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THIS DOCUMENT IS A COPY OF THE 10-Q FILED ON FEBRUARY 25, 1997
PURSUANT TO RULE 201
TEMPORARY HARDSHIP EXEMPTION
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1996
Commission File No. 33-18050
Stone Media Corporation
(Exact name of Registrant as specified in its charter)
Colorado 87-0447213
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State of Incorporation (I.R.S. Employer Identification Number)
634 Preston Royal, Suite 214, Dallas, Texas 75230
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(Address of Principal Executive Offices) (zip code)
214.361.2094
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Registrant's former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 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.
(1) Yes X No
--- ---
(1) Yes X No
--- ---
Indicate the number of shares outstanding of each of Registrant's classes of
common stock as of the latest practicable data. As of December 31, 1996
Registrant had 22,268,250 shares of its $0.001 par value Common Stock.
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STONE MEDIA CORPORATION
FORM 10-Q
Six Months Ended December 31, 1996
INDEX
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Page
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PART I FINANCIAL INFORMATION
ITEM I Balance Sheets - Unaudited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Cash Flow - Unaudited . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM II Management's Discussion and Analysis
of Financial Conditions and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2 Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 3 Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 4 Submission of Matters to a
vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 5 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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STONE MEDIA CORPORATION
Balance Sheets - Unaudited
(In Whole Dollars)
ASSETS
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<CAPTION>
Unaudited Audited
Dec. 31, 1996 June 30, 1996
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CURRENT ASSETS:
Bank Accounts - Cash $24,598 1,710,100
Accounts Receivable
Non-Affiliates 8,268 3,023
Related Party 237,779 33,687
Interest Receivable 0 2.181
Prepaid Expenses & Deposits 906 30,250
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Total Current Assets 271,551 1,779,241
PROPERTY & EQUIPMENT
Property & Equipment 412,748 304,789
Less: Accumulated Depreciation (58,506) (28,279)
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Total Equipment 354,242 276,510
OTHER ASSETS
Restricted Common Stock 599 599
Inventory - Equipment 0 0
License 617,000 617,000
Cable Equipment 912,849 897,928
Software Costs 297,047 297,047
Goodwill 30,068 30,068
Organization Costs 1,200 1,200
Less: Accumulated Amortization (94,184) (62,856)
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Total Other Assets 1,764,579 1,780,986
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TOTAL ASSETS $2,390,372 $3,836,737
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</TABLE>
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STONE MEDIA CORPORATION
Balance Sheets - Unaudited
(In Whole Dollars)
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<CAPTION>
Unaudited Audited
Dec. 31, 1996 June 30, 1996
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LIABILITIES
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable
Non-Affiliates $401,293 $782,627
Related Party 52,928 109,400
Shareholder Advance 28,299 45,000
Payroll Taxes Payable 84,729 12,696
Sales Tax Payable 634 0
Accrued Expenses 44,819 530
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Total Current Liabilities 612,702 950,253
LONG TERM LIABILITIES 0 0
Notes Payable - Long Term 200,000 0
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Total Long Term Liabilities 200,000 0
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TOTAL LIABILITIES 812,702 950,253
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STOCKHOLDER'S EQUITY (DEFICIT)
Common Stock 22,268 21,735
Preferred Stock 0 0
Additional Paid-In Capital 5,340,106 5,239,977
Accumulated Deficit (3,784,704) (2,375,228)
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Total Stockholder's Equity (Deficit) 1,577,670 2,886,484
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TOTAL LIABLITIES & ----------------------------------------
STOCKHOLDER'S EQUITY (DEFICIT) $2,390,372 $3,836,737
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</TABLE>
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STONE MEDIA CORPORATION
Statements of Cash Flow - Unaudited
(In Whole Dollars)
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<CAPTION>
For the Six For the Six
