SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-23905
thatlook.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
Nevada 87-0447497
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(State or other juris- (IRS Employer
diction of incorporation) I.D. No.)
210 West Fourth Street, Suite 101
East Stroudsburg, Pennsylvania 18301
(Address of Principal Executive Offices)
570-420-0318
Registrant's Telephone Number
Indicate by check mark whether the Registrant (1) has filed all reports
required to be file by Sections 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.
(1) Yes X No (2) YES X No
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
AUGUST 16, 1999
11,565,573
<PAGE>
thatlook.com, Inc.
FORM 10-QSB-INDEX
Part Item Page
No. No. Description No.
I FINANCIAL INFORMATION:
1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1999
(Unaudited) and December 31,1998.......................... 3
Condensed Consolidated Statements of Operations for the
Quarters and Six Months Ended June 30, 1999 and 1998
(Unaudited) ................................................4 & 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998(Unaudited) ....... 6
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... 8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
3. Quantitative and Qualitative Disclosures about
Market Risk............................................ 17
II OTHER INFORMATION:
5. Exhibits and Reports on Form 8-K................... 17
SIGNATURES........................................................ 18
<PAGE>
<TABLE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998
(Unaudited)
- ASSETS - --------- ---------
<S> <C> <C>
Cash $ 190,136 $202,340
Accounts receivable-Finance Company 585,038 -
Accounts receivable-Surgeons', net of allowance of
$10,465 and $10,465 for 1999 and 1998, 87,429 204,690
respectively
Notes receivable, net of allowance for uncollectible
notes of $1,160,359 and $1,907,135 for 1999 and 1998,
respectively 5,076,834 6,297,833
Interest receivable 73,447 81,447
Loan receivable, shareholder 14,000 14,000
Prepaid expenses and other assets 320,282 232,075
Property and equipment - net 385,041 413,556
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$6,732,207 $7,445,941
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- LIABILITIES AND SHAREHOLDERS' DEFICIT -
Notes payable $ 236,500 $ 205,500
Lines-of-credit payable 6,938,204 8,146,363
Accounts payable 1,068,687 482,751
Accrued expenses 447,137 291,188
Capital lease obligations 79,537 100,619
Payroll and payroll taxes payable 106,578 122,927
Provisions for recourse obligation 270,671 130,879
Notes payable - shareholders 220,000 338,650
Other liabilities 228,397 1,772,068
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$ 9,595,711 $11,590,945
=========== ===========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT):
Common stock, $.001 par value, 50 million shares
authorized, 11,797,269 million and 11,009,846 million
shares issued and outstanding for 1999 and 1999 11,797 11,010
Additional Paid-In-Capital 1,990,918 290,002
Retained deficit (4,866,219)(4,446,016)
----------- ----------
Total Shareholders'equity (2,863,504)(4,145,004)
----------- ----------
$ 6,732,207 $7,445,941
============ ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<TABLE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
<CAPTION> (Unaudited)
1999 1998
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<S> <C> <C>
REVENUE:
Marketing fees $ 907,929 $ 956,277
Gain on sale of notes receivable 353,659 -
Interest from patient financing 315,015 286,241
Other 64,536 33,681
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TOTAL REVENUE 1,641,139 1,276,199
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SALES AND MARKETING EXPENSES:
Media, advertising and promotion 354,046 718,475
Payroll and payroll taxes 282,907 326,284
Telephone 55,765 99,423
Credit reporting services 40,111 71,248
Other 5,245 46,496
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TOTAL SALES AND MARKETING EXPENSES 738,074 1,261,926
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GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 33,975 22,090
Payroll and payroll taxes 255,306 233,227
Professional and consulting 147,709 140,568
Other 138,449 142,092
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TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 575,439 537,977
---------- -----------
OTHER EXPENSES:
Interest 401,958 277,844
Bad debts 75,334 79,530
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TOTAL OTHER EXPENSES 477,292 357,374
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TOTAL EXPENSES 1,790,805 2,157,277
----------- ------------
NET LOSS $(149,666) $ (881,078)
=========== ===========
BASIC LOSS PER SHARE $ (0.01) $ (0.08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,403,558 11,009,846
