Infotopia (fka IFTA)

[thepennyking]

INFOTOPIA, INC. (OTCBB:IFTP), PART II – FOR A FEW PRODUCTS MORE
January 31, 2001
Infotopia Inc. has not been betting its future solely on sales of a fitness device called Torso Tiger. Since its reverse-merger with a company called Dr. Abravenal’s Formulas, Inc., Infotopia has continued to announce plans for a series of other products as well. Most of these products have not generated significant revenues for the Company so far. That, however, has not deterred investors from responding to many of these myriad announcements.


A ONE SHOT

On May 9th, just five days after disclosing the merger, the Company said it had shipped 18,000 units of a 30,000 unit order of Cactus Jack’s ‘One Shot Catch A Lot Fishing System’ to Kmart distributors. Infotopia said it expected “to begin announcing other large distribution orders in the near term.” We did not find any such further announcements. Instead, on August 31st, the Company issued a press release discussing a lawsuit that had been filed by Cactus Jack. According to Infotopia’s Chief Financial Officer, Tony Ferracone, the legal action by Cactus Jack was “clearly without merit. Infotopia lived up to our agreement with Cactus Jack. The product didn’t fit our performance criteria so we settled with him to discontinue it.” Mr. Ferracone went on to say that Infotopia intended to “vigorously defend our shareholders’ rights against this action.”

On October 18th the Company issued another release, this time disclosing that Cactus Jack’s Marketing Corporation and an individual named Jack Barringer (the Cactus Jack?) had agreed to dismiss the lawsuit in exchange for payment of $100,000 and return of the remaining Cactus Jack inventory.

It doesn’t look like Infotopia will be generating any more revenues from Cactus Jack products.


MY FAIR ROCKER

On June 20th the Company issued a press release stating that it was in the final stages of editing an infomercial, featuring actress Morgan Fairchild, for a fitness product called the “Body Rocker.” Then, on August 3rd, Infotopia issued a second release stating that the infomercial would begin to air on August 15th. The Company said it would post airtimes on its website as soon as they became publicly available. According to the Company, orders for the Body Rocker had already been received from Japan.

Neither of these press releases discussed the financial aspects of the Body Rocker. What would it cost to purchase or manufacture the product, produce the infomercial and buy air time? The Company didn’t say. In the meantime, August 15th came and went and no revenues from the Body Rocker were publicly announced.

On September 7th the Company issued another press release, this time saying that the Body Rocker infomercial had been test marketed in several regional markets and would make its national debut September 9th – in over 30 million households - on cable television’s Product Information Network (PIN).

Did the infomercial air in September 2000, and, if so, where? We checked the Infotopia website for air times, but were unable to find any listings. Instead, the website indicates that the product debuted in December 2000. This seems consistent with a January 3rd press release, which says the infomercial had been re-edited in December 2000, and released, on a limited basis, between Christmas and New Year’s.

How much has the Company spent on the Body Rocker, and what revenues has it generated? The Infotopia website says that no revenue figures are available, and while that January 3rd press release indicated that that initial demand “has been tremendous,” it provided no details of actual sales.

And how have investors responded to these press releases? On August 4th, the day after the first “air date” was announced, volume more than tripled to 6.6 million shares and prices almost doubled from a low of 9 cents the day before to highs of 17 cents. Then, on September 8th, one day after Infotopia said the infomercial would debut in 30 million households, volume was 17.8 million shares, and prices moved from lows on September 7th of 45 cents to highs of 89 cents in intraday trading the following day.

Still, investors await revenue figures.


NO WEIGHTING

On July 5th the Company announced that it was “in the final editing phase of a new infomercial targeted at the natural weight loss market.” The press release did not identify the product, describe how it would work or indicate what it might cost. Infotopia did say that this weight loss system has shown that, combined with exercise, “it can compete with the best products on the market.” Unfortunately, the Company did not indicate where, or to whom, that has been demonstrated.

Although the Company said that the new infomercial “would be launched in the next few months,” and that “a show schedule will be made available to the public as soon as it is finalized” we are unable to find any further references to that show, the infomercial, the product, or any revenues the Company has received from this “complete fat fighting system.”


