U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended November 30, 1998
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934 for the transition period from . . . . to . . . .
Commission file number 0-26578
LMKI, INC.
Exact name of small business issuer as specified in its charter)
Nevada 33-0662114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1720 East Garry, Suite 201, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
(949) 475-4500
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all the reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve 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 ..
The number of shares of common stock outstanding as of November 30, 1999 is
36,115,666.
Transitional Small Business Disclosure Format (check one): Yes ... No .X.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
LMKI, Inc.
(formerly Landmark International Inc.)
Balance Sheet
(Unaudited)
For the periods ended as indicated
Aug. 31 Nov. 30
ASSETS 1999 1999
Cash 125,692 2,053,922
Accounts Receivable 837,850 946,855
Deferred tax assets 242,750 242,750
Total Current Assets 1,206,292 3,243,527
Equipment 302,549 1,027,417
Accumulated Depreciation (40,482) (63,916)
Total Equipment less
Accumulated depreciation 262,067 963,501
Goodwill 467,062 467,062
Accumulated Amortization (23,353) (46,706)
Deposits 35,725 116,200
Total Other Assets 479,434 536,556
Total Assets 1,947,793 4,743,584
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable 999,319 1,356,343
Accrued payroll and related liabilities 133,749 113,954
Accrued interest to shareholder 3,112 0
Other accrued liabilities 7,133 37,187
Capitalized lease obligations due
within one year 37,290 9,817
Total current liabilities 1,180,603 1,517,301
Capitalized Lease LT 55,275 34,359
Loans from officers 797,680 1,115,528
Stockholders' equity
Common stock 36,116 36,116
Preferred stock 0 2,500,000
Paid in capital 345,796 123,896
Retained Earnings (467,677) (467,677)
Current Years Earnings (115,939)
Total Stockholders Equity (85,765) 2,076,396
Total Stockholders Equity and
Liabilities 1,947,793 4,743,584
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Statement of Operations
(Unaudited)
For the periods ended as indicated
Three Months
Ended Nov. 30
1998 1999
Sales 40,881 1,505,053
Cost of Sales 3,173 709,387
Gross Profit 37,707 795,666
Selling Expense 72,589 259,897
General and administrative expense 25,463 625,225
Gain or (loss) from operations (60,345) (89,456)
Interest, net 2,018 26,483
Gain or (loss) before
Provision for income
Taxes (62,362) (115,939)
Provision for income taxes 0 0
Net gain or (loss) (62,362) (115,939)
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Statement of Cash Flows
Unaudited)
For the periods ended as indicated
Three Months
Cash flows from operating activities: Ended Nov. 30
1998 1999
Net gain or (loss) (62,362) (115,939)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation 2,922 23,434
Amortization of goodwill 0 23,353
Changes in assets and liabilities
Accounts Receivable 83,652 (109,005)
Employee Advances (304) 0
Accounts Payable (24,735) 383,966
Accrued payroll related liability 1,890 (19,795)
Accrued income taxes 0 0
1,063 186,014
Cash flows from investing activities
Purchase of capital equipment 0 (805,343)
Cash flows from financing activities
Repayment of capitalized lease obligation (4,432) (48,389)
Proceeds from preferred stock 0 2,278,100
Proceeds from notes payable to shareholder 0 317,848
(4,432) 2,547,559
Net increase (decrease) in cash (3,369) 1,928,230
Cash at beginning of periods 3,772 125,692
Cash at end of periods 403 2,053,922
See accompanying notes.
LMKI, Inc.
(formerly Landmark International, Inc.)
Notes to Financial Statements
(Unaudited)
For the Three Months Ended November 30, 1999
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business: LMKI, Inc. (formerly Landmark International, Inc.)(the
"Company") is a Nevada Corporation engaged in providing communication
services to individuals and businesses.
Equipment: Equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable
assets, which range from three to seven years.
Equipment under capitalized lease obligations are carried at estimated fair
market value determined at the inception of the lease. Amortization is
computed using the straight-line method over the original term of the lease
or the estimated useful lives of the assets, whichever is shorter.
Goodwill: Goodwill represents the excess purchase price over the estimated
fair value of Mobilenetics. Goodwill is being amortized using the straight-
line method over five years.
Revenue Recognition: Fees for services are recognized at month-end as
services are completed and income earned.
Advertising: The Company expenses the cost of advertising as incurred as
selling expenses. Advertising expenses was approximately $22,526 for the
three months ended November 30, 1999 ($404 for 1998).
