<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[MARK ONE]
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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: 0-19997
CTN MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3557317
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5784 LAKE FORREST DRIVE, SUITE 275 30328
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Offices)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 256-9630
N/A
-----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No /_/
Number of shares of common stock outstanding as of August 7, 2000: 14,951,873
Transitional Small Business Disclosure Format (check one): Yes /_/ No /X/
Form 10-QSB
Page 1 of 16
<PAGE>
ITEM 1. Financial Statements
CTN MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2000
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,511,667
Accounts receivable, net of allowance of $685,385 15,999,886
Prepaid expenses 577,673
Other current assets 349,887
------------
Total current assets 20,439,113
Investments 1,500,000
Property and equipment, net 14,346,115
Other assets 223,565
Intangible assets, net 27,330,659
------------
Total assets $ 63,839,452
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 13,635,221
Accrued expenses 1,740,257
Deferred revenue 542,825
Current portion of notes payable 11,925,000
------------
Total current liabilities 27,843,303
Long-term liabilities:
Debt, less current portion 13,375,000
------------
Total liabilities 41,218,303
------------
Mandatorily redeemable preferred stock 35,415,240
------------
Commitments and Contingencies
Stockholders' deficit:
Common stock - $.005 par; authorized 50,000,000 shares;
issued and outstanding 14,937,512 shares 74,713
Additional paid in capital 41,511,154
Unearned compensation (728,697)
Accumulated deficit (53,651,261)
------------
Total stockholders' deficit (12,794,091)
------------
Total liabilities, mandatorily redeemable preferred stock and stockholders'
deficit $ 63,839,452
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Form 10-QSB
Page 2 of 16
<PAGE>
CTN MEDIA GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenue 15,353,391 2,059,559 31,513,828 5,039,853
Expenses
Operating 12,310,930 1,950,638 23,718,703 3,784,026
Selling, general and administrative 7,088,892 3,509,415 13,929,552 7,159,336
Depreciation and amortization 1,826,476 359,303 3,368,629 667,392
----------- ----------- ----------- -----------
Total Expenses 21,226,298 5,819,356 41,016,884 11,610,754
Interest Income 72,513 28,217 186,356 91,361
Interest Expense (698,448) (17,420) (1,343,898) (31,997)
----------- ----------- ----------- -----------
Net loss (6,498,842) (3,749,000) (10,660,598) (6,511,537)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dividends and negative accretion on mandatorily
Redeemable Preferred stock 5,765,272 -- 30,473,580 --
----------- ----------- ----------- -----------
Net Income (loss) available to common shareholders (733,570) (3,749,000) 19,812,982 (6,511,537)
Net Income (loss) per common share
Basic $ (0.05) $ (0.26) $ 1.34 $ (0.46)
Diluted $ (0.05) $ (0.26) $ 0.87 $ (0.46)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding
Basic 14,866,596 14,315,369 14,790,458 14,307,141
Diluted 14,866,596 14,315,369 22,713,877 14,307,141
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Form 10-QSB
Page 3 of 16
<PAGE>
CTN MEDIA GROUP, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
--------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,660,598) $ (6,511,537)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,368,629 667,392
Other amortization 202,865 --
Compensation from stock options 374,464 408,451
Bad debt expense 202,583 --
Loss on disposal of fixed assets 62,201
Changes in operating assets and liabilities
Accounts receivable 2,187,524 701,645
Prepaid expenses (228,370) 178,193
Other assets (197,444) (6,489)
Accounts payable (874,047) 941,012
Accrued expenses (908,198) 128,527
Deferred revenue (399,430) 138,126
------------ ------------
Net cash used in operating activities (6,869,821) (3,354,680)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (3,644,443) (2,222,107)
Cash paid for acquisitions, net of cash received -- (30,000)
------------ ------------
Net cash used in investing activities (3,644,443) (2,252,107)
------------ ------------
Cash flows from financing activities:
Repurchase of equity instrument (275,000) --
Net proceeds from notes payable 7,000,000 --
Payments on notes payable (1,000,000) --
Proceeds from exercise of warrants and stock options 1,130,299 358,530
------------ ------------
Net cash provided by financing activities 6,855,299 358,530
------------ ------------
Net decrease in cash and cash equivalents (3,658,965) (5,248,257)
Cash and cash equivalents, beginning of period 7,170,632 6,411,423
------------ ------------
Cash and cash equivalents, end of period $ 3,511,667 $ 1,163,166
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Form 10-QSB
Page 4 of 16
<PAGE>
CTN MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements (the
"financial statements") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the Company's financial
statements for the fiscal year ended December 31, 1999 included in the Annual
Report as filed on Form 10-KSB with the United States Securities and Exchange
Commission.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of June 30, 2000 and the
results of operations and of cash flows for the six months ended June 30, 2000
and 1999.
