SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarter Ended: November 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-29019
Interactive Marketing Technology, Inc.
(Exact name of registrant as specified in its charter)
Nevada 22-3617931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3575 Cahuenga Boulevard West, Suite 390
Hollywood, California 90068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 874-4484
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 [ ]
As of January 2, 2001, the Registrant had a total of 15,873,667 shares of
common stock issued and outstanding.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements............................................3
Item 2: Management's Discussion and Analysis or Plan of Operations......14
PART II: OTHER INFORMATION
Item 5: Other Information................................................17
Item 6: Exhibits and Reports filed on Form 8-K .........................17
Signatures...............................................................18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERACTIVE MARKETING TECHNOLOGY, INC.
_____________________________________________________________________________
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________________________
Consolidated Balance Sheet as of November 30, 2000 [Unaudited] .....F-1
Consolidated Statements of Operations for the nine and three
months ended November 30, 2000 and 1999 [Unaudited]................F-2
Consolidated Statements of Capital Deficiency for the nine
months ended November 30, 2000 [Unaudited]..........................F-3
Consolidated Statements of Cash Flows for the nine and three
months ended November 30, 2000 and 1999 [Unaudited] ............... F-4
Notes to Consolidated Statements .................................. F-5
. . . . . . . .
3
INTERACTIVE MARKETING TECHNOLOGY, INC.
_____________________________________________________________________________
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 2000.
[UNAUDITED]
_____________________________________________________________________________
Assets:
Current Assets:
Cash $ 12,180
Inventory - Discontinued Operation 47,557
Prepaid Expenses 10,416
-------------
Total Current Assets 70,153
-------------
Property and Equipment - At Cost [Net of Accumulated
Depreciation of $11,457] 99,445
-------------
Other Assets:
Product Development Costs 416,906
Master Recording Rights - Music Catalogues [4F] 250,000
Customer List [Net of Accumulated Amortization of $37,200] 99,360
Other Assets 12,719
-------------
Total Other Assets 778,985
-------------
Total Assets $ 948,583
============
Liabilities and Capital Deficiency:
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 148,544
Accrued Closing Costs - Discontinued Operation 1,261,803
Loan Payable - Stockholders 75,000
Note Payable - Stockholder 57,500
-------------
Total Current Liabilities 1,542,847
-------------
Commitments and Contingencies -
-------------
Minority Interest [3A] -
-------------
Capital Deficiency:
Common Stock, Par $.001, 60,000,000 Shares Authorized,
15,873,667 Shares Issued and Outstanding 15,874
Paid-in Capital 2,092,666
Accumulated Deficit (2,702,804)
-------------
Total Capital Deficiency (594,264)
-------------
Total Liabilities and Capital Deficiency $ 948,583
=============
See Notes to Consolidated Financial Statements.
F-1
4
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
Nine months ended Three months ended
November 30, November 30,
------------------------- -------------------------
2 0 0 0 1 9 9 9 2 0 0 0 1 9 9 9
------------ ------------ ------------ ------------
Net Revenues $ 203 $ - $ - $ -
Cost of Good Sold 1,043 - - -
------------ ------------ ------------ ------------
Gross Loss (840) - - -
------------ ------------ ------------ ------------
Costs and Expenses:
Payroll and Related Costs 199,066 169,320 91,912 69,301
General and Administrative Costs 179,174 69,371 61,858 48,176
Impairment of Master Recording
Rights [4F] 350,000 - 350,000 -
Selling Expenses 7,256 - 2,725 -
Consulting Fees - Related Party 40,000 33,332 40,000 -
Travel and Entertainment 99,268 109,851 2,923 35,751
Professional Fees 118,056 67,365 32,476 14,058
Depreciation and Amortization 29,565 9,975 11,184 5,752
Research and Development Costs 8,925 - 30 -
Interest Expense - Related Party 4,243 3,125 1,100 3,125
Stock Based Compensation Costs 45,000 - - -
------------ ------------ ------------ ------------
Total Costs and Expenses 1,080,553 462,339 594,208 176,163
------------ ------------ ------------ ------------
Loss from Continuing Operations (1,081,393) (462,339) (594,208) (176,163)
------------ ------------ ------------ ------------
Discontinued Operations:
[Loss] Income from Operations of
Plumbers' Secret Product Line (142,458) (195,778) (233,137) 161,324
Loss on Disposal of Product Line (481,289) - (481,289) -
------------ ------------ ------------ ------------
Total [Loss] Income of Discontinued
Operations (623,747) (195,778) (714,426) 161,324
------------ ------------ ------------ ------------
Net [Loss] $(1,705,140) $ (658,117) $(1,308,634) $ (14,839)
============ ============ ============ ============
Basic and Fully Diluted [Loss]
Per Share - Continuing Operations $ (.08) $ (.03) $ (.04) $ (.01)
Basic and Fully Diluted [Loss] Income
Per Share - Discontinued Operations (.04) (.02) (.04) .01
------------ ------------ ------------ ------------
[Loss] Per Share $ (.12) $ (.05) $ (.08) $ -
============ ============ ============ ============
Weighted Average Number of Shares 14,540,125 13,617,001 15,963,250 13,617,001
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
F-2
5
INTERACTIVE MARKETING TECHNOLOGY, INC.