Income Taxes: Income taxes are accounted for and reported using an asset and
liability approach. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the year
in deferred tax assets and liabilities.
Net loss per common share: Net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common stock shares outstanding was
36,115,666 for the three month period ending November 30, 1999 (26,320,277
for 1998). Stock options outstanding are not considered to be common stock
equivalents, as the affect on net loss per common share would be anti-
dilutive.
Concentration Risk: The Company grants credit to customers in the Southern
portion of the State of California. The Company's ability to collect broker
fees and to fund borrower's transactions are affected both by economic
fluctuations in the geographic areas served by the Company.
Risks and Uncertainties: The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Management of the Company has made certain estimates
and assumptions regarding the collectibility of accounts receivable. Such
estimates and assumptions primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
2. Business Combination:
Effective June 1, 1999, the Company acquired Mobilenetics Corporation
("Mobilenetics"), a supplier of communications equipment, in a business
combination accounted for as a purchase. The Company issued 10,000,000
shares of its common stock in exchange for all of the outstanding shares of
Mobilenetics. The value of the shares issued for Mobilenetics was $100,000
($.01 per share) which approximated the bid price of the Company's common
stock on the date of exchange. The purchase price exceeded the fair market
value of Mobilenetics by $467,062.
Cash paid for Mobilenetics, net of cash acquired was as follows:
Fair value of the Company's common stock $100,000
Fair value Mobilenetics:
Accounts receivable 86,167
Equipment 16,406
Deposits 35,725
Cost in excess of fair value of net assets acquired 467,062
Accounts payable (508,872)
96,488
Cash Acquired $ 3,512
The results of operations of Mobilenetics are included in the accompanying
consolidated financial statements since the date of acquisition. The
following proforma summary presents the consolidated financial position and
results of operations of the Company as if the business combination occurred
on September 1, 1998:
As of August 31, 1999:
Tangible current assets $ 963,542
Total assets 2,164,873
Current liabilities 1,180,603
Total liabilities 2,033,558
Total stockholders' equity 131,315
For the year ended August 31, 1999:
Net sales 2,289,208
Net loss (1,257,202)
Loss per common share (20.936)
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma financial position and
results of operations do not purport to be indicative of the results which
would gave been obtained had the business combination occurred as of
September 1, 1998 or which may be obtained in the future.
3. Capitalized Lease Obligations:
The Company leases equipment under non-cancelable lease agreements.
Equipment under lease agreements aggregated at November 30, 1999 $107,540
less accumulated amortization at November 30, 1999 of $5,377.
Aggregate future minimum lease payments and the present value of minimum
lease payments are as follows:
Years ending August 31:
2000 $ 59,873
2001 40,097
2002 18,064
Total minimum lease payments 118,034
Less amount representing interest 25,469
Present value of minimum lease payments 92,565
Less amounts due within one year 37,290
Long-term capitalized lease obligations $ 55,275
4. Notes Payable to Shareholder
During the calendar year of 1999, the majority shareholder and Chairman of
the Company, advanced an aggregate of $1,081,680 for working capital
purposes. The notes payable bear interest at 10% per annum. The shareholder
was paid approximately $4,900 in interest during 1999.
The notes are repayable upon demand in cash or in common stock of the
Company, or a combination thereof, at the option of the shareholder. At this
time, the shareholder intends to exchange his notes for common stock of the
Company and has agreed not to demand repayment before November 11, 2000.
5. Income Taxes
The components of the provision (benefit) for income taxes are as follows for
the years ended August 31:
1999 1998 1997
Federal:
Current $ - $ 1,500 $ -
Deferred - net operating loss carryover (213,000) (1,600) (10,200)
(213,000) (100) (10,200)
State of California:
Current - 500 -
Deferred - net operating loss carryover (16,100) (300) (1,550)
(16,100) 200 (1,550)
Provision (benefit) for income taxes $(299,100) $ 100 $(11,750)
Reconciliation of income taxes computed at the federal statutory rate to the
provision (benefit) for income taxes is as follows for the years ended August
31:
1999 1998 1997
Tax at statutory rates $(223,255) $ (1,653) $(11,724)
Differences resulting from:
State tax, net of federal benefit (10,604) 159
Non-deductible and other items 4,759 1,594 (26)
Provision (benefit) for income taxes $(229,100) $ 100 $(11,750)
6. Common Stock
In December 1998, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1998, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 shares of the Company's common stock
As of November 30, 1999, an aggregate of 8,000,000 shares of stock were
exercisable to the Chairman of the Company or assignee, of which 4,000,000
shares expire in December 2002 and 4,000,000 shares expire in December 2003,
if not exercised. The Company has reserved 8,000,000 shares of its common
stock for issuance to the Chairman.
