UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1997
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: 00021023
INTERACTION MEDIA CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 65-0542810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1701 Ponce de Leon Boulevard, Coral Gables, Florida 33134
(Address of principal executive offices)
(305) 446-5900
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
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. [X] Yes [ ] No
The number of shares of Common Stock of the issuer outstanding as of May 14,
1997 was 2,250,000.
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INTERACTION MEDIA CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996 and March 31, 1997
(unaudited) ..................................................3
Statements of Operations for the three months
ended March 31, 1996 and 1997 (unaudited)....................4
Statements of Cash Flows for the three months
ended March 31, 1996 and 1997 (unaudited)....................5
Notes to Financial Statements..................................6
ITEM 2 PLAN OF OPERATION.......................................7
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ......................11
SIGNATURES..........................................................12
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INTERACTION MEDIA CORPORATION
Balance Sheets
December 31, March 31,
1996 1997
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
CURRENT
CASH $ 422,324 $ 207,819
ACCOUNTS RECEIVABLE 296,673 289,750
PREPAID AND OTHER 10,191 4,000
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Total current assets 729,188 501,569
PROPERTY AND EQUIPMENT 2,569,339 2,269,086
OTHER 8,000 8,000
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$ 3,306,527 $ 2,778,655
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable $ 227,558 $ 197,151
Accrued liabilities 8,187 110,774
Notes Payable 1,000,000 1,000,000
Current portion of capital lease obligations 265,375 271,408
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Total current liabilities 1,501,120 1,579,333
LONG-TERM CAPITAL LEASE OBLIGATIONS 272,021 201,928
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Total liabilities 1,773,141 1,781,261
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS' EQUITY
Common stock $.005 par value,
10,000,000 authorized,
2,250,000 shares outstanding 11,250 11,250
Additional paid-in capital 5,875,702 5,875,702
Deficit (4,353,566) (4,889,558)
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Total stockholders' equity 1,533,386 997,394
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$ 3,306,527 $ 2,778,655
================================================================================
See accompanying notes to financial statements.
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INTERACTION MEDIA CORPORATION
Statements of Operations
Three months
ended March 31,
1996 1997
(Unaudited)
- --------------------------------------------------------------------------------
Revenues $ -- $ 470,696
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COSTS AND EXPENSES
Selling, general and administrative 355,153 648,631
Depreciation 128,787 317,533
Research and development 76,482 12,698
Interest expense (income) 26,164 27,826
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TOTAL COSTS AND EXPENSES 586,586 1,006,688
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NET LOSS $ (586,586) $ (535,992)
================================================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 971,250 2,250,000
================================================================================
NET LOSS PER COMMON SHARE $ (.60) $ (.24)
================================================================================
See accompanying notes to financial statements.
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INTERACTION MEDIA CORPORATION
Statements of Cash Flows
Three months
ended March 31,
1996 1997
(Unaudited
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OPERATING ACTIVITIES:
Net Loss $ (586,586) $ (535,992)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 128,787 317,533
(Increase) Decrease in accounts receivable (14,285) 6,923
Decrease in prepaid and other 7,003 6,191
Increase in other (3,000) --
Increase (Decrease) in accounts payable 40,253 (30,407)
Increase (Decrease) in accrued liabilities (42,894) 102,587
- --------------------------------------------------------------------------------
Total adjustments 115,864 402,827
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Net cash used in operating activities (470,722) (133,165)
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INVESTING ACTIVITIES:
Capital Expenditures (85,842) (17,280)
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Net cash used in investing activities (85,842) (17,280)
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FINANCING ACTIVITIES:
Notes payable 700,000 --
Capital lease payments (111,993) (64,060)
Deferred Offering Costs (50,000) --
- --------------------------------------------------------------------------------
Net cash provided from financing activities 538,007 (64,060)
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Cash at beginning of period 20,149 422,324
Cash at end of period $ 1,592 $ 207,819
================================================================================
Capital lease obligations incurred for new equipment $ 113,011 $ --
Cash paid for interest $ 30,812 $ 33,678
Cash paid for taxes $ -- $ --
================================================================================
See accompanying notes to financial statements.
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Interaction Media Corporation
Notes to Financial Statements
(Unaudited)
1. UNAUDITED The interim financial statements presented in this report
FINANCIAL are unaudited, but, in the opinion of management, reflect
STATEMENTS all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such
information. Results for interim periods should not be
considered indicative of results for a full year.
These financial statements should be read in conjunction
with the audited financial statements and notes thereto as
of and for the year ended December 31, 1996 included in the
Company's Form 10-KSB.
