U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-80321
FTM Media, Inc.
(Name of Small Business Issuer as specified in its charter)
Delaware 86-0997337
(State of Incorporation) (IRS Employer Identification No.)
23233 North Pima Road
Number 113-157
Scottsdale, Arizona 85255
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (480) 425-0099
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, Par Value $0.001 per share
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 [ ]
Issuer's revenues from continuing operations for its most recent fiscal quarter
were $4,111.
As of February 7, 2001, the number of shares of Common Stock outstanding was
9,592,821 and the aggregate market value of the Common Stock (based on the
closing price on that date) held by non-affiliates of the Issuer was
approximately $196,491.
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Independent Accountant's Report 1
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2000
(unaudited) and March 31, 2000 (audited) 2
Consolidated Statements of Operations for the three
months ended December 31, 2000 (unaudited) and
December 31, 1999 (unaudited) and the nine months
ended December 31, 2000 (unaudited) and December 31,
1999 (unaudited) 3
Consolidated Statements of Cash Flows for the nine
months ended December 31, 2000, (unaudited) and
December 31, 1999 (unaudited) 4
Notes to the Consolidated Financial Statements (unaudited 5 - 10
Item 2. Management's Discussion and Analysis or Plan of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
and Stockholders
FTM Media, Inc. and Subsidiary
(A Delaware Corporation)
Scottsdale, Arizona
We have reviewed the accompanying consolidated balance sheet of FTM Media,
Inc. and Subsidiary as of December 31, 2000 and the related consolidated
statements of operations for the three and nine month periods ended December 31,
2000 and 1999, the consolidated statements of cash flows for the nine months
ended December 31, 2000 and 1999, in accordance with standards established by
the American Institute of Certified Public Accountants. All information included
in these consolidated financial statements is the responsibility of the
Company's management.
A review of interim financial information consists principally of inquiries
of Company personnel and analytical procedures applied to the financial data. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company curtailed operations on
October 13, 2000 due to cash restrictions and the uncertainty of their ability
to obtain additional funding. The Company's ability to continue as a going
concern is dependent upon obtaining such funding and ultimately achieving
profitable operations and raising additional equity capital. Achievement of the
Company's business objectives is dependent upon, amongst other factors:
attaining new customers, i.e., radio stations, the sale of radio advertising and
e-commerce services, and the continued success of raising equity capital. The
ability of the Company to recover its investment in Web site development
technology for radio stations is dependent upon the future profitability of the
Web site services it provides to its radio station customers. The outcome of
these matters cannot be predicted at this time. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the company cannot continue in existence.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of FTM Media, Inc. and Subsidiary as
of March 31, 2000 (presented herein), and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended March 31, 2000 (not included herein), and in our
report dated June 20, 2000, we expressed an unqualified opinion on those
consolidated financial statements. We have not performed any auditing procedures
since the date of our report.
/s/ Rotenberg & Company, LLP
- -----------------------------------
Rotenberg & Company, LLP
Rochester, New York
February 14, 2001
-1-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
Dec. 31, 2000 Mar. 31, 2000
------------ ------------
CURRENT ASSETS (Unaudited) (Audited)
Cash and Cash Equivalents $ 6,642 $ 405,353
Cash Held in Escrow from Private
Placement Offering -- 5,183,225
Accounts Receivable 60,174 52,809
Prepaid Expenses 84,252 84,400
------------ ------------
TOTAL CURRENT ASSETS 151,068 5,725,787
Property Net of Accumulated Depreciation 1,889,444 1,991,372
OTHER ASSETS
Lease Deposits 86,544 132,419
Goodwill - Net of Accumulated Amortization 2,894,294 3,402,787
------------ ------------
TOTAL ASSETS $ 5,021,350 $ 11,252,365
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 2,305,970 $ 1,611,590
Accrued Payroll and Related Liabilities 661,419 260,299
Short Term Notes Payable 3,194,252 3,350,000
------------ ------------
TOTAL LIABILITIES 6,161,641 5,221,889
STOCKHOLDERS' EQUITY/(DEFICIT)
Preferred Stock - $.001 Par; 5,000,000 Shares
Authorized; 300,465 and 322,688 Issued and
Outstanding at December 31, 2000 and March 31,
2000, respectively 301 323
Common Stock - $.001 Par; 50,000,000 Shares
Authorized; 9,592,821 and 9,574,139 Issued and
Outstanding at December 31, 2000 and March 31,
2000, respectively 9,592 9,574
Additional Paid-In-Capital 29,037,847 29,082,318
Deficit (30,188,031) (23,061,739)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) (1,140,291) 6,030,476
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY/(DEFICIT) $ 5,021,350 $ 11,252,365
============ ============
The accompanying notes are an integral part of this financial statement.
