INTER ACT ELECTRONIC MARKETING INC, 10-Q, 2000-11-14

INTER ACT ELECTRONIC MARKETING INC
10-Q, 2000-11-14
BUSINESS SERVICES, NEC

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(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, 2000

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

Commission File Number: 333-12091

INTER.ACT ELECTRONIC MARKETING, INC.
(Exact name of registrant as specified in its charter)

North Carolina
(State or other jurisdiction
of incorporation or organization)

56-1817510
(I.R.S. Employer
Identification No.)

6836 Morrison Boulevard, Suite #200
Charlotte, North Carolina
(Address of principal executive offices)

28211
(Zip Code)

Registrant's telephone number, including area code: (704) 770-2100

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 November 14, 2000, the number of shares outstanding of the
registrant's Common Stock was 7,743,739. 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.

1
<PAGE>

INDEX
<TABLE>
<CAPTION>

Page
----
<S> <C>
Part I--Financial Information

Item 1. Financial Statements
Consolidated Balance Sheets--September 30, 2000 (unaudited) and December 31, 1999..................
Consolidated Statements of Operations for the three-month and nine-month periods ended September
30, 2000 and 1999 (unaudited)......................................................................
Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2000 and
1999 (unaudited)...................................................................................
Notes to Consolidated Financial Statements.........................................................

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............

Part II--Other Information

Item 1. Legal Proceedings.................................................................................

Item 2. Changes in Securities and Use of Proceeds.........................................................

Item 3. Exhibits and Reports on Form 8-K

Signatures..................................................................................................
</TABLE>

2
<PAGE>

PART I--FINANCIAL INFORMATION

Item 1. Financial Statements

INTER.ACT ELECTRONIC MARKETING, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

September 30, December 31,
------------- ------------
2000 1999
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 1,229 $ 9,939
Receivables, net.............................................................. 2,632 1,715
Other current assets.......................................................... 3,575 4,206
----------- -----------
Total current assets..................................................... 7,436 15,860
Property, plant and equipment, net.................................................... 28,162 31,222
Bond issuance costs, net.............................................................. 72 96
Patents, licenses and trademarks, net................................................. 7,094 7,812
Other noncurrent assets............................................................... 108 123
----------- -----------
Total assets............................................................. $ 42,872 $ 55,113
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................................. $ 6,270 $ 5,351
Accrued expenses.............................................................. 4,246 3,415
Current portion of debt....................................................... 14,536 6,135
Deferred revenue.............................................................. 1,136 332
----------- -----------
Total current liabilities................................................ 26,188 15,233
Long-term debt, net of discount and current portion................................... 74,329 63,949
Accrued dividends..................................................................... 11,399 4,071
----------- -----------
Total liabilities........................................................ 111,916 83,253
----------- -----------
Common stock purchase warrants........................................................ 11,367 11,367
----------- -----------
14% Series B Senior Mandatorily Redeemable Convertible Preferred Stock, no par
value, authorized 140,000 shares; 139,575 shares issued and outstanding at
September 30, 2000 and December 31, 1999.......................................... 61,643 59,146
----------- -----------
10% Series C Mandatorily Redeemable Convertible Preferred Stock, no par value,
authorized 250,000 shares; 148,860 and 70,120 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively............................. 15,906 7,039
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
10% Series A Mandatorily Convertible Preferred Stock, no par value,
authorized 700,000 shares; 498,868 shares issued and outstanding at
September 30, 2000 and December 31, 1999...................................... 56,943 53,199
Common stock, no par value, authorized 50,000,000 shares; 7,743,739 shares
issued and outstanding at September 30, 2000 and December 31, 1999.......... 28,380 28,380
Additional paid-in capital.................................................... 22,468 22,468
Accumulated other comprehensive income........................................ 782 26
Accumulated deficit........................................................... (266,533) (209,765)
----------- -----------
Total stockholders' equity (deficit)..................................... (157,960) (105,692)
----------- -----------
Total liabilities and stockholders' equity (deficit)..................... $ 42,872 $ 55,113
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

3
<PAGE>

INTER.ACT ELECTRONIC MARKETING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Three Months Ended Nine Months Ended
---------------------- ---------------------
September 30, September 30, September 30, September 30
------------- ------------- ------------- ------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Gross sales $ 1,680 $ 974 $ 5,682 $ 6,153
Less: Retailer reimbursements...................... (69) (577) (1,104) (1,877)
--------- --------- ---------- ----------
Net sales..................................... 1,611 397 4,578 4,276
--------- --------- ---------- ----------
Operating expenses:
Direct costs....................................... 1,165 2,222 4,921 7,110
Selling, general and administrative expenses....... 5,613 6,495 20,459 20,319
Depreciation and amortization of intangible assets. 3,457 2,392 9,921 6,791
--------- --------- ---------- ----------
Total operating expenses...................... 10,235 11,109 35,301 34,220
--------- --------- ---------- ----------
Operating loss............................................. (8,624) (10,712) (30,723) (29,944)
--------- --------- ---------- ----------
Other income (expense):
Interest income.................................... 22 128 67 246
Interest expense................................... (4,308) (5,803) (11,550) (17,266)
--------- --------- ---------- ----------
Total other expense........................... (4,286) (5,675) (11,483) (17,020)
--------- --------- ---------- ----------
Loss before extraordinary item and income taxes............ (12,910) (16,387) (42,206) (46,964)
Income taxes............................................... - - - -
--------- --------- ---------- ----------
Net loss before extraordinary item............ (12,910) (16,387) (42,206) (46,964)
Extraordinary item--gain on extinguishment of debt.......... - - - 1,728
--------- --------- ---------- ----------
Net loss...................................... (12,910) (16,387) (42,206) (45,236)
Preferred stock dividends accrued.......................... (4,921) (1,215) (14,562) (2,416)
--------- --------- ---------- ----------
Net loss attributable to common stock...................... $ (17,831) $ (17,602) $ (56,768) $ (47,652)
========= ========= ========== ==========
Per share information:
Net loss per common share before extraordinary item:
Basic and diluted.................................. $ (2.30) $ (2.28) $ (7.33) $ (6.39)

