SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM S-1
Registration Statement Under The Securities Act of 1933, as Amended
-------
DATAMARK HOLDING, INC.
(Exact name of registrant as specified in charter)
Delaware
(State or jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
348 E. Winchester St., #220
Salt Lake City, Utah 84107
87-0422824 (801) 268-2202
(I.R.S. Employer Address, including zip code, telephone
Identification No.) number, including area code, of registrant's
principal executive offices)
Chad Evans
348 E. Winchester St., #220
Salt Lake City, Utah 84107
(801) 268-2202
(Name, address including zip code, telephone number, including area code, of
agent for service)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
Richard T. Beard, Esq.
Paul H. Shaphren, Esq.
Ballard Spahr Andrews & Ingersoll
201 South Main Street, Suite 1200
Salt Lake City, UT 84111
(801) 531-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Proposed
Title of each class maximum Proposed maximum
of securities to Amount to be offering price per aggregate offering Amount of
be registered registered unit price registration fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value per share: Offered
by selling stockholders 2,847,482 $12.25 $34,881,655 $12,028.16
=============================================================================================================
</TABLE>
(1) The offering price per share of Common Stock is estimated pursuant to Rule
457(c) based on the bid and asked quotations of the Common Stock on the OTC
Bulletin Board on August 21, 1996.
================================================================================
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
DataMark Holding, Inc.
FORM S-1
------------------------------
Cross-Reference Sheet
Showing the location in the Prospectus of the information required by
Part I of Form S-1.
FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- --------------------------------- -----------------------
1. Forepart of Registration Statement and Outside Front Cover Page of Cover
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back
of Prospectus Cover Pages of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors
Ratios of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside front cover page of
Prospectus; Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Outside Front Cover Page of
Prospectus; Plan of Distribution
9. Description of Securities to be Description of Capital Stock
Registered
10. Interest of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant
(a) Description of Business Business
(b) Description of Property Business
(c) Legal Proceedings Litigation
(d) Market Price and Related Market for Common Stock
Stockholder Matters
(e) Financial Statements
<PAGE>
FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- -------------------------------- ---------------------
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Data Selected Financial Data
(h) Managements Discussion Management's Discussion and
Analysis of Financial Condition
and Results of Operation
(i) Disagreements with Accountants Change in Accountants
(j) Directors and Executive Officers Management
(k) Executive Compensation Executive Compensation
(l) Security Ownership Principal Stockholders
(m) Certain Relationships Certain Transaction with Related
Parties
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
<PAGE>
Preliminary Prospectus Subject to Completion dated August 26, 1996
2,847,482 SHARES
DATAMARK HOLDING, INC.
COMMON STOCK
2,847,482 shares of Common Stock (the "Shares" or the "Offering") of
Datamark Holding, Inc. (the "Company" or "Datamark") are being offered hereby by
certain selling stockholders of the Company (the "Selling Shareholders"). Of the
Shares being offered, 306,125 Shares represent shares issuable on exercise of
currently outstanding warrants (the "Warrants") which are being registered for
the account of certain warrantholders (the "Selling Warrantholders"), and the
remaining shares represent outstanding shares being offered by the Selling
Shareholders. The Company will not receive any proceeds from the sale of the
Shares by any of the Selling Shareholders or any profits that may be obtained
from the resale of Shares issued on exercise of the Warrants. However, the
Company will receive the proceeds upon exercise of all or any Warrants, up to a
maximum of $2,372,489 if all Warrants are exercised. There is no assurance that
any Warrants will be exercised. The Company has filed the Registration Statement
of which this Prospectus is a part pursuant to obligations under registration
rights agreements with certain of the Selling Shareholders.
The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol DTAM. On August 15, 1996, the quotation for the Common Stock was $12.00
bid and $13.50 asked. The Company has applied for listing of its stock on the
Nasdaq SmallCap Market.
Prospective investors should carefully consider the information set forth under
"Risk Factors".
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ______, 1996.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. See "Risk Factors" for a discussion of certain factors to be
considered in evaluating the Company and its business.
The Company
DataMark Holding, Inc. (the "Company" or "DataMark") provides highly
targeted business to consumer advertising for its clients. The medium for such
targeted advertising has been direct mail and is being expanded to include an
advertiser funded online network, ValuOne Online. The Company utilizes
sophisticated consumer profiling techniques to target advertising to the persons
most likely to purchase the specific product or service being marketed. The
Company's advertising programs provide highly predictable and measurable
advertising campaigns.
Some of the features of the Company's services include:
* Analysis - The DataMark direct advertising strategy includes an exhaustive
analysis of the defining lifestyle characteristics of the client's existing
customer base. The Company specifically identifies who is most likely to
respond to the client's offer.
* Identification - DataMark uses the results of the marketing research and
analysis and performs a computerized database compilation. From this,
DataMark creates a list of cluster groups or profiled individuals which
match the identified demographic, socio-economic, lifestyle and behavior
characteristics, and who have the highest propensity to buy the client's
product.
* Implementation - DataMark implements a strategically designed program of
systematic advertising to the targeted potential customers on the
customized database list.
* Measurement - DataMark conducts a thorough analysis after each advertising
campaign to understand exactly what has been accomplished and where the
results are leading. This critical information allows the targeting of the
marketing program to be consistently fine tuned. Systematized feedback
allows accurate adjustments and targeting refinement for maximum efficiency
and increased positive results.
* Turn-key Services - DataMark offers a turn-key operation to which the
client can outsource its entire targeted advertising including targeting,
creating, producing, delivering and analyzing the campaign.
Online Advertising Services
The Company is completing the development of the first interactive promotional
national marketing network, ValuOne Online, which is entirely advertiser funded.
ValuOne Online incorporates highly successful direct mail strategies and
methodologies. The strategy is to offer a leading edge advertising medium by
incorporating direct advertising methodologies that can produce predictable and
measurable results.
ValuOne Online's primary mission is to provide, free to the consumer end-user,
technologically superior, interesting, entertaining and convenient interactive
promotional advertising information. ValuOne Online intends to stimulate mass
use by an initial 1.5 million targeted profiled end-user households. ValuOne
Online's initial 1.5 million targeted end-user households have been specifically
segmented from the 9.5 million potential online households based on the
lifestyle and consumer buying habits most desired by advertisers. This will
create significant value and numerous benefits for advertisers who have their
<PAGE>
products on ValuOne Online. ValuOne Online consumer end-users participate in
interactive, money saving, advertising messages. These end-users will be able to
find products and services they want, when they want them, free of user fees.
ValuOne Online will provide local telephone access for its targeted
metropolitan areas through the Sprint Telnet network. This major
telecommunication network is used by other major national data providers. The
network will connect the end user to the ValuOne Online server in Salt Lake
City, Utah. The proprietary network avoids the security risks and delays of
using the Internet.
National advertising is typically placed through national media representation
groups, the oldest and largest of which is Katz Media Group ("Katz") (NYSE:KTZ).
The Company and Katz have entered into an exclusive representation agreement
whereby Katz is the exclusive agent to represent ValuOne Online to national
advertisers and Katz agrees not to represent competitive online services. Katz
states that it is the only full service media representative firm serving all
types of media, with leading market shares in the representation of radio and
television stations and cable television systems.
The Company's principal executive offices are located at 348 E. Winchester
Street, #220, Salt Lake City, Utah 84107. Its telephone number is 801-268-2202.
The Offering
Common Stock outstanding prior to offering 8,068,407 shares (1)
Common Stock
offered by Selling Shareholders
(excluding Selling Warrantholders) 2,541,357 shares (2)
Common Stock offered by
Selling Warrantholders 306,125 shares
Use of Proceeds The Company will not receive
any proceeds from the sale
of Shares by the Selling
Shareholders and Selling
Warrantholders. The Company
may receive up to $2,372,489
in proceeds for exercise of
the Warrants if all Warrants
are exercised. The Company
intends to use any proceeds
received on exercise of the
Warrants to market ValuOne
Online and for working
capital and general
corporate purposes. See "Use
of Proceeds" and "Business
of the Company."
Trading Symbol DTAM (OTC Bulletin Board)(3)
(1) Of the currently outstanding Common Stock, 7,596,811 shares are
"restricted securities" which may not be readily resold into the
market. Since only 471,596 shares are believed to be readily tradable,
there can be no assurance that the market for the Common Stock will be
sufficiently liquid to absorb the shares being offered hereby.
<PAGE>
(2) Two Selling Shareholders each beneficially own more than 5% of the
Company's common stock. See "Principal Stockholders" and "Selling
Shareholders." No other Selling Shareholder is an affiliate of the
Company.
(3) The Company has applied to Nasdaq for listing in the Nasdaq SmallCap
Market. There is no assurance Nasdaq listing will be granted.
- --------------------
Capitalization
The following table sets forth certain information regarding the Company's
equity securities outstanding prior to and after the offering:
Number of Shares
Capital Stock outstanding as of March 31, 1996:
Common Stock: 6,223,501
Preferred Stock: 0
Capital Stock to be outstanding after Offering(1):
Common Stock: 8,374,532
Preferred Stock: 0
- ---------------
(1) Includes shares issued by the Company subsequent to March 31, 1996.
Assumes exercise of all Warrants. Excludes 985,538 shares of Common
Stock which may be issued upon vesting and exercise of options
outstanding at March 31, 1996 other than the Warrants, including
options for 785,538 shares pursuant to the Company's Omnibus Stock
Option Plan.
Transactions with Related Parties
There have been related party transactions between the Company and it
affiliates. See "Certain Transactions with Related Parties."
<PAGE>
Summary Financial Information
Summary Financial Data
Set forth below are summary consolidated historical financial data for the
Company as of and for the periods indicated. The following information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended June 30, 9 Months Ended March 31,
------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Statement of Operations Data:
Net Sales $2,516,022 $3,017,805 $3,443,965 $2,521,658 $2,949,610
Postage 985,599 1,122,710 1,360,976 1,022,030 1,134,934
Materials and printing 611,838 790,744 1,035,954 712,323 881,509
Selling expense 459,270 440,236 466,181 310,018 497,473
Research and development - 89,250 560,915 360,580 904,140
General and administrative 362,494 456,039 268,765 194,384 634,702
Net income (loss) 53,327 62,998 (264,270) (93,729) (1,156,461)
Net income (loss) per
Common share $ .01 $ .01 $ (.06) $ (.02) $ (.21)
Weighted average shares
outstanding 4,242,026 4,282,299 4,713,028 4,587,155 5,539,953
</TABLE>
June 30, March 31,
-------- ---------
1994 1995 1996
---- ---- ----
Balance Sheet Data:
Working Capital $350,428 $794,156 $3,803,650
Total Assets 884,493 1,556,646 6,505,076
Long-term debt less
current portion 47,248 25,332 6,918
Stockholders' equity 476,210 998,426 4,626,503
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Information concerning the Company can be inspected and copied at the offices of
the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
219 South Dearborn Street, Chicago, Illinois 60604; and 75 Park Place, New York,
New York 10007. Copies of such material can be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding the
Company filed electronically with the Commission.
This Prospectus constitutes a part of Registration Statements on Form S-1
filed by the Company with the Commission under the 1933 Act (the "Registration
statement"). This Prospectus omits certain information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the shares of Common stock offered hereby. Statements contained
herein concerning the provisions of any document disclose all material aspects
thereof but are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
RISK FACTORS
The purchase of these securities involves a high degree of risk. Prospective
investors should carefully consider the following factors, among others set
forth in this Prospectus, before making a decision to purchase the Common Stock
offered hereby.
General Risks
Change in Corporate Strategy. The Company began operations in 1987 and until
fiscal 1994 focused substantially all of its resources on its direct mail
advertising and related services.
In fiscal 1994, the Company began developing an advertiser funded national
online network ("ValuOne Online") and anticipates launching the service in
Spring 1996. The Company intends to grow ValuOne Online very rapidly and, as a
result, a significant portion of the Company's growth prospects is dependent
upon the success of ValuOne Online. The Company has no operating history for
ValuOne Online upon which an evaluation of the Company's prospects for the
service can be based. The Company's prospects for the service must be considered
in light of the risks, expenses and difficulties frequently encountered by
companies in the early stages of developing a business line, particularly lines
in new and rapidly evolving competitive markets. To address these risks, the
Company must, among other things, anticipate market needs; respond to
competitive developments; continue to attract, retain and motivate qualified
persons; and continue to upgrade its technologies and commercialize products and
services incorporating such technologies. There can be no assurance that the
Company will be successful in addressing such risks. There can be no assurance
that the Company will achieve or sustain profitability of ValuOne Online.
In view of the recent changes in the nature of the Company's businesses, the
Company believes that past financial results should not be relied upon as an
indication of future performance.
Potential Fluctuations in Quarterly Results. The Company does not have
historical financial data on which to base planned operating expenses for its
online services. Accordingly, the Company's expense levels are based in part on
<PAGE>
its expectations as to future revenues and, with the exception of
telecommunication charges and sales commissions, are to a large extent fixed. As
a result, quarterly sales and operating results generally depend on the volume
of advertising placed and accessed within the quarter, which is difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of demand for the Company's services in relation to the Company's
expectations would have an immediate adverse impact on the Company's business,
operating results and financial condition. In addition, the Company plans to
increase its operating expenses to increase its sales and marketing operations,
develop new distribution channels and broaden its customer support capabilities.
To the extent that such expenses precede or are not subsequently followed by
increased revenues, the Company's business, operating results and financial
condition will be materially adversely affected.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's products, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products, mix of
distribution channels through which products are sold, mix of products and
services sold, and general economic conditions. The Company anticipates that
advertising revenue for ValuOne Online could be seasonal, peaking during the
second fiscal quarter holiday buying season. As a result, the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management of Growth. The rapid execution necessary for the Company to fully
exploit the perceived market window for ValuOne Online and the growth in the
direct mail business requires an effective planning and management process. The
Company's anticipated rapid growth may place a significant strain on the
Company's managerial, operational and financial resources. As of March 31, 1996,
the Company had approximately 40 employees and expects this number to grow. To
manage its growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. Although the Company believes that it has made adequate allowances for the
costs and risks associated with this expansion, there can be no assurance that
the Company's systems, procedures or controls will be adequate to support the
Company's operations or that management will be able to achieve the rapid
execution necessary to fully exploit the perceived market window for the
Company's products and services. If the Company is unable to manage growth
effectively, the Company's business, financial condition and operating results
could be materially adversely affected.
Control by Officers and Directors. Upon completion of this offering, the
Company's directors and executive officers, together with their affiliates, will
beneficially own 51.8% of the outstanding shares of the Common Stock of the
Company. As a result, these stockholders, if acting together, will have the
ability to determine the outcome of matters requiring a vote of stockholders,
such as elections of the Company's directors, amendments to the Company's
Certificate of Incorporation and certain mergers and assets sales, irrespective
of how other stockholders of the Company may vote.
Possible Need for Additional Capital. The Company has estimated that its
currently available capital will be sufficient to launch the online service and
provide working capital through fiscal 1997. There can be no assurance, however,
that additional funds will not be required, due to unanticipated expenses,
failure of the market to develop as rapidly as assumed or other factors. The
Company does not have any commitments for any further capital which it may
require, and there is no assurance that the Company will be able to obtain such
capital when needed on terms favorable to it.
<PAGE>
Restricted Stock, Limited Market. The Company's publicly traded common stock
is quoted on the OTC Bulletin Board. The Common Stock offered hereby has not
been registered under federal or state securities laws, and transfer thereof has
been restricted in accordance with the exemptions from the registration
requirements of such laws claimed by the Company. Purchasers of the Common Stock
should therefore recognize that they will bear the economic risk of their
investment in the Common Stock for an indefinite period. Although there is a
public market for the Company's Common Stock, the Common Stock does not
currently trade on an exchange or Nasdaq, and there is no assurance that the
Company's securities will ever trade on such an established market. The number
of shares currently available for trading in the market is a small percentage of
the Company's total outstanding shares, and the market may not be able to absorb
any large number of shares which become available for resale in the future.
There is no assurance that the common stock will ever become listed on Nasdaq.
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of its key management, product
development, sales, marketing and operations personnel. There can be no
assurance that key personnel will not terminate their employment to the
detriment of the Company. The Company does not have key man life insurance on
any of its personnel.
Volatility of Stock Price; No Dividends. The Common Stock of the Company's
predecessor was only sporadically traded during the two years ended January,
1995. Since that time, the Company's Common Stock has been quoted on the OTC
Bulletin Board. Due to the relative newness of the market for the Common Stock,
the small amount of Common Stock available in the public float compared to the
amount of restricted Common Stock which will be available for sale in the future
and other factors, the Company anticipates that the market for the Common Stock
will be highly volatile. The Company does not have any agreements or
understandings with its current market makers, or any other broker-dealers, that
such persons will act as market makers for the Common Stock in the future. The
loss of one or more market makers could cause further adverse volatility in the
price of the Common Stock. Current quotations for stocks quoted on the OTC
Bulletin Board are generally not available to individual investors from
newspapers or consumer databases as would be the case for stocks quoted on
Nasdaq or listed on a stock exchange. An investor may be less able to accurately
monitor his investment in the Company's shares than would an investor in a
Nasdaq or exchange listed stock. The Company has not paid cash dividends on its
Common Stock and does not expect to do so in the foreseeable future. See "Market
for Common Stock" and "Description of Capital Stock." Management anticipates
that any future profits will be retained for the growth and expansion of the
Company's business rather than distributed to the stockholders.