NEXT OF THE RED HOT MOMMIES

On October 27th Infotopia said it had agreed to acquire four new products from Total Tiger, Inc., including a “complete body workout” device called “Total Tiger.” Other projects included a regimen for increasing energy and sex drive in young mothers (the "hot mommies ™ system”); a treatment for prostate inflammation; and a product dealing with the effects of osteoporosis. These last two products, the Company said, represented a joint venture between Infotopia, Total Tiger and the National Science Corporation of America. The Company predicted that the four products “have the potential to generate in excess of $100,000,000, over the next two years.” It did not say how the Company arrived at that figure, or provide any specific basis for that projection.

Infotopia’s website indicates that sales of the “Hot Mommies™ System were launched in December 2000, but so far the Company has not disclosed any revenues. The other products are scheduled to enter the market over the next several months.

The October 27th press release, and subsequent public disclosures, did not reveal any of the terms of the agreements between Infotopia, Total Tiger and National Science Corporation. What did Infotopia pay for the rights to market these products? How much was the Company obligated to pay in royalties or licensing fees? What level of sales would be required before the items proved profitable? Will any of the products require FDA approval? If so, has the process begun? None of these issues were addressed.


FORE AND MORE

And when those “Hot Mommies” start to age, it turns out the Company plans to sell them something else. On November 1, 2000, Infotopia revealed “the signing of six new products with the Infomercial Development Companies of San Diego California” - including a product for women facing menopause; a golf swing training device; a weight loss product; a hand-held home facial unit; a program for increasing personal income; and a skin care system.

What did Infotopia expect as a result of these new additions? Quite a lot as it turns out. The Company’s President, Ernest Zavoral declared that “if the test marketing results and the current sales momentum continues, we should be able to add $20 million in sales” for the year ending February 28, 2001. Zavoral said that “[w]hen added to the current success we are enjoying with the current stable of products including Torso Tiger our current forecast suggests that Infotopia would gross over $30 million in sales without the new revenues.” That implies revenues of $50 million for the year. Does that seem a bit ambitious – considering the Company has had revenues of $8 million for the first nine months of the year and virtually none of the new products have yet to be introduced?
And Infotopia CEO, Daniel Hoyng, added, “profit margins on this widening family of products are excellent. Fiscal 2001 (March 2000 to February of 2001) should be able to produce before tax profit margins of as much as 10%, the margins for fiscal 2002 (March 2001 to February 2002) should see before tax margins of 18.9% on projected sales of $165,068,130."

The November 1st press release indicated that some of the Company’s “newly acquired products are already on the market and producing well.” It did not say, however, which products were already being sold, or what revenues they had produced – either for Infotopia or anyone else.

The press release also did not describe the nature of the Company’s relationship with Infomercial Development Companies. Subsequent public filings indicate that Infotopia and Infomercial Development Companies entered into a joint venture agreement for the marketing of the products. These filings, however, do not describe the terms of the joint venture, what it would cost to develop and market the products , or how the venturers would split costs, revenues and profits.

Such open questions did not discourage investors, who traded over 28 million Infotopia shares between November 1st and November 3rd. During those three days, shares moved from lows of 17 cents on November 1st, to highs of 31 cents on November 2nd, before descending again to 21 cents at the close on November 3rd.


TIGER – THE SEQUEL

In September 2000 the Company announced plans to sell “Torso Tiger II,” a “scaled-down version” of the Torso Tiger. Infotopia said that Torso Tiger II would be sold through retail stores only. A September 19th press release indicated that 24,000 units of the new device had been ordered, but did not state who had placed that order, how much consumers would be charged for the product, or what profit margins could be expected. It also did not specify what the Company had paid, or agreed to pay, in order to capture rights to this product.

Has Torso Tiger II generated any income for Infotopia so far? The Company’s press releases, and its latest quarterly report, do not specify which revenues, if any, are attributable to this product.


A COME-BACK

At least one other product in the Infotopia portfolio has generated some revenues – even though it seems that most of that income was realized some time ago. On October 6th the Company said it planned to reintroduce a product called the “Backstroke Back Massager” which had generated revenues of about $5 million since February 1999. In a November 21st press release, Infotopia indicated that it anticipated “a minimum of five million in new sales from the Backstroke(R) Back Massager” over the next six to nine months.

The November 21st release states that orders for 6000 units had been received from Russia, Israel and Spain. But what did that mean for the Company? Does it owe licensing fees in connection with these sales? How did it acquire the right to market the device, and on what terms? Once again the press releases are silent on those issues.