-2-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
12/31/00 12/31/99 12/31/00 12/31/99
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
OPERATING REVENUE
Website Services $ 4,111 $ 45,659 $ 329,103 $ 45,659
----------- ----------- ----------- -----------
TOTAL REVENUE 4,111 45,659 329,103 45,659
OPERATING EXPENSES
Website Development 247,357 1,166,693 3,365,217 2,484,530
Selling and Marketing Expenses -- -- 270,542 --
E-Commerce -- 86,745 25,057 113,437
General and Administrative Expenses 756,587 856,658 2,842,267 2,283,445
Depreciation Expense 119,096 115,024 323,606 228,743
Amortization Expense 190,685 -- 508,493 --
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,313,725 2,225,120 7,335,182 5,110,155
OPERATING LOSS BEFORE OTHER INCOME AND (EXPENSES) (1,309,614) (2,179,461) (7,006,079) (5,064,496)
OTHER INCOME AND (EXPENSES)
Interest Expense (51,000) (62,917) (150,090) (112,331)
Interest Income -- 94,134 29,877 98,374
----------- ----------- ----------- -----------
Total Other Income and (Expenses) (51,000) (31,218) (120,213) (13,958)
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,360,614) (2,210,679) (7,126,292) (5,078,454)
Minority Interest -- 655,289 -- 1,425,239
----------- ----------- ----------- -----------
NET LOSS $(1,360,614) $(1,555,390) $(7,126,292) $(3,653,215)
LOSS PER COMMON SHARE $ (0.142) $ (0.242) $ (0.743) $ (0.573)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,586,502 6,439,498 9,584,965 6,379,811
The accompanying notes are an integral part of this financial statement.
-3-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
9 months 9 months
ended ended
Dec. 31, 2000 Dec. 31, 1999
----------- -----------
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net Income (Loss) $(7,126,292) $(3,653,215)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 323,606 228,743
Amortization 508,493 --
Decrease in Capitalized Development Costs -- 131,568
Minority Interest -- (1,425,239)
Increase in Liquidation Value - Minority Interest -- 22,858
Changes in Operating Assets & Liabilities -- --
Increase in Accounts Receivable (7,365) (24,208)
Increase in Prepaid assets 148 (176,260)
Increase in Notes Receivable -- (1,193,700)
Increase in Deposits 45,875 (81,638)
Increase in Accounts Payable 694,380 958,478
Increase in Other Accrued Liabilities 401,120 (23,022)
Increase in Short Term Notes Payable -- 82,636
----------- -----------
Net Cash Flow from Operating Activities (5,160,035) (5,152,999)
INVESTING ACTIVITIES
Cash Purchases of property and equipment (221,678) (2,099,300)
FINANCING ACTIVITIES
Private Placement - Stock 5,183,225 2,010,034
Private Placement - Notes -- 2,460,000
Repayment of Interim Short Term Financing (1,212,500) --
Net Proceeds from Other Short Term Financing 1,056,752 --
Net Proceeds from Sale of Common Stock and Units (44,475) 1,353,054
Payment of Preferred Dividends -- (198,000)
----------- -----------
Net Cash Flow from Financing Activities 4,983,002 5,625,088
Net Decrease in Cash and Cash Equivalents (398,711) (1,627,212)
Cash and Cash Equivalents - Beginning of Year 405,353 2,027,833
Cash and Cash Equivalents - End of Period 6,642 400,621
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid Year to Date for Interest 99,090 112,331
The accompanying notes are an integral part of this financial statement.
