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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, 1997
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
-------- ----------
(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, 1997, 2,835,751 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.
Consolidated Balance Sheets - June 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations - Three month periods ended
June 30, 1997 and June 30, 1996 4
Consolidated Statement of Stockholders' Equity -
Three month period ended June 30, 1997 5
Consolidated Statements of Cash Flows - Three month periods ended
June 30, 1997 and June 30, 1996 6
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 10
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Items 1-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
SIGNATURES 11
- -2-
<PAGE>
PART I - FINANCIAL INFORMATION
INMARK ENTERPRISES, INC.
Consolidated Balance Sheets
June 30, 1997 and March 31, 1997
<TABLE>
<CAPTION>
June 30,1997 March 31, 1997*
------------ ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,877,301 1,712,751
Accounts receivable 2,511,253 2,780,866
Unbilled contracts in progress 1,343,082 --
Interest and other receivables 8,724 6,725
Deferred tax asset 1,037,877 1,082,133
Prepaid expenses and other current assets 101,108 299,852
----------- -----------
Total current assets 6,879,345 5,882,327
----------- -----------
Furniture, fixtures and equipment, net 203,292 207,149
Goodwill, net 2,171,808 2,244,378
Note receivable from officer 225,000 200,000
Other assets 25,986 25,986
----------- -----------
Total assets 9,505,431 8,559,840
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 317,427 520,763
Accrued job costs 3,877,032 3,209,771
Accrued compensation 19,158 151,811
Other accrued liabilities 192,362 140,114
----------- -----------
Total current liabilities 4,405,979 4,022,459
----------- -----------
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 2,835,751 shares 2,835 2,835
Additional paid-in capital 1,277,396 1,277,396
Retained earnings 3,819,221 3,257,150
----------- -----------
Total stockholders' equity 5,099,452 4,537,381
----------- -----------
Total liabilities and stockholders' equity 9,505,431 8,559,840
=========== ===========
</TABLE>
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* The consolidated balance sheet as of March 31, 1997 has been summarized
from the Company's audited balance sheet as of that date.
See accompanying notes to consolidated financial statements
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Sales $ 5,918,887 4,831,752
Direct expenses 4,034,636 3,274,832
----------- -----------
Gross Profit 1,884,251 1,556,920
----------- -----------
Salaries 686,707 548,538
Selling, general and administrative expense 475,011 427,207
----------- -----------
Total operating expenses 1,161,718 975,745
----------- -----------
Operating income 722,533 581,175
Interest (income) expense, net (39,794) 6,128
----------- -----------
Income before income taxes 762,327 575,047
Provision for income taxes 200,256 40,000
----------- -----------
Net income $ 562,071 535,047
=========== ===========
Net income per common and common equivalent share:
Primary $ .16 $ .16
=========== ===========
Fully diluted $ .16 $ .15
=========== ===========
Weighted average number of common and
common equivalent shares outstanding:
Primary 3,559,911 3,418,837
=========== ===========
Fully diluted 3,566,703 3,637,852
=========== ===========
</TABLE>
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See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statement of Stockholders' Equity
Three Months Ended June 30, 1997
(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, 1997 2,835,751 $ 2,835 $1,277,396 $3,257,150 $4,537,381
Net income -- -- -- 562,071 562,071
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1997 2,835,751 $ 2,835 $1,277,396 $3,819,221 $5,099,452
========== ========== ========== ========== ==========
</TABLE>
- ----------
See accompanying notes to consolidated financial statements.
- - 5 -
<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Cash Flows
Three Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 562,071 535,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 82,445 84,676
Deferred income taxes 44,256 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 269,613 (3,551,405)
Increase in unbilled contracts in progress (1,343,082) --
Decrease in prepaid expenses and other current assets 198,744 21,689
(Increase) decrease in interest and other receivables (26,999) 31,040
Decrease in accounts payable (203,336) (21,589)
Increase in accrued job costs 667,261 1,297,321
Increase other accrued liabilities 52,248 63,167
Decrease in accrued compensation (132,653) (7,500)
----------- -----------
Net cash provided (used in) by operating activities 170,568 (1,547,554)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (6,018) (21,557)
----------- -----------
Net cash used in investing activities (6,018) (21,557)
----------- -----------
Cash flows from financing activities:
Release of restricted cash from factor -- 250,000
Decrease in due from factor, net -- 578,725
Proceeds from exercise of warrants -- 278,500
----------- -----------
Net cash provided by financing activities -- 1,107,225
----------- -----------
Net increase (decrease) in cash 164,550 (461,886)
Cash and cash equivalents at beginning of period 1,712,751 700,598
----------- -----------
Cash and cash equivalents at end of period $ 1,877,301 238,712
=========== ===========
Supplemental disclosure:
Interest paid during the period $ -- 18,918
=========== ===========
Income tax paid during the period $ 53,888 38,283
=========== ===========
</TABLE>
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See accompanying notes to consolidated financial statements.
- -6-
<PAGE>
Inmark Enterprises, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
June 30, 1997 and 1996
(1) Basis of Presentation
---------------------
The interim financial statements of Inmark Enterprises, Inc. (the
"Company") for the three month periods ended June 30, 1997 and 1996
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, 1997 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
accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1997.
(2) 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. 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.
(3) Unbilled Contracts in Progress
------------------------------
Unbilled contracts in progress represents revenue recognized in advance
of billings rendered based on work performed to date on certain
contracts. Accrued job costs are also recorded for such contracts to
properly match costs and revenue.
(4) Income Taxes
------------
The provision for income taxes for the three month period ended June
30, 1997 includes approximately $110,000 of deferred tax benefits
arising from the reduction of the valuation allowance for deferred tax
assets, as a result of management's belief that it is more likely than
not that such assets will be fully realized. Income taxes for the
period have otherwise been provided based upon the Company's estimated
effective tax rate for the year.
