<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY___, 2000
REGISTRATION NO. 333-96103
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------
PTN MEDIA, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
7371
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
98-3833990
(I.R.S. EMPLOYER IDENTIFICATION NO.)
2750 S. STATE STREET
ANN ARBOR, MICHIGAN 48104
(734) 327-0579
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
-------------------------------------
PETER KLAMKA
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PTN MEDIA, INC.
2750 S. STATE STREET
ANN ARBOR, MICHIGAN 48104
(734) 327-0579
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
================================================================================
COPY TO:
HANK GRACIN, ESQ.
LEHMAN & EILEN LLP
50 CHARLES LINDBERGH BLVD. - SUITE 505
UNIONDALE, NEW YORK 11553
TELEPHONE: (516) 222-0888
FACSIMILE: (516) 222-0948
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Share Price Fee (1)
- ----------------------------------- -------------------- ------------------ ------------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per 711,100 Shs (2) $ 6.25 (3) $4,444,375 $1,235.54
share
Common Stock, par value $.001 per 109,000 Shs(4) $ 5.00 (5) $545,000 $151.51
share
Common Stock, par value $.001 per 109,000 Shs(6)(7) $6.25 (8) $681,250 $189.39
share
Common Stock, par value $.001 per 45,000 Shs (9)(7) $6.25 (8) $281,250 $78.19
share
Common Stock, par value $.001 per 148,892 Shs (10)(7) $4.50 (8) $670,014 $186.26
share
Common Stock, par value $.001 per 200,000 Shs (11)(7) $6.25 (8) $1,250,000 $347.50
share
TOTAL $7,871,889 $2,188.39
==================================== =================== ================== ========================= =================
</TABLE>
(1) Fees are calculated by multiplying the aggregate offering price by
.000278.
(2) Represents 110,000 shares issued to Peter Klamka, the Registrant's
Chairman and Chief Executive Officer, in satisfaction of loans made by
Mr. Klamka to the Registrant currently totalling $548,500, 405,000
shares issued in private placements by the Registrant in October and
November of 1999, 90,000 shares issued to certain outside consultants
to the Registrant, 6,100 shares issued in connection with a loan to
the Registrant and 100,000 shares issued in a private placement of the
Registrant in February 2000.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low trading prices of the common
stock of the Registrant on the NASDAQ Bulletin Board on February 1,
2000.
(4) Issuable upon conversion of 5,450 of the Registrant's Class A
Convertible Preferred Shares.
(5) Each share of Class A Convertible Preferred Share is convertible into
the Registrant's common stock at $5.00 per share of common stock.
(6) Issuable upon exercise of 109,000 warrants issued in connection with
the Registrant's issuance of its Class A Convertible Preferred Shares.
(7) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, this Registration Statement also covers such indeterminable
additional shares as may become issuable as a result of anti-dilution
adjustment in accordance with the terms of the warrants.
(8) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) promulgated under the Securities Act of 1933,
as amended.
(9) Issuable upon exercise of 45,000 warrants issued in July 1997.
(10) Issuable upon exercise of 148,892 warrants issued in August 1998.
(11) Issuable upon exercise of warrants issued in 1999 to an outside
consultant of the Registrant.
<PAGE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
-----------------------
PTN MEDIA, INC.
1,322,992 Shares of Common Stock
----------------
This prospectus covers the sale of 1,322,992 of our shares of common
stock. The shares are being offered by the selling stockholders.
----------------
Our common stock is listed on the NASDAQ Bulletin Board under the
symbol "PTNN". The last reported sale of our common stock on February 1, 2000 on
the NASDAQ Bulletin Board was $7.00 per share.
The common stock may be sold by the selling stockholders directly or
through underwriters, dealers or agents in market transactions or privately
negotiated transactions.
This investment involves risks. See "Risk Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------
<PAGE>
Prospectus dated February 14, 2000
2
<PAGE>
[Photos of our websites.]
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in
this prospectus. It is not complete and may not contain all of the information
that is important to you. To understand this offering fully, you should read the
entire prospectus carefully. Investors should carefully consider the information
set forth under the heading "Risk Factors." In this prospectus, the terms "PTN
Media", "we", "us" and "our" refer to PTN Media, Inc. and its subsidiaries.
PTN Media, Inc.
Our Company
We are an interactive media content provider of branded content for
defined target audiences 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 plan to provide similar content on web sites hosted by well
known models and celebrities, including well-known model Claudia Schiffer.
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.
We are currently producing, and intend to launch in the first quarter
of this year, claudiaschiffer.com (www.claudiaschiffer.com). We have the
exclusive license to use Ms. Schiffer's name and likeness in connection with
this web site.
We also plan to repackage our online content for use in radio,
television, print and software.
The Internet Industry
The Internet industry has grown substantially since its inception.
According to industry data:
o there are currently 196 million people on the
Internet worldwide.
o more than $21 billion in Internet revenue was
generated in 1999 in the United States alone.
o United States internet revenue is expected to
increase to over $95 billion by 2001.
o By 2003, more than 500 million customers are expected
to be shopping on-line.
Our Business Strategy
Similar to other web site operators, we have recognized the growing
commercial opportunities presented by the Internet and the World Wide Web, which
we believe is emerging as a global marketplace for the transaction of business.
Our strategy is to take advantage of many of these commercial outlets by
producing web sites with content that is of great appeal to our targeted
audience and attract advertisers desiring to reach this audience.
Our initial web site, fashionwindow.com, focuses on fashion, beauty,
style, fitness and related subjects, and offers several features, such as daily
updated fashion editorials, entertainment coverage (e.g. movie, television and
book reviews) and diet tips. We intend to add celebrities as hosts of
fasionwindow.com.
4
<PAGE>
We also plan to develop web sites featuring popular fashion models,
many of whom, such as Claudia Schiffer, are commonly referred to as
"supermodels" in publications and other media. We then plan to generate revenue
through all our web sites by:
o the sale of banner advertisements and sponsorships on
our web sites to advertisers targeting consumers with
similar demographic characteristics as visitors to
our web sites;
o direct response marketing of related products and
services through arrangements with third parties;
o sales of downloadable electronic and paper calendars
featuring host models;
o licensing of proprietary content and intellectual
property rights to third parties; and
o subscription and membership online chat services.
Our ability to implement this strategy will continue to be affected by
our ability to raise necessary funds.
We plan to advertise and promote our web sites through various forms of
media. We also plan to purchase banner advertisements on search engines on the
World Wide Web, on a limited basis, as well as enter into advertising barter
arrangements with other web sites. We further intend to promote our web sites
through advertising and promotional spots contained within our-sponsored radio
programs and by advertising in selected publications. We also will arrange for
the promotion of our web sites by host models to the extent that they are not
prohibited from participating in any such promotion as a result of other
commitments. Finally, promotional advertising in connection with products
offered by us, including calendars and electronic planners, is another means by
which we intend to promote our web sites.
Although there are currently several web sites that focus on fashion
and/or models, including sites that are operated by well-known publications and
modeling agencies, we believe, although there can be no assurance, that our web
sites will have a competitive advantage over these other sites, based on the
popularity of our host models. We also believe, although there can be no
assurance, that we will be able to enter into exclusive engagements with
additional models and celebrities having significant appeal to the same targeted
users of the World Wide Web. In addition, we plan to offer an online avenue for
interactive communication covering topics such as fashion and health, with the
primary focus on our web sites' models and celebrity hosts. Our goal is to
operate the exclusive online access to select models such as Claudia Schiffer,
and to provide visitors and members with information, photos and other content
unavailable elsewhere. In the event our strategy is successful, of which there
can be no assurance, we believe that we will be one of few web site operators
that offers features relating to fashion and beauty with the quality of content
and celebrity appeal we intend to provide.
----------------------
About PTN Media, Inc.
We incorporated under the laws of the State of Delaware in January
1998, and are the surviving corporation of a merger with our predecessor
Interactive Entertainment Studio, Inc., a Nevada corporation. Our principal
executive offices are at 2750 S. State Street, Ann Arbor, Michigan 48104, and
our telephone number is (734) 327- 0579. Our Web site is www.ptnmediainc.com.
This prospectus does not incorporate by reference any information on our Web
site.
5
<PAGE>
The Offering
Common stock outstanding before this offering 3,790,562 shares
Common stock offered by selling stockholders 1,322,992 shares
Common stock to be offered by us....................... 0 shares
Common stock to be outstanding after this offering..... 3,790,562 shares
Use of proceeds........................................ All of the shares
offered by this
prospectus are being
offered by the selling
stockholders. We will
not receive any
proceeds from these
sales of our stock.
OTC Bulletin Board symbol.............................. PTNM
Unless otherwise indicated, all information in this prospectus
excludes:
o 258,000 shares issuable upon the exercise of
warrants to acquire our common stock that were
outstanding as of February 1, 2000.
o 165,000 shares issuable upon the exercise of
presently exercisable options to acquire our common
stock that were granted pursuant to our 1998 Option
Plan.
-------------------------
6
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Period Nine Months Ended
May 27, 1997
(Inception) to Fiscal Year Ended
December 31, 1997 December 31, 1998 September 30,1998 September 30,1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES................................. $- $4,488 $- $13,488
--------- ---------- --------- ---------
EXPENSES
Cost of Revenues....................... 150,000 1,578,728 200,000 52,923
Product Development.................. 29,630 452,458 371,615 293,440
General and administrative........... 79,387 275,277 212,434 267,393
--------- ---------- --------- ---------
TOTAL EXPENSES 259,017 2,306,463 784,049 613,756
--------- ---------- --------- ---------
LOSS FROM OPERATIONS (259,017) (2,301,975) (784,049) (600,268)
--------- ---------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense....................... (2,250) (27,144) (23,755) (50,682)
Interest income........................ - 39 177 --
--------- ---------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) (2,250) (27,105) (23,578) (50,682)
--------- ---------- --------- ---------
NET LOSS.................................
$ (261,267) $(2,329,080) $(807,627) $(650,950)
========= =========== ========= =========
BASIC LOSS AND DILUTED LOSS PER
COMMON SHARE
$ (.09) $(0.75) $(0.27) $(0.19)
===== ====== ====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
3,041,680 3,097,777 3,041,680 3,432,995
========= ========= ========= =========
<CAPTION>
BALANCE SHEET DATA:
As of
December 31, 1997 December 31, 1998 September 30, 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................... $ 20,134 $ 702 $ 12,208
Accounts receivable .................. - 4,488 -
Due from Shareholders.................. 2,957 - -
------- -------- ----------
TOTAL CURRENT ASSETS 23,091 5,190 12,208
FIXED ASSETS - NET 1,984 3,626 24,497
OTHER ASSETS - 690 690
------- -------- ----------
$25,075 $9,506 $37,395
======= ======== ===========
TOTAL CURRENT LIABILITIES $282,385 $987,565 $1,171,911
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock, par value $0.01;
1,000,000 shares authorized,...........
Common Stock, par value $.001; - - 24
10,000,000 shares authorized, ........
Additional paid-in capital............. 2,967 3,378 3,440
Deficit accumulated during the 990 1,608,910 2,103,317
development stage .....................
(261,267) (2,590,347) (3,241,297)
--------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY (257,310) (978,059)
(DEFICIT)
(1,134,516)
-----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) $25,075 $9,506 $37,395
======= ====== -------
</TABLE>
7
<PAGE>
RISK FACTORS
Investing in our common stock is very risky. You should be able to bear
a complete loss of your investment. You should carefully consider the following
risks, among others.
We have an accumulated deficit and anticipate further losses.
We have incurred significant losses since we began doing business.
There can be no assurance that our services and products will ever generate
sufficient revenues or that our operations will ever be profitable. As of
September 30, 1999, we had an accumulated deficit of $3,241,297. We expect to
incur operating losses for the foreseeable future due to the significant
expenses which we expect to incur in the continued development and marketing of
fashionwindow.com, the development and marketing of our proposed web site
claudiaschiffer.com as well as expenses related to any additional sites that we
develop. These expenses include substantial advance royalty payments that we
have agreed to make to Ms. Schiffer. Additionally, to the extent that we engage
additional models and/or celebrities for our web sites, we will most likely be
required to pay advance royalties to those persons.
We have generated extremely limited revenues to date from our
fashionwindow.com web site, and there can be no assurance that we will ever
generate revenues from this web site or from any other business we conduct.
These initial revenues have been generated primarily from advertising placed on
fashionwindow.com. We also expect to significantly increase our operating
expenses to expand our sales and marketing operations, to fund greater levels of
product development, and to develop other forms of revenue- generating business,
such as direct response sales, licensing of our proprietary materials to others,
and celebrity chat clubs.
We received an opinion from our accountants for the period ended December 31,
1998 which raised doubt about our ability to continue after such date as a going
concern.
Our consolidated financial statements for the year ended December 31,
1998, which are included in this prospectus, indicate that there was substantial
doubt as of December 31, 1998 about our ability to continue as a going concern
due to our need to generate cash from operations and obtain additional
financing.
We need to raise additional funds to fund our business operations.
We need to raise additional funds because our cash flows have proven to
be insufficient to fund operations. There can be no assurance that additional
financing will be available to us on commercially reasonable terms, or at all.
We may raise funds through equity or debt financings, depending on our
opportunities. If we raise additional funds by issuing equity securities, this
will further dilute the interests of our current stockholders. If we raise
additional funds by issuing debt securities, we will be subject to the risks
associated with incurring substantial indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. We have no current arrangements with
respect to, or sources of, additional financing, and it is not anticipated that
our existing stockholders will provide any portion of our future financing
requirements.
We depend on license agreements with models to attract users to our web sites.
We plan that a principal attraction of our web sites will be celebrity
models who host our web sites. In the event we are unable to retain the services
of a sufficient number of celebrities to host our web sites, or maintain the
services of such celebrities for an extended period of time, it is highly
unlikely that our web sites will attract the number of users required to obtain
significant advertising and merchandisers.
8
<PAGE>
In addition, the success of our web sites will be highly dependent on
the continued popularity of the celebrity models who host the sites. In the
event that the popularity of any such celebrity model fades in the public eye,
including for among other reasons, disclosure of allegedly illegal or immoral
acts by such celebrity model, we will in all likelihood find it necessary to
terminate our relationship with that celebrity model. This could adversely
effect our business because a suitable replacement may not be available on a
timely basis and on mutually agreeable terms and conditions.
We may not be successful in an arbitration filed by Tyra Banks. This could have
a material adverse effect on our business.
