U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INDEPENDENT MUSIC GROUP, INC.
(Name of Small Business Issuer in its charter)
DELAWARE 22-281-1783
(State of incorporation) (I.R.S. Employer Identification No.)
71 Great Pasture Road, Redding, Connecticut 06896
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (203) 938-0737
Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.00005 Par Value
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Background
Independent Music Group, Inc. was formed under the laws of the State of
Delaware in May 1988. In April 1999, Independent Music Group acquired all the
issued and outstanding capital stock of Independent Music Network, Inc.(TM), a
Delaware corporation. Independent Music Group's principal executive offices are
located at 71 Great Pasture Road, Redding, Connecticut. Independent Music
Network's offices are located at 200 West 85th Street, Suite 2B, New York, NY
10024. Independent Music Group's telephone number is 203-938-0737. Independent
Music Group's website address is www.independentmusicnet.com or
www.independentmusicchan.com. Independent Music Group's common stock trades on
the OTC Bulletin Board under the symbol "JNET."
Independent Music Group intends to pursue the concept of broadcasting
amateur and professional music television videos on national cable television.
Specifically, management of Independent Music Group anticipates that Independent
Music Network, a wholly-owned subsidiary of Independent Music Group, will
conduct and coordinate all advertising, band recruiting and video editing,
Independent Music Channel, a wholly-owned subsidiary of Independent Music
Network, will facilitate the broadcast of the music videos and Emerald City
Records, a wholly-owned subsidiary of Independent Music Group, will produce and
mass market the music of bands signed by Independent Music Group. Independent
Music Group currently employs three individuals. Mr. James Fallacaro serves as
Independent Music Group's president, Ms. Corinne Fallacaro serves as secretary
and treasurer and Mr. Anthony Escamilla serves as vice president. Management
beleives that additional employees will be hired as operations and business
activity increase.
Corporate Strategy
Under Independent Music Group's business concept; Independent Music
Network(TM) will endeavor to:
o Broadcast programming over national cable television that
consists primarily of music videos of amateur and professional
bands;
o Minimize Independent Music Group's need for capital by
charging bands an advance fee of $350 per three-minute video
that, subject to content approval, guarantees the video will
be broadcast nationally;
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o Create value and by promoting Independent Music Network(TM)
during broadcasts and funding airtime with the advanced fees
paid by musicians rather than with sponsorship advertising
dollars which should eliminate sponsorship driven programming
decisions; and
o Design an innovative and informative corporate website that
promotes Independent Music Network(TM), and creates franchise
value and generates substantial advertising and related
revenue. Through extensive cross-advertising with its
anticipated cable television programming, Independent Music
Group intends to develop its website into a web portal.
Independent Music Group's business concept was developed based on
management's assessment that no medium currently exists which gives amateur
musicians the opportunity to present themselves on national television. Channels
like MTV(TM) and VH1(TM) primarily program only those artists that are listed on
the Billboard 100(TM) or similar charts. Management believes its concept will be
attractive to amateur musicians and give amateur musicians the opportunity to
promote their talent on the Pay For Play(TM) basis. Pay For Play(TM) is the
phrase used by Independent Music Group to describe and promote its concept of
giving amateur musicians the opportunity to showcase their talents on national
television for a fee of $350. Independent Music Group also believes its proposed
services will be well received by major and independent record labels and talent
agencies because Independent Music Network will provide a cost-effective medium
to showcase new talent on a non-preferential basis.
Independent Music Group will initially attempt to develop interest in
its concept among amateur musicians by undertaking an advertising campaign which
will promote Independent Music Group and provide amateur musicians with
information on how to submit their music videos and $350 fee. After being
screened by Independent Music Group for acceptable content, professionally
packaged and edited, Independent Music Group will broadcast the video on a
national cable television channel. In addition to the national television
broadcast, each artist or band that submits an acceptable video will also be
listed on Independent Music Network(TM)'s corporate website and portal where
streaming audio clips of their performance may be heard and other information on
the bands and the music industry will be displayed.
As part of its programming strategy, each month Independent Music Group
will choose the Top 10 artists or bands broadcast on Independent Music
Network(TM) during that period. The selected artists/bands will each be featured
that month with a 1/2 hour exclusive, national television showcase of their
videos at no additional cost. The top band of the month will be signed to a
recording contract with Emerald City Records. In addition to screening videos
for content, Independent Music Network(TM) will form an advisory panel to
evaluate the commercial viability of selected bands. If deemed to be
commercially viable, Independent Music Group will be in a position to offer
these bands management contracts or refer them to Emerald City Records(TM) or an
outside record label.
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Independent Music Network(TM) intends to promote its own network during
its broadcasts to generate brand recognition and enhance franchise value. This
process also reduces the burden on Independent Music Network(TM)'s working
capital, as a large sales force will not be required. In addition to Independent
Music Network(TM)'s self-promotion, its advertising will also include
commercials that promote its Web Portal and direct interested viewers to
Independent Music Network(TM)'s corporate website. Management believes company
sponsored advertising will provide Independent Music Network(TM) with sole
discretion to format its broadcasts as it chooses while affording it the ability
to promote its own network. Unlike MTV(TM) or VH1(TM) whose financial success is
contingent upon obtaining sponsorships or large advertisers.