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<TABLE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<CAPTION> (Unaudited)
1999 1998
-------- --------
<S> <C> <C>
REVENUE:
Marketing fees $ 1,802,519 $ 1,809,469
Gain on sale of notes receivable 682,318 -
Interest from patient financing 682,035 421,297
Other 109,098 35,738
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TOTAL REVENUE 3,275,970 2,266,504
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SALES AND MARKETING EXPENSES:
Media, advertising and promotion 697,916 1,223,820
Payroll and payroll taxes 586,600 627,197
Telephone 113,200 156,715
Credit reporting services 91,585 113,701
Other 28,848 104,822
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TOTAL SALES AND MARKETING EXPENSES 1,518,149 2,226,255
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GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 62,608 41,140
Payroll and payroll taxes 538,312 397,205
Professional and consulting 246,399 242,461
Other 294,727 245,263
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TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,142,046 926,069
---------- ----------
OTHER EXPENSES:
Interest 877,658 434,802
Bad debts 158,321 162,187
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TOTAL OTHER EXPENSES 1,035,979 596,989
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TOTAL EXPENSES 3,696,174 3,749,313
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NET LOSS $(420,204) $(1,482,809)
========== ===========
BASIC LOSS PER SHARE $ (0.04) $ (0.13)
========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,403,558 11,009,846
========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<TABLE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
------ ------
<C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (420,204) $(1,482,809)
Adjustments to reconcile net income to net
cash (used)by operating activities:
Depreciation 47,575 21,749
Bad debts 158,321 162,187
Changes in assets and liabilities:
(Increase) in accounts and interest receivable (459,777) (251,506)
(Increase) in other assets (88,207) (17,965)
Increase in accounts payable 585,936 14,335
Increase(decrease)increase in accrued expenses 2,652 (268,562)
(Decrease)increase in payroll and payroll taxes
payable (16,349) 30,731
Increase in other liabilities 96,121 657,917
------------ -----------
Net cash (used) in operating activities (93,932) (1,133,923)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable purchased (4,950,612) (4,067,734)
Notes receivable sold 4,671,941 -
Proceeds from collection of notes receivable 1,341,420 673,247
Acquisition of fixed assets (19,060) (63,738)
------------ -----------
Net cash provided (used)in investing activities 1,043,689 (3,458,225)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on lines-of-credit (1,208,159) 4,285,510
Borrowing from shareholders 220,000 200,000
Borrowing of other debt 45,000 383,198
Loan to shareholders - (14,000)
Principal payments (35,802) (48,489)
Issuance of common stock 17,000 -
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Net cash(used)provided by financing activities (961,961) 4,806,219
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NET(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (12,204) 214,071
Cash and cash equivalents, beginning of year 202,340 47,232
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 190,136 $ 261,303
=========== ===========
<PAGE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 693,849 $ 421,512
Acquisition of equipment in exchange for
capital leases and notes payable $ - 29,160
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
thatlook.com, Inc.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS:
thatlook.com, Inc., (TLC) (formerly known as Cooperative Images
(CII)) was incorporated in New Jersey on December 5, 1994 and is in the
business of direct response marketing through radio, television and the
Internet. After it prescreens patients interested in cosmetic surgery for
creditworthiness, TLC refers the patients generated from its marketing
programs to participating surgeons who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII) was incorporated in Pennsylvania
on November 26, 1996. EII prepares financing packages for creditworthy
patients of surgeons. A substantial portion of the resulting receivables
between the surgeons and the patients are purchased by EII from the surgeons.
EII also pre-screens patients interested in cosmetic surgery for
creditworthiness for surgeons who generate their own patients separately from
CII's marketing programs.
See Note 5a as regards to consolidated financial statements.
NOTE 2 - BACKGROUND:
On January 25, 1999, Cooperative Images, Inc. changed its name to
thatlook.com, Inc. by filing an amendment to its certificate of incorporation.