On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an
entity controlled by Ms. Banks, made a Demand for Arbitration against us under
the Commercial Arbitration Rules of the American Arbitration Association. There
can be no assurance that we will be successful in this arbitration and an
unfavorable settlement or result in this matter could have a material adverse
affect on us. Ms. Banks' attorneys alleged that we failed to make timely
payments due upon the execution of the Web Site License Agreement and Calendar
Agreement between Ms. Banks and us. Ms. Banks is seeking $153,000 plus interest
and other damages. On January 15, 1999 we, through our attorneys, filed an
Answer and Counterclaim to Ms. Banks' Demand for Arbitration. We raised several
defenses to Ms. Banks' claims and claimed a breach by Ms. Banks of the
Agreements. We are seeking $100,000 plus additional damages relating to the
advance payment made by us to Bankable, Inc. A hearing was held in October 1999
and we filed briefs in response and are awaiting the arbitrator's decision.
In the event that we fail to attract advertising customers, lose customers after
they have been retained, or we are forced to reduce advertising rates in order
to retain or attract advertisers, our business, results of operations and
financial condition could be materially and adversely affected.
We derive substantially all our revenues from the sale of
advertisements on our web sites and expect this trend to continue through 2000.
Our ability to generate advertising revenues will depend upon, among other
factors, the acceptance of our web sites as attractive and sustainable media,
the development of a large audience of users of our web sites and the effective
development of media properties that provide user demographic characteristics
that will be attractive to advertisers. Existing advertising placement contracts
are for relatively short terms, generally three months or less, and are
terminable by advertisers at any time on very short notice. Consequently, our
advertising clients will be able to eliminate or move their advertising to
competing Internet sites or from the Internet to traditional media, quickly and
at low cost.
There is currently intense competition in the sale of advertising on
the Internet. This competition has resulted in a wide range of advertising rates
for a variety of advertising services, making it difficult to project future
levels of Internet advertising revenues which may be realized by us or any of
our competitors. Competition among current and future web sites, as well as
competition from traditional media for advertising placements, could result in
significant price competition and reductions in our projected advertising prices
and revenues.
In the event that we are unable to generate significant revenues from any
sources other than advertising placements, our business, results of operations
and financial condition could be materially and adversely affected.
Our ability to expand our business is also dependent upon our success
in generating significant revenues from sources other than advertising
placements on our web sites. We intend to enter into direct marketing
arrangements with a variety of businesses in connection with the sale of their
products and services
9
<PAGE>
on our web sites. There can be no assurance that we will be able to enter into
such arrangements or create and maintain revenue from such arrangements.
If our web sites, including their content, are not accepted, or develop
more slowly than expected, or the market becomes saturated with competitors, our
business, results of operations and financial condition will be materially and
adversely affected.
Our success is dependent upon our ability to deliver original and
compelling content in order to attract users. There can be no assurance that our
current web site and/or future web sites, to the extent developed and launched,
will contain content which will be attractive to a sufficient number of users to
generate advertising revenues or that we will be able to anticipate, monitor and
successfully respond to rapidly changing consumer tastes and preferences so as
to attract a sufficient number of new and repeat users to our sites. If we are
unable to do so, this will have a material adverse effect on our financial
condition. As is typical in a new and rapidly evolving industry, demand and
market acceptance for recently introduced products and services, such as our web
sites, are subject to a high level of uncertainty and risk. Because this market
is new and evolving, it is difficult to predict future growth. There can be no
assurance that we will be able to successfully develop a market for our web
sites or that demand will emerge or become sustainable.
If we are unable to develop and maintain satisfactory relationships with other
web sites or if our competitors are better able to maintain such relationships,
our business, results of operations and financial condition could be materially
and adversely affected.
Our ability to advertise on other web sites and the willingness of the
owners of such sites to direct users to our web sites through hypertext links is
critical to our operations. Search engines, directories and other navigational
tools managed by Internet service providers and web browser companies also
significantly affect traffic to our web sites. We also depend on our
relationships with third party vendors of Internet development tools and
technologies in order to develop the content required to attract users to our
web sites. Developing and maintaining satisfactory relationships with such
persons could become more difficult and expensive as competition increases among
content providers.
A security breach could result in loss of customers, damage to our reputation,
damage to our web sites, costs of repair and detection and other expenses. This
could have a material adverse effect on our business, results of operations and
financial condition.
Although we have engaged a third party, Digex, Inc. to host our initial
web site, and intend to engage third parties to host all our web sites, the
Internet infrastructure is vulnerable to computer viruses, break-ins and similar
disruptive problems by our customers and other Internet users. These factors
could lead to interruption, delays or cessation in service thereby causing harm
to our business and financial condition. In addition, unauthorized use of the
Internet could also jeopardize the security of confidential information stored
in computer systems of our customers and other parties using the Internet, which
could deter potential customers from accessing our web sites and give rise to
liability to users whose security or privacy has been infringed.
If we are unable to compete successfully with potential competitors it will have
a material adverse effect on our business, results of operations and financial
condition.
The market for Internet services and products is highly competitive and
competition is expected to continue to increase significantly in the future. In
addition, we expect the market for web-based advertising to be intensely
competitive.
10
<PAGE>
There can be no assurance that we will ever be able to compete
successfully with potential competitors or that the competitive pressures faced
by us will not have a material adverse effect on our business, results of
operations and financial condition. There are no significant barriers to
developing web sites, and we expect competition to continue to grow. We compete
with a significant number of web content providers, several of which offer
competitive services and/or products, and address certain of our target markets,
including, among others, Women's Wire, Elle Magazine, Ford Models, Inc. and
Pataxi Entertainment Network, Inc. (operator of supermodel.com). Many of these
competitors have significantly greater financial, technical and marketing
resources than us, and include companies that are larger and better capitalized
than us. These competitors may also have expertise and established brand
recognition in the Internet market. There can be no assurance that our
competitors will not develop Internet services and products that are superior to
those currently offered or contemplated by us or that they will not achieve
greater market acceptance than our contemplated services and products. In
addition, we compete with these competitors, online services and other web site
operators, for the same sources of advertising and direct marketing revenue.
Our web site competes with (and any future developed web sites will
compete with) other forms of media, such as television, radio and print media,
many of which provide services and products that are similar to those which we
currently provide and also intend to provide through our web sites. Although
traditional media outlets do not offer many of the interactive features
available through the Internet (such as online chat rooms and E-mail), there are
numerous publications, as well as television and radio programs, which provide
editorial content similar to that which we provide on our web site, as well as
articles and features on fashion, beauty, health and celebrities. We also will
compete with these traditional media outlets for advertising revenue and direct
marketing revenue.
Although we believe that there exists a large share of advertising
dollars available to us and other web site operators, as well as several other
commercial opportunities for the generation of revenues through our contemplated
web sites, competition among current and future web sites, as well as
competition with other forms of media for advertising placements, could result
in significant price competition and reductions in advertising revenues.
The loss of our Chief Executive Officer's services would have a material adverse
effect on us.
Our success will be largely dependent on the efforts of Peter Klamka,
our Chairman, President and Chief Executive Officer, and his ability to forge
new relationships with celebrity models and to maintain such relationships, as
well as to oversee the development and maintenance of our web sites and other
services and products. Our success will also be highly dependent on Mr. Klamka's
ability, as well as the ability of others employed by us, to obtain advertising
placements consistent with the demographic characteristics of the users of our
web sites. The loss of his services would have a material adverse effect on our
business and prospects.
We have not entered into an employment agreement with Mr. Klamka and
Mr. Klamka has not entered into any agreement restricting his involvement in a
business which competes with us. As a result, Mr. Klamka is an employee-at-will
and has the right to leave us at any time. Mr. Klamka has informed us that he
intends to devote a substantial portion of his working time to our business and
that he also intends to devote a portion of his time to other business interests
that do not compete with our business. In addition, Mr. Klamka is not restricted
from entering into a competing business after the term of his employment with
us; provided, however, that he would not be permitted to use proprietary
information and trade secrets belonging to us. Our success will also be
dependent upon our ability to hire and retain qualified writers, editors and
technical personnel, as well as qualified marketing, financial and other
personnel. Competition for qualified personnel is intense and there can be no
assurance that we will be able to hire or retain additional qualified personnel.
11
<PAGE>
FORWARD LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements.
In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "could", "expects", "plans",
"anticipates", "believes", "estimates", "predicts", "potential", or "continue"
or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
USE OF PROCEEDS
Proceeds from the sale of the shares of common stock being registered
hereby will be received directly by the selling stockholders. Accordingly, we
will not receive any proceeds from the sale of the shares.
DIVIDEND POLICY
We have not paid any cash or other dividends on our common stock since
our inception and do not anticipate paying any such dividends in the foreseeable
future. We intend to retain any earnings for use in our operations and to
finance the expansion of our business.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the NASDAQ Bulletin Board under the
symbol "PTNN" since March 29, 1999. On February 1, 2000, the last reported sale
price on the NASDAQ Bulletin Board was $7.00 per share. As of February 1, 2000,
there were approximately 70 record holders of our common stock.
The following table sets forth the range of high and low closing prices
for our common stock for each quarterly period indicated, as reported by brokers
and dealers making a market in the capital stock. Such quotations reflect
inner-dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
Price Range
-----------
High Low
---- ---
Calendar Year 1999
Fourth Quarter.......................................... $7.50 $1.50
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Calendar Year 2000
First Quarter (through February 1, 2000)................ $8.00 $5.00
SELLING STOCKHOLDERS
We have agreed to register the public offering of the selling
stockholders' shares of common stock under the Securities Act and to pay all
expenses in connection with such registration, other than brokerage commissions
and discounts in connection with the sale of the common stock and the expenses
of counsel.
The following table sets forth the names of the selling stockholders,
the number of shares of common stock owned beneficially by each of the selling
stockholders as of February 1, 2000, the number of shares which may be offered
for resale pursuant to this prospectus and the number of shares of common stock
owned beneficially by each of the selling stockholders after the offering. No
selling stockholder has any affiliation with PTN Media, Inc. or its officers,
directors, promoters or principal shareholders except as noted.
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The information included below is based upon information provided by
the selling stockholders. Because the selling stockholders may offer all, some
or none of their common stock, no definitive estimate as to the number of shares
that will be held by the selling stockholders after such offering can be
provided and the following table has been prepared on the assumption that all
shares of common stock offered under this prospectus will be sold.
<TABLE>
<CAPTION>
Amount and Nature of Shares Benefically Percent of Class
Name BeneficialOwnership (1) Shares toBe Sold OwnedAfterOffering After Offering (2)
---- ----------------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Peter Klamka 2,177,374 (3) 110,000 2,067,374 60.0%
Henry Rak 45,000 (4) 45,000 -0- -
Steven Miller 180,000 (5) 180,000 -0- -
Steven Robertson 10,000 (6) 10,000 -0- -
Leo Barrett 4,000 (7) 4,000 -0- -
P. Robert Schneiderman 57,200 (8) 57,200 -0- -
G. Gordon Kakas 21,667 (9) 21,667 -0- -
Mark Simmons 30,000 (10) 30,000 -0- -
American Nortel 350,000 (10) 350,000 -0- -
Allan Carter 10,000 (10) 10,000 -0- -
Chevelton Fund Ltd. 25,000 (10) 25,000 -0- -
Loni Z. Spurkeland 5,000 (11) 5,000 -0- -
Ronald Kassover 10,000 (11) 10,000 -0- -
Daniel Shapiro 10,000 (11) 10,000 -0- -
Doug Hudson 6,667 (12) 6,667 -0- -
Larry Fritchley 1,320 (12) 1,320 -0- -
Joel Weis 6,667 (12) 6,667 -0- -
Ronald Hayek 3,334 (12) 3,334 -0- -
Timothy Farrel 7,000 (12) 7,000 -0- -
Jean Michelle Cetoute 16,667 (12) 16,667 -0- -
Curt Schwartzrock 10,000 (12) 10,000 -0- -
Judy Koczor 13,334 (12) 13,334 -0- -
Joseph Sciarotta 3,300 (12) 3,300 -0- -
Thomas R. Hechler 3,334 (12) 3,334 -0- -
Frank and Lucy Decarne 3,500 (12) 3,500 -0- -
Mary Jacobsen 6,667 (12) 6,667 -0- -
Ron Onopa 10,000 (12) 10,000 -0- -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Shares Benefically Percent of Class
Name BeneficialOwnership (1) Shares toBe Sold OwnedAfterOffering After Offering (2)
---- ----------------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Jon Allyn Bromaghim 6,667 (12) 6,667 -0- -
Barbara Sineni 3,334 (12) 3,334 -0- -
Richard M. Lochner 6,667 (12) 6,667 -0- -
Percy Laster 1,667 (12) 1,667 -0- -
Fegen & Associates 240,000 (13) 240,000 -0- -
United Capital Group 50,000(14) 50,000 -0- -
Lewis Tuller 10,000(15) 10,000 -0- -
Gene Grossman 5,000(15) 5,000 -0- -
Michael Mathieu 4,000(15) 4,000 -0- -
Paula Mathieu 4,000(15) 4,000 -0- -
John Mathieu 10,000(15) 10,000 -0- -
Mary Christensen 6,000(15) 6,000 -0- -
William E. Owens 6,000(15) 6,000 -0- -
Joseph Boyle 10,000(15) 10,000 -0- -
</TABLE>
- ----------------
(1) Under Securities and Exchange Commission rules, beneficial ownership
includes any shares as to which an individual has sole or shared voting
power or investment power. Unless otherwise indicated, we believe that
all persons named in the table have sole voting and investment power
with respect to all shares beneficially owned by them. A person is also
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date hereof upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and are exercisable
within 60 days from the date hereof have been exercised.
(2) Based on a total of 3,790,562 shares issued and outstanding as of
February 1, 2000.
(3) Includes 110,000 shares of common stock issued in January 2000 to Mr.
Klamka in satisfaction of loans made by Mr. Klamka beginning in April
1998 to PTN Media, Inc., currently totalling $548,500. Mr. Klamka is
our Chief Executive Officer and President.
(4) Consists of 10,000 shares of common stock issuable upon conversion of
500 shares of our Class A Preferred Stock, 10,000 shares of common
stock issuable upon exercise of warrants issued in connection with our
Class A Preferred Stock and 25,000 shares of common stock issued in
October 1999.
(5) Consists of 50,000 shares of common stock issuable upon conversion of
2,500 shares of our Class A Preferred Stock, 50,000 shares of common
stock issuable upon exercise of warrants issued in connection with our
Class A Preferred Stock, 50,000 shares of common stock issued in
October 1999 and 30,000 shares of common stock issuable upon exercise
of warrants issued in February 1999.
