FORM 10-Q-SB-A3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1999
AND
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26699
Reliant Interactive Media Corp.
formerly Reliant Corporation
Nevada 87-0411941
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
2701 N. Rocky Point Dr., Suite 200, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 282-1717
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 6,310,271
Yes [X] No [ ] (Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed 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.)
As of September 30, 1999 the number of shares outstanding of the Registrant's
Common Stock was 6,135,440.
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UN-NUMBERED INTRODUCTION
Our 1934 Securities Exchange Act registration statement was voluntarily
filed pursuant to Section 12(g) of the Securities Exchange Act of 1934, in order
to comply with the requirements of National Association of Securities Dealers
for submission for quotation on the Over the Counter Bulletin Board, often
called AOTCBB@. That registration is still in comment stage and may be changed
in response to comments by the staff of the Commission.
This amended quarterly report is filed in response to changes in accounting
made in response to comments of the staff, to conform to revisions in our Form
10-SB-A3.
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Attached hereto and incorporated herein by this reference are
consolidated unaudited financial statements (under cover of Exhibit F3Q-A3) for
the three months and nine months ended September 30, 1999, and the year ended
December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(A) PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
CASH REQUIREMENTS AND OF NEED FOR ADDITIONAL FUNDS.
We are "a development stage Company" and have only limited capital
resources. While revenues are increasing significantly, it is necessary for the
Company to seek additional capital over time to optimize the accomplishment of
its business plan. The following disclosure treats our interim funding for the
year now past, and our plans and arrangements for future funding.
On or about February 23, 1999, the Company received $330,000.00 for the
sale of 1,000,000 new investment shares of common stock (before the second
reverse split) from six highly sophisticated investors. For information about
these investors, please refer to Item 4 of Part II, Recent Sales of Unregistered
Securities. This special investment program was specifically targeted to
infomercial production, by means of a special royalty arrangement with the
investors: the investors will receive an aggregate of 5% of the gross revenues
(as defined by agreement) from sales generated by four specified infomercials
produced, until 120% of the investment has been returned to the investors.
Thereafter, the percentage received by these investors will be reduced to an
aggregate of 4%. The price was arrived at in arms-length negotiations in the
context of the entire transaction. The Company expects to value the 1,000,000
shares at the investment price of $330,000.00 and to treat royalty payments to
investors as expenses, in the same manner as if royalty payments were not
connected with the purchase of shares.
These 1,000,000 shares are included in the earnings per share analysis,
found in the financial statements of this Registrant.
On or about March 24, 1999, the Company made an agreement with Oasis
Entertainment's Fourth Movie Project, Inc. (a related party transaction) to
provide funding in the amount of $250,000.00 for use specifically in the
production of three additional infomercials. Oasis received 250,000 shares
(after the second reverse-split) of common stock upon completion of the funding
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in April, plus a royalty of 2% of the adjusted gross revenues derived on all
products designated in the agreement until Oasis has been paid $625,000.00, and
thereafter 1% thereof in perpetuity. This transaction is deemed to be a related
party for the reason that, and only for the reason that, Karl Rodriguez is the
fourth Director of this registering Company and is also Secretary and a Director
of Oasis Entertainment's Fourth Movie Project, Inc. These 250,000 shares were
authorized in March of 1999, but not issued formally until March of 2000, due to
inadvertence and oversight only. These shares are treated as if formally issued,
when they should have been formally issued, for purposes of accurate income per
share calculations. The Company expects to value the shares at $250,000.00. We
will treat royalty payments to investors as expenses, in the same manner as if
royalty payments were not related to purchase of shares. The shares are treated
as if issued for earnings per share calculations.
Although Mr. Rodriguez is a director of both our corporation and Oasis
Entertainment's Fourth Movie Project, Inc., and although the transaction is
deemed a related-party transaction for that reason, Mr. Rodriguez has no
financial interest in the Oasis funding arrangement and is not a shareholder of
Oasis. He serves as its Secretary and General Counsel only.
We were able to generate enough sales revenues to satisfy our cash
requirements through the end of 1999. Our evaluation of the next twelve months
is different.
Without regard to whether current revenues might be sufficient to maintain
liquidity, new projects must be undertaken to generate future revenues. Every
media-marketing project has a useful life, some longer or shorter than others,
but all eventually run their course. We do not consider it prudent to be passive
about generating new projects, and we have determined that significant new funds
are highly desirable, and possibly necessary to aggressively approach operations
in year 2000.
