum results of operations. The credit line may be
renewed for another year or terminated at the option of either the Company
or the lender at September 23, 2001.
4. Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b) net
operating loss carryforwards (when available).
Income taxes (benefit) consisted of the following for the years ended March
31:
2000 1999 1998
---- ---- ----
Continuing Operations
Current taxes
Federal $ 298,722 $ 101,801 $ -
State 27,596 30,265
------- -------
326,318 132,066
Deferred taxes
Federal 4,019
------- -------
326,318 136,085
------- -------
Discontinued Operations
Current benefit
Federal (347,053) ( 17,362)
State ( 43,576) -
------- ----
(390,629) ( 17,362) -
------- ------- ----
Net Income Tax (Benefit) $( 64,311) $ 118,723 $ -
======= ======= ====
F-10
Significant items comprising the Company's deferred tax assets and
liabilities at March 31, were as follows:
2000 1999 1998
---- ---- ----
Deferred Tax Assets
Temporary Differences:
Trade receivables $ 144,573 $ 82,251 $ 99,120
Inventories 99,277 77,103 119,467
Property and equipment 29,422
Accrued liabilities 1,195 11,062 55,043
Others 25,875 14,692 11,396
Net Operating loss carryforwards 189,000
------- ------- -------
270,920 214,530 474,026
Deferred Tax Liability
Temporary Differences:
Property and equipment ( 58,281) ( 4,706)
------- ------- -------
Deferred Tax Assets 212,639 214,530 469,320
before valuation allowance
Valuation Allowance (212,639) (214,530) (469,320)
------- ------- -------
Net Deferred Tax Balance $ - $ - $ -
======= ======= =======
At March 31, 2000, 1999 and 1998 the Company recorded a valuation allowance
against its deferred tax assets, reducing those assets to amounts which are
more likely than not to be realized. Federal net operating loss carrybacks
approximated $115,000 at March 31, 2000. State net operating loss
carryforwards approximated $97,000 at the 2000 fiscal year end. The state
net operating loss carryforwards expire in 2007.
5. Related Party Transactions
At March 31, 2000 and 1999 the Company owed $19,000 to a Company officer's
relative. Except for quarterly interest payments there was no other loan
activity during the fiscal 2000 and 1999 years. Interest paid on this loan
during each of the three years in the period ended March 31, 2000 was $2,280
in fiscal 2000, $5,249 in fiscal 1999 and $2,280 in fiscal 1998.
6. Major Customers
Two customers accounted for approximately 33% and 23% of the Company's net
sales in fiscal 2000 and 1999 respectively. One of these customers accounted
for 11.2% of the Company's net sales in fiscal 1998. While the Company
believes its relationship with these customers will continue, there can be
no assurance that sales to these customers will continue at all or at the
same level.
F-11
7. 401(k) Plan
The Company sponsors a 401(k) plan for all employees with at least 6 months
of service and who are at least 20 years of age. Eligible employees may
contribute 2% to 15% of their annual compensation to the plan. The Company
matches 25% of the first 6% of employee plan contributions and may
contribute additional amounts at the Company's discretion. Participants are
vested 20% for each year of service and are fully vested after 6 years.
Company contributions to the plan amounted to $103,087, $86,382 and $ 83,505
in fiscal years 2000, 1999 and 1998 respectively.
8. Stock Option Plan
On September 6, 1996, the shareholders approved a Stock Option Plan (the
"Plan"), (amended in 1999) which provides for the granting of stock options
to directors and eligible employees. The Company has reserved 1,000,000
shares of its common stock for issuance under the Plan at prices not less
than 100% of the fair value on the date of grant (110% in the case of
shareholders owning more than 10% of the Company's common stock). Options
vest at the rate of 25% per year commencing on the first anniversary of, and
expire at the earliest of 5 years after the date of grant; three months from
date of retirement or upon date of other termination of employment. The
Company used the minimum value option pricing model as prescribed by SFAS
No. 123 to determine the impact of applying the fair value method of SFAS
No. 123. All stock options granted for the three years in the period ended
March 31, 2000 were determined to have a fair value of zero. The exercise
price of these options was set at $ 1 per share, an amount in excess of 150%
of the fair value of the underlying stock. Therefore, no options granted
during the three year period have been exercised as of March 31, 2000. A pro
forma presentation of compensation cost and earnings per share is not
required due to the zero fair value determination. At September 23, 1996,
options to purchase 372,895 shares were issued primarily to the founders of
the Company at an exercise price of $ .48 per share. At March 31, 2000,
166,227 of these founder options were outstanding. Option activity is
summarized in the following table.
Options outstanding - April 1, 1997 372,895
For the year ended March 31, 1998:
Options granted 460,640
Options exercised 0
Options forfeited or expired ( 22,375)
--------
Options outstanding - March 31, 1998 811,160
For the year ended March 31, 1999:
Options granted 191,900
Options exercised 0
Options forfeited or expired (432,186)
--------
Options outstanding - March 31, 1999 570,874
For the year ended March 31, 2000:
Options granted 29,250
Options exercised 0
Options forfeited or expired (176,042)
--------
Options outstanding - March 31, 2000 424,082
========
F-12
9. Termination Costs
The Company paid termination costs of $74,480 (2000) and $48,561 (1999) to
former Company executives. In 1999 the Company paid $78,851 to a former
officer as final payment under an employment agreement.