_____________________________________________________________________________
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIENCY [UNAUDITED]
_____________________________________________________________________________
Total
Common Stock Paid-in Accumulated Capital
Shares Amount Capital Deficit Deficiency
------------ ------------ ------------- ------------ ------------
Balance at February 29, 2000 13,832,000 $ 13,832 $ 1,969,708 $ (997,664) $ 985,876
Warrants Issued in Connection with
Private Placement of Convertible
Debentures [4G] - - 50,000 - 50,000
Stock Options Issued in Connection
with Non-Employee Services [4H] - - 45,000 - 45,000
Stock Options Issued in Connection
with Rights to Book, etc. [4J] - - 30,000 - 30,000
Issuance of Shares to Officer [4D] 2,166,667 2,167 (2,167) - -
Stock Returned by Two
Individuals [4D] (125,000) (125) 125 - -
Net [Loss] for the Nine Month
Period March 1, 2000 through
November 30, 2000 - - - (1,705,140) (1,705,140)
------------ ------------ ------------- ------------ ------------
Balance at November 30, 2000
[Unaudited] 15,873,667 $ 15,874 $ 2,092,666 $(2,702,804) $ (594,264)
============= ============ ============= ============ ============
See Notes to Consolidated Financial Statements.
F-3
6
INTERACTIVE MARKETING TECHNOLOGY, INC.
_____________________________________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
_____________________________________________________________________________
Nine months ended
November 30,
2 0 0 0 1 9 9 9
------------- -------------
Operating Activities:
Net [Loss] $ (1,081,393) $ (462,339)
------------- -------------
Adjustments to Reconcile Net [Loss]
to Net Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 29,565 9,975
Fair Value of Stock Options Issued 75,000 -
Impairment of Record Masters [4F] 350,000 -
Changes in Assets and Liabilities:
[Increase] Decrease in:
Prepaid Expenses and Other Current Assets 21,934 (26,206)
Product Development Costs and Other Assets (331,642) (5,399)
Increase [Decrease] in:
Accounts Payable and Accrued Liabilities 68,260 54,969
Net Advances from/to Plumbers Secret, LLC 777,428 (492,290)
Other (9,318) (6,850)
------------- -------------
Total Adjustments 981,227 (465,801)
------------- -------------
Net Cash - Operating Activities of Continuing Operations (100,166) (928,140)
------------- -------------
Investing Activities:
Fixed Assets (79,538) (43,829)
------------- -------------
Financing Activities:
Proceeds from Common Stock - 1,194,050
Loans from Stockholders 251,000 50,000
Repayments of Loans from Stockholders (176,000) (5,000)
------------- -------------
Net Cash - Financing Activities of Continuing Operations 75,000 1,239,050
------------- -------------
Net Cash Used in Discontinued Operations (135,382) (119,758)
------------- -------------
Net [Decrease] Increase in Cash (240,086) 147,323
Cash - Beginning of Periods 252,266 5,250
------------- -------------
Cash - End of Periods $ 12,180 $ 152,573
============= =============
Supplementary information on Non-Cash Investing and Financing Activities:
In fiscal 1999, the Company's minority shareholder's contribution of $99,980
was exchanged for the application of a $100,000 promotional fee due to him
under a service agreement. These amounts were credited to paid-in capital and
capitalized as infomercial costs. Although the minority interest portion of
the February 29, 2000 loss is approximately $237,000, only the initial
contribution of the minority member of $99,980, has been allocated to the
minority partner for financial statement purposes, as there is no obligation
of the minority member to make good for such losses as defined under the
operating agreement. Therefore, as of February 29, 2000, there is no minority
interest on the balance sheet as the initial capitalization has been absorbed
by the allocated minority member's loss of $99,980 [See Note 3A].
See Notes to Consolidated Financial Statements.
