<PAGE>
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
March 8, 1999
--------------------------------------------------
Date of Report (date of earliest event reported)
iMALL, INC.
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(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Nevada 0-21201 87-0553169
- ---------------- ---------------- -----------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
Incorporation) Number)
</TABLE>
233 Wilshire Boulevard, Suite 820, Santa Monica, California 90401
-----------------------------------------------------------------
(Address of principal executive offices)
(310) 309-4000
-------------------------------
(Registrant's telephone number,
including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 8, 1999, iMALL Inc. ("iMall") acquired all of the outstanding shares of
common stock of Pure Payments, Inc. ("Pure Payments") in exchange for a combined
total of 450,000 shares of iMALLs common stock and options to purchase shares of
iMALL common stock, valued at approximately $6.0 million. Prior to this
acquisition, iMALL had purchased Pure Payments' products and services, which
allow for on-line retailers to process credit card orders securely over the
Internet for use as part of iMALL's electronic commerce services.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Filed herewith as a part of this report are the audited financial statements and
related notes of Pure Payments Inc., as of December 31, 1998, and for the period
from inception (September 23, 1998) through December 31, 1998.
(b) RESTATED AND PRO FORMA FINANCIAL INFORMATION.
Filed herewith as a part of this report is the pro forma financial information
required by Article 11 of Regulation S-X including an:
Unaudited Pro Forma Statement of Operations of Registrant for the year ended
December 31, 1998 and related Notes.
Unaudited Pro Forma Statement of Financial Position of Registrant as of December
31, 1998 and related Notes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the stockholders of Pure Payments, Inc.:
We have audited the accompanying balance sheet of Pure Payments, Inc., a
Delaware corporation, as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flows for the period from inception
(September 23, 1998) through December 31, 1998. 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 Pure Payments, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (September 23, 1998) through December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 6, 1999
<PAGE>
PURE PAYMENTS, INC.
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BALANCE SHEET
-------------
AS OF DECEMBER 31, 1998
-----------------------
ASSETS
------
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $606,900
Other current assets 17,500
--------
Total current assets 624,400
--------
PROPERTY AND EQUIPMENT:
Computer equipment 160,700
Leased computer equipment 104,300
--------
265,000
Less accumulated depreciation (11,200)
--------
Net property and equipment 253,800
--------
OTHER ASSETS:
Deposits 10,500
--------
</TABLE>
$888,700
========
The accompanying notes are an integral
part of this balance sheet.
<PAGE>
PURE PAYMENTS, INC.
-------------------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1998
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C>
Accrued expenses $ 10,100
Current portion of capitalized lease
obligations 43,200
----------
Total current liabilities 53,300
----------
CAPITALIZED LEASE OBLIGATIONS, net of
current portion 50,800
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.0001,
liquidation value of $1,024,700, 1,500,000
shares authorized, 1,443,262 shares issued
and outstanding 1,024,700
Common stock, par value $.0001; 15,500,000
shares authorized, 5,685,000 shares issued
and outstanding 600
Additional paid-in capital 5,100
Accumulated deficit during development stage (245,700)
Common stock held in treasury, at cost (100)
----------
Total stockholders' equity 784,600
----------
$ 888,700
==========
</TABLE>
The accompanying notes are an integral
part of this balance sheet.
<PAGE>
PURE PAYMENTS, INC.
-------------------
STATEMENT OF OPERATIONS
-----------------------
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 23, 1998)
--------------------------------------------------
THROUGH DECEMBER 31, 1998
-------------------------
<TABLE>
<S> <C>
REVENUES $ -
OPERATING EXPENSES 245,700
---------
Loss from operations (245,700)
---------
NET LOSS $(245,700)
=========
</TABLE>
The accompanying notes are an integral
part of these statements.
<PAGE>
PURE PAYMENTS, INC.