No Firm Underwriting. No person has guaranteed the purchase or sale of any
of the Common Stock offered hereby. There is no assurance that all or any of the
offered Common Stock will be sold. See "Plan of Distribution" and "Use of
Proceeds."
Potential Adverse Effect to Holders of Common Stock of Authorized but
Unissued Preferred Stock; Anti-Takeover Effects. The Board of Directors has
authority to issue up to 2,500,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the shareholders. The rights
of the holders of the Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change in control of the Company.
Furthermore, such Preferred Stock may have other rights, including economic
rights senior to the Common Stock, and, as a result, the issuance thereof could
have a material adverse effect on the market value of the Common Stock. The
Company has no present plans to issue shares of Preferred Stock. The Company has
not exempted itself from the Delaware Business Combination Act ("DBCA"). The
DBCA prohibits certain business combinations with "interested stockholders"
unless the combination, or the transaction in which the interested stockholder
<PAGE>
acquired his interest, were approved in advance by the Board of Directors. The
possible application of the DBCA may further discourage or prevent a change in
control of the Company. See "Description of Capital Stock."
Risks of ValuOne Online
Emerging Market. The market for online services is constantly changing, and
has not developed in ways generally predicted by the industry. The demand for
the Company's proposed service is dependent on a number of variables, which the
Company cannot predict with accuracy. There can be no assurance that the market
will accept the Company's proposed service. Even if the Company's service
becomes accepted, there can be no assurance that the Company will be able to
modify or update its service in a timely manner to respond to future changes in
the market.
Competition. The market for the Company's proposed online service is highly
competitive and is characterized by pressures to reduce prices, incorporate new
features and accelerate the release of new products. The Company's service will
be competing with such national services that charge consumers a fee such as
Prodigy, America On-Line, Compuserve, the Microsoft Network and other Internet
access providers. Although the Company will not be competing with such services
for end-user fees (other than fees the Company will charge for Internet access),
the Company's ability to attract end-users from fee-based services may affect
the rates the Company can charge for advertising. The Company will also be
competing for advertisers with numerous providers of Internet presence, as well
as advertiser's ability to establish and maintain Internet presence without the
use of outside parties. The Company may also be competing with regional or local
companies operating bulletin boards or Internet pages, offering services more
closely resembling the Company's proposed service. The Company will also be
competing for advertising with all other advertising media. Certain of the
Company's competitors or potential competitors, most notably the various
national services, have significantly greater financial, management, technical
and marketing resources than the Company. Competition could reduce or eliminate
the Company's ability to price its advertising at a profitable level and could
restrict or prevent the Company from attracting sufficient users to be an
attractive advertising medium. A variety of potential actions by the Company's
competitors, including increased promotion and modification of services offered,
could have a material adverse effect on the Company's future results of
operations. There can be no assurance that the Company will be able to compete
successfully in the future.
Limited Protection of Proprietary Technology. The Company regards its
software as proprietary and attempts to protect it under copyright, trademark
and trade secret laws as well as through contractual restrictions on disclosure,
copying and distribution. It may be possible for unauthorized third parties to
copy the Company's products or to reverse engineer or obtain and use information
that the Company regards as proprietary. In particular, it is possible that the
Company could not prevent a competitor from offering a similar service using its
own software, despite the Company's contention that its manner of doing business
is proprietary. There can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not result in costly litigation or require the Company to obtain a license
to intellectual property rights of third parties. There can be no assurance that
such licenses will be available on reasonable terms, or at all.
Development of Software. The Company believes it has substantially completed
development of the software which will be used to run the online service and the
software which the end-users will use to access the service. Due to the variety
of conditions that may be encountered in use of the service, it is likely that
additional changes to the software will be needed. Such changes could be
material. There can be no assurance that the Company will be able to make any
needed revisions to the software in a timely and cost-effective manner.
Completion of the software and promotion of the new service is also dependent on
the Company obtaining adequate financing.
<PAGE>
Additionally, the Company's ability to design, develop, test and support new
software products and enhancements on a timely basis that meet changing customer
needs and respond to technological developments and evolving industry standards
is critical to the Company's future growth. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and
enhancements, or that its new products and enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable to develop on a timely basis new software products, enhancement to
existing products or error corrections, or if such new products or enhancement
do not achieve market acceptance, the Company's business, operating results and
financial condition could be materially adversely affected.
Dependence on Media Representatives. The Company has contracted with Katz to
provide media representation services and market ValuOne Online to national
advertisers. The growth of the revenues of ValuOne Online is therefore in part
dependent upon the success of Katz in finding and contracting with advertisers,
which is outside of the Company's control. The inability of Katz to penetrate
the market segment could have a material adverse affect on the business,
financial condition and operating results of the Company. Although Katz
considers itself as the largest full service media representative firm, it does
not have substantial experience with interactive digital media such as ValuOne
Online. The Company also intends to obtain local advertising for ValuOne Online
and national advertising in certain areas of ValuOne Online through the
Company's sales staff and local independent representatives. There is no
assurance that the Company will be successful in locating representatives in a
significant number of locations or that the sales staff and independent
representatives will be successful in obtaining advertising.
Dependence on Telephone Services. The Company intends to provide end-users
access to ValuOne Online through telephone lines and the cost of telephone
services are expected to be a significant expense to the Company. The Company
has contracted with Sprint to provide telephone services for a three year period
beginning Spring, 1996 at variable rates with annual minimum charges. The
minimum charges are significant relative to the Company's current revenues and
would have a material adverse impact on the Company's earnings in the event
ValuOne Online fails. In the event ValuOne Online is successful, there is no
guarantee that, upon expiration of the current contract with Sprint, the Company
could negotiate a new contract with a telephone service provider at favorable
rates. The inability of the Company to negotiate a favorable telephone services
contract could have a material adverse affect on the business, financial
condition and operating results of the Company.
Security Risks. As with any computer based enterprise, the Company is
exposed to potential damage from computer viruses and other forms of electronic
vandalism. Any such vandalism could disrupt the service and damage the
reputation of ValuOne Online with users and advertisers. Although the Company
will take reasonable security precautions, there can be no assurance that the
Company will not suffer securities breaches which may have an adverse affect on
the Company's business and financial condition.
Government Regulation. The Company is not subject to direct regulation other
than regulation applicable to businesses generally. However, changes in the
regulatory environment relating to the telecommunication and media industries
could have an effect on the Company's business, including regulatory changes
which directly or indirectly affect telecommunications costs or increase the
likelihood or scope of competition from regional phone companies. Additionally,
recently enacted telecommunications reform legislation imposes additional
obligations on online service providers such as the Company. Although Management
of the Company does not currently believe that the online provider provisions of
the legislation, if enforced by the courts, will have a substantial impact on
the Company's business, Management cannot predict with certainty financial
impact the resulting regulation may have on its business.
Online Service may not be Launched Within Time and Budgeting Constraints.
Although the Company is experienced in the advertising techniques to be used in
the online service, the Company has not previously operated an online service
or developed software for
<PAGE>
third party use. The amount of resources that the Company has been able to
devote to product development may be relatively small, both financially and in
terms of manpower, compared to major national online services. Lack of resources
may restrict the Company's ability to anticipate or prevent potential
difficulties with the operation of the service. There can be no assurance that
the Company will be able to launch its online service on a commercial basis on a
timely basis. Major software companies have experienced substantial delays in
releasing new products due to unanticipated programming problems, errors
discovered in the testing process, the need to add additional functionality for
competitive purposes or other unforeseen events. Completion of the Company's
software for operation of the service and commencement of the online service may
be delayed by similar factors. Completion of the software and promotion of the
new service is also dependent on the Company obtaining adequate financing. The
Company estimates that if there are no delays it currently has sufficient
funding to complete the initial launch of the service, but there is no assurance
that additional funding will not be required.
Unproven Marketing Plan. The Company's plans for the online service are
premised on the Company's ability to attract advertisers in sufficient quantity,
and at sufficient rates, to support the service without end-user fees. The
Company is not aware of other commercial online services supported solely by
advertising revenues. As of the date of this document, the Company has not
established its final advertising rates and has not committed any advertisers to
use the service. There can be no assurance that the Company will be successful
in attracting advertisers at profitable rates.
Uninsured Losses. The Company currently has, and intends to maintain,
insurance coverage on its business and premises which management believes is
reasonable and customary. Such insurance will not fully compensate the Company
in the event of a catastrophic loss to the computer equipment and facility
housing the ValuOne Online service, and uninsured losses could be material. In
particular, the Company does not have insurance to replace revenues lost during
any period when the system has become unavailable to catastrophe or other loss,
or to compensate the Company for any loss of reputation in the end user or
advertiser community due to unavailability. The Company is negotiating with
third parties to have back-up computers on standby in the event of such
unavailability. Even if the Company is able to successfully negotiate such
standby arrangements, it is likely that the service would sustain substantial
down time prior to activation of the back-up system and would operate at
substantially reduced capacity until the primary system became available. Since
all of the ValuOne Online computers will initially be located in a single
location, the risk of catastrophic loss is increased.
Risks of Direct Mail Advertising
Competition. The Company competes for direct mail business with other full
service direct mail concerns, printing and mailing houses lacking the Company's
analytical abilities, list suppliers and advertising agencies in general. The
Company's direct mail advertising competes with all other advertising media.
Certain of the Company's competitors or potential competitors have significantly
greater financial, management, technical and marketing resources than the
Company. There can be no assurance that the Company will be able to compete
successfully in the future.
Postage and Materials Costs. A significant expense in any direct mail
campaign is the cost of postage. Paper, printing and other materials costs are
also significant direct mail expenses. Although the Company believes it can pass
future increases in postage and other costs through to its customers without
significant effect on demand, there is no assurance that it will be able to do
so. Changes in the costs of any of these items may disproportionately affect
direct mail and its competitive media, limiting the Company's ability to
increase its prices.
Dependence on Proprietary School Business. The Company has historically
derived a significant part of its revenues from sales to proprietary schools.
The loss of certain key customers, or a general decline in the appeal of direct
mail advertising to proprietary schools could have a material adverse effect on
<PAGE>
the Company's business and results of operations. The government student loan
programs which many proprietary schools rely on to finance tuition may be
restricted or curtailed, adversely affecting the viability of such schools.
EACH INVESTOR IS CAUTIONED AND ADVISED TO MAKE HIS OWN INQUIRIES AND ANALYSIS
WITH RESPECT TO THE CURRENT AND PROPOSED BUSINESS OF THE COMPANY.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Shares by
Selling Shareholders. The Company may receive up to $2,372,469 from the exercise
of the Warrants, if all of the Warrants are exercised. There is no assurance
that any of the Warrants will be exercised. Proceeds from the exercise of the
Warrants, if any, will be applied to marketing ValueOne Online and for working
capital and general purposes.
To the extent that the net proceeds from exercise of the warrants are not
utilized immediately, they will be commingled with the Company's other cash
assets, including deposits in checking accounts bearing no interest.
CAPITALIZATION
The following table sets forth as of March 31, 1996 the actual
capitalization of the Company. The table does not reflect any potential exercise
of the Warrants. In addition, the table does not reflect the sale of 1,844,906
shares of Common Stock sold in a private placement by the Company subject to
March 31, 1996 at a price of $7.75 per share.
March 31, 1996
--------------
Long-Term Liabilities, Less Current Portion $ 6,918
STOCKHOLDERS' EQUITY:
Preferred Stock, Authorized 2,500,000 Shares
of $.0001 par value, no shares issued 0
Common Stock, Authorized 20,000,000 Shares of
$.0001 par value, 6,223,501 shares issued and
outstanding 622
Additional Paid in Capital 5,897,584
Retained Earnings (deficit) (1,271,703)
----------
Total Stockholders' Equity 6,505,076
----------
Description of Common Stock
The Company is authorized to issue 20,000,000 shares of its $.0001 par value
Common Stock. As of August 15, 1996, there were 8,068,407 shares of Common Stock
issued and outstanding. Holders of the Company's Common Stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available therefor. Any such dividends may be paid in cash, property or
shares of capital stock of the Company in accordance with applicable law. The
Company has not paid any cash dividends in the fiscal years for which financial
information is presented and does not anticipate declaring or paying any
dividends in the foreseeable future. Any future dividend will be subject to the
discretion of the Company's Board of Directors, and will depend upon, among
other things, the operating and financial condition of the Company, its capital
requirements and general business conditions. Furthermore, all dividends on the
Common Stock will be subject to any preferential dividend rights of the holders
<PAGE>
of preferred stock, as described below. One of the Company's current notes
payable prohibits the declaration or paying of a dividend without the prior
written consent of the lender.
All shares of Common Stock have equal voting rights and, when validly issued
and outstanding, are entitled to one vote per share on all matters to be voted
upon by stockholders. Cumulative voting is not allowed and a majority of the
issued and outstanding Common Stock present in person or by proxy at any legally
convened stockholders' meeting at which the directors are to be elected will be
able to elect all directors and the minority stockholders will not be able to
elect a representative to the board of directors.
Shares of Common Stock of the Company have no pre-emptive or conversion
rights, no redemption or sinking fund provisions, and are not liable for further
call or assessment. Each share of Common Stock is entitled to share ratably in
any assets available for distribution to the holders of Common Stock upon
liquidation of the Company.
Description of Preferred Stock
The Company is authorized to issue up to 2,500,000 shares of its $.0001 par
value preferred stock. As of the date of this Prospectus, no preferred stock was
outstanding. Under the Company's Restated Articles of Incorporation, the
Company's Board of Directors is authorized, without shareholder approval, to
make divisions of the authorized preferred stock of the Company into classes and
into series within any class and to make determinations of the designation and
the number of shares of any class or series and the voting rights, preferences,
limitations and special rights, if any, of the shares of any class or series,
including the power to increase any previously determined number of shares of
any class or series of preferred stock to a number not greater than the
aggregate number of shares of preferred stock that the Company is authorized to
issue and to decrease the previously determined number of shares of any class or
series of preferred stock to a number not less than that then outstanding.
Currently unissued series of preferred stock may be granted voting rights
equal to or greater than those of the Common Stock. The preferred stock may be
granted preferential dividend rights, which dividends may cumulate from year to
year if unpaid. Dividends on the Common Stock may be prohibited until the
dividend rights of the preferred stock are satisfied. Holders of preferred stock
may also be granted the right to participate in any dividend which may be
declared on the Common Stock. On liquidation, holders of preferred stock may be
entitled to share in the liquidation proceeds after satisfaction of creditors
and prior to any distributions to the common stockholders to the extent of the
liquidation preference determined by the Board of Directors at the time of
issuance of the preferred stock. Holders of preferred stock may also be granted
the right to convert such stock into Common Stock and to compel the Company to
redeem the preferred stock on specified conditions or at specified times.
Because the terms of any class or series of preferred stock may be fixed by
the Board of Directors without stockholder action, such class or series could be
issued quickly with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of management of the Company more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the Common Stock. The Company is not aware of any such threatened
transaction to obtain control of the Company.
Transfer Agent
The Company's transfer agent is OTC Stock Transfer Company, 231 East 2100
South, Salt Lake City, Utah.
MARKET FOR COMMON STOCK
The Company's Common Stock is traded over the counter and is quoted on the
OTC Bulletin Board. During 1993 and 1994, there was no public market for the
<PAGE>
securities of the Company's predecessor, and the Company is not aware of any
quotations for its securities during this period. In prior years, securities of
the Company's predecessor Exchequer were traded in the over-the-counter market,
and some sporadic unsolicited trading may have continued. Commencing in January
1995, the Company's Common Stock began to be quoted on the OTC Bulletin Board.
The following table reflects the high and low bid quotations reported by the
OTC Bulletin Board for the periods indicated. The quotes represent interdealer
quotations, do not include retail mark-up, mark-down or commission and may not
reflect actual transactions.
High Low
---- ---
Year Ended June 30, 1995
- ------------------------
January 1 to March 31, 1995 $2.88 $2.25
April 1 to June 30, 1995 $4.75 $2.50
Year Ending June 30, 1996
- -------------------------
July 1 to September 30, 1995 $7.75 $3.75
October 1 to December 31, 1995 $7.50 $7.25
January 1 to March 31, 1996 $12.50 $8.00
April 1 to June 30, 1996 $21.38 $8.00
On August 15, 1996 the Common Stock was quoted on the OTC Bulletin Board at
$12.00 bid and $13.50 asked. The Company has applied for Nasdaq listing. As of
the date of this Prospectus, the Company believes it meets the Nasdaq
requirements for listing of its Common Stock on the Nasdaq SmallCap Market.
There is no assurance that the Common Stock will ever be so listed on Nasdaq.
As of June 30, 1996, there were approximately 673 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends since its inception. The
Company's revolving loan agreements currently prohibit it from declaring any
dividends without the written permission of the lender. The Company currently
intends to retain future earnings in the operation and expansion of its business
and does not expect to pay any cash dividends in the foreseeable future.
