UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
0-26093
INTERMEDIA MARKETING SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
Nevada 88-0382813
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2001 West Sample Road, Suite 101, Pompano Beach, Florida 33064
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(Address of principal executive offices) (Zip Code)
(954) 969-1010
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(Registrant's telephone number, including area code)
Not applicable
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(Former name former address and former fiscal year if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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As of August 10, 2002, the registrant had a total of 12,647,702 common shares
outstanding.
INTERMEDIA MARKETING SOLUTIONS, INC.
Index to Form 10-QSB
June 30, 2002
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet at June 30, 2002 3
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the six months
Months ended June 30, 2002 and 2001 5
Note to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operations 7
PART II. OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K
2
INTERMEDIA MARKETING SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(UNAUDITED)
June 30, 2002
Assets
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Current assets:
Cash $ 67,429
Accounts receivable, net of allowance for doubtful accounts
of $672,087 2,286,043
Inventories 2,243,433
Prepaid expenses and other current assets 826,568
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Total current assets 5,423,473
Equipment and leasehold improvements, net 1,172,520
Goodwill 64,663
Other assets 157,213
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Total assets $6,817,869
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $1,154,506
Deferred income taxes payable 1,809,772
Lines of credit 1,273,358
Deferred revenue 2,534,993
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Total current liabilities 6,772,629
Stockholders' equity:
Common stock, $.001 par value:
Authorized 150,000,000 shares; issued and outstanding,
12,614,702 shares, 12,648
Additional paid-in capital 1,626,422
Accumulated deficit (1,593,830)
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Total stockholders' equity 45,240
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Total liabilities and stockholders' equity $ 6,817,869
==============
See notes to unaudited condensed consolidated financial statements
3
INTERMEDIA MARKETING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE, SIX MONTHS ENDED JUNE 30,
-------------------------------- ------------------------------
2002 2001 2002 2001
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Revenues $ 3,899,303 4,814,153 $ 6,323,026 $ 8,308,080
Cost of revenues 1,874,570 2,119,637 2,856,995 3,726,997
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Gross Margin 2,164,261 2,694,516 3,466,031 4,581,083
Operating Expenses:
Selling 694,719 699,473 2,016,973 1,688,335
General and administrative 1,384,632 1,278,131 1,874,298 1,804,069
------------ ------------- ------------ -------------
Total operating expenses 2,079,351 1,977,604 3,891,271 3,492,404
Operating income (loss) (54,618) 716,912 (425,240) 1,088,679
Interest expense (18,375) -- (32,750)
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Net income (loss) before taxes (72,993) 716,912 (457,990) 1,088,679
Income tax (35,336) 313,165 (189,335) 461,872
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Net Income (loss) $ (37,657) $ 403,747 $(268,655) $ 626,807
============= ============= ============= =============
Net Income (loss) per Common Share-Basic
and Diluted $ (0.00) $ .03 $ (.02) $ .05
============= ============= ============= =============
Weighted Average Number of Common
Shares-Basic and Diluted 12,647,702 12,614,702 12,647,702 12,614,702
============= ============= ============= =============
See notes to unaudited condensed consolidated financial statements
4
INTERMEDIA MARKETING SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
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2001 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 626,807 $ (268,655)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 131,180 303,850
Provision for deferred income taxes 461,808 (173,713)
Provision for bad debts 122,801 --
Changes in operating assets and liabilities:
(Increase)decrease in accounts receivable (1,106,544) 276,991
(Increase)in inventories (495,398) (451,182)
(Increase)in prepaid expenses and other current assets (50,097) (22,513)
(Increase)decrease in other assets (21,745) 8,867
Increase (decrease) in accounts payable and accrued expenses 1,215,375 (509,965)
Increase (decrease) in deferred revenue (395,112) 851,589
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Net cash provided by operating activities 489,075 15,269
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (552,819) (334,118)
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Net cash used in investing activities (552,819) (334,118)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Lines of credit -- 247,314
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Net cash provided by financing activities -- 247,314
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Net decrease in cash (63,744) (71,535)
Cash, beginning of period 421,359 138,964
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Cash, end of period $ 357,615 67,429
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -- $ 35,336
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Taxes $ 1,238 $ --
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See Notes to Unaudited Condensed Consolidated Financial Statements
5
INTERMEDIA MARKETING SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-QSB and
Items 303 and 300(b) of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all normal and
recurring adjustments which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows as of the
dates and for the periods presented. The consolidated results of operations for
the three and six months ended June 30, 2002 are not necessarily indicative of
the results to be expected for the full year. For further information, refer to
the financial statements and footnotes thereto included in the Intermedia
Marketing Solutions, Inc. ("Intermedia Marketing Solutions" or the "Company")
audited financial statements for the year ended December 30, 2001.
