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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 2-74785-B
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Next Generation Media Corp.
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(Name of small business issuer in its charter)
Nevada 88-0169543
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8380 Alban Road
Springfield, Virginia 22150 (703) 913-0416
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(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act: none
Check whether the issuer (1) 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 No X
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Check if there is no disclosure of delinquent filers to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $7,865,410.
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. As of April 30, 2000, the aggregate market value of the Common
Stock of the issuer held by non-affiliates was approximately $5,246,260,
calculated on the basis of a recent private sale of Common Stock as of May 1,
2000. The aggregate market value of the Preferred Stock of the issuer held by
non-affiliates, based on its conversion into Common Stock (at the assumed Common
Stock price used in the prior calculation) as of April 30, 2000, was
approximately $1,431,818. There is no established public trading market for
either the Common Stock or the Preferred Stock.
The total number of issued and outstanding shares of the issuer's common
stock, par value $0.01, as of April 30, 2000 was 5,262,524.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X .
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PART I
ITEM 1. BUSINESS.
THIS ANNUAL REPORT ON FORM 10K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE ISSUER'S BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. THE WORDS "ESTIMATE," "PROJECT," "INTEND," "EXPECT,"
"ANTICIPATE" AND SIMILAR EXPRESSION ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS INCLUDE, BUT ARE NOT
NECESSARILY LIMITED TO, THE ABILITY OF THE ISSUER'S ABILITY TO ACQUIRE NEW
BUSINESSES AND GENERATE NEW CASH FLOWS THERE FROM, AND THE ISSUER'S ABILITY TO
OBTAIN ADDITIONAL CAPITAL TO SUPPORT ITS OPERATIONS AND GROWTH.
Introduction. Next Generation Media Corporation (the "Company") was
incorporated on November 21, 1980 under the laws of the State of Nevada in the
name Micro Tech Industries Inc. On February 6, 1997, an unrelated third party
purchased 85.72% of the outstanding stock of Microtech Industries, Inc. from its
majority shareholder for $50,000 in cash. Effective March 31, 1997, Microtech
Industries changed its name to Next Generation Media Corporation. Current
management believes that prior to February 6, 1997, the Company was a "shell"
company for at least five years without assets and liabilities. Current
management is unaware of any operating history of the Company prior to February
6, 1997.
Reporting Period Principal Services. During the reporting period, the
Company operated as a publicly owned holding company with two wholly owned
operating subsidiaries, Independent News Inc. ("INI") and United Marketing
Solutions, Inc. ("United"). INI engages in the community newspaper publishing
business. It produces and issues weekly free newspapers distributed via the mail
to approximately 74,000 homes in northern New Jersey. INI generates all of its
revenues from the sale of advertisements that generally are placed by local
merchants in the communities that the newspapers serve. The newspapers are
generally identical in editorial content but are varied according to advertising
content. The New Jersey townships that INI's community newspapers serve include
Wayne, Fairfield, Lincoln Park, Peuannok, Pompton Plains, Montville, Towaco,
Bloomingdale, Riverdale, Butler, Kinnelon, Smoke Rise, Pompton Lakes, Little
Falls, Totowa and West Patterson. The Company acquired the community newspaper
business operated by INI in September 1997. INI had $2,109,396 in revenues and
an operating loss of $74,719 including non-cash charges of $85,503 during the
year ended December 31, 1999. INI had assets of $400,387 as of December 31,
1999.
The Company acquired United Marketing Solutions, Inc. ("United") on April
1, 1999. Originally founded in 1981 as United Coupon Corporation, United has
operated within the cooperative direct mail industry for 19 years. United has
diversified and expanded its product lines and markets to evolve from a coupon
company to a full-
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service marketing provider specializing in three communications mediums: direct
mail, direct marketing and Internet marketing. United offers advertising and
marketing products and services through a network of franchisees in 17 states,
with the largest concentration being in the northeast United States. United
provides full-service design, layout, printing, packaging and distribution of
marketing products and promotional coupons sold by the franchise network to
local market businesses, service providers and professionals as resources to
help them generate trial and repeat customers. United's core product, the
cooperative coupon envelope, reaches in excess of 20 million mailboxes per year
with an estimated 360 million coupons. United had $7,713,162 in revenues and an
operating loss of $754,963 including non-cash charges of $836,198 during the
calendar year 1999. United had $5,756,015 in revenues and an operating loss of
$270,953 including non-cash charges of $289,211 from April 1, 1999 through
December 31, 1999. United had assets of $2,118,814 as of December 31, 1999.
In 1999, United introduced an Internet web site, www.ishopol.com,
marketed as "ISHOPOL - WHAT YOU WANT WHEN YOU WANT IT" ("iSHOPol"). ISHOPOL
provides a directory of local businesses and professionals with coupons, display
ads, combination ads (display ads with coupons), and multi-page websites. Users
have access to a variety of useful information options and entertaining
activities including a white pages directory, weather reports, an online arcade,
fun sites (horoscopes and entertainment), lottery results and real estate
classified ads by market. United is in the process of integrating ISHOPOL with
its other product offerings, providing a complete direct marketing and
advertising link which management expects to be unique in the online electronic
commerce industry. Management expects that synergy resulting from common
marketing, advertising and management with its United subsidiary will enhance
the Company's profitability potential.
On May 1, 2000, the Company entered into a transaction by which certain
shareholders of common stock and Series A Preferred stock sold approximately
fifty-two percent (52%) of the fully diluted common stock of the Company to The
BigHub.com, Inc. ("BigHub"). BigHub (www.thebighub.com) is a
business-to-business e-commerce solution provider that delivers private branding
content for high-traffic Internet companies, and is a gateway to a network of
"Big"-branded affiliate sites designed to leverage the traffic and capabilities
of BigHub's meta-search engine. Allowing users to simultaneously search multiple
search engines, web directories and news databases on one site, BigHub's
proprietary search technology was previously named among the Web's top 10 search
engines by The New York Times and The Miami Herald. By uniting a diverse
portfolio of "Big" companies - such as The BigStore.com - within a web-based
network, BigHub seeks to create a consumer destination with an emphasis on
commerce, content and community. Current licensees of BigHub's
business-to-business e-commerce solutions, search technologies and content
include China.com, Quepasa.com and PriceNetUSA.com.
BigHub and the Company plan to commence the redesign and expansion of
United's current Internet site, iSHOPol.com, creating a "Big" affiliate web site
that will be accessible throughout BigHub's network of sites that include such
either existing or
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under development such as The BigRx.com, The BigStore.com, The BigBallot.com,
The BigCompare.com, The BigBiz.com, The BigFNI.com and The BigAutoParts.com. The
new "Big" site will provide users with online coupons from thousands of local
and national retailers and service providers throughout the United States.
Consumers will be able to enter their zip codes and a search category (such as
restaurants, dry cleaners, hair salons, supermarkets, etc.) for local coupon
offerings. Consumers will be able to print the coupons and bring them to local
establishments for redemption. The Company expects that its online coupon
activity will benefit from the Company's existing relationships with thousands
of companies nationwide. Although no assurances can be given, it is anticipated
that many, if not most of the Company's current advertisers that pay to be
included in the Company's direct mail coupon packages will be interested in
providing online coupons as well.
Online coupons are a rapidly growing trend that has the potential to
increase markedly as more consumers access the Internet and learn about online
coupon options. NCH Promotional Services reported recently that approximately
83% of consumers in the United States used coupons on a monthly basis. BigHub
will provide additional content, community and commerce to the iSHOPol web site,
and management intends to advertise in locally distributed newspapers to promote
the web site.
Future Acquisitions and New Products and Services. The Company's
business strategy is to grow through new acquisitions. The Company is currently
exploring the possibility of selling the community newspaper business operated
by INI in order to repay debt and to facilitate future acquisitions.
Competition. The Company's current and proposed future lines of
business are highly competitive. First, the advertising business, including the
community newspaper business, is highly competitive with many firms competing in
various forms of media and possessing substantial resources. The Company's
community newspaper business has several direct competitors serving its local
markets, although management believes that INI has no direct competitor offering
a 100% mailed (as opposed to delivery) weekly newspaper. The circulation of
other newspapers in the local markets in which INI operates includes: The New
Jersey Star Ledger, circulation approximately 12,000, The Herald & News,
circulation approximately 9,000, The Record, circulation approximately 8,000 and
The Suburban Trends, circulation approximately 7,500.
The direct mail industry is highly fragmented and includes a large
number of small and independent cooperative direct mailers in addition to
competition from companies for whom coupon advertising is not their primary line
of business. In addition, several large firms - notably Val-Pak Direct Marketing
Systems, Inc., Money Mailer and Advo, Inc. - are direct competitors of United in
its direct mail marketing business. Concerning United's Internet business, there
is intense competition among web-based advertisers and many of United's
competitors are larger and significantly better capitalized. No assurance can be
given that the Company will be successful in attracting the number of Internet
customers necessary to implement its business strategy involving ISHOPOL.
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Government Regulation. United is subject to state regulation as a
franchisor, requiring United to file periodic state registration documents
pertaining to the offering of area and regional franchise licenses. Management
believes that United is in substantial compliance with applicable state
franchise laws.
Employees. As of December 31, 1999, INI has approximately twelve
employees, United, has approximately 78 employees, and the Company has a
President/CEO and CFO/Treasurer/Secretary. No employees are members of a trade
union and the Company believes that employee relations are good.
