<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-21201
iMALL, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0553169
--------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
233 WILSHIRE BOULEVARD, SUITE 820, SANTA MONICA, CALIFORNIA 90401
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(310) 309-4000
- --------------------------------------------------------------------------------
(Issuer's telephone number including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 11, 1999, the Issuer had outstanding an aggregate of 17,690,899 common
shares, par value $0.008.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of iMALL, Inc. and
subsidiaries (the "Company") as of March 31, 1999 and for the three-month
periods ended March 31, 1999 and 1998 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
results of operations 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, 1999 and the
Company's results of operations for the three month periods ended March 31, 1999
and 1998 should be read in conjunction with the Company's unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this
Form 10-QSB. These results are not necessarily indicative of the results that
may be achieved by the Company for the entire year ending December 31, 1999.
OVERVIEW
The Company is an electronic commerce enabler, providing fully integrated,
"one-stop" e-commerce solutions ("EC services"). The Company's unique e-commerce
solutions and integrated process allow businesses to create fully commerce
enabled Web sites or add transaction capabilities to their existing ones,
establish "Internet ready" merchant accounts online, and process customer orders
securely through the Company's proprietary payment gateway. To help increase
business' online sales, the Company's shopping portals and shopper services are
integrated into its e-commerce solutions. The Company's e-commerce solution,
merchantstuff.com, created jointly with First Data Merchant Services, is located
at http://www.merchantstuff.com. The Company's shopping portals are located at
http://www.stuff.com and http://www.imall.com. The Company's corporate site is
located at http://www.imallinc.com.
In the fourth quarter of 1998, the Company launched its shopping portal,
located at www.stuff.com. This portal is a product-level search engine designed
specifically for online shopping. Visitors to stuff.com can search a proprietary
index of over a 2.5 million products offered among numerous merchants sites
across the Internet. The search experience is efficient and specific to products
for sale, in that it does not clutter the search results with generic keywords
or extraneous non-retail Web sites. Further, when the user clicks on a chosen
product in the listing of search results, the user is linked directly to the
relevant product page within the merchant Web site, rather than having to
restart a search from the top page of a merchant's Web site. The Company is
devoting marketing and advertising resources to the expansion of its Stuff.com
shopping portal during 1999. Stuff.com provides the Company revenues through
advertising sold on the site, royalties earned from referral fee contracts, fees
charged for uploading products and through sales of upgrades to the Company's EC
services.
During the first quarter of 1999, the Company focused much of its resources on
the expansion of its EC services business through the establishment of
additional marketing alliances and the further development of its e-commerce
solutions. In February, the Company also announced the completion of
Merchantstuff, the first fully integrated e-commerce solution, which was
developed jointly with First Data. The Company's e-commerce
solutions may be customized to create "private-labeled" solutions for resale by
some of the Company's marketing alliance partners.
During the quarter, the Company also implemented its new next-generation
computing architecture. The platform, code named Emerald Lake, was in
development for over a year and is intended to allow for dramatically increased
scalability, security, and reliability, while providing a more flexible
architecture for implementing future enhancements.
2
<PAGE>
On March 8, 1999, the Company acquired all of the outstanding shares of common
stock of Pure Payments, Inc. ("Pure Payments"). Prior to this acquisition, the
Company had included Pure Payments' products and services as a key component of
the Company's EC services. Pure Payments' products and services allow for on-
line retailers to process credit card orders securely over the Internet. The
integration of Pure Payments' services into the EC services expedites the store
building process by eliminating many manual and time-consuming steps required to
integrate payment processing into a merchant's Internet storefront. Pure
Payments' products and services supports advanced credit card payment features
for on-line retailers and offers corporate purchase card processing, automatic
merchant sign-up, end-to-end system-wide monitoring, and transparent software
upgrades.
RESULTS OF OPERATIONS
Comparison of Three-Month Periods Ended March 31, 1999 and 1998
Revenues. Revenues for the three months ended March 31, 1999 were $778,700
compared to $222,200 for the three months ended March 31, 1998, an increase of
$556,500 or 250%. The increase was due primarily to greater technology and
marketing spending as part of the Company's continued expansion of its EC
services focus during 1999. Management's goal is for its advertising revenues to
increase with the continued expansion of its product level search engine which
creates a substantial amount of new page views available for advertising. The
Company also received advertising revenues from customers where the Company
would pay web publishers with whom the Company had pre-existing relationships a
service fee for delivering the advertisements. The Company is responsible for
billing and collecting on these ads and assumes the risk of non-payment from
advertisers. Web site sales and related maintenance fees derived from the
Company's internal sales force increased as part of a planned effort to better
diversify the product selection on the www.imall.com shopping site. During the
first quarter of 1999, the Company continued the process of shifting resources
to develop its new businesses in electronic commerce.
Cost of Revenues. The cost of revenues for the three months ended March 31,
1999 were $418,800 compared to $38,600 for the three months ended March 31,
1998, an increase of $380,200 or 985%. The profit margin decreased to 46% in the
three months ended March 31, 1999 from 83% in the three months ended March 31,
1998. Beginning in the fourth quarter of 1998 the Company received advertising
revenues from customers where the Company would pay web publishers with whom the
Company had pre-existing relationships a service fee for delivering the
advertisements. This fee is included in cost of revenues driving the profit
margin down from the relatively high margin realized on EC services. Cost of
revenues also includes labor and related costs to build Web sites as well as the
cost of any products sold on-line directly by the Company.
Selling Expenses. Selling expenses for the three months ended March 31, 1999
were $447,000 compared to $403,800 for the three months ended March 31, 1998, an
increase of $43,200 or 11%. The increase is primarily due to increased spending
on the on-line advertising campaign. The Company spent $320,000 in this on-line
advertising campaign during the quarter in an attempt to increase its branding
and further promote its focus on on-line commerce.