DILUTION TO EXERCISING WARRANT HOLDERS
On March 31, 1996, the Company had a net tangible book value (tangible
assets less total liabilities) of approximately $4,626,503. On a per share
basis, the net tangible book value per share of Common Stock would have been
approximately $0.74 per share of Common Stock. The net tangible book value set
forth herein does not reflect any adjustment for the sale of 1,844,906 shares of
Common Stock subsequent to March 31, 1996.
Exercising Warrantholders
There is no assurance that any Warrants will be exercised. The amount of
dilution (exercise price per share following exercise) suffered by an exercising
warrantholder will depend on a number of factors, including the total number of
Warrants being exercised. The following table illustrates the dilution to be
<PAGE>
incurred by investors acquiring Common Shares upon exercise of Warrants
hereunder assuming exercise of (i) only 1 Warrant, (ii) all Warrants. The table
assumes no changes from the March 31, 1996 balance sheet other than receipt of
proceeds from the exercise of the Warrants and therefore ignores the 1,844,906
shares issued subsequent to March 31, 1996.
Only 1 Warrant All Warrants
Exercised Exercised
Net Tangible Book Value per Share
at March 31, 1996 $.74 $.74
Net Tangible Book Value per Share
after Exercise 1 $.74 $1.06
Increase per Share Attributable to
Exercise or Warrants N/A $.32
Dilution to Purchasers of Common
Shares $7.01 $6.69
Dilution as Percentage of Exercise
Price 90.5% 86.3%
- -----------------------
1 Includes net tangible book value at March 31, 1996 plus gross proceeds from
exercise of Warrants less expenses of the offering estimated by the Company
at $50,000.
<PAGE>
SELECTED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with the
financial statements and notes thereto found elsewhere herein. Information for
fiscal years 1995, 1994 and 1993 is derived from the Company's audited financial
statements. Information for the interim periods ended March 31, 1996 and 1995
for fiscal 1992 and 1991 is derived from unaudited financial statements.
<TABLE>
<CAPTION>
Year Ended June 30, 9 Months Ended March 31,
------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
Statement of Operations
Data:
Net Sales $3,004,608 $2,878,013 $2,516,022 $3,017,805 $3,443,965 $2,521,658 $2,949,610
Operating Costs and Expenses
Postage 1,199,068 1,202,916 985,599 1,133,710 1,360,976 1,022,030 1,134,934
Materials and Printing 882,758 645,124 611,838 790,744 1,035,954 712,323 881,509
Selling Expense 461,523 576,641 459,270 440,236 466,181 310,018 497,473
Research and Development - - - 89,250 560,915 360,580 904,140
General and Administrative 387,377 421,369 362,494 456,039 268,765 194,384 634,702
Total Operating Costs and
Expenses 2,930,726 2,846,050 2,419,201 2,909,979 3,692,791 2,599,335 4,052,758
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations 73,882 31,963 96,821 107,826 (248,826) (77,677) (1,103,148)
------ ------ ------ ------- ------- ------ ---------
Total other income (expense),
net (14,600) (20,613) (25,108) (16,272) (18,564) (17,320) (40,152)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes 59,282 11,350 71,713 91,554 (267,390) (94,997) (1,143,300)
Provision for (benefit from)
income taxes 0 10,173 18,386 28,556 (3,120) (1,268) 13,161
---- ------ ------ ------ ----- ----- ------
Net income (loss) 59,282 1,177 53,327 62,998 (264,270) (93,729) (1,156,461)
Net income (loss) per common
share .01 .00 .01 .01 (.06) (.02) (.21)
Weighted average shares
outstanding 4,242,026 4,242,026 4,242,026 4,282,299 4,713,028 4,587,155 5,543,470
</TABLE>
<TABLE>
<CAPTION>
June 30, March 31,
-------- -----------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working Capital $224,121 $238,168 $350,428 $794,156 $3,803,650
Total Assets 759,379 622,544 884,493 1,556,646 6,505,076
Long-term debt less current
portion 46,179 26,789 47,248 25,332 6,918
Stockholders' equity $285,703 $339,030 $476,210 $998,426 $4,626,503
</TABLE>
<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 revenues and the
Company intends to continue to grow its direct mail business.
In fiscal 1994 the Company began developing its own proprietary advertiser
funded national online network -ValuOne Online. Since Fiscal 1994 the Company
has devoted significant resources towards the development of ValuOne Online and
anticipates launching the service in the fourth quarter of fiscal 1996. The
Company believes that in the future the revenues of ValuOne Online could surpass
those of the direct mail business.
The Company charges 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 rate increase will not have a material
long term effect on demand, there is no assurance that rate increases 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.
Results of Operations
The following table sets forth certain financial data as a percentage of
revenues for the fiscal years ended June 30, 1993, 1994 and 1995 and for the
nine months ended March 31, 1995 and 1996.
<PAGE>
9 Months Ended
Year Ended June 30, March 31,
------------------- ---------------
1993 1994 1995 1995 1996
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Postage 39.2 37.6 39.5 40.5 38.5
Materials and printing 24.3 26.2 30.1 28.2 29.9
Selling expenses 18.3 14.6 13.5 12.3 16.9
Research and development 0.0 3.0 16.3 14.3 30.7
General and administrative 14.4 15.1 7.8 7.7 21.5
Total operating expenses 96.2 96.4 107.2 103.1 137.4
----- ---- ----- ----- -----
Income (loss) from operations 3.8 3.6 (7.2) (3.1) (37.4)
--- --- --- --- ----
Total other (expense), net (1.0) (0.6) (0.6) (0.7) (1.4)
----- ----- ---- ---- -----
Income (loss) before income
taxes 2.8 3.0 (7.8) (3.8) (38.8)
Provision for (benefit from)
income taxes 0.7 0.9 (0.1) (0.1) 0.4
--- --- ----- ---- ---
Net Income (loss) 2.1% 2.1% (7.7)% (3.7)% (39.2)%
=== === ===== ===== ======
Period Ended March 31, 1995 Compared with Period Ended March 31, 199
Net sales for the nine months ended March 31, 1996 (the "1996 Period")
increased by 11.7% to $2,949,610 from $2,521,658 for the nine months ended March
31, 1996 (the "1995 Period"). Net sales growth resulted primarily from an
increase in the number of pieces mailed during the 1996 Period. The average
price per piece mailed increased .05% to $.419 during the 1996 Period from $.399
during the 1995 Period.
Postage expense as a percentage of net sales decreased slightly to 38.5%
during the 1996 Period from 40.5% during the 1995 Period. Postage expenses
includes drop shipping costs incurred during the first quarter of the current
year and the second quarter of the prior year on a limited number of orders to
avoid late mailings.
Materials and printing expense increased 12.4% to $881,509 during the 1996
Period from $712,323 during the 1995 Period. The increase reflects the higher
number of pieces mailed during the 1996 Period. Materials and printing expense
as a percentage of net sales of 29.9% in the current year increased slightly
(1.7) over the prior year due to increases in paper costs during the second and
third quarters.
Selling expense increased substantially to $497,473 during the 1996 Period
from $310,018 during the 1995 Period. Selling expense as a percentage of net
sales increased to 16.9% during the 1996 Period from 12.3% during the 1995
period. The increase in selling expense reflects the initiation of selling
effort for ValuOne Online and the initial establishment of the Company's direct
mail regional sales program.
General and administrative expense increased substantially to $634,702
during the 1996 Period from $194,384 during the 1995 Period. General and
administrative expenses as a percentage of net sales increased to 21.5% during
the 1996 Period from 7.7% during the 1995 Period. The increase in general and
administrative expense reflects new overhead burden for both ValuOne Online and
the regional sales program.
<PAGE>
Research and development of ValuOne Online continued during the 1996 Period
and the Company expended $904,140 of related costs compared to $360,580 in the
1995 Period. The Company anticipates launching ValuOne Online during the fall of
calendar 1996.
Fiscal Year Ended June 30, 1995 Compared with Fiscal Year Ended June 30, 1994
Net sales for fiscal 1995 increased by 14.1% to $3,443,965 from $3,017,805
for fiscal 1994. Net sales growth resulted primarily from an 11.9% increase in
the number of pieces mailed, to 9,932,869 pieces mailed during fiscal 1995 from
8,875,852 pieces mailed during fiscal 1994. The average price per piece mailed
increased 2.1% to $0.347 during fiscal 1995 from $0.340 during fiscal 1994.
Postage expense increased 20.0% to $1,360,976 during fiscal 1995 from
$1,133,710 during fiscal 1994. The increase was attributable to a higher number
of pieces mailed during fiscal 1995 than during fiscal 1994. Postage expense as
a percentage of net sales increased to 39.5% during fiscal 1995 from 37.6%
during fiscal 1994. The increase in postage expense as a percentage of net sales
was attributable to an increase in postal rates without an immediate related
increase in sales prices charged by the Company.
Materials and printing expense increased 31.0% to $1,035,954 during fiscal
1995 from $790,744 during fiscal 1994. The increase was primarily attributable
to a higher number of pieces mailed during fiscal 1995 than during fiscal 1994.
Materials and printing expense as a percentage of net sales increased to 30.1%
during fiscal 1995 from 26.2% during fiscal 1994. The increase in materials and
printing expense as a percentage of net sales was attributable to higher paper
costs which were not immediately reflected in higher sales prices charged by the
Company.
Selling expense increased 5.9% to $466,181 during fiscal 1995 from $440,236
during fiscal 1994. Selling expense as a percentage of net sales declined to
13.5% during fiscal 1995 from 14.6% during fiscal 1994. The decline in selling
expense as a percentage of net sales was due to tighter cost controls over the
sales force offset by an increase in the number of pieces mailed.
General and administrative expense declined 41.1% to $268,765 during fiscal
1995 from $456,039 during fiscal 1994. General and administrative expenses as a
percentage of net sales declined to 7.8% during fiscal 1995 from 15.1% during
fiscal 1994. The decline in general and administrative expense as a percentage
of net sales was primarily due to a redirection of certain administrative
efforts toward research and development of ValuOne Online.
Research and development of ValuOne Online continued during fiscal 1995 and
the Company expended $560,915 of related costs. The Company anticipates
launching ValuOne Online during the fourth quarter of fiscal 1996.
Fiscal Year Ended June 30, 1994 Compared with Fiscal Year Ended June 30, 1993
Net sales for fiscal 1994 increased by 19.9% to $3,017,805 from $2,516,022
for fiscal 1993. Net sales growth resulted from an 8.0% increase in the number
of pieces mailed and an 11.1% increase in the average price per piece mailed.
The number of pieces mailed grew to 8,875,852 pieces mailed during fiscal 1994
from 8,216,106 pieces mailed during fiscal 1993. The average price per piece
mailed increased to $0.340 during fiscal 1994 from $0.306 during fiscal 1993.
Postage expense increased 15.0% to $1,133,710 during fiscal 1994 from
$985,599 during fiscal 1993. The increase was attributable to a higher number of
pieces mailed during fiscal 1994 than during fiscal 1993. Postage expense as a
percentage of net sales declined to 37.6% during fiscal 1994 from 39.2% during
fiscal 1993. The decline in postage as a percentage of sales was attributable to
a higher average price per piece mailed.
<PAGE>
Materials and printing expense increased 29.2% to $790,744 during fiscal
1994 from $611,838 during fiscal 1993. The increase was attributable to a higher
number of pieces mailed during fiscal 1994 than during fiscal 1993. Materials
and printing expense as a percentage of net sales increased to 26.2% during
fiscal 1994 from 24.3% during fiscal 1993. The increase in materials and
printing as a percentage of sales was attributable to higher paper costs which
were not immediately reflected in higher sales prices charged by the Company.
Selling expense declined 4.1% to $440,236 during fiscal 1994 from $459,270
during fiscal 1993. Selling expense as a percentage of net sales declined to
14.6% during fiscal 1994 from 18.3% during fiscal 1993. Lower selling expense
was due to increased sales to existing customers which did not require a
corresponding increase in selling costs.
General and administrative expense increased 25.8% to $456,039 during fiscal
1994 from $362,494 during fiscal 1993. General and administrative expenses as a
percentage of revenues increased slightly to 15.1% during fiscal 1994 from 14.4%
during 1993. The increase in general and administrative expense as a percentage
of net sales was due to general expenses related to the initiation of ValuOne
Online.
Research and development of ValuOne Online was initiated during fiscal 1994
and the Company expensed all $89,250 of related costs.
Quarterly Results
The following tables set forth certain quarterly financial information of
the Company for the eight fiscal quarters ending March 31, 1996. This
information has been derived from the quarterly financial statements of the
Company which are unaudited but which, in the opinion of management, have been
prepared on the same basis as the audited financial statements included herein
and include all adjustments (consisting only of normal recurring items)
necessary for a fair presentation of the financial results for such periods.
This information should be read in conjunction with the Financial Statements and
the Notes thereto and the other financial information appearing elsewhere
herein.
<PAGE>
<TABLE>
<CAPTION>
June 30, Sept 30, Dec 31, Mar 31, Jun 30, Sept 30, Dec 31, Mar 31,
1994 1994 1994 1995 1995 1995 1995 1996
------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $796,776 $894,541 $767,338 $859,779 $922,307 $1,074,559 $935,517 $939,534
Operating Costs &
Expenses
Postage 291,126 333,390 328,334 360,306 338,946 433,766 354,378 346,790
Materials &
Printing 234,745 245,227 221,382 245,714 323,631 282,438 283,417 315,654
Selling Expense 96,100 95,907 103,288 110,823 156,163 164,369 171,698 159,648
Research &
Development 89,250 103,933 104,225 152,422 200,335 164,350 308,462 431,328
General &
Administrative 160,230 80,386 60,977 53,021 74,381 145,965 196,188 294,307
------- ------ ------ ------ ------ ------- -------
Total Operating
Costs & Expenses 871,451 858,843 818,206 922,286 1,093,456 1,190,888 1,314,143 1,547,727
Income (Loss) from
Operations (74,675) 35,698 (50,868) (62,507) (171,149) (116,329) (378,626) (608,193)
Net Other (Expense) (379) (8,083) (2,612) (6,625) (1,244) (4,367) (11,249) (24,536)
------- ------ ------- ------ ------- ------- ------- --------
Income (Loss) Before
Income Taxes (75,054) 27,615 (53,480) (69,132) (172,393) (120,696) (389,875) (632,729)
Provision for
(Benefit From)
Income Taxes (23,409) 301 (583) (987) (1,851) - - 13,161
------ --- ----- ----- ------- ---- ---- ------
Net Income (Loss) $(51,645) $27,314 $(52,897) $(68,145) $(170,542) $(120,696) $(389,875) $(632,729)
======== ======= ======== ======== ========= ========= ========= =========
Net Income (Loss)
Per Share(1) $ (.01) $ .01 $ (.01) $ (.01) $ (.03) $ (.02) $ (.07) $ ( .12)
======== ======= ======== ======== ========= ========= ========= =========
Weighted Average
Shares
Outstanding 4,324,745 4,365,045 4,462,612 4,941,513 5,031,315 5,539,953 5,539,953 5,543,470
</TABLE>
(1) The sum of net income (loss) per share amounts for the four quarters may
not equal annual amounts due to rounding.
Liquidity and Capital Resources
The Company historically has satisfied its cash requirements through cash
flow from operations 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"). At March
31, 1996, the Company had obtained subscription commitments for $4,988,500 in
the March 96 Placement, but had not collected the proceeds of such
subscriptions. In April, 1996 these subscriptions were collected in full. The
Company completed the March 96 Placement for total gross proceeds of
$17,000,000, some of which is receivable as of the date of this Prospectus.
Operating activities consumed $447,261 of cash in the 1996 Period compared
to a positive cash flow of $93,951 in the 1995 Period. The reduction in cash
flow provided by operating activities during the current period was primarily
attributable to higher research and development costs associated with ValuOne
Online.
Cash flow used in investing activities was $761,162 and $107,783 during the
1996 Period and the 1995 Period, respectively. The Company's capital
expenditures historically have consisted of printing machinery and office
equipment. During the fiscal year, the Company acquired approximately $2,370,000
of computer equipment for ValuOne Online. The Company anticipates using
approximately $2.25 million of cash for capital investment during the fiscal
year ended June 30, 1997 to acquire the remaining initial computer hardware for
the ValuOne Online system. This cash will be provided by the March 96 Placement.
<PAGE>
Cash flow provided by financing activities was $1,442,208 during the 1996
Period compared to a negative $5,812 during the 1995 Period. The increase in
cash flow provided by financing activities during the 1996 Period, as compared
to the 1995 Period was primarily attributable to the proceeds of the April 95
and March 96 Placement and borrowings of $133,256 from related parties. The
Company borrowed $498,900 for computer equipment in the form of a capital lease.
During the 1996 Period, the Company increased its line-of-credit loan agreement
with a bank to a maximum of $200,000, substantially all of which was available
for future borrowings as of March 31, 1996. The Company's financing
arrangements, which are secured by substantially all of the Company's assets and
personally guaranteed by certain officers and shareholders, require the Company
to satisfy certain financial covenants and restrict the payment of dividends.
The Company believes that its available funds, credit facilities and cash
flows expected to be generated by operations should be sufficient to launch the
ValuOne Online service. The Company may need to raise additional funds for
expenditures contemplated for future periods if revenues do not develop as
anticipated. There can be no assurance that the Company will be able to raise
such capital on favorable terms or at all. In the event that the Company is able
to sell additional equity or convertible debt securities, such sale will result
in additional dilution to the Company's stockholders.
