<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
Commission file number: 000-26047
EMAILTHATPAYS.COM, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0609891
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
428 West Sixth Avenue
Vancouver, British Columbia V5Y1L2
(Address of Principal Executive Offices)
(604) 801-5566
(Issuer's Telephone Number, Including Area Code)
(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.
x Yes No
--- --- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: May 9, 2000: 8,703,093 shares of
common stock, $.005 par value per share.
<PAGE>
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 2000
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
as of March 31, 2000 (Unaudited) and December 31, 1999...............3
Consolidated Statements of Operations and Deficit (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999 ........4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999 ........5
Notes to Unaudited Consolidated Financial Statements .......................6-9
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ..........................................10-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings .................................................12
Item 2 - Changes in Securities and Use of Proceeds...........................12
Item 3 - Defaults Upon Senior Securities.....................................12
Item 4 - Submission of Matters to a Vote of Security Holders ................12
Item 5 - Other Transactions..................................................12
Item 6 - Exhibits and Reports on Form 8-K ...................................12
Signatures ..................................................................13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
emailthatpays.com, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
===========================================================================================================
March 31, December 31,
2000 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 607,904 $ 121,609
Accounts receivable 125,417 176,688
Prepaid expenses 17,308 10,510
- -----------------------------------------------------------------------------------------------------------
750,629 308,807
Property and equipment, less accumulated amortization 208,772 191,115
- -----------------------------------------------------------------------------------------------------------
$ 959,401 $ 499,922
===========================================================================================================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 192,871 $ 304,383
Loans payable - current portion 38,725 121,112
Lease obligation - current portion 5,087 5,002
Due to related parties - current portion - 55,667
- -----------------------------------------------------------------------------------------------------------
236,683 486,164
Loans payable 135,595 146,766
Lease obligation 21,050 22,457
Due to related parties 91,137
- -----------------------------------------------------------------------------------------------------------
Total liabilities 393,328 746,524
Stockholders' equity (deficit):
Common Stock 44,515 43,140
Additional paid-in capital 3,488,057 2,224,432
Deficit (1,883,024) (1,372,793)
Deferred stock-based compensation (1,072,550) (1,130,000)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (10,925) (11,381)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 566,073 (246,602)
- -----------------------------------------------------------------------------------------------------------
$ 959,401 $ 499,922
===========================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-3-
<PAGE>
emailthatpays.com, Inc.
Consolidated Statements of Operations and Deficit (unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Three Months Ended
March 31
2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 232,925 $ 166,253
Cost of revenue 187,164 127,867
- -----------------------------------------------------------------------------------------------------------------
Gross profit 45,761 38,386
=================================================================================================================
Operating expenses:
Depreciation 14,131 2,092
Salaries and fringe benefits 260,969 97,108
Stock-based compensation 57,450 -
Legal and accounting 23,922 11,174
Consulting fees 50,652 4,415
Phones and utilities 11,343 3,302
Rent 24,286 12,708
Advertising and Promotion 26,808 5,711
Other Selling, General and Administrative 77,432 33,694
- -----------------------------------------------------------------------------------------------------------------
546,993 170,204
- -----------------------------------------------------------------------------------------------------------------
Loss from operations (501,232) (131,818)
Other income (expenses):
Interest income 24 98
Interest expense (9,023) (5,816)
- -----------------------------------------------------------------------------------------------------------------
(8,999) (5,718)
- -----------------------------------------------------------------------------------------------------------------
Net loss (510,231) (137,536)
Deficit, beginning of period (1,372,793) (252,793)
- -----------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (1,883,024) $ (390,329)
=================================================================================================================
Net loss per common share, basic and diluted (0.06) (137,536)
Weighted average common shares outstanding,
basic and diluted 8,506,663 1
=================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE>
emailthatpays.com, Inc.
