<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 1O-Q/A
AMENDMENT NO. 1 TO
QUARTERLY REPORT ON FORM 10-Q
DATED SEPTEMBER 30, 1999
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-12091
-----------------------
INTER*ACT ELECTRONIC MARKETING, INC.
(Exact name of registrant as specified in its charter)
-----------------------
<TABLE>
<S> <C>
North Carolina 56-1817510
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
14 Westport Avenue
Norwalk, Connecticut 06851
(Address of principal executive offices, including zip code)
(203) 750-0300
(Registrant's telephone number, including area code)
-----------------------
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.
Yes X No
--- ---
As of September 30, 1999, the number of shares outstanding of the
registrant's Common Stock, was 7,728.555 shares. There is no trading market for
the Common Stock. Accordingly, the aggregate market value of the Common Stock
held by non-affiliates of the registrant is not determinable.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Part I--Financial Information .................................................................. 1
Item 1. Financial Statements.................................................................... 1
Consolidated Balance Sheets--September 30, 1999 (unaudited) and December 31, 1998.. 1
Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 1999 and 1998 (unaudited)................ 2
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1999 and 1998 (unaudited)................................... 3
Notes to Consolidated Financial Statements......................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................. 7
Part II--Other Information...................................................................... 13
Item 1. Legal Proceedings...................................................................... 13
Item 2. Changes in Securities and Use of Proceeds.............................................. 13
Item 6. Exhibits and Reports on Form 8-K 14.................................................... 14
Signatures...................................................................................... 15
</TABLE>
This Quarterly Report on Form 10-Q/A is filed with the Securities and Exchange
Commission on November 19, 1999 for the purpose of correcting a reference to a
note to the Consolidated Financial Statements. The line item "Commitments
and contingencies" in the Consolidated Balance Sheets in Item 1. Financial
Statements in the Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 15, 1999 incorrectly referred to note 7. The
correct reference is to note 8.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
INTER*ACT ELECTRONIC MARKETING. INC.
(Formerly, Inter*Act Systems, Incorporated)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,510 $ 14,166
Receivables, net 2,127 3,667
Other current assets 3,789 2,964
----------- -----------
Total current assets 17,426 20,797
Property, plant and equipment, net 31,130 28,102
Bond issuance costs, net 2,293 2,776
Patents, licenses and trademarks, net 8,052 8,771
Other noncurrent assets 100 45
----------- -----------
Total assets $ 59,001 $ 60,491
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,657 $ 3,075
Accrued expenses 5,805 3,016
Current portion of long-term debt 5,656 5,554
Deferred revenue 676 2,146
----------- -----------
Total current liabilities 14,794 13,791
Long-term debt, net of discount and current portion 124,104 111,819
----------- -----------
Total liabilities 138,898 125,610
----------- -----------
Common stock purchase warrants 27,436 27,436
----------- -----------
Commitments and contingencies (note 8)
Stockholders' equity (deficit):
10% Series A Mandatorily Convertible Preferred stock, no par value,
authorized 5,000,000 shares; 488,868 and 177,878 shares issued and
outstanding at September 30, 1999 and December 31, 1998, respectively 50,960 18,142
Common stock, no par value, authorized 50,000,000 shares; 7,728,555 shares issued
and outstanding at September 30, 1999 and December 31, 1998 28,251 28,251
Additional paid-in capital 768 768
Deferred compensation (301) (416)
Accumulated other comprehensive income (loss) (79) (19)
Accumulated deficit (186,932) (139,281)
----------- -----------
Total stockholders' equity (deficit) (107,333) (92,555)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 59,001 $ 60,491
=========== ===========
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
1
<PAGE>
INTER*ACT ELECTRONIC MARKETING. INC.
(Formerly, Inter*Act Systems, Incorporated)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
(Unaudited)
<S> <C> <C> <C> <C>
Gross sales $ 974 $ 2,660 $ 6,153 $ 4,656
Less: Retailer reimbursements (577) (840) (1,877) (1,790)
------------- ------------- ------------- -------------
Net sales 397 1,820 4,276 2,866
------------- ------------- ------------- -------------
Operating expenses:
Direct costs 2,222 2,396 7,110 6,771
Selling, general and administrative expenses 6,495 6,475 20,319 23,345
Depreciation and amortization of intangible assets 2,392 2,202 6,791 5,473
------------- ------------- ------------- -------------
Total operating expenses 11,109 11,073 34,220 35,589
------------- ------------- ------------- -------------
Operating loss (10,712) (9,253) (29,944) (32,723)
------------- ------------- ------------- -------------
Other income (expense):
Interest income 128 302 246 1,135
Interest expense (5,803) (5,472) (17,266) (15,499)
------------- ------------- ------------- -------------
Total other expense (5,675) (5,170) (17,020) (14,364)
------------- -------------- -------------- --------------
Loss before extraordinary item and income taxes (16,387) (14,423) (46,964) (47,087)
Income taxes -- -- -- --
------------- ------------- ------------- -------------
Net loss before extraordinary item (16,387) (14,423) (46,964) (47,087)
Extraordinary item - gain on extinguishment of debt -- -- 1,728 --
------------- ------------- ------------- -------------
Net loss (16,387) (14,423) (45,236) (47,087)
Preferred stock dividends accrued (1,215) -- (2,416) --
------------- ------------- ------------- -------------
Net loss attributable to common stock $ (17,602) $ (14,423) $ (47,652) $ (47,087)
============= ============= ============= =============
Per share information:
Net loss per common share before extraordinary item:
Basic and Diluted $ (2.28) $ (1.87) $ (6.39) $ (6.09)
Extraordinary item - gain on extinguishment of debt -- -- .22 --
------------- ------------- ------------ -------------
Net loss per common share:
Basic and Diluted $ (2.28) $ (1.87) $ (6.17) $ (6.09)
============ ============ ============ =============
Common shares used in computing per share amounts:
Basic and Diluted 7,729 7,729 7,729 7,729
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(Formerly, Inter*Act Systems, Incorporated)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (45,236) $ (47,087)
