Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
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 No. 333-26385
Internet Media Corporation
(Exact Name of Small Business
Issuer as Specified in its Charter)
NEVADA 72-1346591
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8748 Quarters Lake Road
Baton Rouge, Louisiana 70809
(Address of Principal Executive Offices,
including Zip Code)
(504) 922-7744
(Issuer's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
Registrant as required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Class Outstanding as of 11-20-98
- ----- --------------------------
Common Stock,
$.0001 par value 8,007,120
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Internet Media Corporation
Page
Consolidated Balance Sheets as of
September 30, 1998 (unaudited),
and December 31, 1997 3
Consolidated Statement of Operations
for the Three Months Ended September
30, 1998 and 1997 (unaudited), and the
Nine Months Ended September 30,
1998 and 1997 (unaudited) 5
Consolidated Statement of Cash Flows
for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 8
INTERNET MEDIA CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED BALANCE SHEET
12/31/97 9/30/98
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 0 $ 14,852
Accounts receivable 224 3,200
Total current assets 224 18,052
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of $1,412
and $1,940, respectively 210,472 218,865
INTANGIBLES
Organization costs, net
of accumulated amort-
ization of $134 and
$218, respectively 435 351
Licenses and rights to
leases of licenses, net
of accumulated amort-
ization of $2,625 and
$3,048, respectively 25,125 23,256
25,560 24,968
Total assets $236,256 $285,465
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft 116 0
Notes payable to
stockholder 116,282 125,223
Accounts payable 65,105 12,562
Accounts payable
- affiliate 10,069 10,068
Accrued interest 6,835 10,068
Accrued Expenses 531 531
Total current
liabilities 198,938 148,384
STOCKHOLDERS' EQUITY
Common stock, $.0001
par value, 100,000,000
shares authorized,
6,424,000 and
6,962,759 shares issued
and outstanding,
respectively 642 775
Additional
paid-in capital 998,466 2,078,380
Deficit accumulated
during the development
stage (649,041) (1,496,124)
Subscriptions
receivable (860) (860)
Deferred compensation (311,889) (445,090)
37,318 (137,081)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $236,256 $285,465
INTERNET MEDIA CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(unaudited) (unaudited)
Revenue $ 3,200 $ 288 $ 3,200 $ 1,110
Expenses
Depreciation
and amorti-
zation 345 299 1,035 2,467
Professional
fees 108,205 103,450 393,349 291,956
Rent 7,203 4,410 7,318 12,272
Salary 113,128 16,570 113,816 30,027
Other 199,888 6,321 334,765 12,556
428,769 132,050 850,283 349,278
Net loss $(425,569) $(131,762) $(847,083) $(348,168)
Loss per
common
share $(.059) $(.021) $(.120) $(.057)
Weighted
average
number
of shares
outstand-
ing 7,201,922 6,171,762 7,057,000 6,147,740
INTERNET MEDIA CORPORATION AND SUBSIDIARIES
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Nine Months
Ended Ended
9/30/98 9/30/97
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(847,083) $(348,168)
Adjustment to reconcile
net loss to net cash
used in operating
activities
Depreciation 528 881
Amortization 507 1,567
Recognition of
services performed
for stock 553,874 253,429
Changes in:
accounts payable (52,543) 85
prepaids 0 (910)
accrued liabilities 3,233 14,477
Net cash used
in operating
activities (341,484) (78,639)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of equipment (5,000) (762)
Investment in joint
venture 0 (13,100)
Purchase of leases
and rights to leases
of licenses 0 (5,000)
Purchase of Business (25,000) 0
Net cash used
in investing
activities (30,000) (18,862)
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase in note
payable to stockholder 8,941 33,000
Issuance of common stock 340,000 50,000
Increase in open account
payable to stockholder 0 35,700
Decrease in subscriptions
receivable 0 1,300
Payment on note payable
to stockholder (30,000) 0
Net cash provided
by financing
activities 348,941 120,000
Net (decrease)
increase in
cash (22,543) 22,499
Cash, beginning of period 37,394 14,502
Cash, end of period 14,852 37,001
Noncash investing and financing activities for the six months ended June
30, 1997 (unaudited):
- - 150,000 shares issued for consulting and legal services,
valued at $375,000 for financial
reporting purposes.
- - 10,000 shares issued for consulting services to be
performed, valued at $25,000.