(6) Consists of 5,000 shares of common stock issuable upon conversion of
250 shares of our Class A Preferred Stock and 5,000 shares of common
stock issuable upon exercise of warrants issued in connection with our
Class A Preferred Stock.
(7) Consists of 2,000 shares issuable upon conversion of 100 shares of our
Class A Preferred Stock, and 2,000 shares of common stock issuable upon
exercise of warrants issued in connection with our Class A Preferred
Stock.
(8) Consists of 20,000 shares of common stock issuable upon exercise of
warrants issued in 1997; 6,100 shares of common stock and 6,100 shares
of common stock issuable upon exercise of warrants, issued in
connection with a loan Mr. Schneiderman made to PTN Media, Inc. in June
1999; 12,500 shares of common stock issuable upon exercise of 625
shares of our Class A Preferred Stock; 12,500 shares of common stock
issuable upon exercise of 12,500 warrants issued in connection with our
Class A Preferred Stock.
(9) Consists of 15,000 shares of common stock issued in October 1999 and
6,667 shares of common stock issuable upon exercise of warrants issued
in 1998.
(10) Consists of 250,000 shares of common stock issued in October 1999 and
100,000 shares of common stock issued in February 2000.
(11) Represents shares of common stock issuable upon exercise of warrants
issued in 1997.
(12) Represents shares of common stock issuable upon exercise of warrants
issued in 1998.
(13) Includes 40,000 shares of common stock and 200,000 shares of common
stock issuable upon exercise of warrants issued for consulting services
rendered to PTN Media, Inc. in October 1999.
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<PAGE>
(13) Includes 40,000 shares of common stock and 200,000 shares of common
stock issuable upon exercise of warrants issued for consulting services
rendered to PTN Media, Inc. in October 1999.
(14) Represents shares of common stock issued for consulting services
rendered to PTN Media, Inc. in January 2000.
(15) Represents shares of common stock issuable upon conversion of shares of
our Class A Preferred Stock and upon exercise of warrants issued in
connection with our Class A Preferred Stock.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales, except as described below;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of PTN Media, Inc. or
derivatives of PTN Media, Inc. securities and may sell or deliver shares in
connection with these trades. The selling stockholders may pledge their shares
to their brokers under the margin provisions of customer agreements. If a
selling stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
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<PAGE>
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and related notes thereto included elsewhere in
this prospectus. This prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results may differ significantly
from the results, expectations and plans discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under "Risk Factors".
Overview
17
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The Company, since its inception, has incurred net losses of $3,241,297 and at
September 30, 1999, its current liabilities exceeded its current assets by
$1,159,703. The Company may be unable to continue in existence unless it is able
to arrange additional financing to supplement its recently completed initial
public offering, bridge financing and sale of preferred stock.
The Company has not yet generated any significant revenues and is still
considered in the development stage. Through September 30, 1999, cumulative
revenues totaled $17,976, and resulted entirely from the sale of calendars (see
discussion below regarding the Claudia Schiffer Calendar Agreement). The Company
continues to incur costs associated with the development of its proposed web
sites.
Additionally, the Company has advanced $134,000 to a company controlled by
fashion model, Tyra Banks, pursuant to certain agreements between the Company
and Ms. Banks' company and has also incurred expenses of approximately $10,000,
to date, in connection with the development of the intended web site to have
been hosted by Ms. Banks and in connection with the development of calendars
featuring her. In June 1998, Ms. Banks declared the Company in breach of these
agreements based on the Company's alleged failure to pay the full amount of all
advances and reimbursable expenses allegedly owed pursuant to such agreements.
The agreement relating to the creation and sale of calendars has been
terminated. Although Ms. Banks also claims that the web site agreement has been
terminated, the Company believes that it is currently in full compliance with
this agreement, and that Ms. Banks has refused to perform thereunder. On
December 8, 1998, attorneys for Ms. Banks made a demand for arbitration against
the Company alleging that the Company failed to make timely payments of monies
due under the executed agreements, and refused to return certain materials to
Ms. Banks. Ms. Banks is seeking payment of $153,000 (which amount is recorded as
a liability on the financial statements) plus interest, as well as damages for
injury to her public reputation. 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 Web Site Agreement. A
preliminary administrative conference was held on January 19, 1999 and a hearing
was scheduled for April 23, 1999. The hearing scheduled for April 23, 1999 was
moved to June 15, 1999 due to Ms. Banks' inability to appear in April due to a
prior commitment to film a motion picture in Canada. In October 1999, the two
parties met in arbitration and are expecting a decision in January 2000.
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<PAGE>
The Company is seeking the return of $100,000, plus interest, which was paid to
Ms. Banks. The Company intends to vigorously defend itself in this arbitration,
and believes that it has meritorious defenses. However, there can be no
assurance that the Company will be successful in this arbitration and an
unfavorable result could have a material adverse effect on the Company due to
its limited resources.
The Company entered into a Web Site License Agreement with Claudia Schiffer (the
"Schiffer License Agreement") which grants the Company the exclusive license for
an on-line Internet service devoted to Ms. Schiffer. The Company has the right
to use Ms. Schiffer's name and likeness for an Internet site including a
merchandise "boutique", monthly column and interviews or on-line chat sessions.
Ms. Schiffer also would make promotional appearances and voice recordings to
promote the site and provide content for it. The Schiffer License Agreement
would continue until the year 2001. The Company would pay Ms. Schiffer
guaranteed minimum royalties of $300,000 for the first year (which amount was
paid) of the Schiffer License Agreement, $400,000 for the second year, and
$500,000 for the third year, which would be credited against earned royalties
ranging from 25% to 80% of site revenues and profits from boutique merchandise
sales.
The Schiffer License Agreement also granted to Ms. Schiffer, 269,682 shares of
common stock (the "Shares"), with the right to maintain the ratio of her common
stock ownership to that of the Company's President. The Company agreed to
indemnify Ms. Schiffer for any U.S. income tax liability resulting from the
issuance of these shares, however, the Company has been assured that Ms.
Schiffer is not a U.S. citizen or resident, and therefore is not likely to be
responsible for any such taxes.
In June 1999, the Company entered into a License Agreement with model Estella
Warren. This license provides for an on-line Internet service and downloadable
electronic calendars featuring the name and likeness of Ms. Warren. This
agreement continues until the first anniversary of the date the service is
launched and required payment of the entire fee of $30,000 at the time of
execution. Ms. Warren also receives a royalty equal to 20% of revenues received
in connection with calendar sales.
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<PAGE>
During the second and third quarters of 1999, the Company paid the entire
$30,000 to Ms.Warren.
The Company recently created a new subsidiary, Fragrancedirect.com, Inc. and
also hopes to launch "www.fragrancedirect.com," its online fragrance sales
effort, during the first half of 2000. On this web site the Company will sell
colognes, perfumes and other fragrances direct to Internet users, much in the
same way that books are sold on web sites such as "Amazon.com." The site will be
promoted through hyper-links from the Company's affiliated web sites. The
Company also intends to create mutual linking arrangements with operators of
apparel sites and to make barter arrangements for advertising. The Company
anticipates that its prices will be lower than the manufacturer's suggested
retail prices, however, not necessarily less than all retail outlets. The web
site is currently being completed.
The Company intends to obtain product liability insurance in such amounts as it
may deem appropriate to insure against any possible product liability exposure
resulting from the sale of fragrances on the web site.
There can be no assurance that the Company will generate substantial revenues
from the web site. In addition, the Company is aware of at least two similar web
sites attempting to compete for the on-line fragrance business.
Cash Requirements:
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. As of September
30, 1998, borrowings outstanding under this line aggregated $536,344. During the
nine months ended September 30, 1999, the Company repaid $38,156 of such loans
and borrowed an additional $32,000. Accrued and unpaid interest as of September
30, 1999 was $56,201.
On September 18, 1998, the Securities and Exchange Commission declared effective
the Company's Registration Statement concerning an Initial Public Offering
("IPO") of 400,000 shares of common stock, which the Company hoped would
generate net proceeds of approximately $1,600,000. This IPO expired on January
31, 1999. As of December 31, 1998, the Company 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 $335,596. The
net proceeds from this offering, along with bridge loans received in 1997, have
been used to satisfy the Company's
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obligations under the License Agreements entered into with the fashion models.
Also, during the third quarter of 1999, the Company sold shares in its newly
created subsidiary, Fragrancedirect.com, Inc. for $190,000 and on November 8,
1999, the Company sold an additional 250,000 shares of its common stock for
$500,000.
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 second quarter of 1999, the Company 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.
Since the Company raised less than the estimated maximum amount of net proceeds
available pursuant to the Initial Public Offering, the Company has insufficient
funds available for operations and would be required to seek additional
financing sooner than anticipated or curtail certain of its planned activities.
The Company 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 the
Company on commercially reasonable terms, or at all. In the event that the
Company is unable to raise additional funds, the Company could be required to
either substantially reduce or terminate its operations.
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Impact of recently issued accounting standards
In February 1999, the FASB issued SFAS No. 135, "Rescission of FASB Statement
No. 75 and Technical Corrections" and in June 1999 the FASB issued SFAS No. 136,
"Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That
Raises or Holds Contributions for Others" and SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." These statements are not applicable to the Company.
Forward looking statements
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, the ability of the Company to fully establish its web sites and
satisfactorily resolves the litigation with Ms. Banks. Although the Company
believes 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.
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OUR BUSINESS
Background on our Business
We are an interactive media content provider of branded content and
commerce opportunities for defined target audiences using a combination of new
and traditional media. Our strategy is to create content that is of great appeal
to our targeted audience and attract advertisers desiring to reach this
audience. Our initial efforts have been dedicated to content related to fashion,
style and beauty. We currently provide this content on our interactive web site
fashionwindow.com (www.fashionwindow.com). We intend to provide similar content
on claudiaschiffer.com. (www.claudiaschiffer.com), that will be hosted by the
supermodel Claudia Schiffer. We have the exclusive license to use Ms. Schiffer's
name and likeness in connection with this web site. We intend to launch this
site in the first quarter of this year.
We also intend to add celebrities to fashionwindow.com, create
additional web sites hosted by well-known models and celebrities, and provide
similar content on television, print and other forms of traditional media. We
currently market an electronic calendar featuring model Estella Warren.
Our strategy is to draw a large number of users to our web sites by
offering popular area of Web usage including current news and information on
fashion, advice on fashion and personal care, commerce opportunities, search
capabilities for additional commerce opportunities online and community
interactivity.
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We further intend to draw users to our web sites by the following
means:
o Offer free information and services: We provide information,
services, and commerce opportunities without cost or charges
to the user and make those services easily accessible.
o Develop additional licensing of our content to third parties:
We are presently party to one license of our original content
and are exploring additional opportunities to extend our
licensing to other web sites and to other media. These
relationships will enable us to develop recognition for our
content cost effectively.
o Develop value added electronic commerce: We believe that
Web-based electronic commerce for fashion, apparel and beauty
products will continue to grow as an increasing number of
consumers and businesses accept the Internet as a viable
method of purchasing these goods and services. We currently
offer a number of ways to purchase goods and services on our
sites including placement of a number of leading internet
retailers in our "Shops at FW" area, the Personal Shopper
which allows the purchases of items found in search results,
direct response via banners, and product specific purchases
through afffina Stores.
o Enhance fashionwindow.com's product offerings: We intend to
enhance and expand product offerings on fashionwindow.com with
additional content areas such as music, features, and
functionality to maintain and enhance our market position.
o Provide original and compelling targeted sites: Specific sites
such as claudiaschiffer.com should offer us opportunities to
deliver premium advertising opportunities to a user base with
attractive demographics and to diversify our revenue streams
through rents, transactional revenue, and licensing.
o Establish market awareness and brand recognition: We believe
that building the fashionwindow.com brand is a critical
element of our business strategy. In this regard, we expect to
place significant emphasis on establishing a brand identity
for our sites and product offerings. We seek to reflect a
network of fashion related sites that provide a compelling
balance of commerce, community, and content. Our strategy is
to build brand awareness using our content licensing, creation
of radio programming, and traditional advertising and
sponsorships.
o Advertise our web sites: We advertise and promote our web
sites through various forms of media. We purchase banner
advertisements on search engines on the World Wide Web and
enter into advertising barter arrangements with other web
sites. We promote our web sites through advertising and
promotional spots contained within Company-sponsored radio
programs and by advertising in selected publications. We
arrange for the promotion of our web sites by host models, to
the extent that they are not prohibited from participating in
any such promotion as a result of other commitments, or such
promotion is limited by the terms of our license with the
model. Finally, promotional advertising in connection with
products offered by us, including calendars and electronic
planners, is another means by which we promote our web sites.
o Offer interactive communication: We plan to offer an online
avenue for interactive communication covering topics such as
fashion and health, with the primary focus on our web sites'
models and celebrity hosts. Our goal is to operate the
exclusive online access to select
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models such as Claudia Schiffer, and to provide visitors and
members with information, photos and other content unavailable
elsewhere.
Background on our Industry
By accessing the World Wide Web through the Internet, users can reach a
multitude of web sites simply by typing domain names, normally beginning with
the letters "www" and ending with the letters "com," "gov," "org" or other
suffix depending on the type of entity. Recent improvements in web browsers and
search engines, which help users navigate the information and services offered
on the World Wide Web, have made locating these web sites much simpler. We
believe that as the number of providers of infrastructure, access and browser
services increases and access to and the usefulness of the Internet improve, the
quality of the content provided by web site operators also will improve. This in
turn should attract greater levels of commerce over the Internet.
Additionally, as a result of increased usage of the Internet, content
historically provided by means of traditional media, such as television, radio
or print, is now being offered on the Internet. Furthermore, because of the
advantages the Internet has over traditional forms of media, particularly its
interactive features, content can be provided by means unavailable through
traditional media. For example, content can be delivered to specifically
identified audiences who share strong similar interests. Advertisers seek out
only those web sites that attract audiences with the same demographic
characteristics as the desired purchasers of their goods or services.
Our Web Sites
Fashionwindow.com
We currently have one online destination that provides content over the
Internet, fashionwindow.com (www.fashionwindow.com). Although there are
currently several fashion-related web sites on the Internet, and we expect there
to be several additions in the future, we believe that the editorial content,
exclusive celebrity relationships and innovative features of fashionwindow.com,
as well as web sites we plan to develop, will distinguish us from other
providers. Fashionwindow.com offers, and our anticipated web sites are expected
to offer, a variety of articles covering fashion, beauty, style and
entertainment. Most of these articles are provided by freelance journalists who
are experienced writers in these fields.
