<PAGE>
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 September 30, 1999
-------------
[ ] 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: 0-23905
thatlook.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
Nevada 87-0447497
------ ----------
(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:
November 22, 1999
12,317,697
<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 September 30, 1999
(Unaudited) and December 31,1998.......................... 3
Condensed Consolidated Statements of Operations for the
Quarters and Nine Months Ended September 30, 1999 and 1998
(Unaudited) ..............................................
4 & 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998(Unaudited) . 6 & 7
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:
SIGNATURES...................................................... 20
5. Exhibits and Reports on Form 8-K................................... 17
Exhibit 11 .................................................... 18
Exhibit 27 .................................................... 19
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept 30, December
31,
1999 1998
(Unaudited)
- ASSETS - --------- ---------
Cash $ 440,610 $202,340
Accounts receivable-Finance Company 228,677 -
Accounts receivable-Surgeons', net of allowance of
$10,465 and $10,465 for 1999 and 1998, 112,377 204,690
respectively
Notes receivable, net of allowance for uncollectible
notes of $1,049,452 and $1,907,135 for 1999 and 1998,
respectively 4,963,577 6,297,833
Interest receivable 61,334 81,447
Loan receivable, shareholder 14,000 14,000
Prepaid expenses and other assets 446,170 232,075
Property and equipment - net 388,362 413,556
---------- ----------
$6,655,107 $7,445,941
=========== ==========
- LIABILITIES AND SHAREHOLDERS' DEFICIT -
Notes payable $ 229,500 $ 205,500
Lines-of-credit payable 6,441,978 8,146,363
Accounts payable 697,944 482,751
Accrued expenses 380,631 291,188
Capital lease obligations 71,449 100,619
Payroll and payroll taxes payable 69,185 122,927
Provisions for recourse obligation 505,688 130,879
Notes payable - shareholders 228,947 338,650
Other liabilities 427,734 1,772,068
----------- -----------
$ 9,053,056 $11,590,945
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' (DEFICIT):
Common stock, $.001 par value, 50 million shares
authorized, 12,317,697 million and 11,009,846 million
shares issued and outstanding for 1999 and 1998 12,318 11,010
Additional Paid-In-Capital 2,833,896 290,002
Accumulated deficit (5,244,163)
(4,446,016)
----------- ----------
Total Shareholders'equity (2,397,949)
(4,145,004)
----------- ----------
$ 6,655,107 $7,445,941
============ ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
------ ------
REVENUE:
Marketing fees $ 678,345 $ 943,584
Gain on sale of notes receivable 272,262 257,236
Interest from patient financing 266,721 426,756
Other 106,288 13,902
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TOTAL REVENUE 1,323,616 1,641,478
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SALES AND MARKETING EXPENSES:
Media, advertising and promotion 422,611 864,486
Payroll and payroll taxes 271,674 338,762
Telephone 47,861 116,230
Credit reporting services 15,533 58,808
Other 25,888 49,021
---------- -----------
TOTAL SALES AND MARKETING EXPENSES 783,567 1,427,307
---------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 38,677 26,061
Payroll and payroll taxes 266,098 288,998
Professional and consulting 133,118 143,406
Other 178,074 146,834
---------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 615,967 605,299
---------- -----------
OTHER EXPENSES:
Interest 368,662 392,473
Bad debt 133,364 80,762
Bad debt recovery (200,000) -
---------- -----------
TOTAL OTHER EXPENSES 302,026 473,235
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TOTAL EXPENSES 1,701,560 2,505,841
----------- ------------
NET LOSS $(377,944) $ (864,363)
=========== ===========
BASIC LOSS PER SHARE $ (0.03) $ (0.08)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 12,057,483 11,009,846
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
-------- --------
REVENUE:
Marketing fees $ 2,480,863 $ 2,753,053
Gain on sale of notes receivable 954,580 257,236
Interest from patient financing 948,756 848,054
Other 215,388 49,639
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TOTAL REVENUE 4,599,587 3,907,982
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SALES AND MARKETING EXPENSES:
Media, advertising and promotion 1,120,527 2,088,306
Payroll and payroll taxes 858,273 923,210
Telephone 161,062 272,944
Credit reporting services 107,119 172,509
Other 54,735 153,843
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TOTAL SALES AND MARKETING EXPENSES 2,301,716 3,610,812
---------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 101,285 67,201
Payroll and payroll taxes 804,410 728,955
Professional and consulting 379,517 385,866
Other 472,801 392,098
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TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,758,013 1,574,120
---------- ----------
OTHER EXPENSES:
Interest 1,246,320 827,275
Bad debts 291,685 242,949
Bad debt recovery (200,000) --
---------- -----------
TOTAL OTHER EXPENSES 1,338,005 1,070,224
---------- -----------
TOTAL EXPENSES 5,397,734 6,255,156
---------- -----------
NET LOSS $(798,147) $(2,347,174)
========== ===========
BASIC LOSS PER SHARE $ (0.07) $ (0.21)
========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,663,772 11,009,846
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (798,147) $(2,347,174)
Adjustments to reconcile net income to net