In November 1999, the Company's Board of Directors approved the 1999 Stock
Plan providing for the issuance of up to 4,000,000 shares of the Company's
Common Stock to attract and retain the best available personnel. The Plan is
administered by the Board of Directors or a committee thereof. Options
granted under the Plan would be either incentive stock options or non-
qualified stock options which would be granted to employees, officers,
directors and other persons who perform services on behalf of the Company.
Option vesting, exercise period, and exercise price are determined at the
time of grant.
In November 1999, pursuant to the 1999 Stock Plan, the Board of Directors
authorized the grant of an aggregate of 1,400,000 shares of Common Stock at
an exercise price of $4.0625 per share to members of senior management and
counsel. The Board of Directors authorized the grant of an aggregate of
115,440 shares of Common Stock at an exercise price of $4.000 per share to
employees of the company.
The following table summarizes stock option activity as of:
November August August
30, 1999 31, 1999 31, 1998
Options outstanding at
the beginning of year 8,000,000 4,000,000 0
Options granted 1,515,440 4,000,000 4,000,000
Options expired or canceled 0 0 0
Options exercised 0 0 0
Outstanding at end of period 9,515,440 8,000,000 4,000,000
Average price per share $ .65 $ .01 $ .01
Options exercisable at
end of period 9,515,440 8,000,000 4,000,000
Aggregate proceeds at
end of period $6,229,260 $ 80,000 $ 40,000
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date for awards consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
common share would have been reduced to the pro forma amounts indicated
below:
Nov. 30 Aug. 31 Aug. 31
1999 1998 1998
Net loss-as reported $(115,938) $(427,532) $( 11,119)
Net loss-pro forma $(115,938) $(511,532) $( 95,119)
Net loss per common share-as reported $ (.0032) $ (.0162) $ (.0007)
Net loss per common share-pro forma $ (.0032) $ (.0194) $ (.0007)
In December 1998, the Board of Directors authorized the issuance of 500,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $18,500 ($.031 per share) which
represented the bid price of the common stock and the approximate value of
the services on the date of exchange.
In March 1999, the Board of Directors authorized the issuance of 400,000
shares of common stock to two individuals in exchange for professional
services. The common stock was valued at $36,000 ($.090 per share) which
represented the bid price of the common stock and the approximate value of
the services on the date of exchange.
In August 1999, the Board of Directors authorized the issuance of 100,000
shares of common stock to an individual in exchange for professional
services. The common stock was valued at $10,000 ($.10 per share) which
represented the value of the services rendered and the approximate average
bid price of the common stock during the year prior to the acquisition of
Mobilenetics.
In December 1997, the Board of Directors authorized the issuance of 4,000,000
shares of common stock to the Chairman of the Company for services rendered.
Also in December 1997, the Chairman of the Company was granted the option to
purchase an additional 4,000,000 shares of the Company's common stock.
In December 1997, the Board of Directors authorized the issuance of 80,000
shares of common stock in exchange for $100 and public relation services.
In December 1996, the Board of Directors authorized the issuance of 20,000
shares of common stock to each employee of the Company at that time. The
shares were to be surrendered back to the Company in the event that any
employee who received shares terminated their employment with the Company, or
was terminated by the Company for cause. The Company issued an aggregate of
540,000 shares of its common stock to these employees.
7. Commitments
The Company leases certain equipment under non-cancelable operating lease
agreements that expire between the years 2001 and 2003. Aggregate minimum
future lease payments under these leases are as follows:
Years ending August 31:
$34,125
29,492
6,644
739
Total minimum lease payments $71,000
Equipment lease expense aggregated approximately $12,700 for the three months
ended November 30, 1999.
8. Significant Customer
The Company has entered into a Dedicated Access Service Agreement ("Service
Agreement") with a customer to provide them with communication services
through July 2000. The Service Agreement is renewable for an additional one
year.
The customer accounted for approximately 25% of net sales in 1999.
Management does not believe that the Company is economically dependent upon
any single customer.
The Company's policy is to perform on-going credit evaluations for its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
9. Significant Events
In September 1999, the Company entered into an irrevocable Investment
Agreement for a "private equity line: of up to $35,000,000. Under the
Investment Agreement an investment banking company has made a firm commitment
to purchase the Company's common stock and resale the securities in an
offering under Regulation D of the United States Securities an Exchange
Commission.
