UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2004
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: 000-50159
IMEDIA INTERNATIONAL, INC.
--------------------------------------------------------
(Name of small business issuer in its charter)
DELAWARE 56-2428786
- -------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1721 21st STREET, SANTA MONICA, CA 90404
------------------------------------------------------
(Address of principal executive offices)
(310) 453-4499
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Issuer's Telephone Number
------------------------------------------------------
(Former address, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 [ ]
As of September 30, 2004 the Registrant had 65,512,913 shares of common stock
outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS................................................3
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........13
ITEM 3: CONTROLS AND PROCEDURES............................................28
PART II: OTHER INFORMATION
ITEM 1: LEGAL..............................................................28
ITEM 2: CHANGES IN SECURITIES..............................................29
ITEM 3: DEFAULTS UPON SENIOR SECURITIES....................................29
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................29
ITEM 5: OTHER INFORMATION..................................................30
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K...................................32
SIGNATURES..................................................................33
CERTIFICATIONS..............................................................34
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
IMEDIA INTERNATIONAL,INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
SEPTEMBER 30, DECEMBER 31,
2004 2003
-------------- -------------
ASSETS (unaudited)
CURRENT ASSETS
Cash $ 808,943 $ 813,189
Accounts receivable 346,330 -
Supplies inventory 34,550 71,056
Prepaid expense 38,283 3,397
-------------- -------------
Total current assets 1,228,106 887,642
PROPERTY AND EQUIPMENT, NET 86,277 51,833
INVESTMENTS 2,196,912 -
-------------- -------------
Total Assets $ 3,511,295 $ 1,076,139
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 581,636 $ 159,171
Due to Affiliate 108,003 285,472
Notes payable 603,934 12,863
-------------- -------------
Total current liabilities 1,293,573 457,506
-------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value,
authorized 20,000,000 shares;
none outstanding - -
Common stock, $0.001 par value,
authorized 500,000,000 shares;
65,512,913 issued and outstanding 65,512 59,183
Subscriptions receivable (530,000) (680,000)
Common stock committed, 530,000, shares 580,000 691,520
Deferred compensation (2,373) -
Capital in excess of par value 9,121,034 4,185,230
Accumulated deficit (7,016,451) (3,637,300)
-------------- -------------
Total shareholders' equity 2,217,722 618,633
-------------- -------------
Total liabilities and equity $ 3,511,295 $ 1,076,139
============== =============
The accompanying notes are an integral part of these financial statements.
3
IMEDIA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended SEPTEMBER 30, 2004 and 2003.
(unaudited)
=============================================================================
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
------------ ------------ ------------- ------------
Net sales $ 756,794 $ 118,500 $ 1,681,969 $ 156,000
Cost of sales 668,000 145,558 1,439,109 177,969
------------ ------------ ------------- ------------
Gross Income 88,794 (27,058) 242,860 (21,969)
Operating expenses 996,971 916,048 2,924,300 1,483,927
Operating expenses
- related Parties 121,500 - 364,500 850,173
------------ ------------ ------------- ------------
Loss from operations (1,029,677) (943,106) (3,045,940) (2,356,069)
Interest expense 235,767 211 330,811 722
------------ ------------ ------------- ------------
Loss before provision
for income taxes (1,265,444) (943,317) (3,376,751) (2,356,791)
Provision for income taxes - - 2,400 800
------------ ------------ ------------- ------------
Net Loss $(1,265,444) $ (943,317) $ (3,379,151) $(2,357,591)
============ ============ ============= ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.02) $ (0.02) $ (0.06) $ (0.05)
============ ============ ============= ============
WEIGHTED AVERAGE COMMON
OUTSTANDING SHARES
Basic and diluted 61,154,390 55,905,748 60,357,274 52,224,607
============ ============ ============= ============
The accompanying notes are an integral part of these financial statements.
4
IMEDIA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended SEPTEMBER 30, 2004 and 2003.
(unaudited)
SEPTEMBER 30, SEPTEMBER 30,
2004 2003
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,379,151) $ (2,357,591)
Adjustments to reconcile net loss to net
cash used in operating activities
Interest on fixed conversion feature 311,358 -
Depreciation 33,504 17,394
Reserve for collection of receivable
due from affiliate - 850,173
Non-cash stock compensation 129,307 -
Non-cash warrants/options compensation 339,766 -
Increase in accounts receivable (346,330) 37,500
Increase in other assets - (7,500)
Increase in prepaid expenses (34,886) -
Decrease in inventory 36,505 -
Increase in accounts payable 422,466 96,487
Increase in committed stock 50,000 -
Increase in deferred compensation (2,373) -
-------------- -------------
Net cash used in operating activities (2,439,834) (1,363,537)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (53,954) (71,196)
Due from Affiliates & Associated Companies (net) (40,805) (460,173)
-------------- -------------
Net cash used in investing activities (94,759) (531,369)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (250,000) -
Payments on notes payable - related parties (14,254) (325,000)
Proceeds from notes payable - related parties 1,391 7,500
Proceeds from notes payable 1,380,000 -
Proceeds from collections of common stock
subscriptions 370,000 -
Proceeds from issuance of common stock 1,228,000 2,568,946
Offering Costs paid on issuance of common stock (184,790) (89,999)
-------------- -------------
Net cash provided by financing activities 2,530,347 2,161,447
-------------- -------------
Net Change in Cash (4,246) 266,541
Cash, beginning of Period 813,189 -
-------------- -------------
Cash, end of Period $ 808,943 $ 266,541
============== =============
Supplemental disclosures of cash flow information
Income taxes paid $ 2,400 $ 800
============== =============
5
IMEDIA INTERNATIONAL INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
=============================================================================
1. ORGANIZATION
Pursuant to an Agreement and Plan of Merger dated as of August 18, 2003 (the
"Merger Agreement"), a wholly-owned subsidiary of the Company's corporate
predecessor, Irvine Pacific Corporation ("IPC") merged with and into Hollywood
Previews, Inc. ("HPI"), on August 29, 2003, resulting in HPI becoming a
wholly-owned subsidiary of IPC (the "Acquisition").
As consideration for the Acquisition, the shareholders of HPI were issued
55,179,581 shares of IPC common stock which, immediately following the
Acquisition, represented 96.18% of the issued and outstanding common stock of
IPC (after giving effect to the conversion of all of IPC's outstanding notes
immediately prior to the Acquisition). Although HPI became a wholly-owned
subsidiary following the Acquisition, because the transaction resulted in a
change of control, the transaction was recorded as a "reverse merger" whereby
HPI is considered to be the accounting acquirer of the Company. Immediately
prior to the Acquisition IPC had only nominal assets and liabilities and no
current business operations.
Effective November 25, 2003, IPC completed a statutory merger effected for the
purpose of changing its state of incorporation from Colorado to Delaware by
merging into a newly formed Delaware corporation, iMedia International, Inc.
(the "Company"). This change in IPC's state of incorporation and corporate
name was approved by the holders of a majority of IPC's outstanding shares of
common stock at a special meeting of shareholders on November 21, 2003.
As a result of the reincorporation merger, each outstanding share of IPC's
common stock was automatically converted into one share of Company common
stock. Each stock certificate representing issued and outstanding shares of
IPC's common stock continues to represent the same number of shares of common
stock of the Company. The Company continues to operate the business of IPC,
and the reincorporation did not result in any change in IPC's former business,
assets or liabilities, did not cause the Company's headquarters to be moved,
or result in any relocation of management or other employees.
At the time of the Acquisition HPI held an exclusive license from iPublishing,
Inc. ("iPublishing"), an affiliate of the Company, to use iPublishing's
intellectual property (the "License"). iPublishing's three shareholders, David
MacEachern, Scott Kapp and Franklin Unruh (each of whom own approximately 33%
of the outstanding securities of iPublishing), are each officers and directors
of the Company. Pursuant to the License, iPublishing receives annual
royalties of 5% of Gross Margin generated by disks produced by the Company
using iPublishing technology. Because the License is exclusive, iPublishing
may not license or assign any of its intellectual property to any other party
and may not compete with the Company. It is the Company's intention to
permanently acquire all of iPublishing's intellectual property at some point
in the future when operations and revenue have stabilized. In connection with
the exclusive license, HPI purchased all of iPublishing's property and
equipment, which iPublishing had previously purchased from one of its
shareholders and officers. The purchase transaction has been accounted for at
the carry-over basis of the assets at which they were obtained by the
shareholder/officer of iPublishing. HPI has since transferred the exclusive
license to its parent, the Company. The
6
intellectual property covered by the License consists of various proprietary
procedures, codes, technologies, copyrights, trademarks and brands, along with
the proprietary suite of mastering software used to create our CD-ROM and
DVD-ROM products.
As a result of the Acquisition, the Company became a publisher of interactive,
digital, and multimedia publications on CD-ROM. The Company markets and
produces a variety of special edition digital publications and custom
promotional discs for various corporate clients. We also distribute Hollywood
Previews(TM) Entertainment iMagazine(TM), an interactive digital magazine
(also called an iMagazine) on CD-ROM that features movie previews, video
games, and television previews, plus interviews with stars, behind the scenes
videos, music soundtracks and music videos, Hollywood fashion and style, and
other entertainment news. Hollywood Previews(TM) Entertainment iMagazine(TM)
is used primarily to showcase the Company's proprietary digital publishing
system capabilities. The Company's publications are distributed in a variety
of methods including insertions in major metropolitan newspapers, insertions
in major magazines and periodicals, hand-outs using targeted street teams, at
movie theater box offices, in back-end fulfillment and packaging, or via
direct mail to consumers.
The majority of our revenues to date have been generated from the sale of
custom publications and special edition discs. We continue to pursue the
procurement of paid advertising sponsorships, licensing, content placements,
and e-commerce fees from Hollywood Previews(TM) Entertainment iMagazine(TM).