cash (used)by operating activities:
Depreciation 74,404 34,542
Bad debts 291,685 242,949
Changes in assets and liabilities:
(Increase) in accounts and interest receivable (116,251) (222,894)
(Increase) in other assets (214,096) (223,329)
Increase in accounts payable 215,192 95,243
Increase(decrease)increase in accrued expenses 89,443 (199,318)
(Decrease)in payroll and payroll taxes payable (53,742) (44,344)
Increase in other liabilities 238,790 1,229,729
------------ -----------
Net cash (used) in operating activities (272,722) (1,434,596)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable purchased (6,455,983) (6,373,857)
Notes receivable sold 5,945,821 820,864
Proceeds from collection of notes receivable 1,933,972 1,310,596
Acquisition of fixed assets (49,210) (83,889)
------------ -----------
Net cash provided (used)in investing activities 1,374,600 (4,326,286)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on lines-of-credit (1,704,385) 5,480,599
Borrowing from shareholders 228,947 200,000
Borrowing of other debt 45,000 383,198
Loan to shareholder - (14,000)
Principal payments (50,170) (78,245)
Issuance of common stock 617,000 -
------------- -----------
Net cash(used)provided by financing activities (863,608) 5,971,552
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NETINCREASE IN CASH AND CASH EQUIVALENTS 238,270 210,670
Cash and cash equivalents, beginning of year 202,340 47,232
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 440,610 $ 257,902
=========== ===========
<PAGE>
thatlook.com, Inc.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 993,235 $ 755,330
Acquisition of equipment in exchange for
capital leases and notes payable $ - 29,160
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
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF BUSINESS AND BACKGROUND:
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.
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.
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.
See Note 2 as regards to consolidated financial statements.
Note 2 - 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 September 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.
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.
<PAGE>
Note 2 - BASIS OF PRESENTATION (CONTINUED):
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.
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.
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 - 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
nine month periods ending September 30, 1999, the Company incurred a
consolidated loss of $798,147, which increased the accumulated deficit to
$5,244,163. While the Company's cash increased by $238,270 for the nine
months period ending September 30, 1999, the Company's liabilities exceeded
its assets by $2,397,949. In addition, the Company is not in compliance with
certain of the restrictive covenants for its lines-of-credit and is in default
on two 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 some of its cash flow constraints
and limitations on funding loan purchases. The Company has raised $600,000
from one investor for 400,000 shares of common stock, and negotiations are
nearly complete with the same investor to invest an additional $500,000 by
December 1999. In addition, the Company signed a letter of intent with a
financial advisor, through its best efforts, to raise potentially up to $10
million dollars in additional capital (See Note 8).
To enhance its ability to fund loan purchases, the Company signed
contracts with additional finance companies. Furthermore, the Company is
seeking a contract with a media company to exchange media credits for an
equity interest in the Company, primarily to lower future media expenses.
<PAGE>
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Loss Per Share:
The following average shares were used for the computation of basic loss per
share:
QUARTERS NINE MONTHS
PERIODS ENDED SEPTEMBER 30 1999 1998 1999 1998
Basic..........................12,057,483 11,009,846 11,663,772 11,009,846
Diluted........................12,057,483 11,009,846 11,663,772 11,009,846
(b) Accounts Receivable-Finance Company:
Accounts receivable represents amounts due from a finance company for
purchases of notes receivable.
NOTE 5 - LINES-OF-CREDIT:
The Company utilized two lines-of-credit to fund notes receivable
purchases during 1999 and 1998. At September 30, 1999, the Company was not in
compliance with certain of the restrictive covenants of these agreements. Both
lines-of-credits are collateralized by notes receivable and are guaranteed by
the Company's principal shareholder.
NOTE 6 - 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 $138,450 and $147,450 in September 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
were for assisting with special projects and specific management decisions.
Management fees payable were $17,995 and $4,275 at September 30, 1999 and
1998. In addition, the Company incurred guarantee fee obligations to a
principal shareholder of $76,761 and $77,794 during the nine month periods
ending September 30, 1999 and 1998, respectively, for personally guaranteeing
the Company's lines-of-credit. The Company's principal shareholder agreed to
terminate the guarantee fee agreement in August 1999. Guarantee fees payable
were $0 and $19,389 at September 30, 1999 and 1998. Included in interest
expense for the nine month periods ending September 30, 1999 and 1998 were
$31,488 and $25,500, respectively, representing interest incurred for 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.
