<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1998 Commission File Number 0-21147
IMARK TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0378128
(State of incorporation) (I.R.S. Employer Identification Number)
580 Herndon Parkway, Suite 100, Herndon, Virginia 20170
(Address of principal executive offices and zip code)
(703) 925-3400
(Issuer's telephone Number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $.01 par value 4,719,470 shares
(Class) (Outstanding at May 13, 1998)
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three and nine months
ended March 31, 1998 and 1997 and for the period from
July 1, 1993 (inception) to March 31, 1998.................................................2
Balance Sheets at June 30, 1997 and March 31, 1998............................................3
Statements of Cash Flows for the nine months ended March
31, 1998 and 1997 and for the period from
July 1, 1993 (inception) to March 31, 1998.................................................4
Notes to Financial Statements.................................................................5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................................5
PART II.
Signatures .............................................................................................11
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IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31, MARCH 31,
1997 1998 1997 1998 1998
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 9,500 $ 20,500 $ 37,004 $ 58,500 $ 121,398
Costs and expenses:
Selling 132,022 251,343 345,246 591,397 1,611,028
General and administrative 255,807 304,092 754,130 813,408 4,006,190
Research and development 248,169 264,401 732,084 920,192 2,981,148
Depreciation and amortization 15,896 41,362 37,017 102,013 258,247
----------- ----------- ----------- ----------- -----------
Total costs and expenses 651,894 861,198 1,868,477 2,427,010 8,856,613
Other income (expense):
Interest income 46,373 7,550 136,583 63,993 261,127
Interest expense (6,137) (654) (43,383) (1,293) (118,933)
----------- ----------- ----------- ----------- -----------
Net loss $ (602,158) $ (833,802) $(1,738,273) $(2,305,810) $(8,593,021)
=========== =========== =========== =========== ===========
Basic and diluted net loss per
common share $ (.13) $ (.18) $ (.41) $ (.49)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 4,718,270 4,719,470 4,252,726 4,719,470
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 4
IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,119,242 $ 58,972
Accounts receivable 20,250 64,781
Short-term investments 1,803,701 20,000
Prepaid expenses and other current assets 50,295 -
----------- -----------
Total current assets 2,993,488 143,753
Property, plant and equipment 368,775 702,426
Less accumulated depreciation (84,822) (186,835)
----------- -----------
283,953 515,591
Deposits 11,829 183,020
----------- -----------
Total assets $ 3,289,270 $ 842,364
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 83,989 $ 92,161
Accrued expenses 66,898 148,882
Unearned royalties 17,180 17,180
Loans payable - 20,393
Current portion of capital lease obligations 33,325 25,805
----------- -----------
Total current liabilities 201,392 304,421
Capital lease obligations, net of current portion 23,803 4,318
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares
issued and outstanding - -
Common Stock, $.01 par value; 20,000,000 shares authorized, 4,718,270
and 4,719,470 shares issued and outstanding at June 30, 1997 and
March 31, 1998, respectively 47,183 47,195
Stock purchase loan - (225,000)
Capital in excess of par value 9,304,103 9,304,451
Deficit accumulated during the development stage (6,287,211) (8,593,021)
----------- -----------
Total stockholders' equity 3,064,075 533,625
----------- -----------
Total liabilities and stockholders' equity $ 3,289,270 $ 842,364
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
NINE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
1997 1998 1998
----------- ----------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,738,273) $(2,305,810) $(8,593,021)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 37,017 102,013 188,291
Amortization of debt issuance costs - - 139,909
Issuance of compensatory stock options - - 242,452
Interest expense associated with warrants issued in
connection with the Bridge Loan Agreement 4,167 - 29,167
Interest expense associated with warrants issued in
connection with the Private Placement 16,667 - 50,000
Changes in operating assets and liabilities:
Accounts receivable (67,880) (44,531) (64,781)
Prepaid expenses 25,263 50,295 -
Deposits - (171,191) (183,020)
Debt issuance costs 69,954 - (139,909)
Accounts payable 29,359 8,172 92,161
Accrued expenses (256,937) 81,984 150,965
Unearned royalties - - 17,180
----------- ----------- -----------
Net cash used in operating activities (1,880,663) (2,279,068) (8,070,606)
INVESTING ACTIVITIES
Purchases of property and equipment (199,337) (333,651) (543,680)
Purchase of short-term investments - - (1,803,701)
Sale of short-term investments - 1,783,701 1,783,701
----------- ----------- -----------
Net cash (used in) provided by investing activities (199,337) 1,450,050 (563,680)
FINANCING ACTIVITIES
Net proceeds from notes payable - - 1,655,500
Net proceeds from issuance of warrants - - 104,455
Net proceeds from loans - 20,393 20,393
Principal payments on notes payable (875,000) - (1,000,000)
Principal payments on notes payable to related parties (171,666) - (180,000)
Principal payments on capital lease obligations (37,290) (27,005) (130,079)
Stock purchase loans - (225,000) (225,000)
Net cash proceeds from issuance of common stock 6,618,106 360 8,447,989
----------- ----------- -----------
Net cash provided by (used in) financing activities 5,534,150 (231,252) 8,693,258
Net increase (decrease) in cash 3,454,150 (1,060,270) 58,972
Cash at beginning of period 296,012 1,119,242 -
----------- ----------- -----------
Cash at end of period $ 3,750,162 $ 58,972 $ 58,972
=========== =========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 6
Notes To Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, we do not include all of the information and
footnotes required by generally accepted accounting principles (consisting of
normal recurring accruals) considered necessary for a fair presentation.