Claudiaschiffer.com
We have the exclusive license to use well-known model Claudia
Schiffer's name and likeness in connection with a web site in production,
claudiaschiffer.com (www.claudiaschiffer.com). We intend to launch
claudiaschiffer.com in the first quarter of this year. This license agreement
with Ms. Schiffer, which we entered into in November 1998, grants us the
exclusive license for an on-line Internet service devoted to Ms. Schiffer.
Pursuant to the terms of the license agreement, we have the right to use Ms.
Schiffer's name and likeness for an Internet site including a merchandise
"boutique", monthly column and interviews or on-line chat sessions. Ms. Schiffer
also is required to make promotional appearances and voice recordings to promote
the site and provide content for it. The license agreement continues until the
year 2001. We are obligated to pay Ms. Schiffer guaranteed minimum royalties of
$300,000 for the first year, $400,000 for the second year, and $500,000 for the
third year, which would be credited against earned royalties ranging from 25% to
80% of site revenues and profits from boutique merchandise sales.
The license agreement grants to Ms. Schiffer 219,682 shares of our
Common Stock, with the right to maintain the ratio of her Common Stock ownership
to that of Peter Klamka, our President. We valued Ms.
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<PAGE>
Schiffer's shares at 80% of the market value of our stock on the date of
issuance or $4.00 per share. We agreed to indemnify Ms. Schiffer for any U.S.
income tax liability resulting from the issuance of these shares, however, we
have been assured that Ms. Schiffer is not a U.S. citizen or resident, and
therefore is not likely to be responsible for any such taxes.
In November and December 1998, we paid Ms. Schiffer an aggregate of
$145,000 pursuant to the terms of the Schiffer License Agreement. We then paid
Ms. Schiffer an additional $155,000 in February 1999, at which time she executed
the license agreement. Additionally, in December of 1998, we agreed to issue to
Ms. Schiffer an additional 50,000 shares of our Common Stock, so that Ms.
Schiffer would be entitled to receive a total of 269,682 shares of Common Stock.
Ms. Schiffer was paid in full for 1999. Ms. Schiffer has been paid $100,000
toward the year 2000 obligation. We currently owe Ms. Schiffer $300,000.
Fragrancedirect.com.
Our wholly owned subsidiary, Fragrancedirect.com, plans to launch our
online fragrance sales effort within the next several months.
Fragrancedirect.com, with the assistance of IXL, is completing the construction
of a web site with the Internet address "www.fragrancedirect.com." On this web
site we will sell colognes, gift items, perfumes and other fragrances to
Internet users.
We anticipate that our prices for fragrances will be lower than the
manufacturers suggested retail prices, however, not necessarily less than all
retail outlets.
We intend to obtain product liability insurance in such amounts as are
appropriate to insure against any possible product liability exposure resulting
from the sale of fragrances on www.fragrancedirect.com. We are aware of at least
two similar web sites attempting to compete for the on-line fragrance business.
Additional Web Sites and Content
We are currently negotiating licenses with other popular models in
connection with our development of additional fashion-related web sites to be
hosted by these models. These web sites will offer content areas similar to
those provided on our Fashionwindow.com site, except that the content of each
web site will be specifically tailored to the look and style of its model host,
as well as the interests of the targeted audience. We also plan to provide daily
television listings and astrological forecasts on our web sites, which are
expected to be obtained on a barter basis.
We believe that user interaction will be the main draw of our web
sites. Our plan is to continuously add to and change the content on our web
sites to enhance user interest. This content may include national and regional
"behind the scenes" news from fashion shows, models, clothing designers and
other celebrities. In addition, we may enter into arrangements for live
broadcasts of fashion shows featuring models from our web sites.
Our Sources of Revenue
Advertising
We believe that Fashionwindow.com offers a desirable vehicle for
advertisers seeking to reach fashion-oriented consumers. The subject matter of
Fashionwindow.com and our proposed future web sites attract an audience that is
well educated, sophisticated and affluent. To be successful, we must attract
advertising placements from businesses that provide the types of products and
services that appeal to the target audience of our web sites.
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Banner Advertising
We derive substantially all of our revenues from the sale of
advertising banners on our initial web site. These banners appear on a user's
computer screen when accessing different areas of our web sites. The interactive
nature of the Internet also allows users to obtain extensive additional
information about an advertiser's products or services instantly, by clicking on
a hypertext link to the advertiser's web site. In some cases the advertiser's
products can be purchased in a transaction completed on the Internet. We have
entered into agreements with certain advertisers whose banner advertisements
appear on our fashionwindow.com web site, and are negotiating with additional
advertisers to place banner advertisements on our current and/or future web
sites.
In November 1999 we entered into an exclusive representation agreement
with Adsmart Corporation for both fashionwindow.com and claudiaschiffer.com. The
term of the agreement is one year. The advertisements are sold pursuant to the
agreement on a cost per thousand impressions basis.
Lycos Agreement
In an agreement executed on November 16, 1998, Lycos, Inc. agreed to
provide us with $600,000 worth of advertising banner impressions on the Lycos
network consisting of complete page views with a Claudia Schiffer advertising
banner and a link to www.claudiaschiffer.com. The banner advertising and link to
our web site were made available to us commencing on December 15, 1998 and were
available until December 15, 1999. Lycos has verbally informed us that they will
exercise their option to renew the agreement. We are finalizing documentation,
although there can be no assurance that Lycos will renew the agreement. These
impressions will only be used to promote www.claudiaschiffer.com, and Lycos has
also agreed to include at least $200,000 worth of these advertisements on its
web site lycos.com. Advertising content and placement on the Lycos network are
subject to approval by both parties, with banners rotated as often as the
Company desires. Lycos is currently running banner advertisements for www.
claudiaschiffer.com and will commence links to the Company's web site as soon as
the site is up. In exchange for the services to be provided by Lycos, the
Company will provide Lycos with a link to the Company's Claudia Schiffer web
site, placed at the Company's discretion. Ms. Schiffer has the right to
terminate this agreement at any time. This agreement is a barter arrangement for
advertising, does not involve any monetary payments and can be renewed by mutual
agreement of both parties.
Syndicated Radio Shows
The Company has had preliminary discussions with a national syndicator
of radio programming, in connection with the development and airing of a daily
90-second radio show devoted to the same subject matter as the Company's web
sites. We have paid supermodel Veronica Webb $2,500 to tape pilot episodes of
our proposed radio program Fashionwindow.com Minute. The program is currently
being evaluated for distribution. We are also exploring a long form program
featuring MTV host and E Channel host Downtown Julie Brown. We paid Ms. Brown
$2,500 to tape a pilot episode of this program. The program is currently being
evaluated for distribution. Syndicated radio shows could be a source of
additional revenue through the sale of up to 30 seconds of advertising time as
well as increase traffic to our web sites allowing us to generate more banner
advertising. There can be no assurance that we will be able to enter into an
agreement with a syndicator or develop or make profitable a radio show.
Marketing and Promotion
The Company continually evaluates numerous ways to promote its brand
names such as "Fashionwindow," believing that brand recognition will assume
increasing importance as the volume of activity on the Internet increases. The
Company intends to promote its web sites, products and other services through
cobranding and online partnerships, paid advertising, content syndication,
public relations and sponsorship.
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Web Host; Operations, Security and Technology
Our web sites are made available to users through our web host, Digex.
We provide pages of code, graphics and video to Digex, which uploads this
information to its dedicated servers. Digex is responsible for all traffic,
security and management of the technological aspects of our web sites. We are
responsible for updating the content on the web sites and to apprising Digex of
our changing technological needs and offering Digex the opportunity to provide
for these needs. We compensate Digex with a combination of cash and promotional
consideration. We believe we would have no difficulty replacing Digex with
another web host if our relationship with Digex were to be terminated for any
reason.
A key element of our success is to generate a high volume of use of our
sites. Accordingly, high levels of performance are critical. Any system failure
that causes interruption or an increase in response time could result in less
traffic to our web sites and, if sustained or repeated, could reduce the
attractiveness of our web sites to advertisers. Further, any substantial
increase in the number of visits to our web sites could strain the capacity of
the software or hardware deployed by us or our web hosts and would require us to
expand and adapt our network infrastructure. Our inability to add software or
hardware to accommodate substantial increases in traffic could lead to slower
response time or system failures.
Our operations also are dependent, in part, upon the ability of our web
hosts to protect their operating systems against physical damage from fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events. We do not currently have redundant, multiple site capacity in
the event of any such occurrence. Notwithstanding the implementation of security
measures by us, such as limiting physical and network access to its routers, our
infrastructure is vulnerable to computer viruses, break-ins and similar
disruptive acts by Internet users. These factors could lead to interruption,
delays or cessation in service of our web sites. Furthermore, the inappropriate
use of the Internet could jeopardize the security of confidential information
stored in the computer systems of our customers and other users of the Internet,
which could deter potential customers from accessing our web sites and give rise
to uncertain liability to users whose security and privacy has been infringed. A
security breach could result in loss of customers, damage to our reputation,
damage to our web sites, costs of repair and detection and other expenses. The
security and privacy concerns of existing and potential customers may inhibit
the growth of the Internet, in general, and our revenues in particular.
Competition
Competition among content providers on the Internet is intense and is
expected to increase significantly. The Internet is currently characterized by
minimal barriers to entry, since new web sites can be developed and launched at
relatively low cost. We face competition from a number of sources that provide
content through one or more media, such as print, broadcast, cable television
and the Internet. In order to compete successfully, we must establish and
maintain awareness, among the public, of our brand names, effectively market our
services and products, and successfully differentiate our web sites. This will
be highly dependent on our ability to provide compelling and popular content to
attract Internet users and support advertising and sales of products and
services that are intended to reach such users.
We compete with a significant number of web content providers, several
of which offer competitive services and/or products, and address certain of our
target markets, including, among others, Women's Wire, Elle Magazine, Ford
Models, Inc. and Pataxi Entertainment Network, Inc. (operator of
supermodel.com). In addition, we compete against large service providers,
including web directories, search engines, commercial online services and sites
maintained by Internet service providers, many of which offer content similar to
that provided on our web sites and attract advertisers targeting the same
audience as us. Some of these companies include Microsoft Corporation, America
Online, Inc., Netscape Communications, Yahoo! Inc. and Prodigy Services Co. Many
of these competitors have significantly greater financial, technical and
marketing resources than us, and include
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companies that are larger and better capitalized than us. These competitors also
may have expertise and established brand recognition in the Internet market.
In addition, we compete for the time and attention of Internet users
with thousands of non-profit Internet sites operated by educational
institutions, governments and individuals. Existing and potential competitors
also include other forms of media, such as television, radio and print media,
many of which provide services and products that are similar to those which we
currently provide and also intend to provide through our web sites. Although
traditional media outlets do not offer many of the interactive features
available through the Internet (such as online chat rooms, E-mail, etc.), there
are numerous publications, as well as television and radio programs, which
provide editorial content similar to that which we provide on our web site, as
well as articles and features on fashion, beauty, health and celebrities. There
can be no assurance that our competitors will not develop services and products
that are superior to ours or that achieve greater market acceptance.
We believe that the principal competitive factors in the Internet
market are brand recognition, ease of use, content depth, content quality,
content presentation, speed and quality of service execution, competitive
pricing, successful marketing and the availability of targeted content and
focused value added services and products. To be competitive, we believe that we
must distinguish our editorial content from our competitors and customize this
content to appeal to our target audiences.
Since many of our competitors have greater resources than us, these
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
developing their content and services. In addition, as a strategic response to
changes in the competitive environment, we may make certain pricing, service or
marketing decisions or enter into acquisitions of new entities that could have a
material adverse effect on our business, results of operations and financial
condition.
Technology; Trademarks and Proprietary Rights
Our success is highly dependent on our trademarks and other
intellectual property rights. We rely upon trademark and copyright law, trade
secret protection and, where appropriate, confidentiality and /or license
agreements with our employees, independent contractors and consultants to
protect our proprietary rights. To date, none of our trademarks has been
registered, nor do we currently contemplate registering any of our trademarks.
We also rely on copyright laws to protect the original content included on our
web sites. A substantial amount of uncertainty exists concerning the application
of copyright laws to the Internet, and there can be no assurance that existing
laws will provide us with adequate protection.
Effective trademark, copyright and trade secret protection may not be
available in every country in which our services and products are distributed or
appear via the Internet. As part of our business strategy, we may license our
content, trademarks and images to third parties. Without adequate protection in
foreign markets, there can be no assurance that these licensees will not take
actions that might materially or adversely affect the value of our proprietary
rights. In addition, despite our efforts to protect our proprietary rights, the
rapid pace of technological innovation on the Internet makes it possible for
third parties to copy or otherwise obtain and use our products or technology
without authorization, or to develop similar technology independently. Policing
unauthorized use of our technology and intellectual property will be difficult.
We generally obtain confidentiality agreements from all employees and
independent contractors providing services in connection with the development
and design of our web sites.
Government Regulation
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Our business is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally,
and there are currently few laws or regulations directly applicable to access to
or commerce on the Internet. However, due to the increasing popularity and use
of the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing, characteristics and quality of products and services. The
Telecommunications Reform Act of 1996 imposes criminal penalties on anyone who
distributes obscene, indecent or patently offensive communications on the
Internet (although certain provisions of that law have recently been held to be
unconstitutional). The manner in which this law, or any similar law which may be
adopted in the future, will be interpreted and enforced and its effects on our
proposed operations cannot yet be fully determined. The adoption of any
additional laws or regulations may decrease the growth of the Internet, which
could in turn decrease the demand for our services and products and increase our
cost of doing business. Furthermore, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, libel and personal privacy is uncertain.
Arbitration filed by Tyra Banks
We entered into a license agreement with a company controlled by
well-known model, Tyra Banks, similar to the license agreement with the company
controlled by Claudia Schiffer. In addition, we also entered into an agreement
with Ms. Banks' company in connection with the creation, marketing and sale of
calendars and electronic planners featuring photographs of Ms. Banks. On June
18, 1998, Ms. Banks declared us in breach of both of these agreements and has
refused to perform under either of them. The basis for this declaration was our
alleged failure to pay the full amount of all advances due and payable to Ms.
Banks' company pursuant to the agreements, as well as our failure to fully
reimburse Ms. Banks for certain expenses provided for under the calendar
agreement. To date, we have advanced funds to Ms. Banks' company in the
aggregate amount of $134,000. We received a letter from Ms. Banks' attorneys,
dated September 8, 1998, demanding that we pay to Ms. Banks' company an
additional $153,000 on or before September 15, 1998, cease all uses of Ms.
Banks' name, picture and likeness and return all photographs and images of Ms.
Banks. This letter further stated that in the event that we failed to comply
with their demands by that date, Ms. Banks and her company would be forced to
take all "appropriate" action to recover all amounts alleged to be owed, and to
enforce their rights against us.