We also intend to begin sales efforts of our proprietary data and Usage Report
that monitors the navigation and use of Hollywood Previews(TM) Entertainment
iMagazine(TM) by its audience.
The Company is a holding company doing business through various operating
subsidiaries. We formed iMedia US, LLC, a California limited liability
company on December 24, 2003 to serve as our primary operating unit.
7
Combined Financial Statements - Footnote
The pro-forma impact of HPI, the predecessor company, on the consolidated
results of operations of the Company, for the three months and nine months
ended September 30, 2003 would be as follows:
For the three months ended September 30,2003
Affiliated Combining Combined
As Reported Group Entries Basis
----------- ---------- ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Revenue $ 118,500 $ 247,858 $ (176,331) $ 190,027
Expenses 1,061,606 (293,529) 176,331 591,746
----------- ----------- ----------- ------------
(Loss)income from
operations (943,106) 541,387 - (401,719)
Other expense 211 6,456 - 6,667
----------- ----------- ----------- ------------
(Loss) income before
provision for
income taxes (943,317) 534,931 - (408,386)
Provision for
income taxes - - - -
----------- ----------- ----------- ------------
Net(loss) income $ (943,317) $ 534,931 $ - $ (408,386)
=========== =========== =========== ============
For the nine months ended September 30, 2003
Affiliated Combining Combined
As Reported Group Entries Basis
----------- ----------- ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Results of operations
Revenue $ 156,000 $ 533,983 $ (176,331) $ 513,652
Expenses 2,512,069 (407,444) 176,331 1,928,294
----------- ----------- ----------- ------------
(Loss)income from
operations (2,356,069) 941,427 - (1,414,642)
Other expense 722 69,157 - 69,879
----------- ----------- ----------- ------------
(Loss) income before
provision for
income taxes (2,356,791) 872,270 - (1,484,521)
Provision for
income taxes 800 1,600 - 2,400
------------ ----------- ----------- ------------
Net(loss) income $(2,357,591) $ 870,670 $ - $(1,486,921)
============ =========== =========== ============
The accompanying notes are an integral part of these financial statements.
8
2. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Although revenues continue to
increase on a quarter-to-quarter basis, we continue to be highly dependent on
equity and debt financing to make up for operating shortfalls. These factors
raise substantial doubt about our ability to continue as a going concern.
Additional financing will be required in order for the Company to continue
operations. Management believes it will be able to obtain such financing from
new investors by the sale of equity, debt or convertible debt through various
private placements. However, the Company can provide no assurance that it
will be able to obtain such financing, or that the terms of any such financing
will be favorable to the Company.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The consolidated financial information as of September 30, 2004 and for the
nine and three months ended September 30, 2004 has not been audited and
reflects all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of the financial position,
operating results, and cash flows for such periods. The consolidated results
of operations for the nine and three months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for any future
period. These financial statements should be read in conjunction with our
financial statements in the Company's Form 10-KSB for the year ended December
31, 2003.
Basis of Presentation
The consolidated financial statements of iMedia International, Inc. include
the accounts of the Company and its wholly owned subsidiaries iMedia US, LLC
and HPI. All inter-company accounts and transactions have been eliminated in
consolidation.
Dissolution of Subsidiaries
The Company's majority owned subsidiaries Las Vegas Previews, LLC and
iPolitix, LLC had no operations for the nine months ended September 30, 2004,
and these entities have been dissolved.
Revenue Recognition
Revenue is generated mainly through the sale and licensing of interactive,
digital and multimedia publications and is recognized in various stages as the
product, usually either a CD-ROM or DVD, is produced (pre-production), a gold
master is approved by the customer (delivery), and when product is shipped to
the customer or distributed to the public (fulfillment), provided that the
following conditions of sale as established by the Securities and Exchange
Commission's Staff Accounting Bulleting ("SAB") No. 104, are satisfied:
9
. Persuasive evidence of an arrangement exists,
. Delivery has occurred or services have been rendered,
. The seller's price to the buyer is fixed or determinable, and
. Collectibility is reasonably assured.
Loss per Common Share
We have adopted the Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share", which established standards for computing and
presenting earnings per share (EPS). The statement simplifies the standards
for computing EPS, replaces the presentation of primary EPS with a
presentation of basic EPS and requires a dual presentation of basic and
diluted EPS on the face of the income statement. Basic EPS are based upon the
weighted average number of common shares outstanding during the period.
Diluted EPS are based upon the weighted average number of common shares as if
all dilutive potential common shares had been outstanding. There were no
dilutive potential common shares outstanding as of September 30, 2004.
The following potential common shares have been excluded from the computation
of dilutive net loss per share for all periods prescribed because the effect
would have been anti-dilutive
For the 9 months ended For the 3 months ended
September 30 September 30
2004 2003 2004 2003
----------- ----------- ----------- ------------
Warrants or options issued for:
- - offering costs 79,250 - 35,100 -
- - services rendered 836,816 - 421,625 -
- - convertible notes payable 1,541,000 - 1,241,000 -
Estimates
The preparation of financial statements in accordance 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations and Uncertainties
We do not believe that in the near future our earnings from sales to customers
will be over concentrated to any one or to only a few customers. The Company's
business plan calls for sales to a wide variety of customers and in a wide
variety of interests. The Company's receivables outstanding at September 30,
2004 have subsequently been paid.
10
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2004 consisted of the following:
Equipment 248,812
Less accumulated depreciation 162,535
-----------
Total $ 86,277
===========
5. LINES OF CREDIT
In March 2004, we cancelled a line of credit with a financial institution in
the amount of $30,000. The Company presently has no additional open lines of
credit.
6. CONVERTIBLE NOTES PAYABLE
On April 22, 2004 we closed on a short-term convertible note payable to
Augustine Fund, LLP. We borrowed the amount of $250,000 payable in 90-days.
The Note bore interest of 8% APR, compounded monthly. As an incentive to make
the loan, Augustine Fund was issued a 3-year warrant to purchase up to 50,000
shares at $1.00 per share and a second one-year warrant to purchase up to
250,000 additional common shares at the same price. Pursuant to the terms of
the Note, the Company had the right to repay the note at any time subject to a
10-day option to convert the Note into 250,000 shares of our Common Stock. We
also had the right to extend the note for one additional 90-day period in its
discretion. However, if we elected to extend the note (a) the conversion
price of the Note would have been discounted 50% in favor of Augustine so that
upon conversion, Augustine would receive 500,000 common shares and (b)
Augustine would receive a third three-year "penalty warrant" to purchase
325,000 shares of common stock at $1.00 per share.
In accordance with generally accepted accounting principles, the difference
between the conversion price and the Company's stock price on the date of
issuance of the Note to Augustine is considered to be interest expense. It
will be recognized in the statement of operations during the period from the
date of issuance of the note to the time at which the note matures. During the
nine months ended September 30, 2004, the Company recorded $54,026 as a debt
discount and recognized $54,026 in interest expense related to the accretion
of the debt discount.
The warrants issued to Augustine entitle Augustine to purchase 300,000 shares
of the Company's common stock at $1.00 per share, and it expires in a range of
one to three years from the date of issuance. The Company allocates the
proceeds received from debt or convertible debt with detachable warrants using
the relative fair value of the individual elements at the time of issuance.
The amount allocated to the warrants as a debt discount was calculated at
$54,026 and was recognized as interest expense over the period until the notes
matured. During the nine months ended September 30, 2004, the Company
recognized $54,026 in interest expense related to the accretion of the debt
discount.
In July, 2004, the Company exercised its option to repay the Note and
Augustine elected not to convert. The principal amount of the Note, plus
$5,000 in interest was paid by the Company on July 20, 2004 and no penalty
warrants were issued. The remaining interest related to the difference between
the Company's stock price and the conversion price and the warrants
was recognized on that date.
11
On September 1, 2004 we closed on a two short-term convertible notes payable
to MicroCapital Fund, LP and MicroCapital Fund LTD (separately and
collectively "Lenders"). We borrowed the aggregate amount of $1,000,000
payable to Lenders in 120-days. The Note bares simple interest of 15% APR. As
an incentive to make the loan, Lenders were issued 5-year warrants to purchase
up to the aggregate of 1,111,000 shares of common stock at $0.90 per share.
Pursuant to the terms of the Notes, the Company has the right to repay the
note at maturity, or Lenders may exercise an option to convert any portion of
the notes into common shares at the price of $0.60 per share up to a maximum
of 1,666,666 common shares. We also have the right to force conversion at the
price of $0.20 per share, or 5,000,000 shares subject to the Company meeting
certain required disclosure conditions.
In accordance with generally accepted accounting principles, the difference
between the conversion price and the Company's stock price on the date of
issuance of the Note to Lenders are considered to be interest expense. It will
be recognized in the statement of operations during the period from the date
of issuance of the note to the time at which the note matures. During the
quarter ended September 30, 2004, the Company recorded $464,140 as a debt
discount and recognized $116,035 in interest expense related to the accretion
of the debt discount.
The warrants issued to Lenders entitle them to purchase 1,111,000 shares of
the Company's common stock at $0.90 per share. The warrants expire in five
years from the date of issuance. The Company allocates the proceeds received
from debt or convertible debt with detachable warrants using the relative fair
value of the individual elements at the time of issuance. The amount
allocated to the warrants as a debt discount was calculated at $247,473 and
will be recognized as interest expense over the period until the notes mature
or are converted. During the quarter ended September 30, 2004, the Company
recognized $61,868 in interest expense related to the accretion of the debt
discount.
We expect to either repay the notes upon maturity, or to request the Lenders
to exercise their option to convert into common shares. We do not expect to
exercise our option to force conversion, as the terms are unfavorable to the
Company.
Loans Made by Related Parties
On July 20, 2004, we closed on three short-term loans totaling $130,000.
