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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_x_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20394
INMARK ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1340408
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Plaza Road
Greenvale, New York 11548
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 625-3500
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __x__ No _____
On August 6, 1996, 2,880,751 shares of the Registrant's Common Stock, par value
$.001 a share, were outstanding.
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<PAGE>
INDEX
INMARK ENTERPRISES, INC. AND SUBSIDIARIES
Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements of Inmark Enterprises, Inc.
(Unaudited)
Consolidated Balance Sheets - June 30, 1996 and March 31, 1996 3
Consolidated Statements of Operations - Three month periods ended 4
June 30, 1996 and June 30, 1995
Consolidated Statement of Stockholders' Equity - 5
Three month period ended June 30, 1996
Consolidated Statements of Cash Flows - Three month periods 6
ended June 30, 1996 and June 30, 1995
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
PART II - OTHER INFORMATION 11
SIGNATURES 12
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<PAGE>
PART I - FINANCIAL INFORMATION
INMARK ENTERPRISES, INC.
Consolidated Balance Sheets
June 30, 1996 and March 31, 1996
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996*
------------- ---------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 238,712 700,598
Restricted cash -- 250,000
Accounts receivable 3,551,405 --
Due from factor -- 578,725
Interest and other receivables -- 31,040
Deferred tax asset 640,000 640,000
Prepaid expenses and other current assets 36,251 57,940
---------- ---------
Total current assets 4,466,368 2,258,303
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Furniture, fixtures and equipment, net 130,610 121,159
Goodwill, net 2,452,357 2,524,927
Note receivable from officer 200,000 200,000
Other assets 14,180 14,180
---------- ---------
Total assets 7,263,515 5,118,569
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 830,309 851,898
Accrued job costs 2,585,225 1,287,904
Accrued compensation 55,311 32,144
Other accrued liabilities 215,346 182,846
Notes payable - SPAR 750,000 750,000
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Total current liabilities 4,436,191 3,104,792
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Stockholders' equity:
Class A convertible preferred stock, par value $.001;
authorized 650,000 shares; none issued and outstanding -- --
Class B convertible preferred stock, par value $.001;
authorized 700,000 shares; none issued and outstanding -- --
Preferred stock, undesignated; authorized 3,650,000
shares; none issued and outstanding -- --
Common stock, par value $.001; authorized 25,000,000
shares; issued and outstanding 2,879,251 shares at June 30,
1996 and 2,604,251 shares at March 31, 1996 2,879 2,604
Additional paid-in capital 1,321,751 1,043,526
Retained earnings 1,502,694 967,647
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Total stockholders' equity 2,827,324 2,013,777
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Total liabilities and stockholders' equity 7,263,515 5,118,569
========== =========
<FN>
- ----------
* The consolidated balance sheet as of March 31, 1996 has been summarized from
the Company's audited balance sheet as of that date.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
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Sales $4,831,752 4,840,672
Direct expenses 3,274,832 3,343,708
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Gross profit 1,556,920 1,496,964
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Salaries 548,538 526,383
Selling, general and administrative expense 427,207 420,091
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Total operating expense 975,745 946,474
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Operating income 581,175 550,490
Interest expense, net 6,128 31,475
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Income before income taxes 575,047 519,015
Provision for income taxes 40,000 202,000
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Net income $ 535,047 317,015
========== =========
Net income per common and common equivalent share:
Primary $ .16 .47
========== =========
Fully diluted $ .15 .47
========== =========
Weighted average number of common and
common equivalent shares outstanding:
Primary 3,418,837 677,106
========== =========
Fully diluted 3,637,852 677,106
========== =========
See accompanying notes to consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statement of Stockholders' Equity
Three months ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
