<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-QSB
----------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER:
JUNE 30, 1998 333-49279
MENTUS MEDIA CORP.
(Exact name of small business issuer as specified in its charter)
DELAWARE 41-1670450
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9531 WEST 78TH STREET
MINNEAPOLIS, MINNESOTA 55344
(Address of principal executive offices)
(612) 944-7944
(Issuer's telephone number)
----------------------------
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
------- -------
Number of shares of Common Stock outstanding as of August 14,1998: 266,268
Transitional Small Business Disclosure Format (Check one):
Yes No X
------- -------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MENTUS MEDIA CORP.
FORM 10-QSB
Table of Contents
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C>
Item 1. Financial Statements.
Balance Sheets as of December 31, 1997 and June 30, 1998 2
Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1998 3
Statement of Changes in Stockholders' Deficit for the Six Months Ended June 30,1998 4
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operations 9-12
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MENTUS MEDIA CORP.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 35,163,583 $ 2,789,142
Accounts receivable, net 265,099 382,108
Other current assets 77,494 120,886
------------ ------------
Total current assets 35,506,176 3,292,136
------------ ------------
Property and Equipment, net 8,031,049 3,990,186
Deferred Financing Costs, net 2,517,940 78,603
Other Assets 191,406 174,723
------------ ------------
$ 46,246,571 $ 7,535,648
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 30,375 $ 48,302
Accounts payable 1,826,478 319,405
Accrued expenses 2,919,802 1,663,453
------------ ------------
Total current liabilities 4,776,655 2,031,160
------------ ------------
Non-current accrued site lease expense --- 92,253
------------ ------------
Long-term Debt 38,958,789 3,015,208
------------ ------------
Mandatory Redeemable Preferred Stock
14.8% Series B, nonvoting; authorized 91,100 shares;
issued and outstanding 91,059 shares; stated at
liquidation value plus accrued dividends 9,059,866 8,429,915
14.8% Series C, nonvoting; authorized 90,000 shares;
issued and outstanding 75,540 and 75,310 shares
at 1998 and 1997, respectively; stated at
liquidation value plus accrued dividends 6,528,120 6,057,115
------------ ------------
15,587,986 14,487,030
------------ ------------
Stockholders' Deficit
8.25% Series A cumulative preferred stock, nonvoting;
authorized 20,000 shares; issued and outstanding 6,000
shares, stated at liquidation
value, excluding cumulative unpaid dividends
(aggregate liquidation value of $4,608,750 and
$4,485,000 at 1998 and 1997, respectively) 3,000,000 3,000,000
Common stock, $0.01 par value; authorized 1,000,000
shares; issued and outstanding 266,268 shares 2,663 2,663
Additional paid-in capital 10,521,643 3,904,889
Accumulated deficit (26,601,165) (18,997,555)
------------ ------------
(13,076,859) (12,090,003)
------------ ------------
$ 46,246,571 $ 7,535,648
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements
2
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<C> <C> <C> <C> <C>
Revenues:
Advertising Revenue $ 483,291 $ 159,728 $ 883,368 $ 172,700
Less agency commissions (8,042) (9,052) (11,166) (9,285)
----------- ----------- ----------- -----------
Net advertising revenue 475,249 150,676 872,202 163,415
Network equipment sales --- --- 26,309 12,379
Network operating revenue 1,290 193,175 1,440 382,405
----------- ----------- ----------- -----------
476,539 343,851 899,951 558,199
----------- ----------- ----------- -----------
Costs and expenses:
Cost of network equipment sales --- --- 9,996 11,907
Network Operating Expenses 1,013,334 648,325 1,857,412 1,249,768
Selling Expenses 1,109,510 311,211 2,066,430 587,720
General and administrative expenses 1,366,353 771,959 2,662,006 1,577,338
----------- ----------- ----------- -----------
3,489,197 1,731,495 6,595,844 3,426,733
----------- ----------- ----------- -----------
Operating loss (3,012,658) (1,387,644) (5,695,893) (2,868,534)
Non operating income (expense):
Interest expense (1,814,689) (66,185) (2,658,463) (131,306)