Items not affecting cash and cash equivalents:
Depreciation and amortization of fixed and intangible assets 6,791 5,473
Loss on disposal of assets -- 29
Non-cash interest on discounted bonds 13,987 15,376
Extraordinary gain on extinguishment of debt (1,728) --
Other items, net (55) 114
Changes in working capital:
Receivables, net 1,540 (1,345)
Accounts payable and accrued expenses 2,224 (4,287)
Other current assets (825) (311)
Deferred revenues (1,470) 285
--------- ----------
Net cash used in operating activities (24,772) (31,753)
---------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment (8,011) (7,319)
Proceeds from disposal of assets 2 --
Patent acquisition costs -- (2,090)
--------- ----------
Net cash used in investing activities (8,009) (9,409)
--------- ----------
Cash flows from financing activities:
Long-term debt repayments (23) --
Long-term debt retirements (194) --
Proceeds from preferred stock issuance 30,402 --
--------- ----------
Net cash provided by financing activities 30,185 --
--------- ----------
Foreign exchange effects on cash and cash equivalents (60) (37)
--------- ----------
Net decrease in cash and cash equivalents (2,656) (41,199)
Cash and cash equivalents at beginning of period 14,166 45,211
--------- ----------
Cash and cash equivalents at end of period $ 11,510 $ 4,012
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 498 $ 26
========= ==========
Supplemental disclosures of non-cash investing and financing activities:
Issuance of note payable for patent acquisition $ -- $ 5,679
========= ==========
Dividends payable in preferred stock $ 2,416 $ --
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
INTER*ACT ELECTRONIC MARKETING, INC.
(Formerly, Inter*Act Systems, Incorporated)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999 and September 30, 1998
1. Business Description
Inter*Act Electronic Marketing, Inc. ("Inter*Act" or the "Company"), which
changed its name from Inter*Act Systems, Incorporated effective July 1, 1999,
operates one of the nation's largest electronic marketing networks linked to
supermarket retailers' loyalty card databases that can reach shoppers both
in-store and on the Internet. The Company's patented technologies enable
consumer products manufacturers ("Manufacturers") and supermarket retailers
("Retailers") to use historical purchase behavior data to deliver
shopper-specific purchase incentives and messages to customers moments before
shopping begins. The Company's proprietary system, called the Inter*Act Loyalty
Network'sm' ("ILN"), comprises over 4,300 server-based Smart Terminals'TM'
located inside the front entrance of more than 20 retail chains in the U.S.
and Europe, as well as a recently launched Company-owned Internet web site
called "Shopper Perks'sm'". The Smart Terminals'TM' are linked directly to each
store's point-of-sale scanning system via Company-owned in-store servers. This
in-store network allows Shopper Perks'sm' to offer consumers, in selected
markets at this time, the only commercial scale in-home/in-store electronic
platform for shopper incentives available the same day and directly at the cash
register. No paper is required at any time. This fully automated process
virtually eliminates the misredemption and fraud associated with paper coupons,
estimated by industry sources to cost Manufacturers hundreds of millions of
dollars per year.
Certain factors could affect Inter*Act's actual future financial results.
These factors include: (i) the Company's limited operating history, significant
losses, accumulated deficit, negative cash flow from operations and expected
future losses, (ii) the dependence of the Company on its ability to establish,
maintain and expand relationships with Manufacturers to promote brands on the
ILN and the uncertainty of market acceptance for the ILN, (iii) the uncertainty
as to whether the Company will be able to manage its growth effectively, (iv)
the early stage of the Company's products and services and technical and other
problems that the Company has experienced and may experience, (v) risks related
to the Company's substantial leverage and debt service obligations, (vi) risks
inherent in the necessity for the Company to raise additional equity or debt
financing to fund continuing losses, (vii) the intensely competitive nature of
the consumer product and promotional industry, (viii) risks that the Company's
rights related to patents, proprietary information and trademarks may not
adequately protect its business, (ix) the Company's ability to attract and
retain competent management employees and (x) the risks associated with
unforeseen technological issues connected with the Company's own Year 2000
compliance project and the compliance efforts of third parties on whom the
Company relies.
From inception to September 30, 1999, the Company has generated revenues
significantly lower than its expenses, has incurred recurring losses and has
experienced negative operating cash flow, and there is no assurance that the
product the Company has developed will achieve widespread success in the
marketplace. In addition to increasing its revenues, the Company must raise
additional equity or debt capital to fund its negative cash flow and ongoing
expansion plans. There is no assurance that such additional financing can be
obtained.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying interim financial statements as of September 30, 1999 and
for the three- and nine-month periods ended September 30, 1999 and September 30,
1998 are unaudited; however, in the opinion of management, all adjustments,
which consist of normal recurring accruals, necessary for a fair presentation of
the financial position and results of operations from such interim periods, are
included. The results of operations for the interim periods presented are not
necessarily indicative of results to be expected for an entire year. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Derivative Instruments and Hedging Activities
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
4
<PAGE>
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate. and assess the effectiveness
of transactions that receive hedge accounting.
Pursuant to SFAS No. 137, which was issued in June 1999, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133--An Amendment of FASB Statement No. 133," SFAS No. 133
will be effective for fiscal years beginning after June 15, 2000. A company may
also implement the Statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1999 and thereafter). SFAS
No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments imbedded in hybrid
contracts that were issued, acquired, or substantively modified after either
December 31, 1997 or 1998, at the company's election.
While the Company operates in international markets, it does so presently
without the use of derivative instruments and therefore SFAS No. 133 is not
currently applicable.