In April 1999, Elective Investments, Inc. became a wholly-owned subsidiary
when all its shareholders contributed their respective shares of capital stock
to thatlook.com, Inc.
On April 29, 1999, thatlook.com, Inc., (TLC) completed a reverse merger
with a public entity, whereby a 100% interest in TLC was acquired by First
Target Acquisition, Inc. (FTA), a Nevada corporation, in exchange for
9,990,000 "restricted" shares of FTA. TLC, which is the surviving entity,
became a wholly owned subsidiary of FTA. The reverse merger was accounted for
as a recapitalization. Prior to the reverse merger FTA had been dormant and
operationally inactive for many years.
In April 1999, prior to the reverse merger two shares in TLC were
purchased by an investor. These two shares were converted to 90,154 shares
after the recapitalization.
Effective July 23, 1999, The parent company's name FTA was changed to
thatlook.com, Inc. by filing an amendment to its certificate of incorporation
to reflect the name of the principal operating business.
In May 1999, after the reverse merger, FTA converted debt of two
creditors in the total principal amount of $1,538,000 into unregistered and
restricted shares of FTA's common stock. The number of shares issued to the
first subscribing creditor was calculated using $3,000,000 (representing two
times the total outstanding principal amount of $1,500,000 owed to that
creditor) divided by the average closing bid price of FTA's common stock on
the OTC Bulletin Board of the National Association of Securities Dealers,
Inc., over the 10 trading days following the closing of the Plan. At December
31, 1998 the amount due this
<PAGE>
NOTE 2 - BACKGROUND: (CONTINUED)
creditor was approximately $1,571,000 and is included in other liabilities.
The second creditor, a principal shareholder, was issued a number of shares
equal to $49,400 (representing 1.3 times the total outstanding principal
amount of $38,000 owed to that creditor) divided by the average closing of the
Plan. The average closing bid price was $6.55, and as a result, 458,032 shares
were issued to satisfy the $1,500,000 debt and 7,541 unregistered and
restricted shares were issued to satisfy the $38,000 debt.
In June 1999, a company controlled by three shareholders agreed to
convert outstanding notes of $300,000 into 231,696 unregistered and restricted
shares of FTA's common stock. In addition, this affiliated company and it's
three shareholders also agreed, as part of a proposed Private Placement
Memorandum for FTA, to make available 1,166,667 shares at $3 per share at a
discount to substantial purchasers of FTA's common stock. Substantial
purchasers are defined in the proposed Private Placement Memorandum as
purchasers of at least 200,000 shares through the private placement. The
Company issued the Private Placement Memorandum on June 29, 1999, but has not
yet received any proceeds.
After the above recapitalization, but prior to the issuance of the
shares to the three creditors there were 11,100,000 shares of FTA issued and
outstanding. After the three debt conversions (and the corresponding issuance
of 231,696 shares for the $300,000 debt to equity conversion) there will be
11,797,269 shares issued and outstanding.
The number of shares issued and outstanding has been retroactively
restated for the April 29, 1999 recapitalization, for periods presented prior
to the recapitalization.
Note 3 - Basis of Presentation
In the opinion of management, the accompanying unaudited
Consolidated Financial Statements include all adjustments(consisting of
normal recurring accruals or adjustments only) necessary to present fairly the
financial position at June 30, 1999, and the results of operations and the
cash flows for all periods presented. The results of operations for the
interim periods are not necessarily indicative of the results to be obtained
for the entire year.
For a summary of significant accounting policies and additional
financial information, see the Financial Statements Incorporated in the July
14, 1999 Form 8-K for the year ended December 31, 1998, including the combined
financial statements and notes thereto which should be read in conjunction
with these financial statements.