Interest income 488,033 15,990 750,746 53,089
----------- ----------- ----------- -----------
Net loss (4,339,314) (1,437,839) (7,603,610) (2,946,751)
Preferred stock dividends 678,319 402,470 1,206,996 668,493
----------- ----------- ----------- -----------
Net loss applicable to common stockholders (5,017,633) (1,840,309) (8,810,606) (3,615,244)
----------- ----------- ----------- -----------
Basic and diluted net loss per common share $ (18.84) $ (6.91) $ (33.09) $ (13.58)
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding 266,268 266,268 266,268 266,268
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
MENTUS MEDIA CORP.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
Series A
Cumulative
Preferred Stock Common Stock Additional
--------------------- ------------------ Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ---------- --------- ------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 6,000 $3,000,000 266,268 $2,663 $ 3,904,889 ($18,997,555) ($12,090,003)
Accrued dividends on
mandatory redeemable
preferred stock --- --- --- --- (1,083,246) --- (1,083,246)
Issuance of Warrants in
connection with PIK Notes --- --- --- --- 7,700,000 --- 7,700,000
Net Loss --- --- --- --- --- (7,603,610) (7,603,610)
-------- ---------- ------- ------ ------------ ------------ -----------
Balance, June 30, 1998 6,000 $3,000,000 266,268 $2,663 $ 10,521,643 ($26,601,165) ($13,076,859)
-------- ---------- ------- ------ ------------ ------------ -----------
-------- ---------- ------- ------ ------------ ------------ -----------
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
MENTUS MEDIA CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
JUNE 30,
-------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ ($7,603,610) $ ($2,946,751)
Adjustments to reconcile net loss to net cash used in
operating activities:
Interest amortization and accretion on long term debt 683,854 27,500
Depreciation and amortization 495,073 289,733
Other 17,710
Changes in assets and liabilities:
Receivables 111,623 (150,833)
Other current assets 43,392 (37,491)
Accounts payable 1,507,073 (274,714)
Accrued expenses 1,164,097 607,828
------------ -----------
Net Cash Used In Operating Activities (3,580,788) (2,484,728)
------------ -----------
INVESTING ACTIVITIES:
Purchase of equipment and furnishings (4,535,936) (689,887)
Deposits and other assets (11,297) (3,849)
------------ -----------
Net Cash Used in Investing Activities (4,547,233) (693,736)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 37,300,000
Principal payments on long-term debt and capital leases (1,903,704) (27,245)
Proceeds from issuance of warrants 7,700,000
Deferred financing costs (2,593,834)
------------ -----------
Net Cash (Used in) Provided by Financing Activities 40,502,462 (27,245)
------------ -----------
Net increase (decrease) in cash and cash equivalents 32,374,441 (3,205,709)
Cash and cash equivalents
Beginning 2,789,142 3,821,195
------------ -----------
Ending $ 35,163,583 $ 615,486
------------ -----------
------------ -----------
Supplemental Cash Flow Information
Cash payments for interest $ 26,358 $ 103,806
Non cash activities:
Increase in mandatory redeemable preferred stock and
decrease in paid-in capital from accrued dividends 1,083,246 575,939
Equipment repurchased through issuance of notes payable --- 348,023
Equipment acquired under capital leases --- 29,364
------------ -----------
------------ -----------
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
Mentus Media Corp.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
The condensed balance sheet as of June 30, 1998, the condensed
statements of operations, condensed statement of changes in stockholders'
deficit, and condensed statements of cash flows for the three and six month
periods ended June 30, 1998 and 1997 have been prepared by the Company
without audit. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the financial
position, results of operations and cash flows at and for all periods
presented have been made. The operating results for the period ended June 30,
1998 are not necessarily indicative of the operating results to be expected
for the full fiscal year.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been condensed or omitted.
