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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
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For quarterly period ended December 31, 1997 Commission File Number 0-21147
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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 February 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 six months ended
December 31, 1996 and 1997 and for the period from
July 1, 1993 (inception) to December 31, 1997..................................................2
Balance Sheets at June 30, 1997 and December 31, 1997.............................................3
Statements of Cash Flows for the six months ended
December 31, 1996 and 1997 and for the period from
July 1, 1993 (inception) to December 31, 1997..................................................4
Notes to Financial Statements.....................................................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................................5
PART II.
Item 4. Submission of Matters to a Vote of Security Holders...............................................9
Signatures ..................................................................................................11
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IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
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<CAPTION>
PERIOD FROM
JULY 1, 1993
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997 1997
--------------- ----------------- ---------------- ---------------- ---------------
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Revenues $ 15,000 $ 32,500 $ 27,504 $ 38,000 $ 100,898
Costs and expenses:
Selling 119,231 217,326 213,224 340,054 1,359,685
General and administrative 224,126 293,817 498,323 509,316 3,702,098
Research and development 262,966 352,467 483,915 655,791 2,716,747
Depreciation and amortization 15,846 34,335 21,121 60,651 216,885
--------------- ----------------- ---------------- ---------------- ---------------
Total costs and expenses 622,169 897,945 1,216,583 1,565,812 7,995,415
Other income (expense):
Interest income 64,401 28,678 90,210 56,443 253,577
Interest expense (7,287) (174) (37,246) (639) (118,279)
--------------- ----------------- ---------------- ---------------- ---------------
Net loss $ (550,055) $ (836,941) $ (1,136,115) $ (1,472,008) $ (7,759,219)
=============== ================= ================ ================ ===============
Net loss per common share $ (.12) $ (.18) $ (.28) $ (.31)
=============== ================= ================ ================
Net loss per common share $ (.12) $ (.18) $ (.28) $ (.31)
assuming dilution
Weighted average number of
common shares outstanding 4,718,270 4,719,470 4,023,769 4,718,870
=============== ================= ================ ================
</TABLE>
See accompanying notes.
2
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IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.
(A Development Stage Company)
BALANCE SHEETS
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JUNE 30, DECEMBER 31,
1997 1997
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ASSETS
Current assets:
Cash $ 1,119,242 $ 86,941
Accounts receivable 20,250 47,000
Short-term investments 1,803,701 908,144
Prepaid expenses and other current assets 50,295 -
------------------- -----------------
Total current assets 2,993,488 1,042,085
Computer equipment 368,775 626,291
Less accumulated depreciation (84,822) (145,473)
------------------- -----------------
283,953 480,818
Deposits 11,829 181,220
------------------- -----------------
Total assets $ 3,289,270 $ 1,704,123
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 83,989 $ 141,372
Accrued expenses 66,898 52,576
Unearned royalties 17,180 17,180
Current portion of capital lease obligations 33,325 25,151
------------------- -----------------
Total current liabilities 201,392 236,279
Capital lease obligations, net of current portion 23,803 17,490
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
December 31, 1997, respectively 47,183 47,195
Stock purchase loans - (142,073)
Capital in excess of par value 9,304,103 9,304,451
Deficit accumulated during the development stage (6,287,211) (7,759,219)
------------------- -----------------
Total stockholders' equity 3,064,075 1,450,354
------------------- -----------------
Total liabilities and stockholders' equity $ 3,289,270 $ 1,704,123
=================== =================
</TABLE>
See accompanying notes.
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IMARK TECHNOLOGIES, INC.
