-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S7TDbSz/qthJVRobRZlj2VkU4NotmAZxAHvuIO7nDN/5GJkkO2p8r2sG6zUTBnKu dM+d00OgNXDsArmkMeIGtg== /in/edgar/work/20000814/0000950148-00-001723/0000950148-00-001723.txt : 20000921 0000950148-00-001723.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950148-00-001723 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FTM MEDIA INC CENTRAL INDEX KEY: 0001004991 STANDARD INDUSTRIAL CLASSIFICATION: [4832 ] IRS NUMBER: 841295270 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27745 FILM NUMBER: 695587 BUSINESS ADDRESS: STREET 1: 6991 EAST CAMELBACK ROAD STREET 2: #D103 CITY: SCOTTSDALE, STATE: AZ ZIP: 85251 BUSINESS PHONE: 4804250099 MAIL ADDRESS: STREET 1: 11 SUNDIAL CIRCLE #17 STREET 2: P O BOX 3463 CITY: CAREFREE STATE: AZ ZIP: 85377 FORMER COMPANY: FORMER CONFORMED NAME: REDWOOD BROADCASTING INC DATE OF NAME CHANGE: 19961003 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT FINANCIAL HOLDING CORP DATE OF NAME CHANGE: 19951215 10QSB 1 e10qsb.txt FORM 10-QSB (06/30/2000) 1 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 JUNE 30, 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.) 6991 E. Camelback Road Suite D103 Scottsdale, Arizona 85251 (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 $177,895. As of August 8, 2000, the number of shares of Common Stock outstanding was 9,582,823 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 $11,946,871. Transitional Small Business Disclosure Format: YES [ ] NO [X] 2 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA TABLE OF CONTENTS - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION Independent Auditor's Report F-1 Item 1. Consolidated Financial Statements Consolidated Balance Sheets at June 30, 2000 (unaudited) and March 31, 2000 F-2 Consolidated Statements of Operations for the three months ended June 30, 2000 and June 30, 1999 (unaudited) F-3 Consolidated Statements of Cash Flows for the three months ended June 30, 2000, and June 30, 1999 (unaudited) F-4 Notes to the Consolidated Financial Statements (unaudited) F-5 - F-11 Item 2. Management's Discussion and Analysis or Plan of Operations Part II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K Signatures
3 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 June 30, 2000 and the related consolidated statements of operations and cash flows for the three months ended June 30, 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. 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 and 1999, 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, and in our report dated June 20, 2000, we expressed an unqualified opinion on those consolidated financial statements. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's ability to continue as a going concern is dependent upon 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. Rotenberg & Company, LLP Rochester, New York August 10, 2000 - F-1 - 4 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
June 30, 2000 March 31, 2000 ------------- -------------- (unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 1,204,094 $ 405,353 Cash Held in Escrow from Private Placement Offering 5,183,225 Accounts Receivable 181,512 52,809 Prepaid Expenses 174,629 84,400 Other Current Assets 2,243 ------------ ------------ TOTAL CURRENT ASSETS 1,562,478 5,725,787 PROPERTY AND EQUIPMENT - NET OF ACCUMULATED DEPRECIATION 2,153,310 1,991,372 OTHER ASSETS Lease Deposits 481,164 132,419 Goodwill - Net of Accumulated Amortization 3,212,102 3,402,787 ------------ ------------ TOTAL ASSETS $ 7,409,054 $ 11,252,365 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) CURRENT LIABILITIES Accounts Payable $ 1,987,701 $ 1,611,590 Accrued Payroll and Related Liabilities 169,831 260,299 Short Term Notes Payable 2,230,979 3,350,000 ------------ ------------ TOTAL LIABILITIES 4,388,511 5,221,889 STOCKHOLDERS' EQUITY/(DEFICIT) Preferred Stock - $.001 Par; 5,000,000 Shares Authorized; 300,465 and 322,688 Issued and Outstanding at June 30, 2000 and March 31, 2000, respectively 301 323 Common Stock - $.001 Par; 50,000,000 Shares Authorized; 9,582,821 and 9,574,139 Issued and Outstanding at June 30, 2000 and March 31, 2000, respectively 9,582 9,574 Additional Paid-In-Capital 29,027,857 29,082,318 Deficit (26,017,197) (23,061,739) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) 3,020,543 6,030,476 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) $ 7,409,054 $ 11,252,365 ============ ============
The accompanying notes are an integral part of this financial statement. - F-2 - 5 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
3 months 3 months ended ended June 30, 2000 June 30, 1999 ------------- ------------- (unaudited) (unaudited) OPERATING REVENUE Website Services $ 177,895 $ 0 ----------- ----------- TOTAL REVENUE $ 177,895 $ 0 ----------- ----------- OPERATING EXPENSES Website Development 1,586,059 509,504 Selling and Marketing Expenses 101,718 0 E-Commerce 10,883 0 General and Administrative Expenses 1,099,851 741,724 Depreciation Expense 125,113 21,385 Amortization Expense 190,685 0 ----------- ----------- TOTAL OPERATING EXPENSES 3,114,309 1,272,613 ----------- ----------- OPERATING LOSS BEFORE OTHER INCOME AND (EXPENSES) (2,936,414) (1,272,613) OTHER INCOME AND (EXPENSES) Interest Expense (48,090) (1,340) Interest Income 29,046 11,723 ----------- ----------- Total Other Income and (Expenses) (19,044) 10,383 ----------- ----------- LOSS BEFORE MINORITY INTEREST (2,955,458) (1,262,230) Minority Interest 0 324,071 ----------- ----------- NET LOSS $(2,955,458) $ (938,159) =========== =========== LOSS PER COMMON SHARE $ (0.308) $ (0.148) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,587,124 6,319,542 =========== ===========
The accompanying notes are an integral part of this financial statement. - F-3 - 6 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA CONSOLIDATED STATEMENTS OF CASH FLOWS RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES - --------------------------------------------------------------------------------