The Registrant has entered into two letter agreements with Institutional
Equity Corporation ("IEC"):
First, an engagement letter for IEC to conduct a private placement for us,
to raise a minimum of $500,000 and a maximum of $2,000,000 (to be in reliance on
Regulation D, Rule 506, and section 4(2) of the Securities Act of 1933). Units
consisting of 10,000 shares each are to be sold for $20,000 each. This placement
has been opened and was to be completed by March 31, 2000, but has been extended
by a maximum of 90 additional days. IEC is to be paid a fee equal to 10% of the
proceeds and has the right to acquire up to 100,000 shares of common stock, at
$3.00 per share, for every million dollars raised, or a proportional fractional
adjustment. This right to acquire shares lasts until 18 months from the closing
of the placement. The placement is on a best efforts basis. There is no guaranty
that any shares will be placed.
Second, a firm commitment has been received from IEC to raise $10,000,000
in a registered offering of securities. The structure of this offering has not
been determined. Gross underwriting discounts of approximately 10% of the
offering price and a 2% non-accountable expense allowance is to be paid to IEC
from these offering proceeds. A $50,000 fee has been paid towards an advance of
$100,000 to be applied against the gross underwriting commissions. This $50,000
fee was funded by a loan of that amount from Oasis Entertainment's Fourth Movie
Project, Inc., a shareholder of Reliant. The loan is payable in six months from
December 1, 1999, and bears 10% interest per annum. The expenses of IEC in
connection with this offering will also be reimbursed from the offering proceeds
and are estimated to be $650,000. IEC will also receive warrants for 10% of the
securities purchased by underwriters, good for four years, at an exercise price
of 120% of the offering price.
Third, as of the date of this filing, the private placement is still open,
and at this date a total of $360,000.00 has been placed in escrow, all of which
has been received in the year 2000. A minimum of $500,000.00 must be raised in
order to satisfy the escrow and release funds. The Reliant has no control over
the escrow, and no shares are sold or placed, or can be sold or placed until the
minimum is reached. If the minimum is not reached, there will be no placement.
For the reason that no final transactions have taken place, the tentative
deposits in escrow are not deemed to be assets of or capital of Reliant and are
not reflected in our financial statements.
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While there is no guaranty that funding plans will materialize as expected,
we believe that our present arrangements will provide sufficient working capital
to optimize operations for the next twelve months.
SUMMARY OF PRODUCT RESEARCH AND DEVELOPMENT
The Company's product development/marketing department is the most vital
component of the Company. Kevin and Tim Harrington, along with Mel Arthur,
actively participate on a daily basis in the ongoing effort to research and
develop new products that may be suited for direct response television marketing
and subsequent marketing through non-infomercial distribution channels. This
group develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review of
new developments within its targeted product categories. As a result of
management's prominence in the infomercial and retail television industry, it
also receives unsolicited new product proposals from independent third parties.
During the evaluation phase of product development, the Company evaluates the
suitability of the product for television demonstration and explanation as well
as the anticipated perceived value of the product to consumers, determines
whether an adequate and timely supply of the product can be obtained and
analyzes whether the estimated profitability of the product satisfies the
Company's criteria.
The Company is devoting attention to the development and products
specifically targeted at markets outside of North America. The Company will
review its infomercial library on an ongoing basis to select those products
which it believes will be successful in Europe and/or Asia and/or its other
international markets. When a product which was initially sold domestically is
selected for international distribution, the infomercial is dubbed and product
literature is created in the appropriate foreign languages. In addition, a
review of the product's and the infomercial's compliance with the local laws
completed. The Company's licensed distributor then begins airing the infomercial
internationally. The Company also airs shows and distributes products of other
independent domestic infomercial companies.
The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty to a
third party that has fully developed and manufactured a product. The Company
also obtains the rights to sell products which have already been developed,
manufactured and marketed through infomercials produced by other companies. In
such cases, the Company generally pays a higher royalty rate to the third party
because of the relatively small amount of the Company's resources required to
develop the product. The Company generally seeks exclusive worldwide rights to
all products in all means of distribution. In some cases, the Company does not
obtain all marketing and distribution rights, but seeks to receive a royalty on
sales made by the licensor pursuant to the rights retained by the licensor.
EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT. None.
EXPECTED SIGNIFICANT CHANGE IN THE NUMBER OF EMPLOYEES. None.
