U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------------------
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarter ended June 30, 2000.
--------------
|_| 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 Small Business Issuer in its Charter)
Nevada 87-0447497
------ ------------
(State or other juris- IRS Employer
diction of incorporation) I.D. No.)
5003 Rt. 611 Stroudsburg, PA 18360
(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 Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(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 REGISTRANTS
State the number of shares outstanding of each of the Registrant's classes of
common equity, as of the latest practicable date:
August 4, 2000
29,123,440
thatlook.com, Inc.
INDEX TO FORM 10-QSB
ITEM
NO.
-----------------------------------------------------------------------
I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheets at June 30, 2000 (unaudited) and
December 31, 1999
Consolidated Statements of Operations for three and six month periods
ending June 30, 2000 and June 30, 1999 (unaudited)
Consolidated Statements of Cash Flows six month periods ending
June 30, 2000 and June 30, 1999 (unaudited)
Notes to Financial Statements
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
II OTHER INFORMATION
1. Legal Proceedings
2. Changes in securities and use of proceeds
3. Defaults upon senior securities
4. Submission of Matters to a Vote of Security Holders
5. Other Information.
6. Exhibits and Reports on Form 8-K
SIGNATURES
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Balance Sheets
---------------------------
Page 1 of 2
June 30, December 31,
2000 1999
(Unaudited)
---------- ---------
-ASSETS-
CURRENT ASSETS
Cash $ 223,494 $ 63,471
Accounts receivable - finance company 122,129 73,827
Accounts receivable, net of allowance of $100,465
and $25,465 respectively. 447,042 75,672
Notes receivable, net of allowance of $69,177
and $72,336 respectively. 334,547 393,376
Interest receivable 6,947 22,903
Loan receivable, shareholder 14,000 14,000
Subscription receivable - 300,000
Prepaid advertising 2,467,151 133,162
Prepaid expenses and other assets 290,100 204,449
Deferred offering costs 825,273 -
--------- ---------
Total Current Assets 4,730,683 1,280,860
Fixed assets - net 534,130 370,506
Notes receivable, net of allowance of $78,008
and $128,596 respectively. 391,509 700,746
Prepaid advertising 2,778,333 -
---------- ----------
Total Assets $8,434,655 $2,352,112
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Balance Sheets
---------------------------
Page 2 of 2
June 30, December 31,
2000 1999
(Unaudited)
---------- ---------
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES
Lines-of-credit payable $ 666,179 $ 885,367
Current Portion of:
Notes payable 276,717 203,000
Capital lease obligations 30,474 38,364
Notes payable - shareholders 50,000 -
Accounts payable 728,919 688,143
Accrued expenses 216,512 285,473
Payroll and payroll taxes payable 38,671 45,600
Other liabilities 70,525 263,495
---------- ----------
Total Current Liabilities 2,077,997 2,409,442
Convertible subordinated debentures 1,855,138 1,873,297
Notes payable 112,129 -
Capital lease obligations 10,102 22,700
Notes payable - shareholders 425,000 -
---------- ----------
Total liabilities 4,480,366 4,305,439
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value,
30,000,000 shares authorized,
no shares issued or outstanding
at June 20, 2000 and December 31, 1999,
respectively. - -
Common stock, $.001 par value, 50,000,000
shares authorized, and 27,659,101
and 15,880,874 shares issued
and outstanding at June 30, 2000
and December 31, 1999, respectively 27,659 15,881
Additional paid-in-capital 10,667,570 4,258,276
Accumulated deficit (6,740,940) (6,227,484)
---------- ----------
Total Stockholders' equity (deficit) 3,954,289 (1,953,327)
---------- ----------
Total Stockholders' equity and liabilities $8,434,655 $2,352,112
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements of Operations
-------------------------------------
For Three Months Ended June 30, 2000 and 1999
---------------------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
REVENUE:
Marketing fees $ 816,314 $ 907,929
Gain on sale of notes receivable 262,835 353,659
Other 34,298 64,536
----------- -----------
TOTAL REVENUE 1,113,447 1,326,124
----------- -----------
SALES AND MARKETING EXPENSES:
Media, advertising and promotion 395,203 354,046
Payroll and payroll taxes 193,269 282,907
Telephone 39,090 55,765
Credit reporting services 33,731 40,111
Other 7,461 5,245
----------- -----------
TOTAL SALES AND MARKETING EXPENSES 668,754 738,074
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 23,684 33,975
Payroll and payroll taxes 183,975 255,306
Professional and consulting 147,804 147,709
Other 159,483 138,449
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 514,946 575,439
----------- -----------
OTHER EXPENSES:
Interest, net 39,487 86,943
Bad debts 141,220 75,334
----------- -----------
TOTAL OTHER EXPENSES 180,707 162,277
----------- -----------
TOTAL EXPENSES 1,364,407 1,475,790
----------- -----------
NET LOSS $ (250,960) $ (149,666)
============ ===========
BASIC LOSS PER SHARE $ (0.02) $ (0.01)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 16,457,724 11,403,538
============ ==========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements of Operations
