SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED MAY 31, 1997
Commission File Number 333-22443
ILLUMINATED MEDIA INC.
(Exact Name of Small Business Issuer as specified in its charter)
Minnesota 41-1744582
(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
15 S. Fifth Street, Suite 715
Minneapolis, MN 55402
(612) 338-3554
FAX: (612) 370-0381
(Address of Principal Executive Offices, including
Zip Code, and telephone and FAX numbers)
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 No x
As of May 31, 1997, there were 220,000 shares of Common Stock outstanding,
which does not include 204,999 shares of Preferred Stock that are
automatically convertible into shares of Common Stock in connection with the
Company's proposed public offering, nor Stock Purchase Warrants outstanding
for the purchase of up to 169,959 shares.
Transitional Small Business Disclosure Format: Yes x No
INFORMATION REQUIRED IN QUARTERLY REPORT OF TRANSITIONAL SMALL
BUSINESS ISSUERS.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
"Illuminated Media, Inc "
Balance Sheet (Unaudited)
5/31/1997 2/28/1997
--------- ---------
Assets
Cash 863 7,651
Accounts Receivable 24,442 22,648
Prepaid Expense 49,646 49,646
Other Receivables 1,727 445
------- -------
Total Current Assets 76,678 80,390
"Property and Equipment, net" 32,609 34,638
Other Assets 149 199
------- -------
Total Assets 109,436 115,227
======= =======
Liabilities and Shareholders Deficit
Note Payable Bank 135,000 135,000
Note Payable shareholders 19,509 19,509
Debentures Payable 70,000 40,000
Debentures Payable Related Parties 76,000 143,000
Accounts Payable 109,931 116,592
Other accured Expenses 22,503 15,192
Current Portion Long
Term Debt 13,402 13,402
Current Portion Long Term
Debt Related Parties 21,570 21,085
------- -------
Total current liabilites 567,915 503,780
Long term debt 18,508 20,349
Long term debt related party 146,705 149,719
------- ------
Total Liabilities 733,128 673,848
------- ------
Redeemable Preferred Stock
Series A convertible preferred stock,
$.30 stated value; 110,000 shares
authorized and 99,000 shares issued
and outstanding 30,000 30,000
Series B convertible preferred stock,
$.30 stated value; 155,000 shares
authorized and 105,000 shares issued
and outstanding 31,500 31,500
------- -------
Total Preferred Stock 61,500 61,500
------- -------
Shareholders deficit
"Common Stock $.01 par value
10,000,000" shares authorized
220,000 and 220,000 issued
and outstanding, respectively" 2,200 2,200
Add'l Paid in Capital 72,329 72,329
Accumulated Deficit (759,721) (694,650)
-------- --------
Total shareholders Deficit (685,192) (620,121)
-------- --------
Total Liabilities redeemable
preferred stock & shareholders
deficit 109,436 115,227
======== ========
Illuminated Media Inc
Statement of Operations
Three Months Ended
(Unaudited) 31-May-97 31-May-96
----------- -----------
Revenues 41,094 60,138
------- -------
Operating Expenses
General and Adm Costs 93,267 76,812
------- -------
Loss From Operations (52,173) (16,674)
Other Income (Expenses)
Interest Expense (12,898) (5,524)
Misc Income 0 0
------- -------
Total other Expenses (12,898) (5,524)
Net Loss (65,071) (22,198)
======= =======
Net loss per share ($0.30) ($0.10)
======= =======
Weighted average
shares outstanding 220,000 220,000
======= =======
Illuminated Media Inc.