-4-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. General
The accompanying unaudited financial statements of FTM Media, Inc.,
formerly Redwood Broadcasting, Inc., have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The balance sheet at March 31, 2000 has been derived from
audited consolidated financial statements at that date but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying financial statements are unaudited and reflect all
adjustments which in the opinion of management are necessary for a fair
presentation of the financial position and operating results for the
interim periods. The consolidated financial statements should be read in
conjunction with the annual audited consolidated financial statements and
notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in the Company's
annual report on Form 10-KSB for the fiscal year ended March 31, 2000.
Results of operations for interim periods are not necessarily indicative of
results which may be expected for the year as a whole. Factors which affect
the comparability of financial data from year to year and the comparability
for interim periods include the changes in goodwill.
2. Nature of Operations and Summary of Significant Accounting Policies
Pursuant to a Contribution Agreement effective March 31, 1999, Interactive
Radio Group, Inc. (hereinafter "INRG"), a Delaware Corporation, became a
majority owned subsidiary of Redwood Broadcasting, Inc., a Colorado
Corporation (hereinafter "Redwood"). The transaction was treated as a
reverse acquisition, whereby shareholders owning 90.85% of the INRG common
stock received 1.25 shares of Redwood common stock for each contributed
share of INRG common stock. As a result of the reverse acquisition, the
historical operations of INRG were treated as the historical operations of
Redwood.
Effective July 19, 1999, Redwood changed its name to FTM Media, Inc.
(hereinafter "FTM").
Effective January 7, 2000, FTM, formerly a Colorado Corporation, became
reincorporated as a Delaware Corporation, via a reincorporation merger.
On January 7, 2000, FTM acquired the remaining shares represented by the
minority interest of INRG. The transaction resulted in INRG being merged
with and into FTM, with FTM being the surviving company. The transaction
resulted in the remaining common shareholders of INRG receiving 1.25 shares
of FTM common stock for each contributed share of INRG common stock. The
merger was accounted for under the purchase method of accounting, effective
September 22, 1999, which was the day of approval of the merger by the
shareholders. Goodwill was recorded based on the difference between the
fair value of the underlying net assets of the minority interest acquired
and the fair value of the Company's common stock exchanged.
-5-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FTM MEDIA, INC.
The Company was reincorporated under the laws of the state of Delaware on
January 7, 2000 and is in the business of providing Internet Web sites to
radio stations, focusing its efforts on the 25 largest U.S. markets. The
Company's Web site services include Web site design, development,
implementation, hosting, and management.
The Company curtailed operations on October 13, 2000 due to cash flow
restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI
reorganization on February 8, 2001. The case is pending in United States
Bankruptcy Court for the District of Arizona as case number
01-01382-ECF-RJH. The Company anticipates immediately entering into an
agreement for post petition financing with FTM Investors, LLC. Upon
completion of said post petition financing the Company will continue
operations, on an expanded, but still limited basis. The results of the
Company resuming operations cannot be predicted at this time and will be
dependant on many factors including but not limited to the Company's
ability to raise additional capital and reorganize itself during the
Chapter XI Bankruptcy proceedings.
