<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission file number 33-80321
FTM MEDIA, INC.
____________________
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1295270
____________________ ____________________
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
6991 East Camelback Road, #D103, Scottsdale, AZ 85251
_______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (480) 425-0099
Securities to be registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.004
par value
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 Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ x ] No [ ]
The number of shares of the registrant's $.004 par value Common Stock
outstanding as of September 30, 1999 was 6,480,542
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
September 30, 1999 and March 31, 1999............................................ 3
Consolidated Statements of Operations for the
Three months ended September 30, 1999 and September 30, 1998
and six months ended September 30, 1999 and September 30, 1998 .................. 4
Consolidated Statements of Cash Flows for the
Six months ended September 30, 1999
and September 30, 1998........................................................... 5
Notes to Consolidated Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis or
Plan of Operations............................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 23
Item 2. Changes in Securities................................................... 23
Item 3. Defaults under Senior Securities........................................ 23
Item 4. Submission of Matters to a vote of security holders..................... 23
Item 5. Other Matters........................................................... 23
Item 6. Exhibits and Reports on Form 8-K........................................ 23
Signatures.............................................................. 24
</TABLE>
<PAGE> 3
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents 397,221 2,027,833
Notes Receivable 986,100 0
Prepaid Expenses 321,681 23,968
-------------------------------
Total Current Assets 1,705,002 2,051,801
Property and Equipment - Net of Accumulated Depreciation 1,666,982 70,499
Other Assets
Lease Deposits 11,660 20,535
Web Site Design In Progress 0 131,568
Goodwill - Net of Amortization 72,624 76,550
-------------------------------
Total Assets 3,456,268 2,350,953
-------------------------------
LIABILITIES AND STOCKHOLDERS DEFICIT
Liabilities
Accounts Payable 1,417,374 208,101
Accrued Expenses 0 64,820
Short Term Portion of Notes Payable 64,555 0
-------------------------------
Total Liabilities 1,481,929 272,921
Minority Interest
Preferred Stock of Subsidiary 431,128 415,889
Common Stock of Subsidiary 2,650,347 2,771,261
-------------------------------
Total Minority Interest 3,081,475 3,187,150
Stockholders Deficit
Preferred Stock - $.04 Par, 2,500,000 shares authorized
273,504 issued and outstanding 10,940 0
Common Stock - $.004 Par, 12,500,000 shares authorized
6,480,542 shares issued and outstanding 25,922 25,278
Additional Paid In Capital 2,091,516 0
Deficit accumulated During Development stage (3,235,512) (1,134,396)
-------------------------------
Total Stockholders Deficit (1,107,136) (1,109,118)
-------------------------------
Total Liabilities and Stockholders Equity 3,456,268 2,350,953
===============================
</TABLE>
<PAGE> 4
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 months 3 months 6 months 6 months
ended ended ended ended
9/30/99 9/30/98 9/30/99 9/30/98
Unaudited Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C>
Total Revenues 0 0 0 0
Website development costs 738,408 0 1,243,942 0
Capital Formation Expense 0 0 142,788 0
Computer Maintenance & Repairs 12,526 0 12,819 0
Consulting Fees 145,750 0 261,900 0
Contract Labor 25,536 0 27,483 0
Depreciation and Amortization 92,334 0 113,719 0
Directors Fees and Expenses 1,281 0 6,093 0
Education & Training 21,408 0 21,614 0
Employment Fees and Costs 47,798 0 58,841 0
Insurance 35,614 0 56,504 0
Internet connection and maintenance 26,257 0 61,506 0
Legal and Accounting Fees 145,973 0 260,650 0
Media & Public Relations 28,962 0 33,722 0
Office and Computer supplies 14,538 0 28,074 0
Other 45,738 0 54,538 0
Payroll 116,093 0 274,001 0
Payroll Taxes and Benefits 20,463 0 43,118 0
Rent 42,376 0 78,896 0
Telephone 12,537 0 33,248 0
Travel and Entertainment 44,125 0 76,873 0
----------------------------------------------------------
Total Expenses 1,617,718 0 2,890,330 0
----------------------------------------------------------
Loss Before other Income (1,617,718) 0 (2,890,330) 0
Other Income
Interest Income net of interest expense 6,877 0 17,260 0
Loss Before Provision of Income Taxes (1,610,841) 0 (2,873,070 0
Provision for Income taxes 0 0 0 0
----------------------------------------------------------
Loss Before minority interest (1,610,841) 0 (2,873,070 0
Minority Interest 432,808 0 771,950 0
----------------------------------------------------------
Net Loss (1,178,033) 0 (2,101,120 0
==========================================================
Basic Loss Per common share (0.182) 0.000 (0.327) 0.000
Weighted Average number of common shares 6,456,070 6,319,542 6,430,150 6,319,542
</TABLE>
<PAGE> 5
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
6 months 6 months
ended ended
9/30/99 9/30/98
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) (2,101,120) 0
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 113,719 0
Decrease in Capitalized development costs 131,568 0
Minority Interest (771,950) 0
Increase in liquidation value - minority interest 15,239 0
Changes in Operating Assets & Liabilities
Increase in Prepaid assets (297,712) 0
Increase in Notes Receivable (986,100)
Decrease in Deposits 8,875 0
Increase in Accounts Payable 1,209,273 0
Decrease in Accrued Expenses (64,820)
Increase in short term notes payable 64,555 0
---------------------------
Net Cash Flow from Operating Activities (2,678,473) 0
INVESTMENT ACTIVITIES
Acquisition of Fixed Assets (1,706,274) 0
Financing Activities
Private Placement - Common Stock of subsidiary 360,036 0
Private Placement - Sale of Preferred Stock 1,599,998 0
Issuance of Stock to Employees 986,100
Payment of Preferred Dividends (192,000) 0
---------------------------
Net Cash Flow from financing 2,754,134 0
---------------------------
Net increase in Cash and Cash Equivalents (1,630,612) 0
Cash and Cash Equivalents beginning of year 2,027,833 2,796
Cash and Cash Equivalents end of quarter 397,221 2,796
</TABLE>
<PAGE> 6
FTM MEDIA, INC. AND SUBSIDIARIES
NOTES TO 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, 1999 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 are in the opinion of management 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
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, 1999. Results of operations for interim periods are not
necessarily indicative of results which may be expected for the year as a whole.