The results of operations for the six months ended June 30, 2000 and
1999 are not necessarily indicative of the results of operations for a full
fiscal year of the Company. Certain prior period amounts have been reclassified
to conform with current period presentation.
NOTE (A) - THE COMPANY
CTN Media Group, Inc., a Delaware corporation formally known as the
College Television Network, Inc. (the "Company"), owns and operates the College
Television Network ("CTN", or the "Network"), Link Magazine, ID8, and Armed
Forces Communications, Inc., doing business as Market Place Media ("MPM"), and
owns a 90% interest in its consolidated subsidiary Wetair.com, L.L.C.
("Wetair"). CTN is a proprietary commercial television network that operates on
college and university campuses, through single-channel television systems
placed free of charge primarily in the campus public venues, including dining
facilities and student unions. CTN generates revenue from advertising displayed
on the Network. At June 30, 2000 and 1999, CTN was installed or contracted for
installation at approximately 1,790 and 1,182 locations, respectively. CTN
currently reaches an estimated audience of approximately 1,500,000 young adult
viewers each day based on data provided by Nielson Media Research. Link Magazine
is distributed free of charge to more than 650 campuses nationwide. Each issue
of the publication is direct mailed to over 1,000,000 students on college
campuses. The magazine enjoys a total readership of 3,200,000 college students,
according to Student Monitor. ID8 is an Atlanta-based advertising agency
primarily involved in supporting the creative needs of the Company. In addition,
ID8 places media buys and provides creative services for third party clients.
MPM is a leading media placement and promotion specialist in the college,
military, and minority segments. MPM utilizes various advertising vehicles
throughout the United States to meet its customers' needs, including, but not
limited to, newspapers, radio, magazines, Internet, and on-site events which
target specific markets such as college students, minorities, military personnel
and senior citizens. Wetair was formed on October 13, 1999, to create a niche
entertainment based web site targeting the young adult demographic. The site,
which launched May 1, 2000, contains art and entertainment content from
established media channels and from user submitted sources. The minority
shareholder of Wetair has no obligation to fund its operations or deficit,
therefore, the Company has not recorded a 10% reduction in its share of the net
loss of Wetair or a related receivable from the minority shareholder. The
Company has two reportable business segments: (i) CTN, which includes the
Network, Link Magazine, ID8, and Wetair, and (ii) MPM.
Certain of the Company's revenues are affected by the pattern of
seasonality common to most school-related businesses. Historically, the Company
has generated a significant portion of its revenue
Form 10-QSB
Page 5 of 16
<PAGE>
during the period from September through May and substantially less revenue
during the summer months when colleges and universities do not hold regular
classes.
NOTE (B) MANDATORILY REDEEMABLE PREFERRED STOCK
As of June 30, 2000, U-C Holdings, LLC, a Delaware limited liability
company and majority shareholder of the Company ("Holdings"), owns a total of
1,976,665 shares of the Company's 2,510,000 authorized shares of Series A
Convertible Preferred Stock, $.001 par value per share ("Series A Preferred").
The issued shares are convertible into 6,588,883 shares of common stock at a
price of $4.50 per share. The Company has reserved these common shares for
possible conversions.