METHOD OF ACCOUNTING
The Company maintains its books and prepares its financial statements on
the accrual basis of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expense
during the reporting period. Actual results can differ from those
estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to significant
concentrations of credit risk consist principally of bank deposits and
accounts receivable. Cash is placed primarily in high quality short term
interest bearing financial instruments. Management performs evaluations of
accounts receivable and records an allowance for doubtful accounts when
necessary.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of deposit,
and all highly liquid debt instruments with original maturities of three
months or less. The Company maintains cash and cash equivalents at
financial institutions which periodically may exceed federally insured
amounts.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost, less accumulated depreciation
computed using the straight line method over the estimated useful lives as
follows:
Leasehold Improvements 5 - 7 Years
Computer Equipment 3 - 5 Years
Office Furniture 5 Years
Vehicles 5 Years
-6-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
Maintenance and repairs are charged to expense. The cost of the assets
retired or otherwise disposed of and the related accumulated depreciation
are removed from the accounts.
GOODWILL
Goodwill is being amortized over five to ten years. See note D for
additional information.
EARNINGS (LOSS) PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings Per Share," basic earnings per
common share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
for each period. Diluted earnings per common share is calculated by
adjusting the number of outstanding shares assuming conversion of all
potentially dilutive stock options and warrants.
The incremental shares related to outstanding warrants, stock options,
convertible preferred stock, and convertible debt have been excluded from
the computation of diluted earnings per share due to their antidilutive
effect as a result of the company's net loss from operations.
STOCK OPTIONS
The company accounts for stock-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25). Under APB No. 25, the Company's stock option and employee
stock purchase plans qualify as noncompensatory plans. Consequently, no
compensation expense is recognized.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," using the asset and liability approach,
which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of such assets and liabilities. This
method utilizes enacted statutory tax rates in effect for the year in which
the temporary differences are expected to reverse and gives immediate
effect to changes in income tax rates upon enactment. Deferred tax assets
are recognized, net of any valuation allowance, for temporary differences
and net operating loss and tax credit carryforwards. Deferred income tax
expense represents the change in net deferred assets and liability
balances. The Company had no material deferred tax assets, net of
allowances, or liabilities for the periods presented.
RECLASSIFICATION
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consisted of the following:
-7-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
12/31/00 3/31/00
---------- ----------
Leasehold Improvements $ 109,247 $ 80,879
Computer Equipment 2,129,421 1,980,144
Office Furniture 256,140 234,880
Vehicles 14,500 14,500
---------- ----------
$2,509,309 $2,310,403
Less: Accumulated Depreciation 619,865 319,031
---------- ----------
Net Property and Equipment $1,889,444 $1,991,372
========== ==========
Depreciation expense for the nine months ended December 31, 2000, and 1999,
was $323,606, and $228,743, respectively.
NOTE D - GOODWILL
Goodwill consisted of the following:
12/31/00 3/31/00
---------- ----------
Goodwill $3,852,951 $3,852,951
Less: Accumulated Amortization 958,657 450,164
---------- ----------
Net Goodwill $2,894,294 $3,402,787
========== ==========
Amortization expense for the nine months ended December 31, 2000, and 1999
was $508,493, and $0, respectively.
NOTE E - SHORT TERM NOTES PAYABLE
The Company has multiple outstanding notes payable to individual investors
that were issued as bridge loans in anticipation of capital raised in a
private offering. These notes carry various maturity dates ending in May,
2000 and have terms of 180 days or less from the date of issue. $1,700,000
of the notes provide for monthly extensions by the Company for an
indefinite period with interest payments of 1% per month, in addition to
the regular interest payments. The notes totaled $3,350,000 at March 31,
2000 and carried various interest rates ranging from 6% to 10%. Some of the
investors have the option to convert the notes to common stock while others
of the investors have the option to convert the notes to units, consisting
of common stock and warrants, at the price of either $8.00 or $7.50
respectively. Interest expense for the nine months ended December 31, 2000
and 1999 was $150,090 (including an accrual of $51,000) and $112,331,
respectively.
