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 SEPTEMBER 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 $147,097.
As of November 7, 2000, the number of shares of Common Stock outstanding was
9,582,821 and the aggregate market value of the Common Stock (based on the
closing price on that date) held by non-affiliates of the Issuer was
approximately $1,708,795.
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
I
Independent Accountant's Report F-1
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 2000
(unaudited) and March 31, 2000 F-2
Consolidated Statements of Operations for the
three months ended September 30, 2000 (unaudited) and
September 30, 1999 (unaudited) and the six
months ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited) F-3
Consolidated Statements of Cash Flows for the six
months ended September 30, 2000, (unaudited) and
September 30, 1999 (unaudited) F-4
Notes to the Consolidated Financial Statements (unaudited)
F-5 - F-11
Item 2. Management's Discussion and Analysis on 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
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 September 30, 2000 and the related
consolidated statements of operations for the three and six month periods
ended September 30, 2000 and 1999, the consolidated statements of cash flows
for the six months ended September 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.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company suspended
operations on Cotober 13, 2000 due to cash restrictions and the uncertainty
of their ability to obtain additional funding. The Company's ability to
continue as a going concern is dependent upon obtaining such funding and
ultimately achieving profitable operations and raising additional equity
capital. Achievement of the Company's business objectives is dependent
upon, amongst other factors: attaining new customers, i.e., radio
stations, the sale of radio advertising and e-commerce services, and the
continued success of raising equity capital. The ability of the Company
to recover its investment in Web site development technology for radio
stations is dependent upon the future profitability of the Web site
services it provides to its radio station customers. The outcome of
these matters cannot be predicted at this time. The financial statements
do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
company cannot continue in existence.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of FTM Media, Inc. and
Subsidiary as of March 31, 2000 (presented herein), and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended March 31, 2000 (not included
herein), and in our report dated June 20, 2000, we expressed an unqualified
opinion on those consolidated financial statements. We have not performed
any auditing procedures since the date of our report.
/s/ Rotenberg & Company, LLP
Rotenberg & Company, LLP
Rochester, New York
November 14, 2000
- F-1 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
September 30, 2000 March 31, 2000
------------- ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ( $ 66,168) $ 405,353
Cash Held in Escrow from Private Placement Offering 0 5,183,225
Accounts Receivable 197,195 52,809
Prepaid Expenses 132,102 84,400
Other Current Assets 4,217 0
------------ -----------
TOTAL CURRENT ASSETS 267,346 5,725,787
PROPERTY AND EQUIPMENT - NET OF ACCUMULATED
DEPRECIATION 2,018,321 1,991,372
OTHER ASSETS
Lease Deposits 450,389 132,419
Goodwill - Net of Accumulated Amortization 3,084,979 3,402,787
----------- -----------
TOTAL ASSETS $ 5,821,035 $ 11,252,365
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 1,898,912 $ 1,611,590
Accrued Payroll and Related Liabilities 542,858 260,299
Short Term Notes Payable 3,168,942 3,350,000
--------- -----------
TOTAL LIABILITIES 5,610,712 5,221,889
STOCKHOLDERS' EQUITY/(DEFICIT)
Preferred Stock - $.001 Par; 5,000,000 Shares Authorized;
300,465 and 322,688 Issued and Outstanding
at Sept 30, 2000 and March 31, 2000, respective 301 323
Common Stock - $.001 Par; 50,000,000 Shares Authorized;
9,582,821 and 9,574,139 Issued and Outstanding
at Sept 30, 2000 and March 31, 2000, respectively 9,582 9,574
Additional Paid-In-Capital 29,027,857 29,082,318
Deficit (28,827,417) (23,061,739)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) 210,323 6,030,476
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY/(DEFICIT) $ 5,821,035 $ 11,252,365
============ ============
The accompanying notes are an integral part of this financial statement.