3. Net Income (Loss) Per Share
The Company accounts for earnings per share pursuant to SFAS No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, net loss per common share
amounts ("basic EPS") were computed by dividing net loss by the weighted average
number of common shares outstanding and contingently issuable shares (which
satisfy certain conditions) and excluded any potential dilution. Net loss per
common share amounts, assuming dilution ("diluted EPS"), were computed by
reflecting potential dilution from the exercise of stock options and warrants.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement. In all periods presented, the impact of
convertible preferred stock, stock options and warrants was anti-dilutive, and
basic and diluted EPS are the same.
4. Comprehensive Income
The Company observes the provisions of adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity,
except those resulting from investments by owners and distributions to owners,
for the period in which they are recognized. Comprehensive income is the total
of net income and all other nonowner changes in equity (or other comprehensive
income) such as unrealized gains/losses on securities classified as
available-for-sale, foreign currency translation adjustments and minimum pension
liability adjustments. Comprehensive and other comprehensive income must be
reported on the face of annual financial statements. The Company has chosen to
disclose comprehensive income (loss), which for the 1999 and 1998 periods
includes its net loss and foreign currency translation adjustments, in its
consolidated statements of stockholders' equity.
Comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
(Unaudited)
(In thousands)
<S> <C> <C>
Net Loss $(45,236) $(47.087)
--------- --------
Other comprehensive income (loss)
Translation adjustments (60) (37)
----
Other comprehensive income (loss) (60) (37)
--------- --------
Comprehensive loss $(45,296) $(47,124)
--------- --------
</TABLE>
The components of accumulated other comprehensive income included in the
accompanying consolidated balance sheets consist of cumulative translation
adjustments as of the end of the periods.
5
<PAGE>
5. Segment Reporting
Effective December 31, 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Pursuant
to this pronouncement, reportable operating segments are determined based on the
Company's management approach. The management approach, as defined by SFAS No.
131, is based on the way that the chief operating decision-maker organizes the
segments within an enterprise for making operating decisions and assessing
performance. The Company's results of operations are reviewed by the chief
operating decision-maker on a consolidated basis and the Company operates in
only one segment.
6. Repurchase of Notes
During March 1999, the Company repurchased an aggregate of $2.4 million
(face value) of its outstanding 14% Senior Discount Notes due 2003 with a net
value (of unamortized discounts and related debt issuance costs) of $1.9 million
at a cost of $194,000. The Company realized a net extraordinary gain on the
repurchase of $1.7 million.
7. Amendment of Note
In May 1998 the Company issued, in connection with the acquisition of
certain intellectual property, a note payable. This note, which was amended in
June 1999, bears interest currently at 10.0% per year on the $5.7 million
principal balance and is payable on June 1, 2000. If, prior to the maturity of
this note, the Company completes a qualifying initial public offering of Common
Stock or consummates a change of control, the then-outstanding principal balance
and accrued interest would be convertible into shares of the Company's common
stock at a conversion price of $8.50 per share, which management believes
represents the fair value of the Company's common ctock at the time of the June
1999 amendment. This note is reflected as a current liability in the Company's
consolidated balance sheet as of September 30, 1999.
8. Legal Proceedings
In February 1996, the Company filed suit against Catalina Marketing
Corporation ("Catalina Marketing") alleging that Catalina Marketing has
infringed United States Patent No. 4,554,446 (the "'446 Patent") under which the
Company is licensee. The Company alleges that Catalina Marketing is infringing
this patent by making, using and offering for sale devices and systems that
incorporate and employ inventions covered by the '446 Patent. The Company is
seeking an injunction against Catalina Marketing to stop further infringement of
the patent, treble damages and the costs and expenses incurred in connection
with the suit. The complaint was amended to add additional detail, and Catalina
Marketing has answered denying the allegations, raising certain affirmative
defenses, and seeking declaratory judgment of non-infringement, invalidity or
unenforceability of the '446 Patent. In May 1997, Catalina Marketing asserted a
counterclaim alleging that the Company is infringing a newly issued Catalina
Marketing Patent, U.S. Patent No. 5,612,868 (the "'868 Patent"). The Company
answered denying the allegations, raising affirmative defenses and seeking
declaratory judgment of non-infringement, invalidity and unenforceability of the
'868 Patent. The United States District Court in the District of Connecticut has
denied Catalina Marketing's motions for summary judgment, and a scheduling order
is pending. As with any litigation, the ultimate outcome of the suit cannot be
predicted. However, the Company intends to pursue its claim and defend against
Catalina Marketing's counterclaim vigorously.
In January 1998, Catalina Marketing International, Inc. ("Catalina
International," a subsidiary of Catalina Marketing) filed suit against the
Company alleging that the Company has infringed United States Patent No.
4,674,041 (the "'041 Patent") which Catalina International acquired by
assignment in December 1997. Catalina International alleges that the Company is
infringing the '041 Patent by making, using and offering for sale devices and
systems that incorporate and employ inventions covered by the '041 Patent.
Catalina International seeks injunctive and declaratory relief as well as
unspecified money damages against all defendants. The United States District
Court in the District of Connecticut granted the Company's motion for a more
definite statement and denied Catalina International's motion for a preliminary
injunction as moot. The Company intends to defend against Catalina
International's claims vigorously, and to pursue available remedies against
Catalina International. This action has been consolidated with the litigation
involving the '446 Patent and the '868 Patent for purposes of discovery and
trial.
On May 27, 1998, the Company filed a new suit against Catalina Marketing
alleging that Catalina Marketing has infringed United States Patents Nos.