3
<PAGE>
Product Development. Product development expenses for the three months ended
March 31, 1999 were $1,275,700 compared to $316,000 for the three months ended
March 31, 1998, an increase of $959,700 or 304%. This increase is due to the
expansion of the Company's focus from Internet training and Web site sales
toward electronic commerce. In January 1998, the Company created its Electronic
Commerce Services Group (ECSG) in a separate office in Provo, Utah. This office
represents the technology arm of the Company and is focused on the development
of the Company's e-commerce software, creating the technology behind the new
product level search engine, rebuilding the overall technical infrastructure and
the programming of all Web sites that make up imall.com and the Company's
various partner malls. The product development expenses consist primarily of
payroll and related costs for programmers and software developers in the ECSG
office as well as the software development costs incurred through the
acquisition of Pure Payments in March 1999.
General and Administrative Expenses. General and administrative expenses for
the three months ended March 31, 1999 were $2,403,000 compared to $773,600 for
the three months ended March 31, 1998, an increase of $1,629,400 or 211%. This
increase was primarily due to higher payroll expense during 1999 accounting for
approximately $1.1 million. The mix of employees employed during the first
quarter of 1999 contained a significantly higher number of high-end programmers
and developers as well as a new highly experienced management staff versus those
on payroll during the first quarter of 1998. The Company's continuing
operations had approximately 140 employees during the first quarter of 1999
versus approximately 60 employees during the first quarter of 1998. Increases
in legal and travel expense accounted for the majority of the remaining
increase.
Other Expense, net. Other expense increased by $39,800 because the Company
expensed certain fixed assets that it determined to be obsolete or no longer in
use.
Interest Income, net. Net interest income for the three months ended March 31,
1999 was $120,200 compared to a net interest income of $65,200 for the three
months ended March 31, 1998, an increase of $55,000. This increase was because
in 1998 the interest from short-term debt securities was not recognized until
they were sold subsequent to March of 1998.
Income from Discontinued Operations. The income from discontinued operations
for the three months ended March 31, 1999 was $78,900 compared to $25,600 in the
three months ended March 31, 1998. The seminar division comprised of the
majority of the discontinued operations, all of which were discontinued in
August 1998. The gain was primarily from the sale of the assets relating to the
former seminar division.
4
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LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1999 the Company received the balance of $3,220,000
pertaining to the First Data Merchant Services Corporation ("First Data")
investment of 2,000,000 shares of the Company's common stock ("Common Stock").
First Data had previously funded an amount equal to $10,780,000 in connection
with its investment during the fourth quarter of 1998. The Company received
approximately $3,000,000 from the exercise of warrants and stock options during
the quarter.
As of March 31, 1999, the Company had current assets of $12,358,000 with a
cash and cash equivalents balance of $11,833,700 and current liabilities of
$2,274,000.
The Company is currently generating cash receipts (exclusive of financing
activities) of approximately $250,000 per month and incurring cash expenses in
the amount of approximately $1,400,000 per month. The Company anticipates
capital expenditures will total approximately $3,000,000 in 1999 of which
$823,000 has been spent through the first quarter of 1999. In March 1999 the
Company called its remaining outstanding convertible preferred stock. This
required paying a final dividend of approximately $200,000. The Company paid the
fourth quarter dividend on its Series A 9% Convertible Preferred Stock (the
"Convertible Preferred Stock") of $898,000 in the first quarter of 1999. The
Company may also spend funds to invest in various forms of advertising to
increase awareness of the Company and its services. In April of 1999 the Company
paid the agreed upon settlement of $750,000 with the Federal Trade Commission
which was previously disclosed and accrued for. If the Company is able to
successfully implement its current business plan, the Company believes that it
will be able to fund its continuing operations with existing cash, cash
expected to be generated by continuing operations and other sources for at least
the next twelve months.
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 and generate positive cashflow. If the Company does not generate
positive cashflow, the Company will be required to raise additional capital
through debt or equity financing. There can be no assurance, however, 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.
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 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.
Year 2000
Many currently installed computer systems, hardware and software products are
coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates, and as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with "Year 2000" requirements.
Internal Systems
The Company's business is dependent on its operating systems and the programs
that run on them to deliver services to its customers and to manage its
business. These programs include hardware and software supplied by third
parties, as well as software the Company has developed.
The Company believes that its operating systems and the programs that run on
them are Year 2000 compliant because the Company purchased such operating
systems and programs during 1998 from suppliers that represented them to be Year
2000 compliant.
Nonetheless, the Company has appointed a Y2K Compliance Team, which has
designed and begun implementing a five-phase plan to mitigate possible Year 2000
effects on the Company's business and systems.
Awareness Phase: Consists of increasing Company awareness of Year 2000 issues
through education of all appropriate levels of management by the Y2K Compliance
Team.
Inventory Phase: Involves identifying all components of the Company's systems
that may be impacted by Year 2000 issues, including hardware, software,
suppliers and proprietary systems.
Assessment Phase: Includes testing essential internal hardware and software
systems as well as non-information technology systems; verifying compliance by
third party vendors, merchants and business partners; assessing the impact of
compliance (or non-compliance) by third party vendors, merchants and business
partners; and developing a plan to repair all systems in need of correction.
Remediation Phase: Consists of implementing the plan to repair, replace or
retire those systems identified as needing correction in the Assessment Phase,
and testing all repaired and replaced systems installed for Year 2000
compliance.
Contingency Planning Phase: Involves developing the Company's response to
failure of mission critical systems and other major risks related to Year 2000
compliance.
At the present time, the Company has completed the Awareness Phase and the
Inventory Phase. The Company recently initiated the Assessment Phase, and
expects to substantially complete it, along with the Remediation Phase, by the
end of second quarter 1999. The Company plans to complete the Contingency
Planning Phase by mid-third quarter 1999.