-------------------------------------
For Six Months Ended June 30, 2000 and 1999
-------------------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
REVENUE:
Marketing fees $ 1,503,480 $ 1,802,519
Gain on sale of notes receivable 443,955 682,318
Other 59,867 109,098
----------- -----------
TOTAL REVENUE 2,007,302 2,593,935
----------- -----------
SALES AND MARKETING EXPENSES:
Media, advertising and promotion 722,770 697,916
Payroll and payroll taxes 355,882 586,600
Telephone 86,823 113,200
Credit reporting services 73,486 91,585
Other 15,194 28,848
----------- -----------
TOTAL SALES AND MARKETING EXPENSES 1,254,155 1,518,149
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Rent and utilities 57,444 62,608
Payroll and payroll taxes 382,033 538,312
Professional and consulting 260,520 246,399
Other 281,880 294,727
----------- -----------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 981,877 1,142,046
----------- -----------
OTHER EXPENSES:
Interest, net 74,802 195,623
Bad debts 209,924 158,321
----------- -----------
TOTAL OTHER EXPENSES 284,726 353,944
----------- -----------
TOTAL EXPENSES 2,520,758 3,014,139
----------- -----------
NET LOSS $ (513,456) $ (420,204)
============ ===========
BASIC LOSS PER SHARE $ (0.03) $ (0.04)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 16,072,581 11,403,538
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements of Cash Flows Page 1 of 2
-------------------------------------
For The Six Months Ended June 30, 2000 and 1999
-----------------------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (513,456) $ (420,204)
Adjustments to reconcile net loss to net
cash(used in) operating activities:
Depreciation 70,205 47,575
Bad debts 209,924 158,321
Issuance of common stock for payment
of services 12,908 -
Changes in assets and liabilities:
(Increase)in accounts and
interest receivable (388,716) (459,777)
(Increase) in other assets (196,973) (88,207)
Increase in accounts payable 40,776 585,936
(Decrease)Increase in accrued expenses (68,961) 2,652
(Decrease)in payroll and payroll
taxes payable (6,929) (16,349)
Increase in other liabilities 119,837 96,121
---------- -----------
Net cash(used in)operating activities (721,385) (93,932)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable purchased (2,423,937) (4,950,612)
Notes receivable sold 2,406,787 4,671,941
Proceeds from collection of notes receivable 188,296 1,341,420
Acquisition of fixed assets (245,249) (19,060)
---------- -----------
Net cash (used in) provided by investing
activities (74,103) 1,043,689
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on lines-of-credit (219,188) (1,208,159)
Borrowings from shareholders 325,000 220,000
Borrowings from other debt 226,659 45,000
Repayments of notes payable (79,460) (35,802)
Issuance of common stock 702,500 17,000
---------- -----------
Net cash provided by(used in)
financing activities 955,511 (961,961)
---------- -----------
NET INCREASE(DECREASE)IN CASH AND CASH EQUIVALENTS 160,023 (12,204)
Cash and cash equivalents, beginning of period 63,471 202,340
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 223,494 $ 190,136
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Consolidated Statements of Cash Flows Page 2 of 2
-------------------------------------
For The Six Months Ended June 30, 2000 and 1999
-----------------------------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest $ 110,995 $ 693,849
========== ==========
Taxes $ - $ -
========== ==========
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITY:
Common Stock and Warrants issued for
prepaid investment banking services $ 825,273 $ -
========== ==========
Common Stock issued for prepaid
advertising $ 5,001,000 $ -
========== ==========
Common Stock issued for other assets $ 159,400 $ -
========== ==========
Prepaid Advertising in exchange for
Note payable $ 150,000 $ -
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 1 - In the opinion of management, the accompanying unaudited and
consolidated financial statements of thatlook.com, Inc. and its wholly owned
subsidiaries, contain all adjustments necessary to present fairly the
Company's financial position as of June 30, 2000 and the results of its
operations and cash flows for all periods presented.
The accounting policies followed by the Company are set forth in Note 3 to the
Company's consolidated financial statements included in its Annual Report on
Form 10-KSB for the year ended December 31, 1999, which is incorporated herein
by reference. Specific reference is made to this report for a description of
the Company's notes to consolidated financial statements included therein.
The results of operations for the periods ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
Certain prior year amounts have been restated to conform with the presentation
for the periods ended June 30, 2000.
NOTE 2 - DESCRIPTION OF BUSINESS:
thatlook.com, Inc., through one of its subsidiaries, is in the business of
direct response marketing through radio, television and the Internet. The
Company's marketing efforts generate patients who seek elective cosmetic
surgery. After it pre-screens patients interested in cosmetic surgery for
creditworthiness, the Company refers the patients generated from its marketing
programs to participating physicians who pay a monthly marketing fee.