(Formerly CD-MAX, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
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PERIOD FROM
JULY 1, 1993
SIX MONTHS ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1996 1997 1997
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OPERATING ACTIVITIES
Net loss $ (1,136,115) $ (1,472,008) $ (7,759,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,121 60,651 146,929
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 (49,520) (26,750) (47,000)
Prepaid expenses 25,263 50,295 -
Deposits - (169,391) (181,220)
Debt issuance costs 69,954 - (139,909)
Accounts payable 52,907 57,383 141,372
Accrued expenses (170,184) (14,322) 54,659
Unearned royalties - - 17,180
------------------- ------------------- ---------------
Net cash used in operating activities (1,165,740) 1,514,142 (7,305,680)
INVESTING ACTIVITIES
Purchases of property and equipment (70,546) (257,516) (467,545)
Purchase of short-term investments - - (1,803,701)
Sale of short-term investments - 895,557 895,557
------------------- ------------------- ---------------
Net cash (used in) provided by investing activities (70,546) 638,041 (1,375,689)
FINANCING ACTIVITIES
Net proceeds from notes payable - - 1,655,500
Net proceeds from issuance of warrants - - 104,455
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 (24,676) (14,487) (117,561)
Stock purchase loans - (142,073) (142,073)
Net cash proceeds from issuance of common stock 6,618,106 360 8,447,989
------------------- ------------------- ---------------
Net cash provided by (used in) financing activities 5,546,764 (156,200) 8,768,310
------------------- ------------------- ---------------
Net increase (decrease) in cash 4,310,478 (1,032,301) 86,941
Cash at beginning of period 296,012 1,119,242 -
------------------- ------------------- ---------------
Cash at end of period $ 4,606,490 $ 86,941 $ 86,941
=================== =================== ===============
</TABLE>
See accompanying notes.
4
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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 six month periods ended December 31, 1997
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.
On December 30, 1997, the shareholders of the Company approved to
change the name of the Company from CD-MAX, Inc. to Imark Technologies, Inc.
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 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.
EARNINGS PER SHARE
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.
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
5
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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
OVERVIEW
The Company is a development stage company engaged in the
development and marketing of e-commerce services. 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 December 31, 1997, the
Company recognized revenues from operations of $100,898 and as of December 31,
1997 had an accumulated deficit of $7,759,219. 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 nine 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 $32,500 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
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RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1996
REVENUES
For the three months ended December 31, 1997, the Company recognized
revenues of $32,500 as license fee income pursuant to its agreements with
publishers. For the three months ending December 31, 1996, the Company
recognized revenues of $15,000 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 $897,945 for the three months
ended December 31, 1997, compared to $622,169 for the three months ended
December 31, 1996. This increase of $275,776 or 44% was attributable primarily
to the following factors:
Sales and Marketing. Selling expenses were $217,326 for the three
months ended December 31, 1997, compared to $119,231 for the three months ended
December 31, 1996. This increase of $98,095 or 82% was attributable primarily
to increased expenses for three additional marketing professionals and
increased advertising and consulting costs.
General and Administrative. General and administrative expenses
were $293,817 for the three months ended December 31, 1997, compared to
$224,126 for the three months ended December 31, 1996. This increase of $69,691
or 31% was primarily due to an increase in administrative travel expenses.
Research and Development. Research and development expenses were
$352,467 for the three months ended December 31, 1997, compared to $262,966 for
the three months ended December 31, 1996. This increase of $89,501 or 34% was
primarily attributed to a $55,780 increase in consultant fees and a $42,926
increase in rent. The Company moved to its new offices in November and
continued to pay rent for the old offices until December, 1997.
Due to the above, the Company had a net loss of $836,941 for the
three months ended December 31, 1997, compared to a net loss of $550,055 for
the three months ended December 31, 1996.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1996
REVENUES
For the six months ended December 31, 1997, the Company recognized
revenues of $38,000 as license fee income pursuant to its agreements with
publishers. For the six months ending December 31, 1996, the Company
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recognized revenues of $27,504 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 $1,565,812 for the six months
ended December 31, 1997, compared to $1,216,583 for the six months ended
December 31, 1996. This increase of $349,229 or 29% was attributable primarily
to the following factors:
Sales and Marketing. Selling expenses were $340,054 for the six
months ended December 31, 1997, compared to $213,224 for the six months ended
December 31, 1996. This increase of $126,830 or 59% was attributable primarily
to increased expenses for three additional marketing professionals and
increased advertising and consulting costs.
General and Administrative. General and administrative expenses
were $509,316 for the six months ended December 31, 1997, compared to $498,323
for the six months ended December 31, 1996. This increase of $10,993 or 2% was
attributed to a $71,924 increase in travel costs which were offset by a $69,955
decrease in debt issuance costs.
Research and Development. Research and development expenses were
$655,791 for the six months ended December 31, 1997, compared to $483,915 for
the six months ended December 31, 1996. This increase of $171,876 or 36% was
primarily attributed to a $48,794 increase in salaries, a $83,966 increase in
consultants, and a $54,455 increase in rent.