There can be no assurance, however, that the Company will succeed in
addressing all Year 2000 issues. If the Company fails to complete its five-phase
plan, or if the Company fails to detect any Year 2000 problems during a
particular phase of testing, the Company could be subject to a material
interruption of its business or other consequences, which could have a material
adverse effect on the Company's results of operations and financial condition.
While the Company does not presently expect such a material interruption to
occur, the Company believes its worst case scenario would involve an
unanticipated defect in one or more of its critical hardware or software systems
or those of a critical outsourcing or business partner, resulting in the
inability of the Company to maintain and operate its Web sites or process
transactions generated by its Web sites, thereby interrupting the Company's
business and exposing the Company to contract and other claims against it by its
customers, merchants and business partners.
Furthermore, Year 2000 issues may affect the purchasing patterns of merchants
and advertisers as such merchants and advertisers expend development and
financial resources to remediate their current systems.
The Company has entered into several business agreements, such as the
Investment Agreement with First Data, in which the Company warrants that it is
Year 2000 compliant. Any failure by the Company to achieve Year 2000 readiness
would thus result in a breach of such agreements and expose the company to
potential liabilities which could have a material adverse effect on the
Company's results of operations and financial condition.
Systems of Vendors, Merchants and Business Partners
The Company could be affected by failure of its vendors, merchants and
business partners to have systems that are Year 2000 compliant. For example, if
the Company's credit card processors are not Year 2000 compliant, the Company
will not be able to process credit card sales. The Company is not presently
aware of any existing third party Year 2000 issues that would materially affect
the Company. Regardless, as part of Company's Assessment Phase, the Company will
make inquiries to verify compliance by third party vendors. If current or future
vendors, merchants or business partners fail to achieve Year 2000 compliance, it
could result in a material adverse effect on the Company's results of operations
and financial condition.
Non-Information Technology Systems
The Company could be affected by failure of non-information technology systems
and devices used by the Company in its business, such as building systems. The
Company plans to test such systems for Year 2000 compliance during its
Assessment Phase. However, failure of such systems could have a material adverse
effect on the Company's results of operations and financial condition.
Infrastructure
As with similarly situated Internet and other companies, the Company relies
upon various governmental agencies, utility companies and telecommunication
service companies, including Internet and other service providers, that are
outside of the Company's control. Failure of such parties to have systems that
are Year 2000 compliant may result in an interruption in, or a failure of,
certain normal business activities or operations, which could have a material
adverse effect on the Company's results of operations and financial condition.
Costs to Address the Company's Year 2000 Issues
To date, the Company has not incurred any material costs associated with Year
2000 compliance. Moreover, based on the Company's assumptions that its own
systems are Year 2000 compliant, the Company does not expect to incur any
material costs in the future associated with Year 2000 compliance, with the
exception of internal staff costs and expenditures. Should the Company's
assumptions prove inaccurate, the Company could be required to incur material
costs of unknown magnitude.
In addition to its efforts to confirm its Year 2000 compliance, the Company
also endeavors to mitigate the risks associated with other system failures. To
that end, the Company currently has in place dual Internet connectivity,
redundant air conditioning systems, redundant hardware and an on-site emergency
generator. Furthermore, the Company has plans to begin implementation of
redundant installation and facilities during 1999. There can be no assurance,
however, that the Company will not experience system outages that, if
sufficiently severe, could have a material adverse effect on the Company's
results of operations and financial condition.
The above discussion regarding costs and risks is based on the Company's best
current estimates given information that is currently available to it, and is
subject to change.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings in the ordinary course
of business, but is aware of no legal proceedings which appear at this time as
if they might have a material impact on its financial position, results of
operations or business.
ITEM 2 (c)
Recent Sales of Unregistered Securities
On March 8, 1999, the Company issued a combined total of 450,000 shares of
Common Stock and options to acquire common stock in exchange for all of the
outstanding shares of Common Stock of Pure Payments, Inc. These issuances were
exempt from registration under Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
5
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on February 5,
1999. The stockholders approved the issuance to First Data (or certain
successors or permitted transferees) of (A) 460,000 shares of Common Stock, (B)
a warrant to purchase 5,000,000 shares (subject to certain antidilution
adjustments) of Common Stock (the "Warrant"), and (C) shares of Common Stock
issuable upon the exercise of the Warrant. The results of the voting at the
special meeting were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
12,359,548 50,321 28,651 0
</TABLE>
In February 1999, holders of approximately 70% of the Company's outstanding
Convertible Preferred Stock approved by written consent an amendment to the
Certificate of Designation, Preferences and Rights of the Convertible Preferred
Stock that eliminated a downward adjustment of the conversion price thereof.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 - First Amendment to lease dated as of March 31, 1999 between
the Company and Searise Associates, LLC.
Exhibit 10.2 - Form of Indemnification Agreement between the Company and
its officers and directors
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
iMALL, INC.