On December 8, 1998, attorneys for Tyra Banks and Bankable, Inc., an
entity controlled by Ms. Banks, made a Demand for Arbitration against us under
the commercial arbitration rules of the American Arbitration Association. Ms.
Banks' attorneys alleged that we failed to make timely payments of money due
upon the execution of the web site 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 is
seeking the amount of $153,000, plus interest, allegedly owed to her, to
prohibit the Company from using her name, picture and likeness, and to have all
images of Ms. Banks, in any form, returned to her. She also is seeking damages
for injury to her public reputation, lost royalties and the cost of attorney's
fees. On January 15, 1999, we, through our attorneys, filed an Answer and
Counterclaim to Ms. Banks' Demand for Arbitration. We raised several defenses to
Ms. Banks' claims and claimed a breach by Ms. Banks and Bankable, Inc. of the
web site agreement. We are seeking the amount of $100,000, plus additional
damages, relating to the advance payment made by us to Bankable, Inc. A
preliminary administrative conference was held on January 19, 1999, and a
hearing was held in October 1999 and we filed briefs in response and are
awaiting the arbitrator's decision. We intend to vigorously defend ourself in
this arbitration, and believes that we have meritorious defenses. Nonetheless,
there can be no assurance that we will be successful in this arbitration, and an
unfavorable settlement or result in this matter could have a material adverse
effect on us.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ---------- ---------------------------------------------
<S> <C> <C>
Peter Klamka.................................... 31 Chairman of the Board, President,
Chief Executive Officer, Treasurer and
Secretary
Chris Giordano.................................. 44 Chief Operating Officer
</TABLE>
The business experience, principal occupations and employment, as well
as the periods of service, of each of our directors and executive officers
during the last five years are set forth below.
Peter Klamka has been our Chairman of the Board and Chief Executive
Officer since our inception in May 1997. From 1990 to 1991, Mr. Klamka was
employed as an analyst with Credit Lyonnais. From 1991 to 1993, he was employed
by DMA Holdings, a private investment concern that invested in and acquired
automotive parts suppliers. His duties included the evaluation of acquisition
candidates. From 1993 to 1994, Mr. Klamka was the owner and sole stockholder of
General Display, a company that manufactured scoreboards and timing equipment
for sports facilities. He sold this company in 1994. In 1994, Mr. Klamka founded
Wilshire Fragrance, a company that developed and marketed men's fragrance
products. Mr. Klamka was the chief executive officer of Wilshire Fragrance from
1994 through 1996. In connection with his fragrance business, in 1996, Mr.
Klamka developed, what he believes to have been one of the first authorized
celebrity web sites, featuring Anna Nicole Smith promoting fragrances for
Wilshire Fragrance. Mr. Klamka continued working on this web site until early
1997. Mr. Klamka received his Bachelor of Arts degree from the University of
Michigan.
Chris Giordano has been our Chief Operating Officer since December
1999. Mr. Giordano has been President of Birchwood Capital Advisors Group, Inc.
since 1992 and has arranged over $200 million in financings in that period.
Prior to 1992, Mr. Giordano was employed by Pain Webber, Inc. in their asset
management group. Mr. Giordano earned a BSBA in Accounting and Finance from the
University of South Florida in 1977.
Mr. Klamka and Mr. Giordano are not related.
Director Compensation
Mr. Klamka receives no compensation for his service as our sole
director.
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Executive Compensation
The table below summarizes the compensation received by Mr. Klamka for
the fiscal years ended December 31, 1999, December 31, 1998 and December 31,
1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Name and Other Annual Awards - Securities
Principal Position Year Salary($) Bonus($) Compensation Underlying Options-(#)
- --------------------- -------- -------------- --------------- ------------------ --------------------------
<S> <C> <C> <C> <C> <C>
Peter Klamka 1999 $ 0 0 0 -
Chairman of the 1998 $34,000 0 0 -
Board and Chief 1997 $ 0 0 0 16,666 shares
Executive Officer
</TABLE>
Employment and Consulting Agreements
We have no employment or other written agreement with Peter Klamka, its
Chairman, President and Chief Executive Officer. Mr. Klamka has an oral
agreement with the Company to receive a base salary of $100,000 per year and
such other compensation as the Board of Directors shall designate. During 1998,
Mr. Klamka was issued 16,666 shares of Common Stock as compensation for services
provided in 1997. During 1998, Mr. Klamka received compensation in the amount of
$34,000 and waived payment of the remaining $66,000. The Company believes that
Mr. Klamka will continue to waive a portion of the base salary for the
foreseeable future, although no assurance thereof can be given.
Mr. Klamka is involved in other business ventures, including the
ownership of over 500,000 shares of American Sports History Inc. (approximately
5.5% of its outstanding capital stock), a Nasdaq Bulletin Board company, but he
intends to devote substantially all his business time and effort on behalf of
the Company for the foreseeable future. Mr. Klamka has orally committed that,
for so long as the Company shall be in existence, he shall conduct no business
relating to models or fashion personalities other than through the Company.
We have no employment or other written agreement with Mr. Giordano.
Limitation of Liability and Indemnification Matters
As permitted pursuant to the corporate law of the State of Delaware,
our state of incorporation, the Certificate of Incorporation requires that we
indemnify its directors and officers against certain liabilities and expenses
incurred in their service in such capacities to the fullest extent permitted by
applicable law. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with
applicable law. Additionally, we have entered into an indemnity agreement with
each director and officer which generally provides that they are indemnified
with respect to actions taken in good faith. Furthermore, the personal liability
of the directors is limited as provided in our Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of PTN
Media, Inc. pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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PTN MEDIA, INC. STOCK OPTION PLANS
The PTN Media, Inc. 1998 Stock Option Plan (the "1998 Plan") was
ratified and approved by our Board of Directors in March 1998. The 1998 Plan
provides for the grant of options to purchase up to 500,000 shares of our common
stock. The PTN Media, Inc. 1999 Consultant Stock Plan (the "1999 Plan") was
ratified and approved by our Board of Directors in June, 1999 (the 1998 Plan and
the 1999 Plan, together the "Plans"). The 1999 Plan provides for the grant of
options to purchase up to 250,000 shares of our common stock. The Plans are
intended to promote our long term financial interests and growth by providing
our employees, officers, directors, and consultants with appropriate incentives
and rewards to enter into and continue in the employ of, or their relationship
with us and to acquire a proprietary interest in our long-term success; and to
reward the performance of individual officers, other employees, consultants and
directors in fulfilling their responsibilities for long-range achievements
(except that grants under the 1998 Plan may only be made to our consultants, a
lawyer, law firm, accountant or accounting firm or employees other than officers
or directors).
General
The Plans provide for the granting of awards to such officers, other
employees, consultants and directors of PTN Media, Inc. and its affiliates as
the Board of Directors may select from time to time.
If any shares subject to an award are forfeited, canceled, exchanged or
surrendered or if an award otherwise terminates or expires without a
distribution of shares to the holder of such award, the shares of Common Stock
with respect to such award will, to the extent of any such forfeiture,
cancellation, exchange, surrender, termination or expiration, again be available
for the awards under the Plans.
In the event that the compensation committee determines that any
dividend or other distribution (whether in the form of cash, common stock, or
other property), recapitalization, stock split, reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other similar corporate transaction or event, affects the common stock such that
an adjustment is appropriate in order to prevent dilution or enlargement of the
rights of holders of awards under the Plans, then the compensation committee
will make such equitable changes or adjustments as it deems necessary or
appropriate to any or all of (i) the number and kind of shares of common stock
or other property (including cash) that may thereafter be issued in connection
with awards, (ii) the number and kind of shares of common stock or other
property (including cash) issued or issuable in respect of outstanding awards
and (iii) the exercise price, grant price, or purchase price relating to any
award; provided that, with respect to incentive stock options, such adjustment
shall be made in accordance with Section 424(h) of the Code.
Administration
The Plans will be administered by the compensation committee. The
compensation committee has the authority in its sole discretion, subject to and
not inconsistent with the express provisions of the Plans, to administer the
Plans and to exercise all the powers and authorities either specifically granted
to it under, or necessary or advisable in the administration of, the Plans,
including, without limitation, the authority to grant awards; to determine the
persons to whom and the time or times at which awards shall be granted; to
determine the type and number of awards to be granted, the number of shares of
common stock to which an award may relate and the terms, conditions,
restrictions and performance goals relating to any award; to determine whether,
to what extent, and under what circumstances an award may be settled, canceled,
forfeited, exchanged, or surrendered; to make adjustments in the performance
goals in recognition of unusual or non-recurring events affecting PTN Media,
Inc. or the financial statements of PTN Media, Inc. (to the extent not
inconsistent with Section 162(m) of
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the Code, if applicable), or in response to changes in applicable laws,
regulations, or accounting principles; to construe and interpret the Plans and
any award; to prescribe, amend and rescind rules and regulations relating to the
Plans; to determine the terms and provisions of agreements evidencing awards;
and to make all other determinations deemed necessary or advisable for the
administration of the Plans.
Awards under the Plans
290,000 of the 500,000 options available for grant under the 1998 Plan
have been granted. 10,000 of the 250,000 options available for grant under the
1999 Plan have been granted. All the options vest immediately upon grant. The
option exercise price is payable by any one of the following methods or a
combination thereof:
o in cash or by personal check, certified check, bank cashier's
check or wire transfer;
o in shares of common stock owned by the participant for at
least six months prior to the date of exercise and valued at
their fair market value on the effective date of such
exercise; or
o by such other method as the compensation committee may from
time to time authorize.
The compensation committee also has the authority to specify, at the
time of grant or, with respect to options that are not intended to qualify as
incentive stock options ("non-qualified stock options"), at or after the time of
grant, that a participant shall be granted a new non-qualified stock option (a
"reload option") for a number of shares of common stock equal to the number of
shares of common stock surrendered by the participant upon exercise of all or a
part of an option in the manner described above, subject to the availability of
common stock under the Plans at the time of such exercise; provided, however,
that no reload option shall be granted to a non- employee director. Reload
options shall be subject to such conditions as may be specified by the
compensation committee in its discretion, subject to the terms of the Plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, Mr. Klamka purchased 2,117,008 shares of Common Stock of
our predecessor for an aggregate purchase price, paid by delivery of a
promissory note, of $2,117.01. In June 1997 Chris Giordano purchased 540,340
shares of Common Stock of our predecessor for an aggregate purchase price, paid
by delivery of a promissory note, of $540.34. In June 1997 Michael Giordano
purchased 300,000 shares of Common Stock of our predecessor for an aggregate
purchase price, paid by delivery of a promissory note, of $300.00. All three
promissory notes have been paid in full. Messrs. Klamka, Chris Giordano and
Michael Giordano are each deemed to be founders and promoters of the Company.
In April 1998, Mr. Klamka 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 on the credit line bear interest at a rate of 9% per annum from the
date they are made and are payable by May 2001. Monies loaned were used to make
certain payments to Niki Taylor's company, to provide a payment required under
the Calendar Agreement with Claudia Schiffer, and for working capital. In
January 2000 the then current balance of $548,500 owed to Mr. Klamka was
converted into 110,000 shares of Common Stock.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with
respect to beneficial ownership of our common stock as of the date of this
prospectus by:
o each stockholder known by us to be the beneficial owner of
more than 5% of our common stock;
o each of our directors ;
o the named executive officers; and
o all executive officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of
common stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
Name and Address
Of Beneficial Owner Shares Beneficially Owned
- ------------------------------------ -------------------------------------------------------
Percentage Prior Percentage After
Number to Offering(1) Offering
------ -------------- --------
<S> <C> <C> <C>
Peter Klamka 2,177,374(2) 63.3% 60.0%
Chris H. Giordano 526,000(3) 20.3% 15.2%
Michael Giordano 240,000(4) 7.1% 5.5%
American Nortel 250,000(5) 7.3% 5.7%
All directors and executive officers as a 2,842,714 82.6% 64.6%
group (2 persons)
</TABLE>
- ---------------------
(1) Based on a total of 3,440,262 shares issued and outstanding as of
February 1, 2000.
(2) Mr. Klamka's address is the same as that of PTN Media, Inc.
(3) Chris Giordano's address is 4 Dogwood Court, West Patterson, NJ 07424.
Includes 125,000 presently exercisable options. Chris Giordano is
Michael Giordano's brother, but disclaims any beneficial ownership of
shares owned by Michael Giordano.
(4) Michael Giordano's address is 7591 N.W. 29th Street, Margate, Florida
33063. Includes 40,000 presently exercisable options. Michael Giordano
is Chris Giordano's brother, but disclaims any beneficial ownership of
shares owned by Chris Giordano.
(5) American Nortel's address is 7201 East Camelback Road, Suite 320,
Scottsdale, Arizona 85251.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000
shares of common stock, $.001 par value (the "Common Stock"), and 1,000,000
shares of preferred stock, $.01 par value (the "Preferred Stock").
35
<PAGE>
The following summaries of certain terms of the Company's Common Stock
and Preferred Stock do not purport to be complete and are subject to, and
qualified in their entirety by, the provisions of the Company's certificate of
incorporation, the Certificates of Designations, Rights and Preferences for the
Class A Convertible Preferred Stock, and the provisions of applicable law.
Common Stock
Holders of Common Stock are entitled to one vote for each share on all
matters voted on by stockholders, including the election of directors.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election if they choose to do so. The Certificate of Incorporation does not
provide for cumulative voting of directors. Holders of Common Stock will be
entitled to receive dividends ratably, if any, as may be declared from time to
time by the Board out of funds legally available therefor. Holders of Common
Stock will be entitled to receive, prorata, all assets of the Company available
for distribution to them upon liquidation. In addition, holders of Common Stock
have no preemptive, subscription or redemption rights. All outstanding shares of
Common Stock are fully paid and nonassessable.
Preferred Stock
The Company's Certificate of Incorporation provides that the Company is
authorized to issue up to 1,000,000 shares of "blank check" Preferred Stock,
which may be issued from time to time in one or more series upon authorization
by the Board. The Board, without further approval of the stockholders, is
authorized to fix any dividend rights, conversion rights, voting rights,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each series of Preferred
Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of the Common
Stock. Under certain circumstances, the issuance of Preferred Stock could also
make it more difficult for a third party to gain control of the Company,
discourage bids of the Company's Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock.
Pursuant to our Certificate of Designation of Powers, Designations and
Preferences of Class A Convertible Preferred Stock, 300,000 shares have been
designated as Class A Convertible Preferred Stock, of which 5,450 shares have
been issued.