ITEM 2. PROPERTIES
INI operates a 3,500 square foot facility located in Pompton Lakes,
New Jersey. The building consists of two stories with the administration and
production unit on one level and the sales staff on the other level. INI has a
five-year lease on the property that expires in October 2002.
United operates a 64,000 square foot facility in Springfield,
Virginia. The building consists of two stories with the administration and
graphics units on one level and the production plant on the other level. United
has a ten year lease on the property with options for five year renewals. The
initial lease expires in September 2004. The corporate headquarters for the
Company is located in this facility.
Rent expense for the year ended December 31, 1999 and 1998 was
$418,601 and $19,800, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal matters encountered in the
normal course of business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's financial
position or the future results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal year
1999 to a vote of the security holders.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There was no public trading market for the issuer's securities in 1999 or
in 2000 to date. As of April 30, 2000, there were approximately 621 holders of
record of the Company's common stock.
There have been no cash dividends paid on the Company's common stock
since February 6, 1997, and management is unaware of any dividends paid prior to
that date. The Company is restricted in its ability to pay dividends on its
common stock in the future by the terms of its Series A and Series B Preferred
Stock, each of which carry cumulative dividends that must be paid prior to any
payment of dividends on the common stock. Management presently intends to retain
all future earnings not required to be paid to the holders of the Series A and
Series B Preferred Stock, and does not anticipate paying cash dividends to the
holders of common stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
On April 1, 1999 the Company acquired all the outstanding stock of
United. The financial statements include the operations of United subsequent to
the acquisition date, accordingly, the financial statement periods are not
comparative.
Total revenues increased approximately 335%, to $7,865,410 in 1999 from
$1,808,713 in 1998. Total revenues are generated by the Company's subsidiaries,
United and INI, and increased due to the Company's acquisition of United in
April 1999. Total pro forma revenues for 1999 of $9,698,768 increased
approximately 28% over pro forma revenues for 1998 of $7,563,126, primarily due
to an increase in volume.
Total operating expenses increased approximately 90%, to $9,255,538 in
1999 from $4,884,517 in 1998. Printing costs, postage and delivery, other
production costs, selling expenses, franchise development expense and
depreciation and amortization, which aggregate to $6,702,830, increased
approximately 397%, from $1,349,619 in 1998, which is comparable to the increase
in total revenues discussed above. General and administrative expenses decreased
approximately 30% to $2,552,708 in 1999 from $3,204,902 in 1998. This decrease
is primarily due to non-cash compensation expense relating to the issuance of
stock and stock options decreasing to $337,656 in 1999 from $2,126,870 in 1998.
Interest expense increased approximately 67%, to $230,446 in 1999 from
$138,324 in 1998. This is primarily due to interest expense of new loans assumed
in the purchase of United.
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At December 31, 1999, the Company has net operating loss carry-forwards
for federal income tax purposes of approximately $2,200,000, which are available
to offset future federal taxable income, if any, through 2014. The net operating
loss carry-forwards are subject to annual limitations as a result of changes in
ownership. The Company has deferred tax assets of approximately $1,806,000.
Management has provided a 100% valuation allowance against deferred tax assets,
due to uncertainty surrounding the amount and timing of future taxable income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenues increased approximately 276%, to $1,808,713 in 1998 from
$481,316 in 1997. Total revenues were generated by the Company's subsidiary,
INI, and increased as the Company purchased INI in September 1997. Total
revenues for 1998 increased approximately 17% over pro forma revenues for 1997
of $1,549,042, primarily due to an increase in volume.
Total operating expenses increased approximately 731%, to $4,884,517 in
1998 from $586,875 in 1997. Printing costs, postage and delivery, other
production costs, selling expenses, and depreciation and amortization, which
aggregate to $1,349,619, increased approximately 306%, from $332,602 in 1997,
which is comparable to the increase in total revenues discussed above. General
and administrative expenses increased approximately 1,155%, to $3,204,902 in
1998 from $255,273. This increase was primarily due to the Company recording
compensation expense relating to the issuance of stock options of $2,126,870 in
1998. The Company also forgave stock subscriptions receivable aggregating
$329,996 from two directors.
Interest expense increased approximately 2,491%, to $138,324 in 1998 from
$5,338 in 1997. This is due to new borrowings of $265,000 in 1998 and an
effective interest rate of 80% on two loans arising from the issuance of stock,
in addition to the stated interest rate.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The Company has relied primarily on funds generated from the issuance of
common stock and use of its line of credit to finance its operations and
expansion. The Company's working capital deficit increased during 1999 to
$(1,342,265), primarily due to the net loss during the year. As of December 31,
1999, the Company had cash of $263,517, compared to $326 at December 31, 1998.
Cash used in operating activities was $16,855 in 1999, compared to
$258,247 in 1998. This was primarily due to the net loss of $(1,616,601), offset
by non-cash charges relating to the issuance of stock options of $337,656,
charges related to the issuance of stock for services of $390,000, depreciation
and amortization of $485,755, an increase in accounts receivable of $204,066 and
accrued expenses of $233,591
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Cash used in investing activities was $209,346 in 1999, compared to
$37,935 in 1998. The increase was primarily due to net cash paid for the
acquisition of United on April 1, 1999, of $178,084.
Cash provided by financing activities was $489,392 in 1999, compared to
$296,508 in 1998. The increase was primarily the result of net proceeds from the
issuance of common stock of $837,094, offset by repayments of notes payable in
the amount of $253,446.
On May 1, 2000, certain shareholders of the Company entered into a stock
purchase agreement whereby they exchanged common and preferred stock and options
to purchase common stock representing approximately 52% of the Company's fully
diluted common shares for common shares and, in certain instances, options to
purchase common shares of The BigHub.com, Inc. The Company also obtained a
$500,000 unsecured loan from the BigHub.com Inc., which was used, in part, to
liquidate certain trade payables and accrued liabilities. The BigHub.com, Inc.
has verbally committed to fund the Company's working capital needs during the
year ending December 31, 2000.
Management plans to improve the liquidity of the Company during the year
ending December 31, 2000 through an increase in revenues from its internet site,
ISHOPol.com, an increase in printing revenue from national accounts, reduced
debt service commitments and the sale of INI.
Although no assurances can be given, the Company believes that cash on
hand, cash provided by operating activities and the ability to borrow necessary
working capital from the BigHub.com will provide sufficient cash to fund
operations for the next twelve months.
The Company has no significant cash commitments beyond normal purchases
from suppliers projected for fiscal 2000.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Cash used by operating activities was $258,247 in 1998, compared to
$46,803 in 1997. This was primarily due to the net loss of $(3,207,705), offset
by non-cash charges relating to the issuance of stock options of $2,126,870 and
forgiveness of stock subscriptions receivable of $329,996. Also, wages payable
increased by $244,616.
Capital used in investing activities was $37,935 in 1998, compared to
$49,154 in 1997. The capital expenditures primarily related to leasehold
improvements.
Cash provided by financing activities was $296,508 in 1998, compared to
$95,957 in 1997. The increase was the result of proceeds from notes payable in
the amount of $265,000, net proceeds from the issuance of common stock of
$130,000, and net
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proceeds from the issuance of preferred stock of $339,955, offset by the
issuance of notes receivable in the amount of $345,500.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, operations of the Company may be
exposed to fluctuations in interest rates. These fluctuations can vary the cost
of financing, investing, and operating transactions. Because the Company has
only fixed rate short-term debt, there are no material impacts on earnings due
to fluctuations in interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting For Derivative
Instruments" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as either assets of
liabilities and measure those instruments at fair market value. Under certain
circumstances, a portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income and subsequently classified into
income when the transaction affects earnings. SFAS is effective for all fiscal
quarters beginning after June 15, 2000 and requires application prospectively.
Presently, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no material impact on its financial position or results of
operations.
ITEM 7. FINANCIAL STATEMENTS
See attached.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and officers. The directors and executive officers of the
Company, as of the date of this filing, are as follows:
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<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gerard Bernier 50 President and Director
Leon Zajdel 52 Director
Peter Collins 56 Director
Steve Kronzek 50 Director
Frank Miller 32 Chief Financial Officer/Assistant Secretary
</TABLE>
Officers are appointed by and serve at the discretion of the Board of
Directors. Directors are elected to fill vacancies by the Board of Directors and
at each annual meeting. Each officer and director holds office until the next
annual meeting of shareholders or until a successor has been duly elected and
qualified with the exception of Gerard Bernier, the Company's President, who was
appointed to a two year term as of April 1, 1999.
Gerard Bernier has been the Company's President and a director since April 1999.
Gerard Bernier is United's founder and is its chief executive officer. He has
been a director of United since November 1981, and Chief Executive Officer since
August 1985. Prior to 1981, Mr. Bernier was an executive with various
advertising and manufacturing companies. Prior to starting United, he founded,
successfully operated and sold three other small businesses.
Steve Kronzek has been a director of the Company since April 1999. Mr. Kronzek
was a founding partner in November 1977 and has continued as partner of the
accounting firm of Kronzek & Company, located in Washington, DC. Since January
1992, he has served as an independent accountant for United Marketing Solutions,
Inc., the Company's subsidiary acquired after the reporting period.
Peter Collins has been a director of the Company since May of 1998. Mr. Collins
is a representative of Renaissance Capital Partners serving as a director
pursuant to the agreement between the Company and it Preferred Shareholders.
Leon Zajdel has been a director of the Company since April 1999. Mr. Zajdel was
founder and has served as President of Energy Guard Corp., a manufacturer and
retailer of replacement windows, located in Beltsville, MD, since 1972.