F-4
7
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
_____________________________________________________________________________
[1] Nature of Operations
Interactive Marketing Technology, Inc. ["Interactive" and the "Company"] was
formed on April 21, 1998. On April 7, 1999, the Company restated and amended
its bylaws under the State of Nevada. The Company's wholly-owned subsidiary
is Interactive's Plumber, Inc., which was formed February 4, 1999. Since
inception, the Company's principal business activity has been primarily to
produce, market, and sell a licensed product called the Plumbers Secret [the
"product"]. The subsidiary commenced selling the product in August 1999. In
the November 2000 quarter, management decided to discontinue its marketing
efforts of this product. The Company intends on introducing new products in
fiscal 2000 in a direct response and retail sales environment. The Company
continues to be involved in negotiations to obtain licensing agreements for
new products [See Note 3]. The Company was considered a development stage
company for the year ended February 28, 1999, however, since total net
revenues of approximately $921,000 have been realized between August 1999 and
February 2000, the Company is no longer a development stage entity.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiary, Interactive's Plumber, Inc. and include the consolidation of its
50.01% members' interest in the Plumbers Secret, LLC. Intercompany
transactions and balances have been eliminated in consolidation.
Basis of Presentation - In the opinion of management, the accompanying
unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring accruals which are necessary in order to
make the financial statements not misleading. Although the Company believes
that the disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
information normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the periods ended November 30, 2000 are
not necessarily indicative of results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
February 29, 2000.
Inventory - Inventory of the discontinued product is stated at its net
realizable value at November 30, 2000.
Impairment - Certain long-term assets of the Company are reviewed when changes
in circumstances require as to whether their carrying value has become
impaired, pursuant to guidance established in Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Management
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations [undiscounted and without
interest charges]. If impairment is deemed to exist, the assets will be
written down to fair value. Management also reevaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives [See Note 4F].
F-5
8
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
_____________________________________________________________________________
[3] Commitments and Contingencies
[A] Operating Agreement for The Plumber's Secret, LLC - Interactive 's
subsidiary, Interactive's Plumber, Inc., entered into an operating agreement
in February of 1999 whereby it acquired a 50.01% interest in the Plumber's
Secret, LLC and all day-to-day management decisions of the operating entity
are made by Interactive. Interactive shall be entitled to 10% of "net cash
flow" as defined as a management fee. Interactive, as licensor, has assigned
to the limited liability company a licensing agreement with A2000 USA, Inc.
The other limited liability partner had the right to abandon its interest if
sales from the product are less than $2,000,000 subsequent to the first year
that the infomercial airs on the product, which was July 1999. Net sales
generated from this product since inception [August 1999] has exceeded this
threshold.
On March 16, 1999, Interactive entered into an amendment of the operating
agreement for the limited liability company. The initial capital contribution
by both members was approximately $100,000 each. Interactive committed to
lending the limited liability company up to $150,000. As of February 29,
2000, $415,135 was owed by Plumber's Secret, LLC to Interactive. Interactive
is entitled to receive a preferred return on its capital contribution. Under
a service agreement, $100,000 was to be paid to the other limited liability
member [Vila Enterprises, LLC] for advertising and promoting the product in an
infomercial. In lieu of being paid $100,000 for the services rendered, the
initial capital contribution of $99,980 was satisfied by the performance of
promotional services rendered by the minority member valued at $100,000.
As of February 29, 2000, the Plumber's Secret, LLC incurred a net loss from
operations of approximately $475,000 and for the nine months ended November
30, 2000 incurred a loss from the discontinued operations of approximately
$584,000. Pursuant to the agreement, the first $100,000 in losses from the
limited liability company has been allocated for tax purposes to Vila
Enterprises and then the remainder will be allocated to the members according
to the terms of the first agreement. Future profits are to be distributed
50/50 after the accumulated losses are offset. As a result, the accumulated
net loss through November 30, 2000 is approximately $1,059,000 and accordingly
there is no minority interest members' share of the accumulated earnings.
Although the minority interest portion of the February 29, 2000 loss is
approximately $237,000, only the initial contribution of the minority member
of $99,980, has been allocated to the minority partner for financial statement
purposes, as there is no obligation of the minority member to make good for
such losses as defined under the operating agreement. Therefore, as of
February 29, 2000 and November 30, 2000, there is no minority interest on the
balance sheet as the initial capitalization has been absorbed by the allocated
minority member's loss of $99,980. During the year ended February 29, 2000,
the Company advanced $49,980 to a shareholder in the limited liability
company. In addition, during the nine months ended November 30, 2000, the
Company advanced an additional $68,625 to a shareholder in the limited
liability company. Due to the discontinuance of the product line, a write-off
of these advances were recorded as part of the loss on the disposal of the
product line in the consolidated statement of operations.
