Infotopia, Inc. has now filed its quarterly financial report for the three months ended September 30, 2001 and, as expected, it isn’t a pretty sight. The filing follows a brief delay, signaled on November 15th when the Company advised the Securities and Exchange Commission that it would require “unreasonable effort or expense to file the report on time.” (See Update Infotopia, Inc. – Just Tap Dancing Or All Tapped Out). Just four days later, the Company managed to surmount those obstacles and produce a Form 10-Q for the third quarter of 2001.
Numbers Talk
The November 15th notice advised investors that the quarterly report would be delayed for an undetermined time. It also warned that losses for the third quarter of 2001 would be approximately $11 million. Four days later, the picture is even worse. The Form 10-Q reveals a net loss of $12.6 million for the quarter.Compare the latest results with those reported by Infotopia for the second quarter of 2001, which ended on June 30th. As of September 30th, Infotopia had current assets of $10.8 million, including accounts receivable of $5 million; inventory of $1.5 million; and cash of $923,000. That’s more than a 50% decrease since June, when the Company reported current assets of $22 million, including accounts receivable of $11.1 million; inventory of 2.9 million; and cash of $1.4 million.
The Company’s total assets have also decreased precipitously - from a reported $44 million on June 30th to $21 million on September 30th. But, by virtue of an amendment to the June 30th Form 10-Q, filed on November 20th, even those June assets have now been reduced – to $32.4 million as a result of decreased valuations for licensing rights. There has been a corresponding, but less dramatic, decrease in the Company’s liabilities, from $18.5 million to about $11.2 million. The most dramatic decrease on the liability side was elimination of $7.9 million payable for license agreements.
Assets have not been the only recent casualty at Infotopia. Revenues also swooned during the most recent quarter – decreasing by about 27%. Infotopia, which reported sales of $37.5 million for the June 30th quarter, had just $27.1 million in sales for the three months ended September 30th. Operating expenses, however, increased from $23 million to $27 million.
Then there’s the most dramatic difference. Until November 20th, the Company was reporting a $1.5 million profit for the three months ended June 30th. Now, an amended Form 20-Q for the June 30th quarter says that Infotopia actually had a net loss of $1.9 million. Even that pales in comparison to the results for the most recent period. Infotopia lost $12.6 million for the quarter ended September 30th. For the year 2001, Infotopia has now lost approximately $13.7 million – and there are three months left to go.
Welcoming the New Millennium
What else has Infotopia been doing as revenues dwindled? The Form 10-Q offers a few interesting insights. For example, Infotopia discloses that it has a wholly-owned subsidiary called East Side Venture Partners LLC. As best we can determine, Infotopia has not mentioned East Side Venture in any of its previous filings or frequent press releases. As we discovered, East Side Venture is a New York Limited Liability Company which has a corporate address at 6 East 43rd Street, New York City, the same location where Infotopia’s attorneys, Bondy & Schloss, have their offices.Infotopia’s latest Form 10-Q reveals that East Side Venture “disbursed” $350,000 in September 2001 for the purchase of 3.8 million common shares of DLD Group, Inc. and Millennium Direct Inc. Where did East Side Venture get the funds? Infotopia says that the subsidiary “was funded via two intercompany loans totaling $250,000 and a $100,000 promissory note from a “private investor” called BG Holdings LLC. Infotopia does not indicate who owns or controls BG Holdings.
Who are DLD Group and Millennium Direct? Earlier this year, Infotopia announced plans to acquire 85% of Millennium Direct. In exchange, Millennium Direct would receive a license for a program that Infotopia was developing to send unsolicited “viral” emails to potential customers. It is not clear whether Infotopia ever completed development of that program, or transferred any of those licensing rights to Millennium.
Unlike Millennium, DLD Group would appear to be a new name to Infotopia investors. DLD is a public company, formed in Delaware, apparently for the purpose of exploiting one or more patents relating to water filters and purifiers. As of July 31st of this year, DLD’s assets consisted of a patent valued at $20,693 and about $48,000 in cash. The Company had no revenues.
What is the connection between DLD and Infotopia? DLD says it borrowed $50,000 from Infotopia in July 2001. Perhaps more important, Infotopia’s President, Ernest Zavoral, serves as Chairman of the Board of DLD and the managing member of East Side Venture. There is one other connection to be noted; Infotopia and DLD are both represented by the law firm of Bondy & Schloss.