3 months 3 months ended ended June 30, 2000 June 30, 1999 ------------- ------------- (unaudited) (unaudited) NET LOSS $(2,955,458) $ (938,159) Adjustments to reconcile net income (loss) to net cash used in operating activities: Amortization 190,685 1,963 Depreciation 125,113 19,422 Decrease in Capitalized Development Costs -- 131,568 Minority Interest -- (324,071) Increase in Liquidation Value - Minority Interest -- 7,619 Change in operating assets and liabilities Increase in Accounts Receivable (128,703) -- Increase in Prepaid Assets (90,229) (201,113) Increase in Deposits (348,745) 8,875 Increase in Other Current Assets (2,243) -- Increase in Accounts Payable 376,111 133,952 Decrease in Accrued Expenses (90,468) -- ----------- ----------- Net cash flow from Operating Activities (2,923,937) (1,159,944) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash Purchases of Property and Equipment (287,051) (388,969) ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES (287,051) (388,969) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds from Cash held in Escrow 5,183,225 -- Repayment of Interim Short Term Financing (1,212,500) -- Net Proceeds from Other Short Term Financing 94,479 84,892 Net Proceeds from Sale of Common Stock and Units (54,475) 360,036 Net Proceeds from Sale of Preferred Stock -- 1,565,005 Preferred Stock Dividends -- (187,800) ----------- ----------- NET CASH FLOWS FROM FINANCING ACTIVITIES 4,010,729 1,822,133 ----------- ----------- Net Increase in Cash and Cash Equivalents 799,741 273,220 Cash and Cash Equivalents - Beginning of Quarter 405,353 2,027,833 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF QUARTER $ 1,204,094 $ 2,301,053 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Quarter for Interest $ 67,725 $ -- =========== ===========
The accompanying notes are an integral part of this financial statement. - F-4 - 7 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. - F-5 - 8 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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 was formerly in the development stage, when its operations principally involved the raising of capital, market research, and start-up production. The Company now has seven Web sites operating and began receiving revenues from its Web site services during the fiscal year beginning April 1, 1999. It is therefore no longer considered to be in the development stage. INTERACTIVE RADIO GROUP, INC. INRG was formed on February 22, 1994 under the laws of the State of Delaware. The company was dormant until April 1, 1998 when it began its business of designing and hosting Internet Web sites for radio stations. INRG became a wholly owned subsidiary of FTM, effective September 22, 1999, as described in the Summary of Transaction, and was subsequently merged with and into FTM. CYBERMUSIC ACQUISITION CORP. Cybermusic Acquisition Corp. (hereinafter "Cybermusic") was formed on December 3, 1998 under the laws of the State of Delaware. Cybermusic was acquired by INRG and became its wholly owned subsidiary in December, 1998. It subsequently became a subsidiary of FTM as a result of the acquisition of INRG by FTM. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of FTM Media, Inc. and its wholly owned subsidiary, Cybermusic. All of the operations are carried out through FTM; Cybermusic has no operations. All significant intercompany balances and transactions have been eliminated in consolidation. SEGMENT DATA, GEOGRAPHIC INFORMATION, AND SIGNIFICANT CUSTOMERS The Company operates in one industry segment and will seek to generate revenues from its Web site services to radio stations in the 25 largest U.S. radio markets. METHOD OF ACCOUNTING The Company maintains its books and prepares its financial statements on the accrual basis of accounting. - F-6 - 9 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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
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 E 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 - F-7 - 10 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 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, as described in Note H, 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 - CASH HELD IN ESCROW FROM PRIVATE PLACEMENT OFFERING As of March 31, 2000, the company held $5,183,225 in escrow in connection with a private placement. The company received all funds held in escrow between April and June of 2000. During the quarter ended June 30, 2000 the company sold an additional 8,000 shares of this private placement, for which $60,000 was received in cash through this escrow. - F-8 - 11 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- NOTE D - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consisted of the following:
----------------------------------------------------------------- 6/30/00 3/31/00 ----------------------------------------------------------------- Leasehold Improvements $ 117,865 $ 80,879 Computer Equipment 2,188,654 1,980,144 Office Furniture 273,463 234,880 Vehicles 14,500 14,500 ----------------------------------------------------------------- $2,594,482 $2,310,403 Less: Accumulated Depreciation 441,172 319,031 ----------------------------------------------------------------- Net Property and Equipment $2,153,310 $1,991,372 =================================================================
Depreciation expense for the quarters ended June 30, 2000, and 1999, was $125,113, and $19,422, respectively. NOTE E - GOODWILL Goodwill in the amount of $16,999,848 was recorded in connection with the acquisition of the minority shareholders' interest in INRG on January 7, 2000, based on the difference between the fair value of FTM's common shares issued and the book value of the minority interest on September 22, 1999, which was the approval date of the merger by the shareholders. Subsequently, the goodwill was deemed to be impaired and written down to its fair value of $3,774,438, which is equal to the sum of the value of the INRG common shares issued in a private offering during Spring, 1999 plus the fair value of the INRG minority interest as of September 22, 1999. The impairment loss of $13,225,410 has been charged to operations. The fair value of the goodwill is being amortized over five years. Goodwill in the amount of $78,513 was recorded during the year ended March 31, 1999 upon the acquisition of a subsidiary and is being amortized over ten years. Goodwill consisted of the following:
----------------------------------------------------------------- 6/30/00 3/31/00 ----------------------------------------------------------------- Goodwill $3,852,951 $3,852,951 Less: Accumulated Amortization 640,849 450,164 ----------------------------------------------------------------- Net Goodwill $3,212,102 $3,402,787 =================================================================
- F-9 - 12 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- Amortization expense for the quarters ended June 30, 2000, and 1999, was $190,685, and $1,963, respectively. NOTE F - 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 three months ended June 30, 2000 and 1999, was $48,090, and $-0-, respectively. During the three months ended June 30, 2000, the Company repaid $1,212,500 of the notes and extended $1,700,000. 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. The Company entered into an insurance premium financing agreement with AICCO which had a balance of $93,479 at June 30, 2000. NOTE G - COMMON STOCK EQUIVALENTS At June 30, 2000, there were outstanding warrants to purchase 708,666 shares of the Company's common stock at various purchase prices ranging from $1.50 to $8.00. The common stock warrants expire on various dates beginning November 11, 2002 to January 10, 2003. In connection with the private placement described in Note C, there are 900,493 class A warrants outstanding to purchase one share of common stock for $10.00 (subject of readjustment) and 900,493 class B warrants outstanding to purchase one share of common stock for $15.00 (subject of readjustment). The class A and class B warrants have a three-year term. Additionally, there are warrants outstanding related to certain bridge notes that allow the purchase of 165,000 units at a price of $7.50 per unit. These warrants have a three-year term and expire between February 1, 2003 and March 1, 2003. The company also has stock options outstanding for 1,973,033 shares of common stock. - F-10 - 13 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- NOTE G - COMMON STOCK EQUIVALENTS (continued) In addition, some of the company's short term notes payable are convertible into common stock, and some of the Company's short term notes payable are convertible into units consisting of common stock and warrants. See Note F for additional information. NOTE H - PREFERRED STOCK Preferred stock consists of the following:
-------------------------------------------------------------------------------------------------- Shares Shares Outstanding Authorized at June 30, 2000 Per Value -------------------------------------------------------------------------------------------------- Series A Preferred Stock 50,000 40,367 .001 Series B Convertible Preferred Stock 400,000 260,098 .001 Undesignated Preferred Stock 4,550,000 -- .001 ==================================================================================================
The liquidation value of each share of Series A Preferred Stock is $10, increased with interest compounded annually at 7.5% through March 9, 2001. The Series A Preferred Stock liquidation value consisted of the following:
---------------------------------------------------------------- June 30, 2000 ---------------------------------------------------------------- Liquidation Value at Issuance $406,370 Accrued Interest to Date 47,559 ---------------------------------------------------------------- Total Liquidation Value $446,366 ================================================================
22,223 shares of Series B Preferred Stock with a total face value of $130,005 were converted to an additional 17,332 units in a private placement. NOTE I- 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. The Company currently has seven Web sites up and running and six in development. The ability of the Company to recover its investment in Web site development technology is dependent upon the future profitability of the Web site services it provides to its customers. The outcome of these matters cannot be predicted at this time. - F-11 - 14 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA - -------------------------------------------------------------------------------- This Quarterly Report on Form 10-QSB, including information incorporated herein by reference, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to expectations concerning matters that are not historical facts. Words such as "projects," "believes," "anticipates," "plans," "expects," "intends," and similar words and expressions are intended to identify forward-looking statements. Although we believe that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from such expectations are disclosed herein including, without limitation, in the section titled "Risk Factors" below, and all forward-looking statements are expressly qualified in their entirety by such factors. We do not undertake any obligation to update any forward-looking statements. RISK FACTORS You should carefully consider the following risks and the other information in this Report and our other filings with the SEC before you decide to invest in our company or to maintain or increase your investment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. This Report contains forward-looking statements based on the current expectations, assumptions, estimates, and projections about us and the Internet industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this Report. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. - -- Our operating history is limited and we have not yet earned any significant revenues. We have only been operating since March 1998, and we have a limited operating history on which you may evaluate our business. Additionally, we have generated only minimal revenues. Our limited operating history makes the prediction of our future operating results difficult or impossible, and there can be no assurance that we will generate sufficient revenues to achieve or maintain profitability. - -- We have a history of losses. We have a history of operating losses, and an accumulated deficit of $26.0 million as of June 30, 2000. Our prospects are subject to risks and uncertainties frequently encountered by start-up companies in new and rapidly evolving markets such as the Internet and e-commerce markets. We have had negative cash flow since inception and expect to continue to have negative cash flow until such time as our sales revenues increase substantially. There can be no assurance that we will be able to achieve or maintain profitable operations or positive cash flow at any time in the future. Our lack of financial strength may be a negative factor in our ability to execute our business plan irrespective of the quality and benefits of our products. 15 - -- We may not be able to raise the capital we need. To date, we have covered our operating losses by borrowing cash and selling securities. We are currently in discussions with private parties regarding a $2 million bridge financing. If this bridge financing is concluded, we anticipate that this financing, together with our other available funds, will be sufficient to meet our needs for working capital for 90 days beyond the date of filing of this Report. Thereafter, we will need to raise additional funds. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders will be reduced and securities may have rights, preferences and privileges senior to those securities that are being sold by the selling stockholders. There can be no assurance that the bridge financing or any additional financing will be available on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund our development plans, develop or enhance services or products, respond to competitive pressures, or continue operations. - -- Our future revenues and profitability are unpredictable. To date, we have no significant revenues and expect that initial revenues from providing our Web site services to radio stations will be in the form of barter broadcast radio ad units, which we must re-sell to produce cash income or exchange with third parties for technical services, advertising, editorial and software content, or prizes. Additionally, our future prospects depend significantly on our ability to generate revenue from sources other than reselling broadcast radio ad units, such as the sale of local and national advertising on our radio station Web sites, the sale of e-commerce products and services offered on our radio station Web sites, among other potential revenue sources. Any failure to generate such revenue would have a material adverse effect on our business, prospects, financial condition, and operating results. As a result, our future operating results are not predictable. Our current and anticipated future expense levels are based largely on management's assessment of prospects and estimates of future revenues. It is expected that expense levels will be fixed to a significant extent. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and a shortfall in actual revenue as compared to estimated revenue could have an immediate material adverse effect on our financial condition. In addition, we currently intend to increase sales and marketing expenses, particularly for additional sales and marketing staff necessary to develop and maintain relationships with radio stations, national advertising customers, advertising agencies, and other third parties, and to increase production and engineering expenses, including increasing engineering staff levels necessary to develop and produce Web sites, as well as to continuously improve existing technology. Increases in operating expenses may also occur in response to increased hardware and software infrastructure requirements needed to handle larger amounts of traffic and to attract, retain and motivate qualified personnel. To the extent these expenditures do not result in a substantial increase in revenues, our financial condition would be materially adversely affected. - -- We have only limited marketing experience with respect to our products and services. We have conducted limited marketing activities and have only limited marketing experience with respect to our products and services. As is typical with new products and services, demand and market acceptance for products is subject to a high level of uncertainty. Achieving widespread market acceptance for these products will require substantial marketing efforts and the expenditure of sufficient funds to create market recognition and customer demand. To date, members of our senior management team have conducted substantially all marketing activities. The ability to build a customer base will depend, in part, on our ability to locate, hire and retain sufficiently qualified marketing personnel and to fund marketing efforts. There can be no assurance that our products and services will achieve widespread market acceptance or that marketing efforts will result in profitable operations. 