- -7-
<PAGE>
(5) Recent Accounting Developments
------------------------------
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128), was issued. SFAS No. 128
simplifies the standards for computing earnings per share as it
replaces primary earnings per share and fully diluted earnings per
share with basic earnings per share and diluted earnings per share,
respectively. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997 and requires restatement of
all prior period earnings per share presented. The Company believes
that the subsequent adoption of SFAS No. 128 in fiscal 1998 will
increase the Company's reported earnings per share since the
computation of basic earnings per share will exclude outstanding stock
options which were previously included in the computation of primary
earnings per share, while diluted earnings per share will be
approximately the same.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion compares the Company's consolidated results of
operations for the three month period ended June 30, 1997 to the Company's
consolidated results of operations for the three month period ended June 30,
1996. The information herein should be read together with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1997.
Results of Operations
Sales. Sales for the quarter ended June 30, 1997 were $5,919,000 compared
to sales of $4,832,000 for the prior year quarter ended June 30, 1996, an
increase of $1,087,000 or 22.5%. The increase in sales for the three month
period ended June 30, 1997 was primarily the result of the overall increase in
contract projects in progress during the period compared to the contract
projects in progress in the like prior year quarter.
Direct Expenses. Direct expenses for the quarter ended June 30, 1997 were
$4,035,000, or 68.2% of sales, compared to $3,275,000, or 67.8% of sales, for
the comparable prior year quarter. The increase in the amount of direct expenses
for the three month period ended June 30, 1997 principally relates to the
comparative increase in sales for the period, whereas the increase in direct
expenses as a percentage of sales for the three month period ended June 30, 1997
was primarily the result of current client projects in the aggregate having a
lower gross profit margin than the mix of projects 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, 1997 increased by $327,000 to $1,884,000 compared to
the quarter ended June 30, 1996.
Operating Expenses. Operating expenses for the quarter ended June 30, 1997
increased by $186,000 to $1,162,000 compared to $976,000 for the quarter ended
June 30, 1996. As a percentage of sales, operating expenses for the quarter
ended June 30, 1997 decreased to 19.6% compared to 20.2% for the prior year
quarter ended June 30, 1996.
The increase in operating expenses was primarily attributable to the
$138,000 increase in salaries associated with an increase in personnel and a
general increase in non-executive salary levels and to a lesser extent the
$48,000 increase in selling, general and administrative expenses related to the
overall increase in level of operations.
- -8-
<PAGE>
Interest Income/Expense. Interest income of $40,000 was earned from short
term cash equivalent investments for the quarter ended June 30, 1997. No
interest expense was incurred during the period as there was no remaining
interest bearing debt outstanding, whereas for the comparable prior year quarter
ended June 30, 1996, net interest expense of $6,000 was incurred.
Provision For Income Taxes. Provisions for federal, state and local income
taxes for the three month period ended June 30, 1997 were based upon the
Company's estimated effective tax rate for the fiscal year and include $110,000
of deferred tax benefits expected to be realized arising from the reduction of
the valuation allowance for deferred tax assets. In comparison, for the three
month period ended June 30, 1996, as net operating loss carryovers from prior
years were available to offset taxable income, no provision for federal income
taxes was made and a $40,000 provision was made for state and local income
taxes.
Net Income. As a result of the items discussed above, net income for the
quarter ended June 30, 1997 was $562,000 compared to net income of $535,000 for
the comparable prior year quarter.
Liquidity and Capital Resources.
For the quarter ended June 30, 1997, all of the Company's activities were
funded with existing working capital and internally generated cash flow. At June
30, 1997, the Company had cash and cash equivalents totaling $1,877,000 and
working capital of $2,473,000 compared to cash and cash equivalents of
$1,713.000 and working capital of $1,860,000 at March 31, 1997. Stockholders'
equity increased to $5,099,000 as a result of the Company's net income for the
quarter ended June 30, 1997.
For the three months ended June 30, 1997, cash provided by operations
amounted to $171,000 and cash used to purchase fixed assets totaled $6,000,
thereby resulting in an increase in cash of $165,000.
The Company believes that its current working capital position is
sufficient to support its existing and anticipated levels of operation and that
its working capital will continue to increase as the Company continues to
maintain profitable operations, thereby negating the need for external
financing. To the extent that the Company should be required to seek external
equity or debt financing, there can be no assurance that the Company will be
able to obtain any such additional financing.
- -9-
<PAGE>
PART II - OTHER INFORMATION
Items 1-5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None
- -10-
<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, 1997 By: /s/ John P. Benfield
---------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: August 6, 1997 By: /s/ Donald A. Bernard
----------------------------------------
Donald A.Bernard, Executive Vice
President and Chief Financial Officer
(Principal Accounting and Financial
Officer) and Director
- -11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,877,301
<SECURITIES> 0
<RECEIVABLES> 2,511,253
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,879,345
<PP&E> 318,272
<DEPRECIATION> 114,980
<TOTAL-ASSETS> 9,505,431
<CURRENT-LIABILITIES> 4,405,979
<BONDS> 0
0
0
<COMMON> 2,835
<OTHER-SE> 5,096,617
<TOTAL-LIABILITY-AND-EQUITY> 9,505,431
<SALES> 5,918,887
<TOTAL-REVENUES> 5,918,887
<CGS> 4,034,636
<TOTAL-COSTS> 4,034,636
<OTHER-EXPENSES> 1,161,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,794
<INCOME-PRETAX> 762,327
<INCOME-TAX> 200,256
<INCOME-CONTINUING> 562,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562,071
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