par value $.001 Additional Total
----------------------- Paid - in Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 2,604,251 $2,604 $1,043,526 $ 967,647 $2,013,777
Exercise of warrants 275,000 275 278,225 -- 278,500
Net income -- -- -- 535,047 535,047
--------- ------ ---------- ---------- ----------
Balance, March 31, 1996 2,879,251 $2,879 $1,321,751 $1,502,694 $2,827,324
========= ====== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Cash Flows
Three months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 535,047 317,015
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 84,676 135,443
Changes in operating assets and liabilities:
Increase in accounts receivable (3,551,405) --
Decrease (increase) in prepaid expenses and other current assets 21,689 (35,985)
Decrease in interest and other receivables 31,040 --
(Decrease) increase in accounts payable (21,589) 46,552
Increase in accrued job costs 1,297,321 985,817
Increase in other accrued liabilities 63,167 268,322
Decrease in accrued compensation (7,500) (215,000)
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Net cash (used in) provided by operating activities (1,547,554) 1,502,164
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Cash flows from investing activities:
Costs of acquisition of business of SPAR net
of cash acquired, including acquisition costs -- (2,215,281)
Purchases of fixed assets (21,557) (3,723)
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Net cash (used in) provided by investing activities (21,557) (2,219,004)
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Cash flows from financing activities:
Proceeds of sale of accounts receivable to factor -- 1,828,000
Repayments of loan payable to SPAR -- (75,000)
Release of restricted cash from factor 250,000 --
Decrease (increase) in due from factor, net 578,725 (906,679)
Proceeds from exercise of warrants 278,500 --
----------- ---------
Net cash provided by financing activities 1,107,225 846,321
----------- ---------
Net (decrease) increase in cash (461,886) 129,481
Cash at beginning of period 700,598 150
----------- ---------
Cash at end of period $ 238,712 129,631
=========== =========
Supplemental disclosure:
Interest paid during the period $ 18,918 32,059
=========== =========
Income tax paid during the period $ 38,283 --
=========== =========
Non-cash financing and investing activities:
Notes payable issued in acquisition of SPAR
net of cash acquired, including acquisition costs $ -- 1,672,000
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
Inmark Enterprises, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
June 30, 1996 and 1995
(1) Organization and Nature of Business
Inmark Enterprises, Inc. (formerly Health Image Media, Inc.) (the
"Company") completed a merger on September 29, 1995 whereby Inmark
Services, Inc., a New York corporation, was merged with and into the
Company's wholly-owned subsidiary, InMark Acquisition Corp., a Delaware
corporation (the "Merger"). Following the Merger, InMark Acquisition Corp.
changed its name to Inmark Services, Inc. and Health Image Media, Inc.
changed its name to Inmark Enterprises, Inc.
Inmark Services, Inc. is the successor to SPAR Promotion & Marketing
Services, Inc. ("Spar"), a sales promotion and marketing firm, as a result
of a management led buy-out of that company's net assets and business on
April 3, 1995.
(2) Basis of Presentation
The Merger has been accounted for as a reverse purchase of the Company by
Inmark Services, Inc. and, for financial accounting and reporting purposes,
Inmark Services, Inc. is treated as the acquirer of the Company. No
goodwill was recognized in the Merger. Operations for the three month
period ended June 30, 1995 are solely those of Inmark Services, Inc.
The interim financial statements of the Company for the three month periods
ended June 30, 1996 and 1995 have been prepared without audit. In the
opinion of management, such financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's results for the interim periods presented. The results of
operations for the three month period ended June 30, 1996 is not
necessarily indicative of the results for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted financial
statements have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended March 31, 1996 included in
the Company's Annual Report on Form 10-K for the year ended March 31, 1996.
(3) Earnings Per Share
The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding during the
period, plus the assumed exercise of stock options and warrants, less the
number of treasury shares assumed to be purchased from the proceeds of such
exercises using the average market price of the Company's common stock for
primary and the period end market price for fully diluted earnings per
share.