CHANGE IN ACCOUNTANTS
Effective June 28, 1996, the Registrant dismissed Hansen, Barnett & Maxwell
("Hansen") as its certifying accountant. Hansen's reports on the Registrant's
financial statements for the years ended June 30, 1995 and 1994 did not contain
an adverse opinion or a disclaimer of opinion and were not qualified as to
uncertainty, audit scope, or accounting principles.
The Registrant's board of directors unanimously approved dismissal of
Hansen.
During Registrant's two most recent fiscal years ended June 30, 1995 and
1994 and the interim period subsequent to June 30, 1995, there were no
disagreements, as defined in Regulation S-K Item 304, with Hansen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements would have caused Hansen to
make a reference to the subject matter of the disagreement in connection with
its reports.
On June 28, 1996, the Registrant engaged Arthur Andersen LLP ("Andersen") to
perform its audits and provide various accounting services thereafter. The
Registrant did not consult with Andersen prior to such date regarding any
reportable matter.
Effective January 16, 1995, the Company dismissed Jones, Jensen, Orton &
Company ("Jones") as its certifying accountant. Jones' report dated December 7,
1994 on the Company's financial statements for the years ended December 31,
1993, 1992 and 1991 did not contain an adverse opinion and was not qualified as
to audit scope or accounting principles.
The report contains the following:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
significant operating results to date. Unless the company is able to obtain
significant outside financing, there is substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The Company's board of directors approved dismissal of Jones.
<PAGE>
During the Company's three most recent fiscal years ended December 31, 1993,
1992 and 1991 and the period subsequent to December 31, 1993, there were no
disagreements, as defined in Regulation S-K Item 304, with Jones on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
On January 16, 1995, the Company engaged Hansen, Barnett & Maxwell to
perform its audits for the year ended December 31, 1994 and provide various
accounting services thereafter. The Company and Hansen, Barnett & Maxwell did
not consult prior to such date regarding any reportable matter. Hansen, Barnett
& Maxwell had previously been the auditor for DataMark Systems.
BUSINESS
The Company
The Company was organized as Exchequer, Inc. as a Delaware corporation. On
January 11, 1995, the Company consummated an Agreement and Plan of
Reorganization (the "Agreement") with DataMark Systems, Inc., a Nevada
corporation ("DataMark Systems") pursuant to which DataMark Systems became a
wholly owned subsidiary of the Company. As a result of the Agreement, the former
shareholders of DataMark Systems have become controlling stockholders of the
Company and the officers and directors of DataMark Systems have become the
officers and directors of the Company. As a condition to consummation of the
Agreement, the Company effected a 1 for 3 reverse stock split and changed its
name to its current name, DataMark Holding, Inc.
Overview - Targeted Advertising
Management believes that $250 billion was spent on media advertising in the
United States in 1995. Of that amount approximately $40 billion was spent on
targeted direct mail advertising.
Advertisers seek to increase the effectiveness of their advertising by
directing the advertising to the types of persons they believe are most likely
to be purchasers of the product or service advertised. For general circulation
media, such as television, radio and newspapers, the advertisers' ability to
direct its message to a specific type of potential purchasers is limited. In the
case of television the advertiser can only select the type of programming his
potential purchaser should be interested in, and hope that the purchasers will
be watching.
Through an online service directed to targeted households, the online
advertising messages can be delivered to those households with the highest
propensity to purchase. Management therefore believes that online advertising
will hold great appeal to advertisers.
With direct mail, the advertising can be delivered directly in the homes of
persons identified as likely purchasers. Although the cost per piece of
advertising may be higher than generally distributed media, the purchase rate,
and therefore the cost per purchase, of properly targeted direct mail can be
dramatically lower than other media. For these reasons, Direct Marketing
Magazine (July 1995) has stated that direct mail will be the fastest growing
established advertising media.
Strategy
DataMark provides highly targeted business to consumer advertising for its
clients. The medium for such targeted advertising has been direct mail and is
being expanded to include an advertiser funded online network, ValuOne Online.
The Company utilizes sophisticated consumer profiling techniques to target
advertising to the persons most likely to purchase the specific product or
service being marketed. The Company's advertising programs provide highly
predictable and measurable advertising campaigns.
Some of the features that make the Company's services unique include:
<PAGE>
* Analysis - The DataMark direct advertising strategy includes an
exhaustive analysis of the defining lifestyle characteristics of the
client's existing customer base. The Company specifically identifies
who is most likely to respond to the client's offer.
* Identification - DataMark uses the results of the marketing research
and analysis and performs a computerized database compilation. From
this, DataMark creates a list of cluster groups or profiled individuals
which match the demographic, socio-economic, lifestyle and behavior
characteristics, and who have the highest propensity to buy the clients
product.
* Implementation - DataMark implements a strategically designed program
of systematic advertising to the targeted potential customers on the
customized database list.
* Measurement - DataMark conducts a thorough analysis after each
advertising campaign to understand exactly what has been accomplished
and where the results are leading. This critical information allows the
targeting of the marketing program to be consistently fine tuned.
Systematized feedback allows accurate adjustments and targeting
refinement for maximum efficiency and increased positive results.
* Turn-key Services - DataMark offers a turn-key operation to which the
client can outsource its entire targeted advertising including
targeting, creating, producing, delivering and analyzing the campaign.
VALUONE ONLINE
Market Overview
Online services enable people using personal computers or other access
devices to interact with other people and outside sources of information using
telephone line connections channeled through a central host computer. Since the
early 1980's, the range of services and the number of people using online
services have grown significantly. The Company intends to rely on advertising
revenue, rather than end-user subscription fees, as its primary source of
revenue from ValuOne Online. The estimated $250 billion spent on advertising in
the United States in 1995 overshadows expected end-user subscription fees earned
by all online providers. The Company believes that a number of key factors will
contribute to continued growth in the consumer online services market in the
1990's, including:
* Growth of the home computer market - Growth in ownership and use of
home computers is being driven by lower hardware prices,
standardization of user-friendly graphical interfaces, expansion to
mass-market retail distribution channels and a renewed commitment to
the lower end of the computer market among major personal computer
manufacturers. In addition, increased exposure to computers in the
workplace and at school has resulted in growing use of computers in the
home.
* Expansion of modem penetration - According to published sources, an
estimated 18 million households in 1995 owned a personal computer
equipped with a modem. The Company expects this installed base to
increase in the future, as modems are now being pre-installed in a
growing number of new computers. In addition, modem prices have
declined substantially, making modems more accessible to both new and
existing computer users.
* Growing awareness and use of online services - Awareness and use of
online services is growing rapidly because of broader press coverage of
online services, a growing interest in developing a national
"information super highway" and the promotional and marketing efforts
of online service providers. In addition, increased participation and
related promotion on the part of media companies, software publishers
and information providers, greater use of electronic mail, and the
growing popularity of the Internet and connectivity applications in the
business market all are facilitating the expansion of online services.
<PAGE>
* Development of easy to use services - With the introduction of
graphical user interfaces and improved functionality, online services
are becoming easier to use. The Company believes continued advances in
ease of use will broaden the appeal of online services and will be a
significant factor in creating mass market demand for such services.
* Increased advertiser interest - As online services continue to become a
widely accepted mainstream advertising medium, more and more
advertisers desire to place their promotional message in front of the
online audience.
Business Strategy
The goal of ValuOne Online is to capitalize on the growing demand for online
services by providing advertiser supported services on both a national and local
level. The Company believes that both local and national advertisers are willing
to pay reasonable amounts to offer their products to desirable computer users.
Current commercial services, such as CompuServe, Prodigy and America OnLine,
have limited advertising resources which are primarily directed towards large
national advertisers. ValuOne Online accommodates local and regional advertisers
as well as the national advertisers sought by the other commercial services.
ValuOne Online will also offer interactivity, such as the ability to frequently
update ads, and to offer coupons and promotion, to an extent not currently being
offered elsewhere.
The Company has contracted with a major telephone carrier (Sprint) to
provide national access to ValuOne Online through the carrier's backbone system.
End-users in ValuOne's targeted areas will call a local telephone number to
access the network. The ValuOne Online software will identify the user as a
ValuOne Online customer, and the call will be routed to the ValuOne Online
computer server in Salt Lake City, Utah over high speed data backbone lines. The
long distance charges will be borne by the Company, at a substantial discount
from comparable voice rates.
By utilizing a private network rather than the Internet, ValuOne Online will
allow consumers to access the service without paying fees to an Internet
provider, and online transactions will be more secure. The service will also be
available to consumers who do not have access to the Internet. The Company
believes these advantages justify the expense of providing independent telephone
access to ValuOne Online.
The targeted users of ValuOne Online will be provided with the necessary
software and local telephone number to access the service. The Company also
intends to make the service accessible to users of the Internet's World Wide
Web. Since the Company will have less control over the lifestyle characteristics
of persons accessing ValuOne Online over the Internet, the Company does not
intend to promote this means of access.
Although the ValuOne Online service will be free to the end-user, the
Company intends to offer the end-users the ability to access the Internet
through the ValuOne Online network for a fee. The Company believes it can offer
Internet access at a lower hourly cost than other national services, and that
the availability of low cost Internet access will increase usage by the targeted
households.
Description of ValuOne Online
ValuOne Online is designed to provide advertisers a new and effective medium
to get their message directly to their target consumer audience. The Company has
not commenced operation of ValuOne Online as of the date of this Prospectus.
Unlike virtually every other advertising medium, ValuOne Online offers the
advertiser the flexibility to interactively -- via modem -- place, adjust, or
totally change their message, thus providing the advertiser the freedom to
modify their marketing strategy for whatever reason at any time.
The Company believes that ValuOne Online will combine the best of what
yellow pages, newspapers, magazines, catalogs, direct mail, guides, TV, radio
and directories have to offer at a fraction of the cost. Rather than attempting
<PAGE>
to convince consumers to do their shopping in cyberspace, ValuOne Online is
intended to encourage targeted consumers to utilize existing distribution
channels (stores, catalogs, 800-numbers) by providing timely and entertaining
information and promotions.
The consumer using ValuOne Online, whether a business or an individual, has
an instantaneous, electronic promotional guide to the best values in
entertainment, groceries, clothing, household goods, travel, shopping, sports,
employment, recreation and a myriad of other products and services. ValuOne
Online allows users to immediately know where to find what they are looking for
and who has it at the best price.
The features that make ValuOne Online unique:
* Interactive: ValuOne Online is fully interactive for both users and
advertisers.
* Online Access: Advertisers have continuous access to their ads. They
can update their promotional message or offer as needed to adjust for
inventory, sales volume, special events, etc. End-users also benefit
from this feature. They view only what they want, when they want, and
know that it is the latest promotion available.
* Flash Find: Unlike traditional media which require the audience to
view hundreds of ads that do not interest them. ValuOne's key word
search feature, Flash Find, allows end-users to access exactly what
they want.
* Advertiser Sponsored: ValuOne Online is paid for by the advertiser.
The end-user has continuous free access to money-savings promotions,
coupons and an almost inexhaustible resource of consumer and business
products and services.
* Speed and Security: The Company believes that ValuOne Online will allow
users to find the ads or promotions they want almost instantaneously,
enhancing the online experience and increasing the likelihood of repeat
usage. When online product ordering becomes available in future ValuOne
Online software releases, the security of private network access
instead of the Internet will eliminate consumer fears of online
purchases.
Advertising Options
ValuOne Online offers a wide variety of advertising services. Advertisers
can choose from the following list of services to create a package that gets
maximum exposure of their product or service at a fraction of the cost of
traditional advertising media to a highly targeted consumer buying segment:
* Power Display: Allows advertisers to display all of their products
with full color graphics and pictures, much as they would on shelves in
a retail store or in a catalog. Advertisers can choose to use full,
half or smaller screens to display their products. Advertisers display
their products independently or on a co-op basis with other
advertisers. ValuOne Online allows advertisers to instantly update
their Power Display promotional advertising.
* Marquees: Advertiser names and promotional messages will move across
all end-user screens at intervals. Unlike a TV commercial, which
interrupts the viewer, the marquee promotional messages provide the
end-user with important, timely information in an unobtrusive, yet
highly visible format. Marquees are somewhat like billboard
advertising.
* Sponsorships: Allows advertisers to sponsor various sections of
ValuOne Online. When a specific section is accessed by an end-user, the
sponsor's company name, logo and a brief promotional message appear on
the screen.
This is much like in-arena sponsorships of sporting events.
<PAGE>
* Daily Specials: Opportunity for advertisers to offer date sensitive
offerings on a daily basis, such as a chef special in a restaurant or a
Thursday pants special at a dry cleaning business.
* Online FSI: Free standing inserts (FSI's) are the coupon and
advertising inserts distributed with newspapers on a regular schedule,
typically Wednesdays and Sundays. Although the specific advertisers in
an FSI will vary from week to week, consumers come to expect
promotional offers on the days that the FSI is distributed, typically
increasing newspaper circulation on such days. ValuOne Online will
generate similar consumer interest by having a regularly scheduled time
for a special coupon and promotional section to be available online.
* Coupons: Provides the advertisers the opportunity to use coupons that
can be easily found by end-users on many areas of ValuOne Online.
* Sales and Promotions: Offers advertisers the opportunity to notify
end-users of their sales and special events, such as Labor Day,
inventory reduction or anniversary sales, etc.
* Menus: Offers restaurant industry advertisers the ability to place
their menus on the screen for customers to peruse. Restaurants can
change their displayed menus as often as they like. Restaurant reviews
will also be available.
* Classified: This section is similar to newspaper classified, allowing
advertisers the ability to place the following types of ads:
* Real estate * Apartments
* Automobile * Business opportunities
* Home and business * Schools and instruction
services * Miscellaneous
* Consumer items
* Boats, R.V.'s, etc.
* Job Seeker/Help Wanted: This section serves two job placement
functions.
Job Seekers is a bulletin board where people can feature their entire
resume/qualifications for potential employers to read. They can either
identify themselves or remain anonymous. This will be a valuable tool
for people looking for work, looking for a better job, or looking for a
career change. This may also be used by individuals who simply want to
test the job market.
Help Wanted is similar to newspaper classified, allowing businesses to
list job openings, etc.
* Calendar of Events: This section contains a list of community events
such as fairs, conventions, art festivals, seminars, athletic events,
concerts, etc.
* Entertainment: Offers advertisers in the entertainment field to list
current and upcoming events and offer promotional discounts, coupons,
etc.
* Future Developments: ValuOne will be updated in response to market
demand to add new advertising features.
Consumer & Business End-User Options
For end-users of the service, ValuOne Online will offer a fast, complete and
up-to-date way to find any of the following items at the best price:
* Instant coupons and daily specials * Groceries
* What's on sale and where to find it * Clothing and accessories
* Business and service directories * Household Goods and improvements
* Travel, sports and entertainment guides * Auto, real estate and apartment
deals
* Job seekers placement services * Dining guide and menu information
* Instant classified ads * Other
Users can search for this information using keywords, category searches,
browsing or "Hot Buttons" that come up all throughout the program. Unlike
virtually every other traditional online service, ValuOne Online is offered to
the end-users free of charge.
ValuOne Online Systems
ValuOne Online is divided into the following systems, depending on which
customer group or function they serve.
1. Business Advertiser System
In this system, advertisers on ValuOne Online can:
* Create ads
* Maintain ads
* Delete ads
* View ads
Business Advertiser Creative Module
In this module, an Advertiser can log onto the system to create their own
ads or give us their copy to place on the system. The various advertising
options, as previously discussed are:
* Power Display
* Promotions
* Coupons
* Marquees
* Classified
* Sponsorships
Business Advertiser Maintenance Module
The Advertiser Maintenance Module is designed to allow an advertiser instant
access to their listings, allowing them to make changes, additions or
deletions on demand. No other advertising medium offers this kind of
flexibility. Also, in this module, an advertiser can view his or her ad
exactly the way it will appear in the software program.
2. Consumer Advertiser System
In this system an end-user can:
<PAGE>
* Create their own listing in the job seeker/help wanted section
* Create their own classified advertisements
* Maintain their classified advertisements
* Other
Consumer Advertiser Development Module
This is similar to the Advertiser Creative Module for the advertisers,
without all the options. An end-user can log onto the system and easily
create their own classified advertisements. From selling an old car to
listing a home for sale, the module offers an end-user opportunity to get
their message in front of thousands of interested buyers at a much lower
cost than newspaper classified.
Consumer Advertiser Maintenance Module
The Maintenance Module will allow end-users the capability of editing and
deleting their listings on demand. The newspaper classified cannot come
close to matching this type of flexibility.
3. Ad Search System
In this system end-users are able to search the system for advertisements,
specials, events, coupons, etc., by the following criteria:
* Flash Find
* Promotions
* Coupons
* Power Display
* Classified
* Geography
Network
The Company will need to acquire the central computer on which ValuOne
Online will operate. The Company intends to purchase computer and networking
equipment which will initially allow simultaneous access to the system by 6,000
persons. The Company currently estimates that each session will last for 15
minutes or less, and that approximately 1.5 million active household end-users
can be accommodated with the equipment. The service has been designed so that
additional computers and network equipment can be added to allow for additional
simultaneous users in 6,000 user increments. DataMark's on-line network computer
system comprises state-of-the-art technology integrating On-Line Transaction
Processing (OLTP) and client/server processing. Specific technologies include
Hewlett-Packard's premier mainframe computers; two HP 9000/T520's and six
HP9000/K400's; fiber optic (FDDI) connectivity; Sybase database management
system; and Cisco high speed communication routers.
