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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _______________
000-24835
(Commission file number)
PTN Media, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 38-3399098
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
455 East Eisenhower Parkway, Suite 15, Ann Arbor, Michigan 48108
(Address of principal executive offices)
(734) 327-0579
(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. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity. As of September 30, 2000 - 4,611,962 shares of Common Stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PTN Media, Inc.
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000 2
Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 2000 and 1999 and cumulative during
development stage from May 27, 1997 to September 30, 2000 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 and cumulative during development
stage from May 27, 1997 to September 30, 2000 4
Notes to Condensed Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis or Plan of Operations
10-14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Part III. EXHIBITS
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
CONDENSED CONSOLIDTAED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,027,390
Prepaid expenses 444,146
-------------
TOTAL CURRENT ASSETS 1,471,536
-------------
FIXED ASSETS, NET 28,047
OTHER ASSETS 31,226
-------------
TOTAL ASSETS $ 1,530,809
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 291,201
License fees payable 403,000
Short-term loans payable 191,250
-------------
TOTAL CURRENT LIABILITIES 885,451
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01; 1,000,000 shares
authorized; 2,600 shares issued and outstanding 26
Common stock, par value $0.001; 10,000,000 shares
authorized; 4,611,962 shares issued and outstanding 4,612
Additional paid-in capital 7,045,489
Deficit accumulated during the development stage (6,404,769)
------------
TOTAL SHAREHOLDERS' EQUITY 645,358
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,530,809
============
See accompanying notes to financial statements.
2
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine Cumulative
Months Ended Months Ended during the
September 30, September 30, development stage
---------------------------- ----------------------------- May 27, 1997 to
2000 1999 2000 1999 September 30, 2000
------------ ------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 1,507 $ 272 $ 4,805 $ 13,488 $ 22,993
EXPENSES:
Cost of revenue 27,917 9,000 224,374 52,923 2,406,025
Product development 188,087 134,555 614,973 293,440 2,057,995
General and administrative 441,081 92,149 1,076,200 267,393 1,844,582
------------ ------------ ------------- ------------ ----------------
TOTAL EXPENSES 657,085 235,704 1,915,547 613,756 6,308,602
------------ ------------ ------------- ------------ ----------------
LOSS FROM OPERATONS (655,578) (235,432) (1,910,742) (600,268) (6,285,609)
------------ ------------ ------------- ------------ ----------------
OTHER INCOME (EXPENSES):
Interest expense (4,000) (18,207) (16,309) (50,682) (119,199)
Interest income - - - - 39
------------ ------------ ------------- ------------ ----------------
TOTAL OTHER INCOME (EXPENSE) (4,000) (18,207) (16,309) (50,682) (119,160)
------------ ------------ ------------- ------------ ----------------
NET LOSS $ (659,578) $ (253,639) $(1,927,051) $ (650,950) $ (6,404,769)
============ ============ ============= ============ ================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.15) $ (0.07) $ (0.44) $ (0.19) $ (1.83)
============ ============ ============= ============ ================
WEIGHTED AVERAGE NUMBER OF COMMON OUTSTANDING 4,479,672 3,440,262 4,367,731 3,432,995 3,490,635
============ ============ ============= ============ ================
</TABLE>
See accompanying notes to financial statements.
3
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
CONDENSED CONSOLIDTED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Cumulative
Months Ended during the
September 30, Development stage
------------------------------- May 27, 1997 to
2000 1999 September 30, 2000
--------------- -------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,927,051) $(650,950) $ (6,404,769)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 8,443 3,377 14,899
Shares issued for professional and legal fees - - 876,500
Waiver of compensation payable - - 121,000
Issuance of shares for license fees 323,125 - 1,407,853
Changes in operating assets and liabilities:
Accounts receivable - 4,488 -
Prepaid expenses 271,479 - (444,146)
Accounts payable and accrued expenses 100,802 70,502 412,608
License fees payable 3,000 (155,000) 403,000
-------------- -------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (1,220,202) (727,583) (3,613,055)
-------------- -------------- ------------------
CASH FLOWS FROM INVESTNG ACTIVITIES:
Purchase of fixed assets (11,691) (24,248) (42,946)
Security and other deposits paid (31,226) - (31,226)
-------------- -------------- ------------------
NET CASH USED IN INVESTING ACTIVTIES (42,917) (24,248) (74,172)
-------------- -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from (paid to) officer (26,000) (6,156) 477,844
Proceeds from short-term loans - 465,000 653,750
Payments from shareholders - - 2,957
Proceeds from exercise of warrants 1,000 - 31,000
Proceeds from private placement offerings, net 838,970 - 1,792,470
Proceeds from sale of common stock of subsidiary 975,000 - 975,000
Proceeds from sale of common and preferred stock, net 455,000 304,493 781,596
-------------- -------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,243,970 763,337 4,714,617
-------------- -------------- ------------------
INCREASE IN CASH 980,851 11,506 1,027,390
CASH, BEGINNING OF PERIOD 46,539 702 -
-------------- -------------- ------------------
CASH, END OF PERIOD $1,027,390 $ 12,208 $ 1,027,390
============== ============== ==================
</TABLE>
See accompanying notes to financial statements.
