<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
IMALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEVADA 87-0553169
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
233 WILSHIRE BOULEVARD, SUITE 820
SANTA MONICA, CALIFORNIA 90401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
IMALL, INC. 1997 STOCK OPTION PLAN, AS AMENDED
(FULL TITLE OF THE PLAN)
ANTHONY P. MAZZARELLA
CHIEF FINANCIAL OFFICER
233 WILSHIRE BOULEVARD, SUITE 820
SANTA MONICA, CALIFORNIA 90401
(310) 309-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
BRIAN G. CARTWRIGHT, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED(2) PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.................... 2,250,000 $16.94 $38,109,375 $10,594.41
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c). Pursuant to Rule 457(c), the Proposed Maximum
Offering Price Per Share, the Proposed Maximum Aggregate Offering Price and
the Amount of Registration Fee are based on the average of the high and low
prices of iMALL, Inc. (the "Company") common stock as reported on the Nasdaq
SmallCap Market on February 17, 1999.
(2) Covers 2,250,000 additional shares available for issuance under the iMALL,
Inc. 1997 Stock Option Plan, as amended (the "1997 Plan") pursuant to an
amendment to the 1997 Plan approved by the stockholders of the Company on
December 31, 1998. The amendment increased the maximum number of shares of
the Company's common stock subject to options granted under the 1997 Plan
from 750,000 to 3,250,000. The Company has previously registered the offer
and sale of 1,000,000 of such shares pursuant to the Registration Statement
on Form S-8, No. 333-52905.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
This Registration Statement on Form S-8 registers the offer and sale of an
additional 2,250,000 shares of common stock of the Company for issuance under
the 1997 Plan. The contents of the prior Registration Statement on Form S-8, No.
333-52905 of the Company relating to the 1997 Plan are incorporated herein by
reference.
PART II
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates the following documents in this
Registration Statement by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997;
(b) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998;
(c) The Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998;
(d) The Company's Current Report on Form 8-K dated August 25, 1998;
(e) The Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998; and
(f) The description of the Company's common stock is set forth under Item 4
hereof.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), prior to the filing of a post-effective amendment which indicates that
all securities offered have been sold or which deregisters all securities then
remaining unsold, are incorporated by reference in this Registration Statement
and are a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Registration Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES
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 (the "Common Stock") and 10,000,000 shares of preferred stock, par value
$.001 per share (the "Preferred Stock"). Of the 10,000,000 shares of Preferred
Stock, the Company has designated 5,250,000 shares as Series A 9% Convertible
Preferred Stock (the "Series A Preferred Stock").
II-1
<PAGE> 3
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders. There are no cumulative voting
rights. Subject to the preferential rights of the Series A Preferred Stock
described below, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the affairs of the Company, holders of Common Stock would be entitled to share
ratably in the Company's assets remaining after payment of liabilities, and
after provision is made for each class of stock, if any, having preference over
the Common Stock (including as of the date of this Registration Statement the
Series A Preferred Stock). Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All of the outstanding shares of
Common Stock are fully paid and nonassessable.
SERIES A PREFERRED STOCK
The Series A Preferred Stock ranks senior to the Common Stock with respect
to the right to receive dividends and distributions upon liquidation,
dissolution or winding up of the affairs of the Company. Holders of shares of
the Series A Preferred Stock are entitled to receive, when as and if declared by
the Board of Directors, a cumulative dividend of $0.36 per share (9% per annum)
payable semi-annually in cash or shares of the Series A Preferred Stock valued
at $4.00 per share at the discretion of the Board of Directors. Upon
liquidation, dissolution or winding up of the affairs of the Company, holders of
shares of the Series A Preferred Stock are entitled to be paid out the assets of
the Company available for distribution to its stockholders, an amount per share
equal to $4.00, before any payment or distribution shall be made on the Common
Stock. The Series A 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
Series A Preferred Stock could then be converted.
The foregoing summary descriptions are qualified in their entirety by
reference to the Company's Articles of Incorporation, as amended.
II-2
<PAGE> 4
ITEM 8. EXHIBITS
<TABLE>
<S> <C>
* 5 Opinion of Schreck Morris
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Schreck Morris (included in Exhibit 5 hereto)
*24 Power of Attorney (included on signature page hereof)
*99 Audited Consolidated Financial Statements as of December 31,
1997 and for the Years Ended December 31, 1997 and 1996
</TABLE>
- -------------------------
* Filed herewith
II-3
<PAGE> 5
SIGNATURES
Pursuant to 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 on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Santa Monica, state of California, on this 19th day
of February, 1999.
iMALL, Inc.
By: /s/ ANTHONY P. MAZZARELLA
-----------------------------------
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Richard M.