May 14, 1999
By: /s/ RICHARD M. ROSENBLATT
---------------------------------------
Richard Rosenblatt, Chairman of the
Board and Chief Executive Officer
By: /s/ ANTHONY P. MAZZARELLA
---------------------------------------
Anthony P. Mazzarella
Executive Vice President,
Chief Financial Officer,
Secretary/Treasurer, Director
6
<PAGE>
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,833,700 $ 11,180,700
Accounts receivable, net 268,000 264,400
Prepaid expenses 163,200 144,000
Other current assets 93,100 425,800
------------ ------------
Total Current Assets 12,358,000 12,014,900
------------ ------------
Property and Equipment, Net 8,371,600 2,085,400
------------ ------------
Other Assets:
Other assets 166,100 152,700
Net long-term assets of discontinued operations -- 248,800
------------ ------------
Total Other Assets 166,100 401,500
------------ ------------
Total Assets $ 20,895,700 $ 14,501,800
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 342,100 $ 1,002,900
Accrued expenses 427,100 144,300
Wages payable 418,100 418,300
Accrued legal costs -- 193,600
Deferred revenues 168,800 254,500
Dividends payable -- 898,900
Current portion of capitalized lease obligations 42,900 --
Net short term liabilities of discontinued operations 875,000 875,000
------------ ------------
Total Current Liabilities 2,274,000 3,787,500
------------ ------------
Capitalized Lease Obligations, net of current portion 105,100 --
------------ ------------
Commitments and Contingencies -- --
Stockholders' Equity:
Preferred stock, liquidation value of $0 and $16,411,500
at March 31, 1999 and December 31, 1998 respectively,
10,000,000 shares authorized, 0 and 4,102,879 shares
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively -- 16,411,500
Common stock, par value $.008; 37,500,000 shares
authorized, 17,645,266 and 10,635,756 shares issued
and outstanding at March 31, 1999 and
December 31, 1998, respectively 141,200 85,100
Additional paid-in capital 42,283,000 14,317,900
Accumulated deficit (23,502,600) (19,695,200)
Common stock held in treasury, at cost (405,000) (405,000)
------------ ------------
Total Stockholders' Equity 18,516,600 10,714,300
------------ ------------
Total Liabilities and Stockholders' Equity $ 20,895,700 $ 14,501,800
============ ============
</TABLE>
See notes to condensed consolidated balance sheets.
7
<PAGE>
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------
1999 1998
------ ------
<S> <C> <C>
REVENUES $ 778,700 $ 222,200
COST OF REVENUES 418,800 38,600
----------- -----------
Gross Profit 359,900 183,600
SELLING EXPENSES 447,000 403,800
PRODUCT DEVELOPMENT 1,275,700 316,000
GENERAL AND ADMINISTRATIVE EXPENSES 2,403,000 773,600
----------- -----------
Operating Loss (3,765,800) (1,309,800)
----------- -----------
OTHER INCOME AND EXPENSES:
Other Expense, net (39,800) --
Interest Income, net 120,200 65,200
----------- -----------
Total Other Income, net 80,400 65,200
----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (3,685,400) (1,244,600)
PROVISION FOR INCOME TAXES 1,600 --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (3,687,000) (1,244,600)
DISCONTINUED OPERATIONS:
(Loss) Income from operations (17,100) 25,600
Gain on sale of assets 96,000 --
----------- -----------
INCOME FROM DISCONTINUED OPERATIONS 78,900 25,600
----------- -----------
NET LOSS $(3,608,100) $(1,219,000)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
Loss from continuing operations $ (0.28) $ (0.22)
Income from discontinued operations 0.01 --
----------- --------------
NET LOSS $ (0.27) $ (0.22)
=========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING 13,902,672 7,652,494
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE>
IMALL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
---------------------------------------
1999 1998
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,608,100) $(1,219,000)
Adjustments to reconcile net
loss to net cash used in operating activities:
Income from discontinued operations (78,900) (25,600)
Depreciation and amortization 417,200 78,000
Changes in assets and liabilities, net of effects from purchase
of Pure Payments Inc. in fiscal 1999:
Accounts receivable (300) (12,000)
Prepaid expenses (14,400) (30,400)
Other current assets 355,600 5,000
Other assets 4,300 (300)
Accounts payable (660,800) 534,600
Accrued expenses (25,600) 179,400
Income tax receivable -- 3,500
Deferred revenues (85,700) 8,100
----------- -----------
Net cash used in Operating Activities (3,696,700) (478,700)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (822,700) (845,600)
Increase in intangible assets -- (33,400)
Proceeds from sales of investments in marketable securities -- 5,000,300
Cash acquired in business acquisition 374,000 --
----------- -----------
Net cash (used in) provided by Investing Activities (448,700) 4,121,300
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,928,900 --
Financing cost related to private placement of
preferred stock -- (26,600)
Principal payments on obligations under capital leases (1,900) (5,200)
Dividends paid (1,098,200) --
----------- -----------
Net cash provided by (used in) Financing Activities 4,828,800 (31,800)
----------- -----------
Cash provided by continuing operations 683,400 3,610,800
Cash used in discontinued operations (30,400) (1,096,300)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 653,000 2,514,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,180,700 4,775,100
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,833,700 $ 7,289,600
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 3,700 $ 2,300
=========== ===========
Income taxes paid $ 4,800 $ 2,600
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
9
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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, 1999, are not
necessarily indicative of the operating results for the year ended December 31,
1999. 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) 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 general-purpose financial statements. The statement is effective for fiscal
years beginning after December 15, 1997. The Company did not have any
operations or transactions during 1999 or 1998 that would give rise to elements
of comprehensive income.
In June 1997, the FASB issue SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 redefines the way publicly
held companies report information about segments. The statement is effective
for fiscal years beginning after December 15, 1997. Currently, management
makes decisions and assesses performance of the Company based on consolidated
operations and results.
In February 1998, the FASB issued Statement of Financial Accounting Standard
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement, which is effective for financial periods ending
after December 15, 1998, requires full disclosure of all pensions plans and
other postretirement benefit plans. The Company does not currently have any
pensions or other postretirement benefit plans.
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for financial periods beginning after June 15,
1999, addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
The Company has not historically or does not currently hold any derivative
instruments or participate in any hedging activities.
10
<PAGE>
(3) Net Loss Per Common Share.
Net loss per common share is based on the weighted-average number of common
shares outstanding for each period reported. In preparing the calculation of
earnings per share, the net loss was increased by $199,300 to $3,807,400 or
$0.27 per common share for the three months ended March 31, 1999 and by $450,000
to $1,669,000 or $0.22 per common share for the three months ended March 31,
1998 due to the effect of cumulative preferred stock dividends. The earnings per
share computation for the 1999 and 1998 period excludes 3.0 million and 1.6
million shares respectively for stock options/compensation plans, warrants
convertible into 2.7 million and 3.5 million shares of common stock as well as
6.25 million shares for convertible securities in 1998 because their effect
would have been antidilutive.
