FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 000-25385
PURCHASE POINT MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1853993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
141 FIFTH AVENUE, NEW YORK, NEW YORK 10010
(212) 539-6104
(Address and telephone number, including area code, of
registrant's principal executive office)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At March 31, 2000, there were 11,815,246 shares of Common Stock, no par
value, outstanding.
PURCHASE POINT MEDIA CORPORATION
INDEX
Page
----
Part I. Financial Information 1
Item 1. Financial Statements
Balance Sheets as of March 31, 2000
(unaudited) and June 30, 1999 2
Statements of Operations for the
Nine and Three Months Ended March
31, 2000 and 1999 (unaudited) and
the Period June 28, 1996 (Date of
Formation) through March 31, 2000 3
Statements of Cash Flows for the Nine
Months Ended March 31, 2000 and
1999 (unaudited) and the Period June
28, 1996 (Date of Formation) through
March 31, 2000 4 - 5
Notes to Financial Statements (unaudited) 6 - 7
Item 2. Management's Discussion and Analysis
or Plan of Operations 7 - 11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
financial statements pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that the following financial statements be
read in conjunction with the year-end financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 1999.
The results of operations for the nine months ended March 31, 2000,
are not necessarily indicative of the results to be expected for the entire
fiscal year or for any other period.
1
PURCHASE POINT MEDIA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
March 31, June 30,
2000 1999
--------- --------
(Unaudited)
Current Assets:
Cash $ -- $ 97
Prepaid expenses 16,525 18,487
----------- -----------
Total Current Assets 16,525 18,584
Equipment - net 4,965 2,810
Patents and trademarks - net 25,749 27,159
----------- -----------
TOTAL ASSETS $ 47,239 $ 48,553
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Notes payable $ 46,903 $ 46,903
Accounts payable and
accrued expenses 187,637 163,014
Due to officer/shareholder 120,260 86,130
Due to related parties 525,782 508,407
----------- -----------
Total Current Liabilities 880,582 804,454
----------- -----------
Stockholders' Deficiency:
Preferred stock; no par value -
authorized 50,000,000 shares;
outstanding 2,000 shares, at
redemption value 170 170
Common stock, no par value -
authorized 100,000,000 shares;
issued and outstanding 11,815,246
and 11,375,000 shares 498,134 260,497
Additional paid in capital 77,674 23,104
Deficit accumulated during
development stage (1,409,321) (1,039,672)
----------- -----------
Total Stockholders' Deficiency (833,343) (755,901)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 47,239 $ 48,553
=========== ===========
2
PURCHASE POINT MEDIA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Period
June 28, 1996
(Date of
Nine Months Ended Three Months Ended Formation)
March 31, March 31, through
--------- --------- March 31,
2000 1999 2000 1999 2000
-------- -------- ------ ------ -------
(Unaudited) (Unaudited) (Unaudited)
Costs and Expenses:
General and administrative
expenses $ 268,083 $ 318,719 $ 103,292 $ 93,309 $ 1,207,579
Interest expense 99,520 28,336 71,297 9,498 194,400
Depreciation and
amortization 2,046 2,328 767 776 7,342
---------- ---------- ----------- --------- -----------
Net loss $ 369,649 $ 349,383 $ 175,356 $ 103,583 $ 1,409,321
========== ========== =========== ========= ===========
Loss per common share -
basic and diluted $ .03 $ .03 $ .02 $ .01 $ --
========== ========== =========== ========= ===========
Weighted average number of
common shares and
equivalents outstanding
- basic and diluted 11,597,559 11,375,000 11,597,559 11,375,000 --
=========== =========== =========== =========== ===========
3
PURCHASE POINT MEDIA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period
June 28, 1996
Nine Months Ended (Date of
March 31, Formation)
---------- through
2000 1999 March 31, 2000
------ ------ --------------
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Net (loss) $ (369,649) $ (349,383) $(1,409,321)
Adjustments to reconcile
net (loss) to net cash
(used in) operating
activities:
Depreciation and
amortization 2,046 2,328 7,342
Forgiveness of debt
from related parties -- -- (25,000)
Non cash compensation 3,462 -- 33,249
Non cash interest expense 54,570 -- 54,570
Changes in operating assets
and liabilities:
(Increase) decrease in
other assets (1,500) 11,305 (6,643)
Increase in accounts
payable and accrued
expenses 24,623 25,534 187,637
----------- ----------- -----------
Net Cash (Used in )
Operating Activities (286,448) (310,216) (1,158,166)
----------- ----------- -----------
Cash flows from investing
activities:
Purchase of equipment (2,791) -- (5,913)
----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from related
party 72,480 264,856 802,950
Proceeds from borrowings -- -- 46,903
Proceeds from officer/
stockholder 104,533 22,038 237,034
4
PURCHASE POINT MEDIA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (continued)
Period
Period
June 28, 1996
Nine Months Ended (Date of
March 31, Formation)
----------- through
2000 1999 March 31, 2000
------ ------ ----------------
(Unaudited) (Unaudited)
Payments to officer/
stockholder (62,023) (38,450) (108,395)
Payments to related parties (63,485) (207,558) (304,047)
Proceeds from sale of
common stock 237,637 -- 489,634
Deposit received for
issuance of shares -- 275,000 --
----------- ----------- -----------
Net Cash Provided by
Financing Activities 289,142 315,886 1,164,079
----------- ----------- -----------
Net increase (decrease)
in cash (97) 5,670 --
Cash - beginning of period 97 -- --
----------- ----------- -----------
Cash - end of period $ -- $ 5,670 $ --