<PAGE>
NOTE 7 - SHAREHOLDERS' (DEFICIT) AND STOCK COMPENSATION PLAN:
Sharholders' Equity (Deficit):
In the third quarter of 1999, the Company raised $600,000 from one
investor for 400,000 shares of common stock, and agreed separately to issue
112,428 shares to surgeons and consultants to convert $244,694 of liabilities
to equity. In November 1999 the Company registered 65,553 shares with a Form
S-8 for payments to consultants. 47,950 shares were issued for past services
and 17,603 were registered for future services. The 47,950 shares are
included in the 112,428 shares that the Company committed to issue.
Stock Compensation Plan:
In August 1999 the Company adopted a Stock Incentive Plan to enable
individuals in the Company's service to acquire a proprietary interest in the
Company as an incentive to remain in such service. The number of shares of
Common Stock initially reserved for issuance over the term of the Plan shall
not exceed 1,250,000 shares, and no option shall have a term in excess of ten
years measured from the option grant date.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its Stock Incentive Plan. Accordingly, no compensation cost
has been recognized for the Stock Incentive Plan.
A summary of the status of the Company's Stock Incentive Plan at
September 30, 1999 is presented below:
Weighted-Average
Exercise
Fixed Options Shares Price
Outstanding at beginning of quarter 0 0
Granted 459,250 $3.44
Exercised 0 0
Forfeited (9,000) 2.63
Outstanding at September 30,1999 450,250 $3.43
NOTE 8 - SUBSEQUENT EVENTS:
In October 1999, the Company signed a letter of intent with a financial
advisor, through its best efforts, to raise potentially up to $10 million
dollars in additional capital. The financial advisor also agreed to attempt
to identify sources of debt financing, including warehouse financing
facilities to support purchases of patient's loans.
<PAGE>
ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED AND QUARTER ENDED
SEPTEMBER 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:
Overall, the Company's year-to-date revenues through the third quarter
of 1999 remained significantly above 1998, and operating expenses and
operating losses decreased dramatically. Efficiency improvements in the
Company's media program and reductions in operating expenses were the primary
factors leading to a 66% lower year-to-date net loss, a decrease from a loss
of $2,347,174 for 1998 compared to $798,147 in 1999. In the third quarter,
the operating losses decreased 56% from $864,363 in 1998 to 377,944 in 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 Patient 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;
<PAGE>
Introduction: (CONTINUED)
- Drastically reduced employee headcount;
- 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 better
managed;
- 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:
While year-to-date revenues for the Company were 18% higher when
compared to the same period in 1998. Reductions in the doctor base and media
spending, and a strategy to sell loans rather than hold loans for interest
income, caused third quarter revenues to decline 19%, when compared to the
same period 1998.
Marketing fee revenue declined 28% in the third quarter, when compared
to the same period in 1998, as a result of reductions in the doctor base and
media spending. Marketing fee revenue was lower, in part, because the Company
replaced its primary media buyer with new media companies and television
stations. The initial results for the new media placements were not as
effective at generating patient traffic as media placements with a proven
track record. Changes in media buyers and cash-in-advance terms, which
affected media spending, are described below in "Operating Expenses" and
"Recent Trends".
The Gain on Sale of Notes Receivable for year-to-date 1999 increased
dramatically compared to year-to-date 1998. Gains on sales of notes
receivable were significantly higher than 1998 because in August 1998 the
Company changed its strategy to selling its loans to third party lenders.
Reductions in the doctor base and media spending have caused total loans
hypothecated and sold together to decline in the third quarter. The Company
expects total loan purchases, which are subsequently hypothecated or sold, to
decline in the fourth quarter 1999 compared to fourth quarter 1998.
Interest from patient financing was lower in the third quarter 1999,
when compared to the same period in 1998, primarily because the Company
continues to sell most of its notes receivable, which limits the size of the
loan portfolio and related interest income.
Other income increased year-to-date because the Company started a
non-recourse fee program in March of 1998, which generated $41,301 in 1998. In
1998, this fee revenue was amortized over twelve months. In the third quarter
of 1999, the Company decided to recognize the recourse fees in the month
received, which led to a one time recognition of $93,654 of previously
collected fees.
<PAGE>
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
affect positively the operating expenses of the Company.
In the second quarter of 1999, Media, Advertising and Promotion spending
levels were cut back to what management believes is necessary to support its
current base of physicians participating in the Company's Marketing Program.
Third quarter 1999 media spending decreased 51% compared to the third quarter
of 1998. To the extent that the Company is able to generate significant
patient traffic from its Web site to its 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.
In the third quarter of 1999, reductions in media spending and
efficiencies gained with the predictive dialing phone system led to a 59%
reduction in phone expense, when compared to the same period in 1998.