2. Nature of Operations and Summary of Significant Accounting Policies
FTM Media, Inc.
The Corporation was formed in December 1994 pursuant to the
laws of the State of Colorado with the name Redwood Broadcasting, Inc.
On July 19, 1999 at a special meeting of shareholders, the shareholders
approved changing the name of the Corporation to FTM Media, Inc. On
December 31, 1998, substantially all of the assets and liabilities of
FTM/Redwood were transferred to a wholly owned subsidiary. The common
stock of the subsidiary was then to be distributed to the FTM/Redwood
shareholders. As a result of this and the reverse acquisition of the
Corporation by Interactive Radio Group, Inc. (INRG), the prior
operations of FTM/Redwood are not reflected in these financial
statements. Accordingly the financial statements reflect the operating
activity of FTM/Redwood beginning with the acquisition of the majority
interest in INRG. The Corporation is in the development stage as its
operations involve the raising of capital, market research and start up
production. Because it is in the development stage, the Corporation has
had no revenue from product sales, which is not regarded as typical for
normal operating periods.
Interactive Radio Group, Inc.
Interactive Radio Group, Inc. was formed in February 1994
pursuant to the laws of the State of Delaware. The company was inactive
until April, 1998
<PAGE> 7
when it began its business of designing and hosting Internet websites
for radio stations. The acquisition of the majority interest in INRG by
FTM/Redwood was accounted for as a reverse acquisition, resulting in
the historic operations of INRG being treated as the historical
operations of the Corporation. Accordingly the accompanying historic
financial statements have been restated to reflect the financial
position, results of operations and cash flows for all periods
presented as if the recapitalization had occurred at the beginning of
the earliest period presented.
Cybermusic Acquisition Corp.
Cybermusic Acquisition Corp. was formed in February, 1996
pursuant to the laws of the State of Delaware. Cybermusic was acquired
by INRG and became a wholly owned subsidiary in December, 1998.
Cybermusic's principal business of designing websites for radio
stations has been carried on by INRG since the acquisition. The
acquisition of Cybermusic by INRG was accounted for as a reverse
acquisition, resulting in the historic operations of Cybermusic being
treated as the historical operations of the Corporation. Accordingly
the accompanying historic financial statements have been restated to
reflect the financial position, results of operations and cash flows
for all periods presented as if the recapitalization had occurred at
the beginning of the earliest period presented.
Method of Accounting
The Corporation maintains its books and prepares its financial
statements on the accrual basis of accounting.
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.
Fixed Assets and Depreciation
Fixed Assets are stated at cost, less accumulated depreciation
computed using the straight line method over the estimated useful lives
as follows:
Computer Equipment and
Software 3-5 years
Office Furniture 5 years
Automobiles 5 years
Leasehold Improvements 7 months
Maintenance and repairs are charged to expense. The cost of assets
retired or disposed of and their related accumulated depreciation are
removed from the accounts.
<PAGE> 8
Web Site Design - In progress
The Corporation had previously capitalized its costs incurred
in developing its websites for radio stations. The Company now charges
to expense all such costs. The Company has expensed all such previously
capitalized costs.
Goodwill
Goodwill has been capitalized and is being amortized over ten
years.
Net Loss Per Common Share
Net income (loss) per common share is computed in accordance
with SFAS 128, "Earnings Per Share" by dividing the income available to
common stockholders by the weighted average number of common shares
outstanding for each period after reflecting the recapitalization. The
effects of conversion of Convertible Preferred Stock were not included
in the calculation of diluted loss per share because the Corporation
has experienced losses in all of the periods presented and therefore
the effect would be anti-dilutive.
Income Taxes
The Corporation accounts for income taxes in accordance with
SFAS 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. The method uses 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 carry forwards. Deferred income tax expense represents the
change in net deferred assets and liability balances. The Corporation
had no material deferred tax assets or liabilities for the period
presented.