2. EQUITY In August 1996, the Company completed an initial public
TRANSACTIONS offering of its Common Stock pursuant to which it issued
1,250,000 shares of Common Stock and warrants to purchase
1,250,000 shares of Common Stock at an exercise price of
$4.40 per share, for aggregate gross proceeds of $5,125,000
and net proceeds of approximately $3,990,000.
In September 1996, pursuant to the underwriter's
over-allotment option granted in connection with the
initial public offering, the Company issued additional
warrants to purchase 187,500 shares of Common Stock for
gross proceeds of $18,750 and net proceeds of approximately
$16,000.
3. NOTES In 1996, the Company borrowed $1,900,000 under a line of
PAYABLE credit with a bank, in addition to $200,000 which was
outstanding at December 31, 1995. In August 1996, the
Company repaid $1,100,000 principal amount outstanding
under such line from the proceeds of the Company's initial
public offering.
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ITEM 2. PLAN OF OPERATION
The following Plan of Operation contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in the Company's Prospectus dated August 27, 1996.
GENERAL
The Company was organized in December 1994 and is in the business of
developing and operating interactive multimedia kiosks installed on college and
university campuses nationwide. Since its inception, the Company has entered
into contracts with schools and has made arrangements with advertisers. As of
May 1, 1997, the Company has installed and has operated kiosks on 47 college
campuses.
BUSINESS DEVELOPMENT
The Company's ability to continue operations is dependent upon the
Company's ability to obtain immediate additional funding.
The Company's plan of operation previously provided for its IKE(TM) kiosk
unit to be installed on 150 campuses by December 1998. While the Company has
installed 47 IKE units to date and has pursued additional school contracts and
presently has a backlog of in excess of 30 schools scheduled for installations,
the Company does not now anticipate that any new installations will commence
unless and until it has arranged for and obtained adequate financing to
purchase, integrate and install the necessary equipment.
The Company has entered into a few arrangements with national and local
advertisers to date for the 1997 Summer months between school sessions. These
arrangements and the Company's cash reserves are not adequate to support the
expenses of the Company, and additional means of revenue or financing are being
pursued. Assuming that the Company is able to obtain additional financing to
continue its operations, there can be no assurance that any particular
advertiser will continue its participation on IKE.
The Company currently has 25 full-time employees, engaged in marketing,
computer programming, graphic arts and administration. The Company also engages
independent software developers and freelance designers for multimedia
promotional development for IKE. The Company's ability to maintain its staff,
however, is limited as a result of its financial resources.
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RESULTS OF OPERATIONS
During the three months ended March 31, 1997, the Company generated $470,696 in
revenues, compared to no revenues in the comparable first quarter of 1996.
During the three months ended March 31, 1997, the Company incurred net losses of
$535,992.
Selling, general and administrative expenses of the Company for the three
months ended March 31, 1997 was approximately $648,631, compared to $355,153
during the comparable first quarter of 1996. This increase was primarily due to
the costs associated with operating and maintaining a network of 47 installed
IKE kiosks nationwide and the related headquarters systems support.
Depreciation expense for the three months ended March 31, 1997 was
approximately $317,533, compared to $128,787 during the comparable first quarter
of 1996. This increase was primarily due to the purchase, integration and
installation of additional kiosks during the latter half of 1996.
Research and development expense for the three months ended March 31, 1997
was approximately $12,698, compared to $76,482 during the comparable first
quarter of 1996. This decrease reflects the Company's shift from a development
stage to operational company.
Interest expense (net) for the three months ended March 31, 1997 was
approximately $27,826, compared to $26,164 during the comparable first quarter
of 1996. This increase was primarily due to the Company's increased level of
debt over that of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had an accumulated deficit of $4,889,558, a
deficiency of working capital of $1,077,764 and stockholders' equity of
$997,394. In addition the Company has incurred additional losses since that date
which had a further adverse effect on the Company's working capital and
stockholder's equity.
The Company anticipates that unless third-party funding is immediately
received by the Company, revenues from operations and sale of non-essential
equipment will be insufficient to satisfy the Company's estimated cash
requirements for the next few weeks. The Company requires additional funds
during the next few weeks and continues to seek such funds. The Company also
continues to explore strategic partner opportunities, pursuant to which the
strategic partner would provide capital and/or services to the Company. The
Company has no current arrangements with respect to, or sources of, additional
financing, except for a Loan Agreement with Northern Trust Bank of Florida, N.A.