Independent Music Group anticipates launching its domestic website, web
portal and traditional campaign between the last quarter of 1999 or the first
quarter of 2000. Independent Music Group expects to commence broadcasting by the
end of 1999 or the early part of 2000.
Music, Music Video and Recording Industry
The development of Independent Music Group's business concept resulted
in part from the popularity of the music and music video industry in general.
Management believes that the broadcast television market for music videos and
music programming has grown significantly since the introduction of MTV(TM) in
1981. Music enthusiasts are now able to view everything from country to rock to
rap to salsa on cable television, with major channels generating significant
revenues from growing cable subscriptions and increasing advertiser support.
Management's research indicates that the amateur music industry has experienced
a corresponding significant growth phase. According to the Gallup Organization
of Princeton, New Jersey, in 1996 the United States had approximately 62 million
amateur musicians aged five and older comprising approximately 6 million bands.
In the United States alone, nearly $6 billion was spent on musical instruments
and accessories in 1996, an increase of approximately 12% from 1994.
According to a 1997 study by the Recording Industry Association of
America demographic profile of consumers of recorded music has aged along with
the population. Consumers age 29 and under accounted for 52.9% of music
purchases in 1996 versus 56.7% in 1992. Similarly, consumers over the age of 45
comprised 15.2% of the market in 1996 compared with 12.2% in 1992. In addition,
based on Recording Industry Association of America data, there have been
significant gains in the Popular music listenership among the 35 and over
category. While the spending by young Americans remains predictably strong due
to their passion for music, the Babyboomers (particularly in the age 40-44
category) have shown the most notable increase, jumping from a meager 4.8%
market share in 1987 to 9.2% in 1996. Based on these statistics, management
believes that the $350 fee that will be charged in accordance with the Pay For
Play concept will not be cost prohibitive for amateur entertainers.
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Marketing Strategy
In an effort to obtain the maximum number of music videos in a timely
fashion, Independent Music Group will initially target the United States
marketplace, and thereafter, Independent Music Group plans to expand its network
worldwide to encompass the estimated 50 million amateur artists/bands globally.
Independent Music Group approached, and anticipates that it will engage a New
York City based advertising firm to create its advertising campaign. Independent
Music Group anticipates its domestic advertising campaign will include radio and
print ads as well as the Internet to target the approximately 6 million amateur
artists and band members.
Television Broadcasting Strategy
Independent Music Network(TM) proposes to either contract for national
air time in 10 hour per day, five day per week blocks, using a national cable
channels or, if the demand for the Company's concept warrants, Independent Music
Group will attempt to air its own seven day a week, 24 hour national cable
channel. It is anticipated that the Company's programming will consist of
approximately 15 music videos per hour narrated by a video deejay personality
situated in front of a custom designed stage set and interspersed with Company
sponsored advertising. The Company's research included an investigation of media
costs associated with buying one hour of broadcast time using a range of
vehicles, including spot network television, syndicated television, national and
regional cable television, UHF channels and leased public access. The focus was
geared to the amateur band market, where the 6 PM to 3 AM time slot offers a
combination of prime demographic viewer ship and reduced cost exposure. As a
result, Independent Music Group believes it can purchase prime time airtime that
reaches approximately 25 million cable households nationwide at an average cost
of $1,400 per hour.
Specifically, Independent Music Group has determined it can purchase
airtime through networks such as Access Television Network, Inc. Access
Television Network, Inc. maintains contracts for air time directly with the
major cable systems operators, such as Tele-Communications, Inc., Time-Warner,
Inc. and Continental Cablevision, Inc., for a variety of channels at the local
cable system level.
Depending upon the market demand concept, management of Independent
Music Group may pursue the option of starting its own, seven day a week, 24 hour
national cable channel that will be distinctively different from current music
channels. Independent Music Group will promote its programming and create brand
recognition through Independent Music Channel(TM).
Independent Music Network(TM)'s Website
In addition to the increasing popularity of music television, an
increasing number of people are turning to the Internet as a source for music
and music related entertainment. Whether it is fan sites, webcasting,
interactive jukeboxes, re-transmission of radio or downloading, the Internet is
providing consumers with access to more music quicker than ever before.
Management believes the Internet is changing the manner in which music is
listened to and marketed. The sale of music, for
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example, is no longer limited to physical carriers such as commercial music
stores. Experts agree that the potential growth in the online sector is great,
especially with companies such as CDNow, Inc. and Amazon.com, Inc. generating
greater public awareness through costly mass media advertising.
Independent Music Network(TM) and its website are being designed to be
substantially different from most Internet companies and websites. The primary
difference is that those companies typically spend a significant portion of
their operating cash flow to advertise on television and the Internet.