3. Stockholder's Equity
1. During June and July, 1999 the Corporation received $1,600,000 in a
private placement of 273,504 shares of $.04 par value Series B
Convertible Preferred Stock. Pursuant to the terms of the Series B
Convertible Preferred Stock, the Corporation in June and July 1999 paid
$192,000 in dividends to the holders of the Series B Convertible
Preferred Stock. The rights, privileges and restrictions of the Series
B Convertible Preferred Stock are as follows:
a. The stock ranks senior to Common Stock and any other
class or series of capital stock of the Corporation
with respect to liquidation, dissolution or winding
up of the business.
b. Holders of the Series B Convertible Preferred Stock
are entitled to receive annual dividends in the
amount of $.702 per share payable on each semi-annual
anniversary of the Series B Convertible Preferred
Stock Issue Date. The dividends payable
<PAGE> 9
for the twelve month period immediately following the
Series B Convertible Preferred Stock Issue Date shall
be paid on the Series B Convertible Preferred Stock
Issue Date.
c. Holders of the Series B Convertible Preferred Stock
have no voting rights except for those minimum voting
rights required by the Business Corporation Act of
the State of Colorado, in which case the Series B
Convertible Preferred Stock shall vote together with
the Common Stock as a single class, unless the
Business Corporation Act of the State of Colorado
requires that the Series B Convertible Preferred
Stock has the right to vote separately as a single
class.
d. Holders of the Series B Convertible Preferred Stock
have the option to convert their Series B Convertible
Preferred Stock to common shares anytime at an amount
equal to $5.85 divided by the conversion price. The
conversion price shall be equal to $5.85 minus the
aggregate amount of accrued dividends per share which
are then unpaid for fifteen days or more multiplied
by .64103.
e. The Corporation may cause each share of Series B
Convertible Preferred Stock to be automatically
converted into shares of common stock at an amount
equal to $5.85 minus the aggregate amount of accrued
dividends per share which are then unpaid for fifteen
days or more multiplied by .64103. as of any date on
which the closing price for each of the twenty
trading days preceding such date equals or exceeds
$8.35 per share. Such conversion cannot occur prior
to the first anniversary of Series B Convertible
Preferred Stock Issue Date.
f. In the case of a capital reorganization or
reclassification of outstanding shares of Common
Stock or in case of any merger of the Corporation
into another corporation or in case of a sale or
conveyance to another corporation of all or
substantially all of the assets or property of the
Corporation each share of Series B Convertible
Preferred Stock shall thereafter be convertible into,
in lieu of the Common Stock issuable upon such
conversion, the kind and amount of shares of stock
and other securities and property receivable upon the
consummation of such transaction by a holder of that
number of shares of Common Stock into which one share
of Series B Convertible Preferred Stock was
convertible immediately prior to such transaction.
2. As incentives for certain employees to accept employment
with the Corporation, the Corporation issued 161,000 shares of the
Corporation's $.004 par value common stock in exchange for Secured
Recourse Notes in the amount of $695,100. These Notes accrue no
interest and are secured by the underlying common stock. As part of the
terms of the Employment Agreements, the Corporation will forgive the
notes upon the Employee's one-
<PAGE> 10
year anniversary of employment. If an employee leaves the Corporation's
employ prior to his/her one-year anniversary, the former Employee has
five (5) business days to satisfy the note or the Corporation retains
the stock as full payment of the note.
4. Notes Receivable
Notes Receivable consist of $695,100 of notes received from
certain employees in conjunction with the issuance of the Corporation's
common stock and $291,000 of notes received from certain employees in
conjunction with the issuance of INRG's common stock as employment
signing bonuses. Such notes accrue no interest and are secured by the
underlying stock. As part of the terms of the Employment Agreements,
the Corporation will forgive the notes upon the Employee's one-year
anniversary of employment. If an employee leaves the Corporation's
employ prior to his/her one year anniversary, the former Employee has
five (5) business days to satisfy the note or the Corporation retains
the stock as full payment of the note.
5. Fixed Assets
Fixed Assets are recorded at cost and consisted of the
following at September 30, 1999 and March 31, 1999:
<TABLE>
<CAPTION>
9/30/99 3/31/99
------- -------
<S> <C> <C>
Computer Equipment 1,619,385 56,548
Office Equipment 133,133 16,065
Automobiles 14,500 0
Leasehold Improvements 11,869 0
--------- ---------
1,778,887 72,613
Less Accumulated Depreciation 111,907 2,114
--------- ---------
Net Fixed Assets 1,666,980 70,499
</TABLE>
Depreciation expense for the quarters ended September 30, 1999
and March 31, 1999 was $90,371 and $2,114 respectively
6. Goodwill
The Corporation acquired goodwill with INRG's purchase of
Cybermusic. Goodwill is being amortized over ten years and consisted of
the following at September 30, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Goodwill 78,513 78,513
Less: Accumulated Amortization 5,889 1,963
------ ------
Net Goodwill 72,624 76,550
</TABLE>
Amortization expense for the quarters ended September 30, 1999
and March 31, 1999 was $1,963 and $1,963 respectively
<PAGE> 11
7. Notes Payable
Notes Payable consist at September 30, 1999 of a note payable
to AICCO, for the payment of insurance premiums, with interest
at 8.95% payable in monthly installments of principal and
interest $10,976.99 through February 2000 with the remaining
balance due at that date.