5,201,010; 5,338,165; 5,430,644; 5,448,471; 5,592,560; 5,621,812; 5,659,469; and
5,638,457 (collectively, the "Deaton Patents"), which the Company acquired in
1998. The Company alleges that Catalina Marketing is
6
<PAGE>
infringing the Deaton Patents by making, using, selling and offering for sale
devices and systems that incorporate and employ inventions covered by the Deaton
Patents. The Company is seeking an injunction against Catalina Marketing to stop
further infringement of these patents, treble damages and the costs and expenses
incurred in connection with the suit. Catalina Marketing answered denying the
allegations, raising certain affirmative defenses, and seeking declaratory
judgment of non-infringement, invalidity or unenforceability of the Deaton
Patents. This action has been brought in the United States District Court in the
District of Connecticut. Catalina Marketing has also challenged some of the
claims of six of the Deaton Patents by provoking interference proceedings in the
U.S. Patent and Trademark Office. The Company intends to vigorously protect its
rights under the Deaton Patents both in the interference proceedings and in the
new lawsuit.
9. Subsequent Events
Repurchase of Notes
In October 1999, the Company repurchased 15,000 of its 14% Senior
Discount Notes due 2003, each with a face value of $1,000 per note, for an
aggregate of $3.0 million in cash. In connection therewith, the Company also
repurchased Warrants to purchase an aggregate of 141,435 shares of the Company's
common stock which were originally issued as part of the offering of the Notes.
This repurchase of Notes will result in a gain on extinguishment of debt in the
fourth quarter of 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis is qualified by reference to and
should be read in conjunction with the unaudited Consolidated Financial
Statements of the Company and the Notes thereto and other financial information
included elsewhere in this report. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999 or any other period.
The Company is one of the nation's largest in-store operators of
customer-interactive electronic marketing systems. The Company's patented
technologies enable consumer product manufacturers ("Manufacturers") and
supermarket retailers ("Retailers") to offer shopper-specific purchase
incentives and messages to customers moments before shopping begins. The Company
has also started offering consumers, in selected markets at this time, the only
commercial scale in-home/in-store electronic platform for shopper incentives
available the same day and directly at the cash register. The Company's
proprietary system. called the INTER*ACT Loyalty Network'sm' ("ILN"), utilizes
patented, multimedia touch-screen terminals, or Smart Terminals'TM', located in
the entrance area of retail grocery stores, in addition to a Company-owned
Internet web site called "Shopper Perks'sm'." The in-store terminals are
connected to each store's point-of-sale scanning system which allows the
electronic promotions to be immediately redeemed at the check-out. This in-store
technology, networked to the Company's headquarters, also enables the same day
in-store electronic fulfillment of Internet selected promotions. This fully
automated process virtually eliminates the misredemption and fraud associated
with paper coupons, estimated by industry sources to cost Manufacturers hundreds
of millions of dollars per year.
During 1996, 1997 and most of 1998, the Company recognized revenue as
electronic discounts were redeemed at store cash registers. Manufacturers paid a
fee to the Company for each redemption. The fee was composed of (i) a retailer
processing fee, (ii) a redemption fee and (iii) the face value of the coupon.
The Company, in turn, passed through both the retailer processing fee, which was
included in direct operating expenses, and the face value of the coupon to the
Retailer, while retaining the redemption fee. The Company recorded as net sales
the redemption fee and the retailer processing fee paid by the Manufacturers.
Beginning in 1998, the Company also had arrangements with Manufacturers
whereby the Company received a fixed payment over a fixed period. In these
cases, the Company recognizes revenue on a ratable basis over the fixed period
during which it is providing service or exclusivity to such Manufacturers, as
well as the retailer processing fee paid by the Manufacturers. The Company is
principally operating under this revenue model in 1999 and expects to do so in
future periods.
Certain Manufacturers pay the Company in advance for a portion of
anticipated redemptions or a portion of the fixed contract amount, as
applicable, and these amounts are recorded as deferred revenue until earned
through redemption activity or, for fixed fee arrangements, through the passage
of time, during the contract period.
Direct costs of the Company consist of expenditures for direct store
support, paper used in the terminals to print shopping lists and recipes, direct
marketing costs, telecommunications between the stores and the Company and
retailer processing fees. Selling, general and administration expenses include
items relating to sales and marketing, administration, non-paid promotional
expenses and royalties payable under certain patent agreements.
Non-paid promotional expenses represent consumer discounts and retailer
processing fees paid to the Retailer by the Company
7
<PAGE>
on promotions offered on the ILN that are not funded by a Manufacturer contract.
Manufacturer participation in the ILN to date has been characterized by a
substantial number of trial commitments leading to increasing dollar commitments
to the ILN from those Manufacturers as the network approaches a more national
footprint. As the network grows and is more widely accepted by Manufacturers,
the Company believes that the need for non-paid promotions will diminish and
that revenues from Manufacturers will increase.
To date, the Company has generated operating revenue significantly lower
than its expenses, has incurred significant losses and has experienced
substantial negative cash flow from operations. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development. The Company had an
accumulated stockholders' deficit of $107.3 million as of September 30, 1999 and
has incurred cumulative losses of $186.9 million through September 30, 1999. The
Company expects to incur substantial additional costs to install additional ILN
terminals in retail supermarket stores and to sponsor selected promotions to
demonstrate the utility of the ILN to consumers, Retailers and Manufacturers.
The Company expects to incur net losses in the remainder of 1999 and to operate
at a loss for the foreseeable future. There can be no assurance that the Company
will achieve profitability or, if achieved, will be able to sustain such
profitability.