Independent Music Network(TM)'s strategy will attempt to eliminate a strain on
cash flow by advertising during Independent Music Group's cable television video
broadcasts and establishing website affiliations. Independent Music Network(TM)
also anticipates that it will be able to charge fees by generating links to
several Internet band websites.
Independent Music Network(TM)'s Web Portal
After Independent Music Network(TM)'s website is firmly established,
Independent Music Group will endeavor to develop its website into a Web Portal
that will focus on entertainment and information and thereafter expand into a
variety of other content and services.
A Web Portal is where individuals typically begin when they log onto
the Internet, receiving news, topics of interest, weather, online events and
various other informational content. The portal has essentially become the
entryway to all things on the Web. Most Web Portals feature the same mix of
content and services. Differentiation amongst Web Portals is primarily in how
well the sites integrate all of their offerings; the quality of the technology
providers selected to deliver Web-based e-mail, audio and video clips, chat and
Web page communities, and; the ease with which a consumer can use and customize
the service to their individual needs.
Independent Music Group is not currently aware of any existing
competitor in the television music video industry that has or could create and
promote a Web Portal in the fashion that Independent Music Group(TM) can. The
reason is rather simple; since advertising revenue drives their profitability,
companies such as MTV(TM)cannot effectively cross promote/advertise their Web
Portals and/or websites. Another advantage for Independent Music Group(TM)'s Web
Portal is the company's targeted market. Independent Music Group(TM) has a large
core demographic base from which it expects to draw interest in its Web Portal.
The target market for Independent Music Channel(TM)'s product is the six million
amateur artists/bands in the U.S. and the estimated 50 million amateur
artists/bands worldwide. The combination of 50 million amateur artists/bands
globally and the promotional advantage described above enables Independent Music
Group(TM) to launch its Web Portal with a tremendous amount of leverage.
Unlike services such as America On-Line, the "pure" Web Portals are
free from the burdens of providing access and software for users. Through
innovation and a singular focus on serving the needs of the online consumer,
Independent Music Network(TM) plans to integrate the highest quality music and
entertainment content (initially) and services to create a powerful and unique
online experience. Independent Music Network(TM) anticipates that it will
establish strategic alliances,
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affiliations and partnerships with a variety of companies. The potential of such
alliances, combined with the core demographics of the consumers Independent
Music Group initially intends to target, could quickly vault Independent Music
Group(TM) into the upper Web Portal echelon.
Independent Music Network(TM)'s Web Portal will initially be used for a
number of functional and Independent Music Network(TM)'s Web Portal will
initially be used for a number of functional and promotional purposes, some of
which include:
<TABLE>
<CAPTION>
<S> <C> <C>
o Independent Music Network(TM) & Independent o Featured Band Information
Music Channel(TM) Corporate Information o Contest Polling
o Video Submission Guidelines & Forms o CD Sales & Audio Samples
o Pricing Schedules o Visitors' Log
o Band Listings & Programming Schedules o VJ Biographies & Stories
o Frequently Asked Questions Section o Independent Music Network(TM)'s
o Sale of Independent Music Network(TM)/ Interactive Jukebox
Independent Music Channel(TM)Merchandise o Music Industry News
o Links to Band Websites o Links to Band Fan Club Sites
o CD Release Information & Reviews o Local Band News
o Chat Rooms
</TABLE>
Upon completion, the web portal will include links to other Internet
sites for things such as CD and Musical Instrument Sales, National & Local
Entertainment Information, Independent Band Information & Performance Schedules,
Music Magazines & Videos, etc. As mentioned above, Independent Music Group also
expects to establish strategic alliances and partnerships with certain of
companies that provide the services linked to our website for a percentage of
sales per hit. The current industry standard is 15%.
Plan of Operation
Independent Music Group has not generated revenue operations since
1992. Independent Music Network, which as acquired by Independent Music Group in
April 1999, has not generated revenues operations since 1997, the year
Independent Music Network was formed.
Independent Music Group's plan of operations for the next twelve months
is to establish a relationship with a material cable channel which will allow
Independent Music Group to telecast amateur musician performances, structure and
commence an advertising campaign to solicit amateur musicians and design and
implement two music websites.
In order to complete its goals over the next 12 months, management
estimates Independent Music Group will require $2,000,000. Since Independent
Music Group does not receive income from operations, the $2,000,000 management
intends to raise the funds through either a private debt or equity offering, or
a public equity offering.
Year 2000 Impact
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The Year 2000 issue is the result of information technology systems and
embedded systems (products which are made with microprocessor (computer) chips)
such as personal computers using a two-digit format, as opposed to four digits,
to indicate the year. Such information technology and embedded systems may be
unable to properly recognize and process date-sensitive information beginning
January 1, 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
State of Readiness
Independent Music Group and its subsidiaries use a limited amount of
computers and computer software primarily in connection with their in-house
bookkeeping systems. Such systems, including hardware and software, were
recently purchased and are believed, by the manufacturers and Independent Music
Group to be year 2000 compatible.
