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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 September 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
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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 November 10, 1997, 2,838,001 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
<TABLE>
<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
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<S> <C> <C>
ITEM 1. Consolidated Financial Statements of Inmark Enterprises, Inc. (unaudited)
Consolidated Balance Sheets - September 30, 1997 and March 31, 1997 3
Consolidated Statements of Operations - Three month and six month periods
ended September 30, 1997 and September 30, 1996 4
Consolidated Statement of Stockholders' Equity - Six month period ended
September 30, 1997 5
Consolidated Statements of Cash Flows - Six month periods ended
September 30, 1997 and September 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, 2, 3 AND 5. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
27 Financial Data Schedule
SIGNATURES 11
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</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
INMARK ENTERPRISES, INC.
Consolidated Balance Sheets
September 30, 1997 and March 31, 1997
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997*
------------------ ---------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,629,513 1,712,751
Accounts receivable 2,652,218 2,780,866
Unbilled contracts in progress 1,266,132 --
Interest and other receivables 16,517 6,725
Deferred tax asset 965,877 1,082,133
Prepaid expenses and other current assets 205,985 299,852
---------- ----------
Total current assets 7,736,242 5,882,327
---------- ----------
Furniture, fixtures and equipment, net 196,867 207,149
Goodwill, net 2,099,238 2,244,378
Note receivable from officer 225,000 200,000
Other assets 25,551 25,986
---------- ----------
Total assets 10,282,898 8,559,840
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 234,084 520,763
Accrued job costs 4,387,031 3,209,771
Accrued compensation 1,158 151,811
Other accrued liabilities 137,820 140,114
---------- ----------
Total current liabilities 4,760,093 4,022,459
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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 2,835,751 shares 2,835 2,835
Additional paid-in capital 1,277,396 1,277,396
Retained earnings 4,242,574 3,257,150
---------- ----------
Total stockholders' equity 5,522,805 4,537,381
---------- ----------
Total liabilities and stockholders' equity 10,282,898 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 unaudited consolidated financial statements
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Operations
Three month and six month periods ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 4,925,449 4,970,286 $10,844,336 9,802,039
Direct expenses 3,258,798 3,336,266 7,293,434 6,611,099
----------- ---------- ----------- ---------
Gross Profit 1,666,651 1,634,020 3,550,902 3,190,940
----------- ---------- ----------- ---------
Salaries 695,190 561,957 1,381,897 1,110,495
Selling, general and administrative expense 441,840 446,834 916,852 872,227
----------- ---------- ----------- ---------
Total operating expenses 1,137,030 1,008,791 2,298,749 1,982,722
----------- ---------- ----------- ---------
Operating income 529,621 625,229 1,252,153 1,208,218
Interest income (expense), net 24,731 (7,177) 64,527 (13,305)
----------- ---------- ----------- ---------
Income before income taxes 554,352 618,052 1,316,680 1,194,913
Provision for income taxes 131,000 40,480 331,256 82,294
----------- ---------- ----------- ---------
Net income $ 423,352 577,572 $ 985,424 1,112,619
=========== ========== =========== =========
Net income per common and
common equivalent share:
Primary $.12 $.15 $.28 $.32
==== ==== ==== ====
Fully diluted $.12 $.15 $.27 $.31
==== ==== ==== ====
Weighted average number of common and
common equivalent shares outstanding:
Primary 3,607,212 3,633,481 3,579,178 3,507,108
========= ========= ========= =========
Fully diluted 3,649,908 3,633,481 3,649,908 3,617,708
========= ========= ========= =========
</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
Six months ended September 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 -- -- -- 985,424 985,424
--------- ------ ---------- ---------- ----------
Balance, September 30, 1997 2,835,751 $2,835 $1,277,396 $4,242,574 $5,522,805
========= ====== ========== ========== ==========
</TABLE>
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See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC.
