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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE
1934
ACT REPORTING REQUIREMENTS
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
Commission File No. 000-251572
INFOTOPIA, INC.
(Exact name of registrant as specified in its charter)
Nevada 95-4685068
(State of organization) (I.R.S. Employer Identification No.)
218 Tearall Road, Raynham, MA 027767
(Address of principal executive offices)
Registrant's telephone number, including area code (508) 884-8173
Check whether the issuer (1) filed all reports required to be
file by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X
As of October 23, 2000, there were 99,440,492 shares of common stock
outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited financial statements as of August 31, 2000, and for the
six-month period then ended.
INFOTOPIA, INC.
Infotopia, Inc.
Notes to Financial Statements
For the Six Month Period Ended August 31, 2000
(Unaudited)
NOTE 1 - Summary of significant accounting policies
a) Organization and Basis for Presentation
INFOTOPIA, INC. (Formerly Flex Marketing, Inc. (OH)) (the "Company" or
"Infotopia") was incorporated under the laws of Ohio in September 11, 1997.
The company was acquired by National Boston Medical, Inc. (NV) in a share
exchange agreement executed on November 21, 1998. On April 25, 2000
Abravanel's Formulas, Inc. (DABV) acquired Infotopia, Inc. (a wholly owned
subsidiary of National Boston Medical, Inc. in which 100% of the
outstanding stock of Infotopia, Inc. was exchanged for common stock of
DABV. As a result of the plan of the exchange, Dr. Abravanel's Formulas,
Inc. changed its name to Infotopia, Inc.
b) Business Operations
The Company's mission is to produce, market and distribute an expanding
line of high quality, innovative health fitness and consumer products.
Infotopia seeks out products that deliver superior value, outstanding
equality and competitive prices to best satisfy customer demand. The
Company markets its products to consumers through a variety of
marketing channels including informercials, distribution alliances and
the Internet in the development, marketing, advertising and selling
of innovative wellness products through direct marketing and response
efforts.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
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estimates and assumptions that affect the reported assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual amounts could differ from
those estimates.
d) Revenue Recognition
Infotopia recognizes product revenues upon shipment to the customer.
Products are often back-ordered and are not shipped immediately. The
Company recognizes these cash receipts as customer deposits for sales that
have yet to be completed.
e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
f) Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured levels
at various times during the period.
g) Accounts Receivable
For financial reporting purposes, the Company utilizes the allowance method
of accounting for doubtful accounts. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential
credit losses. The allowance is based on an experience factor and review of
current accounts receivable. Uncollectible accounts are written off against
the allowance for accounts when deemed uncollectible.
h) Inventory
Inventories consisted primarily of component parts and finished goods,
which are valued at the lower of cost or market on the first-in, first-out
(FIFO) basis.
i) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives of five to seven years.
Maintenance and repairs are charged to expense as incurred; additions and
betterments are capitalized. Upon retirement or sale, the cost and related
accumulated depreciation of the disposed assets are removed and any
resulting gain or loss is credited or charged to operations.
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j) Capitalized Production Costs
SFAS No. 53 "Financial Reporting by Producers and Distributors of Motion
Picture Films" requires capitalization of production costs and is to be
amortized over the useful life of the program.
k) Intangibles
Intangibles consist of goodwill, formula and license costs. Goodwill
represents costs in excess of net assets acquired in connection with
businesses acquired. Goodwill is being amortized over 15 years. License
acquisition costs are being amortized over their expected useful lives or
3 years.
Should events or circumstances occur subsequent to the acquisition of a
business which brings into question the realizable value or impairment of
the related goodwill, the Company will evaluate the remaining useful life
and balance of goodwill and make adjustments, if required. The Company's
principal consideration in determining an impairment includes the strategic
benefit to the Company of the particular assets as measured by undiscounted
current and expected future operating income of that specified group of
assets and expected undiscounted future cash flows. Should an impairment be
identified, a loss would be reported to the extent that the carrying value
of the related goodwill exceeds the fair market value of that goodwill as
determined by valuation techniques available in the circumstances.
l) Income Taxes
Income taxes are provided for based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". The liability method requires the
recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the reported amount of
assets and liabilities and their tax basis.
m) Offering Costs
Offering costs consist primarily of professional fees. These costs are
charged against the proceeds of the sale of common stock in the periods in
which they occur.
n) Fair Market Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
notes receivable, accounts payable, accrued expenses and income taxes
payable approximate fair market value due to the
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relatively short maturity of these instruments. The fair market value of
long-term borrowings was determined based upon interest rates currently
available to the Company for borrowings with similar terms. The fair market
value of long-term borrowings approximates the carrying amounts at August
31, 2000.
o) Long-lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate the the related carrying amount
may not be recoverable. When required, impairment losses on assets to be
held and used are recognized based on the fair market value of the assets.
Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair market value less cost to sell.
p) Stock-Based Compensation
The Company has adopted the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and
related interpretations.
NOTE 2 - PREPAID EXPENSES
Prepaid expenses are summarized as follows:
<TABLE>
<CAPTION>
Aug 31, 2000
------------
<S> <C>
Legal and professional services $2,502,072
Capital development fee 65,001
Royalties and other deposits 14,000
Inventory 0
----------
Total prepaid expenses $2,581,073
==========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
Aug 31, 2000 Feb 29, 2000
------------ ------------
<S> <C> <C>
Warehouse equipment and molds $167,789
Computer equipment and software 148,033
Furniture and office equipment 44,022
Leasehold improvements 11,360
Vehicles 13,641
--------
$384,845
Less: accumulated depreciation and amortization 193,473
--------
Property and equipment, net $191,372
========
</TABLE>
Depreciation expense for the quarter ended August 31, 2000 was $16,868 and
for the six month period was $90,726.
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NOTE 4 - CAPITALIZED PRODUCTION COSTS
Capitalized production costs are summarized as follows:
<TABLE>
<CAPTION>
Aug 31, 2000
------------
<S> <C>
Cactus Jack production $286,636
Dean Tornabene (DTCP) production 458,650
--------
$745,286
Less: impairment loss 679,033
Less: accumulated amortization 66,253
--------
Capitalized production costs - net $ 0
--------
</TABLE>
Production cost amortization for the quarter ended August 31, 2000 was
$18,056 and $46,529 for the six month period. For the quarter ended August
31, 2000, the production costs relating to Cactus Jack was written off due
to the discontinuation of product lines and the settlement agreement with
Cactus Jack. Since the Body Rocker infomercial was completely re-edited
and reproduced, the Company has chosen to write off the cost of the
original production of the Body Rocker infomercial produced by
Promoseltzer, Inc.
NOTE 5 - INTANGIBLES
Intangibles are summarized as follows:
<TABLE>
<CAPTION>
Aug 31, 2000
------------
<S> <C>
Goodwill $1,047,278
Cactus Jack products 330,000
DTCP products 232,500
----------
$1,609,778
Less: accumulated amortization 381,066
Less: impairment loss 265,664
----------
Total intangibles - net $963,048
==========
</TABLE>
Amortization expense for the period was $45,603 for the quarter ended
August 31, 2000 and $100,177 for the six months ended August 31, 2000.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Aug 31, 2000
------------
<S> <C>
Flex Marketing Inc. Notes Payable $150,247
Stock subscription agreements 1,190,000
Other Notes Payable 197,468
----------
$1,537,715
Less: Current Portion 1,510,949
----------
Total Long-term debt - net $26,766
==========
</TABLE>
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The stock subscriptions were converted to common stock in September, 2000.
NOTE 7 - NOTES PAYABLE TO STOCKHOLDERS AND AFFILIATES
The Company has an aggregate of $54,989 due to stockholder loans which
arose from the parent's acquisition of various entities.
NOTE 8 - ACCOUNTS PAYABLE
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
Aug 31, 2000
------------
<S> <C>
Accounts payable - regular trade $1,904,482
Accrued liabilities 3,545,233
Accounts payable related to Torso Tiger Agreement 1,240,409
----------
$6,690,124
==========
</TABLE>
NOTE 9 - DEFERRED REVENUE
NOTE 10 - INCOME TAXES
At August 31, 2000, the Company had net carry-forward losses of
approximately $17,380,000. Because of the current uncertainty of realizing
the benefit of the tax carry-forwards, a valuation allowance equal to the
tax benefit for deferred taxes has been established. The full realization
of the tax benefit associated with the carry-forwards depends predominantly
upon the Company's ability to generate taxable income during the
carry-forward period.
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax asset and liabilities
are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets
Loss Carry-forwards $7,855,500
Less: Valuation allowance (7,855,500)
----------
Net Deferred Tax Assets $ -
==========
</TABLE>
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Net operating loss carry-forwards expire starting in 2007 through 2019. Per
year availability is subject to change of ownership limitations under
Internal Revenue Code Section 382.
NOTE 11 - CAPITAL STOCK TRANSACTIONS
From June 1, 2000 through August 2000, the following shares of common stock
were issued for the reasons stated. The beginning balance at June 1, 2000
was 19,555,402. At the end of the period there were 53,308,902 shares
issued and outstanding.
