THATLOOK COM INC/NV has filed a Form 10QSB (Quarterly Report) with the
United States Securities and Exchange Commission.
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THATLOOK COM INC/NV (THAT.OB)
Quarterly Report (SEC form 10QSB)
2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FOR THE QUARTER ENDED JUNE 30, 2000.
Background thatlook.com, Inc.(TLC), formerly known as Cooperative Images, Inc. TLC was incorporated in New Jersey on December 5, 1994 and is in the
business of direct response marketing through radio, television and the Internet. TLC's marketing efforts generate patients who seek elective cosmetic surgery. After
it pre-screens patients interested in cosmetic surgery for creditworthiness, TLC refers the patients generated from its marketing programs to participating physicians
who pay TLC a monthly marketing fee.
Elective Investments, Inc., (EII), was incorporated on November 26, 1996. EII prepares financing packages for creditworthy patients of physicians. A substantial
portion of the resulting receivables between the physicians and the patients are purchased by EII from the physicians. It also pre-screens patients interested in
cosmetic surgery for creditworthiness for physicians who generate their own patients separately from TLC's marketing programs.
On January 25, 1999 Cooperative Images, Inc. changed its name to thatlook.com, Inc. by filing an amendment to its certificate of incorporation. In April, 1999,
Elective Investments, Inc. (EII), a Pennsylvania corporation, became a wholly-owned subsidiary of TLC when all its shareholders contributed their respective shares
of capital stock to TLC.
On April 29, 1999 TLC completed a reverse merger with a public entity, whereby a 100% interest in TLC was acquired by First Target Acquisition, Inc., in
exchange for 9,999,000 "restricted" shares of TLC. TLC became a wholly-owned subsidiary of FTA. TLC is deemed to be the accounting acquirer. The financial
statements were retroactively restated for TLC, and EII its wholly-owned subsidiary, for all periods presented. The reverse merger was accounted for as a
recapitalization. Prior to the reverse merger FTA had been dormant and operationally inactive for many years. Following the reverse merger, FTA, a Nevada
corporation and TLC's parent company, changed its name to thatlook.com, Inc. (the "Company") on July 23, 1999, to reflect the name of the principal operating
business.
The financial information presented herein, includes: (i) Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and December 31, 1999; (ii) Consolidated
Statements of Operations (Unaudited) for the three month and six month periods ended June 30, 2000 and 1999 and (iii) Consolidated Statements of Cash Flows
(Unaudited) for the six month periods ended June 30, 2000 and 1999.
RESULTS OF OPERATIONS:
Overview Operating results for the second quarter ending June 30, 2000 continued to show strong consecutive quarter growth in revenues, while also showing
declining losses. The restructuring plan initiated in the second half of 1999 continued to yield positive results. The Company created a three-tiered pricing structure
for its physician marketing program, expanded its multi-media selection to include Internet marketing and additional print advertising (e.g. magazines), and reduced
operating, payroll and interest expenses. Since the fourth quarter of 1999, revenues increased by 69%, while operating expenses decreased by 8%. After one or
two quarters, management believes that the Company will be positioned to average 20 - 30% consecutive quarter revenue growth in the future for three reasons.
First, the physicians participating in our marketing program can be expanded dramatically from the present level, and still represent only a small portion of the overall
elective cosmetic procedure marketplace. Second, the recent signing of an agreement to issue 11,250,000 shares of common stock in exchange for $30 million
dollars of advertising and media credits, and public relations provides the financial resources necessary to capture and dominate this marketplace. The $30 million
dollars was calculated using published rate card amounts which is the maximum published rate available. Third, in addition to our regular programs, the recent
addition of the ThatNewLook software will help the Company to accelerate both the rate at which it adds physicians to our network and the rate at which we
generate patients for our doctors. The professional version of the software enables physicians to work with their patients via computer imaging to define the exact
look the patients seek. The personal version, downloadable from our web site, enables consumers to perform virtual cosmetic procedures on their own images at
home to see what changes might look like.
The effect of these three changes may not be realized immediately. It may take one to two quarters, or more, to dramatically increase the physician base and media
spending, using the new advertising and media credits. The media credits primarily become available starting in September 2000. As we add to the physician base in
the third quarter, management believes the Company will experience substantial revenue growth in the latter part of the fourth quarter.
