SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 0-20771
DATAMARK HOLDING, INC.
(exact name of registrant as specified in its charter)
Delaware 87-0461856
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
488 E. Winchester Street, Suite 100
Salt Lake City, Utah 84107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code:
(801) 268-1001
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 and 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The Registrant has only one class of stock issued and outstanding which
is Common Stock with $.0001 par value. As of November 12, 1996, 8,110,407 of
the Registrant's Common Shares were issued and outstanding.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 11,180,292 $ 13,159,404
Trade accounts receivable 688,186 502,996
Inventory 67,185 82,972
Note receivable from officer 1,000 1,000
Other current assets 12,644 29,370
-------------------- --------------------
Total current assets 11,949,307 13,775,742
-------------------- --------------------
PROPERTY AND EQUIPMENT:
Computer and office equipment 3,163,820 2,752,114
Printing equipment 319,895 259,198
Furniture, fixtures and leasehold
improvements 488,649 188,099
Vehicles 40,525 40,525
-------------------- --------------------
4,012,889 3,239,936
Less accumulated depreciation and
amortization (542,282) (476,573)
-------------------- --------------------
Net property and equipment 3,470,607 2,763,363
-------------------- --------------------
OTHER ASSETS 27,316 4,148
-------------------- --------------------
$ 15,447,230 $ 16,543,253
==================== ====================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
2
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 423,018 $ 737,810
Accrued liabilities 262,587 192,541
Current portion of notes payable 19,086 43,201
Notes payable to related parties 1,666 1,666
Other current liabilities - 26,411
-------------------- --------------------
Total current liabilities 706,357 1,001,629
-------------------- --------------------
STOCKHOLDERS' EQUITY:
Preferred stock; $.0001 par value; 2,500,000
shares authorized; no shares issued - -
Common stock, $.0001 par value; 20,000,000
shares authorized; 8,110,407 and 8,085,407
shares outstanding, respectively 811 808
Additional paid-in capital 20,625,023 20,585,276
Stock subscriptions receivable (1,496,137)
(1,496,137)
Accumulated deficit (4,388,824) (3,548,323)
-------------------- --------------------
Total stockholders' equity 14,740,873 15,541,624
-------------------- --------------------
$ 15,447,230 $ 16,543,253
==================== ====================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET SALES $ 1,481,171 $ 1,074,559
-------------------- -------------------
COST OF SALES:
Postage 524,499 433,766
Materials and printing 514,266 282,438
-------------------- -------------------
Total cost of sales 1,038,765 716,204
-------------------- -------------------
GROSS MARGIN 442,406 358,355
-------------------- -------------------
OPERATING EXPENSES:
Research and development 679,447 164,350
General and administrative 373,463 145,965
Selling 391,490 164,369
-------------------- -------------------
Total operating expenses 1,444,400 474,684
-------------------- -------------------
LOSS FROM OPERATIONS (1,001,994) (116,329)
OTHER INCOME (EXPENSE):
Interest and other income 162,643 -
Interest expense (1,150) (4,367)
-------------------- -------------------
Total other income (expense), net 161,493 (4,367)
-------------------- -------------------
NET LOSS $ (840,501) $ (120,696)
==================== ===================
NET LOSS PER COMMON SHARE $ (0.10) $ (0.02)
==================== ===================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES 8,110,407 5,539,953
==================== ===================
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
DATAMARK HOLDING, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (840,501) $ (120,686)
Depreciation and amortization 65,709 26,150
Changes in operating assets and liabilities
Trade accounts receivable (185,190) 22,694
Inventory 15,787 2,843
Other current assets 16,726 -
Accounts payable (314,792) 89,464
Accrued liabilities 70,046 (11,661)
Deferred revenue (12,220)
Other current liabilities (26,412)
------------------ -------------------
Net cash used in operating activities (1,198,627) (3,416)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (772,953) (59,082)
Increase in other assets (23,168) (6,621)
------------------ -------------------
Net cash used in investing activities (796,121) (65,703)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common
stock and other contributed capital 39,750 719,000
Proceeds from borrowings - 153,334
Principal payments on borrowings (24,113) (71,299)
Payments for deferred offering costs - (38,791)
------------------ -------------------
Net cash provided by financing activities 15,637 762,244
------------------ -------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,979,111) 693,125
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 13,159,404 39,005
------------------ -------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 11,180,293 $ 732,130
================== ===================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
5
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements as of September 30, 1996
and for the three months ended September 30, 1996 and 1995 are unaudited and, in
the opinion of management, all adjustments necessary for a fair presentation
have been included, and consist only of normal recurring adjustments. The
financial statements are condensed and, therefore, do not include all
disclosures normally required by generally accepted accounting principles. These
financial statements should be read in conjunction with the Company's annual
financial statements included in the Company's Annual Report pm For, 10-K for
the year ended June 30, 1996. The results of operations for the three months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year ending June 30, 1997. Certain previously
reported amounts have been reclassified to conform to the September 30, 1996
presentation. These reclassifications had no affect on the previously reported
net loss.