2. REVENUES
A portion of revenue represents revenues from contracts to produce television
programs using the "percentage-of-completion-method" recognizing revenue
relative to the proportionate progress on such contracts as measured by the
ratio which costs incurred by the Company to date bear to total anticipated
costs on each program.
Deferred revenue represents amounts which have been billed or paid and not yet
earned in accordance with this method.
3. INVENTORIES
Inventories consists primarily of retail goods obtained as payment for
transactions signed up for by customers. The inventory is recorded at the lower
of cost or market using the first-in first-out method. The company receives as
part of the consideration for some of their production services inventory
product for resale. The inventory is recorded at the fair value of the services
rendered. As of June 30, 2002 the company had $2,243,433 of finished goods
inventory on hand.
6
INTERMEDIA MARKETING SOLUTIONS, INC.
PART I. ITEM 2- MANAGEMENT'S DISCUSSION OR PLAN OF OPERATIONS
June 30, 2002
The following discussion of the results of the operations and financial
condition of Intermedia Marketing Solutions, Inc. ("Intermedia Marketing
Solutions" and the "Company") should be read in conjunction with Intermedia
Marketing Solutions unaudited Consolidated Financial Statements and Notes
thereto included elsewhere in this report and the Company's 10-KSB for the year
ended December 31, 2001.
Overview
The Company is an integrated multimedia marketing-solutions company. Its
consumer shopping division, markets and sells unique, newly launched, and
nationally branded consumer products using their integrated media approach
through 30-minute shop-at-home television programs, direct response television
commercials and e-commerce web sites. The Company's Tricom Pictures division
produces television programs to educate viewers on breakthroughs, emerging
trends, innovations, and lifestyles. These two divisions are related in that
both deal with the Company marketing the client's products to the consumers. The
Company's third division is a full service state-of-the-art multimedia
production facility that produces television, print and web material for
Intermedia Marketing Solutions divisions as well as other clients. All programs
and commercials are distributed to national audiences through a combination of
any and all of the following: ABC affiliates, NBC affiliates, CBS affiliates,
FOX affiliates, UPN affiliates and WB affiliates (collectively "network
affiliates"), independent television stations and targeted cable networks.
Products and services featured on the shopping divisions shows and direct
response commercials are sold through its telephone call centers, the Company's
websites and other e-commerce.
Historically part of the Company's strategy is to grow through the opening of
new offices domestically and the expansion of the number of distribution
opportunities for the participants on the Company's television programs. The
Company's expansion and growth plans will depend on its ability to identify
appropriate targets and markets and obtain the necessary financing to bring
these plans to fruition. Further, the success of the Company's efforts will
depend on its ability to identify these opportunities, attract highly qualified
personnel and manage geographically dispersed operations. There can be no
assurances that the Company will be successful in its plan of operational
expansion nor the management of such growth. In addition financial constraints
may make this strategy extremely difficult to achieve.
CRITICAL ACCOUNTING POLICIES
A portion of revenue represents revenues from contracts to produce television
programs using the "percentage-of-completion-method" recognizing revenue
relative to the proportionate progress on such contracts as measured by the
ratio which costs incurred by the Company to date bear to total anticipated
costs on each program.
Deferred revenue represents amounts which have been billed or paid and not yet
earned in accordance with this method.
7
Inventories consists primarily of retail goods obtained as payment for
transactions signed up for by customers. The inventory is recorded at the lower
of cost or market using the first-in first-out method. The company receives as
part of the consideration for some of their production services inventory
product for resale. The inventory is recorded at the fair value of the services
rendered.
Results of Operations
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001.
Total revenues for the six months ended June 30, 2002 were $6,323,026, a
decrease of $1,985,054 from $8,308,080 for the prior comparable period in 2001.
The decrease is attributable to a decrease in revenues from the TV shopping
division of approximately $1,100,000 and the education division of $900,000 in
the quarter as a result of fewer contracts written in the third and fourth
quarter last year and first quarter this year due to economic conditions across
the nation being significantly down.
Cost of Revenues decreased to $2,856,995, or 45% of revenues versus $3,726,997
or 45% for the prior comparable period. The decrease on a dollar for dollar
basis is a result of less airtime and a reduction in personnel as compared to
last year.
Selling expenses were $2,016,973 during the six months ended June 30, 2002, an
increase of $328,638 from the prior comparable period in 2001. This increase is
a result of expenses related to magazine advertising pages used to promote the
company's show and products nationwide and additional commissions paid to
incentive the marketing force. Selling expenses in 2002 were 32 % of net
revenues as compared to 20% in 2001. The increase of selling expenses on a
percentage basis is a result of fixed costs remaining constant from year to year
versus a decrease in revenue and the increase use of magazine pages used.