8. Minority Interest
The minority interest in INRG has two components:
1. Preferred Stock of Subsidiary
INRG issued 40,637 shares of series A Preferred Stock, par
value $.001 to the former shareholders of Cybermusic, upon
acquisition in December 1998, The minority interest in the
Preferred stock of INRG was recorded at the stocks
liquidation value of $10 per share and goodwill was recorded
for $78,513. Rights, privileges and restrictions of the
Series A Preferred Stock are as follows:
a. The stock ranks senior to Common Stock and any other
class or series of capital stock of the Corporation
with respect to liquidation, dissolution or winding up
of the business.
b. Holders of the stock are not entitled to receive
dividends or other distributions except upon
liquidation, dissolution or winding up of the business.
c. Holders of the stock have a right to vote with the
Common stockholders as a single class unless the
Delaware General Corporation Law requires the Series A
Preferred stockholders to vote separately as a class.
d. Holders have the option to convert their stock to
common shares equal to the Series A Preferred Stock
liquidation value anytime after September 30, 2000, or
to common stock of a parent corporation if more than
80% of the issued and outstanding Common Stock of INRG
is owned by another corporation.
e. Holders may redeem their stock for cash equal to the
liquidation value anytime after December 7, 2001. INRG
may elect to redeem any or all of the outstanding
shares of series A Preferred stock anytime, at the
liquidation value.
f. The liquidation value of each share of Series A
Preferred Stock is $10, increased with interest
compounded annually at 7.5% for three years commencing
on the issuance date. The Corporation recorded interest
expense on the liquidation value in the amount of
$7,619 during the quarter ended September 30, 1999. The
Series A Preferred Stock liquidation value consisted of
the following at September 30, 1999:
<TABLE>
<S> <C>
Liquidation value at issuance $406,370
Accrued interest to date 27,758
--------
Total Liquidation Value $431,128
</TABLE>
<PAGE> 12
2. Common Stock of Subsidiary
On March 31, 1999, FTM/Redwood acquired 90.85% of the issued
and outstanding Common Stock of INRG. The remaining 9.15% of
Common Stock represented a minority interest in INRG. The
parent corporation and the minority interest share pro rata
in the net income or loss of INRG.
During March and April, 1999, subsequent to the acquisition,
INRG received $3,243,933 from a private placement offering
for 1,080,628 common shares. The $3,243,933 of stock
purchased is included on the balance sheet under Minority
Interest - Common Stock of Subsidiary.
During the first two quarters, INRG received Secured Notes
in the amount of $291,000 in connection with the issuance of
97,000 shares of the INRG's common stock. These notes carry
no interest and are secured by the underlying common stock.
With the issuance of these shares the minority interest in
INRG increased to 26.87% and will increase further if
additional common shares are issued. The $291,000 of stock
purchased is included on the balance sheet under Minority
Interest - Common Stock of Subsidiary.
9. Related Party Transactions
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to Ingenious Enterprises, Inc.
a Nevada corporation in the amount of $120,000 annually
commencing October 1, 1998 on behalf of the services provided by
Ron Conquest. Conquest, an employee of Ingenious Enterprises,
Inc. is the President, Chief Executive Officer and a Director of
the Corporation. Consulting fees paid pursuant to this agreement
during the six months ended September 30, 1999 and September 30,
1998 were $60,000 and 0 respectively.
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to EchoMedia in the amount of
$75,000 annually commencing February 1, 1999 on behalf of the
services provided by Greg Mastroieni. Mastroieni, the owner of
EchoMedia is a member of the Board of Directors of the
Corporation. Consulting fees paid pursuant to this agreement
during the quarters ended September 30, 1999 and September 30,
1998 were $37,500 and 0 respectively.
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to Four Score Entertainment,
Inc.
<PAGE> 13
in the amount of $75,000 annually commencing February 1, 1999 on
behalf of the services provided by Jeffery Pollack. Pollack, an
employee of Four Score Entertainment, Inc. is a member of the
Board of Directors of the Corporation. Consulting fees paid
pursuant to this agreement during the quarters ended September
30, 1999 and September 30, 1998 were $37,500 and 0 respectively.
The Corporation has entered into a management agreement to pay
consulting fees on a monthly basis to BW Productions in the
amount of $120,000 annually commencing February 1, 1999 on behalf
of the services provided by Robert Wilson. Wilson, an employee of
BW Productions is Vice Chairman and a member of the Board of
Directors of the Corporation. Consulting fees paid pursuant to
this agreement during the quarters ended September 30, 1999 and
September 30, 1998 were $60,000 and 0 respectively.
On August 27, 1999, the Corporation purchased from Unicorp, Inc.
an automobile for $14,500. Greg Mastroieni, the President of
Unicorp, Inc. is a member of the Board of Directors of the
Corporation.
10. Income Taxes
The Corporation has approximately $3,235,514 of consolidated net
operating loss carryforwards for federal tax purposes as of
September 30, 1999, which are available to offset future taxable
income and expire during the years 2011 through 2020. The
corporation has not fully reserved for any future tax benefits
from the net operating loss carryforwards since it has not
generated any revenues to date.