Frank A. Miller has been the Company's Chief Financial Officer since June 1,
1999. Prior to his employment with the Company, Mr. Miller served as Director of
Business Development and Financial Services for Precision Auto Care, Inc., an
international provider of automotive maintenance with over 500 franchised units.
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Compliance with Section 16(a) of the Exchange Act. The issuer's common
stock is not registered pursuant to Section 12 of the Exchange Act; therefore,
information required by Item 405 is not applicable.
ITEM 10. EXECUTIVE COMPENSATION
The following information relates to compensation paid by the Company for
services rendered in all capacities during the year ended December 31, 1999, to
the Chief Executive Officer, the only executive officer of the Company who
received a salary and bonus during fiscal 1999 in excess of $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
---------------------------------------------------------------------------
Name and
Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerard R. 1999 $112,500(1) - -
Bernier
President and
CEO, United
---------------------------------------------------------------------------
<CAPTION>
Summary Compensation Table
--------------------------
Long-Term Compensation
----------------------
Awards Payouts
------ -------
-------------------------------------------------------------------------------------
Name and Securities
Principal Restricted Underlying LTIP All Other
Position Stock Awards Options/SARs Payouts Compensation
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerard R. - - - -
Bernier
President and
CEO, United
-------------------------------------------------------------------------------------
</TABLE>
(1) As of April 1, 1999
Gerard Bernier, the Company's current President, pursuant to a two year
employment agreement entered into in 1999, was issued an option to purchase
250,000 shares of common stock of the Company at a price of $0.02 per share, as
compensation for serving as President of the Company in addition to Mr.
Bernier's compensation as President and CEO of United. Mr. Bernier will be
entitled to receive an additional option to purchase 100,000 shares of common
stock upon the one year anniversary of any subsequent reappointment by the Board
of Directors. In his role as President and CEO of United, Mr. Bernier has a
written employment agreement for an initial term running through March 31, 2001
pursuant to which he is entitled to a salary of $150,000 (annually adjusted for
cost of living) and a bonus equal to 5% of pre-tax and pre-extraordinary item
profits of United so long as such profits exceed a $350,000 threshold. In
addition, Mr. Bernier is to receive certain other benefits including $150,000 in
life insurance and an automobile allowance.
INSURANCE PLANS
The Company makes available to all full-time employees medical and dental
plan benefits, life and accidental death insurance and long-term disability
insurance. Employees are eligible to participate in company insurance plans when
they complete 90 days of service with the Company.
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OTHER BENEFIT PLANS
401(k) Plan. The Company makes available a 401(k) Savings Plan (the
"401(k) Plan"), a federally-qualified, tax-deferred plan administered by a third
party. The 401(k) Plan provides participants with savings or retirement benefits
based on employee deferrals of compensation, as well as any matching and other
discretionary contributions made by the Company. Employees are eligible to
participate in the 401(k) Plan when they complete one month of service with the
Company and have attained the age of 18. The employee can defer up to 15% of the
compensation amount earned within a calendar year, not to exceed the ceiling set
forth annually by the Internal Revenue Service. The Company matches the
employee's contribution to the 401(k) Plan dollar-for-dollar up to 3% of the
employee' annual salary. Participants become vested in any employer
contributions to the 401(k) Plan after two years of service at a rate of 20% for
each completed year of service. A participant is always 100% vested in his or
her salary reduction contributions to the 401(k) Plan.
The following tables show information with respect to options granted
during fiscal year 1999 and the number of shares of common stock represented by
outstanding stock options held by the President/Chief Executive Officer as of
December 31, 1999. Also reported is the value for "in-the-money" options, which
represent the positive spread between the exercise price of any existing stock
options and the year-end price of the common stock.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Name Number of Securities Percent of Total
---- Underlying Options/SARs Options
Granted Granted to Employees
------- --------------------
--------------------------------------------------------------------------------------
<S> <C> <C>
None - -
--------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------
Name Exercise Price Expiration Date
---- --------------- ----------------
--------------------------------------------------------------------------------------
<S> <C> <C>
None - -
--------------------------------------------------------------------------------------
</TABLE>
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Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options at December 31,1999
--------------------------------------------------------------------------------------------------------
Shares Acquired
---------------
Name on Exercise Value Realized Exercisable Unexercisable
---- ----------- -------------- ----------- -------------
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerard R.
Bernier - - 400,000 -
--------------------------------------------------------------------------------------------------------
<CAPTION>
Value of Unexercised
in-the-money Options
at December 31, 1999
-------------------------------------------------------------
Name Exercisable Unexercisable
---- ----------- -------------
-------------------------------------------------------------
<S> <C> <C>
Gerard R.
Bernier $600,000 -
-------------------------------------------------------------
</TABLE>
The director's of the Company serve without compensation. However, the
following directors, in recognition of their contributions to the Company, were
each granted an option to purchase 10,000 shares of common stock at a price of
$2.50 per share on June 9, 1999: Leon Zajdel, Peter Collins, and Steve Kronzek
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF APRIL 30, 2000.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Amount and Nature of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Percent of Class(1)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gerard Bernier
Common Stock 8380 Alban Road
Springfield, VA 22150 1,332,059(2) 24.6%
----------------------------------------------------------------------------------------------------------------------------
Joel Sens
Common Stock 900 N. Stafford St.
Suite 2003
Arlington, VA 22203 1,135,683(2) 21.0%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
Kenneth Brochin
Common Stock 2347 Underhill Road
Toledo, OH 43615 627,000(3) 11.4%
----------------------------------------------------------------------------------------------------------------------------
John Banas
Common Stock 20th Century Associates, Inc.
14 Plaza Nine
Manalapan, NJ 07726 360,000 6.8%
----------------------------------------------------------------------------------------------------------------------------
Renaissance Capital Partners I
Series A Preferred Stock 8080 N. Central Expressway
Suite 210 - LB59
Dallas, TX 75206-1857 155,096 62.0%
----------------------------------------------------------------------------------------------------------------------------
Harlon Morse Fentress Trust, c/o
Series A Preferred Stock Duncan-Smith Investments, Inc.
311 Third Street
Suite 300
San Antonio, TX 78205 16,325 6.5%
----------------------------------------------------------------------------------------------------------------------------
Duncan-Smith Investments, Inc.
Series A Preferred Stock 311 Third Street
Suite 300
San Antonio, TX 78205 13,769 5.5%
---------------------------------------------------------------------------------------------------------------------------
T.C. Equities, Ltd.
Series B Preferred Stock Charlotte House
Nassau
Bahamas 65,000 100.0%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Rounded to the nearest one tenth of one percent.
(2)Includes options to purchase 150,000 shares of common stock.
(3)Includes options to purchase 247,500 shares of common stock.
(b) SECURITY OWNERSHIP OF MANAGEMENT AS OF APRIL 30, 2000.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Amount and Nature of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Percent of Class(1)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gerard Bernier
Common Stock 8380 Alban Road 1,332,059(2) 24.6%
Springfield, VA 22150
--------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
Leon Zajdel
Common Stock 11820 Enid Drive
Potomac, MD 20854 18,747(3) 0.4%
--------------------------------------------------------------------------------------------------------------------
Peter Collins
Common Stock 500 E. 77th Street
Suite 1819
New York, NY 10162 10,000(3) 0.2%
--------------------------------------------------------------------------------------------------------------------
Steve Kronzek
Common Stock 8380 Alban Road
Springfield, VA 22150 10,000(3) 0.2%
--------------------------------------------------------------------------------------------------------------------
Common Stock Directors and Executive Officers as a Group 1,350,806(4) 24.8%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Rounded to the nearest one tenth of one percent.
(2)Includes options to purchase 150,000 shares of common stock.
(3)Includes options to purchase 10,000 shares of common stock.
(4)Includes options to purchase 180,000 shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subsequent to the period covered by this report, the Company entered into
a transaction by which certain shareholders of common stock and Series A
Preferred stock sold approximately fifty-two percent (52%) of the fully diluted
common stock of the Company to BigHub. This event was reported on a current
report on Form 8-K filed by the issuer on May 18, 2000. Mr. Gerard R. Bernier,
President and CEO of the Company, had a material interest in the transaction. On
May 1, 2000, Mr. Bernier sold 1,098,389 common shares of the Company and
transferred rights to 150,000 Company common share options, with an exercise
price of $0.50 per share, to BigHub in exchange for 373,453 common shares of
BigHub, 200,000 BigHub common share options, with an exercise price of $5.50 per
share, and 150,000 BigHub common share options, with an exercise price of $1.25
per share. Also, pursuant to this transaction, Mr. Joel Sens, at the time a
major shareholder of the Company, sold 910,725 common shares of the Company and
transferred rights to 150,000 Company common share options, with an exercise
price of $0.50 per share, to BigHub in exchange for 309,646 common shares of
BigHub, 200,000 BigHub common share options, with an exercise price of $5.50 per
share, and 150,000 BigHub common share options, with an exercise price of $1.25
per share. Additionally, the majority of the Preferred A shareholders converted
their shares (including accrued dividends) to 755,985 common shares of the
Company. This total amount of common shares was sold to BigHub along with the
Preferred A shareholders' rights to warrants to purchase 164,910 shares of
common stock at an exercise price of $0.16 per share, in exchange for 257,046
BigHub common shares, in the aggregate, which were transferred to the former
Preferred A shareholders pro rata.