General and administrative expenses were $1,874,298 during the six months ended
June 30, 2002, an increase of $70,229 from the prior comparable period in 2001.
General and administrative expenses in 2002 were 30% of net revenues as compared
to 22% in 2001. The increase of general and administrative expenses on a
percentage basis is a result of fixed costs remaining constant from year to year
and the decrease in revenues.
Liquidity and Capital Resources
The Company generated $15,269 from operating activities in 2002 as opposed to
$489,075 during the same period in 2001. The increase and decreases in operating
assets and liabilities resulted in a net decrease to cash flow of approximately
$477,000 as compared to the same six months last year. The difference is mainly
a result of an operating profit last year versus a loss this year. Cash used in
investing activities totaled $334,118 in 2002 as a result of capital
expenditures relating to purchase of production equipment, the purchase of
computer hardware and computer software.
At June 30, 2002, the Company's backlog for contracts signed and work not begun
or contracts partially completed and work is to be done totaled approximately
$3,682,000 as compared to approximately $5,220,000 at June 30, 2001. This
decrease is mainly a result of more deferred revenue becoming sales as a result
of improved efficiencies in the production department and a larger portion of
contract being completed on a percentage basis.
8
The Company anticipates based on current backlog of contracts and assumptions
relating to operations, the Company's revenues and net income for the year ended
December 31, 2002 will be less than the prior year. This mainly is a result of
economic conditions and events occurring during the past 12 months. The current
state of the economy has resulted in less contracts signed during 2002 as
compared to 2001 reducing total revenue and net income. As a result of the
decrease in new contracts and reduced backlog the company may be required to
reduce personnel and close divisions in order to meet its cash needs for the
rest of the year.
Based on the current state of the economy the company has experienced a severe
reduction in its business and future cash flows as a result. The company
believes despite these events that cash flows from operations could be
sufficient to satisfy the Company's contemplated cash requirements until the end
of the current year. In the event that the Company is unable to sufficiently
meet cash flow, the Company could be required to seek additional financing and
severely reduce company overhead they may result in operating losses for 2002.
The Company currently has no outstanding material commitments for capital
expenditures. The Company's primary requirements for capital will be the cost of
revenue, marketing and sales costs associated with the Company's national and
international expansion into new target markets, and general and administrative
expenses associated with the Company's business plan. In the event that the
Company's plans change, its assumptions to change or prove to be inaccurate or
if its existing capital and cash flow otherwise prove to be insufficient (due to
unanticipated expenses, delays, problems, difficulties or otherwise), the
Company could be required to seek additional financing or may be required to
curtail its expansion or other activities. In the event that the Company
requires additional financing, the Company may seek to raise cash in the form of
strategic partners or in combination with equity financing, additional bank debt
or other debt financing to raise capital through the sale of its equity
securities, potentially at prices which may represent significant discounts from
the market price of the Common Stock.
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis or Plan of Operation contains
various "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Company's expectations and beliefs
concerning future events. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements, including, without
limitation, the following: the Company's ability to manage growth, acceptance of
the Internet as a means for commerce, decrease in advertising budgets, market
demand for e-commerce, decline in demand for the Company's services; increases
in expenses and costs of sales and the effect of general economic conditions and
factors affecting the industries the Company markets its service to and the
ability of the Company to recruit and retain qualified management and employees.
These statements by their nature involve substantial risks and uncertainties and
actual events or results may differ as a result of these and other factors.
9
PART II. OTHER INFORMATION
Item 2. Changes in Securities
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) There was a report on Form 8-K filed by the Company during the month of June
30, 2002.
(b) Exhibits
Exhibit
Number Description
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99 (a) Certification of Chief Executive Officer
99 (b) Certification of Chief Financial Officer
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
Intermedia Marketing Solutions, Inc.
(Registrant)
/s/ Douglas Campbell /s/ Brad Hacker
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Douglas Campbell Brad Hacker
President Chief Financial Officer
Dated: August 10, 2002
11
Exhibit 99(b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 (18 U.S.C.
1350), the undersigned, Brad Hacker, Chief Financial Officer of Intermedia
Marketing Solutions, Inc. (the "Company") has executed this certification in
connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the
"Report").
The undersigned certifies that: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as
of the 10th day of August, 2002.
/s/
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Name: Brad Hacker
Title: Chief Financial Officer
Exhibit 99(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 (18 U.S.C.
1350), the undersigned, Doug Campbell, Chief Executive Officer of Intermedia
(the "Company") has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002 (the "Report").
The undersigned certifies that: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and (2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
IN WITNESS WHEREOF, the undersigned has executed this certification as
of the 10th day of August, 2002.
/s/
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Name: Doug Campbell
Title: President and Chief Executive Officer