On July 10, 2000, 8,330,000 shares were issued to Mark Levine and Dave
Richmond to provide ongoing management and consulting for the Torso Tiger
campaign. This payment represents full and complete payment until such time
as the Torso Tiger Company is discontinued.
On July 14, 2000 3,500 shares were issued to Promoseltzer. There shares
were required per their production agreement for the Bodyrocker
Informercial.
On July 27, 2000, 420,000 shares were issued to First Equity Capital as
compensation for their services relating to the issuance of promissory
notes with warrants.
On August 11, 2000, 600,000 shares were issued to Bondy & Schloss for
their SEC legal services; 3,000,000 shares were issued to Jeffrey E.
Jacobson for patent, copyright and trademark reviews and production of all
current and future Infotopia, Inc. products; 1,300,000 shares were issued
to Dean Tornabene for his consultation as to the development of his
BodyRocker and BunRocker.
On August 16, 2000, 500,000 shares were issued to Rose Del Prince and
Charles Perez, designees of Dean Tornabene, for the licensing rights of the
BodyRocker.
On August 21, 2000, 3,000,00 shares were issued to Jeffrey E. Jacobson
(these shares were issued in error and subsequently cancelled in
September) for legal services; 2,500,000 were purchased by J.B. Marc and
Associates, Inc. at $0.39 per share for an investment of $966,905.
On August 25, 2000, 3,800,000 shares were issued to Adam MacDonald for
marketing consultation, including, but not limited to, ongoing day to day
management of informercial campaigns; 1,500,000 shares were issued to
Bruce E. Colfin for legal services.
On August 31, 2000, 2,000,000 shares were issued to Lakeside Management to
provide investor relations.
During this period the company issued promissory notes for a total value
of $1,190,000. The company issued 8,389,500 warrants at an average price
of $0.14. These warrants were subsequently converted to Common Stock in
October.
NOTE 12 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As of August 31, 2000, the
Company has a working capital deficit of $4,704,176 and an accumulated
deficit of $21,385,766. Based upon the Company's plan of operation, the
Company estimates that existing resources, together with funds generated
from operations, and funds generated in subsequent transactions will be
sufficient to fund the Company's working capital. The Company is actively
seeking additional equity and debt financing to fund inventory, media and
future production expenses. If the Company is unable to obtain such
financing, the Company will be forced to scale back operations, which
would have an adverse effect on the Company's financial condition and
results of operation.
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on terms acceptable to the Company or at all. If the Company is unable to
obtain such financing, the Company will be forced to scale back operations,
which would have an adverse effect on the Company's financial condition and
results of operation.
NOTE 13 - SUBSEQUENT EVENTS
On September 13, 2000, 2,200,000 common stock shares (shares) were issued
to AT Development Trust for investor relations and financial consulting;
3,800,000 shares were issued to employees per their employment contracts;
700,000 shares were issued to Clinton Smith for his services as a director
of Infotopia, Inc.
On September 14, 2000, 1,100,000 shares were purchased by Jeff Rackover at
$0.10 per share for a subscription agreement dated August 18, 2000 for a
total investment of $110,000.
On September 14, 2000, 1,400,000 shares were purchased by MLJ Management,
Inc. at $0.10 per share for a subscription agreement dated August 18, 2000
for a total investment of $140,000.
On September 14, 2000, 1,380,000 shares were purchased by Corinthian
Financier Groupe at $0.64 per share for a subscription agreement for a
total investment of $880,000. (This subscription agreement replaced a
previously completed subscription agreement at $1.00 per share and
reflected an adjustment due to the significant reduction in the price per
share of Infotopia, Inc.); 500,000 additional shares were issued in error
and subsequently cancelled.
On September 14, 2000, 4,000,000 shares were issued to Modern Media per
the terms of the July 31, 2000 licensing agreement for the Torso Tiger.
On September 14, 2000, 2,640,000 shares were issued to certain employees
for repayment of expenses and prepaid expenses.
On September 14, 2000, 36,590 shares were issued to Scott Evans for
settlement of debt.
On September 14, 2000, 150,000 were issued to two members of the
administrative staff of Infotopia, Inc. per terms of their employment
agreements.
On September 14, 2000, 6,500,000 shares were issued to Thomson Kernaghan
for the settlement of $4,750,000 worth of potential royalties which were
assumed from National Boston Medical, Inc. in the acquisition by Dr.
Abravanel's Formula (DABV) of Infotopia, Inc.; 12,750,000 shares were
issued to Thomson Kernaghan for a total of investment of $1,767,500.