11. Year 2000
The Corporation's computer systems are currently year 2000
compliant. The Corporation is not aware of any material risks
associated with its vendors regarding year 2000 compliance,
however there is no guarantee that such risks do not exist and
will not have an adverse effect on operations. It is not
anticipated that any impact would be material, however the cost
of a potential impact is not determinable.
12. Subsequent Events
1. At a special meeting of shareholders held on October 15,
1999 the shareholders approved the Corporation's merger into
its wholly owned subsidiary FTM Media, Inc. a Delaware
Corporation (FTM Delaware), with FTM Delaware to be the
surviving Corporation. All shareholders of FTM Media, Inc of
Colorado will receive one share of FTM Media, Inc of
Delaware in exchange for one share of FTM Media of Colorado
common stock.
2. At the same meeting of shareholders, the Shareholders
adopted the FTM Media, Inc. 1999 stock option plan and also
approved the INRG stock option plan.
<PAGE> 14
3. On October 18, 1999 the Corporation filed a form S-4 with
the Securities and Exchange Commission so that the
Corporation can register approximately 2,000,000 shares of
it's common stock. The purpose of this share issuance is so
that the Corporation can effectuate the purchase of the
minority interest in INRG, by exchanging 1.25 shares of the
Corporation's common stock in exchange for each share of
INRG commons stock not held by the corporation.
4. On October 18, 1999 the Corporation filed an application
with the NASDAQ so as to have the Corporation's common stock
listed for trading on the NASDAQ SmallCap Stock Market.
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The following is a discussion of the consolidated financial condition
and results of operations of the Company as of and for the two fiscal
periods ended September 30, 1999 and September 30, 1998. This
discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes related thereto
included in the Company's Form 10-KSB for the fiscal year ended March
31, 1999.
The forward looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations, which
reflect Management's best judgement based on factors currently known,
involve risks and uncertainties. Actual results could differ materially
from those anticipated in these forward looking statements as a result
of a number of factors, including but not limited to those discussed
herein.
Introduction
The Company was incorporated on February 22, 1994. Prior to March 1998,
the Company had not engaged in any form of commercial business
activity. In March 1998, the Company's principal business focus became
the Internet and the production of interactive, multi-media, 2-D/3-D
Internet Web Sites for the Radio Industry.
On December 7, 1998, the Company acquired Cybermusic in the Cybermusic
Merger. The business of Cybermusic consisted primarily of developing a
network of linked, interactive, multi-media, 2-D/3-D Internet Web Sites
to be operated by the Company for participating Radio Stations (the
"FTM Internet Network"). The Company's business plan is to develop,
operate and maintain the FTM Internet Network, perform related services
and provide Internet access to participating Radio Stations in order to
produce new sources of revenue for the Radio Stations. It is expected
that the Internet Web Site for participating Radio Stations will
feature multi-media interactive capability, streaming audio and video,
local and national chat, games, P1 targeting and music sampling. The
Company also expects to provide market and audience research with daily
and weekly analysis, licenses, e-commerce, and technical
support/customer service through a Company run operations center
available seven days per week.
The Company will initially seek to build the FTM Internet Network
through obtaining the participation of Radio Stations owned by
CBS/Infinity Broadcasting. On March 9, 1998 the Company entered into
the CBS Agreement pursuant to which Infinity Broadcasting will arrange
for the Company to meet with the general managers of Radio Stations
owned by CBS/Infinity Broadcasting for the purpose of discussing the
participation of such Radio Stations in the FTM Internet Network(s).
<PAGE> 16
The Company anticipates three initial sources of revenue which are: (1)
the sale of radio advertising units received from Radio Stations in the
top twenty five U.S. markets in exchange for the Company's various Web
site products and services and for participation in the FTM Internet
Network, (2) the sale of local and national advertising, "integrated
interactive advertising and sponsorships" on the FTM Internet Network
of Radio Station Internet Web site, and (3) the sale of merchandise, in
addition to other e-commerce activities generated within the Company's
Internet Network.
The Company acknowledges increasing competition for limited advertising
dollars on the Internet and seeks to differentiate itself through the
sale of sponsorships and "integrated advertising." Integrated
advertising is a unique program that involves advertisers in the
creation of a message allowing them to better target a specific
audience or audience segment. The Company's growth strategy depends, in
part, on its ability to increase advertising revenue by the ongoing
introduction of new and enhanced Internet products and services to its
flagship Internet Network and Web site. In addition, the Company will
attempt to increase advertising revenue through the introduction of new
and enhanced Internet products and services to its Internet Network and
Web site by the creation of new features, promotions, games and
simulations, in order to provide sponsors and advertisers with even
greater ability to target a specific audience.