(B) DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
DEVELOPMENT STAGE/GOING CONCERN. There are two material thresholds in the
transition of this Company, from Development Stage to Going Concern. The first
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is the commencement of limited operations, during 1998, and the first quarter of
1999. The second is the achievement of substantial revenues and the dawn of
profitability, corresponding to the second quarter of 1999, with continued
improvement throughout that year. While the Harringtons began some limited
operations in 1998, their two companies were not acquired as subsidiaries until
August of that year. The Harringtons honored certain non-compete agreements,
with HSN Direct, a division of Home Shopping Network, which expired in December
of 1998. During the interim period, the Harringtons located, developed and
prepared for production and rollout of various products. For that reason,
full-fledged operations were not launched until April of 1999. While the affairs
of the Company improved consistently, from 1998, the second quarter of 1999 was
the first profitable quarter, and is the first quarter of unlimited operations.
For these reasons, management refers to this Company as in its Development Stage
for 1998, and for the first quarter of 1999, and as an operating company and a
going concern during the second quarter of 1999.
In 1998, the company closed the year with a loss, with minimal revenues, in
pre-launch development mode, but these results are not deemed to reflect true
business operations. In 1998, the company had significant expenses that resulted
in a loss for the year. Revenues increased significantly in 1999; however such
increase should not be considered dramatic, for 1999 was the first real year of
operation under our present business plan. The first quarter was one in which
the Harringtons put in place personnel and selected the first products to
produce.
The second quarter was one in which we aired two successful shows (Trash or
Treasure and Sobakawa Insoles). We also aired other shows which were not so
successful in that quarter. It is not to be expected that every project would be
a stellar success, and two successes in a single quarter is considered a good
result by us.
During the third quarter, we increased staff with a producer and associate
producer for our infomercials, to have better continuity and control of the
details of our production activities. These are two new salaried individuals.
Several other shows were tested during this period. Two of them became
successful (Wonder Steamer and Pest Offense). We also developed our successful
computer infomercial.
During the final quarter of 1999, sales continued to grow from projects in
place, led by those developed in the previous quarters and the new computer
infomercial.
Management believes that revenues and growth will continue to increase, but
to achieve the continued growth of the Company's business, advertising,
promotional and production expenses will remain significant. While the upside
potential from successful infomercial marketing is tremendous, the risk of
failure is always present. Some of the projects may fail, or all may fail. If
some are successful, the success may offset the losses from others significantly
or may not. Accordingly, there can be no assurance that substantial
profitability will be sustained in the next twelve months in proportion to the
rate of growth achieved in 1999.
REVENUES ARE INCREASING. There were no revenues in 1997. Sales in 1998 were
$120,234. In 1998, costs of sales were 66,664, and gross profit was 53,580.
Quarterly comparisons for 1999/1998 quarters show the following:
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
- ----------------------------------------------
March 31 Net Sales 352,477 30,059
Cost of Sales 284,523 16,664
Gross Profit 67,954 13,359
June 30 Net Sales 2,885,013 30,059
Cost of Sales 1,602,622 16,664
Gross Profit 1,282,391 13,395
September 30 Net Sales 5,918,342 31,125
Cost of Sales 3,818,734 17,223
Gross Profit 2,099,608 13,902
============= ========= ======
</TABLE>
In 1998, Gross Margins, after cost of goods sold, was about 45%; whereas
that margin has been stable between 85% to 86% of Gross Sales, for the first
half of 1999. This improvement is largely due to the difference between limited
operations, and the economy and efficiency of unlimited operations, beginning in
April of 1999. It is also attributable to the marketing of different products
from those currently offered by the Company. 1998 operations have been
characterized as limited. They consisted of the sale of cigarette lighters and
the marketing of a single non-infomercial television show. Our business in 1998
was not the same as our business beginning in 1999. Revenues have improved in
every quarter of operations in 1999. We expect them to continue to improve in
the next twelve months. Although certain expenses, such as production and media
costs are related to revenue creation and would rise in some proportion to
revenues, there are other expenses that are not expected to rise proportionally.
General and administrative expenses would not rise proportionally as projects
increase and revenues improve. We are able to generate increasing revenues
without significant increase in employees, as production and fulfillment
activities are generally out-sourced. The Company has new products to sell each
period, in additions to others, so that the number of products increase from
period to period. For the first quarter there were 5, for the second 8, the
third 8, and the fourth 10 products for sale. We just recently initiated
marketing of products on the QVC home shopping channel. On QVC we are beginning
to sell some products in the traditional short-form live segments that are seen
on television shopping networks. These new revenues are insubstantial as of the
end of 1999, but are expected to become a significant component of total
revenues as more products are sold and exposure increases on the shopping
network.