(3,750,000 shares were subsequently assigned to Oxford Capital, in
addition a warrant to purchase 1,000,000 shares of Infotopia, Inc. common
stock for $0.138 was also issued.) (Of the $1,767,500 the company has
received $1,383,800 and the balance of 383,700 will be paid upon
effectiveness of the SB-2 registration.)
On September 14, 2000, 500,000 shares were issued to Triad, Inc. in
exchange for the forgiveness of their promissory notes valuing $150,000.
On September 21, 6,200,000 shares were issued to Robert Pierce for
consulting services for the world wide web and Internet projects;
1,500,000 shares were issued to Bruce Colfin for legal services.
On October 5th Thomson Kernaghan converted their one million warrants to
Common Stock of the Company for $138,000 which is payable upon
effectiveness of the Registration Statement.
On October 12, 2000, 1,500,000 shares were issued to First Equity Capital
as compensation for their services relating to the issuance of promissory
notes with warrants.
During this period the company issued promissory notes for a total value
of $823,000. The company issued 5,553,250 warrants at an average price of
$0.15. These warrants were subsequently converted to Common Stock in
October.
On October 16, 2000 the company entered into an agreement with Thomson
Kernaghan for an option to purchase 3,000,000 shares of common stock for
$500,000 at $0.16 per share. (The $500,000 will be utilized to provide a
loan to National Boston Medical, Inc. This loan, along with consideration
from other creditors will allow National Boston Medical, Inc. to submit a
reorganization plan to the bankruptcy courts in order to come out of their
Chapter 11 Bankruptcy.)
On October 18, 2000 the Company entered into an agreement with Thomson
Kernaghan for an option to purchase 4,000,000 shares of Common Stock for
$800,000 at .20 per share, payable upon effectiveness of an SB-2
registration of said option.
On October 20, 2000 the Company entered into an agreement with Capacity
Unlimited for an option to purchase 4,125,000 shares of Common Stock for
$525,000 at .127 per share, $200,000 payable on October 24th and the
balance upon effectiveness of an SB-2 registration of said option.
On October 22, 2000 the Company entered into an agreement with various
consultants for 4,155,000 options for Common Stock in exchange for
services. These options are cashless options and the Company will receive
services in lieu of cash.
The Company has utilized the proceeds from the various stocks and option
issuances to retire the Company's entire short and long term debt
excluding, one $50,000 promissory note. The Company has subsequently
invested $1,100,000 additional capital into the Torso Tiger campaign to
fund additional inventory requirements to meet the high sales demand for
the Torso Tiger. (The Company has averaged approximately $1,000,000 in
orders per week since the inception of the Torso Tiger campaign on August
18th, 2000.)
On October 1, 2000 the Company reached a settlement agreement with Cactus
Jack's Marketing Corporation and Jack E. Barringer, Cactus Jack's
Marketing Corporation and Jack E. Barringer had previously filed a lawsuit
and asked for damages of $5,000,000 on a variety of complaints. The
lawsuit was dropped in exchange for $100,000.00 and the return of all
remaining inventories of Cactus Jack's products to Cactus Jack's Marketing
Corporation.
On October 12, 2000 the Board of Directors with majority consent from
shareholders approved the increase of authorized shares to 190 million
common and 10 million preferred.
EMPLOYEE CONTRACTS ...
On September 18, 2000, the Company entered into a Settlement Agreement with
Scott Evans for settlement of debt of $60,977 by $50,000 in cash and the
residual in 36,590 shares of common stock of Infotopia.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW
Infotopia, Inc. ("Infotopia" or the "Company") was originally incorporated
as Flex Marketing, Inc. under the laws of the State of Ohio on September 11,
1997. In accordance with a share exchange agreement executed on November 21,
1998 by and between National Boston Medical, Inc. and Dr. Abravanel's Formulas,
Inc., Flex Marketing was acquired by National Boston Medical, Inc. who changed
the name of the Company from Flex Marketing to Infotopia. Under the terms of the
share exchange agreement, 100% of the outstanding stock of Infotopia, Inc. was
exchanged for the common stock of Dr. Abravanel's Formulas, Inc. As a result of
the share exchange, Dr. Abravanel's Formulas, Inc. changed its name to
Infotopia, Inc.
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Infotopia Inc. is in the Direct Marketing business encompassing
commercials, informercials, print media, radio and the World Wide Web. In order
for the Company to increase revenues significantly, it may be necessary to seek
additional capital to accomplish its business plan. Over the next four months
the Company will require approximately $3,000,000 for inventory, media and
production expenses. This will be sufficient to continue ongoing operations
including existing and future projects. The Company expects to raise these funds
in equity placements that are already in the final stages of completion. The
Company is currently reviewing several financing opportunities and will announce
any developments as they occur. The Company realizes how critical new product
development is to Retail Marketing and considers its product research and
development/marketing department to be key to the Company's future. New product
ideas come from a variety of sources, including inventors, suppliers, trade
shows, industry conferences, strategic alliances with manufacturing and consumer
product companies. The Company has approximately eight new projects in various
stages of development which are all applicable to Direct Marketing. In addition,
the Company has pending acquisitions for several additional products.