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
Three Months Ended
March 31
2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $ (510,231) $ (137,536)
Items not involving cash:
Depreciation 14,131 2,092
Stock-based compensation 57,450 0
Foreign exchange on subsidiary operations 456 (1,273)
Loss on disposal of equipment 768 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 51,271 (21,620)
Decrease (increase) in prepaid expenses (6,798) (8,695)
Increase (decrease) in accounts payable and accrued liabilities (111,512) 42,709
- -----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (504,465) (124,323)
Cash flows used in investing activities:
Purchase of property and equipment (34,967) (17,382)
Proceeds from disposal of equipment 2,411 0
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (32,556) (17,382)
Cash flows from financing activities:
Increase (decrease) in loans payable (94,880) 196,029
Advances from (to) related parties (146,804) 98,732
Issue of share capital 1,265,000 0
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,023,316 294,761
- -----------------------------------------------------------------------------------------------------------------
Increase in cash 486,295 153,056
Cash, beginning of period 121,609 22,264
- -----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 607,904 $ 175,320
=================================================================================================================
Supplementary information:
Interest paid 9,023 5,816
Income taxes paid 0 0
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE>
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. The Company and description of business:
emailthatpays.com, Inc. (the "Company") is incorporated in the state of Florida
and is a "permission- based" e-mail marketing and integrated advertising
strategies service. Combining online direct marketing technology with
promotional and marketing expertise, the Company's infrastructure is set up to
offer a full slate of marketing solutions to a wide variety of product
categories.
The Company's services include the creation, delivery and analysis of targeted
"one-to-one" e-mail campaigns and customer loyalty programs, and the planning,
integration and execution of both online and traditional advertising strategies.
On October 22, 1999, the Company, then named Realm Production and Entertainment,
Inc. ("Realm"), a public company listed on the over-the-counter bulletin board
in the United States, issued 6,572,000 shares of its common stock in connection
with the merger of a wholly owned subsidiary of Realm with and into
emailthatpays.com ("email Nevada"), a company incorporated in the state of
Nevada. This transaction was accounted for as a recapitalization of email
Nevada, effectively as if email Nevada had issued common shares for
consideration equal to the net monetary assets of Realm. On October 27, 1999
Realm changed its name to tvtravel.com, Inc. and subsequently on December 21,
1999 to emailthatpays.com, Inc.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of email Nevada since its inception and
include the operations of Realm from the date of the effective recapitalization,
being October 22, 1999. Stockholders' equity gives effect to the shares issued
to the stockholders of email Nevada prior to October 22, 1999 and of the Company
thereafter.
email Nevada (formerly Hotel Media Group Inc.) was incorporated on June 26,
1998. In August 1999, it acquired 100% of Coastal Media Group Ltd ("Coastal"), a
full-service advertising agency founded in May 1998. A common group of
shareholders controlled both Coastal and email Nevada. For accounting purposes,
the transaction was considered to be an acquisition by Coastal for consideration
equal to the net assets and liabilities of email Nevada. Accordingly, the assets
and liabilities of email Nevada have been recorded at their carrying values in
the Company's accounts.
2. Liquidity and future operations:
The Company has sustained net losses and negative cash flows from operations
since its inception. At March 31, 2000, the Company has positive working capital
of $513,946. The Company's ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish profitable
operations or to obtain additional funding through public or private equity
financing, collaborative or other arrangements with corporate sources, or other
sources. Management is seeking to increase revenues through continued marketing
of its services; however additional funding will be required. There is no
assurance that the aforementioned events, including the receipt of additional
funding, will occur and be successful.
-6-
<PAGE>
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
3. Basis of Presentation:
The unaudited consolidated financial statements of the Company at March 31, 2000
and for the three month period then ended include the accounts of the Company
and its wholly-owned subsidiaries and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in these interim
statements under the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accounting policies used in fiscal 2000 are consistent with
those used in fiscal 1999. The results of operations for the three months ended
March 31, 2000 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2000. These interim financial statements should
be read in conjunction with the financial statements for the fiscal year ended
December 31, 1999 and the notes thereto included in the Company's Form 10-KSB
filed with the SEC on March 30, 2000.
4. Foreign currency:
The functional currency of the operations of the Company's wholly-owned Canadian
operating subsidiaries is the Canadian dollar. Assets and liabilities measured
in Canadian dollars are translated into United States dollars using exchange
rates in effect at the balance sheets date with revenue and expense transactions
translated using average exchange rates prevailing during the period. Exchange
gains and losses arising on this translation are excluded from the determination
of income and reported as foreign currency translation adjustment (which is
included in the comprehensive income (loss)) in stockholders' equity.
