UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number 333-08935
Heartland Communications & Management, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 54-1799019
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
Incorporation or Organization)
1320 Old Chain Bridge Road, McLean, VA 22101
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (703) 883-1836
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 _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as the latest practicable date:
Shares Outstanding
Class as of May 13, 1997
------------------------------ ------------------
Common Stock, $ .001 par value 1,389,314
<PAGE>
Page 2 of 11
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Balance sheets as of December 31,1997
and March 31, 1998 (unaudited) 3
Statements of operations (unaudited) for the three months
ended March 31, 1997 and 1998 and the period March 27, 1996
(date of formation)
through March 31, 1998 4
Statements of cash flows (unaudited) for the three
months ended March 31, 1997 and 1998 and the period
March 27, 1996 (date of formation) through March 31, 1998 5
Notes to financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Item 3. Quantitative and Qualitative Disclosure about Market Risk N/A
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Securities Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
Part I Page 3 of 11
Item 1: Financial Statements
Heartland Communications
& Management, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
=====================================================================================================================
December 31, March 31,
1997 1998
(unaudited)
------------------ -------------------
<S> <C> <C>
ASSETS
Cash $ 10,919 $ 274
Accounts receivable from related parties - -
Deposits 4,940 4,940
------------------ -------------------
TOTAL CURRENT ASSETS 15,859 5,214
------------------ -------------------
Note receivable from related party - -
Office equipment, less accumulated depreciation of $1,000 and $1,750 8,004 7,253
Deferred offering costs 407,454 464,968
------------------ -------------------
TOTAL ASSETS $ 431,317 $ 477,435
------------------ -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 586,883 $ 638,923
Accrued payroll 157,175 199,122
Accounts payable to related parties 487,830 556,424
------------------ -------------------
TOTAL CURRENT LIABILITIES 1,231,888 1,394,469
------------------ -------------------
COMMITMENTS
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value, 10,000,000 shares authorized;
None issued
Common stock, $.001 par value, 50,000,000 shares authorized; 1,389 1,389
6,190,900 shares issued at December 31, 1997 and March 31, 1998;
1,389,314 shares outstanding at December 31, 1997 and March 31,
1998
Additional paid-in capital 620,019 620,019
Deficit accumulated during the development stage (1,421,979) (1,538,442)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (800,571) (917,034)
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 431,317 $ 477,435
------------------ -------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Part I Page 4 of 11
Item 1: Financial Statements
Heartland Communication
& Management, Inc.
(A Development Stage Company)
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
For the Period
March 27, 1996
(date of formation)
For the three months ended through March 31,
------------------------------------------
March 31, 1997 March 31, 1998 1998
- ------------------------------------------------ --------------------- -------------------- ---------------------
<S> <C> <C> <C>
REVENUES
Marketing commissions received from $ 926 $ 405 $ 13,820
related party
- ------------------------------------------------ --------------------- -------------------- ---------------------
OPERATING EXPENSES
Salaries 37,419 57,716 416,640
General and administrative 29,200 60,246 348,691
Write-off of offering costs - - 618,690
Bad debt expense - 2,292 188,250
- ------------------------------------------------ --------------------- -------------------- ---------------------
TOTAL OPERATING EXPENSES 66,619 120,254 1,572,271
- ------------------------------------------------ --------------------- -------------------- ---------------------
OPERATING LOSS (65,693) (119,849) (1,558,451)
Interest income 3,388 3,387 20,010
- ------------------------------------------------ --------------------- -------------------- ---------------------
NET LOSS $ (62,305) $ (116,462) $ (1,538,441)
================================================ ===================== ==================== =====================
WEIGHTED AVERAGE COMMON SHARES 1,242,352 1,358,064 1,281,324
OUTSTANDING
================================================ ===================== ==================== =====================
BASIC AND DILUTED NET LOSS PER SHARE $ (.05) $ (.09) $ (1.20)
================================================ ===================== ==================== =====================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Part I Page 5 of 11
Item 1: Financial Statements
Heartland Communication
& Management, Inc.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