4
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY AND GOING CONCERN
UNCERTAINTY:
PTN Media, Inc. ("PTN" or the "Company") was incorporated in Delaware on January
13, 1998 and is the successor to Interactive Entertainment Studio, Inc. ("IES").
IES was incorporated in the State of Nevada on May 27, 1997 and was merged into
the Company in March 1998, for the sole purpose of changing the domicile of the
Company to Delaware. The Company has been in the development stage in accordance
with Statement of Financial Accounting Standards No. 7, since its inception.
The Company is an interactive content provider focusing on providing leading
branded content for well-defined target audiences using a combination of new and
traditional media. The Company provides this content on its interactive websites
in the form of articles and photographs pertaining to fashion, beauty, style and
entertainment. These websites, utilizing celebrity models as hosts, will provide
an avenue for users to share general tips and advice relating to the subjects
covered.
The Company, since its inception, has incurred net losses of $6,404,769 through
September 30, 2000. The Company has relied on bridge financing, the proceeds
from the sale of common stock through an initial public offering, the sale of
common and preferred stock in private placements and the sale of common stock in
its Fragrancedirect.com, Inc. subsidiary to fund its activities. The Company may
be unable to continue in existence unless it is able to arrange additional
financing. The financial statements do not include any adjustments relating to
the recoverability of assets that might be necessary in the event the Company
cannot continue in existence.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's consolidated financial statements included in its annual report on
Form 10-KSB for the year ended December 31,1999 and which are incorporated
herein by reference. Specific reference is made to this report for a description
of the Company's securities and the notes to the financial statements included
therein.
5
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY AND GOING CONCERN
UNCERTAINTY, continued:
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements of PTN Media, Inc., and subsidiary contain all
adjustments necessary to present fairly the Company's financial position as of
September 30, 2000 and the results of its operations for the nine months ended
September 30, 2000 and 1999 and for the cumulative period during the development
stage (May 27, 1997 to September 30, 2000) and its cash flows for the nine
months ended September 30, 2000 and 1999 and for the cumulative period during
the development stage (May 27, 1997 to September 30, 2000).
The results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000.
NOTE 2 - SALE OF SHARES:
In February 2000 the Company issued 182,000 shares of its common stock in a
private placement offering at $5.00 per share. The Company paid offering costs
in connection with this private placement offering of $71,030.
In addition, during the first and second quarters of 2000, certain holders of
the Company's Series A preferred stock converted 1,650 and 1,350 shares,
respectively, of Series A preferred stock into 33,000 and 27,000 shares,
respectively, of the Company's common stock.
During the second and third quarters of 2000, the Company's subsidiary,
Fragrancedirect.com, Inc. sold 210,000 and 200,000 shares, respectively, of its
common stock at $2.50 per share. The proceeds of $525,000 and $500,000,
respectively, have been included in additional paid-in capital.
Fragrancedirect.com, Inc. paid $50,000 in fees in connection with the $500,000
raised in the second quarter of 2000.
6
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
NOTE 3 - SHORT-TERM LOANS PAYABLE:
In July and August 1997, the Company received $56,250 through the issuance of 8%
promissory notes and common stock purchase warrants to acquire Company stock.
The 45,000 warrants issued, which expire in July 2001, entitle the holders to
purchase 45,000 shares of common stock at an exercise price of $3.00 per share,
the deemed fair value of the warrants at the time of issuance. The notes and
accrued interest are payable one year from the date of issuance or the closing
of an equity funding of the Company of a minimum of $500,000, whichever is
sooner. In 1999, one of the note holders converted $25,000 of principal and
$5,500 of accrued interest into 6,100 shares of the Company's common stock. The
remainder of the notes continues to be outstanding notwithstanding the fact that
payments owed by the Company thereunder are now past due. Interest accrued as of
September 30, 2000 aggregated $5,375.