16 - -- We are dependent on our relationship with CBS Radio. In March 1998, we entered into a five-year agreement with CBS Radio. The agreement generally provides us with access to all CBS-owned radio stations for purposes of soliciting these stations to purchase Internet products and services. Although we are currently providing Web site services for seven CBS-owned radio stations and are in negotiations with other CBS-owned radio stations regarding the provision of such services, no agreements have been entered into between us and any radio stations, and there is no assurance that any such agreements will be entered into. The failure to enter into such agreements could materially and adversely impact our results. The termination or expiration without renewal of our agreements with radio stations and/or the deterioration of our relationship with CBS Radio could have a material adverse effect on our business, prospects, financial condition, or operating results. - -- We may not be able to enter into satisfactory agreements with radio stations. Our strategy is dependent on our ability to provide our Internet products and services to radio stations at a profit. The costs to us of complying with obligations arising out of agreements we expect to enter into with radio stations should be substantial, and there are no assurances that the costs to develop, maintain, host, update, and support the Web sites will be offset by the revenues from radio stations and the other revenues generated by our products and services. - -- Our Web site advertising revenue is uncertain. Our failure to market and sell either local or national Web site advertising on attractive terms would have a material adverse effect on our business, prospects, financial condition, or operating results. Furthermore, it is expected that the radio stations that contract with us will have substantial discretion in the substance and quantity of promotional services they provide in connection with the Web sites, and there can be no assurance that the promotional services provided by radio stations will enable the Web sites to attract sufficient advertising and sponsorship revenues to generate profits for us. - -- Fluctuations in advertising revenues could impact our operating results. Advertising sales in television, radio, and print media fluctuate unpredictably and are typically lower in the first and third calendar quarters of each year. Advertising expenditures also fluctuate significantly with economic cycles, which may negatively affect our results of operation. A number of factors may affect our ability to generate advertising revenues, including: - - acceptance and continued growth of the Internet as an advertising medium; - - continued consumer Internet use; - - traffic on our Web sites; - - pricing of advertising on other Web sites; - - our ability to generate listener demographic characteristics that are attractive to advertisers; - - development and expansion of our advertising sales force; and - - the establishment and retention or maintenance of desirable advertising sales agency relationships. Uncertainty of directing viewers to radio Web sites could affect our future prospects. 17 Other Web sites, particularly search engines, directories, and other navigational tools managed by Internet Service Providers and Web browser companies, may significantly affect traffic to our Web sites. Our ability to develop original and compelling Internet content is also dependent on maintaining relationships with and using products provided by third party vendors of Internet development tools and technologies. Developing and maintaining satisfactory relationships with third parties could become more difficult and more expensive as competition increases among Internet content providers. If we are unable to develop and maintain satisfactory relationships with such third parties on acceptable commercial terms, or if our competitors are better able to leverage such relationships, our business, prospects, financial condition, or operating results will be materially adversely affected. - -- We are dependent on relationships with advertisers, sponsors, partners, and radio stations. Most of our arrangements with advertisers, sponsors, partners and radio stations: - - do not require minimum commitments to use our services, - - are not exclusive, and - - are short-term or may be terminated at any time by the other party. There is a risk that these third parties may: - - not regard their relationship with us as important to their own respective businesses and operations, - - reassess their commitment to us in the future, or - - develop their own competitive services or products. There is no assurance that the services and products of the third parties with which we deal will achieve market acceptance or commercial success. As a result, there is no guarantee that our existing relationships with these parties will result in sustained or successful business partnerships or significant revenues for us. We are currently, and expect in the future to be, dependent on our relationships with a number of third parties. These relationships include arrangements relating to the creation of traffic on Web sites that are affiliated with us and the resulting generation of advertising and commerce-related revenue. If these affiliated Web sites terminate or fail to renew their relationships with us on reasonable terms, it could harm our business. - -- Management of our growth may place a significant strain on our management. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources. Further, as the number of our affiliate radio stations, users, advertisers, and other business partners grows, we will be required to manage multiple relationships with various customers, strategic partners, and other third parties. These requirements will be exacerbated in the event of our further growth or in the event of further increases in the number of our strategic and sponsorship relationships. Our business systems, procedures, and controls may not be adequate to support our operations in the future. If our growth continues, our management may not be able to achieve the rapid execution necessary to successfully offer our products and services and execute our plan. - -- The loss of key executives could adversely affect our ability to manage our business. We are highly dependent on the services of our top ranking officers. In 18 addition, our future success is dependent on our ability to attract, train, retain, and motivate high quality personnel. The loss of the services of any of our