NOTE 3 - MEDIA BROKER:
In June 2000, the Company agreed to issue to a media broker 11,250,000
unregistered, restricted common stock in return for advertising and media
credits, and public relations totaling $30 million. The credits span a vast
array of media from which the Company can choose, including network and cable
television spots, radio time, space in over 200 magazines, Internet Web sites,
billboards and other promotional venues. Based upon the discounted amount of
the Company's past media placements relative to published rate card amounts
(which is the maximum published rate available), the Company discounted the
value of the advertising and media credits to a level the Company believes
depicts fair value. Thus, the transaction was recorded at $5,001,000. The
agreement also includes a provision for an additional $10 million of
advertising and media credits, and public relations in exchange for shares of
unregistered, restricted common stock, at a value per share to be mutually
agreed at the time of the exchange.
NOTE 4 - INVESTMENT BANKER AND RELATED AGREEMENTS:
In conjunction with an investment bankers' efforts to raise $5 million dollars
in equity financing, the investment banker believes that the agreements
detailed below are necessary elements that are required to raise additional
equity financing.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 4 - INVESTMENT BANKER AND RELATED AGREEMENTS (Continued):
In April 2000, the Company signed an agreement with a consulting firm to
provide investor relations and related Internet services. For these services,
the consulting firm's fee is payable with up to 400,000 warrants to purchase
the Company's common stock. The warrants will be issued after the Company's
common stock average closing price reaches certain levels and average daily
trading volume is in excess of 100,000 shares. The warrants were valued at
$10,217.
In April 2000, the Company signed an agreement with a second consulting firm
to provide investor relations services. For these services, the consulting
firm's fee includes the issuance of 70,000 shares of common stock, 100,000
warrants to purchase the Company's common stock at $3.00 per share, and
100,000 warrants to purchase the Company's common stock at $3.50 per share.
The warrants remain
exercisable for five years. The common stock and warrants were valued at
$139,545.
In April 2000, the Company signed an agreement with an advertising firm to
provide advertising and promotional services. The Company issued 67,000
shares of common stock as payment for these services, which were valued at
$75,000 according to the stated value in the agreement.
NOTE 5 - PATIENT IMAGING SOFTWARE:
Patient's Personal Imaging Software
-----------------------------------
In April 2000, the Company signed a $30,000 agreement with a software
development company to tailor the development company's patient imaging
software, so that prospective patients can download and use the software for a
period of time. The software became available for patients in July 2000.
Physician's Professional Imaging Software
-----------------------------------------
In May 2000, the Company signed an agreement with a software development
company to purchase an advanced professional version of its patient imaging
software for use by physicians in their offices. As payment for this
software, the software company was issued 110,000 shares of common stock
valued at $159,400.
NOTE 6 - LINE-OF-CREDIT:
The Company utilizes a line-of-credit with a bank to fund notes receivable
purchases. The line-of-credit permits maximum borrowings of $1,000,000, due on
demand, with interest payable at the bank's base rate (9.75% at June 30, 2000)
plus 4%, totaling an annual rate of 13.75% at June 30, 2000. This
line-of-credit is collateralized by certain notes receivable and is guaranteed
by the Company's principal shareholder. The amount outstanding under this
line-of-credit as of June 30, 2000 was $666,179. As of June 30, 2000, the
Company was not in compliance with certain of the restrictive covenants.
However, the Company received a waiver of these restrictive covenants through
July 31, 2000, but the bank reserved the right to enforce the covenants after
July 31, 2000.
thatlook.com, Inc. and Subsidiaries
-----------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 7 - CAPITAL TRANSACTIONS:
Stock Issuance
--------------
In May 2000, a principal shareholder invested an additional $250,000 for
166,667 shares of unregistered, restricted common stock and 166,667 warrants
to purchase common stock. The warrants have an exercise price of $4.00 per
share and remain exercisable for five years.
Preferred Stock
---------------
At the Annual Shareholders' Meeting in June 2000, the shareholders approved
the amendment of the Company's Articles of Incorporation to authorize a class
of 30,000,000 shares of preferred stock to be issued in such series and with
such dividend, voting and other rights and preferences as the Board of
Directors shall determine.
Stock Compensation Plan:
-----------------------
In August 1999, the Company adopted the 1999 Stock Incentive Plan to provide
employees, officers, directors and consultants an opportunity to acquire a
proprietary interest in the Company as an incentive to remain in such service.
The Company reserved 1,250,000 shares for the incentive plan. The following
table summarizes the status of options in the plan to purchase
"unrestricted,""registered" shares of common stock for the six months ended
June 30, 2000:
Shares
Outstanding at 1/1/00 380,250
Granted 548,500
Exercised -
Forfeited (15,625)
Outstanding at 6/30/00 913,125
The exercise price of each option equals the market price of the Company's
stock on the date of grant, or an amount that exceeds the closing price on the
date of grant. The options were issued with various terms, not to exceed ten
years. Employee and officer options generally vest 25% on the first
anniversary after the grant date, and 2.0833% per month thereafter. Options
for members of the board of directors and consultants vest over varying terms,
in some cases immediately, but generally over one to three years.
