UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For quarter ended: August 31, 2001
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)
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 October 8, 2001, the Registrant had a total of 13,823,667 shares of
common stock issued and outstanding.
This Form 10-QSB has been amended to include Part II, Item 1: Legal
Proceedings
PART I. FINANCIAL INFORMATION
------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three and six month periods ended August 31, 2001 and
2000 is unaudited. This financial information, in the opinion of management,
includes all adjustments consisting of normal recurring entries necessary for
the fair presentations of such data. The results of operations for the three
months ended August 31, 2001, are not necessarily indicative of results to be
expected for any subsequent period.
2
Interactive Marketing Technology
Balance Sheets as of
August 31, 2001 and February 28, 2001
(Unaudited) (Audited)
August 31, February 28,
(Restated)
2001 2001
------------- -------------
Current assets:
Cash $ 40,534 $ 16,007
Accounts receivable 1,516 5,481
Inventories 31,827 67,817
Prepaids 11,440 88,412
------------- -------------
Total current assets 85,317 177,717
------------- -------------
Property, Plant and Equipment, net of accumulated
depreciation of $30,523 as of August 31, 2001
and $19,163 as of February 28, 2001 66,746 78,105
Intangible Assets, net of accumulated amortization
of $68,280 as of August 31, 2001 and $54,624 as
of February 28, 2001 68,280 81,936
Master Audio Recordings - 250,000
Capitalized Production Costs, net of accumulated
amortization of $51,772 as of August 31, 2001
and $0 as of February 28, 2001 92,434 139,166
Other long term assets 63,193 63,468
------------- -------------
$ 375,970 $ 790,392
============= =============
Current liabilities:
Accounts payable $ 252,478 $ 165,079
Accrued expenses 186,899 106,856
Related party note payable 217,000 126,000
Net liabilities from discontinued operations 1,221,191 1,075,258
------------- -------------
Total current liabilities 1,877,568 1,473,193
------------- -------------
Shareholder deficit:
Common Stock, Par .001, 60,000,000 shares
authorized, 13,823,667 and 15,873,667 shares
issued and outstanding as of August 31, 2001
and February 28, 2001, respectively 13,824 15,874
Paid in capital 2,351,016 2,454,216
Accumulated deficit (3,866,438) (3,152,891)
------------- -------------
(1,501,598) (682,801)
------------- -------------
$ 375,970 $ 790,392
============= =============
3
See Accompanying Notes to Consolidated Financial Statements.
Interactive Marketing Technology
Statements of Operations
(Unaudited) (Unaudited)
Six months ended August 31, Three months ended August 31,
(Restated) (Restated)
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Net sales $ 52,231 $ - $ - $ -
Cost of sales 50,000 - - -
-------------- -------------- -------------- --------------
Gross profit 2,231 - - -
Operating expenses:
Payroll and related 129,789 113,349 61,289 64,544
Depreciation and
amortization 76,789 18,381 25,451 11,150
Selling, general and
administration 330,463 354,851 170,448 199,168
Loss on disposal of master
audio recordings 90,000 - 90,000 -
-------------- -------------- -------------- --------------
627,041 486,581 347,188 274,862
-------------- -------------- -------------- --------------
Loss from operations (624,810) (486,581) (347,188) (274,862)
-------------- -------------- -------------- --------------
Other income (expense):
Other income 22,351 - 22,352 -
Interest income 1,045 - 1,045 -
Interest expense (2,083) (6,600) - (5,350)
-------------- -------------- -------------- --------------
21,313 (6,600) 23,397 (5,350)
-------------- -------------- -------------- --------------
Loss from continuing
operations before income
tax provision (603,497) (493,181) (323,791) (280,212)
Income tax provision 800 - - -
-------------- -------------- -------------- --------------
Loss from continuing
operations (604,297) (493,181) (323,791) (280,212)
Discontinued operations:
Income (loss) from
discontinued operations (109,250) 96,675 (21,983) (284,015)
-------------- -------------- -------------- --------------
Net loss $ (713,547) $ (396,506) $ (345,774) $ (564,227)
============== ============== ============== ==============
Basic and diluted net
loss available to common
stockholders from:
Continuing operations $ (0.04) $ (0.04) $ (0.02) $ (0.02)
Discontinued operations (0.01) 0.01 - (0.02)
-------------- -------------- -------------- --------------
Net Loss $ (0.05) $ (0.03) $ (0.02) $ (0.04)
============== ============== ============== ==============
Weighted Average Number
of Shares 14,450,0561 3,832,000 15,076,445 13,832,000
============== ============== ============== ==============
4
See Accompanying Notes to Consolidated Financial Statements.