NOTE 4 - GOING CONCERN UNCERTAINTY:
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and liquidation of liabilities in the ordinary course of business. During the
six month period ending June 30, 1999, the Company incurred a consolidated
loss of $420,204 which increased the retained deficit to $4,866,219. For the
six month period ending June 30, 1999 the Company's cash decreased by $12,204,
and the Company's liabilities exceeded its assets by $2,863,504. In addition,
the Company is not in compliance with certain of the restrictive covenants for
its lines-of-credit and is in default on one of its notes payable. The
consolidated financial statements do not include any adjustments that may be
necessary if the Company is unable to continue as a going concern. Should
certain unforeseen negative events occur, such as the loss of funding for loan
purchases by a lender or accelerated payment terms for loan covenant
violations, existing capital constraints may limit the ability of the Company
to pay its obligations timely to vendors and lenders and lead to possible loss
of services or funding.
The Company has started to mitigate theses concerns. The Company
plans to further develop its website and purchase additional websites. The
websites will enhance the Company's ability to implement its strategy to
expand its target market, while reducing its costs per patient lead. The
Company also developed a plan to increase the number of credit-approved
patients it provides to doctors, which are required by marketing performance
guarantees. The Company reduced the number of doctors in specific markets,
which enabled the Company to allocate the same number of patients to fewer
doctors. The Company also has issued a Private Placement Memorandum to raise
additional capital. The three shareholders that collectively agreed to
convert the $300,000 in notes payable, also agreed to make available an
aggregate of 1,166,667 shares in the new public entity at a significant
discount as an incentive for potential investors in a private placement.
Furthermore, the Company plans to negotiate with additional finance companies
to fund loan purchases and seeks a contract with a media company to exchange
media credits for an equity interest in the Company, primarily to lower
future media expenses.
NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Principles of Consolidation:
The consolidated financial statements include the accounts of
thatlook.com, Inc. and Elective Investments, Inc. Significant intercompany
accounts and transactions have been eliminated. The financial statements do
not include FTA's financial position or statement of operations prior to the
reverse merger.
Due to the nature of the majority of the Company's business,
financing elective surgery, the balance sheet is reflected on an unclassified
basis. Accordingly, current assets and current liabilities are not reflected
separately on the face of the balance sheets.
Certain reclassifications have been made to the 1998 financial
statements to conform to the presentation used in 1999.
(b) Loss Per Share:
The following average shares were used for the computation of basic loss per
share:
QUARTERS SIX MONTHS
PERIODS ENDED JUNE 30 1999 1998 1999 1998
Basic....................11,403,558 11,009,846 11,403,558 11,009,846
(c) Accounts Receivable-Finance Company:
Accounts receivable represents amounts due from a finance company
for purchases of notes receivable.
<PAGE>
NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(d) Income Taxes:
Previously, both CII and EII each elected under Internal Revenue
Code Section 1362(a) to be taxed a a small business corporation (S
Corporation) whereby income is taxed directly to the shareholders. As a
result of the recapitalization, the Company is no longer an S corporation (see
Note 5a).
NOTE 6 - LINES-OF-CREDIT:
The Company utilized two lines-of-credit to fund notes receivable
purchases during 1999 and 1998. At June 30, 1999, the Company was not in
compliance with certain of the restrictive covenants of these agreements and
is seeking waivers. Both lines-of-credits are collateralized by notes
receivable and are guaranteed by the Company's principal shareholder.
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Company incurred management fees and other related costs to
certain officers and shareholders or to entities in which certain officers and
shareholders are principals of $98,295 and $98,295 in June 1999 and 1998,
respectively. The management fees are primarily for marketing consulting
services based upon a four-year contract expiring December 31, 2000. The
management fees paid to a company controlled by three shareholders are for
assisting with special projects and specific management decisions. Management
fees payable were $10,835 and $12,099 at June 30, 1999 and 1998. In addition,
the Company incurred guarantee fee obligations to a principal shareholder of
$56,446 and $49,452 during the six month periods ending June 30, 1999 and
1998, respectively, for personally guaranteeing the Company's lines-of-credit.
Guarantee fees payable were $26,414 and $11,786 at June 30, 1999 and 1998.
Included in interest expense for the six month periods ending June 30, 1999
and 1998 was $18,000 and $16,500, respectively, representing interest paid to
an affiliated entity of certain shareholders related to monies lent to the
Company.