Our Certificate of Designation provides that the Class A Preferred
shall accrue dividends at the rate of $10 per share per year and shall entitle
the holder thereof to receive, prior and in preference to any distribution of
any of our assets to holders of Common Stock, $100.00 per share plus any and all
accrued but unpaid dividends. The holders of the Class A Preferred shall have
the right to convert shares of Class A Preferred into 20 shares of common stock.
Warrants
1997 Warrants
In connection with our issuance of certain promissory notes to the
lenders of an aggregate of $56,250 to us in July 1997, we issued to such lenders
warrants (the "1997 Warrants") to purchase a total of 45,000 shares of Common
Stock. The 1997 Warrants are exercisable at a price of $3.00 per share, and
expire in July 2001. We have the right to repurchase the 1997 Warrants from 1997
Warrant holders for $.05 per share of common Stock purchasable thereby at any
time, provided that the shares of Common Stock have been trading in the public
market at $6.00 per share or more on each of the most recent 20 consecutive
trading days prior to our notice to repurchase
36
<PAGE>
the 1997 Warrants, and provided further, that no underwriter has placed any
restrictions on such repurchase by us.
The 1998 Warrants
In March 1998, we converted outstanding promissory notes held by
certain individuals, in an aggregate principal amount of 162,500 shares of
Common Stock at a value of $1.00 per share. In connection with the review of our
initial public offering by the Securities and Exchange Commission, we agreed to
increase the valuation of our shares of Common Stock issued in March 1998. Such
accommodation made it necessary for us to request the return of 108,334 shares
of the Common Stock issued to stockholders in the March conversion. All of such
stockholders agreed to return to us 2/3 of the shares of Common Stock issued to
them. In exchange for these returned shares of Common Stock, we, in August 1998,
granted to these stockholders warrants (the "1998 Warrants") to purchase an
aggregate of 108,334 shares of Common Stock. The 1998 Warrants are exercisable
at a price of $4.00 per share, and expire in August 2003. We have the right to
repurchase the 1998 Warrants from the 1998 Warrants holders for $0.5 per share
of Common Stock purchasable thereby at any time, provided that the shares of
Common Stock have been trading in the public market at $8.00 per share or more
on each of the most recent 20 consecutive trading days prior to our notice to
repurchase the 1998 Warrants, and provided further, that no underwriter has
placed any restrictions on such repurchase by us.
Certain Anti-Takeover Effects of Law and Certificate of Incorporation
We are subject to the business combination provisions of Section 203 of
Delaware corporation law. In general, such provisions prohibit a publicly held
Delaware corporation from engaging in various business combination transactions
with any interested stockholder (in general, a stockholder owning 15% of a
corporation's outstanding voting securities) for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
(1) the transaction is approved by the corporation's
board of directors prior to the date the stockholder
became an interested stockholder;
(2) upon consummation of the transaction which resulted
in the stockholder's becoming an interested
stockholder, the stockholder owned at least 85% of
the shares of stock entitled to vote generally in the
election of directors of the corporation outstanding
at the time the transaction commenced, excluding, for
purposes of determining the number of shares
outstanding, those shares owned by (a) persons who
are directors and also officers and (b) employee
stock plans in which employee participants do not
have the right to determine confidentiality whether
shares held subject to the plan will be tendered in a
tender or exchange offer; or
(3) on or after such date, the business combination is
approved by the board of directors and authorized by
the affirmative vote of at least 66 2/3% of such
outstanding voting stock not owned by the interested
stockholder.
Transfer Agent and Registrar
Corporate Stock Transfer, Inc., Denver, Colorado, serves as transfer
agent and registrar for the common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, our common stock has traded on the Nasdaq
Bulletin Board, and no prediction can be made as to the effect, if any, that
future market sales of shares of common stock or the availability of shares
37
<PAGE>
of common stock for sale will have on the market price of the common stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
common stock in the public market, or the perception that sales could occur,
could cause the market price of the common stock to decline and could impair our
future ability to raise capital through the sale of our equity securities.
Shares Outstanding and Freely Tradeable Immediately Following this Offering
We have, and will continue to have after this offering, 3,790,562
shares of common stock outstanding, assuming no exercise of warrants currently
outstanding to acquire our common stock and no exercise of options currently
outstanding to acquire our common stock. Of the 3,790,562 shares outstanding
after this offering, 852,340 shares will be freely tradeable without
restriction or further registration under the Securities Act, except that any
shares purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act, in this offering or in the public market may only be sold in
compliance with the volume and manner of sale limitations of Rule 144 described
below.
Shares Subject to Rule 144
The remaining 2,938,222 shares of common stock held by existing
stockholders will be deemed restricted securities as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules 144
or 144(k) promulgated under the Securities Act. These rules are summarized
below.
Subject to the provisions of Rules 144 and 144(k), additional shares
will be eligible for sale in the public market as follows:
Number of Shares Date
---------------- --------------------------------------------
2,877,222 As of the date of this prospectus all of
these shares will be subject to the volume
and manner of sale limitations of Rule 144;
and
61,000 180 days after the date of this prospectus
all of these shares will be subject to the
volume and manner of sale limitations of
Rule 144.
In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three- month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of:
(1) one percent of the then outstanding shares
of common stock, which will equal
approximately 379,056 shares immediately
after this offering; or
(2) the average weekly trading volume in the
common stock during the four calendar weeks
preceding the date on which notice of that
sale is filed with the SEC, subject to
restrictions.
In addition, a person who is not deemed to have been an affiliate of
PTN Media, Inc. at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell those shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares are acquired from an
affiliate of PTN Media, Inc., the acquiring person's holding period for the
purpose of effecting a sale under Rule 144 commences on the date of transfer
from the affiliate.
38
<PAGE>
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus
have been passed upon for us by Lehman & Eilen LLP. Lehman & Eilen LLP owns
12,500 shares of the Company's common stock.
EXPERTS
The financial statements of PTN Media, Inc. as of December 31, 1997 and
December 31, 1998 included in this Prospectus and in this Registration Statement
have been included herein in reliance upon the report of Lazar Levine & Felix
LLP, independent certified public accountants, given upon the authority of such
firm as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, a copy of any
exhibits to our registration statement incorporated by reference in this
prospectus. If you want more information, write or call us at:
PTN Media, Inc.
2750 S. State Street
Ann Arbor, MI 48104
Telephone number: (734) 327-0579
Facsimile number: (734) 327-0577
We furnish our shareholders annual reports containing audited financial
statements and other appropriate reports. In addition, we are a reporting
company and file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room in Washington D.C.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings are
also available to the public on the SEC Internet site at http:www.sec.gov.
This prospectus is part of a registration statement on Form SB-2 that
we filed with the SEC. This prospectus does not contain all of the information
set forth in the registrations statement. You may find the registration
statement on the SEC's website at http:www.sec.gov.
39
<PAGE>
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information in this
prospectus or the documents incorporated by reference is accurate as of any date
other than the date on the front of this prospectus or those documents.
40
<PAGE>
PTN MEDIA, INC.
INDEX TO FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1998
(Audited)
Page
----
Report of Independent Certified Public Accountants.................. F-2
Financial statements:
Balance Sheets...................................................... F-3
Statements of operations............................................ F-4
Statements of stockholders' equity.................................. F-5
Statements of cash flows............................................ F-6
Notes to the financial statements................................... F-7 - F-14
Nine Months Ended September 30, 1998 and 1999
(Unaudited) Page
----
Balance Sheets...................................................... F-15
Statements of operations............................................ F-16
Statements of cash flows............................................ F-17
Notes to financial statements....................................... F-18 - F-21
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
PTN Media, Inc.
We have audited the accompanying balance sheets of PTN Media, Inc. (a
development stage company) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (deficit), and cash flows for the
year ended December 31, 1998 and the period from May 27, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PTN Media, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the period from May 27, 1997 (inception), to
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
in the development stage, has incurred net losses since its inception and has
experienced severe liquidity problems. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
LAZAR LEVINE & FELIX LLP
New York, New York
April 8, 1999
F - 2
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 702 $ 20,134
Accounts receivable 4,488 -
Due from shareholders - 2,957
----------- ----------
TOTAL CURRENT ASSETS 5,190 23,091
FIXED ASSETS - NET (Notes 2b and 3) 3,626 1,984
OTHER ASSETS:
Security deposits 690 -
----------- ----------
$ 9,506 $ 25,075
=========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 4) $ 106,671 $ 58,885
Interest payable to related parties (Notes 5and 6) 27,144 2,250
License fees payable (Notes 2g and 4) 255,000 100,000
Short-term loans payable (Note 5) 56,250 121,250
Loans payable - officer (Note 6) 542,500 -
----------- ----------
TOTAL CURRENT LIABILITIES 987,565 282,385
----------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 10)
SHAREHOLDERS' EQUITY (DEFICIT) (Notes 7 and 8):
Preferred stock, par value $.01; 1,000,000 shares authorized
none issued or outstanding - -
Common stock, par value $.001; 10,000,000 shares authorized,
3,378,262 and 2,967,348 shares issued and outstanding for
1998 and 1997, respectively 3,378 2,967
Additional paid-in capital 1,608,910 990
Deficit accumulated during the development stage (2,590,347) (261,267)
----------- ----------
(978,059) (257,310)
$ 9,506 $ 25,075
============== ==========
</TABLE>
See accompanying notes.
F - 3
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
During the
Development For the Period
Stage For the Year May 27, 1997
(May 27, 1997 to Ended (Inception) To
December 31, 1998) December 31, 1998 December 31, 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
REVENUES (Note 2c) $ 4,488 $ 4,488 $ -
----------- ------------ ----------
EXPENSES:
Cost of revenue (Note 2g) 1,728,728 1,578,728 150,000
Product development 482,088 452,458 29,630
General and administrative 354,664 275,277 79,387
----------- ------------ ----------
2,565,480 2,306,463 259,017
----------- ------------ ----------
LOSS FROM OPERATIONS (2,560,992) (2,301,975) (259,017)
----------- ------------ ----------
OTHER INCOME (EXPENSE):
Interest expense (29,394) (27,144) (2,250)
Interest income 39 39 -
----------- ------------ ----------
(29,355) (27,105) (2,250)
----------- ------------ ----------
NET LOSS (Note 9) $(2,590,347) $(2,329,080) $(261,267)
=========== =========== =========
BASIC LOSS PER COMMON SHARE (Note 2e) $(.84) $(.75) $(.09)
===== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 2e) 3,077,110 3,097,777 3,041,680
========= ========= =========
</TABLE>
See accompanying notes.
F - 4
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Stock Paid-in Development Shareholders'
Shares Amount Capital Stage Deficit
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Shares issued at inception for promissory notes 2,957,348 $ 2,957 $ - $ - $ 2,957
Shares issued in payment of legal fees 10,000 10 990 - 1,000
Net loss for the period from inception May 27,
1997 to December 31, 1997 - - - (261,267) (261,267)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 2,967,348 2,967 990 (261,267) (257,310)
Conversion of notes payable 54,166 54 162,446 - 162,500
Compensatory shares 16,666 17 49,983 - 50,000
Shares issued in payment of legal fees 3,500 4 12,996 - 13,000
Shares issued in connection with license
agreement 269,682 269 1,078,459 - 1,078,728
Shares issued in connection with initial
public offering 66,900 67 238,036 - 238,103
Waiver of compensation payable - - 66,000 - 66,000
Net loss for year ended December 31, 1998 - - - (2,329,080) (2,329,080)
--------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 3,378,262 $ 3,378 $ 1,608,910 $(2,590,347) $ (978,059)
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F - 5
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During the
Development For the Period
Stage For the Year May 27, 1997
(May 27, 1997 To Ended (Inception) To
December 31, 1998) December 31, 1998 December 31, 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,590,347) $(2,329,080) $(261,267)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation of fixed assets 880 670 210
Shares issued for legal fees 14,000 13,000 1,000
Waiver of compensation payable 66,000 66,000 -
Issuance of shares for license fees 1,078,728 1,078,728 -
Changes in operating assets and liabilities:
Increase in accounts receivable (4,488) (4,488) -
Increase in accrued expenses 183,815 122,680 61,135
Increase in license fees payable 255,000 155,000 100,000
----------- ----------- ---------
Net cash (used) in operating activities (996,412) (897,490) (98,922)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (4,506) (2,312) (2,194)
Security deposits paid (690) (690) -
----------- ----------- ---------
Net cash (used) by investing activities (5,196) (3,002) (2,194)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from officer 542,500 542,500 -
Proceeds from short-term loans 218,750 97,500 121,250
Payment from shareholders 2,957 2,957 -
Net proceeds from initial public offering 238,103 238,103 -
----------- ----------- ---------
Net cash provided by financing activities 1,002,310 881,060 121,250
----------- ----------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 702 (19,432) 20,134
Cash and cash equivalents, at beginning of period - 20,134 -
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, AT END OF
PERIOD $ 702 $ 702 $ 20,134
=========== =========== =========
----------- ----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
(a) Interest paid $ - $ - $ -
Taxes paid - - -
</TABLE>
(b) In May 1997, the Company issued (i) 2,957,348 shares of common stock in
exchange for notes receivable of $2,957 and (ii) 10,000 shares of common
stock in lieu of payment for legal fees aggregating $1,000.
(c) During 1998, holders of notes aggregating $162,500 converted such notes
into 54,166 shares of common stock at a value of $3.00 per share.
(d) During 1998, the Company issued (i) 16,666 shares of common stock in lieu
of payment of $50,000 of compensation accrued as of December 31, 1997 and
(ii) 3,500 shares of common stock in payment of legal fees aggregating
$13,000.
See accompanying notes.
F - 6
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF COMPANY AND GOING CONCERN UNCERTAINTY:
PTN Media, Inc., 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. This merger has been retroactively
reflected in the December 31, 1997 financial statements. 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 web sites in
the form of articles and photographs pertaining to fashion,
beauty, style and entertainment. These web sites, 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
$2,590,347 and at December 31, 1998 current liabilities
exceeded current assets by $982,375. The Company has relied on
certain bridge financing (see Note 5) to fund its activities
and recently (in 1999) completed the sale of common stock
through an initial public offering (see Note 7) to provide
working capital for its continuing development stage activities
and eventual commencement of full operations. The Company sold
an aggregate of 128,900 shares of common stock in the offering
instead of 400,000 shares as originally contemplated. As such,
net proceeds from the offering aggregated $461,496 instead of
approximately $1,600,000. 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
F - 7
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(b) Fixed Assets:
Fixed assets are recorded at cost. Depreciation of fixed assets
is provided on a straight-line basis as follows:
Computer equipment 3 years
Furniture and fixtures 5 years
Maintenance and repairs are expensed as incurred. Depreciation
expense for the periods ended December 31, 1998 and 1997
aggregated $670 and $210, respectively.