The Company conducts extensive research and market evaluation of each
product in order to determine if such product may lend itself to marketing
through direct response television and ultimately through non-infomercial
distribution. Upon final acceptance of the product, the Company obtains the
rights to the products created by third parties through various licensing
arrangements generally involving royalties related to sales of the product. The
Company also obtains rights to sell products, which have already been developed,
manufactured and marketed through infomercials produced by other companies. The
Company generally seeks exclusive worldwide rights to all products in all means
of distribution. These include the successful Backstroke Back Massager that was
launched in November of 1998 and has been sold in both domestic and
international markets.
The Company plans to hire 5 new employees within the next 12 months. Any
significant increase in demand for customer support and sales may require adding
further employees. Infotopia's goal is to become a leader in Electronic
Retailing, specializing in Direct Response Television ("DRTV"). Electronic
Retailing, which includes television, radio and the Internet, is the use of such
electronic media to offer products to the consumer while simultaneously
providing a vehicle through which to order the merchandise.
PRODUCTS
Infotopia is currently marketing the Torso Tiger, the Body Rocker, the
Turkey Saddle and the Backstroke Back Massager through direct response
marketing. The Torso Tiger II is strictly available through major retailers in
the United States through direct marketing only.
TORSO TIGER
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The Torso Tiger is an abdominal and upper body exercise machine. It allows
the user to exercise the upper and lower abdominal muscles, waist, chest, back
and shoulders, and triceps and biceps simultaneously.
The Torso Tiger II is a smaller version of the Torso Tiger which is sold
through major retailers throughout the world.
BODY ROCKER
The Body Rocker affords the user the ability to do strength training and a
non-impact aerobic workout using one machine. The areas affected through the use
of the Body Rocker include the upper and lower body abs, waist, chest, back and
shoulders, triceps, biceps and the hamstring gluts and thighs.
TURKEY SADDLE
The Turkey Saddle is a fully netted cotton material that can hold up to a
40-pound turkey. The Turkey Saddle is placed under a turkey before it is baked
by means of straps which are raised up over the sides to hold the legs and wings
tucked inside the Turkey Saddle. When the turkey is ready to be removed from the
oven, the Turkey Saddle is used to lift the turkey from the cooking pan to the
platter. A patent is pending on the Turkey Saddle. The Company currently has a
commitment for one million units from a major retail chain.
BACKSTROKE BACK MASSAGER
The Backstroke Back Massager is a body massager and health care device
which was designed by a doctor of chiropractic medicine. The Backstroke Back
Massager provides muscle stimulation, increased circulation and acupressure in
the neck, back and torso. The unit is marketed with an adjustable neck support
roller and video instruction tape.
(PRODUCTS TO BE RELEASED BETWEEN NOW AND JANUARY 31, 2000
The Company has currently in development eight addtional projects. Some of
these projects have completed informercials and others will be completed by
January 31, 2000. The products represent potential revenue in excess of
$2000,000,000 over the next two years.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AS COMPARED TO
THE SIX MONTHS ENDED AUGUST 31, 1999
REVENUES
The Company recognizes revenues when the goods are shipped to the buyer.
Products are occasionally on back order and therefore, the revenues associated
with these orders are considered deposits to customer accounts for sales not yet
completed.
During the six months ended August 31, 2000, the Company's net revenues
were $1,026,566, an increase of $1,026,566 as compared to the six months ended
August 31, 1999.
<PAGE> 12
This was due to the fact that the predecessor company, Dr. Abravanel's Formulas
Inc., was a startup company that had yet to generate any revenue. During the
past six-month period, however, the Company has become a leading provider of
retail products sold primarily through infomercials with some available through
direct retail. The products are geared to delivery through electronic ordering
and include television, radio and the Internet. Given so large a buying audience
and the "reach" available through these media, the Company has been able to make
major inroads in the development of sales during a relatively short period.
OPERATING EXPENSES
As mentioned earlier, the predecessor company was not fully operational
and therefore required relatively small expenditures to operate. Infotopia, on
the other hand, went through a major restructuring during this comparable
period, redefining its strategic plan to focus primarily on a highly targeted
and relatively upscale segment of the retail buying market, the fitness
enthusiasts. This shift in its business coupled with Infotopia becoming a
public company resulted in the Company incuring certain expenses unique to
public companies including professional and legal fees. In addition, the
Company entered into a variety of licensing agreements designed to enable it to
offer premium products in the areas in which the Company had chose to compete.