CBS AGREEMENT
Pursuant to the CBS Agreement, CBS/Infinity Broadcasting will provide,
until March 2003, access and assistance to the Company to contact Radio
Stations owned and/or operated by CBS/Infinity for the purposes of
soliciting such stations to (1) participate in the FTM Internet
Network, (2) to engage the Company to develop, operate and maintain
World Wide Web sites for such stations and to provide related services
and (3) to engage the Company to function as an Internet access
Provider for such stations in order for the station to generate new
sources of revenue. In exchange for such rights and assistance, the
Company has agreed to (i) use commercially reasonable efforts to
provide unimpeded and uninterrupted access and operability of World
Wide Web site to the Participating Stations, (ii) propose to its
shareholders that, for so long as CBS/Infinity Broadcasting continues
to own at least ten percent (10%) of the issued and outstanding shares
of the Company's Common Stock (on a fully diluted basis), a
representative designated by CBS Radio or Infinity be elected to the
Company's board of directors, and to use its best efforts to cause all
of its insiders and affiliates to vote their shares in favor of the
election of said representative, and (iii) allow CBS Infinity
Broadcasting to audit the Company's books and records not more than
once each calendar year on behalf of those stations who participate in
the FTM Internet Network with respect to the accounting statements
tendered to such Radio Stations under their agreements with the
Company.
<PAGE> 17
OTHER POTENTIAL INTERNET PRODUCTS AND SERVICES
The Company anticipates that advertising revenues generated from the
sale of Internet Web site advertising and sponsorships will represent
only a portion of the Company's operating revenues and profits, and
further, the Company believes that its future success will depend, in
part, on its ability to generate revenues and profits from other
sources. The Company intends to explore other opportunities to increase
revenues through new game platforms, co-branding relationships,
cross-licensed technologies, merchandise opportunities, specialized
CD-ROM's, classified advertising, personals, archiving fees, specialty
Web-based-only entertainment events, emerging artist management,
publishing and music distribution, and market specific consumer
research.
The Company's business is still in the very early stages of
development. The Company is in discussions with various CBS/Infinity
Broadcasting affiliated Radio Stations along with non CBS/Infinity
Broadcasting Radio Stations regarding the providing of Internet
products and services, but does not yet have binding agreements with
any Radio Stations to provide such products and services. In addition,
while the Company has developed prototypes of Radio Station Internet
Web sites for Los Angeles Radio Station "KROQ" and San Francisco Radio
Stations "KITS" and "KCBS", the prototypes developed do not incorporate
all of the currently available technical features that the Company
expects to include in its fully operational Internet Web site. The
Company has yet to generate its first revenues and has no operating
history upon which an evaluation of the prospects for the acceptance of
its Internet products and services and the related sale of Internet
advertising may be based.
THE MARKET
The Company believes that its target markets are individuals who seek
entertainment, community, products and services on the Internet and
advertisers and Radio Stations who seek to reach those individuals. An
estimate of 1998 Web use by Nielsen Media Research placed current
Internet Web users at 79 million with a new user being added every 1.75
seconds. 66% of current Web usage occurs in the home. Nielsen Media
Research further reports that 20 million people made online purchases
in the twelve-month period ended in June 1998. A study of Holiday
shopping conducted by Boston Consulting Group found that the average
online order was $55. Those making purchases are thought to be between
the ages of 35 to 54 with a gender split of 53% male and 47% female,
however, the number of women shopping online is growing rapidly. Total
E-commerce projections for 1998 by Forrester Research indicate that 9
million U.S. households will have shopped online for travel services
and retail goods other than automobiles, generating $7.8 billion in
online sales. The same report projects online sales to exceed $32
billion by 2003. A recent U.S. Commerce report estimates by the year
2000, total goods and services sold over the Internet will reach $300
billion per year. Online sales of music are projected to grow to $650
million by 2000
<PAGE> 18
as reported by Jupiter Communications. The Aberdeen Group issued a
report in November 1998 projecting Internet advertising spending will
reach $5.1 billion by the year 2000.
The Company intends to add additional Internet Web site products and
services by partnering with prospective advertisers and sponsors to
develop games and simulations that will appeal to specific target
markets. The Company has conceptual plans for Internet Network and Web
site features, promotions, games and simulations designed to appeal to
groups that it believes are not effectively served by existing Internet
Web programming. These plans include products based on relationships
and designed to appeal to women, educational games for young adults,
and other specifically targeted features to attract broad demographic
support.
SALES AND MARKETING
In addition to its Director of Sales and Marketing the Company intends
to employ the services of independent national media sales
organizations in New York, Chicago and Los Angeles to help maximize the
development of the FTM National/Local "Lifestyle and Demographic
"Audience Specific" advertising opportunities. The Company intends to
hire several additional employees in sales and marketing over the next
two and one-half years to fully extend the "target marketing and brand
capabilities" of the FTM "local and national format communities" and
distribution networks (Radio Stations). The planned extensions include
a "frequent user/buyer" bonus program for all registered users with
local station and national network premium rewards. It is expected that
the growing sales and marketing staff and the Company's various
associates will focus principally on maximizing "integrated
advertising" and "sponsorship" opportunities, which typically require
more time and involvement to bring to fruition than Banner advertising
sales. The Company also expects that its internal sales force will be
responsible for the origination of all FTM "audience and music research
products" and any product licensing arrangements. In addition, the
Company believes that the strength of the CBS Radio brands and their
large audiences will facilitate the FTM advertising relationships and
sponsorship placements.