executive officers or key employees would harm our business. Our future success also depends on our continuing ability to attract, train, retain, and motivate other highly qualified technical and managerial personnel. Competition for such personnel is intense and we may not be able to attract, train, retain, or motivate other highly qualified technical and managerial personnel in the future. - -- The development of our products and services is substantially incomplete. The development of our products and services is substantially incomplete. For example, we have not yet completed the development of national content for all of our target radio formats. We anticipate that our future research and development activities, combined with experience gained from commercial use of our Internet products and services, could result in the need for further refinement and development. We also expect to modify the products for particular customer applications. There can be no assurance that unforeseen circumstances will not require expensive additional development of our products and their applications. In addition, we may, in the future, need to make improvements in our Internet products and services in order for our Internet products and services to remain competitive. - -- We operate in a very competitive business environment which can adversely affect our business and operations. The market for Internet products and services is already highly competitive. Exacerbating this situation is the fact that the market for Internet products and services lacks significant barriers to entry, making it relatively easy for new businesses to enter this market. Competition in the market for Internet products and services may intensify in the future. Numerous well-established companies and smaller entrepreneurial companies are focusing significant resources on developing and marketing products and services that will compete with our products and services. In addition, many of our current and potential competitors have greater financial, technical, operational, and marketing resources than we do. We may not be able to compete successfully against these competitors in selling our goods and services. Competitive pressures may also force prices for Internet goods and services down and such price reductions likely would reduce our revenues. A significant factor in the ability of our Internet products and services to compete successfully in the market will be our ability to secure and maintain relationships with major national chains of radio stations. There can be no assurance that our business plan to develop and maintain such relationships can be successfully implemented. We will compete with established individuals and entities, many of which will have significantly greater operating history, name recognition and resources. - -- The rapidly evolving and uncertain nature of our market could adversely affect our business. The market for interactive/multimedia Web sites and other Internet features and promotions is at a very early stage of development, is rapidly evolving and is characterized by an increasing number of entrants that are introducing or developing competing products and services. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services is subject to a high level of uncertainty and risk. Because the market for our Internet products and services is new and evolving, it is difficult to predict with any assurance the market's size, growth rate, or durability. - -- Rapid technological change could adversely affect our business. The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. 19 These market characteristics are exacerbated by the emerging nature of the Internet and the apparent need of companies from a multitude of industries to offer Internet-based products and services. Accordingly, if we are unable to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to continually improve the performance, features and reliability of our service in response to competitive service and product offerings and evolving demands of the marketplace our business will be adversely affected. In addition, the widespread adoption of new Internet, networking, or telecommunications technologies, or other technological changes, could require substantial expenditures by us to modify or adapt our services or infrastructure, which could have a material adverse effect on our business, results of operations and financial condition. - -- We may have liability for information retrieved from the Internet. Because materials may be downloaded from the Internet and subsequently distributed to others, there is a potential that claims may be made against us for defamation, negligence, copyright or trademark infringement, personal injury, or other theories based on the nature, content, publication and distribution of such materials. - -- Changes to governmental regulation and legislation could adversely affect our business. We are not currently subject to direct federal, state, or local regulation, and laws or regulations applicable to access to or commerce on the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other online services covering issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, IP rights and information security. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for our service or increase the cost of doing business or in some other manner have a material adverse effect on our business, results of operations and financial condition. In addition, applicability to the Internet of existing laws governing issues such as property ownership, copyrights and other IP issues, taxation, libel, obscenity and personal privacy is uncertain. The vast majority of such laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. - -- Our common stock is not widely traded resulting in reduced liquidity and increased volatility. Our common stock is thinly traded. As a result, prices quoted for our stock may not reflect the actual fair market value of the stock. Also, because of the low volume of trading in our common stock, it may be difficult for our stockholders to sell their shares. - -- Our principal stockholders have the ability to exercise significant control over us and could limit the ability of our other stockholders to influence the outcome of director elections and other transactions submitted to a vote of our stockholders. As of June 30, 2000, our executive officers, directors and principal stockholders beneficially owned 48.8% of our outstanding common stock. These stockholders will be able to exercise substantial influence over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control. - -- The issuance of additional stock, options and warrants will dilute current stockholders. We currently have outstanding obligations to issue shares of our common stock 20 upon the exercise of options, warrants and upon the conversion of convertible notes and shares of preferred stock. We have adopted a stock option plan, and may in the future adopt one or more stock option plans pursuant to which we will grant stock options under such plans or otherwise to our employees, officers, directors or others. To the extent that options, warrants or other obligations for issuance of common stock are granted and exercised, dilution to the interests of our investors will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected since any holders of outstanding options, warrants or other obligations can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than those provided by such outstanding obligations. ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our principal business is 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 seven Web sites operating, 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. We have additional Web sites under development. WE PLAN TO DERIVE REVENUES FROM THE FOLLOWING PRINCIPAL SOURCES: - - The sale of broadcast Radio advertising units received on a weekly basis from Radio Stations in exchange for our Web site services. These units are expected to be generally within the 6 a.m. to 10 p.m. timeframe and are considered readily saleable. We recently began receiving these ad units from our existing Web sites; - - Local and national advertising and sponsorships on our Radio Station Web sites; and - - The sale of e-commerce products, services and information over our Radio Station Web sites. We anticipate that the revenue sources listed above will represent the majority of our operating revenues. However, we plan to generate additional revenues from other sources, including the sale of music compilations, Station branded Internet services, classified advertising, personals, tickets, auctions, specialty Web-based-only entertainment events, emerging artist management, and market specific consumer data. OUR STRATEGIES CAN BE SUMMARIZED AS FOLLOWS: - - Aggregate millions of targeted consumers to deliver to advertisers through state of the art customer profiling technologies; - - Keep loyal Radio Station listeners within the confines of those local Radio Station Web sites; - - Employ economies of scale to develop unique, full-featured Web sites that individual Radio Stations could not afford to duplicate and manage; and - - Deliver a personalized, compelling Web experience to each visitor that entices that visitor to remain on the Web site for a lengthy period and return frequently. We have a very limited operating history on which to base an evaluation 21 of our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as the Internet market. In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indications of future performance. Please see "Risk Factors" above. In November 1999, we began generating revenues from the sale of merchandise from our Web sites. Also, radio stations began selling advertising on our Web sites, of which we receive a percentage of the revenues collected by the station for such advertising. We believe that we will continue to generate both sales from selling items on the Web sites and from advertising on the Web sites and that in the future, these revenue streams will become more significant. LIQUIDITY AND CAPITAL RESOURCES - JUNE 30, 2000 COMPARED TO JUNE 30, 1999 Since our inception on February 22, 1994, we have had significant negative cash flows from our operations. For the three months ended June 30, 1999 and 2000, we used $1,159,944 and $2,923,937 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. For the three months ended June 30, 1999 and June 30, 2000, we used $388,969 and $287,051 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 three months ended June 30, 1999 and 2000, was $1,822,133 and $4,010,729, 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 three months ended June 30, 1999 consisted of the issuance of preferred stock for $1,565,005 . Funds provided by financing activities for the three months ended June 30, 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. We have entered into several non-cancelable lease commitments that will require payments of approximately $2,800,000 over the next five years. As of June 30, 2000, our principal source of Liquidity was $1,204,094 cash and receivables of $181,512. We are currently in discussions with private parties regarding a $2 million bridge financing. If this bridge financing is concluded, we anticipate that this financing, together with our other available funds, will be sufficient to meet our needs for working capital for 90 days beyond the date of filing of this Report. Thereafter, we will need to raise additional funds through public or private financing or other arrangements. We are also in discussions with private parties regarding a potential longer term financing transaction. There can be no assurance that the bridge financing or any additional financing we are seeking will be available on reasonable terms or at all. Failure to raise capital when needed could materially harm our business, financial conditions and results of operation and could result in our ceasing operations. Other than the foregoing and the risk factors discussed above, we know of no trends, demands, or uncertainties that are reasonably likely to have a material impact on our short term liquidity or capital resources. 