Note 2. Long Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
12% Senior Secured PIK Notes due February 2003 (net of discount
attributed to warrants issued in connection with PIK Notes) (See
Note 4) $37,750,703 ---
8% note payable to shareholder, due November 2003, secured by
substantially all assets of the Company --- $1,875,462
10.1% to 18.8% capital leases, due in varying monthly installments
to August 2001, secured by equipment and bank letters of credit
up to $35,000 75,266 103,507
Noninterest-bearing note payable, discounted at 15%, total of
$700,000 payable based on certain cash flows, if any, with
balance due December 2001, secured by equipment 430,243 400,226
Noninterest-bearing note payable, discounted at 15%, total of
$1,500,000 payable August 2003, plus 10% of certain net
revenues, if any, secured by equipment 732,952 684,315
-----------------------------------------
38,989,164 3,063,510
Less current maturities 30,375 48,302
-----------------------------------------
$38,958,789 $3,015,208
-----------------------------------------
-----------------------------------------
</TABLE>
The long term debt outstanding at June 30, 1998 (excluding capital
lease obligations) matures as follows: $430,243 in 2001 and $38,483,655 in
2003.
6
<PAGE>
Mentus Media Corp.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3. Accrued Expenses
The components of accrued expenses are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Site-lease fees $805,275 $1,272,017
Interest 1,948,303 ---
Compensation 107,499 119,468
Legal fees --- 196,217
Other 58,725 75,751
-------------------------------------
$2,919,802 $1,663,453
-------------------------------------
-------------------------------------
</TABLE>
Note 4. Events Subsequent to December 31, 1997
On February 18, 1998, the Company sold 45,000 units representing $45
million principal amount of 12% Series A Senior Secured PIK Notes (the
"Notes") and warrants to purchase 125,240 shares of common stock
(the"Warrants"). The Notes mature on February 1, 2003. Interest on the Notes
is payable semiannually in arrears on February 1 and August 1 of each year
commencing August 1, 1998. Interest on the Notes is payable either in cash or
in additional Notes, at the option of the Company, until August 1, 2000, and
thereafter is payable in cash. At the time of issuance, each Warrant entitled
the holder to purchase one share of common stock at an exercise price of
$0.01 per share, representing in the aggregate approximately 20% of the
common stock on a fully diluted basis. The number of shares purchasable by
holders of the Warrants is subject to adjustment. The Warrants are detachable
and are exercisable to February 1, 2008. For financial reporting purposes the
aforementioned Notes have been recorded net of the value ascribed to the
Warrants which is in effect an original issuance discount on the Notes. This
discount is being amortized as additional interest expense over the five year
term of the Notes using the interest method. The value ascribed to the
Warrants was $7.7 million, and was recorded as additional paid in capital.
The Warrant value was determined based on the total estimated potential
market capitalization of the Company's common stock, on a fully diluted basis
before the Warrant issuance, using an estimated per share value of $77 per
share and the percentage of such value that the Warrants represent, if
exercised. The financing costs attributable to the sale of the Notes have
been deferred and are being amortized over the term of the Notes.
The Notes are secured by a first priority lien on substantially all
assets of the Company except for certain equipment collateralizing
noninterest-bearing notes included in long-term debt. The Notes contain
certain restrictive covenants that among other things prohibit the payment of
dividends on, and the redemption of, the Company's capital stock.