F-6
9
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
______________________________________________________________________________
[3] Commitments and Contingencies [Continued]
Discontinued Product Line - Plumbers' Secret - In November 2000, management
decided to refocus all of its marketing efforts on new products to be
distributed and abandon its efforts to continue selling the Plumbers' Secret
product line to retailers. The primary reasons for discontinuing this line
was the competitive pricing and the related royalties, promotional allowances,
commissions, and other costs related in the sale of this product. The gross
margins had been steadily declining. Accordingly, the financial results for
the Plumbers' Secret product line are reported as "discontinued operations"
and the Company's financial results of prior periods were restated. Condensed
results of the discontinued operations for the nine months ended November 30,
2000 and 1999 were as follows:
2 0 0 0 1 9 9 9
--------- ----------
Net Revenues $ 2,852,610 $ 584,690
Cost of Goods Sold $ 1,539,612 $ 401,767
Costs and Expenses $ 1,455,456 $ 378,701
Loss from Operations $ 142,458 $ 195,778
The estimated loss on the disposal of the product line of approximately
$481,000 is related to the write-off of licenses, patents, infomercial costs
and the liquidation of the inventory for the Plumbers' Secret product line.
The Company has accrued estimated closing costs of approximately $1,262,000 as
part of discontinued operations in the balance sheet.
[B] Licensing Agreement Plumber's Secret - In June 1998, the Company entered
into a licensing agreement for the exclusive right to manufacture and or
produce, advertise, promote, market or sell worldwide the product for a
royalty per unit for a period of one year. Upon execution of agreement,
$20,000 was paid to the licensor. The Company is to pay a royalty fee of
$3.00 per each unit sold to the licensor. The Company paid $66,000 as of
February 29, 2000 and has accrued an additional $75,000 in royalties on this
obligation as of February 29, 2000. The Company has accrued $540,000 in
royalties as part of accrued closing costs - discontinued operations as of
November 30, 2000. The Company is in negotiations as to a proposed settlement
of the outstanding royalty obligation due to the discontinuance of the product
line.
[C] Letter of Intent - EFL Product Line - On November 12, 1999, the Company
received a license to manufacture and market the fishing line product that is
called the EFL Product Line. Interactive will be responsible for developing
the product and the infomercial and for fulfilling orders. Interactive will
pay a 15% royalty of the net sales as defined under the agreement. There were
no sales of this product as of November 30, 2000, however, approximately
$176,000 has been incurred principally for a future infomercial and is
classified as part of product development costs in the balance sheet.
[D] Universal Wrench - On January 5, 2000, the Company entered into a Sales
and Distribution Agreement with Lacrex SA of Switzerland ["Lacrex"] to solely
and exclusively market in North America the Lacrex Universal Wrench. The
Company is granted first right of refusal for worldwide direct response rights
on a country to country basis. In the event, the Company decides to move
forward with the marketing of the Universal Wrench, Interactive has committed
to purchase from Lacrex a minimum of 300,000 units of the product at a
purchase price of $5.00 per unit FOB China within one year and additional
purchases are required in subsequent years to renew this agreement. There
were no sales of this product as of November 30, 2000. Costs of approximately
$145,000 has been incurred and is classified as part of product development
costs on the balance sheet. The agreement was amended August 8, 2000 to
include worldwide direct response rights.
[E] Personal Service Agreement - In 1998, Interactive received the exclusive
rights for product marketing whereby Interactive is to pay a 15% royalty.
Commencing April 1999, the Company has advanced $33,000 as a draw against the
profit split on Tom House tapes, kits, and products. No sales have been
recorded, therefore, these payments have been recorded as part of product
development costs in the balance sheet.
F-7
10
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
______________________________________________________________________________
[4] Equity and Debt Transactions
[A] Formation - Interactive Marketing Technology, Inc. was authorized to issue
2,500 shares of common stock at no par value. At February 28, 1999, there
were 2,500 shares of common stock issued and outstanding to the founders and
there were no options or warrants outstanding. The 2,500 shares were
exchanged for 12,404,000 shares of common stock of Shur De Cor pursuant to the
Share Exchange Agreement dated March 15, 1999 [See Note 4B].
[B] Share Exchange Agreement - On March 15, 1999, Interactive entered into a
share exchange agreement with Shur De Cor, Inc. whereby 100% of the common
stock, or 2,500 shares of Interactive, were exchanged for 12,404,000 shares of
common stock of Shur De Cor, Inc. For accounting purposes, the acquisition
was treated as an issuance of shares for cash by Interactive, with Interactive
as the acquirer. The accounting is identical to that resulting from a reverse
acquisition, except that no goodwill or other intangible is recorded.