- F-2 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
3 months 3 months 6 months 6 months
ended ended ended ended
9/30/00 9/30/99 9/30/00 9/30/99
-------- ----------- ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
OPERATING REVENUE
Website Services $ 147,097 $ 0 $ 324,992 $ 0
------------ ------------ ------------ ------------
TOTAL REVENUE $ 147,097 $ 0 $ 324,992 $ 0
------------ ------------ ------------ ------------
OPERATING EXPENSES
Website Development 1,531,801 738,408 3,117,860 1,243,942
Selling and Marketing
Expenses 168,824 0 270,542 0
E-Commerce 14,174 0 25,057 0
General and Administrative
Expenses 985,829 786,976 2,085,680 1,532,669
Depreciation Expense 79,397 92,334 204,510 107,830
Amortization Expense 127,123 0 317,808 5,889
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 2,907,148 1,617,718 6,021,457 2,890,330
----------- ------------ ------------ ------------
OPERATING LOSS BEFORE OTHER
INCOME AND (EXPENSES) (2,760,051) (1,617,718) (5,696,465) (2,890,330)
OTHER INCOME AND (EXPENSES)
Interest Expense (51,000) (8,959) (99,090) (18,197)
Interest Income 831 15,836 29,877 35,457
------------ ------------ ------------ ----------
Total Other Income and
(Expenses) (50,169) 6,877 (69,213) 17,260
------------ ------------ ------------ ----------
LOSS BEFORE
MINORITY INTEREST (2,760,051) (1,610,841) (5,765,678) (2,873,070)
Minority Interest 0 432,808 0 771,950
------------ ------------ ------------ ------------
NET LOSS $(2,760,051) $(1,178,033) $(5,765,678) $(2,101,120)
============ =========== ============ ============
LOSS PER COMMON SHARE $ ( 0.288) $( 0.182) $ ( 0.631) $ ( 0.327)
============ =========== ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,582,821 6,456,070 9,137,939 6,430,150
============ =========== ============ ============
The accompanying notes are an integral part of this financial statement.
- F-3 -
FTM MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
6 months 6 months
ended ended
9/30/00 9/30/99
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net Income (loss) ($5,765,678) ($2,101,120)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 204,510 7,830
Amortization 317,808 5,889
Decrease in Capitalized development costs 0 131,568
Minority Interest 0 (771,950)
Increase in liquidation value - minority interest 0 15,239
Changes in Operating Assets & Liabilities
Increase in Accounts Receivable (144,386) 0
Increase in Prepaid assets 0 (297,712)
Increase in Notes Receivable (47,702) (986,100)
Decrease in Deposits (317,970) 8,875
Increase in Other Current Assets (4,217) 0
Increase in Accounts Payable 287,322 1,209,273
Decrease in Accrued Expenses 282,559 (64,820)
--------- ------------
Net Cash Flow from Operating Activities (5,187,754) (2,743,028)
INVESTMENT ACTIVITIES
Acquisition of Fixed Assets (231,459) (1,706,274)
Financing Activities
Net proceeds from cash held in escrow 5,183,225 0
Repayment of interim short term financing (1,212,500) 0
Net proceeds from other short term financing 1,031,442 64,555
Private Placement - Common Stock of subsidiary 0 360,036
Net proceeds from sale of common stock and units (54,475) 0
Private Placement - Sale of Preferred Stock 0 1,599,998
Issuance of Stock to Employees 0 986,100
Payment of Preferred Dividends 0 (192,000)
--------------- ------------
Net Cash Flow from financing 4,947,692 2,818,698
--------------- ------------
Net increase in Cash and Cash Equivalents (471,521) (1,630,612)
Cash and Cash Equivalents beginning of year 405,353 2,027,833
Cash and Cash Equivalents end of quarter (66,168) 397,221
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Quarter for Interest $ 9,090 $ 18,197
========== ==========
- F-4 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. General
The accompanying unaudited financial statements of FTM Media, Inc., formerly
Redwood Broadcasting, Inc., have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and article 10 of Regulation S-X. Accordingly they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The balance
sheet at March 31, 2000 has been derived from audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying financial statements are unaudited and reflect all adjustments
which in the opinion of management are necessary for a fair presentation of the
financial position and operating results for the interim periods. The
consolidated financial statements should be read in conjunction with the annual
audited consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's annual report on Form 10-KSB for the
fiscal year ended March 31, 2000. Results of operations for interim periods
are not necessarily indicative of results which may be expected for the year
as a whole. Factors which affect the comparability of financial data from year
to year and the comparability for interim periods include the changes in
goodwill.
2. Nature of Operations and Summary of Significant Accounting Policies
Pursuant to a Contribution Agreement effective March 31, 1999,
Interactive Radio Group, Inc. (hereinafter "INRG"), a Delaware
Corporation, became a majority owned subsidiary of Redwood
Broadcasting, Inc., a Colorado Corporation (hereinafter "Redwood").
The transaction was treated as a reverse acquisition, whereby
shareholders owning 90.85% of the INRG common stock received 1.25
shares of Redwood common stock for each contributed share of INRG
common stock. As a result of the reverse acquisition, the historical
operations of INRG were treated as the historical operations of
Redwood.
Effective July 19, 1999, Redwood changed its name to FTM Media, Inc.
(hereinafter "FTM").
Effective January 7, 2000, FTM, formerly a Colorado Corporation,
became reincorporated as a Delaware Corporation, via a
reincorporation merger.