These loans were made to the Company by parties related to the Company and/or
its officers or directors. The Company issued a promissory note to each
lender. Each note had identical terms and conditions, although the note
amounts varied. The notes have a term of 90-days and bear interest at 8%
annually. In addition, a total of 130,000 two-year warrants, convertible to
common stock at the price of $0.50 per share were issued to the lenders as an
incentive to make the loans. The loans have since been extended at the same
terms, for an additional 90-days.
The amount allocated to the warrants as debt discount was calculated at
$31,753. During the quarter ended September 30, 2004, the Company recognized
$25,403 in interest expense related to the accretion of the debt discount.
12
7. COMMITMENTS - RENT
We lease office facilities on a month-to-month basis. Rent expense amounted
to $29,250 for the nine months ended September 30, 2004 and $29,250 for the
nine months ended September 30, 2003.
8. SHAREHOLDERS' EQUITY
Common Stock Subscriptions
During the nine months ended September 30, 2004 we received subscriptions of
$1,228,000 for the purchase of 1,228,000 shares of common stock from
accredited investors through a private placement dated March 18, 2004.
In addition, $370,000 was received from the prior year's subscriptions
receivable.
Common Stock issued to Subscribers of a Previous Private Placement
We issued an additional 408,993 shares to investors who participated in a
previous private placement dated September 2, 2003. The shares were issued to
compensate for the difference between the amount paid by these prior
subscribers and the amounts paid by subscribers of a subsequent private
placement dated March 18, 2004, who purchased shares at a price-per-share
lower than that of the previous offering.
Langley Park Investment Trust
On September 30, 2004, we closed on a Stock Purchase Agreement with Langley
Park Investments LLP, a London-based institutional investment trust. Langley
Park purchased 4,000,000 of the Company's common shares at the price of $1.90
per share. In lieu of cash, Langley issued to the Company 4,185,022 of its
common shares at 1.00 British Pound Sterling per share (1.00 British Pound
Sterling = US $1.81 on August 5, 2004). These shares become free-trading on
the London Stock Exchange (LSE) on October 8, 2004 and opened at 0.31 British
Pound Sterling per share. On September 30, 2004, we booked the corresponding
value of these shares as an asset on our financial statements in the amount of
$2,312,539. The asset value was calculated by multiplying the number of the
Langley Shares by the first opening trade as reported on the LSE, multiplied
by the U.S. dollar to British Pound Sterling exchange rate on September 30,
2004 (4,185,022 X 0.31 British Pound Sterling X $1.7825 = $2,312,539).
We intend to use the Langley shares either to collateralize and drawn-down on
a bank line of credit, to take out the MicroCapital Fund(s) loans, and/or
begin progressive liquidation of the shares through the LSE in the secondary
market.
The Langley Park shares are registered as a Unit Investment Trust on the LSE.
The trading symbol for the shares is LSE:LPI. The shares are quoted in
British Pound Sterling. The investment trust consists of a portfolio of
common stock of 23 U.S. publicly-traded microcap companies. Langley Park must
hold, and cannot sell, short or hedge against its portfolio for a period of
two years. One-half of the free-trading Langley Park shares paid to iMedia
and the 22 other portfolio companies is being held in an escrow account as
downside protection for the trust in the case that any of the portfolio
companies should lose market value. At the end of the two-year restriction
period, the escrowed shares are either returned to the Company, or a portion
or all of the escrowed shares are returned to the trust to adjust for any
market loss. If, at the end of the two-year period, the trading price of
iMedia shares falls below $0.95c, all the escrowed Langley
13
shares will be lost. If, however, the trading price of iMedia shares is more
than $0.95c but less than $1.90c, only a proportionate amount of escrowed
shares will be lost.
As of period ending September 30, 2004, the Langley Park Investment Trust had
a net asset value for its underlying portfolio of 75,594,388 British Pound
Sterling or US$136,069,898. (1.00 British Pound Sterling = US $1.80 on
September 8, 2004). Assuming that the Downside Protection or "claw-back
rights" had been exercised, this would represent a Net Asset Value per share
of 1.15 British Pound Sterling or US$2.07. However, the trust will
traditionally trade at a discount to its net asset value. The Langley Trust
is also extremely susceptible to market conditions affecting small companies,
specifically (1) the oversupply of stock by sellers (portfolio companies)
looking to raise capital through liquidation of their shares at unrealistic
discounts, and (2) the general lack of liquidity for the common shares of the
underlying portfolio companies. The discount has been substantially greater
that we initially anticipated. Since the first day of trading began on
October 8th, the fair market value of the shares has varied between British
Pound Sterling 0.22 and British Pound Sterling 0.40 per share. This
represents a discount to the net asset value of the trust's underlying
portfolio of 78% to 60%. Considering that downside risk to a purchaser is
hedged by approximately 50%, we do not feel that the FMV as evidenced by the
market price accurately represents the real value of this asset. However,
under GAAP rules, we are obligated to book the initial value of this asset
using the FMV of the shares as reported by the LSE. It is anticipated that
once initial selling by portfolio companies has subsided and additional
institutional buyers have been brought into the market, the FMV of the shares
will increase to a level better representing the net asset value of the
trust's underlying portfolio. Should and when this occurs, under GAAP we may
have to continue reporting the value of this asset based upon the
radically-discounted initial valuation regardless of any escalation in market
price of the Langley Shares. Any increase in FMV would have to be evidenced
on a fifth financial statement and reflected as "unrealized gains or losses"
on this investment.
We paid a non-cash commission to an investment banker consisting of 209,251
Langley Park shares valued at $115,627 (209,251 x 0.31 British Pound Sterling
X $1.7825), and an additional 200,000 shares of our common stock booked at
FMV, and valued at $146,000 (200,000 X $0.73) for this transaction. The
Langley Park shares commission of $115,627 is netted against the Langley Park
investment of $2,312,539. The net asset value of the Langley Park investment
as of September 30, 2004 is $2,196,912.
The Company accounts for this investment in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments be classified as "held-to-maturity,"
"available-for-sale," or "trading securities" as defined. The Company
classifies this investment as "available for sale." Securities
available-for-sale are reported at their fair market value, and unrealized
gains and losses are reflected as a separate component of shareholders'
equity. Trading securities are reported at their fair market value, and
unrealized gains and losses are reflected in income. As this investment was
purchased on September 30, 2004, there are no unrealized gains and losses as
of this date.
Common Stock issued for Services
During the nine months ended September 30, 2004, we issued a total of 184,325
restricted shares for services rendered.
Issued securities include:
. 15,000 shares issued to a consultant - 12,000 shares for services
rendered and expensed during 2003 and 3,000 shares for services rendered
during the three month period ended March 31, 2004, valued at $15,000.
14
. 10,000 restricted shares issued to another consultant for services
rendered during the three month period ended March 31, 2004, valued at
$10,000.
. 114,325 shares issued to consultants for services rendered and expensed
during 2003 and 2004, valued at $83,457.
. 45,000 restricted shares issued to another consultant for services
rendered during the three month period ended September 30, 2004, valued
at $32,850. This expense is to be recognized over the term of the
services and as such $16,225 is recorded as a prepaid expense at
September 30,2004.
9. WARRANTS AND OPTIONS
During the nine months ended September 30, 2004, the Company:
. issued options to purchase 415,191 shares of the Company's common stock
to third parties for consulting services. The Company issued these
options at exercise prices between $0.10 - $1.75 per share, with terms
expiring in two to three years. The options had a calculated value of
$267,771 of which $2,373 will be recognized in a future period and is
currently recorded as a deferred compensation equity account.
. issued options to purchase 271,625 shares of the Company's common stock
to third parties for consulting services. The Company issued these
options at an exercise price of $1.00 per share, with terms expiring in
two years. The options had a calculated value of $37,321 which was
recognized in the current period.
. issued warrants to purchase 325,100 shares of the Company's common stock
to third parties at exercise prices between $0.90 - $1.25 per share,
with terms expiring in two to five years. The warrants had a calculated
value of $67,891 of which $66,887 was for consulting services and is
recognized in the current period. The balance of $1,004 was recorded as
offering costs in the equity accounts.
. issued warrants to purchase 30,000 shares of the Company's common stock
to the Shemano Group at an exercise price of $0.90 per share, with a
term expiring in five years. The warrants had a calculated value of
$8,880 of which $8,880 was recorded as offering costs in the equity
accounts. In addition a $70,000 Finder's Fee was paid to The Shemano
Group and recorded as offering costs in the equity accounts.
10. EXECUTIVE COMPENSATION PAID TO AN AFFILIATE
In lieu of salary to three executive officers for the nine-month period ended
September 30, 2004, we paid iPublishing, Inc. the amount of $364,500 and
recorded these payments as management compensation expense.
11. RELATED PARTY TRANSACTIONS
Notes Payable
A $7,500 Unsecured Note payable at December 31, 2003, payable to an officer,
due on demand, was repaid on March 18, 2004. The on-demand note carried no
interest.
15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
Certain statements contained in this Quarterly Report on Form 10-QSB, and
other written and oral statements made by us from time to time are not based
strictly on historical facts but are considered "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Words such
as "anticipate," "believe," "could," "estimate," "expect," "forecast,"
"intend," "may," "plan," "possible," "project," "should," or "will," or
similar words or expressions, are intended to identify forward looking
statements. This forward-looking information involves important risks and
uncertainties that could materially alter results in the future from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Such forward-looking statements are predictions by their nature.
Actual events or results may differ materially and there are a variety of
factors that could cause results to differ materially, including those factors
described below. It is not possible to foresee or identify all factors
affecting our forward-looking statements and any list of such factors cannot
be exhaustive. We are under no duty to update any forward-looking statements.
OVERVIEW
Pursuant to an Agreement and Plan of Merger dated as of August 18, 2003 (the
"Merger Agreement"), a wholly-owned subsidiary of the Company's corporate
predecessor, Irvine Pacific Corporation ("IPC") merged with and into Hollywood
Previews, Inc. ("HPI"), on August 29, 2003, resulting in HPI becoming a
wholly-owned subsidiary of IPC (the "Acquisition").