In March 1999, the Company completed the sale of 5.5 units, each unit consisting
of a $50,000 promissory note, bearing interest at an annual rate of 10%, and
warrants to purchase 10,000 shares of common stock at $7.50 per share. During
the fourth quarter of 1999, these promissory notes were converted to 2,750
shares of Series A preferred stock. As of September 30, 2000, $20,625 of accrued
interest related to these promissory notes is unpaid.
In July and August of 1999, the Company's subsidiary, Fragrancedirect.com, Inc.
("Fragrance") issued 10% promissory notes aggregating $160,000. The notes are
due the earlier of one year or the completion of an initial public offering of
Fragrance common stock. In addition, Fragrance issued to the note holders an
aggregate of 96,000 two-year warrants to purchase Fragrance common stock at
$3.50 per share. As of September 30, 2000, $18,667 of accrued interest related
to these promissory notes is unpaid.
7
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
NOTE 4- LOANS PAYABLE - OFFICER:
In April 1998, the Company's Chairman, President and Chief Executive Officer,
provided the Company with a revolving credit line with a maximum of $500,000
available. In September 1998, the Board of Directors of the Company authorized
an increase in this line to $610,000 and in November and December 1998, further
increases to $1,000,000, were authorized. Loans drawn under this line bear
interest at a rate of 9% per annum from the date they are made to the Company
and are payable by May 2001, provided, however, that if the Company raises gross
proceeds in an IPO of at least $1,500,000, the entire outstanding amount and
accrued interest will be repaid from the proceeds from the IPO. In January 2000,
the Company borrowed an additional $4,000 and repaid $20,000 and $1,500 of such
loans and accrued interest on such loans, respectively. In February 2000, the
principal and accrued interest of $432,844 and $65,907, respectively, were
converted into an aggregate of 110,000 shares of the Company's common stock.
NOTE 5 - LICENSE AGREEMENT:
The Company owes model Claudia Schiffer $275,000 in connection with the second
year royalty payment per her agreement. During the second quarter of 2000, an
arbitrator in the Tyra Banks litigation awarded Ms. Banks $128,000, plus
interest on this amount at 12% from April 1, 1998. In addition, the Company is
to pay the arbitrator fee and the administrative expenses of the arbitrator. The
Company has accrued $183,213 related to this judgment in the accompanying
financial statements.
The Company entered into an agreement with a company controlled by Downtown
Julie Brown to give the Company her services for weekly radio shows to air on
weekends. The Company is obligated to pay her $100,000 annually for one year
plus give her 10,000 shares of common stock.
The Company entered into a website license agreement with country music artist
Chely Wright to give the Company an exclusive license for an area on the
Company's on-line Fashionwindow.com Internet service and to use her name and
likeness in the creation and promotion of the Internet service. Chely Wright
will be the sole country artist associated with Fashionwindow.com Internet
service for the term of the agreement, which is two years with an option to
renew for two additional one-year terms. In connection with this contract, the
Company has issued to Ms. Wright, 12,500 shares of the Company's common stock
and is obligated to issue her an additional 12,5000 shares of common stock on
the contract's first anniversary.
8
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PTN MEDIA, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
NOTE 5 - LICENSE AGREEMENT, continued:
The Company entered into a website license agreement with pop music artist Mandy
Moore to give the Company a license for an on-line Internet service and to use
her name and likeness in the creation and promotion of the Internet service. The
term of the agreement is for one year and maybe renewed on the first anniversary
for an additional year if certain conditions are met. In connection with this
agreement, the Company has issued to a company controlled by Ms. Moore and Ms.
Moore's agent 31,000 and 3,100 shares of the Company's common stock,
respectively. If the common stock issued in connection with this agreement has
not been sold as of the first anniversary and the value of such common stock at
the first anniversary is less than $100,000 and $10,000 respectively, then the
Company is required to issue additional common stock such that the total value
of all common stock held by Ms. Moore and Ms. Moore's agent is not less than
$100,000 and $10,000 respectively.