Nine Months Ended September 30, 1999 Compared With Nine Months Ended September
30, 1998
The Company had an installed base in the U.S. of 2,496 terminals in 1,677
stores as of September 30, 1999, as compared to 2,648 terminals in 1,749 stores
as of September 30, 1998. The number of terminals and number of stores with
terminals declined as of September 30,1999 as compared to 1998 largely as a
result of a large retailer closing stores on the East Coast. During the first
nine months of 1999, the Company entered into contracts to install the ILN in
Eagle Food Centers, a chain located principally in Illinois, Cub Foods, a chain
located principally in Georgia, and SuperValu (New England). The ILN has already
been installed in Cub Foods, and is expected to be installed in SuperValu (New
England) by the end of the fourth quarter and in Eagle Food Centers in the first
quarter of 2000.
During the first nine months of 1999, the Company entered into contracts
to install the ILN in Sainsbury's supermarkets and in Boots the Chemist stores
in the United Kingdom. Starting in the third quarter and continuing into the
fourth quarter, the Company installed 1,819 terminals in 454 stores. The Company
will continue equipping stores with the ILN through the first quarter of 2000.
Net sales during the nine-month period ended September 30, 1999 increased
to $4.3 million from $2.9 million in the 1998 period, primarily as a result of
the larger installed base of ILN terminals in the U.S. during the entire 1999
period versus the comparable period in 1998 and the Company's expanding presence
in the United Kingdom.
Operating loss for the nine-month period ended September 30, 1999 was
$29.9 million versus $32.7 million in the 1998 period. The improvement in
operating results for the 1999 nine months was due to the increase in revenue of
$1.4 million and lower selling, general and administrative ("S,G&A") costs
partially offset by a $1.3 million increase in depreciation and amortization and
a $1.3 million provision for severance and related costs due to the planned
relocation of the corporate offices to North Carolina in the first half of 2000,
which was communicated formally in the second quarter of 1999. Major factors in
the decrease in S,G&A expense for the year were a $3.1 million reduction in
non-paid company-sponsored promotions and lower litigation costs. Depreciation
charges and field service fleet expenses increased by $1.3 million and $278,000
respectively, reflecting the cost of the additional terminals in service in 1999
versus the comparable period in 1998.
Net loss for the nine-month period ended September 30, 1999 decreased by
approximately $1.9 million from $47.1 million to $45.2 million. Contributing to
the improvement was a $2.8 million reduction in operating losses, and an
extraordinary gain in the first quarter of 1999 on the repurchase of debt of
$1.7 million partially offset by higher interest expense of $1.8 million and
lower interest income of $889,000. Substantially all of the interest expense of
$17.3 million represents non-cash interest expense on the issuance of $142
million of 14% Senior Discount Notes on August 2, 1996 (See "--Liquidity and
Capital Resources"). Interest income of $246,000 for the first nine months of
1999 reflects a decreased average cash balance in 1999 compared to the 1998
period. Cash and cash equivalents at September 30, 1999 were $11.5 million as
compared to $4.0 million at September 30, 1998.
Three Months Ended September 30, 1999 Compared With Three Months Ended September
30, 1998
Net sales during the three-month period ended September 30, 1999 decreased
to $397,000 from $1.8 million in the 1998 period, principally due to the delay
in the commercial rollout of the ILN in Sainsbury's, a major European retailer.
During the delay, the Company elected to defer further invoicing on its revenue
backlog for Sainsbury's-related promotions. The Sainsbury's rollout resumed in
the third quarter of 1999. The decrease in revenue was also a result of the
Company's transition in U.S. sales management
8
<PAGE>
that took place during the end of 1998 and early 1999, which resulted in lower
sales build during the period.
Operating loss for the three-month period ended September 30, 1999 was
$10.7 million versus $9.3 million in the 1998 comparable period. The increase in
operating loss for the quarter was a direct result of the reduced revenue due to
the above-mentioned European delays and domestic sales management changes.
Net loss for the three-month period ended September 30, 1999 increased by
approximately $2.0 million from $14.4 million to $16.4 million primarily due to
the higher operating loss of $1.4 million and increased interest expense of
$331,000 coupled with a decrease in interest income of $174,000.
Liquidity and Capital Resources
For the nine months ended September 30, 1999 and 1998, cash used in
operating activities was $24.8 million and $31.8 million, respectively. From
inception to September 30, 1999, the Company has generated minimal revenue
relative to its expenses, primarily consisting of expenses related to the
development of its ILN technology, test marketing the product and recruiting
additional personnel. The Company has funded its operations through private
sales of equity and debt securities.
From its inception to September 30, 1999, the Company's shareholders have
contributed approximately $77.9 million of equity to the Company through private
offerings of common stock (the "Common Stock"), the conversion of approximately
$2.0 million in stockholder debt to Common Stock and a private offering of the
Company's 10% Series A Mandatorily Convertible Preferred Stock (the "Preferred
Stock").
The private offering of Preferred Stock began in July 1998 when the Board
of Directors authorized the sale of up to $40 million of Preferred Stock, first
to the Company's shareholders and then to other investors. The Preferred Stock
originally offered was convertible into Common Stock at a conversion rate of
$10.00 per share of Common Stock. As of December 31, 1998, the Company had
issued and sold 177,878 shares of Preferred Stock for gross proceeds of
approximately $17.8 million. In March 1999, the Board of Directors and
shareholders of the Company approved certain changes to the Preferred Stock and
the Board increased the aggregate offering of Preferred Stock to $70 million.
Such changes consisted of (i) a reduction in the conversion price from $10.00 to
$8.50 per share of Common Stock into which each share of Preferred Stock is
convertible, (ii) an increase in the number of votes per share of Preferred
Stock from 10 to the number of shares of Common Stock into which it is
convertible (initially 11.7647), (iii) accrual of dividends on the Preferred
Stock semi-annually, as opposed to quarterly, to be paid only in shares of
Preferred Stock and (iv) the addition of anti-dilution provisions. Such changes
are applicable to all shares of Preferred Stock issued prior to the effective
date of the changes and all additional shares of Preferred Stock to be issued in
the private offering. As of September 30, 1999, an aggregate of 488,868 shares
of Preferred Stock had been issued, representing net proceeds of $48.2 million.