7
<PAGE>
Mentus Media Corp.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4. Events Subsequent to December 31, 1997 (continued)
On April 2, 1998, the Company filed a Registration Statement on Form S-4
with the Securities and Exchange Commission relative to its Exchange Offer of
Series B 12% Senior Secured PIK Notes due 2003 for all outstanding Series A
12% Senior Secured PIK Notes. Generally, the form and terms of the Series B
Notes is the same as the Series A Notes except that they do not bear legends
restricting their transfer. The Registration Statement was declared effective
by the Securities and Exchange Commission on July 8, 1998. The exchange offer
expired on August 19, 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
THE FORWARD-LOOKING STATEMENTS IN THIS REPORT INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO
DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS,
UNCERTAINTIES AND OTHER IMPORTANT FACTORS INCLUDE, AMONG OTHERS: ADVERTISING
RATES; THE ABILITY TO SECURE NEW SITES FOR NGN DISPLAYS (AS DEFINED); THE
LOSS OF KEY EXISTING SITE AGREEMENTS; CHANGES IN THE POLITICAL AND REGULATORY
CLIMATE; OUT-OF-HOME ADVERTISING INDUSTRY TRENDS; COMPETITION; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; AVAILABILITY OF QUALIFIED PERSONNEL;
CHANGES IN, OR THE FAILURE OR INABILITY TO COMPLY WITH, GOVERNMENT
REGULATIONS; AND OTHER FACTORS REFERENCED IN THIS REPORT.
INTRODUCTION
OVERVIEW
The Company was founded in 1990 and thereafter focused its efforts on,
among other things, the development of its electronic out-of-home advertising
network known as NGN (Next Generation Network) by developing and improving
the NGN technology. At the same time, the Company concentrated its efforts on
securing site agreements for the placement of its color video monitors ("NGN
Displays") as well as recruiting local sales personnel and opening local
sales offices in its initially developed Designated Market Areas (" DMAs").
The operating revenues of the Company presently are derived from the
sale of advertising on NGN. The Company's primary operating expenses are for
NGN Display operating costs and employee compensation. Advertising rates are
based upon the availability of space on the network for the location targeted
by the advertiser, the size and demographics makeup of the market served by
the NGN Displays and the availability of alternative advertising media in the
market area. Most advertising contracts are short-term. Most of the Company's
annual gross revenues are generated from local advertising, and the remainder
represents national advertising, both of which primarily are sold directly by
the Company's own sales personnel.
In 1996, the Company generated its initial revenues primarily from two
sources: (1) sales of NGN Displays and its rights under exclusive site
agreements within defined territories not then targeted by the Company; and
(2) royalties on advertising sales and network operating revenues in
owner-operator markets. At the same time, the Company continued to
concentrate its efforts on sales of advertising and establishing site
agreements for its own NGN Displays. Effective in January and August 1997,
the Company entered into agreements with these owner-operators whereby the
Company repurchased the equipment on terms that the Company considered
favorable. In addition, through this process the owner-operators forfeited
their respective territorial rights.
9
<PAGE>
In 1997, the scope of the Company's business shifted from sales of
network equipment and territorial rights to sales of advertising on the
Company's own NGN installations. During 1997, the Company generated its
revenues from both advertising revenues from its own NGN Displays and from
royalties on advertising sales and network operating revenues in
owner-operator markets. Operating revenues during 1998 were principally from
advertising on NGN Displays.
The following table presents the number of NGN installations in their
respective markets as of June 30, 1998, March 31, 1998 and December 31, 1997,
respectively.
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998 December 31, 1997
------------- -------------- -----------------
<S> <C> <C> <C>
Market:
Baltimore, MD 205 204 208
Dallas-Ft. Worth, TX 228 226 226
Ft. Myers, FL 45 45 43
Los Angeles, CA 407 --- ---
Miami, FL 86 86 87
New York, NY 241 --- ---
Norfolk, VA 236 237 239
Orlando, FL 239 238 233
Tampa-Clearwater-St. Petersburg, FL 139 135 136
Washington, D.C. 506 505 502
West Palm Beach, FL 63 63 63
Other 33 36 32
-- -- --
Total 2428 1775 1769
</TABLE>
RESULTS OF OPERATIONS
Net revenues were $477,000 for the second quarter of 1998
compared to $344,000 for the same quarter of 1997 and were $900,000 for the
first six months of 1998 compared to $558,000 for the same period of 1997.