Interactive Marketing Technology
Statements of Cash Flows
For the six months ended August 31, 2000 and 2001
(Unaudited) (Unaudited)
August 31, August 31,
(Restated)
2001 2000
------------- -------------
<s> <c> <c>
Cash flows from operating activities:
Net loss $ (713,547) $ (396,506)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 76,789 161,351
Estimated fair market value of options granted
to employees 54,750 95,000
Loss on disposal of master recordings 90,000 -
Impairment loss on inventory 128,786 -
Changes in assets and liabilities:
Accounts receivable 3,965 4,246
Inventories 35,990 (63,750)
Prepaid expenses 77,247 (263,375)
Capitalized production costs (5,042) -
Accounts payable and accrued expenses 184,589 651,781
------------- -------------
Net cash (used in) provided by operating activities (66,473) (188,742)
Cash flows from investing activities:
Purchase of fixed assets - (103,663)
------------- -------------
Cash flows from continuing financing activities:
Borrowings from related parties 104,000 176,000
Net proceeds from convertible debt - 517,000
Repayment of convertible debentures - (600,000)
Principal payments on related party notes payable (13,000) (176,000)
------------- -------------
Net cash provided by (used in) financing activities 91,000 (83,000)
------------- -------------
Net increase in cash from operations 24,527 2,084
Cash at beginning of period 16,007 252,266
------------- -------------
Cash at end of period $ 40,534 $ 254,350
============= =============
Supplemental Disclosure of cash flow information -
Cash paid during period ended for:
Interest paid $ 2,083 $ 6,600
============= =============
Income taxes paid $ 800 $ -
============= =============
Supplemental schedule of non-cash investing and financing activities
- --------------------------------------------------------------------
See accompanying notes for non cash investing and financing activities
5
See Accompanying Notes to Consolidated Financial Statements.
INTERACTIVE MARKETING TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and Operations
- ---------------------------
Interactive Marketing Technology, Inc. ("Interactive" or the "Company"),
a Nevada corporation, was formed on April 21, 1998. The Company's wholly
owned subsidiary is IMT's Plumber, Inc., which was formed February 4, 1999.
Since inception, the Company's principal business activity has been produce,
market and sell a licensed product called The Plumber's Secret, which was
discontinued during fiscal 2001 (see Note 3). The Company intends on
introducing new products in fiscal 2002 in a direct response and retail sales
environment. The Company continues to be involved in negotiations to obtain
licensing agreements for new products.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of IMT's
Plumber, Inc., a wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Going Concern
- -------------
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has negative working capital of
$1,792,251 and an accumulated deficit of $3,866,438 at August 31, 2001, and a
history of losses from operations through August 31, 2001, among other
matters, which raise substantial doubt about its ability to continue as a
going concern. The Company intends to fund operations through sales of new
products and debt and equity financing arrangements which management believes
may be insufficient to fund its capital expenditures, working capital and
other cash requirements for the fiscal year ending February 28, 2002.
Therefore, the Company will be required to seek additional funds to finance
its long-term operations. The successful outcome of future activities cannot
be determined at this time and there is no assurance that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
The financial statements do not include any adjustments related to
recoverability and classification of assets carrying amounts (including the
realizability of long-lived assets under SFAS 121) or the amount and
classification of liabilities that might result should the Company be unable
to continue as a going concern.
Risks and Uncertainties
- ------------------------
The Company operates in a highly competitive consumer product
environment that is subject to intense competition, government regulation and
rapid change. The Company's operations are subject to significant risk and
uncertainties including financial, operational and other risks associated with
the business, including the potential risk of business failure.