The Company is owed $14,000 from one its shareholders. The note
bears interest at 13% and is payable upon demand.
NOTE 8 - NOTES PAYABLE-SHAREHOLDERS:
Demand Notes:
On March 13, 1999, the principal shareholder loaned $25,000
to TLC. The note was payable on demand and called for interest at the
rate of 13% per annum. On the same date, another shareholder loaned TLC
$25,000 with the same terms as above.
Additionally, on April 7, 1999, an entity owned by the principal
shareholder of TLC, loaned $170,000 to TLC. The note was payable on demand
and called for interest at the rate of 13% per annum.
On July 27, 1999, these three notes plus accrued interest were
converted to 24 month notes payable at 12%.
<PAGE>
ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR QUARTER ENDED
JUNE 30, 1999
RESULTS OF OPERATIONS:
Description of Business:
thatlook.com, Inc., (TLC) (formerly known as Cooperative Images
(CII)) was incorporated in New Jersey on December 5, 1994 and is in the
business of direct response marketing through radio, television and the
Internet. After it prescreens patients interested in cosmetic surgery for
creditworthiness, TLC refers the patients generated from its marketing
programs to participating surgeons who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII) was incorporated in Pennsylvania
on November 26, 1996. EII prepares financing packages for creditworthy
patients of surgeons. A substantial portion of the resulting receivables
between the surgeons and the patients are purchased by EII from the surgeons.
EII also pre-screens patients interested in cosmetic surgery for
creditworthiness for surgeons who generate their own patients separately from
CII's marketing programs.
Introduction:
In the aggregate, revenues increased significantly in both the
second quarter and first half of 1999 when compared to the like periods of
1998, operating expenses were materially cut back, and the loss from
operations was reduced from $881,078 in the second quarter of 1998 to $149,666
in the second quarter of 1999.
These improvements were the direct result of actions management
instituted in the second half of 1998, and continuing to the present. In
brief, the principal actions management took were:
Gained control of incoming calls via purchasing a combined
hardware/software system to handle and direct incoming and outgoing calls in
its Teleservices center. While this action was taken in August, 1998, it was
not until February, 1999 that both the system was debugged and the
Teleservices personnel were operating efficiently with it.
This action affected both the Media $ Cost per Inquiry and, most
importantly, the Media $ Cost per Patient Loan. Management believes that it
will continue to achieve increasing efficiencies in its Teleservices center
from this system. While it does not expect this system, in the future, to
affect materially the Media Spending per Procedure from the recent levels,
Management expects that increasing call loads can be handled without
proportionate increases in Teleservices personnel;
- Drastically reduced headcount to a level consistent with achieving
breakeven on current revenues. Full-time employee equivalents (FTEs)
were 80 at the end of the second quarter of 1999, compared to 91 in the
like
period of 1998. Furthermore, actions taken by management in the month
of August 1999, have further reduced the number of FTEs at the company to
58;
<PAGE>
Introduction(CONTINUED):
- Significantly trimmed back the number of doctors to a level where
marketing performance guarantees, which require the Company to provide a
specific number of credit-approved patients to the doctor, could be met with
current financial resources. For example, the number of doctors participating
in the marketing program averaged 64 during the second quarter of 1999,
compared to an average of 78 doctors the second quarter of 1998;
- Cut media spending back to the level necessary to support the
Company's current doctor base; and
- Set up a Web site in April of 1999 to generate more cost-effective
leads. To the extent that our Web-based promotional activities are
successful, management expects that this will help drive down the
overall average media cost per patient loan, thus leading to improving
profitability over time.
Revenues:
Total Revenues for the Company were 28.6% greater in the second
quarter of 1999 than the comparable quarter of 1998, and were 44.5% greater
for the first half of 1999 than in the first half of 1998.