The Company initially intends to install the ValuOne Online central server
system in or near Salt Lake City, Utah. The Company has reached an agreement
with Sprint to provide telephone access to the central computer server from
local numbers in the targeted areas in the United States.
Software and Services Development
The Company has developed proprietary software that makes its services easy
to use and visually appealing. In addition, the Company has developed a database
engine that greatly speeds and simplifies the processing of advertising and
searching particular areas of ValuOne Online.
<PAGE>
In addition, the Company conducts ongoing development activities and
licenses technology from third parties with the goal of making access to its
service easier and improving the functionality of the service so it is easier to
use. The Company believes that ease of use is a very important attribute and
will become increasingly more important as consumer online services become a
mass market service.
Competition
The consumer online services market is highly competitive. The Company's
competitors range from small companies with limited resources to large companies
with substantially greater financial, technical and marketing resources than
those of the Company. Major direct competitors include Prodigy, a joint venture
of IBM and Sears, CompuServe, America OnLine and MicroSoft. These competitors
concentrate primarily on end-user fees, rather than advertising revenue. The
Company believes that existing competitors are likely to expand their service
offerings and that new competitors, including AT&T and other computer
software/services, telephone and media companies, are likely to enter the
consumer online services market, resulting in greater competition for the
Company. Competition is also expected from newly created companies that are
providing access to the Internet and tools to information providers to enable
them to publish electronically on the Internet. Competitive pressures could
result in reduced market share, price reductions and increased spending on
marketing and product development, which could adversely affect the Company's
financial condition and operating results.
The Company believes the principal competitive factors in the consumer
online services industry include product features and quality, ease of use,
access to distribution channels, advertising, brand recognition, reliability and
price. The Company believes that it will be able to compete effectively in these
areas.
Proprietary rights
The Company's software will be protected by copyright laws. The Company will
distribute the end-user software to more than 1.5 million targeted end-user
households and will make the end-user software available for download over the
Internet and will allow other end-users to distribute the software to others.
The central server computer software will also be copyrighted, and may be
licensed to others to operate local versions of ValuOne Online or services
proprietary to a single company. The licenses for such software will restrict
the usage to a single computer. The Company may also attempt to obtain limited
patent protection for the architecture of its products. The Company's limited
financial resources could restrict its ability to litigate any infringement of
its copyrights.
Direct Mail Advertising
The Company's principal current business is to provide highly targeted
direct mail advertising. The advertising on which the Company has concentrated
its efforts consist of targeted mailings requesting a return mailing or other
response from the consumer.
The concept for the Company was developed by Chad Evans while he was CEO of
Mountainwest Technology.
Mountainwest relied heavily on direct mail as part of its marketing. Despite
this reliance, there was little firm information available to guide the company
in creating an effective direct mail strategy, choosing a suitable distribution
list or following up on any leads generated by the mailing. Mr. Evans developed
practices which were effective for Mountainwest in these areas. As a result of
visiting numerous private schools throughout the country, Mr. Evans recognized
that there was a demand for similar information from other schools and
companies. When Mountainwest determined not to pursue this market, Mr. Evans
formed DataMark.
The Company provides a full range of direct mail services for its clients. A
project will commence with the determination of the lifestyle profile of the
customer's target market. The Company will then design a mailing piece to appeal
to the market, which will often consist of a variation on standard pieces used
by the Company for similar businesses in other locales. The Company then chooses
a mailing list from lists available from third party vendors. By correlating
lifestyle information available from list vendors and other sources, the Company
<PAGE>
can identify specific zip codes, mail carrier routes, neighborhoods, block
segments or individuals which are most likely to match the customer's target
market. The advertising material can be produced in the state of the art
printing plant operated by the Company's subsidiary DataMark Printing, Inc.
Final assembly and mailing is performed by the Company. The Company provides the
customer with training and assistance in making sales to the leads generated by
the mailings and developing future direct mail marketing plans based upon
response patterns.
The Company initially concentrated on the proprietary school market.
Although schools still account for a large portion of the Company's customers,
the Company has expanded to also service automobile, software and other service
industries.
The direct mail advertising industry is highly competitive, with competitors
including large national mailing houses, numerous local and regional printers
and mailers, and national and local advertising agencies. Many of such
competitors are larger and better financed than the Company. The Company
believes that its philosophy of providing full service to industries in which it
has amassed substantial experience allows it to compete with third parties who
may have an advantage based on price alone.
The cost of postage is a significant element of any direct mail campaign.
Increases in postal rates will increase the costs of direct mailings and may
therefore depress the number or profitability of mailings by the Company in the
future. The Company does not believe that recent postal rate increases have had
a material long term effect on its direct mail business.
The Company believes that the direct mail industry is continuing to expand
from its current $40 billion per year level. In an effort to capitalize on such
expansion, the Company intends to establish a network of approximately 10
regional sales representatives through the country to solicit direct mail
advertising. The Company intends that the representatives will concentrate on
marketing direct mail to advertising agencies as an adjunct to campaigns in
other media. The Company believes that advertising agencies, especially on the
regional level, are not fully exploiting direct mail. The Company's regional
representatives will assist the agencies in planning and implementing direct
mail campaigns. Creative and production for the campaign will be performed by
DataMark at its existing central facilities. The Company believes that the
increased volume from regional sales will compensate for the costs of
establishing the regional representatives and the payment of fees to the
advertising agencies. The Company has not previously marketed direct mail in
this manner, and there is no assurance that the attempted expansion will be
successful.
Employees
The Company currently has approximately 40 full time employees and plans to
hire additional staff for marketing its commercial products. The current
employees have considerable experience and expertise in all areas of the
multimedia software industry related to the Company's product line. None of the
Company's employees are unionized.
Properties and Facilities
The Company is leasing from a third party modern office space in Murray,
Utah, a suburb of Salt Lake City, Utah. These offices include a software
development lab and general offices. In August, 1996 the Company will be moving
its offices to 12,000 square feet of modern office space in a nearby office
building leased from third parties. The computer equipment and software
development facilities will remain in their current location. The new offices
are being leased on a 5 year lease, with option to renew. The initial rental is
$16,800 per month, subject to an annual inflation adjustment. The Company
also leases space in suburban Salt Lake City, Utah for its printing plant. These
facilities are believed adequate for the Company's current needs. As the ValuOne
business expands, the Company may require additional space.
<PAGE>
Government Regulation
The Company is not subject to direct regulation other than regulation
applicable to businesses generally. However, changes in the regulatory
environment relating to the telecommunications and media industry could have an
effect on the Company's business, including regulatory changes which directly or
indirectly affect telecommunication costs or increase the likelihood or scope of
competition from regional telephone companies. Additionally, various proposed
legislation is pending before Congress which would impose additional regulations
and obligations on online service providers such as the Company. Management
cannot predict the likelihood that any such legislation will pass, or if passed,
the financial impact, if any, the resulting regulation may have on its business.
MANAGEMENT
Set forth below is information regarding (i) the current directors of the
Company, who will serve until the next annual meeting of shareholders or until
their successors are elected or appointed and qualified, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.
The Company's executive officers and directors are as follows:
Name Age Position
Chad L. Evans 42 Chief Executive Officer,
President, Director
James A. Egide* 62 Chief Financial Officer,
Director
Stanton Jones 38 Director, Chief Executive
Officer of DataMark Media
Kenneth Woolley* 50 Director and Senior Vice
President of Strategic
Planning
C. Scott Stone* 32 Director
Clay Stringham 42 Director of DataMark
Systems
Sven Benson 42 Director of DataMark
Systems
James Bowers 47 Secretary, Treasurer
*Serves on compensation committee.
Chad L. Evans: Chairman, Chief Executive Officer, Director
For more than 17 years, Mr. Evans has been an officer and director of many
successful firms. These include U.S. corporations and joint ventures with large
international companies. He served as CEO of Mountainwest Technology, Inc. and
directed its very successful growth and profitable sale. He has chaired
accreditation teams, served as advisor to the Utah State Board of Regents and
visited over 200 private businesses across North America. These visits have
helped him assist in the marketing efforts of hundreds of private businesses
nationally. Mr. Evans has extensive marketing, finance and operations experience
on a national level. Currently, Mr. Evans is a UIB Board of Director.
<PAGE>
Stanton Jones: Chief Operating Officer
Mr. Jones joined the Company in 1996. Mr. Jones was Vice President and
General Sales Manager of KSTU-TV, a television station in Salt Lake City owned
and operated by Fox Television Stations, Inc.from 1993 to 1996. Prior to joining
Fox, Mr. Jones was Vice-President, National Sales Manager for the Katz Media
Group where he was responsible for their west coast operations including 25
television stations and 6 media sales offices. Mr. Jones held various management
and sales positions for Katz in Los Angeles, San Francisco and New York City
from 1981 to 1993. Prior to joining Katz, Mr. Jones was an account executive in
New York City for PGW, a national TV representative firm. Mr. Jones holds a
bachelors degree in communications with an emphasis in media sales management
from BYU.
C. Scott Stone: Director
Mr. Stone has been a director of the Company since March 1, 1996. Since
February, 1995, Mr. Stone has been Director of Business Operations for the West
Tennessee District of Bellsouth Mobility, a cellular telephone company. From
1992 until 1995 Mr. Stone was Regional Manager of Business Operations for
Bellsouth Cellular - American Cellular Communications. During 1992, Mr. Stone
was College Director and Controller for Collegiate Systems, an operator of four
proprietary colleges. From 1990 to 1992, he was a Senior Internal Auditor with
Cooper Industries, a global manufacturing concern. Earlier positions include
senior acquisition accountant with Phillips Colleges, Inc. and senior auditor
with KPMG Peat Marwick. Mr. Stone obtained his Master of Professional
Accountancy and Bachelors of Science - Accounting degrees from the University of
Southern Mississippi. Mr. Stone is a certified public accountant.
Kenneth Woolley: Director, Vice President of Strategic Planning
Mr. Woolley has been a founder and director of several companies. Mr.
Woolley served on the Board of Directors of Megahertz Holding Corporation, the
leading manufacturer of fax/modems for laptop and notebook computers until
February, 1995. Prior to the merger of Megahertz and VyStar Group, Inc. in June,
1993, Mr. Woolley had served as President of the parent company. Since 1979, Mr.
Woolley has been a principal in Extra Space Management, Inc. and Extra Space
Storage, privately held companies engaged in the ownership and management of
mini-storage facilities. Since 1989, Mr. Woolley has been a partner in D.K.S.
Associates, and since 1990 a director and executive officer of Realty
Management, Inc., privately held companies engaged in the ownership and
management of apartments, primarily in Las Vegas, Nevada. Mr. Woolley is a
director of Cirque Corporation. Mr. Woolley also serves as an associate
professor of business management at Brigham Young University. Mr. Woolley holds
a B.A. in Physics from Brigham Young University, an M.B.A. and Ph.D. in Business
Administration from the Stanford University Graduate School of Business. Mr.
Woolley is available to the Company on a part-time, as needed basis.
Clay Stringham: Director of DataMark Systems
Mr. Stringham was President of DataMark from 1994 to March, 1995. Mr.
Stringham is a Certified Public Accountant and a former supervisor with the
national accounting firm of Touche Ross and Co. Mr. Stringham has been in
management positions since 1983. Previously he has been CFO/General Manager for
Castle Creek, Ltd., a multimillion dollar manufacturing facility from 1982 to
1984, and an independent business consultant from 1992 to 1994. From 1984 to
1992, he was the Executive Vice President and Chief Operating Office of Extra
Space Management, Inc., one of the largest self storage operators in the United
States. Mr. Stringham holds a B.S. in accounting from Brigham Young University,
where he minored in business management and economics. He has pursued graduate
course studies towards an M.B.A. at the University of Utah.
<PAGE>
James Bowers: Secretary, Treasurer
Mr. Bowers has been controller of DataMark since 1989 and was appointed to
his offices with the Company on January 11, 1995. From 1986 to 1989, Mr. Bowers
owned his own accounting firm in Gunnison, Colorado. From 1975 to 1986, Mr.
Bowers held positions as accountant or controller with various firms, including
Computer Associates and R.M. Taylor Steel Fabricators. Mr. Bowers received an
Associates degree in accounting from LDS Business College.
Sven Benson: Director of DataMark Systems
Mr. Benson has been the National Sales Manager for DataMark since 1993 and
was appointed as a Director of the Company on January 11, 1995. He has been with
DataMark almost since its founding and is a key player in its success. In more
than ten years as president of three successful Idaho businesses Mr. Benson
acquired a diverse understanding of business and sales. When he first moved to
Utah he was the top producing sales executive for the largest used car
dealership in the Western United States. Mr. Benson was educated at Ricks Junior
College in Eastern Idaho, and Utah State University, in Logan, Utah.
James A. Egide: Chief Financial Officer, Director
Mr. Egide was appointed as a Director of the Company on January 11, 1995.
Mr. Egide is currently involved in multiple international and national business
enterprises. In 1978 he co-founded Carme, a public company, and served as CEO
and Chairman of the Board until 1989 when it was sold. From 1976 until 1980, Mr.
Egide's primary occupation was President and Director of Five Star Industries,
Inc., a California corporation which was a general contractor and real estate
developer. His principal responsibilities were land acquisition, lease
negotiations and financing.
Significant Employees
Arthur Benjamin: President of DataMark Systems
Mr. Benjamin has 25 years in marketing and sales and 12 years in proprietary
school marketing and operations. He has held executive positions with Group W,
CBS, Admarketing (a national media buying service), Connecticut Public
Broadcasting, CPI (a group of four proprietary schools), and Advantage Media and
Marketing (a consumer ad agency). He has overseen numerous public relations
campaigns and designed and published a regional magazine. Prior to joining the
Company in January 1995, Mr. Benjamin had been President of Watterson College
since 1994, CEO of MCS Technologies, Inc., a company engaged in vocational
training since 1993, and Senior Vice President/Marketing of Rhodes Group, a
company engaged in vocational training since 1989, President, Marketing By
Design (a national marketing agency) since 1981, and Travel By Design (a
national travel agency) since 1992. He is a graduate of Clark University, the
Burklyn Business School and the Career College Association leadership
conference.
Mark N. Johnson: Information Systems Director
Mr. Johnson has over 10 years in the information systems industry. He has
served as the Director of Information Systems for a wireless communications
company and as Vice President of Information Systems for a long-distance
telephone company. He has also been the Director of Information Systems for a
local Junior College. Mr. Johnson holds a Masters degree in Business
Administration and a Bachelors degree in Computer Science and Information
Systems from Idaho State University, December 1984. He also has significant
experience in design and implementation of client server database management
systems.
<PAGE>
Tom Dearden: Creative Director
Mr. Dearden received his Bachelors degree (BFA) from the University of Utah
in Graphic Design and Advertising. He has been with DataMark Systems, Inc. since
1989. Previously he served as art director and advertising manger for a
publisher and also owned and operated a small advertising agency. His expertise
includes virtually all aspects of advertising from print production to state of
the art creative. Throughout his career he has been responsible for literally
millions of pieces of direct mail. He has designed advertising campaigns for all
kinds of clients including hundreds of private educational institutions across
the nation. He has also designed campaigns for the medical, insurance, finance
and real estate fields as well as work for charitable organizations.
Rick Bentz: Market Research Director
Mr. Bentz has served as National director of Market Research for Mrs. Fields
Cookies, Executive Director of Market Research for RETECH (with clients such as
Kentucky Fried Chicken - Canada and Winchells Doughnuts -U.S.) and President of
GEOSTATE, a national marketing research firm. He has been with DataMark Systems
since 1990. He has extensive knowledge and background in sophisticated marketing
database systems. His methodologies include the use of demographic and lifestyle
segmentation systems for site evaluation, customer / product profiles and direct
mail targeting. Mr. Bentz holds a Bachelor of Science degree in Business
Marketing from the University of Utah.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer as of June 30, 1996 and to each of the Company's other
executive officers whose annual salary and bonus exceeded $100,000.
Summary Compensation
Annual Compensation Long Term Compensation
------------------- ----------------------
Year Other Annual
Name and Ended Salary Bonus Compensation Options/SARs
Principal Position 6/30 ($) ($) ($) (#)
- ------------------ ----- ------- ------ ------------- -----------
1996 $123,600
Chad Evans 1995 $123,600 (1)
Chairman/CEO 1994 $123,600
(1) Mr. Evans receives the use of a Company owned car. The estimated annual
cost to the Company is $6,000.
The Company does not have a compensation committee. Compensation of the
executive officers may be increased from time to time as determined by the Board
of Directors.
Stock Options Granted in Last Fiscal Year
Information concerning fiscal 1996 grants to named executive officers
is reflected in the table below. The amounts shown for each of the named
executive officers as potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five percent and ten
percent over the full five year term of the options. These potential realizable
values are based solely on arbitrarily assumed rates of price appreciation
required by applicable SEC regulations. Actual gains, if any, on option
<PAGE>
exercises and common stockholdings are dependent on the future performance of
the Company and overall stock market conditions. There can be no assurance that
the potential realizable values shown in this table will be achieved.