Due to the above, the Company had a net loss of $1,472,008 for the
six months ended December 31, 1997, compared to a net loss of $1,136,115 for
the three months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in the process of raising additional
funds during the first quarter of 1998. 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 $290,000 per
month and, as of December 31, 1997, had cash, cash equivalents and
short-term investments of approximately $995,000.
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 December 31, 1997, $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 are being used to support continuing operations and research and
development. As of December 31, 1997 an additional $1,800,000 of the net
proceeds have been used to purchase short-term certificates of deposit.
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The Company has experienced net losses from operations since its
inception and at December 31, 1997 had an accumulated deficit of $7,759,219. At
December 31, 1997 the Company's primary liabilities are trade payables of
$141,372 and accrued expenses of $52,576 for employee fringe benefits.
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 $64,000 to $89,500 per year per
individual.
CERTAIN BUSINESS RISKS
The Company expects that its existing funds, interest income, and
committed license fees and research payments from existing collaboration
agreements will be sufficient to fund the Company's operations for at least
the next quarterly period. 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.
II. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on December 30,
1997. At the meeting, the shareholders of the Company (i) elected each of the
persons listed below to serve as director of the Company until the 1998 annual
meeting of shareholders or until his successor is elected, (ii) approved the
amendment of the articles of Incorporation of the Company to increase the
number of authorized shares of common stock from 10 million to 20 million
shares, par value $.01 per share, (iii) approved the amendment of the Articles
of Incorporation to change the name of the Company to "Imark Technologies,
Inc.", (iv) approved the reservation of an additional 500,000 shares of common
stock for issuance under the 1993 Stock Incentive Plan and (v) approved the
selection of Ernst & Young LLP as independent auditors of the Company for the
fiscal year ending June 30, 1998.
The Company had 4,719,470 shares of Common Stock outstanding as of November 24,
1997, the record date for the annual meeting. At the annual meeting, holders of
a total of 4,234,527 shares were present or represented by proxy. The following
sets forth the information regarding the results of the voting at the annual
meeting:
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(i) Election of Directors
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1. Election of Directors For Withheld
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Philip J. Gross 4,223,586 10,941
Weldon P. Rackley 4,223,586 10,941
Steven P. Schnipper 4,221,480 13,047
John D. Wiedemer 4,223,466 11,061
Robert A. Wiedemer 4,223,166 11,361
</TABLE>
(ii) Amendment of Articles re: increase in the number of shares
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Votes in favor: 3,921,268
Votes against: 88,451
Abstentions: 224,808
</TABLE>
(iii) Amendment of Articles to change the name
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Votes in favor: 4,219,747
Votes against: 5,745
Abstentions: 9,035
</TABLE>
(iv) Reserve of shares for 1993 Stock Option Plan
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Votes in favor: 4,219,747
Votes against: 5,745
Abstentions: 9,035
</TABLE>
(v) Selection of Audit Firm
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Votes in favor: 4,218,586
Votes against: 7,138
Abstentions: 8,803
</TABLE>
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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: February 13, 1998 /s/ ROBERT A. WIEDEMER
------------------------------------------
Robert A. Wiedemer
President, Chief Executive Officer,
and Chairman of Board
(Principal Executive Officer)
Date: February 13, 1998 /s/ PHILIP J. GROSS
------------------------------------------
Philip J. Gross,
Secretary, Treasurer,Sr. Vice President-
Chief Financial Officer, and Director
(Principal Accounting Officer)
11
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<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> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 86,941
<SECURITIES> 908,144
<RECEIVABLES> 47,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,042,085
<PP&E> 626,291
<DEPRECIATION> (145,473)
<TOTAL-ASSETS> 1,704,123
<CURRENT-LIABILITIES> 131,950
<BONDS> 0
0
0
<COMMON> 47,195
<OTHER-SE> (142,073)
<TOTAL-LIABILITY-AND-EQUITY> 1,704,123
<SALES> 32,500
<TOTAL-REVENUES> 32,500
<CGS> 0
<TOTAL-COSTS> 897,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> (836,941)
<INCOME-TAX> 0
<INCOME-CONTINUING> (836,941)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (836,941)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