Subject to an effective registration statement and ending 36 months from the
initial subscription date, the Company at its discretion may "Put" common
stock to the investment banking company. The purchase price per share will
equal 92% of the lowest closing bid price of the common stock during the 20
business days following each Put, subject to a minimum price specified by the
Company as defined in the Investment Agreement. The amount of each Put sold
to the investment banking company may be up to $2,000,000, but the number of
shares sold may generally not exceed 15% of the aggregate trading volume of
the Company's common stock during the 20 business days following each Put.
The investment banking company shall receive warrants to purchase 10% of the
number of shares of the Company it purchases under each Put. The warrants
are exercisable at a price equal to 110% of the market price for each Put.
In consideration of the Investment Agreement, the Company granted the
investment banking company warrants to purchase 490,000 shares of its common
stock. The warrants are exercisable upon the successful completion of
certain tasks and at the price equal to the lowest closing bid price for the
5 days prior to the exclusion of the Investment Agreement or the 5 days
following its execution, whichever price is lower.
During November 1999, the Company closed the placement of 2,500 shares of
Series A 6% Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock"), to one purchaser (the "Purchaser") at a purchase price of
$1,000 per share or an aggregate purchase price of $2.5 million, pursuant to
a Securities Purchase Agreement (the "Purchase Agreement"). As part of its
entry into the Purchase Agreement, the Company entered into a Registration
Rights Agreement (the "Registration Agreement") and a Warrant Agreement.
Concurrently with the closing of this sale, the Company issued warrants to
the Purchaser for the purchase of 250,000 shares of the Company's Common
Stock at an exercise price of $4.25 per share, subject to customary anti-
dilution provisions, expiring on May 5, 2002. The Company also issued
warrants for the purchase of 49,844 shares of Common Stock to the placement
agent, exercisable at $4.0125 per share for five (5) years. On the date of
issuance, the Company determined these warrants had a value of $2,492.
Subject to an effective registration statement and certain other conditions,
under the Securities Purchase Agreement, the Company may require the
Purchaser to purchase up to an additional 2,500 shares of Series A Preferred
Stock at $1,000 per share, at which time it would issue up to 250,000
additional warrants exercisable at $4.25 per share, subject to anti-dilution
provisions, for five (5) years.
The Series A Preferred Stock is immediately convertible into shares of the
Company's Common Stock at a conversion rate equal to $1,000 divided by the
lower of (i) $4.25 or (ii) 80% of the average closing bid price for the
Common Stock for the twenty five (25) trading days immediately preceding the
conversion date.
There is no minimum conversion price. Should the bid price of the Common
Stock fall substantially prior to conversion, the holders of the Series A
Preferred Stock could obtain a significant portion of the Common Stock upon
conversion, to the detriment of the then holders of the Common Stock.
The Series A Preferred Stock has a liquidation preference of $1,000 per
share, plus any accrued and unpaid dividends, and provides for an annual
dividend equal to 6% of the liquidation preference, which may be paid at the
election of the Company in cash or shares of its Common Stock.
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward Looking Statements
This discussion may contain statements that could be deemed forward-looking
statements, within the meaning of Section 21E of the Securities Exchange Act
of 1934 and the Private Securities Litigation Reform Act and otherwise, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, predictions, expectations
or beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by the use of
qualifying words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," "anticipate," or other statements concerning
opinions or judgment of the Company and its management about future events.
Factors that could influence the accuracy of such forward-looking statements
include, but are not limited to, the financial success or changing strategies
of the Company's customers, actions of government regulators, the level of
market interest rate and general economic conditions. All forward-looking
statements included herein are based on information available to the Company
on the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements
due to the factors cited above. As a result of these factors, there can be
no assurance the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis, which would materially and
adversely affect the Company's business, financial condition and results of
operations.
Results of Operations
Our operating results have fluctuated in the past due to on again, off again
General Telephone & Equipment Corporation ("GTE") sales promotions. As of
January of 1999 we canceled our contract with GTE and focused all our
attention on the DSL and broadband business. Since the we started selling T-
1 services last year we were working closely Mobilenetics Corporation and as
of June 1, 1999, we purchased all of the outstanding stock of Mobilenetics.
The management and employees of Mobilenetcis provided the needed technical
expertise to further our goal of being a leader in the DSL and broadband
market.