10. Commitments and Contingencies
Leases:
The Company leases warehouse and office facilities, vehicles and certain
office equipment under noncancellable operating leases.
Future minimum lease payments under such leases are as follows:
Fiscal Years
------------
2001 $ 671,756
2002 381,274
2003 321,231
2004 299,841
Thereafter 96,642
-----------
Total $ 1,770,744
===========
Aggregate rent expense for the years ended March 31, 2000, 1999 and 1998
approximated $792,000, $761,000 and $497,000 respectively.
Litigation:
In a previous year Emtec Inc. instituted litigation against two companies
(defendants) that were in discussions with Emtec about a possible merger.
The complaint in the action charged the two companies for breach of
contract, interference with business relationships and misappropriation of
trade secrets. The parties settled the litigation in June 2000. Under terms
of the settlement, the Company received a $350,000 cash payment and 333,116
shares of the defendant's common stock with a market value of $176,885 at
date of settlement.
In 1999 Emtec, Inc. instituted litigation against a company (defendant) for
breach of contract action in an amount approximating $50,000. The defendant
has stated a counter claim in excess of $8 million for damages resulting
from Emtec's alleged negligence, causing the defendant's computer system to
become corrupted and unavailable. Damages will be contested by Emtec, as
will liability. At December 31, 2000, the case is in the discovery phase.
11. Supplemental Cash Flow Information
Cash paid for interest and income taxes were as follows:
2000 1999 1998
---- ---- ----
Interest $ 731,723 $ 770,573 $ 746,615
Income Taxes $ 168,030 $ 104,149 $ 883
F-13
12. Discontinued Operations
During fiscal 2000, the Company completed the sale of assets of its two
South Carolina locations (Greenville and Charleston) to a company formed by
some of its prior employees. The Company incurred a loss of $971, net of an
income tax benefit of $613 on the disposition of the assets. Financial
information with respect to the discontinued operations is summarized as
follows:
2000 1999 1998
---- ---- ----
Net revenues $ 7,606,953 $ 13,090,516 $ 8,218,964
Cost of revenues 6,551,899 11,001,801 7,005,653
----------- ------------ -----------
Gross profit 1,055,054 2,088,715 1,213,311
Operating expenses 2,063,100 2,277,605 1,647,783
----------- ------------ -----------
Loss before income taxes (1,008,046) ( 188,890) ( 434,472)
Income tax benefit ( 390,016) ( 17,362) -
----------- ------------ -----------
Net Loss from
Discontinued Operations $( 618,030) $( 171,528) $( 434,472)
=========== ============ ===========
13. Segment Information
The Company has organized business segments based upon branch office
locations in the Mid-Atlantic and Southeastern United States. These branch
office locations offer similar business information systems services with
the exception of the educational services unit at the Atlanta, GA office.
The Company started a new e-business solutions segment in fiscal 2000 at the
Atlanta, GA and Mt. Laurel, NJ locations.
TheCompany has adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information"(SFAS
No. 131). Operating segments are defined by SFAS No. 131 as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Emtec's chief operating
decision maker is the Chief Executive Officer of the Company. The Company's
reportable operating segments include the individual branch offices as
outlined below and the educational and e-business units. The educational
unit services schools, kindergarten through 12th grade. The e-business unit
is focused on marketing internet business solutions. The branch offices in
Greenville and Charleston, South Carolina which discontinued operations in
fiscal 2000 as described in Note 12 have been combined as one reportable
segment. The accounting policies of the segments are the same as those
described in Note 1. The Company had no intersegment revenues for the three
years in the period ended March 31, 2000. The company allocates corporate
overhead to segments based upon a combination of revenues earned and the
number of employees attributable to each segment. The following is financial
information relating to the operating segments:
F-14
For years ended March 31: 2000 1999 1998
---- ---- ----
External Sales
Mt. Laurel, NJ $ 19,480,769 $ 16,846,512 $ 15,963,403
Cranford, NJ 29,003,759 28,639,312 32,192,589
Atlanta, GA 29,521,736 19,252,643 12,507,915
Greenville/Charleston, SC 7,606,953 13,090,516 8,218,964
Norwalk, CT 5,125,806 64,987 -
Education-Atlanta 17,620,420 26,879,592 16,609,576
e-Business - - -
------------- ------------- ------------
Total External Sales $ 108,359,443 $ 104,773,562 $ 85,492,447
============= ============= ============
Interest Expense
Mt. Laurel, NJ $ 109,029 $ 109,598 $ 117,632
Cranford, NJ 188,810 173,987 316,822
Atlanta, GA 156,318 103,148 78,195
Greenville/Charleston, SC 55,548 63,612 63,867
Norwalk, CT 35,273 1,349 -
Education-Atlanta 177,104 320,642 141,065
e-Business - - -
------------- ------------- ------------