=========== =========== ===========
Supplementary Information:
Cash paid during the year
for:
Interest $ 3,904 $ 698
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
Non-cash investing activities:
Acquisition of business:
Fair value of assets
acquired $ -- $ -- $ 8,500
=========== =========== ===========
Forgiveness of related
party loan $ -- $ -- $ 25,000
=========== =========== ===========
Issuance of warrants in
connection with the sale
of common stock $ 54,570 $ -- $ 77,674
=========== =========== ===========
5
PURCHASE POINT MEDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The balance sheet as of March 31, 2000, and the statements of operations and
cash flows for the nine months ended March 31, 2000 and 1999 have been
prepared by Purchase Point Media Corporation ("PPMC" or the "Company") and
are unaudited. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented
have been made. The information for June 30, 1999 was derived from audited
financial statements.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in a normal course of business.
The Company's primary planned activities are the development and marketing
needed to create, produce and sell advertising space to national advertisers
to be displayed on grocery cart displays. At March 31, 2000, operations had
not yet commenced and no revenue has been derived; accordingly, the Company
is considered a development stage enterprise. There is no assurance that the
selling of advertising space to national advertisers will be developed or
that the Company will achieve a profitable level of operation.
The development activities of the Company are being financed through
advances by a major shareholder and sale of the Company's common stock. The
Company's continued existence is dependent upon its ability to obtain needed
working capital through additional equity and/or debt financing and the
commencement of its planned principal operations. Management is actively
seeking additional capital to ensure the continuation of its development
activities. However, there is no assurance that additional capital will be
obtained. These uncertainties raise substantial doubt about the ability of
the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
3. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share are computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per common share are computed using the weighted average number of
common shares and potential common shares outstanding during the period.
6
4. SALE OF COMMON STOCK AND COMMON STOCK WARRANTS
The Company issued common stock and common stock warrants in connection
with two private placement debt offerings during the nine months ended March
31, 2000. The Company received $237,637 from the sale of common stock and
has issued 405,675 shares of common stock with warrants. The Company has
adopted the disclosure-only provision of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123).
The Company valued the warrants issued to non-employees based on the fair
value at the grant dates consistant with the provisions of SFAS No. 123. For
the nine months ended March 31, 2000 and the period June 28, 1996 (Date of
Formation) through March 31, 2000 the Company expensed interest charges to
operations in the amount of $58,302.
The fair value of each warrant granted is valued on the date of grant
using the Black-Scholes option-pricing model.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues
and profitability, including competition from other suppliers; changes in
the regulatory and trade environment; changes in consumer preferences and
spending habits; the inability to successfully manage growth; seasonality;
the ability to introduce and the timing of the introduction of new products
and the inability to obtain adequate supplies or materials at acceptable
prices. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document
and other documents filed by the Company with the Securities and Exchange
Commission (the "SEC") contain certain forward-looking statements under the
Private Securities Litigation Reform Act of 1995 with respect to the
business of the Company. These forward-looking statements are subject to
certain risks and uncertainties, including those mentioned above, and those
detailed in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 1999, which may cause actual results to differ significantly from
these forward-looking statements. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be necessary to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. An
investment in the Company involves various risks, including those mentioned
above and those which are detailed from time to time in the Company's SEC
filings.
7
Results of Operations
The following table sets forth for the periods indicated, the percentage
increase or (decrease) of certain items included in the Company's
consolidated statement of operations:
% Increase (Decrease) from Prior Period
----------------------------------------
Nine Months Ended Three Months Ended
March 31, 2000 March 31, 2000
compared with 1999 compared with 1999
------------------ ------------------
General and administrative
expense (18.89)% 9.66%
Interest expense 71.53% 86.68%
Net (loss) 5.48% (1.17)%
In order to become an operating company, PPMC will have to secure
financing of seven and a half million dollars ($7,500,000). Even though PPMC
has limited capital and resources, management believes that because of the
merits of the last word(R) they will be able to secure the required
financing. Currently PPMC is pursuing two avenues of financing, one is by
pre-selling ad space in the last word(R) and the other is private equity
capital. Discussed below are some of the reasons that lead management to
believe they will be successful.