The increase was attributable to the shift in the Company's business from
owner-operator network operating fees to sales of advertising on the
Company's own NGN installations and the opening of local sales offices. Three
sales offices were opened during the 1997 first quarter and an additional
office was opened in late 1997. Three offices were opened in former
owner-operator markets during the first quarter of 1998. The installation of
NGN Displays began in New York and Los Angeles during the second quarter of
1998. The Company also began hiring local sales personnel in those markets
and expects to open sales offices during the third quarter of 1998.
Advertising revenues from newly opened markets were minimal since efforts
were concentrated on staff hiring and training. Advertising revenues
increased to $475,000 during the second quarter of 1998 compared to $151,000
in 1997. Advertising revenues for the first six months of 1998 were $872,000
compared to $163,000 for the comparable period of 1997. Network operating
revenues were minimal during the first six months of 1998 due to the
termination of owner-operator agreements as discussed above. For the six
months ended June 30,1998, the Company had equipment sales and network
operating revenues from site owners of $28,000 compared to $395,000 during
the comparable period of 1997. Barter revenue was $67,000 during the second
quarter of 1998 and $152,000 for the first six months of 1998 and is included
in advertising revenue.
Costs and expenses were $3.5 million for the second quarter of 1998
compared to $1.7 million for the same quarter of 1997 and were $6.6 million
for the first six months of 1998 compared to $3.4 million for the same period
of 1997.
10
<PAGE>
Network operating expenses increased $365,000 and $608,000 during the
three and six months periods ended June 30, 1998, respectively, from the
comparable periods in 1997. This increase is due to the increase in both the
number of NGN Display installations and equivalent months in operation. Major
components of network operating expenses include local telephone service,
telephone long distance, depreciation, maintenance, and site lease expense
related to the NGN Displays. The increase in site lease expense was due
primarily to the repurchase of equipment in former owner-operator markets in
August, 1997, and to a lesser extent, additional NGN installations. Site
lease expense was recorded net of reimbursement from owner-operators so the
Company expense increased when the owner-operators forfeited their
territorial rights. Site leases generally provide the site operator with a
percentage of the advertising revenues derived from the NGN Display at the
particular site. The Company accrues monthly site lease expenses which are
the greater of the computed amount based on a percentage of revenue, or where
applicable, the appropriate portion of an annual minimum. Most network
operating expenses are fixed. Accordingly, the Company expects that such
expenses as a percentage of advertising revenues will continue to decrease as
the Company's advertising revenues increase. Currently, network operating
expenses exceed advertising revenues due to the Company's limited operating
history.
Selling expenses were $1.1 million for the second quarter of 1998
compared to $311,000 for the same quarter of 1997 and were $2.1 million for
the first six months of 1998 compared to $588,000 for the same period in
1997. The increases in each period were the result of the addition of sales
staff and costs associated with the anticipated opening of the Los Angeles
and New York City regional sales offices as noted above. General and
administrative expenses were $1.4 million for the second quarter of 1998
compared to $772,000 for the same quarter of 1997 and were $2.7 million for
the first six months of 1998 compared to $1.6 million for the same period in
1997. The increases were due to the additional administrative staff in
computer operations, graphic creation, marketing, and accounting which were
added to support the sales offices and increased ad volume, as well as to
marketing efforts such as printing expenses related to promotional material,
market research, sales promotion, and public relations expenses. Research and
development costs were $91,000 for the second quarter of 1998 compared to
$85,000 for the same quarter in 1997 and were $171,000 for the first six
months of 1998 compared to $205,000 for the same period in 1997.
Interest expense was $1.8 million for the second quarter of 1998
compared to $66,000 for the same quarter of 1997 and was $2.7 million for the
first six months of 1998 compared to $131,000 for the same period in 1997.