NOTE 2 - SEGMENT INFORMATION
Information regarding the Company's operations for the three months
ended September 30, 1996, relating to the direct mail marketing industry and the
computer on-line marketing industry, is as follows:
Computer Corporate
Direct Mail On-line Interest
Marketing Marketing Income Total
Net sales $1,481,171 $ - $ - $1,481,171
Net Income (loss) 138,639 (1,121,668) 142,528 (840,501)
Depreciation 21,036 44,673 - 65,709
Property and equipment
purchases 51,062 721,891 - 772,953
Identifiable assets at
September 30, 1996 980,979 3,244,999 - 4,225,978
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company began operations in 1987 to provide highly targeted
business to consumer advertising through direct mail. Since the Company's
founding, the direct mail business has provided substantially all of its net
sales and the Company intends to continue to grow its direct mail business.
In fiscal year 1994, the Company began developing its own proprietary
advertiser and end-user funded national on-line network - ValuOne Online. Since
fiscal year 1994, the Company has devoted significant resources towards the
development of ValuOne Online and anticipates launching the service in the first
quarter of calendar year 1997. The Company believes that in the future the net
sales from ValuOne Online should surpass those of the direct mail business.
The Company charges direct mailing fees based primarily on the number
of mailings provided to each customer. Support services which are typically
bundled with the mailing include targeting and profiling the mailing audience,
designing and printing the mailing, and analyzing the results of the mailing
campaign.
The cost of postage is a significant element of any direct mail
campaign. Recent increases in postal rates will increase the costs of direct
mailings. Although management believes that the postal rate increase will not
have a material long term effect on demand, there is no assurance that the
postal rate increase will not depress the number or reduce the profitability of
mailings by the Company. Additionally, fluctuations in the price of paper or
other materials may adversely impact the profitability of mailings by the
Company in the future.
7
<PAGE>
Results of Operations
The following table sets forth certain financial data as a percentage
of net sales for the fiscal quarters ended September 30, 1996 and 1995.
1996 1995
----- -----
Net Sales 100.0% 100.0%
------ ------
Cost of Sales:
Postage 35.4 40.4
Materials and printing 34.7 26.3
----- -----
Total cost of sales 70.1 66.7
---- ----
Gross Margin 29.9 33.3
----- ----
Operating expenses:
Research and development 45.9 15.3
General and administrative 25.2 13.5
Selling 26.4 15.3
----- ----
Total operating expenses 97.5 44.1
----- ----
Loss from operations (67.6) (10.8)
Total other income (expense), net 10.9 ( 0.4)
----- ------
Net Loss (56.7%) (11.2%)
======= ========
Quarter Ended September 30, 1996 Compared with Quarter Ended September 30, 1995
Net Sales
Net sales for the quarter ended September 30, 1996 increased by 37.8%
to $1,481,171 from $1,074,559 for the quarter ended September 30, 1995. Net
sales growth resulted primarily from an increase in the number of pieces mailed
during the quarter ended September 30, 1996. The average price per piece mailed
increased by 14.8% to $.419 during the quarter ended September 30, 1996 from
$.365 during the quarter ended September 30, 1995.