During the nine months ended December 31, 2000, the Company repaid
$1,212,500 of the notes and extended $1,700,000. In addition during the
second quarterly period ending September 30, 2000 the Company raised an
additional $1,200,000 in the form of bridge notes. Currently the Company is
in default on all notes payable pursuant to the terms and conditions of
each individual note. All of the notes carry an additional consideration of
coverage in the form of warrants to purchase FTM common stock.
The Company is currently in dispute with one of the investors over a
$400,000 note, as to whether the Company is required to repay the note or
whether the investor is required to convert it to common stock. The
-8-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
$400,000 note amount is included in the notes payable as of December 31,
2000. The Note Holder has obtained a judgment against the Company in both
New York and California which has been stayed by the Company as a result of
its Chapter XI filing.
The Company entered into an insurance premium financing agreement with
AICCO which had a balance of $31,132 at December 31, 2000.
NOTE F - CONTINGENCIES
The Company's ability to continue as a going concern is dependent upon
achieving profitable operations and raising additional equity capital. In
addition to raising equity capital, achievement of the Company's business
objectives is dependent upon, amongst other factors: attaining new
customers, i.e., radio stations, the sale of radio advertising and
e-commerce services, and the continued success of raising equity capital.
NOTE G - OTHER MATTERS
The Company curtailed operations on October 13, 2000 due to cash flow
restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI
reorganization on February 8, 2001. The Company anticipates immediately
entering into an agreement for post-petition financing with FTM Investors,
LLC. Upon completion of said post-petition financing the Company will
continue operations, on an expanded, but still limited basis. The results
of the expanded operations cannot be predicted at this time and will be
dependant on many factors including but not limited to the Company's
ability to form additional capital and reorganize itself during the Chapter
XI Bankruptcy proceedings.
The Company is currently in dispute with one of the investors over a
$400,000 note, as to whether the Company is required to repay the note or
whether the investor is required to convert it to common stock. The
$400,000 note amount is included in the notes payable as of March 31, 2000.
On November 2, 2000, Cohanzick obtained a judgment against the Company and
is seeking a writ of attachment against the Company's assets in the State
of California.
The company has ceased making the payments required under the terms and
conditions of its office leases in Burbank, California and Scottsdale,
Arizona. As such, the landlords may exercise their rights, including
possibly an attempt to offset the company's lease deposits or terminate the
lease. The Scottsdale landlord purported to terminate that lease prior to
the bankruptcy filing. All action against the company and its property has
been stayed by the bankruptcy filing. The company is assessing its rights
with respect to all of its leases and any actions that have been taken by
its landlords.
On November 22, 2000 a group of approximately 60 employees filed Suit in
the Superior Court of California, County of Los Angeles seeking lost wages
and other damages resulting from their employment with the Company. The
Company disputes these claims and has filed counterclaims against the
plaintiffs in that action. It will seek to have the proceedings removed to
the Federal Bankruptcy Court and transferred to Phoenix, Arizona to be
adjudicated in conjunction with the Company's Chapter XI proceedings.
On October 4, 2000 Greg Mastroieni and Robert Wilson resigned as
consultants and as Directors of the Company. On November 13, 2000, David
Kendrick, President and Chief Operating Officer of the Company, resigned.
On December 12, 2000, Frank Wood, Robert Buziak, John Gehron and Andy
Schuon resigned as Directors of the Company.
On January 24, 2001, Glenn Kramer was appointed a President and Chief
Operating Officer of the Company.
-9-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
Special Note Regarding Forward-looking Statements
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Important factors that may cause actual
results to differ from forward-looking statements and projections include, for
example:
* the results of our Bankruptcy proceedings for reorganization under
Chapter 11, which were filed on February 8, 2001;
* our ability to complete post-petition financing with FTM Investors,
LLC to provide us with sufficient working capital for operating
activities;
* our ability to maintain relationships with our current customers;
* obtaining new customers, particularly radio stations;
* the sale of radio advertising and e-commerce services;
* the effect of changing economic conditions;
* our ability to ultimately obtain equity capital; and
* other risks which may be described in our future filings with the SEC.