(4) 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.
The Company had outstanding options to acquire an aggregate of 2,444,000
shares at December 31, 1998. During the three months ended March 31, 1999, the
Company granted a total of 632,000 new options, 66,000 options were exercised
and 27,000 options were cancelled during this period bringing the total
outstanding options at March 31, 1999 to 2,983,000.
(5) Acquisition
On March 8, 1999, the Company 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 its common stock and options to purchase shares of its
common stock valued at approximately $6.0 million. Prior to this acquisition,
the Company 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 its EC services.
11
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO LEASE
------------------------
This First Amendment to Lease (the "Agreement) is made as of this 31st day
of March, 1999 by and between SEARISE ASSOCIATES, LLC, a California limited
liability company ("Landlord") and iMALL, INC., a Nevada corporation ("Tenant").
Recitals
--------
A. Pursuant to a Lease Agreement between Landlord and Tenant dated June 4,
1998 (the "Lease") Landlord leases to Tenant and Tenant leases from Landlord
approximately 8,156 rentable square feet of office space in Suites 820, 825,
830, and 840 (the "Existing Premises") situated in the building commonly known
as The SeaRise Building located at 233 Wilshire Boulevard, Santa Monica, CA
90401 (the "Building")
B. The Term of the Lease is scheduled to expire August 31, 2008.
C. Tenant has exercised its one-time Right of First Offer as set out in
Paragraph 38 of the Lease to lease Suite 800 (the "Expansion Premises"). The
Expansion Premises contains approximately 2,922 rentable square feet.
D. The parties hereto desire to memorialize the exercise of the Right of
First Offer and their agreement concerning the amount of Base Rent payable by
Tenant for the Expansion Premises and to make other changes in the Lease, all as
hereinafter provided.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. All capitalized terms not otherwise defined herein shall have the meaning
given them in the Lease.
2. Reference is hereby made to Paragraph 38 of the Lease. The parties hereto
confirm that Tenant has exercised the Right of First Offer and that by Tenant's
exercise of the Right of First Offer, Tenant leases from Landlord the Expansion
Premises commencing July 1, 1999 ("Expansion Premises Commencement Date") and
continuing throughout the Term of the Lease.
3. Tenant shall take the Expansion Premises in their existing "AS IS" condition
and Landlord agrees to construct improvements in the Expansion Premises in
accordance with the provisions of the Construction Rider attached hereto as
Exhibit B.
- ---------
4. Commencing on the Expansion Premises Commencement Date and continuing
throughout the Term of the Lease, in addition to the Base Rent payable by Tenant
for the Existing Premises, Tenant shall pay Base Rent for the Expansion Premises
as follows:
<PAGE>
<TABLE>
<C> <S>
07/01/99 - 04/30/01: $8,619.90 per month ($2.95/rsf/mo)
05/01/01 - 02/28/03: $9,058.20 per month ($3.10/rsf/mo)
03/01/03 - 12/31/04: $9,350.40 per month ($3.20/rsf/mo)
01/01/05 - 10/31/06: $9,642.60 per month ($3.30/rsf/mo)
11/01/06 - 08/31/08: $9,934.80 per month ($3.40/rsf/mo)
</TABLE>
5. Reference is hereby made to Base Year in the Basic Lease Information of the
Lease. Effective on the Expansion Premises Commencement Date, the Base Year
with respect to the Expansion Premises shall be 1999.
6. Reference is hereby made to Paragraph 39 of the Lease. Effective as of the
Expansion Premises Commencement Date the schedule for the reduction in the
face amount of the Letter of Credit shall be changed to read as follows:
<TABLE>
<CAPTION>
Period Minimum Amount Available
------ ------------------------
Under the Letter of Credit
--------------------------
<S> <C>
Commencement Date through 08/31/00: $400,000.00
09/01/00 - 08/31/01: $312,536.43
09/01/01 - 08/31/02: $261,821.81
09/01/02 - 08/31/03: $205,796.70
09/01/03 - 08/31/04: $143,905.04
09/01/04 - 08/31/05: $ 75,532.49
</TABLE>
7. The effectiveness and validity of this Agreement is contingent upon the
receipt by Landlord on or before May 5, 1999 of an amendment to the Letter of
Credit extending the expiration of the Letter of Credit to August 31, 2000.
8. Effective on the Expansion Premises Commencement Date, pursuant to Paragraph
36 (a) of the lease, Tenant shall be entitled to nine (9) additional
unassigned, non-exclusive parking spaces at the Prevailing Parking Rental for
a total of thirty-three (33) unassigned, non-exclusive parking spaces.
9. Tenant warrants and represents to Landlord that in the negotiating or making
of this Agreement neither Tenant nor anyone acting on Tenant's behalf has
dealt with any broker or finder, other than Stone Company, who might be
entitled to a fee or commission for this Agreement. Tenant shall indemnify
and hold Landlord harmless from any claim or claims, including costs,
expenses and attorney's fees incurred by Landlord asserted by any other
broker or finder for a fee or commission based upon any dealings with or
statements made by Tenant or Tenant's Representatives.
If Tenant is a corporation or a partnership, each of the persons executing
this Agreement on behalf of Tenant warrants and represents that Tenant is a duly
authorized and existing entity that Tenant has full right and authority to enter
into this Agreement and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Agreement.
<PAGE>
Tenant shall provide Landlord, upon request, with evidence reasonably
satisfactory to Landlord confirming the foregoing representations.
Except as herein amended the Lease remains unchanged and is in full force
and effect in accordance with the terms and provisions contained therein. This
First Amendment is hereby executed and delivered in multiple counterparts, each
of which shall have the force and effect of an original.