Individual Grants Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term
Name Options % of Total Exercise Expiration (5%) (10%)
Granted (#) Options price Date ($) ($)
Granted to
Employees
in 1996
- ----------------------------------------------------------------------------
Chad L. Evans 25,000 $5.00 $34,535 $76,314
============================================================================
Aggregated Option Exercises and Year-End Option Values in Fiscal 1996.
The following table summarizes for each of the named executive officers of the
Company the number of stock options, if any, exercised during fiscal 1996, the
aggregate dollar value realized upon exercise, the total number of unexercised
options held at June 30, 1996 and the aggregate dollar value of in-the-money
unexercised options, if any, held at June 30, 1996. Value realized upon exercise
is the difference between the fair market value of the underlying stock on the
exercise date and the exercise price of the option. The value of unexercised,
in-the-money options at June 30, 1996 is the difference between its exercise
price and the fair market value of the underlying stock on June 30, 1996, which
was $12.75 per share based on the closing bid price of the Common Stock on June
30, 1996. The underlying options have not been and, may never be exercised; and
actual gains, if any, on exercise will depend on the value of the Common Stock
on the actual date of exercise. There can be no assurance that these values will
be realized.
Number of Unexercised Value of Unexercied
Options at In-the-Money Options at
6/30/96 6/30/96
------- -------
Shares
Acquired Value
on Realized
Name Exercise(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------
Chad L. Evans -0- -0- 25,000 -0- $193,750 $0
Stock Option Plan
The Company has adopted the DataMark Systems Omnibus Stock Option Plan
(the "Option Plan") to assist the Company in securing and retaining key
employees and directors. The Option Plan provides that options to purchase a
maximum of 780,532 shares of Common Stock may be granted to (i) directors and
consultants, and (ii) officers (whether or not a director) or key employees of
the Company ("Eligible Employees"). The Option Plan will terminate in 2014
unless sooner terminated by the Board of Directors.
The Option Plan is administered by a committee (the "Option Committee")
currently consisting of the Board of Directors. The total number of options
granted in any year to Eligible Employees, the number and selection of Eligible
Employees to receive options, the number of options granted to each and the
<PAGE>
other terms and provisions of such options are wholly within the discretion of
the Option Committee, subject to the limitations set forth in the Option Plan.
The option exercise price for options granted under the Plan may not be less
than 100% of the fair market value of the underlying common stock on the date
the option is granted. Options granted under the Option Plan expire upon the
earlier of an expiration date fixed by the Option Committee or five years from
the date of grant.
The Company has the power under the Option Plan to issue both qualified
and non-qualified stock options. As of June 30, 1996, options to purchase
780,532 shares of Common Stock were outstanding under the Plan.
Compensation of Directors
The Company's non-employee Directors are not currently compensated for
attendance at Board of Director meetings. Non-employee directors may be granted,
on an ad hoc basis, stock options upon being appointed to the Board. The Company
may adopt a formal director compensation plan in the future. All of the
Directors are reimbursed for their expenses for each Board and committee meeting
attended.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding Common Stock of
the Company beneficially owned as of June 30, 1996 by: (i) each person known by
the Company to beneficially own 5% or more of the outstanding Common Stock, (ii)
by each director and director nominee, (iii) by each executive officer named in
the Summary Compensation Table, and (iv) by all officers and directors as a
group. As of June 30, 1996, there were 8,063,409 shares of Common Stock
outstanding and no Preferred Stock outstanding.
Names and Addresses of Principal Amount of Percentage of
Stockholders Common Shares Voting Securities*
- -------------------------------- -------------- -----------------
Quantum Industrial Partners LDC 675,000 8.4%
c/o Kaye Flamboyan & Willemstad
Netherlands Antilles
Pequot International Fund L.P. and 450,000 5.6%
Pequot Partners Fund L.P.
354 Pequot Ave
SouthPort, CT
Names and Address of
Officers and Directors
Chad L. Evans 2,736,375(1) 33.8%
348 East Winchester Street, Suite 220
Salt Lake City, Utah 84107
James A. Egide 1,530,257(2) 19.0%
348 East Winchester Street, Suite 220
Salt Lake City, Utah 84107
C. Scott Stone 20,000(3) 0
<PAGE>
Kenneth Woolley 65,000(4) 0.9%
All Directors and Executive Officers
(7 persons) 4,203,689 51.8%
- ----------------------------
* Assumes exercise of all exercisable options held by listed security
holders which can be acquired within 60 days from June 30, 1996.
(1) Includes shares held by a trust controlled by Mr. Evans. Also includes
25,000 shares which Mr. Evans may acquire on exercise of options.
(2) Includes 25,000 shares which Mr. Egide may acquire on exercise of
options.
(3) Consists of 20,000 shares which Mr. Stone may acquire on exercise of
options.
(4) Includes 25,000 shares which Mr. Woolley may acquire on exercise of
options.
The stockholders listed have sole voting and investment power, except as
otherwise noted.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
During the fiscal year ended June 30, 1995, the Company borrowed
$13,500 from Mr. Evans and $116,000 from a private company affiliated with Mr.
Egide. Such loans bear interest at 10% per annum, after an initial grace period,
and are due on demand. The loans were approved by the disinterested members of
the Board of Directors.
At June 30, 1995 the Company had notes receivable from shareholders in
the amount of $719,000. These notes, which arose from the April Placement, were
collected during the first quarter of fiscal 1996.
During the fiscal year ended June 30, 1995, the Company provided
advertising services to a proprietary school for which Mr. Benjamin was an
officer. The amount of such services was $200,000. The Company believes that
such services were provided on substantially the same terms as were available to
all of the Company's customers.
In April, 1996 the Company borrowed $500,000 from a bank to fund
computer equipment purchases. The loan is guaranteed by Messrs. Evans and Egide
and two other shareholders. In exchange for this guarantee, such persons
received a one year option to purchase 25,000 shares each at a price of $5.00
per share.
LITIGATION
From time to time, the Company is subject to routine, non-material
litigation relating to claims made by or against the Company.
<PAGE>
The Company was a defendant in an action in the Third District Court
for Salt Lake County, Utah known as Paul Davis and Royal Seafood, Inc. v. Royal
Seafood Enterprises, Inc., Ronald Johnson and Patrick Hogle. The action was
dismissed, without prejudice, on December 22, 1994. Certain principals of the
Company's predecessor and Exchequer have agreed to indemnify the Company against
any claims which may be asserted by the plaintiff in the future.
PLAN OF DISTRIBUTION
Manner of Offering
Sale of Shares by Selling Shareholders
The Selling Shareholders have advised the Company that sales of the
Shares by the Selling Shareholders and the resale of the Shares acquired or
exercise of the Warrants may be effected by the Selling Shareholders from time
to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Shares, or a combination of such methods of sale, at fixed prices
which may be charged, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Shareholders may effect such transactions by
selling Shares directly to purchasers or to or through broker-dealers which may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Selling Shareholders
and/or the purchasers of Shares for whom such broker-dealers may act as agents
or to whom they sell as principal, or both. The Selling Shareholders and any
broker-dealers that act in connection with the sale of the Shares might be
deemed to be "underwriters" within the meaning of Section 2(11) of the Act and
any commission received by them and any profit on the resale of the Shares as
principal might be deemed to be underwriting discounts and commissions under the
Act.
Issuance of Shares on exercise of Warrants
See "Exercising Warrantholders" herein.
SELLING SHAREHOLDERS
The following table sets forth the names and numbers of shares of
common stock held by the Selling Shareholders as of the date of this Prospectus
and offered for sale hereunder.
<TABLE>
<CAPTION>
Number of Shares Number of Beneficial Percent of
Beneficially Percent of Shares Being Ownership after Class after
Shareholder Owned(l) Class(l) Sold Offering(2) Offering(2)
- ----------- ----------------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey D. Appel 5,000 * 5,000 0 0.0%
Armen Partners, L.P. 255,000 3.1% 255,0000 0 0.0%
Jeff Boyko 10,000 0.1% 10,000 0 0.0%
C.E. Cord Joint Venture 10,000 0.1% 10,000 0 0.0%
Chilton International
(BVI) Ltd. 58,500 0.7% 58,500 0 0.0%
Chilton Investment
Partners, L.P. 58,500 0.7% 58,500 0 0.0%
Chilton Opportunity
Trust, L.P. 13,000 0.2% 13,000 0 0.0%
W. Thomas Clark 15,000 0.2% 15,000 0 0.0%
<PAGE>
Cranshire Capital, L.P. 5,000 * 5,000 0 0.0%
Delaware Charter Guaranty
& Trust, Trustee F/B/O
Bert Cohen IRA 10,000 0.1% 10,000 0 0.0%
Delaware Charter Guaranty
& Trust, Trustee F/B/O H.
Leland Getz IRA 30,000 0.4% 30,000 0 0.0%
Joseph L. Dowling 3,000 * 3,000 0 0.0%
Eagle Growth, L.P. 64,600 0.8% 64,600 0 0.0%
Amir L. Ecker 22,500 0.3% 22,500 0 0.0%
Larry Feinberg 32,258 0.4% 32,258 0 0.0%
Fleetfooted and Co.
(Nominee for SunAmerica
Small Company Growth
Fund) 290,322 3.6% 290,322 0 0.0%
Freedman Family Trust 5,000 * 5,000 0 0.0%
General Electric Pension
Trust 180,625 2.2% 180,625 0 0.0%
Gilford Partners, L.P. 20,000 0.2% 20,000 0 0.0%
Roxanne Googin 5,000 * 5,000 0 0.0%
Colton Gramm 5,000 * 5,000 0 0.0%
Penelope S. Hansen 7,500 * 7,500 0 0.0%
Hausmann Holdings 50,000 0.6% 50,000 0 0.0%
Jon P. Hedley 10,000 0.1% 10,000 0 0.0%
Invesco Strategic
Technology Portfolio,
Inc. 70,000 0.9% 70,000 0 0.0%
Fred Ketcher 5,000 * 5,000 0 0.0%
Keyway Investments, Ltd. 20,000 0.2% 20,000 0 0.0%
Joel D. Liffmann 10,000 0.1% 10,000 0 0.0%
Mary Margaret Losty 16,000 0.2% 16,000 0 0.0%
Marin Catholic High
School 25,000 0.3% 25,000 0 0.0%
Mustang Partners, L.P. 22,500 0.3% 22,500 0 0.0%
Noel Nosseck 5,000 * 5,000 0 0.0%
Oracle Partners, L.P. 76,774 1.0% 76,774 0 0.0%
John P. Patrou 5,000 * 5,000 0 0.0%
Payne Financial 125,000 1.5% 125,000 0 0.0%
Joyce Payne 3,500 * 3,500 0 0.0%
<PAGE>
Pequot International
Fund L.P. 205,000 2.5% 205,000 0 0.0%
Pequot Partners
Fund L.P. 245,000 3.0% 245,000 0 0.0%
Quantum Industrial
Partners LDC 675,000 8.4% 675,000 0 0.0%
Ropar 20,000 0.2% 20,000 0 0.0%
David Rosen 5,000 * 5,000 0 0.0%
Ruenitz Associates,
Inc. 5,000 * 5,000 0 0.0%
Kevin Seth 11,000 0.1% 11,000 0 0.0%
Dan K. Shaw 12,903 0.2% 12,903 0 0.0%
Harry Silver 30,000 0.4% 30,000 0 0.0%
Jack Skiba 15,000 0.2% 15,000 0 0.0%
Andrew Stallman 15,000 0.2% 15,000 0 0.0%
V&S Enterprises, Inc. 20,000 0.2% 20,000 0 0.0%
Stuart T. Weisbrod 7,000 * 7,000 0 0.0%
Wolverine Capital Corp. 32,000 0.4% 32,000 0 0.0%
Total 2,847,482 2,847,482
</TABLE>
*Less than 0.1%
(1) Includes Shares of Common Stock that may be acquired pursuant to the
Warrants held by the Selling Shareholders. See "Exercising
Warrantholders" herein.
(2) Assumes all shares owned by the Selling Shareholder that are registered
under the Prospectus, including shares obtained on the exercise of the
Warrants, will be sold as part of the Offering.
EXERCISING WARRANTHOLDERS
Shares to which this Prospectus relates includes up to 306,125 shares
of Common Stock issuable upon the exercise of certain outstanding Warrants (the
"Warrants"). The Warrants generally provide for the right to purchase Common
Stock of the Company at a price of $7.75 per share, subject to adjustment in
certain circumstances if the Company issues additional Common Stock or
subdivides or combines outstanding Common Stock. The Warrants will be redeemed
by the Company for $.10 per share ten days after the effective date unless
exercised prior to such date.
The following table describes the Warrants and the holders thereof:
<PAGE>
Warrantholder Shares Purchasable on
Exercise of Warrants
Armen Partners, L.P. 125,000
W. Thomas Clark 5,000
General Electric Pension Plan 36,125
Payne Financial 125,000
Harry Silver 10,000
Jack Skiba 5,000
Total 306,125
(1) Assumes that no Shares are sold as part of the Offering but Shares acquired
on exercise of the Options are held by the Selling Shareholder together with the
other shares held by the Selling Shareholder.
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon
for the Company by Ballard Spahr Andrews & Ingersoll, Salt Lake City, Utah.
EXPERTS
The financial statements of the Company as of June 30, 1995, and each
of the three years in the period ended June 30, 1995 included in this Prospectus
have been so included in reliance on the report of Hansen Barnett & Maxwell,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants . . . . F-2
Consolidated Balance Sheets - June 30, 1994, June 30, 1995 and
March 31, 1996 (Unaudited) . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1993, 1994 and 1995 and for the nine months ended
March 31, 1996 (Unaudited) . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1993, 1994 and 1995 and for the nine
nine months ended March 31, 1996 (Unaudited) . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1993, 1994 and 1995 and for the nine months ended
March 31, 1995 and 1996 (Unaudited). . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . F-7
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
Datamark Holding, Inc.