We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could
affect those statements.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You must read the following discussion on the financial condition and
results of operations of the Company in conjunction with our condensed financial
statements, including the notes elsewhere in this Form 10-QSB filing. Historical
results are not necessarily an indicator of trends in operating results for any
future period.
OVERVIEW
Prior to curtailing our operations our principal business had been
providing Web sites to radio stations in the 25 largest U.S. markets, so that
those radio stations can extend their brands and generate additional revenues.
Our services include Web site design, development, implementation, hosting and
management (our "Web site services"). We currently have developed seven Web
sites, including Web sites for alternative rock stations KROQ in Los Angeles,
LIVE105 in San Francisco, WHFS in Washington, D.C. and WBCN in Boston; B96, a
contemporary hit Station in Chicago and news/talk stations KCBS in San Francisco
and FMTALKi in Los Angeles. None of these sites continues to operate. Prior to
curtailment of operations there were additional Web sites under development.
LIQUIDITY AND CAPITAL RESOURCES - DECEMBER 31, 2000 COMPARED TO
DECEMBER 31, 1999
Since our inception on February 22, 1994, we have had significant negative
cash flows from our operations. For the nine months ended December 31, 2000 and
1999, we used $5,160,035 and $5,152,999 of cash, respectively, in our
operations. Cash used in operating activities in each period resulted primarily
from net losses in those periods, offset by non-cash charges and changes in
current assets and liabilities.
-10-
FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
For the nine months ended December 31, 2000 and 1999, we used $221,678 and
$2,099,300 in our investing activities. The use of these funds was almost
entirely for computer equipment and software used in the production of web
sites.
Net cash provided by financing activities for the nine months ended
December 31, 2000 and 1999, was $4,983,002 and $5,625,088, respectively. Since
inception, we have financed our operations primarily from the issuance of common
stock, proceeds of notes payable and the sale of Series A Preferred Stock and
Series B Preferred Stock. Funds provided by financing in the nine months ended
December 31, 1999 consisted of the issuance of preferred stock for $1,565,005.
Funds provided by financing activities for the nine months ended December 31,
2000 consisted almost entirely of the receipt from escrow of $5,183,225 from the
private placement of units of common stock and warrants, offset by the repayment
of $1,212,500 of the short term financing obtained during the year ended March
31,2000.
The Company entered into several non-cancelable lease commitments that
required payments of approximately $2,700,000 over the next five years. These
leases will be rejected as part of the Chapter XI Bankruptcy proceedings. The
Company may seek to negotiate a new lease for a portion of the Burbank offices
as an alternative to relocating its offices.
The Company curtailed operations on October 13, 2000 due to cash flow
restrictions and filed for Bankruptcy pursuant to a petition for Chapter XI
reorganization on February 8, 2001. The Company anticipates immediately entering
into an agreement for post-petition financing with FTM Investors, LLC. Upon
completion of said post-petition financing the Company will continue limited
operations. The results of the expanded operations cannot be predicted at this
time and will be dependant on many factors including but not limited to the
Company's ability to raise additional capital and reorganize itself during the
Chapter XI Bankruptcy proceedings.
RESULTS OF OPERATIONS - DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 2000
REVENUE. Revenue consisted of money received from the sale of merchandise
on our Web sites and the selling of advertising on such sites. Revenue was
$45,659 for the nine months ended December 31, 1999 and $329,103 for the nine
months ended December 31, 2000. The growth in revenue was attributable to the
rollout of our first Web sites. Beginning in July, the Company began earning
revenue related to recurring monthly fees for service from its radio station
clients.