Statement of Cash Flow - Unaudited
3 Month Period Ended 5/31/1997 5/31/1996
----------- -----------
Cash Flows from Operating Activities
Net Loss (65,071) (22,198)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and Amoritization 3,292 3,189
Decrease (Increase) in Assets
Accounts Receivable (1,794) (8,948)
Other Receivable (1,282) 6,518
Increase (Decrease)in Liabilities
Accounts Payable (6,661) 7,092
Accured Expense 7,311 (7,123)
Net cash used in operations (64,205) (21,470)
Cash Flows From Investing activities
Purchase of property and equipment (1,213) (2,230)
-------- -------
Net cash used in investing activities (1,213) (2,230)
-------- -------
Cash Flows from financing acitivites
Increase (decrease) in note payable 0 (150,000)
Note Payable-Bank 0 135,000
Debentures payable 30,000
Debentures Related Parties 33,000 65,000
Payment of long Term Debt (1,841) (1,400)
Payment of long term Debt Related Parties (2,529) 0
Net cash provided by financing activities
58,630 48,600
-------- -------
Increase (Decrease) in cash (6,788) 24,900
Cash beginning of period 7,651 4,795
-------- -------
Cash end of period 863 29,695
======== =======
During the three month period ended 5/31/1997 the company issued $53,000 in
debentures and 17,667 warrants.
FOOTNOTES TO THE INTERIM FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included in this Form 10-QSB have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed,
or omitted, pursuant to such rules and regulations, although management
believes the disclosures are adequate to make the information presented not
misleading. The results of operations for any interim period are not
necessarily indicative of results for a full year. These statements should
be read in conjunction with the financial statements and related
notes included in the Company's Registration Statement on Form SB-2,
effective July 24, 1997, Registration No. 333-22443.
The financial statements presented herein as of May 31, 1997
and for the three months ended May 31, 1997 and 1996 reflect, in the opinion
of management, all material adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
[The Registrant is a transitional small business issuer, but
it has not previously filed, nor been required to file, an Annual Report on
Form 10-KSB. However, the Registrant intends, when it does file its
Form 10-KSB, to use and rely upon Alternative 2 under "Information Required
in Annual Report of Transitional Small Business Issuers". Accordingly, the
Registrant chooses here to update the response to Item 6(a)(3)(i) to Model B
of Form 1-A. The following discussion concerning the Registrant's second
fiscal quarter ended May 31, 1997, is intended to comply both with
Item 303(b) of Regulation S-B, and Item 6(a)(3)(i) of Model B of Form 1-A.]
The Registrant is in the process of making a public offering
pursuant to a Registration Statement on Form SB-2, File No. 333-22443,
including a Prospectus, dated July 24, 1997, as supplemented,
October 2, 1997. That part of said Prospectus concerning Management's
Discussion and Analysis is incorporated by reference.
Management's Discussion and Analysis of Financial Condition
and Results of Operation
This discussion of the financial condition and the results of
operations of the Company should be read in conjunction with, and is
qualified in its entirety by, the financial statements and notes thereto
included elsewhere within the Company's Prospectus, and the material
contained in the "Risk Factors" and " Business" sections of such Prospectus,
all of which are incorporated by reference.
OVERVIEW
The Company is an advertising media company that started operations
in 1993. It leases space for its advertising platforms from buildings, to
which it pays concessions, typically, 20% of advertising revenue. Each
platform has three panels, of which two are available for rent to
advertisers and the third is used for public service purposes, such as a map,
or an ad for a non-profit/charitable organization.
The Company intends, with the proceeds of the offering to expand
its operations to several other metropolitan markets, to add enhanced
features to its platforms, and to increase the percentage of panels rented
to advertisers. At May 31, 1997, the Company had 54 advertising platforms
in place in the Minneapolis-St. Paul Metropolitan area.
A single market is less attractive to national advertisers than if
the Company could offer its medium in several markets. Accordingly, the
Company has explored and will attempt to expand into other cities with
connecting skyway or underground concourse links ("networked cities") such
as Des Moines, Dallas, Houston, Cincinnati, Rochester (NY and MN) and Duluth.
In addition, the Company plans to expand into three shopping malls (Miller
Hill Mall, Duluth, MN; Newport Centre, Jersey City, NJ; and The Pavillion, San
Jose, CA) managed by the same firm that manages the Mall of America. The
Company has discussed expansion and has conducted preliminary negotiations
with the respective property managers, but no final agreement has been
reached.