Over the last decade grocery cart advertising has been losing its appeal
as a method of reaching shoppers at the point of purchase. The reason; the
companies that offer advertising on shopping carts only offer the advertiser
a 8.3% coverage on the carts, which cannot compete with other in-store media
that offer 100% coverage. At a lower cost, PPMC is able to offer 100%
coverage on shopping carts. The last word(R) is a friendly type of
advertising that reaches all the shoppers when they are trying to remember
or deciding what to buy, that is when they are open to the power of
suggestion.
Two types of brands that benefit most from the last word(R) are; A) The
mature brand with well developed image and reduced media budget and low A to
S ratio (advertising to sales) and B) The old and new brand early in a new
positioning campaign where top of mind/unaided awareness has not yet reached
targeted levels. In either case, the last word(R) is just the right push at
the right instant to convert new image or old brand equity into additional
dollars.
PPMC has completed putting together sales tools for sales people who are
now attempting to persuade chain stores to rent space on their shopping
carts to PPMC. PPMC has also completed putting together media kits for sales
people in order for them to try and persuade advertisers to purchase, or
commit in advance for, four of the 10 ad spaces in the last word(R) for a
period of one year. To make it more attractive to advertisers to do so, PPMC
is offering the spaces at a substantial discount. Should PPMC be successful
in this approach, PPMC will have more than sufficient capital to start
operations. As of May 8, 2000 no spots were sold and there cannot be any
assurance that PPMC will be successful in doing so.
8
The following "Comparable Rate Analysis" is submitted as support for the
above statement. "At a lower cost, PPMC is able to offer 100% coverage on
shopping carts". Smart Source(R) Carts is PPMC's primary competitor,
therefore, they were used for the purpose of an example.
Comparable Rate Analysis of Smart Source(R) & the last word(R)
News America Marketing-In-Store, Smart Source(R) Cart Rates. Per store
space rates (cost per store including per store production cost) for 1/12th
(8.3%) of advertisers' ads on carts facing the shopper and 1/12th facing
away from the shopper. Assuming that each store has 200 carts, they will
have 17 carts that have an advertisers' ad facing the shopper and 17 that
will be facing away from the shopper.
Smart Source(R) Cart Rates
--------------------------
Tier I National $47.83
Tier II Full market sales with 50% or more of store base $62.83
Tier III Full market sales with less than 50% of store base $66.83
Tier IV Chain Specific or less than full market $70.83
Last Word Management, the last word(R) Cart Rates
The last word(R) is on 100% of the carts. The Cart Rate start at $2.25
(including production costs) per 1,000 checkouts (CPM) and increases to
$3.25. For the purpose of comparison the CPM rate has been converted to a
per store rate using 60,000 checkouts as the average checkouts per month.
The 8.3% percent column is the last word(R) rate (ad on all the carts)
converted to a rate as if the last word(R) were on 8.3% of the carts (as in
Smart Source).
The last word(R), Cart Rates
100% 8.3%
---- ----
Tier I National $135.00 $11.20
Tier II 50% to 100% of National base $165.00 $13.70
Tier III Less than 50% of National base $180.00 $14.94
Tier IV Chain Specific or less than
full market $195.00 $16.98
Smart Source(R) Cart Rates (SS), adjusted upwards as if all ads were on
all the carts facing the shoppers as in the last word(R) (TLW):
SS 100% TLW 100%
------- --------
Tier I $573.96 $135.00
Tier II $753.96 $165.00
Tier III $801.96 $180.00
Tier IV $849.96 $195.00
Source: News America & ActMedia, media information.
Average cost per 1,000 projections for TV media 1995-96. 30 second TV ad
spot $12.00 with a high end cost of over $20.00 for a prime time 30 second
spot on ABC/CBS/NBC affiliates. Source: www.amic.com.
9
Upon starting operations and to maintain a successful advertisement
service program, seven areas of the business and infrastructure will have to
be in place, they are; (1) manufacturing "the last word(R)", (2) stores
willing to rent space to PPMC, (3) advertisers willing to purchase space in
the last word(R), (4) installers to install the last word(R), (5) printer to
print advertisement inserts, (6) maintenance and changing inserts and (7)
competent administrators.