Operating results for the three and nine month periods ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's 10-KSB for the year ended June
30, 1997, on file with the Securities and Exchange Commission.
NET LOSS PER SHARE
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information," which is required to be
adopted for the Company's June 30, 1999 financial statements. SFAS No. 131
requires an enterprise to report certain additional financial and descriptive
information about its reportable operating segments. The impact of SFAS No. 131
on the June 30, 1999 financial statements is not expected to be material.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income," which is required to be adopted for the Company's June 30, 1999
financial statements. The Statement establishes new rules for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is the total of net income
and all other nonowner changes in equity. The impact of SFAS No. 130 on the June
30, 1999 financial statements is not expected to be material.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("Statement 128"), "Earnings per Share."
Statement 128 replaced the previously reported primary and fully diluted
earnings (loss) per share with basic and diluted earnings (loss) per share.
Unlike primary earnings (loss) per share, basic earnings (loss) per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted loss per share is very similar to the previously reported fully diluted
loss per share. All loss per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
2. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1997 1998
------------- ------------
<S> <C> <C>
Numerator:
Net loss $(602,158) $(833,802)
============= =============
Denominator:
Denominator for basic earning per
share - weighted-average shares 4,718,270 4,719,470
============= =============
Denominator for diluted earning per
share - adjusted weighted-average
shares and assumed conversions 4,718,270 4,719,470
============= =============
Basic loss per share $(0.13) $(0.18)
============= =============
Diluted loss per share $(0.13) $(0.18)
============= =============
<CAPTION>
Nine months ended
March 31,
--------------------------
1997 1998
------------- ------------
<S> <C> <C>
Numerator:
Net loss $(1,738,273) $(2,305,810)
============= =============
Denominator:
Denominator for basic earning per
share - weighted-average shares 4,252,726 4,719,470
============= =============
Denominator for diluted earning per
share - adjusted weighted-average
shares and assumed conversions 4,252,726 4,719,470
============= =============
Basic loss per share $(0.41) $(0.49)
============= =============
Diluted loss per share $(0.41) $(0.49)
============= =============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties and represent
management's judgment as of the date of this Form 10-QSB. The Company's actual
results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed under the caption "Risk Factors" in the
Company's Prospectus, dated August 16, 1996, issued in conjunction with the
Company's registration statement on Form SB-2, on file with the Securities and
Exchange Commission. The Company disclaims any intent or obligation to update
these forward-looking statements.
5
<PAGE> 7
OVERVIEW
The Company is a development stage company engaged in the development and
marketing of e-commerce services and systems. The Company commenced operations
in July 1993. Prior thereto, the principals of the Company were involved in the
development of the Company's technology, development of the business plan and
arrangement for the initial capitalization of the Company. The Company offers
electronic commerce services to information publishers who want to quickly and
easily sell their content on the Internet or CD-ROM. Commerce services include
NET-MAX for Internet web-based content, NET-MAX+ for server push or Internet
web-based content, and CD-MAX for CD-ROM based content. The Company's services
provide proprietary capabilities surrounding the access, distribution and
payment of electronic content and give information publishers the ability to
establish subscription, debit/pay-down accounts, or pay-per-use pricing. A rapid
implementation model presents publishers with a way to quickly begin generating
revenue while minimizing initial investment and risk.