Historical information prior to March 24, 1999 is that of Interactive. Shares
of 12,404,000 issued in the acquisition are shown as outstanding for all
periods presented in these financial statements in the same manner as for a
stock split. Pro forma information on this transaction is not presented as,
at the date of this transaction, Shur De Cor, Inc. was considered a public
shell and accordingly, the transaction was not considered a business
combination. On March 24, 1999, Shur De Cor, Inc. changed its name to
Interactive Marketing Technology, Inc. and increased its authorized capital
stock from 20,000,000 to 60,000,000 common shares.
[C] Equity Financing - In April 1999, the Company received total proceeds of
$949,050 from the sale of 285,000 shares of common stock from two foreign
investors. In November of 1999, the Company received proceeds of $245,000 for
the issuance of 295,000 shares of the Company's common stock.
[D] Canceled Stock and Reissued Stock - In November 1999 and January 2000, two
of the Company's officers and directors returned and the Company canceled a
total of 7,354,000 shares of the Company's common stock for no compensation in
an attempt to provide additional shares to the Company for future financing.
In September of 2000, the Company's Board of Directors resolved to reissue
2,166,667 shares of common stock to the Company's Chairman as it was
previously believed to be necessary that the Chairman return his stock in a
prior period. In September of 2000, the Company also canceled a total of
125,000 shares of common stock to two individuals.
[E] Note Payable - Stockholder - In April 1999, the Company received note
proceeds of $50,000 from a stockholder. The note is due April 2001 with
interest at 10% per annum. Unpaid interest expense for the year ended
February 29, 2000 was $4,200. The total unpaid liability of $57,500 is
classified as a current liability.
[F] Acquisition of Rights for Master Recordings - During November 1999, the
Company purchased the non-exclusive rights to 5,000 master audio recordings
[the "Library"] for various types of music from an unrelated entity in
exchange for the issuance of 2,000,000 shares of the Company's common stock.
The value of $600,000 was assigned to these rights based upon an independent
valuation received, which included estimated revenue projections used by
management to assess the recoverability from its future revenue stream.
Amortization of this asset will be over five years. As of November 30, 2000,
the Company had not realized any revenue stream from the marketing
compilations of these recordings. Therefore, the Company did not commence
amortization for this asset through November 30, 2000. Although management
intends to commence market various compilations of these recordings in fiscal
year 2000, it has decided that upon revised discounted future estimated
revenue stream an impairment charge of $350,000 was warranted and is recorded
as part of costs and expenses in the consolidated statement of operations.
Under the agreement, the Company has the right to use the Library to compile
music on its own label. However, the agreement does not permit the relicense,
sublicense or the assignment of rights in the Library to a third party.
F-8
11
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
_____________________________________________________________________________
[4] Equity and Debt Transactions [Continued]
[G] Private Placement Memorandum ["PPM"] - On March 23, 2000, the Company
engaged a placement agent for an offering to sell up to 6 units, each unit
consisting of one $100,000 convertible secured promissory 12% note and 50,000
warrants to purchase 50,000 shares of common stock at a price of $1.25 per
share. The offering price was $100,000 per unit and the net proceeds to the
Company was approximately $517,000. The promissory notes would mature on the
earlier of (a) 6 months from the closing, (b) certain change of control
events, (c) the closing of $2,000,000 of bridge financing or $5,000,000 of
equity financing, or (d) the receipt and collection by the Company of $600,000
in accounts receivable. The promissory notes were secured by the assets of
the Company. The placement agent was entitled to a 10% commission for all
units sold, a 2.5% non-accountable expense allowance and warrants for 10,000
shares of common stock exercisable at $1.25 for a period of five years. Total
fair value of the equity instruments of approximately $50,000 were charged to
discontinued operations in the six months ended August 31, 2000 as a non-cash
financing cost. The Company has repaid as of May 31, 2000 the convertible
promissory notes of $600,000 and recorded financing costs of approximately
$87,000 as part of discontinued operations.
[H] Stock Option Plan - On June 16, 2000, the Company amended its 2000 Stock
Option Plan [the "Plan"] adopted on March 28, 2000. The Plan reserved for
incentive rewards 10,000,000 shares of common stock for directors, employees,
and consultants. The Company granted stock options under this plan for
1,892,000 shares of the Company's common stock at an exercise price of $.25,
which approximated the fair market value at the date of grant. No stock
options were exercised or canceled as of November 30, 2000. All options have
a ten year term.
No compensation cost was recognized for stock-based employee awards.