Consolidated Statements of Cash Flows
Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 985,424 1,112,619
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 180,653 169,216
Deferred income taxes 116,256 --
Changes in operating assets and liabilities:
Decrease(increase) in accounts receivable 128,648 (2,461,055)
Increase in unbilled contracts in progress (1,266,132) --
Decrease (increase) in prepaid expenses and other current assets 94,302 (4,603)
(Increase)decrease in interest and other receivables (34,792) 31,040
Decrease in accounts payable (286,679) (103,862)
Increase in accrued job costs 1,177,260 644,514
(Decrease) increase other accrued liabilities (2,294) 365,927
(Decrease) increase in accrued compensation (150,653) 78,667
----------- -----------
Net cash provided by (used in) operating activities 941,993 (167,537)
Cash flows from investing activities:
Purchases of fixed assets (25,231) (42,712)
----------- -----------
Net cash used in investing activities (25,231) (42,712)
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 -- 280,600
----------- -----------
Net cash provided by financing activities -- 1,109,325
----------- -----------
Net increase in cash 916,762 899,076
Cash and cash equivalents at beginning of period 1,712,751 700,598
----------- -----------
Cash and cash equivalents at end of period $ 2,629,513 1,599,674
=========== ===========
Supplemental disclosure:
Interest paid during the period $ -- 37,668
=========== ===========
Income tax paid during the period $ 74,500 38,283
=========== ===========
</TABLE>
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See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
INMARK ENTERPRISES, INC. AND SUBSIDIARIES
Notes to the Unaudited Consolidated Financial Statements
September 30, 1997 and 1996
(1) BASIS OF PRESENTATION
The interim financial statements of Inmark Enterprises, Inc. (the
"Company") for the three and six month periods ended September 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 and
six month periods ended September 30, 1997 are 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 and six month periods ended
September 30, 1997 include 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.
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<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 and six month periods ended September 30, 1997 to the
Company's consolidated results of operations for the three and six month periods
ended September 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 September 30, 1997 were $4,925,000
compared to sales of $4,970,000 for the prior year quarter ended September 30,
1996, a less than 1.0% decrease of $45,000. Sales for the six months ended
September 30, 1997 were $10,844,000 compared to sales of $9,802,000 for the six
months ended September 30, 1997, an increase of $1,042,000 or 10.6%. The slight
decrease in sales for the quarter ended September 30, 1997 was primarily the
result of the level of percentage of completion of contract projects in
progress. The increase in sales for the six month period ended September 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 six month period. At September 30, 1997, remaining amounts to be
invoiced on contracts in progress totaled $8.2 million compared to $4.5 million
at September 30, 1996.
DIRECT EXPENSES. Direct expenses for the quarter ended September 30, 1997
were $3,259,000, or 66.2% of sales, compared to $3,336,000, or 67.1% of sales,
for the comparable prior year quarter. Direct expenses for the six months ended
September 30, 1997 were $7,293,000, or 67.3% of sales , compared to $6,611,000,
or 67.4% of sales, for the comparable prior year period. Both the decrease in
the amount of direct expenses and the decrease in direct expenses as a
percentage of sales for the quarter ended September 30, 1997 were primarily the
result of the lesser amount of sales during the quarter and contracts in
progress during the quarter with a higher gross profit margin compared to the
sales and gross profit margins of contracts in progress in the comparable prior
year quarter. The increase in the amount of direct expenses for the six month
period ended September 30, 1997 principally relates to the comparative increase
in sales for the period.
As a result of these changes in sales and direct expenses, gross profit for
both the quarter and six month periods ended September 30, 1997 increased by
$33,000 and $360,000 compared to the prior year respective periods, thereby
amounting to $1,667,000 and $3,551,000 for the quarter and six month periods
ended September 30, 1997, respectively.
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<PAGE>
OPERATING EXPENSES. Operating expenses for the quarter ended September 30,
1997 increased by $128,000 to $1,137,000 compared to $1,009,000 for the quarter
ended September 30, 1996. Operating expenses for the six months ended September
30, 1997 increased by $316,000 to $2,299,000 compared to $1,983,000 for the
comparable prior year six month period. Operating expenses as a percentage of
sales were 23.1% and 20.3%, respectively, for the quarters ended September 30,
1997 and September 30, 1996 and 21.2% and 20.2%, respectively, for the six month
periods ended September 30, 1997 and 1996.