Extraordinary item--gain on extinguishment of debt - - - .22
--------- --------- ---------- ----------
Net loss per common share:
Basic and diluted.................................. $ (2.30) $ (2.28) $ (7.33) $ (6.17)
========= ========= ========== ==========
Common shares used in computing per share amounts:
Basic and Diluted.................................. 7,744 7,729 7,744 7,729
========= ========= ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

4
<PAGE>

INTER.ACT ELECTRONIC MARKETING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, September 30,
------------- -------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (42,206) $ (45,236)
Items not affecting cash and cash equivalents:
Depreciation and amortization of fixed and intangible assets. 10,663 6,791
Non-cash interest on discounted bonds......................... 10,402 13,987
Extraordinary gain on extinguishment of debt.................. 0 (1,728)
Other items, net.............................................. (352) (55)
Changes in working capital:
Receivables, net.............................................. (917) 1,540
Accounts payable and accrued expenses......................... 1,750 2,224
Other current assets.......................................... 649 (825)
Deferred revenues............................................. 804 (1,470)
--------- ---------
Net cash used in operating activities.................... (19,207) (24,772)
--------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment..................... (6,509) (8,011)
Proceeds from disposal of assets................................... -- 2
--------- ---------
Net cash used in investing activities.................... (6,509) (8,009)
Cash flows from financing activities:
Debt repayments.................................................... (359) (23)
Long-term debt retirements......................................... -- (194)
Proceeds from preferred stock issuance............................. 7,875 30,402
Proceeds from lease financing...................................... 488 --
Proceeds from loan issuance........................................ 8,250 --
--------- ---------
Net cash provided by financing activities................ 16,254 30,185
--------- ---------
Foreign exchange effects on cash and cash equivalents...................... 752 (60)
--------- ---------
Net (decrease) increase in cash and cash equivalents....................... (8,710) (2,656)
Cash and cash equivalents at beginning of period........................... 9,939 14,166
--------- ---------
Cash and cash equivalents at end of period................................. $ 1,229 $ 11,510
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 562 $ 498
--------- ---------
Supplemental disclosures of non-cash investing and financing activities:
Dividends payable in preferred stock............................... $ 7,233 $ 2,416
--------- ---------
Accrued dividends payable in cash.................................. $ 7,328 $ --
--------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

5
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INTER.ACT ELECTRONIC MARKETING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2000 and September 30, 1999

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, believes it operates the world's largest fully electronic marketing
network linked to supermarket and pharmacy retailers' point-of-sale ("POS")
databases that serves on-line promotions and advertisements to shoppers
seamlessly in-store, at home and in the office. The Company's patented
technologies enable consumer products manufacturers ("Manufacturers") and
supermarket retailers ("Retailers") to use historical purchase behavior data to
develop targeted purchase incentives and messages which the Company delivers to
customers before shopping begins. The Company's proprietary system, called the
Inter.Act e-Marketing NetworkSM ("IEMN"), currently consists of server-based
interactive terminals located inside the front entrance of stores in retail
chains in the U.S. and Europe, as well as a recently launched Company-owned
Internet web site called ShopperPerks.com. The Company's web site and its
in-store ShopperPerks(TM) portals, are linked directly to each store's
point-of-sale scanning system via Company-owned in-store servers. This on-line
network gives Inter.Act's business partners exclusive access to offer all
shoppers (whether Internet users or not) same-day, personalized savings that are
electronically downloaded to participating Retailers' cash register systems.
Delivering highly targeted, pre-shopping promotions on the IEMN historically has
generated average consumer response, or redemption, rates above 25%, which the
Company believes are superior to the response rates of any other marketing or
advertising media in the industry.

From inception to September 30, 2000, the Company has incurred
recurring losses and has experienced negative operating cash flow. Revenues from
the Company's United States operations have not met projections and the Company
was recently unsuccessful in securing sufficient additional debt or equity
financing at appropriate costs necessary to maintain its operations in both the
U.S. and Europe. Following strategic discussions with a number of third parties,
the Company announced in September 2000 its intentions to sell all or
substantially all of the assets in its U.S. operating business, including the
sale or licensing of certain patents and other intellectual property. In
anticipation of such divestiture, the Company substantially reduced its work
force and overhead expenditures in the United States. The divestiture is not
intended to include the Company's assets and operations in the United Kingdom
and continental Europe, where it plans to continue to expand its operations. See
further discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company has initiated the sale of its U.S. operations and is
currently in the preliminary stages of discussions with potential buyers. At
this time it is uncertain as to the ultimate sale proceeds, if any, that may be
realized. Further, there can be no assurance that the Company will be successful
in consummating such a sale. Accordingly, the accompanying financial statements
do not reflect any adjustment to asset carrying values as a result of the
planned divestiture. However, adjustments that may be required at the time the
structure and valuation of the proposed sale are clarified may be material to
the Company's financial statements.

The expected one-time cash infusion from the sale of the assets and/or
revenue from the licensing of its intellectual property is expected to pay off
certain debt and/or to expand the Company's European operations, depending on
the level of cash proceeds received. If the sale of the U.S. operating assets or
licensing of intellectual property is not successful, the Company may require
additional equity or debt financing for these purposes to the extent cash flow
from the Company's European operations does not meet management expectations.
Other factors could affect Inter.Act's actual future financial results,
including: (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 consumer product manufacturers to promote brands
on the IEMN and the uncertainty of market acceptance for the IEMN, (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 may experience, (v) risks related
to the Company's leverage and debt service obligations, (vi) risks associated
with the possible need for the Company to raise additional equity or debt
financing to fund continuing losses, (vii) the Company's dependence on third
parties, (viii) the intensely competitive nature of the consumer product and
promotional industry, (ix) risks that the Company's rights related to patents,
proprietary information and trademarks may not adequately protect its business,
(x) risks related to managing the overseas operations from the United States and
(xi) the possible inability of new management to perform their respective roles.

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying interim financial statements as of September 30, 2000
and for the nine-month periods ended September 30, 2000 and 1999 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/A for the year ended December 31, 1999.