In May 1998 the Company issued, in connection with the acquisition of
certain intellectual property, a note payable. This note, which was amended in
June 1999, bears interest currently at 10.0% per year on the $5.7 million
principal balance and is payable on June 1, 2000. If, prior to the maturity of
this note, the Company completes a qualifying initial public offering of Common
Stock or consummates a change of control, the then-outstanding principal balance
and accrued interest would be convertible into shares of the Company's Common
Stock at a conversion price of $8.50 per share, which management believes
represents the Fair Value of the Company's Common Stock at the time of the June
1999 amendment. This note is reflected as a current liability in the Company's
consolidated balance sheet as of September 30, 1999.
In 1996, the Company consummated a private offering of debt securities
(the "Private Placement") for which it received net proceeds of approximately
$90.8 million. The Private Placement consisted of 142,000 units representing
$142 million in aggregate principal amount of 14% Senior Discount Notes Due 2003
(the "Notes") and warrants (the "Warrants") to purchase initially an aggregate
of 1,041,428 shares of Common Stock of the Company at $.01 per share. As of
September 30, 1997, a Qualifying Initial Public Offering (as defined in the
Warrant Purchase Agreement) had not been completed and, as a result, the
Warrants were then adjusted to entitle respective holders to purchase an
aggregate of 1,338,918 shares of Common Stock at $.01 per share. Therefore, the
Company recorded additional Common Stock Purchase Warrants of $3.0 million
reflecting the valuation of the additional 297,492 shares, or 2.095 shares
issuable per warrant. In January 1997, the Company consummated an exchange offer
whereby the holders of the Notes issued in the Private Placement exchanged such
Notes for identical new Notes that were registered under the Securities Act of
1933, as amended, and that do not bear legends restricting the transfer thereof.
An interest payment of $8.7 million on the Notes is due and payable in February
2000. The Company is currently negotiating with the holders of the Notes to
exchange the Notes for a combination of new notes, a new series of preferred
stock and warrants. Cash payments of interest on the new notes would be
deferred. There is no assurance that these negotiations will result in a
successful transaction.
9
<PAGE>
In March 1999, the Company repurchased Notes with an aggregate face value
of approximately $2.4 million, for an aggregate of $194,000 in cash. None of the
Warrants originally issued as part of the offering of the Notes were purchased
in connection with this repurchase of the Notes. This repurchase of Notes
resulted in an extraordinary gain on extinguishment of debt of $1.7 million.
At September 30, 1999. the Company had working capital of $2.6 million,
compared to working capital of $7.0 million at December 31, 1998. Total cash and
cash equivalents at September 30, 1999 and December 31, 1998 was $11.5 million
and $14.2 million, respectively. The Company's current level of indebtedness,
amounting to approximately $129.8 million, represents long-term debt resulting
from the Private Placement and from the purchase of certain intellectual
property.
In the period ended September 30, 1999, cash used in investing activities
was $8.0 million, primarily reflecting disbursements for net capital
expenditures. Such net capital expenditures included ILN equipment and
components, fixtures, furniture and equipment for office expansion in Europe,
and other equipment. The Company estimates its 1999 capital expenditures will be
approximately $16.0 million, to be used primarily for ILN equipment.
Cash provided by financing activities during the period ended September
30, 1999 was $30.2 million resulting primarily from the Preferred Stock
issuance. No cash was provided by financing activities during the period ended
September 30, 1998.
The Company will require additional equity or debt financing to fund
capital expenditures, working capital requirements and operating losses to be
incurred in connection with the increased commercialization of its ILN. The
Company has entered into an agreement with a leasing company to lease up to $3.0
million of terminals and related equipment in the U.S., with a right of first
refusal on up to $10.0 million in additional lease financing. The Company is
working with its leasing source and other third parties to secure lease
financing for the purchase of ILN equipment in Europe. In addition, the Company
is negotiating with private investors for additonal equity and debt capital.
There is no assurance that such additional equipment financing or additional
capital can be obtained.
If additional funds are raised through the issuance of equity securities,
shareholders may experience dilution, or such equity securities may have rights,
preferences or privileges senior to the Common Stock.
If additional funds are raised through debt financing, such financing will
increase the financial leverage of the Company and earnings would be reduced by
the associated interest expense.
If the Company is unsuccessful in negotiating an exchange of the Notes for
new notes with a deferred interest payment or is unsuccessful in raising
additional equity capital or debt financing on acceptable terms, the Company may
be unable to continue its planned ILN installations, expand either the number
and dollar amount of Manufacturer commitments, or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
results of operations and financial condition.
Year 2000 Compliance
Many currently installed computer systems and software programs may be
coded to accept only two-digit entries in their respective date code fields and
cannot distinguish 21st century dates from 20th century dates. As a result, many
software and computer systems may need to be upgraded or replaced to distinguish
such dates and properly perform date manipulations in accordance with such
systems' intended uses (i.e., "Year 2000 compliant"). Since December 1997, the
Company has been surveying and assessing its known business-critical,
date-sensitive systems for Year 2000 compliance. The Company has also begun
investigating the Year 2000 compliance of all its business-critical service
vendors. In assessing its Year 2000 compliance, the Company is examining its
information technology infrastructure. The Company's Year 2000 compliance
project has included an examination, assessment and remediation of its
interactive terminal network, which the Company considers integral to its
information technology infrastructure. In addition, the Company is assessing the
Year 2000 compliance of certain of its business-critical, non-information
technology systems, such as security systems and other services for its central
and satellite offices. The survey and assessment phase of the Company's Year
2000 compliance project is substantially complete with respect to the Company's
internal systems.