(c) Revenue Recognition:
The Company generates revenues from the sale of advertising
banners on its web sites which appear on a user's computer
screen when accessing different areas of the Company's web
sites. Advertising revenue is recognized in the period the
advertisement is displayed, provided that no significant
Company obligations remain. Company obligations typically
include guarantees of a minimum number of "impressions" or
times that an advertisement is viewed by users of the Company's
web sites. Minimal revenues were generated through December 31,
1998.
(d) Income Taxes:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and to
net operating loss and tax credit carry forwards, measured by
enacted tax rates for years in which taxes are expected to be
paid or recovered.
Deferred taxes are provided for temporary differences between
financial and tax accounting, principally for differences in
the basis of fixed assets and other nondeductible expenses, as
well as for net operating loss carry forwards. See also Note 9.
(e) 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"). In accordance with the
rules of the Securities and Exchange Commission for initial
public offerings, all shares issued within one year of filing
are being treated as outstanding for all periods presented.
F - 8
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
(g) Royalties/License Fees:
Royalties/license fees paid under the terms of license
agreements entered into are charged to expense in accordance
with the terms of the agreements. Any guaranteed minimum
payments will be amortized over the period of the license
agreement.
During its development stage, the Company has expensed the
guaranteed minimum royalties upon execution of the license
agreements since there is no assurance that the Company will be
able to derive any revenues during the initial term of the
agreement. See also Note 4.
(h) Stock-Based Compensation:
SFAS No. 123, "Accounting for Stock Based Compensation",
requires the Company to either record compensation expense or
to provide additional disclosures with respect to stock awards
and stock options granted. The Company applies APB Opinion 25,
the intrinsic value method, in accounting for options granted
under its stock option plan (see Note 8).
(i) Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997. This statement
prescribes standards for reporting comprehensive income and its
components. Since the Company currently does not have any items
of comprehensive income, a statement of comprehensive income is
not yet required.
NOTE 3 - FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Computer equipment $2,194 $2,194
Furniture and fixtures 2,312 -
------ ------
4,506 2,194
Less: accumulated depreciation 880 210
------ ------
$3,626 $1,984
====== ======
</TABLE>
F - 9
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - LICENSE FEES PAYABLE:
On June 1, 1997, the Company entered into a License Agreement
(the "Agreement") with Niki, Inc. ("Niki"). This agreement
provides for, among other things, the right to use Ms. Niki
Taylor's name and likeness in connection with the Company's
"Fashion House with Niki Taylor" web site. In consideration for
such rights, the Company will pay royalties of 15% of any gross
revenues received in connection with this web site (except for
sponsors introduced by Niki whereby the royalties will be
calculated at 50%) and 35% of net revenues from product sales.
This agreement expired on September 30, 1998, and was
automatically extended for an additional 12-month period. It
will be automatically extended for a further 12-month period
unless terminated by either party at the end of the then
current term.
The Company has guaranteed the payment of minimum royalties to
Niki, Inc., in the amount of $150,000. $50,000 of this amount
was paid at the time of execution of the agreement (in 1997)
and the balance of $100,000 was paid in 1998.
In January 1998, the Company entered into a License Agreement
(the "Agreement") with an entity controlled by model Tyra Banks
pursuant to which Ms. Banks would host the Company's next web
site under terms similar to that negotiated with Ms. Taylor.
This agreement expired on March 31, 1999, and may be
automatically extended for up to two additional 12-month
periods, unless terminated by either party prior to such
extension. The Company has guaranteed the payment of minimum
royalties in the amount of $100,000. $50,000 of this amount was
paid at the time of execution of this agreement and the balance
upon the consummation of the Company's proposed IPO. As of
December 31, 1998, the Company had not paid the remaining
balance of $50,000.
Also in January 1998, the Company entered into a separate
agreement with this entity for the rights to utilize the name
and likeness of Ms. Banks in connection with the "Tyra Banks
Calendar." These rights are applicable to the calendar for the
16-month period ending December 31, 1999. The Company has
agreed to pay this entity up to $87,000 for production expenses
incurred in connection with the creation of this calendar and
has guaranteed minimum royalties in the amount of $100,000 of
which only $50,000 was paid as of December 31, 1998.
As of December 31, 1998, the Company has paid $34,000 toward
the production expenses of the Tyra Banks calendar. The
remaining unpaid balance of $53,000 is included in accrued
expenses.
See Note 10(e) concerning legal proceedings associated with the
agreements entered into with Ms. Banks.
In October 1998, the Company entered into a License Agreement
(the "Agreement") with model Claudia Schiffer under terms
similar to those negotiated with Ms. Taylor and Ms. Banks. This
agreement expires on the third anniversary of the launch of
this web site, and may be extended only upon mutual agreement
of the parties. The Company has guaranteed the payment of
minimum royalties in the amounts of $300,000 for the first year
of the agreement, $400,000 for the second year and $500,000 for
the third. $150,000 of the royalties for the first year was
payable at the time of execution of this agreement and the
balance before December 23, 1998. The Company paid $145,000 in
1998 and issued a note for the remaining balance of $155,000,
which amount was paid in February 1999. In connection with this
agreement, the Company also issued an aggregate of 269,682
shares of common stock, valued at $4.00 per share, to Ms.
Schiffer as additional compensation.
F - 10
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - LICENSE FEES PAYABLE (Continued):
Also in October 1998, the Company entered into a separate
agreement with Ms. Schiffer for the rights to utilize her name
and likeness in connection with the "Claudia Schiffer
Calendar." These rights are applicable to the calendar for the
16-month period ending December 31, 1999. The Company has
guaranteed the payment of minimum royalties in the amount of
$75,000 which amount was paid as of December 31, 1998.
A summary of the guaranteed minimum payments as of December 31,
1998, is as follows:
<TABLE>
<CAPTION>
Guaranteed Less Balance
Minimum Amounts Owed as of
Royalties Paid December 31, 1998
---------- ------- -----------------
<S> <C> <C> <C>
Niki Taylor Web Site $150,000 $(150,000) $ -
Tyra Banks Web Site 100,000 (50,000) 50,000
Tyra Banks Calendar 100,000 (50,000) 50,000
Claudia Schiffer Web Site 300,000 (145,000) 155,000
Claudia Schiffer Calendar 75,000 (75,000) -
-------- --------- --------
$725,000 $(470,000) $255,000
======== ========= ========
</TABLE>
NOTE 5 - 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.
These notes continue to be outstanding notwithstanding the fact
that payments owed by the Company thereunder are now past due.
Interest accrued and unpaid as of December 31, 1998 and 1997,
aggregated $4,500 and $2,250, respectively.
In December 1997, the Company issued unsecured 8% promissory
notes aggregating $65,000 originally due six months from date
of issuance. In 1998, the Company issued additional 8%
unsecured promissory notes aggregating $97,500. In March 1998,
these note holders agreed to convert these notes (aggregating
$162,500) into 162,500 shares of the Company's common stock. In
August 1998, the Company determined that the fair value of its
shares in March 1998 was $3.00. Accordingly, the Company
requested, and these stockholders agreed to the return of
108,334 shares of common stock in exchange for warrants to
purchase an aggregate of 108,334 shares of common stock, at a
price of $4.00 per share, the deemed fair value in August 1998.
F - 11
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - 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. As of December 31, 1998, borrowings
outstanding under this line aggregated $542,500, and interest
accrued and unpaid aggregated $22,644.
NOTE 7 - SHAREHOLDERS' EQUITY:
The Company's authorized capital consists of 1,000,000 shares
of preferred stock, $.01 par value and 10,000,000 shares of
common stock, $.001 par value. None of the preferred shares
have been issued as of the date of this report.
In June 1997, the Company issued 2,957,348 shares of common
stock in exchange for one year promissory notes aggregating
$2,957, bearing interest at an annual rate of 6%. These notes
(and accrued interest) were repaid in June 1998.
In addition, in June 1997, the Company also issued 10,000
shares of common stock in exchange for legal services rendered
aggregating $1,000.
In March 1998, the Company issued (i) 54,166 shares of common
stock in connection with the conversion of $162,500 of notes
payable into common stock (see Note 5) (ii) issued 16,666
shares of common stock in lieu of payment of $50,000 of
compensation accrued to an officer as of December 31, 1997 and
(iii) 1,000 shares of common stock in lieu of payment of legal
fees aggregating $3,000. These shares were deemed to have a
fair value of $3.00 per share at the time of issuance. In July
1998, the Company issued 2,500 shares of common stock in lieu
of payment of legal fees of $10,000.
During 1998, the Company issued an aggregate of 269,682 shares
of common stock to Ms. Schiffer (see Note 4), in connection
with the license agreement entered into. These restricted
shares have been valued at $4.00 per share, the deemed fair
value at the time of issuance.
On September 18, 1998, the Securities and Exchange Commission
declared effective the Company's registration statement
concerning an initial public offering ("IPO") of 400,000 shares
of common stock. On October 22, 1998, the Company extended the
expiration date of the initial public offering to January 31,
1999. During the three-month period ended December 31, 1998,
the Company consummated the sale of 66,900 shares of common
stock, realizing net proceeds of $238,103.
In February 1999, subsequent to the balance sheet date, the
Company consummated the sale of an additional 62,000 shares of
common stock for net proceeds of $223,393.
F - 12
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCK OPTIONS:
In March 1998, the Company adopted the 1998 Stock Option Plan
(the Plan), which provides for the grant of options to purchase
up to 500,000 shares of the Company's common stock. Under this
Plan incentive stock options may be granted to employees and
non-statutory stock options may be granted to employees and
non-employees.
In March 1998, the Company granted options to purchase 106,000
shares of common stock under this Plan. These options are
exercisable at $3.00 per share and expire ten years from the
date of grant. Options to purchase 3,000 shares of common stock
are currently exercisable and the remaining options vest
equally over three years.
The compensation cost resulting from the effect of applying
SFAS 123 to the above described option grant is not disclosed
since the amount is considered immaterial.
NOTE 9 - INCOME TAXES:
No provision for Federal and state income taxes has been
recorded since the Company has incurred losses for the period
from inception through December 31, 1998. Deferred tax assets
at December 31, 1998 and 1997 consist primarily of the tax
effect of a net operating loss carry forwards which amount to
approximately $790,000 and $85,000, respectively. The Company
has provided a full, 100% valuation allowance on the deferred
tax assets at December 31, 1998 and 1997 to reduce such asset
to zero, since there is no assurance that the Company will
generate future taxable income to utilize such asset.
Management will review this valuation allowance requirement
periodically and make adjustments as warranted.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
(a) Operating Leases:
During 1997, the Company utilized office space provided by its
majority shareholder pursuant to a month-to-month lease at a
monthly rental of $400. In 1998, the Company began renting new
space under a month-to-month lease at a monthly rental of $690.
Rent expense for the 1998 and 1997 periods aggregated $7,700
and $2,800, respectively.
(b) Consulting Agreements:
In March 1998, the Company entered into a consulting agreement
with its editorial director which expires on June 30, 1999 and
is subject to automatic annual renewals. The Company has (i)
agreed to pay this individual a monthly fee of $4,166 and (ii)
granted options to purchase up to 50,000 shares of the
Company's common stock at an exercise price of $3.00 per share
(see Note 8).
The Company has agreed to pay a monthly fee of $3,500 to a
public relations firm to assist in the launch of its web sites.
This agreement is for an eight-month period effective May 1,
1998. This firm will be responsible for arranging creative and
on-target promotions in both the traditional and electronic
media.
F - 13
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued):
(c) Employment Agreements:
The Chairman/President of the Company, is entitled to receive
an annual base salary of $100,000 from the Company. At December
31, 1997, the Company accrued $50,000 in compensation payable
to this individual and payment was accomplished in 1998,
through the issuance of shares of common stock (see Note 7). In
1998, this individual waived all rights to receive accrued
salaries payable to him in the amount of $66,000 and,
accordingly, such amount has been presented as a contribution
to the Company's additional paid-in capital.
(d) Other Agreements:
In the normal course of operations, and in accordance with
industry custom, the Company trades its advertising services
with those of some of its suppliers. These transactions are
recorded at fair value when the services are received. No such
transactions were recorded in 1998.
The Company has also entered into various agreements pursuant
to which it provides hyperlinks to other web sites for the
purchase of certain items. In exchange, the Company will
receive a percentage of any revenues derived from sales to
those customers using these hyperlinks.
(e) Legal Proceedings:
On December 8, 1998, attorneys for Ms. Banks (see Note 4) made
a demand for arbitration against the Company alleging that the
Company failed to make timely payments of monies due under the
two executed agreements, and refused to return certain
materials to Ms. Banks. Ms. Banks is seeking payment of
$153,000 (which amount is recorded as a liability on the
financial statements) plus interest, as well as damages for
injury to her public reputation. The agreement relating to the
creation and sale of calendars has been terminated. Although
Ms. Banks also claims that the web site agreement has been
terminated, the Company believes that it is currently in full
compliance with this agreement, and that Ms. Banks has refused
to perform thereunder. As such, the Company is seeking the
return of $100,000, plus interest, which was paid to Ms. Banks.
The Company intends to vigorously defend itself in this
arbitration, and believes that it has meritorious defenses.
However, there can be no assurance that the Company will be
successful in this arbitration and an unfavorable result could
have a material adverse effect on the Company.
F - 14
<PAGE>
ITEM 1. Financial Statements
PTN MEDIA, INC.
(a Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30,1999
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 12,208
-----------
TOTAL CURRENT ASSETS 12,208
-----------
FIXED ASSETS, NET 24,497
OTHER ASSETS 690
-----------
TOTAL ASSETS $ 37,395
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses $ 204,317
License fees payable 100,000
Short-term loans payable 331,250
Loans payable - officer 536,344
-----------
TOTAL CURRENT LIABILITIES 1,171,911
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred stock, par value $0.01; 1,000,000 shares
authorized; 2,400 shares issued and outstanding 24
Common stock, par value $0.001; 10,000,000 shares
authorized; 3,440,262 shares issued and outstanding 3,440
Additional paid-in capital 2,103,317
Deficit accumulated during the development stage (3,241,297)
-----------
TOTAL SHAREHOLDERS' DEFICIT (1,134,516)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 37,395
===========
</TABLE>
See accompanying notes to financial statements.