The significant increased sales in the second 1999 quarter reflects the
launching of full operations in April, more completely reflected by the end of
the second half of 1999. The significance of these figures is not only that
revenues have increased exponentially, due to operations, but that the Company
was achieving marginal profitability by the end of the third quarter, the three
months ended June 30, 1999.
Product sales are expected to increase in direct proportion to our ability
to acquire media time to promote them. Promotional advertising drives sales in
our business. It is for this reason that increasing revenues do not provide
assurance that markets have been saturated with as much advertising as would be
productive. For this reason, additional capital, whether or not necessary for
fundamental survival, is desired and important for optimum growth.
Cost of goods sold included the total cost of acquiring actual products
acquired for resale and costs and expenses related to sales. Returns and
allowances are deducted from sales.
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OPERATING EXPENSES would be expected to increase with increasing
operations. Expenses in 1998 were attributable to the marketing of different
products than those which form the core of the Company's current business. In
general, expenses have decreased as a percentage of sales. These figures reflect
a continuing improvement in this relationship, due to expanding operations,
additional products and customers. These expenses do not rise proportionally as
revenues increase. General & Administrative expenses include the following:
fulfillment costs; sales commissions; royalties; automobile expense; banking
fees; consulting fees; insurance; office supplies; postage & delivery;
professional fees; salaries and wages; telephone; and travel & entertainment.
Research and Development is trending downward as a decreasing percentage of
sales. Research and Development costs should remain constant as they represent
costs associated with development of new infomercial promotional projects,
rather than new technologies. It does not include royalties on rights acquired.
It does not include the cost of acquiring products for resale. It does not
include production and media costs or marketing. It involves searching for new
products, obtaining rights to sell them, and possible refinement in the
products, to achieve more economic manufacture and resale at attractive pricing.
At any given time, there would normally be at least one or two products/projects
under development. At the present time, however, there are seven infomercials in
various stages of development. The number in development will decrease, while
the number in media, producing revenues will increase. While the costs are
expected to remain substantially constant, they would be expected to decrease as
a percentage of sales.
Research and Development is trending downward as a decreasing percentage of
sales. Research and Development costs should remain constant as they represent
costs associated with development of new infomercial promotional projects,
rather than new technologies. It does not include royalties on rights acquired.
It does not include the cost of acquiring products for resale. It does not
include production and media costs or marketing. It involves searching for new
products, obtaining rights to sell them, and possible refinement in the
products, to achieve more economic manufacture and resale at attractive pricing.
At any given time, there would normally be at least one or two products/projects
under development. At the present time, however, there are seven infomercials in
various stages of development. The number in development will decrease, while
the number in media, producing revenues will increase. While the costs are
expected to remain substantially constant, they would be expected to decrease as
a percentage of sales.
Production and Media Costs expenses were not a factor in 1998, due to the
differing nature of products marketed. These expenses reflect an improvement in
the ratio of these expenses to sales, even as total costs increase with
expanding operations. Production and media costs, consisting of the cost of
producing media productions and the costs of buying media slots, are estimated
to settle in the range of 40% to 50% of sales, overall. This average allows for
less successful or unsuccessful projects. Media expenses for successful projects
will be between 35% and 46% of sales, proportionally.
Marketing costs reflect an improvement in the ratio of these expenses to
sales, even as total costs increase with expanding operations. Marketing,
consisting of consumer relations and internet promotion is expected to decrease,
as a percent of sales over time. Marketing includes participation in various
trade shows, telemarketing expenses, other marketing expenses and prepaid
advertising. It does not include media buys in direct infomercial advertising
for immediate product fulfillment. Those items are production and media expenses
which are a part of the Cost of Sales.