16
<PAGE> 17
On December 30, 1998, the issuer entered into amended and restated
transaction documents in order to consummate the acquisition of United (the
"Acquisition"). This event was reported on a current report on Form 8-K filed by
the issuer on January 8, 1999. Mr. Gerard Bernier, the president and a director
of the issuer, had a material interest in the Acquisition transactions. Prior to
assuming his duties as president and a director of the issuer, Mr. Bernier was
president and a director of UNICO, Inc., a Delaware corporation ("Unico"), and
the corporate parent of United. On May 1, 1998, Mr. Bernier sold 168,744 shares
of common stock of Unico to the issuer, which subsequently transferred these
shares to an unaffiliated third party. On December 30, 1998, Mr. Bernier and
others entered into an Amended and Restated Stock Purchase and Shareholder
Agreement (the "Shareholder Agreement") pursuant to which Mr. Joel Sens - at the
time the majority shareholder of the issuer - sold 935,000 shares of common
stock of the issuer to Mr. Bernier in exchange for a non-recourse secured
promissory note in the amount of $156,145. Mr. Sens subsequently transferred
this promissory note to the issuer in payment of certain indebtedness of Mr.
Sens to the issuer for the same amount. Prior to his appointment as President of
the issuer, the issuer engaged Mr. Bernier as a consultant to implement the
Acquisition. In consideration for his role as consultant, the issuer forgave the
obligation of $156,145 of Mr. Bernier and paid additional compensation to Mr.
Bernier equivalent to the income tax incurred as a result of this forgiveness of
indebtedness. As a result, Mr. Bernier no longer holds an interest in Unico and
is the current holder of 935,000 shares of common stock of the issuer.
Mr. Joel Sens, pursuant to the Shareholder Agreement, sold 935,000 shares
of common stock of the issuer to Mr. Bernier as of December 30, 1998. In
addition, the issuer and Mr. Sens netted certain obligations between them. This
resulted in Mr. Sens owing the issuer $187,905 and the issuer owing Mr. Sens
approximately $22,199. In exchange for the debt owed to Mr. Sens, Mr. Sens
accepted payment in the form of 66,464 shares of common stock of the issuer,
valuing such shares at a price of $0.334 per share. The issuer forgave $152,905
of the debt owing to it from Mr. Sens and granted Mr. Sens a special bonus
equivalent to the income tax incurred as a result of this forgiveness of
indebtedness, in recognition of Mr. Sens' contribution to the Company's
business. The issuer then transferred the remaining $35,000 of debt owing by Mr.
Sens to Dr. Kenneth Brochin, a director of the issuer, in satisfaction of a debt
owing from the issuer to Dr. Brochin for certain advances of working capital.
On May 1, 1998, Mr. Leon Zajdel, a former director of Unico and a current
director of the issuer, sold 13,187 shares of common stock of Unico to the
issuer in exchange for 8,747 shares of common stock of the issuer. The issuer
subsequently transferred the Unico shares to an unaffiliated third party.
On December 30, 1998, T.C. Equities, the holder of 70,000 shares of
Series B Preferred Stock of the issuer, entered into a series of transactions
with the issuer as part of the Acquisition. T.C. Equities, in exchange for the
Series B Preferred Stock, an option to purchase 250,000 shares of common stock
of the issuer at a price of $0.16 per share, and the common stock of Unico
acquired by the issuer from Messrs. Bernier, Zajdel and
17
<PAGE> 18
others, provided financing for the Acquisition. As a result of these
transactions, T.C. Equities acquired a controlling interest in Unico.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION LOCATION
-------------- ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation (under the name Micro Tech Incorporated by reference in the filing of the Company's
Industries Inc.) annual report on Form 10-KSB filed on April 15, 1998
3.2 Amendment to the Articles of Incorporation Incorporated by reference in the filing of the Company's
quarterly report on Form 10-Q filed on May 15, 1997.
3.3 Amended and Restated Bylaws of the Company Incorporated by reference in the filing of the Company's
annual report on Form 10-KSB filed on November 12, 1999.
10.1 Amended and Restated Stock Purchase Agreement and Plan of Incorporated by reference in the filing of the Company's
Merger among Unico, UMSI, United Marketing Merger Corp. and current report on Form 8-K filed on January 8, 1999.
the registrant dated as of December 30, 1998.
10.2 Amended and Restated Stock Purchase and Shareholders Incorporated by reference in the filing of the Company's
Agreement among Gerard R. Bernier, Joel P. Sens, Lawrence current report on Form 8-K filed on January 8, 1999.
Grimes, Kenneth Brochin, David Incorporated by reference in
the filing of the Company's 10.2 Grossman, Jeffrey Sens and
the registrant dated as of December 30, 1998. current
report on Form 8-K filed on January 8, 1999.
10.3 Amended and Restated Escrow Agreement among T.C. Equities Incorporated by reference in the filing of the Company's
Ltd., the Law Office of Shane Henty Sutton, P.C. and the current report on Form 8-K filed on January 8, 1999.
registrant dated as of December 30, 1998.
10.4 Amended and Restated Stock Purchase Agreement between T.C. Incorporated by reference in the filing of the Company's
Equities Ltd. and the registrant dated as of December 30, current report on Form 8-K filed on January 8, 1999.
1998.
10.5 Amended and Restated Securities Subscription Agreement Incorporated by reference in the filing of the Company's
between T.C. Equities Ltd. and the registrant dated as of current report on Form 8-K filed on January 8, 1999.
December 30, 1998.
10.6 Stock Purchase Agreement among T.C. Equities Ltd., Unico, Incorporated by reference in the filing of the Company's
Inc. and the registrant dated as of December 30, 1998. current report on Form 8-K filed on January 8, 1999.
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C>
10.7 Stock Purchase Agreement, dated March 16, 2000, by and Incorporated by reference in the filing of the Company's
among The BigHub.com, Inc., Next Generation Media Corp., current report on Form 8-K filed on May 18, 2000.
the "Preferred Shareholders" and the "Common Shareholders."
10.8 Stock Purchase Agreement, dated March 16, 2000, by and Incorporated by reference in the filing of the Company's
among The BigHub.com, Inc., Next Generation Media Corp., current report on Form 8-K filed on May 18, 2000.
Gerard R. Bernier, and Joel Sens.
21.1 Subsidiaries of the Registrant Included herein.
24.1 Power of Attorney Included on the signature page hereto.
27.1 Financial Data Schedule Included herein.
</TABLE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
NEXT GENERATION MEDIA CORP.
<S> <C>
Date: May 31, 2000 By: /s/ Gerard R. Bernier
----------------------------------------
Gerard R. Bernier, President and Director
(principal executive officer)
Date: May 31, 2000 By: *
----------------------------------------
Leon Zajdel, Director
Date: May 31, 2000 By: *
----------------------------------------
Peter Collins, Director
Date: May 31, 2000 By: *
----------------------------------------
Steve Kronzek, Director
Date: May 31, 2000 By: *
----------------------------------------
Frank A. Miller, Chief Financial Officer
and Assistant Secretary
Date: May 31, 2000 By: */s/ Gerard R. Bernier
----------------------------------------
Gerard R. Bernier, Attorney-in-fact
</TABLE>
19
<PAGE> 20
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Gerard R. Bernier his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
this annual report on Form 10-KSB, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent 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 to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company and the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Leon Zajdel Director May 31, 2000
--------------------
Leon Zajdel
/s/ Peter Collins Director May 31, 2000
--------------------
Peter Collins
/s/ Steve Kronsek Director May 31, 2000
--------------------
Steve Kronzek
/s/ Frank A. Miller Chief Financial Officer May 31, 2000
-------------------- and Assistant Secretary
Frank A. Miller
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
Independent Auditors' Report F2
Consolidated Financial Statements
Consolidated balance sheets F3-F4
Consolidated statements of operations F5
Consolidated statements of stockholders' deficit F6
Consolidated statements of cash flows F7
Summary of accounting policies F8-F10
Notes to consolidated financial statements F11-F22
</TABLE>
F-1
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Next Generation Media Corporation
We have audited the accompanying consolidated balance sheets of Next Generation
Media Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Next Generation Media
Corporation at December 31, 1999 and 1998, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Washington, D.C.