6
<PAGE>

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS Nos. 137
and 138, is effective for all fiscal years beginning after June 15, 2000 and
will not require retroactive restatement of prior period financial statements.
This statement requires the recognition of all derivative instruments as either
assets or liabilities in the balance sheet measured at fair value. Derivative
instruments will be recognized as gains or losses in the period of change. If
certain conditions are met where the derivative instrument has been designated
as a fair value hedge, the hedge items may also be marked to market through
earnings, thus creating an offset. If the derivative is designed and qualifies
as a cash flow hedge, the changes in fair value of the derivative instrument may
be recorded in comprehensive income. The Company does not presently make use of
derivative instruments.

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

Comprehensive income and its components are as follows:

Nine Months Ended
-------------------
September 30, September 30,
--------------- ---------------
2000 1999
------ ------
(Unaudited)
(In thousands)
Net Loss................................. $(42,206) $(45,236)
Other comprehensive income (loss)
Translation adjustments............. 752 (60)
---------- ------------

Other comprehensive income (loss)... 752 (60)
----------- ------------
Comprehensive loss....................... $(41,454) $(45,296)
=========== ============

The components of accumulated other comprehensive income included in
the accompanying consolidated balance sheets consist of cumulative foreign
currency translation adjustments as of the end of the periods.

5. Segment Reporting

The Company observes the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." While the Company's results
of operations are primarily reviewed on a consolidated basis, the chief
operating decision maker also manages the enterprise in two geographic segments:
(i) North American and (ii) Europe. The following represents selected
consolidated financial information for the Company's segments for the periods
ended September 30, 2000 and 1999, respectively.

For the Period Ended September 30, 2000
-----------------------------------------------------
Operating Data North America Europe Eliminations Consolidated
--------------------------------- ------------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales....................... 1,116 3,462 4,578
Income (Loss) from operations... (37,213) (4,993) (42,206)
Depreciation.................... 5,895 3,307 9,202
Capital Expenditures............ 1,429 5,080 6,509
Identifiable Assets............. 22,557 14,838 (1,617) 35,778

For the Period Ended September 30, 1999
----------------------------------------------------
Operating Data North America Europe Eliminations Consolidated
--------------------------------- ------------- ------ ------------ ------------
</TABLE>

7
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<TABLE>

<S> <C> <C> <C> <C>
Net sales....................... 1,825 2,451 4,276
Income (Loss) from operations... (42,962) (2,346) 72 (45,236)
Depreciation.................... 5,487 585 6,072
Capital Expenditures............ 1,274 6,737 8,011
Identifiable Assets............. 41,129 11,590 (1,770) 50,949
</TABLE>

6. Legal Proceedings

In February 1996, the Company filed suit in the United States District
Court in the District of Connecticut against Catalina Marketing Corporation
(together with its subsidiary Catalina Marketing International, Inc., "Catalina
Marketing") alleging that Catalina had infringed one of the Company's licensed
patents and seeking money damages (including costs and expenses) and a permanent
injunction against Catalina to stop further infringement of the patent. In May
1997, Catalina asserted a counterclaim alleging that the Company had infringed a
Catalina patent. In January 1998, Catalina filed suit against the Company
alleging that the Company had infringed another Catalina patent. In May 1998,
the Company filed another suit in the United States District Court in the
District of Connecticut against Catalina alleging that Catalina had infringed
other patents that the Company acquired in 1998 and seeking monetary damages
(including costs and expenses). Catalina challenged some of the claims of these
patents by invoking interference proceedings in the U.S. Patent and Trademark
Office. The Company has vigorously pursued its claims and defended the claims
against it in the lawsuits and interference proceedings. The litigation with
Catalina was settled in October 2000 when all parties agreed to dismiss the
lawsuits and the Company ceased to be a party in interest to the interference
proceedings. In connection with the settlement of one of the lawsuits, the
Company received net proceeds (after legal expenses) of approximately $12
million from Catalina and the Company assigned certain of its patents to
Catalina. The Company received an exclusive royalty free license back to the
Company with respect to the assigned patents in certain fields of use, including
the Company's present field-of-use, and a non-exclusive royalty free license
back in certain other areas outside the Company's present field-of-use. These
transactions are not reflected in the Company's financial statements as of and
for the period ending September 30,2000.

7. Subsequent Events

The Company settled litigation with Catalina in October 2000. See Note
6 above. Concurrently with the settlement, the Company issued a warrant to
purchase 150,000 shares of its common stock in exchange for cancellation of a
note issued in connection with a patent purchase in 1998. Approximately $5.6
million of current debt (including accrued interest) is represented by such
note. Also in October 2000, the Company received an additional $1.0 million in
proceeds from the issuance of its 25% Senior Secured Convertible Notes. See
further discussion of these events in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
below. These events are not reflected in the results of operations for the
period ending September 30, 2000.

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, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000 or any other period.

The Company believes that it operates the world's largest fully
electronic marketing network linked to supermarket and pharmacy retailers'
point-of-sale ("POS") databases that serves on-line promotions and
advertisements to shoppers seamlessly in-store, at home and in the office. The
Company's patented technologies enable consumer products manufacturers
("Manufacturers") and supermarket retailers ("Retailers") to use historical
purchase behavior data to develop targeted purchase incentives and messages
which the Company delivers to customers before shopping begins. The Company's
proprietary system, called the Inter.Act e-Marketing NetworkSM ("IEMN"),
consists of server-based inter-active terminals located inside the front
entrance of stores in retail chains in the U.S. and Europe, as well as a
recently launched Company-owned Internet web site called ShopperPerks.comSM. The
Company's web site and its in-store ShopperPerksTM portals, are linked directly
to each store's point-of-sale scanning system via Company-owned in-store
servers. This on-line network gives Inter-Act's business partners exclusive
access to offer all shoppers (whether Internet users or not) same-day,
personalized savings that are electronically downloaded to participating
Retailers' cash register systems. Delivering highly targeted, pre-shopping
promotions on the IEMN historically has generated average consumer response, or
redemption, rates above 25%, which the Company believes are superior to the
response rates of other marketing or advertising media in the industry.