Allocated Interest Expense 722,082 772,336 717,581
Unallocated Interest Expense 12,752 5,129 28,139
------------- ------------- ------------
Total Interest Expense $ 734,834 $ 777,465 $ 745,720
============= ============= = ==========
Depreciation and Amortization
Mt. Laurel, NJ $ 92,585 $ 69,960 $ 91,813
Cranford, NJ 95,028 135,288 103,045
Atlanta, GA 77,927 63,072 54,783
Greenville/Charleston, SC 33,303 47,604 34,299
Norwalk, CT 1,397 - -
Education-Atlanta 1,223 6,000 7,215
e-Business - - -
------------- ------------- ------------
Allocated Depreciation
and Amortization 301,463 321,924 291,155
Unallocated Depreciation
and Amortization 85,598 60,501 78,549
------------- ------------- ------------
Total Depreciation
and Amortization $ 387,061 $ 382,425 $ 369,704
============= ============= ============
Operating Profit/(Loss)
Mt. Laurel, NJ $ 70,729 $( 413,703) $( 533,764)
Cranford, NJ ( 61,993) 537,820 368,884
Atlanta, GA ( 374,670) ( 663,693) ( 55,513)
Greenville/Charleston, SC ( 1,008,046) ( 188,890) ( 434,472)
Norwalk, CT ( 140,350) ( 95,275) -
Education-Atlanta 1,211,918 2,119,215 789,345
e-Business ( 355,933) - -
------------- ------------- ------------
Not Segment Operating
Profit (Loss) ( 658,345) 1,295,474 134,480
Over (Under) Allocated
Corporate Expenses 292,621 ( 376,811) ( 114,720)
------------- ------------- ------------
Total Operating Profit/
(Loss) Before Income
Taxes $( 365,724) $ 918,663 $ 19,760
Loss From Sale of
Greenville/Charleston ( 1,584) - -
Total Income Tax Benefit
(Expense) 64,311 118,723 -
------------- ------------- ------------
Net Income (Loss) $( 302,997) $ 799,940 $ 19,760
============= ============= ============
F-15
14. Subsequent Event
At January 17, 2001, the Company was acquired by American Geological
Enterprises, Inc. ("AGE") through an exchange of stock at a ratio of .9753
shares of AGE stock for 1 share of Company stock whereas AGE issued stock to
the shareholders of the Company in exchange for stock representing 100% of
the outstanding shares of the Company. Pursuant to the acquisition
agreement, AGE changed its name to Emtec, Inc. and a majority of the
directors and officers of the former AGE resigned in favor of the directors
and officers of the Company. Emtec, Inc. intends to seek a listing of its
common stock on NASDAQ's Over-The-Counter Bulletin Board. Immediately after
the transaction, the stock ownership of Emtec, Inc. {formerly AGE} was as
follows:
Shares Percent
------ -------
Original shareholders 1,380,997 19.5
(including public owners)
Transaction brokers 370,000 5.2
Former shareholders of the Company 5,329,501 75.3
--------- -----
Total 7,080,498 100.0
========= =====
Because the former shareholders of the Company acquired control of Emtec,
Inc.{formerly AGE}, the transaction is considered a "reverse acquisition" by
the Company for accounting purposes. The Company is treated as the
accounting acquirer of Emtec, Inc. {formerly AGE}, the legal acquirer. The
business combination shall be accounted for as a purchase under Accounting
Principles Board Opinion No. 16 "Business Combinations" (APB No. 16).
F-16
EMTEC, INC.
BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Assets
Current Assets
Cash and cash equivalents $ 86,851 $ 209,705
Marketable securities 13,149 5,310
Receivables:
Trade, less allowance
for doubtful accounts 14,663,228 20,493,121
Others 1,543,879 1,667,185
Inventories 1,509,853 1,613,526
Prepaid expenses 315,499 567,070
------------ ------------
Total Current Assets 18,132,459 24,555,917
------------ ------------
Property and Equipment
Equipment 2,257,431 1,587,375
Furniture and fixtures 230,722 230,637
Leasehold improvements 107,917 86,320
Vehicles 66,745 65,103
------------ ------------
2,662,815 1,969,435
Less accumulated depreciation 1,837,514 1,618,555
------------ ------------
Net Property and Equipment 825,301 350,880
------------ ------------
Other Assets 184,248 197,054
------------ ------------
Total Assets $ 19,142,008 $ 25,103,851
============ ============
The accompanying notes are an integral part of
these financial statements.
F-17
EMTEC, INC.
BALANCE SHEETS (UNAUDITED)
DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit $ 9,563,175 $ 7,779,402
Due to related parties 19,000 19,000
Accounts payable 5,848,793 11,620,219
Income taxes payable - 89,443
Accrued liabilities 1,077,941 1,788,242
Deferred revenue 1,065,767 1,055,717
----------- -----------
Total Current Liabilities 17,574,676 22,352,023
----------- -----------
Shareholders' Equity
Common stock, no par value;
25,000,000 shares authorized;
5,704,683 shares issued at
December 31, 2000 and 1999 1,431,171 1,431,171
Accumulated other comprehensive income 1,776 -
Retained Earnings 197,385 1,383,657
----------- -----------
1,630,332 2,814,828
Less cost of treasury stock (240,000 shares) 63,000 63,000
----------- -----------
Total Shareholders' Equity 1,567,332 2,751,828
----------- -----------
Total Liabilities and
Shareholders' Equity $19,142,008 $25,103,851
=========== ===========
The accompanying notes are an integral part of
these financial statements.