We have formed strategic partnerships with Covad, Level Three and Quest, to
bring high speed internet connectivity to the marketplace. These
partnerships' provide us with a nation-wide footprint in which we plan to
aggressively market our products. With these partners, and Internap, we will
be a technological leader in the high speed internet connectivity
marketplace.
In connection with our expansion in to a nation-wide provider, we expect to
significantly increase our capital expenditures, as well our sales and
marketing expenditures, to deploy our networks and support our customers.
Accordingly, we expect to incur substantial losses for at least the next two
years.
Revenue. Our revenue totaled approximately $1,505,053 for the three month
period ended November 30, 1999, a 3,582% increase over revenue of $40,881 for
the three month period ended November 30, 1998. The results of sales in the
first quarter of FY 1998-1999 is reflective of the lack of a GTE sales
promotion that quarter. The results of this year's quarter clearly
demonstrates why we stopped selling GTE services and switched to selling DSL
and broadband services. Sales for this quarter are over 25% greater than the
prior quarters results partly from the compounding effects of recurring
revenue sales from DSL and Broadband services and from the continued
broadening of our customer base.
Cost of Sales. Our cost of sales consists primarily of installation, useage
and equipment charges from Covad, access charges from local exchange
carriers, backbone and Internet access costs, equipment sold to customers and
labor directly to the implementation and maintenance of our services. Cost of
sales for the three month period ended November 30, 1999 was $709,387, and
the cost of sales for the three month period ended November 30, 1998 was
$3,173, an increase of 22,257%. This increase is attributable to the shift
from reselling GTE and T-1 services exclusively to transforming into a DSL,
ISP, Broadband provider. The Company expects its cost of sales to continue to
increase in dollar amount, while declining as a percentage of revenue as the
Company expands its customer base.
Sales Expense. Our sales expense consists primarily of personnel expenses,
including salary and commissions, and costs of for customer support
functions. The marketing and sales expense was approximately $259,897 for
the three month period ended November 30, 1999 and $72,589 for the three
month period ended November 30, 1998. The $208,175 increase reflects an
expansion of the sales organizations necessary to support our shift from
reselling GTE services to selling DSL, T-1, broadband and co-location
services. This increase also reflects a growth in subscriber acquisition
costs, related to both increased direct marketing efforts as well as
commissions paid sales staff. Sales expense as a percentage of revenue
decreased to 17% for the three month period ended November 30, 1999 from 177%
in the year earlier period as a result of the Company's product shift and
tremendous increase in sales. We expect sales expenditures to continue to
increase in dollar amount, decline slightly as a percentage of revenue.
General and Administrative Expense. General and administrative expense
consists primarily of personnel expense, rent, professional fees,
depreciation, amortization and utilities. General and administrative expense
was $625,225 for the three month period ended November 30, 1999 and $25,463
for the three month period ended November 30, 1998. This higher level of
expense reflects increases in all categories, and was necessary to manage the
financial, legal and administrative aspects of our business. The total full
time employees have grown from ten as of November 30, 1998 to 80 as of
November 30, 1999. General and administrative expense as a percentage of
revenue declined to 62% for the three month period ended November 30, 1999
from 35% in the year earlier period as a result of the Company's increased
revenue. The Company expects general and administrative expenses to increase
in dollar amount, reflecting its growth in operations, but to decline as a
percentage of revenue.
Net Income (Loss) Attributable to Common Stockholders. The Company's net loss
attributable to common stockholders was approximately $115,939 for the three
month period ended November 30, 1999 as compared to net income approximately
$62,362 for the three month period ended November 30, 1998.
We expect to focus in the near term on building and increasing its revenue
base, which will require us to significantly increase our expenses for
personnel, marketing, network infrastructure and the development of new
services, and may adversely impact our short term operating results. As a
result, we believe that we will incur losses in the near term and we cannot
assure you that the Company will be profitable in the future.
Financial Condition
To date, we have satisfied our cash requirements primarily through debt
financings and capitalized lease financings. In late November of 1999 the
company received $2,278,100 from an equity placement. The Company's principal
uses of cash are to fund working capital requirements, acquisition of
additional DSL lines and capital expenditures, and to service our capital
lease and debt financing obligations. Net cash provided by operations for the
three month periods ended November 30, 1999 and 1998 was approximately
$186,014 and $1,063, respectively. Cash provided by operating activities in
the period ending November 30, 1999 was primarily affected by the net loss
from operations and the increases of accounts receivable and accounts payable
as we were expanding our market share and improving our infrastructure. The
net cash provided from operations for the period ending November 30, 1997 was
the result of an decrease in accounts receivable.