The Company plans to add features to its platforms, such as its
computer touchscreen product, DISCOVERSCREEN, which can be used to find
directions or information about retail and service providers, entertainment,
traffic information and the like. The Company's goal is to create a national
network of DISCOVERSCREEN services for use by national as well as local
advertisers.
The Company has formed a joint marketing venture with Skyway
Publications Inc.("SPI"), a Minneapolis-based publishing company, that sells
advertising to businesses trying to reach individuals who use the skyway
systems. SPI would assist with DISCOVERSCREEN sales.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTH FISCAL PERIOD ENDED MAY 31, 1997 WITH
THE THREE MONTH FISCAL PERIOD ENDED MAY 31, 1996 (UNAUDITED)
Revenues
Revenues for the three month period ended May 31, 1997, decreased by
31.7% to $41,094 as compared to $60,138 for the three month period ended
May 31, 1996. Revenues for the period were less than expected because sales
efforts by management were interrupted by the public offering, and the
efforts by two new sales employees did not begin to show results until after
the end of the fiscal period. All revenue was generated by the
sale of ad space for the SKYWAY ADS platform. The number of platforms, and
the per panel fees, remained relatively constant during these periods.
Loss from Operations
The loss from operations for the three month period ended May 31,
1997, increased by 213% to ($52,173) as compared to a loss of ($16,674) for
the three month period ended May 31, 1996. The increased loss resulted
primarily from a decrease in revenues, and secondarily from an increase of
$16,455 or 21.4% in operating expenses, from $76,812 for the 1996 period to
$93,267 for the 1997 period. The increased operating expenses resulted
primarily from the addition of two new salespersons who were hired (one in
December, 1996, one in January, 1997) in anticipation of the early completion
of the Company's proposed public offering.
Other Income and Expense
Other income (expense) for the three months ended May 31, 1997,
increased by $7,374, or 133%, to ($12,898) as compared to ($5,524) for the
three months ended May 31, 1996. The increased expense resulted primarily
from increased interest expense of ($11,368) for the period ended May 31,
1997, as compared to ($5,524) for the period ended May 31, 1996. The
interest expense increase resulted from debt of approximately $564,000
as of May 31, 1997, which was incurred in connection with the re-purchase
of shares of Common Stock owned by the previous majority shareholders, the
settlement of certain accounts payable owed to them, and to fund operations
pending the Company's proposed public offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current capital resources have been derived from the
private sale of debentures (which were accompanied by warrants for the
purchase of Common Stock) and from loans provided by financial institutions.
As of February 28, 1997, and May 31, 1997, the Company had approximately
$7,651 and $863, respectively, in cash.
Since inception the Company incurred net losses because of start-up
expenses, fixed costs and financing costs. The Company is currently
experiencing negative cash flow from operations (see "Statement of Cash Flow")
and expects that such situation will continue until its debt is reduced and
until a combination of expanded marketing efforts and product enhancements,
all of which will be financed from the proposed public offering, lead to
positive cash flow. As of May 31, 1997 the approximate break-even point for
sales was $33,000 per month less one time expenses and less debt maintenance.
The Company's future capital requirements relate to two major goals,
each of which is reflected in the structure of the proposed public offering.
If the minimum offering is sold, the Company will be able to pay off much of
its debt, and commence modest additional marketing efforts. The Company
expects that as a result of a minimum offering the Company can expand into a
few new markets and put in place enough new units such that it would expect
to generate cash flow sufficient to meet its on going operations and continue
the modest expansion. If the maximum offering is sold, the Company will be able
to pay off all of its debt, significantly expand its marketing efforts and
significantly expand its range of enhanced product improvements. The
Company's management expects that if a minimum offering is sold, proceeds
will last a minimum of twelve months, and if a maximum offering is sold,
proceeds will last a minimum of twenty-four months.