As consideration for the Acquisition, the shareholders of HPI were issued
55,179,581 shares of IPC common stock which, immediately following the
Acquisition, represented 96.18% of the issued and outstanding common stock of
IPC (after giving effect to the conversion of all of IPC's outstanding notes
immediately prior to the Acquisition). Because the Acquisition resulted in a
change of control of IPC, the Acquisition was accounted for as a
recapitalization of HPI, pursuant to which the accounting basis of HPI
continued unchanged subsequent to the Acquisition date. Accordingly, the
pre-Acquisition financial statements of HPI became the historical financial
statements of IPC. Immediately prior to the Acquisition IPC had only nominal
assets and liabilities and no current business operations.
Effective November 25, 2003, IPC completed a statutory merger effected for the
purpose of changing its state of incorporation from Colorado to Delaware by
merging into a newly formed Delaware corporation, iMedia International, Inc.
(the "Company"). This change in IPC's state of incorporation and corporate
name was approved by the holders of a majority of IPC's outstanding shares of
common stock at a special meeting of shareholders on November 21, 2003.
16
As a result of the reincorporation merger, each outstanding share of IPC's
common stock was automatically converted into one share of Company common
stock. Each stock certificate representing issued and outstanding shares of
IPC's common stock continues to represent the same number of shares of common
stock of the Company. The Company continues to operate the business of IPC,
and the reincorporation did not result in any change in IPC's former business,
assets or liabilities, did not cause the Company's headquarters to be moved,
or result in any relocation of management or other employees.
HPI holds an exclusive license from I-Publishing, Inc. ("I-Publishing"), an
affiliate of the Company, to use I-Publishing's intellectual property (the
"License"). I-Publishing's three shareholders, David MacEachern, Scott Kapp
and Franklin Unruh (each of whom own approximately 33% of the outstanding
securities of I-Publishing), are each officers and directors of the Company.
Pursuant to the License, I-Publishing receives annual royalties of 5% of Gross
Margin generated by discs produced by the Company using I-Publishing
technology. Because the License is exclusive, I-Publishing may not license or
assign any of its intellectual property to any other party and may not compete
with the Company. It is the Company's intention to permanently acquire all of
I-Publishing's intellectual property at some point in the future when
operations and revenue have stabilized.
BUSINESS
As a result of the Acquisition, the Company became a publisher of interactive,
digital, and multimedia publications on CD-ROM. The Company markets and
produces a variety of special edition digital publications and custom
promotional discs for various corporate clients. We also distribute Hollywood
Previews(TM) Entertainment iMagazine(TM), an interactive digital magazine
(also called an iMagazine) on CD-ROM that features movie previews, video
games, and television previews, plus interviews with stars, behind the scenes
videos, music soundtracks and music videos, Hollywood fashion and style, and
other entertainment news. Hollywood Previews(TM) Entertainment iMagazine(TM)
is used primarily to showcase the Company's proprietary digital publishing
system capabilities. The Company's publications are distributed in a variety
of methods including insertions in major metropolitan newspapers, insertions
in major magazines and periodicals, hand-outs using targeted street teams, at
movie theater box offices, in back-end fulfillment and packaging, or via
direct mail to consumers.
A significant intellectual property, and a key component to our business is
the Company's proprietary iReporting, real-time measurement and reporting
software. iReporting allows the company to track user navigation and usage.
This allows the company to generate real-time reports that accurately
determines how many people actually viewed each disk, how long they spent
viewing certain ads or commercials and what was the most or least popular
content. Using this system, we can also generate a substantial amount of data
on viewer's habits, likes, dislikes and begin building powerful demographic
and psychographic profiles.
The majority of revenues to date have been generated from the sale of custom
publications and special edition discs. We continue to pursue the procurement
of paid advertising sponsorships, licensing, content placements, and
e-commerce fees for Hollywood Previews(TM) Entertainment iMagazine(TM). We
also intend to begin sales efforts of our proprietary "Usage Reports"
generated with our iReporting technology.
Custom Discs
A major portion of our time and resources has been spent developing special
edition and custom interactive publications for a variety of industries and
corporate clientele. The majority of revenues to date have been generated
from the sale of such custom publications and special edition discs.
17
We believe that the custom disc market will constitute a major part of our
future revenues. We intend to continue to develop custom discs for a variety
of industries, including discs addressing topics such as sports, travel,
reference and medical information. We also intend to expand distribution of
our custom discs by expanding our lines of distribution, including utilizing
direct mail, catalogues and third-party fulfillment companies.
Hollywood Previews(TM) Entertainment iMagazine(TM).
We continue to publish Hollywood Previews(TM) Entertainment iMagazine and use
this publication to showcase our proprietary digital publishing system.
During the nine months ended September 30, 2004, we produced a two limited
edition Hollywood Previews(TM) Entertainment iMagazines(TM). The products
were distributed primarily in the Los Angeles, CA market and targeted to
entertainment and direct response industry insiders. A majority of the
content of our Hollywood Previews(TM) Entertainment iMagazine(TM), including
theatrical movie trailers and other material such as press releases,
behind-the-scenes footage, video clips, celebrity interviews and other
promotional media, is provided to us directly by film studios and other
sources.
As a magazine, we have not yet been able to achieve profitability in the
publication of this product, but we continue to pursue the procurement of paid
advertising sponsorships, licensing, content placements and e-commerce fees
for the product. We do however continue to use Hollywood Previews as the
basis for a variety of custom promotional discs for specific corporate
clients. Because these custom discs are fully sponsored, each of these
special-edition projects are profitable, with an average margin of 14% gross
profit. We will continue to publish Hollywood Previews(TM) Entertainment
iMagazine(TM) on a quarterly basis as a showcase for our technology and
production capabilities.
Strategic Distribution Partners
We are continuing to forge relationships with major direct response marketing
companies and publishers of newspapers and magazines for strategic
distribution of our discs. We are working closely with these clients to
develop a series of interactive, digital enhancements that will serve as
digital supplements to their products and publications.
Revenue Sharing with Partnering Publishers
For certain strategic partners, we are implementing a revenue sharing program
that will allow us to participate in a portion of the combined sponsorship
revenues, or from back-end product sales. We continue to form relationships
with these clients for the development of new disc programs to be integrated
into their publications, or distributed in packages shipped to consumers
purchasing their products. Some of these relationships involve revenue
sharing programs that could provide the Company with additional profit and
revenues. These partnerships have been not yet been formalized or
implemented. In order to implement these programs with print publishers, we
may be required to subsidize a portion of the costs involved in producing
discs for these programs. It is anticipated that revenue shortfalls that will
occur until such time as these newspapers and publishers can fully-integrate
the sale of our digital media products with their existing print sales force,
advertisers and sponsors.
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Major Customers and Suppliers
We continue to expand and diversify our customer and marketing base so as to
reduce the risk associated with sales concentration on any one or group of
clients or markets. Currently a substantial portion of our revenues come from
promotional discs for the television and direct response markets. It is
anticipated that over the succeeding quarters, our customer base will become
more broadly diversified as we begin marketing efforts directed at sports,
travel and the life science industries.
We continue to be dependent upon third party suppliers for the manufacturing
of our goods and products. Presently we outsource our disc manufacturing and
printing to a variety of vendors in strategic geographic areas. Printing and
disc manufacturing is a commodity industry, and should it be necessary, these
suppliers can be easily replaced without detrimentally affecting to the
Company.
ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principals generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to customer programs, bad debts, income taxes, and
contingencies and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements.
Allowance for Doubtful Accounts - We maintain allowances for doubtful accounts
for estimated losses from the inability of our customers to make required
payments. If the condition of our customers were to deteriorate, resulting in
the impairment of their ability to make payments, additional allowances may be
required.
Revenue Recognition - Revenue is generated mainly through the sale and
licensing of interactive, digital and multimedia publications and is
recognized in various stages as the product, usually either a CD-ROM or DVD,
is produced (pre-production), a gold master is approved by the customer
(delivery), and when product is shipped to the customer or distributed to the
public (fulfillment), provided that the following conditions of sale as
established by the Securities and Exchange Commission's Staff Accounting
Bulleting ("SAB") No. 104, are satisfied:
. Persuasive evidence of an arrangement exists,
. Delivery has occurred or services have been rendered,
. The seller's price to the buyer is fixed or determinable, and
collectibility is reasonably assured.
19
Valuation Allowance - We record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. While
we have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future in excess of our net recorded amount, an adjustment to
the deferred tax asset would increase income in the period such determination
was made.
RESULTS OF OPERATIONS
Revenues are being generated from a combination of sales of paid advertising
sponsorships, licensing, content placements, design, production and
distribution of custom discs and e-commerce fees, plus the sale to advertisers
and content providers of the Company's proprietary Usage Report utilizing the
Company's iReporting technology.
The consolidated financial statements of iMedia International Inc., as of
September 30, 2004 include the accounts of the Company and its wholly owned
subsidiaries HPI, and iMedia US LLC.
On a combined basis, the Company and its predecessor companies have incurred
operating losses since inception due to the expenses involved with production,
fundraising, and for general and administrative expenses. Significant
expenditures at the corporate level continue. These outlays include
production and distribution costs, fundraising costs, marketing costs, growth
initiatives, legal, accounting and other professional fees.
DISCUSSION:
The following discussion is based on a comparison of the Company's operations
for the three months and nine months ended September 30, 2004 to its
predecessor companies' financial statements for the three and nine months
ended September 30, 2003.
Sales
Net sales for the three months ended September 30, 2004 were $756,794 compared
with $190,027 for the three months ended September 30, 2003.
The increase in sales is indicative of the acceleration in the Company's
ability to procure new business and the shift in our sales emphasis towards
special edition and custom disc production, which have a longer sales cycle.
We have focused much of our sales and marketing activities towards forming
strategic partnerships with publishers of newspapers and magazines the results
of which will be felt within the next six months.
