10QSB 1 e-6304.txt QUARTERLY REPORT FOR THE QTR ENDED 12/31/2000 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-80321 FTM Media, Inc. (Name of Small Business Issuer as specified in its charter) Delaware 86-0997337 (State of Incorporation) (IRS Employer Identification No.) 23233 North Pima Road Number 113-157 Scottsdale, Arizona 85255 (Address of principal executive offices) (Zip Code) ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (480) 425-0099 SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: None SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: Common Stock, Par Value $0.001 per share Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] Issuer's revenues from continuing operations for its most recent fiscal quarter were $4,111. As of February 7, 2001, the number of shares of Common Stock outstanding was 9,592,821 and the aggregate market value of the Common Stock (based on the closing price on that date) held by non-affiliates of the Issuer was approximately $196,491. Transitional Small Business Disclosure Format: YES [ ] NO [X] FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA TABLE OF CONTENTS -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION Independent Accountant's Report 1 Item 1. Consolidated Financial Statements Consolidated Balance Sheets at December 31, 2000 (unaudited) and March 31, 2000 (audited) 2 Consolidated Statements of Operations for the three months ended December 31, 2000 (unaudited) and December 31, 1999 (unaudited) and the nine months ended December 31, 2000 (unaudited) and December 31, 1999 (unaudited) 3 Consolidated Statements of Cash Flows for the nine months ended December 31, 2000, (unaudited) and December 31, 1999 (unaudited) 4 Notes to the Consolidated Financial Statements (unaudited 5 - 10 Item 2. Management's Discussion and Analysis or Plan of Operations 10 Part II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Stockholders FTM Media, Inc. and Subsidiary (A Delaware Corporation) Scottsdale, Arizona We have reviewed the accompanying consolidated balance sheet of FTM Media, Inc. and Subsidiary as of December 31, 2000 and the related consolidated statements of operations for the three and nine month periods ended December 31, 2000 and 1999, the consolidated statements of cash flows for the nine months ended December 31, 2000 and 1999, in accordance with standards established by the American Institute of Certified Public Accountants. All information included in these consolidated financial statements is the responsibility of the Company's management. A review of interim financial information consists principally of inquiries of Company personnel and analytical procedures applied to the financial data. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company curtailed operations on October 13, 2000 due to cash restrictions and the uncertainty of their ability to obtain additional funding. The Company's ability to continue as a going concern is dependent upon obtaining such funding and ultimately achieving profitable operations and raising additional equity capital. Achievement of the Company's business objectives is dependent upon, amongst other factors: attaining new customers, i.e., radio stations, the sale of radio advertising and e-commerce services, and the continued success of raising equity capital. The ability of the Company to recover its investment in Web site development technology for radio stations is dependent upon the future profitability of the Web site services it provides to its radio station customers. The outcome of these matters cannot be predicted at this time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the company cannot continue in existence. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets of FTM Media, Inc. and Subsidiary as of March 31, 2000 (presented herein), and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended March 31, 2000 (not included herein), and in our report dated June 20, 2000, we expressed an unqualified opinion on those consolidated financial statements. We have not performed any auditing procedures since the date of our report. /s/ Rotenberg & Company, LLP ----------------------------------- Rotenberg & Company, LLP Rochester, New York February 14, 2001 -1- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- ASSETS Dec. 31, 2000 Mar. 31, 2000 ------------ ------------ CURRENT ASSETS (Unaudited) (Audited) Cash and Cash Equivalents $ 6,642 $ 405,353 Cash Held in Escrow from Private Placement Offering -- 5,183,225 Accounts Receivable 60,174 52,809 Prepaid Expenses 84,252 84,400 ------------ ------------ TOTAL CURRENT ASSETS 151,068 5,725,787 Property Net of Accumulated Depreciation 1,889,444 1,991,372 OTHER ASSETS Lease Deposits 86,544 132,419 Goodwill - Net of Accumulated Amortization 2,894,294 3,402,787 ------------ ------------ TOTAL ASSETS $ 5,021,350 $ 11,252,365 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Accounts Payable $ 2,305,970 $ 1,611,590 Accrued Payroll and Related Liabilities 661,419 260,299 Short Term Notes Payable 3,194,252 3,350,000 ------------ ------------ TOTAL LIABILITIES 6,161,641 5,221,889 