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<PAGE>
The weighted average number of common shares was computed assuming that the
677,106 shares of the Company's common stock exchanged for the common stock
of Inmark Services, Inc. in the Merger were outstanding for the entire
three month period ended June 30, 1995; for the three month period ended
June 30, 1996, the actual outstanding common stock of the Company was used
in the computation. Stock options and warrants have been excluded from the
calculation of the primary and fully diluted earnings per share in any
period in which they would be antidilutive.
(4) Income Taxes
Federal income taxes have not been provided for the three months ended June
30, 1996, as any such taxes are expected to be minimal as a result of net
operating loss carryforwards. To the extent that net operating loss
carryforwards may not be available to offset state and local income taxes,
a $40,000 provision for such taxes has been established for the three
months ended June 30, 1996.
(5) Recent Accounting Developments
In December, 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
effective for years beginning after December 15, 1995. Under SFAS 123, the
Company may elect either a "fair value" based method or the current
"intrinsic value" based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees", for its stock-based
compensation arrangements. Under the "intrinsic value" based method, the
Company will be required to disclose in the footnotes to the consolidated
financial statements net income and earnings per share computed under the
"fair value" based method. The Company has elected to continue accounting
for stock-based compensation arrangements using the "intrinsic value" based
method; therefore, the adoption of SFAS 123 will not impact the Company's
results of operations or financial condition.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
On September 29, 1995, the Company completed the merger whereby Inmark
Services, Inc., a New York corporation, was merged with and into the Company's
wholly-owned subsidiary, InMark Acquisition Corp., a Delaware corporation.
Following the Merger, InMark Acquisition Corp. changed its name to Inmark
Services, Inc. and the Company changed its name from Health Image Media, Inc. to
Inmark Enterprises, Inc. Inmark Services, Inc. is the successor to SPAR
Promotion & Marketing Services, Inc.("Spar"), a sales promotion and marketing
firm, as a result of a management led buy-out of that company's net assets and
business on April 3, 1995.
The Merger has been accounted for as a reverse purchase of the Company by
Inmark Services, Inc. and, for financial accounting and reporting purposes,
Inmark Services, Inc. is treated as the acquirer of the Company. Accordingly,
the following discussion includes the Company's results of operations for the
three month period ended June 30, 1996 compared to the results of operations of
Inmark Services, Inc. for the three month period ended June 30, 1995. The
following information should be read together with the consolidated financial
statements and notes thereto included elsewhere herein.
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<PAGE>
Results of Operations
Sales. Sales for the quarter ended June 30, 1996 were $4,832,000 compared
to sales of $4,841,000 for the quarter ended June 30, 1995, a decrease of $9,000
or less than 0.2%. The decrease in the comparative quarterly sales was primarily
the result of timing differences in the billing of scheduled installments under
the existing contracts, notwithstanding that at June 30, 1996 the future
billings of total contracts in place exceeded the future billings of total
contracts in place at June 30, 1995 by approximately $1,573,000.
Direct Expenses. Direct expenses for the quarter ended June 30, 1996 were
$3,275,000, or 67.8% of sales, compared to $3,344,000, or 69.1% of sales, for
the comparable prior year quarter. The decrease during the three month period
ended June 30, 1996 in the amount of direct expenses and the direct expenses as
a percentage of sales was principally the result of the current mix of client
programs which, in the aggregate, have a higher gross profit margin than the mix
of programs in place during the comparable prior year three month period.
As a result of these changes in sales and direct expenses, gross profit for
the quarter ended June 30, 1996 increased by $60,000 to $1,557,000 compared to
the quarter ended June 30, 1995.
Operating Expenses. Operating expenses for the quarter ended June 30, 1996
increased by $29,000, or 3.1%, to $975,000 compared to $946,000 for the quarter
ended June 30, 1995. Operating expenses as a percentage of sales were 20.2% and
19.6%, respectively, for the quarters ended June 30, 1996 and June 30, 1995.