Strategic Redirection

From inception to September 30, 2000, the Company did not generate
significant operating revenue relative to its expenses, incurred significant
losses and experienced substantial negative cash flow from operations. The
majority of losses has

8
<PAGE>

been generated by its operations in the United States. The Company's business in
Europe is less capital intensive, and management believes the Company's European
operations will generate positive operating income much sooner than would its
United States operations. Following strategic discussions with a number of third
parties, the Company announced in September 2000 its intentions to sell all or
substantial all of the assets in its United States operating business, including
the sale or licensing of certain patents and other intellectual property. In
anticipation of such a divestiture, the Company has significantly reduced its
workforce and overhead expenditures in the United States. The divestiture is not
intended to include the Company's assets and operations in the United Kingdom
and continental Europe, where it plans to continue to expand its operations.

Revenues

During 1998 and to a limited extent in 1999, 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. Through 1999, the Company also had arrangements with
Manufacturers whereby the Company received a fixed payment over a fixed period,
generally one year. In these cases, the Company recognized 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.

In 2000, the Company began receiving variable fees from Manufacturers
for each product redeemed and fixed fees for project management of each
promotion. The Company recognizes revenue as electronic discounts are redeemed
at the store cash register and, for the project management fee, on a ratable
basis over the fixed period over which it is providing services or exclusivity
to such Manufacturers. The Company believes that more Manufacturers will agree
to promote more products on the IEMN with this new pricing format, since the
cost per product sold is expected to be lower, but there is no assurance that
this will be the case.

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.

Promotions by U.S. Manufacturers, and thus consolidated revenues, have
not met projections thus far. Net revenues during the nine-month period ended
September 30, 2000 increased to $4.6 million from $4.3 million in the 1999
period. Of the nine-month revenues in 2000, $1.1 million are attributable to
operations in United States and $3.5 million are attributable to operations in
Europe.

Expenses

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 on promotions offered on the
IEMN that are not funded by a Manufacturer contract. Manufacturer participation
in the IEMN to date has been characterized by a substantial number of trial
commitments leading to increasing dollar commitments to the IEMN from those
Manufacturers as the network approaches a more national footprint.

Consolidated Cash Flow for the Nine Months Ended September 30, 2000

At September 30, 2000, the Company had net working capital of $ (18.8)
million, compared to working capital of $627,000 at December 31, 1999. Total
cash and cash equivalents at September 30, 2000 and December 31, 1999 was $1.2
million and $9.9 million, respectively. At September 30, 2000, long-term debt
was $85.7 million compared to $68.0 million at December 31, 1999. The long-term
debt consists of PIK Notes (see "Liquidity and Capital Resources"), accrued
interest, accrued dividends, and capital leases. The increase in long-term debt
was primarily attributable to accrued interest on the PIK Notes.

Cash used in operating activities during the period ended September 30,
2000 was $19.2 million, as compared to $24.8 million at September 30, 1999. Cash
has been used primarily for the development of the Company's IEMN technology,
test marketing and deploying the product and compensation of personnel. Cash
used in operating activities during the period ended September 30, 2000 for the
U.S. and European operations were $18.0 million and $1.2 million, respectively.

9
<PAGE>

Cash used in investing activities during the period ended September 30,
2000, was $6.5 million, reflecting disbursements for net capital expenditures.
Such net capital expenditures were primarily for IEMN equipment and components,
fixtures, furniture and equipment for expansion in Europe, and other equipment.
Cash used in investing activities during the 2000 period for the U.S. and
European operations were $1.4 million and $5.1 million, respectively. For the
period ended September 30, 1999, cash used in investing activities was $8.0
million, primarily reflecting disbursements for net capital expenditures.

Net cash provided by financing activities during the period ended
September 30, 2000 was $16.3 million. $8.3 million was from issuance of short
term debt and $7.9 million was from private offering of preferred stock. For the
period ended September 30, 1999, cash provided by financing activities was $30.2
million resulting primarily from the net proceeds from private offerings of
preferred stock.

Nine Months Ended September 30, 2000 Compared With Nine Months Ended
September 30, 1999

Net sales during the nine-month period ended September 30, 2000
increased to $4.6 million from $4.3 million in the 1999 period.

Operating loss for the nine-month period ended September 30, 2000 was
$30.7 million versus $29.9 million in the 1999 comparable period. The decrease
in operating results for the nine-month period resulted from higher selling,
general and administrative costs of $140,000 and higher depreciation and
amortization expenses of $3.1 million partially offset by decreased direct costs
of $2.2 million.

Net loss for the nine-month period ended September 30, 2000 decreased
by approximately $3.0 million from $45.2 million to $42.2 million primarily due
to higher operating losses in the 2000 period, partially offset by lower
interest expense of $5.7 million due to the Exchange Offer (See "Liquidity and
Capital Resources") and augmented by an extraordinary gain on the repurchase of
debt of $1.7 million in the 1999 period. Interest expense of $11.6 million
represents primarily non-cash interest expense on the issuance of $69.7 million
of 14% Senior Discount Notes on August 2, 1996 (See "Liquidity and Capital
Resources"). Interest income of $67,000 for the first nine months of 2000
reflects a decreased average cash balance during the first nine months of 2000
versus the comparable period in 1999.

Three Months Ended September 30, 2000 Compared With Three Months Ended
September 30, 1999

Net sales during the three-month period ended September 30, 2000
increased to $1.6 million from $397,000 in the 1999 period, primarily as a
result of increased store count in the UK.

Operating loss for the three-month period ended September 30, 2000 was
$8.6 million versus $10.7 million in the 1999 comparable period. The improvement
in operating results for the three-month period resulted from increased revenue
of $1.2 million, decreased direct costs of $1.1 million, and decreased selling,
general and administrative costs of $882,000. This improvement was offset by
higher depreciation of $1.1 million.

Net loss for the three-month period ended September 30, 2000 decreased
by approximately $3.5 million from $16.4 million to $12.9 million. This
improvement in net loss resulted from improved operating results of $2.1 million
and lower interest expense of $1.5 million due to the Exchange Offer (See
"Liquidity and Capital Resources".) Interest expense of $4.3 million represents
primarily non-cash interest expense on the issuance of $69.7 million of 14%
Senior Discount Notes on August 2, 1996 (See "Liquidity and Capital Resources").
Interest income of $22,000 for the three months of 2000 reflects a decreased
average cash balance during 2000 versus the comparable period in 1999.