We had leased initially approximately four thousand (4,000) square feet of
office space pursuant to a year lease for our Clearwater, Florida, principal
executive offices. The lease, which commenced in 1999, provided for monthly rent
of $6,750.42, or annual rent payments of $81,005.04 The facility encompassed 25
separate offices and a board room. Some additional space was later taken at a
monthly rent of $16,400.00, which annualized to $196,800.00. We have entered
into a new lease for Suite 200, Island Center, 2701 N. Rocky Point Drive, Tampa
Florida 33607, dated January 13, 2000, and commenced February 25, 2000. The
premises leased constitutes 5,923 square feet on the second floor, and an
additional 1,080 square feet of unallocated space in the building. We estimate
that rent expenses will be about $40,000 per quarter, for the next year and
increase approximately 4% per year over the five year term of the lease, net of
subleases, and will continue to decrease as a percentage of sales.
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
- ------------------------------------------------------------
March 31 Operating Expenses 699,101 228,027
Operating Income/(Loss) (631,147) (214,632)
June 30 Operating Expenses 1,907,567 228,027
Operating Income/(Loss) (625,170) (214,632)
September 30 Operating Expenses 1,690,604 326,102
Operating Income/(Loss) 409,004 (312,200)
======================= ========== =========
</TABLE>
This comparison shows that total operating expenses are declining as a
percentage of sales, even as total expenses are increasing with expanded
operations. These tables also illustrate the significance of the third operating
quarter of 1999, when operations turned decisively favorable. Total operating
expenses as a percent of sales is expected to remain in the range of 75% to 80%,
as sales increase. The largest single segment, and most material factor, is in
the direct operating area of infomercial production and media costs. These
operations are not only the major area of expense, but it is these activities
which drive sales. It is generally reliable in this industry that higher media
costs are required for increased sales.
PROFITABILITY, as indicated previously, appeared in the third quarter of
1999. It is expected to continue to improve. The achievement of marginal
profitability does not guaranty that the trend to increasing profitability will
follow. However, it appears to management that operations are expanding in an
orderly and promising manner, and that expenses are being managed appropriately.
Profitability has improved with sales. As most other costs remain constant, or
decrease, as percent of sales, total profitability, as such a percentage, will
fluctuate inversely with the cost of goods sold. Product costs, as distinguished
from infomercial production and media costs, must be kept under control to
maintain real profitability. While higher media profile and quality of
infomercial production tend to increase sales, increased cost of products sold
would have a depressing effect upon profitability. On the one hand, Infomercial
products need to be attractively priced. On the other, the cost of producing the
products must be controlled and managed well.
Management believes that this last analysis is the most salient indicator
of increasing profitability.
BALANCE SHEET. As previously stated the dramatic increase in corporate
financial condition during 1999, as compared to 1998, is not considered
instructive. The 1999 activities should be viewed as the start-up of a new mode
of business activity in 1999, with some apparent success and improvement in the
financial condition of the Registrant, due particularly to increasingly
successful operations. Fortunes may change, however, and no assurance ever
exists that profitable trends will continue, or that the future will be like the
past. A company's initial growth may not be indicative of a sustainable rate of
continued growth. While the Registrant has not yet achieved its potential, there
can be no certain prediction at what level its growth may slow, or when, if at
all, it may reach an optimum level of operations.
INTEREST INCOME AND EXPENSE reflected on the Company's financial statements
refer to the company's ownership of a certificate of deposit, pledged against a
loan. The interest income from the CD is shown. The interest expense for the
loan is shown.
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CONCLUSION. While this Company is presently able to manage its present
phase of development, for an indefinite interim, it cannot regard its financial
condition as optimal. Unless events in the future are favorable, both in terms
of profit from operations now being undertaken, and also favorable in attracting
investor interest, the Company may not be able to sustain a stable growth
pattern for the Company. These remarks should be understood in context,
discussed elsewhere, that increasing revenues are expected to provide
substantially all of the requirements for continued operations at present levels
and for some possible growth. This company must grow to reach its full
potential. For this reason, stability at its present levels is not considered
optimal for long-term growth.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no proceedings, legal, enforcement or administrative, pending,
threatened or anticipated involving or affecting this Issuer, except as
disclosed herein. The Registrant has been named as a defendant in California
state court action seeking damages for rent based upon an oral lease/agreement.
