<PAGE> 1
As filed with the Securities and Exchange Commission on June 30, 1998
Registration No. 333-_____
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
IMALL, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
NEVADA 8200 87-0553169
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
4400 COLDWATER CANYON BOULEVARD
SUITE 200
STUDIO CITY, CALIFORNIA 91604
(818) 509-3600
(Address and Telephone Number of Principal Executive Offices)
RICHARD M. ROSENBLATT
4400 COLDWATER CANYON BOULEVARD
SUITE 200
STUDIO CITY, CALIFORNIA 91604
(818) 509-3600
(Name, Address, and Telephone Number of Agent For Service)
-------------------
Copies of all communications to:
DAVID L. FICKSMAN, ESQ.
LOEB & LOEB LLP
1000 WILSHIRE BOULEVARD, SUITE 1800
LOS ANGELES, CALIFORNIA 90017
TELEPHONE: (213) 688-3400
FACSIMILE: (213) 688-3460
---------------------------
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [X]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Titles of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Offering Fee
Share(1) Price(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.008 per 317,192 $9.00 $ 2,854,728 $ 842.14
share
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.008 per 6,250,005 $9.00 $56,250,045 $16,593.76
share, underlying Convertible Preferred
Stock...............................
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value $.008 per share, 1,568,751 $3.20(2) $ 5,020,003 $ 1,480.90
underlying Initial Warrants
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value $.008 per share, 1,500,000 $3.20(2) $ 4,800,000 $ 1,416.00
underlying Placement Agent Warrants
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.008 per 25,749 $3.20(2) $ 82,397 $ 24.31
share underlying the Investor Warrants
- -----------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.008 per 375,000 $3.20(2) $ 1,200,000 $ 354.00
share underlying the Additional Warrants
- -----------------------------------------------------------------------------------------------------------------
Initial Warrants to purchase .125 share of 12,550,005 (3) -- --
- -----------------------------------------------------------------------------------------------------------------
Common Stock
- -----------------------------------------------------------------------------------------------------------------
Placement Agent Warrants to purchase 1,500,000 (3) -- --
one share of Common Stock
- -----------------------------------------------------------------------------------------------------------------
Investor Warrants to purchase .125 share 205,990 (3) -- --
of Common Stock
- -----------------------------------------------------------------------------------------------------------------
Additional Warrants to purchase one share 375,000 (3) -- --
of Common Stock
- -----------------------------------------------------------------------------------------------------------------
Total............................... $20,711.11
=============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended ("Securities Act")
using the last reported sale price reported on the OTC Electronic Bulletin
Board for the Registrant's Common Stock on June 29, 1998.
(2) The maximum offering price per share of the Common Stock has been calculated
pursuant to Rule 457(g).
(3) No additional fee pursuant to Rule 457(g).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION"), ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION, DATED _______________, 1998
IMALL, INC.
10,036,697 SHARES OF COMMON STOCK
12,550,005 INITIAL WARRANTS
1,500,000 PLACEMENT AGENT WARRANTS
205,990 INVESTOR WARRANTS
375,000 ADDITIONAL WARRANTS
----------
This Prospectus relates to the following securities of iMall, Inc., a Nevada
corporation (the "Company"): (i) 317,192 shares of common stock, par value
$0.008 per share ("Common Stock") issued to certain investors in a private
placement completed in October 1997; (ii) 6,250,005 shares of Common Stock
issuable upon conversion of 5,000,004 shares of the Company's 9% Convertible
Preferred Stock issued in a private placement in December 1997 (the "Convertible
Preferred Stock"); (iii) 1,568,751 shares of Common Stock underlying warrants,
issued in connection with the December 1997 private placement, which entitles
the holder to purchase .125 share of Common Stock exercisable at $3.20 per
share, subject to adjustment in certain circumstances (the "Initial Warrants");
(iv) 12,550,005 Initial Warrants issued in connection with the December 1997
private placement; (v) 1,500,000 warrants issued to Commonwealth Associates (the
"Placement Agent"), in connection with the December 1997 private placement, to
purchase one share of Common Stock exercisable at $3.20 per share, subject to
adjustment in certain circumstances (the "Placement Agent Warrants"); (vi)
1,500,000 shares of Common Stock underlying the Placement Agent Warrants; (vii)
205,990 warrants issued to a group of investors in connection with the October
1997 private placement to purchase .125 share of Common Stock exercisable at
$3.20 per share, subject to adjustment in certain circumstances (the "Investor
Warrants"); (viii) 25,749 shares of Common Stock underlying the Investor
Warrants; (ix) 375,000 warrants issued to the Company's financial advisors in
connection with the December 1997 private placement to purchase one share of
Common Stock exercisable at $3.20 per share, subject to adjustment in certain
circumstances (the "Additional Warrants"); and (x) 375,000 shares of Common
Stock underlying the Additional Warrants. The Initial Warrants, Placement Agent
Warrants, Investor Warrants and the Additional Warrants are referred to herein
as the "Warrants." The Common Stock offered hereby and the Common Stock
underlying the Convertible Preferred Stock and the Warrants (the "Underlying
Common Stock") together with the Warrants are referred herein as the
"Securities."
The Common Stock and Warrants are being offered by certain securityholders
of the Company (the "Selling Securityholders"). See "PRINCIPAL AND SELLING
SECURITYHOLDERS," and "PLAN OF DISTRIBUTION." The Underlying Common Stock is
being offered by the Company upon the conversion of the Convertible Preferred
Stock and the exercise of the Warrants. The Company will receive the proceeds
from the exercise of the Warrants; however, the Company will not receive any
proceeds from the sales of the Common Stock offered hereby, the Warrants or the
Underlying Common Stock by or for the accounts of the Selling Securityholders.
See "USE OF PROCEEDS."
The Company's Common Stock is presently quoted on the OTC Electronic
Bulletin Board under the symbol "IIML". The Company has applied to have the
Common Stock approved for inclusion on the NASDAQ SmallCap Market under the
proposed Symbol "IMAL." On June 29, 1998, the last reported sale price of the
Common Stock, as reported on the OTC Electronic Bulletin Board, was $9.00 per
share.
----------
THE SECURITIES OFFERED HEREBY INVOLVE SUBSTANTIAL RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is __________, 1998
<PAGE> 4
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024 at its
principal office, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Company's Common Stock is presently traded on the OTC
Electronic Bulletin Board. Reports and other information concerning the Company
may be inspected at the Records Department of the NASDAQ Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, a registration statement on Form
SB-2 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial statements and the
related notes thereto appearing elsewhere in this Prospectus. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in such forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed in "RISK FACTORS."
THE COMPANY
The Company is an electronic commerce and Internet services company that
maintains an Internet destination called "iMALL", located at www.imall.com. The
iMALL Web site offers goods and services for sale from a variety of merchants,
either through a Web site or classified advertisements within iMALL.
The Company currently derives the majority of its revenues from Web site
sales and maintenance fees, Internet training, education and consulting
services. The Company's goal is for its future revenues to include those sources
as well as revenue from selling products over the Internet, providing electronic
commerce services to businesses (through Web sites which include the tools
necessary to consummate transactions on line), and selling Internet advertising.
The Company is now focusing on what it believes to be more profitable areas such
as the building and hosting of Web sites equipped to process on line
transactions ("Transactional Web Sites"), the sale of the Company's proprietary
Electronic Commerce Services, maximizing the Company's Internet advertising
revenues, and growing its on line commerce revenue (by earning a percentage of
the gross sales made through iMALL merchants' Web sites).
The Company's mission is to maintain and expand its position as a pioneer
and leader in Electronic Commerce Services and a prominent Internet commerce
destination where businesses and consumers from around the world go to engage in
the sale and purchase of goods, services and information. To achieve this
mission, the Company will focus on expanding the sales of its Electronic
Commerce Services and on further building its Internet presence by launching new
electronic commerce Web sites, acquiring new merchants and products and
increasing its shopper base.
The Company effected a 1 for 19 reverse stock split on January 8, 1996. In
addition, on May 22, 1996, the Company effected a 4 for 1 forward stock split,
and, effective February 12, 1998, the Company effected a 1 for 8 reverse stock
split. All references in this Prospectus take these stock splits into effect
when referring to the number of shares of the Company's Common Stock or per
share data.
The Company's executive office is located at 4400 Coldwater Canyon
Boulevard, Suite 200, Studio City, California 91604, and its telephone number is
(818) 509-3600.
3
<PAGE> 6
USE OF PROCEEDS
No proceeds are to be paid to the Company from the sale of shares of the
Common Stock offered hereby, Underlying Common Stock or Warrants. The Company
will receive the proceeds from the exercise of the Warrants. See "USE OF
PROCEEDS."
RISK FACTORS
Investment in the Securities involves a substantial degree of risk,
including possible regulatory constraints and possible need for additional
financing. See "RISK FACTORS."
4
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following table sets forth for the periods indicated and at the
dates indicated, historical summary financial information of the Company. The
historical information contained in the table as of December 31, 1997 has been
derived from audited consolidated financial statements, and is qualified in its
entirety by, and should be read in connection with, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION," the audited consolidated financial statements
(and notes thereto) and other financial and statistical information of the
Company appearing elsewhere in this Prospectus. The statements of operations and
balance sheet data as of March 31, 1998 and for the three months ended March 31,
1998 and 1997, have been derived from unaudited condensed consolidated financial
statements. The condensed consolidated financial statements as of March 31, 1998
and for the three months ended March 31, 1998 and 1997 appearing elsewhere in
this Prospectus are unaudited; however in the opinion of Management all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation of the financial results and condition for interim periods
have been made. The results of interim periods are not necessarily indicative of
the results to be obtained in a full fiscal year.
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
-------------------------------- --------------------------------
1997 1996 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues $ 16,776,661 $ 16,046,933 $ 3,472,299 $ 4,078,434
Gross profit 11,750,396 10,582,490 2,440,902 2,824,253
Loss from operations (4,782,508) (27,210) (1,280,414) (688,115)
(Loss) income before provision
for income taxes (4,719,520) 102,746 (1,219,682) (682,206)
Net (loss) income (4,702,974) 64,818 (1,219,682) (682,206)
Net (loss) income per
common share(1) $ (0.64) $ 0.01 $ (0.22) $ (0.09)
Weighted average
common shares
outstanding(1) 7,526,967 7,252,584 7,652,494 7,410,566
</TABLE>
(1) See Note 10 of Notes to Consolidated Financial Statements and Note 2 to
Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 8
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
BALANCE SHEET
DATA:
Working capital $11,599,995 $13,474,100
Fixed assets, net 1,441,931 610,477
Total assets 15,325,925 17,055,672
Total liabilities 2,022,236 2,701,457
Stockholders' equity 13,303,689 14,354,215
</TABLE>
6
<PAGE> 9
RISK FACTORS
An investment in the securities offered hereby involves a
substantial degree of risk. Prospective investors, prior to making an investment
decision, should carefully consider the following risk factors. This Prospectus
contains, in addition to historical information, certain forward-looking
statements that involve risks and uncertainties. Reference is made in particular
to the description of the Company's plans and objectives for future operations,
assumptions underlying such plans and objectives and other forward-looking
statements included in "PROSPECTUS SUMMARY," "USE OF PROCEEDS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS" in this
Prospectus. Such statements are based on Management's current expectations and
are subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Factors which could cause such results to differ materially from
those described in such forward-looking statements include, but are not limited
to, those set forth in the risk factors below.
LIMITED OPERATING HISTORY; HISTORICAL LOSSES; ANTICIPATED LOSSES
The Company has existed in its present state since January 1996 and
currently generates the substantial majority of its revenues from Web site sales
in conjunction with Internet training. The Company has not begun to generate
significant recurring revenues from on line commerce which is to be the
Company's focus for the future. Accordingly, the Company has a limited operating
history on which to base an evaluation of its business and prospects. The
Company's business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as on line commerce. Such risks for the Company include, but are not
limited to, an evolving and unpredictable business model, management of growth,
the Company's ability to anticipate and adapt to a developing market and
unforeseen changes and developments in the Company's strategic partners'
activities and direction. To address these risks, the Company must, among other
things, implement and successfully execute its business strategy, continue to
develop and upgrade its technology, improve its Web site, provide superior
customer service, respond to competitive developments and attract, retain and
motivate qualified personnel and meet the expectations of its strategic
partners. There can be no assurance that the Company will be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
Since inception, the Company has incurred significant operating
losses, and as of March 31, 1998 had an accumulated deficit of $5.9 million. The
Company expects to significantly increase its operating expenses to expand its
marketing operations, and increase its level of capital expenditures to further
develop and maintain its proprietary software. Such increases in operating
expense levels and capital expenditures will adversely effect operating results
and the Company believes that it will incur substantial losses for the
foreseeable future. There can be no assurance that the Company will ever achieve
or maintain profitability or generate cash from operations in the future.
Further, in view of the rapidly evolving nature of the Company's business and
its limited operating history, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."
FLUCTUATIONS IN OPERATING RESULTS
As a result of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company may not be able
to accurately predict its revenues. The Company expects to experience
significant fluctuations in its future quarterly operating results due to a
variety of factors, many of which are outside the Company's control. Factors
that may adversely affect the Company's quarterly operating results include (i)
the Company's ability to retain and attract merchants on its Web site, (ii) the
level of traffic
7
<PAGE> 10
on the Company's Web site, (iii) consumer confidence in encrypted transactions
on the Internet, (iv) the level of use of the Internet and on line services and
increasing consumer acceptance of the Internet as a medium for commerce, (v) the
Company's ability to upgrade and develop its systems and infrastructure and
attract new personnel in a timely and effective manner, (vi) the announcement or
introduction of new sites, services and products by the Company and its
competitors, (vii) technical difficulties, system downtime or Internet
brownouts, (viii) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure, (ix) governmental regulation, (x) implementation, renewal or
expiration of significant contracts with Verio, Inc., Cardservice International
and Animalhouse.com and others the Company may enter into in the future, and
(xi) general economic conditions and economic conditions specific to the
Internet and on line commerce. The Company also faces unforeseeable seasonal
sales fluctuations related to its increasing focus on retail Internet commerce.
Due to the foregoing factors, in one or more future quarters the Company's
operating results may fall below the expectations of securities analysts and
investors. In such event, the trading price of the Company's Common Stock would
likely be materially adversely affected.
PROJECT PROFIT EXPOSURES; NEED TO DEVELOP RECURRING REVENUE
The Company currently generates the substantial majority of its
revenues through Web site sales in conjunction with Internet training. The
Company's future success will depend in part on its ability to generate
substantial revenue through on line commerce which will provide recurring
revenue. There can be no assurance that the Company's efforts will be
successful. See "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS."
MANAGEMENT OF GROWTH
The Company has rapidly and significantly expanded its operations
and anticipates that significant expansion will be required to address potential
growth in its market opportunities. This expansion has placed, and is expected
to continue to place, a significant strain on the Company's management,
operational and financial resources. The Company's new employees include a
number of key managerial and technical employees who have not yet been fully
integrated into the Company's management team, and the Company expects to add
additional key personnel in the near future. In order to manage its growth, the
Company will be required to continue to implement and improve its operational
and financial systems, to expand existing operations, to attract and retain
superior management and to train, manage and expand its employee base. Further,
the Company's management will be required to maintain relationships with various
merchants and other third parties. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations, that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to
successfully implement its business plan. If the Company is unable to manage
growth effectively, the Company's business, financial condition and results of
operations could be materially adversely affected. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS" and "BUSINESS."
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
The Company may require additional financing in order to expand its
business. The Company's working capital requirements in the foreseeable future
will depend on a variety of factors including the Company's ability to implement
its business plan. There can be no assurance that the Company will be able to
successfully negotiate or obtain additional financing, or that such financing
will be on terms favorable or acceptable to the Company. The Company does not
have any commitments for additional financing. The Company's ability to obtain
additional capital will be dependent on market conditions, the national economy
and others factors outside the Company's control. If adequate funds are not
available or are not available at acceptable terms, the Company's ability to
finance its expansion, develop or enhance services or products or respond to
competitive pressures would
8
<PAGE> 11
be significantly limited. The failure to secure necessary financing could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION OR PLAN OF OPERATIONS-LIQUIDITY AND CAPITAL RESOURCES"
and "BUSINESS."
DEPENDENCE ON THE INTERNET
The Company's ability to derive revenues by providing on line
commerce is substantially dependent upon continued growth in the use of the
Internet and the infrastructure for providing Internet access and carrying
Internet traffic. There can be no assurance that the necessary infrastructure,
such as a reliable network backbone, or complementary products will be developed
or that the Internet will prove to be a viable commercial marketplace. To the
extent that the Internet continues to experience significant growth in the level
of use and the number of users, there can be no assurance that the
infrastructure will continue to be able to support the demands placed upon it by
such potential growth. In addition, delays in the development or adoption of new
standards or protocols required to handle levels of Internet activity, or
increased governmental regulation may restrict the growth of the Internet.
Critical issues concerning the commercial use of the Internet, including but not
limited to, security, reliability, cost, ease of use and access, and quality of
service, remain unresolved and may impact the growth of Internet use. If the
necessary infrastructure or complementary products and services are not
developed or if the Internet does not become a viable commercial marketplace,
the business, operating results and financial condition of the Company would be
materially adversely affected.
DEVELOPING MARKET; UNCERTAIN ACCEPTANCE OF THE INTERNET AS MEDIUM FOR COMMERCE
The market for the Company's services has only recently begun to
develop and is rapidly evolving. As is typical for a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services over the Internet are subject to a high level of uncertainty and risk.
Moreover, since the market for the Company's services is new and evolving, it is
difficult to predict the size of this market and the future growth rate, if any.
The success of the Company's services will be substantially dependent upon the
widespread acceptance and use of the Internet as a medium for commerce by a
broad base of consumers. Rapid growth in the use of the Internet is a recent
phenomenon, and the Company relies on consumers who have historically used
traditional means of commerce to buy goods and services. For the Company to be
successful, these consumers must accept and utilize novel ways of conducting
business and exchanging information. There can be no assurance that there will
be broad acceptance of the Internet as an effective medium for commerce by
consumers. If the Company's on line services do not achieve market acceptance or
if the Internet does not become a viable commercial marketplace, the Company's
business, results of operations and financial condition would be materially
adversely affected. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATIONS" and "BUSINESS."
The Company recently entered into and may continue to enter into
strategic alliances and partnerships, such as the Company's relationships with
Verio, Inc., Cardservice International and Animalhouse.com. The Company's
revenues in the past have been, and in the future continue to be, partially
dependent on these relationships. There can be no assurance that any of these
alliances will be developed successfully, if at all, or that these alliances
will generate revenues or earnings for the Company.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success is substantially dependent upon its
proprietary technology. The Company relies on a combination of trademark,
copyright and trade secret laws, as well as confidentiality agreements and
technical measures to protect its proprietary rights. Much of the Company's
proprietary information may not be patentable, and the Company does not
currently possess any patents. There can be no assurance that the Company
9
<PAGE> 12
will develop proprietary products or technologies that are patentable, that any
issued patent will provide the Company with any competitive advantage or will
not be challenged by third parties, or that the patents of others will not have
a material adverse effect on the Company's ability to do business. The Company
has registered the iMALL trademark in the United States and claims trademark
rights in, and has applied for trademark registrations in the United States for,
a number of other marks. There can be no assurance that the Company will be able
to secure significant protection for these trademarks. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or services or to obtain and use
information that the Company regards as proprietary. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology or duplicate the Company's products or design around patents issued
to the Company or other intellectual property rights of the Company.
There have been substantial amounts of litigation in the computer
industry regarding intellectual property rights. There can be no assurance that
third parties will not in the future claim infringement by the Company with
respect to current or future products, trademarks or other proprietary rights,
that the Company will counterclaim against any such parties in such actions or
that if the Company makes claims against third parties with respect thereto,
that any such party will not counterclaim against the Company in such action.
Any such claims or counterclaims could be time-consuming and result in costly
litigation, require the Company to redesign its products or require the Company
to enter into royalty or licensing agreements, any of which could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all.
RAPID TECHNOLOGICAL CHANGE
The Internet and on line commerce industries are characterized by
rapid technological change, changing market conditions and customer demands and
the emergence of new industry standards and practices that could render the
Company's existing Web site and proprietary technology obsolete. The Company's
future success will substantially depend on its ability to enhance its existing
services, develop new services and proprietary technology and respond to
technological advances in a timely and cost-effective manner. The development of
Web site and other proprietary technology entails significant technical and
business risk. There can be no assurance that the Company will be successful in
developing and using new technologies or adapt its proprietary technology and
systems to meet emerging industry standards and customer requirements. If the
Company is unable, for technical, legal, financial, or other reasons, to adapt
in a timely manner in response to changing market conditions or customer
requirements, or if the Company's Web site and proprietary technology do not
achieve market acceptance, the Company's business, prospects, results of
operations and financial condition would be materially adversely affected.
RELIANCE ON KEY MANAGEMENT PERSONNEL
The Company's performance is substantially dependent on the
continued services and the performance of its senior management and other key
personnel. The Company's performance also depends on the Company's ability to
retain and motivate its other officers and key employees. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. The Company's future success also depends
on its ability to identify, attract, hire, train, retain and motivate other
highly skilled technical, managerial and marketing personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. The failure to attract
and retain the necessary technical, managerial and marketing personnel could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "BUSINESS-EMPLOYEES" and "MANAGEMENT."
10
<PAGE> 13
COMPETITION
The on line commerce market, particularly over the Web, is new,
rapidly evolving and intensely competitive. The Company's current or potential
competitors include (i) E-commerce solution providers that provide shopping cart
based transaction products such as: Yahoo/Viaweb, Icat, Pandesic; (ii) Web
developers that incorporate E-commerce products in their solutions such as
Mercantec, Hiway, and Simplenet; (iii) on line shopping malls and auction houses
such as The Internet Mall, Branch Mall, the Yahoo Store, Ebay and Zauction; and
(iv) product search engines and comparison shopping sites such as Excite's
Jengo, Yahoo Junglee, and Webmarket.com. The Company believes that the principal
competitive factors in its market are brand recognition, selection, personalized
services, convenience, price, accessibility, customer service, quality of search
tools, quality of editorial and other site content and reliability and speed of
fulfillment. Many of the Company's competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company. Certain of the
Company's competitors may be able to secure merchandise from vendors on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors.
The Company expects that competition in the on line commerce market
will intensify in the future. For example, as various market segments obtain
large, loyal customer bases, participants in those segments may seek to leverage
their market power to the detriment of participants in other market segments.
Competitive pressures created by any one of the Company's competitors, or by the
Company's competitors collectively, could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
INTERNET COMMERCE SECURITY RISKS
A significant barrier to on line commerce is the secure transmission
of confidential information over public networks. The Company relies on
encryption and authentication technology to provide the security and
authentication necessary to effect secure transmission of confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other developments will not
result in a compromise or breach of the algorithms used by the Company to
protect consumer's transaction data. If any such compromise of the Company's
security were to occur, it could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. A party who
is able to circumvent the Company's security measures could misappropriate
proprietary information or cause interruptions in the Company's operations. The
Company may be required to expend significant capital and other resources to
protect against such security breaches or to alleviate problems caused by such
breaches.