Liquidity and Capital Resources

To date, the Company has not generated significant operating revenue
relative to its expenses, has incurred significant losses and has experienced
substantial negative cash flow from operations. The Company has funded its
operations through private sales of equity and debt securities and recently
through short-term loans intended to bridge equipment leasing and other
financing. At September 30, 2000, the Company had cash and cash equivalents of
$1.2 million and net working capital of $(18.8) million.

From inception through September 30, 2000, the Company's shareholders
contributed approximately $174.0 million of equity to the Company through
private offerings of common stock, the conversion of approximately $2.0 million
in stockholder debt to common stock and private offerings of preferred stock.
The Company also raised in excess of $100 million in proceeds from long-term
debt and short-term loans.

The Company's long-term debt primarily consists of its 14% Senior
Pay-in-Kind Notes Due 2003 (the "PIK Notes") issued in December 1999 in
connection with an exchange offer of notes, preferred stock and warrants for
certain long-term debt

10
<PAGE>

(the "Exchange Offer"). The PIK Notes mature on August 1, 2003 and accrue
interest at a rate of 14% per annum from and after August 1, 1999, payable
semiannually on February 1 and August 1 of each year, beginning February 1,
2000. The Company may, at its option, elect not to make interest payments in
cash prior to the date that is 18 months following the earlier of an initial
public offering of the Company's common stock or a Change in Control (as defined
in the Indenture governing the PIK Notes). To the extent that the Company does
not pay interest in cash, the interest accrued on the PIK Notes will be paid by
the issuance of additional promissory notes, which will have substantially the
same terms, including date of maturity and interest rate, as the PIK Notes. On
February 1, 2000 and August 1, 2000 the Company issued additional PIK Notes in
the aggregate principal amount of $4.9 million and $5.2 million, respectively,
as payment of the interest accrued on the PIK Notes. As of September 30, 2000,
an aggregate of $79.9 million in PIK Notes were outstanding, representing $69.8
million of PIK Notes issued in the Exchange Offer and $10.1 million of PIK Notes
issued in lieu of interest. Under an Exchange and Registration Rights Agreement
entered into in connection with the Exchange Offer, if the Company had not
commenced an initial public offering or filed with the Securities and Exchange
Commission a registration statement for identical notes to be exchanged for the
PIK Notes within 180 days of the Exchange Offer, penalty interest in the amount
of an additional one half of one percent for each 90 day period that the PIK
Notes were not registered would accrue on the outstanding principal amount of
the PIK Notes. The Company has not completed an initial public offering nor has
the Company filed a registration statement. Consequently, $123,000 of penalty
interest was accrued in the financial statements for September 30, 2000.

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, accrued interest at 10.0% per year on the original $5.7 million
principal balance and was payable on July 31, 2000. Although, as discussed
below, this note has been recently cancelled, it is reflected as a current
liability in the Company's consolidated balance sheet as of September 30, 2000.

The Company also financed capital expenditures through equipment
leases. In April 1999, the Company entered into an agreement with a leasing
company pursuant to which it leased approximately $1.4 million of terminals and
related equipment in the U.S. Payments under the 3-year lease are approximately
$564,000 per year. In May 2000, the Company entered into a equipment lease
agreement with a leasing company for approximately $500,000 of computer
equipment. Payments under the three-year lease are approximately $16,000 per
month. In connection with this lease financing, the Company issued the leasing
company a five-year warrant to purchase 1,946 shares (increasing by 5% each
semi-annual period) of common stock of the Company at an exercise price of
$14.00 per share.

The Company also received short-term financing under two bridge loans.
Such bridge loans were made based on the assumption that the Company would
receive substantial equipment lease financing under negotiation at the time the
loans were made, and that the proceeds therefrom would be used to repay the
bridge loans. The Company has been unsuccessful in obtaining sufficient
equipment financing to repay the bridge loans.

One of the bridge loans was made by an equipment leasing broker in May
2000 in the amount of $1.5 million. In connection therewith, the Company granted
the lender a security interest in certain of its assets. The note provided that
in the event it was not paid upon its maturity on July 24, 2000, the unpaid
balance would thereafter bear interest until fully paid at the lesser of 22.5%
per annum or the maximum rate allowed by law. In addition, the Note provided
that if it were not paid in full on the maturity date, the lender would receive
a warrant to purchase 5,358 shares of common stock of the Company (increasing by
5% each semi-annual period) at an exercise price of $14.00 per share for five
years. The $1.5 million note was not paid when due. The warrant was thus
delivered and the interest rate under the note increased to 22.5%. In order to
prevent the lender from foreclosing on the collateral securing the note and
disrupting the business operations of the Company, certain directors of the
Company recently purchased the note and succeeded to the security interests in
the collateral. The note has not been paid and is accruing interest at 22.5% per
annum. The directors have agreed with the Company that any action by them with
respect to the collateral or with respect to the note shall require the vote of
directors owning a majority of the principal amount of the note.

The other bridge loan was from a bank in June 2000 in the amount of
$5.0 million. As a condition of making the loan, the bank required that certain
directors and a major shareholder unconditionally personally guarantee the
obligations under the note. This amount is reflected in current liabilities. The
note was due on September 15, 2000; however, it has been extended to December
31, 2000. In consideration for the guaranties, the Company agreed to give the
guarantors terms equivalent to those given to equipment leasing broker under its
$1.5 million bridge financing, which had been negotiated on an arm's length
basis. The Company agreed to pay the guarantors a guaranty fee in an amount per
annum equal to the difference between the effective rate of interest between the
two bridge notes. In addition, the Company agreed that should any guarantor be
required to make a payment on his or its respective guaranty, the Company would
issue to such guarantor a five year warrant (on terms equivalent to the other)
to purchase at an exercise price of $14.00 per share a number of shares of
common stock of the Company equal to 5% of the amount paid to the bank under the
guaranty divided by 14. The Company further agreed that the interest rate on any
obligation of the Company to the guarantors under their subrogation rights would
be the lesser of 22.5% or the maximum rate allowed by law.