F-18
EMTEC, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Revenues
Procurement services $ 60,104,527 $ 69,376,368
Service and consulting 10,984,204 8,562,636
------------ ------------
Total Revenues 71,088,731 77,939,004
------------ ------------
Cost of Revenues
Procurement services 53,795,330 61,890,761
Service and consulting 8,768,527 6,295,408
------------ ------------
Total Cost of Revenues 62,563,857 68,186,169
------------ ------------
Gross Profit
Procurement services 6,309,197 7,485,607
Service and consulting 2,215,677 2,267,228
------------ ------------
Total Gross Profit 8,524,874 9,752,835
------------ ------------
Operating Expenses
Sales, general and
administrative expenses 7,607,758 8,209,714
Termination costs 90,000 113,474
Interest expense 554,917 519,691
Startup costs, E-Business 909,573 -
-------------- ------------
Total Operating Expenses 9,162,248 8,842,879
------------ ------------
Income (Loss) from continuing operations ( 637,374) 909,956
------------ ------------
Other Income (Expense)
Legal settlement income, net of costs 175,110 -
Loss from disposition of marketable securities ( 149,285) -
------------ ------------
Total Other Income (Expense) 25,825 -
------------ ------------
Income (Loss) From Continuing Operations
Before Income Taxes ( 611,549) 909,956
------------ ------------
Income Taxes - 259,692
------------ ------------
Income (Loss) from Continuing Operations,
net of income taxes ( 611,549) 650,264
Loss from Discontinued Operations,
net of income taxes ( 63,916) ( 442,455)
------------ ------------
Net Income (Loss) $( 675,465) $ 207,809
============ ============
Income (loss) per share from Continuing
Operations {basic and diluted} $( 0.112) $ 0.114
Net Income (Loss) per share
{basic and diluted} $( 0.124) $ 0.036
Weighted Average Number of Shares
Outstanding {basic and diluted} 5,464,683 5,701,192
The accompanying notes are an integral part of
these financial statements.
F-19
EMTEC, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Cash Flows From Operating Activities
Net income (loss) for the nine months $( 675,465) $ 207,809
Adjustments to Reconcile Net Income
(Loss) To Net Cash Provided By
Operating Activities
Depreciation and amortization 286,421 270,068
Marketable securities received as legal settlement income ( 158,084) -
Loss from marketable securities 149,285 -
Changes In Operating Assets and
Liabilities
Increase in marketable securities - ( 5,310)
Decrease in receivables 1,816,307 2,086,389
Increase in inventories ( 418,390) ( 659,209)
Decrease (increase) in prepaid expenses 144,191 ( 434,587)
Decrease in other assets 7,234 19,345
Decrease in accounts payable (2,330,954) ( 3,716,515)
Increase in income taxes payable - 78,888
Decrease in customer deposits ( 358,000) ( 634,000)
Decrease in accrued liabilities ( 67,658) ( 116,508)
(Decrease) increase in deferred revenue ( 76,784) 411,864
----------- ------------
Net Cash Used In Operating Activities (1,681,897) ( 2,491,766)
----------- ------------
Cash Flows Used In Investing Activities
Purchase of equipment ( 170,099) ( 92,723)
----------- ------------
Net Cash Used In Investing Activities ( 170,099) ( 92,723)
----------- ------------
Cash Flows From Financing Activities
Net increase in line of credit 1,252,434 2,024,588
Purchased treasury stock ( 63,000)
----------- ------------
Net Cash Provided By Financing Activities 1,252,434 1,961,588
----------- ------------
Net Decrease in Cash and Cash Equivalents ( 599,562) ( 622,901)
Beginning Cash and Cash Equivalents 686,413 832,606
----------- ------------
Ending Cash and Cash Equivalents $ 86,851 $ 209,705
============ ============
The accompanying notes are an integral
part of these financial statements.
F-20
EMTEC, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 2000 AND 1999
1.) Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine months
ended December 31, 2000 are not necessarily indicative of the results that
may be expected for the year ended March 31, 2001. For further
information, refer to the other financial statements and footnotes thereto
included in this Form 8-K/A.
2.) Reverse Acquisition
At January 17, 2001, the Company was acquired by American Geological
Enterprises, Inc. ("AGE") through an exchange of stock at a ratio of .9753
shares of AGE stock for 1 share of Company stock whereas AGE issued stock
to the shareholders of the Company in exchange for stock representing 100%
of the outstanding shares of the Company. Pursuant to the acquisition
agreement, AGE changed its name to Emtec, Inc. and a majority of the
directors and officers of the former AGE resigned in favor of the
directors and officers of the Company. Emtec, Inc. intends to seek a
listing of its common stock on NASDAQ's Over-The-Counter Bulletin Board.