We have audited the accompanying consolidated balance sheets of Datamark
Holding, Inc. and Subsidiaries as of June 30, 1994 and 1995, and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Datamark Holding,
Inc. and Subsidiaries as of June 30, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
October 5, 1995
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30, March 31,
1994 1995 1996
-------- -------- ---------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current Assets
Cash . . . . . . . . . . . . . . . . . . . $ 89,655 $ 39,005 $ 252,790
Trade accounts receivable . . . . . . . . 464,436 450,814 339,081
Receivable from stockholders . . . . . . . 46,000 720,000 4,988,500
Inventory - Note 1. . . . . . . . . . . . . 111,372 107,921 85,630
Income taxes receivable . . . . . . . . . . - 9,304 9,304
---------- ---------- ------------
Total Current Assets . . . . . . . . . . 711,463 1,327,044 5,675,305
---------- ---------- ------------
Property and Equipment
Automobiles . . . . . . . . . . . . . . . . 24,768 32,866 40,525
Printing equipment. . . . . . . . . . . . . 198,600 227,289 243,556
Computer equipment. . . . . . . . . . . . . 130,917 231,684 694,346
Furniture and fixtures . . . . . . . . . . 45,211 48,800 298,139
---------- ----------- ------------
Total Property and Equipment . . . . . . 399,496 540,639 1,276,566
Less: Accumulated depreciation . . . . . . (229,666) (320,808) (481,801)
----------- ------------ ------------
Net Property and Equipment . . . . . . . 169,830 219,831 794,765
---------- ------------ ------------
Other Assets. . . . . . . . . . . . . . . . . 3,200 9,771 35,006
---------- ------------ ------------
Total Assets. . . . . . . . . . . . . . . . . $ 884,493 $ 1,556,646 $ 6,505,076
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities. . $ 138,080 $ 284,953 $ 623,396
Accrued commissions payable . . . . . . . . - - 529,750
Deferred revenue . . . . . . . . . . . . . 27,797 12,220 -
Accrued income taxes . . . . . . . . . . . 34,914 13,250 26,411
Notes payable - related parties . . . . . 73,818 151,166 151,166
Notes payable - current portion of
long-term debt 86,426 71,299 540,932
--------- ------------ ------------
Total Current Liabilities. . . . . . . . 361,035 532,888 1,871,655
--------- ------------ ------------
Long-Term Debt. . . . . . . . . . . . . . . . 47,248 25,332 6,918
--------- ------------ ------------
Stockholders' Equity
Preferred stock - $0.0001 par value; 2,500,000
shares authorized; no shares issued. . . . - - -
Common stock - $0.0001 par value; 20,000,000
shares authorized; 4,365,045 shares, 5,539,953
shares and 6,223,501 shares issued and
outstanding, respectively . . . . . . 436 554 622
Additional paid-in capital. . . . . . . . . 326,746 1,187,913 5,897,584
Deferred Offering Costs . . . . . . . . . . - (74,799) -
Retained earnings (deficit) . . . . . . . . 149,028 (115,242) (1,271,703)
------- ----------- ----------
Total Stockholders' Equity . . . . . . . 476,210 998,426 4,626,503
------- ----------- ----------
Total Liabilities and Stockholders' Equity. . $ 884,493 $ 1,556,646 $6,505,076
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended June 30, Ended March 31,
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net Revenues. . . . . . $ 2,516,022 $ 3,017,805 $ 3,443,965 $ 2,521,658 $ 2,949,610
----------- ----------- ----------- ----------- -----------
Costs and Expenses
Postage . . . . . . . 985,599 1,133,710 1,360,976 1,022,030 1,134,934
Materials and printing . . 611,838 790,744 1,035,954 712,323 881,509
Selling, general and
administrative expense . 821,764 896,275 734,946 504,402 1,132,175
Research and development . - 89,250 560,915 360,580 904,140
---------- ------------ ----------- ----------- -----------
Total Operating Costs
and Expenses. . . . . 2,419,201 2,909,979 3,692,791 2,599,335 4,052,758
---------- ------------ ----------- ----------- -----------
Income (Loss) From
Operations. 96,821 107,826 (248,826) (77,677) (1,103,148)
Interest Expense, Net . (25,108) (16,272) (18,564) (17,320) (40,152)
---------- ------------ ----------- ----------- ----------
Income (Loss) Before
Income Taxes. . . . 71,713 91,554 (267,390) (94,997) (1,143,300)
Provision For (Benefit From)
Income Taxes . . . . 18,386 28,556 (3,120) (1,268) 13,161
----------- ------------ ----------- ----------- -----------
Net Income (Loss) . . . $ 53,327 $ 62,998 $ (264,270) $ (93,729) $(1,156,461)
=========== ============ =========== =========== ===========
Net Income (Loss) Per
Common and Common
Equivalent Share. . . $ 0.01 $ 0.01 $ (0.06) $ (0.02) $ (0.21)
=========== ============ =========== =========== ===========
Weighted Average Common
and Common Equivalent
Shares Used in Per
Share Calculation . 4,242,026 4,282,299 4,713,028 4,587,155 5,543,470
========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Additional Deferred Retained Stock-
Common Stock Paid-in Offering Earnings holders'
Shares Amount Capital Costs (Deficit) Equity
------ -------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1992 4,242,026 $ 424 $ 252,576 $ - $ 32,703 $ 285,703
Net income - - - - 53,327 53,327
--------- ------ ----------- ------- --------- -----------
Balance - June 30, 1993 4,242,026 424 252,576 - 86,030 339,030
Cash contribution to capital
by a shareholder, no additional
stock issued - - 6,912 - - 6,912
Issuance of common stock for
cash, $0.47 average price
per share 82,719 8 39,262 - - 39,270
Accrued liability to shareholder
converted to equity, no
additional stock issued - - 8,000 - - 8,000
Conversion of note payable to
common stock, $0.50 per share 40,300 4 19,996 - - 20,000
Net Income - - - - 62,998 62,998
--------- ------ -------- ------ ------ ------
Balance - June 30, 1994 4,365,045 436 326,746 - 149,028 476,210
Issuance of common stock for
cash, $0.47 average price
per share 156,955 16 68,484 - - 68,500
Net effect of merger with
Exchequer, Inc. - Note 1. 471,952 47 (26,262) - - (26,215)
Issuance of common stock for
cash, $1.50 per share 66,667 7 99,993 - - 100,000
Issuance of common stock for
notes receivable, $1.50
average price per share 479,334 48 718,952 - - 719,000
Deferred offering costs incurred - - - (74,799) - (74,799)
Net Loss - - - - (264,270) (264,270)
---------- ------ -------- -------- --------- --------
Balance - June 30, 1995 5,539,953 554 $1,187,913 (74,799) (115,242) $ 998,426
Decrease in deferred offering
costs (unaudited) - - - 74,799 - 74,799
Issuance of common stock for cash
and for a $4,987,000 receivable
from shareholders (paid in April
1996), net of $587,760 in offering
costs, $6.89 net per share
(unaudited) 683,548 68 4,709,671 - 4,709,739
Net Loss (unaudited) - - - - (1,156,461) (1,156,461)
--------- ------ ------------ ------- ------------ ------------
Balance - March 31, 1996
(unaudited) 6,223,501 $ 622 $ 5,897,584 $ - $(1,271,703) $ 4,626,503
========= ====== ============ ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended June 30, Ended March 31,
---------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Cash received from customers . . . $ 2,729,161 $ 2,945,684 $ 3,441,010 $ 2,641,834 $ 3,049,123
Cash paid to suppliers and employees . . (2,513,765) (2,839,770) (3,475,958) (2,527,900) (3,468,092)
Interest received . . . . . 28 5,367 - 3,121 -
Interest paid . . . . . . . (23,762) (18,049) (22,333) (23,104) (28,292)
Income taxes paid . . . . . (13,180) (9,022) (27,848) - -
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used By)
Operating Activities . 178,482 84,210 (85,129) 93,951 (447,261)
----------- ----------- ----------- ----------- -----------
Cash Flows From Investing Activities
Payments for purchase of property
and equipment. . (24,241) (100,225) (142,956) (95,429) (735,927)
Cash received from sale of asset . 10,200 - - - -
(Increase) decrease in other assets 1,889 (2,000) (6,571) (12,354) (25,235)
Increase in note receivable from officer . - (45,000) - - -
----------- ----------- ----------- ---------- -----------
Net Cash Used By Investing Activities. . (12,152) (147,225) (149,527) (107,783) (761,162)
----------- ----------- ----------- ---------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of common
stock and other contributed capital. . . - 46,182 168,500 47,107 310,000
Collection of receivable from shareholders - - - - 719,000
Borrowings under notes payable to
related parties 36,000 - 129,500 13,500 -
Principal payments of notes payable to
related parties. . . . . (67,203) (10,907) (2,152) (2,152) -
Borrowings under notes payable . . 57,679 105,000 - - 518,034
Principal payments of notes payable (146,826) (96,883) (37,043) (27,076) (66,815)
Payments of deferred offering costs - - (74,799) (37,191) (58,011)
----------- ------------ ---------- ---------- -----------
Net Cash Provided By (Used By)
Financing Activities. . (120,350) 43,392 184,006 (5,812) 1,422,208
----------- ------------ ---------- ---------- -----------
Net Increase (Decrease) In Cash. . . 45,980 (19,623) (50,650) (19,644) 213,785
Cash At Beginning of Period . 63,298 109,278 89,655 89,655 39,005
----------- ------------ ---------- ----------- -----------
Cash At End of Period . . . . $ 109,278 $ 89,655 $ 39,005 $ 70,011 $ 252,790
============ ============ ========== =========== ===========
Reconciliation of Net Income (Loss)
to Net Cash Provided By (Used By)
Operating Activities Net income (loss) $ 53,327 $ 62,998 $(264,270) $ (93,729) $(1,156,461)
Depreciation. . . . . . . . 53,262 76,846 92,139 45,917 160,993
Other . . . . . . . . . . . - - (13,488) - 74,799
Changes in current assets and liabilities:
Accounts receivable . . . 211,241 (99,918) 13,622 147,974 111,733
Inventory . . . . . . . . (53,536) (45,275) 3,451 (22,204) 22,291
Accounts payable and accrued liabilities (91,019) 42,228 120,658 45,200 338,443
Deferred revenue. . . . . - 27,797 (15,577) (27,797) (12,220)
Accrued income taxes. . . (3,280) 28,021 (21,664) (1,410) 13,161
Deferred income taxes . . 8,487 (8,487) - - -
------------ ------------ -------- ---------- ------------
Net Cash Provided By (Used By)
Operating Activities . . . $ 178,482 $ 84,210 $ (85,129) $ 93,951 $ (447,261)
============ ============= ========== ========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities - Note 5
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
require management to make estimates and assumptions in the financial
statements. Actual amounts could differ from those estimates.
Organization
Datamark Systems, Inc. ("Systems") was incorporated under the laws of the
State of Nevada on April 29, 1987. Datamark Printing, Inc. ("Printing") was
incorporated under the laws of the State of Utah on March 23, 1992. Datamark
Media, Inc. was incorporated as a wholly-owned subsidiary of Systems on October
3, 1994. Printing provides printing services solely to Systems. Due to Systems
and Printing being under common control, prior financial statements were
presented on a combined basis. In December 1994, Systems entered into a plan of
reorganization and subscription agreement with the shareholders of Printing
whereby those shareholders transferred all of the outstanding shares of common
stock of Printing to Systems as an additional contribution to capital. No
additional shares of the common stock of Systems were issued in the transaction.
The business combination of Systems and Printing was accounted for at historical
cost in a manner similar to pooling-of-interests accounting. The consolidated
statements of operations include the combined operations of Systems and Printing
for all periods presented.
Exchequer, Inc., a publicly held Delaware corporation, was incorporated May
16, 1985. On January 11, 1995, Systems consummated a merger agreement with
Exchequer, Inc. whereby Systems became a wholly-owned subsidiary of Exchequer,
Inc., which changed its name to DataMark Holding, Inc. The shareholders of
Systems received 2,121.01 shares of DataMark Holding, Inc. common stock for each
share of Systems common stock outstanding at the date of the merger.
Accordingly, the 2,132 shares of Systems common stock were converted into
4,522,000 shares of DataMark Holding, Inc. common stock. Prior to the merger,
DataMark Holding, Inc. had no assets, $26,215 of liabilities and 471,952 shares
of common stock issued and outstanding, after giving effect to a 1-for-3 reverse
stock split. The merger was accounted for as a reorganization of Systems. To
account for the reorganization, the financial statements of Systems were
restated for all periods presented to reflect a 2,121.01-for-1 stock split and
the liabilities of DataMark Holding, Inc. were recorded at the date of the
merger at their historical cost. The operations of DataMark Holding, Inc. have
been included in consolidated operations from the date of the merger. Operations
of DataMark Holding, Inc. were immaterial prior to the merger; therefore, pro
forma operating information is not presented.
DataMark Holding, Inc., Systems, Printing and Datamark Media, Inc. are
collectively referred to herein as the Company. All significant intercompany
accounts and transactions have been eliminated in consolidation.
<PAGE>
The Company is in the business of designing, printing and mailing direct
mail advertising and developing a national online promotional advertising and
marketing program that will allow advertisers to promote their products to
customers through computer modems.
Interim Financial Information
The accompanying consolidated financial statements as of March 31, 1996 and
for the nine months ended March 31, 1995 and 1996 are unaudited. In the opinion
of management of the Company, these interim financial statements reflect all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation. The results of operations for the nine-month period ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the full year ending June 30, 1996.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Trade Accounts Receivable and Concentration of Credit Risk
The allowance for doubtful accounts was immaterial at all dates presented.
While the Company typically requires payment prior to mailing direct mail
products for customers, a portion of net sales are routinely made on credit to
institutional customers. Collateral is not generally required from these
customers.
Inventory
Inventory is valued at the lower of cost or market, with cost being
determined using the first-in first-out method. Inventory consisted of the
following:
June 30, June 30, March 31,
1994 1995 1996
---------- ---------- -----------
(Unaudited)
Raw materials . . . . . . . . . . $ 20,188 $ 45,464 $ 36,073
Work in process. . . . . . . . . . 91,184 62,457 49,557
---------- ---------- -----------
Total $ 111,372 $ 107,921 $ 85,630
========== ========== ===========
Property and Equipment
Property and equipment are reported at cost. Additions and improvements are
capitalized, while repairs and maintenance costs are expensed when incurred.
Depreciation of property and equipment is computed using primarily an
accelerated method over the estimated useful lives of the related assets which
are as follows:
Automobiles . . . . . . . . . . . . 5 years
Printing equipment. . . . . . . . . 5 years
Computer equipment. . . . . . . . . 5 years
Furniture and fixtures . . . . . .5 - 10 years
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to March 31, 1996 and for the
Nine Months Ended March 31, 1996 and 1995 is Unauditied)
Depreciation expense was $53,262, $76,846, and $92,139 for the years ended
June 30, 1993, 1994 and 1995, respectively, and $45,917 and $160,993 for the
nine months ended March 31, 1995 and 1996, respectively.
When property and equipment are retired or otherwise disposed, the net
book value is removed from the asset and related accumulated depreciation
accounts, and the net gain or loss is recognized in operations.
Revenue Recognition
Revenue from marketing services for customers is recognized at the time
advertising materials are mailed. Payments received from customers prior to
mailing are accounted for as deferred revenue and are included in current
liabilities.
Research and Development
Research and development costs for establishing technology in the area
of computer online marketing are expensed as incurred.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average
number of common and dilutive common equivalent shares outstanding during each
year. Dilutive common equivalent shares consist of the incremental common shares
issuable upon exercise of stock options, computed by the treasury stock method.
This increment from stock options is excluded from the calculation for loss
years as the increment would decrease loss per share.
New Accounting Standard
The Company has determined that it will adopt Statements of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123") on July 1, 1996. As allowed by SFAS 123, the Company will continue to
account for the cost of compensation from stock options and awards based upon
their intrinsic value on the date granted or awarded pursuant to Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees. The
Company will also provide pro forma results of operations as if the compensation
from granting stock options and awards was based on their fair values. The
adoption of SFAS 123 will have no material impact on the financial statements of
the Company.
NOTE 2--RELATED PARTY TRANSACTIONS
During the year ended June 30, 1994, the Company made cash loans to two
officers totaling $46,000 which were settled during the year ended June 30,
1995, except for $1,000.
Prior to July 1, 1992 the Company had borrowed money from certain
officers. An additional $36,000 was borrowed from these individuals during the
<PAGE>
year ended June 30, 1993 and $129,500 was borrowed during the year ended June
30, 1995. Principal payments on these notes were $67,203, $10,907 and $2,152
during the years ended June 30, 1993, 1994 and 1995, respectively. The balance
due on these loans at June 30, 1995 was $151,166, as further discussed in Note
3.
NOTE 3--NOTES PAYABLE
June 30, June 30, March 31,
1994 1995 1996
-------- -------- ---------
(Unaudited)
Notes Payable
Note payable to a bank; bearing
interest at prime plus 2% . . . $14,112 $ - $ -
Note payable to a bank; bearing
interest at prime plus 2% (11%
at June 30, 1995); monthly payments
of $2,083 are due through June
1997; secured by equipment; personally
guaranteed by certain officers
and shareholders . . . 63,385 45,912 29,816
$200,000 revolving credit loan
agreement with a bank; bearing
interest at the bank's base rate
plus 2% ( 9.75% at March 31, 1996);
due September 1996; secured by
accounts receivable and guaranteed
by an officer and director. . . - - 19,054
Notes payable to a credit union;
bearing interest at 5.9%; monthly
payments of $494 are due through
February 1996; secured by an automobile 9,283 3,825 -
Note payable to a bank; bearing
interest at 9.25% payable monthly;
secured by equipment; paid in April 1996 - - 498,980
$100,000 revolving credit loan agreement
with a bank; bearing interest at prime
plus 2% (11% at June 30, 1995); due August
31, 1995 with interest payable monthly;
secured by accounts receivable; personally
guaranteed by certain officers and
shareholders . 46,894 46,894 -
------- ------- --------
Total Notes Payable . . . . . . . . . 133,674 96,631 547,850
Less Current Portion. . . . . . . . . 86,426 71,299 540,932
------- ------ -------
Long-Term Notes Payable . . . . . . . $ 47,248 $ 25,332 $ 6,918
========= ======== ========
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to March 31, 1996 and for the
Nine Months ended March 31, 1996 and 1995 is Unaudited)
<TABLE>
<CAPTION>
June 30, June 30, March 31,
1994 1995 1996
-------- -------- ---------
(Unaudited)
Notes Payable to Related Parties
<C> <C> <C> <C>
10% note payable to two officers, due on demand, unsecured . . $ 2,152 $ - $ -
9% note payable to an officer, due on demand, unsecured. 1,666 1,666 1,666
9% note payable to an officer, due on demand, unsecured. 20,000 20,000 20,000
10% note payable to a director due on demand, unsecured. 50,000 116,000 116,000
10% note payable to an officer, due on demand, unsecured. - 13,500 13,500
-------- -------- -------
Total Notes Payable to Related Parties . $ 73,818 $151,166 $151,166
======== ======== ========
</TABLE>
Annual maturities of notes payable as of June 30, 1995 and March 31, 1996 are
as follows:
Year Ending June 30: 1995 1996
(Unaudited)
1996 $ 222,465 $ 657,871
1997 23,633 41,145
1998 1,699 -
NOTE 4--INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. This statement requires the recognition
of a liability or asset, net of a valuation allowance, for the deferred tax
consequences of all temporary differences between the tax bases and the reported
amounts of assets and liabilities. The Company had no deferred tax asset,
liability or valuation allowance at June 30, 1994. The major components of the
net deferred tax asset as of June 30, 1995 were as follows:
Contribution limitation . . . . . . $ (1,379)
Operating loss carryforwards. . . . 89,439
Valuation allowance . . . . . . . . (88,060)
---------
Net Deferred Tax Asset . . . . $ -
==========
Due to Systems and Printing filing separate income tax returns prior to their
consolidation in December 1994, the operating losses could not be fully carried
back to offset prior taxable income. At June 30, 1995, the Company had net
operating loss carryforwards of $222,261 which will expire in 2010 if unused.
The Company has established a valuation allowance against the deferred tax asset
because the Company is unable to presently determine the likelihood of its
realization..