Thus, General and Administrative Expenses were $5,289,229 for the six months
ended August 31, 2000 as compared to $5,182 for the six months ended August 31,
1999.
Selling and Marketing Expenses were $3,152,199 for the six months ended
August 31, 2000 as compared to $0.00 during the comparable period of 1999.
Selling and Marketing Expenses are a key component of the Retail Marketing
industry and therefore, such expenses will generally comprise a large portion of
the Company's total operating expenses. Thus, during the six months ended August
31, 2000, Selling and Marketing Expenses were 32.8% of total operating expenses
of $9,614,557. It should also be noted and as discussed below, a major portion
of the Selling and Marketing Expenses reflected in the Company's Statement of
Operations were incurred during the three month period ended August 31, 2000.
For the six-month period ended August 31, 2000, the Company incurred an
impairment loss of $935,697. This was attributable to a Settlement Agreement
entered into by the Company and Cactus Jack's Marketing Corporation ("Cactus
Jack"). The Settlement Agreement required that the Company pay cash in an amount
of approximately $100,000 to
<PAGE> 13
Cactus Jack and in addition, pay the outstanding invoices of certain of Cactus
Jack's suppliers and vendors. The Company expensed the entire settlement during
the six month period. In addition, the impairment loss includes capitalized
expenses related to production costs for certain products licensed to the
Company by Dean Tornabene. The body Rocker informercial was completely re-edited
and reproduced and the Company has chosen to write off the cost of the original
production of the Body Rocker informercial produced by Promoseltzer, Inc.
OTHER EXPENSES
The Company reported depreciation and amortization expenses of $237,432 for
the six month period ended August 31, 2000. These expenses were largely
attributable to the amortization of the production costs associated with the
Company's videotapes and films used for its infomercials.
NET INCOME (LOSS) BEFORE INCOME TAXES
For the six month period ended August 31, 2000, the Company had a loss of
($9,333,872) as compared to a loss of ($5,182) during the comparable period of
1999. The Company is a new provider of the products and services that it offers
through infomercials and direct product marketing. Therefore, many of the
expenses associated with its business during the six-month period ended August
31, 2000 are one-time charges related to startup organizations. Such expenses
include the amortization of capital licenses, production costs, professional and
legal fees, and management and product consulting fees. The Company believes
that as its experience in the business matures and it generates more sales
volume, it will generate higher revenues and be profitable.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THE
THREE MONTHS ENDED AUGUST 31, 1999
<PAGE> 14
REVENUES
The Company reported revenues of $155,298 for the three month period ended
August 31, 2000 as compared to revenues of $0.00 during the comparable period in
1999. As explained above, the predecessor company was a developmental company
that was not fully operational. Although Infotopia is still in a developmental
stage, its sales performance as of the filing of this financial report is very
brisk. In addition, for a number of products, there is a time lag between
ordering and the booking of revenues. This is due to the fact that revenues are
not booked until the product is actually shipped. In some instances, products
may be on back order and therefore, the booking of the revenue may not occur for
a significant period of time although the corresponding expense has occurred.
OPERATING EXPENSES
The Company incurred General and Administrative operating expenses of
$4,849,620 for the three months ended August 31, 2000. These expenses consisted
primarily of legal and professional services fees related to the Company
becoming a reporting company under the Securities and Exchange Act of 1934 (the
"Exchange Act") as well as for certain management consulting services rendered
to the Company in connection with the restructuring of its overall business
strategy.
The Company reported Selling and Marketing expenses of $3,810,338 for the
three months ended August 31, 2000. Most of this category of expense consisted
of monies associated with a Settlement Agreement entered into by the Company and
Thomas Kernaghan & Co. Limited ("TK"). The former parent company of Infotopia,
National Boston Medical, Inc. had assumed the royalty provisions in their
agreement with Thomson Kernaghan which Dr. Abravanel's Formulas, Inc. assumed in
their share exchange with National Boston Medical, Inc. The Company issued
6,500,000 shares of common stock as settlement of $4,750,000 in potential
royalties.
The Company's Impairment Loss of $935,697 was the result of a Settlement
Agreement by and between Cactus Jack's Marketing Corporation which was discussed
above in the section regarding the results of operation during the six months
ended August 31, 2000 and reclassification of certain expenses associated with
the Bradey Becker Informercial. All $935,697 was actually incurred during the
three-month period ended August 31, 2000.