-------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 23, 1998)
--------------------------------------------------
THROUGH DECEMBER 31, 1998
-------------------------
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Preferred Stock Treasury Stock Additional During
------------------ ---------------------- ------------------ Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
--------- -------- --------- ---------- -------- ------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 23,
1998 (inception) - $ - - $ - - $ - $ - $ - $ -
Conversion of debt
into common stock 5,600,000 600 - - - - 5,000 - 5,600
Common stock issued
in private placements 85,000 - - - - - 100 - 100
Preferred stock issued
for fixed assets - - 197,183 140,000 - - - - 140,000
Conversion of debt
into preferred stock - - 17,289 12,300 - - - - 12,300
Preferred stock issued
in private placements - - 1,228,790 872,400 - - - - 872,400
Repurchase of common shares - - - - (52,542) (100) - - (100)
Net loss - - - - - - - (245,700) (245,700)
--------- ------- --------- ---------- -------- ------- --------- ----------- ----------
Balance,
December 31, 1998 5,685,000 $ 600 1,443,262 $1,024,700 (54,542) $(100) $ 5,100 $(245,700) $ 784,600
========= ======= ========= ========== ======== ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral
part of these statements.
<PAGE>
PURE PAYMENTS, INC.
-------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 23, 1998)
--------------------------------------------------
THROUGH DECEMBER 31, 1998
-------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $(245,700)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 11,200
Issuance of debt for services 17,900
Change in assets and liabilities:
Other current assets (17,500)
Deposits (10,500)
Accrued expenses 10,100
---------
Net cash used in operating
activities (234,500)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of computer equipment (125,000)
Proceeds from sale of computer equipment 104,300
---------
Net cash used in investing
activities (20,700)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares of
preferred stock 872,400
Proceeds from issuance of shares of
common stock 100
Repurchase of common shares (100)
Principal payments on capitalized lease
obligations (10,300)
---------
Net cash provided by financing
activities 862,100
---------
NET INCREASE IN CASH 606,900
CASH AT BEGINNING OF THE PERIOD -
---------
CASH AT END OF PERIOD $ 606,900
=========
</TABLE>
The accompanying notes are an integral
part of these statements.
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C>
Cash paid for interest $ -
Cash paid for income taxes $ -
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING TRANSACTIONS:
Preferred stock issued for equipment $140,000
Conversion of debt into preferred
stock $ 12,300
Conversion of debt into Common Stock $ 5,600
Equipment acquired under capital
lease agreement $104,300
</TABLE>
The accompanying notes are an integral
part of these statements.
<PAGE>
PURE PAYMENTS, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
(1) ORGANIZATION AND NATURE OF OPERATIONS
-------------------------------------
Pure Payments, Inc. ("the Company") is a Delaware Corporation in the development
stage. The Company plans to be a provider of Internet Payment Services. These
services enable Internet retailers to process credit card transactions over the
Internet. As the payment service behind the scenes, the Company plans to
provide scalable architecture that readily integrates into a retailer's
existing system. The Company's products and services will be sold primarily to
small and medium sized merchants through Commerce Service Providers such as
ISPs, Shopping Portals, Commerce Communities, Auction Sites, and Technology
Providers.
(2) SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Cash
- ----
The Company invests in highly qualified financial institutions. At times, such
investments may be in excess of insured limits.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. The Company depreciates computer
equipment using the straight-line method over a three year estimated useful
life. The Company follows the policy of capitalizing expenditures that
materially increase asset lives, and expensing maintenance, repairs and minor
renewals.
Income Taxes
- ------------
Income taxes are provided for under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires the asset and liability approach for financial reporting of income
taxes.
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.
Capitalized Software Costs
- --------------------------
Under SFAS No. 86, software development costs are to be capitalized beginning
when a product's technological feasibility has been established and ending when
a product is made available for general release to customers. The establishment
of technological feasibility of the Company's products had not occurred as of
December 31, 1998, accordingly, no costs have been capitalized.