Months Ended Months Ended
12/31/96 12/31/95
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REVENUES
Contract Income - Belton ISD $0 $517,542
Network Services Income 5,203 0
Internet Access Income 17,952 0
Interest Income 8,568 0
Other Income 3
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Total Revenues 31,726 517,542
COSTS OF SALES
Cost of Sales in Progress - Belton ISD 0 533,744
Cost of Equipment Sold 179 0
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Total Cost of Sales 179 533,744
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GROSS PROFIT 31,547 (16,202)
EXPENSES
Salary 594,199 210,826
Employer Payroll Taxes 35,687 21,929
Overseas Living Allowance 114,000 0
Supplies 5,369 2,905
Bank Charges 720 297
Rent 53,080 11,536
General Office 59,156 5,837
Postage & Delivery 5,339 229
Accounting & Legal 115,746 9,068
Financing Costs 20,075 0
Advertising & Marketing 40,281 10,486
Consulting 58,036 34,519
Internet Services 62,386 14,955
Programming & Encoding Services 5,009 0
Utilities 0 431
Miscellaneous 3,813 9,369
Travel & Meals 170,446 48,467
Telephone 36,126 10,596
Auto Allowance 0 500
Other 0 4,756
Depreciation Expenses 30,129 0
Amortization Expenses 31,426 0
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Total Expenses 1,441,023 396,706
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NET INCOME ($1,409,476) ($412,908)
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SHARES OUTSTANDING 22,268,250 15,611,250
EARNINGS PER SHARE ($0.06) ($0.03)
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</TABLE>
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STONE MEDIA CORPORATION
Statements of Cash Flow - Unaudited
(In Whole Dollars)
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<CAPTION>
For the Six For the Six
Months Ended Months Ended
12/31/96 12/31/95
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Cash Flows from Operating Activities
Net Loss ($1,409,476) ($412.849)
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities:
Accumulated Depreciation 30,129 784
Accumulated Amortization 31,426 0
Changes in Working Capital
Increase in Accounts Receivable (5,245) (3,381)
Increase in Accounts Receivable - Affiliates (204,092) 15,918
Decrease in Prepaid Expenses & Deposits 29,344 0
Decrease in Interest Receivable 2,181 0
Decrease in Accounts Payable (381,334) 79,248
Decrease in Accounts Payable - Affiliates (73,173) 96,919
Increase in Note Payable - Current Portion 0 263,275
Increase in Payroll Taxes Payable 72,033 35,181
Increase in Sales Tax Payable 634 0
Increase in Accrued Expenses 44,289 0
Increase in Notes Payable - Long Term 200,000 0
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Net Cash Provided by Operations (1,663,284) 75,095
Cash Flows From Investing Activities
Used For:
Furniture, Equipment & Leasehold Improvmts. (107,959) 0
Cable Equipment (14,921) 0
Inventory 0 0
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Net Cash Used For Investing (122,880) 0
Cash Flows From Financing Activities
Proceeds from Common Stock Issuance 100,662 31,250
Used For Common Stock 0 (215,935)
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Net Cash Used in Financing 100,662 (184,685)
Net Increase (Decrease) in Cash ($1,685,502) ($109,590)
========================================
Summary
Cash Balance at End of Period $24,598 $37,804
Cash Balance at Beginning of Period 1,710,000 75,054
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Net Increase (Decrease) in Cash ($1,685,502) (37,250)
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</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. In January, 1996, the Company entered into an
agreement with Alpha CommSat Co. Ltd. ("Alpha CommSat") to provide $5 million to
cover specified operations and expenses in exchange for 5 million shares of
$.001 par value common stock. The substantial portion of the Company's working
capital needs had been provided by Alpha CommSat under this agreement. Such
funds were exhausted as anticipated in the current reporting period. In
December, 1996, the Company entered into an additional agreement with Alpha
CommSat and the Alphatec Group (collectively "Alpha") to provide up to $1.0
million of working capital for operating expenses.
The success of the Company is dependent on obtaining profitability from
operations or obtaining additional capital funding. Management is of the
opinion that profitability can be achieved. Management is also pursuing
additional capital resources to meet its financial obligations and to provide
additional project funding. Such sources may include project financing through
the Alphatec Group, project financing through the Export Import Bank of the
United States, working capital loans based upon receivables or private
placement investment.
