UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission file number:
---------------
IN STORE MEDIA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Nevada 84-1249735
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
15423 East Batavia Drive, Aurora, Colorado 80011
(Address of principal executive offices and Zip Code)
(303) 364-6550
(Registrant's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's classes of common stock, as of
May 18, 2000 is 66,007,871 shares, $.01 par value.
<PAGE>
IN STORE MEDIA SYSTEMS, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Balance Sheet - December 31, 1999 and March 31, 2000 (unaudited) 2 and 3
Statement of Operations - For the Three Months Ended March 31, 1999
and 2000 and for the period from December 30, 1992 (inception)
through March 31, 2000 (unaudited) 4
Statement of Stockholders' Equity - For the Three Months Ended
March 31, 2000 (unaudited) 5
Statement of Cash Flows - For the Three Months Ended March 31, 1999
and 2000 and for the period from December 30, 19992 (inception)
through March 31, 2000 (unaudited) 6
Notes to Unaudited Financial Statements 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 10
1
<PAGE>
<TABLE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999 and March 31, 2000
(Unaudited)
<CAPTION>
ASSETS
1999 2000
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 248,325 $ 15,065
Note receivable - related party 63,860 63,860
Inventory 117,295 117,295
Other current assets 1,559 1,717
-------------- --------------
Total current assets 431,039 197,937
Property and equipment, at cost:
Manufacturing equipment 341,277 341,562
Office furniture and equipment 123,016 124,354
Leasehold improvements 55,228 55,228
-------------- --------------
519,521 521,144
Less accumulated depreciation and amortization (206,304) (222,004)
-------------- --------------
Net property and equipment 313,217 299,140
Other assets:
Advances and note receivable - related parties 45,085 45,372
Deposits 29,159 29,159
Patent costs, net of accumulated amortization of
$18,089 (1999) and $19,128 (2000) 58,035 65,549
-------------- --------------
Net other assets 132,279 140,080
-------------- --------------
$ 876,535 $ 637,157
============== ==============
See accompanying notes.
2
</TABLE>
<PAGE>
<TABLE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1999 and March 31, 2000
(Unaudited)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1999 2000
-------------- --------------
<S> <C> <C>
Accounts payable $ 587,674 $ 605,817
Interest payable 599,284 674,281
Accrued wages - 49,409
Notes payable (Note 2) 2,140,087 2,190,087
Notes payable-shareholder 90,000 90,000
Obligations under capital leases 3,238 3,238
-------------- --------------
Total current liabilities 3,420,283 3,612,832
Long-term liabilities:
Debenture payable - related party 247,880 247,880
-------------- --------------
Total long-term liabilities 247,880 247,880
Stockholders' equity (deficit) (Notes 2, 4 and 5):
Preferred stock, no par value; 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 63,828,527 (1999) and 66,007,871
(2000) shares issued 638,285 660,078
Additional paid-in capital 10,242,453 10,379,347
Treasury stock, at cost; 9,374,742 shares (563,750) (563,750)
Deficit accumulated during the development stage (13,108,616) (13,699,230)
-------------- --------------
Total stockholders' equity (deficit) (2,791,628) (3,223,555)
-------------- --------------
$ 876,535 $ 637,157
============== ==============
See accompanying notes.
3
</TABLE>
<PAGE>
<TABLE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999 and 2000
and for the Period from December 30, 1992 (inception) through March 31, 2000
(Unaudited)
<CAPTION>
Cumulative
amounts from
1999 2000 inception
<S> <C> <C> <C>
Costs and expenses:
Research and development $ - $ - $ 3,225,002
General and administrative 197,757 445,071 5,230,734
Depreciation and amortization 14,853 16,739 241,131
-------------- -------------- --------------
Operating loss (212,610) (461,810) (8,696,867)
Other income (expense):
Interest income - 1,142 83,541
Litigation settlement - - (156,250)
Debt conversion costs - - (385,144)
Interest expense (179,564) (129,946) (4,544,510)
-------------- -------------- --------------
Total other income (expense) (179,564) (128,804) (5,002,363)
-------------- -------------- --------------
Net loss (Note 3) $ (392,174) $ (590,614) $ (13,699,230)
============== ============== ==============
Basic and diluted net loss per common
share $ (.01) $ (.01) $ (.32)
============== ============== ==============
Weighted average common shares
outstanding 56,600,000 55,200,000 43,200,000
============== ============== ==============
See accompanying notes.