Under that certain Amended and Restated Purchase Agreement, dated
October 18,1999, between the Company and Holdings, the Company had the right to
require Holdings to purchase, subject to various conditions, certain of which
are at the discretion of Holdings, up to an additional 133,333 shares of Series
A Preferred. This right was exercised on July 20, 2000 for an aggregate purchase
price of approximately $2,000,000.
For the three month and six month periods ended June 30, 2000, net
adjustments of $5,765,272 and $30,473,580 were recorded to decrease the carrying
value of the Series A Preferred to its highest redemption value with the offset
being recorded as an increase in stockholder's equity. As of June 30, 2000, the
Series A Preferred has been accreted to its highest redemption value based on
the Company's closing common stock price of $5.37 per share at such date. The
adjustments recorded during the first and second quarter are a direct result of
the fluctuation in the market value of the Company's stock price from $10.00 at
December 31, 1999 to $6.25 at March 31, 2000 to $5.37 at June 30, 2000. Since
the Series A Preferred is redeemable on July 23, 2006, at the discretion of the
Series A Preferred Stockholders, at the greater of the liquidation value (which
is the purchase price plus accrued and unpaid dividends) and the market value of
the underlying common stock, the Company is required to accrete the Series A
Preferred to its highest redemption value at each balance sheet date.
Accordingly, as the market price of the common stock changes, the redemption
value and the related accretion amount will change; however, the highest
redemption value will never be less than original cost plus accrued dividends.
As a result of the fluctuation in the Company's stock price during the six month
period, the Company has reported positive earnings per share for the six month
period.
NOTE (C) - DEBT
During 1999, the Company obtained a $12,000,000 revolving credit loan
(the "CTN Loan") from a financial institution for working capital purposes. The
CTN Loan, as amended, is on a revolving credit basis and requires the Company to
obtain equity investments, from Holdings or other investors, on a
dollar-for-dollar basis for every dollar borrowed under the CTN Loan up to the
$12,000,000 credit limit. The CTN Loan bears interest at either (I) the Base
Rate which is equal to the greater of (a) the Federal Funds Rate plus 0.5% or
(b) the Prime Rate, plus 2.00% per annum; or (ii) the Eurodollar Rate, plus
3.50% per annum. A commitment fee of .5% per annum on the unused portion of the
facility is required. The CTN Loan is due and payable in full on December 29,
2000 and, as such, all amounts due thereunder have been classified as current at
June 30, 2000. The CTN Loan is guaranteed by a negative pledge of the
outstanding shares of stock of the Company owned by Holdings. Amounts
outstanding under the CTN loan at June 30, 2000 are $9,800,000. The Company had
$2,200,000 available to borrow under this agreement at quarter end as a result
of the equity purchases by Holdings, and warrant and option exercises. At June
30, 2000, the weighted average interest rate on the CTN Loan was 11.25% on the
debt outstanding.
Form 10-QSB
Page 6 of 16
<PAGE>
On August 31, 1999, concurrent with the MPM acquisition, MPM obtained a
$15,000,000 Term Loan ("Term Loan") and a $2,000,000 revolving credit line
("Revolver Loan") from a separate financial institution and its affiliates. MPM
distributed the proceeds of the Term Loan to the Company to pay the MPM
shareholders in the Company's acquisition of the capital stock of MPM on August
31, 1999 (the "MPM Acquisition"). MPM also borrowed $1,500,000, of which
$500,000 has been paid down as of June 30, 2000, from the Revolver Loan to pay
expenses associated with the MPM Acquisition and certain loan costs. Amounts
outstanding under the Term Loan and the Revolver Loan at June 30, 2000 are
$14,500,000 and $1,000,000, respectively.
Both the Term Loan and the Revolver Loan bear interest at either the
Alternate Base Rate which is the higher of the Prime Rate or the Federal Funds
Rate, as defined, plus 0.5%, or the "Eurodollar Base Rate" as defined, plus the
applicable margin, which is variable depending on various financial conditions
set forth in the credit agreement. The weighted average interest rate was 9.06%
on debt outstanding for the six months ended June 30, 2000. The Revolver Loan is
due and payable on September 30, 2004. The Term Loan is payable quarterly
commencing July 1, 2000, and is payable in full on September 30, 2004.
