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| | | | | |
CITY MEDIA, INC. Condensed Consolidated Statements of Cash Flows |
For the Nine Months Ended June 30, 2014 and 2013 |
(Unaudited) |
| | | | | |
| | For the | | For the | |
| | Nine Months | | Nine Months | |
| | Ended | | Ended | |
| | June 30, | | June 30, | |
| | 2014 | | 2013 | |
| | | | | |
Cash Flows From Operating Activities | | | | | |
Net Loss | | $ (22,076) | | $ (19,474) | |
Adjustments to reconcile net loss to net cash | | | | | |
from operating activities: | | | | | |
Depreciation | | 449 | | 898 | |
(Increase)/Decrease in accounts receivable | | 355 | | 704 | |
Increase/(Decrease) in accounts payable | | 100 | | (58) | |
Accrued interest on related party loan | | 4,764 | | 2,975 | |
Net Cash from Operating Activities | | (16,408) | | (14,955) | |
| | | | | |
Cash Flows from Financing Activities | | | | | |
Principal payments on Notes Payable | | (1,839) | | (2,532) | |
Proceeds from notes payable to related parties | | 19,600 | | 16,501 | |
Net Cash from Investing Activities | | 17,761 | | 13,969 | |
| | | | | |
Net Increase/(Decrease) in Cash | | 1,353 | | (986) | |
Beginning Cash Balance | | 579 | | 2,309 | |
Ending Cash Balance | | $ 1,932 | | $ 1,323 | |
| | | | | |
Supplemental Disclosure of Cash Flow Information | | | | | |
Cash paid during the period for interest | | $ 55 | | $ 312 | |
Cash paid during the period for taxes | | $ 100 | | $ 200 | |
Assets acquired in exchange for related party debt | | $ - | | $ - | |
| | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements | |
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CITY MEDIA, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2014
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2014, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013. The results of operations for the three and nine month periods ended June 30, 2014 are not necessarily indicative of the operating results for the full year.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its condensed consolidated financial statements, except the following.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.
NOTE 3 – RELATED PARTY TRANSACTIONS / SERVICE AGREEMENT
The Company has a Service Agreement with Wasatch ATM (“Wasatch”), a Utah limited liability corporation owned and managed by a Company stockholder. The agreement provides for Wasatch to provide all maintenance, repair and service work along with distribution of vault cash. Wasatch is compensated at a set rate of $1,400 per month, which was reduced by $500 effective January 1, 2014. The term of the agreement will be for a period of two (2) years from the date of the agreement, and will automatically renew for additional one (1) year periods, unless either party gives the other written notice of termination thirty (30) days prior to any renewal term, and provides for an additional one-time $500 payable upon the placement of each additional ATM and an allowance of $500 per quarter for expenses.
As of June 30, 2014 and September 30, 2013, $900 and $1,400, respectively, was due to Wasatch, which is included in the “Related Party Accounts Payable” line item.
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NOTE 4 - RELATED PARTY TRANSACTIONS / LONG-TERM DEBT
In conjunction with new ADA compliance regulations that took effect on March 15, 2012, requiring certain costly upgrades be made to all Hantle/Tranax and Hyosung ATM machines, the Company’s Board of Directors gave their unanimous consent on March 1, 2012, to purchase three new ATM machines that comply with the new ADA compliance regulations. The Board agreed that the new machines should be purchased and financed through our servicing partner, Wasatch ATM. The balance of $6,800 began accruing interest of 10% APR on April 1, 2012. Monthly payments of $316 are due on the first of every month, commencing on May 1, 2012, until the loan is paid in full on March 1, 2014. The balance owed as of June 30, 2014 remains $3.
The Company utilizes office and storage space of its executive officers, for which no incremental costs are incurred. No monetary value has been placed on this, nor have any accruals or payments been made. Additionally, the Company has no employees who are not executive officers. There are no amounts due to or from these parties as of the balance sheet date.