11
<PAGE>

common stock of the Company. The Senior Notes accrue interest at the rate of
twenty-five percent (25%) per annum and are due and payable two years from the
date of issuance or within ten days of written demand by the holder at any time
after one year from the date of issuance (or within ten days of written demand
by holders representing 75% of the outstanding Senior Notes at any time after
121 days from the date of issuance). Upon the closing of any sale of
substantially all of its U.S. assets, the Company must immediately pay the
outstanding principal and interest due under the Senior Notes; provided,
however, that any such prepayment is limited to the extent of the proceeds of
such asset sale and shall be paid to Senior Note holders on a pari passu basis
with certain other creditors as described in the Senior Note. The Company may
prepay all or any part of the indebtedness evidenced by the Senior Notes without
any prepayment penalty or fee at any time after one year from the date of
issuance thereof or sooner if the Company has received written approval from
holders representing at least 75% of the aggregate outstanding principal amount
of the Senior Notes; provided, however, that any prepayment on the Senior Notes
at the option of the Company will be pro rata with respect to all the Senior
Notes outstanding. The Senior Notes are secured by a lien on accounts
receivable, inventory and equipment consisting of IEMN terminals of the Company,
and are convertible at the option of the holder into shares of the same equity
security as next issued by the Company in an amount greater than $1,000,000 at
the same price per share at which such security is sold to a bona-fide investor.

In September 2000, the Company announced its intentions to sell all or
substantially all of the assets in its U.S. operating business, including the
sale or licensing of certain patents and other intellectual property. In
anticipation of such divestiture, the Company substantially reduced its
workforce and overhead in the United States. The divestiture is not intended to
include the Company's assets and operations in the United Kingdom and
continental Europe, where it plans to continue to expand its operations. These
steps were necessary because, in the opinion of management, the U.S. operating
and financial results were not improving rapidly enough to justify further
investment at the present cost of the Company's capital.

In October 2000, the Company received an additional $1.0 million in
proceeds from the issuance of its Senior Notes and also received net proceeds of
$12.0 million in connection with the settlement of certain patent litigation and
assignment of certain patents. See Note 6, Legal Proceedings, of Notes to
Consolidated Financial Statements above. Concurrently with the settlement, the
Company issued a warrant to purchase 150,000 shares of common stock to the
holder of a note issued in connection with a patent purchase in 1998 in exchange
for cancellation of the note, thereby extinguishing approximately $5.6 million
in short-term debt.

The expected one-time cash infusion from the anticipated sale of the
Company's U.S. assets and/or revenue from the licensing of its intellectual
property is expected to be used to pay off certain debt and/or to expand the
Company's European operations, depending on the level of cash proceeds received.
There is no assurance that the U.S. asset sale or licensing will be successful
or that the proceeds will be sufficient for these purposes. Even if successful,
the Company may require additional capital or equipment or other debt financing
in order to continue its IEMN expansion in Europe. Further, the Company expects
to incur additional net losses in the remainder of 2000 and may operate at a
loss for the foreseeable future. There can be no assurance that the Company will
achieve profitability or, if achieved, sustain such profitability.

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 forwarding-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-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 consumer product manufacturers to promote
brands on the IEMN (as defined herein) and the uncertainty of market acceptance
for the IEMN, (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 may experience,
(v) risks related to the Company's 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 Company's dependence on
third parties, (viii) the intensely competitive nature of the consumer product
and promotional industry, (ix) risks that the Company's rights related to
patents, proprietary information and trademarks may not adequately protect its
business, (x) risks relating to the relocation of the Company's corporate
offices, including potential costs involved in the relocation as well as the
need for new employees to develop the skills necessary to develop the Company's
business and (xi) the possible inability of new management to perform their
respective roles. See Part II, Item 7. "Management's

12
<PAGE>

Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors" of the Company's Annual Report on Form 10K/A for the year ended
December 31, 1999 for a more specific description of these risks.

13
<PAGE>

PART II--OTHER INFORMATION

Item 1. Legal Proceedings

The Company has been involved in, and has recently settled, litigation
with Catalina Marketing Corporation and its subsidiary, Catalina Marketing
International, Inc., involving alleged patent infringement. See Note 6, 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

During the quarter ended September 30, 2000, the Company issued and
sold $1.75 million of its 25% Senior Secured Convertible Notes (the "Senior
Notes"). Purchasers of the notes received warrants to purchase an aggregate of
175,000 shares of common stock of the Company. The notes and warrants were
offered and sold in reliance on exemptions from registration of such warrants
under Section 4(2) of the Securities Act of 1933, as amended, because the
offerees were "Accredited Investors", as defined in Regulation D of the
Securities and Exchange Commission.

The Senior Notes accrue interest at the rate of twenty-five percent
(25%) per annum and are due and payable two years from the date of issuance or
within ten days of written demand by the holder at any time after one year from
the date of issuance (or within ten days of written demand by holders
representing 75% of the outstanding Senior Notes at any time after 121 days from
the date of issuance). The Senior Notes are secured by a lien on accounts
receivable, inventory and equipment consisting of IEMN terminals of the Company.

The Senior Notes are convertible at the option of the holder into
shares of the same equity security as next issued by the Company in an amount
greater than $1,000,000 at the same price per share at which such security is
sold to such investor(s). The Senior Notes may not be converted until shares of
such security have been issued.

Upon the closing of any sale of substantially all of its U.S. assets,
the Company must immediately pay the outstanding principal and interest due
under the Senior Notes; provided, however, that any such prepayment shall be
limited to the extent of the proceeds of such asset sale and shall be paid to
Senior Note holders on a pari passu basis with certain other creditors as
described in the Senior Note. The Company may prepay all or any part of the
indebtedness evidenced by the Senior Notes without any prepayment penalty or fee
at any time after one year from the date of issuance thereof or sooner if the
Company has received written approval from holders representing at least 75% of
the aggregate outstanding principal amount of the Senior Notes; provided,
however, that any prepayment on the Senior Notes at the option of the Company
will be pro rata with respect to all the Senior Notes outstanding. The Company
is required to give the holders of the Senior Notes at least 30 days written
notice of its election to prepay in order that the holders may exercise their
right of conversion of any portion of the Senior Notes.