Concerns over the security of transactions conducted on the Internet
and the privacy of users may also hinder the growth of on line services
generally, especially as a means of conducting commercial transactions. To the
extent that activities of the Company or third-party contractors involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage the Company's reputation and expose the
Company to a risk of loss or litigation and possible liability. There can be no
assurance that the Company's security measures will not prevent security
breaches or that failure to prevent such security breaches will not have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "BUSINESS-iMALL SECURITY."
RISK OF SYSTEM FAILURE
The success of the Company is substantially dependent upon its
ability to deliver high quality, uninterrupted Internet hosting, which requires
that the Company protect its computer equipment and the information stored in
its servers, substantially all of which is located at the Company's office in
Provo, Utah. The Company's systems are vulnerable to damage by fire, natural
disaster, power loss, telecommunications failures, unauthorized intrusion and
other catastrophic events. Any substantial interruption in the Company's systems
would have a material adverse effect on Company's business, prospects, financial
condition and results of operations. Although the Company carries property and
business interruption insurance, its coverage may not be adequate to
11
<PAGE> 14
compensate for the losses that may occur. In addition, the Company's systems may
be vulnerable to computer viruses, physical or electronic break-ins and other
similar disruptive events. Computer viruses, break-ins or other problems caused
by third parties could lead to interruptions, delays, loss of data or cessation
in service to users of the Company's services. The occurrence of any of these
risks could have a material adverse effect on the Company's business, prospects,
financial condition or results of operations.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Web. It is possible, however, that a number of laws and
regulations may be adopted with respect to the Web, covering issues such as user
privacy, pricing and characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the growth of the
Internet, which in turn, could decrease the demand for the Company's services
and increase the Company's cost of doing business or otherwise have an material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Moreover, the applicability to the Internet or other on
line services of existing laws in various jurisdictions governing issues such as
property ownership, sales and other taxes, libel and personal privacy is
uncertain and may take years to resolve. Any such new legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business, or the application of existing laws
and regulations to the Internet or other on line services could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations.
The Federal Trade Commission has initiated a non-public
investigation of the Company to determine whether its selling and advertising
practices in relation to its Internet related business opportunity programs are
in compliance with Section 5 of the Federal Trade Commission Act. The Company is
cooperating with the inquiry and has responded to all information requests.
CONTROL BY MANAGEMENT
As of June 25, 1998, the Company's officers, directors and greater
than 5% stockholders (and their affiliates) will, in the aggregate, beneficially
own approximately 36.22% of the issued and outstanding voting shares of the
Company's capital stock. As a result, such persons, acting together, will have
the ability to control all matters submitted to shareholders of the Company for
approval (including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of the Company's assets) and
to control the management and affairs of the Company. Accordingly, such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company, impede a merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
the Company, which in turn could have an adverse effect on the market price of
the Company's Common Stock. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
SHARES ELIGIBLE FOR FUTURE SALE
Of the approximately 17,546,759 shares of Common Stock estimated to
be outstanding (on a fully diluted basis including shares issuable upon the
exercise of outstanding Warrants and upon conversion of the Convertible
Preferred Stock), approximately 10,036,697 shares (including for this purpose an
estimated 3,469,500 shares of Common Stock issuable upon the exercise of the
Warrants and 6,250,005 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock) will have been registered under the Securities Act
and/or otherwise freely tradeable, subject to the lock-up agreement among
certain Selling Securityholders and Commonwealth Associates (see "SHARES
ELIGIBLE FOR FUTURE SALES."), and approximately 2,064,758 shares are saleable
subject to compliance with the requirement of Rule 144 except for the holding
period. Approximately 5,445,304 shares of Common Stock will be tradeable subject
to the one-year holding period restrictions under, and compliance with the other
requirements
12
<PAGE> 15
of Rule 144 discussed above. Certain of the officers and directors of the
Company holding in the aggregate 4,669,167 shares of Common Stock have entered
into lock-up agreements with Commonwealth Associates, the placement agent in the
December 1997 private placement, which provide that, absent the consent of
Commonwealth Associates, they will be prohibited from selling their Common Stock
until December 19, 1998. Any future sale of such shares, including sale upon the
expiration of such lock-up agreements, could have an adverse effect on the
market, if any, for the Company's Common Stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred
stock, $.001 par value, of which 5,000,004 shares of Convertible Preferred Stock
are outstanding. The preferred stock may be issued in series from time to time
with such designations, rights, preferences and limitations as the Board of
Directors of the Company may determine by resolution. Unless the nature of a
particular transaction and applicable statutes require such approval, the Board
of Directors has the authority to issue these shares without shareholder
approval. The potential exists, therefore, that preferred stock might be issued
which would grant dividend preferences, liquidation preferences, voting or other
rights to preferred shareholders over common shareholders or, subject to
approval of the holders of the Convertible Preferred Stock, over the Convertible
Preferred Stock. The issuance of preferred stock may have the effect of delaying
or preventing a change in control of the Company without any further action by
shareholders. See "DESCRIPTION OF SECURITIES."
NASDAQ LISTING; LIMITED TRADING MARKET FOR WARRANTS
The Company's Common Stock is presently quoted on the OTC Electronic
Bulletin Board and is not listed on the Nasdaq SmallCap Market. As a result, the
trading market for, and liquidity of, the Company's Common Stock is limited. The
Warrants are not currently included on any exchange or securities quotation
system. Consequently, the trading market for, and liquidity of, the Warrants, if
any, is limited.
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<PAGE> 16
USE OF PROCEEDS
The Company will receive the proceeds from the exercise of the
Warrants, if any Warrants are exercised. The Company expects to use these
proceeds, if any, for working capital. There will be no proceeds to the Company
from the conversion of the Convertible Preferred Stock. See "PLAN OF
DISTRIBUTION."
14
<PAGE> 17
MARKET PRICE FOR THE COMMON STOCK
The Company was formed as a result of a reverse acquisition
effective January 16, 1996, whereby the Company, acquired all of the issued and
outstanding capital stock of Madison, York & Associates, Inc. ("Madison"), a
Utah corporation, from its shareholders in exchange for the controlling interest
in the Company to such shareholders. The Company's Common Stock is listed for
trading on the OTC Electronic Bulletin Board under the symbol "IIML." The
trading market is limited and sporadic and should not be deemed to constitute an
"established trading market." The Company has applied to have its Common Stock
listed for trading on the Nasdaq SmallCap Market.
The following table sets forth the range of sales prices of the
Common Stock as quoted on the OTC Electronic Bulletin Board during the periods
indicated. Such prices reflect prices between dealers in securities and do not
include any retail markup, markdown or commission and may not necessarily
represent actual transactions. All sales prices take into effect all stock
splits. The Company did not exist in its present form prior to January 1996;
therefore, stock prices prior to that date are not applicable.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL YEAR ENDED DECEMBER 31, 1996
- -----------------------------------
<S> <C> <C>
Quarter Ended March 31, 1996 $ 26.00 $18.00
Quarter Ended June 30, 1996 112.00 17.52
Quarter Ended September 30, 1996 97.04 34.24
Quarter Ended December 31, 1996 47.04 16.00
FISCAL YEAR ENDED DECEMBER 31, 1997
- -----------------------------------
Quarter Ended March 31, 1997 36.00 13.04
Quarter Ended June 30, 1997 24.00 8.48
Quarter Ended September 30, 1997 13.04 6.48
Quarter Ended December 31, 1997 8.48 3.44
FISCAL YEAR ENDING DECEMBER 31, 1998
- ------------------------------------
Quarter Ended March 31, 1998 12.50 4.00
Period from April 1, 1998 to June 25, 1998 10.00 7.69
</TABLE>
On June 29, 1998, the last reported sale price of the Common Stock
as reported by OTC Electronic Bulletin Board was $9.00.
As of June 23, 1998, the number of shareholders of record of the
Company's Common Stock was 592. As of such date, 7,827,254 shares were
outstanding.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of March 31, 1998:
<TABLE>
<CAPTION>
March 31, 1998
--------------
<S> <C>
Capitalized lease obligations,
including current portion.......................... $ 19,152
Stockholders' Equity:
Preferred Stock, liquidation value of $20,000,000;
10,000,000 shares authorized; 5,000,000 shares
issued and outstanding........................ 19,524,452
Common Stock $0.008 par value, 37,500,000
shares authorized; 7,713,366 shares
issued and outstanding........................ 62,606
Common stock held in treasury, at cost.................... (405,000)
Accumulated deficit....................................... (5,878,369)
-----------
Total stockholders' equity................................ 13,303,689
-----------
Total capitalization............................... $13,322,841
===========
</TABLE>
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<PAGE> 19
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and does
not anticipate paying dividends on its Common Stock in the foreseeable future.
It is the present policy of the Board of Directors to retain all earnings to
provide for the future growth of the Company. Earnings of the Company, if any,
not paid as dividends are expected to be retained to finance the expansion of
the Company's business. The payment of dividends on its Common Stock in the
future will depend on the results of operations, financial condition, capital
expenditure plans and other cash obligations of the Company and will be at the
sole discretion of the Board of Directors. See "DESCRIPTION OF SECURITIES."
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<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected financial data with
respect to the Company and is qualified in its entirety by reference to the
financial statements and notes thereto, and Management's Discussion and Analysis
or Plan of Operation.
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------------------------------------
1997 1996
------------------------------- -----------------------------
<S> <C> <C>
Balance Sheet Data:
Current Assets $16,164,769 $ 967,239
Total Assets 17,055,672 2,343,206
Current Liabilities 2,690,669 1,557,639
Long-term Liabilities 10,788 71,621
Stockholders' Equity 14,354,215 713,946
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
AT DECEMBER 31, 1997 AND 1996
------------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Statement of Operations:
Net Revenues $16,776,661 100% $16,046,933 100%
Cost of Revenues 5,026,265 30% 5,464,443 34%
Selling Expenses 8,790,739 52% 3,129,012 19%
General and Administrative 7,742,165 46% 7,480,688 47%
Expenses
Other Income 139,729 1% 133,308 1%
Interest Expense, Net
Benefit (Provision) for
Income Taxes 16,546 --% (37,928) --%
Net (Loss) Income (4,702,974) (28)% 64,818 --%
Net (Loss) Income Per
Common Share - Basic
and Diluted $ (.64) $ .01
Weighted-Average Common
Shares Outstanding 7,526,967 7,252,584
</TABLE>
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following Management's Discussion and Analysis of Financial
Condition or plan of operation contains forward-looking statements involving
risks and uncertainties based on Management's current expectations, estimates
and projections about the Internet industry and the evolution of on line
commerce and electronic commerce services. All statements in this report related
to the Company's changing financial operations and expected future growth
constitute forward-looking statements. The actual results may differ materially
from those anticipated or expressed in such statements. The following discussion
and analysis of the Company's financial condition as of March 31, 1998 and the
Company's results of operations for the three month periods ended March 31, 1998
and 1997 should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. These results are not necessarily indicative of the results that may
be achieved by the Company for the entire year ending December 31, 1998.
OVERVIEW
The Company is an electronic commerce and Internet services company
that maintains an Internet destination called "iMALL", located at www.imall.com.
The iMALL Web site offers goods and services for sale from a variety of
merchants, either through a Web site or classified advertisements within iMALL.
The Company currently derives the majority of its revenues from Web
site sales and maintenance fees, Internet training, education and consulting
services. The Company's goal is for its future revenues to include those sources
as well as revenue from selling products over the Internet, providing electronic
commerce services to businesses (through Web sites which include the tools
necessary to consummate transactions on line), and selling Internet advertising.
The Company is now focusing on what it believes to be more profitable areas such
as the building and hosting of Transactional Web Sites, the sale of the
Company's proprietary Electronic Commerce Services, maximizing the Company's
Internet advertising revenues, and growing its on line commerce revenue (by
earning a percentage of the gross sales made through iMALL merchants' Web
sites).
The Company's mission is to maintain and expand its position as a
pioneer and leader in Electronic Commerce Services and a prominent Internet
commerce destination where businesses and consumers from around the world go to
engage in the sale and purchase of goods, services and information. To achieve
this mission, the Company will focus on expanding the sales of its Electronic
Commerce Services and on further building its Internet presence by launching new
electronic commerce Web sites, acquiring new merchants and products and
increasing its shopper base.
RESULTS OF OPERATIONS
The Company operates various entities which became part of the
consolidated group in 1996. Results of prior periods are not necessarily
indicative of the results of operations that can be expected for any future
period and do not reflect the current mix of the Company's operations. Because
Madison is the only predecessor of the Company, comparisons of historical
results of operations may not be meaningful.
THREE MONTHS ENDED MARCH 31, 1998:
Comparison of Three-Month Periods Ended March 31, 1998 and 1997
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<PAGE> 22
Revenues. Revenues for the three months ended March 31, 1998 were
$3,472,000 compared to $4,078,000 for the three months ended March 31, 1997, a
decrease of $606,000 or 15%. The decrease was due primarily to a planned
decrease in the number of Internet training workshops offered by the Company and
a consequent decrease in the Web site sales resulting from those workshops.
During the quarter, the Company began the process of shifting resources to
develop its new businesses in electronic commerce. Management expects a greater
percentage of its revenue to be derived from electronic commerce services in the
latter half of 1998. The resulting effect on revenues from the shift in the
Company's current product line can not currently be determined.
Cost of Revenues. The cost of revenues for the three months ended
March 31, 1998 were $1,031,000 compared to $1,254,000 for the three month ended
March 31, 1997, a decrease of $223,000 or 18%. Cost of revenues consisted
primarily of direct costs related to training workshops and the provision of Web
sites offered through those workshops. Cost of revenues also includes the direct
cost of products sold on line. The gross profit margin remained relatively
constant increasing to 70% of revenues in the three months ended March 31, 1998
from 69% of revenues in the three months ended March 31, 1997 due to the
relative consistency of the revenue streams in the periods.
Selling Expenses. Selling expenses for the three months ended March
31, 1998 were $1,966,000 compared to $1,305,000 for the three months ended March
31, 1997, an increase of $661,000 or 51%. The increase is primarily due to the
implementation of an on line advertising campaign that began at the end of 1997.
The Company spent $300,000 in this on line advertising campaign during the
quarter in an attempt to increase its branding and further promote its new focus
on on line commerce. Management expects this campaign to continue growing
gradually throughout the year as it expands its existing customer base. The
Company also increased its direct mail expense that is incurred for sending
information to targeted recipients promoting its Web site sales. In addition,
the Company hired a new advertising agency to further expand awareness of its
brand and products.
General and Administrative Expenses. General and Administrative
expenses for the three months ended March 31, 1998 were $1,755,000 compared to
$2,208,000 for the three months ended March 31, 1997, a decrease of $453,000 or
20%. This decrease was primarily due to lower payroll expense during 1998. The
Company had approximately 141 employees in the first quarter of 1998 versus 194
employees during the first quarter of 1997. The Company consolidated its two
technology offices into one in Provo, Utah at the end of the first quarter in
1997 leading to a substantial reduction in overhead and personnel costs.
Other Income, net. The Company sold mailing lists to outside vendors
during 1997. This activity is considered to be peripheral to its operations. The
$18,000 decrease was because the Company discontinued the selling of mailing
lists.
Interest income (expense), net. Net interest income for the three
months ended March 31, 1998 was $61,000 compared to a net expense of $12,000 for
the three months ended March 31, 1997. This increase was due to the investment
of available funds in short-term debt securities as well as the pay down of all
outstanding debt in the first quarter of 1998.
YEARS ENDED DECEMBER 31, 1997 AND 1996
The following discussion and analysis of the Company's and the
Company's predecessor's financial condition for the years ended December 31,
1997 and 1996 should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
Revenues. Revenues for the fiscal year ended December 31, 1997 were
$16,777,000 compared to $16,047,000 for the fiscal year ended December 31, 1996.
The 5% increase was due primarily to increases in telemarketing sales of Web
sites and other Internet products. Web sites, maintenance and training sold
through the
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<PAGE> 23
Company's Internet training division accounted for approximately 56% of total
revenues for the fiscal year ended December 31, 1997 and 68% for the fiscal year
ended December 31, 1996.
Cost of Revenues. The direct cost of revenues for the fiscal year
ended December 31, 1997 was $5,026,000 compared to $5,464,000 for the fiscal
year ended December 31, 1996. The 8% decrease was due primarily to increased
productivity in the technology division in 1997 with respect to design and
implementation of Web sites, and training support.
Selling Expenses. Selling expenses for the fiscal year ended
December 31, 1997 were $8,791,000 compared to $3,129,000 for the fiscal year
ended December 31, 1996. The 181% increase was primarily due to approximately
$2,998,000 in commissions paid on telemarketing sales which were first
implemented in 1997. The Company also increased its direct mail, print and media
advertising by approximately $2,700,000 in 1997.
General and Administrative Expenses. General and administrative
expenses for the fiscal year ended December 31, 1997 were $7,742,000 compared to
$7,481,000 for the fiscal year ended December 31, 1996. The 3% difference was
primarily due to increases in personnel costs and other related expenses.
Other Income. The Company sold mailing lists to outside vendors.
This activity is considered to be peripheral to its operations. Other income for
the fiscal year ended December 31, 1997 was $140,000 compared to other income of
$133,000 for the fiscal year ended December 31, 1996.
Interest Expense, net. Net interest expense for the fiscal year
ended December 31, 1997 was $77,000 compared to $3,000 for the fiscal year ended
December 31, 1996. The increase in interest expense was primarily due to
interest on notes payable to a shareholder and other related parties.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed raising $20,000,000 in equity capital in
December of 1997 through a private placement of units consisting of Series A
Convertible Preferred Stock and Warrants to purchase Common Stock. As of March
31, 1998, the Company had current assets of $13,616,000 and current liabilities
of $2,016,000.
The Company is currently generating cash receipts (exclusive of
financing activities) of approximately $1,200,000 per month and incurring cash
expenses in the amount of approximately $1,700,000 per month. The Company
anticipates capital expenditures will be approximately $3,000,000 in 1998. The
Company will also spend funds to invest in strategic alliances and various forms
of advertising to increase awareness of the Company and its services. The
Company believes that it will be able to fund its ongoing operations with
existing cash and from cash expected to be generated by ongoing operations for
at least the next twelve months.
SUBSEQUENT EVENT
On April 1, 1998 the Company entered into an agreement with
Universal/Hyundai LLC dba Animalhouse.com in which the Company secured a five
year exclusive right to operate the majority of Animalhouse.com's on line
shopping activities. In April 1998, the Company paid $500,000 to Animalhouse.com
as an advance against first-year royalties in accordance with this contract.
Animalhouse.com is a recently launched joint venture of Universal Studios and
Hyundai Technologies, the goal of which is to become an on line community
serving the needs of college students worldwide.
On June 10, 1998, the board of directors elected to pay the 9% per
annum cumulative Convertible Preferred Stock dividend, payable July 1, 1998, in
cash rather than like-kind shares. The total cash dividends will be $988,670.
21
<PAGE> 24
YEAR 2000 ISSUE:
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have 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 internal assessment, the Company has determined
that certain of its Internet and accounting software programs will have to be
modified or replaced so that its computer systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that the cost to modify
its existing software and/or convert to new software will not be significant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency translation
adjustment and unrealized gain/loss on available for sale securities. The
Company had no income that would fall under the comprehensive income rules in
the 1998 or 1997 periods.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company believes that its operations do not include multiple segments and
therefore no disclosures are necessary at this time. The disclosures prescribed
by SFAS No. 131 are effective for fiscal years beginning after December 15,
1997.
22
<PAGE> 25
BUSINESS
OVERVIEW
The Company is an electronic commerce and Internet services company
that maintains an Internet destination called "iMALL", located at www.imall.com.
The iMALL Web site offers goods and services for sale from a variety of
merchants, either through a Web site or classified advertisements within iMALL.
The Company currently derives the majority of its revenues from Web
site sales and maintenance fees, Internet training, education and consulting
services. The Company's goal is for its future revenues to include those sources
as well as revenue from selling products over the Internet, providing electronic
commerce services to businesses (through Web sites which include the tools
necessary to consummate transactions on line), and selling Internet advertising.
During 1996 and 1997, the Company generated revenues of $16,046,933 and
$16,776,661, respectively. The Company believes its operating margins were
negatively impacted during 1997 in part because of a change in its business
strategy led by a management team that was hired in October 1996 and
subsequently removed in June 1997. The change in strategy included increased
infomercial marketing and a lack of focus on the Company's true strengths and
core competencies--the building of Transactional Web Sites and recurring on line
commerce revenues. The Company is now focusing on what it believes to be more
profitable areas such as the building and hosting of Transactional Web Sites,
the sale of the Company's proprietary Electronic Commerce Services, maximizing
the Company's Internet advertising revenues, and growing its on line commerce
revenue (by earning a percentage of the gross sales made through iMALL
merchants' Web sites).
The Company's mission is to maintain and expand its position as a
pioneer and leader in Electronic Commerce Services and a prominent Internet
commerce destination where businesses and consumers from around the world go to
engage in the sale and purchase of goods, services and information. To achieve
this mission, the Company will focus on expanding the sales of its Electronic
Commerce Services and on further building its Internet presence by launching new
electronic commerce Web sites, acquiring new merchants and products and
increasing its shopper base.
In 1996, which was the Company's first year of business as it is
presently constituted, the Company concentrated its efforts on the sale of Web
sites through Internet marketing and education workshops and other consulting
services with the objective of increasing its base of iMALL merchants and
advertisers. The Company believes that the development of a base of merchants is
important for its long-term success and that in 1996 the best method of
developing such a base was to couple the Web site sale with Internet education.
Consequently, the Company has to date derived most of its revenue from this
method. In the event that the number of iMALL merchants and advertisers
continues to increase, the Company expects a larger share of its revenues to be
derived from recurring maintenance fees, sales of the Company's Electronic
Commerce Services, sales of Internet advertisements, and commissions on gross
product sales made by iMALL merchants.
The Company effected a 1 for 19 stock split on January 8, 1996. In
addition, on May 22, 1996, the Company effected a 4 for 1 stock split, and,
effective February 12, 1998, the Company effected a 1 for 8 stock split. All
references in this Prospectus take these splits into effect when referring to
the number of shares of the Company's Common Stock or per share data.
23
<PAGE> 26
INTERNET COMMERCE
The Internet is a world-wide series of interconnected electronic
and/or computer networks. Individuals and companies have recently recognized
that the technological capabilities of the Internet provide a medium for not
only the promotion and communication of ideas and concepts, but also for the
presentation and sale of information, goods and services.
Historically, the Internet has been accessible principally through
personal computers. Recently, several companies have announced "Web TV" products
designed for attachment to television sets for the purpose of allowing access to
the Internet without the need for a personal computer. Although these products
do not permit the full range of functions provided by personal computers, they
do permit many of the features of the Internet to be viewed on television sets.
Management believes that these new Web TV products may increase the number of
people who will shop on line by accessing the Internet.
The term "Internet commerce" encompasses the use of the Internet for
selling goods and services. The use of the Internet as a marketing and
advertising tool is enhanced by the ability to communicate information through
the Internet to a large number of individuals, businesses and other entities.
Because of the "virtual" nature of electronic commerce, the on line
presence for certain merchants can significantly reduce or eliminate the costs
of maintaining a physical retail facility. On line merchants can also achieve
significant savings by eliminating traditional product packaging, print
advertising and other point of purchase materials. Marketing on the Internet can
be especially advantageous for smaller companies because it removes many
physical and capital barriers to entry and serves to level the competitive
playing field by allowing smaller companies to effectively compete with larger
companies.