The Company's debt agreements contain financial covenants which, among
other restrictions, require the maintenance of certain financial ratios and cash
flows, restrict asset purchases, dividend payments or distributions to the
Company by MPM. At June 5, 2000 the Company successfully amended one of its loan
agreements. Based upon such modification, we are now in compliance with all loan
agreements. Substantially all of the assets of the Company are pledged as
collateral for the loans. Holdings has committed to provide funding through
fiscal 2000 in the event the Company experiences cash flow deficits from
operations or cash flow deficits in connection with debt service requirements.
NOTE (D) - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIVES 2000
<S> <C> <C>
Entertainment systems completed 5 years $13,567,071
Entertainment systems in progress N/A 29,518
Machinery and equipment 5 -7 years 1,166,564
Software and website development costs 8 mos-5 years 2,592,456
Furniture and Fixtures 7 years 771,706
Leasehold improvements 7-11 years 310,044
------------
$18,437,359
Less: Accumulated depreciation (4,091,244)
------------
Total $14,346,115
------------
------------
</TABLE>
Depreciation expense for the six months ended June 30, 2000 and the six
months ended June 30, 1999 was approximately $1,761,030 and $646,000
respectively.
NOTE (E) - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIVES 2000
<S> <C> <C>
Goodwill 10-15 years $9,776,650
Customer relationships 7 years 16,293,000
</TABLE>
Form 10-QSB
Page 7 of 16
<PAGE>
<TABLE>
<S> <C> <C>
Trademarks/tradenames 10-15 years 3,458,951
Other intangibles 2-15 years 867,626
-----------
$30,396,227
Less: Accumulated amortization (3,065,568)
-----------
Total $27,330,659
-----------
-----------
</TABLE>
NOTE (F) - COMMITMENTS AND CONTINGENCIES
In connection with the Company's acquisition of the rights to and
inventory of video jukeboxes in 1991, the Company agreed to pay two former
stockholders an aggregate of $100,000, one-half being payable at such time as
the Company's net pre-tax income equals at least $500,000 and the balance being
payable at such time as the Company has an additional $500,000 in net pre-tax
earnings. The Company will provide for these contingent liabilities when
ultimate payment is considered probable.
The Company is currently utilizing Crawford Communications, Inc.
("Crawford") and Viatech International, Inc. to complete installations of
Network equipment in new locations. The Company has also entered into an
Origination Services Contract with Crawford. The original agreement provides for
payments of approximately $1,320,000 over a five-year period ending on July 15,
2003. In accordance with the Origination Services Contract, Crawford is
responsible for the transmission via satellite of CTN's daily programming,
including encoding signals, testing, maintaining CTN's programming library, and
obtaining programming from Turner Private Networks, Inc. ("Turner") pursuant to
the Company's programming agreement with Turner, as well as other programming
from other CTN sources. Crawford is also responsible for the uplink of the
programming to a satellite as well as the downlink of the signal from the
satellite at each installation site. As of June 30, 2000, the Company has paid
approximately $704,000 to Crawford pursuant to the Origination Services
Contract.
On March 27, 1998, the Company signed an agreement with Turner
Broadcasting System, Inc. to provide news and sports programming on CTN through
December 31, 2002. This agreement supercedes the prior programming agreement
entered into on November 5, 1996. On July 30, 1999, the Company signed an
amendment to this agreement to provide CNN Headline News programming on CTN
through December 31, 2002. The total license fee is approximately $3,156,250. As
of June 30, 2000, the Company has paid approximately $1,317,500 pursuant to this
agreement, with approximately $1,838,750 to be paid over the remainder of the
agreement.