Cost of Sales
Postage expense as a percent of sales increased 20.9% to $524,499
during the quarter ended September 30, 1996 from $433,766 during the quarter
ended September 30, 1995. The increase was primarily attributable to a higher
number of pieces mailed during the quarter ended September 30, 1996 than during
the quarter ended September 30, 1995. Postage expense as a percentage of net
sales decreased to 35.4% during the September 30, 1996 quarter from 40.4% during
the September 30, 1995 quarter. The decrease in postage expense as a percentage
of net sales was primarily attributable to an increase in sales prices charged
by the Company to reflect past increases in postal rates.
8
<PAGE>
Materials and printing expense increased 82.1% to $514,266 during the
quarter ended September 30, 1996 from $282,438 during the quarter ended
September 30, 1995. The increase was primarily attributable to a higher number
of pieces mailed during the quarter ended September 30, 1996 than during the
quarter ended September 30, 1995. Materials and printing expense as a percentage
of sales increased to 34.7% during the quarter ended September 30, 1996 from
26.3% during the quarter ended September 30, 1995. The increase in materials and
printing expense as a percentage of net sales was attributable to higher paper
costs and delivery of more material dominant direct mail products.
Operating Expenses
Research and development of ValuOne Online increased 313.4% to $679,447
during the quarter ended September 30, 1996 from $164,350 during the quarter
ended September 30, 1995. Research and development costs have increased due to
increased levels of activity and personnel associated with ValuOne Online. The
Company anticipates launching ValuOne Online during the first quarter of
calendar year 1997.
General and administrative expense increased 155.9% to $373,463 during
the quarter ended September 30, 1996 from $145,965 during the quarter ended
September 30, 1995. General and administrative expense as a percentage of net
sales increased to 25.2% during the quarter ended September 30, 1996 from 13.5%
during the quarter ended September 30, 1995. The increase in general and
administrative expense as percentage of net sales was due to the addition of
administrative and support staff, as well as increased related facilities cost,
associated with ValuOne Online.
Selling expense increased 138.2% to $391,490 during the quarter ended
September 30, 1996 from $164,369 during the quarter ended September 30, 1995.
Selling expense as a percentage of net sales increased to 26.4% during the
quarter ended September 30, 1996 from 15.3% during the quarter ended September
30, 1995. The increase in selling expense as a percentage of net sales was due
to marketing and promotional expenses incurred in connection with ValuOne Online
product.
Segment Operating Results
Direct mail marketing net sales for the quarter ended
September 30, 1996, increased by 37.8% to $1,481,171 from $1,074,559 for the
quarter ended September 30, 1995. Net sales growth resulted primarily from an
increase in the number of pieces mailed during the quarter ended September 30,
1996. Net income for quarter ended September 30, 1996, increased by 6.7% to
$138,639 from $129,991 for the quarter ended September 30, 1995, for this
segment. Profits did not increase in line with the increase in net sales due to
higher paper costs that have not been immediately reflected in higher prices
charged to our customers and the delivery of more material dominant direct mail
products during the quarter ended September 30, 1996, when compared to the
quarter ended September 30, 1995.
9
<PAGE>
The net loss from the computer online marketing segment increased to
$1,121,668 for the quarter ended September 30, 1996, from $ 246,334 for the
quarter ended September 30, 1995. This increase was due to continued research
and development efforts, the addition of administrative and support staff, as
well as related facilities costs, and marketing and promotional expenses
incurred in connection with the ValuOne Online product.