Management has cross-complained against certain third parties believed to be
responsible. Management intends to defend this action vigorously and does not
consider this action to be meritorious, as against it, or a significant
financial exposure to it in any case.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
This Issuer has filed to Register its common stock under Section 12(g) of
the Securities Exchange Act of 1934. While its Registration is effective for
purposes of invoking its reporting requirements, its Form 10-SB has not cleared
final comments by the Staff of the Securities and Exchange Commission, and is
not yet in its final form. Persons accessing this Company's Form 10-SB filings,
on EDGAR or otherwise, should exercise caution and be aware that certain changes
in the final form may occur.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
EXHIBIT INDEX
FINANCIAL STATEMENTS AND DOCUMENTS
FURNISHED AS A PART OF THIS REGISTRATION STATEMENT
Attached hereto and incorporated herein by this reference are
consolidated unaudited financial statements (under cover of Exhibit F3Q) for the
three months and nine months ended September 30, 1999, and the year ended
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December 31, 1998. These financial reports are supplemented by unaudited
financial statements for the three and six months ended June 30, 1999 (under
cover of Exhibit F2Q), and for the three months ended March 31, 1999 (under
cover of Exhibit F1Q).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-Q Report for the Quarter ended September 30, 1999 has been signed below
by the following persons on behalf of the Registrant and in the capacity and on
the date indicated.
Dated: March 31, 2000
RELIANT INTERACTIVE MEDIA CORP.
formerly Reliant Corporation
by
/s/ /s/
Kevin Harrington Tim Harrington
chairman and ceo/director president and coo/director
/s/ /s/
Mel Arthur Karl E. Rodriguez
executive vice president/director secretary/director
- --------------------------------- --------------------------
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- --------------------------------------------------------------------------------
EXHIBIT F3Q-A3
UN-AUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
CURRENT ASSETS
Cash $ 189,025 $ 122,257
Accounts receivable, net 797,686 0
Inventory 104,459 27,342
Prepaids 100,000 0
Employee advances 9,610 0
Total Current Assets 1,200,780 149,599
PROPERTY AND EQUIPMENT
Machinery and equipment 25,925 25,925
Office furniture and equipment 45,292 45,292
Total Property and Equipment 71,217 71,217
Less accumulated depreciation (18,286) (10,258)
Net Property and Equipment 52,931 60,959
OTHER ASSETS
Deposits 0 12,773
Other assets 20,000 0
Prepaid advertising 1,537,387 85,302
Patent and trademark costs 26,668 26,668
Total Other Assets 1,584,055 124,743
TOTAL ASSETS $ 2,837,766 $ 335,301
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS EQUITY
September 30, December 31,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,019,575 $ 73,192
Accrued expenses 43,516 5,418
Payable - related parties 96,952 0
Notes payable - related parties,
current portion 500,000 0
Notes payable, current portion 40,000 40,000
Total Current Liabilities 1,700,043 118,610
LONG-TERM DEBT
Notes payable - related parties 87,500 87,500
Total Long-Term Debt 87,500 87,500
TOTAL LIABILITIES 1,787,543 206,110
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
Common stock: 50,000,000 shares
authorized of $0.001
par value, 6,135,440 and 3,373,570
shares issued and outstanding,
respectively 6,135 3,374
Additional paid-in capital 3,157,724 1,359,985
Accumulated deficit (2,113,636) (1,234,168)
Total Stockholders Equity 1,050,223 129,191
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 2,837,766 $335,301
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Nine MonthsEnded
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
NET SALES $5,918,342 $31,125 $9,155,832 $91,243
COST OF SALES 3,818,734 17,223 5,705,879 50,551
GROSS PROFIT 2,099,608 13,902 3,449,953 40,692
OPERATING EXPENSES
Depreciation 2,676 1,657 8,028 4,971
Bad debt expense 948 0 18,358 0
General and administrative 1,075,795 176,696 3,324,593 508,088
Research and development 10,465 9,621 40,620 30,345
Marketing 585,515 127,211 860,510 203,721
Rent 15,205 10,917 45,157 35,031
Total Operating Expenses 1,690,604 326,102 4,297,266 782,156
OPERATING INCOME (LOSS) 409,004 (312,200) (847,313) (741,464)
OTHER INCOME (EXPENSES)
Interest expense (12,450) (3,159) (32,511) (7,675)
Interest income 261 102 356 102