HOW ACTIVITY IS TRACKED
There are three different methods to measure Internet activity for a
particular Web site. The first method is to count the number of "hits" on the
site. Hits refers to the total number of files retrieved from a Web page. These
files can either be text documents, executable files (i.e., downloaded
programs), or graphic images. A file is deemed a hit whether it is simply
accessed or actually downloaded. Depending on how much activity is generated, a
single visitor to IMALL could result in numerous hits.
The second method of measuring activity on a Web site is to count
"impressions." Impressions usually refer to the total number of banners or pages
imposed into a user's line of sight. Because items creating impressions may
change while a viewer is still viewing a single page, more impressions than
visitors may be generated by a Web page.
A third method of measuring activity is to count the number of
"visitors" to a Web site. Visitors (or accesses to a site) are the total number
of people coming to a particular Web site.
INTERNET SECURITY
One of the largest barriers to a potential customer's willingness to
conduct commerce over the Internet is the perceived ability of unauthorized
persons to access and use personal information about the user, such as
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credit card account numbers, social security numbers and bank account
information. Concerns about the security of the Internet include the
authenticity of the user (i.e., is the user accurately identified), verification
and certification methods of who these users are, and privacy protection for
access to private information transmitted over the Internet. However, the
Company believes recent advances in this area have greatly reduced the
possibility of such unauthorized access or use. The Company is not aware of any
occasion in which a user's credit card was misappropriated while transacting
business on iMALL. See "RISK FACTORS - INTERNET COMMERCE SECURITY RISKS."
IMALL
The Company maintains an Internet Web site called "iMALL," located
on the World Wide Web at www.imall.com. Upon accessing the iMALL Web site, an
Internet user is shown the iMALL Home Page. This home page provides users with
access to the iMALL Guide Page, each of iMALL's approximately 1,600 Web sites
for merchants ("storefronts"), thousands of classified advertisements, and the
iMALL directory. From January 1996 to January 1998, iMALL's hits have increased
from approximately 1 million per month to over 25 million per month. iMALL's key
merchants include AT&T WorldNet Service, American Express Travel, Barnes &
Noble, Hanes, Circus Circus' fourteen casinos and resorts, Breath Asure, Checker
Auto, and Disney. iMALL has also recently started selling through licensed
distributors certain Coca-Cola, Disney, and Speedo products for which it
receives a percentage of all gross sales made through the iMALL Web site.
The iMALL directory lists sites by product or service categories and
allows users to perform global searches of the entire iMALL. Users may also use
the "power shopping" function to narrow their search to a specific area of
iMALL, a specific product, or even merchants or products from a particular
region of the country. A viewer who wishes to purchase items offered on iMALL
can do so simply by submitting an order on line and entering a credit card
number.
In addition to the traditional search options, iMALL offers a
special function called "Deals of the Day." This service is updated daily and
alerts iMALL users to special manufacturer discounts on quality name-brand
merchandise.
The Company and AT&T WorldNet Service(sm) opened "AT&T Market Square
Deals" on iMALL's Web site. AT&T Market Square Deals is hosted by iMALL and
linked from AT&T Market Square and offers name brand merchandise for sale at
significant discounts from retail prices. This Site is jointly marketed by the
Company and AT&T WorldNet Service.
In the past, the Company derived substantially all of its revenue
from Web site sales and maintenance fees, and Internet education and marketing
services. The Company's goal is for its future revenues to include those sources
as well as from providing Electronic Commerce Services to businesses, direct on
line sales of products, commissions from on line sales, and revenues from
Internet advertising.
WEB SITE SALES AND MAINTENANCE FEES
A Web site is a business' on line presence or electronic store and
has two fundamental roles. First, it is an advertising medium for products
and/or services. Second, it is a medium for engaging in Internet commerce by
allowing the Company to sell goods and services to Internet users. The Company
sells a large percentage of its Web sites in conjunction with its educational
and marketing programs, See "-- SALES AND MARKETING-
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INTERNET EDUCATION AND CONSULTING." The Company also receives revenue in the
form of fees for setting up a Web site and from monthly maintenance or hosting
fees. iMALL currently hosts approximately 1,600 on line merchants.
The Company charges most of its stores a monthly maintenance fee for
maintaining their site on iMALL. The basic fee is $59 per month. This fee pays
for "space" on the Company's servers and technical support from the Company.
During 1997, the Company expanded its maintenance fee offerings to include more
advanced maintenance services including technology updates, periodic design
updates and data gathering services.
The Company's technology staff also performs billable services such
as design and development work for current iMALL Web sites and full corporate
site development. Fees for these services are billed by the hour or by the
project.
The Company builds its Transactional Web Sites with its proprietary
Web site development tool, called "iSTORE." iSTORE facilitates the development
of basic Web sites, the enhancing of Web sites, and the creation of fully
customized Web sites. iSTORE also supports electronic commerce components which
merchants may employ on their iMALL sites. Basic Web sites contain text of
various fonts and font sizes as well as simple images. Enhanced sites contain
more advanced text, images, forms and tables that are generated through the use
of Java applets (a small computer application written in the Java language that
is downloaded to a browser), JavaScripting (a language that is interpreted by
Web browsers and used to enhance content that is downloaded to a browser), and
similar tools. iSTORE provides several stylized templates for basic Web site
designs and a more limited number for enhanced Web site designs. Fully
customized Web sites contain features similar to those contained in enhanced Web
sites but require several sophisticated design and programming resources that
are not currently provided in iSTORE. The Company anticipates that as demand
grows for the more sophisticated features found in enhanced and fully customized
sites, the Company will integrate the tools for creating these features into
iSTORE.
Other forms of advertising on the Internet include banner
advertisements and sponsorships. Banner advertisements are advertisements that
circulate across Web pages and typically link to Web sites. Banner
advertisements are purchased based upon the number of impressions they receive.
In the past, the Company has traded the majority of its banner inventory to
other Internet Sites to help increase traffic. The Company is now focusing on
selling the banner ads for a price between 1.5 to 3.0 cents per impression.
iMALL currently generates over one million impressions per month.
IMALL SECURITY
The Company's current electronic commerce service includes the use
of secure sockets layer (SSL) protocol. SSL supports a fully DES encrypted
session (up to 128-bit, depending on the browser) between the Web browser and
the Web server. Additional security is provided by CyberCash's Secure Internet
Payment Service. This service incorporates an RSA encryption method between a
shopper on iMALL and a merchant on iMALL. These security methods provide a high
level of encryption protection for users' credit card numbers, bank account
numbers, and other personal information. To the Company's knowledge, the Company
has never experienced any significant problems with security. However, there can
be no assurance that the Company will never experience such a problem.
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TECHNICAL INFRASTRUCTURE
The Company's Web server computing infrastructure is composed of a
number (currently 8) of front end UNIX web servers running the latest release
Stronghold Secure Webserver and a back end set of UNIX database and file
servers. The database servers are using ODI's ObjectStore database technology.
The system is connected to the Internet via a DS3 (45Mb/s) line with redundant
links through Sprint and MCI. Backup connections to the Internet provide service
in the event of catastrophic failure. The server platform is protected by both
UPS and an onsite emergency generator.
The Company's electronic commerce infrastructure is based on a
combination of commercial software (such as Net Perceptions "GroupLens") and
proprietary technology. The ecommerce system is designed to provide all merchant
and shopper services required for the Company's business.
SALES AND MARKETING
The Company's sales and marketing activities are conducted in
several ways:
INTERNET EDUCATION AND CONSULTING
The Company has found that an effective method of selling Web sites
is in conjunction with Internet education. Therefore, the Company conducts
Internet marketing and training presentations in approximately two cities per
week. These presentations target individuals and businesses interested in
marketing their products and services on the Internet, or simply learning about
business applications of the Internet. The presentations are conducted free of
charge for attendees and are designed to showcase the value of the Internet
workshop.
Attendees at the Company's Internet education and marketing
workshops currently pay a price of $2,995 per person (plus $500 per guest).
These Internet education and marketing workshops include extensive instruction
about the Internet and are taught by instructors who have experience in areas
such as marketing, business development, Internet commerce, and Web site design.
Internet workshop participants currently receive four Web site
certificates, two consisting of up to ten Web pages plus two single page Web
sites, and they receive 25 classified advertisements on iMALL, all designed by
the Company. These certificates are valid for twelve months from the date of the
workshop. Upon submitting a Web site certificate for insertion on the iMALL, the
participant is required to purchase a Web site Maintenance Agreement. The
purchase price of this Agreement is $590 annually, if paid in advance, or $59
per month if paid monthly.
The Company uses a mix of radio, television, print advertising, as
well as direct mailings, to advertise its Internet education and marketing
program in two cities in the United States each week. This advertising is
directed at entrepreneurs and business owners inviting them to learn more about
the Internet and how it can be
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an effective marketing tool. The Company uses an eight to twelve week rotation
of cities depending on the population base and availability of direct mail
names. Seven to ten days following the free previews, the Company returns to the
city for its full day Internet education and marketing workshop.
The Company also offers information "home study" products priced at
$1,495 and $995 for those who are interested in obtaining a Web site on iMALL
and learning about the Internet but choose not to attend the workshop.
INDEPENDENT SALES CONSULTANTS
In connection with the Company's Internet education and consulting
model discussed above, many workshop participants asked if they could receive
the Web sites and training even if they did not have a specific business,
product or service to market. These participants wanted to resell Web sites to
their colleagues who had a business, product or service. Moreover, many of these
participants sold multiple Web sites and asked if they could purchase additional
ones to resell. As a result, the Company's participants can now use their Web
sites for their own business or resell them to others. The Company refers to
those participants who choose to market Web sites as Internet consultants.
In 1996, the Internet consultant marketing force generated over
$400,000 in revenue for the Company. In 1997, the revenue generated by these
consultants was approximately $1,000,0000. The revenue generated was achieved
without significant corporate marketing support.
INTERNAL SALES FORCE
The majority of iMALL's merchants have been acquired through its
Internet education and consulting program as previously described. However, the
Company has also utilized a small internal sales force, to sign contracts with
such large clients as AT&T WorldNet Service, American Express Travel, Barnes &
Noble, Hanes, Circus Circus' fourteen casinos and resorts, Breath Asure, Checker
Auto, and Disney.
STRATEGIC ALLIANCES
The Company's strategy includes the continued development of
strategic alliances and partnerships such as the Company's alliances with Verio,
Inc., Cardservices International and Animalhouse.com. Relationships such as
these will be key to building the acceptance and the revenue base of the
Company. However, there can be no assurance that the Company will be successful
in developing additional strategic alliances or maintaining existing strategic
alliances in the future.
None of the Company's strategic alliances involve the creation of
distinct legal enterprises.
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INDUSTRY AND COMPETITIVE CONSIDERATIONS
Nature of Market. There is a lack of proven business models with
respect to the generation of revenues from the sale of commercial or
informational sites on the Internet. It is impossible to predict whether the
Company will be successful in establishing itself as a viable sales outlet, or
that consumers will purchase products from sites on iMALL in sufficient
quantities for the Company to generate positive cash flow. In addition, Internet
users are faced with a multitude of options while on line which involve shopping
and other activities. There can be no assurance that a significant number of
Internet users will become comfortable in engaging in on line commerce.
Changing Technology. Internet advertising and commerce is a new,
intensely competitive, rapidly evolving industry which is subject to rapid
technological change. The success of the Company will depend, in part, upon the
ability of the Company to keep abreast of technological changes that are
evolving with the Internet and electronic commerce in general.
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EMPLOYEES
As of June 25, 1998, the Company and its subsidiaries had a total of
90 full-time employees. Thirty full-time employees are located in Studio City,
California, and 60 are located in Provo, Utah. None of the Company's employees
is covered by an ongoing collective bargaining agreement with the Company and
the Company believes that its relationship with its employees is good.
HISTORY OF THE COMPANY
The Company's predecessor for accounting purposes is Madison, which
was incorporated on November 2, 1994. On January 16, 1996, Madison engaged in a
share exchange with iMALL, Inc., a Nevada corporation, which had been the
surviving company in a change of domicile merger with Natures Gift, Inc., a Utah
corporation ("Natures Gift"), on January 8, 1996. Natures Gift was incorporated
under the laws of the State of Utah on February 9, 1984 as Brickland
Corporation, and changed its name to Natures Gift, Inc. on May 23, 1991. Natures
Gift did not transact any significant business from the date of its inception
until January 1996. As a result
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of this share exchange between Madison and iMALL, Inc., Madison became a wholly
owned subsidiary of iMALL, Inc. This share exchange was accounted for as a
reverse acquisition and Madison is considered the predecessor of the Company
because it had operations at the time of the share exchange. In this share
exchange, the shareholders of Madison received 2,103,112 shares of common stock
of iMALL, Inc. in exchange for all of the issued and outstanding shares of
common stock of Madison. The number of shares outstanding after this transaction
consisted of the 2,103,112 shares issued to the shareholders of Madison, and
2,701,848 shares existing in connection with the reverse acquisition accounting.
On January 16, 1996, the Company also entered into share exchange
agreements with Cabot, Richards & Reed, Inc., a Utah corporation ("Cabot"), and
R&R Advertising, Inc., a California corporation ("R&R"), wherein the
shareholders of Cabot received 1,400,000 shares of common stock of iMALL, Inc.
in exchange for all of the outstanding shares of common stock of Cabot and the
shareholders of R&R received 600,000 shares of common stock of iMALL, Inc. in
exchange for all of the outstanding shares of common stock of R&R. Each of Cabot
and R&R became wholly owned subsidiaries of iMALL, Inc. On March 5, 1996, the
Company entered into a share exchange agreement with Inter Active Marketing
Group, Inc., a Utah corporation ("IMG"), wherein the shareholders of IMG
received 52,563 shares of common stock of the Company in exchange for all of the
outstanding shares of common stock of IMG, and IMG became a wholly owned
subsidiary of the Company. On April 26, 1996, the Company entered into a share
exchange agreement with Physicomp, Inc. (d.b.a. "e.m.a.N.a.t.e."), a California
corporation wherein the shareholders of e.m.a.N.a.t.e. received 200,000 shares
of common stock of the Company in exchange for all of the outstanding shares of
common stock of e.m.a.N.a.t.e., and e.m.a.N.a.t.e. became a wholly owned
subsidiary of the Company. The amount of shares issued in each of these share
exchanges was determined by the percentage ownership interest in the Company to
which the Company's Management determined the acquired entity would be entitled
through negotiation. Certain additional information concerning these
transactions is set forth in "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
and in the notes to the consolidated financial statements of the Company
appearing elsewhere in this Prospectus.
Madison was incorporated in 1994 and commenced business in 1995
providing Web site sales and consulting services to merchants and Internet
entrepreneurs. Madison developed the Internet specific techniques used by the
Company today in its educational workshops. In September 1995, Madison had
acquired all of the issued and outstanding common stock of EMS, Inc., which
owned the Internet site called "iMALL". Madison issued 20 shares of its common
stock to the shareholders of EMS, Inc., and accounted for this transaction as a
purchase.
Cabot was incorporated in December 1992 and became a well known
educational workshop company. Cabot developed the marketing and training
techniques used by the Company today in its Internet education workshops.
R&R was formed in January 1991 in California. R&R was an advertising
agency that catered to small businesses. Services included commercial and
infomercial production, art and graphics design, as well as print, television
and radio advertising. The television department placed its clients'
advertisements on hundreds of network, cable, and independent stations
throughout the United States. R&R contributed its computer advertising expertise
to iMALL Services, Inc., a wholly owned subsidiary of the Company.
IMG has changed its name to "Internet Yellow Pages, Inc." Internet
Yellow Pages, Inc. maintains a Web site similar to regular yellow pages and
allows for different types of advertising and listing enhancements which
businesses can purchase for greater exposure.
e.m.a.N.a.t.e. was formed by three individuals who worked on
Department of Defense and NASA contracts using state-of-the-art computer and
Internet technology. The founders were involved with the Internet
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since its infancy and in 1994 began to focus on generating revenue from the
Internet by designing Web sites. Thus, while e.m.a.N.a.t.e. currently has
contracts with or has recently completed projects for Lockheed-Martin, United
Defense, and NASA, most of the personnel are involved with creating Internet web
pages and programming advanced features such as Java, Shockwave and Virtual
Reality applications for customers.
In connection with the Company's acquisitions in January 1996, the
Company effected a 1 for 19 reverse stock split on January 8, 1996. In addition,
on May 22, 1996, the Company effected a 4 for 1 forward stock split, and,
effective February 12, 1998, the Company effected a 1 for 8 reverse stock split.
All references in this Prospectus take these splits into effect when referring
to the number of shares of the Company's common stock or per share data.
GOVERNMENT REGULATIONS
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses, and there
are currently few laws or regulations directly applicable to access to or
commerce on the Web. It is possible, however, that a number of laws and
regulations may be adopted with respect to the Web, covering issues such as user
privacy, pricing and characteristics and quality of products and services.
Moreover, the applicability to the Internet or other on line services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has no material expenses and anticipates no material
impact on its business occasioned by compliance with environmental laws.
PROPERTIES
The Company maintains offices in Studio City, California, and Provo,
Utah. The Company leases its executive offices at 4400 Coldwater Canyon
Boulevard, Studio City, California, for a total of $12,066 per month, which
lease expires in November 1998. The Company will relocate its executive offices
upon the expiration of the current lease. The Company has signed a 10 year
lease, effective September 1, 1998 to August 31, 2007, for offices at 233
Wilshire Boulevard, Santa Monica, California for initial rent of $22,836.80 per
month (8,156 square feet). The Company leases office space, at 1185 South Mike
Jense Circle, Provo, Utah, for $10,639 per month from a related party which
lease expires in March 1999. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." The Company also leases office space at 5314 North 250 West,
Suite 110, Provo, Utah, at a current rent of $6,440 per month, which lease
expires in December 2000. The Company believes that it currently has sufficient
space to carry on its operations for the foreseeable future.
PATENTS AND TRADEMARKS
The Company relies on a combination of trademark, copyright and
trade secret laws, as well as confidentiality agreements and technical measures
to protect its proprietary rights. Much of the Company's proprietary information
may not be patentable, and the Company does not currently possess any patents.
The Company has registered the iMALL trademark in the United States and claims
trademark rights in, and has applied for trademark registrations in the United
States for, a number of other marks.
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LEGAL MATTERS
The Company is a defendant in various legal proceedings in the
ordinary course of business. Except for the litigation set forth below, the
Company is not aware of any legal proceedings which appear at this time as if
they might have a material impact on its financial position, results of
operations or business.
1. RMS Internet Marketing Group, Inc. v. iMall, Inc., Docket No.:
C-97-458-B, filed in the United States District Court for the District of New
Hampshire. RMS Internet Market Group, Inc. ("RMS") has instituted an action
against the Company arising from a relationship between RMS and the Company
whereby RMS sold business opportunity packages to Internet consultants who in
turn were to sell advertising for the Company's Internet Yellow Pages. RMS'
claims include: (a) claims that the Company breached a number of obligations
under an agreement between the parties including an alleged obligation to use
its best efforts to maintain the Internet Yellow Pages as a first class web site
and to provide certain promotions and advertising with respect to the Internet
Yellow Pages. RMS also contends that after RMS asked the Company to process RMS'
credit card transactions through the Company's merchant account, and after it
became apparent that some of these transactions already had been processed, thus
resulting in double charges to a number of customers, that the Company
improperty refused to credit erroneous double billing. RMS contends that this
constituted interference with prospective business relations and contractual
relations and resulted in damages to RMS in that relationships with customers
were damaged. RMS also contends that the Company was required to pay a 10
percent commission on sales made. The Company has asserted counterclaims against
RMS including claims of misrepresentation, unjust enrichment, breach of
fiduciary duty, breach of covenant of good faith and fair dealing, unfair
competition and unfair trade practices. These claims are based on RMS' actions
with respect to the credit card transactions that were double billed and also
are based on RMS' actions with respect to establishing a competing business. The
Company is pursuing its counterclaims and vigorously defending the claims
asserted by RMS.
2. The Federal Trade Commission has initiated a non-public
investigation of the Company to determine whether its selling and advertising
practices in relation to its Internet related business opportunity programs are
in compliance with Section 5 of the Federal Trade Commission Act. The Company is
cooperating with the inquiry and has responded to all information requests.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all
directors and executive officers of the Company and the key management personnel
as of June 25, 1998. The Board of Directors of the Company is comprised of only
one class. All of the directors will serve until the next annual meeting of
shareholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
shareholders. Except as otherwise noted, there are no family relationships among
directors and executive officers. Also provided is a brief description of the
business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard M. Rosenblatt 29 Chairman and Chief Executive Officer
Mark R. Comer 31 President and Director
Anthony P. Mazzarella 40 Executive Vice President, Secretary/Treasurer, Chief
Financial Officer and Director
Phillip J. Windley 40 Chief Technology Officer
Steven E. Rossow 41 Senior Vice President
Stephen W. Fulling 34 Vice President
Martin Rosenblatt 55 Vice President
Craig R. Pickering 39 Consultant and Director
Marshall S. Geller 59 Director
Harold S. Blue 37 Director
Leonard M. Schiller 56 Director
Howard A. Goldberg 52 Director
Richard H. Rogel 49 Director
</TABLE>
BACKGROUND AND EXPERIENCE
RICHARD M. ROSENBLATT. Mr. Rosenblatt is Chairman of the Board of
Directors and Chief Executive Officer the Company. In 1991, Mr. Rosenblatt
formed R&R Advertising, Inc. which specialized in advertising and marketing for
small to mid size businesses, and co-founded Madison in 1994. Mr. Rosenblatt is
the son of Martin Rosenblatt. Mr. Rosenblatt has been an officer of the Company
since January 1996, became Chief Executive Officer in July 1997 and was elected
Chairman in January 1998. Mr. Rosenblatt received his Bachelor of Arts degree in
political science from the University of California at Los Angeles, where he
graduated Magna Cum Laude and Phi Beta Kappa in 1991. He received his Juris
Doctorate from the University of Southern California, where he graduated with
honors in 1994.
MARK R. COMER. Mr. Comer is the President and a director of the
Company. Mr. Comer has over seven years experience in marketing and in the
business seminar industry. In 1992, he formed Cabot and in 1994 he co-founded
Madison. He has been an officer of the Company since January 1996, and has held
his
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present position with the Company since July 1997. Mr. Comer attended Brigham
Young University in 1984 and 1985 as a business major.
ANTHONY P. MAZZARELLA. Mr. Mazzarella is the Chief Financial
Officer and a director of the Company. Mr. Mazzarella was formerly Managing
Director of Geller & Friend Capital Partners, Inc., a merchant banking firm.
From 1991 to 1995, he was Executive Vice President of Drake Capital Securities,
Inc., a California- based investment banking firm. From 1987 to 1991, he served
as Vice President of The Davis Companies, a private holding company owned by
Marvin Davis, where he was responsible for corporate finance and acquisition
activities. Mr. Mazzarella also held management positions with Twentieth Century
Fox Film Corporation and United Airlines, and was a management consultant with
Deloitte & Touche. Mr. Mazzarella has been a director of the Company and has
held his current position since January 1998. Mr. Mazzarella holds a BA in
Physics from Pomona College and an MBA from the Harvard Business School.
PHILLIP J. WINDLEY, PHD. Dr. Windley is Chief Technology Officer
of the Company. He has been a consultant to the Company and its predecessor
since 1994. Dr. Windley received his PhD in computer science from the University
of California (Davis) in 1990 and is presently a professor of computer science
at Brigham Young University. Prior to earning his PhD, Dr. Windley was a member
of the technical staff at the Department of Energy's Division of Naval Reactors.