F - 15
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
CONDENSED 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
1999 1998 1999 1998 September 30, 1999
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 272 $ - $ 13,488 $ - $ 17,976
----------- ----------- ----------- ----------- ----------------
EXPENSES:
Cost of revenue 9,000 - 52,923 200,000 1,781,651
Product development 134,555 166,900 293,440 371,615 775,528
General and administrative 92,149 77,173 267,393 212,434 622,057
----------- ----------- ----------- ----------- ----------------
TOTAL EXPENSES 235,704 244,073 613,756 784,049 3,179,236
----------- ----------- ----------- ----------- ----------------
LOSS FROM OPERATONS (235,432) (244,073) (600,268) (784,049) (3,161,260)
----------- ----------- ----------- ----------- ----------------
OTHER INCOME (EXPENSES):
Interest expense (18,207) (11,025) (50,682) (23,755) (80,076)
Interest income - - 177 39
----------- ----------- ----------- ----------- ----------------
TOTAL OTHER INCOME (EXPENSE) (18,207) (11,025) (50,682) (23,578) (80,037)
----------- ----------- ----------- ----------- ----------------
NET LOSS $ (253,639) $ (255,098) $ (650,950) $ (807,627) $ (3,241,297)
=========== =========== =========== =========== ================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.08) $ (0.19) $ (0.27) $ (1.02)
=========== =========== =========== =========== ================
WEIGHTED AVERAGE NUMBER OF COMMON
OUTSTANDING 3,440,262 3,041,680 3,432,995 3,041,680 3,176,880
=========== =========== =========== =========== ================
</TABLE>
See accompanying notes to financial statements.
F - 16
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Cumulative
Months Ended during the
September 30, development stage
------------------------------ May 27, 1997 to
1999 1998 September 30, 1999
-------------- ------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (650,950) $ (807,627) $ (3,241,297)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,377 780 4,257
Shares issued for legal fees - 13,800 14,000
Waiver of compensation payable - - 66,000
Issuance of shares for license fees - - 1,078,728
Changes in operating assets and liabilities:
Accounts receivable 4,488 - -
Accrued expenses 70,502 119,661 254,317
License fees payable (155,000) - 100,000
-------------- ------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (727,583) (674,186) (1,723,995)
-------------- ------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Purchase of fixed assets (24,248) (2,312) (28,754)
Security deposits paid - (690) (690)
-------------- ------------- -----------------
NET CASH USED IN OPERATING ACTIVTIES (24,248) (3,002) (29,444)
-------------- ------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from officer 32,000 610,000 574,500
Repayment of loans to officer (38,156) - (38,156)
Proceeds from short-term loans 275,000 97,500 493,750
Payments from shareholders - 2,957 2,957
Proceeds from sale of common of subsidiary 190,000 - 190,000
Proceeds from sale of common and preferred stock, net 304,493 (47,197) 542,596
-------------- ------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 763,337 663,260 1,765,647
-------------- ------------- -----------------
INCREASE (DECREASE) IN CASH 11,506 (13,928) 12,208
CASH, BEGINNING OF PERIOD 702 20,134 -
-------------- ------------- -----------------
CASH, END OF PERIOD $ 12,208 $ 6,206 $ 12,208
============== ============= =================
</TABLE>
See accompanying notes to financial statements.
F - 17
<PAGE>
PTN MEDIA, INC.
(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 web
sites in the form of articles and photographs pertaining to fashion, beauty,
style and entertainment. These web sites, 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 $3,241,297 and at
September 30, 1999 its current liabilities exceeded its current assets by
$1,159,703. The Company has relied on bridge financing, the proceeds from the
sale of common stock through an initial public offering, sale of stock in its
newly created subsidiary, Fragrancedirect.com, Inc., officer's loans and sale
of preferred stock 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 financial statements included in its annual report on Form 10-KSB for
the year ended December 31,1998 and which is 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.
F - 18
<PAGE>
PTN MEDIA, INC.
(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
financial statements of PTN Media, Inc.contain all adjustments necessary to
present fairly the Company's financial position as of September 30, 1999 and the
results of its operations for the three and nine month periods ended September
30, 1999 and 1998 and for the cumulative period during the development stage
(May 27, 1997 to September 30, 1999) and its cash flows for the nine month
periods ended September 30, 1999 and for the cumulative period during the
development stage (May 27, 1997 to September 30, 1999).
The results of operations for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
NOTE 2 - SALE OF SHARES:
On September 18, 1998, the Securities and Exchange Commission declared effective
the Company's registration statement concerning an initial public offering
("IPO") of 400,000 shares of common stock. On October 22, 1998, the Company
extended the expiration date of the initial public offering to January 31, 1999.
As of December 31, 1998, the Company had consummated the sale of 66,900 shares
of common stock and in February 1999, the Company consummated the sale of an
additional 62,000 shares of common stock. The aggregate net proceeds from the
IPO were $335,596.
On November 8, 1999, the Company sold an additional 250,000 shares of its common
stock for $500,000.
During the second quarter of 1999, the Company 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.
In addition, during the third quarter of 1999, the Company sold shares in its
newly created subsidiary, Fragrancedirect.com, Inc. for $190,000.
F - 19
<PAGE>
PTN MEDIA, INC.
(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. These notes continue to be outstanding notwithstanding the fact that
payments owed by the Company thereunder are now past due. Interest accrued and
unpaid as of September 30, 1999 was $7,875.
In March 1999, the Company received $275,000 from the sale of 5 1/2 units, each
unit consisting of a $50,000 promissory note, bearing interest at 10% per annum,
and two year warrants to purchase 10,000 shares of common stock at $7.50 per
share. As of September 30, 1999, interest accrued and unpaid aggregated $13,750.
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, a
further increase to $1,000,000, was 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.
During the nine months ended September 30, 1999, the Company repaid $38,156 of
such loans and borrowed an additional $32,000. Accrued and unpaid interest as of
September 30, 1999 was $56,201.
F - 20
<PAGE>
PTN MEDIA, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
NOTE 5 - LICENSE AGREEMENT:
In June 1999, the Company entered into a License Agreement with model Estella
Warren. This license provides for an on-line Internet service and downloadable
electronic calendars featuring the name and likeness of Ms. Warren. This
agreement continues until the first anniversary of the date the service is
launched and required payment of the entire fee of $30,000 at the time of
execution. Ms. Warren also receives a royalty equal to 20% of revenues received
in connection with calendar sales.
During the second and third quarters of 1999, the Company paid the entire
$30,000 to Ms.Warren. The Company continues to owe model Tyra Banks $100,000 in
connection with calendar fees.
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").
F - 21
<PAGE>
================================================================================
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that which is contained in this prospectus. We are offering to sell shares of
common stock and seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the common stock.
_______________________
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.....................................3
THE OFFERING.........................................4
SUMMARY FINANCIAL DATA...............................6
RISK FACTORS.........................................7
FORWARD LOOKING STATEMENTS..........................10
USE OF PROCEEDS.....................................10
DIVIDEND POLICY.....................................11
PRICE RANGE OF COMMON STOCK.........................11
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................13
OUR BUSINESS........................................17
MANAGEMENT..........................................23
PTN MEDIA, INC.
STOCK OPTION PLANS...............................26
CERTAIN TRANSACTIONS................................28
PRINCIPAL STOCKHOLDERS..............................28
DESCRIPTION OF CAPITAL STOCK........................29
SHARES ELIGIBLE FOR FUTURE SALE.....................33
LEGAL MATTERS.......................................36
EXPERTS.............................................36
WHERE YOU CAN GET MORE
INFORMATION.......................................37
INDEX TO FINANCIAL STATEMENTS.......................38
================================================================================
================================================================================
PTN MEDIA, INC.
1,322,992 Shares of Common Stock
_______________
PROSPECTUS
_______________
February 14, 2000
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated certificate of incorporation and by-laws of
the Registrant provide that the Registrant shall indemnify any person to the
full extent permitted by the Delaware General Corporation Law (the "GCL").
Section 145 of the GCL, relating to indemnification, is hereby incorporated
herein by reference.
In accordance with Section 102(a)(7) of the GCL, the certificate of
incorporation of the Registrant eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damage for breach of
fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a)(7) of the GCL.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses (other than
underwriting discounts, consulting fees and the underwriters 3% non-accountable
expense allowance) payable by the Registrant in connection with the issuance and
distribution of the securities being registered. Except for the SEC filing fee
all expenses have been estimated and are subject to future contingencies.
SEC registration fee.......................... $ 2,188.39
Legal fees and expenses....................... 25,000.00
Printing and engraving expenses............... 5,000.00
Accounting fees and expenses.................. 3,000.00
Miscellaneous................................. 811.61
Total......................... $ 36,000.00
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since February 1997, the Registrant has sold the following securities
without registration under the Securities Act:
(1) In July and August 1997, the Registrant sold an aggregate of
45,000 warrants to purchase 45,000 shares of common stock at
an exercise price of $3.00 per share to four unaffiliated
persons.
(2) In August 1998, the Registrant sold an aggregate of 116,792
warrants to purchase 116,792 shares of common stock at an
exercise price of $4.00 per share to 17 unaffiliated persons.
(3) In August 1998, the Registrant sold 10,000 shares of common
stock to an unaffiliated person.
(4) In October 1998, the Registrant sold 219,682 shares of common
stock to an unaffiliated person.
(5) In December 1998, the Registrant sold 50,000 shares of common
stock to an unaffiliated person.
(6) In March 1999, the Registrant sold 5,450 shares of Class A
Preferred Stock and 109,000 warrants to purchase 109,000
shares of common stock at an exercise price of $7.50 per share
to 12 unaffiliated persons for an aggregate consideration of
$545,000.
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(7) In June 1999, the Registrant sold 12,500 shares of common
stock to an unaffiliated person.
(8) In October 1999, the Registrant sold an aggregate of 120,000
shares of common stock to four unaffiliated persons for an
aggregate consideration of $120,000.
(9) In October 1999, the Registrant sold an aggregate of 260,000
shares of common stock to two unaffiliated persons for an
aggregate consideration of $520,000.
(10) In November 1999, the Registrant sold an aggregate of 25,000
shares of common stock to one unaffiliated entity for
$100,000.
(11) In December 1999, the Registrant sold 1,000 shares of common
stock to an unaffiliated person.
(12) In January 2000, the Registrant issued 110,000 shares of
common stock to Peter Klamka, the Registrant's Chief Executive
Officer, in satisfaction of loans made by Mr. Klamka to the
Registrant totalling $548,500.
The issuances described in Item 15 above were made in reliance upon the
exception from the registration requirements of the Securities Act provided by
Section 4(6) of the Securities Act for transactions by an issuer not involving a
public offering and Regulation D promulgated thereunder. The recipients of the
securities in each of the above transactions represented their intentions to
acquire the securities for investment only and not with a view to or a sale in
connection with any distribution thereof. No underwriter of underwriting
discount or commission was involved in the issuances.
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ITEM 27. EXHIBITS
The following Exhibits are filed herewith and made a part hereof.
<TABLE>
<S> <C>
2.1 Plan of Merger between PTN Media, Inc. and Interactive Entertainment
Studio, Inc. dated as of February 25, 1998. (1)
3.1 Certificate of Incorporation of PTN Media, Inc. dated as of January 13,
1998.(1)
3.2 By-Laws of PTN Media, Inc. (1)
4.1 Specimen Common Stock Certificate (1)
5.1 Opinion of Lehman & Eilen LLP (2)
10.1 Lease Agreement dated as of February 27, 1998, between First Miller
Limited Partnership and PTN Media, Inc. (1)
10.2 PTN Media, Inc. 1998 Stock Option Plan (1)
10.3 PTN Media, Inc. 1999 Consultant Stock Plan (3)
11.1 Computation of per share earnings
23.1 Consent of Lazar Levine & Felix LLP (2)
23.2 Consent of Lehman & Eilen LLP (2)
24.1 Power of Attorney (included in Part II of Registration Statement)
</TABLE>
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<TABLE>
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(1) Incorporated by reference to PTN Media, Inc.'s Registration Statement
on Form SB-2 (No. 333-51933) declared effective on September 18, 1998.
(2) Filed herewith.
(3) Incorporated by reference to PTN Media, Inc. Registration Statement on
Form S-8 filed on June 16, 1999.
</TABLE>
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ITEM 28. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
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(b) For determining any liability under the Securities Act, treat each
post effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and has authorized this
registration statement or amendment thereto to be signed on its behalf by the
undersigned, whereunto duly authorized, in the City of Ann Arbor, State of
Michigan on the 1st day of February, 2000.
PTN MEDIA, INC.
By: /s/ Peter Klamka
---------------------------
Peter Klamka
Chairman of the Board and
Chief Executive Officer
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Peter Klamka and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney may be executed in counterparts.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement or amendment thereto has been signed by the
following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------- --------------------------------------- ----------------
/s/ Peter Klamka Chairman of the Board, President, February 1, 2000
- ------------------ Chief Executive Officer, Treasurer and
Peter Klamka Secretary (Principal Executive Officer)
(Principal Financial Officer and
Principal Accounting Officer)
/s/Chris Giordano Chief Operating Officer February 1, 2000
- -------------------
Chris Giordano
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<PAGE>
Exhibit 5.1
February 10, 2000
Board of Directors
PTN Media, Inc.
2750 S. State Street
Ann Arbor, MI 48104
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
At your request, this letter relates to the Registration
Statement on Form SB-2 filed by PTN Media, Inc. (the "Company") with the
Securities and Exchange Commission on February 3, 2000 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, (the "Act") of 1,322,992 shares of the Company's Common Stock
(the "Shares").
We have examined such records and documents and made such
examinations of law as we have deemed relevant in connection with this opinion.
In such examination, we have assumed without independent
verification, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon representations of the Company in the Registration Statement,
certificates or comparable documents of officers of the Company and of public
officials. Our examination of matters of law has been limited to the Delaware
General Corporation Law.
Based on the foregoing, and subject to the qualifications
stated herein, as of the date hereof, it is our opinion that when there has been
compliance with the Act and the applicable state securities laws the Shares will
have been duly authorized and, when issued, delivered and paid for in the manner
described in the Registration Statement, will be legally issued and the Shares,
when so issued, delivered and paid for will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In so doing, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Lehman & Eilen LLP
Lehman & Eilen LLP
<PAGE>
Exhibit 23.1
Lazar Levine & Felix LLP
Consent of Independent Auditors
We consent to the use in this Registration Statement (Form SB-2) in
connection with the registration under the Securities Act of 1933, as amended,
of 1,222,992 shares of common stock of our report dated April 8, 1999, with
respect to the financial statements of PTN Media, Inc. as of and for the years
ended December 31, 1998 and 1997, and to the reference to our firm under the
caption "Experts" in this registration statement.
/s/ Lazar Levine & Felix LLP
New York, NY
February 3, 2000