Marketing fees earned from doctors participating in the company's
marketing program were essentially flat for the first half of 1999 when
compared to the like period of 1998, and declined 5.1% in the second quarter
of 1999 versus the second quarter of 1998. The principal reason for this
decline rests with the cut-back in doctors participating in the marketing
program, referred to above. During the second quarter of 1999, there was an
average of 64 doctors in the marketing program. This compares to an average
of 78 doctors participating in the program in the second quarter of 1998.
The "Gain on Sale of Notes Receivable" is a new source of revenue in
the second quarter and first half of 1999 when compared to the like periods of
1998. This reflects a shift in corporate strategy from retaining and
servicing all of the patient loans generated by the Company's physician
network, to one of selling all of the loans to third party lenders.
"Interest from Patient Financing," while still growing, interest
income grew at a lesser rate than overall corporate revenues. This line item
of revenue is expected to begin declining, compared to prior year levels, in
the second half of 1999. This reflects the change from retaining and
servicing all loans generated to selling the loans to third party lenders.
Operating Expenses:
As discussed in the Introduction, actions taken by Management,
beginning in the second half of 1998 and continuing to the present, are
continuing to be felt on the operating expenses of the Company.
"Media, Advertising and Promotion" spending levels have been cut
back to what management believes is necessary to support its current base of
physicians participating in the Company's Marketing Program. Management does
not expect to be able to cut back this type of spending further without
jeopardizing the Company's ability to generate revenues. To the extent that
the Company is able to generate significant patient traffic from its Web site
to its
<PAGE>
Operating Expenses(CONTINUED):
participating doctors, it is possible that productivity from the current media
spending levels may improve. It is too early, however, to be able to make
affirmative statements that this is happening yet.
As a result of the cutbacks in media spending, employee expenses, as
reflected in the "Payroll and payroll taxes" lines represented the Company's
largest single operating expense by the end of the second quarter of 1999. In
the aggregate, this category of expense represented 40% of the non-interest
expense operating expenses for the second quarter of 1999. Management
instituted a further headcount reduction program during August 1999. These
headcount and spending reductions are expected to reduce monthly operating
expenses by approximately $44,000 immediately, and by a total of approximately
$60,000 when fully implemented.
Interest Expense during the second quarter of 1999 was 45% higher
than in the like period of 1998. This reflects the Company's continued direct
ownership of newly originated patient loans through the end of 1998, and the
corresponding hypothecation of these loans. Interest Expense peaked in the
first quarter of 1999, and is expected to decline gradually over time as the
patient loan-related borrowings get paid off.
Recent Trends:
The most important business trend not discussed above related to the
Company's ability to place media to generate patient traffic flows to the
offices of its participating physicians.
Because of the operating losses and cash drains incurred in 1998,
the Company was unable to pay its primary media buyer approximately $1.5
million of media debts owed for media placed during 1998 and early 1999. The
media buyer converted $1.5 million of this debt to equity in the Company
during May, 1999.
However, and because of these events, the Company was then placed on
a cash-in-advance basis with the majority of the media it had then been using.
Furthermore, since the media buyer had not been able to pay all of the media
debts incurred on behalf of the Company, several radio and television stations
resisted placing further advertisements for the Company until such debts were
cleared.
The Company feels that these events will effect future results as
follows:
1. Total media placements will not be at the level the Company believes
it needs to maintain the patient traffic it is contractually bound to
deliver to its participating physicians.
2. The Company will be required to use alternative media sources, some
of which are not yet contributing patient traffic as efficiently as
previously-used media sources. This will have the effect of reducing the
Company's overall media efficiency (measured as dollars spent per
patient loan generated).
<PAGE>
Liquidity and Capital Resources:
Continued losses from operations strain the Company's ability to pay its
vendors in a timely manner. During the six month period ending June 30, cash
decreased $12,204. Accounts payable and accrued expenses together increased
$741,885 during the six month period ending June 30, 1999. The Company finds
it increasingly difficult to obtain credit terms with its vendors.
Debt to equity conversions decreased loans payable to shareholders by
$338,000. In addition, other current liabilities decreased $1,500,000 when
the Company's primary media buyer converted the Company's obligation to
equity. These debt conversions will save the Company approximately $21,000 in
interest expense per month.