May 8, 2000
F-2
<PAGE> 23
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
==========================================================================================================================
<S> <C> <C>
Assets
Current
Cash and cash equivalents $ 263,517 $ 326
Notes receivable from UNICO (Note 2) - 175,500
Accounts receivable, less allowance for doubtful
accounts of $95,599 and $65,534 546,421 122,443
Inventories 107,094 -
Deferred charges (Note 11) 184,844 -
Deferred loan costs, net of accumulated amortization
of $120,000 and $53,577 (Note 6) - 66,423
Deferred offering costs (Note 11) - 185,520
Prepaid expenses and other current assets 68,177 2,253
--------------------------------------------------------------------------------------------------------------------------
Total current assets 1,170,053 552,465
--------------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Note 3) 1,431,632 170,572
Intangibles, net of accumulated amortization of $182,989
and $49,315 (Notes 1 and 4) 934,447 155,862
Deferred acquisition costs (Note 9) - 1,094,167
Investment in UNICO (Note 5) - 25,537
Deposits 8,105 -
--------------------------------------------------------------------------------------------------------------------------
Total assets $3,544,237 $1,998,603
==========================================================================================================================
</TABLE>
F-3
<PAGE> 24
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
===========================================================================================================================
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities
Checks issued against future deposits $ - $ 28,919
Notes payable, current portion (Note 6) 714,632 237,153
Current obligations under capital leases (Note 7) 19,427 41,425
Accounts payable 753,609 236,523
Accrued expenses 532,358 -
Wages payable 252,885 244,616
Due to related parties (Note 8) 143,466 129,570
Deferred revenue 95,941 15,787
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,512,318 933,993
Notes payable (Note 6) 5,501 -
Obligations under capital leases (Note 7) - 18,339
Deferred rent 57,674 -
Accrued dividends (Notes 9 and 10) 255,319 96,569
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,830,812 1,048,901
---------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock Series A, par value
$.01, redemption value $6 per
share, 500,000 shares authorized,
250,000 shares issued and outstanding (Note 9) 944,792 782,292
Redeemable preferred stock Series B, par value
$.01, redemption value $5 per
share, 500,000 shares authorized,
65,000 and 70,000 shares issued and outstanding (Note 10) 325,000 233,333
---------------------------------------------------------------------------------------------------------------------------
Commitments (Note 14)
Stockholders' deficit (Note 11)
Common stock, $.01 par value, 50,000,000 authorized,
4,416,818 and 3,629,318 issued and outstanding 44,166 36,291
Additional paid in capital 5,181,562 3,625,363
Accumulated deficit (5,782,095) (3,727,577)
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (556,367) (65,923)
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $3,544,237 $1,998,603
===========================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE> 25
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
======================================================================================================================
<S> <C> <C>
Revenues:
Coupon sales $5,680,214 $ -
Franchise fees 75,800 -
Advertising revenues 1,792,198 1,505,241
Classified revenues 249,149 225,070
Commission income 68,049 78,402
----------------------------------------------------------------------------------------------------------------------
Total revenues 7,865,410 1,808,713
----------------------------------------------------------------------------------------------------------------------
Operating Expenses
Printing costs 3,272,043 375,143
Postage and delivery 2,344,352 504,181
Other production costs 197,612 195,622
Selling expenses 303,969 182,534
General and administrative expenses (Note 11) 2,552,708 3,204,902
Depreciation and amortization 485,755 92,139
Franchise sales and development 99,099 -
Forgiveness of stock subscription receivable (Note 12) - 329,996
----------------------------------------------------------------------------------------------------------------------
Total operating expenses 9,255,538 4,884,517
----------------------------------------------------------------------------------------------------------------------
Loss from operations (1,390,128) (3,075,804)
----------------------------------------------------------------------------------------------------------------------
Other income (expense)
Interest income 39 6,014
Other income 3,934 4,409
Interest expense (Note 6) (230,446) (138,324)
----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (226,473) (127,901)
----------------------------------------------------------------------------------------------------------------------
Loss before income tax expense (1,616,601) (3,203,705)
Income tax expense - (4,000)
----------------------------------------------------------------------------------------------------------------------
Net loss (1,616,601) (3,207,705)
----------------------------------------------------------------------------------------------------------------------
Preferred stock dividends (158,750) (96,569)
Preferred stock deemed dividends (279,167) (328,125)
----------------------------------------------------------------------------------------------------------------------
Loss applicable to common shareholders $(2,054,518) $(3,632,399)
======================================================================================================================
Basic and diluted loss per common share $(.50) $ (1.09)
----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 4,132,086 3,319,201
======================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE> 26
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in
Shares Amount Capital
==========================================================================================
<S> <C> <C> <C>
Balance, January 1, 1998 3,113,450 $ 31,134 $ 419,616
Fair value of warrants
issued in connection
with issuance of
redeemable preferred stock - - 476,622
Deemed dividend in
connection with
redeemable preferred
stock - - -
Preferred stock
dividends - - -
Forgiveness of stock
subscription
receivable
Repayment of stock
subscription receivable - - -
Issuance of stock options to
shareholders and directors - - 2,126,870
Common stock issued in
exchange for services 440,368 4,402 473,010
Issuance of common stock
through a private placement 75,500 755 129,245
Net loss - - -
------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,629,318 36,291 3,625,363
Deemed dividend in
connection with
redeemable preferred
stock - - -
Preferred stock
dividends - - -
Issuance of stock to shareholder 100,000 1,000 199,000
Non-cash issuance of stock
options to shareholders
and directors - - 322,500
Common stock issued in
exchange for
services 236,000 2,360 487,640
Issuance of common stock
through private
placements 451,500 4,515 547,059
Net loss - - -
------------------------------------------------------------------------------------------
Balance, December 31, 1999 4,416,818 $ 44,166 $ 5,181,562
==========================================================================================
<CAPTION>
Stock
Accumulated Subscription
Deficit Receivable Total
===========================================================================================
<S> <C> <C> <C>
Balance, January 1, 1998 $ (95,178) $ (359,050) $ (3,478)
Fair value of warrants
issued in connection
with issuance of
redeemable preferred stock - - 476,622
Deemed dividend in
connection with
redeemable preferred
stock (328,125) - (328,125)
Preferred stock
dividends (96,569) - (96,569)
Forgiveness of stock
subscription
receivable 329,996 329,996
Repayment of stock
subscription receivable - 29,054 29,054
Issuance of stock options to
shareholders and directors - - 2,126,870
Common stock issued in
exchange for services - 477,412
Issuance of common stock
through a private placement - - 130,000
Net loss (3,207,705) - (3,207,705)
-------------------------------------------------------------------------------------------
Balance, December 31, 1998 (3,727,577) - (65,923)
Deemed dividend in
connection with
redeemable preferred
stock (279,167) - (279,167)
Preferred stock
dividends (158,750) - (158,750)
Issuance of stock to shareholder - - 200,000
Non-cash issuance of stock
options to shareholders
and directors - - 322,500
Common stock issued in
exchange for
services - 490,000
Issuance of common stock
through private
placements - - 551,574
Net loss (1,616,601) - (1,616,601)
-------------------------------------------------------------------------------------------
Balance, December 31, 1999 $(5,782,095) $ - $ (556,367)
===========================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
<PAGE> 27
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 18)
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
====================================================================================================================================
<S> <C> <C>
Operating activities
Net loss $(1,616,601) $(3,207,705)
Adjustments to reconcile net loss to net
cash used in operating activities:
Compensation expense relating to the issuance of stock and stock options 337,656 2,126,870
Stock issued for services 390,000 -
Forgiveness of stock subscription receivable - 329,996
Depreciation and amortization 485,755 92,139
Provision for doubtful accounts 21,848 34,974
Amortization of deferred loan costs 66,423 53,577
Amortization of discount on notes payable 55,352 44,648
Interest on capital lease obligations - 6,066
(Increase) decrease in assets
Accounts receivable (204,066) 12,176
Inventories 75,456 -
Prepaids and other current assets (5,323) (6,014)
Increase (decrease) in liabilities
Accounts payable (3,043) (5,377)
Accrued expenses 233,591 -
Wages payable 8,269 244,616
Deferred revenue 80,154 15,787
Deferred rent 57,674 -
------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (16,855) (258,247)
------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Cash paid for acquisition of United, less cash acquired (178,084) -
Acquisition of property and equipment (45,158) (32,108)
Deferred acquisition costs - (100,000)
Due to related parties 13,896 94,173
------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (209,346) (37,935)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Checks issued against future deposits (28,919) (15,902)
Proceeds from notes payable - 265,000
Issuance of notes receivable - (345,500)
Net proceeds from issuance of common stock 837,094 130,000
Proceeds from issuance of preferred stock and warrants - 339,955
Redemption of preferred stock (25,000) -
Payments of capital lease obligation (40,337) (31,596)
Repayment of note payable (253,446) (25,449)
Loan fees - (20,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 489,392 296,508
------------------------------------------------------------------------------------------------------------------------------------
Increase in cash 263,191 326
Cash and cash equivalents, beginning of period 326 -
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 263,517 $ 326
====================================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<PAGE> 28
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
Description of Business Next Generation Media Corporation (the "Company")
operates in two business segments. The Company's
primary business is cooperative direct mail
advertising, which involves the designing, printing,
packaging, and mailing of public relations and
marketing materials and coupons for retailers who
provide goods and services. Sales are conducted
through a franchise network of cooperative
advertising specialists. The Company provides sales
support and complete production and mailing
services, on a wholesale basis, to its franchisees.
At December 31, 1999, the Company had approximately
65 active area franchise operations located
throughout the United States.
The Company also operates a newspaper publishing
business distributing free newspapers, supported by
local advertising throughout New Jersey.
Basis of Presentation The consolidated financial statements include the
statements of the Company and its wholly owned
subsidiaries, United Marketing Solutions, Inc.
("United") and the Independent News, Inc. ("INI").
All significant intercompany accounts and
transactions have been eliminated.
Inventories Inventories consist primarily of paper, envelopes
and printing materials and are stated at the lower
of cost or market, with cost determined on the
first-in, first-out method.
Property and Equipment Property, plant and equipment are carried at cost.
Depreciation is computed using the straight-line
method over the following estimated useful lives:
Furniture, fixtures and equipment 10 years
Computers 3 years
Leasehold improvements are amortized over the lesser
of the lease term or the useful life of the
property.
Intangibles The Company has recorded goodwill based on the
difference between the cost and the fair value of
certain purchased assets and it is being amortized
on a straight-line basis over the estimated period
of benefit, which ranges from five to ten years. The
Company periodically evaluates the goodwill for
possible impairment. The analysis consists of a
comparison of future projected cash flows to the
carrying value of the goodwill. Any excess goodwill
would be written off due to impairment. The Company
has a covenant not to compete which is being
amortized over five years.
