Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2011, for Imagine Media, Ltd. (formerly TransBioTec, Inc.). The Company is a development-stage entity that recently underwent a reverse acquisition of TransBioTec, Inc. on September 19, 2011. The combined entity focuses on developing and marketing a non-invasive alcohol sensing system (SOBR) for ignition interlock applications. The Company has generated no revenue to date and is classified as a shell company and a smaller reporting company.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2011 | Three Months Ended Sep 30, 2011 | Balance Sheet (Sep 30, 2011) |
|---|---|---|---|
| Revenues | $0 | $0 | N/A |
| Net Loss | $(458,692) | $(204,104) | N/A |
| Operating Expenses | $351,854 | $200,816 | N/A |
| Interest Expense | $106,838 | $3,288 | N/A |
| Cash and Equivalents | N/A | N/A | $30,695 |
| Total Assets | N/A | N/A | $32,738 |
| Total Liabilities | N/A | N/A | $1,764,894 |
| Working Capital | N/A | N/A | $(1,580,320) |
| Stockholders' Equity | N/A | N/A | $(2,563,591) |
Note: The filing text does not provide a clear value for gross margins or operating margins as there is no revenue.
Material Changes vs. Prior Period
- Revenue: Remained at $0 for both the nine-month and three-month periods compared to the prior year.
- Operating Expenses: Increased significantly to $351,854 for the nine months ended September 30, 2011, compared to $215,995 in the prior year. Key drivers included:
- Professional and sub-contractor fees: Increased to $170,663 (from $131,047) due to product development costs.
- Salary and Wages: Increased to $96,778 (from $53,262) due to hiring two sales representatives.
- Research and Product Development: Increased to $34,618 (from $1,350) due to material purchases.
- Travel and Entertainment: Increased to $19,178 (from $6,987) related to the TransBioTec acquisition.
- Debt Structure: Significant debt conversion occurred. Related party shareholders converted $829,164 in note principal and interest into 552,032 common shares, and $135,000 in compensation into 54,000 shares. Total notes payable decreased from $748,845 (Dec 31, 2010) to $29,760 (Sep 30, 2011) due to these conversions.
- Cash Flow: Net cash used in operating activities increased to $(676,863) for the nine months ended September 30, 2011, compared to $(31,891) in the prior year. This was offset by $636,718 in cash provided by financing activities (equity issuances).
Guidance, Outlook, and Risks
Management Commentary and Plan of Operation
Management plans to raise capital to fund the development and commercialization of the SOBR alcohol sensing system. The projected plan of operation includes:
- January 2012: Target sales of 500 units; estimated cost $160,000.
- March 2012: Improve production to 1,000 units/month; estimated cost $185,000.
- October 2012: Improve production to 10,000 units/month; estimated cost $370,000.
The Company entered into an agreement with Ventura LLC to assist in raising capital. Ventura is entitled to up to 4,212,720 shares of common stock contingent on raising $1,250,000 from introduced investors by March 31, 2012. As of September 30, 2011, Ventura had raised $240,000.
Risks and Contingencies
- Going Concern: The Company has a working capital deficit and recurring losses, raising substantial doubt about its ability to continue as a going concern. Continued operations depend on raising additional capital through equity or debt.
- Acquisition Completion: The acquisition of remaining TransBioTec shares is subject to conditions including definitive agreements and audits. There is no assurance the transaction will be consummated.
- Liquidity: The Company has limited cash ($30,695) and significant accrued liabilities ($1.6M current liabilities).
Investor Verification Checklist
- Capital Adequacy: Verify the Company's ability to raise the projected $715,000+ required for the 2012 operational plan given the current cash balance of $30,695.
- Debt Conversion Terms: Confirm the final terms of the debt-to-equity conversions and ensure no hidden liabilities remain from the converted notes.
- Ventura LLC Agreement: Review the specific vesting conditions for the 4.2M shares promised to Ventura LLC and the likelihood of raising the required $1.25M.
- Product Readiness: Assess the status of the SOBR sensor beta testing and manufacturing capabilities, as the business model relies entirely on future product sales.
- Related Party Transactions: Scrutinize the $130,565 in related party payables and the history of compensation conversions to ensure fair value and proper disclosure.