In connection with the delivery platform conversion during 1998, the
Company entered into a Transponder Use Agreement with Public Broadcasting
Service ("PBS") on April 30, 1998. The Company has subleased capacity on a
satellite owned and operated by GE American Communications, Inc. ("GE") and
leased to PBS by GE. This agreement provides for payments of approximately
$3,924,000 over a five-year period that terminates on July 31, 2003. The Company
has protected status on this satellite, where in the event of a satellite
failure or performance problem, the Company's programming will preempt
transmissions of other users on this satellite or on another satellite. As of
June 30, 2000, the Company has paid approximately $1,504,400 pursuant to this
agreement with approximately $2,419,600 to be paid over the remainder of the
term.
On June 1, 2000, the Company entered into a lease for new office space
to be occupied in September 2000 in Atlanta, Georgia at One Capital City Plaza.
The lease term is for five (5) years and the initial annual rental is $510,750,
subject to annual increases as defined in the agreement. The landlord is
required to pay certain tenant improvements in accordance with the lease. The
Company currently has four
Form 10-QSB
Page 8 of 16
<PAGE>
locations in the Atlanta area, the leases for which expire on or before October,
2000. The Company intends to consolidate these offices in the new space.
On June 12, 2000, the Company entered into a contract with US Concepts,
Inc. to manage and execute a promotion known as "Politically Incorrect on
Campus." The promotion will take place from September 1, 2000 through October
31, 2000, and will consist of ten events starring Bill Mahr. The total estimated
cost of the promotion is approximately $385,000.
NOTE (G) SEGMENT REPORTING
The Company has two reportable segments as defined under Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"): (i) CTN and (ii) MPM.
Segment information previously reported has been restated to conform to the
current presentation. See Note (A) for a description of the products and
services provided by each segment. The Company evaluates each segment's
performance based on income or loss before income taxes. Information regarding
the operations of these reportable segments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C> <C> <C>
REVENUES
CTN $ 7,801,803 $ 5,039,853 $ 3,076,776 $ 2,059,559
MPM 23,712,025 -- 12,276,615 --
------------ ------------ ------------ ------------
Total $ 31,513,828 $ 5,039,853 $ 15,353,391 $ 2,059,559
------------ ------------ ------------ ------------
PROFIT (LOSS) BEFORE INCOME TAXES
CTN $ (9,527,642) $ (6,511,537) ($ 5,784,045) $ (3,749,000)
MPM (1,132,956) -- (714,797) --
------------ ------------ ------------ ------------
Total $(10,660,598) $ (6,511,537) $ (6,498,842) $ (3,749,000)
------------ ------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
CTN $ 1,558,378 $ 667,392 $ 921,201 $ 359,303
MPM 1,810,251 -- 905,275 --
------------ ------------ ------------ ------------
Total $ 3,368,629 $ 667,392 $ 1,826,476 $ 359,303
------------ ------------ ------------ ------------
INTEREST INCOME
CTN 125,937 $ 91,361 $ 43,638 $ 28,217
MPM 60,419 -- 28,875 --
------------ ------------ ------------ ------------
Total 186,356 $ 91,361 $ 72,513 $ 28,217
------------ ------------ ------------ ------------
INTEREST EXPENSE
CTN $ 490,023 $ 31,997 $ 276,262 $ 17,420
MPM 853,875 -- 422,186 --
------------ ------------ ------------ ------------
Total $ 1,343,898 $ 31,997 $ 698,448 $ 17,420
------------ ------------ ------------ ------------
</TABLE>
Form 10-QSB
Page 9 of 16
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
<S> <C> <C>
TOTAL ASSETS
CTN 21,322,927 11,932,633
MPM 42,516,525 --
---------- ----------
Total 63,839,452 11,932,633
---------- ----------
</TABLE>
Substantially all of the property and equipment owned by the Company is used in
the operations of CTN.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD-LOOKING STATEMENTS
Certain forward-looking information contained in this Quarterly Report
is being provided in reliance upon the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 as set forth in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies and
objectives concerning the Company's future financial and operating performance.