STOCKHOLDERS' EQUITY/(DEFICIT) Preferred Stock - $.001 Par; 5,000,000 Shares Authorized; 300,465 and 322,688 Issued and Outstanding at December 31, 2000 and March 31, 2000, respectively 301 323 Common Stock - $.001 Par; 50,000,000 Shares Authorized; 9,592,821 and 9,574,139 Issued and Outstanding at December 31, 2000 and March 31, 2000, respectively 9,592 9,574 Additional Paid-In-Capital 29,037,847 29,082,318 Deficit (30,188,031) (23,061,739) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) (1,140,291) 6,030,476 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) $ 5,021,350 $ 11,252,365 ============ ============ The accompanying notes are an integral part of this financial statement. -2- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED STATEMENTS OF OPERATIONS --------------------------------------------------------------------------------
3 Months 3 Months 9 Months 9 Months Ended Ended Ended Ended 12/31/00 12/31/99 12/31/00 12/31/99 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) OPERATING REVENUE Website Services $ 4,111 $ 45,659 $ 329,103 $ 45,659 ----------- ----------- ----------- ----------- TOTAL REVENUE 4,111 45,659 329,103 45,659 OPERATING EXPENSES Website Development 247,357 1,166,693 3,365,217 2,484,530 Selling and Marketing Expenses -- -- 270,542 -- E-Commerce -- 86,745 25,057 113,437 General and Administrative Expenses 756,587 856,658 2,842,267 2,283,445 Depreciation Expense 119,096 115,024 323,606 228,743 Amortization Expense 190,685 -- 508,493 -- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,313,725 2,225,120 7,335,182 5,110,155 OPERATING LOSS BEFORE OTHER INCOME AND (EXPENSES) (1,309,614) (2,179,461) (7,006,079) (5,064,496) OTHER INCOME AND (EXPENSES) Interest Expense (51,000) (62,917) (150,090) (112,331) Interest Income -- 94,134 29,877 98,374 ----------- ----------- ----------- ----------- Total Other Income and (Expenses) (51,000) (31,218) (120,213) (13,958) ----------- ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST (1,360,614) (2,210,679) (7,126,292) (5,078,454) Minority Interest -- 655,289 -- 1,425,239 ----------- ----------- ----------- ----------- NET LOSS $(1,360,614) $(1,555,390) $(7,126,292) $(3,653,215) LOSS PER COMMON SHARE $ (0.142) $ (0.242) $ (0.743) $ (0.573) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,586,502 6,439,498 9,584,965 6,379,811
The accompanying notes are an integral part of this financial statement. -3- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED STATEMENT OF CASH FLOWS --------------------------------------------------------------------------------
9 months 9 months ended ended Dec. 31, 2000 Dec. 31, 1999 ----------- ----------- (unaudited) (unaudited) OPERATING ACTIVITIES Net Income (Loss) $(7,126,292) $(3,653,215) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 323,606 228,743 Amortization 508,493 -- Decrease in Capitalized Development Costs -- 131,568 Minority Interest -- (1,425,239) Increase in Liquidation Value - Minority Interest -- 22,858 Changes in Operating Assets & Liabilities -- -- Increase in Accounts Receivable (7,365) (24,208) Increase in Prepaid assets 148 (176,260) Increase in Notes Receivable -- (1,193,700) Increase in Deposits 45,875 (81,638) Increase in Accounts Payable 694,380 958,478 Increase in Other Accrued Liabilities 401,120 (23,022) Increase in Short Term Notes Payable -- 82,636 ----------- ----------- Net Cash Flow from Operating Activities (5,160,035) (5,152,999) INVESTING ACTIVITIES Cash Purchases of property and equipment (221,678) (2,099,300) FINANCING ACTIVITIES Private Placement - Stock 5,183,225 2,010,034 Private Placement - Notes -- 2,460,000 Repayment of Interim Short Term Financing (1,212,500) -- Net Proceeds from Other Short Term Financing 1,056,752 -- Net Proceeds from Sale of Common Stock and Units (44,475) 1,353,054 Payment of Preferred Dividends -- (198,000) ----------- ----------- Net Cash Flow from Financing Activities 4,983,002 5,625,088 Net Decrease in Cash and Cash Equivalents (398,711) (1,627,212) Cash and Cash Equivalents - Beginning of Year 405,353 2,027,833 Cash and Cash Equivalents - End of Period 6,642 400,621 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid Year to Date for Interest 99,090 112,331
The accompanying notes are an integral part of this financial statement. -4- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. General The accompanying unaudited financial statements of FTM Media, Inc., formerly Redwood Broadcasting, Inc., have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and article 10 of Regulation S-X. Accordingly they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at March 31, 2000 has been derived from audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements are unaudited and reflect all adjustments which in the opinion of management are necessary for a fair presentation of the financial position and operating results for the interim periods. The consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's annual report on Form 10-KSB for the fiscal year ended March 31, 2000. Results of operations for interim periods are not necessarily indicative of results which may be expected for the year as a whole. Factors which affect the comparability of financial data from year to year and the comparability for interim periods include the changes in goodwill. 