The increase in both 1998 periods was due to the issuance of $45 million of
12% Senior Secured PIK notes (the "Notes") in February 1998. Interest income
increased to $488,000 for the second quarter of 1998 compared to $16,000 for
the same quarter in 1997 and was $751,000 for the first six months of 1998
compared to $53,000 for the comparable period in 1997. The increase was due
to investing the unused proceeds from the Notes.
The net loss for the quarter ended June 30, 1998 increased to $4.3
million, from $1.4 million in the same quarter of 1997, and to $7.6 million
for the first six months of 1998 compared to $2.9 million for the same period
in 1997 primarily as a result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 1998, the Company's primary source of liquidity has
been proceeds from the sale of equity and debt securities.
As of June 30, 1998, total cash and cash equivalents were $35.2 million
compared to $2.8 million as of December 31, 1997. The increase in cash was a
result of $3.6 million of cash used in operating activities and $4.6 million
of cash used in investing activities (primarily for the expansion of
11
<PAGE>
the NGN network) being offset by $40.5 million of net cash provided by the
sale of Notes and Warrants after offering expenses and repayment of long term
debt. The Company's increasing sales volume has required, and the Company
expects that it will continue to require, additional cash to fund increased
receivable levels.
The decrease in cash during the first six months of 1997 resulted from
$2.5 million used in operating activities primarily due to the year to date
net loss, after add back of depreciation, and net cash used in investing
activities of $694,000, primarily for capital expenditures to expand the
Company's NGN network.
Interest on the Notes is payable on February 1 and August 1 of each
year, commencing August 1, 1998. Interest on the Notes is payable either in
cash or additional Notes, at the option of the Company through August 1,
2000, and thereafter is payable in cash. Accordingly, the Company will not be
required to pay cash interest payments on the Notes until the February 1,
2001 interest payment date. Additional Notes were issued in the amount of
$2,441,000 for the interest payment due August 1, 1998. The Company expects
to pay interest through August1, 2000, by issuing additional Notes, which
would increase the $45 million principal amount of the Notes to approximately
$60.2 million.
The Company anticipates that its $35.2 million of cash and operating
cash flow will be sufficient to finance the operating requirements of the
Company and anticipated capital expenditures through 1999. However, if
advertising revenues do not increase as anticipated or operating expenses are
higher than anticipated, the Company may need to raise additional capital.
There can be no assurance that the additional funds will be available, or if
available, will be available on terms acceptable to the Company. The Company
believes that the current installed base of NGN Displays is large enough to
attain profitable operations when advertising revenues reach desired levels.
YEAR 2000
The Company has performed a review of its year 2000 preparedness
relative to its NGN delivery and accounting systems. Management continues to
believe that no material costs will be necessary to become year 2000
compliant.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.4(b) Amendment No. 1 to Southland Contract. PORTIONS OF
THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION, PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.*
27.1 Financial Data Schedule
-------------------
* Previously filed on the Company's Registration Statement on Form
S-4 filed with the Commission on July 6, 1998.
b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on behalf by the undersigned,
thereto duly authorized.
MENTUS MEDIA CORP.
By: /s/ Thomas M. Pugliese
-------------------------------
Thomas M. Pugliese
Chief Executive Officer
By: /s/ Michael J. Kolthoff
-------------------------------
Michael J. Kolthoff
Treasurer and Assistant Secretary
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 35,163,583
<SECURITIES> 0
<RECEIVABLES> 319,002
<ALLOWANCES> (53,903)
<INVENTORY> 0
<CURRENT-ASSETS> 35,506,176
<PP&E> 9,913,787
<DEPRECIATION> (1,882,738)
<TOTAL-ASSETS> 46,246,571
<CURRENT-LIABILITIES> 4,776,655
<BONDS> 38,989,164
15,587,986
3,000,000
<COMMON> 2,663
<OTHER-SE> (16,079,522)
<TOTAL-LIABILITY-AND-EQUITY> 46,246,571
<SALES> 26,309
<TOTAL-REVENUES> 899,951
<CGS> 9,996
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</TABLE>