Rosenblatt and Anthony P. Mazzarella, or either of them, as attorney-in-fact,
with full power of substitution, to sign on his behalf, individually and in such
capacity as stated below, and to file any amendments, including post-effective
amendments or supplements, to this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD M. ROSENBLATT Chief Executive Officer February 19, 1999
- --------------------------------------------- and Chairman of the
Richard M. Rosenblatt Board (Principal
Executive Officer)
/s/ ANTHONY P. MAZZARELLA Executive Vice February 19, 1999
- --------------------------------------------- President, Chief
Anthony P. Mazzarella Financial Officer and
Director (Principal
Financial Officer)
/s/ MARSHALL S. GELLER Director February 19, 1999
- ---------------------------------------------
Marshall S. Geller
/s/ HAROLD S. BLUE Director February 19, 1999
- ---------------------------------------------
Harold S. Blue
/s/ LEONARD M. SCHILLER Director February 19, 1999
- ---------------------------------------------
Leonard M. Schiller
</TABLE>
II-4
<PAGE> 6
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD H. ROGEL Director February 19, 1999
- ---------------------------------------------
Richard H. Rogel
/s/ HOWARD A. GOLDBERG Director February 19, 1999
- ---------------------------------------------
Howard A. Goldberg
/s/ JOHN F. DUNCAN Director February 19, 1999
- ---------------------------------------------
John F. Duncan
</TABLE>
II-5
<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
* 5 Opinion of Schreck Morris
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Schreck Morris (included in Exhibit 5 hereto)
*24 Power of Attorney (included on signature page hereof)
*99 Audited Consolidated Financial Statements as of December
31, 1997 and for the Years Ended December 31, 1997 and
1996
</TABLE>
- -------------------------
* Filed herewith
<PAGE> 1
EXHIBIT 5
February 19, 1999
iMALL, Inc.
233 Wilshire Boulevard, Suite 820
Santa Monica, California 90401
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
We have acted as counsel for iMALL, Inc., a Nevada corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of an aggregate of 2,250,000 shares of the
Company's Common Stock, par value $.008 per share (the "Shares") issuable upon
the exercise by certain directors, officers, key employees and consultants of
the Company of certain options and stock appreciation rights granted under the
Company's 1997 Stock Option Plan, as amended (the "Plan"), pursuant to the
Company's Registration Statement on Form S-8 about to be filed with the
Securities and Exchange Commission (the "Commission").
In our capacity as your special counsel, we are familiar with the
proceedings taken and proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Shares, and for purposes of this
opinion, have assumed such proceedings will be timely completed in the manner
presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction as being true
reproductions of originals of such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purposes of this opinion.
For purposes of this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of natural persons executing such documents, the authenticity or
the conformity to authentic original documents of all documents submitted to us
as certified, photostatic or facsimile copies, and the accuracy and completeness
of all corporate records made available to us by the Company and of all public
records we have reviewed.
Our opinion herein is limited to the effect on the subject transaction only
of the laws of the State of Nevada. We express no opinion concerning and assume
no responsibility regarding the applicability to, or the effect thereon, of the
laws of any other jurisdiction, or as to any matters of municipal law or the
laws of any local agencies within the state, and we express no opinion herein
concerning any federal laws, including any federal securities laws, or any state
securities or blue sky laws.
On the basis of the foregoing, and having regard to legal considerations
and other information that we deem relevant, we are of the opinion that, as of
the date hereof, the Shares have been duly authorized and, when and to the
extent the Shares are registered under the Act and are issued and sold in
accordance with the Plan, the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the heading "Legal
Matters." In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Yours very truly,
SCHRECK MORRIS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 25, 1998 (except with respect to the matter discussed in Note
11, as to which the date is August 28, 1998) included in this Registration
Statement for the year ended December 31, 1997.
It should be noted that we have performed no audit procedures subsequent to
March 25, 1998, the date of our report, except with respect to Note 11 as to
which the date is August 28, 1998. Furthermore, we have not audited any
financial statements of iMALL, Inc. as of any date or for any period subsequent
to December 31, 1997.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 18, 1999
<PAGE> 1
EXHIBIT 99
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 (except
with respect to the
matter discussed in
Note 11, as to which the
date is August 28, 1998).