NOTE 8 - SUBSEQUENT EVENTS:
Neuer Internet Stock Exchange Listing
-------------------------------------
In July 2000, the Company's board of directors authorized the listing of the
Company's common stock on the Neuer Internet Stock Exchange, based in Hamburg,
Germany. The board authorized the Company's Chief Executive Officer to
complete and sign such documentation as may be necessary to accomplish the
listing.
NOTE 8 - SUBSEQUENT EVENTS(Continued):
Marketing Consultant
--------------------
In July 2000, the Company agreed to issue 750,000 shares of registered common
stock on Form S-8 filed with the Securities and Exchange Commission to a
marketing consultant in exchange for consulting and media buyer services. The
marketing consultant is the sole shareholder of the company that agreed in
June 2000 to provide media broker services in exchange for 11,250,000 million
shares of common stock.
Stock Issuance
--------------
In July 2000, a principal shareholder exercised a right to acquire 800,000
shares of unregistered, restricted common stock, according to a December 1999,
warrant agreement. The warrant agreement included a cashless exercise
provision, which the shareholder utilized. Thus, 84,211 shares were used to
pay for the shares in the warrant agreement, and 715,789 shares were issued to
the shareholder.
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FOR THE QUARTER ENDED JUNE 30, 2000.
Background
----------
thatlook.com, Inc.(TLC), formerly known as Cooperative Images, Inc. TLC was
incorporated in New Jersey on December 5, 1994 and is in the business of
direct response marketing through radio, television and the Internet. TLC's
marketing efforts generate patients who seek elective cosmetic surgery. After
it pre-screens patients interested in cosmetic surgery for creditworthiness,
TLC refers the patients generated from its marketing programs to participating
physicians who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII), was incorporated on November 26, 1996. EII
prepares financing packages for creditworthy patients of physicians. A
substantial portion of the resulting receivables between the physicians and
the patients are purchased by EII from the physicians. It also pre-screens
patients interested in cosmetic surgery for creditworthiness for physicians
who generate their own patients separately from TLC'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. (EII), a Pennsylvania corporation, became a
wholly-owned subsidiary of TLC when all its shareholders contributed their
respective shares of capital stock to TLC.
On April 29, 1999 TLC completed a reverse merger with a public entity, whereby
a 100% interest in TLC was acquired by First Target Acquisition, Inc., in
exchange for 9,999,000 "restricted" shares of TLC. TLC became a wholly-owned
subsidiary of FTA. TLC is deemed to be the accounting acquirer. The
financial statements were retroactively restated for TLC, and EII its
wholly-owned subsidiary, for all periods presented. The reverse merger was
accounted for as a recapitalization. Prior to the reverse merger FTA had been
dormant
and operationally inactive for many years. Following the reverse merger, FTA,
a Nevada corporation and TLC's parent company, changed its name to
thatlook.com, Inc. (the "Company") on July 23, 1999, to reflect the name of
the principal operating business.
The financial information presented herein, includes: (i) Consolidated Balance
Sheets as of June 30, 2000 (Unaudited) and December 31, 1999; (ii)
Consolidated Statements of Operations (Unaudited) for the three month and six
month periods ended June 30, 2000 and 1999 and (iii) Consolidated Statements
of Cash Flows (Unaudited) for the six month periods ended June 30, 2000 and
1999.
RESULTS OF OPERATIONS:
----------------------
Overview
--------
Operating results for the second quarter ending June 30, 2000 continued to
show strong consecutive quarter growth in revenues, while also showing
declining losses. The restructuring plan initiated in the second half of 1999
continued to yield positive results. The Company created a three-tiered
pricing structure for its physician marketing program, expanded its
multi-media selection to include Internet marketing and additional print
advertising (e.g. magazines), and reduced operating, payroll and interest
expenses. Since the fourth quarter of 1999, revenues increased by 69%, while
operating expenses decreased by 8%. After one or two quarters, management
believes that the Company will be positioned to average 20 - 30% consecutive
quarter revenue growth in the future for three reasons. First, the physicians
participating in our marketing program can be expanded dramatically from the
present level, and still represent only a small portion of the overall
elective cosmetic procedure marketplace. Second, the recent signing of an
agreement to issue 11,250,000 shares of common stock in exchange for $30
million dollars of advertising and media credits, and public relations
provides the financial resources necessary to capture and dominate this
marketplace. The $30 million dollars was calculated using published rate card
amounts which is the maximum published rate available. Third, in addition to
our regular programs, the recent addition of the ThatNewLook software will
help the Company to accelerate both the rate at which it adds physicians to
our network and the rate at which we generate patients for our doctors. The
professional version of the software enables physicians to work with their
patients via computer imaging to define the exact look the patients seek. The
personal version, downloadable from our web site, enables consumers to perform
virtual cosmetic procedures on their own images at home to see what changes
might look like.