=================================================================================================================
For the Period
March 27, 1996
(date of formation)
For the three months ended through March 31,
---------------------------------------
March 31, 1997 March 31, 1998 1998
- --------------------------------------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (62,305) $ (116,462) $ (1,538,441)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATIONS
Shares issued to directors - - 31,250
Depreciation - 750 1,750
Provision for uncollectible accounts - 2,292 188,250
Increase in accounts receivable from related parties (5,600) (2,292) (18,880)
Increase in deposits - - (4,940)
Increase in accounts payable 121,112 52,040 638,923
Increase in accrued payroll 27,419 41,947 199,122
Increase in deferred offering costs (150,901) (57,514) (464,968)
Increase in accounts payable to related 69,156 68,594 556,424
parties
- -------------------------------------------------------- -------------- ------------------- ---------------------
NET CASH USED IN OPERATING ACTIVITIES (1,119) (10,645) (411,510)
- -------------------------------------------------------- -------------- ------------------- ---------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Capital expenditures - - (9,004)
(Increase) decrease in loans to related party 2,245 - (169,370)
- -------------------------------------------------------- -------------- ------------------- ---------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 2,245 - (178,374)
- -------------------------------------------------------- -------------- ------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in subscription receivable and other issuance - - 4,958
Proceeds from exercise of warrants - - 585,200
- --------------------------------------------------- ------------------- ------------------- ---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - - 590,158
=================================================== =================== =================== =====================
Increase (decrease) in cash 1,126 (10,645) 274
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 88 10,919 -
- --------------------------------------------------- ------------------- ------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,214 $ 274 $ 274
=================================================== =================== =================== =====================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Part I Page 6 of 11
Item 1: Financial Statements
Heartland Communication
& Management, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q 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.
In the opinion of management, all adjustments (consisting primarily of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Heartland Communication &
Management, Inc. ("Heartland" or the "Company") annual report on Form 10-K for
the year ended December 31, 1997.
Note 2 Income Taxes
The Company did not record an income tax provision or benefit in the
accompanying financial statements for the three months March 31, 1997 because of
the existence of net operating losses. Likewise, the Company does not expect to
provide any income tax provision or benefit for the year ending December 31,
1998 because the Company expects a loss for the year ending December 31, 1998.
<PAGE>
Part I Page 7 of 11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is a discussion of the results of operations of the quarter ended
March, 31 1998 compared with the same period in the 1997, and the changes in
financial condition through the first quarter of 1998. This discussion and
analysis should be read in conjunction with the accompanying financial
statements and notes thereto of Heartland Communications & Management, Inc.
Results of Operations:
The Company was incorporated as a wholly-owned subsidiary of Heartland Capital
Corporation ("HCC") on March 27, 1996 for the purpose of raising capital to
develop several print and electronic media and investment concepts (the "Media
Concepts") and bring them to market. The development rights to these Media
Concepts had been owned by HCC and were assigned to the Company on May 17, 1996
simultaneously with payment by HCC of its $4,758 subscription for the stock of
the Company to which it subscribed on March 27, 1996.
Since its inception (March 27, 1996) through March 31, 1998, the Company's
activities have been organizational with the Company expending funds principally
to develop a business plan and to raise capital. Through March 31, 1998, the
Company has not generated any substantial revenue.
Where the Company's expenditures relate to capital raising and are both
incremental and direct, they have been treated as deferred offering costs in the
accompanying balance sheets. Where such expenditures are indirect and
administrative in nature, they have been expensed in the accompanying statements
of operations. Such expensed costs, together with the write off of $618,680 of
such expenditures that had been previously deferred and the provision of a
$188,250 reserve for receivables, as discussed below, account for the majority
of the $1,538,441 deficit accumulated by the Company during the development
stage through March 31, 1998.