F-8
<PAGE> 29
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
Impairment of The Company reviews the carrying values of its
Long-Lived Assets long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the
carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal
are reported at the lower of their carrying amounts
or fair value less cost to sell.
Deferred Rent Deferred rent is recorded for the difference between
actual rental payments made and rent expense
calculated on a straight-line basis over the life of
the lease.
Income Taxes Income taxes are calculated using the liability
method specified by Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes."
Revenue Recognition The Company recognizes revenue from the design,
production and printing of coupons upon delivery.
Revenue from initial franchise fees are recognized
when substantially all services or conditions
relating to the sale have been substantially
performed. Franchise support and other fees are
recognized when billed to the franchisee. Amounts
billed or collected in advance of final delivery or
shipment are reported as deferred revenue.
Revenue from newspaper advertising is recognized
upon publication.
Cash and Cash Equivalents The Company considers all highly liquid investments
with maturities of three months or less to be cash
equivalents.
Comprehensive The Company has adopted Statement of Financial
Income Accounting Standards No. 130, "Reporting
Comprehensive Income." Comprehensive income as
defined includes all changes to equity except that
resulting from investments by owners and
distributions to owners. The Company has no items of
comprehensive income to report.
Loss Per Common Share Loss per share has been computed using the weighted
average number of shares outstanding. The
outstanding stock options and convertible preferred
stock were not considered in the computation because
their inclusion would have been anti-dilutive.
Use of Estimates The preparation of financial statements in
in the Preparation conformity with generally accepted accounting
of Financial principles requires management to make estimates and
Statements 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.
F-9
<PAGE> 30
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
Risks and The Company operates in environments where intense
Uncertainties competition exists from other companies. This
competition, along with increases in the price of
paper and printing costs, can impact the Company's
pricing and profitability.
Recent In June 1998, the Financial Accounting Standards
Accounting Board issued Statement of Financial Accounting
Pronouncements Standards No. 133, "Accounting For Derivative
Instruments" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as
either assets or liabilities and measure those
instruments at fair market value. Under certain
circumstances, a portion of the derivative's gain or
loss is initially reported as a component of other
comprehensive income and subsequently reclassified
into income when the transaction affects earnings.
SFAS 133 is effective for all fiscal quarters
beginning after June 15, 2000 and requires
application prospectively. Presently, the Company
does not use derivative instruments either in
hedging activities or as investments. Accordingly,
the Company believes that adoption of SFAS 133 will
have no material impact on its financial position or
results of operations.
Reclassifications Certain prior year amounts have been reclassified to
conform to the current year presentation.
F-10
<PAGE> 31
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Purchase of On April 1, 1999, the Company acquired all of the
United Marketing outstanding common stock of United for cash of
Solutions, Inc. $336,665 and assumption of debt. In addition, the
Company accounted for certain debt forgiveness to
UNICO, the former parent of United, as additional
consideration and, accordingly, such amounts
increased the goodwill related to the acquisition by
$1,295,204. United is engaged in the cooperative
direct mail marketing business. The acquisition was
accounted for as a purchase. Net assets were
recorded at fair value and the Company recorded
goodwill of $912,259 related to the acquisition. The
financial statements include the operations of
United subsequent to the acquisition date.
The following unaudited pro forma summary presents
the consolidated results of operations as if the
acquisition had been completed at January 1, 1998.
These results do not necessarily reflect what would
have occurred had the acquisition actually been made
as of such dates and is not necessarily indicative
of results which may be obtained in the future.
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
-----------------------------------------------------------------------
<S> <C> <C>
Revenues $ 9,698,758 $ 7,563,126
Net loss (1,561,610) (3,692,392)
Net loss applicable to common
shareholders (1,999,527) (4,117,086)
Basic and diluted loss per common
share attributable to common
shareholders $ (.48) $ (1.23)
=======================================================================
</TABLE>
2. Notes Receivable On May 12, 1998, the Company executed an unsecured
promissory note with UNICO, Inc. for $175,500
bearing interest at 5.83%. The note for $175,500 was
forgiven in conjunction with the acquisition of
United.
3. Property and Property and equipment consists of the following:
Equipment
<TABLE>
<CAPTION>
December 31, 1999 1998
============================================================================
<S> <C> <C>
Furniture, fixtures and equipment $1,484,504 $ 41,788
Computer equipment 240,822 129,997
Leasehold improvements 116,201 56,600
----------------------------------------------------------------------------
1,841,527 228,385
Accumulated depreciation
and amortization 409,895 57,813
----------------------------------------------------------------------------
Net property and equipment $1,431,632 $170,572
============================================================================
</TABLE>
Depreciation expense was $352,082 and $55,354 for
the years ended December 31, 1999 and 1998,
respectively.
F-11
<PAGE> 32
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Computer equipment recorded under capital leases
amounted to $85,294. Accumulated amortization on
those assets was $47,214 and $18,783 at December 31,
1999 and 1998.
4. Intangible Intangible assets consist of the following items:
Assets
<TABLE>
<CAPTION>
December 31, 1999 1998
====================================================================
<S> <C> <C>
Goodwill $1,482,027 $190,177
Covenant not to compete 15,000 15,000
--------------------------------------------------------------------
1,497,027 205,177
Less accumulated amortization 182,989 49,315
--------------------------------------------------------------------
Intangible assets, net $1,314,038 $155,862
====================================================================
</TABLE>
Amortization expense was $133,674 and $36,786 for
the years ended December 31, 1999 and 1998,
respectively.
5. Investment in In May 1998, the Company purchased 359,931 shares of
UNICO common stock (approximately a 6% ownership interest)
of UNICO, Inc., an unrelated third party. The
Company accounted for this investment using the cost
method in accordance with generally accepted
accounting principles. In April 1999, this
investment was sold in conjunction with the
acquisition of United (Note 1).
F-12
<PAGE> 33
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Notes Payable Notes payable consist of the following:
and Line of Credit
<TABLE>
<CAPTION>
December 31, 1999 1998
==========================================================================================================
<S> <C> <C>
Notes payable, net of discount of $0
and $27,676, interest at 18%
(effective rate of 67%), due on
October 14, 1998, unsecured (a) $ 100,000 $ 72,324
Notes payable, net of discount of
$0 and $27,676, interest at 18%
(effective rate of 67%), due on
November 5, 1998, unsecured (a) 50,000 72,324
Note payable, interest at 18%, due
on December 9, 1998, unsecured 5,000 5,000
Note payable to a bank, interest at
prime +1% (9.5% at December 31,
1999), monthly payments of principal
and interest of $12,500, collateralized
by the assets of United, due on
September 15, 2000 285,525 -
Notes payable, interest at 10%,
monthly payments of principal and
interest of $8,989, due in May 2000
and January 2001, collateralized by the
equipment of United 86,372 -
Note payable, non-interest bearing,
monthly payments of $6,945, due in
February 2000 5,731 -
Line of credit from a bank in the amount
of $100,000, interest at prime (8.5%
at December 31, 1999), guaranteed
by the president of the Company, due
in September, 2000 100,000 -
Note payable to a bank, interest at
prime +.50% (9.0% at December 31,
1999), due on April 30, 2000,
collateralized by the assets of INI 60,000 60,000
Note to a factor, interest at 8%,
collateralized by the assets of INI,
due January 1, 1999 27,505 27,505
----------------------------------------------------------------------------------------------------------
720,133 237,153
Less: Current portion 714,632 237,153
----------------------------------------------------------------------------------------------------------
$ 5,501 $ -
==========================================================================================================
</TABLE>
F-13
<PAGE> 34
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) In conjunction with the issuance of these notes,
the Company issued 50,000 common shares, which have
been valued at $2 based on private sales to
unrelated investors. The notes payable were reduced
and common stock and additional paid in capital were
increased in the aggregate by $100,000. The Company
paid $20,000 and issued 50,000 common shares as a
finder's fee for introducing the Company to the
above noteholders. These costs have been deferred
and are being recorded as interest expense over the
term of the notes. Interest expense of $66,423 and
$53,577 was recognized in the year ended December
31, 1999 and 1998, respectively.
Subsequent to December 31, 1999, these notes and all
accrued interest have been repaid.
7. Obligations Under The Company leases computer equipment under capital
Capital Leases leases. Following is a summary of future minimum
lease payments under capital leases:
<TABLE>
<CAPTION>
Year ending December 31, 2000
============================================================================
<S> <C>
Total minimum lease payments 21,649
Imputed interest (2,222)
----------------------------------------------------------------------------
Present value of minimum capital lease payments 19,427
----------------------------------------------------------------------------
Less: current portion 19,427
----------------------------------------------------------------------------
$ -
============================================================================
</TABLE>
8. Due to Related Due to related parties consists of the following:
Parties
<TABLE>
<CAPTION>
1999 1998
=====================================================================================
<S> <C> <C>
Advances made by former shareholders of INI $ 35,921 $ 94,070
Due to affiliated company 58,945 -
Consulting fees payable 48,600 27,000
Net advances from directors and shareholders - 8,500
--------------------------------------------------------------------------------------
Total $143,466 $129,570
=====================================================================================
</TABLE>
F-14
<PAGE> 35
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 1998, a significant shareholder executed a
consulting agreement with the Company. The agreement
has a two-year term and provides for annual
compensation of $78,000. An amount of $48,600 and
$27,000 is payable at December 31, 1999 and 1998 in
accordance with this agreement.