Notwithstanding the fact that Independent Music Group attempts to
monitor the extent to which its and its subsidiaries' hardware and other
embedded chip equipment may not be year 2000 compatible, as a precaution,
Independent Music Group both uses back-up disks to store electronic or computer
stored information, bookkeeping records and other administrative information and
keeps paper records of all material transactions and correspondence.
The Costs to Address Year 2000 Issues
Based on the limited use of computer software, hardware and embedded
systems by Independent Music Group and its subsidiaries and the progress
Independent Music Group and its subsidiaries have made in identifying and
addressing their year 2000 issues, management does not foresee significant risks
associated with year 2000 compliance by Independent Music Group and its
subsidiaries at this time. Management believes that the costs directly
associated with the year 2000 issue will be less than $20,000 and that all
required upgrades and replacements, if any, will be completed prior to the end
of the third quarter of 1999.
Customer, Supplier and Other Third Party year 2000 Issues
Independent Music Group does not currently have material third party
relationships with suppliers, customers or other third parties with which it
conducts business. Therefore management cannot, at this time, predict the
potential costs to Independent Music Company or its subsidiaries of any adverse
impact or effect of any year 2000 deficiencies by any third parties.
The Risks of Year 2000 Issues and Contingency Plan
Although Independent Music Group believes that its internal exposure to
the year 2000 issue is limited, there can be no assurance its software or any of
its computer systems will be fully year 2000 compatible. At this time,
Independent Music Group is unable to accurately predict the consequences of
failed remediation efforts or new systems to effectively address the year 2000
issue,
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although management does not believe that any such failures will result in a
material, adverse effect on Independent Music Group or its subsidiaries, or the
operation of their business.
ITEM 2. DESCRIPTION OF PROPERTY
Independent Music Group maintains its executive offices at 71 Great
Pasture Road, Redding, Connecticut 06896, on a rent free basis from James
Fallacaro, an executive officer and director of Independent Music Group.
Independent Music Network maintains its executive offices at 200 West 85th
Street, Suite 2B, New York, NY 10024, on a rent free basis from Anthony
Escamilla, an executive officer and director of Independent Music Group.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND SIGNIFICANT
EMPLOYEES
The following table sets forth the names, positions with Independent
Music Group and ages of the executive officers and directors of Independent
Music Group. Directors will be elected at the annual meeting of shareholders and
serve for one year or until their successors are elected and qualify. Officers
are elected by the Board and their terms of office are, except to the extent
governed by employment contract, at the discretion of the Board.
<TABLE>
<CAPTION>
Name Age Positions Held
---- --- --------------
<S> <C> <C>
James Fallacaro 52 Director, Chairman, and President
Corinne Fallacaro 42 Director Secretary and Treasurer
Anthony Escamilla 32 Director and Vice President
</TABLE>
James Fallacaro has been Director, Chairman and President of
Independent Music Group since its formation in 1986. Mr. Fallacaro has been a
Director and officer of both Independent Music Channel and Independent Music
Network since 1997. Mr. Fallacaro has served as the sole director of Emerald
City Records, Inc. since its formation in April 1999. Since 1991 Mr. Fallacaro
has served as President of CJS Holdings, Inc., a technology licensing company he
founded in 1991. From 1986 to 1987, Mr. Fallacaro served as President, and from
1985 to 1986 as a Vice President, of Real Estate Financial Investment Corp.,
which is in the business of acquiring, syndicating and operating real property.
From 1983 to 1985, Mr. Fallacaro was Vice President of Diversified Resources
Group, a firm engaged in the business of acquiring, syndicating and managing
real estate. From 1979 to 1983, Mr. Fallacaro was President of Valkyerie
Technology Group, a firm engaged in licensing of foreign and domestic
technology.
Corinne Fallacaro has been a Director, Secretary and Treasurer of
Independent Music Group since its inception in 1986. Ms. Fallacaro has also
served as a director and executive officer of both Independent Music Network and
Independent Music Channel since 1997. Ms. Fallacaro has also
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served as Vice-President of CJS Holdings, Inc., a private technology licensing
company since 1991. Ms. Fallacaro, is married to James Fallacaro.
Anthony Escamilla has served as Vice President and Director of
Independent Music Group since April 1999. Mr. Escamilla is Secretary and
Treasurer of StockSiren.com, LLC, a company founded by Mr. Escamilla in March
1999. Mr. Escamilla is principally self employed as a financial consultant and
has acted as the Chief Financial Officer of Motorsports USA, Inc. and its parent
company Mobile Multimedia Productions, Inc. since November 1997 and May 1998,
respectively. From January 1993 through October 1997, he worked for The
Long-Term Credit Bank of Japan, Ltd. in their Corporate Finance and Cross Border
M&A Departments. Between July 1990 and September 1996, Mr. Escamilla worked for
Deloitte & Touche in their Audit Department specializing in Corporate Finance
and M&A transactions. He earned MBA and B.S. degrees from the University of
Texas at Austin and the University of Connecticut, respectively. Mr. Escamilla
is a Certified Public Accountant.