6
INTERACTIVE MARKETING TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
continued
Capitalized Production Costs
- ----------------------------
Capitalized production costs include the filming, editing and other film
producing costs for various product infomercials which are used for cable
network viewing audiences. These costs are of a direct response nature and are
therefore capitalized and amortized over the period during which benefits are
expected to be earned, which is estimated to be one year. Capitalized
production costs at February 28, 2001 was $139,166 and $144,206 at August 31,
2001. Amortization expense for the period ended August 31, 2001 was $51,772
and is recorded under loss from discontinued operations in the accompanying
consolidated statement of operations.
Long-Lived Assets
- -----------------
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," which requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In accordance
with the provisions of SFAS 121, the Company regularly reviews long-lived
assets and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Based on its analysis, management determined that no impairment
existed at August 31, 2001. There can be no assurance, however, that market
conditions will not change or demands for the Company's services or products
will continue which could result in impairment on long-lived assets in the
future.
Revenue Recognition
- -------------------
The Company records sales when goods are shipped to the customer.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the
basic criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement was the fourth quarter
of the fiscal year beginning after December 15, 1999. The adoption of SAB 101
did not have a material impact on the Company's financial position and results
of operations.
Warranty
- ---------
The Company provides a warranty of thirty days to direct response
customers and no warranty for sales to retail centers.
7
INTERACTIVE MARKETING TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
continued
Estimated future warranty obligations related to certain products and
services are provided by charges to operations in the period in which the
related revenue is recognized. The Company has no warranty reserve at August
31, 2001 and February 28, 2001.
Earnings Per Share
- ------------------
The Company has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per
share is computed by dividing income available to common shareholders by the
weighted average number of shares assumed to be outstanding during the period
of computation. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares
were dilutive. Because the Company has incurred net losses, basic and diluted
loss per share are the same as additional potential common shares would be
anti-dilutive.
Segments of Business
- --------------------
The Company has adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information
about segments of their business in their annual financial statements and
requires them to report selected segment information in their quarterly
reports issued to shareholders. It also requires entity-wide disclosures
about the products and services an entity provides, the material countries in
which it holds assets and reports revenues and its major customers. The
Company currently operates in one segment, as disclosed in the accompanying
consolidated statement of operations.
Derivative Instruments
- -----------------------
The Company has adopted Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet at their fair value. This
statement, as amended by SFAS 137 and 138, is effective for financial
statements for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company's adoption of this standard did not have a material impact
on the Company's results of operations, financial position or cash flows, as
it currently does not engage in any derivative or hedging activities.
New Accounting Pronouncements
- -----------------------------
In July 2001, FASB issued SFAS No. 141, "Business Combinations," which is
effective for business combinations initiated after June 30, 2001. SFAS No.
141 eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring on or after
July 1, 2001 are accounted for under the purchase method. The Company does not
expect SFAS No. 141 to have a material impact on its financial statements.
8
INTERACTIVE MARKETING TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES,
continued
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which is effective for fiscal years beginning after
December 15, 2001. Early adoption is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not been previously issued. SFAS No. 142 addresses how
intangible assets that are acquired individually or with a group of other
assets should be accounted for in the financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. SFAS No. 142 requires that goodwill and intangible assets that
have indefinite useful lives not be amortized but rather be tested at least
annually for impairment, and intangible assets that have finite useful lives
be amortized over their useful lives. SFAS No. 142 provides specific guidance
for testing goodwill and intangible assets that will not be amortized for
impairment. In addition, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition. Impairment losses for goodwill and indefinite-life intangible
assets that arise due to the initial application of SFAS No. 142 are to be
reported as resulting from a change in accounting principle. However, goodwill
and intangible assets acquired after June 30, 2001 will be subject immediately
to the provisions of SFAS No. 142. The Company does not expect SFAS No. 142 to
have a material effect on its financial statements.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of intangible
long-lived assets and the associated asset retirement costs and is effective
for fiscal years beginning after June 15, 2001. The Company does not expect
SFAS No. 143 to have a material impact on its financial statements.
Reclassifications
- -----------------
Certain reclassifications were made to prior period amounts, enabling
them to conform to current period presentation.