During the year ended December 31, 1997, the Company, in recognition of the
length of the Initial Public Offering (IPO) process, wrote off $618,690 of
deferred offering costs, the balance accumulated as of December 31, 1996. New
deferred offering costs amounted to $407,454 during the year ended December 31,
1997 and $57,514 during the three months ended March 31, 1998.
Due to the importance of ATB to the Company's business plan, the Company has
joined HCC in co-funding the ATB Credit Agreement. HCC originally executed a
line of credit agreement with ATB in January 1995 to provide working capital for
its operations. In 1996, HCMI began co-funding this credit facility. HCMI had
advanced $172,780 as of December 31, 1996. During the year ended December 31,
1997, ATB repaid $3,410 of this loan. The $169,370 outstanding balance is due in
December 1999. At December 31, 1997, the Company concluded that the recorded
assets and known business of ATB did not, at the present time, support the
assured collectibility of the receivables from ATB, including the $169,370
advanced under the Credit Agreement and $16,588 from accrued interest under the
Credit Agreement and unpaid fees under the HCC Agreement. Although an affiliate
of ATB received consideration subsequent to December 31, 1997 for the sale of
certain radio properties it had sold, management of the Company again concluded
there was not yet sufficient assured asset value and business within ATB to
ensure the collectibility of these receivables. Consequently, the Company, as of
December 31, 1997, provided a reserve for these receivables in the amount of
$185,958. During the three months ended March 31, 1998, an additional reserve of
$2,292 was provided. The Company, however, intends to vigorously pursue, and
expects to fully collect, these receivables. Any repayments of these receivables
will be recorded as income when received.
The loss of $116,462 for the three months ended March 31, 1998 nearly doubled
from the loss of $62,305 incurred for the three months ended March 31, 1997.
This approximately $54,000 increase in loss was due principally to (1) an
approximately $20,000 increase in salaries as the effective number of employees
almost doubled in the three months ended March 31, 1998 versus 1997 and (2) the
incurrence of over $20,000 in travel and entertainment expenses during the three
months ended March 31, 1998 in conjunction
<PAGE>
Part I Page 8 of 11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
with presentations made throughout the country ("road shows") to assist in the
sale of the Company's securities in its IPO. Such costs were not incurred during
the comparable period in 1997.
The Company did not record an income tax provision or benefit for the periods
ended March 31, 1997 and 1998 because of the existence of net operating losses.
Liquidity and Capital Resources:
The three months ended March 31, 1998 reflected the following major uses of
funds: (1) a loss from operations of $116,462 and (2) the $57,514 increase in
deferred offering costs. These uses of funds of approximately $174,000 were
principally financed by the following:
Increase in trade accounts payable $ 52,040
Increase in accrued payroll 41,947
Loan from related party 68,594
Decrease in cash 10,645
--------------------------------------- ------------------------
Total $ 173,226
======================================= =========================
The three months ended March 31, 1997 had a loss of $62,305 and an increase in
deferred offering costs of $150,901. These uses of funds of approximately
$213,000 were similarly financed as follows:
Increase in trade accounts payable $ 121,112
Increase in accrued payroll 27,419
Loans from related party 68,594
--------------------------------------- ------------------------
Total $ 217,125
======================================= =========================
This continued use of liabilities to fund operations has further increased the
Company's working capital deficit from $1,216,029 at December 31, 1997 to
$1,389,255 at March 31, 1998. Likewise, the continued incurrence of offering
costs has increased the amount of direct and incremental offering costs (from
$407,454 at December 31, 1997 to $464,968 at March 31, 1998) whose recovery is
dependent on the success of the IPO. The Company expects to continue to fund
development expenditures and incur losses until it is able to generate
sufficient income and cash flows to meet such expenditures and other
requirements. The Company does not currently have adequate cash reserves to
continue to cover such anticipated expenditures and cash requirements. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
The Company and HCC have been evaluating financing and capitalization
alternatives as part of their long-term business plans. These alternatives
include HCC's sale of preferred stock and warrants and other alternatives,
including the formation of the Company and the associated transfer thereto of
many of HCC's development options, with the Company, in turn, undertaking an IPO
of a portion of its common stock. To preserve operating funds, HCC and the
Company have also developed a strategic plan which provides for reductions of
expenditures and a prioritization of development options.