Corporate interest income was $142,528 for the quarter ended September
30, 1996. This interest was earned on the unexpended proceeds from the March 96
placement. For the quarter ended September 30, 1995, the Company incurred
interest expense of $4,367.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements through
cash flows from operating activities and borrowings from financial institutions
and related parties. However, in order to fund the expenses of developing and
launching ValuOne Online in March 1996, the Company began a private placement to
major institutions and other accredited investors (the "March 96 Placement").
The Company completed the March 96 Placement for net proceeds of $16,408,605
during fiscal year 1996, including the exercise of warrants.
Operating activities consumed $1,198,627 during the quarter ended
September 30, 1996 compared to $3,416 during the quarter ended September 30,
1995. The increase in cash flows consumed by operating activities during the
quarter ended September 30, 1996 as compared to 1995 was primarily attributable
to increased research and development, selling and other related costs
associated with ValuOne Online.
Cash flows used in investing activities were $796,122 and $65,703
during the quarters ended September 30, 1996 and 1995, respectively. This
increase in cash used for investing activities was primarily attributable to the
acquisition of computer equipment for ValuOne Online. The Company's capital
expenditures historically have consisted of printing machinery and office
equipment.
Cash flows provided by financing activities was $15,637 and $762,244
during the quarters ended September 30, 1996 and 1995, respectively. This
decrease in cash flows provided by financing activities was because the Company
only raised $39,750 through the issuance of common stock during the quarter
ended September 30, 1996 as compared to $719,000 during the quarter ended
September 30, 1995. The Company did not receive any proceeds from borrowings
during the quarter ended September 30, 1996.
10
<PAGE>
It is anticipated that the Company will be required to spend an
additional $2,500,000 for cost associated with the ValuOne Online product before
its launch during the first quarter of 1997. In addition, the Company
anticipates that it also needs to expend approximately $4,500,000 more than
anticipated revenues during the 12 months following launch for initial marketing
of the product and additional capital expenditures.
At September 30, 1996, the Company did not have any material
commitments for capital expenditures.
Management believes that the Company has sufficient cash and cash
equivalents at September 30, 1996, to meet its requirements for the following
twelve months.
Forward Looking Information
Statements regarding the Company's expectations as to future growth of
the direct mail business, furture revenue from ValuOne Online, the expected
commencement date of ValuOne Online service and certain other statements
presented in the Form 10-Q constitute forward looking information within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations, there can be
no assurance that actual results will not differ materially from expectations.
In addition to matters affecting the Company's industry generally, factors which
could cause actual results to differ from expectations include, but are not
limited to (i) unanticipated technical problems could delay launch of ValuOne
Online, (ii) ValuOne Online has not generated revenues, and after its launch it
may not generate the level of users or advertisers currently anticipated, (iii)
the costs to market the ValuOne Online service to advertisers and users could be
substantially higher than anticipated, (iv) the online industry is rapidly
changing, and the Company may not have the technical or financial resources to
compete against existing online services or against services which are newly
introduced or modified, and (v) the direct mail business may not grow as
anticipated due to competitive factors, including postage and material price
increases which make direct mail uneconomical with other forms of advertising,
and competition from other direct mailers over which the Company may not have a
competitive advantage.
11
<PAGE>
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith
Exhibit 27.1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATAMARK HOLDING, INC.
Date: December 6, 1996 By /s/Chad L. Evans
Chad L. Evans
Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 11180292
<SECURITIES> 0
<RECEIVABLES> 688186
<ALLOWANCES> 0
<INVENTORY> 67185
<CURRENT-ASSETS> 11949307
<PP&E> 4012889
<DEPRECIATION> 542282
<TOTAL-ASSETS> 15447230
<CURRENT-LIABILITIES> 706357
<BONDS> 0
0
0
<COMMON> 811
<OTHER-SE> 14740062
<TOTAL-LIABILITY-AND-EQUITY> 15447230
<SALES> 1481171
<TOTAL-REVENUES> 1481171
<CGS> 1038765
<TOTAL-COSTS> 2483165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1150
<INCOME-PRETAX> (840501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (840501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (840501)
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