The Company utilized two lines-of-credit to fund notes receivable
purchases during 1998. One line-of-credit with a finance company permitted
borrowings of $8,000,000 and a second line-of-credit with a bank permitted
maximum borrowing of $1,275,000. The Company exhausted the finance company's
line of credit in August 1998 and the bank's line-of-credit in November 1998.
While the Company is not in compliance with certain of the restrictive
covenants on these lines-of-credit, the Company is seeking waivers from both
lenders.
In August 1998, the Company changed its corporate strategy to include
selling notes receivable and recognizing the gain on sale, rather than holding
the notes to maturity. The Company is seeking additional lenders to purchase
notes receivable, and may consummate agreements with additional lenders in the
third quarter. The Company's business model requires that it fund the notes
receivable purchases from external sources, since its working capital is
insufficient. In addition, earnings would be adversely affected if the
Company could not sell the loans. The new lender agreements may provide
lines-of-credit which do not enable the Company to recognize a gain on sale if
the notes receivable are used as collateral for the lines-of-credit. If
available, the Company would refinance the finance company's line-of-credit to
reduce interest expense.
The Company's cash flow from its loan portfolio is contingent upon the
Company's ability to service and collect the loans that collaterize the
lines-of-credit in the finance company and the bank. Currently, the notes
receivable principal and interest payments are approximately $15,000 to
$20,000 per month below the debt service payments on the finance company's
line-of-credit. The bank uses the principal and interest payments for the
notes receivable to pay down its line-of-credit. The value of the notes
receivable collateral(without consideration of future interest income)
compared to the outstanding line-of-credit reflects a negative position of
approximately $90,000 to $120,000 depending on collections. The bank requests
replacement loans periodically to partially reduce the negative variance.
For the loans sold to the finance company, the Company provides for a
reserve for first payment defaults and a 2% recourse obligation on notes sold,
which is calculated at 2% of the original loan amount. First payment defaults
are charged back to the Company if collection efforts are unsuccessful after
120 days. While first payment defaults have increased recently, the Company
plans to work closer with the finance Company to collect these accounts more
effectively. Recent efforts have been more successful. The additional 2%
recourse obligation represents a reserve for defaults on loans prior to the
loan's maturity. Depending on collection efforts, it is possible that the
Company will have to reimburse the finance company for part or all the 2%
recourse reserve.
<PAGE>
Liquidity and Capital Resources(CONTINUED):
On June 29, 1999, the Company issued a Private Placement Memorandum to
raise a minimum of $18,000 and a maximum of $3,500,000 with the sale of
1,166,667 shares of common stock. To date, none of the shares have been sold.
The planned use of the proceeds includes increasing patient traffic through
multimedia advertising, including the Internet, acquire doctor-referral web
sites, expand into related markets such as denistry/orthodontia, hair
replacement and elective laser opthalmic surgery and working capital.
The Company's working capital depends greatly on successful
implementation of recent cost reductions, effective servicing of its loan
portfolio and related delinquency, negotiations with vendors and additional
lenders, and the success of the Private Placement Memorandum.
Year 2000 Issues:
The Company has evaluated its business information technology (IT)
systems as well as its non-IT systems and has surveyed some of its major
vendors. The Company has not yet completed the testing of its internal
systems. The Company has incurred expenditures of funds relating to such
compliance of its internal systems. The Company is in the process of
upgrading its computer software to increase operational efficiencies and
information analysis in order to ensure, to the extent practicable, that the
new systems properly utilize dates beyond December 31, 1999. Based upon the
limited survey of the Company's major suppliers, the Company has not concluded
if Year 2000 issues could have a material adverse effect on the Company's
business, operations or financial condition. Nevertheless, to the extent the
Company's vendors (particularly its major vendors) experience Year 2000
difficulties, the Company may face delays or be unable to obtain certain
services and therefore may be unable to service its customers resulting in a
material adverse effect on the Company's business, operations and financial
condition. The Company has not surveyed its Doctors, but on a limited basis
has surveyed certain other third parties with which it has a business
relationship. As no assessment has been made of any potential impact by the
Doctors' non-compliance, the Company does not have a cost estimate to address
any non-compliance by these Doctors nor can any assurance be given that such
non-compliance will not result in a material adverse effect on the Company's
business, operations and financial condition. The Company has not undertaken
an analysis (nor does it currently intend to analyze) the effect of a
worst-case Year 2000 scenario on the Company's business, operations or
financial condition and, accordingly, the materiality of such effect (if any)
is uncertain and the Company does not have a contingency plan and currently
does not intend to create one.