The effect of these three changes may not be realized immediately. It may
take one to two quarters, or more, to dramatically increase the physician base
and media spending, using the new advertising and media credits. The media
credits primarily become available starting in September 2000. As we add to
the physician base in the third quarter, management believes the Company will
experience substantial revenue growth in the latter part of the fourth
quarter.
Plan of Operation - Comparison of Quarters Ended June 30, 2000 and 1999
----------------------------------------------------------------------------
Revenue
-------
Marketing fee revenues were $816,314 and $907,929 for the quarters ended June
30, 2000 and 1999 respectively, which represented a 10% decrease. Marketing
fee revenues were $1,503,480 and $1,802,519 for the six-month periods ended
June 30, 2000 and 1999 respectively, which represented a 17% decrease. The
decreases relate primarily to the Company's decision to reduce the number of
physicians in its marketing program and the switch to a three-tiered pricing
structure. These reductions and pricing changes were made to optimize the
number of patients that were generated for the physicians, compared to the
advertising expenses incurred. These changes enabled the Company to switch to
a more flexible marketing program that could be implemented more effectively
for physicians new to the program and physicians located in smaller media
markets.
The key challenge for the Company is to enroll, or upgrade, physicians in the
marketing program in select geographic areas where patient responses exceed
the Company's contractual performance guarantees. The new, tiered-pricing
structure enables the Company to tailor its marketing efforts to a physician's
expectations and the physician's individual geographical market. In addition
to the change to a tiered pricing program, the Company now typically defers
collection of marketing fee revenues for the first three months on new
contracts. Previously, new physicians had to pay cash-in-advance. This new
payment plan more closely matches proceeds the physicians receive from
surgeries with the payments for generating patients. In short, replacing
prepayments with deferred payments, eliminates the biggest deterrent to enroll
in the marketing program. Management believes that, with new patient imaging
software, tiered pricing, and deferred payments, it can dramatically increase
the size of its physician base.
Gains on sale of notes receivable were $262,835 and $353,659 for the quarters
ended June 30, 2000 and 1999 respectively, which represented a decrease of
26%. Gains on sale of notes receivable were $443,955 and $682,318 for the
six-month periods ended June 30, 2000 and 1999 respectively, which represented
a decrease of 35%. Loan volume started to decrease in the Fall of 1999 due to
changes in the number of physicians and the transition to new marketing media.
The number of surgeries lags marketing revenue by one to three months. The
yield on loan sales, as a percentage of face value, was 12.4% in the second
quarter of 2000, as compared to 10.1% for the second quarter of 1999. The
yield on loan sales, as a percentage of face value, was 12.9% for the
six-month period ended June 30, 2000, as compared to 10.8% for the six-month
period ended June 30, 1999. As the Company increases it physician base and
media spending, loan volume will increase, thus creating the need for
additional finance companies to purchase the patients loans. These new
finance companies may have different lending criteria and possibly higher or
lower loan purchase rates, which may lead to a higher or lower yield on loan
sales.
Expenses
--------
Media, advertising and promotional fees were $395,203 and $354,046 for the
quarters ended June 30, 2000 and 1999 respectively. Media, advertising and
promotional fees were $722,770 and $697,916 for the six-month periods ended
June 30, 2000 and 1999 respectively. The increase in the second quarter
relates primarily to additional promotional fees. Media expenses, before
other advertising and promotional fees, were $301,530 and $345,006 for the
quarters ended June 30, 2000 and 1999, respectively, a decrease of $43,476, or
13%. Media expenses, before other advertising and promotional fees, were
$576,072 and $689,050 for the six-month periods ended June 30, 2000 and 1999,
respectively, a decrease of $112,978, or 16%. However, as a percentage of
marketing revenue, media expenses were approximately 37% and 38% for the
quarters ended June 30, 2000 and 1999 respectively. While the Company
continues to benefit from placement of more cost effective media, excess
patients generated for certain physicians does not increase marketing revenue.
As previously discussed, the Company needs to enroll, or upgrade physicians in
the marketing program in select geographic areas where patient responses
exceed the Company's contractual performance guarantees. In some cases, the
print media cost, to generate patients for office visits with the physicians
is 50% below past television expenses, on a per patient basis.
Internet advertising placed to generate patient leads was $12,004 and $5,634
for the quarters ended June 30, 2000 and 1999, respectively. Internet
advertising placed to generate patient leads was $30,746 and $5,634 for the
six-month periods ended June 30, 2000 and 1999, respectively. The Company did
not incur web site advertising expenses in the first quarter of 1999.
Payroll expenses for sales and marketing personnel was $193,269 and $282,907
for the quarters ended June 30, 2000 and 1999,respectively, which represents a
decrease of $89,638, or 32%. Payroll expenses for sales and marketing
personnel was $355,882 and $586,600 for the six-month periods ended June 30,
2000 and 1999,respectively, which represents a decrease of $230,718, or 39%.