2. Nature of Operations and Summary of Significant Accounting Policies Pursuant to a Contribution Agreement effective March 31, 1999, Interactive Radio Group, Inc. (hereinafter "INRG"), a Delaware Corporation, became a majority owned subsidiary of Redwood Broadcasting, Inc., a Colorado Corporation (hereinafter "Redwood"). The transaction was treated as a reverse acquisition, whereby shareholders owning 90.85% of the INRG common stock received 1.25 shares of Redwood common stock for each contributed share of INRG common stock. As a result of the reverse acquisition, the historical operations of INRG were treated as the historical operations of Redwood. Effective July 19, 1999, Redwood changed its name to FTM Media, Inc. (hereinafter "FTM"). Effective January 7, 2000, FTM, formerly a Colorado Corporation, became reincorporated as a Delaware Corporation, via a reincorporation merger. On January 7, 2000, FTM acquired the remaining shares represented by the minority interest of INRG. The transaction resulted in INRG being merged with and into FTM, with FTM being the surviving company. The transaction resulted in the remaining common shareholders of INRG receiving 1.25 shares of FTM common stock for each contributed share of INRG common stock. The merger was accounted for under the purchase method of accounting, effective September 22, 1999, which was the day of approval of the merger by the shareholders. Goodwill was recorded based on the difference between the fair value of the underlying net assets of the minority interest acquired and the fair value of the Company's common stock exchanged. -5- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FTM MEDIA, INC. The Company was reincorporated under the laws of the state of Delaware on January 7, 2000 and is in the business of providing Internet Web sites to radio stations, focusing its efforts on the 25 largest U.S. markets. The Company's Web site services include Web site design, development, implementation, hosting, and management. The Company curtailed operations on October 13, 2000 due to cash flow restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI reorganization on February 8, 2001. The case is pending in United States Bankruptcy Court for the District of Arizona as case number 01-01382-ECF-RJH. The Company anticipates immediately entering into an agreement for post petition financing with FTM Investors, LLC. Upon completion of said post petition financing the Company will continue operations, on an expanded, but still limited basis. The results of the Company resuming operations cannot be predicted at this time and will be dependant on many factors including but not limited to the Company's ability to raise additional capital and reorganize itself during the Chapter XI Bankruptcy proceedings. METHOD OF ACCOUNTING The Company maintains its books and prepares its financial statements on the accrual basis of accounting. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results can differ from those estimates. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially expose the Company to significant concentrations of credit risk consist principally of bank deposits and accounts receivable. Cash is placed primarily in high quality short term interest bearing financial instruments. Management performs evaluations of accounts receivable and records an allowance for doubtful accounts when necessary. CASH AND CASH EQUIVALENTS Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions which periodically may exceed federally insured amounts. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost, less accumulated depreciation computed using the straight line method over the estimated useful lives as follows: Leasehold Improvements 5 - 7 Years Computer Equipment 3 - 5 Years Office Furniture 5 Years Vehicles 5 Years -6- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA Maintenance and repairs are charged to expense. The cost of the assets retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts. GOODWILL Goodwill is being amortized over five to ten years. See note D for additional information. EARNINGS (LOSS) PER COMMON SHARE In accordance with SFAS No. 128, "Earnings Per Share," basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for each period. Diluted earnings per common share is calculated by adjusting the number of outstanding shares assuming conversion of all potentially dilutive stock options and warrants. The incremental shares related to outstanding warrants, stock options, convertible preferred stock, and convertible debt have been excluded from the computation of diluted earnings per share due to their antidilutive effect as a result of the company's net loss from operations. STOCK OPTIONS The company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Under APB No. 25, the Company's stock option and employee stock purchase plans qualify as noncompensatory plans. Consequently, no compensation expense is recognized. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. Deferred tax assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carryforwards. Deferred income tax expense represents the change in net deferred assets and liability balances. The Company had no material deferred tax assets, net of allowances, or liabilities for the periods presented. RECLASSIFICATION Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation. NOTE C - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consisted of the following: -7- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA 12/31/00 3/31/00 ---------- ---------- Leasehold Improvements $ 109,247 $ 80,879 Computer Equipment 2,129,421 1,980,144 Office Furniture 256,140 234,880 Vehicles 14,500 14,500 ---------- ---------- $2,509,309 $2,310,403 Less: Accumulated Depreciation 619,865 319,031 ---------- ---------- Net Property and Equipment $1,889,444 $1,991,372 ========== ========== Depreciation expense for the nine months ended December 31, 2000, and 1999, was $323,606, and $228,743, respectively. NOTE D - GOODWILL Goodwill consisted of the following: 12/31/00 3/31/00 ---------- ---------- Goodwill $3,852,951 $3,852,951 Less: Accumulated Amortization 958,657 450,164 ---------- ---------- Net Goodwill $2,894,294 $3,402,787 ========== ========== Amortization expense for the nine months ended December 31, 2000, and 1999 was $508,493, and $0, respectively. NOTE E - SHORT TERM NOTES PAYABLE The Company has multiple outstanding notes payable to individual investors that were issued as bridge loans in anticipation of capital raised in a private offering. These notes carry various maturity dates ending in May, 2000 and have terms of 180 days or less from the date of issue. $1,700,000 of the notes provide for monthly extensions by the Company for an indefinite period with interest payments of 1% per month, in addition to the regular interest payments. The notes totaled $3,350,000 at March 31, 2000 and carried various interest rates ranging from 6% to 10%. Some of the investors have the option to convert the notes to common stock while others of the investors have the option to convert the notes to units, consisting of common stock and warrants, at the price of either $8.00 or $7.50 respectively. Interest expense for the nine months ended December 31, 2000 and 1999 was $150,090 (including an accrual of $51,000) and $112,331, respectively. During the nine months ended December 31, 2000, the Company repaid $1,212,500 of the notes and extended $1,700,000. In addition during the second quarterly period ending September 30, 2000 the Company raised an additional $1,200,000 in the form of bridge notes. Currently the Company is in default on all notes payable pursuant to the terms and conditions of each individual note. All of the notes carry an additional consideration of coverage in the form of warrants to purchase FTM common stock. The Company is currently in dispute with one of the investors over a $400,000 note, as to whether the Company is required to repay the note or whether the investor is required to convert it to common stock. The -8- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA $400,000 note amount is included in the notes payable as of December 31, 2000. The Note Holder has obtained a judgment against the Company in both New York and California which has been stayed by the Company as a result of its Chapter XI filing. The Company entered into an insurance premium financing agreement with AICCO which had a balance of $31,132 at December 31, 2000. NOTE F - CONTINGENCIES The Company's ability to continue as a going concern is dependent upon achieving profitable operations and raising additional equity capital. In addition to raising equity capital, achievement of the Company's business objectives is dependent upon, amongst other factors: attaining new customers, i.e., radio stations, the sale of radio advertising and e-commerce services, and the continued success of raising equity capital. NOTE G - OTHER MATTERS The Company curtailed operations on October 13, 2000 due to cash flow restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI reorganization on February 8, 2001. The Company anticipates immediately entering into an agreement for post-petition financing with FTM Investors, LLC. Upon completion of said post-petition financing the Company will continue operations, on an expanded, but still limited basis. The results of the expanded operations cannot be predicted at this time and will be dependant on many factors including but not limited to the Company's ability to form additional capital and reorganize itself during the Chapter XI Bankruptcy proceedings. The Company is currently in dispute with one of the investors over a $400,000 note, as to whether the Company is required to repay the note or whether the investor is required to convert it to common stock. The $400,000 note amount is included in the notes payable as of March 31, 2000. On November 2, 2000, Cohanzick obtained a judgment against the Company and is seeking a writ of attachment against the Company's assets in the State of California. The company has ceased making the payments required under the terms and