Dr. Windley has held his present position with the Company since January 1998.
STEVEN E. ROSSOW. Mr. Rossow is Senior Vice President of Business
Development of the Company. Mr. Rossow was formerly director of business
alliances with AT&T WorldNet Service, developing programs for customer
acquisitions, promotion marketing and production of on line content development
for shopping and gaming. Mr. Rossow also worked with CMP MEDIA's Channel
Consulting Services, where he developed marketing, merchandising and branding
programs for Motorola, Intel, Apple Computer, Word Perfect, Mattel and Epson as
well as a number of entertainment software companies. Mr. Rossow has held his
present position with the Company since January 1998.
STEPHEN W. FULLING. Mr. Fulling is Vice President of
Information--Technology Services of the Company. Mr. Fulling served as Senior
Network Research Assistant for the College of Engineering at Oregon State
University and Network Operations Manager for the NERO project for Oregon Joint
Graduate Schools of Engineering, where he designed, built, and deployed
state-of-the-art wide area networking systems. Mr. Fulling has a broad
background in Internet technologies and more than 15 years experience in the
telecommunications industry. He received his Bachelor of Science in Computer
Science from the University of California (Davis).
MARTIN ROSENBLATT. Mr. Rosenblatt is a Vice President of the
Company. Mr. Rosenblatt has successfully managed a group of 20 scientists in
developing and applying sophisticated physics based computer programs. He has
been using the Internet regularly since its infancy, as a communications tool to
reach and remotely operate advanced government computers. Mr. Rosenblatt worked
for Titan Corporation as Vice President of the Titan Research and Technology
Division from 1985 to 1994. In 1994, Mr. Rosenblatt founded e.m.a.N.a.t.e. He
has held his present position with the Company since April 1996. Mr. Rosenblatt
received a Bachelor of Arts degree and a Masters of Science degree from the
University of California at Los Angeles in 1964 and 1966, respectively. Mr.
Rosenblatt is the father of Richard Rosenblatt.
CRAIG R. PICKERING. Mr. Pickering is a director of the Company.
Mr. Pickering was a co-founder of the Company. Mr. Pickering has over 16 years
of business experience including work in venture capital, sales, mergers and
acquisitions and as a seminar speaker for American Business Seminars. In 1992,
he formed Cabot, and in 1994 he co-founded Madison. He has been a director of
the Company since January 1996, was Chairman of the Board of Directors from
January 1996 to January 1998, was President of the Company from
35
<PAGE> 38
January 1996 to July 1997, and was Chief Executive Officer of the Company from
January 1996 to October 1996, and from June 1997 to July 1997. He became a
consultant to the Company in January 1998.
MARSHALL S. GELLER. Mr. Geller is a director of the Company. Mr.
Geller is currently the Chairman, Chief Executive Officer and Founding Partner
of Geller & Friend Capital Partners, Inc., a merchant banking firm. From 1991 to
1995, Mr. Geller was the Senior Managing Partner and founder of Golenberg &
Geller, Inc., a merchant banking and investment company. From 1988 to 1990, he
was the Vice Chairman of Gruntal & Company, a New York Stock Exchange investment
banking firm. From 1967 to 1988, Mr. Geller was a Senior Managing Director for
Bear Stearns & Company. While at Bear Stearns, Mr. Geller was the Managing
Partner in charge of all areas of Corporate Finance, Public Finance,
Institutional Equities & Debt for Bear Stearns' offices in Los Angeles, San
Francisco, Chicago and Hong Kong. He was also a director of Shun Loong-Bear
Stearns Far East and Sun Hung Kai-Bear Stearns, both leading Chinese investment
banking firms. Mr. Geller formerly served as Interim Co-Chairman of Hexcel
Corporation and is currently on its board of directors. Mr. Geller was formerly
Interim President and Chief Operating Officer of Players International, Inc.,
and now serves on its board and is Chairman of its Investment Committee. Mr.
Geller also serves as Vice Chairman of the board of Value Vision International,
Inc., and serves as Chairman of their Investment Committee. He also serves on
the boards of Ballantyne of Omaha, Inc., Datalink Corporation, and Cabletel
Communications Corporation. Mr. Geller has been a director of the Company since
January 1998.
HAROLD S. BLUE. Mr. Blue is a director of the Company. Mr. Blue
is currently Chairman and Chief Executive Officer of ProxyMed, Inc., a publicly
traded medical information technology company engaged in providing on line
services to physicians and other healthcare providers, since February 1993, and
has been a director of such company since August 1991. He served as interim
President and Chief Operating Officer of ProxyMed from March 1994 to June 1995.
From August 1991 until February 1993, Mr. Blue served as Vice President of
ProxyMed. From July 1992 until February 1995, Mr. Blue served as Chairman of the
Board and Chief Executive Officer of Health Services, Inc., a physician practice
management company, which was sold to Inphynet in 1995. From June 1979 to
February 1992, Mr. Blue was the President and Chief Executive Officer of Budget
Drugs, Inc., a retail discount pharmacy chain comprised of six stores located in
South Florida. From September 1984 to August 1988, Mr. Blue founded and was the
Executive Vice President of Best Generics Incorporated, a generic pharmaceutical
distribution company. In August 1988, Best Generics was sold to Ivax
Corporation, a publicly traded pharmaceutical manufacturer. Mr. Blue served as a
member of the Board of Directors of Ivax for approximately two years before
resigning, and continued to serve as a consultant to Ivax pursuant to a
consulting agreement that expired in August 1993. Mr. Blue has been a director
of the Company since January 1998.
LEONARD M. SCHILLER. Mr. Schiller is a director of the Company.
Mr. Schiller has been a practicing attorney for over 25 years and is a partner
in the law firm of Schiller, Klein & McElroy, P.C. in Illinois. Mr. Schiller is
the President of The Dearborn Group, a residential property management and real
estate company and is involved in the ownership of residential properties
throughout the Midwest. He is currently a director of AccuMed International,
Inc., a publicly traded company which manufactures and markets diagnostic
screening products for clinical laboratories, and Milestone Scientific, Inc., a
dentistry products company. Mr. Schiller has been a director of the Company
since January 1998.
HOWARD A. GOLDBERG. Mr. Goldberg is a director of the Company.
Mr. Goldberg currently serves as Chief Executive Officer of Players
International, Inc. Prior to 1993, he was the managing shareholder practicing
law in the firm of Horn, Goldberg, Gorny, Plackter & Weiss, a professional
corporation, which is general counsel to Players. Mr. Goldberg is a graduate of
Franklin & Marshall College and received his law degree from New York
University. He is a member of the New Jersey State and American Bar
Associations. Mr. Goldberg has been a director of the Company since January
1998.
36
<PAGE> 39
RICHARD H. ROGEL. Mr. Rogel is a director of the Company. Mr.
Rogel is an independent investor and a director of CoolSavings.com, an on line
commerce company providing specialized Internet merchandising. Mr. Rogel was
Chief Executive Officer of the Preferred Provider Organization of Michigan, a
firm that he founded in 1982 and sold in 1997. Previously, Mr. Rogel was
President and Chief Executive Officer of Suburban Medical Center, President of
Strick-Stylehomes, and Treasurer of Seligman and Associates. He has also worked
with Burnham and Company, investment bankers, and Arthur Young and Company. Mr.
Rogel has been a director of the Company since January 1998.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
fiscal year ended December 31, 1996 and 1997 to the Company's Chief Executive
Officer and each of the Company's officers and directors, and persons who
received compensation in amounts equal to or exceeding $100,000. No person
received any compensation from the Company or its predecessor in any fiscal year
prior to 1996. Figures listed below do not include automobile and entertainment
allowances for certain executive officers of the Company which total, in the
aggregate, $100,000 for the year ended December 31, 1996 and $60,000 for the
year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and
Principal Position Year Salary $ (1)
------------------ ---- -------------
<S> <C> <C>
Tracy W. Scott (2) 1996 36,919
1997 62,250
Craig R. Pickering (3) 1996 117,250
1997 119,217
Richard M. Rosenblatt (4) 1996 118,712
1997 119,792
Mark R. Comer (5) 1996 117,975
1997 119,217
</TABLE>
(1) The Company's officers were paid no additional cash or non-cash compensation
of any sort during the years ended December 31, 1996 and 1997, other than
the total salary shown.
(2) Tracy W. Scott was the Chief Executive Officer of the Company from October
1996 to June 1997. Mr. Scott has not been an officer or director of the
Company since June 1997.
(3) Craig R. Pickering was President of the Company from January 1996 to July
1997.
(4) Richard M. Rosenblatt was Executive Vice President of the Company until July
1997, at which time he became Chief Executive Officer.
(5) Mark R. Comer was Executive Vice President of the Company until July 1997,
at which time he became President.
None of the named individuals were granted options in 1996 or 1997 nor did
any such individual exercise or own options at any time during 1996 or 1997.
37
<PAGE> 40
EMPLOYMENT AGREEMENTS
RICHARD ROSENBLATT. Pursuant to an Employment Agreement entered
into as of January 5, 1998, the Company employed Richard Rosenblatt as its Chief
Executive Officer. The term of such employment commenced on February 2, 1998 and
terminates five years thereafter. Mr. Rosenblatt is paid a salary of $195,000
per annum, which may be increased in such amounts as the Compensation Committee
of the Company determines in good faith. In addition, Mr. Rosenblatt is entitled
to an annual bonus in an amount at least equal to 20% of the salary paid to
Rosenblatt during the immediately preceding year. Pursuant to the Employment
Agreement, the Company granted Mr. Rosenblatt options to purchase 375,000 shares
of the common stock of the Company at the exercise price of $5.20 per share.
Such options will vest as follows: (i) 125,000 options vested immediately upon
the date of the Employment Agreement and (ii) the remaining 250,000 options will
vest at the rate of 125,000 options on each of the first and second anniversary
dates of Mr. Rosenblatt's employment with the Company. All unexercised options
expire five years after the date on which such options have vested.
MARK COMER. Pursuant to an Employment Agreement entered into as
of January 5, 1998, the Company employed Mark Comer as its President. The term
of such employment commenced on February 2, 1998 and terminates two years
thereafter. Mr. Comer is paid a salary of $125,000 per annum. The Company will
pay Mr. Comer an annual bonus in an amount equal to (i) five percent (5%) of the
relevant year's net operating profits of the Internet Training Division, on any
net operating profits up to the amount of $1,000,000, plus (ii) ten percent
(10%) of the relevant year's net operating profits of the Internet Training
Division, on any net operating profits in excess of $1,000,000.
ANTHONY MAZZARELLA. Pursuant to an Employment Agreement entered
into as of December 30, 1997, the Company employed Mr. Mazzarella as its
Executive Vice President and Chief Financial Officer. The term of such
employment commenced on January 15, 1998 and terminates five years thereafter.
Mr. Mazzarella is paid a salary of $180,000 per annum through the calendar year
ending December 31, 1998. Thereafter, Mr. Mazzarella is entitled to annual
salary increases as determined by the Board of Directors but in no event less
than 16%. Prior to the end of each year, the Board of Directors is to review the
compensation of Mr. Mazzarella and pay to him a cash bonus not less than 20% of
his salary for that year. Pursuant to the Employment Agreement, Company granted
Mr. Mazzarella options to purchase an aggregate of 375,000 shares of the Common
Stock of the Company at an exercise price of $4.00 per share. Such options vest
as follows: (i) 125,000 options vested immediately and (ii) 125,000 options will
vest on January 15, 1999, and 125,000 options will vest on January 15, 2000. The
options expire 10 years after the date of grant.
PHILLIP J. WINDLEY, PHD. Pursuant to an Employment Agreement
entered into as of December 9, 1997, the Company employed Phillip J. Windley as
its Chief Technology Officer. The term of such employment commenced on January
1, 1998 and terminates two years thereafter. Dr. Windley is paid a salary of
$145,000 per annum. The Company may grant to Dr. Windley an annual bonus or
bonuses up to a maximum aggregate annual amount of $35,000, at the sole and
exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine. Pursuant to the
Employment Agreement, the Company granted Dr. Windley options to purchase 87,500
shares of the common stock of the Company at the exercise price of $5.20 per
share. Such options vest as follows: (i) at the rate of 12,500 options per full
quarter for the first year during which Dr. Windley remains employed by the
Company, commencing as of January 1, 1998, and (ii) at the rate of 9,375 options
per full quarter for the second year during which Dr. Windley remains employed
by the Company, commencing one year after January 1, 1998. All unexercised
options expire five years after the date on which such options have vested.
STEVE ROSSOW. Pursuant to an Employment Agreement entered into as
of December 9, 1997, the Company employed Steve Rossow as its Vice President
Marketing & Sales. The term of such employment commenced on January 12, 1998 and
terminates four years thereafter. Mr. Rossow is paid a salary of $120,000 per
annum and received a one-time signing bonus in the amount of $20,000. The
Company may grant to Mr. Rossow an annual bonus or bonuses up to a maximum
aggregate annual amount of $30,000, at the sole and exclusive discretion of the
Chief Executive Officer and the Compensation Committee of the Company and at
such times and in such manner as the Chief
38
<PAGE> 41
Executive Officer and the Compensation Committee may determine. Pursuant to the
Employment Agreement, the Company granted Mr. Rossow options to purchase 125,000
shares of the common stock of the Company at the exercise price of $5.20 per
share. Such options vest as follows: (i) at the rate of 15,625 options per full
quarter for the first year during which Mr. Rossow remains employed by the
Company, commencing as of January 12, 1998, and (ii) at the rate of 7,813
options per full quarter for the second and third years during which Mr. Rossow
remains employed by the Company, commencing one year after January 12, 1998. All
unexercised options expire five years after the date on which such options have
vested.
STEPHEN W. FULLING. Pursuant to an Employment Agreement entered
into as of December 9, 1997, the Company employed Stephen W. Fulling as its Vice
President of Technology. The term of such employment commenced on January 1,
1998 and terminates three years thereafter. Mr. Fulling is paid a salary of
$85,000 per annum, which may be increased in such amounts as the Chief Executive
Officer and the Compensation Committee of the Company determine at their sole
discretion, except that at a minimum the Company shall increase the salary for
the second and third years of Mr. Fulling's employment by an amount equal to 7%
of the total amount of salary due to Mr. Fulling during the
immediately-preceding year. The Company may grant to Mr. Fulling an annual bonus
or bonuses up to a maximum aggregate annual amount of $25,000, at the sole and
exclusive discretion of the Chief Executive Officer and the Compensation
Committee of the Company and at such times and in such manner as the Chief
Executive Officer and the Compensation Committee may determine. Pursuant to the
Employment Agreement, the Company granted Mr. Fulling options to purchase 85,000
shares of the common stock of the Company at the exercise price of $5.20 per
share. Such options vest as follows: (i) at the rate of 10,833 options per full
quarter for the first year during which Mr. Fulling remains employed by the
Company, commencing as of January 1, 1998, (ii) at the rate of 5,208 options per
full quarter for the second year and per the first three full quarters of the
third year during which Mr. Fulling remains employed by the Company, commencing
one year after January 1, 1998, and (iii) at the rate of 5,208 options per the
fourth full quarter of the third year during which Mr. Fulling remains employed
by the Company. All unexercised options expire five years after the date on
which such options have vested.
MARTIN ROSENBLATT. The Company entered into an employment
agreement with Martin Rosenblatt in the second quarter of 1996, providing for a
salary of $85,000 per year and the grant of 50,000 options on February 1, 1998,
and annual grants of no less than 25,000 options in January of each year
thereafter at the fair market value on the last trading day of each year. This
agreement expires in 2003.
CRAIG PICKERING. Pursuant to a Consulting Agreement entered into
as of January 26, 1998, the Company engaged the services of Craig Pickering as
an independent contractor. The term of such engagement commenced on January 26,
1998 and terminates two years thereafter. Mr. Pickering is paid a consulting fee
of $65,000 during the first year of the Agreement and $50,000 during the second
year of the Agreement.
DIRECTOR COMPENSATION
The non-employee directors of the Company are paid cash
compensation of $2,000 per quarter plus $500 per meeting attended (either in
person or telephonically). In addition each non-employee director receives
options to purchase 12,500 shares of the Company's common stock per year for
each of 1998 and 1999 at the market price as of January 26, 1998.
Each of the three members of the Audit Committee of the Board of
Directors receives $250 per meeting attended (either in person or
telephonically). In addition, the Chairman of the Audit Committee receives cash
compensation of $2,500 annually.
Each of the three members of the Compensation Committee of the
Board of Directors receives $250 per meeting attended (either in person or
telephonically). In addition, the Chairman of the Compensation Committee
receives cash compensation of $2,500 annually.
39
<PAGE> 42
Employee directors do not receive any additional compensation for
serving as a director.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As authorized by Section 78.751 of the Nevada General Corporation
Law, the Company may indemnify its officers and directors against expenses
incurred by such persons in connection with any threatened, pending or completed
action, suit or proceedings, whether civil, criminal, administrative or
investigative, involving such persons in their capacities as officers and
directors, so long as such persons acted in good faith and in a manner which
they reasonably believed to be in the best interests of the Company. If the
legal proceeding, however, is by or in the right of the Company, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he is adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director or officer (or is serving at the request of the corporation as a
director or officer of another corporation) for any liability asserted against
such person and any expenses incurred by him in his capacity as a director or
officer. These financial arrangements may include trust funds, self insurance
programs, guarantees and insurance policies.
Article 6.E of the Articles of Incorporation, as amended, of the
Company and Article 5 of the Bylaws of the Company provide that, to the fullest
extent permitted by law, directors of the Company will not be liable for
monetary damages to the Company or its shareholders for breaches of their
fiduciary duties.
The Company maintains Director and Officer liability insurance
with an aggregate coverage amount of $10,000,000.
The Company has been advised that it is the position of the
Commission that insofar as the provision of the Company's Articles of
Incorporation, as amended, and By-laws may be invoked for liabilities arising
under the Securities Act, the provision is against public policy as expressed in
the Securities Act and is therefore unenforceable.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10 percent of
the Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors, and
greater than 10 percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Management
believes all such individuals were in compliance with Section 16(a) at June 25,
1998.
40
<PAGE> 43
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date
of June 25, 1998 with respect to (i) the beneficial ownership of the Common
Stock of the Company by each beneficial owner of more than 5% of the outstanding
shares of Common Stock of the Company, each director, each executive officer and
all executive officers and directors of the Company as a group and the
percentage of the Company's Common Stock so owned.
As used in this section, the term beneficial ownership with
respect to a security is defined by Rule 13d-3 under the Exchange Act as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
of or direct the disposition of) with respect to the security through any
contract, arrangement, understanding, relationship or otherwise, subject to
community property laws where applicable. Each person has sole voting and
investment power with respect to the shares of Common Stock, except as otherwise
indicated. Beneficial ownership consists of a direct interest in the shares of
Common Stock, except as otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
NUMBER OF STOCK
NAME OF BENEFICIAL OWNER SHARES OWNED(1)
<S> <C> <C>
OFFICERS AND DIRECTORS
Richard Rosenblatt 1,750,000(2) 22.01%
4400 Coldwater Canyon
Boulevard
Suite 200
Studio City, California 91604
Mark R. Comer 1,250,000 15.97%
4400 Coldwater Canyon
Boulevard
Suite 200
Studio City, California 91604
Craig R. Pickering 1,637,500(3) 20.89%
1185 South Mike Jense Circle
Provo, Utah 84601
Anthony P. Mazzarella 301,282(4) 3.73%
4400 Coldwater Canyon
Boulevard
Suite 200
Studio City, California 91604
Philip J. Windley 151,250(5) 1.92%
5314 North 250 West #110
Provo, Utah 84604
Steven Rossow 46,875(6) --%
4400 Coldwater Canyon
Boulevard
Suite 200
Studio City, California 91604
Stephen Fulling 32,499(7) --%
5314 North 250 West #110
Provo, Utah 84604
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
NUMBER OF STOCK
NAME OF BENEFICIAL OWNER SHARES OWNED(1)
<S> <C> <C>
Martin Rosenblatt 219,167(8) 2.78%
4400 Coldwater Canyon
Boulevard
Suite 200
Studio City, California 91604
Marshall S. Geller 365,064(9) 4.51%
1875 Century Park East
Suite 2200
Los Angeles, California 90067
Harold S. Blue 28,125(10) --%
2501 Davie Road
Ft. Lauderdale, Florida 33317
Leonard M. Schiller 35,938(11) --%
33 N. Dearborn, #1030
Chicago, Illinois 60602
Howard A. Goldberg 15,494(12) --%
1300 Atlantic Avenue, #800
Atlantic City, New Jersey 08401
Richard H. Rogel 140,625(13) 1.78%
56 Rosecrown
Avon, Colorado 81620
Total of Directors and Executive 5,973,819 67.80%
Officers as a group (13 persons)
5% OR MORE BENEFICIAL OWNERS
Commonwealth Associates 761,749(14) 8.87%
830 Third Avenue
New York, New York 10022
Commonwealth Management Co., 828,364(15) 9.57%
Inc.
830 Third Avenue
New York, New York 10022
Michael S. Falk 431,901(16) 5.23%
830 Third Avenue
New York, New York 10022
</TABLE>
(1) Calculations based upon 7,827,254 shares of Common Stock issued and
outstanding on June 25, 1998.
(2) Includes 125,000 shares issuable upon currently exercisable options. Does
not include 1,500,000 shares issuable upon the exercise of options to
Commonwealth Associates and its affiliates with respect to which Mr.
Rosenblatt is the beneficiary of a proxy.
(3) Includes 12,500 shares issuable upon currently exercisable options.
(4) Includes 125,000 shares issuable upon currently exercisable warrants and
125,000 shares issuable upon currently exercisable options.
(5) Includes 25,000 shares issuable upon currently exercisable options and
12,500 shares issuable upon options exercisable within the next sixty
days.
(6) Includes 31,250 shares issuable upon currently exercisable options and
15,625 shares issuable upon options exercisable within the next sixty
days.
42
<PAGE> 45
(7) Includes 21,666 shares issuable upon currently exercisable options and
10,833 shares issuable upon options exercisable within the next sixty
days.
(8) Includes 50,000 shares issuable upon currently exercisable options.
(9) Includes 250,000 shares issuable upon currently exercisable warrants and
12,500 shares issuable upon currently exercisable options.
(10) Consists of 15,625 shares issuable upon conversion of Company's Series A
Convertible Preferred Stock and 12,500 shares issuable upon currently
exercisable options.
(11) Consists of 23,438 shares issuable upon conversion of the Company's
Series A Convertible Preferred Stock and 12,500 shares issuable upon the
exercise of currently exercisable options.
(12) Includes 12,500 shares issuable upon the exercise of currently
exercisable options.
(13) Consists of 50,000 shares of Common Stock, 78,125 shares issuable upon
conversion of the Company's Series A Convertible Preferred Stock and
12,500 shares issuable upon the exercise of currently exercisable
options.
(14) Consists of shares issuable upon the exercise of currently exercisable
options issued to Commonwealth Associates. Commonwealth Management Co.,
Inc. is the corporate general partner of Commonwealth Associates.