22 RESULTS OF OPERATIONS - JUNE 30, 1999 COMPARED TO JUNE 30, 2000 REVENUE. Revenue presently consists of money received from the sale of merchandise on our Web sites and the selling of advertising on such sites. Revenue was $0 for the three months ended June 30, 1999 and $177,895 for the three months ended June 30, 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 three months ended June 30, 1999, these costs were $509,504, and for the three months ended June 30, 2000, these costs were $1,596,942. These costs related primarily to the increase in staff necessary to the development of content and tools for our Web sites. E- Commerce costs consist mainly of the cost of the items sold, shipping and handling charges and salaries of E-commerce employees. For the year ended March 31, 1999, these costs were $0 and for the three months ended June 30, 2000 these costs increased to $10,883. This increase was due to the commencement of the selling of merchandise on 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 three months ended June 30, 1999, Sales and Marketing expenses were $0 and for the three months ended June 30, 2000, Sales and Marketing expenses were 101,718, consisting primarily of costs associated with the development of client marketing programs and of new prototype marketing and advertising programs. 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 $741,724 for the three months ended June 30, 1999, to $1,099,851 for the three months ended June 30, 2000. The increase is primarily attributable to the increased size of our executive and administrative staff. Expenses related to personnel costs of our general and administrative personnel increased from $179,494 for the three months ended June 30, 1999, to $735,296 for the three months ended June 30, 2000. Legal and Accounting fees were $113,106 and $106,692 during the three months ended June 30, 1999 and June 30, 2000, respectively. Rent increased from $34,904 for the three months ended June 30, 1999, to $100,791 for the three months ended June 30, 2000, as the result of our move into a new production facility. 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 three months ended June 30, 1999, depreciation and amortization expense was $21,385 and $315,798 for the three months ended June 30, 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 $1,340 to $48,090 for the three months ended June 30, 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 three months ended June 30, 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. 23 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. 24 FTM MEDIA, INC. AND SUBSIDIARY (A DELAWARE CORPORATION) SCOTTSDALE, ARIZONA Part II - OTHER INFORMATION - -------------------------------------------------------------------------------- ITEM 1. LEGAL PROCEEDINGS On May 26, 2000 Cohanzick Partners LP ("Cohnzick") 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 honor 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 June 2, 2000, the Company filed a lawsuit against Cohanzick and Cohanzick Management LLC in the Superior Court of Maricopa County, Arizona. The Company alleges that these entities failed to honor their commitment to convert their $400,000 note into the common stock of the Company. The Company has asked for specific performance of this commitment along with legal fees and reasonable costs. ITEM 2. CHANGES IN SECURITIES In a private placement offering closing on April 10, 2000, the Company issued 900,493 units, each unit consisting of one share of common stock, one Class A Warrant to purchase one share of common stock at an exercise price of $10.00 per share (subject to certain adjustments) and one Class B Warrant to purchase one share of common stock at an exercise price of $15.00 per share (subject to certain adjustments). $6,234,752 of the proceeds were received in the form of cash and $481,500 represented the conversion of bridge notes and the interest accrued thereon. The securities were sold to accredited individuals and institutional investors. The securities were sold by the Company in reliance on the exemption from registration provided pursuant to Rule 506 under the Securities Act of 1933. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a.) EXHIBITS.
EXHIBIT NO. TITLE (1) 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 (2) 10.1 Stock Purchase Agreement with Andaman Investments, Inc. (3) 10.2 Contribution Agreement (4) 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. (5) 16.1 Letter on Change and Certifying Accountant (6) 21 Subsidiaries of Registrant (6) 27 Financial Data Schedule
(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 30, 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. 25 (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. (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 A report on Form 8-K was filed April 13, 2000 to announce the closing of the first round of the current phase of equity financing as the company had achieved its first milestone. 26 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. FTM MEDIA, INC. Dated: August 11, 2000 By /s/ RON CONQUEST --------------------------------- Ron Conquest Chief Executive Officer 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 August 11, 2000 - --------------------------------- Ron Conquest Chief Executive Officer and Director /s/ SUE CAMPBELL JONES August 11, 2000 - --------------------------------- Sue Campbell Jones Controller/Secretary
EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-2001 APR-01-2000 JUN-30-2000 1,204,094 0 181,512 0 0 1,562,478 2,596,916 443,606 7,409,054 4,388,511 0 0 301 9,582 29,027,857 7,409,054 177,895 177,895 1,698,660 3,114,309 0 0 48,090 (2,955,458) 0 (2,955,458) 0 0 0 (2,955,458) (0.308) (0.308)
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