Cost of Sales
Cost of sales increased to $668,000 from $148,858 for the three months ended
September 30, 2004 and 2003, respectively. Gross profit contribution was
$88,794 (or 12%) and $41,169 (or 22%) for the three months ended September 30,
2004 and 2003, respectively.
The increase in cost of sales was directly related to the increase in gross
revenues during this quarter.
Revenues for the quarterly period ending September 30, 2004 originated
primarily from the design, production and distribution of custom discs and
royalties. Cost of sales from the comparative period included a combination
of design and manufacturing costs, thus there is little parity in comparisons
between the two periods.
20
Operating Expenses
Operating expenses increased to $1,118,471 (149%) for the three months ended
September 30, 2004, from $449,555 for the same period in the prior year.
The increase in expenses is due to continued development of our products,
growth initiatives, expenses associated with expanded sales efforts, as well
as substantial legal and accounting costs associated with the maintenance of
our fully-reporting status.
Interest expense, relating to convertible debt interest, increased to $235,767
for the three months ended September 30, 2004. Bank interest of $6,667 was
incurred for the same period in the prior year.
Net Profit or Loss
Net loss for the three months ended September 30, 2004 increased to
($1,265,444) compared to ($408,386) for the prior year's comparable period.
This represents an increased loss of $857,058 or 210%.
The increase in net loss is primarily attributable to the expanded operations,
for loan interest, for non-cash charges for warrants associated with various
convertible notes, for the substantial legal and accounting costs related to
our fully-reporting status, and for our increased sales and marketing efforts.
The following discussion is based on a comparison of the Company's operations
for the nine months ended September, 2004 to the Company's financial
statements for the nine months ended September 30, 2003, and include results
from its predecessor Company's operations:
Sales
Net sales for the nine months ended September 30, 2004 were $1,681,969
compared with $513,652 for the nine months ended September 30, 2003.
The increase in sales is indicative of the acceleration in the Company's
ability to procure new business and the shift in our sales emphasis towards
special edition and custom disc production. We have focused much of our sales
and marketing activities towards forming strategic partnerships with direct
response marketing companies and publishers of newspapers and magazines. It
is anticipated that the results of these relationships shall be realized
within the next six months.
Cost of Sales
Cost of sales increased to $1,439,109 from $358,043 for the nine months ended
September 30, 2004 and 2003, respectively. Gross profit contribution was
$242,860 (or 14%) and $155,609 (or 30%) for the nine months ended September
30, 2004 and 2003, respectively.
Revenues during the quarterly period ending September 30, 2004 originated
primarily from the design, production and distribution of custom discs and
royalties. Cost of sales from the comparative period included a combination
of design and manufacturing costs, thus there is little parity in comparisons
between the two periods. In the future, it is anticipated that sales and cost
of sales shall constitute a variety of design, manufacturing, replication and
advertising costs, and that the gross margins will average between 20% to 40%
21
of gross revenues with a potential to increase those margins when shared
advertising revenue models, product sales models, data reporting models and
back-end software bundling models are fully implemented. We currently are
required to vary the profitability of each project in order to establish and
maintain market share and acquire new clients. We foresee the need to
continue our policy of cost variation in order to achieve significant vertical
market penetration and brand recognition.
Operating Expenses
Operating expenses increased to $3,288,800 (100%) for the nine months ended
September 30, 2004, from $1,642,530 for the same period in the prior year.
The increase in expenses is due to continued development of our products,
growth initiatives, interest costs, expenses associated with expanded sales
efforts, as well as the substantial legal and accounting costs associated with
the maintenance of our fully-reporting status. We have dramatically increased
our sales and marketing efforts resulting in additional operating expenses.
As our business increases, it is anticipated that operating expenses will
increase in absolute dollars, but should decrease as a percentage of sales.
Interest expense, relating to convertible debt interest, increased to $330,811
for the nine months ended September 30, 2004. Bank interest of $722 was
incurred for the same period in the prior year. Of the $330,811 charged to
interest, $5,000 was paid in cash. The full amount of $330,811 was required
to be charged so as to realize the Black-Scholes value of warrants associated
with our various debt financings.
Net Profit or Loss
Net loss for the nine months ended September 30, 2004 increased to
($3,379,151) compared with ($1,486,921) for the prior year's comparable
period. This represents an increased loss of ($1,892,230) or (127%).
The increase in net loss is primarily attributable to the expanded operations,
loan interest, warrant expenses, the substantial legal and accounting costs
related to our fully-reporting status, and our increased sales and marketing
efforts.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September 30,
2004 was ($2,439,834), resulting in a net operating loss.
Net cash used in investing activities in the nine months ended September 30,
2004 was ($94,759) reflecting the purchase of equipment ($53,954) and a
reduction in the amount due from affiliates and associated companies of
($40,805).
Net cash provided by financing activities for the nine months ended September
30, 2004, totaled $2,530,347. The Company received proceeds from the issuance
of common stock of $1,228,000 and the collection of common stock receivables
of $370,000.
The Company's ability to make payments to fund planned capital expenditures
and operations will depend on its ability to generate sufficient cash in the
future as well as to raise additional capital. The Company has historically
raised funds to support its operating expenses and capital requirements
22
through sales of equity securities or through other credit arrangements. In
order to satisfy our immediate cash flow and liquidity requirements, we will
need to raise additional funds. To the extent additional sales of equity or
debt securities are insufficient to satisfy the Company's liquidity
requirements, or are not available on terms acceptable to the Company, we will
have limited cash flow and may have to reduce or dramatically curtail
operations, including the development of new products, distribution of current
publications and other services, or cease operations entirely. Any future
funding may take the form of debt or equity or a combination of both.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Although revenues are continuing
to increase on a quarter-to-quarter basis, we are still highly dependent on
equity and debt financings to make up for our operating shortfalls. The
Company has limited cash reserves. We incurred net operating losses of
($3,379,151) for the nine months ended September 30, 2004.
Internal and External Sources of Liquidity
We believe that over the next 12 months we will experience a steady growth in
revenues and a steady growth towards profitability. However in the near term,
we will require new capital to finance continued operations. To address issues
of liquidity and to create an adequate capital pool, the Company has engaged
in or is preparing to engage in the following transactions:
On April 22, 2004 we closed on a short-term convertible note payable to
Augustine Fund, LLP. We borrowed the amount of $250,000 payable in 90-days.
The Note bore interest of 8% APR, compounded monthly. As an incentive to make
the loan, Augustine Fund was issued a 3-year warrant to purchase up to 50,000
shares at $1.00 per share and a second one-year warrant to purchase up to
250,000 additional common shares at the same price. Pursuant to the terms of
the Note, the Company had the right to repay the note at any time subject to a
10-day option to convert the Note into 250,000 shares of our Common Stock.
The Company also had the right to extend the note for one additional 90-day
period in its discretion. However, if the Company elected to extend the note
(a) the conversion price of the Note would have been discounted 50% in favor
of Augustine so that upon conversion, Augustine would receive 500,000 common
shares and (b) Augustine would have received a third three-year "penalty
warrant" to purchase 325,000 shares of common stock at $1.00 per share. The
loan has since been repaid.
On May 14, 2004, we commenced a private offering of up to 8,333,334 shares of
common stock of the Company for a total offering of up to $10,000,000. Since
that date, we have retained, on a non-exclusive basis, three NASD registered
broker-dealers to act as placement agents for this offering. The offering is
currently being presented primarily to institutions, private equity funds and
other professional accredited investors. To date, we have received $700,000
in subscriptions to this offering for 700,000 common shares. Of these,
$530,000 remains unpaid. This offering was set to close on August 8, 2004,
but the Company has elected to continue the offering by extending it on a
month-by-month basis. The offering was formally closed on September 15, 2004.
On July 14, 2004, we entered into a contingent Share Purchase Agreement with
Langley Park, LLP, a London-based institutional investment fund. Langley
agreed to purchase in a private placement, four million of the Company's
common shares at the price of $1.90 per share. In lieu of cash, Langley
issued to the Company 4,185,022 of its common shares at 1.00 British Pound
Sterling
23
per share (British Pound Sterling 1.00 = US $1.81 on August 5, 2004). Langley
applied to the United Kingdom Listing Authority for registration as a unit
investment trust and for subsequent listing on the London Stock Exchange. The
Langley shares were listed on the London Stock Exchange (LSE) on September
30th and upon approval of Langley's registration statement became free-trading
on October 8th 2004. The Company has thus been provided with immediate,
although initially limited liquidity from the Langley free-trading shares. We
anticipate that we will use the Langley shares either to collateralize and
drawn-down on a bank line of credit, and/or begin progressive liquidation of
the shares through the LSE in the secondary market. The shares opened on the
London Stock Exchange (LSE) on October 8, 2004 at British Pound Sterling 0.31
per share. On September 30, 2004, we booked the corresponding value of these
shares as an asset on our financial statements in the amount of $2,312,539.
The asset value was calculated by multiplying the number of the Langley Shares
by the first opening trade as reported on the LSE, multiplied by the U.S.
dollar to British Pound Sterling exchange rate on September 30, 2004
(4,185,022 X British Pound Sterling 0.31 X $1.7825 = $2,312,539).
On July 20, 2004, we closed on three short-term loans totaling $130,000.
These loans were made to the Company by parties related to the Company and/or
its officers or directors. The Company issued a promissory note to each
lender. Each note had identical terms and conditions, although the note
amounts varied. The notes are for a period of 90-days and bear interest at
the rate of 8% annually. In addition, a total of 130,000 two-year warrants,
convertible to common stock at the price of $0.50 per share were issued to the
lenders in conjunction with these loans.
iMedia International, Inc. (the "Company") entered into a Securities Purchase
Agreement (a "Securities Purchase Agreement") with each of MicroCapital Fund
Ltd. and MicroCapital Fund LP (collectively, the "Investors") on September 1,
2004 for the sale of an aggregate of (i) $1,000,000 in convertible bridge
notes (the "Notes") and (ii) stock purchase warrants exercisable for
1,111,0000 shares of the Company's common stock (the "Warrants").