Management instituted a further headcount reduction program during
August 1999. These headcount and spending reductions will reduce monthly
operating expenses by approximately $60,000 per month. For the third quarter
of 1999, payroll and payroll taxes decreased by 14%, when compared to the same
period in 1998.
Interest Expense for the nine months ended September 1999 was 51% higher
when compared to the same period in 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.
Through the third quarter of 1998, the Company primarily incurred bad
debt expense when management increased the reserve on the hypothecated loans.
The August 1998 agreement to sell loans, included a 2% recourse provision and
a first payment default provision. In 1999, the bad debt expense incurred
relates to these two provisions.
Recent Trends:
The transition from the Company's primary media buyer to new media
companies, and a less than normal level of patient inquiries, negatively
affected the Company's Media Cost per Inquiry and Media $ Cost per Patient
Loan. Placement with new untested media spots increased the Media Cost $ per
Inquiry and Media $ Cost per Patient Loan. By virtue of the contract with the
Company's prior primary media buyer, the Company previously had credit terms
with many of the television stations that ran the Company's commercials. Less
than expected patient inquiries from media spending and cash-in-advance terms
caused the Company to be more selective in placing its media. In addition to
reductions in the number of doctors in the marketing program, the transition
to new media buyers, in part, led to the reduction of marketing fee revenue
earned in the third quarter by 28%, when compared to the same period in 1998.
<PAGE>
Recent Trends (Continued):
In the fourth quarter of 1999, the Company purchased advertising in a
national magazine. While initial results may not be representative of all
future magazine advertising, the first advertisement, thus far, has a lower
Media $ Cost per Inquiry than television commercials, and the patients' credit
quality appears higher.
Liquidity and Capital Resources:
Continued losses from operations strain the Company's ability to pay its
vendors in a timely manner. During the nine months period ending September
30, cash increased $238,270. However, the increase in cash was net of debt to
equity conversions and investments by investors totaling $844,694. Despite
the debt conversions to equity, the accounts payable and accrued expenses
combined still increased $304,636 during the nine months period ending
September 30, 1999. While the Company finds it increasingly difficult to
obtain credit terms with its vendors, in addition to debt to equity
conversions, many of the vendors have accepted to extended payment terms.
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. Also, surgeons and vendors converted $244,694 of obligations to
equity for 112,428 shares of Common Stock. The debt conversions will save the
Company approximately $21,000 in interest expense per month. Furthermore,
400,000 shares of common stock were issued to an investor for $600,000.
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.
The Company is not in compliance with certain of the restrictive covenants on
these lines-of-credit
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's business model requires that it fund the
notes receivable purchases from external sources, since its working capital is
insufficient. Earnings would be adversely affected if the Company could not
sell the loans. In the fourth quarter of 1999, the Company signed new
agreements with additional lenders to purchase notes receivable.
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 $70,000 per month
below the debt service payments on the finance company's line-of-credit. The
finance company has agreed to defer collection of the deficiency, which
primarily relates to interest payments. 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 $75,000 depending on collections. The bank
request replacement loans periodically to partially reduce the negative
variance.
<PAGE>
Liquidity and Capital Resources: (CONTINUED)
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.
First payment defaults are charged back to the Company if collection efforts
are unsuccessful after 120 days. 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.
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 additional funds raised through its own efforts and/or through
the newly hired financial advisor. It is continuing to work diligently in
pursuing additional sources of capital.
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.
<PAGE>
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 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
11.1 Computation Of Per Share Earnings
27.1 Financial Data Schedule.
13 Form 10-KSB Annual Report for the fiscal year ended June 30, 1998* for
First Target Acquisition, Inc.
* As previously filed on form 8-K dated May 17, 1999 with the Securities and
Exchange Commission.
(b) Reports on Form 8-K
None
<PAGE>
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: 11/15/99 By: /s/ Gerard A. Powell
--------- --------------------------------------
Gerard A. Powell
President and Director
Date: 11/15/99 By: /s/ Marvin P. Metzger
--------- --------------------------------------
Marvin P. Metzger
Chief Financial Officer
thatlook.com, Inc and
SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
QUARTERS NINE MONTHS
1999 1998 1999 1998
---- ---- ---- ----
BASIC LOSS PER SHARE:
Net Loss $(377,944) $(864,363) $(798,147) $(2,347,174)
Weighted Average
Shares Outstanding 12,057,483 11,009,846 11,663,772 11,009,846
Basic Losses Per
Share $(.03) $(.08) $(.07) $(.21)
Diluted Losses Per
Share $(.03) $(.08) $(.07) $(.21)
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 440,610
<SECURITIES> 0
<RECEIVABLES> 6,364,548
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0
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