WEB SITE DEVELOPMENT AND E-COMMERCE COSTS. Web site development and
E-commerce costs consist of our costs related to the development of our Web
sites and costs related to the selling of goods from our Web sites. Web site
development costs include expenses incurred by us to develop, enhance, manage,
monitor and operate our Web sites and to develop new products. These costs
consist primarily of salaries and fees paid to employees and consultants to
develop and maintain the software and information contained on our Web sites.
For the nine months ended December 31, 1999, these costs were $2,484,530, and
for the nine months ended December 31, 2000, these costs were $3,365,217. These
costs related primarily to the increase in staff necessary to the development of
content and tools for our Web sites.
SALES AND MARKETING EXPENSE. Sales and Marketing expense includes expenses
incurred by the Company to obtain and maintain client and advertiser
relationships. These costs included salaries and fees paid to employees and
consultants. For the nine months ended December 31, 1999, Sales and Marketing
expenses were $0 and for the nine months ended December 31, 2000, Sales and
Marketing expenses were $270,542, consisting primarily of costs associated with
the development of client marketing programs and of new prototype marketing and
advertising programs.
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FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses consist primarily of compensation for personnel and, to a lesser
extent, fees for professional services, rent and communications costs. Our
general and administrative expenses increased from $2,283,445 for the nine
months ended December 31, 1999, to $2,842,267 for the nine months ended December
31, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
includes depreciation of tangible assets and software, using the straight-line
method, over the estimated useful lives of the assets. Amortization expense
includes intangible assets such as goodwill. For the nine months ended December
31, 1999, depreciation and amortization expense was $228,743 and $832,099 for
the nine months ended December 31, 2000. The increases are primarily due to the
growth of the Company and the need for much additional equipment, and the
amortization of goodwill as a result of the acquisition of the minority interest
in INRG.
OTHER EXPENSE. Interest expense increased from $112,331 to $150,090 for the
nine months ended December 31, 1999 and 2000, respectively. The increase relates
to primarily to interest accrued on the bridge loan financing of $3,800,000.
Inflation did not have a material effect on our operations for the nine
months ended December 31, 2000 and 1999. We have and will continue to attempt to
mitigate the impact of cost increases by evaluating our suppliers, by increasing
our effectiveness, and by adjusting our prices for services rendered and
products sold. While we do not expect inflation to have a material impact on
2001 operations, there are no guarantees that future cost increases would not
have an adverse impact.
Other than the foregoing and the risk factors described above, management
knows of no trends, demands, or uncertainties that are reasonably likely to have
a material impact on our results of operations.
NET OPERATING LOSS CARRYFORWARDS - At March 31, 2000, we had a net
operating loss carryforward for income tax purposes of approximately
$11,442,272, which expires beginning in 2020. Under the Tax Reform Act of 1986,
the amounts of and the benefits from net operating loss carryforwards are
subject to certain limitations in the amount of net operating losses that we may
utilize to offset future taxable income.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
BANKRUPTCY FILING. The Company curtailed operations on October 13, 2000 due
to cash flow restrictions and filed for Bankruptcy pursuant to a petition for
Chapter XI reorganization on February 8, 2001. The Company anticipates
immediately entering into an agreement for post-petition financing with FTM
Investors, LLC. Upon completion of said post-petition financing the Company will
continue operations on a limited basis. The results of the expanded operations
cannot be predicted at this time and will be dependent on many factors,
including but not limited to, the Company's ability to form additional capital
and reorganize itself during the Chapter XI Bankruptcy proceedings.
COHANZICK PARTNERS LP LITIGATION. On May 26, 2000 Cohanzick Partners LP
Cohanzick") filed a lawsuit against us in the United States District Court for
the Southern District of New York. Cohanzick alleges that the Company has failed
to pay a $400,000 promissory note that the Company executed in favor of
Cohanzick. Cohanzick seeks repayment of the note, along with the accrued
interest thereon and legal fees and reasonable costs. On November 2, 2000,
Cohanzick obtained a judgment against the Company and is seeking a writ of
attachment against the Company's assets in the State of California. The
attachment proceedings are stayed as a result of the Chapter XI Bankruptcy
proceedings.