As of September 30, 2013, the Company had issued $81,000 in convertible promissory notes with various shareholders. The Company had borrowed a total of $56,901 in principal against these notes. On January 28, 2014, the Company signed additional convertible promissory notes with certain shareholders that provided for additional liquidity resources in the amount of $15,000, with $15,000 available to be used at the Company’s discretion. Of these notes, $90,000 in face value convertible promissory notes were consolidated into aggregate convertible promissory notes on February 7, 2014, in the aggregate principal amount of $90,000, with accrued and unpaid interest thereon in the amount of $7,767, as of January 31, 2014. The Company and the holders of such notes agreed to modify the Notes by: (i) issuing new notes dated as of February 7, 2014 in which the accrued and unpaid interest for each note through January 31, 2014 has been included in the principal balance of the new notes; (ii) extending the due date for the notes to December 31, 2015; (iii) providing that the Notes shall be convertible into shares of the Company's common stock at the option of the Company as previously set forth in the notes or at the holder’s option as set forth in the notes. All Company notes, with a total face value of $96,000, are now payable on December 31, 2015, accrue interest at a rate of 8.5% per annum, and are convertible at the option of the Company for a conversion price of $0.10 per share.
During the nine month periods ending June 30, 2014 and 2013, the Company borrowed additional funds of $19,600 and $16,501, respectively, on these notes. As of June 30, 2014, the principal outstanding on the consolidated convertible promissory notes was $76,501.
Accrued interest on all loans from shareholders at June 30, 2014 was $10,618, with $7,767 of this amount being applied to a reduction of the available principal amount as a result of the aggregation. Total interest expense from these notes for the nine months ended June 30, 2014 and 2013 was $4,763 and $3,058, respectively.
Current available funds pursuant to outstanding promissory notes as of June 30, 2014 is $11,732.
NOTE 5 - GOING CONCERN
The Company has minimal working capital, limited sales activity, losses from operations, and negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management plans include continuing to placing, managing and servicing of ATM machines. In addition, the Company may seek additional debt or equity funding from shareholders. If additional financing is not provided, the Company may be required to curtail its operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Plan of Operations
Our primary focus for 2014 is the continued placing, managing, and servicing of ATM machines for public utilization along the Wasatch Front in the State of Utah.
Results of Operations
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
During the three months ended June 30, 2014, we recognized $4,368 in revenues. During the three months ended June 30, 2013, we recognized $4,482 in revenues. The decrease in revenue for the period ended 2014 over the same period in 2013 can be attributed to the addition of other merchant service processing options offered in our locations that reduce consumer dependence on cash transactions.
We had a net loss for the three months ended June 30, 2014, of $4,252 and a net loss of $5,280 for the three months ended June 30, 2013. The loss for 2014 is the result of decreased revenue due to increased competition from other merchant service processing options offered at our locations. However, the loss was less in 2014 due to decreased service fees. As we pursue opportunities to expand our operations by placing more machines in lucrative locations, we are hopeful our revenues should start to increase. We will need additional capital to expand operations and anticipate seeking equity capital in 2014.
Currently our biggest expenses are related to general and administrative costs consisting mainly of accounting and legal fees, which were $4,005 for the three months ended June 30, 2014 and $4,036 for the three months ended June 30, 2013. Our service fee to maintain ATM cash levels and operating functionality is $900 per month, resulting from a reduction of $500 per month as of January 1, 2014. We anticipate these fees remaining constant during 2014; however, they may rise in the future if we deploy more machines.
Nine Months Ended June 30, 2014 Compared to Nine Months Ended June 30, 2013
During the nine months ended June 30, 2014, we recognized $14,249 in revenues. During the nine months ended June 30, 2013, we recognized $17,087 in revenues. The decrease in revenue for the period ended 2014 over the same period in 2013 can be attributed to new regulations governing surcharge fees, downtime due to technical and setup issues as well as other merchant service processing options offered in our locations that reduce consumer dependence on cash transactions.