The Company entered into a host agreement with a company controlled by Daisy
Fuentes for Ms. Fuentes to host "The Style Minute with Daisy Fuentes." The term
of the agreement is for one year following the first airing of the program. In
connection with this agreement, the Company is obligated to pay $37,500 at the
signing of the agreement and $37,500 three months following the signing of this
agreement. These two payments are advances against future royalties. Ms. Fuentes
will also receive a royalty of 50% of gross proceeds received by the Company in
connection with the services of Ms Fuentes.
NOTE 6 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the weighted average
number of common shares outstanding during each period presented according to
the standards of SFAS No.128 "Earnings Per Share" ("SFAS 128").
9
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Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion and analysis should be read in conjunction
with our consolidated financial statements and related notes for the year ended
December 31, 1999 included in our Annual Report on Form 10-KSB and the financial
statements and related notes appearing elsewhere in this report.
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Shareholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, our ability to fully establish our proposed
websites, our ability to produce and syndicate our radio shows and our ability
to conduct business with Palm, Inc. Although we believe the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements contained in the report will prove to be
accurate.
Overview
We are an interactive media content provider of branded content and
commerce opportunities using a combination of new and traditional media. We
produce "Fashionwindow.com" (www.fashionwindow.com), which is designed to be the
leading online destination for fashion, style and beauty content, commerce and
community. We also provide this content through two nationally syndicated radio
programs: "The Style Minute with Daisy Fuentes" and "The Julie Show" hosted by
Downtown Julie Brown. We also plan to provide similar content on our planned
website, Claudiaschiffer.com (www.claudiashiffer.com) hosted by well-known model
Claudia Schiffer.
Our Websites
Fashionwindow.com provides original editorial materials prepared by
staff and freelance writers. It also offers exclusive and original photography.
The site recently entered into two new celebrity relationships to enhance our
ability to offer new content. Country music artist Chely Wright signed an
exclusive agreement with us on March 29, 2000 to give Fashionwindow.com
exclusive rights to fashion news and images related to her public activities.
Chely Wright will be the sole country artist associated with Fashionwindow.com
Internet service for the term of the agreement, which is two years with an
option to renew for two additional one-year terms. In connection with this
contract, we issued to Ms. Wright, 12,500 shares of the Company's common stock
and we are obligated to issue her an additional 12,500 shares of common stock on
the contract's first anniversary.
We entered into a website license agreement with teenage artist and MTV
personality Mandy Moore. Pursuant to such agreement, Ms. Moore grants to us a
license for an on-line Internet service and to use her name and likeness in the
creation and promotion of
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the website. The agreement also provides that Ms. Moore is to provide us with
exclusive fashion, news, behind the scenes looks and fashion tips and advice.
The term of the agreement is for one year and may be renewed on the first
anniversary for an additional year if certain conditions are met. In connection
with this agreement, we issued to a company controlled by Ms. Moore, and Ms.
Moore's agent 31,000, and 3,100 shares of our common stock, respectively. If the
common stock issued in connection with this agreement has not been sold as of
the first anniversary and the value of such common stock at the first
anniversary is less than $100,000 and $10,000, respectively, then we are
required to issue on the first anniversary additional common stock such that the
total value of all common stock held by Ms. Moore and Ms. Moore's agent is not
less than $100,000 and $10,000, respectively.
Fashionwindow.com generates revenues through various means. It sells
banner advertising on a cost per thousand impressions basis. It generates
transactional revenues paid by online retailers and rent paid by online
retailers for placement in the shops at Fashionwindow.com. It also generates
revenue from third party application providers via bounties and commissions.
There can be no assurance that Fashionwindow.com will continue to generate
revenues or that it will ever result in net income.
We recently completed work on the website Claudiaschiffer.com and are
awaiting final approval from Ms. Schiffer to place it for general viewing on the
public Internet. In addition to a large collection of photographs of Ms.
Schiffer, the site is expected to be a destination for an audience interested in
fashion, style, and beauty using Ms. Schiffer as a host and guide. The site
features notes from her, diet and fitness news from her trainer, and fashion and
shopping news from a leading fashion stylist.
We created a new subsidiary in July 1999, Fragrancedirect.com, Inc. and
recently launched the website Fragrancedirect.com (www.fragrancedirect.com). On
this website we offer colognes, perfumes and other fragrances direct to Internet
users. The site will be promoted through hyper-links from our affiliated
websites. We currently offer a variety of popular fragrances at prices that are
generally lower than prices in traditional non-internet retailers. Brands
currently available on our site include Ralph Lauren, Chanel, Tommy Hilfiger,
Liz Clairborne, and Calvin Klein. There can be no assurance that we will
generate any revenues from the website. In addition, we are aware of at least
two similar websites attempting to compete for the on-line fragrance business.