4
</TABLE>
<PAGE>
<TABLE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) For the
Three Months Ended March 31, 2000
(Unaudited)
<CAPTION>
Deficit
accumulated
Additional during the
Common stock paid-in Treasury development
Shares Amount capital stock stage Total
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 63,828,527 $ 638,285 $ 10,242,453 $ (563,750) $ (13,108,616) $ (2,791,628)
Sale of common stock for cash and in
exchange for stock offering services
($1.00 per share) (Note 4) 50,000 500 49,500 - - 50,000
Exercise of warrants 65,142 651 3,692 - - 4,343
Issuance of common stock for employee
compensation ($.90 per share) 55,000 550 48,950 - - 49,500
Warrants exercised on a cashless basis
in consideration for loan and offering
expenses 2,009,202 20,092 (20,092) - - -
Extension of exercise period of
warrants issued in connection with
debt offerings - - 54,844 - - 54,844
Net loss for the three months ended
March 31, 2000 - - - - (590,614) (590,614)
-------------- -------------- -------------- -------------- -------------- --------------
Balance, March 31, 2000 66,007,871 $ 660,078 $ 10,379,347 $ (563,750) $ (13,699,230) $ (3,223,555)
============== ============== ============== ============== ============== ==============
See accompanying notes.
5
</TABLE>
<PAGE>
<TABLE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS For the Three Months Ended March 31, 1999 and 2000
and for the Period from December 30, 1992 (inception) through March 31, 2000
(Unaudited)
<CAPTION>
Cumulative
amounts
from
1999 2000 inception
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (392,174) $ (590,614) $ (13,699,230)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 14,853 16,739 241,131
Common stock issued for services,
patents and payables - 49,500 1,382,700
Amortization of debt issuance costs 40,713 - 1,718,508
Reduction in note receivable-related
party charged to research and develop-
ment - - 244,311
Changes in assets and liabilities:
Accounts receivable and notes
receivable 80,000 - (63,860)
Inventory - - (117,295)
Accounts payable (251,269) 18,143 605,817
Interest payable 29,704 74,997 784,171
Accrued wages - 49,409 49,409
Other - (158) (1,717)
-------------- -------------- --------------
Total adjustments (85,999) 208,630 4,843,175
-------------- -------------- --------------
Net cash used in operations (478,173) (381,984) (8,856,055)
Cash flows from investing activities:
Purchase of property and equipment (7,068) (1,623) (259,177)
Advances - related party (409) (287) (289,683)
Patent costs (13,287) (8,553) (84,676)
Lease deposits - - (29,159)
-------------- -------------- --------------
Net cash used in investing activities (20,764) (10,463) (662,695)
Cash flows from financing activities:
Proceeds from sale of common stock 318,795 109,187 5,419,834
Purchase of treasury stock - - (520,000)
Deferred offering costs (25,684) - -
Proceeds from (repayments of)
stockholder loans - - 90,000
Repayments of capital leases (3,237) - (10,849)
Proceeds from notes payable - 50,000 4,740,000
Repayments of notes payable - - (185,170)
-------------- -------------- --------------
Net cash provided by financing
activities 289,874 159,187 9,533,815
-------------- -------------- --------------
Net increase (decrease) in cash (209,063) (233,260) 15,065
Cash and cash equivalents at beginning of
period 316,444 248,325 -
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 107,381 $ 15,065 $ 15,065
============== ============== ==============
See accompanying notes.
6
</TABLE>
<PAGE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1. Basis of presentation
The accompanying financial statements have been prepared by the Company,
without audit. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
position as of March 31, 2000, and the results of operations and cash flows
for the periods ended March 31, 1999 and 2000.