On September 1, 2004, the Investors purchased an aggregate of $1,000,000 in
Notes and received Warrants to purchase an aggregate of 1,111,000 shares of
the Company's common stock.
The Notes bear interest at 15%, mature on December 29, 2004, and are
convertible into our common stock, at the Investors' option, at $0.60 per
share, subject to anti-dilutive adjustments. The Company may also force
conversion of the Notes at a price calculated pursuant to the terms of the
Notes, if, on their maturity date, certain conditions are met. The full
principal amount of each Note is due upon default pursuant to the terms of
such Note.
The Warrants are exercisable until August 31, 2009 at a purchase price of
$0.90 per share. The exercise price of the Warrants will be adjusted in the
event the Company issues common stock at a price below market (as defined in
the Warrants).
In addition, the Company has granted the Investors certain registration rights
pursuant to Registration Rights Agreements between each Investor and the
Company entered into concurrently with each Securities Purchase Agreement.
All shares of the Company's common stock associated with this private
placement are restricted securities in accordance with Rule 144 as promulgated
under the of the Securities Act of 1933.
24
Recent Sales of Unregistered Securities
On March 18, 2004, we offered up to $1,000,000 of our common stock at an
offering price of $1.00 per share in a private placement. The stock was sold
directly by the Company, and through a non-exclusive placement agent,
Salomon-Grey Financial Corporation. The shares were offered only to persons
who are "accredited investors" as defined in Rule 501 of Regulation "D"
promulgated under the Securities Act of 1933, as amended, or who are
non-United States persons as defined in Regulation S under the Securities Act.
We closed the offering on May 10, 2004. As at September 30, 2004 the Company
had sold 1,221,657 shares, in that offering, directly, and had received gross
proceeds of $1,058,000. Selling commissions paid were $114,790.
On May 14, 2004 we offered up to $10,000,000 in units of common stock and
warrants at an offering price of $2.00 per unit in a private placement. The
offering was later terminated on September 15, 2004. There was no minimum
offering amount. At the time of termination, a total of $170,000 was raised
from the sale of 85,000 units. Each unit consisted of two shares of common
stock and two (2) three-year warrants to purchase common stock at the price of
$1.00 per share. The units were sold directly by the Company, and through a
several non-exclusive placement agents. The units were offered only to persons
who are "accredited investors" as defined in Rule 501 of Regulation "D"
promulgated under the Securities Act of 1933, as amended, or who are
non-United States persons as defined in Regulation S under the Securities Act.
We closed the offering on May 10, 2004. Selling commissions paid were $14,300.
On July 14, 2004, we entered into a contingent Share Purchase Agreement with
Langley Park, LLP, a London-based institutional investment fund. Langley
agreed to purchase in a private placement, four million of the Company's
common shares at the price of $1.90 per share. In lieu of cash, Langley
issued to the Company 4,185,022 of its common shares at British Pound Sterling
1.00 per share (British Pound Sterling 1.00 = US $1.81 on August 5, 2004).
Selling commissions on this transaction consisted of 200,000 shares of our
common stock and an additional 209,251 of the Langley Park shares. No cash
commissions were paid. The shares were offered only to an "accredited
investor" as defined in Rule 501 of Regulation "D" promulgated under the
Securities Act of 1933, as amended, or who are non-United States persons as
defined in Regulation S under the Securities Act. We closed the offering on
May 10, 2004.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements contained in this Quarterly Report on Form 10-QSB, and
other written and oral statements made by us from time to time are not based
strictly on historical facts but are considered "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan,"
"possible," "project," "should," or "will," or similar words or expressions,
are intended to identify forward looking statements. This forward-looking
information involves important risks and uncertainties that could materially
alter results in the future from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Such forward-looking
statements are predictions by their nature. Actual events or results may
differ materially and there are a variety of factors that could cause results
to differ materially, including those factors described below. It is not
possible to foresee or identify all factors affecting our forward-looking
statements and any list of such factors cannot be exhaustive. We are under no
duty to update any forward-looking statements.
25
Management believes that its multi-disciplinary approach, combined with
industry and geographic diversification, will help insulate the Company from
unforeseen economic, political and/or regulatory pressures that may arise on a
regional basis. The Company has embarked on this course of diversification
and has made inroads in the newspaper, magazine and direct response
industries. However, there is no guarantee against recessions, regional
slow-downs or negative economic conditions that may exist now, or may occur in
the future, in some or many of the Company's key geographic regions. Negative
economic conditions could directly impact the Company's ability to distribute
its products, obtain financing for new productions, future acquisitions, or
continue to grow consistent with Management's expectations.
We have a limited operating history and may incur losses we seek to grow.
Our various operating units have been recently incorporated and have limited
operations. In addition, we may incur future losses from: the development of
new products; the acquisition of licenses and rights to other business,
products and services; research and development activities; limited marketing
activities; and the general and administrative expenses associated with the
above activities. The extent of losses and the time required to reach
profitability are uncertain. There can be no assurance that the we will be
able to sustain profitability on an ongoing basis. Furthermore, as digital
media and digital publishing are continually developing technologies, the
level of profitability, or lack thereof, cannot be accurately predicted.
Our consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. We have a history of operating
losses that are likely to continue in the future. Our auditors have included
an explanatory paragraph in their Independent Auditor's Report included in our
audited financial statements for the year ended December 31, 2003 and for the
period from July 22, 2002 (inception) to December 31, 2002 to the effect that
our significant losses from operations and our dependence on equity and debt
financing raise substantial doubt about our ability to continue as a going
concern.
We currently do not have sufficient revenues to support our business
activities and, if operating losses continue, we may not be able to secure
additional financing to operate our business.
We require substantial working capital to fund our business. Because we
currently do not have sufficient revenues to support our business activities,
and if operating losses continue, we may be required to raise additional
capital to fund our operations and finance our research and development
activities. Funding, whether from a public or private offering of debt or
equity, a bank loan or a collaborative agreement, may not be available when
needed or on favorable terms. Any equity financing could result in dilution
to the existing stockholders. Debt financing will result in interest expense,
and if convertible into equity, could also dilute then-existing stockholders.
We may also be subject to various restrictive covenants which could
significantly limit our operating and financial flexibility and may limit our
ability to respond to changes in our business or competitive environment. If
we are unable to obtain necessary financing in the amounts and on terms deemed
acceptable, we may have to limit, delay, scale back or eliminate our research
and development activities or future operations. Any of the foregoing may
adversely affect our business.
26
We do not have an active, liquid trading market for our common stock.
You may have difficulty selling your shares. Our common stock has been
treated as a "penny stock" as that term is defined in SEC Rule 3a51-1. Section
15(g) of the Exchange Act and Rule 15g-2 of the Securities and Exchange
Commission require broker and dealers effecting transactions in any penny
stock for or with the account of a customer to provide the customer with a
document disclosing the risks of investing in penny stocks and to obtain a
manually signed and dated written receipt of the document before making any
transaction in a penny stock for the customer's account. In addition, SEC
Rule 15g-9 prohibits broker and dealers from selling penny stocks or effecting
the purchase of penny stocks unless the broker or dealer has approved the
investor's account for transactions in penny stocks by obtaining, among other
things, information concerning the investor's financial situation, investment
experience and investment objectives and making a determination as to whether
transactions in penny stocks are suitable for the investor in accordance with
SEC rules and regulations. In the past, compliance with these requirements
have made it difficult to establish an active, liquid trading market in our
common stock, and you may have difficulty selling your shares. Historically,
the public market for our common stock has been very limited. For example, the
average reported volume of trading in our common stock over the August through
October period was less than 1,000 shares per day. Our common stock currently
trades on the Pink Sheets. There as been an application to be listed on the
OTC-BB Exchange filed with the NASD. This request is still pending. We do
not know whether or when the NASD will approve this application. In addition,
if the NASD approves this application, we cannot predict that an active,
liquid trading market will develop or that the market will be able to sustain
transactions by larger institutional investors. Accordingly, investors may
have difficulty accumulating a significant position in our stock or in selling
a substantial number of shares in a short period of time.
We may not be successful in establishing necessary strategic alliances.
We are seeking to build alliances with leading national sponsors, media and
publishing companies, distributors, financial organizations and technology
companies, and plans to continue its strategy of developing key alliances in
order to expand its reach into the national and international marketplace.
However, there can be no assurance that the Company will be successful in
obtaining ongoing strategic alliances or that we will be able to find further
suitable business relationships as it develops strategies and new products.
Any failure to continue or expand such relationships could have a material
adverse effect on our business, results of operations or financial condition.
Major risks associated with strategic alliances and partnerships are (1) the
lack of control we may have over these operations, and (2) the possibility
that in the future, our strategic alliances will not develop or will market
products in competition with ours, and/or discontinue their alliances with the
Company or form alliances with the our competitors.
Competition and technological uncertainty exists in the market.
We operate in a rapidly evolving field. Competition from other domestic and
foreign companies, media, entertainment, and other institutions in the areas
of product development, product and technology acquisition, manufacturing and
marketing is intense. Competitors may succeed in obtaining content for their
products more rapidly or less expensively than we can. Competitors may have
already developed, or be in the process of developing technologies that are,
or may be, the basis for competitive products to the Company's current or
planned lines of products. Some of these products may have an entirely
27
different approach or means of accomplishing the same end results as products
currently developed, or contemplated for development, by the Company. One or
more of our competitors may achieve patent protection that could have a
material adverse effect on the Company. Although we do not currently have any
specific plans to do so, we may have to prosecute or may be required to defend
patent or trademark infringement litigation or patent interference proceedings
with holders of competitive patents or trademarks. We may incur substantial
costs in defending or prosecuting such proceedings. In addition, such
proceedings may impact our competitive position and there can be no assurance
that we will be successful in any patent or trademark litigation.