ITEM 4. EXECUTIVE COMPENSATION
The officers and directors of Independent Music Group do not have
employment agreement with Independent Music Group or its subsidiaries nor have
the foregoing individuals had employment agreements with any of the foregoing
since 1989. The officers and directors have not received compensation (including
common stock or options to purchase common stock) from Independent Music Group
or its subsidiaries and do not expect to receive compensation for their services
to Independent Music Group for an indefinite period of time.
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of June 18, 1999, with
respect to the beneficial ownership of shares of Independent Music Group's
common stock ("Common Stock") by (i) each person or entity known by Independent
Music Group to be the owner of more than 5% of the outstanding shares of Common
Stock, or to be under common control, (ii) each officer and director, and (iii)
all officers and directors as a group.
<TABLE>
<CAPTION>
Approximate
Percentage of
No. of Outstanding Shares
Name Shares(1) Beneficially Owned
- ---- --------- ------------------
<S> <C> <C> <C>
James Fallacaro(2) 8,555,000 88.7%
Corinne Fallacaro(3) 76,658 *
Anthony Escamilla(4) 0 0%
All Officers and Directors 8,631,658 89.6%
as a Group (3 persons)
*Denotes less than 1%.
</TABLE>
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(1) There were 9,636,475 shares of Independent Music Group's Common Stock
and outstanding as of June 18, 1999.
(2) James Fallacaro is Director, Chairman and President of Independent
Music Group. Does not include 76,658 shares of Independent Music
Group's Common Stock owned by Corinne Fallacaro, James Fallacaro's
wife.
(3) Corinne Fallacaro is Director, Secretary and Treasurer of Independent
Music Group. Does not include 8,550,000 shares of Independent Music
Group's Common Stock owned by James Fallacaro, Corinne Fallacaro's
husband.
(4) Mr. Escamilla is Director and Vice President of Independent Music Group.
ITEM 6. INTEREST OF MANAGEMENT AND OTHER CERTAIN TRANSACTIONS
In April 1999, Independent Music Group acquired all of the issued and
outstanding shares of common stock of Independent Music Network from James
Fallacaro, and officer and director of Independent Music Group, in exchange for
100,000 shares of Common Stock of Independent Music Group and $50,000. In April
1999, Independent Music Group issued James Fallacaro 8,500,000 shares of Common
Stock at a price of $20,000. Both issuances occurred after the 1 for 40 reverse
stock split implemented by Independent Music Group in March 1999.
ITEM 7. DESCRIPTION OF SECURITIES
Independent Music Group is authorized to issue 10,000,000 shares of
Common Stock, par value $.00005 per Share. Independent Music Group is not
authorized to issue preferred stock. As of June 18, 1999, there were 9,636,475
shares of Common Stock issued and outstanding.
The holders of Independent Music Group's Common Stock: [i] have equal
ratable rights to dividends from funds legally available therefor, when, as and
if declared by Independent Music Group's Board of Directors; [ii] are entitled
to share ratably in all of Independent Music Group's assets for distribution to
holders of Independent Music Group's Common Stock upon liquidation, dissolution
or winding up of the affairs of Independent Music Group; [iii] do not have
preemptive subscription or conversion rights and there are no redemption or
sinking fund provisions applicable thereto; and [iv] are entitled to one vote
per share on all matters on which stockholders may vote at all meetings of
stockholders. All shares of Common Stock now outstanding are fully paid and
non-assessable. The holders of shares of Independent Music Group's Common Stock
do not have cumulative voting rights, which means that the holders of more than
51% of such outstanding shares, voting for the election of Directors, can elect
all of the Directors to be elected, if the so choose and in such event, the
holders of the remaining shares will not be able to elect any of Independent
Music Group's Directors.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
As of June 18, 1999, there were approximately 41 stockholders of record
of Independent Music Group's Common Stock. Independent Music Group's Common
Stock is trades on the NASD OTC Bulletin Board under the symbol "JNET". The
following table sets forth, for the period since June 1, 1997, the high and low
bid prices for Independent Music Group's Common Stock as reported by the OTC
Bulletin Board. The following high and low bid prices reflect inter-dealer
prices without detail markup, markdown or commission and may not represent
actual transactions. The information in the following table gives effect to a 1
for 40 reverse stock split of the issued and outstanding Common Stock of
Independent Music Group effective March 1999.
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
June 1997 - May 31, 1999
June 1, 1997 - August 31, 1997 $ 1.20 $ .40
September 1, 1997 - November 30, 1997 $ 1.20 $ .40
December 1, 1997 - February 28, 1998 $ 1.20 $ .40
March 1, 1998 - May 31, 1998 $ 1.20 $ .40
June 1, 1998 - August 31, 1998 $ 1.20 $ .40
September 1, 1998 - November 30, 1998 $ 1.20 $ .40
December 1, 1998 - February 28, 1999 $ 1.20 $ .40
March 1, 1999 - May 31, 1999 $ 16.00 $ 1.25
June 1, 1999 - August 16, 1999 $ 7.00 $ 1.50
</TABLE>
The transfer agent for Independent Music Group's Common Stock is
Florida Atlantic Stock Transfer, 701 North Pine Island Road, Suite 310B,
Tamarac, Florida 33321.