The warrants issued to the purchasers of the Senior Notes will expire
10 years from the date of issuance, if not exercised. Such warrants are
exercisable for shares of common stock of the Company at an exercise price equal
to the exercise price of warrants to purchase common stock issued by the Company
in the next equity or debt offering in excess of $1,000,000. If the exercise
price has not been determined on or before December 31, 2005, the exercise price
will be at the price at which the latest warrant issued by the Company prior to
the date of the warrants issued to purchasers of the Senior Notes were
exercisable, as such price may be adjusted from time to time.

In October 2000, the Company issued an additional $1.0 million of
Senior Notes and issued warrants to purchase an additional 100,000 shares of
common stock of the Company to the purchasers of the Senior Notes.

14
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

INTER.ACT ELECTRONIC MARKETING, INC.

/s/ STEPHEN R. LEEOLOU
By:

November 14, 2000
Stephen R. Leeolou
Chairman & Chief Executive Officer
Principal Accounting Officer

15
<PAGE>

Item 3. Exhibits and Reports on Form 8-K

Exhibit No. Description
----------- --------------------------------------------------------------------
*3(a)(1) Restated Articles of Incorporation of the Company, effective
September 10, 1999, filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
1999.

*3(a)(2) Articles of Amendment of the Company, dated December 22, 1999 and
effective December 22, 1999, filed as Exhibit 3(a)(2) on the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*3(a)(3) Articles of Merger of Inter.Act Operating Co., Inc. into the
Company, dated December 29, 1999 and effective December 30, 1999,
filed as Exhibit 3(a)(3) on the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 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 on Form S-4 (No. 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(a)(3) Specimen Certificate of the Company's 14% Series B Senior
Mandatorily Convertible Preferred Stock, filed as Exhibit 4(a)(3)
on the Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1999.

*4(a)(4) Specimen Certificate of the Company's 10% Series C Mandatorily
Convertible Preferred Stock, filed as Exhibit 4(a)(4) on the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*4(b) Indenture dated as of December 15, 1999 between the Company and
State Street Bank and Trust Company, as trustee, relating to
$70,000,000 in principal amount of Senior-Paid-In-Kind Notes due
2003, filed as Exhibit 4(b) on the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1999.

*4(b)(1) First Supplemental Indenture dated as of December 30, 1999 to
Indenture dated as of December 15, 1999, between the Company and
State Street Bank and Trust Company, as trustee, relating to
$70,000,000 in principal amount of Senior-Paid-in-Kind Notes due
2003, filed as Exhibit 4(b)(1) on the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1999.

*10(a)(5) Subscription Agreement dated October 1995, between the Company and
Vanguard Cellular Systems. Inc., filed as Exhibit 10(f) to the
Company's Registration Statement on Form S-4 (No. 333-12091).

*10(a)(6) Registration Rights Agreement dated March 1996 between the Company
and Toronto Dominion Investments, Inc., filed as Exhibit 10(e) to
the Company's Registration Statement on Form S-4 (No. 333-12091).

*10(a)(7) Exchange and Registration Rights Agreement dated July 30, 1996,
between the Company and the Initial Purchasers, filed as Exhibit
10(o) to the Company's Registration Statement on Form S-4 (No.
333-12091).

*10(a)(8) Amended and Restated Common Stock Purchase Warrant granted to
Vanguard Cellular Operating Corp,. filed as Exhibit 10(k) to the
Company's Registration Statement on Form S-4 (No. 333-12091).

Exhibit No. Description
----------- -----------

16
<PAGE>

*10(a)(9) Warrant Agreement dated August 1, 1996, between the Company and
Fleet National Bank, as Warrant Agent, filed as Exhibit 10(l) to
the Company's Registration Statement on Form S-4 (No. 333-12091).

*10(a)(10) Voting Agreement among the Company, Vanguard Cellular Operating
Corp. and certain shareholders dated as of November 1, 1996,
filed as Exhibit 10(ii) to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1998.

*10(a)(11) Amendment No. 1 to Voting Agreement among the Company, Vanguard
Cellular Operating, Corp. and certain shareholders, dated
September 30, 1998, filed as Exhibit 10(a)(11) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.

*10(a)(12) Form of Rights Offering Subscription Agreement for the Company's
10% Series A Mandatorily Convertible Preferred Stock filed as
Exhibit 10(a)(12) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.

*10(a)(13) Warrant Agreement, dated as of December 15, 1999, between the
Company and American Stock Transfer & Trust Company, as Warrant
Agent, filed as Exhibit 10(a)(13) to the Company's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1999.

*10(a)(14) Exchange and Registration Rights Agreement, dated as of December
15, 1999, between Inter.Act Operating Co., Inc, and certain
noteholders filed as Exhibit 10(a)(14) to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31,
1999.

*10(a)(15) Registration Rights Agreement, dated as of December 15, 1999,
between the Company and the holders of the Company's 14% Series B
Senior Mandatorily Convertible Preferred Stock filed as Exhibit
10(a)(15) to the Company's Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1999.

*10(a)(16) Stockholders Agreement, dated as of December 15, 1999, between
the Company and certain stockholders filed as Exhibit 10(a)(16)
to the Company's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1999.

*10(a)(17) Form of Subscription Agreement for the Company's 10% Series C
Mandatorily Convertible Preferred Stock and Common Stock Warrants
filed as Exhibit 10(a)(17) to the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 1999.

*10(a)(18) Form of Common Stock Warrant filed as Exhibit 10(a)(18) to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*10(b)(1) Company's 1994 Stock Compensation Plan, filed as Exhibit 10(i) to
the Company's Registration Statement on Form S-4 (No. 333-12091).

*10(b)(2) Form of Incentive Stock Option Agreement under the 1994 Stock
Compensation Plan, filed as Exhibit 10(k) to the Company's
Registration Statement on Form 5-4 (No. 333-12091).

*10(b)(3) Company's 1996 Nonqualified Stock Option Plan, filed as Exhibit
10(g) to the Company's Registration Statement on Form S-4 (No.
333-12091).