Total Other Income (Expenses) (12,189) (3,057) (32,155) (7,573)
INCOME (LOSS) BEFORE INCOME
TAXES 396,815 (315,257) (879,468) (749,037)
INCOME TAXES 0 0 0 0
NET INCOME (LOSS) $396,815 $(315,257) $(879,468) $(749,037)
BASIC INCOME (LOSS) PER SHARE $0.07 $(0.11) $(0.17) $(0.30)
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,081,092 2,817,235 5,162,783 2,520,451
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
- --------------------------------------------------------------------------------
Balance, December 31,
1997 2,369,600 $2,370 $377,719 $(99,255)
Capital contributions,
1998 0 0 340,020 0
Common stock issued in
recapitalization of Reliant
Corporation 570,400 570 (570) 0
Common stock issued for
cash at an average price
of $1.56 per share 329,770 330 513,170 0
Common stock issued for
Services valued at $1.25
per share 103,800 104 129,646 0
Net loss for the year ended
December 31, 1998 0 0 0 (1,134,913)
Balance, December 31,
1998 3,373,570 3,374 1,359,985 (1,234,168)
Common stock issued for cash at an
average price of $0.86 per share
(unaudited) 1,098,000 1,098 938,902 0
Common stock issued for services
valued at $1.15 per share
(unaudited) 43,700 43 50,457 0
Fractional shares issued in the reverse
stock split (unaudited) 170 0 0 0
Common stock issued for services
valued at $0.50 per share
(unaudited) 100,000 100 49,900 0
Common stock issued for investment
in Tony Little Website at $0.50 per
share (unaudited) 20,000 20 9,980 0
Common stock issued for acquisition
of TPH Marketing, Inc. valued at
$0.50 per share
(unaudited) 1,500,000 1,500 748,500 0
Net loss for the nine months ended
September 30, 1999
(unaudited) 0 0 0 (879,468)
Balance, September 30, 1999
(unaudited) 6,135,440 $6,135 $3,157,724 $(2,113,636)
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $396,815 $(315,257) $(879,468) $(749,037)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 2,676 1,657 8,028 4,971
Amortization of prepaid
advertising 99,952 0 145,626 0
Bad debt 948 0 18,358 0
Common stock issued for
services 50,000 0 850,500 0
Changes in assets and liabilities:
Accounts receivable 249,041 0 (816,044) 0
Prepaids and advances (108,560) 0 (109,610) 0
Inventory (30,146) 0 (77,117) 0
Deposits 0 2,909 12,773 12,773
Prepaid expenses (1,185,327) 0 (1,597,711) 0
Other assets (10,000) 0 (10,000) 0
Cash overdraft (91,647) 0 0 0
Accounts payable 457,600 18,520 946,383 55,100
Accrued expenses (381) 0 38,098 0
Net Cash Used in Operating
Activities (169,029) (292,171) (1,470,184) (676,193)
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent and trademark costs 0 0 0 (26,668)
Net Cash Used in Investing
Activities 0 0 0 (26,668)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from notes
payable 358,054 0 596,952 0
Proceeds from issuance of common
stock 0 95,000 940,000 195,000
Proceeds from additional capital
contribution 0 89,140 0 340,020
Net Cash Provided by Financing
Activities $358,054 $184,140 $1,536,952 $535,020
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $189,025 $(108,031) $66,768 $(167,841)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 0 150,195 122,257 210,005
CASH AND CASH EQUIVALENTS,
END OF PERIOD $189,025 $42,164 $189,025 $42,164
Cash Payments For:
Income taxes $ 0 $ 0 $ 0 $ 0
Interest $12,450 $ 0 $ 32,511 $ 0
Non-Cash Financing Activities:
Common stock issued for
services $50,000 $ 0 $850,500 $ 0
Common stock issued for other
assets $10,000 $ 0 $ 10,000 $ 0
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at September 30, 1999
and 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company s December 31, 1998 audited
consolidated financial statements. The results of operations for periods ended
September 30, 1999 and 1998 are not necessarily indicative of the operating
results for the full years.
NOTE 2 - REVERSE STOCK SPLIT
On March 23, 1999, the Company completed a reverse stock split on a 1 share for
5 share basis. No shareholder was reduced to less than 100 shares. All
references to shares issued and outstanding have been restated to reflect the
reverse stock split.
NOTE 3 - COMMON STOCK TRANSACTIONS
During the first quarter of 1999, the Company sold 248,000 post-split shares
(1,240,000 pre-split shares) of its common stock for $390,000 or an average
price of $1.57 per share ($0.31 per share pre-split). The Company also issued
38,200 post-split shares (191,000 pre-split shares) of its common stock for
services rendered, valued at $47,750 or $1.25 per share ($0.25 per share
pre-split). The shares were valued at the market price of the stock at the time
of issuance.