One of the Company's franchisees is owned and
operated by the wife of the Company's President.
Total sales to that franchisee were $82,939 for the
year ended December 31, 1999.
9. Redeemable On May 7, 1998, the Company executed an agreement
Preferred Stock with the holders of certain subordinated debentures
Series A of UNICO, Inc. to purchase these debentures, with an
outstanding balance of $1,034,000, in exchange for
$100,000 in cash and 250,000 shares of the Company's
Callable Cumulative Convertible Preferred Stock,
(the "Series A Preferred Stock"), par value $.01.
The Series A Preferred Stock is callable at the
option of the holder five years from the date of
issuance at $6 per share. The fair market value of
the preferred stock was determined to be $2.75 per
share based on an independent appraisal.
Accordingly, the Company recorded the Series A
Preferred Stock at $687,500.
The Company will record a deemed dividend to
increase the carrying value of the preferred stock
to the redemption value of $1,500,000 over the
period from the date of issuance to the redemption
due. The deemed dividend was $162,500 and $94,792
for the year ended December 31, 1999 and 1998.
The shares have a conversion price which is the
lesser of $4.50 and 110% of the price of the common
stock in a public or private offering. The shares
have a $5 per share preference on liquidation or
dissolution of the Company.
The Series A Preferred Stock pays a dividend of $.30
per share per annum for the first six months and
$.50 per annum thereafter and are not payable until
eighteen months following the date of issue. Accrued
dividends amounted to $198,459 and $73,459 at
December 31, 1999 and 1998.
Each 1 1/2 shares of the Company's Series A
Preferred Stock was accompanied by one stock
purchase warrant (subject to adjustment) which
entitles the holder to purchase one share of the
Company's common stock for $0.16, valid for five
years from May 7, 1998. Based on private sales of
common stock to unrelated investors, the fair market
value of each warrant was determined to be $2.
Accordingly, the Company recorded additional paid in
capital related to these warrants of $306,667.
F-15
<PAGE> 36
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective May 8, 1998, the Company cancelled UNICO's
obligation to the Company arising from its
assumption of UNICO's subordinated debt. The
assumption of UNICO's subordinated debt was required
to complete the acquisition of United (Note 1).
Therefore, the total of cash paid and the value
assigned to the preferred stock and warrants of
$1,094,167 had been recorded as a deferred
acquisition cost at December 31, 1998 and was
included in the cost of the acquisition in 1999 (see
Note 1).
10. Redeemable In May 1998, the Company issued 70,000 shares of
Preferred Stock Redeemable Cumulative Convertible Preferred Stock,
Series B (the "Series B Preferred Stock") par value $.01 with
a redemption price of $5.00 per share. The original
agreement was amended and restated in December 1998.
Under the restated agreement, the holder can redeem
the Series B Preferred Stock after May 4, 1999. The
Company also issued 250,000 warrants for the
purchase of one share of common stock at an exercise
price of $.16 per warrant, valid for five years from
May 1998. Gross proceeds from the original issuance,
net of expenses, were $339,955. In conjunction with
amending the original agreement, the Company sold
1,800,000 shares of common stock of UNICO, Inc. to
the preferred stockholder for $1. The fair market
value at the date of the transaction of these shares
was determined to be $170,000. This amount has been
recorded as an additional reduction of proceeds in
conjunction with the issuance of the Series B
Preferred Stock. Thus, adjusted net proceeds are
$169,955.
Based on private sales of common stock to unrelated
investors at $2, the fair market value of the
warrants was determined to be in excess of the net
proceeds and therefore the entire net proceeds have
been allocated to the warrants.
The Company will record a deemed dividend to
increase the carrying value of the preferred stock
to the redemption value of $350,000 over the period
from the date of issuance to the redemption date.
The deemed dividend was $116,667 and $233,333 for
the years ended December 31, 1999 and 1998.
The Series B Preferred Stock has a conversion price
which is the lesser of $4.50 and 110% of the price
of the common stock in a public or private offering.
The shares have a $5 per share preference on
liquidation or dissolution of the Company.
The Series B Preferred Stock pays a dividend of $.50
per annum which is only payable upon redemption of
the Series B Preferred Stock. Accrued dividends
amounted to $56,860 and $23,110 at December 31, 1999
and 1998.
During the year ended December 31, 1999, the Company
redeemed 5,000 shares of Series B Preferred Stock
for $25,000.
F-16
<PAGE> 37
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Common Stock In accordance with a consulting agreement with a
significant shareholder, on May 1, 1998 the
shareholder was granted 250,000 options to purchase
shares of common stock at a price of $.02 per share.
The market value of the stock was determined to be
$2 based on private stock sales to unrelated
investors. Accordingly, the Company recorded
compensation expense of $495,000 in 1998.
On May 7, 1998, the Company granted 450,000 options
to a significant shareholder to purchase shares of
common stock at a price of $.50 per share. The
market value of the stock was determined to be $2
based on private sales to unrelated investors. The
Company recorded compensation expense of $675,000.
On May 12, 1998, the Company issued 79,281 shares of
common stock in exchange for a note receivable in
the amount of $12,000, plus accrued interest of
$1,400, and 359,931 common shares of UNICO, Inc.
stock with a fair value of $25,537.
Also on May 12, 1998, the Company issued 137,587
shares of common stock in exchange for the
cancellation of various notes payable to officers of
the Company amounting to $45,954. The market value
of the stock was determined to be $2 based on
private sales to unrelated investors. The Company
recorded compensation expense of $229,220 based on
the difference between the fair market value of the
stock and the consideration.
During July and August 1998, the Company issued
100,000 shares of common stock in conjunction with
notes payable (Note 8). The common stock was valued
at $2 based on private sales to unrelated investors.
During December 1998, the Company issued 75,500
shares of common stock through a private placement
to various individual investors at $2 per share. Net
proceeds from the private placement amounted to
$75,520.
During December 1998, the Company granted 367,500
options to directors to purchase shares of common
stock at a price of $.02 per share. The market value
of the stock was determined to be $2 based on
private sales to unrelated investors. The Company
recorded compensation expense of $727,650.
From March to May 1999, the Company issued 331,500
shares of common stock through a private placement
to various individual investors at $2 per share. Net
proceeds from the private placement after deductions
for both cash and non-cash issuance expenses,
amounted to $385,943.
In April 1999, the Company issued 200,000 shares of
common stock in exchange for consulting services to
be rendered over a one year period. The common stock
was valued at $2 based on private sales to unrelated
investors. An amount of $100,000 of deferred
consulting fees is recorded at December 31, 1999
relating to this issuance.
F-17
<PAGE> 38
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During April 1999, a majority shareholder
contributed $100,000 to additional paid in capital
in exchange for 1,000 shares of stock, or $1 per
share. The market price was determined to be $2
based on private sales to unrelated investors. The
Company recorded compensation expense of $100,000.
During June 1999, the Company issued 122,500 options
to employees and directors to purchase common stock
at a price of $.50 per share. These options vested
immediately. In addition, 92,500 options were issued
to purchase common stock at a price of $.50 per
share which vest over a two year period. The market
value of the stock was determined to be $2 based on
private sales to unrelated investors. The Company
recorded compensation expense of $183,750 in
relation to the vested options and deferred the
remaining $138,750 for unvested options, which will
be recorded as compensation expense over the vesting
period.
From July through December 1999, the Company issued
120,000 shares of common stock through a private
placement to various individuals investors at $2.50
per share. Net proceeds from the private placement
after deductions for issuance expenses amounted to
$165,631.
In December 1999, the Company issued 36,000 shares
of common stock in exchange for services rendered.
The common stock was valued at $2.50 based on
private sales to unrelated investors, amounting to a
charge of $90,000.
The following summary represents activity under the
Company's stock option plan:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Shares Price Date
==============================================================================================
<S> <C> <C> <C>
At January 1, 1997 - - -
Options granted 37,500 $.60 12-31-99
----------------------------------------------------------------------------------------------
Balance outstanding
December 31, 1997 37,500
Options granted 250,000 $.02 05-01-08
Options granted 450,000 $.50 05-07-08
Options granted 367,500 $.02 12-30-08
----------------------------------------------------------------------------------------------
Balance outstanding December 31, 1998 1,105,000
Options granted 215,000 $.50 06-09-09
Expired (37,500)
----------------------------------------------------------------------------------------------
Balance outstanding December 31, 1999 1,282,500 $.02-$.50
----------------------------------------------------------------------------------------------
Balance exercisable at December 31, 1999 1,190,000 $.02-$.50
==============================================================================================
</TABLE>
These shares have a weighted average remaining
contractual life of 8.75 years and a weighted
average exercise price of $.27.
F-18
<PAGE> 39
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has adopted the disclosure only
provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), but it continues to
measure compensation cost for the stock options
using the intrinsic value method prescribed by APB
Opinion No. 25. As allowable under SFAS 123, the
Company used the "Minimum Value" method to measure
the compensation cost of stock options, granted in
1999 and 1998. For the options granted in 1999, the
following assumptions were used: risk-free interest
rate of 5.87%, a dividend payout rate of zero,
volatility of zero, and an expected option life of
ten years. For the options granted in 1998, the
following assumptions were used: risk-free interest
rate of 5.67%, volatility of 45%, a dividend payout
rate of zero, and an expected option life of ten
years. There were no adjustments made in calculating
the fair value to account for non-transferability.