Basis of presentation and management's plans:
The company's financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the
development stage and has been primarily involved in research and development
activities. This has resulted in significant losses ($13,594,886 since
inception) and a stockholders' deficit at March 31, 2000 of $3,223,555. The
Company's continued existence is dependent on its ability to obtain the
additional funding necessary to complete development of the coupon clearing
system and successfully market the product.
As described in Note 5, the Company has raised $250,000 from the sale of
Series A preferred stock subsequent to March 31, 2000 which provided
additional liquidity for the Company for current operations. The Company is
offering for sale up to $3,500,000 of Series A preferred stock. The financial
statements do not include any adjustment relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or other adjustments that might be necessary should the Company
be unable to continue as a going concern in its present form.
2. Notes payable
On March 1, 2000, the Company borrowed $50,000 from two individuals evidenced
by notes payable bearing interest at 10% per annum. Interest on the notes is
payable quarterly and the notes are due on demand anytime after April 1,
2000. The notes are convertible, at the option of the holder, into the
Company's common stock at 50% of the average closing sale price of the
Company's common stock at the time of conversion.
3. Income taxes
No provision for income taxes is required at March 31, 2000 because, in
management's opinion the effective tax rate for the year will be zero.
7
<PAGE>
IN STORE MEDIA SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
4. Private placement
During November 1998, the Company commenced a private placement of common
stock and warrants. The Company proposes to sell a minimum of 18 units and a
maximum of 68 units at a price of $100,000 per unit which could result in
gross proceeds to the Company of between $1,800,000 and $6,800,000 before
deducting expenses. Each unit consists of 100,000 shares of common stock and
warrants to purchase 100,000 shares of common stock exercisable during the
first year at $1.25 per share and at $1.50 per share during the second year.
During the three months ended March 31, 2000, .5 units have been sold
resulting in gross proceeds of $50,000.
5. Subsequent event
During April 2000, the Company sold one share of its Class A convertible
preferred stock for $250,000 in cash. The share of preferred stock is
convertible into 650,000 shares of the Company's common stock and carries a
dividend rate of 8% annually.
8
<PAGE>
Item 2.
Management's Discussion and Analysis of financial condition and results of
operation
Overview
The Company is a development stage company engaged in the development of its
system for selecting, distributing and electronically clearing coupons, certain
components of which are patented. The Company has generated no revenue from
operations and has continually incurred losses of approximately $13,699,230
since inception through March 31, 2000. The Company expects to incur additional
losses through the end of the 2000 fiscal year.
At March 31, 2000, the Company had negative stockholders' equity of $3,223,555,
which reflects $10,475,675 of paid in capital less accumulated deficit of
$13,699,230. The excess of the accumulated deficit amount over paid in capital
primarily reflects the amount of funds generated through the sale of short-term
convertible notes and debentures by the Company and its predecessor in private
transactions in 1996, 1997, 1998 and 1999. At March 31, 2000, the Company had a
working capital deficit of $3,414,895, which is equal to the amount of $197,937
in current assets less $3,612,832 in current liabilities on such date.
The Company plans to continue on-going development of its coupon distribution
and clearing system, to the extent permitted by available financing. The Company
will require additional funds to continue its planned development efforts and
implement its plan of operation over the next 12 months. The Company is actively
pursing several financing opportunities. Some of the financing alternatives
involve an investment directly into the Company, and others involve an
investment into a subsidiary that is created to develop and operate one of the
Company's products as a business unit. The Company is unable to provide any
assurance that such additional funds will be available on commercially viable
terms or at all. The Company may be forced to discontinue or curtail its
operations and on-going development efforts if sufficient funds do not become
available to the Company in a timely manner.
Management believes that a major capital and corporate restructuring will be
required in order to attract investment capital as well as qualified management
personnel. There currently are no capital funding transactions pending and no
assurances that such opportunities will become available in the near future, nor
that management will be able to keep present operations viable.