Tooling and Manufacturing will be handled by Jack Burnett through his
company, Tynex Consulting Ltd. Mr. Burnett has over 32 years of experience
in all facets of injection molding and extrusion processes. His
responsibilities will include, but not be limited to R&D, tooling and
subcontracting out the manufacturing (by injection molding and extrusion
processes) on a competitive bid basis.
Marketing will be handled by Chris Culver of Culver and Associates, an
advertising and marketing company. They had Actmedia's (PPMC's competitor)
account when Actmedia was bought out by News Corp. Culver and Associates'
responsibilities will include putting together media kits (for ad agencies,
packaged foods industry and grocery stores) and advertising PPMC's
advantages in the trade journals that reach the packaged foods industry, ad
agencies and grocery retailers.
Advertising sales and chain store operations will be handled by Last Word
Management. John Hall, Dal Brickenden and Clete Thill have over 50 years of
experience in selling and managing advertising and retail operations. LWM's
responsibilities will include selling the ads that go into the last word(R),
installation and maintenance of the last word(R) and the changing of the ad
inserts.
Printing will be handled by established printing companies based on
competitive biding.
Administration will be handled in house by Mrs. E.V. (EV) Arnold, CPA.
Mrs. Arnold has over 20 years of experience in administration in the
government, private and public sectors.
The primary administrative function will be to monitor, evaluate,
supervise and direct the subcontractors. The last word(R) will be warehoused
at a distribution center where the first ad inserts will be inserted into
the last word(R) prior to being sent to the installers.
On September 15, 1998, PPMC entered into an agreement with ITG, LLC, an
Oregon limited liability company. The essence of the agreement was that ITG,
on behalf of PPMC, would rent space on shopping carts from grocery stores,
install and maintain the last word(R) and change the ad inserts.
Subsequently, ITG notified PPMC that they were changing their method of
operations and that they had concerns about being able to fulfill their end
of the agreement. A condition in the agreement for it to become effective,
was for PPMC to make a first payment to ITG. PPMC notified ITG that PPMC was
not going to make the said first payment to ITG. The President of ITG
suggested another party that he believed could fulfill ITG's
responsibilities under the agreement. Representatives of Last Word
Management met with this party, but no agreement was reached. Subsequently,
PPMC amended the contract with Last Word Management wherein the
responsibilities that ITG had undertaken, were taken over by Last Word
Management.
10
Nine Months Ended March 31, 2000 compared to
Nine Months Ended March 31, 1999
General and Administrative Expenses
General and administrative expenses decreased from $318,719 for the nine
months ended March 31, 1999 to $268,083 for the nine months ended March 31,
2000. The Company attributes this decrease primarily to a decrease in sales
related expenses offset, in part, by increases in consulting fees, rent
expense and telephone during the nine month period.
Interest Expense
Interest expense increased from $28,336 for the nine months ended March
31, 1999 to $99,520 for the nine months ended March 31, 2000. The Company
attributes the increase primarily to the increase in borrowings by the
Company to meet overhead expenses and the valuation of common stock warrants
in connection with the sale of the Company's common stock.
Three Months Ended March 31, 2000 compared to
Three Months Ended March 31, 1999
General and Administrative Expenses
General and administrative expenses increased from $93,309 for the three
months ended March 31, 1999 to $103,292 for the three months ended March 31,
2000. The Company attributes this increase primarily to an increase in
consulting fees, professional fees and rent expense offset, in part, by
decreases in sales related expenses.
Interest Expense
Interest expense increased from $9,498 for the three months ended March
31, 1999 to $71,297 for the three months ended March 31, 2000 due to the
reasons outlined in the nine month analysis.
11
PART II. Other Information
Item 1. Legal Proceedings
Bolton V. Purchase Point Media Corp. et al (San Diego Superior Court case
number 728268). This is a lawsuit filed by an individual who alleges that
pursuant to an agreement with Purchase Point Media Corp. he is owed 50,000
shares of its stock. Said allegation is denied by PPMC and the lawsuit is
being vigorously defended. Although Purchase Point Media Corporation fully
expects to prevail in this matter, a judgement in Mr. Bolton's favor would
have an insignificant financial effect on PPMC.
PPMC is not a party to any other litigation nor is its property the
subject of any pending legal proceeding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3.1 Certificate of Incorporation
Exhibit 27.1 Financial Data Schedule.
(b) There were no Current Reports on Form 8-K filed by the registrant
during the quarter ended March 31, 2000.
12
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.
Dated: May 12, 2000
PURCHASE POINT MEDIA CORPORATION
By: /s/ Albert P. Folsom
--------------------
Albert P. Folsom
President and Chief Executive Officer
13