Under these assumptions, the fair value of stock
options granted in 1999 and 1998 is $366,744 and
$1,380,568. The fair value of stock options granted
in 1999 is $1.72. The fair value of stock options
granted in 1998 ranges from $0.33 to $1.99.
Because the Company's employee stock options have
characteristics significantly different from those
of traded options, and because changes in the
subjective input assumptions can materially affect
the fair value estimate, in management's opinion,
the existing models do not necessarily provide a
reliable single measure of the fair value of its
employee stock options.
If the Company had elected to recognize compensation
cost based on the value at the grant dates with the
method prescribed by SFAS 123, net income would have
been changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
=======================================================================
As Pro As Pro
Reported Forma Reported Forma
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss applicable to common
shareholders $(2,054,518) $(2,100,762) $(3,632,054) $(3,783,705)
Basic and diluted loss per share $ (0.50) $ (0.51) $ (1.09) $ (1.14)
==========================================================================================================
</TABLE>
12. Forgiveness of On May 12, 1998, $156,145 of the stock subscription
Stock Subscription receivable from a significant shareholder of the
Receivable Company was transferred into a promissory note
receivable from a director of UNICO, Inc. and was
subsequently cancelled. Also, the Company forgave
$152,905, plus accrued interest of $20,946 due from
the director. These amounts aggregate to $329,996,
which has been included in operating expenses in the
accompanying statement of operations.
F-19
<PAGE> 40
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Income Taxes Significant components of the Company's deferred tax
assets at December 31, 1999 and 1998, are as
follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
===================================================================================
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards
for income tax purposes $ 739,000 $ 327,000
Stock options granted 899,000 808,000
Accrued compensation expense
and consulting fees 105,000 97,000
Accumulated amortization 55,000 8,000
Reserve for doubtful accounts 8,000 -
-----------------------------------------------------------------------------------
Total deferred tax assets 1,806,000 1,240,000
Less valuation allowance (1,806,000) (1,240,000)
-----------------------------------------------------------------------------------
Total $ - $ -
===================================================================================
</TABLE>
Management has provided a valuation allowance for
net deferred tax assets as of December 31, 1999 and
1998, as they believe that it is not more likely
than not that the entire amount of deferred tax
assets will be realized.
At December 31, 1999, the Company had net operating
loss carryforwards for federal income tax purposes
of approximately $2,200,000, which are available to
offset future federal taxable income, if any,
through 2014. These net operating loss carryforwards
are subject to annual limitations as a result of
changes in ownership.
14. Commitments and The Company has a lease for office space in Pompton
Contingencies Lakes, New Jersey. The lease has a sixty-four month
term commencing on September 15, 1997. Annual future
minimum lease payments under this operating lease
are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
====================================================================
<S> <C>
2000 $458,850
2001 490,473
2002 521,761
2003 529,289
2004 560,577
Thereafter 337,650
--------------------------------------------------------------------
</TABLE>
F-20
<PAGE> 41
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rent expense for the year ended December 31, 1999
and 1998 was $418,601 and $19,800, respectively.
The Company has an employment agreement with the
President which provides for approximately $150,000
in base annual compensation, plus incentive
compensation based upon the earnings of the Company.
The Company is party to various legal matters
encountered in the normal course of business. In the
opinion of management and legal counsel, the
resolution of these matters will not have a material
adverse effect on the Company's financial position
or the future results of operations.
15. Segment The Company has two reportable segments for the year
Information ended December 31, 1999: United and INI. United was
acquired on April 1, 1999. Each entity is a
wholly-owned subsidiary, with different management
teams and different products and services. INI
operates a newspaper publishing business and United
operates a direct mail marketing business. The
accounting policies of the reportable segments are
the same as those set forth in the Summary of
Accounting Policies. Summarized financial
information concerning the Company's reporting
segments for the year ended December 31, 1999 is
presented below. The Company has no sales
outside of the United States. The Company operated
in one segment for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Year ended
December 31, 1999 United INI Parent Eliminations Total
====================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $5,756,014 $2,109,396 $ - $ - $7,865,410
Segment profit (loss) (284,813) (88,938) (1,242,850) - (1,616,601)
Segments assets 2,118,814 400,387 1,974,132 (569,505) 3,923,828
Depreciation and
amortization 289,212 85,503 111,040 - 485,755
Capital expenditures 43,604 1,554 - - 45,158
</TABLE>
16. Subsequent Events On May 1, 2000, certain shareholders of the Company
entered into a stock purchase agreement whereby they
exchanged common and preferred stock and options to
purchase common stock representing approximately 52%
of the Company's fully diluted common shares for
common shares and, in certain instances, options to
purchase common shares of The BigHub.com, Inc. As
part of this transaction, the Company obtained a
loan from The BigHub.com, Inc. in the amount of
$500,000 which was used in part to liquidate certain
trade payables and accrued liabilities.
F-21
<PAGE> 42
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Liquidity and Future During the year ended December 31, 1999, the Company
Prospects experienced a significant loss and has a working
capital deficit at year-end. A large portion of its
trade payables and accrued liabilities are
significantly past due. Additional short-term
borrowing to fund the Company's commitments is
limited.
During March 2000, the Company received a $500,000
loan from The BigHub.com, Inc. (see Note 16).
Approximately $250,000, was used to liquidate
certain overdue trade payables and accrued
liabilities. The BigHub.com, Inc. has committed to
fund the Company's working capital needs during the
year ended December 31, 2000.
Management plans to improve the liquidity of the
Company during the year ended December 31, 2000
through an increase in revenues from its internet
site, ISHOPOL.com, an increase in printing revenue
from national accounts, reduced debt service
commitments and the sale of INI.
<TABLE>
<CAPTION>
18. Supplemental Cash
Flow Information 1999 1998
================================================================================================
<S> <C> <C>
Cash paid during the year for interest $ 61,264 $ 40,099
Non-cash operating activities:
Deferred consulting fees 100,000 -
Non-cash financing activities:
Preferred stock issued for future
acquisition - 687,500
Warrants issued for future acquisition - 306,667
Deemed preferred stock dividends 279,167 328,125
Accrued dividends 158,750 96,569
Non-cash investing activities:
Equipment acquired under capital leases - 85,294
Leasehold improvements
acquired through barter - 40,472
Acquisition:
Total consideration for acquisition $2,007,933 -
Book value of assets acquired
less liabilities assumed 716,083 -
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Goodwill $1,291,850 $ -
================================================================================================
</TABLE>
F-22
<PAGE> 43
INDEX OF EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION LOCATION/PAGE NUMBER
------ ----------- --------------------
<S> <C> <C>
3.1 Articles of Incorporation (under the name Micro Incorporated by reference in the filing of
Tech Industries Inc.) the Company's annual report on Form 10-KSB
filed on April 15, 1998
3.2 Amendment to the Articles of Incorporation Incorporated by reference in the filing of
the Company's quarterly report on Form 10-Q
filed on May 15, 1997.
3.3 Amended and Restated Bylaws of the Company Incorporated by reference in the filing of
the Company's annual report on Form 10-KSB
filed on November 12, 1999.
10.1 Amended and Restated Stock Purchase Agreement and Incorporated by reference in the filing of
Plan of Merger among Unico, UMSI, United Marketing the Company's current report on Form 8-K
Merger Corp. and the registrant dated as of filed on January 8, 1999.
December 30, 1998.
10.2 Amended and Restated Stock Purchase and Incorporated by reference in the filing of
Shareholders Agreement among Gerard R. Bernier, the Company's current report on Form 8-K
Joel P. Sens, Lawrence Grimes, Kenneth Brochin, filed on January 8, 1999.
David Grossman, Jeffrey Sens and the registrant
dated as of December 30, 1998.
10.3 Amended and Restated Escrow Agreement among T.C. Incorporated by reference in the filing of
Equities Ltd., the Law Office of Shane Henty the Company's current report on Form 8-K
Sutton, P.C. and the registrant dated as of filed on January 8, 1999.
December 30, 1998.
10.4 Amended and Restated Stock Purchase Agreement Incorporated by reference in the filing of
between T.C. Equities Ltd. and the registrant the Company's current report on Form 8-K
dated as of December 30, 1998. filed on January 8, 1999.
10.5 Amended and Restated Securities Subscription Incorporated by reference in the filing of
Agreement between T.C. Equities Ltd. and the the Company's current report on Form 8-K
registrant dated as of December 30, 1998. filed on January 8, 1999.
10.6 Stock Purchase Agreement among T.C. Equities Ltd., Incorporated by reference in the filing of
Unico, Inc. and the registrant dated as of the Company's current report on Form 8-K
December 30, 1998. filed on January 8, 1999.
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C>
10.7 Stock Purchase Agreement, dated March 16, 2000, by Incorporated by reference in the filing of
and among The BigHub.com, Inc., Next Generation the Company's current report on Form 8-K
Media Corp., the "Preferred Shareholders" and the filed on May 18, 2000.
"Common Shareholders."
10.8 Stock Purchase Agreement, dated March 16, 2000, by Incorporated by reference in the filing of
and among The BigHub.com, Inc., Next Generation the Company's current report on Form 8-K
Media Corp., Gerard R. Bernier, and Joel Sens. filed on May 18, 2000.
21.1 Subsidiaries of the Registrant Page
24.1 Power of Attorney Included on the signature page hereto.
27.1 Financial Data Schedule Page
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