The following presents the components of the provision for (benefit from)
income taxes for the years ended June 30, 1993, 1994 and 1995:
<PAGE>
1993 1994 1995
----- ----- -----
Current:
Federal. . . . . . . . . . . . . . $ 7,283 $30,747 $ 598
State. . . . . . . . . . . . . . . 2,616 6,296 1,164
Deferred:
Federal. . . . . . . . . . . . . . 7,399 (7,399) (4,228)
State. . . . . . . . . . . . . . . 1,088 (1,088) (654)
-------- ------- -------
Provision For (Benefit From)
Income Taxes. . . . $ 18,386 $28,556 $(3,120)
======== ======= =======
Income taxes computed at the federal statutory rate of 34 percent are
reconciled to the actual income tax provision (benefit) as follows for the years
ended June 30, 1993, 1994 and 1995:
1993 1994 1995
---- ----- ----
Income taxes at federal statutory rate. . . $24,382 $31,128 $(90,913)
Difference due to graduated tax rates. (8,855) (6,525) (5,896)
Operating loss carry back. . . . . . . - - 16,533
Current operating loss not utilized. . - - 75,569
State income tax, net of federal benefit. . 2,445 3,437 336
Non-deductible expenses. . . . . . . . 414 516 1,251
------- ------- --------
Provision For (Benefit From)
Income Taxes $ 18,386 $28,556 $ (3,120)
======== ======= ========
NOTE 5--SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities consisted of the following:
During the year ended June 30, 1993, the Companies executed a $16,000
note payable in connection with the purchase of an automobile valued at $24,768.
During the year ended June 30, 1994, $20,000 of notes payable to a
related party and $8,000 of accrued liabilities were converted to stockholders'
equity. The Company also executed a $65,000 note payable in connection with the
purchase of equipment.
During the year ended June 30,1995, $50,000 of notes payable to a
related party were offset against a note receivable in the same amount from the
same related party. Also during the year ended June 30,1995, 479,334 shares of
common stock were issued for subscriptions receivable totaling $719,000. These
subscriptions receivable were subsequently collected.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to March 31, 1996 and for the
Nine Months Ended March 31, 1996 and 1995 is Unaudited)
During the nine months ended March 31, 1996, the Company issued 643,548
shares of common stock for subscriptions receivable totaling $4,987,500 which
were collected in April 1996.
NOTE 6--LEASE COMMITMENTS
The Company occupied an office facility under an operating lease
agreement which expired on June 30, 1995. Subsequent to June 30, 1995, the
Company entered into a new operating lease agreement for this facility which
extends through March 17, 1999. On July 1, 1996, the Company leased
administrative offices under the terms of an operating lease through November
2000. Future minimum lease payments required under the terms of the leases are
as follows:
Year Ending June 30: June 30, March 31,
1995 1996
(Unaudited)
1996. . . . . . . . . . . . . . . . . . . $ 80,691 $ 6,724
1997. . . . . . . . . . . . . . . . . . . 85,650 219,952
1998. . . . . . . . . . . . . . . . . . . 87,104 288,556
1999. . . . . . . . . . . . . . . . . . . 62,136 263,588
2000. . . . . . . . . . . . . . . . . . . - 201,452
----------- ----------
Total. . . . . . . . . . . . . . . . $ 315,581 $ 980,272
=========== ==========
The Company also leases a facility on a month to month basis. Rent expense
relating to these operating leases was $41,799, $49,077 and $53,435 for the
years ending June 30, 1993, 1994 and 1995, respectively, and $85,172 for the
nine months ended March 31, 1996.
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan for the benefit of its
employees. All employees are eligible to participate and may elect to contribute
up to $7,500 of their salary to the plan annually. The Company has no obligation
to contribute and they did not contribute additional matching amounts to the
plan during any period presented.
NOTE 8--SEGMENT INFORMATION
The following is information regarding the Company's operations and
assets for the years ended June 30, 1994 and 1995 relating to the direct mail
marketing industry and the computer online marketing industry. Computer online
promotional advertising and marketing operations were begun during the year
ended June 30, 1994; accordingly, information for the year ended June 30, 1993
is not presented as it related wholly to the direct mail marketing industry.
<PAGE>
<TABLE>
<CAPTION>
June 30, 1994
---------------------------------------------------------------------
Computer Corporate
Direct Mail Online (Interest
Marketing Marketing Expense) Total
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . .$ 3,017,805 $ - $ - $ 3,017,805
Income (Loss) Before Income Taxes. . 242,937 (129,744) (21,639) 91,554
Depreciation. . . . . . . . . . . . 72,314 4,532 - 76,846
Property and Equipment Purchases . . 142,566 22,659 - 165,225
Identifiable Assets at Year End. . . 862,708 21,785 - 884,493
June 30, 1995
---------------------------------------------------------------------
Computer Corporate
Direct Mail Online (Interest
Marketing Marketing Expense) Total
----------- ----------- ------------ -----------
Net Sales. . . . . . . . . .. . . .$ 3,443,965 $ - $ - $ 3,443,965
Income (Loss) Before Income Taxes . 347,015 (592,720) (21,685) (267,390)
Depreciation . . . . . . . .. . . . 71,258 20,881 - 92,139
Property and Equipment Purchases. . 74,804 68,152 - 142,956
Identifiable Assets at Year End . . 1,490,202 66,444 - 1,556,646
</TABLE>
Sales to a major customer accounted for 14%, 12% and 10% of net sales
during the years ended June 30, 1993, 1994 and 1995, respectively.
NOTE 9--STOCK OPTION AND STOCK OPTION PLAN
In August 1993, the Company granted an option to an employee entitling
the employee to purchase 150,592 shares of common stock at $0.25 per share. The
Board of Directors have determined that $0.25 per share was the market value of
the common stock on the date granted and, accordingly, no compensation expense
has been recognized as a result of granting the option. The employee may
exercise one-half of the option beginning June 30, 1995, and the remaining
one-half beginning June 30, 1997, if employed by the Company on those dates. The
option expires on June 30, 1999, if not exercised.
Effective September 30, 1994, the Company established the Omnibus Stock
Option Plan (the Plan) for employees and consultants of the Company. Options
granted under the Plan may be incentive stock options or nonqualified stock
options. The maximum number of shares which may be optioned and issued under the
Plan is 780,532 shares of common stock. Options for 634,946 shares were granted
under the Plan during the year ended June 30, 1995. Generally, the options
granted under the Plan vest within two years of the date granted. The options
expire, if not exercised, from June 30, 1999 through April 1, 2000.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to March 31, 1996 and for the
Nine Months Ended March 31, 1996 and 1995 is Unaudited)
During the nine months ended March 31, 1996, the Company granted
options to directors of the Company for the purchase of 75,000 shares at $5.00
per share, which was the market value of the underlying common stock on the date
the options were granted. In June 1996, in connection with an employment
agreement with an officer of the Company's subsidiary Datamark Media, Inc., the
Company granted the officer options to purchase 112,500 shares of common stock
at $7.75 per share, which was considered market value on the date granted.
The following is a summary of all stock options for the years ended June 30,
1993, 1994 and 1995:
Shares Options Outstanding
Available Number of Option Price
For Grant Shares Per Share
--------- ---------- ------------
Outstanding at June 30, 1992 and 1993 - - $ -
Granted.. . . . . . . . . . . - 150,592 0.25
--------- ---------- -----------
Balance at June 30, 1994. . . - 150,592 0.25
Authorized. . . . . . . . . . 780,532 - -
Granted.. . . . . . . . . . . (634,946) 634,946 0.50 - 1.00
--------- ---------- -----------
Balance at June 30, 1995 . . 145,586 785,538 $0.25 - 1.00
======== ========== ============
Exercisable at June 30, 1995. 210,665 $0.25 - 1.00
========== ============
Two principal shareholders granted options to an employee during the year
ended June 30, 1995. The options allow the employee to purchase 400,871 shares
of common stock at $0.50 per share. The Company did not recognize compensation
expense from these options due to the market value of the common stock being
equal to the exercise price on the date the options were granted. However, in
June 1996, in connection with an employment agreement with an officer of the
Company's subsidiary Datamark Media, Inc., a principal shareholder granted an
option to the officer to purchase 125,000 shares of common stock from the
principal shareholder at $1.50 per share. This option will result in the Company
recognizing approximately $780,000 of compensation in June 1996.
NOTE 10--CONTINGENCIES
The Company has been indemnified by the former Exchequer shareholders
against potential and certain actual legal claims and for the cost of defending
the Company against any such claims. The Company has accrued $4,822 as a
liability for claims that have been made against the Company. These claims, if
paid, are reimbursable by the former Exchequer shareholders under the
indemnification agreement. The Company intends to seek reimbursement for any
payments it is required to make for liabilities covered by the indemnification
agreement.
<PAGE>
DATAMARK HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to March 31, 1996 and for the
Nine Months Ended March 31, 1996 and 1995 is Unaudited)
NOTE 11--SUBSEQUENT EVENTS
In April 1996, the Company collected the subscriptions receivable from
stockholders relating to the issuance of common stock in March 1996. In April
through June 1996, the Company issued an additional 1,630,406 shares of common
stock for approximately $11,960,000, net of $1,264,000 of offering costs.
Warrants to purchase 306,125 shares of common stock at $7.75 per share and
options to purchase 125,000 shares at $9.00 per share were issued in connection
with the private placement offering.
<PAGE>
======================================================== =====================
No dealer, salesman or any other person has been 2,847,482 Shares
authorized to give any information or to make any repre-
sentations other than those contained or incorporated in DATAMARK HOLDING, INC.
this Prospectus in connection with the offer made by this
Prospectus and, if given or made, such information or Common Stock, $.0001
representations must not be relied upon as having been par value
authorized by the Company, or by any Selling
Shareholder. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances
create any implication that there has been no change in
the affairs of the Company since the date hereof. This
Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solic-
itation is not authorized or in which the person making -------------
such offer or solicitation is not qualified to do so or to PROSPECTUS
anyone to whom it is unlawful to make such offer or -------------
solicitation.
- -------------------
________, 1996
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . 6
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . 10
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . 16
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . 16
MARKET FOR COMMON STOCK. . . . . . . . . . . . . . . . . . 17
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . 18
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . 18
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . 20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 21
CHANGE IN ACCOUNTANTS. . . . . . . . . . . . . . . . . . . 26
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . 27
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 36
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . 39
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . 41
CERTAIN TRANSACTIONS WITH RELATED
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . 42
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . 42
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . 43
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 43
EXERCISING WARRANTHOLDERS. . . . . . . . . . . . . . . . . 45
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 47
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . 47
================================================================== ===========
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated amount of various expenses in
connection with the sale and distribution of the securities being registered:
SEC registration fee $ 12,028
Printing and engraving expenses 3,000
Legal fees and expenses 20,000
Blue Sky fees and expenses 5,000
Accounting fees and expenses 3,000
Transfer agent fees 500
Miscellaneous 6,472
---------
Total $ 50,000
=========
- ---------------
Item 14. Indemnification of Directors and Officers.
Under Sections 145 of the Delaware General Business Corporation Law and the
Registrant's Articles of Incorporation, the Registrant's directors and officers
may be indemnified against certain liabilities which they may incur in their
capacities as such.
Insofar as indemnification for liabilities under the Act may be permitted to
directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities.
The following securities have been sold by the Company within the past three
years without registering the securities under the Act:
On January 11, 1995, the company consummated an Agreement and Plan of
Reorganization (the "Agreement") with DataMark Systems, Inc., a Nevada
corporation ("DataMark Systems") pursuant to which DataMark Systems became a
wholly owned subsidiary of the Company. As a result of the Agreement, former
shareholders of DataMark Systems were issued 4,522,000 shares of Common Stock of
the Company. The Company believes this transaction was exempt from registration
under the Act pursuant to Section 4(2) of the Act since it did not involve a
public offering.
From August, 1993 to June 30, 1996 the Company has issued options to acquire
780,532 shares of Common Stock pursuant to the Company's Omnibus Stock Option
Plan. The options have been issued exclusively to consultants, employees or
directors of the Company. The Company believes the issuance of these securities
is exempt from registration under the Act pursuant to Rule 701 under the Act.
In April, 1995 the Company raised $744,201 (net of offering costs) through
the issuance of 546,001 shares of the Company's Common Stock in a private
placement transaction. The shares of Common stock were sold to a limited number
<PAGE>
of accredited investors. The Company believes that the private placement was
exempt from registration under the Act pursuant to Section 4(2) of the Act since
the transaction did not involve a public offering.
In 1996, the Company issued or agreed to issue 2,528,454 shares of Common
Stock at a price of $7.75 per share, or gross proceeds of $19,595,518, to fifty
investors, all of which were accredited investors. As part of the private
placement transaction, the Company issued Warrants to acquire 306,125 shares of
Common Stock, at a price of $7.75 per share and 125,000 shares at $9.00 per
share to seven investors, all of which were accredited investors. The Company
believes that these issuances were exempt from registration under the Act
pursuant to Section 4(2) of the Act, since the issuances did not involve a
public offering.
Item 16. Exhibits
See Exhibit Index.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(1) Included any prospectus required by Section 10(a)(3) of the
Securities Act;
Reflect in the Prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
(d) (1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and treat the offering of the securities at that time as the initial bona
fide offering of those securities.
Item 18. Financial Statements and Schedules.
The following financial statements are included in the Prospectus:
Report of Independent Certified Public Accountants . . . . F-2
Consolidated Balance Sheets - June 30, 1994, June 30, 1995 and
March 31, 1996 (Unaudited) . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1993, 1994 and 1995 and for the nine months ended
March 31, 1996 (Unaudited) . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1993, 1994 and 1995 and for the nine
nine months ended March 31, 1996 (Unaudited) . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1993, 1994 and 1995 and for the nine months ended
March 31, 1995 and 1996 (Unaudited). . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . F-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Salt Lake City, State of
Utah, on the 20th day of August, 1996.
DATAMARK HOLDING, INC.
By: /s/ Chad Evans
Chad Evans, Chief Executive
Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Chad Evans and James Egide, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Chad Evans Chief Executive Officer, President August 20, 1996
Chad Evans and a Director
/s/ James A. Egide Chief Financial Officer, August 20, 1996
James A. Egide Principal Accounting Officer,
and a Director
<PAGE>
____________________ Director
C. Scott Stone
______________________ Director
Kenneth Woolley
/s/ Stanton D. Jones Director August 20, 1996
Stanton D. Jones
<PAGE>
EXHIBIT INDEX
Exhibits Exhibit Description Page or Location
3.1 Articles of Incorporation, as amended **
3.2 By-laws **
5.1 Opinion of Ballard Spahr Andrews & Ingersoll +
10.1 Agreement and Plan of Reorganization *
10.2 Lease Agreement **
10.3 Omnibus Stock Option Plan **
21.1 Subsidiaries of the Registrant +
23.1 Consent of Hansen, Barnett & Maxwell +
23.2 Consent of Ballard Spahr Andrews & Ingersoll
(included in Opinion of Counsel in Exhibit 5.1)
* Incorporated by reference to the Company's Current Report on Form 8-K
dated January 11, 1995.
** Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1995.
+ Attached hereto.
<PAGE>
August 26, 1996
Board of Directors
DataMark Holding, Inc.
348 E. Winchester St. Suite 220
Salt Lake City, UT 84107
Re: DataMark Holding Inc.
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to DataMark Holding, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-1 (the "Registration Statement"), to be filed
on or about August ___, 1996 pertaining to 2,847,482 of the Company's common
stock, $.0001 par value of which 306,125 shares are issuable by the Company
pursuant to the terms of certain outstanding warrants (the "Warrant Shares").
We have reviewed the Certificate of Incorporation and Bylaws of the
Company, as amended, resolutions of the board of directors of the Company, the
Registration Statement and such other documents as we have deemed appropriate.
As to factual matters we have relied upon certificates supplied to us by
officers of the Company. In rendering the opinion expressed herein, we have
assumed, without investigation, the validity of all documents and the accuracy
of all information supplied to us by the Company. All capitalized terms used
herein and not otherwise defined have the meaning ascribed to them in the
Registration Statement.
Based upon the foregoing, we are of the opinion that:
(a) the Warrant Shares being registered pursuant to the Registration
Statement will be, upon the Company's receipt of the exercise price of
the warrant being exercised, legally issued, fully paid and
non-assessable; and
(b) The Shares being registered pursuant to the Registration Statement
other than the Warrant Shares are legally 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 "Legal Matters" in
the Prospectus contained in the Registration Statement.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE>
Exhibt 21.1
DATAMARK HOLDING, INC.
Subsidiaries of the Registrant
The Company has three operating subsidiaries, DataMark Systems, Inc.,
Datamark Media, Inc. and Datamark Printing, Inc. All are Nevada corporations and
are wholly owned (directly or through Datamark Systems, Inc.) by the Company.
<PAGE>
Exhibti 23.1
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
SEC Practice Section 345 East 300 South, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
DataMark Holding, Inc.
We have issued our report dated October 5, 1995 on the consolidated financial
statements of DataMark Holding, Inc. and Subsidiaries. We consent to the use of
our report in the Registration Statement of DataMark Holding, Inc. on Form S-1.
We also consent to the use of our name and the statements with respect to us as
appearing under the heading "Experts" in the Registration Statement.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
August 26, 1996