Through March 31, 2000, the Company remained burdened with debt obligations and
a continuing lack of working capital. Management currently is focused on
developing a product to create profitable operations and then recapitalizing the
business when it has a demonstrable cash flow model to show potential investors
Financial Condition
The Company had $637,157 in total assets and approximately $3,860,712 in total
liabilities at March 31, 2000, as compared to $876,535 and $3,668,163 at the end
of fiscal 1999, respectively. Accounts payable and accrued expenses at the end
of fiscal year 1999 were $1,186,958 as compared to $1,329,507 at March 31, 2000.
The Company had a working capital deficit of $3,414,895 at March 31, 2000, as
compared to a working capital deficit of $2,989,244 at December 31, 1999. The
difference primarily is attributed to reductions cash of $233,260, an increase
in accounts payable and accrued expenses of $67,552 and an increase in accrued
interest of $74,997.
9
<PAGE>
Results of Operations
The Company's operational costs historically have increased or decreased
primarily due to the expansion or contraction of the Company's ongoing research
and development efforts. The Company has incurred operating expenses of
$8,696,867 since the inception of the Company's predecessor in 1992 through
March 31, 2000. These expenses include $3,225,002 in research and development
expenses and $5,230,734 in general and administrative expenses. Subject to the
availability of additional funds, the Company expects its operational expenses
and costs to increase as it expands its efforts to complete the development of
its systems, products and services, and expects to commence manufacturing and
installation of its equipment. The Company also expects operational costs to
increase as it expands its marketing and promotional efforts in connection with
the introduction of its products and services.
Quarter Ended March 31, 2000, Compared To Quarter Ended March 31, 1999
For the quarter ended March 31, 2000, the Company sustained net operating losses
of $590,614, as compared to net losses of $392,174 for the quarter ended March
31, 1999. The increase in operating losses primarily was due to an increase in
general and administrative expenses, an increase in depreciation and
amortization expenses and a decrease in interest expense.
The Company's operating expenses for 2000 increased by approximately 117% to
$461,810, as compared to operating expenses of $212,610 for the 1999 fiscal
quarter. Operating expenses consist of research and development expenses,
general and administrative expenses and depreciation and amortization costs and
expenses. The increase in operating expenses in 2000 was due to an increase in
general and administrative expenses by approximately $247,314 or 125% to
$445,071 for the 2000 fiscal quarter, as compared to general and administrative
expenses of $197,757 for the preceding fiscal quarter. The increase in general
and administrative expenses primarily was due to the addition of Lawrence
Mortimer Executive Marketing and Sales, Michael Parsons Director of Project
Management and Technology and the addition of other marketing and programming
personnel. Depreciation and amortization costs increased by 13% to $16,739, as
compared to depreciation and amortization costs of $14,853 for the 1999 fiscal
quarter. The increase in depreciation and amortization costs primarily was due
to the purchase of additional computer equipment and production machinery.
The Company's net non-operating expenses (including non-operating interest
income and interest expense) decreased by approximately 28% to $128,804 for the
quarter ended March 31, 2000, as compared to non-operating expenses of $179,564
for the quarter ended March 31, 1999. The decrease was primarily due to a 28%
decrease in interest expense, which represented 101% of the non-operating
expenses for 2000 and approximately 100% of the non-operating expenses for the
1999 quarter. The decrease in interest expense was primarily due to the value
assigned to the extension of the warrant exercise period related to the
Company's debt offerings.
Liquidity and Capital Resources
Since inception, the Company's principal requirements for capital have been to
finance the cost of research and development of its coupon selection, dispensing
and clearing systems and related technologies, and to pay for expenses
associated with securing patent protection, formulating its business strategy
and developing strategic relationships with third parties, such as Unisys
Corporation, retailers and product manufacturers. The Company has historically
financed its operations through loans and investments by directors and officers,
and the sale of equity and debt securities in private transactions in reliance
upon exemptions from the registration and qualification requirements under
federal and state securities laws.