Our ability to respond quickly to consumer needs or advances in digital
publishing technologies, without compromising product quality, will be crucial
to our success. We are continually engaged in product development and
improvement programs to establish and improve our competitive position. We
cannot, however, guarantee that we will be successful in enhancing existing
products or developing new products or technologies that will timely achieve
or receive market acceptance.
Development of alternative forms of digital media and products may
negatively affect our ability to compete in the market.
Our competitive position may be adversely affected by competitive product
development or the acceptance and/or integration by the public or sponsors of
new or other forms of digital media, formats or devices not anticipated or
supported by the Company.
Many of our competitors have substantially greater financial, technical and
human resources than we do. There can be no assurance that our competitors
will not succeed in developing technologies and products that are more
effective or affordable than those being developed by the Company or that
would render our technology and products less competitive or obsolete.
If we are unable to develop and market new products and technologies, we may
experience a decrease in demand for our products or our products could become
obsolete.
We face technology risks.
Our products are subject to the risks of failure inherent in the development
and testing of products based on innovative or developing technologies. These
risks include the possibilities that Company technology or any or all of the
Company's products may be found to be ineffective, or to have substantial
limitations, or otherwise fail.
There is no guarantee that the motion picture studios will continue to
provide the Company with content and movie trailers at no cost.
Presently, we are being provided copyrighted theatrical movie trailers and
other copyrighted public dissemination's such as press releases,
behind-the-scenes footage, video clips, celebrity interviews and other
promotional media directly from film studios and other sources at no cost.
This same promotional media is also made available to other companies,
broadcasters and production facilities for their use and incorporation into
various other broadcast mediums and products. Traditionally, this media has
been provided free of charge in the form of industry "Press Kits" and made
available for re-broadcast or re-distribution by third parties without license
28
or fees. We will continue to rely upon the availability of this free media
and content as the key component for the Hollywood Previews Entertainment
Magazine. Although it is not anticipated, should in the future this content
become unavailable, or should at any time studios begin charging a license or
other royalties for the use or re-broadcast of its copyrighted materials, the
Company's ability to continue producing the Hollywood Previews Entertainment
Magazine could be jeopardized, and the production and distribution of this
product could prove non-viable. This would have an immediate and materially
adverse effect upon the Company's revenue projections, and subsequently affect
Company viability.
Our future depends, in part, on our Key Personnel, Consultants and
Principal Management's continued participation.
Our ability to successfully develop its products, manage growth and maintain
its competitive position will depend, in a large part, on its ability to
attract and retain highly qualified management. The Company is dependent upon
its Chief Executive Officer, President, Chief Financial Officer, and other key
members of its management and consulting team. Competition for such personnel
is significant, and there can be no assurance that the Company will be able to
continue to attract and retain such personnel. Our consultants may be
affiliated or employed by others and some may have consulting or other
advisory arrangements with other entities that may conflict or compete with
their obligations to the Company. We addressed such potential conflicts by
requiring that its consultants, collaborators and sponsored researchers
execute confidentiality agreements upon commencement of relationships with the
Company, by closely monitoring the work of such persons and by requiring
material transfer and patent assignment agreements wherever possible and
appropriate.
The Company's controlling shareholders are also Executive Officers and
Directors of the Company.
The Company's officers, directors, founders, employees and principal
shareholders currently own a controlling position of the Company's outstanding
stock. Management will be able to elect a majority of the Company's Board of
Directors and will have the ability to control the Company and direct its
business and affairs. This concentration of ownership could have the effect
of delaying or preventing a change in control of the Company. In addition,
this significant concentration of share ownership may adversely affect the
trading price for the Company's common stock because investors often perceive
disadvantages in owning stock in companies with controlling shareholders.
The Company does not have any product or multimedia insurance coverage.
We do not presently have liability insurance to protect us from the costs of
claims for damages due to the use or distribution of our publications. We
intend on securing such insurance in the future. This insurance may be
limited in certain circumstances and limited in amount. Recent premium
increases and coverage limitations may make this insurance uneconomic.
However, even if the Company obtains such insurance, one or more liability
claims could exceed policy limits. If we continue to have no coverage or our
insurance does not provide sufficient coverage, product liability claims could
result in material losses in excess of our reserves.
29
Quarterly operating results may vary.
Our quarterly operating results are subject to substantial fluctuations and
any failure to meet financial expectations for any fiscal quarter may
disappoint securities analysts and investors and could cause our stock price
to decline.
Our quarterly operating results may vary significantly due to a combination of
factors, many of which are beyond our control. These factors include:
. Changes in demand for our products;
. Our ability to meet the demand for our products;
. Existing and increased competition;
. Our ability to compete against significantly larger and better funded
competitors;
. The number, timing, pricing and significance of new products and
product introductions and enhancements by us and our competitors;
. Our ability to develop, introduce and market new and enhanced versions
of our products on a timely basis;
. Changes in pricing policies by us and our competitors;
. The timing of significant orders and shipments;
. Litigation with respect to liability, trademark or copyright claims or
product recalls and any insurance covering such claims or recalls; and
. General economic factors.
As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and you should not rely upon these
comparisons as indications of future performance. These factors may cause our
operating results to be below market analysts' expectations in some future
quarters, which could cause the market price of our stock to decline.
General Economic Slowdowns may have a material effect on sales.
If changes in the economy and consumer spending reduce consumer demand for our
products, our sales and profitability will suffer.
We are highly dependant upon outside consultants.
If our consultants or collaborative partners do not perform, we may be unable
to develop and bring to market new products as anticipated.
We may in the future enter into consulting collaborative arrangements with
third parties to develop products. These arrangements may not produce
successful products. If we fail to establish these arrangements, the number
of products from which we could receive future revenues will be limited.
Our dependence on consulting or collaborative arrangements with third parties
subjects us to a number of risks. These arrangements may not be on terms
favorable to us. We cannot absolutely control the amount and timing of
resources our consultants or collaborative partners may devote to our
products, and these third parties may choose to pursue alternative products.
These third parties also may not perform their obligations as expected.
Business combinations, significant changes in their business strategy, or
their access to financial resources may adversely affect a consultant's or
partner's willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our
consultants or partners, which could lead to delays or termination of the
arrangements and time-consuming and expensive litigation or arbitration.
30
Our intellectual properties rights may be challenged or infringed.
Should our intellectual property rights not adequately protect our products or
technologies, others could compete against us more directly, which would hurt
our sales and profitability.
Our success depends in part on our ability to obtain patents or rights to
patents, copyrights, protect trade secrets, operate without infringing upon
the proprietary rights of others, and prevent others from infringing on our
patents, copyrights, trademarks and other intellectual property rights. We
will be able to protect our intellectual property from unauthorized use by
third parties only to the extent that it is covered by valid and enforceable
patents, copyrights, trademarks and licenses. Patent and/or copyright
protection generally involves complex legal and factual questions and,
therefore, enforceability of such rights cannot be predicted with certainty.
Patents and copyrights may be challenged, invalidated or circumvented. Thus,
any patents and/or copyrights that we own or license from others may not
provide adequate protection against competitors. In addition, any pending and
future patent applications may fail to result in patents being issued. Also,
those patents that are issued may not provide us with adequate proprietary
protection or competitive advantages against competitors with similar
technologies. Moreover, the laws of certain foreign countries do not protect
our intellectual property rights to the same extent as do the laws of the
United States.
In addition to patents, copyrights and trademarks, we rely on trade secrets
and proprietary know-how. We seek protection of these rights, in part,
through confidentiality and proprietary information agreements. These
agreements may not provide meaningful protection or adequate remedies for
violation of our rights in the event of unauthorized use or disclosure of
confidential and proprietary information. Failure to protect our proprietary
rights could seriously impair our competitive position.
If third parties claim we are infringing their intellectual property rights,
we could suffer significant litigation or licensing expenses or be prevented
from marketing our products.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of others. However,
regardless of our intent, our technologies may infringe the patents and
copyrights, or violate other proprietary rights of third parties. In the event
of such infringement or violation, we may face litigation and may be prevented
from pursuing product development or commercialization.
Future Acquisitions may prove unprofitable.
If we make any acquisitions, we will incur a variety of costs and may never
realize the anticipated benefits.
We intend to attempt to acquire businesses, technologies or products that we
believe are a strategic fit with our business. If we undertake any transaction
of this sort, the process of integrating a business, technology or product may
result in operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, we may never realize the anticipated benefits of
any acquisition. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or impairment related to goodwill and other intangibles, and the
incurrence of large, immediate write-offs.
31
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of our
common stock in the public market, or the perception that these sales could
occur. In addition, these factors could make it more difficult for us to raise
funds through future offerings of common stock.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Company's management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this quarterly report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, to the best of their knowledge, as of the end of the period
covered by this quarterly report, the disclosure controls and procedures are
effective in ensuring that all material information required to be filed in
this quarterly report has been made known to them in a timely fashion. There
were no changes in the Company's internal control over financial reporting
that occurred during the period covered by this report that have materially
affected, or are likely materially affect, the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
NONE
ITEM 2: CHANGES IN SECURITIES- [update to include the correct numbers for the
May 14, PPM]
During the nine months ended September 30, 2004, we sold an aggregate of
1,228,000 shares of common stock. The shares were sold pursuant to an
exemption provided by Section 4(2) of the Securities Act of 1933, as amended,
and Rule 506 Regulation D promulgated thereunder. Commissions of $129,090
were paid in connection with the sale of those shares. The Company issued
25,000 common shares for services rendered. We issued an additional 408,993
shares to investors who participated in a previous private placement dated
September 2, 2003. The shares were issued to adjust the difference paid by
these prior subscribers from that of subscribers of the subsequent private
placement dated March 18, 2004, who eventually purchased shares at a
price-per-share lower than that of the previous offering. As at September 30,
2004 the Company held signed subscriptions for a further 530,000 shares
($530,000) that remain unpaid that were sold pursuant to a private placement
offering dated May 15, 2004.