Non-employee compensation costs amount to approximately $45,000 and was
recorded in the statement of operations for the nine months ended November 30,
2000 [See Note 4J].
If the Company has accounted for all options pursuant to the fair value based
method of SFAS No. 123, the Company would have recorded compensation expense
totaling approximately $163,000 for the nine months ended November 30, 2000.
The fair value of options at the date of grant was estimated using the fair
value based method with the following weighted average assumptions:
Expected Life [Years] 5
Interest Rate 6.5%
Annual Rate of Dividends 0%
Volatility 51.16%
The weighted average fair value of options at date of grant using the fair
value based method during the nine months ended November 30, 2000 is estimated
at $.13.
F-9
12
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
______________________________________________________________________________
[4] Equity and Debt Transactions [Continued]
[I] Officers' Loans - The Company received debt financing from two officers of
approximately $251,000 in the nine month period ended November 30, 2000 for 90
days at 10%. These two officers were paid $176,000 as of November 30, 2000.
[J] Options - "The Lost Beatle Archives" Book - On September 6, 2000 the
Company purchased the rights, title, and interest for a book by granting the
seller options to purchase 300,000 shares of the Company's common stock at .25
per share for a period of three years. In addition, royalties will be paid
pursuant to this agreement. The Company has valued this asset at $30,000,
which represents the estimated fair value of the options and such costs are
classified as part of product development costs in the balance sheet.
[5] Major Customer
For the nine months ended November 30, 2000, the Company had sales to two
resale customers amounting to approximately 70% and 30% of net sales.
[6] Going Concern
The February 29, 2000 financial statements were prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
The Company suffered a net loss of $956,984 and utilized $753,650 in cash for
operations for the year ended February 29, 2000. The inability of the Company
to generate cash from operations, considering currently available funds,
creates an uncertainty about the Company's ability to continue as a going
concern. The financial statements did not include any adjustments that might
be necessary if the Company is unable to continue as a going concern. The
Company completed a private placement memorandum and upon receipt of the
estimated net proceeds of $517,000 believes it will be able to complete
anticipated sales orders, including the introduction of new products, with the
infusion of additional working capital and sustain operations for twelve
months. In addition, the Company will also pursue debt financing to
supplement the equity financing if needed [See Notes 4G and 4I]. The
continuation of the Company as a going concern is dependent upon the success
of these plans.
There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
. . . . . . . . . .
F-10
13
References in this quarterly report to "Interactive Marketing" "we,"
"us," and "our" refer to Interactive Marketing Technology, Inc.
This Form 10-QSB contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Form 10-QSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Interactive Marketing's control. These factors include but are not limited to
economic conditions generally and in the industries in which Interactive
Marketing may participate; competition within Interactive Marketing's chosen
industry, including competition from much larger competitors; technological
advances and failure by Interactive Marketing to successfully develop business
relationship.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview.
Interactive Marketing provides comprehensive marketing services for
proprietary consumer products in both the United States and worldwide. We
began operations in August of 1999 and have primarily relied on one product,
the Plumbers Secret, for the revenues realized to date. We have had a short
operating history and a history of operating losses, however, management
believes we are in the later stages of developing additional product lines to
create a new source of revenue stream. During the third quarter, management
decided to discontinue marketing the product line of the Plumbers Secret and
to focus our efforts on new products we expect to launch within the next six
months. During the quarter ended November 30, 2000 we recorded a loss of
$623,747 resulting from the discontinuance of a product line. We are
arranging for production of new infomercials, developing new packaging design
and negotiating manufacturing for the new products we intend to launch within
the next six months.
Results of Operations.
Our fiscal year ends February 28 (or February 29) and the following
discussions are based on the consolidated financial statements of Interactive
Marketing and its wholly-owned subsidiary IMT's Plumber, Inc. and include the
consolidation of IMT's Plumber, Inc's 50.01% members' interest in the Plumbers
Secret, LLC.
Nine months ended Three months ended
November 30, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net Revenues $ 203 $ - $ - $ -
Net Loss from Operations (1,081,393) (462,339) (594,208) (176,163)
Total Income (Loss) of
Discontinued Operations (623,747) (195,778) (714,426) 161,324
Net (Loss) 1,705,140 (658,117) (1,308,634) (14,839)
Loss Per Share $ (.12) $ (.05) $ (.08) $ -
As a result of the discontinuance of the product lines, revenues have
been restated for the November 30 three month and six month periods of 2000
and 1999. Accordingly, no revenues were recorded in the 1999 periods or the
2000 three month period.