Net cash used by investing activities for the three month period ended
November 30, 1999 was $805,343 for the purchase of equipment. No cash was
either used or provided by investing activities in the three month period
ending November 30, 1998. DSL routers located at client sites represented
$235,000, Cisco routers in support of broadband sales represented $428,000,
deposits of $80,000 for software and $62,000 for miscellaneous equipment.
Net cash used for financing activities for the three month period ending
November 30, 1998 was for repayment of capitalized leases. During November
1999, the Company closed the placement of the initial tranche of 2,500 shares
of Series A 6% Convertible Preferred Stock, $.001 par value (the "Series A
Preferred Stock"), to one purchaser (the "Purchaser") for an aggregate
purchase price of $2.5 million (less $221,900 placement fees and
commissions). Net cash provided by financing activities for the period
ending November 30, 1999 came from an increase in notes payable to officer of
$317,848 and sale of preferred stock for a net proceeds of $2,278,100.
The net cash increase for the three month period ended November 30, 1999 was
$1,928,230 as compared to a net cash decrease for the three month period
ended November 30, 1998 of $3,369.
At November 30, 1999, we had cash and cash equivalents of approximately
$2,053,922, and positive working capital of $1,726,226.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of normal business activities. The Company has reviewed
its products and services, as well as its internal management information
systems in order to identify and modify those products, services and systems
that are not year 2000 compliant.
Based on the Company's assessment to date, the Company has determined that
its internally developed software, including all of its operational,
financial and management information systems software is year 2000 compliant.
The Company's operational, financial and management information systems
software which have not been internally developed have been certified as year
2000 compliant by the third party vendors who have supplied the software.
The equipment and software that runs the Company's data centers are supplied
by Microsoft, Cisco Systems, and Intel Corporation. The Company has
implemented software patches supplied by Microsoft so that the Microsoft
software in these data centers no longer contains any material year 2000
deficiencies. The Company implemented similar patches for the software
supplied by Cisco Systems at the end of 1998. The company is building a new
communications network, and, as such, the company does not have a technology
infrastructure comprised of legacy software and systems. In building its
communications network, the company has adopted a strategy to select
technology vendors and suppliers that provide products that are represented
by such vendors and suppliers to be Year 2000 Ready. In negotiating its
vendor and supplier contracts, the company secures Year 2000 representations
and warranties that address the Year 2000 Readiness of the applicable
product(s). To date, the company has exclusively used equipment from Cisco
Systems within our network backbone, and Customer Premises Equipment (CPE)
from both Cisco Systems and Flowpoint / Cabletron. Both companies have
provided the company with sufficient Year 2000 readiness information and test
results for the equipment that we have purchased from these vendors. The
company has tested and validated the Year 2000 Readiness of the the company
Network and select external systems, products, and facilities that are
essential components in the company's delivery of the Services by engaging in
a product delivery system tests. These system tests have been performed in a
controlled, defined laboratory environment utilizing procedures to replicate
the end-to-end delivery of Services. The Company does not separately track
internal costs incurred to assess and remedy deficiencies related to the year
2000 problem, however, such costs are principally the payroll costs for its
information systems group. The Company does not have and is not developing a
contingency plan in the event its systems fail as a result of year 2000
related problems.
However, despite testing by the Company and its vendors, the Company's
products, services and systems may contain undetected errors or defects
associated with year 2000 date functions. In the event any material errors or
defects are not detected and fixed or third parties cannot timely provide the
Company with products, services or systems that meet the year 2000
requirements, the Company's operating results could be materially adversely
affected. Known or unknown errors or defects that affect the operation of the
Company's products, services or systems could result in delay or loss of
revenue, interruption of network services, cancellation of customer
contracts, diversion of development resources, damage to the Company's
reputation, and litigation costs. There can be no assurance that these or
other factors relating to year 2000 compliance issues will not have a
material adverse effect on the Company's business, operating results or
financial condition.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Table:
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter:
We filed an 8-K for Item 5 on 10/12/99.
We filed an 8-K for Item 5 on 10/20/99.
[Signatures]
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LANDMARK INTERNATIONAL, INC.
(Registrant)
Date: 12/14/99
By:/s/_______________________________
William J. Kettle
Chairman and Chief Executive Officer
Date: 12/14/99
By:/s/_______________________________
John W. Diehl, Jr.
Chief Financial Officer and Treasurer
[DESCRIPTION] 10QSB, LMKI, 1Q2000