Independent Music Group has never paid cash dividends on its Common
Stock. Independent Music Group presently intends to retain future earnings, if
any, to finance the expansion of its business and does not anticipate that any
cash dividends will be paid in the foreseeable future. The future dividend
policy will depend on Independent Music Group's earnings, capital requirements,
expansion plans, financial condition and other relevant factors or its
subsidiaries.
ITEM 2. LEGAL PROCEEDINGS
There are no material legal proceedings filed, or to Independent Music
Group's knowledge, threatened against Independent Music Group.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
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ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In March 1999, Independent Music Group issued an aggregate of 900,000
shares of Common Stock to two accredited investors and received aggregate
proceeds of $55,000. The offering was conducted pursuant to the exemption from
registration provided by Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act").
In March 1999, Independent Music Group issued 8,500,000 shares of
Common Stock to an officer and director of the Independent Music Group for a
purchase price of $20,000 pursuant to the exemption from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In April 1999, Independent Music Group issued 100,000 shares of its
Common Stock to an officer and director of Independent Music Group as part of
the acquisition by Independent Music Group of Independent Music Network. The
issuance was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware (the "GCL")
allows a corporation to indemnify any person who was or is, or is threatened to
be made a party to any threatened, pending or completed suit or proceeding. This
applies whether the matter is civil, criminal, administrative or investigative
because he or she is or was a director, officer, employee or agent of the
corporation.
A corporation may indemnify against expenses (including attorney's
fees) and, except for an action by or in the name of the corporation, against
judgments, fines and amounts paid in settlement as part of such suit or
proceeding. This applies only if the person indemnified acted in good faith and
in a manner he or she reasonably believed to be in the best interest of the
corporation. In addition, with respect to any criminal action or proceeding, the
person had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, as to which the person
has been found to be liable to the corporation. The exception is if the court in
which such action was brought determines that the person is reasonably entitled
to indemnity for expenses.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, is permitted as to directors, officers and controlling
persons of Independent Music Group, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Independent Music Group in the
successful defense of any action, suit or proceeding) is asserted, Independent
Music Group 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.
Independent Music Group will be governed by the final adjudication of such
issue.
-12-
<PAGE>
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements include the audited consolidated
balance sheet of Independent Music Group at May 31, 1999, and Independent Music
Group's related audited consolidated statements of operations, deficiency in
assets and cash flows for the year ended May 31, 1999 and the period from
November 6, 1997 (inception) through May 31, 1998.
-13-
<PAGE>
INDEPENDENT MUSIC GROUP, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999
<PAGE>
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Operations F-3
Statements of Deficiency in Assets F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Independent Music Group, Inc. and Subsidiaries
Redding, Connecticut
We have audited the accompanying consolidated balance sheet of Independent Music
Group, Inc. and Subsidiaries (a development stage company) as of May 31, 1999,
and the related consolidated statements of operations, deficiency in assets and
cash flows for the year ended May 31, 1999 and for the period from inception
(November 6, 1997) to May 31, 1998. 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 audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Independent Music
Group, Inc. and Subsidiaries as of May 31, 1999, and the results of its
operations and its cash flows for the year ended May 31, 1999, and for the
period from inception (November 6, 1997) to May 31, 1998, in conformity with
generally accepted accounting principles.
KAUFMAN, ROSSIN & CO.
Miami, Florida
June 7, 1999
F-1
<PAGE>
INDEPENDENT MUSIC GROUP, INC. & SUBSIDIARIES
- --------------------------------------------------------------------------------
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MAY 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------------------
<S> <C>
CASH AND CASH EQUIVALENTS $262,215
OTHER ASSETS 900
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $
- -----------------------------------------------------------------------------------------
LIABILITIES AND DEFICIENCY IN ASSETS
- -----------------------------------------------------------------------------------------
CURRENT LIABILITIES
Note payable - stockholder $246,472
Accrued expenses (Note 2) 62,923
Distribution payable - stockholder 50,000
- -----------------------------------------------------------------------------------------
Total current liabilities
- -----------------------------------------------------------------------------------------
DEFICIENCY IN ASSETS (NOTE 4)
Common stock, $.00005 par value; authorized 10,000,000
shares; issued and outstanding 9,636,475 shares 482
Additional paid-in capital 5,243
Deficit accumulated during the development stage ( 102,005)
- -----------------------------------------------------------------------------------------
Total deficiency in assets ( 96,280)
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $263,115
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-2
<PAGE>
INDEPENDENT MUSIC GROUP, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1999 AND FOR THE PERIOD
FROM INCEPTION (NOVEMBER 6, 1997) TO MAY 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------- ------------------------- ------------------------
<S> <C> <C>
REVENUES:
Dividend income $ 10,046 $ 12,197
- -------------------------------------------------------------------------------- ------------------------- ------------------------
EXPENSES:
General and administrative 42,091 24,734
Interest to stockholder 30,574 26,849
- -------------------------------------------------------------------------------- ------------------------- ------------------------
Total expenses