5. Common Stock Options and Stock-based Compensation:
During the three months ending March 31, 2000, the Company, under the terms of
its 1999 Equity Compensation Plan (the "Plan"), granted to certain employees a
total of 70,000 non-qualified stock options. The options have a three-year
vesting period and an exercise price of $6.63 (an amount that approximated or
exceeded the market value of the Company stock on the date of the grant). Also
during this three-month period, 193,167 unvested options reverted back to the
Plan due to changes in the employment and contractual status of certain
employees and key advisors.
The Company accounts for stock-based employee and director compensation
arrangements in accordance with provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" in its annual audited financial
statements. Under APB No. 25, compensation expense is based on the difference,
if any, on the date the number of shares exercisable is determined, between the
market value of the Company's stock and the exercise price of options to
purchase that stock.
-7-
<PAGE>
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
5. Common Stock Options and Stock-based Compensation (Continued):
At March 31, 2000, the Company has recorded aggregate deferred stock-based
compensation totaling $1,149,000 in connection with the granting of stock
options to employees. The deferred compensation is being amortized over the
estimated service life of the employees holding the options. For the three
months ended March 31, 2000, the Company recorded a non-cash compensation
expense of $57,450 related to these options.
6. Capital Stock and Warrants:
In March 2000, the Company issued 275,000 shares at $5 each for a total of
$1,375,000. After deducting a commission / investment-banking fee of 8% or
$110,000, the net consideration received for this share issuance is $1,265,000.
In connection with the share issuance, the Company issued 100,000 stock warrants
with an exercise price of $5.00 and an expiry date of March 2003.
7. Net loss per share:
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic loss per share is computed
using the weighted average number of common stock outstanding during the
periods, and gives retroactive effect to the shares issued on the
recapitalization described in note 1. Diluted loss per share is computed using
the weighted average number of common and potentially dilutive common stock
outstanding during the period. As the Company generated net losses in each of
the periods presented, basic and diluted net loss per share are the same as any
exercise of options or warrants would be anti-dilutive.
8. Comprehensive income (loss):
Effective January 1, 1999, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" SFAS No. 130 which establishes standards for
reporting comprehensive income (loss) and its components in financial
statements. Other comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. Comprehensive loss
for each of the periods presented is as follows:
2000 1999
-----------------------------------------------------------------------
Net loss $ 510,231 $ 137,536
Other comprehensive (income) / loss: (456) 1,273
Foreign currency translation adjustment
-----------------------------------------------------------------------
Comprehensive loss $ 509,775 $ 138,809
-----------------------------------------------------------------------
-8-
<PAGE>
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
9. Recently issued accounting pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in 2001.
Although the Company has not fully assessed the implications of SFAS No. 133,
the Company does not believe that the adoption of this statement will have a
material impact on the Company's financial position or results of operations.
The Company does not currently hold derivative instruments or engage in hedging
activities.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
This Report includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and about our affiliate companies,
including, among other things:
o development of an e-commerce market;
o our ability to successfully execute our business model;
o growth in demand for Internet products and services; and
o adoption of the Internet as an advertising medium.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Report might not occur.
Results of Operations
For the Three Months Ending March 31, 2000 and 1999
Revenue
We earn revenues by delivering online direct marketing, promotional, and
informational offers and by developing integrated marketing and advertising
strategies. We charge our advertisers a fee based on a number of criteria
including offers delivered, qualified leads generated, online transactions
executed and marketing services performed.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising, which are typically higher
during the second and fourth calendar quarters. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns.
Total revenue for the three months ending March 31, 2000 was $233,000, an
increase of $67,000 or 40% over the three months ending March 31, 1999. The
increase results from the growth of our client base and the provision of
increased services to existing clients.
To date, the vast majority of our revenue has been generated from the
development of integrated marketing and advertising strategies as our relational
database program, email delivery system, and Canadian email marketing sales
offices were not fully operational until February 2000.
Cost of revenue
Cost of revenue represents the cost of advertising purchased for clients. The
increase to $187,000 for the three months ending March 31, 2000 versus $128,000
for the same period in 1999 directly corresponds to our increased revenue.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Operating Expenses
Salaries and benefits increased from $97,000 for the three months ending March
31, 1999 to $261,000 for the three months ending March 31, 2000 as staffing
levels increased to support increased client activity and the expansion of
sales, marketing, technological and administrative infrastructure.