F-2
<PAGE> 2
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,775,127
Short-term investments 10,000,600
Accounts receivable, net of allowance
for doubtful accounts of $ 60,000 57,419
Prepaid expenses 18,113
Income tax receivable 166,231
Other current assets 119,207
-------------
Total current assets 15,136,697
-------------
PROPERTY AND EQUIPMENT:
Computer equipment and software 422,107
Office equipment 106,735
Furniture and fixtures 58,095
Leased office equipment 15,853
Leasehold improvements 28,289
-------------
631,079
Less accumulated depreciation
and amortization (293,469)
-------------
Net property and equipment 337,610
-------------
OTHER ASSETS:
Intangibles, net of accumulated amortization
of $252,948 258,482
Deposits 21,411
Net long-term assets of discontinued operations 262,612
------------
542,505
-------------
$ 16,016,812
============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 3
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997
------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 172,373
Accrued expenses 101,539
Deferred revenues 73,322
Current portion of capitalized lease obligations 5,901
Net short-term liabilities of discontinued operations 1,309,462
------------
Total current liabilities 1,662,597
------------
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 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
------------
$ 16,016,812
============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-4
<PAGE> 4
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 $ 973,635 $ 676,812
COST OF REVENUES 187,638 297,769
----------- -----------
Gross profit 785,997 379,043
----------- -----------
SELLING EXPENSES 20,000 --
PRODUCT DEVELOPMENT 669,126 405,535
GENERAL AND ADMINISTRATIVE EXPENSES 2,676,504 2,298,033
----------- -----------
Loss from operations (2,579,633) (2,324,525)
----------- -----------
OTHER (EXPENSE) INCOME:
Other income -- 19,891
Interest expense, net (23,072) (5,739)
----------- -----------
Net other (expense) income (23,072) 14,152
----------- -----------
Loss before provision for income taxes (2,602,705) (2,310,373)
BENEFIT (PROVISION) FOR INCOME TAXES 16,546 (37,928)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (2,586,159) (2,348,301)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (2,116,815) 2,413,119
----------- -----------
NET (LOSS) INCOME $(4,702,974) $ 64,818
=========== ===========
NET (LOSS) INCOME PER COMMON SHARE
- BASIC AND DILUTED:
Loss from continuing operations $ (.36) $ (.32)
(Loss) income from discontinued operations $ (.28) $ .33
----------- -----------
NET (LOSS) INCOME $ (.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> 5
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> 6
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,586,159) $(2,348,301)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 319,614 413,818
Provision for doubtful accounts 33,600 26,400
Provision for notes receivable 50,000 --
Change in assets and liabilities
Accounts receivable (24,767) (92,652)
Income tax receivable 110,709 (276,940)
Prepaid expenses (19,379) (8,836)
Deferred income tax asset 163,715 (163,715)
Deposits 1,415 (22,826)
Accounts payable 151,579 20,794
Accrued expenses 26,273 256,253
Deferred revenues 50,822 22,500
----------- -----------
Net cash used in operating activities $(1,722,578) $(2,173,505)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 7
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (10,000,600) --
Purchase of property and equipment (34,202) (794,289)
Increase in intangibles (44,932) --
Principal payments to related parties -- (242,000)
Principal payments received on
notes receivable from related parties 82,895
------------ -----------
Net cash used in investing
Activities (9,996,839) (1,036,289)
------------ -----------
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 -- 122,705
Principal payments on notes payable
to related parties (145,082) --
Principal payments on capitalized lease obligations (769) --
Principal payments on notes payable (12,500) --
------------ -----------
Net cash provided by
financing activities 18,019,198 97,705
------------ -----------
Cash provided by (used in) continuing operations 6,299,781 (3,112,089)
Cash (used in) provided by discontinued operations (1,581,709) 3,169,144
------------ -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 4,718,072 57,055
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 57,055 --
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,775,127 $ 57,055
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 8
iMALL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 23,072 $ 5,739
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
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fair value of non-cash
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> 9
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 mission is to maintain and expand its position as a pioneer and
leader in electronic commerce services by providing merchants the ability,
through its proprietary software, to transact commerce online. The Company's
headquarters are located in Santa Monica, California with additional offices in
Provo, Utah. The training is conducted at sites across the United States (See
Note 11).
(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. In August 1998, the Company discontinued some of
its operations. (See Note 11)
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> 10
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:
<TABLE>
<CAPTION>
CAPTION USEFUL LIFE
<S> <C>
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
</TABLE>
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.
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
F-11
<PAGE> 11
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 (See note 11).
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 (See note 11).
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
$73,322 as of December 31, 1997 and is included in deferred revenues in the
accompanying consolidated balance sheet.
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.
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 was not significant.
F-12
<PAGE> 12
(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>
<S> <C>
Years Ending December 31,
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>
A portion of the capital leases above are included in discontinued operations
(See Note 11).
(4) NOTES PAYABLE TO RELATED PARTIES (See Note 11)
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.
(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>
<S> <C>
Year ending December 31,
1998 $ 181,000
1999 79,000
2000 79,000
------------
$ 339,000
============
</TABLE>
F-13
<PAGE> 13
The Company incurred rent expense of approximately $393,000 and $301,000 in
connection with operating leases during 1997 and 1996, respectively. A portion
of the operating leases above are included in discontinued operations (See Note
11).