Immediately after the transaction, the stock ownership of Emtec, Inc.
{formerly AGE} was as follows:
Shares Percent
------ -------
Original shareholders 1,380,997 19.5
(including public owners)
Transaction brokers 370,000 5.2
Former shareholders of the Company 5,329,501 75.3
--------- -----
Total 7,080,498 100.0
========= =====
Because the former shareholders of the Company acquired control of Emtec,
Inc.{formerly AGE}, the transaction is considered a "reverse acquisition"
by the Company for accounting purposes. The Company is treated as the
accounting acquirer of Emtec, Inc. {formerly AGE}, the legal acquirer. The
business combination shall be accounted for as a purchase under Accounting
Principles Board Opinion No. 16 "Business Combinations" (APB No. 16).
F-21
3.) Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) encourages, but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has adopted Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). APB No. 25 provides that the compensation expense
relative to the Company's employee stock options is measured based on the
intrinsic value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro forma disclosure of the
impact of applying the fair value method of SFAS No. 123.
All stock options granted for the nine months ended December 31, 2000 and
1999 were determined to have a fair value of zero. The exercise price of
these options was set at $1 per share, an amount in excess of 150% of the
fair value of the underlying stock. Therefore, no options granted during
the nine month periods have been exercised as of December 31, 2000. A pro
forma presentation of compensation cost and earnings per share is not
required due to the zero fair value determination. At September 23, 1996,
options to purchase 372,895 shares were issued primarily to the founders
of the Company at an exercise price of $.48 per share. At December 31,
2000, 166,227 of these founder options were outstanding. Option activity
is summarized in the following table.
Options outstanding - April 1, 2000 424,082
For the nine months ended December 31, 2000:
Options granted 218,407
Options exercised 0
Options forfeited or expired ( 49,500)
-------
Options outstanding - December 31, 2000 592,989
=======
4.) Net Income (Loss) per Share
The net income (loss) per share and the income per share from continuing
operations computations have been made in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No.
128). These per share computations use the weighted average number of
shares outstanding during the period. SFAS No. 128 requires a separate
presentation of diluted income per share from continuing operations and
diluted net income per share for the potential dilutive effect of
securities such as stock options. The Company maintains a stock option
plan as discussed in Note 3. However, based upon the pricing of the
options in excess of the underlying value of the Company stock during the
nine months ended December 31, 2000 and 1999, the stock options are
antidilutive. Therefore, there is no separate presentation of diluted net
income per share.
F-22
5.) Litigation
In a previous year Emtec Inc. instituted litigation against two companies
(defendants) that were in discussions with Emtec about a possible merger.
The complaint in the action charged the two companies for breach of
contract, interference with business relationships and misappropriation of
trade secrets. The parties settled the litigation in June 2000. Under
terms of the settlement, the Company received a $350,000 cash payment and
333,116 shares of the defendant's common stock with a market value of
$176,885 at date of settlement. Legal and other costs of litigation
reduced net settlement income to $175,110. The Company has recorded a
loss of $149,285 related to a permanent decline in the value of the
securities received in this settlement during the nine months ended
December 31, 2000.
In 1999 Emtec, Inc. instituted litigation against a company (defendant)
for breach of contract action in an amount approximating $50,000. The
defendant has stated a counter claim in excess of $8 million for damages
resulting from Emtec's alleged negligence, causing the defendant's
computer system to become corrupted and unavailable. Damages will be
contested by Emtec, as will liability. At December 31, 2000, the case is
in the discovery phase.
6.) Financing Agreements
The Company has available a $15,000,000 revolving line of credit under a
business financing agreement whereas the Company may borrow on 85% of its
eligible trade receivables and 95% on its eligible inventory value.
Eligible inventory value is defined as 100% of the total aggregate
wholesale inventory price financed by the creditor that is unsold and in
the Company's possession and control at each inventory report date. At
December 31, 2000, the Company had approximately $3,300,000 available
under the terms of the agreement. Interest on the borrowings is charged
monthly at 0.50% over the existing prime rate. Substantially all Company
assets collateralize amounts borrowed. The lending agreement contains
financial covenants that require the Company to maintain a minimum current
ratio, a minimum total liabilities to net worth ratio and minimum results
of operations. The credit line may be renewed for another year or
terminated at the option of either the Company or the lender at September
23, 2001. Currently, the company is in negotiations with its lender to
revise financial covenants and obtain a waiver for the fiscal 2001 net
profit covenant.
F-23
7.) Income Taxes
Income taxes (benefit) consisted of the following for the nine months
ended December 31, 2000 and 1999:
2000 1999
---- ----
Continuing Operations
Current taxes
Federal $ - $ 236,084
State - 23,608
--------- -------
- 259,692
Deferred taxes
Federal - -
--------- -------
- 259,692
Discontinued Operations
Current benefit
Federal - (244,619)
State - ( 34,601)
--------- ----------
$ - $ (279,220)
--------- ----------
Net Income Tax Benefit $ - $ ( 19,528)
========= ---=======
8.) Discontinued Operations
During fiscal 2000, the Company completed the sale of assets of its two
South Carolina locations (Greenville and Charleston) to a company formed
by some of its prior employees. The Company recorded an additional loss
from discontinued operations of $63,916 for the nine months ended
December 31, 2000. The loss from discontinued operations of $63K this year
is mainly due to some lease payments, contracted advertising expenses and
additional reserve for bad-debt allowance.