EMPLOYEE LAWSUIT. On November 22, 2000 a group of approximately 60
employees filed Suit in the Superior Court of California, County of Los Angeles
seeking lost wages and other damages resulting from their employment with the
Company. The Company disputes these claims and has filed counterclaims against
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FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
the plaintiffs in that action. It will seek to have the proceedings removed to
the Federal Bankruptcy Court and transferred to Phoenix, Arizona to be
adjudicated in conjunction with the Company's Chapter XI proceedings.
VENDOR LAWSUITS. The Company was also sued in the Superior Court of
California, County of Los Angeles by two vendors, Lightray Productions, Inc. and
Bowne of Los Angeles, Inc. These suits seek to recover claims of $30,187.50 and
$9,359.00, respectively. Both actions have been stayed by the bankruptcy filing.
ITEM 2. CHANGES IN SECURITIES
On October 31, 2000, 10,000 common shares were issued to Intesec LLC as
payment for consulting services.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
RESIGNATIONS OF DIRECTORS AND OFFICERS. On October 4, 2000, Greg Mastroieni
and Robert Wilson resigned as consultants and as Directors of the Company. On
November 13, 2000, David Kendrick, President and Chief Operating Officer of the
Company resigned. On December 12, 2000, Frank Wood, Robert Buziak, John Gehron
and Andy Schuon resigned as Directors of the Company.
APPOINTMENT OF NEW PRESIDENT AND COO. On January 24, 2001, Glenn Kramer was
appointed a President and Chief Operating Officer of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. Title
----------- -----
2.1 Agreement and Plan of Merger dated as of September 24, 1999
by and between FTM Media, Inc., a Delaware corporation, and
Interactive Radio Group, Inc., a Delaware corporation.(1)
3.1 Certificate of Incorporation of FTM Media, Inc., a Delaware
corporation(1)
3.2 Bylaws of FTM Media, Inc. a Delaware Corporation(1)
4.1 Specimen Certificate of Common Stock(1)
4.2 Interactive Radio Group, Inc. 1999 Stock Option Plan(1)
4.3 FTM Media, Inc. 1999 Stock Option Plan(1)
10.1 Stock Purchase Agreement with Andaman Investments, Inc.(2)
10.2 Contribution Agreement(3)
10.3 Stock Purchase Agreement made as of May 25, 1999 relating to
Series B Convertible Preferred Stock between the Company and
the parties listed on Exhibit A thereto.(4)
16.1 Letter on Change and Certifying Accountant(5)
21 Subsidiaries of Registrant(6)
27 Financial Data Schedule(6)
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(1) Incorporated by reference from the Company's Registration Statement under
the Securities Act of 1933 on Form S-4 as filed with the Commission on
October 5, 1999, and amended on December 31, 1999, January 4, 2000, and
January 18, 2000.
(2) Incorporated by reference from the Company's Current Report on Form 8-K
dated December 31, 1998 as filed with the Commission on January 14, 1999.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
dated March 29, 1999 as filed with the Commission on April 15, 1999.
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FTM MEDIA, INC. AND SUBSIDIARY
(A DELAWARE CORPORATION)
SCOTTSDALE, ARIZONA
(4) Incorporated by reference from the Company's Current Report on Form 8-K
dated June 15, 1999 as filed with the Commission on June 29, 1999.
(5) Incorporated by reference from the Company's Current Report on Form 8-K
dated May 17, 1999 as filed with the Commission on May 19, 1999.
(6) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2000 as filed with the Commission on
June 29, 2000.
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed by the Company during the Quarter ended
December 31, 2000.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and the dates indicated.
Signature and Title Dated
- ------------------- -----
/s/ RON CONQUEST February 14, 2001
- ---------------------------------
Ron Conquest
Chief Executive Officer, Secretary and Director
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