Such forward-looking information is subject to assumptions and beliefs based on
current information known to the Company and factors that could yield actual
results differing materially from those anticipated. The Company undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in future
operating results. Please see Exhibit 99.1, "Safe Harbor Compliance Statement
for Forward-Looking Statements," for additional factors to be considered by
shareholders and prospective shareholders.
OVERVIEW
CTN Media Group, Inc., a Delaware corporation, (the "Company"),
commenced operations in January 1991. The Company is a diversified media company
specializing in reaching targeted audiences. The Company has properties in the
television, magazine, and online sectors. The Company owns and operates the
College Television Network ("CTN" or the "Network"), a proprietary commercial
television network that operates on college and university campuses across the
country. CTN is provided to campuses through single-channel television systems
("Systems") placed free of charge primarily in the campus public venues,
including dining facilities and student unions. At June 30, 2000, CTN was
installed or contracted for installation at approximately 1,790 locations at
various colleges and universities throughout the United States. According to
projections from Nielson Media research and audience measuring data, CTN reaches
approximately 1,500,000 young adult viewers each day.
The Company publishes Link Magazine, the most widely read college
magazine in the U.S., according to Student Monitor. Each issue of the
publication is direct mailed to over one million students on college campuses.
The magazine enjoys a total readership of 3,200,000 college students. In
addition, the Company owns ID8, an Atlanta-based advertising agency primarily
involved in supporting the creative needs of the Company. In addition, ID8
places media buys and provides creative services for third party clients.
Form 10-QSB
Page 10 of 16
<PAGE>
MPM, the Company's wholly owned subsidiary, is a leading media
placement and promotion specialist in the college, military, and minority
segments. MPM utilizes various advertising vehicles throughout the United States
to meet its customers' needs, including, but not limited to, newspapers, radio,
magazines, and on-site events which target specific markets such as college
students, minorities, military personnel and senior citizens.
Wetair.com, the Company's proprietary Internet site, is a lifestyle and
entertainment destination site for the 18-24 year old demographic. The site,
which launched May 1, 2000, features lifestyle categories hosted by on-screen
personalities that will promote interaction and content submission from its user
base. As of the formation date, the Company owns 90% of the outstanding stock of
Wetair and operates it as a subsidiary of the Company.
The Company has two reportable business segments: (i) CTN, which
includes the Network, Link Magazine, ID8 and Wetair and (ii) MPM.
Certain Company revenue is affected by the pattern of seasonality
common to most school-related businesses. Historically, the Company has
generated a significant portion of its revenue during the period of September
through May and substantially less revenue during the summer months when
colleges and universities do not hold regular classes.
RESULTS OF OPERATIONS
The following table sets forth certain financial data derived from the
Company's statement of operations for the six months ended June 30, 2000 and
June 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended
June 30, 2000 June 30, 1999
------------------------------------------------------
% of % of
$ Revenue $ Revenue
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue ........................... 15,353,391 100 2,059,559 100
Operating expenses ................ 12,310,930 80 1,950,638 95
Selling, general and administrative 7,088,892 46 3,509,415 170
Depreciation and amortization ..... 1,826,476 12 359,303 18
Interest income (expense) ......... (625,935) 4 10,797 1
Net Loss .......................... 6,498,842 42 3,749,000 182
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 2000 June 30, 1999
--------------------------------------------------------
% of % of
$ Revenue $ Revenue
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue ........................... 31,513,828 100 5,039,853 100
Operating expenses ................ 23,718,703 75 3,784,026 75
Selling, general and administrative 13,929,552 44 7,159,336 142
Depreciation and amortization ..... 3,368,629 11 667,392 13
Interest income (Expense) ......... (1,157,542) 4 59,364 1
Net loss .......................... 10,660,598 34 6,511,537 129
</TABLE>
Form 10-QSB
Page 11 of 16
<PAGE>
Revenue increased to $15,353,391 and $31,513,828 for the three and six
month periods ended June 30, 2000, versus $2,059,559 and $5,039,853 for the
comparable periods in the prior year. The primary source for the revenue
increase was attributable to MPM, which was acquired in August 1999. Revenue
attributable to MPM accounts for approximately $12,300,000 and $23,700,000,
respectively, of this increase. In addition, advertising sales for the CTN
segment increased approximately $1,000,000 and $2,800,000, respectively, due
primarily to sales to new advertisers and increased commitments from the
existing advertiser base at the Network. The Company anticipates that it will
experience continued sales growth at CTN throughout the fiscal year ending
December 31, 2000 by continuing to expand its advertiser base and by increasing
the rates charged for its advertising spots to reflect an anticipated increase
in viewership. Although the Company has agreements with national advertisers and
has held discussions or had prior agreements with other national advertisers, no
assurance can be given that these or other advertisers will continue to purchase
advertising from the Company, or that future significant advertising revenue
will ever be generated. Failure to significantly increase advertising revenue
could have a material impact on the operations of the Company.