DLD filed a Form SB-2 Registration Statement on October 10, 2001 registering over 8.1 million shares on behalf of several selling shareholders including East Side Venture (3.8 million shares; Capital Advisory Partners, LLC.; Kilkenny Group LLC; Rathgar LLC; Finglas LLC; and Monkstown LLC.
Are there any other relationships between Infotopia and those DLD selling shareholders? Apparently so - and it also involves Millennium. On August 7, 2001, Millennium filed a Form 8-K disclosing plans to merge into something called Blue Capital Associates, Inc. (BCA). The shareholders of BCA include Monkstown LLC; Finglass LLC; Rathgar LLC; Kilkenny LLP; Capital Advisory Partners; and, of course, East Side Venture.
Q - Tips
What other items of interest may investors find in the latest Infotopia Form 10-Q. Here are a few:• Infotopia’s license to sell “The Bun & Thigh Rocker,” which the Company valued at $10.3 million on June 30th, is now being valued at just $2.7 million. Infotopia does not explain the basis for this dramatic diminution in value, but it has now amended its reports for the first two quarters of 2001 to reflect this reduced valuation and the corresponding reduction of assets.
• On July 19th Infotopia filed a Form 8-K disclosing that it had paid $1 million for the exclusive option to acquire Infomercial Management Company and Modern Interactive Technology (See Update: Infotopia, Inc. – The Price Is Right, But For Whom?). The September 30th 10-Q reveals that “certain dates and events to effect the completion of this transaction” have expired, and that the “$1.0 million acquisition option payment will likely be expensed in the fourth quarter” of 2001. The Company does not say which party failed to meet those deadlines, but it certainly appears that Infotopia has no realistic belief that it will recover the payment.
• Losses include $1.2 million in pre-paid advertising time that was purchased from a company that has filed for bankruptcy and $175,000 in costs associated with the aborted merger between Entreport and Infotopia (See Update: Infotopia, Inc. – Exit Entreport, Enter The Lawyers)
• The Company reports a series of “distributions” to officers and directors in the last quarter. For example, it entered into relocation agreements with Chairman Daniel Hoyng, President Ernest Zavoral, and Senior Vice President (and Acting Chief Financial Officer) Marek Lozowicki. In connection with those agreements, the Company paid Hoyng and Lozowicki $225,000 each, and gave Zavoral 58,503 shares of Infotopia common stock.
In September the Company issued 976,992 shares to Hoyng, Zavoral and Lowowicki in payment for “certain debts.”
In one item that predates the most recent quarter, Infotopia gave Hoyng $400,000 to retrofit his home with a kitchen and fitness center that might be used in the Company’s infomercials.
• Between July and September of this year, the Company issued 5,266,000 shares of common stock to the Canadian investment firm of Thomson Kernhagan – a frequent recipient of Infotopia stock over the past year. The Company indicates that 400,000 of those shares were issued in error in July 2001 – but it does not know the probability of recovering either the shares or their value.
What did the Company get in exchange for the stock given to Thomson Kernhagan? Infotopia says it received “total value” of $6,172,000 for the 4.8 million shares issued between August and September. It is unclear, however, whether that “value” included cash or other consideration, or some combination of the two.
Despite uncertainty over its ability to recover the 400,000 shares issued in error in July, on September 30th the Company agreed to give Thomson Kernhagan additional shares valued at $1.7 million.
• Between July and October, the Company issued approximately 2,225,000 shares to attorneys; 7.5 million shares to officers and directors in connection with option exercises; and 600,000 shares for investor relations services. Infotopia also granted 1.5 million options exercisable at 18 cents per share to one investor relations firm - Strategic Investor Relations. On November 19th, 138,889 of those options were exercised for $25,000.
• In October 2001 the Company Gregory Kofford was “relieved of his duties” as Infotopia’s Chief Financial Officer – a scant two months after he had been appointed to that post with considerable fanfare.
What’s next for Infotopia? Investors are likely to be restless – particularly if they bought Infotopia stock based upon the Company’s overly enthusiastic projections and public filings that reflected illusory profits and assets. As we go to press, the Company has already amended its September 30th Form 10-Q – just one day after the original filing. And it has again amended the Forms 10-Q for the first two quarters of 2001.
Some things never change.
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