GENERAL AND RESULTS OF OPERATIONS. The Company continued to operate at a net
loss for the quarter and six months ending December 31, 1996. The loss from
operations for the six months ended December, 1996 and December, 1995 was
$1,409,478 and $412,908, respectively. Revenues decreased to $31,726 from
$517,542 for the six month periods ending December 31, 1996 compared to the six
month period ending December 31, 1995. This was due primarily to the reason
that revenues in 1995 resulted mainly from a contract with the Belton
Independent School District in Central Texas, whereby the Company installed its
first operational network. The Company concentrated the majority of its efforts
in 1996 on evaluating the network operations, on improving the technology and on
continuing research and development to place the Company in a position to hire
an experienced sales manager and develop a product launch strategy. The Company
also concentrated on developing strategic relationships in the United States,
Asia Pacific and Europe. Expenses increased to $1,441,023 from $396,706 for the
six month periods ending December 31, 1996 compared to the six month period
ending December 31, 1995. This was due primarily to the following reasons: (1)
In 1996, the Company added new employees to evaluate and improve technology and
to build upon strategic relationships. The Company also began paying its chief
executive officer, who founded the Company, a salary and began paying its
President as salary commensurate to industry standards. The increase in
personnel drove the necessity to assume additional office space at the Company's
corporate headquarters and at its offices in Central Texas. Consequently,
general office expense and health and dental insurance coverage expense
increased significantly. (2) The Company's commitment to building strategic
relationships in Asia Pacific and Europe resulted in significant increases in
travel expenses, meal expense and international long distance. Management
believes this commitment has allowed the Company to develop strong relationships
in Thailand, and it has pursued a similar strategy in The Netherlands. (3) In
the last six months of calendar 1996, the Company incurred substantial expenses
as it hired a senior sales manager and a marketing consulting firm to develop a
product launch strategy.
The following milestones were reached in the second quarter of Fiscal 1997: (1)
Pursuant to its agreement with TU Communications, Inc. ("TU Communications"),
The Company began installing approximately 30 miles of fiber optic cable in
Central Texas along TU Electric right-of-ways;
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(2) The Board of Directors ratified an agreement to hire Jerry Clay as senior
vice president of marketing and sales world-wide. Mr. Clay is a highly
experienced manager and salesperson who has successfully managed marketing and
world wide sales for other companies; (3) Video conferencing demonstration
units were installed at the Library of Congress; (4) Additional Internet
customers were added in Central Texas; (5) Bell Helicopter purchased an
additional security surveillance unit; (6) The Company negotiated deferred
payment plans with certain vendors; (7) The Company initiated discussions with
certain vendors for licensing its technology on a non-exclusive basis; and (8)
Alpha CommSat and the Alphatec Group reconfirmed their commitment to the
success of the Company. Management believes that this commitment is most
significant as it will assist the Company indeveloping its operational and
financial strategy.
MATERIAL CHANGES IN FINANCIAL CONDITION. As anticipated, The Company continues
to rely on Alpha CommSat and the Alphatec Group for its current working capital
needs. At this time, there is no written agreement as to the length of time
Alphatec will continue this commitment.
MATERIAL CHANGES IN RESULTS OF OPERATIONS. Management continues to believe
that material improvements in results of operations can be achieved in the last
half of Fiscal 1997 and in Fiscal 1998 as the company pursues new marketing
strategies and implements a financial plan.
SUBSEQUENT EVENTS. Pursuant to its $1.0 million commitment to the Company,
Alphatec has funded $400,000 to the Company to cover certain overhead and
expenses. Additionally, under the terms of the $5 million private placement
agreement, Alpha CommSat has the right to choose the chief financial officer.
A candidate has been selected and has verbally accepted subject to agreeing on
a written employment agreement. Alphatec has provided a financial team to
assist in the development of more sophisticated accounting and reporting
systems. These systems will facilitate the Company's ability to monitor the
progress and profitability of its projects. Working capital used in operations
is expected to increase in excess of $300,000 in the next quarter due primarily
to installation of additional fiber optic cable in Central Texas. The Company
delivered an additional surveillance system to a Bell Helicopter facility.
PART II OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Rights of the Company's Security Holders - None
Item 3 Defaults by the Company on its Security Holders - None
Item 4 Results of Votes of Security Holders - None
Item 5 Other Information - None
Item 6 (a) Exhibits - None
(b) Reports on Form 8k - None
Except for historical information, statements in this Form 10Q are
forward-looking and involve risks and uncertainties including, but not limited
to, continuation of industry trends, continuation of consumer interest in
development of broad band technologies, continuation of competition in Internet
service providing and other industry competition, weather, changes in economic
conditions, consumer preference and spending patterns, consumer perception of
customer needs, inflation, labor and benefit costs, legal claims, the continued
ability of the Company to obtain financing for development and operations,
government initiatives such as new taxes or wage rates, and other
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factors set forth in the company's 10-K filed with the Securities and Exchange
Commission for the year ending June 30, 1996.
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
STONE MEDIA CORPORATION,
A COLORADO CORPORATION
/s/ RICHARD W. KINCAID
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RICHARD W. KINCAID,
ACTING CHIEF FINANCIAL OFFICER
/s/ ROBERT R. KINCAID
-------------------------------
ROBERT R. KINCAID,
CHIEF OPERATING OFFICER
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