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.
(6) INCOME TAXES
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Current (Benefit) Provision:
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>
F-14
<PAGE> 14
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.
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
F-15
<PAGE> 15
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 (See
Note 11).
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.
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. Each preferred share can be converted at any time into
1.25 shares of common stock. This conversion ratio is subject to adjustment
under certain circumstances, and if the Company is unable to secure waivers from
each of the preferred stockholders, each preferred share will convert into 1.389
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 initial closing date of December 5, 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
F-16
<PAGE> 16
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. There are no shares available for future grants
of stock options.
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
-------- ----------- --------- -----------
<S> <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.
(9) 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
F-17
<PAGE> 17
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 (See Note 11).
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 (See Note 11).
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 from continuing operations $(2,586,159) $(2,348,301)
Add preferred stock dividends (96,067) --
----------- -----------
Loss from continuing operations
available for common stock $(2,682,226) $(2,348,301)
=========== ===========
Weighted-average common stock outstanding 7,526,967 7,252,584
=========== ===========
Basic and diluted loss per common share $ (0.36) $ (0.32)
=========== ===========
</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.
(11) SUBSEQUENT EVENT DATED AUGUST 28, 1998
Effective August 28, 1998, the Company discontinued the operations of its
seminar and training division. The Company also discontinued operations of R&R
Advertising and Cabot, Richards and Reed, Inc. The discontinued operations
historically have accounted for approximately 95% of the revenues of the
Company, and operated at a loss in 1997. In accordance with generally accepted
accounting principles, the operations of this division have been included in the
accompanying income statements as loss from discontinued operations. The
following is a summary of the revenue and expenses related to the discontinued
operations for the year ended December 31, 1997 and 1996:
F-18
<PAGE> 18
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net revenues $ 15,803,026 $ 15,370,121
Cost of revenues 4,838,627 5,166,674
Selling expenses 8,770,739 3,129,012
General and administrative expenses 4,396,535 4,777,120
Other Income 139,729 113,417
Interest (Expense) Income, net (53,669) 2,387
------------ ------------
(Loss) Income from discontinued operations $ (2,116,815) $ 2,413,119
============ ============
</TABLE>
In accordance with generally accepted accounting principles, all assets and
liabilities of this division have been reflected in the accompanying balance
sheet as net long term assets and net short term liabilities of discontinued
operations. The components of the net assets of the discontinued operations to
be sold included in the accompanying consolidated balance sheet are as follows:
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 761,851
Accounts receivable - trade, net 80,271
Inventory 134,843
Prepaid expenses 51,107
Less current liabilities:
Accounts payable 888,426
Accrued expenses 452,298
Deferred revenues 319,456
Notes payable to related parties 662,420
Current portion of capitalized lease obligations 14,934
----------
Net short-term liabilities $1,309,462
==========
Long-term assets:
Net property and equipment $ 272,867
Net Intangibles 533
Less long-term liabilities:
Capitalized Lease Obligations, net
of current portion 10,788
----------
Net long-term assets $ 262,612
==========
</TABLE>
F-19
<PAGE> 19
The Company is currently engaged in discussions for the sale of the assets
associated with the division. The Company expects to sell the division's assets
for approximately their net book value and does not expect to recognize a
material loss as a result of the transaction.
The interest paid by the discontinued operations was $53,669 and $7,158 for the
years ended December 31, 1997 and 1996, respectively.
As of December 31, 1997 the discontinued operations had leased office equipment
totaling $95,637 and obligations under capital leases of $25,722.
In 1997, the Company issued 36,821 unregistered shares to individuals who
provided speaking services to the Company in connection with its discontinued
operations. The compensation expense of $165,695 is included in the loss from
discontinued operations in the accompanying income statement.
As of December 31, 1997 the Company had notes payable of $662,420 which were
borrowed by the Company to fund its discontinued operations. As a result, entire
amount is classified as short-term liabilities of discontinued operations in the
accompanying balance sheet.
The discontinued operations incurred rent expense of approximately $145,000 and
$118,000 in connection with its operating lease during the years ended December
31, 1997 and 1996, respectively. The total payment under operating leases
subsequent to December 31, 1997 for the discontinued operations is approximately
$182,000.
The discontinued operations did not create any material amount of severance
liability and their are no longer any employees sharing in the net profits of
the Company.
All services received by the Company from Sierra Advertising and RDR properties
related to the discontinued operations and are not expected to recur in the
future. The officers/directors with an interest in Sierra Advertising and RDR
Properties are no longer employed by the Company and do not serve as officers or
directors of the Company.
F-20