The Company will structure its operations based on both the amount of capital
raised in the IPO and the timing of the receipt of the proceeds. The Company has
developed an action plan geared to varying amounts of capital being raised.
Assuming that only $2,000,000 of capital is raised, the Company's goals
<PAGE>
Part I Page 9 of 11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
will be to develop additional programming and broadcast capabilities for the
Heartland Radio Network (the "Network") and to make media acquisitions which
will help develop the Network. In addition, the Company also plans to develop a
weekly publication aimed at the youth (ages 11 to 18) market that would be
distributed free to students in schools. Based on preliminary discussions, it is
expected that several major national companies would be prominent advertisers in
the publication. Additionally, at the $5,000,000 level, the Company also would
expand its investment in the teen publication and would plan to invest in
additional media acquisitions. If a total of $12,500,000 is raised, the Company
also would expect to devote additional capital to investments in the teen
publication and more media acquisitions as well as to partially fund the
creation of a sports-based weekly newspaper insert which would be provided to
newspapers around the country. This publication also is expected to be supported
by advertising revenue from major national companies.
At the conclusion of this development effort, which for some of the Media
Concepts will require as much as nine months, the Company may still need to
obtain additional financing to begin operations. There can be no assurance that
the Company will complete the necessary work on the Media Concepts on schedule
or that bank or additional equity financing will be available to the Company as
it seeks to develop the Media Concepts and begin operations.
Because the Company has no history of operations, there is no assurance that the
Media Concepts can be successfully developed and put into operation within the
anticipated levels described above. Additionally, there is no assurance that the
Media Concepts would in fact be acceptable to the general public and, as a
result, there is no assurance that revenues would ever be generated sufficient
to recover the capital raised in the IPO, let alone provide a return to
shareholders on invested capital.
<PAGE>
Part II Page 10 of 11
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Document Method
Number Description of Filing
------ ----------- ---------
3.1 Certificate of Incorporation *
3.2 Amendments to Certificate of Incorporation *
3.3 Bylaws of Registrant *
10.1 Executed Escrow Agreement among the Registrant, the
Selling Agent and George Mason Bank, McLean, Virginia
(the Escrow Agent). *
10.2 Intentionally not used
10.3 Employment Agreement between Registrant and Michael L.
Foudy. *
10.4 Employment Agreement between Registrant and Bradford W.
Baker *
10.5 Employment Agreement between Registrant and Bradley B.
Niemcek. *
10.6 Assignment Agreement between Registrant and Heartland
Capital Corporation. *
10.61 Amended and Restated Teen Magazine Venture Agreement
between Heartland Capital Corporation and Xpress
Ventures, Inc. *
10.611 License Agreement between Xpress Ventures, Inc. and
Gerald Garcia and Bradford W. Baker. *
10.62 Amended and Restated National Sports Magazine Venture
Agreement between Heartland Capital Corporation and
Xpress Ventures, Inc. *
10.63 Representation Agreement between Heartland Capital
Corporation and ATB Productions, L.L.C. *
10.66 Credit Agreement between Heartland Capital Corporation
and ATB Productions, L.L.C. *
10.68 Employment Agreement between Registrant and Gerald Garcia. *
10.69 Barter Trade Agreement between ICON International, Inc.
and Registrant *
* Incorporated by reference from Company's Registration
Statement on Form S-1 (File No. 333-8935) and amendments
thereto, effective February 14, 1998.
(b) Reports on Form 8-K
Not applicable.
<PAGE>
Part II Page 11 of 11
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.
Heartland Communications & Management, Inc.
- ----------------------------- -----------------------------------------------
Date: May 15, 1998 Michael L. Foudy
President, Chief Executive Officer and Director
- ----------------------------- -----------------------------------------------
Date: May 15, 1998 Linda G. Moore
Chief Financial Officer and
Assistant Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