The increase in operating expenses was primarily attributable to the net
effect of the total of: (a) an increase in salaries of approximately $22,000 as
a result of a general increase in non-executive salaries and the addition of
personnel; (b) an increase in sales related expenses of approximately $87,000,
inclusive of sales commissions; (c) an increase in legal and accounting expenses
of approximately $40,000; and (d) an increase in marketing and advertising
expenses of approximately $26,000, offset by a decrease of approximately
$131,000 in factoring agreement related administrative and facility fees and a
decrease of approximately $78,000 in acquisition and merger related expenses
incurred in the comparable prior year quarter.
Interest Expense. Net interest expense for the quarter ended June 30, 1996
was $6,000 compared to $31,000 for quarter ended June 30, 1995. The decrease is
the result of the reduced balance of notes payable outstanding during the
quarter ended June 30, 1996, and interest income of $ 13,000 earned during the
period.
Provision For Income Taxes. For the three month period ended June 30, 1996,
no provision for federal income taxes was made, as net operating loss carryovers
from prior years of approximately $3,762,000 are available to offset taxable
income; however, a $40,000 provision for state and local income taxes has been
made, at a rate of approximately 7%, as net operating loss carryforwards may not
be allowable as an offset against such taxes. For the three month period ended
June 30, 1995, a $202,000 provision for income taxes had been made at a then
estimated effective tax rate of 39% for Inmark Services, Inc.
Net Income. As a result of the items discussed above, net income for the
quarter ended June 30, 1996 was $535,000 compared to net income of $317,000 for
the comparable prior year quarter.
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<PAGE>
Liquidity and Capital Resources.
The Company's operating activities and other commitments until April 24,
1996 were funded with the sale of accounts receivable pursuant to a factoring
agreement and with cash provided from operations. Effective April 24, 1996, the
Company entered into a one year factoring agreement, which replaced its prior
factoring agreement, pursuant to which the Company may receive advances of up to
75% of those of its accounts receivable which the Company, at its discretion,
elects to sell to the factor. Total advances may not exceed $2,000.000 at any
given time during the term of the factoring agreement. In connection with the
factoring agreement, the Company paid a one time closing fee of $25,000 and pays
an administration fee and facility fee based upon the same terms upon which such
fees were paid under its earlier factoring agreement. In connection with the
termination of its earlier factoring agreement, the $250,000 cash collateral
deposit balance pledged to the factor was released together with the accrued
interest thereon.
For the quarter ended June 30, 1996, cash used in operations amounted to
$1,548,000 and purchases of fixed assets totalled $22,000. Cash provided by the
collection of receivable amounts due from the factor and by the release of
restricted cash by the factor totalled $829,000, and proceeds from the exercise
of warrants amounted to $279,000. As a result, cash decreased by $462,000. At
June 30, 1996, the Company had cash of $239,000 and working capital of $30,000
compared to cash of $701,000 and a negative working capital of $846,000 at June
30, 1995. Stockholders' equity increased by $814,000 during the quarter ended
June 30, 1996 as a result of the Company's net income and the proceeds received
from the exercise of outstanding warrants.
At June 30, 1996, the outstanding principal balance of the notes issued to
Spar in the Spar acquisition was $750,000. The Company believes that it will be
able to satisfy its cash requirements to pay the principal plus the accrued
interest on the notes issued to Spar as they become due from cash flow generated
from operations, as well as from funds available under the factoring agreement.
To continue to improve the Company's working capital position, the Company must
maintain profitable operations as well as continued availability of funding
under the factoring agreement. Otherwise, the Company will be required to seek
external financing, either through additional equity or debt financing. There
can be no assurance that the Company will be able to obtain such additional
funding, if required.
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PART II - OTHER INFORMATION
Items 1-5. Not Applicable
Items 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None
(b) Reports on Form 8-K. None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INMARK ENTERPRISES, INC.
Dated: August 6, 1996 By: /s/ John P. Benfield
----------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: August 6, 1996 By: /s/ Donald A. Bernard
----------------------------------------
Donald A. Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
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