Plan of Operation - Comparison of Quarters Ended June 30, 2000 and 1999 Revenue - Marketing fee revenues were $816,314 and $907,929 for the quarters
ended June 30, 2000 and 1999 respectively, which represented a 10% decrease. Marketing fee revenues were $1,503,480 and $1,802,519 for the six-month
periods ended June 30, 2000 and 1999 respectively, which represented a 17% decrease. The decreases relate primarily to the Company's decision to reduce the
number of physicians in its marketing program and the switch to a three-tiered pricing structure. These reductions and pricing changes were made to optimize the
number of patients that were generated for the physicians, compared to the advertising expenses incurred. These changes enabled the Company to switch to a more
flexible marketing program that could be implemented more effectively for physicians new to the program and physicians located in smaller media markets.
The key challenge for the Company is to enroll, or upgrade, physicians in the marketing program in select geographic areas where patient responses exceed the
Company's contractual performance guarantees. The new, tiered-pricing structure enables the Company to tailor its marketing efforts to a physician's expectations
and the physician's individual geographical market. In addition to the change to a tiered pricing program, the Company now typically defers collection of marketing
fee revenues for the first three months on new contracts. Previously, new physicians had to pay cash-in-advance. This new payment plan more closely matches
proceeds the physicians receive from surgeries with the payments for generating patients. In short, replacing prepayments with deferred payments, eliminates the
biggest deterrent to enroll in the marketing program. Management believes that, with new patient imaging software, tiered pricing, and deferred payments, it can
dramatically increase the size of its physician base.
Gains on sale of notes receivable were $262,835 and $353,659 for the quarters ended June 30, 2000 and 1999 respectively, which represented a decrease of
26%. Gains on sale of notes receivable were $443,955 and $682,318 for the six-month periods ended June 30, 2000 and 1999 respectively, which represented a
decrease of 35%. Loan volume started to decrease in the Fall of 1999 due to changes in the number of physicians and the transition to new marketing media. The
number of surgeries lags marketing revenue by one to three months. The yield on loan sales, as a percentage of face value, was 12.4% in the second quarter of
2000, as compared to 10.1% for the second quarter of 1999. The yield on loan sales, as a percentage of face value, was 12.9% for the six-month period ended
June 30, 2000, as compared to 10.8% for the six-month period ended June 30, 1999. As the Company increases it physician base and media spending, loan
volume will increase, thus creating the need for additional finance companies to purchase the patients loans. These new finance companies may have different lending
criteria and possibly higher or lower loan purchase rates, which may lead to a higher or lower yield on loan sales.
Expenses Media, advertising and promotional fees were $395,203 and $354,046 for the quarters ended June 30, 2000 and 1999 respectively. Media, advertising
and promotional fees were $722,770 and $697,916 for the six-month periods ended June 30, 2000 and 1999 respectively. The increase in the second quarter
relates primarily to additional promotional fees. Media expenses, before other advertising and promotional fees, were $301,530 and $345,006 for the quarters
ended June 30, 2000 and 1999, respectively, a decrease of $43,476, or 13%. Media expenses, before other advertising and promotional fees, were $576,072 and
$689,050 for the six-month periods ended June 30, 2000 and 1999, respectively, a decrease of $112,978, or 16%. However, as a percentage of marketing
revenue, media expenses were approximately 37% and 38% for the quarters ended June 30, 2000 and 1999 respectively. While the Company continues to benefit
from placement of more cost effective media, excess patients generated for certain physicians does not increase marketing revenue. As previously discussed, the
Company needs to enroll, or upgrade physicians in the marketing program in select geographic areas where patient responses exceed the Company's contractual
performance guarantees. In some cases, the print media cost, to generate patients for office visits with the physicians is 50% below past television expenses, on a per
patient basis.
Internet advertising placed to generate patient leads was $12,004 and $5,634 for the quarters ended June 30, 2000 and 1999, respectively. Internet advertising
placed to generate patient leads was $30,746 and $5,634 for the six-month periods ended June 30, 2000 and 1999, respectively. The Company did not incur web
site advertising expenses in the first quarter of 1999.