The increase in operating expenses for the quarter ended September 30, 1997
compared to the comparative quarter of 1996 was primarily the result of an
increase of $133,000 related to an increase in both personnel and salaries of
non-executives; whereas, the increase in operating expenses for the six month
period ended September 30, 1997 compared to the prior year comparable six month
period was primarily attributable to a $271,000 increase related to an increase
in personnel, an increase in non-executive salaries and to a lesser extent a
$45,000 increase in selling, general and administrative expenses related to the
overall increase in level of operations.
INTEREST INCOME/EXPENSE. For the quarter and six month period ended
September 30, 1997, interest income of $25,000 and $65,000 respectively, was
earned from short term cash equivalent investments, and during each period, as
there was no interest bearing debt outstanding, no interest expense was
incurred. For the comparable quarter and six month period of 1996, net interest
expense of $7,000 and $13,000 respectively, was incurred.
PROVISION FOR INCOME TAXES. Provisions for federal, state and local income
taxes in the amounts of $131,000 and $331,000 respectively, for the three and
six month periods ended September 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 and
six month periods ended September 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 provision of $40,000 and $82,000
respectively, was made for state and local income taxes.
NET INCOME. As a result of the items discussed above, net income for the
quarter ended September 30, 1997 was $423,000 compared to net income of $578,000
for the comparable prior year quarter and net income for the six months ended
September 30, 1997 was $985,000 compared to $1,113,000 for the six months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES.
For the six months ended September 30, 1997, all of the Company's
activities were funded with existing working capital and internally generated
cash flow. At September 30, 1997, the Company had cash and cash equivalents
totaling $2,630,000 and working capital of $2,976,000 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 $5,523,000 as a result of the Company's net
income for the six months ended September 30, 1997.
For the six months ended September 30, 1997, cash provided by operations
amounted to $942,000 and cash used to purchase fixed assets totaled $25,000,
thereby resulting in an increase in cash of $917,000.
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. 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.
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<PAGE>
PART II - OTHER INFORMATION
ITEMS 1, 2, 3, AND 5. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on September 16,
1997 at the Company's principal offices, One Plaza Road, Greenvale, New York
11548 at 10:00 a.m. A majority of the Company's voting shares were present at
the meeting, either in person or by proxy.
At such meeting, the stockholders elected Paul A. Amershadian, John P.
Benfield, Donald A. Bernard, Herbert M. Gardner and Joseph S. Hellman to the
Board of Directors. All of these individuals will serve on the Board of
Directors until the next annual meeting of stockholders and until their
successors are duly elected and qualified.
DIRECTORS VOTES FOR VOTES AGAINST
--------- --------- -------------
Paul A. Amershadian 1,782,663 2,000
John P. Benfield 1,782,663 2,000
Donald A. Bernard 1,782,663 2,000
Herbert M. Gardner 1,782,663 2,000
Joseph S. Hellman 1,782,663 2,000
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
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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: November 10, 1997 By: /s/ JOHN P. BENFIELD
---------------------------------------
John P. Benfield, President
(Principal Executive Officer)
and Director
Dated: November 10, 1997 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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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,629,513
<SECURITIES> 0
<RECEIVABLES> 2,652,218
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,736,242
<PP&E> 336,251
<DEPRECIATION> 139,384
<TOTAL-ASSETS> 10,282,898
<CURRENT-LIABILITIES> 4,760,093
<BONDS> 0
0
0
<COMMON> 2,835
<OTHER-SE> 5,519,970
<TOTAL-LIABILITY-AND-EQUITY> 10,282,898
<SALES> 10,844,336
<TOTAL-REVENUES> 10,844,336
<CGS> 7,293,434
<TOTAL-COSTS> 7,293,434
<OTHER-EXPENSES> 2,298,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,316,680
<INCOME-TAX> 331,256
<INCOME-CONTINUING> 985,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 985,424
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