Our Syndicated Radio Shows
We produce "The Style Minute with Daisy Fuentes" for national radio.
The show is hosted by Daisy Fuentes, a well-known celebrity, and currently airs
on 13 stations. The show is a daily, one-minute news or tip of the day targeted
at women. We make its content available free to radio stations in exchange for
the right to include a 30 second commercial spot within the body of the program.
In addition to the commercial advertisement featuring a third party, the show
also carries a commercial message for Fashionwindow.com. The term of the
agreement with Ms. Fuentes is for one year
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following the first airing of the program. In connection with this agreement, we
are obligated to pay $37,500 at the signing of the agreement and an additional
$37,500 within three months. These two payments are advances against future
royalties. Ms. Fuentes will also receive a royalty of 50% of gross proceeds
received by the Company in connection with the services of Ms Fuentes.
We also produce "The Julie Show" hosted by Downtown Julie Brown. The
Julie Show airs live from Los Angeles every Sunday evening between 10 p.m. and
12 a.m. Eastern Standard Time. The show features a live discussion of
entertainment, fashion, and celebrity news. It currently airs on 2 stations. We
make this show available without charge to stations in exchange for 12 minutes
of commercial time. The show also serves to drive traffic back to our websites
via commercial spots and mentions of the site by the host, Julie Brown. We are
obligated to pay Ms. Brown $100,000 annually for one year plus issue to her
10,000 shares of common stock.
Our Proposed Business with Palm, Inc.
In addition to our websites and radio syndication programs, we have
recently entered into a relationship with Palm, Inc., the maker of handheld
computing devices, to create a branded Claudia Schiffer handheld device based on
the Palm Vx model. We have also entered into several relationships to develop
and promote Palm software and accessories in conjunction with our efforts
relating to the planned Claudia Schiffer Palm.
We have obtained from Ms. Schiffer the right to use her name, likeness
and image on the planned handheld device. We plan to sell the devices through
the Claudiaschiffer.com site and potentially other sites that sell electronics.
We are also in discussion with other celebrities and Palm, Inc. regarding
similar branded celebrity handheld computing devices.
Liquidity and Capital Resources
We have incurred net losses since our inception, of $6,404,769. We may
be unable to continue in existence unless we are able to arrange additional
financing. We have not yet generated any significant revenues and are still
considered in the development stage. Through September 30, 2000, cumulative
revenues totaled $22,993. We continue to incur costs associated with the
development of our websites.
In April 1998, our Chairman, President and Chief Executive Officer
provided us with a revolving credit line with a maximum of $500,000 available.
In September 1998, our Board of Directors authorized an increase in this line to
$610,000 and in November and December 1998, further increases to $1,000,000,
were authorized. Loans drawn under this line bear interest at a rate of 9% per
annum from the date they are made to us and are payable by May 2001, provided,
however, that if we raises gross proceeds in an IPO of at least $1,500,000, the
entire outstanding amount and accrued interest will be repaid from the proceeds
from the IPO. In February 2000, the principal and accrued
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interest of $432,844 and $65,907, respectively, were converted into an aggregate
of 110,000 shares of our common stock.
On September 18, 1998, the Securities and Exchange Commission declared
effective our Registration Statement concerning an Initial Public Offering
("IPO") of 400,000 shares of common stock, which we hoped would generate
proceeds of approximately $1,600,000. This IPO expired on January 31, 1999. As
of December 31, 1998, we had completed the sale of 66,900 shares of common stock
and in February 1999, closed on the sale of an additional 62,000 shares of
common stock, realizing aggregate net proceeds of $326,596. The net proceeds
from this offering, along with bridge loans received in 1997, have been used to
satisfy our obligations under the License Agreements entered into with the
fashion models.
During 1999, we issued 190,000 shares of common stock for professional
services valued at $637,500. We also issued 200,000 warrants to purchase shares
of common stock for professional services valued at $200,000 and we issued
25,000 options to purchase shares of common stock for legal fees valued at
$25,000. During the second quarter of 2000 we issued 25,000 shares of common
stock for services valued at $185,625.