At March 31, 2000, we have recorded aggregate deferred stock-based compensation
totaling $1,149,000 in connection with the granting of stock options to
employees. The deferred compensation is being amortized over the estimated
service life of the employees holding the options. For the three months ending
March 31, 2000, we recorded a non-cash compensation expense of $57,000 related
to these options. We expect this level of amortization to continue over each of
the next three quarters. As the options were not granted until the fourth
quarter of 1999, there is no stock-based compensation for the first quarter of
1999.
Other operating expenses increased to $228,000 for the three months ending March
31, 2000 from $74,000 for the three months ending March 31, 1999. This increase
reflects the costs associated with the marketing and development of our
"permission-based" email program and services including; the addition of sales
offices in western and eastern Canada, preparation of marketing and presentation
materials, attendance at conventions, seminars, and client facilities, and
ongoing improvements in our technological products.
Liquidity and Capital Resources
We have sustained net losses and negative cash flows from operations since our
inception. As of March 31, 2000 we have positive working capital of $513,946.
Our ability to meet our obligations in the ordinary course of business is
dependent upon our ability to establish profitable operations or to obtain
additional funding through public or private equity financing, collaborative or
other arrangements with corporate sources, or other sources. We are seeking to
increase revenues through continued marketing of our services; however
additional funding will be required. There is no assurance that the
aforementioned events, including the receipt of additional funding, will occur
and be successful.
Net cash used in operating activities was $504,000 and $124,000 for the three
months ending March 31, 2000 and 1999, respectively. Cash used in operations was
primarily the result of the net losses of $510,000 and $138,000, for the three
months ending March 31, 2000 and 1999 respectively.
Net cash used in investing activities was $32,000 and $17,000 for the three
months ending March 31, 2000 and 1999, respectively and relates to purchases of
property and equipment.
Net cash provided by financing activities was $1,023,000 and $295,000 for the
three months ending March 31, 2000 and 1999 respectively. Cash provided by
financing activities for the three months ending March 31, 2000 consists of
$1,265,000 from the issuance of capital stock; less repayments of loans totaling
$95,000 and a reduction in advances from related parties of $147,000. Cash
provided by financing activities for the period ending March 31, 1999 consists
of an increase in loans payable of $196,000 and $99,000 in increased advances
from related parties.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities.
In March 2000, the Company issued and sold an aggregate of 275,000
shares of common stock at $5 per share pursuant to Rule 506. After
deducting a commission /investment-banking fee of 8% or $110,000 paid
to LCP Capital Corp., the net consideration received for this share
issuance is $1,265,000. In connection with this share issuance, the
Company issued 100,000 stock warrants with an exercise price of $5.00
and an expiry date of March 2003.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Furnish the exhibits required by Item 601 Regulation S-B
27 - Financial Data Schedule
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K on November 5, 1999
relating to the Merger, the name change from Realm Production
and Entertainment, Inc. to tvtravel.com, Inc. and the changes to
the Directors and executive officers. We filed an amendment to
the Form 8-K on January 5, 2000 relating to the Merger.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EMAILTHATPAYS.COM, INC.
Dated: May 9, 2000 By: /s/ Daniel Hunter
-------------------------------------
Daniel Hunter
Chief Executive Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
27 Financial Data Schedule *1
_________________
*1 Filed electronically pursuant to Item 401 of Regulation S-T.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES FORM 10-QSB FINANCIAL STATEMENTS FOR
THE THREE MONTHS ENDED MARCH 31, 2000
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 607,904
<SECURITIES> 0
<RECEIVABLES> 128,065
<ALLOWANCES> (2,648)
<INVENTORY> 0
<CURRENT-ASSETS> 750,629
<PP&E> 252,122
<DEPRECIATION> (43,350)
<TOTAL-ASSETS> 959,401
<CURRENT-LIABILITIES> 236,683
<BONDS> 0
0
0
<COMMON> 44,515
<OTHER-SE> 521,558
<TOTAL-LIABILITY-AND-EQUITY> 959,401
<SALES> 232,925
<TOTAL-REVENUES> 232,925
<CGS> 187,164
<TOTAL-COSTS> 187,164
<OTHER-EXPENSES> 546,993
<LOSS-PROVISION> (501,232)
<INTEREST-EXPENSE> 8,999
<INCOME-PRETAX> (510,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (510,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510,231)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