conditions of its office leases in Burbank, California and Scottsdale, Arizona. As such, the landlords may exercise their rights, including possibly an attempt to offset the company's lease deposits or terminate the lease. The Scottsdale landlord purported to terminate that lease prior to the bankruptcy filing. All action against the company and its property has been stayed by the bankruptcy filing. The company is assessing its rights with respect to all of its leases and any actions that have been taken by its landlords. On November 22, 2000 a group of approximately 60 employees filed Suit in the Superior Court of California, County of Los Angeles seeking lost wages and other damages resulting from their employment with the Company. The Company disputes these claims and has filed counterclaims against the plaintiffs in that action. It will seek to have the proceedings removed to the Federal Bankruptcy Court and transferred to Phoenix, Arizona to be adjudicated in conjunction with the Company's Chapter XI proceedings. On October 4, 2000 Greg Mastroieni and Robert Wilson resigned as consultants and as Directors of the Company. On November 13, 2000, David Kendrick, President and Chief Operating Officer of the Company, resigned. On December 12, 2000, Frank Wood, Robert Buziak, John Gehron and Andy Schuon resigned as Directors of the Company. On January 24, 2001, Glenn Kramer was appointed a President and Chief Operating Officer of the Company. -9- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA Special Note Regarding Forward-looking Statements Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from forward-looking statements and projections include, for example: * the results of our Bankruptcy proceedings for reorganization under Chapter 11, which were filed on February 8, 2001; * our ability to complete post-petition financing with FTM Investors, LLC to provide us with sufficient working capital for operating activities; * our ability to maintain relationships with our current customers; * obtaining new customers, particularly radio stations; * the sale of radio advertising and e-commerce services; * the effect of changing economic conditions; * our ability to ultimately obtain equity capital; and * other risks which may be described in our future filings with the SEC. We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You must read the following discussion on the financial condition and results of operations of the Company in conjunction with our condensed financial statements, including the notes elsewhere in this Form 10-QSB filing. Historical results are not necessarily an indicator of trends in operating results for any future period. OVERVIEW Prior to curtailing our operations our principal business had been providing Web sites to radio stations in the 25 largest U.S. markets, so that those radio stations can extend their brands and generate additional revenues. Our services include Web site design, development, implementation, hosting and management (our "Web site services"). We currently have developed seven Web sites, including Web sites for alternative rock stations KROQ in Los Angeles, LIVE105 in San Francisco, WHFS in Washington, D.C. and WBCN in Boston; B96, a contemporary hit Station in Chicago and news/talk stations KCBS in San Francisco and FMTALKi in Los Angeles. None of these sites continues to operate. Prior to curtailment of operations there were additional Web sites under development. LIQUIDITY AND CAPITAL RESOURCES - DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999 Since our inception on February 22, 1994, we have had significant negative cash flows from our operations. For the nine months ended December 31, 2000 and 1999, we used $5,160,035 and $5,152,999 of cash, respectively, in our operations. Cash used in operating activities in each period resulted primarily from net losses in those periods, offset by non-cash charges and changes in current assets and liabilities. -10- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA For the nine months ended December 31, 2000 and 1999, we used $221,678 and $2,099,300 in our investing activities. The use of these funds was almost entirely for computer equipment and software used in the production of web sites. Net cash provided by financing activities for the nine months ended December 31, 2000 and 1999, was $4,983,002 and $5,625,088, respectively. Since inception, we have financed our operations primarily from the issuance of common stock, proceeds of notes payable and the sale of Series A Preferred Stock and Series B Preferred Stock. Funds provided by financing in the nine months ended December 31, 1999 consisted of the issuance of preferred stock for $1,565,005. Funds provided by financing activities for the nine months ended December 31, 2000 consisted almost entirely of the receipt from escrow of $5,183,225 from the private placement of units of common stock and warrants, offset by the repayment of $1,212,500 of the short term financing obtained during the year ended March 31,2000. The Company entered into several non-cancelable lease commitments that required payments of approximately $2,700,000 