During the second quarter of 1999, the Company sold 600,000 shares of its common
stock for $300,000 or $0.50 per share. In addition, the Company sold 250,000
shares of its common stock to a related company for $250,000 or $1.00 per share.
The Company also issued 5,500 shares of its common stock for services rendered,
valued at $2,750 or $0.50 per share, the market price of the stock at the time
of issuance.
During the third quarter of 1999, the Company issued 100,000 shares of its
common stock for services rendered, valued at $50,000 or $0.50 per share, the
market price of the stock at the time of issuance.
On May 26, 1999, the Company purchased a fifty-one percent (51%) interest in the
Tony Little Web Site. The Company paid $10,000 cash and issued 20,000
post-split shares of common stock. The stock was valued at $10,000 or $0.50 per
share, the market price of the stock at the time of issuance.
19
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - COMMON STOCK TRANSACTIONS (Continued)
On May 3, 1999, the Company acquired TPH Marketing, Inc. (TPH). TPH s two (2)
shareholders are the Company s CEO and his brother, making this a related party
transaction. The Company acquired 100% of TPH and TPH became a wholly-owned
subsidiary. The Company issued 1,500,000 post-split shares of its common stock
in the acquisition. The shares were valued at $750,000 or $0.50 per share, the
market price of the stock at the time of the acquisition. TPH had no financial
statements or assets and liabilities at the time of acquisition. The essence of
the arrangement was to provide Kevin Harrington and Tim Harrington additional
compensation in the form of common stock through the purchase of TPH. As a
result, the shares are being shown as issued for compensation expense with a
charge to operating expenses in the amount of $750,000.
NOTE 4 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ( APB ) Option 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
all stock option plans. Under APB Opinion 25, compensation cost is recognized
for stock options granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
FASB Statement 123, Accounting for Stock-Based Compensation ( SFAS No. 123 ),
requires the Company to provide proforma information regarding net income and
net income per share as if compensation costs for the Company s stock option
plans and other stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 8.0 percent and
expected lives of 4.75 years.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
would have been changed by the pro forma amounts indicated below:
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Net income (loss):
As reported $396,815 $(315,257) $(879,468) $(749,037)
Pro forma 244,775 (315,257) (1,031,508) (749,037)
Net income (loss) per share:
As reported $0.07 $(0.11) $(0.17) $(0.30)
Pro forma 0.04 (0.11) (0.20) (0.30)
During the initial phase-in period of SFAS 123, the effect on pro forma results
are not likely to be representative of the effects on pro forma results in
future years since options vest over several years and additional awards could
be made each year.
20
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 4 - OUTSTANDING STOCK OPTIONS (Continued)
A summary of the status of the company s stock option plans as of September 30,
1999 and December 31, 1998 and changes during the years ending on those dates is
presented below:
September 30, December 31,
1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- --------------------------------------------------------------------------------
Outstanding, beginning
of period 0 $ 0 0 $ 0
Granted 420,000 5.00 0 0
Canceled 0 0 0 0
Exercised 0 0 0 0
Outstanding, end of
period 420,000 $5.00 0 $ 0
Exercisable, end
of period 0 $ 0 0 $ 0
Weighted average fair value of
options and warrants granted
during the year $ 2.12 $ 0
Outstanding Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 9/30/99 Life Price at 9/30/99 Price
$ 2.50 105,000 4.75 $2.50 0 $ 0
4.00 105,000 4.75 4.00 0 0
6.00 105,000 4.75 6.00 0 0
7.50 105,000 4.75 7.50 0 0
$ 2.50-7.50 420,000 4.75 $5.00 0 $ 0
The options were granted as compensation and additional bonuses to certain
officers of the Company. These options were issued with an exercise price above
the market value of the stock at the date of issuance.
Additional stock options are available to Kevin Harrington, Tim Harrington and
Mel Arthur based on the stock trading performance of the Company s common stock.
If the Company s shares are trading at a price of $15.00 per share, 256,500
options will be granted at an exercise price of $7.50 per share. If the Company
s shares are trading at a price of $20.00 per share, 256,500 options will be
granted at an exercise price of $7.50 per share. If the Company s shares are
trading at a price of $25.00 per share, 327,000 options will be granted at an
exercise price of $7.50 per share. As of September 30, 1999, the Company s
common stock has not reached any of the performance measurements mentioned
above.
21
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 5 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments requires disclosure of the fair value of
financial instruments held by the Company. SFAS 107 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. The following methods and
assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short-term nature.
22
<PAGE>