TENANT: LANDLORD:
iMALL, INC., SEARISE ASSOCIATES, LLC,
a Nevada corporation a California limited liability company
By: ___________________________ By: Cornerstone Holdigns, LLC
Name: ____________________ a Delaware limited liability company
Title: ____________________ Manager
By: ___________________________ By: ___________________________
Name: ____________________ Name: ____________________
Title: ____________________ Title: Authorized Signatory
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
FIRST AMENDMENT TO LEASE
DATED AS OF MARCH 31, 1999
BETWEEN
SEARISE ASSOCIATES, LLC, AS LANDLORD,
AND
iMALL, INC., AS TENANT ("AGREEMENT")
THE EXPANSION PREMISES
----------------------
[Floor plan showing location
and configuration of Expansion Premises
to be inserted.]
INITIALS:
Landlord ______
Tenant ______
Exhibit A, Page 1
<PAGE>
EXHIBIT B
---------
ATTACHED TO AND FORMING A PART OF
FIRST AMENDMENT TO LEASE
DATED AS OF MARCH 31, 1999
BETWEEN
SEARISE ASSOCIATES, LLC, AS LANDLORD,
AND
iMALL, INC., AS TENANT ("AGREEMENT")
CONSTRUCTION RIDER
-------------------
1. Tenant Improvements. Tenant has inspected and examined the
-------------------
Expansion Premises and has elected to lease the Expansion Premises as provided
in this Agreement and the Lease on a strictly "AS IS" basis. However, Landlord
shall with reasonable diligence through a contractor designated by Landlord
(which contractor may be an affiliate of Landlord) construct and install in the
Expansion Premises the improvements and fixtures provided for in this
Construction Rider ("Tenant Improvements"). Upon request by Landlord, Tenant
shall designate in writing an individual authorized to act as Tenant's
Representative with respect to all approvals, directions and authorizations
pursuant to this Construction Rider.
1.1. Plans. On or before May 7, 1999, Tenant shall cause the space
-----
planner (the "Space Planner") who has been retained by Tenant as the Space
Planner for the Expansion Premises to prepare a space plan (the "Space Plan") to
be used for the construction of the Tenant Improvements in the Expansion
Premises. Such Space Plan shall be submitted for Landlord's approval and
Landlord shall approve or disapprove the Space Plan within three (3) Business
Days after receipt thereof. The Tenant Improvements shall be constructed
substantially as shown on the Space Plan as approved by Landlord.
As soon as may be reasonably practicable after approval of the Space
Plan by Landlord, the Space Planner will prepare and deliver to Landlord
detailed plans and specifications sufficient to permit the construction of the
Tenant Improvements by Landlord's contractor ("Construction Documents").
Landlord will cause Landlord's contractor to prepare a cost estimate ("Cost
Estimate") for the work shown on the Construction Documents. Tenant shall
respond to the Cost Estimate within five (5) Business Days after receipt thereof
specifying any changes to the Construction Documents based on the Cost Estimate.
The Construction Documents and Cost Estimate, as approved by Tenant and
Landlord, are hereinafter referred to as the "Final Construction Documents" and
"Final Cost Estimate," respectively.
Additional interior decorating services and advice on the furnishing
and decoration of the Expansion Premises, such as the selection of fixtures,
furnishings or design of mill work, shall be provided by Tenant at its expense,
but shall be subject to the reasonable approval of Landlord.
Exhibit B, Page 1
<PAGE>
1.2. Construction. Upon approval by Landlord and Tenant of the Final
------------
Construction Documents and the Final Cost Estimate, Landlord shall proceed with
reasonable diligence to cause the Tenant Improvements to be substantially
completed. The Tenant Improvements shall be deemed to be substantially
completed when they have been completed in accordance with the Final
Construction Documents except for finishing details, minor omissions,
decorations and mechanical adjustments of the type normally found on an
architectural "punch list.
Within 30 days after substantial completion, Landlord and Tenant shall
inspect the Expansion Premises and jointly prepare a "punch list" of agreed
items of construction remaining to be completed. Landlord shall complete the
items set forth in the punch list as soon as reasonably possible. Tenant shall
cooperate with and accommodate Landlord and Landlord's contractor in completing
the items on the punch list.
1.3. Cost of Tenant Improvements. Landlord shall contribute up to
---------------------------
$43,214.00 toward the cost of the design (including preparation of space plans
and Construction Documents), construction and installation of the Tenant
Improvements in the Expansion Premises. The balance, if any, of the cost of the
Tenant Improvements ("Additional Cost"), including, but not limited to, usual
markups for overhead, supervision and profit, shall be paid by Tenant. Tenant
shall pay Landlord 50% of the Additional Cost based upon the Final Cost Estimate
prior to the commencement of construction of the Tenant Improvements. The
balance of the actual Additional Cost shall be paid to Landlord upon substantial
completion of the Tenant Improvements, within ten (10) days after receipt of
Landlord's invoice therefor.
1.4. Changes. If Tenant requests any change, addition or alteration
-------
in or to any Final Construction Documents ("Changes") Tenant shall cause the
Space Planner to prepare additional Plans implementing such Change at Tenant's
sole cost and expense. Tenant shall submit the changed Plans to Landlord for its
approval. Within three (3) Business Days after receipt of the Plans Landlord
shall notify Tenant in writing whether Landlord approves the Change. If
Landlord approves the Change, Landlord shall proceed with the Change and Tenant
shall be liable for any Additional Cost resulting from the Change. If Landlord
fails to approve the Change within such three (3) day period, construction of
the Tenant Improvements shall proceed as provided in accordance with the
original Construction Documents.