On January 7, 2000, FTM acquired the remaining shares represented by
the minority interest of INRG. The transaction resulted in INRG being
merged with and into FTM, with FTM being the surviving company. The
transaction resulted in the remaining common shareholders of INRG
receiving 1.25 shares of FTM common stock for each contributed share
of INRG common stock. The merger was accounted for under the purchase
method of accounting, effective September 22, 1999, which was the day
of approval of the merger by the shareholders. Goodwill was recorded
based on the difference between the fair value of the underlying net
assets of the minority interest acquired and the fair value of the
Company's common stock exchanged.
- F-5 -
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 suspended operations subsequent to the end of the
quarter due to cash restrictions, and is seeking partners to continue
operations. The ability of the Company to recover its investment in Web
site development technology is dependent upon the company resuming
operations. The outcome of these matters cannot be predicted at this
time.
METHOD OF ACCOUNTING
The Company maintains its books and prepares its financial statements
on the accrual basis of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results can differ
from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
significant concentrations of credit risk consist principally of bank
deposits and accounts receivable. Cash is placed primarily in high
quality short term interest bearing financial instruments. Management
performs evaluations of accounts receivable and records an allowance
for doubtful accounts when necessary.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less. The Company maintains cash and
cash equivalents at financial institutions which periodically may
exceed federally insured amounts.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost, less accumulated
depreciation computed using the straight line method over the
estimated useful lives as follows:
Leasehold Improvements 5 - 7 Years
Computer Equipment 3 - 5 Years
Office Furniture 5 Years
Vehicles 5 Years
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.
- F-6 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
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
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.
- F-7 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consisted of the
following:
------------------------------------------------------------------
9/30/00 3/31/00
------------------------------------------------------------------
Leasehold Improvements $ 119,028 $ 80,879
Computer Equipment 2,130,908 1,980,144
Office Furniture 267,994 234,880
Vehicles 14,500 14,500
------------------------------------------------------------------
$2,532,431 $ 2,310,403
Less: Accumulated Depreciation 514,109 319,031
------------------------------------------------------------------
Net Property and Equipment $2,018,321 $ 1,991,372
==================================================================
Depreciation expense for the six months ended September 30, 2000,
and 1999, was $204,510, and $107,830, respectively.
NOTE D - GOODWILL
Goodwill consisted of the following:
-------------------------------------------------------------------
9/30/00 3/31/00
-------------------------------------------------------------------
Goodwill $ 3,852,951 $ 3,852,951
Less: Accumulated Amortization 767,972 450,164
-------------------------------------------------------------------
Net Goodwill $ 3,084,979 $ 3,402,787
===================================================================
Amortization expense for the six months ended September 30, 2000,
and 1999 was $317,808, and $5,889, respectively.
NOTE E - SHORT TERM NOTES PAYABLE
The Company has multiple outstanding notes payable to individual
investors that were issued as bridge loans in anticipation of capital
raised in a private offering. These notes carry various maturity dates
ending in May, 2000 and have terms of 180 days or less from the date
of issue. $1,700,000 of the notes provide for monthly extensions by the
Company for an indefinite period with interest payments of 1% per
month, in addition to the regular interest payments. The notes totaled
$3,350,000 at March 31, 2000 and carried various interest rates
ranging from 6% to 10%. Some of the investors have the option to
convert the notes to common stock while others of the investors have
the option to convert the notes to units, consisting of common stock
and warrants, at the price of either $8.00 or $7.50 respectively.
Interest expense for the six months ended September 30, 2000, and
1999, was $99,090, and $18,197, respectively.
- F-8 -
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
-------------------------------------------------------------------------------
During the six months ended September 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.
During the six months ended September 30, 2000, the company raised an
additional $975,000 through senior promissory notes. These notes
carried an additional consideration of 50% coverage through warrants.
The Company entered into an insurance premium financing agreement with
AICCO which had a balance of $56,442 at September 30, 2000.
NOTE F- CONTINGENCIES
The Company's ability to continue as a going concern is dependent upon
achieving profitable operations and raising additional equity capital.
In addition to raising equity capital, achievement of the Company's
business objectives is dependent upon, amongst other factors:
attaining new customers, i.e., radio stations, the sale of radio
advertising and e-commerce services, and the continued success of
raising equity capital. The Company suspended operations subsequent
to the end of the quarter due to cash restrictions, and is seeking
partners to continue operations. The ability of the Company to recover
its investment in Web site development technology is dependent upon
the company resuming operations. The outcome of these matters cannot
be predicted at this time.