("Northern Trust") which expires in December 1997 and a Master Lease Agreement
with Leasing Solutions, Inc. both of which are described below. Further
borrowing under either of these agreements would require the furnishing of
additional collateral that is unavailable to the Company. There can be no
assurance that any alternative or additional financing will be available to the
Company on favorable terms or at all. The Company's inability to obtain
financing within the next few weeks will have a material adverse effect on the
Company, including requiring the Company to substantially change or cease its
operations. The Company's independent auditors included an explanatory paragraph
in their report on the Company's December 31, 1996 financial statements stating
that the Company's dependence on outside financing, lack of existing commitments
from lenders to provide necessary financing, lack of sufficient working capital,
and losses since inception raise substantial doubt about the Company's ability
to continue as a going concern.
The Company's material commitments for capital expenditures include the
purchase, integration and installation of up to an additional 30 IKE kiosks
(version 3.0), scheduled for installation in schools currently under contract
with the Company. These installations have been delayed as a result of a lack of
capital funds. The Company anticipates that the sources of funds, if any, for
these kiosks and subsequent kiosks will be additional borrowings, stock
issuances, advertising revenue and permanent financing the Company will seek to
obtain. No assurance can be given that such funds will be available to the
Company and the Company has been unsuccessful to date in securing such funds.
As a result of its inability to obtain additional financing to date, the
Company's plans to commence new IKE installations by the fall of 1997 have been
delayed, and additional marketing efforts have been curtailed. Should additional
financing be forthcoming within the next few weeks, of which the Company has
very limited expectations, the Company may be able to continue business
operations.
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In November 1995, the Company and Northern Trust entered into the Loan
Agreement, pursuant to which Northern Trust extended a Line of Credit to the
Company in the maximum amount of $1,500,000 which, as amended, expires December
31, 1997. Subsequently, the Line of Credit was increased to $2,400,000. The
amounts borrowed under the Line of Credit bear interest at Northern Trust's
prime rate and interest payments have been made by the Company on a monthly
basis. As of March 31, 1997, $1,000,000 principal amount is outstanding under
the Line of Credit which shall become due and payable on December 31, 1997.
Amounts borrowed under the Line of Credit are required to be secured by time
deposits and other liquid assets. Amounts currently outstanding under the Line
of Credit are secured by various assets of the Chairman of the Board of
Directors, the President, the Vice President of Marketing and other employees of
the Company, and Ikera Investment Corporation, a company that is controlled by
the personal representatives of the estate of the Company's former President.
The amounts borrowed from Northern Trust have been used as working capital for
the operation of the Company's business. The Company used $1,100,000 of proceeds
of its initial public offering to pay a portion of the Company's outstanding
indebtedness to Northern Trust and a certain amount of the foregoing security
was released. Since the Company is currently unable to provide sufficient
security, the remaining amount of the Line of Credit is not available to the
Company. The loan agreement with Northern Trust provides that the Company may
not incur additional debt in excess of $100,000 without the consent of Northern
Trust.
In July 1995, the Company entered into a Master Lease Agreement with
Leasing Solutions, Inc. pursuant to which the Company financed the acquisition
of a portion of its kiosk equipment. The net book value of equipment financed
under this lease as of March 31, 1997 was approximately $530,694. The agreement
has a term of three years which automatically extends for successive 30 day
periods after its expiration unless either party gives the other party written
notice at least 90 days prior to the expiration of the original term or extended
term, as the case may be. The agreement provides that the Company's obligations
under the Master Lease Agreement must be secured by personal letters of credit
in varying amounts based on the cost of the equipment.
For the quarter ended March 31, 1997, net cash used in operations was
approximately $133,165. This was primarily attributable to a net loss of
approximately $535,992 less depreciation of approximately $317,533 net of an
decrease in accounts receivable of approximately $6,923, a decrease in accounts
payable of $30,407, and an increase in accrued liabilities of $102,587.
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For the quarter ended March 31, 1997, net cash used in investing
activities was approximately $17,280. This was attributable to the purchase of
kiosks and related equipment.
For the quarter ended March 31, 1997, net cash used in financing
activities was approximately $64,060, which consisted primarily of capital lease
payments.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERACTION MEDIA CORPORATION
Date: May 14, 1997 By: /s/ Michael Burnstine
-----------------------------------------
Michael Burnstine
President, Chief Operating Officer,
Chief Financial Officer and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AT MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 207,819
<SECURITIES> 0
<RECEIVABLES> 289,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 501,569
<PP&E> 2,269,086
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,778,655
<CURRENT-LIABILITIES> 1,579,333
<BONDS> 0
0
0
<COMMON> 11,250
<OTHER-SE> 986,144
<TOTAL-LIABILITY-AND-EQUITY> 2,778,655
<SALES> 470,696
<TOTAL-REVENUES> 470,696
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 330,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,826
<INCOME-PRETAX> (535,992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (535,992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (535,992)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
