<PAGE> 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]
<PAGE> 2
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 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 -
<PAGE> 4
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
------------- --------------
(unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
- F-2 -
<PAGE> 5
FTM MEDIA, INC.
AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- F-3 -
<PAGE> 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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
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 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- F-4 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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:
<TABLE>
<S> <C>
Leasehold Improvements 5 - 7 Years
Computer Equipment 3 - 5 Years
Office Furniture 5 Years
Vehicles 5 Years
</TABLE>
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 -
<PAGE> 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 -
<PAGE> 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
6/30/00 3/31/00
-----------------------------------------------------------------
<S> <C> <C>
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
=================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
6/30/00 3/31/00
-----------------------------------------------------------------
<S> <C> <C>
Goodwill $3,852,951 $3,852,951
Less: Accumulated Amortization 640,849 450,164
-----------------------------------------------------------------
Net Goodwill $3,212,102 $3,402,787
=================================================================
</TABLE>
- F-9 -
<PAGE> 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 -
<PAGE> 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:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Shares Shares Outstanding
Authorized at June 30, 2000 Per Value
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
----------------------------------------------------------------
June 30, 2000
----------------------------------------------------------------
<S> <C>
Liquidation Value at Issuance $406,370
Accrued Interest to Date 47,559
----------------------------------------------------------------
Total Liquidation Value $446,366
================================================================
</TABLE>
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 -
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
<S> <C> <C>
(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
</TABLE>
(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.
<PAGE> 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.
<PAGE> 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.
<TABLE>
<CAPTION>
Signature and Title Dated
------------------- -----
<S> <C>
/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
</TABLE>