(15) Includes 761,749 shares issuable upon the exercise of currently
exercisable warrants owned by Commonwealth Associates. Mr. Falk is the
Chairman and controlling equity owner of Commonwealth Management Co.,
Inc., the corporate general partner of Commonwealth Associates. Also
includes 12,115 shares issuable upon the exercise of currently
exercisable warrants and 54,500 shares issuable upon the conversion of
43,600 shares of the Company's Series A Convertible Preferred Stock of
which Mr. Falk directly owns 37,500 shares and The Falk Family
Foundation, a charitable trust for which Mr. Falk serves as trustee, owns
6,100 shares.
(16) Consists of shares issuable upon the exercise of currently exercisable
warrants and conversion of the Company's Series A Convertible Preferred
Stock.
CHANGES IN CONTROL
The Company is unaware of any contract or other arrangement, the
operation of which may at a subsequent date result in a change in control of the
Company.
43
<PAGE> 46
CERTAIN TRANSACTIONS
The Company pays certain related parties for advertising, rent
and computer graphic design. Sierra Advertising received $1,794,237 in 1997 and
$2,116,607 in 1996 for advertising expenses, all of which is distributed
directly for advertising costs, and is owned by officers of the Company. The
sole purpose for the existence of Sierra Advertising is to pass through certain
costs of advertising at reduced rates. No officers of the Company receive any
monetary compensation from the Company through Sierra Advertising. Sierra
Advertising makes no profit on funds received from the Company. All funds paid
to Sierra Advertising are used by Sierra Advertising for the purchase of air
time for advertising.
The share exchanges described in "BUSINESS--HISTORY OF THE
COMPANY" involved certain executive officers of the Company. At the time of the
share exchanges described therein, the shareholders of Madison were Craig
Pickering, Richard Rosenblatt, Mark Comer, JCH Trust, MJB Trust, CSW Trust, Ross
Jardine, Phil Windley and Michael Beck; the shareholders of Cabot were Craig
Pickering, Mark Comer and JCH Trust; and the sole shareholder of R&R was Richard
Rosenblatt.
The Company's offices located at 1185 South Mike Jense Circle,
Provo, Utah are leased from RDR Properties for $12,108 per month, which lease
expires in March 1999. Craig Pickering and Mark Comer each own 33.33% of RDR
Properties.
The Company retained Geller & Friend Capital Partners, Inc.
("Geller & Friend"), a merchant banking firm, in August 1997 to assist in
arranging equity financing. Geller & Friend earned a fee of $150,000 and was
granted 375,000 warrants in connection with its role in the private placement
completed in December 1997. Of the $150,000 fee, Geller & Friend was paid
$50,000 in 1997, and is being paid the remaining $100,000 in equal quarterly
installments during 1998. Marshall Geller, chairman and chief executive officer
of Geller & Friend, became a director of the Company in January 1998. Also in
January 1998, the Company employed Anthony Mazzarella, formerly managing
director of Geller & Friend, as its Executive Vice President and Chief Financial
Officer. Mr. Mazzarella is also a director of the Company.
44
<PAGE> 47
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized by its Articles of Incorporation, as
amended, to issue an aggregate of 37,500,000 shares of Common Stock, par value
$.008 per share and 10,000,000 shares of preferred stock par value $.001 per
share which preferred stock may be issued with such rights, designations and
privileges (including redemption and voting rights) as the Board of Directors
may from time to time determine.
The following summary descriptions are qualified in their
entirety by reference to the Company's Articles of Incorporation, as amended.
SERIES A CONVERTIBLE PREFERRED STOCK
The authorized capital stock of the Company includes 10,000,000
shares of preferred stock of which 5,250,000 shares are designated as Series A
Convertible Preferred Stock. Holders of the Preferred Shares are entitled to
receive, when as and if declared by the Board of Directors, a cumulative
dividend of $.36 per share (9% per annum) payable semi-annually in cash or
Preferred Shares valued at $4.00 per share at the discretion of the Board. In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, the holders of the Series A Convertible Preferred
Stock are entitled to receive out of the assets of the Company available for
distribution to its shareholders, before any payment or distribution shall be
made on the Common Stock, an amount per share equal to $4.00. The Series A
Convertible Preferred Stock and the Common Stock vote together as a single
class, with each share of Preferred Stock being entitled to cast a number of
votes equal to the number of shares of Common Stock into which such share of
Preferred Stock could then be converted.
Each share of the Series A Convertible Preferred Stock may at any
time be converted into 1.25 shares of the Company's Common Stock reflecting an
initial Conversion Price of $3.20 per share. In the event that at any time prior
to June 19, 1999 the market price of the Company's Common Stock is less than
$3.20 the Conversion Price will be automatically adjusted to equal such lower
market price. The Conversion Price will also be subject to adjustment in the
event of a stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the Common Stock. In addition, in the event that the Company
fails to (i) make any semi-annual dividend payment when due or (ii) file a
registration statement covering the Securities by the earlier to occur of June
30, 1998 or fifteen (15) business days after the Company's Common Stock is
listed on the Nasdaq SmallCap Market, the Conversion Price then in effect will
be adjusted downward by 10%.
Commencing on December 19, 1998 and terminating on December 19,
2003, the shares of Series A Convertible Preferred Stock will be automatically
converted into shares of Common Stock at the Company's option upon 30 days'
prior written notice provided (i) the Common Stock to be issued upon such
conversion has been registered under the Securities Act and (ii) the Common
Stock has traded at or above $8.00 per share for 30 consecutive trading days.
WARRANTS
The following discussion is a summary of certain terms and
provisions of the Initial Warrants contained in the Warrant Agreement between
the Company and Signature Stock Transfer, Inc. (the "Warrant Agent"). The
Initial Warrants were issued to investors as part of a private placement of
Units in December 1997.
45
<PAGE> 48
Each Warrant entitles the holder to purchase, at a price of $3.20
per share, subject to adjustment, .125 share of Common Stock during the period
commencing on December 4, 1998 and ending on December 4, 2002. Commencing on
December 4, 1998, the Company may redeem the Warrants at $0.05 per Warrant upon
30 days' prior written notice in the event that (1) there is a current
registration statement in effect covering the shares of Common Stock underlying
the Warrants and the Warrants separately and (2) the Common Stock has traded at
or above $8.00 per share for at least 30 consecutive trading days.
Any Warrantholders who do not exercise their Warrants prior to
the redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the shares of Common Stock underlying the Warrants
and, after the redemption date, any outstanding Warrants will become void and be
of no further force or effect. If the Company does not redeem the Warrants, the
Warrants will expire, become void and be of no further force or effect on
conclusion of the exercise period.
The exercise price of the Warrants and the number of shares to be
obtained upon the exercise of the Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the Common Stock. In the event
of liquidation, dissolution or winding up of the Company, holders of the
Warrants, unless exercised, will not be entitled to participate in the assets of
the Company. Holders of the Warrants will have no voting, preemptive,
liquidation or other rights of a shareholder, and no dividends will be declared
on the Warrants.
REGISTRATION RIGHTS
The holders of the Placement Agent Warrants will have certain
demand and piggy-back registration rights with respect to such Warrants and the
underlying Common Shares exercisable commencing six months after the Closing of
the private placement of Units in December 1997.
The registration statements will be maintained effective until
all of the securities covered thereby have been sold, or all of the securities
covered thereby may be sold under Rule 144 without regard to volume limitations.
The Company will pay all registration expenses incurred in connection with the
registration of the securities. In addition, the Company will comply with all
necessary state securities laws so as to permit the sale by the investors of the
securities.
COMMON STOCK
The authorized capital stock of the Company includes 37,500,000
shares of $.008 par value Common Stock. All shares have equal voting rights.
Voting rights are not cumulative, and, therefore, the holders of more than 50%
of the Common Stock of the Company could, if they chose to do so, elect all of
the Directors.
Upon liquidation, dissolution or winding up of the Company, the
assets of the Company, after the payment of liabilities and any distributions to
the holders of outstanding shares of Series A Convertible Preferred Stock, will
be distributed pro rata to the holders of the Common Stock. The holders of the
Common Stock do not have preemptive rights to subscribe for any securities of
the Company and have no right to require the Company to redeem or purchase their
shares.
Holders of Common Stock are entitled to share equally in
dividends when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor. The Company has not paid any cash dividends
on its Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
46
<PAGE> 49
PREFERRED STOCK
The Company's Articles of Incorporation, as amended, authorize
the Board of Directors to issue 10,000,000 shares of preferred stock, $.001 par
value. The preferred stock may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
the Company may determine by resolution. The rights, preferences and limitations
of separate series of preferred stock may differ with respect to such matters as
may be determined by the Board of Directors, including, without limitation, the
rate of dividends, method and nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any), and voting rights. The potential exists, therefore,
that preferred stock might be issued which would grant dividend preferences and
liquidation preferences to preferred shareholders. Unless the nature of a
particular transaction and applicable statutes require such approval, and
subject to the required approval of the Series A Preferred Securityholders for
issuances of preferred stock which have liquidation or dividend rights senior to
theirs, the Board of Directors has the authority to issue these shares without
shareholder approval. The issuance of preferred stock may have the affect of
delaying or preventing a change in control of the Company without any further
action by shareholders. As of June 25, 1998, there were 5,000,004 shares of
Series A Convertible Preferred Stock outstanding.
TRANSFER AND WARRANT AGENT
Signature Stock Transfer, Inc., 14675 Midway Road, Dallas, Texas
75244, serves as Transfer Agent for the Company's Common Stock, and serves as
Transfer and Warrant Agent for the Series A Convertible Preferred Stock and
Warrants.
47
<PAGE> 50
PLAN OF DISTRIBUTION
The sale or distribution of the Underlying Common Stock and
Warrants may be effected, subject to the lock-up agreement among certain Selling
Securityholders and Commonwealth Associates (see "SHARES ELIGIBLE FOR FUTURE
SALES."), directly to purchasers by the Selling Securityholders or by pledgees,
donees, transferees or other successors in interest, as principals or through
one or more underwriters, brokers, dealers or agents from time to time in one or
more transactions (which may involve crosses or block transactions) (i) on any
stock exchange, in the Nasdaq SmallCap Market, or in the over the counter
market, (ii) in transactions otherwise than on any stock exchange or in the
over-the-counter market, or (iii) through the writing of options (whether such
options are listed on an options exchange or otherwise) on, or settlement of
short sales, of the Underlying Common Stock or Warrants. The Securities may also
be sold pursuant to Rule 144. Any of such transactions may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the Selling Securityholder or by
agreement between the Selling Securityholder and underwriters, brokers, dealers
or agents, or purchasers. If the Selling Securityholders effect such
transactions by selling Underlying Common Stock and/or Warrants to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders or commissions from purchasers of
Underlying Common Stock and/or Warrants for whom they may act as agent (which
discounts, concessions or commissions as to particular underwriters, brokers,
dealers or agents may be in excess of those customary in the types of
transactions involved). The Selling Securityholders and any brokers, dealers or
agents that participate in the distribution of the Underlying Common Stock
and/or Warrants may be deemed to be underwriters, and any profit on the sale of
Underlying Common Stock and/or Warrants by them and any discounts, concessions
or commissions received by any such underwriters, brokers, dealers or agents may
be deemed to be underwriting discounts and commissions under the Securities Act.
Under the securities law of certain states, the Underlying Common
Stock and/or Warrants may be sold in such states only through registered or
licensed brokers or dealers. In addition, in certain states the Underlying
Common Stock and/or Warrants may not be sold unless the Underlying Common Stock
and Warrants have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The Company will pay all the expenses incident to the
registration, offering and sale of the Underlying Common Stock and Warrants to
the public hereunder other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. The Company has agreed to indemnify the Selling
Securityholders and their controlling persons against certain liabilities,
including liabilities under the Securities Act. The Company estimates that the
expenses of this Offering to be borne by it will be approximately $68,000. The
Company will not receive any proceeds from the sale of any of the Underlying
Common Stock or Warrants by the Selling Securityholders.
48
<PAGE> 51
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding
beneficial ownership of Common Stock and Warrants of each Selling Securityholder
and as adjusted to give effect to the sale of the Securities offered hereby.
Information concerning the Selling Securityholders may change from time to time;
any changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required.
See "PLAN OF DISTRIBUTION."
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Michael F. A'Hern & 7,813 12,500 -- -- -0- -0- -0-
Maxine C. A'Hern J/T
Dean Abraham 4,774 11,719 -- -- -0- -0- -0-
Richard Abrams 19,531 31,250 -- -- -0- -0- -0-
Rodney Abrams 19,531 31,250 -- -- -0- -0- -0-
AC Isreal Enterprises Inc. 50,000 -- -- -- -0- -0- -0-
Shannon P. Acks 11,716 31,250 -- -- -0- -0- -0-
James Adametz 14,063 22,500 -- -- -0- -0- -0-
Daryl-Joy Adkins 5,859 9,375 -- -- -0- -0- -0-
Mary Alloy 19,531 31,250 -- -- -0- -0- -0-
Anasazi Partners Limited 15,625 -- -- -- -0- -0- -0-
Partnerships
Ferdinano Anderson 9,766 15,625 -- -- -0- -0- -0-
Michael Appelbaum 2,681 -- 2,681 -- -0- -0- -0-
Michael R. L. Astor 9,766 15,625 -- -- -0- -0- -0-
James G. Aukstolis 16,125 31,250 -- -- -0- -0- -0-
Richard L. Bazelon & Eileen 39,063 62,500 -- -- -0- -0- -0-
A. Bazelon J/T
Bear Stearns Security C/F 5,703 15,625 -- -- -0- -0- -0-
Irving Curtins IRA
Bear Stearns Security C/F 1,953 3,125 -- -- -0- -0- -0-
Richard Campanella IRA
Bear Stearns Security Corp. 23,438 62,500 -- -- -0- -0- -0-
C/F Gary Gaines IRA
Bear Stearns Security Corp. 19,531 31,250 -- -- -0- -0- -0-
C/F Paul F. Petrus IRA
Edwin J. Beattie 19,531 31,250 -- -- -0- -0- -0-
John P. Becker 5,813 12,500 -- -- -0- -0- -0-
Becker & Becker 19,531 31,250 -- -- -0- -0- -0-
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Niles H. Bell 3,008 7,813 -- -- -0- -0- -0-
William D. Bennett Jr. 5,859 15,625 -- -- -0- -0- -0-
Marc G. Berman 4,774 11,719 -- -- -0- -0- -0-
Sandra Bernstein & Howard 24,063 62,500 -- -- -0- -0- -0-
Bernstein J/T
Robert Bettinger 19,531 31,250 -- -- -0- -0- -0-
Robert Beuret 16,196 -- 16,196 -- -0- -0- -0-
Lincoln Edward Black 3,818 9,375 -- -- -0- -0- -0-
Gerald Blank 977 7,813 -- -- -0- -0- -0-
Craig Blitz & Annette Blitz 5,891 15,625 -- -- -0- -0- -0-
J/T
Jeffrey Blomstedt & 6,364 15,625 -- -- -0- -0- -0-
Susan J. Lascala J/T
Harold Blue(5) 32,031 31,250 -- -- 12,500 -0- -0-
Hans C. Bodmer 29,063 62,500 -- -- -0- -0- -0-
Mody K. Bootright 3,906 6,250 -- -- -0- -0- -0-
Benjamin Bollag 29,297 46,875 -- -- -0- -0- -0-
Michael Bollag 23,438 -- -- -- -0- -0- -0-
Tom P. Briggs TR Tom P. 7,813 12,500 -- -- -0- -0- -0-
Briggs Attn'y at Law
Pen/Pft Sh/Pl
Travis Brock 2,250 -- 2,250 -- -0- -0- -0-
Elizabeth D. Buchman C/F 3,906 6,250 -- -- -0- -0- -0-
Norman L. Buchman Ugma
MA
Leslie G. Callahan III 39,063 62,500 -- -- -0- -0- -0-
Feliz Campos 5,811 10,938 -- -- -0- -0- -0-
J.A. Cardwell 8,202 21,875 -- -- -0- -0- -0-
Anders Carlegren 3,906 6,250 -- -- -0- -0- -0-
C. Wyllys Cass IV & Ellen 3,906 6,250 -- -- -0- -0- -0-
M. Cass J/T
William R. Cline 4,032 -- -- -- -0- -0- -0-
David Cohen 48,828 78,125 -- -- -0- -0- -0-
Harriet H. Cohen 4,883 7,813 -- -- -0- -0- -0-
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Jonathon Cohen & Nancy 4,813 12,500 -- -- -0- -0- -0-
Shapiro J/T
Julia R. Cole 39,063 62,500 -- -- -0- -0- -0-
Commonwealth 761,749 -- 761,749 -- -0- -0- -0-
Associates(6)
Conzett Europa Invest 139,063 312,500 -- -- -0- -0- -0-
Bruce Corbin 2,406 6,250 -- -- -0- -0- -0-
Jeffrey Corbin 1,953 3,125 -- -- -0- -0- -0-
Richard Corbin 5,859 9,375 -- -- -0- -0- -0-
Richard Corbin IRA Sec 5,859 9,375 -- -- -0- -0- -0-
Corp. Cust. for
CP Baker Venture Fund 1 7,813 -- -- -- -0- -0- -0-
Limited Partnership
Daphna Cramer 2,419 -- -- -- -0- -0- -0-
Gerald Cramer 1997 4,839 -- -- -- -0- -0- -0-
Charitable Remainder
Unitrust
Gerald and Daphna Cramer 4,839 -- -- -- -0- -0- -0-
1997 Charitable Remainder
Unitrust
Leroy Cramer Family 2,419 -- -- -- -0- -0- -0-
Limited Partner
Cramer Rosenthal McGlynn 19,531 31,250 -- -- -0- -0- -0-
Inc.