F-24
9.) Segment Information
The following is financial information relating to the operating segments:
Nine months ended Dec. 31: 2000 1999
---- ----
External Sales
Mt. Laurel, NJ $ 13,173,890 $ 16,195,149
Cranford, NJ 30,594,796 20,233,200
Atlanta, GA 16,341,537 25,253,092
Greenville/Charleston, SC - 6,508,171
Norwalk, CT 1,988,311 3,523,098
Education-Atlanta 8,981,447 12,734,465
e-Business 8,750 -
------------- -------------
Total External Sales $ 71,088,731 $ 84,447,175
============= =============
Interest Expense
Mt. Laurel, NJ $ 101,299 $ 87,389
Cranford, NJ 228,215 131,946
Atlanta, GA 118,308 117,560
Greenville/Charleston, SC - 46,884
Norwalk, CT 24,417 22,381
Education-Atlanta 59,288 147,306
e-Business - -
------------- -------------
Allocated Interest Expense 531,527 553,466
Unallocated Interest Expense 23,390 13,109
------------- -------------
Total Interest Expense $ 554,917 $ 566,575
============= =============
Depreciation and Amortization
Mt. Laurel, NJ $ 51,000 $ 48,980
Cranford, NJ 98,314 93,896
Atlanta, GA 45,848 43,826
Greenville/Charleston, SC - 35,603
Norwalk, CT 8,000 -
Education-Atlanta 4,400 4,500
e-Business - -
------------- -------------
Allocated Depreciation
and Amortization 207,562 226,805
Unallocated Depreciation
and Amortization 78,859 43,263
------------- -------------
Total Depreciation
and Amortization $ 286,421 $ 270,068
------------------ ============= =============
Operating Profit/(Loss)
Mt. Laurel, NJ $( 425,082) $ 259,448
Cranford, NJ 513,929 ( 76,549)
Atlanta, GA ( 164,498) ( 108,005)
Greenville/Charleston, SC ( 63,916) ( 721,675)
Norwalk, CT ( 298,929) ( 144,701)
Education-Atlanta 646,531 905,491
e-Business ( 909,308) -
------------- ------------
Not Segment Operating
Profit (Loss) ( 701,273) 114,009
Over (Under) Allocated
Corporate Expenses ( 17) 74,272
------------- -------------
Net Income (Loss) from Operations ( 701,290) 188,281
Other Income 25,825 -
Income Tax Benefit ( - ) ( 19,528)
------------- -------------
Net Income (Loss) ( 675,465) 207,809
============= =============
F-25
EMTEC, INC.
(Formerly AMERICAN GEOLOGICAL ENTERPRISES, INC.)
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The Company's pro forma financial statements give effect to the January 17, 2001
acquisition by Emtec, Inc. {Delaware Corp - formerly American Geological
Enterprises, Inc. ("AGE")} of Emtec, Inc. {New Jersey Corp} as set forth in Note
(1), as if such transaction had occurred at December 31, 2000 for pro forma
balance sheet purposes and as if such transaction had occurred at the beginning
of the periods presented for the purposes of the pro forma statements of
operations. Because the former shareholders of Emtec, Inc. {NJ Corp} end up with
control of Emtec, Inc. {formerly AGE}, the transaction is considered a "reverse
acquisition" purchase by Emtec, Inc. {NJ Corp} of Emtec, Inc. {formerly AGE}.
Emtec, Inc. {NJ Corp} has a March 31 fiscal year, whereas Emtec, Inc. {formerly
AGE} had a December 31 fiscal year. Therefore, the pro forma statements of
operations combine the years ended March 31, 2000 and December 31, 1999 and the
nine months ended December 31, 2000 and September 30, 2000.
The historical financial statements of Emtec, Inc. {NJ Corp} are the historical
financial statements of the combined Company. The pro forma financial statements
and accompanying Notes 1 and 2 should be read in conjunction with a reading of
the financial statements of Emtec, Inc. {NJ Corp.} and Emtec, Inc. {formerly
AGE}. All pro forma adjustment note references pertain to Note 2.
F-26
EMTEC, INC.
{Formerly AMERICAN GEOLOGICAL ENTERPRISES, INC.}
PRO FORMA BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2000
Historical
Emtec, Inc. Emtec, Inc.