Depreciation costs for the three-month period ended August 31, 2000 were
$80,527 primarily the result of the amortization of the production costs
<PAGE> 15
associated with the Company's development of its infomercials, the key component
of the Company's business.
NET INCOME (LOSS) BEFORE INCOME TAXES
The Company reported a net loss of ($17,799,240) for the three-month period
ended August 31, 2000. As mentioned previously there are a number of reasons the
Company experienced this loss, including the Company entering into a new
business in which the timing of revenues and expenses is not synchronous in
terms of when revenues is actually realized. Thus, although there was
approximately an additional $2 million dollars in orders that actually took
place during the month of August 2000, these revenues could not be recorded on
the Company's financial statements as the products had not been shipped to the
individual purchasers and retailers. In addition, the Company is still in a
startup mode and has had to incur one-time expenses associated with changes in
its overall direction, operating philosophy and basic business. Given how brisk
business has been with the Company's major products, the Company expects to more
evenly foot revenues with costs in the not too distant future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents at the end of the six months
ended August 31, 2000 in the amount of $83,049 as compared with $11,150 for the
comparable period in 1999. As of August 31, 2000, the Company had a working
capital deficit of $4,704,176 and an accumulated deficit of $21,385,766. The
Company's long-term debt consists of notes payable to Flex Marketing Inc., Stock
Subscription Agreements and other notes payable.
The Company currently anticipates existing sources of liquidity and cash to
be sufficient to satisfy its operational needs through the next nine months. To
make future acquisitions or for other forthcoming similar expenses, the Company
may seek to increase the amount of its credit
<PAGE> 16
facilities, negotiate additional credit facilities or issue corporate debt or
equity securities. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
the Board of Directors of the Company deems prudent. The Company expects any
proceeds from such additional credit or sales of securities to be used primarily
in the development and marketing of its products. No assurances can be given
that the Company will be successful in obtaining any additional credit
facilities or in generating sufficient capital from the sale of its securities
to adequately fund its operational needs.
The Company believes that its business is subject to seasonal trends. Sales
of the Company's product offerings tend to be very strong during the first five
months of the year and very sluggish during the summer months. The Financial
Statements for the six months ended August 31, 2000 reflect this seasonality.
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the period presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling operating costs, and, whenever possible, seeking to
insure that product price rates reflect increases in costs due to inflation.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion
and Analysis of Financial Condition and Results of Operations which are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability; the uncertainty as to the
demand for Distance Learning; increasing competition in the Distance Learning
market; the ability to hire, train and retain sufficient qualified personnel;
the ability to obtain financing on acceptable terms to finance the Company's
growth strategy;
<PAGE> 17
and the ability to develop and implement operational and financial systems to
manage the Company's growth.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards Board,
the American Institute of Certified Public Accountants or the Securities and
Exchange Commission is expected to have a material impact on the Company's
financial position or reported results of operations.
<PAGE> 18
INFOTOPIA, INC.
BALANCE SHEETS
AT AUGUST 31, 2000
UNAUDITED
<TABLE>
<CAPTION>
At At
August 31, 2000 February 29, 2000
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 83,049 $ 2,838
Accounts receivable, net of allowance for
doubtful accounts of $27,000 1,239,325 525
Inventory 820,778 11,745
Prepaid expenses and other current assets 2,581,073 0
--------- -------
Total current assets 5,646,896 15,108
PROPERTY AND EQUIPMENT, less
accumulated depreciation and amortization
of $193,472 and $182,154 191,372 0
CAPITALIZED PRODUCTION COSTS, less
accumulated amortization of $745,286 0 0
OTHER ASSETS
Licenses and other intangibles, less accumulated
amortization of $646,730 963,048 0
--------- -------
TOTAL ASSETS $5,878,645 $15,108
========== =======
</TABLE>
<PAGE> 19
INFOTOPIA, INC.
BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
For the period ended For the period ended
August 31, 2000 February 29, 2000
--------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to related party $ $ 0
Accounts payable and accrued expenses 6,690,124 0
Current maturities of long-term debt 1,510,949 0
Current maturities of notes payable to stockholders 54,989 0
Deferred revenue, current portion 1,172,339 0
----------- -------
Total current liabilities 9,428,401 0
LONG-TERM LIABILITIES 37,092 0
----------- -------
9,465,493 0
STOCKHOLDERS' EQUITY
Common stock - 8/31/00: $.001 par value, 100,000
shares authorized; 53,308,902 shares issued and outstanding; 53,309 -
Common stock - 2/29/00: $.001 par value,
shares authorized; 40,000,000; shares issued and outstanding 12,841
Additional paid-in-capital 17,745,610 38,333
Accumulated deficit (21,385,766) (36,066)
----------- -------
Total stockholders' equity (3,586,847) 15,108
----------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,878,645 $15,108
=========== =======
</TABLE>
<PAGE> 20
INFOTOPIA, INC.
STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the six month period ended For the three month period ended
------------------------------ --------------------------------
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE
Sales, net of returns and allowances
of $0, $0, $64,986 and $0 $ 1,026,566 $ 0 $ 155,298 $ 0
COST OF SALES 400,697 0 27,745 0
------------ --------- ----------- -------
GROSS PROFIT 625,869 0 127,553 0
------------ --------- ----------- -------
OPERATING EXPENSES
General and administrative 6,185,014 5,182 4,849,020 2,303
Selling and marketing 4,152,199 0 3,810,338 0
Impairment Loss 935,697 935,697
Depreciation and amortization 237,432 0 80,527 0
------------ --------- ----------- -------
Total operating expenses 11,510,342 5,182 9,675,582 2,303
------------ --------- ----------- -------
LOSS FROM OPERATIONS (10,884,473) (5,182) (9,548,029) (2,303)
OTHER EXPENSES
Interest expense 198,188 0 0 0
------------ --------- ----------- -------
LOSS BEFORE INCOME TAXES (11,082,661) (5,182) (7,799,240) (2,303)
INCOME TAXES 0 (1,963) 0 (483)
------------ --------- ----------- -------
NET LOSS $(11,082,661) $ (3,219) $(7,799,240) $(1,820)
============ ========= =========== =======
Basic and diluted loss per share
Weighted average shares outstanding
</TABLE>
<PAGE> 21
INFOTOPIA, INC.
STATEMENT OF CASH FLOWS
For the periods ended August 31, 2000 and August 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
For the six month periods ended
-------------------------------
August 31, 2000 August 31, 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(11,082,661) $ (3,219)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 237,432
Impairment Loss 935,697
Increase in deferred taxes (1,963)
Changes in assets and liabilities
Accounts receivable - trade (1,208,535)
Inventory (625,247)
Prepaid expenses (2,779,513)
Common stock issued for services 8,303,288
Accounts payable and accrued expenses 8,703,182
Customer deposits 541,038
----------- --------
Net cash provided by operating activities (2,052,648) (5,182)
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (250,490)
Licenses and other intangibles (114,008)
----------- --------
Net cash used in investing activities (364,498) 0
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Note Receivable (525)
Proceeds from issuance of debt 1,190,000
Payments on debt (733,629)
Payment of special distribution (19,475)
Proceeds from stock subscriptions 2,039,245
Common stock offering costs (7,375)
----------- --------
Net cash provided (used in) financing activities 2,495,616 (27,375)
----------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,470 (32,557)
----------- --------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,579 43,707
----------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD 83,049 11,150
=========== ========
SUPPLEMENTAL INFORMATION
Interest paid $ 0
Income taxes paid $ 0
</TABLE>
<PAGE> 22
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Infotopia is not a party to any litigation.
Item 2 Changes in Securities
See Financial Statements
Item 3 Defaults on Debt or Equity Instruments.
None
Item 4 Submission of Matters to a Vote of Shareholders
Majority consent to an increase in the Company's authorized capitalization
in the six month period ended August 31, 2000.
Item 5 Other Information
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
3.1 The Company's Articles of Incorporation are attached to the Company's
Amended Form 10-SB, filed on April 30, 1999. These exhibits are
incorporated by reference to that Form.
3.2 The Company's Bylaws are attached to the Company's Amended Form 10-SB,
filed on April 30, 1999. These exhibits are incorporated by reference to
that Form.
10.1 Settlement Agreement with Thomas Kernaghan & Co. Limited.
10.2 Settlement Agreement and Full Release with Cactus Jack.*
10.3 Form of Subscription Agreement.
27 Financial Data Schedule
* To be filed by amendment.
Reports on Form 8-K:
<PAGE> 23
On July 11, 2000, the Company filed a Form 8-K/A with pro forma financial
statements regarding its share exchange with Dr. Abravanel's Formulas, Inc.
which was filed earlier in 2000. That Form is hereby incorporated by reference.
On August 17, 2000, the Company filed a Form 8-K stating that the Company had
increased the number of shares it is authorized to issue from 50 million to 100
million. That Form is hereby incorporated by reference.
<PAGE> 24
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Company in the capacities set forth
and on the dates indicated.
Signature Position Date
By: Daniel Hoyng Chairman, Chief Executive October 23, 2000
--------------- Officer and Director
Daniel Hoyng
By: Marek Lozowicki Acting Chief Financial Officer October 23, 2000
---------------
Marek Lozowicki