Cramer Rosenthal McGlynn, 1,935 -- -- -- -0- -0- -0-
LLC Money Purchase Plan
Cramer Taos Partners 132,495 156,250 -- -- 30,000 -0- -0-
James P. Crandall & Claudia 5,013 12,500 -- -- -0- -0- -0-
P. Crandall J/T
Cresvale Far East Ltd. 78,125 125,000 -- -- -0- -0- -0-
CRM 1997 Enterprise Fund 195,313 312,500 -- -- -0- -0- -0-
LLC
CRM 1998 Enterprises Fund 100,000 -- -- -- -0- -0- -0-
LLC
CRM Madison Partners LP 154,811 156,250 -- -- 20,800 -0- -0-
CRM Partners LP 395,668 312,500 -- -- 58,000 -0- -0-
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
CRM Retirement Partners 302,716 187,500 -- -- 45,000 -0- -0-
LP
CRM U S Value Fund Ltd 58,594 93,750 -- -- -0- -0- -0-
CRM EFO Partners LP 77,996 -- -- -- 6,024 -0- -0-
Orman F. Cummings 9,766 15,625 -- -- -0- -0- -0-
Thomas D'Avanzo & Marie 7,813 12,500 -- -- -0- -0- -0-
D'Avanzo J/T
Richard Dahlen & Priscilla 11,238 37,500 -- -- -0- -0- -0-
Dahlen J/T
Mark Danielli 4,859 -- 4,859 -- -0- -0- -0-
James A. Davenport 9,546 23,438 -- -- -0- -0- -0-
Richard G. David 14,281 31,250 -- -- -0- -0- -0-
David Deatkine Jr. 5,703 15,625 -- -- -0- -0- -0-
Morris Deckelbaum 27,813 62,500 -- -- -0- -0- -0-
David Dercher & Suelen 19,531 31,250 -- -- -0- -0- -0-
Dercher J/T
David Dickerson and 39,063 62,500 -- -- -0- -0- -0-
Mary Jane Dickerson TIC
David L. Dickey and 781 6,250 -- -- -0- -0- -0-
Susan M. Dickey J/T
Donaldson Lufkin and 5,860 46,875 -- -- 1 -0- -0-
Jenrette
Securities Corporation
Jeanette Dorfman 3,906 6,250 -- -- -0- -0- -0-
Robert Dozier & Debbie 9,766 15,625 -- -- -0- -0- -0-
Dozier J/T
DW Trustees (BVI) Limited 29,297 46,875 -- -- -0- -0- -0-
Cornelia Eldridge 30,000 -- 30,000 -- -0- -0- -0-
Stephen Elkin & Diane 7,813 12,500 -- -- -0- -0- -0-
Elkin J/T
Lang Elliot 39,063 62,500 -- -- -0- -0- -0-
Seth Elliot 5,000 -- 5,000 -- -0- -0- -0-
Joseph A. Ens Jr. & Shirley 9,766 15,625 -- -- -0- -0- -0-
A. Ens J/T
Frederick Epstein 39,063 62,500 -- -- -0- -0- -0-
Kenneth R. Falchuk 39,063 62,500 -- -- -0- -0- -0-
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Falk 431,901 93,750 373,307 -- -0- -0- -0-
Michael Falk Tr The Falk 11,531 31,250 -- -- -0- -0- -0-
Family Foundation
Michael J. Feldman 20,156 36,250 -- -- -0- -0- -0-
Hilaire Fernandes 3,225 6,250 -- -- -0- -0- -0-
Fred M. Filoon 1,935 -- -- -- -0- -0- -0-
S. Marcus Finkle 14,438 37,500 -- -- -0- -0- -0-
Baruch Fischhoff & Andrea 7,813 12,500 -- -- -0- -0- -0-
Fischoff J/T
Eileen Fitzsimons 323 -- -- -- -0- -0- -0-
Michael Flynn 3,125 25,000 -- -- -0- -0- -0-
Flynn Corp 195,313 312,500 -- -- -0- -0- -0-
Charles Friedlander 9,766 15,625 -- -- -0- -0- -0-
Peter Fulton 2,324 -- 2,324 -- -0- -0- -0-
Gallagher Corp 195,313 312,500 -- -- -0- -0- -0-
Richard Galterio 2,844 -- 2,844 -- -0- -0- -0-
Martin Gangel 19,531 31,250 -- -- -0- -0- -0-
Joe Maria Salema Carcao 78,125 125,000 -- -- -0- -0- -0-
Quina da Marioha
David Gartenberg 9,766 15,625 -- -- -0- -0- -0-
Evan Gartenberg 9,766 15,625 -- -- -0- -0- -0-
Marshall S. Geller(5) 373,448 66,667 250,000 -- 12,500 -0- -0-
Scott L. Geller 210 -- -- -- -0- -0- -0-
Anthony Giardina 4,219 -- 4,219 -- -0- -0- -0-
John J. Giuffrida & 32,063 62,500 -- -- -0- -0- -0-
Jacqueline P. Giuffrida J/T
Edwin M. Glazier 3,906 6,250 -- -- -0- -0- -0-
Mark Goldberg 7,813 12,500 -- -- -0- -0- -0-
Paul Goldenheim 9,766 15,625 -- -- -0- -0- -0-
Fred Goldman 2,656 6,250 -- -- -0- -0- -0-
Jay Goldstein 6,000 -- -- -- -0- -0- -0-
Sydney J. Barbara B. 9,766 15,625 -- -- -0- -0- -0-
Goldstein Tr Goldstein
Family Loving Tr
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Zachary Gomes 39,063 62,500 -- -- -0- -0- -0-
Andrew Gonchar 9,766 15,625 -- -- -0- -0- -0-
Roger H Grace 9,766 15,625 -- -- -0- -0- -0-
H. Eugene Graves 39,063 62,500 -- -- -0- -0- -0-
Andrienne Gray 3,000 -- -- -- -0- -0- -0-
Barry Gray 10,000 -- -- -- -0- -0- -0-
Jonathan D. Green 19,531 31,250 -- -- -0- -0- -0-
Paul Gubitosa 5,859 9,375 -- -- -0- -0- -0-
Richard M. Gunsel 3,906 6,250 -- -- -0- -0- -0-
Howard Habousch & Joan 39,063 62,500 -- -- -0- -0- -0-
Haboush J/T
Robert Hammer 9,766 15,625 -- -- -0- -0- -0-
Alan H. Hammerman 1,953 15,625 -- -- -0- -0- -0-
Eric Handler 2,500 -- 2,500 -- -0- -0- -0-
Hare & Co. 125,313 312,500 -- -- -0- -0- -0-
Mel Harris Preferred 28,594 58,750 -- -- -0- -0- -0-
Employes Group
M. Ponder Harrison 5,866 15,625 -- -- -0- -0- -0-
William O.E. Henry 11,731 31,250 -- -- -0- -0- -0-
Hercules Systems Inc. 29,297 46,875 -- -- -0- -0- -0-
Timothy Herrmann 1,595 -- 1,595 -- -0- -0- -0-
Henry Herzing Tr Henry G. 33,063 62,500 -- -- -0- -0- -0-
Herzing Rev Liv Tr
William L Hickey Jr. & 29,297 46,875 -- -- -0- -0- -0-
Pamela T. Hickey J/T
S. Maurice Hicks Jr. 5,859 9,375 -- -- -0- -0- -0-
High Bridge Fund Limited 78,125 125,000 -- -- -0- -0- -0-
Hilltop Offshore Limited 559 4,469 -- -- -0- -0- -0-
Hilltop Partners LP 2,539 20,312 -- -- -0- -0- -0-
Alan Hirsch 19,531 31,250 -- -- -0- -0- -0-
Fred Hirt 15,625 25,000 -- -- -0- -0- -0-
Edward S Hochuli 3,906 6,250 -- -- -0- -0- -0-
Susan Hoffman 1,250 -- 1,250 -- -0- -0- -0-
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Annette Holtvogt 7,813 12,500 -- -- -0- -0- -0-
Wilfred Huse & Margaret R. 9,766 15,625 -- -- -0- -0- -0-
Huse J/T
Ingleside Co. 195,313 312,500 -- -- -0- -0- -0-
Andre Iseli 19,531 31,250 -- -- -0- -0- -0-
James Israel 1,000 -- -- -- -0- -0- -0-
Thomas Israel 10,000 -- -- -- -0- -0- -0-
J.F. Shea Co. Inc. 585,938 937,500 -- -- -0- -0- -0-
Ann Street Jackson 39,063 62,500 -- -- -0- -0- -0-
Norman Jacobs 9,766 15,625 -- -- -0- -0- -0-
Robert J. Jahn 9,766 15,625 -- -- -0- -0- -0-
Gad Janay & Marlene Janay 13,906 31,250 -- -- -0- -0- -0-
J/T
Michael Janis & Rosamond 12,906 31,250 -- -- -0- -0- -0-
Janis J/T
Robert G. Jeffers & Theresa 3,086 7,656 -- -- -0- -0- -0-
W. Jeffers J/T
Ramesh Jhunjhnuwala 7,813 12,500 -- -- -0- -0- -0-
Chatri Jhunjhnuwala & 15,625 25,000 -- -- -0- -0- -0-
Lourdes Jhunjhnuwala J/T
Chatri Jhunjhnuwala C/F 8,203 13,125 -- -- -0- -0- -0-
Giselle Jhunjhnuwala UTMA
CA
Chatri Jhunjhnuwala C/F 7,422 11,875 -- -- -0- -0- -0-
Nadia Jhunjhnuwala UTMA
CA
M L P F & S CU FPO 7,329 -- -- -- -0- -0- -0-
Chatri RA FBO Chatri
Jhunjhnuwala
Jo-Bar Enterprises L I C 19,531 31,250 -- -- -0- -0- -0-
L. Wayne Johnson 9,766 15,625 -- -- -0- -0- -0-
John Joos-vandewalle 9,766 15,625 -- -- -0- -0- -0-
Peggy Jordan 58,125 125,000 -- -- -0- -0- -0-
Edward C. Jordan & Carol 7,813 12,500 -- -- -0- -0- -0-
S. Jordan J/T
K & K Development Corp 9,766 15,625 -- -- -0- -0- -0-
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Kabuki Partners Adp Gp 29,688 62,500 -- -- -0- -0- -0-
Robert Kantor 19,531 31,250 -- -- -0- -0- -0-
Fred Kassner 85,255 156,250 -- -- -0- -0- -0-
Patrick N Keating 4,766 15,625 -- -- -0- -0- -0-
David R Kenneth & Joyce A 4,774 11,719 -- -- -0- -0- -0-
Kennett J/T
Lena Khatcherian 532 -- -- -- -0- -0- -0-
Mansour Khayyam & 39,063 62,500 -- -- -0- -0- -0-
Victoria Khayyam J/T
Neekianund Khulpateea 9,766 15,625 -- -- -0- -0- -0-
Robert B Kimball Iiic/o 9,766 15,625 -- -- -0- -0- -0-
Corbin Corp
Bernard Kirsner Tr Bernard 5,866 15,625 -- -- -0- -0- -0-
Kirsner Rev Tr
Christopher Krecke 250 -- 250 -- -0- -0- -0-
Richard Kurtz 39,063 62,500 -- -- -0- -0- -0-
Stephen Labararer 3,437 -- 3,437 -- -0- -0- -0-
Vincent Labararer 11,250 -- 11,250 -- -0- -0- -0-
L.A.D. Equity Partners, L.P. 10,485 -- -- -- -0- -0- -0-
Peter Latour 2,906 6,250 -- -- -0- -0- -0-
Daniel R Lee 78,125 125,000 -- -- -0- -0- -0-
Charles Leithauser 19,531 31,250 -- -- -0- -0- -0-
Craig Leppla 1,406 -- 1,406 -- -0- -0- -0-
Lisa Letteri 8,109 -- 8,109 -- -0- -0- -0-
C. William Liebel & Roberta 3,906 6,250 -- -- -0- -0- -0-
D. Liebel J/T
Chris Loeb 3,906 6,250 -- -- -0- -0- -0-
Charles J. Loegering 39,063 62,500 -- -- -0- -0- -0-
Juan Lopera 1,788 -- 1,788 -- -0- -0- -0-
John Luck 7,871 15,625 -- -- -0- -0- -0-
Michael R. Lyall 5,625 -- 5,625 -- -0- -0- -0-
Jeffrey P. Macnell & Shelly 19,531 31,250 -- -- -0- -0- -0-
A Macnell J/T
Stephen Mallis 4,883 7,813 -- -- -0- -0- -0-
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Gregory Manocherian Tr 11,875 25,000 -- -- -0- -0- -0-
The Family Grandchildren
Trust
Greg Manochorian 3,906 6,250 -- -- -0- -0- -0-
Jed Marcus 3,859 9,375 -- -- -0- -0- -0-
Michael Marianaccio 9,766 15,625 -- -- -0- -0- -0-
Michael J. Marrone 645 -- -- -- -0- -0- -0-
Mario Marsillo 2,133 -- 2,133 -- -0- -0- -0-
Richard R. Martella & 6,766 15,625 -- -- -0- -0- -0-
Jennifer Martella J/T/
John R. Martin & Victoria 9,766 15,625 -- -- -0- -0- -0-
A. Martin J/T
Anthony P. Mazzarella(7) 555,398 33,340 125,000 -- 375,000 -0- -0-
Robert A. Mccleeary 4,774 11,719 -- -- -0- -0- -0-
McGlynn Family Partnership 2,419 -- -- -- -0- -0- -0-
LP
Patricia C. McKeon 645 -- -- -- -0- -0- -0-
Alan Meinershagen 19,531 31,250 -- -- -0- -0- -0-
Herbeart Meislich 19,531 31,250 -- -- -0- -0- -0-
Venugopal K. Menan 9,766 15,625 -- -- -0- -0- -0-
Merrill Lynch Pierce 7,691 61,531 -- -- -0- -0- -0-
Fenner & Smith
Jerry Messana 406 -- 406 -- -0- -0- -0-
Patrick H Miller Jr. & Lee 78,125 125,000 -- -- -0- -0- -0-
M. Miller Incorporated J/T
John E Moravec 3,906 6,250 -- -- -0- -0- -0-
Andrew Morfesis & Gail 19,531 31,250 -- -- -0- -0- -0-
Morfesis J/T
David Morley 3,125 25,000 -- -- -0- -0- -0-
Ronald Moschetta 16,876 -- 16,876 -- -0- -0- -0-
Mulkey II Limited 39,063 62,500 -- -- -0- -0- -0-
Partnership
Robert Nass 1,406 -- 1,406 -- -0- -0- -0-
David R. Nelson & Donna I. 11,719 18,750 -- -- -0- -0- -0-
Nelson J/T
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Chuck Norris 33,269 20,000 -- -- -0- -0- -0-
Allen Notowitz 9,531 31,250 -- -- -0- -0- -0-
Samuel Nussbaum 39,063 62,500 -- -- -0- -0- -0-
David & Robert O'Sullivan 9,766 15,625 -- -- -0- -0- -0-
Tr The Robert A. O'sullivan
Fam/Tr
Robert O'Sullivan 49,937 -- 49,937 -- -0- -0- -0-
David Olson 39,063 62,500 -- -- -0- -0- -0-
Orbis Pension Trustee 390,625 625,000 -- -- -0- -0- -0-
Limited
Fredrick J. Oswald 9,766 15,625 -- -- -0- -0- -0-
Allen Ozdemir 39,063 62,500 -- -- -0- -0- -0-
Larry H. Pallini 15,625 25,000 -- -- -0- -0- -0-
Richard Palmer & Lynne 9,766 15,625 -- -- -0- -0- -0-
Marie Palmer J/T
Peter Palmerie 2,031 -- 2,031 -- -0- -0- -0-
Pamela Equities Corp 11,875 25,000 -- -- -0- -0- -0-
G.A. Partoyan 15,781 31,250 -- -- -0- -0- -0-
Jayakumar Patil & Pumina 78,125 125,000 -- -- -0- -0- -0-
Patil J/T
Carmen Pecord 7,325 11,719 -- -- -0- -0- -0-
John Piccolo 19,531 31,250 -- -- -0- -0- -0-
Anna M. Pocisk 9,766 15,625 -- -- -0- -0- -0-
P. Tony Polyviou 9,766 15,625 -- -- -0- -0- -0-
Barry Porter 8,317 5,000 -- -- -0- -0- -0-
Robert Priddy 9,766 15,625 -- -- -0- -0- -0-
Robert L. Priddy 292,969 468,750 -- -- -0- -0- -0-
Kenneth Puttick 33,269 20,000 -- -- -0- -0- -0-
Eric Rand 18,282 -- 18,282 -- -0- -0- -0-
Lori A. Rausch 19,531 31,250 -- -- -0- -0- -0-
Kurt Reichelt & Laura 9,766 15,625 -- -- -0- -0- -0-
Reichelt J/T
Donald R. Richardson 5,859 9,375 -- -- -0- -0- -0-
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
James H. Rion & Jean R . 5,859 9,375 -- -- -0- -0- -0-
Rion J/T
Lawrence Rooler 9,766 15,625 -- -- -0- -0- -0-
Richard Rogel(5) 110,156 156,250 -- -- 12,500 -0- -0-
Keith Rosenbloom 101,671 9,375 100,499 -- -0- -0- -0-
Lawrence Rosenfield & 9,766 15,625 -- -- -0- -0- -0-
Janet Rosenfield J/T
Edward J. Rosenthal Keogh 3,226 -- -- -- -0- -0- -0-
Brian Ross 4,990 3,000 -- -- -0- -0- -0-
Richard Ross 4,990 3,000 -- -- -0- -0- -0-
Adam Ross & Lisa Falk- 7,813 12,500 -- -- -0- -0- -0-
Ross J/T
Rovest Partners 3,226 -- -- -- -0- -0- -0-
Roybec & Co. 29,297 46,875 -- -- -0- -0- -0-
Roycan & Co. 19,531 31,250 -- -- -0- -0- -0-
Eric Rubenstein 23,924 15,625 14,158 -- -0- -0- -0-
Douglas H. Runckel & 39,063 62,500 -- -- -0- -0- -0-
Evelyn Runckel J/T
Bernard Sadow 19,531 31,250 -- -- -0- -0- -0-
Keyvan Saghafi 3,906 6,250 -- -- -0- -0- -0-
Scott Salkind 19,531 31,250 -- -- -0- -0- -0-
Darren Salzberg 425 -- 425 -- -0- -0- -0-
Stephanie Sanderson 1,563 12,500 -- -- -0- -0- -0-
Avtar Singh Sandhu 6,113 12,500 -- -- -0- -0- -0-
Christopher Binyon Sardfim 19,531 31,250 -- -- -0- -0- -0-
Michael Scalfani 406 -- 406 -- -0- -0- -0-
Monroe H Schenker & 13,672 21,875 -- -- -0- -0- -0-
Barbara P. Schenker J/T
Leonard Schiller(5) 33,281 41,250 -- -- 12,500 -0- -0-
Phillip Schiller 30,547 56,875 -- -- -0- -0- -0-
Suzanne Schiller 9,766 15,625 -- -- -0- -0- -0-
Lance Schiller & 1,953 15,625 -- -- -0- -0- -0-
Sheila Schiller J/T
Edward T. Schneider 39,063 62,500 -- -- -0- -0- -0-
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Schneider 9,766 15,625 -- -- -0- -0- -0-
Thomas Schneider Trustee 39,063 62,500 -- -- -0- -0- -0-
John J. Schob & Jean S 9,766 15,625 -- -- -0- -0- -0-
Schob J/T
William Schoen & Barbara 9,766 15,625 -- -- -0- -0- -0-
Schoen J/T
Rodney Schorlemmer Sep 19,531 31,250 -- -- -0- -0- -0-
IRA
James E. Schriber & Jayne 3,183 7,813 -- -- -0- -0- -0-
Schriber J/T
Charles F.A. Schroeder IRA 15,625 25,000 -- -- -0- -0- -0-
Bear Stearns Sec Corp Cust
Gary D Schultz & Barbara A 30,063 62,500 -- -- -0- -0- -0-
Schultz J/T
Douglas Schwarzwaelder 9,766 15,625 -- -- -0- -0- -0-
Sandesh Seth 2,500 -- 2,500 -- -0- -0- -0-
Angelo M. Sferazza 7,051 11,281 -- -- -0- -0- -0-
Charles Sheaff IRA Bear 9,766 15,625 -- -- -0- -0- -0-
Stearns Sec Corp Cust
Fred B Sheats c/o Agee 12,531 31,250 -- -- -0- -0- -0-
Fisher LLC
Jay Shrager & Carole 19,531 31,250 -- -- -0- -0- -0-
Shrager J/T
Sigler & Co. 29,297 46,875 -- -- -0- -0- -0-
Michael Singer 23,438 62,500 -- -- -0- -0- -0-
Jaswant Singh & Debra 3,906 6,250 -- -- -0- -0- -0-
Pannu J/T
Stephen Skoly, Jr 4,883 7,813 -- -- -0- -0- -0-
Mitchell J. Sleeper 19,531 31,250 -- -- -0- -0- -0-
George L. Smith 39,063 62,500 -- -- -0- -0- -0-
Thomas C. Smith & Liz 10,156 31,250 -- -- -0- -0- -0-
Smith J/T
Lawrence H. Smith & Toni 13,281 31,250 -- -- -0- -0- -0-
Smith J/T
Michael Smooke 8,317 5,000 -- -- -0- -0- -0-
Peter Sola 5,859 15,625 -- -- -0- -0- -0-
</TABLE>
60
<PAGE> 63
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Fred Sommer 1,828 -- 1,828 -- -0- -0- -0-
Lee H. Spence 4,883 7,813 -- -- -0- -0- -0-
David Stein 2,397 -- 2,397 -- -0- -0- -0-
David Stellway 9,766 15,625 -- -- -0- -0- -0-
Theodore Stern & Elizabeth 78,125 125,000 -- -- -0- -0- -0-
S Stern J/T
David Stollwerk & Ida 9,766 15,625 -- -- -0- -0- -0-
Stollwerk J/T
Joel A. Stone 39,063 62,500 -- -- -0- -0- -0-
Louis Sudler 19,531 31,250 -- -- -0- -0- -0-
William G. Sybesma 19,531 31,250 -- -- -0- -0- -0-
Inder Tallur 21,875 -- 21,875 -- -0- -0- -0-
Rick Glenn Tachibana 8,066 15,625 -- -- -0- -0- -0-
Milton A. Teplin 7,531 31,250 -- -- -0- -0- -0-
George L. Thompson 9,766 15,625 -- -- -0- -0- -0-
Walter F. Toumbs 24,063 62,500 -- -- -0- -0- -0-
George Tsamutalis 2,192 -- 2,192 -- -0- -0- -0-
Vladik Vainberg 2,417 -- 2,417 -- -0- -0- -0-
Syd Verbin Tr Syd Verbin 3,906 6,250 -- -- -0- -0- -0-
Trust
Brad Van Siclen 1,250 -- 1,250 -- -0- -0- -0-
Angelo Vivolo 19,531 31,250 -- -- -0- -0- -0-
Kevin J. Voigt & Cindy G. 9,766 15,625 -- -- -0- -0- -0-
Voigt J/T
Byron Voight & Jacelyn K. 19,531 31,250 -- -- -0- -0- -0-
Voight J/T
Michael Volpe 3,437 -- 3,437 -- -0- -0- -0-
Warren Voss & Doris C. 5,859 9,375 -- -- -0- -0- -0-
Voss J/T
James Walker 1,250 -- 1,250 -- -0- -0- -0-
Erich Weidenbewer 5,859 9,375 -- -- -0- -0- -0-
The Wertheimer Partnership 12,531 31,250 -- -- -0- -0- -0-
Joyce N. Westmoreland 19,531 31,250 -- -- -0- -0- -0-
Edward L. Wilson Jr. 12,531 31,250 -- -- -0- -0- -0-
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------
NUMBER NUMBER NUMBER NUMBER
OF OF INITIAL OF NUMBER NUMBER OF
SHARES OF AND PLACEMENT SECURITIES OF SHARES OF INITIAL PLACEMENT
COMMON INVESTOR AGENT AND BEING OF AND AGENTS AND
STOCK WARRANTS ADDITIONAL OFFERED COMMON INVESTOR ADDITIONAL
NAME OF BENEFICIAL OWNER (1)(2) (3) WARRANTS (4) STOCK WARRANTS WARRANTS
<S> <C> <C> <C> <C> <C> <C> <C>
Charles L. Wisseman III 9,766 15,625 -- -- -0- -0- -0-
Charles L. Wisseman III 3,151 25,209 -- -- -0- -0- -0-
FBO Zev Wolfson IRA
Rollover
W.O.W. Associates Limited 5,806 -- -- -- -0- -0- -0-
Partnership
David Wynn 406 -- 406 -- -0- -0- -0-
Joseph P. Wynne 11,250 -- 11,250 -- -0- -0- -0-
WPLS Investments LLC 39,063 62,500 -- -- -0- -0- -0-
John H. Zale 9,766 15,625 -- -- -0- -0- -0-
Kenneth J. Zises 39,063 62,500 -- -- -0- -0- -0-
</TABLE>
(1) Except as otherwise indicated, such beneficial ownership assumes the
exercise of all Warrants and the conversion of the Convertible Preferred
Stock.
(2) All fractional shares upon conversion of the Convertible Preferred Stock
and exercise of the Initial Warrants and the Investor Warrants have been
rounded up to the next whole share.
(3) As a result of the 1 for 8 reverse stock split of the Company's Common
Stock, effective February 12, 1998, the Initial Warrants and Investor
Warrants were adjusted such that each Initial Warrant and each Investor
Warrant is exercisable for .125 share of Common Stock at the exercise
price of $3.20 per share (i.e., 8 Initial Warrants or 8 Investor Warrants
are exercisable for one share of Common Stock at the exercise price of
$3.20 per share).
(4) All Securities listed in this table will be offered unless otherwise
indicated.
(5) Messrs. Blue, Geller, Rogel and Schiller are directors of the Company.
(6) Commonwealth Associates acted as placement agent in connection with the
issuance of the Convertible Preferred Stock and the Initial Warrants.
(7) Mr. Mazzarella is the Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and a director of the Company.
62
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Generally, under Rule 144, each person holding restricted securities of
a period of one year may, every three months, sell in ordinary brokerage
transactions or to market makers an amount of shares equal to no more than the
greater of 1% of the Company's then outstanding Common Stock or the average
weekly trading volume for the four weeks prior to the proposed sale. This
limitation on the amount of shares which may be sold under the Rule 144 does not
apply to restricted securities sold for the account of a person who is not or
has not been an affiliate of the Company during the three months prior to the
sale and who has beneficially owned the restricted securities for at least two
years. Any sales of restricted securities must be in compliance with Rule 144,
pursuant to registration under the Securities Act or pursuant to an exemption
therefrom. The public sale of restricted securities pursuant to Rule 144, an
effective registration statement, or otherwise, may have an adverse affect on
the market price of the Common Stock.
Of the approximately 17,546,759 shares of Common Stock estimated to be
outstanding (on a fully diluted basis including shares issuable upon the
exercise of outstanding Warrants and upon conversion of the Convertible
Preferred Stock), approximately 10,036,697 shares (including for this purpose an
estimated 3,469,500 shares of Common Stock issuable upon the exercise of the
Warrants and 6,250,005 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock) will have been registered under the Securities Act
and/or otherwise freely tradeable, subject to the lock-up agreement among the
investors in the December 1997 private placement and Commonwealth Associates,
the placement agent (the "Shareholders Lock-up Agreement"), and approximately
2,064,758 shares are saleable subject to compliance with the requirement of Rule
144 except for the holding period. Approximately 5,445,304 shares of Common
Stock will be tradeable, subject to the one-year holding period restrictions
under, and compliance with the other requirements of Rule 144 discussed above.
The Shareholders Lock-up Agreement provides that, notwithstanding any
registration statement covering the resale of the Convertible Preferred Stock,
Initial Warrants and the Common Stock underlying the Convertible Preferred Stock
and the Initial Warrants, the investors are prohibited from selling their
Initial Warrants or their Common Stock underlying the Convertible Preferred
Stock and the Initial Warrants until December 19, 1998. However, Commonwealth
Associates may consent to the release of the foregoing transfer restrictions at
any time after July 19, 1998 for all, but not less than all, of the investors.
In addition, Messrs. Cromer, Pickering, Richard Rosenblatt and Martin
Rosenblatt, holding in the aggregate 4,669,167 shares of Common Stock, have
entered into lock-up agreements with Commonwealth Associates, which provide
that, absent the consent of Commonwealth Associates, they will be prohibited
from selling their Common Stock until December 19, 1998.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Loeb & Loeb LLP, Los Angeles, California.
EXPERTS
The financial statements of the Company at December 31, 1997 and for the
years ended December 31, 1997 and 1996, included in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon authority of said firm as experts in giving
said reports.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On December 10, 1996, the Company engaged Arthur Andersen, LLP as its
independent public accountants. The Company had no disagreements with its prior
independent auditor, Crouch, Bierwolf & Chisholm. See the Company's Report on
Form 8-K filed with the Commission on June 20, 1997.