NOTE 2 - STOCKHOLDERS' EQUITY
Pursuant to APB 25, the Company recognized compensation expense
relating to a granting of options to an employee in fiscal year 2001 totaling
$54,750 in the consolidated statement of operations during the period ended
August 31, 2001.
In July 2001, the Company obtained and retired 50,000 shares of common
stock from two shareholders. No value was assigned to this transaction since
the shares were returned for non performance under specific agreements with
these shareholders.
In July 2001, the Company retired 2,000,000 shares of common stock with
an estimated fair market value of $160,000, based on the closing bid price on
the date of the exchange, for the return of the Master Audio Recordings with a
net book value of $250,000, resulting in the Company recognizing a loss on
disposal of the Master Audio Recording in the amount of $90,000 in the
accompanying Statement of Operations.
9
INTERACTIVE MARKETING TECHNOLOGY, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
NOTE 3 - DISCONTINUED OPERATIONS
In November 2000, the Company's management decided to refocus all of its
marketing efforts on new product lines and to abandon its efforts of selling
the Plumber's Secret product line to retailers. The results of operations of
the product line have been reported separately as discontinued operations.
Income (loss) from discontinued operations was approximately $(109,250) and
$96,675 for the six months ended August 31, 2001 and 2000,
respectively. Income (loss) from discontinued operations was approximately
$(21,983) and $(284,015) for the three months ended August 31, 2001 and 2000,
respectively. Prior year financial statements for 2000 have been restated to
present the operations of the Plumber's Secret product line as a discontinued
operation. During the six month period ended August 31, 2001, the Company
recognized an impairment loss on inventory from discontinued operations of
$128,786.
For financial reporting purposes, the assets and liabilities of the
discontinued operations have been recorded at their estimated net realizable
value under the caption "Net liabilities from discontinued operations" in the
accompanying balance sheet at August 31, 2001 and February 28, 2001 and are
comprised of the following:
August 31, February 28,
2001 2001
------------ ---------------
Assets:
Inventory $ 73,475 $ 202,261
Liabilities:
Accounts payable 196,111 178,779
Accrued liabilities 133,555 133,740
Accrued royalties 540,000 540,000
Promotional allowances 425,000 425,000
------------ --------------
Total liabilities 1,294,666 1,277,519
------------ --------------
Net liabilities from
discontinued operations $ 1,221,191 $ 1,075,258
============ ==============
NOTE 4 - COOPERATIVE VENTURE
In June 2001 the Company entered into a cooperative venture with a
director. The director advanced $60,000 to the Company for the venture which
has been recorded in related party notes payable in the accompanying balance
sheet, to produce a television spot for the marketing of the Prime Healthcare
Benefits Plan. Net revenues from the sales of this product will be split
equally until the director has been repaid his $60,000 advance. After he has
received $60,000, then the director will receive 10% of the net revenues and
the Company will receive 90% of net revenues. The agreement will continue
until the Company no longer markets the Healthcare Plan.
10
References in this quarterly report to "Interactive Marketing" "we," "us," and
"our" refer to Interactive Marketing Technology, Inc.
FORWARD LOOKING STATEMENTS
This Form 10Q-SB 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 10Q-SB 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
Overview
We began operations in August of 1999 and relied primarily on one
product, the Plumbers Secret, for our revenues in fiscal years 2000 and 2001.
In November 2000 management decided to focus our marketing efforts on our new
product lines and discontinued The Plumbers Secret product line. As a result,
we have recognized a loss from discontinued operations in our financial
statements. Management expects revenues from the new products to satisfy a
portion of our working capital needs in the short term; however, we must
obtain debt and equity financing to continue long term operations.
IMT's Plumber, Inc. In February 1999 IMT's Plumber, Inc., our wholly
owned subsidiary, became a member of The Plumber's Secret L.L.C. The
Plumber's Secret L.L.C. was formed to market our product, the Plumbers Secret.