- -------------------------------------------------------------------------------- ------------------------- ------------------------
NET LOSS $ 62,619 $ 39,386
- -------------------------------------------------------------------------------- ------------------------- ------------------------
NET LOSS PER SHARE $ .006 $ .004
- -------------------------------------------------------------------------------- ------------------------- ------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,636,475 9,636,475
- -------------------------------------------------------------------------------- ------------------------- ------------------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
INDEPENDENT MUSIC GROUP, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF DEFICIENCY IN ASSETS
FOR THE YEAR ENDED MAY 31, 1999 AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 6,
1997) TO MAY 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Common stock, $.00005 par value;
10,000,000 shares authorized
-----------------------------------------
Transaction Date Shares Par Value
- ------------------------------------------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C>
Sale of stock for cash ($.01 per share) 11/6/97 100,000 $ 5
Net loss from inception (November 6, 1997) to May
31, 1998 - - -
- ------------------------------------------------------ -------------------- -------------------- --------------------
Balance May 31, 1998 - 100,000 5
Acquisition of assets of Independent Music Group,
Inc. ($.006 per share) 4/26/99 9,536,475 477
Special distribution to shareholder 4/26/99 - -
Net loss for the year ended May 31, 1999 - - -
- ------------------------------------------------------ -------------------- -------------------- --------------------
TOTAL 9,636,475 $ 482
- ------------------------------------------------------ -------------------- -------------------- --------------------
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit Accumulated
Additional During the
Paid-in Development
Transaction Capital Stage Total
- ------------------------------------------------------ -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Sale of stock for cash ($.01 per share) $ 995 $ - $ 1,000
Net loss from inception (November 6, 1997) to May
31, 1998 - ( 39,386) ( 39,386)
- ------------------------------------------------------ -------------------- --------------------- --------------------
Balance May 31, 1998 995 ( 39,386) ( 38,386)
Acquisition of assets of Independent Music Group,
Inc. ($.006 per share) 54,248 - 54,725
Special distribution to shareholder ( 50,000) - ( 50,000)
Net loss for the year ended May 31, 1999 - ( 62,619) ( 62,619)
- ------------------------------------------------------ -------------------- --------------------- --------------------
TOTAL $ 5,243 ( $ 102,005) ( $ 96,280)
- ------------------------------------------------------ -------------------- --------------------- --------------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
INDEPENDENT MUSIC GROUP, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1999 AND FOR THE PERIOD
FROM INCEPTION (NOVEMBER 6, 1997) TO MAY 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------- ------------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ( $ 62,619) ( $ 39,386)
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Other assets 4,700 ( 5,600)
Accrued expenses 36,074 26,849
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Total adjustments 40,774 21,249
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Net cash used in operating activities ( 21,845) ( 18,137)
- --------------------------------------------------------------------------------- ------------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash balances of company acquired 54,725 -
Loans from (repayments to) stockholder, net ( 243,528) 490,000
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Net cash provided by (used in) investing activities ( 188,803) 490,000
- --------------------------------------------------------------------------------- ------------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock - 1,000
- --------------------------------------------------------------------------------- ------------------------- ------------------------
INCREASE (DECEASE) IN CASH AND CASH EQUIVALENTS ( 210,648) 472,863
CASH AND CASH EQUIVALENTS - BEGINNING 472,863 -
- --------------------------------------------------------------------------------- ------------------------- ------------------------
CASH AND CASH EQUIVALENTS - ENDING $ 262,215 $ 472,863
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Supplemental Disclosures:
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Interest paid $ - $ -
- --------------------------------------------------------------------------------- ------------------------- ------------------------
Income taxes paid $ - $ -
- --------------------------------------------------------------------------------- ------------------------- ------------------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
INDEPENDENT MUSIC GROUP, INC. & SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Basis of Consolidation
The consolidated financial statements include the accounts of
Independent Music Group, Inc. (IMG) and its subsidiaries, Independent
Music Network, Inc. (IMN), Independent Music Channel, Inc. (IMC) and
Emerald City Records, Inc. (collectively, "the Company"). All
significant intercompany balances and transactions have been eliminated
in consolidation.
Organization and Business Activity
IMN was incorporated in November 1997, under the laws of the
State of Delaware, to pursue the concept of broadcasting
amateur and professional music television videos on national
cable television. IMC, a Delaware Corporation, is intended to
be used to broadcast the videos, promote its programming and
create corporate brand recognition. Emerald City Records is
the company's proprietary record label.
On April 26, 1999, all of the outstanding stock of IMN was
acquired by IMG (formerly known as AVTR Systems, Inc.), a
non-operating public shell company. For accounting purposes,
the acquisition has been treated as an acquisition of the
assets of IMG by IMN and as a recapitalization of IMN. The
historical financial statements prior to April 26, 1999 are
those of IMN.
The business activity of the Company to date has primarily
consisted of development of a business plan and research
related to the broadcast and music industries.
The Company is considered to be in the development stage, and
the accompanying financial statements represent those of a
development stage company.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and all highly
liquid investments readily convertible to cash.