63
<PAGE> 66
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a registration statement ("Registration Statement"),
together with exhibits thereto, under the Securities Act with respect to the
Securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, omits certain of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is made to such Registration Statement and
such exhibits filed as a part thereof. Statements contained in this Prospectus
as to the content of any contract or other document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits can be inspected and copied
at the public reference section at the Commission's principal office, 450 5th
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, the Commission's Regional
Offices located at the Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New
York, New York 10048 and through the Commission's Web site (http://www.sec.gov).
Copies may be obtained from the Commission's principal office upon payment of
the fees prescribed by the Commission.
64
<PAGE> 67
IMALL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Number
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1997 AND FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
Report of Independent Public Accountants -
Arthur Andersen LLP.........................................................................F-2
Consolidated Balance Sheet -
December 31, 1997 ..........................................................................F-3
Consolidated Statements of Operations -
Years Ended December 31, 1997 and 1996......................................................F-5
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1997 and 1996......................................................F-6
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997 and 1996......................................................F-7
Notes to Consolidated Financial Statements...................................................F-10
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997.......................................................F-20
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and 1997.................................................F-21
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997.................................................F-22
Notes to Condensed Consolidated Financial Statements.........................................F-23
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the stockholders of iMALL, Inc.:
We have audited the accompanying consolidated balance sheet of iMALL, Inc., a
Nevada corporation, and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 iMALL, Inc. and subsidiaries as
of December 31, 1997, and the results of their operations and their cash flows
for the years ended December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1998
F-2
<PAGE> 69
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
------------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 5,536,978
Short-term investments 10,000,600
Accounts receivable, net of allowance for
doubtful accounts of $ 60,000 137,690
Inventory 144,945
Prepaid expenses 69,220
Income tax receivable 166,231
Other current assets 109,105
-----------
Total current assets 16,164,769
-----------
PROPERTY AND EQUIPMENT:
Computer equipment and software 600,726
Office equipment 236,179
Furniture and fixtures 142,977
Leased office equipment 111,490
Leasehold improvements 55,381
-----------
1,146,753
Less accumulated depreciation
and amortization (536,276)
-----------
Net property and equipment 610,477
-----------
OTHER ASSETS:
Intangibles, net of accumulated amortization
of $252,948 259,015
Deposits 21,411
-----------
280,426
-----------
$17,055,672
===========
</TABLE>
The accompanying notes are an integral
part of this consolidated balance sheet.
F-3
<PAGE> 70
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997
------------
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ 1,060,799
Accrued expenses 553,837
Deferred revenues 392,778
Notes payable to related parties 662,420
Current portion of capitalized lease obligations 20,835
-----------
Total current liabilities 2,690,669
-----------
CAPITALIZED LEASE OBLIGATIONS, net of current portion 10,788
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, at liquidation value of $4 per
share; 10,000,000 shares authorized, 5,000,000
shares issued and outstanding 19,355,788
Common stock, par value $.008; 37,500,000 shares
authorized, 7,651,810 shares issued and outstanding 62,114
Retained deficit (4,658,687)
Less common stock held in treasury, at cost (405,000)
-----------
Total stockholders' equity 14,354,215
-----------
$17,055,672
===========
</TABLE>
The accompanying notes are an integral part
of this consolidated balance sheet.
F-4
<PAGE> 71
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NET REVENUES $16,776,661 $16,046,933
COST OF REVENUES 5,026,265 5,464,443
----------- -----------
Gross profit 11,750,396 10,582,490
----------- -----------
SELLING EXPENSES 8,790,739 3,129,012
GENERAL AND ADMINISTRATIVE EXPENSES 7,742,165 7,480,688
----------- -----------
Loss from operations (4,782,508) (27,210)
----------- -----------
OTHER INCOME:
Other income 139,729 133,308
Interest expense, net (76,741) (3,352)
----------- -----------
Net other income 62,988 129,956
----------- -----------
(Loss) income before provision for
income taxes (4,719,520) 102,746
BENEFIT (PROVISION) FOR INCOME TAXES 16,546 (37,928)
----------- -----------
NET (LOSS) INCOME $(4,702,974) $ 64,818
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE
- BASIC AND DILUTED $ (.64) $ .01
=========== ===========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 7,526,967 7,252,584
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
F-5
<PAGE> 72
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Retained
Common Stock Preferred Stock Paid-in Treasury Earnings
Shares Amount Shares Amount Capital Shares (Deficit)
---------- ------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 1,743 $ 14 -- $ -- $ 264,798 $ -- $ (20,531)
Adjustments due to
fractional shares
in stock split 175 -- -- -- -- -- --
Reverse acquisition
for accounting
purposes of Madison,
York & Associates,
Inc 4,804,960 38,440 -- -- (40,786) -- --
Shares issued for
acquisition of Cabot,
Richards & Reed, Inc. 1,400,000 11,200 -- -- (131,216) -- --
Shares issued for
acquisition of
R&R Advertising, Inc. 600,000 4,800 -- -- 283,000 -- --
Shares issued for
services 351,125 2,809 -- -- 59,550 -- --
Shares issued for
acquisition of
Physicomp, Inc.
(EmaNate, Inc.) 200,000 1,600 -- -- 158,400 -- --
Shares issued for
acquisition of
Interactive
Marketing
Group, Inc. 52,563 421 -- -- 41,629 -- --
Distribution of
S-Corporation
earnings to
stockholders -- -- -- -- (25,000) -- --
Net income -- -- -- -- 64,818
---------- ------- --------- ----------- ----------- --------- -----------
Balance,
December 31, 1996 7,410,566 59,284 -- -- 610,375 -- 44,287
Common shares issued
in private placements 316,923 2,535 -- -- 1,027,465 -- --
Common shares issued
for services 36,821 295 -- -- 165,400 -- --
Preferred shares issued
in private placement,
net of issuance costs -- -- 4,893,750 18,930,788 (1,803,240) -- --
Preferred shares issued
in private placement
to retire debt -- -- 106,250 425,000 -- -- --
Treasury shares
repurchased (112,500) -- -- -- -- (405,000) --
Net loss -- -- -- -- -- -- (4,702,974)
---------- ------- --------- ----------- ----------- --------- -----------
Balance,
December 31, 1997 7,651,810 $62,114 5,000,000 $19,355,788 $ -- $(405,000) $(4,658,687)
========== ======= ========= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
F-6
<PAGE> 73
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $(4,702,974) $ 64,818
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 496,197 306,480
Noncash expense related to issuance of
shares of common stock for services 361,441 62,359
Loss on disposal of property and equipment 1,237 8,662
Loss on disposal of obsolete inventory 69,810 11,573
Provision for doubtful accounts 285,303 80,315
Change in assets and liabilities
Accounts receivable (257,955) 5,292
Income tax receivable 110,709 (276,940)
Inventory (159,478) 24,013
Prepaid expenses 60,738 30,904
Other current assets 82,895 8,000
Deferred income tax asset 163,715 (163,715)
Deposits 1,415 500
Accounts payable 393,373 371,799
Accrued expenses (38,409) 261,717
Income tax payable -- 41,068
Deferred revenues 56,603 311,003
----------- ----------
Net cash (used in) provided by
operating activities $(3,075,380) $1,147,848
----------- ----------
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
F-7
<PAGE> 74
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C>
Cash received through acquisitions $ -- $ 110,350
Purchase of short-term investments (10,000,600) --
Purchase of property and equipment (110,328) (860,639)
Proceeds from sale of equipment -- 6,304
Increase in intangibles (44,932) --
Increase in notes receivable -- (250,000)
Principal payments received on notes
receivable from related parties 85,521 (85,521)
------------ -----------
Net cash used in investing
activities (10,070,339) (1,079,506)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution of S Corporation retained
earnings -- (25,000)
Proceeds from issuance of shares of
common stock 1,030,000 --
Proceeds from issuance of shares of
preferred stock 17,552,549
Purchase of treasury stock (405,000)
Borrowings from related parties 1,552,420 --
Principal payments on notes payable to
related parties (1,035,082) (18,000)
Principal payments on capitalized lease
obligations (39,954) (26,774)
Principal payments on notes payable (12,500) --
------------ -----------
Net cash provided by (used in)
financing activities 18,642,433 (69,774)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,496,714 (1,432)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,264 41,696
------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,536,978 $ 40,264
============ ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
F-8
<PAGE> 75
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C>
Cash paid for interest $ 74,886 $ 11,467
Cash paid for income taxes $ 37,479 $437,516
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING TRANSACTIONS:
Conversion of bridge loans to
preferred stock $425,000 $ --
</TABLE>
During 1996, the Company exchanged capital stock for all issued and outstanding
capital stock of Cabot, Richards & Reed, Inc. ("Cabot), R&R Advertising, Inc.
("R&R"), Physicomp, Inc. ("Physicomp"), and Interactive Marketing Group, Inc.
("IMG") (see Note 7). In conjunction with these acquisitions, the assets and
liabilities acquired and assumed were as follows:
<TABLE>
<CAPTION>
Physicomp R&R Cabot IMG
--------- --------- --------- --------
Fair value of non-cash
<S> <C> <C> <C> <C>
assets acquired $ 159,323 $ 304,198 $ 280,196 $ 58,766
Cash acquired 31,963 115,863 (40,170) 2,694
Liabilities assumed (255,793) (132,261) (360,042) --
Goodwill 224,507 -- -- (19,410)
--------- --------- --------- --------
Equity recorded $ 160,000 $ 287,800 $(120,016) $ 42,050
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral
part of these consolidated statements.
F-9
<PAGE> 76
iMALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements presented are those of iMALL, Inc. (a
Nevada corporation) and its wholly owned subsidiaries (collectively, the
"Company"). On January 16, 1996, iMALL, Inc., which had been the surviving
company in a change of domicile merger with Natures Gift, Inc. (an inactive
corporation) on January 8, 1996, engaged in a share exchange with Madison, York
& Associates, Inc. ("Madison"). The share exchange with Madison, a Utah
corporation, was accounted for as a reverse acquisition.
The Company's primary businesses are operating an electronic shopping mall on
the internet known as the "iMALL" and providing internet training to businesses
and individuals. The Company's headquarters are located in Studio City,
California with additional offices in Provo, Utah. The training is conducted at
sites across the United States.
(2) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
iMALL, Inc., iMALL Services, Inc., iMALL Consulting, Inc., R&R, Cabot, EmaNate
and IMG. All material intercompany transactions and accounts have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
less than three months to be cash equivalents. The carrying value of cash
equivalents approximates fair value. The Company invests in highly qualified
financial institutions. At times, such investments may be in excess of insured
limits. At December 31, 1997, approximately $491,000 of cash was held as
reserves for credit card transactions. The holders released approximately
$425,000 subsequent to year-end and the remaining balance is expected to be
received in the first half of 1998.
Short-term Investments
Short-term investments have an original maturity of three months or more and a
remaining maturity of less than one year. These investments are stated at cost
as it is the intent of the Company to hold these securities until maturity. The
funds invested are diversified in high grade commercial paper.
F-10
<PAGE> 77
- 2 -
Inventory
Inventory consists of training literature, which are materials used in
conjunction with workshop presentations and home study courses. Inventory is
stated at the lower of cost (using the first-in, first-out method) or market
value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets. The
estimated useful lives of fixed assets are as follows:
Caption Useful Life
------- -----------
Computer equipment and software 3 years
Office Equipment 3 years
Leased office equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements lesser of 10 years or
the life of the lease
Major renewals and betterments are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred.
Intangibles
Organization costs have been capitalized and are being amortized over a
five-year period.
The Company capitalizes internally developed software in accordance with SFAS
No. 86 and is amortizing the amounts over a two-year period. In March 1998, the
Accounting Standards Executive Committee issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires adoption of its provisions for fiscal years
beginning after December 15, 1998. The provisions require the capitalization of
certain costs related to the development of software for internal use. The
Company does not believe the effect of adoption will be material.
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, is stated at cost and is
amortized on a straight-line basis over five years. Amortization of $51,987 and
$27,214 was charged to expense for the years ended December 31, 1997 and 1996,
respectively.
Impairment of Long-Lived Assets
Under the provisions of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.
F-11
<PAGE> 78
- 3 -
The Company evaluates the recoverability of long-lived assets not held for sale
by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time, such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are sufficient to recover the carrying value of such assets.
Income Taxes
The Company recognizes a liability or asset for the deferred tax consequences of
temporary differences between the tax bases of assets or liabilities and their
reported amounts in the financial statements. These temporary differences will
result in taxable or deductible amounts in future years when the reported
amounts of the assets or liabilities are recovered or settled.
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 could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year's presentation.
Recognition of Revenues
The Company generates revenue from its training and internet commerce
businesses. The major sources of revenue and the timing of revenue recognition
are set forth below:
Internet training workshop revenues - The Company presents training
workshops to businesses and individuals introducing them to the Internet
and the iMALL, a shopping mall on the Internet. The attendees pay a fee
for the workshop in advance. Recognition of revenue occurs at the
completion of the workshop. Any cash received in advance of the
completion of the workshop is accounted for as deferred revenue.
Home study revenues - The Company offers home study courses on the same
material discussed in its Internet workshops. The customer pays the home
study fee before receiving the materials. Recognition of the revenue
occurs when an order is shipped.
Maintenance fee revenues - The Company maintains web sites on an annual
basis for customers for a fee. The fee may be prepaid in full or paid
monthly by the customer. Recognition of revenue occurs as payments are
received if the fee is collected monthly. Revenue is recognized on a
straight-line basis over 12 months if the annual fee is prepaid. Cash
received but not yet recognized under maintenance agreements totaled
$392,778 as of December 31, 1997 and is included in deferred revenues in
the accompanying consolidated balance sheet.
F-12
<PAGE> 79
- 4 -
Web site design revenues - The Company designs and upgrades web sites for
customers. The customer is provided with bids on the design and approves
the design prior to the Company beginning the work. Recognition of the
revenue occurs when the design work is completed.
Commissions from sales on the iMALL - The Company participates in the
commerce generated by the businesses on the iMALL. A percentage of
certain revenue generated is recognized as commissions when the sale is
made to the buyer. In 1997, this revenue represented less than one
percent of the Company's total revenues.
Advertising revenues - Advertising revenues on banner contracts are
recognized ratably over the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of minimum number of "impressions," or times
that an advertisement appears in pages viewed by users of the Company's
online properties. The Company defers recognition of the corresponding
revenues until the remaining guaranteed impression levels are achieved.
For 1997, this revenue represented less than one percent of the Company's
total revenues.
(3) CAPITALIZED LEASE OBLIGATIONS
Certain equipment is leased under capitalized lease obligations. The following
is a summary of assets held under capital lease agreements as of December 31,
1997:
<TABLE>
<S> <C>
Equipment $111,490
Less accumulated amortization (61,734)
--------
$ 49,756
========
</TABLE>
The following is a schedule of future minimum lease payments under capitalized
lease obligations together with the present value of the minimum lease payments
at December 31, 1997:
<TABLE>
<CAPTION>
Years Ending December 31,
<S> <C>
1998 $ 23,115
1999 11,224
--------
Total minimum lease payments 34,339
Less amount representing interest (2,716)
--------
Present value of minimum lease payments 31,623
Less current portion (20,835)
--------
$ 10,788
========
</TABLE>
(4) NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties at December 31, 1997 represented $662,420 of
various demand notes to shareholders, bearing interest from 10 to 12 percent.
All of these notes were repaid in January and February 1998.
F-13
<PAGE> 80
- 5 -
(5) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain facilities used in its operations. The approximate
aggregate commitments under noncancellable operating leases in effect at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $181,000
1999 79,000
2000 79,000
--------
$339,000
========
</TABLE>
The Company incurred rent expense of approximately $393,000 and $301,000 in
connection with operating leases during 1997 and 1996, respectively.
Employment Agreements
The Company has various employment agreements with officers, some of which
include bonuses, stock options, and participation in the net profit of the
Company.
Legal Matters
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with legal counsel, is of the
opinion that liabilities, if any, resulting from these matters will not have a
material effect on the Company's results of operations or financial position
except for a lawsuit with a probable loss of $25,000. The probable loss has
been included in accrued expenses in the accompanying consolidated balance
sheet.
Strategic Alliances
The Company is a participant in several strategic alliances. To date, none of
these alliances have required any significant capital or cash expenditures by
the Company with the exception of the Company's alliance with National Media
Corporation and its affiliate Positive Response Television (collectively,
"PRTV"). In connection with this alliance, the Company is required to reimburse
PRTV for certain media costs. As of December 31, 1997, PRTV had expended $38,667
in reimbursable media costs. This reimbursable amount is included in cost of
revenues in the accompanying consolidated income statement.
F-14
<PAGE> 81
- 6 -
(6) INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Period Ended December 31,
1997 1996
--------- ---------
Current (Benefit) Provision:
<S> <C> <C>
Federal $(151,419) $ 160,575
State (28,842) 41,068
--------- ---------
(180,261) 201,643
--------- ---------
Deferred Provision (Benefit):
Federal 132,610 (132,610)
State 31,105 (31,105)
--------- ---------
163,715 (163,715)
--------- ---------
(Benefit) provision for income
taxes $ (16,546) $ 37,928
========= =========
</TABLE>
The differences between the effective income tax rate and the Federal statutory
income tax rate consist of the following:
<TABLE>
<CAPTION>
Period Ended December 31,
1997 1996
----------- --------
<S> <C> <C>
Provision at the federal statutory
rate of 34 percent $(1,604,637) $ 34,933
State income taxes, net of federal benefit (283,171) 5,425
Nondeductible items for tax purposes -- 13,218
Change in valuation allowance 1,871,262 (6,980)
Other -- (8,668)
----------- --------
Total (benefit) provision for income
taxes $ (16,546) $ 37,928
=========== ========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $4,000,000 available to reduce future taxable income. All deferred
tax assets, primarily related to net operating loss carryforwards and deferred
revenue, have all been reserved for through use of a valuation reserve.
(7) CAPITAL STOCK
Stock Transactions
On January 8, 1996, the Company effected a reverse split of 1 for 19 shares. On
May 22, 1996, the Company effected a stock split of 4 for 1. On February 12,
1998 the Company effected a reverse split of 1 for 8 shares. All share and per
share amounts have been retroactively restated to reflect the stock splits.
In 1996, the Company increased its authorized common stock to 37,500,000
shares with a par value of $.008.
F-15
<PAGE> 82
- 7 -
In January 1996, the Company issued 600,000 common shares to R&R Advertising
(R&R) for all of its outstanding stock. R&R's net book value of $287,800 was
recorded as the value of the acquisition. On January 16, 1996, 1,400,000 common
shares were issued for all of Cabot, Richards & Reed, Inc.'s (Cabot) outstanding
stock. On January 16, 1996, 4,804,960 shares were issued to Madison (See Note 1)
for all of its outstanding stock. The net book value of Madison of $244,281 was
recorded as the value of this acquisition (reverse merger). The Company issued
350,000 shares to an investment banking firm for services valued at $28,000
which were rendered in connection with the transaction. R&R and Cabot were in
the training, advertising and Internet businesses.
In April 1996, the Company acquired EmaNate, a company specializing in
information systems, Internet consulting and front-page creations for web sites
on the Internet, in a business combination accounted for as a purchase. The
results of operations of EmaNate are included in the accompanying financial
statements since the date of acquisition. The Company issued 200,000 shares of
common stock for all of the outstanding stock of EmaNate. The acquisition
resulted in goodwill of $224,507. The Company is amortizing the resulting
goodwill over a five-year period.
In March 1996, the Company acquired Interactive Marketing Group, Inc. ("IMG"), a
company specializing in yellow-page advertising on the Internet, in a business
combination accounted for as a purchase. The results of operations of IMG are
included in the accompanying financial statements since the date of acquisition.
The Company issued 204,350 shares of common stock (of which 151,788 shares are
being held in escrow contingent on specified events occurring in the future) for
all of the outstanding stock of IMG. In December 1996, the Company canceled the
151,788 shares held in escrow as the specified events did not occur.
In August 1997, the Company issued 36,821 unregistered shares of common stock to
individuals who provided speaking services to the Company in 1997. The Company
recorded compensation expense of $165,695 related to this stock issuance.
In October 1997, the Company completed the issuance of common stock to qualified
investors in a private placement. At December 31, 1997, 316,923 shares were
issued at a price per share of $3.25. The Company received net proceeds of
$1,030,000. In December 1997, the Company also issued these investors 205,990
warrants with the same terms as the warrants in the private placement of
Preferred Stock discussed below. The common shares and warrants issued are not
registered.
In October 1997, the Company purchased 112,500 shares of common stock from
certain shareholders at a price of $3.60 per share.
In November 1997, the Company received $500,000 in financing from four
individuals in the form of notes bearing 10 percent interest. The notes were
convertible into 9 percent Convertible Preferred A Shares (Preferred Stock) in
increments of $25,000. In December 1997, $425,000 of principal was converted
into 106,250 shares of preferred stock and warrants under the terms of the
private placement discussed below. The remaining balance of the notes and
interest was paid in cash in December 1997.
F-16
<PAGE> 83
- 8 -
In December 1997, the Company completed the issuance of Preferred Stock and
warrants to purchase common stock to qualified investors in a private placement.
At December 31, 1997, 5,000,000 shares of preferred stock were issued at a price
per share of $4 and a total of 12,755,990 warrants were issued. The Company
received net proceeds (after deducting issuance costs) of $17,552,548. Each
share of preferred stock has a liquidation value of $4 and earns 9 percent
cumulative dividends, payable semi-annually in cash or preferred shares at the
discretion of management, and can be converted at any time into 1.25 shares of
common stock. Each warrant may be exercised for .125 common shares, subject to
certain anti-dilution provisions, at a price of $3.20 per share, beginning
December 19, 1998 and extending for a period of four years. All investors in the
private placement agreed to a one-year lock-up of the preferred shares, the
warrants, and the common shares issuable upon the conversion of preferred shares
or exercise of the warrants. Preferred and common shares vote as one class, and
each preferred share is entitled to 1.25 votes while each common share is
entitled to one vote. The common shares, preferred shares, and warrants issued
in this offering were not registered. The Company is required to use best
efforts to register the warrants and all common shares issuable upon the
conversion of the preferred shares or exercise of warrants within seven months
of the final closing date of December 19, 1997.
As additional compensation for completion of the private placement, the Company
issued 1,500,000 warrants to the placement agent and 375,000 warrants to their
financial advisors. Each warrant may be exercised for one common share, subject
to certain anti-dilution provisions, at a price of $3.20 per share from
December 15, 1997 to December 5, 2002.
In December 1997, the Company agreed to issue 61,555 shares of common stock to
individuals who provided speaking services to the Company in 1997. The Company
recorded compensation expense of $195,746 and an accrued expense related to
these agreements.
(8) STOCK OPTIONS
The Company has granted incentive stock options and nonqualified stock options
to officers, directors and key employees under a stock compensation plan at
prices not less than fair market value on the date of grant. The incentive and
nonqualified stock options become exercisable between one and four years from
the grant date. The incentive stock options have a maximum term of ten years
from the date of grant, or five years if the employee is a ten-percent
stockholder. The nonqualified stock options have a maximum term of ten years and
one day from the date of grant.