The other member of the limited liability company was B.V.T.V., Inc., which
employed Bob Vila to advertise and promote the product in an infomercial. For
the fiscal years 2001 and 2000, the Plumber's Secret L.L.C. incurred losses
from operations totaling $161,474 and $423,325, respectively. The operating
agreement provided that $100,000 be paid to B.V.T.V. for its services;
however, the $100,000 fee was applied towards the required initial
contribution as such services were performed. Under the operating agreement
B.V.T.V is not obligated to make good for losses in excess of the $100,000,
therefore, its interest is not recorded in our consolidated balance sheet or
in the consolidated statements of operations for fiscal year 2001. Due to the
discontinuance of the Plumbers Secret product line we have classified all
remaining assets and liabilities from the company in net liabilities from
discontinued operations in our consolidated financial statements. Management
continues to negotiate a settlement to this obligation.
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 our wholly owned subsidiary IMT's Plumber, Inc., reflecting its
50.01% members' interest in the Plumbers Secret, L.L.C. The following table
summarizes our operations for the three and six month periods ended August 31,
2001 and 2000. The August 31, 2000, information has been restated to reflect
adjustments for discontinued operations.
11
- --------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
------------------------------- -------------------------------
August 31, 2000 August 31, 2000
August 31, 2001 (Restated) August 31, 2001 (Restated
- ---------------------- --------------- --------------- --------------- ---------------
Net sales $ 52,231 $ - $ - $ -
- ---------------------- --------------- --------------- --------------- ---------------
Cost of sales 50,000 - - -
- ---------------------- --------------- --------------- --------------- ---------------
Gross profit (loss) 2,231 - - -
- ---------------------- --------------- --------------- --------------- ---------------
Total operating expenses 627,041 486,581 347,188 274,862
- ---------------------- --------------- --------------- --------------- ---------------
Total other income
(expense) 21,313 (6,600) 23,397 (5,350)
- ---------------------- --------------- --------------- --------------- ---------------
Loss from continuing
operations (604,297) (493,181) (323,791) (280,212)
- ---------------------- --------------- --------------- --------------- ---------------
Income (loss) from
discontinued operations (109,250) 96,675 (21,983) (284,015)
- ---------------------- --------------- --------------- --------------- ---------------
Income tax provision (800) - - -
- ---------------------- --------------- --------------- --------------- ---------------
Net loss $ (713,547) $ (396,506) $ (345,774) $ (564,227)
- ---------------------- --------------- --------------- --------------- ---------------
We recognize revenues when our product is shipped to the customer. Net
sales from continuing operations were $52,231 for the six month period ended
August 31, 2001 ("2002 six month period") and we had no sales in the three
month period ended August 31, 2001 ("2002 second quarter"). The restated
periods for the three and six month periods ended August 31, 2000 ("2001
second quarter and 2001 six month period") reflect no sales as a result of the
adjustments for the discontinued operations related to the Plumbers Secret
product line. The sales for the 2002 six month period were primarily the sale
of our product inventory to Thane International. Cost of sales from
continuing operations, which include the cost of the product and shipping of
the product was $50,000, and was related to the purchase of the Wonder Wrench
units. Based on net sales and cost of sales we recorded a gross profit from
continuing operations of $2,231 for the 2002 six month period.
Total operating expenses increased $140,460 in 2002 six month period
compared to the 2001 six month period, and increased $72,326 for the 2002
second quarter compared to the 2001 second quarter. Payroll and related
expenses increased $16,440 in the 2002 six month period compared to the 2001
six month period, but decreased $3,255 in the 2002 second quarter compared to
the 2001 second quarter. Depreciation and amortization expenses from
continuing operations related to property and equipment, intangible assets and
capitalized production costs increased $58,408 in the 2002 six month period
compared to the 2001 six month period fiscal year and increased $14,301 for
the 2002 second quarter compared to the 2001 second quarter. The 2002 second
quarter and six month period increases are primarily the result of a amortized
expenses related to infomercials. Selling, general and administrative
expenses decreased $24,388 for the 2002 six month period compared to the 2001
six month period and decreased $28,720 for the 2002 second quarter compared to
the 2001 second quarter.