In July 1998, the Company completed its source code review of all
internally developed software. The Company has corrected all problems found and
has incorporated the necessary changes into the most recent software release,
deployed in the first quarter of 1999. The Company also began testing all of its
production systems developed in-house in July 1998. The tests conducted by the
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<PAGE>
Company exercised all components of such production systems, including in-house
software, third-party software, and client software. The Company's tests of its
production systems, completed in the first quarter of 1999, identified
relatively few problems that had not already been identified by the source code
review. All problems found during testing were corrected through software
maintenance procedures. With the Company's Year 2000 compliance testing
complete, the Company has initiated an on-going compliance testing program so
that any system changes in internally developed software that the Company may
implement in the future do not introduce any new non-compliance issues.
The Company has completed its assessment of all central office and
in-store computer equipment. In doing so, the Company has identified the systems
that will require upgrades to become Year 2000 compliant. Approximately 600 out
of the Company's approximately 4500 in-store computer systems were not Year 2000
compliant. All non-compliant systems originated from a single computer vendor.
That vendor has identified two software patches that it claims will effectively
circumvent the noncompliance problems, one patch for the Company's interactive
terminal systems and one for its server systems. The Company has tested and
deployed both patches required for the Company's interactive terminal systems.
The Company has identified 107 of its service vendors as critical to the
Company's business. The Company has contacted all of these business-critical
vendors to determine their status with respect to Year 2000 compliance. To date.
the Company has received responses from approximately 30 of these vendors. All
vendors who responded indicated that they were not yet fully Year 2000 compliant
but were executing a plan to become so. Failure of third-party equipment,
software or content to operate properly with respect to the Year 2000 issue
could require the Company to incur unanticipated expenses to remedy problems,
which could have a material adverse effect on the Company's business, operating
results and financial condition. The Company cannot guarantee that the systems
of its service vendors or other companies on which it relies will be Year 2000
compliant.
The Company estimates that the cost of becoming Year 2000 compliant will
be approximately $200,000. The Company expects to expense any costs relating to
remedying Year 2000 problems as such costs are incurred. To date, the Company
has spent approximately $155,000 on such problems. Of these expenses,
approximately $95,000 were related to reprogramming or replacing software;
approximately $45,000 were related to replacing or upgrading of hardware; and
approximately $60,000 were project management and administrative expenses. All
of those costs have been funded through the Company's operating cash flows.
Although the assessment is still underway, management currently believes
that all business-critical internally developed systems will be compliant by the
year 2000 and that the hardware and software that make up the Company's
information technology infrastructure is substantially Year 2000 compliant.
However, there can be no assurance that the systems of other companies on which
the Company relies also will be converted on time or that any such failure to
convert by another company would not have an adverse effect on the Company's
operations. Breakdowns in the service infrastructure that supports the Company's
network could have an impact on the Company's operations, including the loss of
communication links with certain stores, loss of electric power to the Company's
central office or to isolated store systems, inability to process transactions
because of failure in the Company's retail clients' point of sales systems, and
an inability to execute purchases for new equipment, or engage in similar
business activities.
The Company has finalized a contingency plan for possible Year 2000
issues. Where it has identified a need the Company is establishing contingency
plans based on its actual testing experience with its vendor base and its
on-going assessment of the risks posed by the non-compliance of third party
vendors and others. The Company has contingency plans in place for most critical
vendors, the exception being power and telephone companies.
Because resolving Year 2000 issues is a worldwide phenomenon that will
likely absorb a substantial portion of information technology budgets and
attention in the near term, the impact of the year 2000 on the Company's future
revenue is difficult to discern but is a risk to be considered in evaluating
future growth of the Company.
Cautionary Statement for Purpose of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The statements contained in this Quarterly Report on Form 10-Q that are
not historical facts are forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995), which can be identified
by the use of forward-looking terminology such as "believes", "expects", "may",
"will", "should", or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. In addition, from time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but are not limited
to, various filings made by the Company with the Securities and Exchange
Commission, or press releases or oral statements made by or with the approval of
an authorized executive officer of the Company. Forward-looking statements are
based on management's current views and assumptions and involve risks and
uncertainties that could significantly affect expected results. The Company
wishes to caution the reader that factors, such as those listed below, in some
cases have affected and could affect the Company's actual results, causing
actual results to differ materially from those in any forward-
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looking statement. These factors include: (i) the Company's limited operating
history, significant losses, accumulated deficit, negative cash flow from
operations and expected future losses, (ii) the dependence of the Company on its
ability to establish, maintain and expand relationships with Manufacturers to
promote brands on the ILN and the uncertainty of market acceptance for the ILN,
(iii) the uncertainty as to whether the Company will be able to manage its
growth effectively, (iv) the early stage of the Company's products and services
and technical and other problems that the Company has experienced and may
experience, (v) risks related to the Company's substantial leverage and debt
service obligations, (vi) risks inherent in the necessity for the Company to
raise additional equity or debt financing to fund continuing losses, (vii) the
intensely competitive nature of the consumer product and promotional industry,
(viii) risks that the Company's rights related to patents, proprietary
information and trademarks may not adequately protect its business, (ix) the
Company's ability to attract and retain competent management employees and (x)
the risks associated with unforeseen technological issues connected with the
Company's own Year 2000 compliance project and the compliance efforts of third
parties on whom the Company relies. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors" of the Company's Annual Report on Form 10-K for the year ended December
31, 1998 for a more specific description of these risks. The Company's
discussion of its Year 2000 compliance project under the heading "Year 2000
Compliance" also contains forward-looking statements that are subject to risks
and uncertainties that could cause the actual results to differ from those
projected. These include the risks associated with unforeseen technological
issues connected with the Company's own Year 2000 compliance project and the
compliance efforts of third parties on whom the Company relies.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation with Catalina Marketing Corporation
and its subsidiary, Catalina Marketing International, Inc., involving alleged
patent infringement. See Note 3 "Legal Proceedings" of Notes to Consolidated
Financial Statements in Item I of Part I of this Quarterly Report on Form 10-Q,
which is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds
In 1998, the Board of Directors of Company established a series of
preferred stock of the Company--the 10% Series A Mandatorily Convertible
Preferred Stock (the "Preferred Stock")--and approved the sale of up to $40
million of Preferred Stock in a private offering in reliance on exemptions from
registration of such shares contained in Regulation D of the Securities and
Exchange Commission promulgated under the Securities Act of 1933, as amended
(the " 1933 Act"), because the offers and sales of such shares were limited to
the Company's existing shareholders and others who are "Accredited Investors"
(as defined in Regulation D) and up to 35 of the Company's existing shareholders
who are "qualified investors" (as defined in Regulation D). As of December 31,
1998, the Company had sold and issued 177,878 shares of Preferred Stock at a
purchase price of $100.00 per share resulting in approximately $17.8 million in
gross proceeds, $100,000 of which was received in the form of satisfaction of
accounts payable and the balance of which was received in cash. The proceeds of
the offering were and continue to be used to fund capital expenditures, working
capital requirements and operating losses incurred in connection with the
ongoing roll-out of the Company's ILN during 1999 and for general corporate
purposes.