14
Total costs and expenses increased $618,214 and $418,045 for the 2000
nine month and three month periods, respectively, compared to the 1999
periods. Theses increase were primarily due to the impairment charge of
$350,000 for the rights to the master audio recording we acquired in November
of 1999. Within the next six months we will determine the best way to develop
products from our audio masters in anticipation of releasing these
compilations in fall and winter 2001. General and administrative costs have
increased due to growth in our business of operations. Payroll costs are
averaging $120,000 a quarter and general and administrative expenses
approximately $100,000 a quarter. We have incurred interest costs of
approximately $100,000 cumulatively through November 30, 2000 as a result of
debt financing earlier this year, along with non-cash financing costs for
warrants issued for the financing.
We have recorded a total loss of discontinued operations of $623,747 and
$714,426 for the 2000 nine and three month periods, respectively. This loss
was related to management's decision to discontinue the Plumbers Secret
product line. We believe that as a result of the gross margins steadily
decreasing and the related high cost of royalties and promotional allowances
it would be best to devote future marketing efforts to our new products under
development. In addition the discontinuance resulted from the lack of sales
in the direct response phase of marketing the product, as well as the lack of
sales in the retail marketplace. This loss accounted for 34.2% of our net
loss for the 2000 nine month period and 51.1% for the 2000 three month period.
Our net loss for the nine months ended November 30, 2000 was $1,705,140
compared to $658,117 for the comparable period in 1999. Accordingly, the net
loss for the 2000 three month period was $1,308,634 compared to $14,839 for
the 1999 three month period. The increase in net loss is primarily
attributable to the losses recorded for discontinued product line and
approximately $634,200 of continuing operation expenses. As a result we
recorded a net loss per share of $0.12 for the 2000 nine month period compared
to $0.05 for the comparable 1999 period.
Management believes that the rollout of two to four new products within
the next six months could generate approximate gross revenues in the amount of
$1 to $3 million. The products that are currently being readied for rollout
are the Strike Jacket EFL, a fishing product; the Wonder Wrench, a wrench that
can take the place of an entire set of wrenches; the Prime Healthcare Benefits
Plan, a discount card that will save from 10-60% of the cost of prescriptions,
vision, hearing, dental and chiropractic; and "Day in the Life, The Lost
Beatles Archives", a coffee table book of never before available Beatles
photos.
It should be noted that a strong positive public reaction to our products
could produce significantly higher revenues and, contrastly, lack of public
reaction could result in a shortage of working capital which may negatively
impact our ability to sell the product. Approximately $400,000 has been spent
to date on developing four new products, including filming of infomercials,
packaging design and sampling, as well as manufacturing samples.
Other than the introduction of new product lines and the discontinuance
of the Plumbers Secret product, we are unaware of any known trends, events or
uncertainties that are reasonably likely to impact revenues from operations.
However, we may experience significant fluctuations in operating results in
future periods due to a variety of factors, including but not limited to, the
following factors:
* We will need additional financing in order to carry out our new
business plan and management cannot assure that we will be
successful in obtaining such financing. Failure to obtain
necessary financing could have a material adverse impact on our
operations.
* Sales from some of our products are yet to be tested in the retail
environment.
* We must continue to obtain new products and customers as
reasonable costs, retain customers and encourage repeat purchases.
* We need to develop our customer base for each product through
multiple marketing channels, which include the following: (I)
Development of an aggressive marketing campaign using a
combination of online and traditional marketing: (II) by entering
into linking arrangements with other web sites: and (III) using
direct marketing techniques to target new and existing customers
with personalized communications.
15
Liquidity and Capital Resources
As of November 30, 2000, we had a cash balance of approximately $12,000
with total assets of $948,583 and total current liabilities of $1,542,847. We
have an accumulated deficit of $2,702,804. For the nine months ended November
30, 2000 we used $100,166 in cash for operations compared to $928,140 of cash
used for the 1999 nine month period. For the 2000 and 1999 nine month periods
we recorded $135,382 and $119,758 for discontinued operations.
Net cash provided by financing activities for the nine months of 2000 was
$75,000 compared to $1,239,050 of cash provided for the nine months of 1999.
In April and May of 2000 we received a total of $176,000 in loans from two
officers which were repaid as of August 31, 2000. Mr. Haehn loaned us
$100,000 and Mr. Lang loaned us $76,000. In the third quarter of 2000, Mr.
Haehn loaned us an additional $25,000 and Mr. Lang loaned us an additional
$50,000. Sales of our common stock provided $1,194,050 for the 1999 nine
month period.
Starting in March of 2000 we conducted a private placement offering for
an aggregate offering price of $600,000 and realized net proceeds of $517,000.