1.5. Delays. Intentionally deleted.
------
2. Delivery of Expansion Premises. If Landlord has not tendered
------------------------------
possession of the Expansion Premises to Tenant on or before the scheduled
Expansion Premises Commencement Date specified in Paragraph 2 of this Agreement,
or if Landlord is unable for any other reason to deliver possession of the
Expansion Premises to Tenant on or before such date, neither Landlord nor its
representatives shall be liable to Tenant for any damage resulting from the
delay in delivering possession to Tenant and this Agreement shall remain in full
force and effect unless and until it is terminated under the express provisions
of this Paragraph.
Notwithstanding the foregoing, if the Expansion Premises Commencement
Date has not occurred or been deemed to have occurred within six (6) months
after the scheduled Expansion
Exhibit B, Page 2
<PAGE>
Premises Commencement Date, either party, by written notice to the other party
given within ten (10) days after the expiration of such six (6) month period,
may terminate this Agreement without any liability to the other party; provided,
however, that if the delay in the Expansion Premises Commencement Date is caused
by delays of the type described in Section 26 - Force Majeure of the Lease, and
if Tenant elects to terminate as provided above, then Tenant shall reimburse
Landlord, within thirty (30) days after receipt of notification from Landlord of
the amounts due, for any amounts expended or incurred by Landlord for the
design, construction and installation of the Tenant Improvements and for
brokerage commissions and legal fees in connection with the preparation and
negotiation of this Agreement. If Tenant fails to perform any of Tenant's
obligations under this Construction Rider within the time periods specified
herein, Landlord may, in lieu of terminating this Agreement under the foregoing
provisions, treat such failure of performance as an Event of Default under the
Lease with respect to the Expansion Premises.
3. Access to Expansion Premises. Landlord shall allow Tenant and
----------------------------
Tenant's Representatives to enter the Expansion Premises prior to the
Commencement Date to permit Tenant to make the Expansion Premises ready for its
use and occupancy; provided, however, that prior to such entry of the Expansion
Premises, Tenant shall provide evidence reasonably satisfactory to Landlord that
Tenant's insurance, as described in Section 11.1 - Tenant's Insurance of the
Lease, shall be in effect as of the time of such entry. Such permission may be
revoked at any time upon twenty-four (24) hours' notice, and Tenant and its
Representatives shall not interfere with Landlord or Landlord's contractor in
completing the Building or the Tenant Improvements.
Tenant agrees that Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of Tenant's property placed upon
or installed in the Expansion Premises prior to the Expansion Premises
Commencement Date, the same being at Tenant's sole risk, and Tenant shall be
liable for all injury, loss or damage to persons or property arising as a result
of such entry into the Expansion Premises by Tenant or its Representatives.
4. Ownership of Tenant Improvements. All Tenant Improvements,
--------------------------------
whether installed by Landlord or Tenant, shall become a part of the Premises,
shall be the property of Landlord and, subject to the provisions of the Lease,
shall be surrendered by Tenant with the Premises, without any compensation to
Tenant, at the expiration or termination of the Lease in accordance with the
provisions of the Lease.
INITIALS:
Landlord ______
Tenant ______
Exhibit B, Page 3
<PAGE>
EXHIBIT 10.2
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the ___ day of __________, 1999 between iMALL,
Inc., a Nevada corporation (the "Corporation"), and ___________________, (the
"Indemnitee").
WITNESSETH THAT:
WHEREAS, it is in the Corporation's best interest to attract and retain
capable directors ("Directors") and officers ("Officers");
WHEREAS, both the Corporation and the Indemnitee recognize the increased
risk of litigation and other claims being asserted against directors and
officers of public corporations in today's environment;
WHEREAS, each of Article VI of the Corporation's Articles of Incorporation,
Section 78.7502 of the Nevada Revised Statutes ("NRS") and Article 5 of the
Corporation's Second Amended and Restated Bylaws expressly recognizes that the
right of indemnification provided therein shall not be exclusive of any other
rights to which any indemnified person may otherwise be entitled; and
WHEREAS, the Corporation's Second Amended and Restated Bylaws, its Articles
of Incorporation and applicable law permit contracts between the Corporation, on
the one hand, and the members of its Board of Directors and Officers, on the
other hand, covering indemnification.
NOW, THEREFORE, the parties hereto agree as follows:
1. Indemnity. In consideration of the Indemnitee's agreement to serve or
continue to serve as a Director and/or Officer of the Corporation, or, at
the request of the Corporation, as a director, officer, employee, fiduciary
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including, without limitation, any employee benefit plan)
("Designated Director"), for so long as he or she is duly elected and/or
appointed and continues to serve as a Director and/or Officer in accordance
with the Corporation's Second Amended and Restated Bylaws, the Corporation
hereby agrees to hold the Indemnitee harmless and to indemnify the
Indemnitee to the fullest extent permitted by applicable law from and
against any and all expenses, liabilities or losses asserted against or
incurred by the Indemnitee in his or her capacity as a Director and/or
Officer of the Corporation or a Designated Director or arising out of his
or her status in either such capacity.
<PAGE>
2. Maintenance of Insurance. (a) Subject only to the provisions of
Section 2(b) hereof, the Corporation hereby agrees that, so long as the
Indemnitee shall continue to serve as a Director and/or Officer of the
Corporation or a Designated Director, and thereafter so long as the
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or
investigative (including an action by or in the right of the Corporation),
by reason of the fact that the Indemnitee was a Director and/or Officer of
the Corporation, the Corporation will provide insurance coverage comparable
to that provided under the Corporation's Directors' and Officers' Liability
Insurance policies (the "Insurance Policies") in effect December 1, 1998.
(b) However, the Corporation shall not be required to maintain all or
any of such insurance policies or comparable insurance coverage if, in the
business judgment of the Board of Directors of the Corporation, (i) the
premium cost for such insurance is substantially disproportionate to the
amount of coverage, or (ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient benefit from such
insurance or (iii) such insurance is otherwise not reasonably available.