In March 1999, the Board of Directors and shareholders of the Company
approved certain changes to the terms of the Preferred Stock and the Board of
Directors increased the aggregate number of shares of the Preferred Stock
offered to 700,000 at a price of $100.00 per share for an aggregate offering
price of $70 million. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
in Part I of this Quarterly Report on Form 10-Q. The changes apply to all shares
of Preferred Stock previously issued and to be issued pursuant to the private
offering. As of September 30, 1999, the Company had issued and sold an aggregate
of 488,868 shares of Preferred Stock at a price of $100.00 per share resulting
in net cash proceeds to the Company of approximately $48.2 million. Of such
shares, 32,029 were issued and sold during the third quarter of 1999.
Each share of Preferred Stock is automatically convertible into a number
of shares of the Company's common stock (the "Common Stock") equal to the
"Liquidation Preference" ($100.00 plus accrued and unpaid dividends) on the date
of conversion divided by the Conversion Price ($8.50, subject to adjustment in
certain events) upon (i) the closing of a Qualified Public Offering (defined
below), (ii) the closing of any Transaction (defined below) in which each holder
of shares of Preferred Stock is entitled to receive an amount of cash or
marketable securities having a current market value at least equal to the
Liquidation Preference of such shares of Preferred Stock (a "Qualified
Transaction") or (iii) the vote of not less than 75% of the outstanding shares
of Preferred Stock. "Qualified Public Offering" means a firm commitment public
offering of the Common Stock pursuant to a registration statement declared
effective under the 1933 Act, underwritten by a securities firm of nationally
recognized standing with an aggregate offering price to the public of not less
than $30 million and a price per share not less than the Conversion Price.
"Transaction" means any transaction (including, without limitation, a merger,
consolidation, share exchange. sale, lease or other disposition of all or
substantially all of the corporation's assets) in connection with which the
previously outstanding Common Stock shall be changed into or exchanged for
different securities of the corporation or capital stock or other securities of
another corporation or interests in a noncorporate entity or other property
(including cash) or any combination of the foregoing. At the option of the
holder, each share of Preferred Stock is also convertible at any time into a
number of shares of Common Stock equal to the Liquidation Preference on the date
of conversion divided by the Conversion Price.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(a) Restated Articles of Incorporation of the Company effective September 10, 1999.
*3(b) Amended and Restated Bylaws of the Company filed as Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
*4(a)(1) Specimen Certificate of the Company's Common Stock, filed as Exhibit 4(a) to the
Company's Registration Statement of Form S-4 (Registration 333-12091).
"4(a)(2) Specimen Certificate of the Company's 10% Series A Mandatorily Convertible Preferred
Stock, filed as Exhibit 4(a)(2) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
*4(b)(1) Shareholders' Agreement dated April 16, 1993, between the Company and its shareholders,
filed as Exhibit 10-in to the Company's Registration Statement on Form S-4
(No. 333-12091).
*4(b)(2) Amendment No. 1 to Shareholders' Agreement dated June 17, 1994, between the Company and
its shareholders, filed as Exhibit 10(n) to the Company's Registration Statement on Form
S-4 (No. 333-12091).
*4(c) Indenture dated August 1, 1996, between the Company and Fleet National Bank, as trustee,
relating to $142,000,000 in principal amount of 14% Senior Discount Notes due 2003, filed
as Exhibit 4(b) to the Company's Registration Statement on Form S-4 (Registration 333-12091).
*4(d) Warrant Agreement dated August 1, 1996, between the Company and Fleet National Bank, as Warrant
Agent, filed as Exhibit 10(1) to the Company's Annual Report on Form 10-K for the year ended
September 28, 1996.
10(b)(8) Key Employee Severance Plan
10(b)(9) Form of Severance Agreement for Key Employees
27. Financial Data Schedule.
</TABLE>
*Incorporated by reference to the statement or report indicated.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended
September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTER*ACT ELECTRONIC MARKETING, INC.
<TABLE>
<S> <C>
Date
----
By /s/ Stephen R. Leeolou November 19, 1999
---------------------------
Stephen R. Leeolou
Chairman, Chief Executive Officer and Treasurer
(Principal Financial Officer)
By /s/ Lee D. Armbuster
--------------------------- November 19, 1999
Lee D. Armbuster
President and Chief Operating Officer
</TABLE>
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................. 'TM'
The service mark symbol shall be expressed as.......................... 'sm'
15