The Company, from time to time, maintains cash balances in
excess of federally insured limits.
Income Taxes
The Company accounts for income taxes according to Statement
of Financial Accounting Standards No. 109, which requires a
liability approach to calculating deferred income taxes.
F-6
<PAGE>
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Use of Estimates
The accounting and reporting policies of the Company are in
conformity with generally accepted accounting principles. The
presentation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the balance sheet date
and the reported amounts of revenues and expenses for the
period presented. Actual results could differ from those
estimates.
The Company has recorded a deferred tax asset of approximately
$312,000 at May 31, 1999 which is completely offset by a
valuation allowance. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the
future. The amount of deferred tax asset considered realizable
could change in the near term if estimates of future taxable
income are increased.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments"
requires that the Company disclose estimated fair values for
its financial instruments. The carrying value of Notes payable
- stockholder approximates fair value as the interest rate is
not significantly different from market rates available to the
Company.
Impact of the "Year 2000" Computer Issue
Because computers frequently use only two digits to recognize
years, on January 1, 2000, many computer systems, as well as
equipment that uses embedded computer chips, may be unable to
distinguish between the years 1900 and 2000. If not
remediated, this problem could create system errors and
failures resulting in the disruption of normal business
operations. In the event the Company fails to identify or
correct a material Year 2000 problem, there could be
disruptions in normal business operations, which could have a
material adverse effect on the Company's results of
operations, liquidity or financial condition. Further, there
may be some third parties, such as governmental agencies,
utilities, telecommunication companies, vendors, suppliers and
customers who may not be able to continue business with the
Company due to their own Year 2000 problems. Also, risks
associated with some foreign third parties may be greater
since there is general concern that some entities operating
outside the United States are not addressing Year 2000 issues
on a timely basis. There can be no assurance that any efforts
made will fully mitigate the effect of Year 2000 issues.
Net Loss per Share
Net loss per share is computed based on the weighted average
number of shares outstanding, restated to give effect to the
recapitalization.
F-7
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2. NOTE PAYABLE - STOCKHOLDER
- --------------------------------------------------------------------------------
Note payable - stockholder at May 31, 1999, consisted of
amounts due to the majority stockholder and officer of the
Company. The note bears interest at 10%, is unsecured and due
on demand. Interest expense on the note amounted to $30,574
for the year ended May 31, 1999 and $26,849 for the period
from inception (November 6, 1997) to May 31, 1998. Unpaid
interest on the notes as of May 31, 1999 amounted to $57,423
and is included in accrued expenses on the accompanying
balance sheet.
The Company is dependent upon its majority shareholder for
continued financing.
- --------------------------------------------------------------------------------
NOTE 3. INCOME TAXES
- --------------------------------------------------------------------------------
The Company has net operating loss carryforwards of
approximately $830,000 for income tax purposes. Approximately
$728,000 was generated by IMG prior to the acquisition of IMN
and expire from 2001 through 2006. The remaining net operating
losses begin to expire in 2018.
Deferred income tax assets of approximately $312,000,
comprised of net operating loss carryforwards, are completely
offset by a valuation allowance.
The difference between the tax provisions and the amounts
computed by applying the federal statutory tax rates to the
losses before income taxes are due to increases in the
deferred tax asset valuation allowances.
- --------------------------------------------------------------------------------
NOTE 4. COMMON STOCK
- --------------------------------------------------------------------------------
As of June 7, 1999, the Company had not issued stock
certificates issuable in connection with the acquisition of
the stock of IMN, however, as the Company is obligated to
issue the shares, they are deemed to be issued and outstanding
for financial statement purposes.
F-8
<PAGE>
<TABLE>
<CAPTION>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibits Description of Document.(1)
- -------- ---------------------------
<S> <C>
3.1 Certificate of Incorporation of AVTR Systems, Inc.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation of
AVTR Systems, Inc.(1)
3.3 Certificate of Amendment to the Certificate of Incorporation of
AVTR Systems, Inc.(1)
3.4 Certificate of Amendment to the Certificate of Incorporation of
AVTR Systems, Inc.(1)
3.5 Bylaws of AVTR Systems, Inc.(1)
10.1 Stock Purchase Agreement between Independent Music Group, Inc.
and James Fallacaro dated April 26, 1999.(1)
21 Subsidiaries.(2)
27 Financial Data Schedule.(1)
</TABLE>
(1) Previously Filed
(2) Filed Herewith
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
INDEPENDENT MUSIC GROUP, INC.
Date: June 19, 1999 By: /s/ James Fallacaro
------------------------------------------------
James Fallacaro, President
Date: June 19, 1999 By: /s/ Corinne Fallacaro
------------------------------------------------
Corinne Fallacaro, Secretary and Treasurer
Date: June 19, 1999 By: /s/ Anthony Escamilla
------------------------------------------------
Anthony Escamilla, Vice President
Exhibit 21
As of the date of this registration statement, the registrant's two
wholly owned subsidiaries were Independent Music Network and Emerald City
Records.