10
<PAGE>
At March 31, 2000, the Company had $3,612,832 in current liabilities, of which
$2,757,244 (including $617,157 of interest accrued thereon) was in the form of
convertible, short-term debentures issued by the Company and its predecessor in
private transactions during the 1998, 1997 and 1996 fiscal years. At March 31,
2000, the Company was in default of its obligations under the notes issued to
investors by the Company and its predecessor. A principal portion of the notes
was converted into shares of the Company's common stock during the 1998 and 1999
fiscal years. At March 31, 2000, notes in the aggregate principal amount of
$2,140,087 remained outstanding, as compared to notes in the aggregate principal
amount of $2,140,087 that were outstanding on December 31, 1999. The remaining
portion of the Company's current liabilities is primarily comprised of
continuing payment obligations of approximately $490,000 (at March 31, 2000 and
December 31, 1999) to Unisys Corporation. The Company relies on the availability
of additional capital to satisfy all such obligations.
The Company will require additional capital to continue and complete development
of its systems, to market its products and services and to implement its
business strategies. The Company has limited access to additional sources of
equity and debt financing and it can provide no assurance that additional funds
will be available on commercially acceptable terms or in a timely manner to
enable the Company to continue its operations as expected.
The Company's cash position deteriorated since the end of fiscal 1999 through
March 31, 2000. At March 31, 2000, the Company had available cash of $15,065, as
compared to available cash of $248,325 at December 31, 1999. At the current
spending rate of approximately $115,000 per month, the Company expects that such
funds plus additional amounts raised in the second quarter of 2000 will be
insufficient to continue operations beyond the second quarter of 2000.
The Company is a party to an agreement to acquire the assets of the Partnership
for Shared Marketing, Inc. for $500,000 in cash and 1,500,000 shares of common
stock, contingent upon the availability of funding. Upon consummation of this
transaction, the Company will acquire a national database containing information
on approximately 73 million households, which the Company expects to contribute
to its wholly owned subsidiary, Data Driven Marketing, Inc. Other than in
connection with the above-described transaction, the Company has no future
commitments for capital expenditures.
During quarter ended March 31, 2000, the Company issued a total of 2,179,344
shares of its common stock and received cash of $54,343.
The Company lacks sufficient capital or revenue to continue supporting the
losses generated by its development. The Company, as it is currently structured
has made progress in becoming an attractive investment for new equity investors
players, but the Company has a long way to go to qualify for conventional bank
or venture capital financing. Additional equity capital is necessary to finance
working capital for development. Management is resolved to continue search for
the right financing formula as long as it can quickly put the Company, or its
subsidiaries, on the path to generate positive cash flow. Due to the current
financial condition of the Company and the relative lack of liquidity in the
market for the Company's common stock, no assurance can be made that the Company
will be successful in raising any substantial amount of capital through the sale
of equity securities, or with additional bank debt on favorable terms in the
near future. Never the less, due to such
conditions, the Company may be required to issue common stock to pay executives,
consultants and other employees, which may have a dilative effect on other
shareholders of the Company. Failure of the Company to acquire additional
capital in the form of either debt or equity capital will most likely impair the
ability of the Company to meet its obligations in the near or medium term. (See
- - Note 1 to Financial Statements).
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (1)
(b) During the quarter ended March 31, 2000, the Registrant filed one
report on Form 8-K relating to change in management.
(1) Filed herewith
12
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 19, 2000 IN STORE MEDIA SYSTEMS, INC.
(Registrant)
By: /s/ Donald P. Uhl
----------------------------
Donald P. Uhl, President
and Chief Executive Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S FORM 10-Q FOR THE YEAR ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 15,065
<SECURITIES> 0
<RECEIVABLES> 63,860
<ALLOWANCES> 0
<INVENTORY> 117,295
<CURRENT-ASSETS> 197,937
<PP&E> 521,144
<DEPRECIATION> (222,004)
<TOTAL-ASSETS> 637,157
<CURRENT-LIABILITIES> 3,612,832
<BONDS> 0
0
0
<COMMON> 660,078
<OTHER-SE> (3,883,633)
<TOTAL-LIABILITY-AND-EQUITY> 637,157
<SALES> 0
<TOTAL-REVENUES> 1,142
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 461,810
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,946
<INCOME-PRETAX> (590,614)
<INCOME-TAX> 0
<INCOME-CONTINUING> (590,614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590,614)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