We had a net loss for the nine months ended June 30, 2014, of $22,076 and a net loss of $19,474 for the nine months ended June 30, 2013. Our net loss for the 2014 period was the result of costs of service for maintaining our ATM machines, interest expenses as well as general and administrative expenses.
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Liquidity and Capital Requirements
We had $1,932 cash or cash equivalents on hand as of June 30, 2014. As of September 30, 2013, the Company had issued $81,000 in convertible promissory notes with various shareholders. The Company had borrowed a total of $56,901 in principal against these notes. On January 28, 2014, the Company signed additional convertible promissory notes with certain shareholders that provided for additional liquidity resources in the amount of $15,000, with $15,000 available to be used at the Company’s discretion. Of these notes, $90,000 in face value convertible promissory notes were consolidated into aggregate convertible promissory notes on February 7, 2014, in the aggregate principal amount of $90,000, with accrued and unpaid interest thereon in the amount of $7,767, as of January 31, 2014. The Company and the holders of such notes agreed to modify the Notes by: (i) issuing new notes dated as of February 7, 2014 in which the accrued and unpaid interest for each note through January 31, 2014 has been included in the principal balance of the new notes; (ii) extending the due date for the notes to December 31, 2015; (iii) providing that the Notes shall be convertible into shares of the Company's common stock at the option of the Company as previously set forth in the notes or at the holder’s option as set forth in the notes. All Company notes, with a total face value of $96,000, are now payable on December 31, 2015, accrue interest at a rate of 8.5% per annum, and are convertible at the option of the Company for a conversion price of $0.10 per share.
During the nine month periods ending June 30, 2014 and 2013, the Company borrowed additional funds of $19,600 and $16,501, respectively, on these notes. As of June 30, 2014, the principal outstanding on the consolidated convertible promissory notes was $76,501.
Accrued interest on all loans from shareholders at June 30, 2014 was $10,618, with $7,767 of this amount being applied to a reduction of the available principal amount as a result of the aggregation. Total interest expense from these notes for the nine months ended June 30, 2014 and 2013 was $4,763 and $3,508, respectively.
Current available funds pursuant to outstanding promissory notes as of June 30, 2014 is $11,732.
The Company has an accumulated deficit of $132,237. Currently, management’s plans include placing more ATMs in retail locations in order to improve our cash flows. The Company through shareholder loan commitments has an availability of funds sufficient for the next 6 months. Management has verbal assurances that shareholders will agree to enter into additional funding commitments for the next year.
Going Concern
The Company has minimal working capital, limited sales activity, losses from operations, and negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management plans include continuing to placing, managing and servicing of ATM machines. In addition, the Company may seek additional debt or equity funding from shareholders. If additional financing is not provided, the Company may be required to curtail its operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-balance Sheet Arrangements
Neither City Media nor its wholly-owned subsidiary have had any off balance sheet arrangements from their respective periods to the date hereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the President and Secretary, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
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Changes in Internal Control Over Financial Reporting
During the fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any pending legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against us. No director, executive officer or affiliate of ours or owner of record or beneficially of more than five percent of our common stock is a party adverse to us or has a material interest adverse to us in any proceeding.
Item 1A. Risk Factors
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
We have no mining activities.
Item 5. Other Information
None.
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Item 6. Exhibits
| |
Exhibit No. | Identification of Exhibit |
31 | Certification of Thomas J. Howells Pursuant to Section 302 of the Sarbanes-Oxley Act. |
32 | Certification of Thomas J. Howells pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act. |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase* |
101.LAB | XBRL Taxonomy Extension Label Linkbase* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase* |
*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITY MEDIA, INC.
(Issuer)
| | | | |
Date: | August 13, 2014 | | By: | /s/ Thomas J. Howells |
| | | | Thomas J. Howells, Director, President and Chief Executive Officer, Principal Financial Officer |
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