Operating expenses increased to $12,310,930 and $23,718,703 for the
three and six month periods ended June 30, 2000, as compared to $1,950,638 and
$3,784,026 for the comparable periods in the prior year. The increase over the
comparable prior year period is primarily attributable to direct costs relating
to MPM. MPM operating expenses account for approximately $10,200,000 and
$19,400,000, respectively, of this increase. Costs related to improving Network
programming and the production of higher quality issues of Link account for the
remaining increase.
Selling, general and administrative expenses increased to $7,088,892
and $13,929,552 for the three and six month periods ended June 30, 2000, versus
$3,509,415 and $7,159,336 for the comparable periods in the prior year. SG&A
expenses attributable to MPM account for approximately $1,500,000 and
$2,825,000, respectively, of this increase. The remaining increase is primarily
attributable to costs associated with Wetair along with increased marketing,
research, expanded sales efforts for both advertising and affiliate sales
growth, and agency fees associated with the CTN segment.
Depreciation and amortization expense totaled $1,826,476 and $3,368,629
for the three and six-month periods ended June 30, 2000, as compared to $359,303
and $667,392 for the comparable periods in the prior year. $905,000 and
$1,800,000, respectively, of this increase is primarily related to the
amortization of the intangible assets and depreciation recorded in connection
with the MPM acquisition. The remaining increase is a result of depreciation
taken on equipment associated with the rapid expansion of the Network.
Interest expense, net of interest income, amounted to $625,935 and
$1,157,542 for the three and six-month periods ended June 30, 2000, versus
interest income of $10,797 and $59,364 for the comparable periods in the prior
year. The interest rates on all credit facilities are on a floating basis. The
change from net interest income to expense resulted from borrowings at the end
of 1999 on the Company's credit facilities.
The Company has incurred substantial operating losses since
commencement of its operations but anticipates that such operating losses will
be significantly reduced in fiscal 2000. The net loss amounted to $6,498,842 and
$10,660,598 for the three and six-month periods ended June 30, 2000, versus
$3,749,000 and $6,511,537 for the comparable periods in the prior year. The net
loss during the respective periods for the quarter reflects the Company's
continued efforts to expand its advertiser and affiliate bases.
FINANCIAL CONDITION AND LIQUIDITY
Cash used in operations increased to $6,869,821 during the six months
ended June 30, 2000, from $3,354,680 for the comparable period in the prior
year. The impact of an increased loss coupled with decreased accounts payable
and accrued expense balances accounts primarily for the increase in cash used in
operations for the period. The Company intends to pursue discussions with
LaSalle Bank, N.A. and other lenders to either extend or replace the current CTN
loan which is due and payable on December 29,
Form 10-QSB
Page 12 of 16
<PAGE>
2000. In any event, the Company has obtained a commitment from Holdings to fund
cash flow deficits, if any, through December 31, 2000.
Acquisitions and purchases of property and equipment increased to
$3,644,443 during the six months ended June 30, 2000 from $2,222,107 for the
comparable period in the prior year. This increase is primarily attributable to
the buildout of the Wetair internet site and affiliate growth.
Cash provided by financing activities was $6,855,299 for the six months
ended June 30, 2000, compared to $358,530 for the same period in the prior year.