Total other income was $21,313 for the 2002 six month period and $23,397
for the 2002 second quarter compared to total other expense from interest
expense of $6,600 for the 2001 six month period and $5,350 for the 2001 six
month quarter. The increase in total other income was primarily due to
$22,351 in other income primarily related to the write off of approximately
$13,000 in previously accrued expenses.
We recorded losses from continuing operations for the comparative six
month periods and second quarters and recorded losses from discontinued
operations for those periods. With increased operating expenses and a
12
greater loss from discontinued operations in the 2002 six month period, our
net loss increased $317,041 for the 2002 six month period compared to the 2001
six month period. However, our net loss decreased $218,453 for the 2002
second quarter compared to the 2001 second quarter due to other income and a
smaller loss from discontinued operations in that quarter. Thus, we recorded
a net loss per share of $0.05 for the 2002 six month period and a loss per
share of $0.02 for the 2002 second quarter.
Factors Affecting Future Performance
Management believes the following factors may adversely affect our
business, financial condition, operating results or cash flows.
. We need additional financing in order to carry out our business
plan and management cannot assure that we will be successful in
obtaining such financing.
. Sales from our products are unproven and some of our products are
yet to be tested in the retail environment.
. We must obtain new products and customers at reasonable costs,
retain customers and encourage repeat purchases.
. We need to develop our customer base through multiple marketing
channels, which include marketing campaigns using a combination of
online and traditional marketing and direct marketing techniques to
target new and existing customers with personalized communications.
Liquidity and Capital Resources
As of August 31, 2001, we had a cash balance of $40,534 with total
current assets of $85,317 and total current liabilities of $1,877,568 compared
to the year ended February 28, 2001, cash balance of $16,007 with total
current assets of $177,717 and total current liabilities of $1,473,193. At
the end of the 2002 six month period, $1,221,191 of our total current
liabilities were allocated to net liabilities from discontinued operations
related to the discontinuance of the Plumbers Secret product line. At the end
of the 2002 six month period we recorded an accumulated deficit of $3,866,438
compared to an accumulated deficit of $3,152,891 at the end of the 2001 fiscal
year.
We have no plans to purchase significant equipment or make other capital
expenditures within the next twelve months. Our principal commitments consist
of office leases, royalty and profit-share obligations. As of the fiscal year
ended February 28, 2001, our monthly lease commitment for our office space was
approximately $5,400, with future minimum annual lease payments of $250,000
through 2005.
According to the terms of our marketing agreements with various product
owners we are obligated to share profits and/or pay royalties on any products
we sell. However, our marketing agreement with Thane International, Inc.
provides that Thane pay any royalties owed to the owners under previous
agreements with Interactive Marketing directly to the product owners. In
addition, Thane agreed to pay Interactive Marketing 50% of adjusted revenues
each month from the sale, if any, of the products. As of the period ended
August 31, 2001, we had outstanding royalty obligations of $540,000 related to
the Plumbers Secret. Our management continues to negotiate a settlement of
this obligation.
For the 2002 six month period net cash used in operations was $66,473
compared to $188,747 net cash provided by operations in the 2001 six month
period. We did not record any net cash used in investing activities for the
six month period of 2002, but we recorded $103,663 net cash used for the
purchase of property and equipment during the 2001 six month period.
Net cash provided by financing activities for the 2002 six month period
was $91,000 compared to $83,000 net cash used in financing activities for the
2001 six month period. Loans from shareholders of $104,000 provided the
majority of financing for the 2002 six month period. The primary source of
financing for the 2001 six month period was a total of $176,000 in loans which
we received in May of 2000 from two officers. Mr. Gregory Haehn loaned us
$100,000 and Mr. Sandy Lang loaned us $76,000. Also, in the first quarter of
2000 we conducted a
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private offering for $600,000 in which we sold units comprised of convertible
notes payable and warrants to purchase common shares. The notes payable
accrued interest at 12% and were convertible at any time at $1.25 per share.
The warrants allowed the holder to purchase 360,000 common shares at an
exercise price of $1.25 per share, expiring through April 2005. We realized
net proceeds of $517,000, but were required to repay the notes payable shortly
thereafter.
Management intends to increase sales by the marketing of new products.