Cautionary Statement on Forward-Looking Statement:
Except for the historical information contained herein, certain of
the matters discussed in this quarterly report are "forward-looking
statements," as defined in Section 21E of the Securities Exchange Act of 1934,
which involve certain risks and uncertainties, which could cause actual
results to differ materially from those discussed herein including, but not
limited to, risks relating to changing economic conditions, maintaining and
increasing both our
<PAGE>
Cautionary Statement on Forward-Looking Statement(CONTINUED):
consumer base and network of doctors, competing effectively with existing and
potential competitors and changes in interest rates.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
EII currently purchases notes receivable contracts from cosmetic
surgeons. The contracts include the highest statutory interest rate allowed
by the governing state laws.
The Company is subject to market risk for changes in interest rates
and could be subjected to increased or decreased competition from other
finance companies, which could have a material adverse effect on the Company's
financial results.
PART II. OTHER INFORMATION
ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
11 Computation Of Per Share Earnings
27 Financial Data Schedule.
Form 10-KSB Annual Report for the fiscal year ended June 30, 1998*
* As previously filed with the Securities and Exchange Commission.
(b) Reports On Form 8-K
A Current Report on Form 8-K dated April 29, 1999 was filed on May 12,
1999, reporting in Item 1 thereof the changes in control of Registrant, and
amended reports dated May 24, 1999 and July 14, 1999.
A Current Report on Form 8-K dated May 25, 1999 was filed May 28, 1999,
reporting in Item 4 changes in Registrant's Certifying Accountant, reporting
in Item 6 Resignation of Registrant's Directors and in Item 8 Change in Fiscal
Year.
Effective April 29, 1999 FTA acquired 100% of the outstanding securities
of a New Jersey corporation, thatlook.com, in exchange for 9,990,0000
restricted shares of FTA through a reverse merger. thatlook.com which is the
surviving operating entity, became a wholly owned subsidiary of FTA. The
reverse merger was accounted for as a recapitalization.)
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
thatlook.com, Inc.
Date: 8/19/99 By:/s/Gerard A. Powell
--------- --------------------------------------
Gerard A. Powell
President and Director
Date: 8/19/99 By:/s/Marvin P. Metzger
--------------------------------------
Marvin P. Metzger
Chief Financial Officer
thatlook.com, Inc and
SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
PERIODS ENDED JUNE 30, 1999 AND 1998
QUARTERS SIX MONTHS
1999 1998 1999 1998
---- ---- ---- ----
[S] [C] [C] [C] [C]
BASIC LOSS PER SHARE:
Net Loss $(149,666) $(881,078) $(420,204) $(1,482,809)
Weighted Average
Shares Outstanding 11,403,538 11,009,846 11,403,538 11,009,846
Basic Losses Per
Share $(.01) $(.08) $(.04) $(.13)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 190,136
<SECURITIES> 0
<RECEIVABLES> 6,920,125
<ALLOWANCES> (1,170,824)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 385,041
<DEPRECIATION> 47,575
<TOTAL-ASSETS> 6,732,207
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 11,797
<OTHER-SE> (2,875,301)
<TOTAL-LIABILITY-AND-EQUITY> 6,732,207
<SALES> 0
<TOTAL-REVENUES> 3,275,970
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,660,195
<LOSS-PROVISION> 158,321
<INTEREST-EXPENSE> 877,658
<INCOME-PRETAX> (420,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> (420,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (420,204)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