Staff reductions in the second half of 1999 led to these decreases. The
Company made the reductions because it was over staffed based upon its volume
of business and gains in operational efficiencies. The Company installed a
predictive dialer to improve the efficiency of its in-bound and out-bound call
management systems and related payroll expenses. The Company continues to
save approximately 40% of payroll costs for telephone service representatives.
In addition, fewer physicians in the marketing program required less staff
members.
Telephone expenses for sales and marketing decreased to $39,090 from $55,765
for the quarters ended June 30, 2000 and 1999, respectively. Telephone
expenses for sales and marketing decreased to $86,823 from $113,200 for the
six-month periods ended June 30, 2000 and 1999, respectively. However, as a
percentage of total revenue, this represented a decrease from 4.2% to 3.5% for
the quarters ended June 30, 2000 and 1999, respectively. The decrease relates
primarily to the Company's transition to a new long distance carrier. The new
carrier's contract includes higher fixed cost below minimum volume levels, but
lower per unit costs on calls above the minimum. Management believes that the
Company will earn these savings provided certain volume levels are met.
Credit bureau expense was $33,731 and $40,111 for the quarters ended June 30,
2000 and 1999, respectively, which represented a decrease of $6,380, or 16%.
Credit bureau expense was $73,486 and $91,585 for the six-month periods ended
June 30, 2000 and 1999, respectively, which represented a decrease of
$18,099,or 20%. The decrease relates to less volume and lower costs per
credit report.
Rent and utilities expenses were $23,684 and $33,975 for the quarters ended
June 30, 2000 and 1999, respectively, which represented a decrease of $10,291,
or 30%. Rent and utilities expenses were $57,444 and $62,608 for the six-month
periods ended June 30, 2000 and 1999, respectively, which represented a
decrease of $5,164, or 8%. The Company began leasing a new location, starting
April 1, 2000. The new office space has approximately 40% more square feet of
work space. Rent expense has been slightly lower due to lower year-to-date
utility costs, compared to the prior building lease. Management believes that
the current location will have higher utility costs, particularly as new
employees and equipment are added.
Payroll expenses for general and administrative personnel were $183,975 and
$255,306 for the quarters ended June 30, 2000 and 1999 respectively, which
represented a decrease of $71,331 or 28%. Payroll expenses for general and
administrative personnel were $382,033 and $538,312 for the six-month periods
ended June 30, 2000 and 1999 respectively, which represented a decrease of
$156,279 or 29%. In December 1999, the Company reduced its staffing levels to
more cost effective levels. Less doctors in the marketing program and a
smaller loan portfolio require less support staff such as loan collections and
servicing personnel.
Professional and consulting expenses were $147,804 and $147,709 for the
quarters ended June 30, 2000 and 1999 respectively. Professional and
consulting expenses were $260,520 and $246,399 for the six-month periods ended
June 30, 2000 and 1999 respectively. The elimination of management and
guarantee fees in 1999, saved $154,240 during the first and second quarters of
2000. However, these savings were offset by higher consulting and legal fees
related primarily to being a public registrant with the Securities and
Exchange commission.
Other general and administrative expenses were $159,483 and $138,449 for the
quarters ended June 30, 2000 and 1999, respectively, which represented an
increase of $21,034, or 15%. Other general and administrative expenses were
$281,880 and $294,727 for the six-month periods ended June 30, 2000 and 1999,
respectively, which represented a decrease of $12,847, or 4%. This expense
increased in the second quarter primarily due to depreciation expense for
fixed asset additions, such as the predictive dialer.
Interest expense was $74,029 and $401,958 for the quarters ended June 30, 2000
and 1999. Interest expense was $144,329 and $877,657 for the six-month
periods ended June 30, 2000 and 1999. Interest expense decreased following a
December 1999 balance sheet restructuring. As part of the restructuring, a
finance company purchased patients' notes receivable to pay down a
line-of-credit, which was collateralized by the notes receivable. In addition,
the Company converted notes payable to equity. Most importantly, the balance
sheet restructuring significantly reduced high, interest-rate, debt. The
interest expense decrease related to the restructuring was offset, in part, by
the addition of $525,000 of convertible debt and promissory notes in the first
two quarters of 2000.
This restructuring also led to a significant decline in interest income.
Interest income was $34,542 and $315,015 for the quarters ended June 30, 2000
and 1999 respectively. Interest income was $69,527 and $682,039 for the
six-month periods ended June 30, 2000 and 1999 respectively. Two issues
explain the large decrease. First, as part of a restructuring agreement,
approximately $3.3 million dollars of patient loans were taken back on
November 30, 1999 by a finance company. Second, the Company's decision to
sell loans means that the underlying loan portfolio decreases over time, since
few loans are added to the portfolio.