Payroll expenses for sales and marketing personnel was $193,269 and $282,907 for the quarters ended June 30, 2000 and 1999,respectively, which represents a
decrease of $89,638, or 32%. Payroll expenses for sales and marketing personnel was $355,882 and $586,600 for the six-month periods ended June 30, 2000
and 1999,respectively, which represents a decrease of $230,718, or 39%. Staff reductions in the second half of 1999 led to these decreases. The Company made
the reductions because it was over staffed based upon its volume of business and gains in operational efficiencies. The Company installed a predictive dialer to
improve the efficiency of its in-bound and out-bound call management systems and related payroll expenses. The Company continues to save approximately 40% of
payroll costs for telephone service representatives. In addition, fewer physicians in the marketing program required less staff members.
Telephone expenses for sales and marketing decreased to $39,090 from $55,765 for the quarters ended June 30, 2000 and 1999, respectively. Telephone
expenses for sales and marketing decreased to $86,823 from $113,200 for the six-month periods ended June 30, 2000 and 1999, respectively. However, as a
percentage of total revenue, this represented a decrease from 4.2% to 3.5% for the quarters ended June 30, 2000 and 1999, respectively. The decrease relates
primarily to the Company's transition to a new long distance carrier. The new carrier's contract includes higher fixed cost below minimum volume levels, but lower
per unit costs on calls above the minimum. Management believes that the Company will earn these savings provided certain volume levels are met.
Credit bureau expense was $33,731 and $40,111 for the quarters ended June 30, 2000 and 1999, respectively, which represented a decrease of $6,380, or 16%.
Credit bureau expense was $73,486 and $91,585 for the six-month periods ended June 30, 2000 and 1999, respectively, which represented a decrease of
$18,099,or 20%. The decrease relates to less volume and lower costs per credit report.
Rent and utilities expenses were $23,684 and $33,975 for the quarters ended June 30, 2000 and 1999, respectively, which represented a decrease of $10,291, or
30%. Rent and utilities expenses were $57,444 and $62,608 for the six-month periods ended June 30, 2000 and 1999, respectively, which represented a decrease
of $5,164, or 8%. The Company began leasing a new location, starting April 1, 2000. The new office space has approximately 40% more square feet of work
space. Rent expense has been slightly lower due to lower year-to-date utility costs, compared to the prior building lease. Management believes that the current
location will have higher utility costs, particularly as new employees and equipment are added.
Payroll expenses for general and administrative personnel were $183,975 and $255,306 for the quarters ended June 30, 2000 and 1999 respectively, which
represented a decrease of $71,331 or 28%. Payroll expenses for general and administrative personnel were $382,033 and $538,312 for the six-month periods
ended June 30, 2000 and 1999 respectively, which represented a decrease of $156,279 or 29%. In December 1999, the Company reduced its staffing levels to
more cost effective levels. Less doctors in the marketing program and a smaller loan portfolio require less support staff such as loan collections and servicing
personnel.
Professional and consulting expenses were $147,804 and $147,709 for the quarters ended June 30, 2000 and 1999 respectively. Professional and consulting
expenses were $260,520 and $246,399 for the six-month periods ended June 30, 2000 and 1999 respectively. The elimination of management and guarantee fees
in 1999, saved $154,240 during the first and second quarters of 2000. However, these savings were offset by higher consulting and legal fees related primarily to
being a public registrant with the Securities and Exchange commission.
Other general and administrative expenses were $159,483 and $138,449 for the quarters ended June 30, 2000 and 1999, respectively, which represented an
increase of $21,034, or 15%. Other general and administrative expenses were $281,880 and $294,727 for the six-month periods ended June 30, 2000 and 1999,
respectively, which represented a decrease of $12,847, or 4%. This expense increased in the second quarter primarily due to depreciation expense for fixed asset
additions, such as the predictive dialer.