F-17
<PAGE> 84
- 9 -
A summary of the status of the Company's stock option plan and changes in
outstanding options is presented below:
<TABLE>
<CAPTION>
Weighted-
Shares Average
Under Exercise
Option Price
<S> <C> <C>
Options outstanding at
December 31, 1996 -- $ --
Options granted 954,970 4.81
Options exercised -- --
Options canceled -- --
-------
Options outstanding at
December 31, 1997 954,970 $4.81
=======
Options exercisable at
December 31, 1997 153,014 $4.22
=======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price at 12/31/97 Life at 12/31/97
- -------- ----------- --------- -----------
<C> <C> <C> <C>
$4.00 375,000 10 125,000
$5.20 482,765 5 28,014
$6.00 97,205 5 --
------- -------
954,970 153,014
</TABLE>
In accordance with the terms of APB No. 25, the Company records no compensation
expense for its stock option awards. As required by SFAS No. 123, the Company
provides the following disclosure of hypothetical values for these awards. The
weighted-average grant-date fair value of options granted during 1997 was
estimated to be $3.44. The value was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for 1997:
risk-free interest rate of 5.79 percent; expected life of 3.5 years; expected
volatility of 134 percent; and no expected dividends. Had compensation expense
been recorded based on these hypothetical values, the Company's net loss for
December 31, 1997 would have been $5,208,696 or $.69 per share. Because options
vest over several years and additional option grants are expected, the effects
of these hypothetical calculations are not likely to be representative of
similar future calculations.
There are no shares available for future grants of stock options.
F-18
<PAGE> 85
- 10 -
RELATED-PARTY TRANSACTIONS
The Company pays certain related parties for advertising, rent and computer
graphic design. Sierra Advertising received $1,794,237 in 1997 and $2,116,607 in
1996 for advertising expenses, all of which is distributed directly for
advertising costs, and is owned by officers of the Company. The purpose for the
existence of Sierra Advertising is to pass through certain costs of advertising
at reduced rates. The Company believes that funds paid to Sierra Advertising are
used by Sierra Advertising for the purchase of air time for advertising.
The share exchanges described in footnote 7, involved certain executive officers
of the Company.
The Company's offices located in Provo, Utah are leased from RDR Properties for
$12,108 per month, which lease expires in March 1999. Two officers/directors
each own 33.33 percent of RDR Properties.
The Company retained Geller & Friend Capital Partners, Inc. ("Geller & Friend"),
a merchant banking firm, in August 1997 to assist in arranging equity financing.
Geller & Friend earned a fee of $150,000 and was granted 375,000 warrants in
connection with its role in the private placement completed in December 1997. Of
the $150,000 fee, Geller & Friend was paid $50,000 in 1997, and will be paid the
remaining $100,000 in equal quarterly installments during 1998. Marshall Geller,
chairman and chief executive officer of Geller & Friend, became a director of
the Company in January 1998. Also in January 1998, the Company employed Anthony
Mazzarella, formerly managing director of Geller & Friend, as its Executive Vice
President and Chief Financial Officer. Mr. Mazzarella is also a director of the
Company.
(10) EARNINGS PER SHARE
Earnings per share amounts have been reflected in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Earnings per share
are computed as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net (loss) income $(4,702,974) $ 64,818
Add preferred stock dividends (96,067) --
----------- ----------
Net (loss) income available for
common stock $(4,799,041) $ 64,818
=========== ==========
Weighted-average common stock
outstanding 7,526,967 7,252,584
=========== ==========
Basic and diluted loss per share $ (.64) $ .01
=========== ==========
</TABLE>
The earnings per share computation for 1997 excludes 954,970 shares for stock
options/compensation plans, 6.25 million shares for convertible securities, and
warrants convertible into 3.5 million shares of common stock because their
effect would have been antidilutive. There were no common stock equivalents in
existence during 1996.
F-19
<PAGE> 86
6
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,997,864 $ 5,536,978
Short term investments 5,000,300 10,000,600
Accounts receivable, net 79,143 137,690
Inventory 120,073 144,945
Prepaid expenses 146,535 69,220
Income tax receivable 162,696 166,231
Other current assets 109,105 109,105
----------- -----------
Total Current Assets 13,615,716 16,164,769
----------- -----------
Property and Equipment, Net 1,441,931 610,477
----------- -----------
Other Assets:
Intangible assets, net 246,607 259,015
Deposits and other 21,671 21,411
----------- -----------
Total Other Assets 268,278 280,426
----------- -----------
Total Assets $15,325,925 $17,055,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,124,406 $ 1,060,799
Accrued expenses and other current liabilities 475,937 553,837
Deferred revenues 402,741 392,778
Notes payable to related parties -- 662,420
Current portion of capitalized lease obligations 12,637 20,835
----------- -----------
Total Current Liabilities 2,015,721 2,690,669
----------- -----------
Capitalized Lease Obligations, net of current portion 6,515 10,788
----------- -----------
Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, liquidation value of $20,000,000;
10,000,000 shares authorized, 5,000,000 shares
issued and outstanding at March 31, 1998 and
December 31, 1997 respectively 19,524,452 19,355,788
Common stock, par value $.008; 37,500,000 shares
authorized, 7,713,366 and 7,651,810 shares issued
and outstanding at March 31, 1998 and
December 31, 1997 respectively 62,606 62,114
Accumulated deficit (5,878,369) (4,658,687)
Common stock held in treasury, at cost (405,000) (405,000)
----------- -----------
Total Stockholders' Equity 13,303,689 14,354,215
----------- -----------
Total Liabilities and Stockholders' Equity $15,325,925 $17,055,672
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 87
7
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES $ 3,472,299 $4,078,434
COST OF REVENUES 1,031,397 1,254,181
----------- ----------
GROSS MARGINS 2,440,902 2,824,253
SELLING EXPENSES 1,966,025 1,304,770
GENERAL AND ADMINISTRATIVE EXPENSES 1,755,291 2,207,598
----------- ----------
Operating Loss (1,280,414) (688,115)
----------- ----------
OTHER INCOME AND EXPENSES:
Other Income, net -- 17,608
Interest Income (Expense), net 60,732 (11,699)
----------- ----------
Total Other Income, net 60,732 5,909
----------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (1,219,682) (682,206)
PROVISION FOR INCOME TAXES -- --
----------- ----------
NET LOSS (1,219,682) (682,206)
=========== ==========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.22) $ (0.09)
=========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,652,494 7,410,566
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 88
8
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,219,682) $(682,206)
Adjustments to reconcile net
loss to net cash used in operating activities
Depreciation and amortization 147,543 131,131
Provision for losses on accounts receivable -- 8,288
Loss on sale of furniture, fixtures and equipment -- 1,236
Changes in assets and liabilities, net of
Effects from purchase of subsidiaries:
(Increase) decrease in:
Accounts receivable 58,547 (100,537)
Related-party receivable -- 85,521
Employee receivable -- 14,536
Prepaid expenses (77,316) (108,891)
Income tax receivable 3,535 --
Inventory 24,872 (53,571)
Deposits (260) (5,505)
Increase (decrease) in:
Accounts payable 63,607 159,656
Accrued liabilities 117,846 276,206
Accrued interest payable to related party -- 14,750
Income tax payable -- (41,068)
Deferred revenues 9,963 62,377
----------- ---------
Net Cash Used in Operating Activities (871,345) (238,077)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash collections on notes receivable -- 24,500
Purchase of property and equipment (931,718) (17,266)
Increase in intangible assets (34,869) --
Proceeds from sales and maturity of investments in
marketable securities 5,000,300 --
----------- ---------
Net Cash Provided by Investing Activities 4,033,713 7,234
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholder -- 500,000
Financing cost related to private placement of
preferred stock (26,591) --
Principal payments on notes payable (662,420) (12,500)
Principal payments on obligations under capital leases (12,471) (9,632)
----------- ---------
Net Cash (Used in) Provided by Financing Activities (701,482) 477,868
----------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 2,460,886 247,025
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,536,978 40,264
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,997,864 $ 287,289
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,838 $ 17,342
=========== =========
Income taxes paid $ 2,572 $ 4,639
=========== =========
</TABLE>
See notes to condensed consolidated financial statements
F-22
<PAGE> 89
9
IMALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Condensed Consolidated Financial Statements.
The accompanying condensed consolidated financial statements have been prepared
by the Company and have not been audited. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows as of the
dates and for the periods presented herein have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10K-SB.
The results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the operating results for the year ended December 31,
1998. The accounting policies followed by the Company are set forth in the notes
to the Company's consolidated financial statements in its Form 10K-SB.
(2) Net Income (Loss) Per Common Share.
Net income (loss) per common share is based on the weighted average number of
common shares outstanding for each period reported. In February 1997, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). This statement
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for financial statements issued for all periods
ending after December 15, 1997. SFAS No. 128 simplifies the standards for
computing EPS in comparison to APB Opinion No. 15 and replaces the presentations
of Primary EPS and Fully Diluted EPS with a presentation of Basic EPS and
Diluted EPS. In preparing the calculation of earnings per share, the net loss
was increased by $450,000 to $1,670,000 or $0.22 per common share due to the
effect of cumulative preferred stock dividends that were not declared in the
first quarter of 1998. The earnings per share computation for the 1998 period
excludes 1.6 million shares for stock options/compensation plans, 6.25 million
shares for convertible securities, and warrants convertible into 3.5 million
shares of common stock because their effect would have been antidilutive. There
were no common stock equivalents in existence during the first quarter of 1997.
Share and per share data presented reflect a one for eight reverse stock split
effective February 12, 1998.
(3) Recent Accounting Pronouncements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income and its components
in a financial statement. Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include foreign currency translation adjustment and unrealized gain/loss on
available for sale securities. The Company had no income that would fall under
the comprehensive income rules in the 1998 or 1997 periods.
F-23
<PAGE> 90
10
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
believes that its operations do not include multiple segments and therefore no
disclosures are necessary at this time. The disclosures prescribed by SFAS 131
are effective for fiscal years beginning after December 15, 1997.
F-24
<PAGE> 91
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made by this Prospectus. If given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to, or
solicitation of, anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary........................................................................
Risk Factors..............................................................................
Use of Proceeds...........................................................................
Market Price for the Common Stock..........................................................
Capitalization............................................................................
Dividend Policy...........................................................................
Management's Discussion and Analysis
or Plan of Operations...............................................................
Business..................................................................................
Management................................................................................
Security Ownership of Certain Beneficial
Owners and Management...............................................................
Certain Transactions .....................................................................
Description of Securities.................................................................
Shares Eligible for Future Sale...........................................................
Plan of Distribution......................................................................
Selling Securityholders...................................................................
Legal Matters.............................................................................
Experts...................................................................................
Changes in Registrant's
Certifying Accountants..............................................................
Additional Information....................................................................
Index to Financial Statements.............................................................
</TABLE>
--------------------
Until __________, 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities offered hereby, whether or
not participating in the Offering, may be required to deliver a prospectus. This
is in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
IMALL, INC.
COMMON STOCK
AND
WARRANTS
------------------
PROSPECTUS
------------------
___________________,1998
================================================================================
<PAGE> 92
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 78.751 of the Nevada General Corporation Law,
the Company may indemnify its officers and directors against expenses incurred
by such persons in connection with any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative,
involving such persons in their capacities as officers and directors, so long as
such persons acted in good faith and in a manner which they reasonably believed
to be in the best interests of the Company. If the legal proceeding, however, is
by or in the right of the Company, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he is adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Company unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance
or make other financial arrangements on behalf of any person who is or was a
director or officer (or is serving at the request of the corporation as a
director or officer of another corporation) for any liability asserted against
such person and any expenses incurred by him in his capacity as a director or
officer. These financial arrangements may include trust funds, self insurance
programs, guarantees and insurance policies.
Article 6.E of the Articles of Incorporation of the Company, as amended,
and Article 5 of the Bylaws of the Company provide that, to the fullest extent
permitted by law, directors of the Company will not be liable for monetary
damages to the Company or its shareholders for breaches of their fiduciary
duties.
The Company maintains Director and Officer liability insurance with an
aggregate coverage amount of $10,000,000.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses for the issuance and distribution of the
Securities registered hereby are set forth in the following table:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ------
<S> <C>
SEC Registration Fee...................................................... $ 20,711
Transfer Agent Fees....................................................... 200
Legal Fees................................................................ 35,000
Accounting Fees........................................................... 5,000
Printing and Engraving Costs.............................................. 4,500
Miscellaneous............................................................. 2,589
Total............................................................ $ 68,000
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following list shows all sales of unregistered securities in the
past three years. The information has been adjusted to take in to account all
stock splits, including a 1 for 19 reverse stock split in January 8, 1996, the 4
for 1 forward stock split in May 22, 1996 and a 1 to 8 reverse stock split on
February 12, 1998. All shares of securities issued in these transactions bear
restrictive legends. Unless otherwise noted, the consideration given in each of
the share exchanges was all of the outstanding common
II-1
<PAGE> 93
stock of the other constituent company. No underwriters or agents were involved
in any of the share exchanges. Each share exchange was exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), as issuances not involving a public offering. The consideration in the
International Marketing Associates private placement was services in the nature
of promotional work at industry conventions, and was intended to approximate the
value of the services they were to render for the Company at such conventions.
This private placement was exempt from registration pursuant to Regulation D of
the Securities Act as an issuance not involving a public offering. All persons
receiving shares in the transactions described below were allowed access to the
Company's books and records and made representations to the Company that they
were acquiring shares of the Company's common stock for their own account and
for investment purposes only.
Share Exchange with Madison York & Associates, Inc. January 16, 1996
Number of shares issued: 2,103,112
The number of shares listed in the Company's Statement of Stockholders' Equity
in connection with this transaction consists of the 2,103,112 shares issued to
the shareholders of Madison York & Associates, Inc., and 2,701,848 shares
existing in connection with the reverse acquisition accounting.
Share Exchange with Cabot Richards & Reed, Inc. January 16, 1996
Number of shares issued: 1,400,000
Share Exchange with R&R Advertising, Inc. January 16, 1996
Number of shares issued: 600,000
Share Exchange with Inter Active Marketing Group, Inc. March 5, 1996
Amount of shares issued: 52,563
In addition, 151,787 shares were placed in escrow in accordance with certain
earn-out provisions in the Company's share exchange agreement with IMG. The
Company has since retired such shares with the consent of IMG because it became
clear that IMG would not obtain the targets for the earn-out provisions.
Share Exchange with e.m.a.N.a.t.e., Inc. April 26, 1996
Amount of shares issued: 200,000
In January 1996, the Company also issued 350,000 shares to an investment banking
firm for services valued at $28,000 which were rendered in connection with the
reverse acquisition. No relationship existed between the Company and the
investment banking firm prior to the services performed.
The Company issued 315,384 shares of common stock in August,
September and October 1997 at a purchase price of $3.25 per share to private
investors in a transaction exempt from registration under Section 4(2) of the
Securities Act and Regulation D thereunder as an issuance not involving a public
offering. Additionally, in January 1998, the Company issued to such investors
warrants to purchase an aggregate of 25,749 of the Company's common stock at an
exercise price of $3.20 per share, subject to adjustment. No agents or
underwriters were involved in this transaction.
The Company issued 200 "Units" at a price of $100,000 per unit in
December 1997. Each Unit consisted of (i) 25,000 shares of the Series A 9%
Convertible Preferred Stock, par value $.001 per share, each convertible into
1.25 shares of the Company's common stock, and (ii) warrants to purchase 7,813
shares of the Company's common stock at an exercise price of $3.20 per share,
subject to adjustment. This transaction was exempt from registration under
Section 4(2) of the Securities Act and Regulation D thereunder as an issuance
not involving a public offering. Commonwealth Associates acted as placement
agent in this transaction and received a fee of $2,000,000, plus expenses, and
warrants to purchase 1,500,000 shares of the Company's
II-2
<PAGE> 94
common stock at an exercise price of $3.20 per share, subject to adjustment.
Prior to the initial closing of the Units, the Company issued warrants to
purchase an aggregate of 6,250 shares of the Company's Common Stock at an
exercise price of $3.20 per share for making certain bridge loans to the
Company. The issuance was in a transaction exempt from registration under
Section 4(2) of the Securities Act and Regulation D thereunder.
In August 1997, the Company issued 36,821 shares of Common Stock,
and in December 1997, the Company issued 59,208 shares of Common Stock, to
consultants for services rendered in connection with Internet training and
consulting. The issuances were in transactions exempt from registration under
Section 4(2) of the Securities Act.
II-3
<PAGE> 95
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------ -----
<S> <C>
3.1 Articles of Incorporation, as amended, as filed with the Nevada
Secretary of State(1)
3.2 By-laws, as amended(1)
5.1 Opinion of Loeb & Loeb LLP
10.1 Software License and Distribution Agreement between the Company and
AT&T(1)
10.2 Agreement with Positive Response T.V.(1)
10.3 Memorandum of Understanding between the Company and Softbank(1)
10.4 Consulting Agreement with Craig Pickering(2)
10.5 Employment Agreement with Richard Rosenblatt(2)
10.6 Employment Agreement with Mark Comer(2)
10.7 Employment Agreement with Martin Rosenblatt(1)
10.8 Employment Agreement with Anthony Mazzarella(2)
10.9 Employment Agreement with Phillip Windley(2)
10.10 Employment Agreement with Steve Rossow(2)
10.11 Employment Agreement with Stephen Fulling(2)
10.12 Services and License Agreement between the Company and Koinonia System
Co. Ltd.(2)
10.13 Online Commerce Representation Agreement between Universal/Hyundai LLC
dba Animalhouse.com and the Company, dated April 1, 1998(3)
21.1 Subsidiaries of Registrant(1)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Loeb & Loeb LLP (included in the opinion to be filed as
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------------------
(1) Incorporated by reference to the Exhibits to the Registration Statement
on Form 10-SB as filed with the Securities and Exchange Commission on
August 4, 1997.
(2) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Registration Statement on Form 10-SB as filed with the Securities and
Exchange Commission on February 3, 1997.
(3) Incorporated by reference to the Exhibits to the Quarterly Report on
Form 10-QSB as filed with the Securities and Exchange Commission on May
14, 1998.
II-4
<PAGE> 96
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement.
(2) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described above in Item 24,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction of the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the
Securities Act, to treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it effective.
(4) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and the offering of such securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE> 97
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, on the 30th day of June, 1998.
IMALL, INC.
By: /s/ RICHARD M. ROSENBLATT
------------------------------------
Richard M. Rosenblatt
Chairman and Chief Executive Officer
II-6
<PAGE> 98
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard M. Rosenblatt, as his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement on Form SB-2 of iMall, Inc., and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, grant unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed by the following persons
in the capacities and on the date stated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ RICHARD M. ROSENBLATT Chairman and Chief June 30, 1998
- --------------------------------
Richard M. Rosenblatt Executive Officer
/s/ MARK R. COMER President and Director June 29, 1998
- --------------------------------
Mark R. Comer
/s/ ANTHONY P. MAZZARELLA Executive Vice President, June 30, 1998
- --------------------------------
Anthony P. Mazzarella Secretary/Treasurer,
Chief Financial Officer
and Director
/s/ CRAIG R. PICKERING Director June 30, 1998
- --------------------------------
Craig R. Pickering
/s/ MARSHALL S. GELLER Director June 26, 1998
- --------------------------------
Marshall S. Geller
/s/ HAROLD S. BLUE Director June 30, 1998
- --------------------------------
Harold S. Blue
/s/ LEONARD M. SCHILLER Director June 30, 1998
- --------------------------------
Leonard M. Schiller
/s/ HOWARD A. GOLDBERG Director June 29, 1998
- --------------------------------
Howard A. Goldberg
/s/ RICHARD H. ROGEL Director June 29, 1998
- --------------------------------
Richard H. Rogel
</TABLE>
II-7
<PAGE> 1
[LOEB & LOEB LLP LETTERHEAD]
EXHIBIT 5.1
June 30, 1998
iMall, Inc.
4400 Coldwater Canyon Blvd., Suite 200
Studio City, CA 91604
Ladies and Gentlemen:
We have acted as counsel to iMall, Inc., a Nevada corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), of a Registration Statement on Form SB-2 (the
"Registration Statement"), relating to the proposed sale by certain shareholders
of the Company (the "Selling Stockholders") of (i) 317,192 shares of common
stock, par value $0.008 per share ("Common Stock") issued to certain investors
in a private placement completed in October 1997; (ii) 6,250,005 shares of
Common Stock issuable upon conversion of 5,000,004 shares of the Company's 9%
Convertible Preferred Stock issued in a private placement in December 1997 (the
"Convertible Preferred Stock"); (iii) 1,568,751 shares of Common Stock
underlying warrants issued in connection with the December 1997 private
placement, which entitles the holder to purchase .125 share of Common Stock
exercisable at $3.20 per share, subject to adjustment in certain circumstances
(the "Initial Warrants"); (iv) 12,550,005 Initial Warrants issued in connection
with the December 1997 private placement; (v) 1,500,000 warrants issued to
Commonwealth Associates, in connection with the December 1997 private placement,
to purchase one share of Common Stock exercisable at $3.20 per share, subject to
adjustment in certain circumstances (the "Placement Agent Warrants"); (vi)
1,500,000 shares of Common Stock underlying the Placement Agent Warrants; (vii)
205,990 warrants issued to a group of investors in connection with the October
1997 private placement to purchase .125 share of Common Stock exercisable at
$3.20 per share, subject to adjustment in certain circumstances (the "Investor
Warrants"); (viii) 25,749 shares of Common Stock underlying the Investor
Warrants; (ix) 375,000 warrants issued to the Company's financial advisors in
connection with the December 1997 private placement to purchase one share of
Common Stock exercisable at $3.20 per share, subject to adjustment in certain
circumstances (the "Additional Warrants"); and (x) 375,000 shares of Common
Stock underlying the Additional Warrants. The Initial Warrants, Placement Agent
Warrants, Investor Warrants and the Additional Warrants are referred to herein
as the "Warrants." The Common Stock offered pursuant to the Registration
Statement and the Common Stock underlying the Convertible Preferred Stock and
the Warrants together with the Warrants are referred herein as the "Securities."
<PAGE> 2
iMall, Inc.
June 30, 1998
Page 2
In so acting, we have examined and relied upon the originals
or copies, certified or otherwise identified to our satisfaction, of such
Company records, documents, certificates and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinions
expressed below. Based upon the foregoing and such examination of law as we have
deemed necessary, we are of the opinion that:
1. The Securities to be offered by the Selling
Stockholders, when sold under the circumstances contemplated in the Registration
Statement, will be legally issued, fully paid and non-assessable.
2. The shares of Common Stock issuable upon exercise
of the Warrants, when issued upon exercise of the Warrants in accordance with
their terms, will be legally issued, fully paid and non-assessable.
We consent to the use of this letter as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" included in the Prospectus forming a part of the Registration
Statement.
By: /s/ David L. Ficksman
-----------------------------
David L. Ficksman,
a Partner of the Firm
2
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
June 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,997,864
<SECURITIES> 5,000,300
<RECEIVABLES> 139,143
<ALLOWANCES> 60,000
<INVENTORY> 120,073
<CURRENT-ASSETS> 13,615,716
<PP&E> 2,078,471
<DEPRECIATION> 636,540
<TOTAL-ASSETS> 15,325,925
<CURRENT-LIABILITIES> 2,015,721
<BONDS> 0
0
19,524,452
<COMMON> 62,606
<OTHER-SE> (405,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,325,925
<SALES> 3,472,299
<TOTAL-REVENUES> 3,472,299
<CGS> 1,031,397
<TOTAL-COSTS> 1,031,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,838
<INCOME-PRETAX> (1,219,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,219,682)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