Bad debt expense was $141,220 and $75,334 for the quarters ended June 30, 2000
and 1999. Bad debt expense was $209,924 and $158,321 for the six-month
periods ended June 30, 2000 and 1999. The increase relates primarily to
increases in the reserve for doubtful accounts. The Company's restructuring
plans included staff reductions in the collection department, which negatively
impacted patients payments. The Company plans to outsource the majority of
the collections beginning in the third quarter, which should curtail the
erosion of the quality of the loan portfolio. The Company's needs for a
collection staff has been declining due to its strategy to sell loans to
recognize the gain on sale.
Liquidity and Capital Resources
-------------------------------
The Company's balance sheet, particularly working capital and stockholders'
equity, improved dramatically with the signing of an agreement to issue
11,250,000 million shares of common stock in exchange for $30 million dollars
of advertising and media credits. This new agreement provides the financial
resources necessary to capture and dominate the elective cosmetic surgery
marketplace. While the $30 million dollars was calculated using published
rate card amounts, which is the maximum published rate available, the
Company's discounted valuation of these credits provided an additional
$5,001,000 of assets and additional paid-in-capital. The agreement also
includes a provision for an additional $10 million of advertising and media
credits in exchange for shares of unregistered, restricted common stock, at a
value per share to be mutually agreed at the time of the exchange.
Management continues to work closely with the investment banker that it hired
in February 2000. The investment banker was hired to raise, on a best efforts
basis, a minimum of $5 million dollars of additional equity, and to increase
the number of lenders that purchase loans from the Company. Management is
optimistic that additional capital will be raised by the beginning of the
fourth quarter, but cannot make any guarantees. Additional capital will
provide the resources to improve the efficiency of the business systems and
business model for the Company, and the physicians.
The Company's corporate strategy is to sell loans and record the purchase
discount as a gain on sale in the month sold. Should the Company not be able
to sell the loans, earnings would be adversely affected. Two finance
companies currently purchase the majority of the Company's loans. Should the
Company not be able to sell all of its loans or place the loans on a
line-of-credit with a bank, marketing revenues would also be adversely
affected.
While the outstanding balance on a $1 million line-of-credit with a bank at
June 30, 200 was $666,179, the Company is unable to borrow the additional
balance up to the $1 million dollar limit. The underlying patient notes
receivable, which represent the collateral for the line-of-credit, are below
the formula amounts required by the line-of-credit agreement. The Company
needs to collect on certain delinquent loans so that the loans count in the
"availability" formula. Based upon current delinquency of patients' payments,
the Company needs to supply the bank with approximately $195,000 in patient
notes receivable, net of the Company's purchase discount, to be in compliance
with the line-of-credit covenants. The bank provided a waiver of these
covenant violations through July 31, 2000, but reserves its rights to enforce
the covenants after July 31, 2000.
In the third and fourth quarters of 2000, increased media spending and other
operating expenses will be incurred before marketing revenue and gains on
sales of loans will be earned. This is because patient appointments with
physicians and patient surgeries typically lag media spending by one to three
months. Therefore, as the Company grows in the third and fourth quarters, the
cash savings from use of the media credits will used to fund other working
capital needs.
Cautionary Statement on Forward-Looking Statements:
---------------------------------------------------
Except for the historical information contained herein, certain of the matters
discussed in this quarterly report on Form 10-QSB 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 physicians, changes in Food
and Drug Administration regulations for breast implants, changes in the
Federal Trade Commissions regulations on Internet privacy, competing
effectively with existing and potential competitors and changes in interest
rates.
II OTHER INFORMATION
1. Legal Proceedings
Active Litigation; Defendant
----------------------------
On May 5, 1998, the Company entered into an agreement with Tenenbaum's Travel
Service, Inc. to borrow $200,000 with an interest rate of 15% per annum,
payable in full on November 30, 1998. The note was delivered by the payee to
provide inbound teleservices as defined. At June 30, 2000 the balance due on
this note was $180,000. The note is personally guaranteed by a principal
shareholder. At June 30, 2000, the Company was in default under this note and
the payee instituted a lawsuit for repayment of the balance plus interest.
The Company has countersued claiming inadequate performance in providing
inbound teleservices. There is a Complaint in Confession of Judgment and
Confession of Judgment were filed by Tenenbaum's Travel Service, Inc. d/b/a
Kingdom Vacations against thatlook.com (f/k/a Cooperative Images, Inc.), in
the Court of Common Pleas of Luzerne County, Pennsylvania (Case #250-L-1999).
The judgment was entered in favor of Tenenbaum's Travel Service, Inc., and
against thatlook.com (f/k/a Cooperative Images, Inc.) on February 19, 1999, in
the amount of $202,550.00, plus interest and costs until paid. Thatlook.com
has filed a Petition to Open and/or Strike Judgment by Confession and to Stay
Execution on March 19, 1999 (Case #250-L-1999). This petition raises defenses
to the confessed judgment and alleges a potential Counterclaim against
Tenenbaum's Travel Service, Inc. Consequential damages in the potential
Counterclaim are in excess of the liability. The judgment has been stayed
pending a hearing at an undetermined date in the future.