<PAGE> 19
COMPETITION
The Company presently competes, or will compete, as the scope
of its Internet Network and content expands, directly and indirectly,
for advertisers, viewers, players and licenses and other sponsorship
events with the following categories of companies: (i) Radio related
Internet Networks such as those operated by OnRadio (Electric Village),
Broadcast.com and Imagine Radio, in addition to independent Radio
Stations that do not join the Company's Internet Network; (ii) on-line
services or Internet Web Site targeted to music enthusiasts generally
such as CDNow, MusicBoulevard, Tunes and BMG, or to enthusiasts of
particular types of music such as the Internet Web Site maintained by
Motown Records; (iii) music related Internet Networks such as those
operated by MTV, N2K and Volatile Media; (iv) on-line services offering
interactive games to targeted participants in association with existing
and new brands (such as Starwave Corporation, Interactive Imaginations,
Inc., Sony Station, Sandbox Entertainment and YoYodyne Entertainment);
(v) game related Internet Networks which include trivia games or
entertainment related contests; (vi) general purpose consumer on-line
services such as America Online, PointCast, and Prodigy, as well as
those site which include entertainment or music related areas such as
Sidewalk.Com; (vii) Web search and retrieval services, such as Excite,
InfoSeek, Lycos and Yahoo!, and other high-traffic Internet Web Site,
such as those operated by Amazon, Disney, Microsoft, ESPN, and CNN;
(viii) publishers and distributors of traditional off-line media (such
as television, radio and print), including those targeted to specific
audiences, many of which have established or may establish Internet Web
Site; and (ix) vendors of information, merchandise, products and
services distributed through other means, including retail stores,
mail, facsimile and private bulletin board services. The Company
anticipates that the number of its direct and indirect competitors will
increase significantly in the future.
There can be no assurance that the Company's current or potential
competitors will not develop Internet products and services comparable
or superior to those to be developed by the Company or adapt more
quickly than the Company to new technologies, evolving industry trends
or changing Internet user preferences. Increased competition could
result in price reductions, reduced margins or loss of market share,
any of which would materially and adversely affect the Company's
business, prospects, financial condition or operating results. In
addition, as the Company expands internationally it may face new
competition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, or that
competitive pressures faced by the Company will not have a material
adverse effect on its business, prospects, financial condition or
operating results.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is subject to various laws and governmental regulations
applicable to businesses generally. The Company believes it is
currently in
<PAGE> 20
material compliance with such laws and that such laws do not have a
material adverse impact on its operations. In addition, although there
are currently few laws or regulations directly applicable to access to
or commerce on the Internet, due to the increasing popularity and use
of the Internet, it is possible that more stringent federal, state,
local and international laws and regulations may be adopted with
respect to the Internet. A variety of issues may prompt such
regulations including problems involving participant privacy and
expression, consumer protection, pricing, payment methodologies,
financing practices, intellectual property, information security,
anti-competitive practices, the convergence of traditional channels
with Internet commerce, characteristics and quality of products and
services and the taxation of subscription fees or gross receipts of
Internet service providers. The enactment or enforcement of such laws
or regulations or others in the future may increase the Company's cost
of doing business or decrease the growth of the Internet, which could
in turn decrease the demand for the Company's Internet products and
services, increase the Company's costs, or otherwise have an adverse
effect on the Company's business, financial condition or operating
results. Moreover, the applicability to the Internet of existing laws
in various jurisdictions including laws and regulations relating to
matters such as property ownership, libel and personal privacy is
uncertain, may take years to resolve and could expose the Company to
substantial liability for which the Company might not be indemnified
by content providers or other third parties. Any such new legislation
or regulation or the application of existing laws and regulations to
the Internet could have a material adverse effect on the Company's
business, prospects, financial condition or operating results.
The Company's use of prizes associated with its features, promotions,
games and simulations may be subject to federal, state, local and
international laws governing lotteries and gambling. Such laws vary
from jurisdiction to jurisdiction and are complex and uncertain. The
Company seeks to design its prizing structure to fall within
exemptions from such laws, but there can be no assurance that the
Company's prizing structure will be exempt from all applicable laws.
Failure to comply with applicable laws could have a material adverse
affect on the Company's business, prospects, financial condition or
operating results.
Liquidity and Capital Resources - September 30, 1999 compared to March 31, 1999
At September 30, 1999, the Company had total assets of $3,456,268 representing
an increase in the total assets of $1,105,315 over total assets at March 31,
1999. Total Liabilities increased to $1,481,929 at September 30, 1999 from
$272,921 at March 31, 1999. Minority Interest decreased to $3,081,475 at
September 30, 1999 from $3,187,150 at March 31, 1999. Total Stockholders Deficit
decreased to $1,107,136 at September 30, 1999 from $1,109,118 at March 31, 1999.
Total current assets at September, 1999 were $1,705,002, which consisted of cash
and cash equivalents of $397,221, employee note receivables in the amount of
$986,100 and prepaid expenses of $321,681. Total current liabilities at
September 30, 1999 were $1,481,929 consisting of accounts payable of $1,417,374
and the
<PAGE> 21
current portion of a note payable in the amount of $64,555. Working capital at
September 30, 1999 was $223,073 compared to $1,778,880 at March 31, 1999. This
represented a decrease in the Company's Working Capital position of $1,555,807.