From July 1, 1993 (inception) through March 31, 1998, the Company
recognized revenues from operations of $121,398 and as of March 31, 1998 had an
accumulated deficit of $8,593,021. The Company has continued to operate at a
loss since inception and expects to incur significant additional operating
losses until the Company generates significant revenues from operations which
are sufficient to cover its monthly operating expenses.
The Company has entered into agreements with seven information publishers
pursuant to which it will receive software customization, transaction and
licensing fees (which represent a percentage of the revenue billed by the
Company on behalf of the publisher), provided that the publishers are successful
in marketing their information. The first commercial use of the CD-MAX system
began in August 1995, and to date, a total of $68,398 in revenues have been
generated from all uses of the system. The first commercial use of the NET-MAX
system was in September 1997 and to date $53,000 in revenues have been generated
by the Company.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on a recent assessment, the Company determined that its computer
systems, including its NET-MAX, NET-MAX+, and CD-MAX commerce services, will
function properly with respect to dates in the year 2000 and thereafter. The
Company has initiated formal communications with its significant suppliers and
customers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted and would not have
an adverse effect on the Company's systems. The Company has determined it has no
exposure to contingencies related to the Year 2000 issue for the products it has
sold.
6
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
REVENUES
For the three months ended March 31, 1998, the Company recognized revenues
of $20,050 as license fee income pursuant to its agreements with publishers. For
the three months ending March 31, 1997, the Company recognized revenues of
$9,500. These revenues are software development and licensing fees.
OPERATING EXPENSES
The Company's operating expenses were $861,198 for the three months ended
March 31, 1998, compared to $651,894 for the three months ended March 31, 1997.
This increase of $209,304 or 32% was attributable primarily to the following
factors:
Sales and Marketing. Selling expenses were $251,343 for the three months
ended March 31, 1998, compared to $132,022 for the three months ended March 31,
1997. This increase of $119,321 or 90% was attributable primarily to increased
expenses for three additional marketing professionals and increased advertising,
consulting, and selling costs.
General and Administrative. General and administrative expenses were
$304,092 for the three months ended March 31, 1998, compared to $255,807 for the
three months ended March 31, 1997. This increase of $48,285 or 19% was primarily
due to the allocation of office rent to general and administrative expense
rather than research and development expense, as had been done previously.
Research and Development. Research and development expenses were $264,401
for the three months ended March 31, 1998, compared to $248,169 for the three
months ended March 31, 1997. This increase of $16,232 or 7% was primarily
attributed to an increase in consultant fees, which was offset by the decrease
in rent, which was reclassed to general and administrative expense.
Due to the above, the Company had a net loss of $833,802 for the three
months ended March 31, 1998, compared to a net loss of $602,158 for the three
months ended March 31, 1997.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1997
REVENUES
For the nine months ended March 31, 1998, the Company recognized revenues
of $58,500 as license fee income pursuant to its agreements with publishers. For
the nine months ending March 31, 1997, the Company
7
<PAGE> 9
recognized revenues of $37,004 from license fees pursuant to its agreements with
publishers. These revenues consisted primarily of software development and
licensing fees.
OPERATING EXPENSES
The Company's operating expenses were $2,427,010 for the nine months ended
March 31, 1998, compared to $1,868,477 for the nine months ended March 31, 1997.
This increase of $558,533 or 30% was attributable primarily to the following
factors:
Sales and Marketing. Selling expenses were $591,397 for the nine months
ended March 31, 1998, compared to $345,246 for the nine months ended March 31,
1997. This increase of $246,151 or 71% was attributable primarily to a $147,000
increase in salaries, and a $92,000 increase in consulting costs.
General and Administrative. General and administrative expenses were
$813,408 for the nine months ended March 31, 1998, compared to $754,130 for the
nine months ended March 31, 1997. This increase of $59,278 or 8% was attributed
to the allocation of office rent to general and administrative expense rather
than research and development, as it had been done in the past
Research and Development. Research and development expenses were $920,192
for the nine months ended March 31, 1998, compared to $732,084 for the nine
months ended March 31, 1997. This increase of $188,108 or 26% was primarily
attributed to a $51,000 increase in salaries, a $111,000 increase in
consultants, increases in computer software and supplies, and a decrease in rent
expense.
Due to the above, the Company had a net loss of $2,305,810 for the nine
months ended March 31, 1998, compared to a net loss of $1,738,273 for the nine
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the process of raising additional funds. (See Subsequent
Events for related information) There is no certainty that the Company will be
able to raise such funds. Should the Company be unable to raise the additional
Capital, the Company must significantly reduce its operating expense and/or
redeem its redeemable warrants.