Has the Company received any revenues from this product since its reintroduction? The latest Form 10-Q does not break down sales by product, so it is difficult to determine whether it reflects any new income from the Backstroke Back Massager.


ON A ROCKER ROLL

On December 1st Infotopia announced a “strategic alliance” with Lohan Media Productions to market the “Body By Jake Bun & Thigh Rocker.” Infotopia said that this infomercial would feature Jake Steinfeld, known for his “Body By Jake” fitness products.

The Company did not offer details of its relationship with Lohan Media, other than to say that the two entities would “co-advertise the product.” And while Infotopia projected that revenues would “equal or exceed our experience with Torso Tiger,” the press release did not say how those revenues would be shared, or what Infotopia had paid to acquire the right to “co-advertise” the product. Still, 12.9 million shares of Infotopia traded on December 1st – up from 4.6 million the previous day.

On January 5th the Company issued another press release concerning this product. This time, Infotopia said that the “Bun & Thigh Rocker” was the “Number One Ranked Infomercial in the country” based upon “frequency of infomercials airing for the week ending December 29th.” But does frequency of airings translated into sales – or profits? And isn’t it also important to know when the piece aired, and where? Isn’t ad placement a significant issue? And, were even last-minute shoppers buying fitness equipment, from infomercials, during the week that began three days before Christmas and ended just before New Year’s Eve?

No revenue figures were announced in the January 5th press release, but Infotopia predicted on January 5th that sales of this product could exceed the Torso Tiger by 200% to 300%. The Company did not say how it had arrived at that lofty prediction.


TALKING TURKEY

Then there is something called the “Cooking Saddle” that is supposed to make it possible “to effortlessly lift turkey or other meats from cooking pan to the table.” How does this device work? The Company’s Form 10-Q for the quarter ended August 31, 2000 described the product as “a fully netted cotton material that can hold up to a 40-pound turkey.” A picture on Infotopia’s web site shows a woman lifting a turkey by what would appear to be a sling attached to two strings.

The product sells for $1.95. How much of that sum represents Infotopia’s potential profit? It would appear that a high volume of sales would be necessary before the Cooking Saddle generates material revenues.

That August 31st 10-Q stated that Infotopia already had a commitment for one million units from a major retail chain. That statement is reiterated in the 10-Q for the quarter ended November 30, 2000. However, that “chain” was not identified in either of the quarterly reports and the Company has yet to report any actual sales, or revenues from the “Cooking Saddle,” either on its website or in its public filings.

Was this the same order CEO Daniel Hoyng was referring to in his October 16, 2000 letter to shareholders? That letter said that the Company had “received a commitment for an order in excess of one million pieces from a major retail chain for one of our newest products.” At that time, Hoyng stated that the product in question – which he did not identify – “is destined to be a holiday hit and provide exceptional margins of profitability to our shareholders.” The press release went on to say that the Company was “working with our manufacturers and hope to deliver the first one million units in November of this year.” Could Infotopia have been referring to a Thanksgiving debut for the Cooking Saddle?

If so, perhaps they are now planning for next Thanksgiving.


PAYING THE PRICE

Acquiring and developing products, producing infomercials and maintaining inventories requires significant resources – and, it would seem, plenty of cash. Since June 2000, Infotopia has announced plans for no fewer than fifteen new products – in addition to Torso Tiger and Torso Tiger II. Indeed, in a September 28, 2000 letter to shareholders, Infotopia CEO Daniel Hoyng acknowledged that “each new product in development requires in excess of $300,000 for the cost of the infomercial production, molds and tooling, product testing and other related miscellaneous developmental expenses.” Mr. Hoyng went on to say that “after launch the a [sic] product like the Torso Tiger can utilize between $1,000,000 for inventory and media prior to producing sales.”

With at least fifteen new products in the pipeline this would add up to about $4.5 million in pre-launch costs, and millions more for inventory. At last report, Infotopia had less than $500,000 in the bank.

That means the Company will likely be looking to raise money in the future – something it has done in the recent past. How has Infotopia obtained funding, and at what price? These are some of the questions we will be looking at in our next installment of this series on Infotopia, Inc.

http://www.stockpatrol.com/schlock/articles/infotopia2.html