At September 30, 1999 the Company reported total assets of $3,456,268 which
consisted of $1,705,002 of current assets described above, $1,666,982 of Net
Property and Equipment, $11,660 of Lease Deposits and $72,624 of Net Goodwill.
Total liabilities at September 30, 1999 are comprised entirely of the current
liabilities described above.
Minority interest at September, 1999 totaled $3,081,475, which consisted of
Preferred Stock of a subsidiary in the amount of $431,128 and Common Stock of a
subsidiary in the amount of $2,650,347.
At September 30, 1999, the Company reported a Stockholders Deficit of
$1,107,136. This represents a decrease of $1,982 over March 31, 1999
Stockholders Deficit of $1,109,118. This decrease was the result of the sale of
273,504 shares of Series B Convertible Preferred Stock in which the Company
received $1,600,000, increased by the payment of $192,000 of dividends to the
shareholders of Series B Convertible Preferred Stock, decreased by the issuance
of 161,000 shares of Common Stock to employees in which the corporation received
notes in the amount of $695,100 and increased by the net loss for the period of
$2,101,120.
Results of Operations - Three Months Ended September 30, 1999 compared to the
Three Months Ended September 30, 1998
Net Revenues for the three months ended September 30, 1999 were 0, compared to
net revenue of 0 for the same period a year ago. This is attributable to the
Company continuing to be in its development stage and therefore not yet
generating any revenue from operations.
Operating expenses for the three months ended September 30, 1999 were $1,617,718
which consisted of website development costs of $738,408, general and
administrative expenses of $786,976 and depreciation and amortization of
$92,334. Operating expenses for the three months ended September 30, 1998 were
0.
The Company recorded net interest income (interest income offset by interest
expense) of $6,877 for the quarter ended September 30, 1999. The interest income
was money earned on the Company's Cash and Cash Equivalents less interest paid
or accrued on company liabilities.
As a result of the foregoing the Company posted a net loss of $1,610,841 before
minority interest. The minority interest in the Company's net loss was $432,808
resulting in a net loss to the Company of $1,178,033 for the three months ended
September 30, 1999 or $(.182) per share compared to a net loss of 0 for the
three months ended September 30, 1998
<PAGE> 22
Results of Operations - Six Months Ended September 30, 1999 compared to the Six
Months Ended September 30, 1998
Net Revenues for the six months ended September 30, 1999 were 0, compared to net
revenue of 0 for the same period a year ago. This is attributable to the Company
continuing to be in its development stage and therefore not yet generating any
revenue from operations.
Operating expenses for the six months ended September 30, 1999 were $2,890,330
which consisted of website development costs of $1,243,942, general and
administrative expenses of $1,532,669 and depreciation and amortization of
$113,719. Operating expenses for the six months ended September 30, 1998 were 0.
The Company recorded net interest income (interest income offset by interest
expense) of $17,260 for the six months ended September 30, 1999. The interest
income was money earned on the Company's Cash and Cash Equivalents less interest
paid or accrued on company liabilities.
As a result of the foregoing the Company posted a net loss of $2,873,070 before
minority interest. The minority interest in the Company's net loss was $771,950
resulting in a net loss to the Company of $2,101,120 for the six months ended
September 30, 1999 or $(.327) per share compared to a net loss of 0 for the six
months ended September 30, 1998
<PAGE> 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On July 19, 1999, the Corporation at a Special Meeting of Shareholders
approved an amendment to the Corporation's Articles of Incorporation
changing the name of the Corporation from Redwood Broadcasting, Inc. to
FTM Media, Inc.
On October 15, 1999, the Corporation at a Special Meeting of
Shareholders approved:
i) The merger of the Corporation with FTM Media, Inc of
Delaware a wholly owned subsidiary of the Corporation, with
FTM of Delaware being the surviving entity.
ii) The adoption of the FTM Media, Inc. 1999 stock option plan
No other matters were submitted to a vote of security holders
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Exhibit Name
27 Financial Data Schedule
(b) The Company filed a form 8-K on July 19,1999 reporting
the approval by shareholders at a special meeting of
shareholders of an amendment to the Corporation's
Articles of Incorporation changing the name of the
Corporation to FTM Media, Inc. from Redwood
Broadcasting, Inc. and also the changing of the
Corporation's ticker symbol to FTMM
<PAGE> 24
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
Registrant and in the capacities and dates indicated.
Signature Title Date
/s/ Ron Conquest President and October 25, 1999
Chief Executive Officer
/s/ Scott M. Manson Chief Financial and October 25, 1999
Accounting Officer
<PAGE> 25
INDEX TO EXHIBITS
Exhibit No. Exhibit Name
----------- ------------
27 Financial Data Schedule
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<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
<RECEIVABLES> 986
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<CURRENT-ASSETS> 1705
<PP&E> 1779
<DEPRECIATION> 112
<TOTAL-ASSETS> 3456
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<TOTAL-LIABILITY-AND-EQUITY> 3456
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