In June 2001 we entered into a cooperative venture with Johnny Bench, our
director, to produce a television spot for the marketing of our Prime
Healthcare Benefits Plan. Management believes the $60,000 in funding provided
to us under the agreement by Mr. Bench will allow Interactive Marketing to
launch the sale of this product. Net revenues from the sales of this product
will be split equally by Mr. Bench and Interactive Marketing until Mr. Bench
has received $60,000. After he has received $60,000, then Mr. Bench will
receive 10% of the net revenues and Interactive Marketing will receive 90% of
net revenues. The agreement will continue until we no longer market the
Healthcare Plan.
Management intends to fund operations through additional debt and equity
financing. Management contemplates that such capital may be provided by
private placements of our common stock or debt financing from related parties.
We intend to complete private placements, if any, 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 note that if we issue more shares of our common stock our
shareholders may experience dilution in the value of the common stock they
hold.
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 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.
Going Concern
Our independent auditors, Corbin & Wertz, Certified Public Accountants,
have stated in their report for the year ended February 28, 2001, that we had
a negative working capital of $1,295,476 and an accumulated deficit of
$3,152,891 and a history of losses from operations. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
PART II. OTHER INFORMATION
-----------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
On August 17, 2001 we filed a complaint against Rocky River Outdoor
Products, Inc. and its principals, Christopher Atkins, Pamela Biren and Craig
Shinners. The complaint was filed in the Superior Court of the State of
California, County of Los Angeles-Northwest District and alleged that Rocky
River and its principals had breached the contract related to the EFL Fishing
Lure. We sought unspecified damages and injunctive relief to protect our
interests in this product. A trial date has not been set and we have not
started discovery for the case.
ITEM 2. CHANGES IN SECURITIES
In July 2001, our Board of Directors canceled an aggregate of 2,000,000
common shares held by Planet
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Entertainment Corp. for the return of the Master Audio Recordings. This
transaction reduced the number of issued and outstanding shares from
15,823,667 to 13,823,667.
In July 2001, our Board authorized the cancellation of 50,000 common
shares issued to two employees due to lack of performance. This cancellation
has not been completed as of the filing of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Part II: Exhibits.
Exhibit # Description
2.1 Agreement and Plan of Merger between Interactive Marketing and
Shur De Cor, Inc., dated March 24, 1999. (Incorporated by
reference to Exhibit 8.1 to Interactive Marketing's Form 10-SB, as
amended, filed January 19, 2000)
3.1 Articles of Incorporation, as amended (Filed October 23, 2001)
3.2 Bylaws of Interactive Marketing (Incorporated by reference to
Exhibit 2.3 to Interactive Marketing's Form 10-SB, as amended,
filed January 19, 2000)
10.1 Lease Agreement between E.P. Investments and Interactive Marketing,
dated May 10, 1999 (Incorporated by reference to Exhibit 6.1 to
Interactive Marketing's Form 10-SB, as amended, filed January 19,
2000)
10.2 Amended Operating Agreement of The Plumbers Secret LLC, as amended,
dated March 16, 1999 (Incorporated by reference to Exhibit 6.3 to
Interactive Marketing's Form 10-SB, as amended, filed January 19,
2000)
10.3 Form of promissory note between officers and Interactive Marketing
(Incorporated by reference to Exhibit 8.2 to Interactive
Marketing's Form 10-SB, as amended, filed January 19, 2000)
10.4 Exclusive Manufacturing & Marketing Agreement between Interactive
Marketing and Thane International, Inc., dated January 16, 2001.
(Incorporated by reference to Exhibit 10.1 to Form 10-QSB, filed
January 22, 2001)
10.5 Cooperative Venture Agreement between Interactive Marketing and
Johnny Bench, dated June 15, 2001 (Filed October 23, 2001)
(b) Reports on Form 8-K.
None
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SIGNATURES
In accordance with Section 13 or 15(d) of the 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: 1/4/02 By /s/ Sandy Lang
-----------------------------------------------
Sandy A. Lang, President, CEO and Chairman
of the Board
Date: JAN 4, 2002 By /S/ Martin Goldrod
-----------------------------------------------
Martin Goldrod, Secretary and Director
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