The Company is currently spending approximately $270,000 per month and, as
of March 31, 1998, had cash, cash equivalents and short-term investments of
approximately $79,000.
The Company has financed its operations primarily through funds obtained
from the sale of Common Stock. On August 16, 1996, the Company completed a
public offering of 1,322,500 Units, each unit consisting of two shares of Common
Stock and one Redeemable Warrant. The gross proceeds to the Company were
approximately $8.1 million; as of March 31, 1998, $1,454,726 of the total
offering proceeds were used to pay off private placement notes payable and
related party notes payable and related offering expenses. The net proceeds from
this offering were used to support continuing operations and research and
development.
8
<PAGE> 10
The Company has experienced net losses from operations since its inception
and at March 31, 1998 had an accumulated deficit of $8,593,021. At March 31,
1998 the Company's primary liabilities are trade payables of $92,161 and accrued
expenses of $148,882 for employee fringe benefits, and accrued trade payables.
The Company has no material commitments other than its facility, equipment
leases, and employment agreements with three of its senior executives which call
for annual salaries of approximately $85,000 to $89,500 per year per individual.
CERTAIN BUSINESS RISKS
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including progress in its research and
development programs, the magnitude of those programs, the ability of the
Company to establish collaborative and licensing arrangements, the cost involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and
competing technological and market developments. The Company is currently
seeking to raise additional equity capital.
There can be no assurance that the Company's services will be accepted by
the marketplace in a successful and timely manner; that the Company will achieve
positive cashflow to fund its operations prior to exhausting its capital
resources; or that the Company will be able to raise additional capital.
A description of these and other risks relating to the Company's business
is set forth under the caption "Risk Factors" in the Company's Prospectus, dated
August 16, 1996, issued in conjunction with the Company's registration statement
on Form SB-2, on file with the Securities and Exchange Commission.
NASDAQ LISTING REQUIREMENTS
The NASD Marketplace Rule(s) 4310(c)(02) became effective on February 23,
1998. The Company received a delisting letter from NASDAQ on February 26, 1998.
The Company has filed for an exception to the new net tangible assets/market
capitalization/net income requirement(s) which the Company does not currently
satisfy.
While the Company is actively pursuing several financing alternatives to
bring it back into compliance, there can be no assurance that its efforts will
bring it back into compliance or that NASDAQ will grant an exception. (See
Subsequent Events)
SUBSEQUENT EVENTS
On April 23, 1998, the Company entered into a letter of intent to acquire
International Advance, a private Delaware-based holding company. International
Advance owns a 29.9% interest in Voss Net, a London-based Internet Service
provider trading in the UK on the Alternative Investment market. International
Advance will also have a minimum of $1 million in cash at the time the
transaction is consummated.
9
<PAGE> 11
Under the terms of the agreement, subject to approval by Imark's Board,
International Advance will receive 10.5 million shares of Imark common stock
plus 1 million shares of Imark preferred stock and will thus acquire control of
Imark. The transaction is expected to close within 30 days.
See The Company's filing on Form 8-K for more details on this proposed
transaction.
As of May 14, 1998 the Company has received bridge loans totaling $80,000
from International Advance. These loans were used for payroll and trade payable
expenses.
As of May 14, 1998 the Company has also received from Company
Officers/Directors bridge loans totaling $75,393. These loans were used for
payroll and trade payable expenses.
10
<PAGE> 12
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 thereunto duly authorized.
Imark Technologies, Inc.
------------------------------------------
(Registrant)
Date: May 14, 1998 /s/ ROBERT A. WIEDEMER
------------------------------------------
Robert A. Wiedemer
President, Chief Executive Officer,
and Chairman of Board
(Principal Executive Officer)
Date: May 14, 1998 /s/ PHILIP J. GROSS
------------------------------------------
Philip J. Gross
Secretary, Treasurer,Sr. Vice President-
Chief Financial Officer, and Director
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMARK
TECHNOLOGIES, INC. 10-QSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 58,972
<SECURITIES> 20,000
<RECEIVABLES> 64,781
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,753
<PP&E> 702,426
<DEPRECIATION> (186,836)
<TOTAL-ASSETS> 842,364
<CURRENT-LIABILITIES> 304,421
<BONDS> 0
0
0
<COMMON> 47,195
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 842,364
<SALES> 20,500
<TOTAL-REVENUES> 20,500
<CGS> 0
<TOTAL-COSTS> 861,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654
<INCOME-PRETAX> (833,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (833,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,802)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