The Company does not currently have in place any financing
arrangements for working capital needs nor does the Company have any unused
sources of liquidity other than its cash reserves and on-going sales. There
is no arrangement for the Company's on-going capital equipment purchases.
The Company does have sufficient unused capacity with its existing
ad spaces such that, if more were rented, it could generate revenue
sufficient to cover its operating expenses and make minor capital investments.
However, management's primary goal is to acquire the capital which will
enable the Company to acquire units, both standard and specialized, and
place them in new markets, thereby expanding capacity and leading to
significantly greater revenues.
If the Company's proposed public offering is not completed in the near
future, it will seek alternate sources of financing, such as a private
placement of equity, to provide its capital resources.
PART II
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITIES HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See the Index to Exhibits, below.
(b) Reports on Form 8-K. Not applicable.
INDEX TO EXHIBITS.
All of the items below are incorporated by reference to the
Registrant's Registration Statement on Form SB-2, File No. 333-22443,
effective July 24, 1997, except for Items 11.1, 24.1 and 27.1, which are
included with this filing.
Number Description
4.1 Form of Common Stock certificate.
4.1A Form of Warrant Agreement by and among the Registrant, Tuschner &
Co., Inc. and the Warrant Agent, as revised.
4.2 Form of Warrant Agreement by and among the Registrant, the
Underwriter, and the Warrant Agent, including a Form of Warrant
Certificate.
4.3 Form of the Registrant's 10% Subordinated Debenture Due
September 30, 1996, and other dates.
4.4 Form of the Registrant's Warrant to Purchase Common Shares,
expiring November 10, 1998, and other dates.
4.5 Form of Maturity Extension Agreement for Debentures.
10.1 Stock Redemption Agreement, dated November 28, 1995, between the
Regisrant and various Lease Brothers entities, together with
exhibits thereto, namely three promissory notes, a personal
guaranty and a security agreement.
10.2 Bridge Financing Agreement, dated November 27, 1995, between the
Registrant and Norman Winer, together with exhibits thereto, namely
Promissory Note, Security Agreement, Guaranty of Re-Payment, form
of Subordination Agreement and form of Temporary Waiver of Right to
Put.
10.3 Form of lease with building for space for Skway Ad platform.
10.4 Form of advertising contract for Skyway Ad.
10.5 Lease Agreement between Registrant and its lessor.
10.6 Registrant's Corporate Stock Option Plan.
10.7 Form of Executive Employment Agreement.
10.8 Letter Agreement with Simon Property Group.
10.9 Letter Agreement with Lasertainment Productions International.
10.10 Joint Marketing Agreement with Skyway Publications, Inc.
10.11 Consulting Agreement with Sun Consulting, Inc.
10.12 Bank Windsor Loan Documents.
10.13 Agreement as to Change of Convertibility Terms, dated July 17,
1997, between the Registrant and the Lease Brothers.
27.1 Financial Data Schedule.*
99.1 Registrant's Registration Statement on Form SB-2, Registration
No. 333-22443, as amended.
99.2 Supplement dated October 2, 1997, to Registrant's Final Prospectus,
dated July 24, 1997.
* Included with this report. All other items are incoporated by
reference to the Registrant's Registration Statement on
Form SB-2, File No. 333-22443, effective July 24, 1997.
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.
ILLUMINATED MEDIA INC.
Date: October 13, 1997 By:
Robert H. Blank
Chairman, CEO
(Principal Executive Officer)
By:
Richard D. Kothe
President, CFO
(Principal Financial Officer,
Principal Accounting Officer)
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.
ILLUMINATED MEDIA INC.
Date: October 13, 1997 By: /s/ Robert H. Blank
Robert H. Blank
Chairman, CEO
(Principal Executive Officer)
By: /s/ Richard D. Kothe
Richard D. Kothe
President, CFO
(Principal Financial Officer,
Principal Accounting Officer)