over the next five years. These leases will be rejected as part of the Chapter XI Bankruptcy proceedings. The Company may seek to negotiate a new lease for a portion of the Burbank offices as an alternative to relocating its offices. The Company curtailed operations on October 13, 2000 due to cash flow restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI reorganization on February 8, 2001. The Company anticipates immediately entering into an agreement for post-petition financing with FTM Investors, LLC. Upon completion of said post-petition financing the Company will continue limited operations. The results of the expanded operations cannot be predicted at this time and will be dependant on many factors including but not limited to the Company's ability to raise additional capital and reorganize itself during the Chapter XI Bankruptcy proceedings. RESULTS OF OPERATIONS - DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 2000 REVENUE. Revenue consisted of money received from the sale of merchandise on our Web sites and the selling of advertising on such sites. Revenue was $45,659 for the nine months ended December 31, 1999 and $329,103 for the nine months ended December 31, 2000. The growth in revenue was attributable to the rollout of our first Web sites. Beginning in July, the Company began earning revenue related to recurring monthly fees for service from its radio station clients. WEB SITE DEVELOPMENT AND E-COMMERCE COSTS. Web site development and E-commerce costs consist of our costs related to the development of our Web sites and costs related to the selling of goods from our Web sites. Web site development costs include expenses incurred by us to develop, enhance, manage, monitor and operate our Web sites and to develop new products. These costs consist primarily of salaries and fees paid to employees and consultants to develop and maintain the software and information contained on our Web sites. For the nine months ended December 31, 1999, these costs were $2,484,530, and for the nine months ended December 31, 2000, these costs were $3,365,217. These costs related primarily to the increase in staff necessary to the development of content and tools for our Web sites. SALES AND MARKETING EXPENSE. Sales and Marketing expense includes expenses incurred by the Company to obtain and maintain client and advertiser relationships. These costs included salaries and fees paid to employees and consultants. For the nine months ended December 31, 1999, Sales and Marketing expenses were $0 and for the nine months ended December 31, 2000, Sales and Marketing expenses were $270,542, consisting primarily of costs associated with the development of client marketing programs and of new prototype marketing and advertising programs. -11- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses consist primarily of compensation for personnel and, to a lesser extent, fees for professional services, rent and communications costs. Our general and administrative expenses increased from $2,283,445 for the nine months ended December 31, 1999, to $2,842,267 for the nine months ended December 31, 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense includes depreciation of tangible assets and software, using the straight-line method, over the estimated useful lives of the assets. Amortization expense includes intangible assets such as goodwill. For the nine months ended December 31, 1999, depreciation and amortization expense was $228,743 and $832,099 for the nine months ended December 31, 2000. The increases are primarily due to the growth of the Company and the need for much additional equipment, and the amortization of goodwill as a result of the acquisition of the minority interest in INRG. OTHER EXPENSE. Interest expense increased from $112,331 to $150,090 for the nine months ended December 31, 1999 and 2000, respectively. The increase relates to primarily to interest accrued on the bridge loan financing of $3,800,000. Inflation did not have a material effect on our operations for the nine months ended December 31, 2000 and 1999. We have and will continue to attempt to mitigate the impact of cost increases by evaluating our suppliers, by increasing our effectiveness, and by adjusting our prices for services rendered and products sold. While we do not expect inflation to have a material impact on 2001 operations, there are no guarantees that future cost increases would not have an adverse impact. Other than the foregoing and the risk factors described above, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on our results of operations. NET OPERATING LOSS CARRYFORWARDS - At March 31, 2000, we had a net operating loss carryforward for income tax purposes of approximately $11,442,272, which expires beginning in 2020. Under the Tax Reform Act of 1986, the amounts of and the benefits from net operating loss carryforwards are subject to certain limitations in the amount of net operating losses that we may utilize to offset future taxable income. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS BANKRUPTCY FILING. The Company curtailed operations on October 13, 2000 due to cash flow restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI reorganization on February 8, 2001. The Company anticipates immediately entering into an agreement for post-petition financing with FTM Investors, LLC. Upon completion of said post-petition financing the Company will continue operations on a limited basis. The results of the expanded operations cannot be predicted at this time and will be dependent on many factors, including but not limited to, the Company's ability to form additional capital and reorganize itself during the Chapter XI Bankruptcy proceedings. COHANZICK PARTNERS LP LITIGATION. On May 26, 2000 Cohanzick Partners LP Cohanzick") filed a lawsuit against us in the United States District Court for the Southern District of New York. Cohanzick alleges that the Company has failed to pay a $400,000 promissory note that the Company executed in favor of Cohanzick. Cohanzick seeks repayment of the note, along with the accrued interest thereon and legal fees and reasonable costs. On November 2, 2000, Cohanzick obtained a judgment against the Company and is seeking a writ of attachment against the Company's assets in the State of California. The attachment proceedings are stayed as a result of the Chapter XI Bankruptcy proceedings. EMPLOYEE LAWSUIT. On November 22, 2000 a group of approximately 60 employees filed Suit in the Superior Court of California, County of Los Angeles seeking lost wages and other damages resulting from their employment with the Company. The Company disputes these claims and has filed counterclaims against -12- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA the plaintiffs in that action. It will seek to have the proceedings removed to the Federal Bankruptcy Court and transferred to Phoenix, Arizona to be adjudicated in conjunction with the Company's Chapter XI proceedings. VENDOR LAWSUITS. The Company was also sued in the Superior Court of California, County of Los Angeles by two vendors, Lightray Productions, Inc. and Bowne of Los Angeles, Inc. These suits seek to recover claims of $30,187.50 and $9,359.00, respectively. Both actions have been stayed by the bankruptcy filing. ITEM 2. CHANGES IN SECURITIES On October 31, 2000, 10,000 common shares were issued to Intesec LLC as payment for consulting services. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION RESIGNATIONS OF DIRECTORS AND OFFICERS. On October 4, 2000, Greg Mastroieni and Robert Wilson resigned as consultants and as Directors of the Company. On November 13, 2000, David Kendrick, President and Chief Operating Officer of the Company resigned. On December 12, 2000, Frank Wood, Robert Buziak, John Gehron and Andy Schuon resigned as Directors of the Company. APPOINTMENT OF NEW PRESIDENT AND COO. On January 24, 2001, Glenn Kramer was appointed a President and Chief Operating Officer of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. Exhibit No. Title ----------- ----- 2.1 Agreement and Plan of Merger dated as of September 24, 1999 by and between FTM Media, Inc., a Delaware corporation, and Interactive Radio Group, Inc., a Delaware corporation.(1) 3.1 Certificate of Incorporation of FTM Media, Inc., a Delaware corporation(1) 3.2 Bylaws of FTM Media, Inc. a Delaware Corporation(1) 4.1 Specimen Certificate of Common Stock(1) 4.2 Interactive Radio Group, Inc. 1999 Stock Option Plan(1) 4.3 FTM Media, Inc. 1999 Stock Option Plan(1) 10.1 Stock Purchase Agreement with Andaman Investments, Inc.(2) 10.2 Contribution Agreement(3) 10.3 Stock Purchase Agreement made as of May 25, 1999 relating to Series B Convertible Preferred Stock between the Company and the parties listed on Exhibit A thereto.(4) 16.1 Letter on Change and Certifying Accountant(5) 21 Subsidiaries of Registrant(6) 27 Financial Data Schedule(6) ---------- (1) Incorporated by reference from the Company's Registration Statement under the Securities Act of 1933 on Form S-4 as filed with the Commission on October 5, 1999, and amended on December 31, 1999, January 4, 2000, and January 18, 2000. (2) Incorporated by reference from the Company's Current Report on Form 8-K dated December 31, 1998 as filed with the Commission on January 14, 1999. (3) Incorporated by reference from the Company's Current Report on Form 8-K dated March 29, 1999 as filed with the Commission on April 15, 1999. -13- FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA (4) Incorporated by reference from the Company's Current Report on Form 8-K dated June 15, 1999 as filed with the Commission on June 29, 1999. (5) Incorporated by reference from the Company's Current Report on Form 8-K dated May 17, 1999 as filed with the Commission on May 19, 1999. (6) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000 as filed with the Commission on June 29, 2000. (b) REPORTS ON FORM 8-K No Reports on Form 8-K were filed by the Company during the Quarter ended December 31, 2000. SIGNATURES In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and the dates indicated. Signature and Title Dated ------------------- ----- /s/ RON CONQUEST February 14, 2001 --------------------------------- Ron Conquest Chief Executive Officer, Secretary and Director -14-