<PAGE>
-2-
(3) COMMITMENTS AND CONTINGENCIES
-----------------------------
Capital Leases
- --------------
Certain equipment is leased under capitalized lease obligations. The following
is a summary of assets held under capital lease agreements as of December 31,
1998:
Computer Equipment $ 104,300
Less accumulated depreciation (3,400)
---------
$ 100,900
=========
<PAGE>
-3-
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, 1998:
<TABLE>
<CAPTION>
Years Ending December 31,
- -------------------------
<S> <C>
1999 $ 62,000
2000 51,700
Thereafter -
---------
Total minimum lease payments 113,700
Less amount representing interest (19,700)
---------
Present value of minimum lease payments 94,000
Less current portion (43,200)
---------
Long-term portion $ 50,800
=========
</TABLE>
Operating Leases
- ----------------
The Company leases certain facilities used in its operations. The approximate
aggregate commitments under operating leases in effect at December 31, 1998 were
$49,000 for the year ended December 31, 1999.
The Company incurred rent expense of approximately $13,500 in connection with
operating leases from inception (September 23, 1998) through December 31, 1998.
Employment Agreements
- ---------------------
The Company has various employment agreements with officers, some of which
include bonuses, and stock options.
(4) INCOME TAXES
------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Period Ended
------------
December 31, 1998
-----------------
<S> <C>
Current Provision:
Federal $ -
800
State -------
800
-------
Deferred Provision:
Federal -
State -
-------
-
-------
Provision for income taxes $ 800
=======
</TABLE>
<PAGE>
-4-
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, 1998
-----------------
<S> <C>
Provision at the federal statutory
rate of 34 percent $(83,500)
State income taxes at 6 percent (14,700)
Valuation allowance 99,000
----------
Total provision for income taxes $ 800
==========
</TABLE>
At December 31, 1998, the Company has net operating loss carryforward of
approximately $240,000 available to reduce future taxable income. All deferred
tax assets, primarily related to net operating loss carryforwards, have all been
reserved for through use of a valuation reserve. The provision for income taxes
is included in operating expenses in the accompanying financial statements.
(5) CAPITAL STOCK
-------------
Stock Transactions
- -------------------
In 1998, upon formation, the Company issued 5,600,000 shares of common stock to
its founders, in exchange for the extinguishment of $5,600 in debt, at a price
of $.001 per share. In 1998, the Company issued an additional 85,000 shares in a
private placement at a price of $.001 per share.
In December 1998, the Company purchased 54,542 shares of its outstanding common
stock for $100, at a price of $.001 per share.
In 1998, 1,443,262 shares of preferred stock were issued at a price per share of
$.71, through a private placement. The Company issued, to a founder and an
employee, 197,183 shares in exchange for computer equipment with a book value of
$140,000. An additional 17,289 shares were issued to a founder for the
extinguishment of a $12,300 note payable. A total of 1,228,790 shares of
preferred stock were issued to a founder and outside investors at various times,
for $872,400 cash. Each share of preferred stock earns a $.0568 non-cumulative
dividend, payable annually in cash at the discretion of management, and can be
converted at any time into one share of common stock at the discretion of the
shareholder. Shares of preferred and common stock vote as one class, with each
share of preferred and common stock entitled to one vote.
The Board of Directors did not declare any preferred or common stock dividends
in 1998.
(6) STOCK OPTIONS
-------------
The Company has granted incentive 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 options become exercisable between
one and four years from the grant date. The incentive stock options expire ten
years from the date of grant.
<PAGE>
-5-
A summary of the status of the Company's stock option plan and changes in
outstanding options is presented below:
<TABLE>
<CAPTION>
Shares Weighted-
Under Average
Option Exercise Price
------ --------------
<S> <C> <C>
Options outstanding at
September 23, 1998 (inception) - $ -
Options granted 153,000 .07
Options exercised - -
Options canceled - -
-------
Options outstanding at
December 31, 1998 153,000 $ .07
=======
Options exercisable at
December 31, 1998 - -
=======
</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 1998 was
estimated to be $.01. The value was estimated using the Black-Scholes option-
pricing model with the following weighted-average assumptions for 1998: risk-
free interest rate of 6.50 percent; expected life of three years; no expected
volatility; and no expected dividends. Had compensation expense been recorded
based on these hypothetical values, the Company's net loss for December 31, 1998
would not have been materially different from the reported amount. 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 1,247,000 shares available for future grants of stock options, in
accordance with the 1998 Stock Plan.