(New Jersey (Delaware Corp) Pro Forma Pro Forma
Corp) (Formerly AGE) Adjustments Totals
----------- -------------- ----------- ------
Assets
Current Assets
Cash and cash equivalents $ 86,851 $ 1,017,205 $ - $ 1,104,056
Marketable securities 13,149 222,308 - 235,457
Receivables:
Trade, less allowance
for doubtful accounts 14,663,228 19,625 - 14,682,853
Others 1,543,879 1,276 - 1,545,155
Inventories 1,509,853 - - 1,509,853
Prepaid expenses 315,499 73 - 315,572
------------ ----------- ----------- ------------
Total Current Assets 18,132,459 1,260,487 - 19,392,946
Investments in Geothermal Power Unit - 602,280 ( 46,613)(a) 555,667
Marketable securities 70,697 2,197 (a) 72,894
Net Property and Equipment 825,301 - - 825,301
Other Assets 184,248 - - 184,248
------------ ----------- ----------- ------------
Total Assets $ 19,142,008 $ 1,933,464 $( 44,416) $ 21,031,056
============ =========== =========== ============
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit $ 9,563,175 $ - $ - $ 9,563,175
Accounts payable 5,848,793 53,946 - 5,902,739
Other current liabilities 2,162,708 9,093 - 2,171,801
------------ ----------- ----------- ------------
Total Current Liabilities 17,574,676 63,039 - 17,637,715
Deferred income taxes - 68,948 ( 10,834)(a) 58,114
Deferred revenue - 852,535 - 852,535
------------ ----------- ----------- ------------
Total Liabilities 17,574,676 984,522 ( 10,834) 18,548,364
------------ ----------- ----------- ------------
Shareholders' Equity
Common stock 1,431,171 13,810 (1,374,176)(a)(b) 70,805
Additional paid-in capital - 600,411 1,675,315 (b) 2,275,726
Accumulated other comprehensive
income 1,776 9,506 ( 9,506)(b) 1,776
Retained Earnings 197,385 325,215 ( 325,215)(b) 197,385
------------ ----------- ----------- ------------
1,630,332 948,942 ( 33,582) 2,545,692
Less cost of treasury stock 63,000 - - 63,000
------------ ----------- ----------- ------------
Total Shareholders' Equity 1,567,332 948,942 ( 33,582) 2,482,692
------------ ----------- ----------- ------------
Total Liabilities and
Shareholders' Equity $ 19,142,008 $ 1,933,464 ( 44,416) $ 21,031,056
============ =========== =========== ============
F-27
EMTEC, INC.
{Formerly AMERICAN GEOLOGICAL ENTERPRISES, INC.}
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
Emtec, Inc. Emtec, Inc.
(New Jersey (Delaware Corp) Pro Forma Pro Forma
Corp) (Formerly AGE) Adjustments Totals
----------- -------------- ----------- ------
Year Ended: March 31, 2000 December 31, 1999
- ---------- -------------- -----------------
Total Revenues $ 100,752,490 $ 172,034 $ - $100,924,524
Total Cost of Revenues 88,109,628 86,058 (1,942)(c) 88,193,744
------------- --------- ------- ------------
Total Gross Profit 12,642,862 85,976 1,942 12,730,780
------------- --------- ------- ------------
Operating Expenses
Sales, general & administrative
expenses 10,890,841 79,560 - 10,970,401
Termination costs 74,480 - - 74,480
Interest expense 679,286 - - 679,286
Startup costs; E-Business 355,933 - - 355,933
------------- --------- ------- ------------
Total Operating Expenses 12,000,540 79,560 - 12,080,100
------------- --------- ------- ------------
Income From Continuing
Operations 642,322 6,416 1,942 650,680
------------- --------- ------- ------------
Other Income
Interest income - 31,838 - 31,838
Dividend income - 12,756 - 12,756
Royalties - 404 - 404
------------- --------- ------- ------------
Total Other Income - 44,998 - 44,998
------------- --------- ------- ------------
Income From Continuing
Operations Before Income Taxes 642,322 51,414 1,942 695,678
Income taxes 326,318 7,505 486(c) 334,309
------------- --------- ------- ------------
Income From Continuing
Operations, Net of Income Taxes 316,004 43,909 1,456 361,369
Loss from discontinued operations,
net of income taxes ( 618,030) - - ( 618,030)
Loss on sale of discontinued
operations, net of income taxes ( 971) - - ( 971)
------------- --------- ------- -------------
Net Income (Loss) $( 302,997) $ 43,909 $ 1,456 $( 257,632)
============= ========= ======= =============
Income per share
from continuing operations $ 0.032 $ 0.050
(basic and diluted)
Net income (loss) per share $ 0.032 $( 0.036)
(basic and diluted)
Weighted average number
of shares outstanding 1,380,997 7,254,493
(basic and diluted)
F-28
EMTEC, INC.
{Formerly AMERICAN GEOLOGICAL ENTERPRISES, INC.}
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Historical
Emtec, Inc.
