U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended February 29, 2000
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
---
For the transition period from _____________ to _____________
Commission File Number: 0-26443
-------
Falcon Entertainment Corp.
---------------------------------------------------
(Exact name of Small Business Issuer as specified in its Charter)
DELAWARE 22-281-1783
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
71 Great Pasture Road, Redding, Connecticut 06896
---------------------------------------------------------
(Address of principal executive offices)
(203) 938-0737
----------------------
(Issuer's telephone number)
Independent Music Group, Inc.
-----------------------------
(Former Name, former address and former fiscal year, if changed
since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 13,476,475 Common Stock as
of March 31, 2000.
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<TABLE>
<CAPTION>
FALCON ENTERTAINMENT CORP.
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of February 29, 2000 and May 31, 1999
Consolidated Statements of Operations for the Three Months
Ended February 29, 2000 and February 28,1999, the Nine Months
Ended February 29, 2000 and February 28,1999 and for the
Period from Inception (November 6, 1997) to February 29, 2000.
Consolidated Statements of Deficiency in Assets for the Period
from Inception (November 6, 1997) to February 29, 2000.
Consolidated Statements of Cash Flows for the Nine Months
Ended February 29, 2000 and 1999 and for the Period from
Inception (November 6, 1997) to February 29, 2000.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis and Plan of Operations
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
1
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements (unaudited)
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements of Falcon
Entertainment Corp. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included. The
preparation 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Operating results for the
three month period ended February 29, 2000 and the nine month period ended
February 29, 2000 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2000. For further information, refer to the
consolidated financial statements and footnotes for the year ended May 31, 1999
found in the Company's Form 10-KSB.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FALCON ENTERTAINMENT CORP. & SUBSIDIARIES
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
February 29,
2000 May 31,
(Unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,631,970 $ 262,215
Prepaid expenses 1,443,625 --
----------- -----------
Total current assets 7,075,595 262,215
PROPERTY AND EQUIPMENT 47,124 --
OTHER ASSETS 364,669 900
----------- -----------
TOTAL ASSETS $ 7,487,388 $ 263,115
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable - stockholder $ 65,376 $ 246,472
Accrued expenses 415,989 62,923
Distribution payable - stockholder 50,000 50,000
----------- -----------
Total current liabilities 531,365 359,395
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.00005 par value; authorized
20,000,000 shares; issued and outstanding
13,476,475 and 9,636,475 shares 674 482
Additional paid-in capital 8,437,551 5,243
Subscription receivable (932,515) --
Deficit accumulated during the development
Stage (549,687) (102,005)
----------- -----------
Total stockholders' equity (deficit) 6,956,023 (96,280)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 7,487,388 $ 263,115
=========== ===========
</TABLE>
3
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FALCON ENTERTAINMENT CORP. & SUBSIDIARIES
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Inception
Three Months Ended Nine Months Ended (November 6, 1997)
February 29, February 29, to February 29, 2000
------------ ------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES:
Dividend income $ 16,403 $ 1,801 $ 19,445 $ 8,966 $ 41,688
----------- ----------- ----------- ----------- -----------
EXPENSES:
General and administrative 223,787 7,709 453,890 28,650 520,715
Interest to stockholder 4,070 4,868 13,237 23,623 70,660
----------- ----------- ----------- ----------- -----------
Total expenses 227,857 12,577 467,127 52,273 591,375
----------- ----------- ----------- ----------- -----------
NET LOSS $ (211,454) $ (10,776) $ (447,682) $ (43,307) $ (549,687)
=========== =========== =========== =========== ===========
NET LOSS PER SHARE $ (.022) $ (.001) $ (.046) $ (.004) $ (.057)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 9,735,850 9,636,475 9,732,031 9,636,475 9,667,189
=========== =========== =========== =========== ===========
</TABLE>
4
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FALCON ENTERTAINMENT CORP. & SUBSIDIARIES
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
FOR THE PERIOD FROM INCEPTION (NOVEMBER 6, 1997) TO FEBRUARY 29, 2000
---------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Common stock, $.00005 par value; Accumulated
20,000,000 shares authorized Additional During the
---------------------------- Paid-in Subscription Development
Transaction Date Shares Par Value Capital Receivable Stage Total
----------- ---- ------ --------- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of stock for cash
($.01 per share) 11/6/97 100,000 $ 5 $ 995 $ -- $ -- $ 1,000
Net loss from inception
(November 6, 1997)
to May 31, 1998 -- -- -- -- -- (39,386) (39,386)
--------- --------- --------- ----- --------- ---------
Balance May 31, 1998 -- 100,000 5 995 -- (39,386) (38,386)
Acquisition of assets of
Independent Music Group, Inc.