However, pursuant to the terms of the private placement, the notes matured on
May 31, 2000 and we repaid the $600,000 obligation.
We have no plans to purchase significant equipment or make other capital
expenditures within the next twelve months. We have monthly lease commitments
for our office space of approximately $5,400. Interactive Marketing was
committed to lend The Plumbers Secret LLC up to $150,000 as an initial capital
contribution. Management is evaluating our obligations under this agreement
and negotiating a settlement of outstanding royalty obligations related to the
Plumbers Secret. The Wonder Wrench agreement requires us to purchase 300,000
units at a cost of $5.00 per unit during the first year of marketing. To date
we have purchased 25,000 units. In addition, according to the terms of our
marketing agreements with the product owners we are obligated to share profits
and/or pay royalties on any products we sell.
Financing
- ---------
In the short term we anticipate that our operations will be funded by
proceeds from the agreement with Thane International, Inc. discussed in more
detail in Part II, Item 5, below. Thane is an international direct response
business who, pursuant to the agreement, will pay for all marketing and
manufacturing of certain products and will share equally in net profits.
Thane will purchase our current inventory of product that totals $163,000 and
will have an option on any new products acquired by Interactive Marketing.
We anticipate that our long-term liquidity sources will be primarily
product revenues. We expect new products to provide the necessary revenues to
fund operations. We are in the process of developing marketing programs for
at least four to five new products that we expect to launch within the next
six months. However, expenses such as production costs, royalties and
fulfillment costs will offset these revenues. A shooting schedule for the
production of three infomercials is currently being planned. Management is
reviewing various product cost bids and is discussing with major retailers the
selling of these new products.
In the event revenues are insufficient to fund our operations, management
expects to rely on sales of our common stock and/or debt financing for needed
funds. Management contemplates that if additional capital is required, it
will be provided by private placements of our common stock or debt financing.
We intend to complete any private placements pursuant to exemptions provided
by federal and state securities laws. The purchasers and manner of issuance
will be determined according to our financial needs and the available
exemptions. We do not currently intend to make a public offering of our
stock. We also not that if we issue more shares of our common stock our
shareholders may experience dilution in the value of their common stock.
Management is investigating the availability, source and terms for
external debt financing. At this time we have not entered into any agreement
with any third parties regarding such financing. We cannot assure that funds
will be available from any source, or, if available, that we will be able to
obtain the funds on terms agreeable to us. Also, the acquisition of funding
through the issuance of debt could result in a substantial portion of our cash
flows
16
from operations being dedicated to the payment of principal and interest on
the indebtedness, and could render us more vulnerable to competitive and
economic downturns.
Seasonal Trends
Our market is not seasonal because our products are marketed with a
direct response television media blitz, which is not related to the seasonal
variables.
PART II. OTHER INFORMATION
ITEM 5: OTHER INFORMATION
In an arm's-length transaction, we entered into an Exclusive
Manufacturing & Marketing Agreement, dated January 16, 2001, with Thane
International, Inc., a Delaware corporation. Thane is an international
marketing firm with offices located in La Quinta, California. We granted
Thane the exclusive right to broadcast and market certain products of
Interactive Marketing for a term of five years. In consideration for the
exclusive right, Thane agreed to advance $36,000 to us on signing and to pay
us each month 50% of adjusted revenues, as defined in the agreement, from
sales of our products. Thane has agreed to pay any royalties owed to the
owners of the products under previous agreements with Interactive Marketing
directly to those owners.
We granted Thane the exclusive rights to the Strike Jacket EFL , the
Prime Healthcare Benefits Plan, the Wonder Wrench , the Drain Magic, the Lost
Beatles Archives, and the Jewelry Line. We agreed to provide any infomercials,
spots or support materials to Thane and we are obligated to perfect patent
applications and to defend intellectual property rights. Thane also has the
first option to obtain exclusive rights to any future products we develop or
acquire the rights to. Thane intends to market test each product and in the
event the product fails such market test, then the rights to that product
revert to Interactive Marketing and the terms of the agreement no longer apply
to that product. The agreement may be extended or terminated by mutual
written agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part I: Exhibits.
Exhibit # Description
10.1 Exclusive Manufacturing & Marketing Agreement between
Interactive Marketing and Thane International, Inc., dated
January 16, 2001.
(b) Reports on Form 8-K.
None
17
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.
INTERACTIVE MARKETING TECHNOLOGY, INC.
Date: Jan 19, 2001 By /s/ Sandy Lang
_______________________________________
Sandy Lang, CEO and Chairman of the Board
/s/ Gregory Haehn
By__________________________________________
Gregory Haehn, President, Treasurer and
Director