NOTE G- MATERIAL SUBSEQUENT EVENTS
On October 13, 2000 the Company suspended operations due to cash
restrictions and the uncertainty of their ability to obtain additional
funding. Management is currently trying to negotiate with third
parties for the sale or merger of the Company or to provide operating
capital to restart operations. If these negotiations are not
successful within thirty (30) days of the date of this report, your
Company will file for protection under Federal Bankruptcy Law. 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 the Company files for Bankruptcy
shareholders and investors could loose all ownership or the percentage
ownership of current shareholders will be dramatically reduced to
little or nothing.
The Company is currently in dispute with one of the investors over a
$400,000 note, as to whether the Company is required to repay the note
or whether the investor is required to convert it to common stock. The
$400,000 note amount is included in the notes payable as of March 31,
2000. On November 2, 2000, Cohanzick obtained a judgment against the
Company and is seeking a writ of attachment.
The company is in default under the terms and conditions of its office
lease in Burbank, California. As such, the landlord may exercise its
right to offset the company's lease deposits in the amount of
$297,221.03. The Company disputes this number and the landlord's right
to do so.
- F-9
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.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Prior to suspension of operations our principal business has been
providing Web sites to radio stations in the 25 largest U.S. markets, so that
those radio stations can extend their brands and generate additional revenues.
Our services include Web site design, development, implementation, hosting and
management (our "Web site services"). We currently have developed seven Web
sites, including Web sites for alternative rock stations KROQ in Los Angeles,
LIVE105 in San Francisco, WHFS in Washington, D.C. and WBCN in Boston; B96, a
contemporary hit Station in Chicago and news/talk stations KCBS in San Francisco
and FMTALKi in Los Angeles. Only four of these sites continue to operate. Prior
to suspension of operations there were additional Web sites under development.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 2000 COMPARED TO
SEPTEMBER 30, 1999
Since our inception on February 22, 1994, we have had significant
negative cash flows from our operations. For the six months ended September
30, 2000 and 1999, we used $5,182,879 and $2,743,028 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 six months ended September 30, 2000 and 1999, we used
$231,879 and $1,706,274 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 six months ended
September 30, 2000 and 1999, was $4,947,692 and $2,818,698, 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 six
months ended September 30, 1999 consisted of the issuance of preferred stock
for $1,565,005 . Funds provided by financing activities for the six months
ended September 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 September 30, 2000 we were in a cash shortfall, with cash of
($66,168) and receivables of $197,195. Until operations were suspended, we
had covered our operating losses by borrowing cash and selling securities.
On October 13, 2000 your Board of Directors suspended operations because
the Company ran out of cash. Management is currently trying to negotiate with
third parties for the sale or merger of the Company or to provide operating
capital to restart operations. If these negotiations are not successful within
thirty (30) days of the date of this report, your Company will file for
protection under Federal Bankruptcy Law. 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 the Company files for Bankruptcy shareholders and investors could
loose all ownership or the percentage ownership of current shareholders will
be dramatically reduced to little or nothing.
RESULTS OF OPERATIONS - SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 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 six months ended September 30, 1999 and $324,992 for
the six months ended September 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
six months ended September 30, 1999, these costs were $1,243,942, and for the
six months ended September 30, 2000, these costs were $3,117,860. These costs
related primarily to the increase in staff necessary to the development of
content and tools for our Web sites.
SALES AND MARKETING EXPENSE. Sales and Marketing expense includes expenses
incurred by the Company to obtain and maintain client and advertiser
relationships. These costs included salaries and fees paid to employees and
consultants. For the six months ended September 30, 1999, Sales and Marketing
expenses were $0 and for the six months ended September 30, 2000, Sales and
Marketing expenses were $270,542, consisting primarily of costs associated
with the development of client marketing programs and of new prototype
marketing and advertising programs.
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 $1,532,669 for the six months ended
September 30, 1999, to $2,085,680 for the six months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense includes
depreciation of tangible assets and software, using the straight-line method,
over the estimated useful lives of the assets. Amortization expense includes
intangible assets such as goodwill. For the six months ended September 30,
1999, depreciation and amortization expense was $107,830 and $5,889 for the
six months ended September 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 $18,197 to $99,090 for the six
months ended September 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 six
months ended September 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.
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.
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
Part II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
On May 26, 2000 Cohanzick Partners LP ("Cohanzick") filed a lawsuit
against us in the United States District Court for the Southern District of
New York. Cohanzick alleges that the Company has failed to 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 November 2, 2000, Cohanzick obtained a judgement
against the Company and is seeking a writ of attachment.
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.
(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.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and the dates indicated.
Signature and Title Dated
------------------- -----
/s/ RON CONQUEST November 13, 2000
---------------------------------
Ron Conquest
Chief Executive Officer and Director
/s/ SUE CAMPBELL JONES November 13, 2000
---------------------------------
Sue Campbell Jones
Controller/Secretary