($.006 per share) 4/26/99 9,536,475 477 54,248 -- -- 54,725
Special distribution to
shareholder 4/26/99 -- -- (50,000) -- -- (50,000)
Net loss for the year ended
May 31, 1999 -- -- -- -- -- (62,619) (62,619)
--------- --------- --------- ----- --------- ---------
Balance May 31, 1999 -- 9,636,475 482 5,243 -- (102,005) (96,280)
--------- --------- --------- ----- --------- ---------
</TABLE>
5
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FALCON ENTERTAINMENT CORP. & SUBSIDIARIES
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
(Continued)
-----------
FOR THE PERIOD FROM INCEPTION (NOVEMBER 6, 1997) TO FEBRUARY 29, 2000
---------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Common stock, $.00005 par value; Accumulated
20,000,000 shares authorized Additional During the
---------------------------- Paid-in Subscription Development
Transaction Date Shares Par Value Capital Receivable Stage Total
----------- ---- ------ --------- ------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1999 -- 9,636,475 $ 482 $ 5,243 $ -- $ (102,005) $ (96,280)
Issuance of common stock
for services 10/25/99 65,000 3 162,497 -- -- 162,500
Issuance of common stock
for services related to
private offering 12/1/99 25,000 1 62,499 -- -- 62,500
Private offering issue costs 12/1/99 -- -- (62,500) -- -- (62,500)
Issuance of common stock
for future services 1/15/00 350,000 18 874,982 -- -- 875,000
Issuance of common stock in
connection with private offering 2/29/00 3,400,000 170 8,499,830 (932,515) -- 7,567,485
Private offering issue costs 2/29/00 -- -- (1,105,000) -- -- (1,105,000)
Issuance of warrants in connection
with private offering 2/29/00 -- -- 2,678,685 -- -- 2,678,685
Private offering issue costs 2/29/00 -- -- (2,678,685) -- -- (2,678,685)
Net loss for the nine months
ended February 29, 2000 -- -- -- -- -- (447,682) (447,682)
----------- ------- ----------- ---------- ---------- -----------
Balance, February 29, 2000 -- 13,476,475 $ 674 $ 8,437,551 $ (932,515) $ (549,687) $ 6,956,023
=========== ======= =========== ========== ========== ===========
</TABLE>
6
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FALCON ENTERTAINMENT CORP. & SUBSIDIARIES
-----------------------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Inception
February 29, (November 6, 1997)
------------------------ to February 29,
2000 1999 2000
------ ------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (447,682) $ (43,307) $ (549,687)
----------- ----------- -----------
Adjustments to reconcile
net loss to net cash used
in operating activities:
Realization of prepaid
compensation 109,375 -- 109,375
Issuance of common stock
for services 162,500 -- 162,500
Changes in operating
assets and liabilities:
Prepaid expenses (678,000) -- (678,000)
Other assets -- 5,600 (900)
Accrued expenses 28,066 23,626 90,989
----------- ----------- -----------
Total adjustments (378,059) 29,226 (316,036)
----------- ----------- -----------
Net cash used in
operating activities (825,741) (14,081) (865,723)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash balances of company acquired -- -- 54,725
Acquisition of property and equipment (47,124) -- (47,124)
Acquisition of intangible asset (363,769) -- (363,769)
Loans from (repayments to)
stockholder, net (181,096) (295,791) 65,376
----------- ----------- -----------
Net cash used in
investing activities (591,989) (295,791) (290,792)
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the issuance
of common stock -- -- 1,000
Proceeds from issuance of
of common stock in private
offering, net of issue costs
and subscription receivable 6,787,485 -- 6,787,485
----------- ----------- -----------
Net cash provided by
financing activities 6,787,485 -- 6,788,485
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,369,755 (309,872) 5,631,970
CASH AND CASH EQUIVALENTS-
BEGINNING 262,215 472,863 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS-
ENDING $ 5,631,970 $ 162,991 $ 5,631,970
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NON-CASH OPERATING
AND FINANCING ACTIVITIES:
Issuance of common stock for future services $ 875,000
===========
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Plan of Operations
General
- -------
The Company was formed under the laws of the State of Delaware in May
1986. The Company was originally incorporated under the name AVTR Systems, Inc.
In April 1999, the Company acquired all the issued and outstanding capital stock
of Independent Music Network, Inc., a Delaware corporation and changed its name
to Falcon Entertainment Corp. in December 1999. Falcon Entertainment Corp.'s
principal executive offices are located at 71 Great Pasture Road, Redding, CT
06896. Independent Music Network Inc.'s offices are located at 200 West 85th
Street, Suite 2B, New York, NY 10024. Falcon Entertainment Corp.'s common stock
trades on the OTC Bulletin Board under the symbol "INDE".
The Company operates primarily through its wholly-owned subsidiaries
Independent Music Network, Inc. ("IMN"), Invision Records, Inc., Independent
Music Channel, Inc. ("IMC") and Jump2web.com Corp. Furthermore, the Company is a
development stage company whose business activities to date have primarily
consisted of the development of a business plan and research related to the
broadcast, music and internet industries. Through February 29, 2000, the Company
has had little operational history. All risks inherent in new and inexperienced
enterprises are inherent in the Company's business.
8
<PAGE>
On December 6, 1999, the Company executed a Network Carriage Agreement
with OlympuSAT, Inc., a division of Ocean Communications, Inc., a Florida
corporation ("OlympuSAT"). The Company granted OlympuSAT the exclusive license,
right and commitment to distribute the Independent Music Network programming
service to cable systems, television stations and Direct Broadcast Satellite
platforms ("DBS"), via the OlympuSAT digital transponder service for a period of
five years (the "Broadcast Agreement"). The Broadcast Agreement provides for
carriage on OlympuSAT's transponder as well as master control (tape playback)
services. OlympuSAT has also been granted the exclusive license to distribute
IMC's programming to cable systems, television stations and DBS platforms during
the term of the Broadcast Agreement.
On January 10, 2000, the Company paid to OlympuSAT a non-refundable
advance payment in the amount of $110,000, equal to two months of each of the
agreed to monthly transport fees and monthly playback fees. The advance payment
will be applied to the first month's transport and playback fees due under the
Broadcast Agreement. The scheduled digital launch date of the Company's network
signal should occur by May 30, 2000, unless otherwise agreed to by the parties.
The remainder of the payment will be applied to all amounts due under the
Broadcast Agreement upon its expiration or termination.
Through February 29, 2000, the Company raised proceeds of $8,499,830
from the offering of its common stock pursuant to an exemption from federal
securities laws under Rule 506 of Regulation D as promulgated by the Securities
Act of 1933.
Three Months Ended February 29, 2000 Compared to Three Months Ended
February 28, 1999 and Nine Months Ended February 29, 2000 Compared to Nine
Months Ended February 28, 1999.
Results of Operations
- ---------------------
Revenues (Dividend Income)
- --------------------------
The Company's revenues consist of dividend income. The dividend income
for the three months ended February 29, 2000 was $16,403 as compared to $1,801
for the three months ended February 28, 1999, representing an increase of
$14,602. The dividend income for the nine months ended February 29, 1999 was
$19,445 as compared to $8,966 for the nine months ended February 29, 1999,
representing an increase of $10,479.
General and Administrative Expenses
General and administrative expenses for the three months ended February
29, 2000 were $223,787 as compared to $7,709 for the three months ended February
28, 1999, representing an increase of $216,078. General and administrative
expenses for the nine months ended February 29, 2000 were $453,890 as compared
to $28,650 for the nine months
9
<PAGE>
ended February 28, 1999, representing an increase of $425,240. The increase in
general and administrative expenses was due to an increase in business
development costs including professional fees and consulting fees.