*10(b)(4) Form of Nonqualified Stock Option Agreement under the 1996
Nonqualified Stock Option Plan, filed as Exhibit 10(h) to the
Company's Registration Statement on Form S-4 (No. 333-12091).

*10(b)(5) Company's 1997 Long-Term Incentive Plan, as amended, filed as
Exhibit 10(b)(5) to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1999.

*10(b)(6) Form of Incentive Stock Option Agreement to the 1997 Long-Term
Incentive Plan, filed as Exhibit 10(aa) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.

Exhibit No. Description
----------- -----------

17
<PAGE>

*10(b)(7) Form of Nonqualified Stock Option Agreement to the 1997 Long-Term
Incentive Plan filed as Exhibit 10(bb) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.

*10(b)(8) Key Employee Severance Plan, filed as Exhibit 10(b)(8) to the
Company's Quarterly Report on Form 10-Q for the period ended June
30, 1999.

*10(b)(9) Form of Severance Agreement for Key Employees, filed as Exhibit
10(b)(9) to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1999.

*10(c)(1) Assignment of License Agreement dated June 15, 1993 among Gerald
Singer and Arthur Murphy as Licensors, Michael R. Jones as
Licensee and Network Licensing, Inc. as Assignee, filed as
Exhibit 10(q) to the Company's Registration Statement on Form S-4
(No. 333-12091).

*10(c)(2) Security Agreement dated June 16, 1993 between Michael R. Jones
and Network Licensing, Inc., filed as Exhibit 10(r) to the
Company's Registration Statement on Form S-4 (No. 333-12091).

*10(c)(3) Sublicense dated June 16, 1993 between Network Licensing, Inc.
and the Company, filed as Exhibit 10(s) to the Company's
Registration Statement on Form S-4 (No. 333-12091).

*10(c)(4) Settlement Agreement and Mutual General Release dated as of
September 6, 1994 among Gerald R. Singer, Arthur J. Murphy,
Lenora Singer, Joan Murphy, Network Licensing, Inc. and the
Company, filed as Exhibit 10(t) to the Company's Registration
Statement on Form S-4 (No. 333-12091).

*10(c)(5) Amended and Restated Patent Rights Assignment/Consulting
Agreement dated as of March 29, 1995 between Joseph F. Stratton
and the Company, filed as Exhibit 10(u) to the Company's
Registration Statement on Form S-4 (No. 333-12091).

*10(c)(6) Agreement Regarding Licensing matters dated as of January 22,
1996 among Michael R. Jones, Network Licensing, Inc. and the
Company, filed as Exhibit 10(v) to the Company's Registration
Statement on Form S-4 (No. 333-12091).

*10(c)(7) Letter Agreement dated July 22, 1996 between Gerald Singer,
Arthur J. Murphy and the Company, filed as Exhibit 10(w) to the
Company's Registration Statement on Form S-4 (No. 333-12091).

*10(c)(8) Assignment dated as of July 23, 1996 from Network Licensing, Inc,
to the Company, filed as Exhibit 10(x) to the Company's
Registration Statement on Form S-4 (No. 333-12091).

*10(c)(9) Patent License Agreement dated August 20, 1997, between the
Company and Coupco, Inc., filed as Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (Portions of this exhibit have been omitted
pursuant to a request for confidential treatment).

*10(c)(10) Patent Purchase Agreement dated May 22, 1998, between the
Company, Credit Verification Corporation and David W. Deaton,
filed as Exhibit 10(hh) to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1998 (Portions of this exhibit
have been omitted pursuant to a request for confidential
treatment).

*10(c)(11) Letter Agreement dated October 2, 1998 between Leona R. Singer,
Trustee under the Gerald and Leona R. Singer Family Trust, Arthur
J. Murphy and the Company, filed as Exhibit 10(c)(11) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.

*10(d)(1) Letter Agreement dated March 17, 1997 between the Company and
Thomas A. Manna, filed as Exhibit 10(ee) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.

Exhibit No. Description
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18
<PAGE>

*10(d)(2)Severance and Release Agreement dated January 23, 1999 between the
Company and Thomas A. Manna, filed as Exhibit 10(d)(2) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.

*10(d)(3)Form of Employment, Noncompetition and Nondisclosure Agreement, filed
as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.

*10(d)(4)Nonqualified Stock Option Agreement dated September 15, 1999 between
the Company and Stephen R. Leeolou, filed as Exhibit 10(d)(4) to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*10(d)(5)Incentive Stock Option Agreement dated September 15, 1999 between the
Company and Stephen R. Leeolou, filed as Exhibit 10(d)(5) to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*10(d)(6)Nonqualified Stock Option Agreement dated September 15, 1999 between
the Company and Stephen R. Leeolou filed as Exhibit 10(d)(6) to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*10(d)(7)Employment Agreement dated November 2, 1999 between the Company and
Stephen R. Leeolou filed as Exhibit 10(d)(7) to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1999.

*10(d)(8)Nonqualified Stock Option Agreement dated November 2, 1999 between the
Company and Stephen R. Leeolou filed as Exhibit 10(d)(8) to the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

*10(e)(1)Global Master Agreement effective January 25, 2000 between the Company
and NCR Corporation filed as Exhibit 10(e)(1) to the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1999.

*10(e)(2)Addendum to Master Agreement dated January 26, 2000 between the Company
and NCR Corporation (Portions of this exhibit have been omitted
pursuant to a request for confidential treatment) filed as Exhibit
10(e)(2) to the Company's Annual Report Form 10-K/A for the fiscal year
ended December 31, 1999.

*10(f)(1)$5,000,000 Promissory Note dated June 16, 2000 from the Registrant to
First Union National Bank

*10(f)(2)Letter Agreement dated June 16, 2000 between the Registrant and First
Union National Bank relating to security interests

*10(f)(3)Letter Agreement dated June 16, 2000 between the Registrant and the
Guarantors of the First Union National Bank Promissory Note

10(g)(1) Form of 25% Senior Secured Convertible Note

10(g)(2) Form of Common Stock Purchase Warrant

*21 List of Subsidiaries of the Company, filed as Exhibit 21 on the
Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999.

27 Financial Data Schedule.

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* Incorporated by reference to the statement or report indicated.