(7) SUBSEQUENT EVENTS
-----------------
On March 8, 1999, 100% of the ownership of the Company was sold in exchange for
shares of common stock and options to purchase shares of common stock in a
public company engaged in Internet commerce. Management and former stockholders
of the Company signed employment agreements with the public company in
connection with the sale.
<PAGE>
-6-
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Pro Forma
Financial Data") of iMALL, Inc. (the "Company") has been prepared utilizing the
historical consolidated financial statements and related notes thereto of each
of the Company and Pure Payments, Inc. ("Pure Payments"). The Pro Forma
Financial Data gives pro forma effect to the consummation of the acquisition of
Pure Payments as of the date of inception (September 23, 1998) for purposes of
the pro forma statements of operations.
The Pure Payments acquisition has been accounted for under the purchase method
of accounting and the Pro Forma Financial Data has been prepared on such basis
of accounting utilizing estimates and assumptions as set forth below. The Pro
Forma Financial Data is presented for informational purposes and is not
necessarily indicative of the future financial position or results of operations
of the combined businesses that would have resulted had the Pure Payments
acquisition been consummated on the dates described above. The purchase price
allocations reflected in the Pro Forma Financial Data have been based on
preliminary estimates of the respective fair value of assets and liabilities,
which may differ from the actual allocations, and are subject to revision.
The following Pro Forma Financial Data for the year ended December 31, 1998
should be read in conjunction with the historical consolidated financial
statements and notes thereto of the Company included in the December 31, 1998
Form 10-KSB and the March 31, 1999 Form 10-QSB.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED DECEMBER 31,
1998
The Company would have incurred additional expenses based on the historical
results of Pure Payments for the period from inception (September 23, 1998) to
December 31, 1998, related to product development, general and administrative
expenses of $245,700.
The Pure Payments acquisition results in the recording of $5,540,800 in software
costs as of the March 8, 1999 acquisition date. The Company is amortizing this
amount over four years. This would have resulted in amortization expense for the
period from inception (September 23, 1998) to December 31, 1998 of approximately
$346,300.
For the period from inception (September 23, 1998) to December 31, 1998,
payments to the two key members of the management of Pure Payments totaled
$24,000 and were included in operating expenses in the accompanying historical
results of Pure Payments. In connection with the Pure Payments acquisition,
these individuals have entered into employment agreements with the Company,
which include specifically defined salaries. The Company would have incurred
additional expense of approximately $23,500 if the employment agreements had
been in effect from inception (September 23, 1998) to December 31, 1998.
The Company acquired all of the outstanding common stock of Pure Payments on
March 8, 1999 in exchange for a combined total of 450,000 shares of common
stock and options to purchase shares of common stock of the Company.
The Company would have incurred a net loss from continuing operations of
$615,500, or a $1.66 loss per share, based on the pro forma financial data
detailed above. The weighted-average shares of common stock outstanding for the
year ended December 31, 1998 was 8,130,095.
<PAGE>
-7-
UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION DATA AS OF DECEMBER 31, 1998
As of December 31, 1998, all balances included in the Company's and Pure
Payments' historical statements of financial position would have been
consolidated without adjustment in the pro forma statement of financial
position, except as noted below.
The Pure Payments acquisition would have resulted in the recording of software
costs of $5,540,800, a reduction in Pure Payments equity of $472,700 to reset
equity to a balance of zero, and an increase in common stock and additional paid
in capital of $3,500 and $6,010,000 to record the issuance of common stock to
consummate the transaction.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
iMALL, INC.
May 14, 1999
By /s/ Richard Rosenblatt
--------------------------------------------
Richard Rosenblatt, Chairman
of the Board and Chief Executive Officer