3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, the Corporation hereby further agrees to hold harmless
and indemnify the Indemnitee:
(1) to the fullest extent provided under Article VI of the
Corporation's Articles of Incorporation and under Article 5 of the
Corporation's Second Amended and Restated Bylaws as in effect at the
date hereof; and
(2) in the event the Corporation does not maintain in effect the
insurance coverage provided under Section 2 hereof, to the full extent
of the coverage which would otherwise have been provided for the benefit
of the Indemnitee pursuant to the Insurance Policies in effect at
December 1, 1998.
4. Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(1) except to the extent the aggregate of losses to be indemnified
thereunder exceed the amount of such losses for which the Indemnitee is
indemnified or insured pursuant to either Section 1 or 2 hereof;
(2) in respect of remuneration paid to, or indemnification of, the
Indemnitee, if it shall be determined by a final judgment or other final
adjudication that such remuneration or indemnification was or is
prohibited by applicable law;
2
<PAGE>
(3) for any transaction from which the Indemnitee derived an improper
personal benefit;
(4) for any breach of the Indemnitee's duty to act in good faith and
in a manner he or she reasonably believed to be in or not opposed to the
best interest of the Corporation; or
(5) in respect of acts or omissions which involve intentional
misconduct or a knowing violation of law by the Indemnitee.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period the
Indemnitee is a Director and/or Officer of the Corporation and shall
continue thereafter so long as the Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative (including an action
by or in the right of the Corporation), by reason of the fact that the
Indemnitee was a Director and/or Officer of the Corporation or a Designated
Director.
6. Notification and Defense of Claim. Promptly after receipt by the
Indemnitee of notice of the commencement of any action, suit or proceeding,
the Indemnitee shall, if a claim in respect thereof is to be made against
the Corporation under this Agreement, notify the Corporation of the
commencement thereof at the address provided herein (such address being
subject to change by written notice from the Corporation); but an omission
so to notify the Corporation will not relieve it from any liability which
it may have to the Indemnitee otherwise than under this Agreement,
including, without limitation, its liability under the Corporation's
Articles of Incorporation and Second Amended and Restated Bylaws. With
respect to any such action, suit or proceeding:
(1) the Corporation shall be entitled to participate therein at its
own expense;
(2) except as otherwise provided below, to the extent that it may
wish, the Corporation jointly with any other indemnifying party shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnitee. After notice from the Corporation to the Indemnitee of its
election so to assume the defense thereof, the Corporation will not be
liable to the Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the
defense thereof other than reasonable costs of investigation or as
otherwise provided below. The Indemnitee shall have the right to employ
its counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee has
been authorized
3
<PAGE>
by the Corporation, (ii) the Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Corporation and the
Indemnitee in the conduct of the defense of such action, or (iii) the
Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which the
Indemnitee shall have made the conclusion provided for in (ii) above;
and
(3) the Corporation shall not be liable to indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. The Corporation shall not
settle any action or claim in any manner that would impose any penalty
or limitation on the Indemnitee without the Indemnitee's written
consent. Neither the Corporation nor the Indemnitee will unreasonably
withhold their consent to any proposed settlement.
7. Advancement and Repayment of Expenses. Expenses incurred in
connection with any action, suit or proceeding involving the Indemnitee and
in respect of which a claim is made against the Corporation under this
Agreement shall be paid promptly by the Corporation in advance of the final
disposition of such action, suit or proceeding. The Indemnitee agrees that
the Indemnitee will reimburse the Corporation for all reasonable expenses
advanced, paid or incurred by the Corporation on behalf of the Indemnitee
in respect of a claim against the Corporation under this Agreement in the
event and only to the extent that it shall be ultimately determined that
the Indemnitee is not entitled to be indemnified by the Corporation for
such expenses under the provisions of NRS Chapter 78.
8. Enforcement. If a claim under this Agreement is not paid in full
by the Corporation within ninety days after a written claim has been
received by the Corporation, the Indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim and, if successful in whole or in part, the Indemnitee shall also be
entitled to be reimbursed for all expenses actually and reasonably incurred
by the Indemnitee in connection with the prosecution of such claim.
9. Severability. If any provision of this Agreement shall be held to
be or shall, in fact, be invalid, inoperative or unenforceable as applied
to any particular case or in any particular jurisdiction, for any reason,
such circumstances shall not have the effect of rendering the provision in
question invalid, inoperative or unenforceable in any other distinguishable
case or jurisdiction, or of rendering any other provision or provisions
herein contained invalid, inoperative or unenforceable to any extent
whatsoever. The invalidity, inoperability or unenforceability of any one or
more phrases, sentences, clauses or Sections
4
<PAGE>
contained in this Agreement shall not affect any other remaining part of
this Agreement.
10. Governing Law; Binding Effect; Amendment or Termination.
(a) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Nevada.
(b) This Agreement shall be binding upon the Indemnitee and upon the
Corporation and its successors and assigns, and shall inure to the
benefit of the Indemnitee and his or her heirs, personal
representatives, executors and administrators, and to the benefit of the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
iMALL, Inc.
By:
----------------------------------
Name:
Title:
233 Wilshire Boulevard, Suite 820
Santa Monica, CA 90401
----------------------------------
Indemnitee
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,833,700
<SECURITIES> 0
<RECEIVABLES> 328,000
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,358,000
<PP&E> 9,562,200
<DEPRECIATION> 1,190,600
<TOTAL-ASSETS> 20,895,700
<CURRENT-LIABILITIES> 2,274,000
<BONDS> 0
141,200
0
<COMMON> 0
<OTHER-SE> 18,375,400
<TOTAL-LIABILITY-AND-EQUITY> 20,895,700
<SALES> 0
<TOTAL-REVENUES> 778,700
<CGS> 0
<TOTAL-COSTS> 418,800
<OTHER-EXPENSES> 4,125,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,700
<INCOME-PRETAX> (3,685,400)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (3,687,000)
<DISCONTINUED> 78,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,608,100)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