2. Changes in securities and use of proceeds
Proceeds From Debt and Common Stock
-----------------------------------
Proceeds received from intermediate and short-term debt and for common stock
in the second quarter of 2000 were used primarily for working capital and
payment of cash-in-advance media payments.
Investment Banker
-----------------
In conjunction with the investment bankers' efforts to raise $5 million
dollars in equity financing, the investment banker believes that the
agreements detailed below are necessary elements that are required to raise
additional equity financing.
In April 2000, the Company signed an agreement with a consulting firm to
provide investor relations and related Internet services. For these services,
the consulting firm's fee is payable with up to 400,000 warrants to purchase
the Company's common stock. The warrants will be issued after the Company's
common stock average closing price reaches certain levels and average daily
trading volume is in excess of 100,000 shares. The warrants were valued at
$10,217.
In April 2000, the Company signed an agreement with a second consulting firm
to provide investor relations services. For these services, the consulting
firm's fee includes the issuance of 70,000 shares of common stock, 100,000
warrants to purchase the Company's common stock at $3.00 per share, and
100,000 warrants to purchase the Company's common stock at $3.50 per share.
The warrants remain
exercisable for five years. The common stock and warrants were valued at
$139,545.
In April 2000, the Company signed an agreement with an advertising firm to
provide advertising and promotional services. The Company issued 67,000
shares of common stock as payment for these services, which were valued at
$75,000 according to the stated value in the agreement.
3. Defaults upon senior securities
On May 5, 1998, the Company entered into an agreement with a teleservices
company to borrow $200,000 with a 15% annual interest rate, payable in full on
November 30, 1998. The note was delivered by the payee to provide inbound
teleservices as defined. At June 30, 2000 the balance due on this note
was $180,000. The note is personally guaranteed by a principal shareholder of
the Company. At June 30, 2000, the Company was in default under this note and
the payee has instituted a lawsuit for repayment of the balance plus interest.
The Company has countersued claiming inadequate performance in providing
inbound teleservices. A judgment in the amount of $202,550 plus accrued
interest has been entered against the Company for outstanding principal
payments, interest and teleservices invoices. The judgment has been stayed,
pending a hearing at an undetermined future date. The difference between the
$180,000 principal balance and $202,550 judgment and additional accrued
interest has been recorded as a liability by the Company and is included in
accrued expenses in the financial statements for 2000.
4. Submission of Matters to a Vote of Security Holders
On June 27, 2000, at an Annual Shareholder Meeting, shareholders representing
11,865,890 shares, either in person or by proxy, constituting 72.8% of the
shares issued and outstanding as of the record date, June 6, 2000.
Shareholders voted on the following matters:
a. Reelection to the Board of Directors of the current four directors: Gerard
A. Powell, Lawrence T. Simon, Saul S. Epstein, and Richard Gwinn.
b. Approval of the Company's 1999 Stock Incentive Plan.
c. Approval to amend the Company's Articles of Incorporation to authorize a
class of 30,000,000 shares of preferred stock to be issued in such series and
with such dividend, voting and other rights and preferences as the Board of
Directors shall determine.
d. Approval to amend the Company's Articles of Incorporation to provide that
the Board of Directors shall consist of no less than three members and no more
than nine members, and that, to the extent permitted by the laws of the State
of Nevada, the Board of Directors shall have the authority to appoint
directors to fill all open positions on the board.
The following Election Report was filed by the Inspector of the Election:
a. With respect to the election of the Board of Directors, each director
received in excess of 8,308,345 votes. Thus, each director received a
plurality of the votes and was elected.
b. With respect to the 1999 Stock Incentive Plan, the votes were 11,865,890
for and zero against.
c. With respect to amending the Company's Articles of Incorporation to
authorize the new class of preferred stock, the votes were 11,865,890 for and
zero against.
d. With respect to amending the Company's Articles of Incorporation to clarify
the composition of the board, and to authorize the board to fill any vacant
positions, the votes were 11,865,890 for and zero against.
As of the date of this report, the Board of Directors has not designated the
rights and preferences of our class of preferred stock.
5. Other Information
None, not applicable.
6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed in the second quarter.
Exhibit Index
Exhibit
Number Description
------- -----------
10.1.1 Zazoff Associates, Inc. Consulting Agreement
10.1.2 Sale of Technology Agreement
10.1.3 Gulf Atlantic Publishing, Inc. Agreement
10.1.4 Sivla, Inc.
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
thatlook.com, Inc.
Date: August 7,2000 /s/ Gerard A. Powell
---------------------
Gerard A. Powell
President, Director,
Chief Executive Officer
Date: August 7,2000 /s/ Marvin P. Metzger
----------------------
Marvin P. Metzger
Chief Financial Officer