On April 22, 2004 we closed on a short-term convertible note payable to
Augustine Fund, LLP. As an incentive to make the loan, Augustine Fund was
issued a 3-year warrant to purchase up to 50,000 shares at $1.00 per share and
a second one-year warrant to purchase up to 250,000 additional common shares
32
at the same price. Pursuant to the terms of the Note, the Company had the
right to repay the note at any time subject to a 10-day option to convert the
Note into 250,000 shares of our Common Stock. The Company also had the right
to extend the note for one additional 90-day period in its discretion.
However, if the Company elected to extend the note (a) the conversion price of
the Note would have been discounted 50% in favor of Augustine so that upon
conversion, Augustine would receive 500,000 common shares and (b) Augustine
would have received a third three-year "penalty warrant" to purchase 325,000
shares of common stock at $1.00 per share. The loan has since been repaid,
without penalty or conversion of the Note. The Company believes that the
issuance of its securities to Augustine Fund, LLP in this transaction was
exempt from registration pursuant to Sections 4(2) and 4(6) of the Securities
Act and Rule 506 of Regulation D because Augustine Fund, LLP is an "accredited
investor" as that term is defined in Regulation D.
On May 14, 2004 we offered up to $10,000,000 in units of common stock and
warrants at an offering price of $2.00 per unit in a private placement. The
offering was later terminated on September 15, 2004. There was no minimum
offering amount. At the time of termination and included in the aggregate
above, a total of $120,000 was raised from the sale of 60,000 units. Each
unit consisted of two shares of common stock and two, three-year warrants to
purchase common stock at the price of $1.00 per share. The units were sold
directly by the Company, and through a several non-exclusive placement agents.
The units were offered only to persons who are "accredited investors" as
defined in Rule 501 of Regulation "D" promulgated under the Securities Act of
1933, as amended, or who are non-United States persons as defined in
Regulation S under the Securities Act.
On July 14, 2004, we entered into a contingent Share Purchase Agreement with
Langley Park, LLP, a London-based institutional investment fund. Langley
agreed to purchase in a private placement, four million (4,000,000) of the
Company's common shares at the price of $1.90 per share. In lieu of cash,
Langley issued to the Company 4,185,022 of its common shares at British Pound
Sterling 1.00 per share (British Pound Sterling 1.00 = US $1.81 on August 5,
2004. We issued an additional 200,000 restricted on shares as commissions to
an investment banker on this transaction. The Company believes that the
issuance of its securities to Langley Park, LLP in this transaction will be
exempt from registration pursuant to Sections 4(2) and 4(6) of the Securities
Act and Rule 506 of Regulation D, since Langley Park, LLP is an "accredited
investor" as that term is defined in Regulation D.
ITEM 3: DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NONE
ITEM 5: OTHER INFORMATION
Reincorporation
Effective November 25, 2003, the Company, formerly known as Irvine Pacific
Corporation ("IPC") completed a statutory merger effected for the purpose of
changing its state of incorporation from Colorado to Delaware by merging into
a newly formed Delaware corporation, iMedia International, Inc. ("iMedia").
This change in the IPC's state of incorporation was approved by the holders of
a majority of the IPC's outstanding shares of common stock at the Company's
special meeting of shareholders on November 21, 2003.
33
As a result of the merger, each outstanding share of the IPC's common stock,
was automatically converted into one share of iMedia. Each stock certificate
representing issued and outstanding shares of the IPC's common stock continues
to represent the same number of shares of common stock of iMedia.
iMedia continues to operate the business of IPC. The reincorporation did not
result in any change in IPC's business, assets or liabilities, did not cause
IPC's headquarters to be moved, or result in any relocation of management or
other employees.
Description of Capital Stock
iMedia is authorized to issue up to 500,000,000 shares of common stock, $0.001
par value per share, and 20,000,000 shares of preferred stock, $0.001 par
value per share.
iMedia's Common Stock
iMedia's common stock is traded on the Pink Sheets under the symbol IMNL.
There as been an application to be listed on the OTC-BB Exchange filed with
the NASD. This request is still pending. We do not know whether or when the
NASD will approve this application. In addition, if the NASD approves this
application, we cannot predict that an active, liquid trading market will
develop or that the market will be able to sustain transactions by larger
institutional investors.
Our common stock has been treated as a "penny stock" as that term is defined
in SEC Rule 3a51-1. Section 15(g) of the Exchange Act and Rule 15g-2 of the
Securities and Exchange Commission require broker and dealers effecting
transactions in any penny stock for or with the account of a customer to
provide the customer with a document disclosing the risks of investing in
penny stocks and to obtain a manually signed and dated written receipt of the
document before making any transaction in a penny stock for the customer's
account. In addition, SEC Rule 15g-9 prohibits broker and dealers from
selling penny stocks or effecting the purchase of penny stocks unless the
broker or dealer has approved the investor's account for transactions in penny
stocks by obtaining, among other things, information concerning the investor's
financial situation, investment experience and investment objectives and
making a determination as to whether transactions in penny stocks are suitable
for the investor in accordance with SEC rules and regulations. In the past,
compliance with these requirements have made it difficult to establish an
active, liquid trading market in our common stock.
Each holder of iMedia's common stock is entitled to one vote per share
registered in his or her name on iMedia's books on all matters submitted to a
vote of iMedia's stockholders.
The holders of outstanding shares of common stock of iMedia are entitled to
receive dividends, when and if declared by the board of directors, out of the
assets of iMedia which by law are available therefore, payable in cash, in
property or in shares of capital stock. Each stockholder is entitled to one
vote for each share of common stock held of record by that holder on the books
of iMedia for the election of directors and on all matters submitted to a vote
of stockholders of the corporation. Holders of iMedia 's common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions
34
applicable to the common stock. In the event of liquidation, dissolution or
winding up of the affairs of iMedia, after payment of claims of creditors and
the satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock, holders of iMedia common stock will be
entitled to receive all of the remaining assets of iMedia of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of iMedia common stock held by them. The rights, preferences and
privileges of the holders of iMedia common stock are subject to and may be
adversely affected by the rights of the holders of shares of any series of
preferred stock, which the board of directors may designate in the future.
iMedia may issue preferred stock at such time or times and for such
consideration as the board of directors may determine. Each series shall be so
designated as to distinguish the shares thereof from the shares of all other
series. The board of directors is expressly authorized, subject to the
limitations prescribed by law and the provisions of iMedia 's Certificate of
Incorporation, to provide for the issuance of all or any shares of preferred
stock, in one or more series, each with such designations, preferences, voting
powers (or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be determined by the board of directors.
iMedia Preferred Stock
iMedia has no outstanding shares of preferred stock. iMedia's board of
directors, however, is authorized at any time and from time to time to create
and provide for the issuance of shares of preferred stock in one or more
series and to fix, from time to time, the relative rights, preferences,
privileges and restrictions granted to or imposed upon any un-issued series of
preferred stock. The authority of iMedia 's board of directors with respect to
each series of preferred stock includes the determination of the number of
shares of any series and the designation to distinguish the shares of such
series from the shares of all other series. The board of directors effects a
designation of each series of preferred stock by filing with the Delaware
Secretary of State a certificate of designation defining the rights and
preferences of such series.
Certain Provisions in iMedia 's Certificate of Incorporation and Bylaws
iMedia's certificate of incorporation and bylaws may encourage persons
considering unsolicited tender offers or other unilateral takeover proposals
to negotiate with iMedia's board of directors rather than pursue
non-negotiated takeover attempts. iMedia's certificate of incorporation
authorizes blank check preferred stock. iMedia's board of directors can set
the voting, redemption, conversion and other rights relating to the preferred
stock and can issue the stock in either a private or public transaction. The
issuance of any preferred stock may have the effect of delaying or preventing
a change in control of iMedia without further stockholder action and may
adversely affect the rights and powers, including voting rights of the holders
of iMedia 's common stock, rights to receive dividends and rights to payments
upon liquidation. In certain circumstances, the issuance of preferred stock
could depress the market price of iMedia's common stock.
Securities Registered Under the Securities Exchange Act of 1934
IPC's common stock was registered under Section 12(g) of the Securities
Exchange Act of 1934. iMedia's common stock is deemed registered under the
Securities Exchange Act of 1934 by operation of paragraph (a) of Rule 12g-3 of
the Securities Exchange Act of 1934.
35
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit
Number Description
10.1 Stock Purchase Agreement Dated July 14, 2005 between the Company
and Langley Park Investments, PLC. Reference Exhibit 10.5 of our
Form 10QSB filed August 23, 2004.
10.2 Form of Securities Purchase Agreement dated September 1, 2004
with MicroCapital Funds.
31.1 Certification of Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a)
31.2 Certification of Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a)
32.1 Certification of Chief Executive Officer and Chief Financial
Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(B) Reports on Form 8-K
On August 31, 2004, we filed on Form 8K under Items 2.02 and 9.01 disclosure
that we published a press release of the Company's second quarter Results of
Financial Condition and Operations.
On September 7, 2004, we filed on Form 8K under Items 1.01, 2.03, 3.02 and
9.01 that we had entered into a Securities and Purchase agreement (private
placement) with MicroCapital Fund LTD and MicroCapital Fund LP for $1,000,000
of convertible notes and warrants.
On October 6, 2004, we filed on Form 8K under Item 3.02 that we had closed on
a Stock Purchase Agreement (private placement) with Langley Park Investments,
PLC for the purchase of 4,000,000 shares of our common stock. We had
previously filed a copy of the Securities Purchase Agreement as exhibit 10.5
on our Form 10-QSB, dated August 23, 2004.
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.
Date: November 17, 2004
IMEDIA INTERNATIONAL INC.
By: /s/ David MacEachern
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David MacEachern,
Chief Executive Officer
By: /s/ Franklin Unruh
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Franklin Unruh,
Chief Financial Officer