In March 1999, we completed the sale of 5.5 units, each unit consisting
of a $50,000 promissory note, bearing interest at an annual rate of 10%, and
warrants to purchase 10,000 shares of common stock at $7.50 per share. During
the second quarter of 1999, we completed the sale of 2,400 shares of Class A
Preferred Stock in a private offering of such securities, generating net
proceeds of $216,000. The purchasers of these securities also received two-year
warrants to purchase 5,000 shares of common stock for every $25,000 of Preferred
Stock purchased at an exercise price of $7.50. The preferred shares accumulate
dividends at the rate of $10 per share per annum and are convertible to common
shares at the option of the holders.
During the fourth quarter of 1999, we issued 402,500 shares of common
stock in a series of private placement offerings for aggregate proceeds of
$737,500. In addition, in February 2000 we issued 182,000 shares of common stock
in a private placement offering for aggregate proceeds of $910,000.
In July and August of 1999, our subsidiary Fragrancedirect.com, Inc.
("Fragrance") issued 10% promissory notes aggregating $160,000. The notes are
due the earlier of one year or the completion of an initial public offering of
Fragrance common stock. In addition, Fragrance issued to the note holders an
aggregate of 96,000 two-year warrants to purchase Fragrance common stock at
$3.50 per share. In addition during the second and third quarters of 2000,
Fragrance sold 210,000 and 200,000 shares of its common stock at $2.50 per share
for gross proceeds of $525,000 and $500,000, respectively.
13
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We may determine, depending on the opportunities available to it, to
seek additional equity or debt financing to fund the cost of its operations.
There can be no assurance that additional financing will be available to us on
commercially reasonable terms, or at all. In the event that we are unable to
raise additional funds, we could be required to either substantially reduce or
terminate our operations.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an
entity controlled by Ms. Banks, made a Demand for Arbitration against the
Company under the Commercial Arbitration Rules of the American Arbitration
Association. Ms. Banks' attorneys alleged that the Company failed to make timely
payments of money due upon the execution the Website License Agreement and
Calendar Agreement between Ms. Banks and the Company ("Agreements"), and refused
to return photographs, pictures, prints, negatives and images of Ms. Banks. Ms.
Banks sought damages under the Calendar Agreement in the amount of $161,333,
damages under the Website Agreement of $370,000 and legal fees. On January 15,
1999, the Company, through its attorneys, filed an Answer and Counterclaim to
Ms. Banks' Demand for Arbitration. The Company raised several defenses to Ms.
Banks' claims and claimed a breach by Ms. Banks and Bankable, Inc. of the
Website Agreement. The Company sought the amount of $264,000 in damages related
to the Agreements. A preliminary administrative conference was held on January
19, 1999, and a hearing was held in October 1999 and the Company filed briefs on
March 6, 2000 in response. In June, 2000 the arbitrator awarded Ms. Banks
$128,000, plus interest on this amount at 12% from April 1, 1998. In addition,
the Company is to pay the arbitrator fee and the administrative expenses of the
arbitrator. The arbitrator reaffirmed the award in August, 2000. The Company has
accrued $183,213 related to this judgment in the accompanying financial
statements.
Item 2. Change in Securities and Use of Proceeds
In September 2000, the Company sold 150,000 shares of its common stock
to a single investor in a private placement pursuant to Section 4(2) of the
Securities Act of 1933, as amended, for gross proceeds of $500,000.
Item 3. Defaults Upon Senior Securities
None
14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On August 15, 2000 the Company held its annual shareholder meeting at
which time the following proposals were voted upon by the shareholders.
<TABLE>
<CAPTION>
Proposal 1: Election of Director:
FOR AGAINST ABSTAIN
<S> <C> <C>
Peter Klamka 3,430,332 0 0
<CAPTION>
Proposal 2: To change the Company name to Fashionwindow.com, Inc.:
FOR AGAINST ABSTAIN
<S> <C> <C>
1,386,158 2,044,174 0
<CAPTION>
Proposal 3: To approve the Company's 2000 Stock Option Plan:
FOR AGAINST ABSTAIN
<S> <C> <C>
2,679,947 11,100 3,100
<CAPTION>
Proposal 4: To ratify the appointment of Merdinger, Fruchter, Rosen & Corso,
P.C. as the Company's independent auditors for the fiscal year ending December
31, 2000:
FOR AGAINST ABSTAIN
<S> <C> <C>
3,429,332 0 1,000
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
<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.
PTN Media, Inc.
By: /s/ Peter Klamka
--------------------
Peter Klamka
Chief Executive and Principal
Accounting Officer
Date: November 14, 2000