The majority of the proceeds came from the draw down on the Company's credit
facility. The remaining balance of financing proceeds was derived from the
exercise of warrants and stock options, reduced by a partial paydown on the CIBC
loan facility.
At June 5, 2000 the Company successfully amended one of its loan
agreements. Based upon such modification, we are now in compliance with all loan
agreements. Holdings has committed to provide funding through fiscal 2000 in the
event the Company experiences cash flow deficits from operations or cash flow
deficits in connection with debt service requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB
101"). This bulletin summarizes certain of the Staff's views in the application
of generally accepted accounting principles to revenue recognition in financial
statements. The required implementation of SAB 101 has been deferred until the
fourth quarter of 2000, although adoption would be as of January 1, 2000. The
Company is monitoring on-going interpretations of SAB 101, but at this time
believes that there will be no material impact on the Company's financial
statements.
Form 10-QSB
Page 13 of 16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 2. CHANGES IN SECURITIES.
No events occurred during the quarter covered by this report that would
require a response to this Item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) On May 10, 2000 the Company held its annual meeting of
shareholders. At the annual meeting, the shareholders elected the
following individuals to the Board of Directors of the Company:
<TABLE>
<S> <C> <C> <C>
(1) Jason Elkin For: 13,717,932; Against: 3,500; Abstained: 0
(2) Avy Stein For: 13,717,932; Against: 3,500; Abstained: 0
(3) Stephen Roberts For: 13,717,932; Against: 3,500; Abstained: 0
(4) Hollis W. Rademacher For: 13,717,932; Against: 3,500; Abstained: 0
(5) James Wood For: 13,717,932; Against: 3,500; Abstained: 0
(6) C. Thomas McMillen For: 13,717,932; Against: 3,500; Abstained: 0
(7) Sergio Zyman For: 13,717,932; Against: 3,500; Abstained: 0
(8) Geoffrey Kanter For: 13,717,932; Against: 3,500; Abstained: 0
(9) Martin Grant For: 13,717,932; Against: 3,500; Abstained: 0
(10) Daniel Gill For: 13,717,932; Against: 3,500; Abstained: 0
</TABLE>
The shareholders also elected PricewaterhouseCoopers LLP as the
Company's independent accountant for the current year:
For: 13,711,852; Against: 1,680; Abstained: 7,900
The shareholders also adopted an amendment to the Company's 1996 Stock
Incentive Plan increasing the number of shares of common stock issuable
thereunder to 2,000,000:
For: 12,138,145; Against: 42,337; Abstained: 11,861
ITEM 5. OTHER INFORMATION.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
Form 10-QSB
Page 14 of 16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed with this Report:
Exhibit 10.1 Employment Agreement dated April 15, 2000 between
the Company, UC Holdings, L.L.C. and Neil Dickson
Exhibit 10.2 Second Amendment to Employment Agreement dated
May 26, 2000 between the Company, UC Holdings,
L.L.C. and Jason Elkin
Exhibit 10.3 One Capital City Plaza office lease dated June 1,
2000 between the Company, M.L. Capital City L.L.C.
and Lakes Capital City, L.L.C.
Exhibit 10.4 Letter Agreement dated June 12, 2000 between U.S.
Concepts, Inc. and CTN Media Group, Inc.
Exhibit 10.5 Third Amendment to Credit Agreement dated as of
June 5, 2000 among the Company and LaSalle Bank
National Association.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Safe Harbor Compliance Statement for Forward
Looking Statements
(b) Reports on Form 8-K: None.
Form 10-QSB
Page 15 of 16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CTN MEDIA GROUP, INC.
Registrant
Date: August 11, 2000 /s/ Jason Elkin
-------------------------------------------------
Jason Elkin
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
(PRINCIPAL EXECUTIVE OFFICER)
Date: August 11, 2000 /s/ Patrick Doran
-------------------------------------------------
Patrick Doran
CHIEF FINANCIAL OFFICER AND SECRETARY
(PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)
Form 10-QSB
Page 16 of 16