Emtec, Inc. (Delaware Corp) Pro Forma Pro Forma
(New Jersey Corp) (Formerly AGE) Adjustments Totals
----------------- -------------- ----------- ------
Nine Months Ended: December 31, 2000 September 30, 2000
- ----------------- ----------------- ------------------
Total Revenues $71,088,731 $128,860 $ - $71,217,591
Total Cost of Revenues 62,563,857 64,605 (1,457)(c) 62,627,005
----------- -------- ------- -----------
Total Gross Profit 8,524,874 64,255 1,457 8,590,586
----------- -------- ------- -----------
Operating Expenses
Sales, general & administrative
expenses 7,607,758 27,151 - 7,634,909
Termination costs 90,000 - - 90,000
Interest expense 554,917 - - 554,917
Startup costs; E-Business 909,573 - - 909,573
----------- -------- ------- -----------
Total Operating Expenses 9,162,248 27,151 - 9,189,399
----------- -------- ------- -----------
Income (Loss) From Continuing
Operations ( 637,374) 37,104 1,457 ( 598,813)
----------- -------- ------- -----------
Other Income (Expense)
Legal settlement income, net of costs 175,110 - - 175,110
Loss from marketable securities ( 149,285) - - ( 149,285)
Interest income 21,772 - 21,772
Dividend income - 6,078 - 6,078
Royalties - 96 - 96
----------- -------- ------- -----------
Total Other Income (Expense) 25,825 27,946 - 53,771
----------- -------- ------- -----------
Income (Loss) From Continuing
Operations Before Income Taxes ( 611,549) 65,050 1,457 ( 545,042)
Income taxes - 16,940 364 (c) 17,304
----------- -------- ------- -----------
Income (Loss) From Continuing
Operations, Net of Income Taxes ( 611,549) 48,110 1,093 ( 562,346)
Loss from discontinued operations,
net of income taxes ( 63,916) - - ( 63,916)
Loss on sale of discontinued
operations, net of income taxes - - - -
----------- -------- ------- ------------
Net Income (Loss) $( 675,465) $ 48,110 $ 1,093 $( 626,262)
============ ======== ------- ------------
Income (loss) per share from
continuing operations $ 0.035 $( 0.079)
(basic and diluted)
Net income (loss) per share $ 0.035 $( 0.088)
(basic and diluted)
Weighted average number
of shares outstanding 1,380,997 7,080,498
(basic and diluted)
F-29
EMTEC, INC.
(FORMERLY AMERICAN GEOLOGICAL ENTERPRISES, INC.)
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. Acquisition of Emtec, Inc. {NJ Corp}
At January 17, 2001, Emtec, Inc. {NJ Corp} was acquired by American
Geological Enterprises, Inc. ("AGE") through an exchange of stock at a ratio
of .9753 shares of AGE stock for 1 share of Emtec, Inc. {NJ Corp} stock
whereas AGE issued stock to the shareholders of the Emtec, Inc. {NJ Corp} in
exchange for stock representing 100% of the outstanding shares of the Emtec,
Inc. {NJ Corp}. Pursuant to the acquisition agreement, AGE changed its name
to Emtec, Inc. and a majority of the directors and officers of the former
AGE resigned in favor of the directors and officers of the Emtec, Inc. {NJ
Corp}. Emtec, Inc. intends to seek a listing of its common stock on NASDAQ's
Over-The-Counter Bulletin Board. Immediately after the transaction, the
stock ownership of Emtec, Inc. {formerly AGE} was as follows:
Shares Percent
------ -------
Original shareholders 1,380,997 19.5
(including public owners)
Transaction brokers 370,000 5.2
Former shareholders of the Company 5,329,501 75.3
--------- -----
Total 7,080,498 100.0
========= =====
Because the former shareholders of the Emtec, Inc. {NJ Corp} acquired
control of Emtec, Inc.{formerly AGE}, the transaction is considered a
"reverse acquisition" by Emtec, Inc. {NJ Corp} for accounting purposes. The
Company is treated as the accounting acquirer of Emtec, Inc. {formerly AGE},
the legal acquirer.
2.) Pro Forma Adjustments
a.) The Company shall account for the reverse acquisition as a purchase
under Accounting Principles Board Opinion No. 16 "Business
Combinations" (APB No. 16). APB No. 16 states that assets acquired
for issuances of stock should be stated at "cost" when acquired and
cost may be determined by the fair value of the consideration given
or by the fair value of the property acquired, whichever is more
clearly evident. Due to inactive trading of Company stock, the
Company has determined cost based upon the fair value of the
property acquired including direct costs of acquisition. Pro forma
adjustments pertaining to the costs of purchase of the assets and
liabilities of Emtec, Inc. {formerly AGE} and the effect of the
measurement of fair value on the net deferred tax liability are
presented on the pro forma balance sheet.
F-30
b.) A pro forma adjustment is presented on the pro forma balance sheet
to reflect the change of the capital structure of Emtec, Inc. {NJ
Corp} to correspond with the capital structure of its legal parent
company, Emtec, Inc. {formerly AGE}. Common stock is stated based
upon pro forma outstanding shares and the par value per share of
the legal parent company. Pro forma retained earnings are those of
Emtec, Inc. {NJ Corp}, the accounting acquirer.
c.) A pro forma adjustment is presented in the pro forma statements of
operations to account for the reduction in amortization expense
attributable to the determination of the purchase cost of the
investment in geothermal power unit as an amount below its prior
balance sheet value. The tax effect of the amortization reduction
is also presented as a pro forma adjustment.
F-31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report, or amendment thereto, to be signed
on its behalf by the undersigned thereunto duly authorized.
Emtec, Inc.
(Registrant)
Date: March 29, 2001 By: /s/ John Howlett
----------------------------
John Howlett
President