Interest expense was $74,029 and $401,958 for the quarters ended June 30, 2000 and 1999. Interest expense was $144,329 and $877,657 for the six-month
periods ended June 30, 2000 and 1999. Interest expense decreased following a December 1999 balance sheet restructuring. As part of the restructuring, a finance
company purchased patients' notes receivable to pay down a line-of-credit, which was collateralized by the notes receivable. In addition, the Company converted
notes payable to equity. Most importantly, the balance sheet restructuring significantly reduced high, interest-rate, debt. The interest expense decrease related to the
restructuring was offset, in part, by the addition of $525,000 of convertible debt and promissory notes in the first two quarters of 2000.
This restructuring also led to a significant decline in interest income. Interest income was $34,542 and $315,015 for the quarters ended June 30, 2000 and 1999
respectively. Interest income was $69,527 and $682,039 for the six-month periods ended June 30, 2000 and 1999 respectively. Two issues explain the large
decrease. First, as part of a restructuring agreement, approximately $3.3 million dollars of patient loans were taken back on November 30, 1999 by a finance
company. Second, the Company's decision to sell loans means that the underlying loan portfolio decreases over time, since few loans are added to the portfolio.
Bad debt expense was $141,220 and $75,334 for the quarters ended June 30, 2000 and 1999. Bad debt expense was $209,924 and $158,321 for the six-month
periods ended June 30, 2000 and 1999. The increase relates primarily to increases in the reserve for doubtful accounts. The Company's restructuring plans included
staff reductions in the collection department, which negatively impacted patients payments. The Company plans to outsource the majority of the collections beginning
in the third quarter, which should curtail the erosion of the quality of the loan portfolio. The Company's needs for a collection staff has been declining due to its
strategy to sell loans to recognize the gain on sale.
Liquidity and Capital Resources - The Company's balance sheet, particularly working capital and stockholders' equity, improved dramatically with the signing of an
agreement to issue 11,250,000 million shares of common stock in exchange for $30 million dollars of advertising and media credits. This new agreement provides
the financial resources necessary to capture and dominate the elective cosmetic surgery marketplace. While the $30 million dollars was calculated using published
rate card amounts, which is the maximum published rate available, the Company's discounted valuation of these credits provided an additional $5,001,000 of assets
and additional paid-in-capital. The agreement also includes a provision for an additional $10 million of advertising and media credits in exchange for shares of
unregistered, restricted common stock, at a value per share to be mutually agreed at the time of the exchange.
Management continues to work closely with the investment banker that it hired in February 2000. The investment banker was hired to raise, on a best efforts basis, a
minimum of $5 million dollars of additional equity, and to increase the number of lenders that purchase loans from the Company. Management is optimistic that
additional capital will be raised by the beginning of the fourth quarter, but cannot make any guarantees. Additional capital will provide the resources to improve the
efficiency of the business systems and business model for the Company, and the physicians.
The Company's corporate strategy is to sell loans and record the purchase discount as a gain on sale in the month sold. Should the Company not be able to sell the
loans, earnings would be adversely affected. Two finance companies currently purchase the majority of the Company's loans. Should the Company not be able to
sell all of its loans or place the loans on a line-of-credit with a bank, marketing revenues would also be adversely affected.
While the outstanding balance on a $1 million line-of-credit with a bank at June 30, 200 was $666,179, the Company is unable to borrow the additional balance up
to the $1 million dollar limit. The underlying patient notes receivable, which represent the collateral for the line-of-credit, are below the formula amounts required by
the line-of-credit agreement. The Company needs to collect on certain delinquent loans so that the loans count in the "availability" formula. Based upon current
delinquency of patients' payments, the Company needs to supply the bank with approximately $195,000 in patient notes receivable, net of the Company's purchase
discount, to be in compliance with the line-of-credit covenants. The bank provided a waiver of these covenant violations through July 31, 2000, but reserves its
rights to enforce the covenants after July 31, 2000.
In the third and fourth quarters of 2000, increased media spending and other operating expenses will be incurred before marketing revenue and gains on sales of
loans will be earned. This is because patient appointments with physicians and patient surgeries typically lag media spending by one to three months. Therefore, as
the Company grows in the third and fourth quarters, the cash savings from use of the media credits will used to fund other working capital needs.
Cautionary Statement on Forward-Looking Statements: - Except for the historical information contained herein, certain of the matters discussed in this quarterly
report on Form 10-QSB are "forward-looking statem |