Interest to Stockholder
- -----------------------
Interest to stockholder for the three months ended February 29, 2000
was $4,070 as compared to $4,868 for the three months ended February 28, 1999,
representing a decrease of $798. Interest to stockholder for the nine months
ended February 29, 2000 was $13,237 as compared to $23,623 for the nine months
ended February 28, 1999, representing a decrease of $10,386. The decrease in
interest to stockholder was due to a reduction in notes payable to shareholders.
Net Loss
- --------
As a result of the above, net loss for the three months ended February
29, 2000 was $211,454 as compared to the net loss of $10,776 for the three
months ended February 28, 1999, representing an increase of $200,678. Net loss
for the nine months ended February 29, 2000 was $447,682 as compared to a net
loss of $43,307 for the nine months ended February 28, 1999, representing an
increase of $404,375.
Liquidity and Capital Resources
- -------------------------------
To fund working capital requirements through February 29, 2000, the
Company utilized cash reserves based upon shareholder loans and equity funding.
To facilitate its business plan, the Company, through February 29, 2000, raised
$8,499,830 from the private sale of 3,400,000 shares of common stock. Offering
costs in connection with the private placement, consisting principally of
commissions, were $1,105,000.
Other Items
- -----------
Prepaid expenses as of February 29, 2000 were $1,443,625 as compared to
$0 as of May 31, 1999. This increase is primarily due to a prepayment in Common
Stock valued at $795,000 for services to be rendered to the Company. The
remainder of the increase is primarily due to $495,000 in prepaid advertising
expenditures.
Note payable to shareholders (exclusive of accrued interest) as of
February 29, 2000 was $65,376, a decrease of $181,366 from $246,472 as of May
31, 1999. This decrease was due to the repayment of debt owed to James
Fallacaro, President of the Company.
Accrued expenses as of February 29, 2000 were $415,989, as compared to
$62,923 as of May 31, 1999. The increase is principally due to $325,000 of
accrued fees owed to the Company's placement agent for fees associated with the
Company's recent private placement
10
<PAGE>
and $70,660 of accrued interest payable to Mr. Fallacaro with respect to the
note payable (see above).
Cautionary Statement Regarding Forward-Looking Statements:
- ---------------------------------------------------------
Certain statements contained in this Section and elsewhere in this
report regarding matters that are not historical facts are forward-looking
statements. Because such forward- looking statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. All statements which address
operating performance, events or developments that management expects or
anticipates to incur in the future, including statements relating to sales and
earnings growth or statements expressing general optimism about future operating
results, are forward-looking statements. The forward-looking statements are
based on management's current views and assumptions regarding future events and
operating performance. Many factors could cause actual results to differ
materially from estimates contained in management's forward-looking statements.
The differences may be caused by a variety of factors, including, but not
limited to, adverse economic conditions, competitive pressures, inadequate
capital, unexpected costs, lower revenues, net income and forecasts, the
possibility of fluctuation and volatility of the Company's operating results and
financial condition, inability to carry out marketing and sales plans and loss
of key executives, among other things.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None.
Item 5. Other Information
In a private placement of its common stock pursuant to Rule 506 of
Regulation D as promulgated under the Securities Act of 1933, the Company has
raised net proceeds of $8,499,830 from the sale of 3,400,000 shares of its
common stock.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
The following exhibits are filed as part of this report:
Exhibits:
(27.1) Financial Data Schedule
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized officers of the Registrant.
Falcon Entertainment Corp.,
a Delaware corporation
By: /s/ James Fallacaro
------------------------
James Fallacaro, Chairman and
President
By: /s/ Corinne Fallacaro
--------------------------
Corinne Fallacaro, Secretary,
Treasurer and Director
By: /s/ Anthony Escamilla
--------------------------
Anthony Escamilla, Executive Vice
President and Director
DATED: April 13, 2000
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> FEB-29-2000
<CASH> 5,631,970
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,075,595
<PP&E> 47,124
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,487,388
<CURRENT-LIABILITIES> 531,365
<BONDS> 0
0
0
<COMMON> 674
<OTHER-SE> 6,955,349
<TOTAL-LIABILITY-AND-EQUITY> 7,487,388
<SALES> 0
<TOTAL-REVENUES> 19,445
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 467,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (447,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (447,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447,682)
<EPS-BASIC> (.046)
<EPS-DILUTED> (.046)
</TABLE>