- - 60,000 shares issued for consulting services to be
performed, valued at $150,000.
Noncash investing and financing activities for the six months ended June
30, 1998 (unaudited):
- - 400,000 shares issued for consulting and legal services,
valued at $40,000.
- - 36,092 shares issued for communications consulting
services, valued at $34,400.
- - 22,667 shares issued for internet and communications
consulting services, valued at $8,500.
- - 10,000 shares issued under business acquisition agreement,
valued at $10,000.
- - 37,000 shares issued for financial public relations
consulting services, valued at $74,000.
- - 400,000 shares issued for consulting and legal services,
valued at $400,000.
- - 300,000 shares issued for financial public relations
consulting services, valued at $330,000.
INTERNET MEDIA CORPORATION AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1998
(Unaudited)
Note 1. Nature of Business, Organization and Basis of Presentation
Beginning in October 1997, the Company's Board of Directors determined that
the Company's business segment development priority would be: (1) Wireless
Internet; (2) Community Television; and (3) Wireless Cable. During the
second quarter of 1998, the Company's Board of Directors determined that,
for the foreseeable future, the Company would abandon its efforts to
develop its wireless cable properties, due to current market conditions.
The Company's primary focus is on the development and exploitation of its
proprietary Wireless Internet Access System. In February 1998, the Company
obtained its first Wireless Internet customer in Baton Rouge, Louisiana.
Substantially all of the Company's business efforts and resources will, for
the foreseeable future, be committed to its Wireless Internet business
segment. In exploiting its Wireless Internet business opportunity, it is
the Company's plan either (1) to acquire an existing hard-wire dependent,
dial-up Internet Service Provider [ISP] in a particular market and
"plug-in" its proprietary Wireless Internet Access System, (2) construct a
Wireless Internet Access System in a particular market or (3) license a
third party to utilize the Company's Wireless Internet Access System in a
particular market. The Company is seeking capital with which to exploit
its Wireless Internet technology.
In July 1998, the Company changed its name to "Internet Media Corporation".
The Company was incorporated on November 1, 1996, under the name "Media
Entertainment, Inc.", to act as a holding company primarily in the wireless
cable and community (low power) television industries. To this end, the
Company acquired Winter Entertainment, Inc. (WEI), which owns and operates
a community (low power) television station in Baton Rouge, Louisiana, and
Missouri Cable TV Corp. (MCTV), which owns the licenses, and has acquired
licenses and leases of licenses, necessary to operate wireless cable
systems in seven U.S. cities, and acquired licenses necessary to operate
community (low power) television stations in three other U.S. cities.
The Board of Directors has determined that the Company's wireless cable
channel rights will be better used in the implementation of the Company's
Wireless Internet Access System in those markets, due to the current status
of the wireless cable industry.
In October 1998, the Company's Board of Directors determined to transfer
all of the Company's community-television-related assets to a new
corporation, tentatively named "New Wave Media Corp." ("New Wave"), in
exchange for 1,500,000 shares of stock of New Wave. The shares of New Wave
owned by the Company are to be distributed as a dividend to the
shareholders of record of the Company as of the close of business on
December 1, 1998.
In September 1998, the Company acquired Desert Rain Internet Services
("DSRT"), a Santa Fe, New Mexico-based ISP. The Company acquired DSRT for
$25,000 in cash. In July 1998, the Company executed an agreement to
acquire an ISP located in St. George, Utah, for cash, the closing of which
agreement has be postponed indefinitely by mutual agreement. In August
1998, the Company executed an agreement to acquire an ISP located in Santa
Fe, New Mexico, for cash and stock, which agreement has been abandoned by
the parties.
Note 2. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial
statements for the nine months ended September 30, 1998 and 1997, reflect
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial condition, results of operations and cash
flows of the Company, including subsidiaries, and include the accounts of
the Company and all of its subsidiaries. All material intercompany
transactions and balances are eliminated.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these
unaudited financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997. The results of
operations for the interim periods are not necessarily indicative of the
results to be obtained for the entire year.
Note 3. Acquisitions
Effective December 31, 1996, the Company acquired WEI and MCTV by issuing
2,157,239 shares of common stock in exchange for all the common stock of
each company. The majority shareholder of the Company was also the sole
shareholder of WEI and the majority shareholder of MCTV. Therefore, the
acquisitions have been accounted for at historical cost in a manner similar
to a pooling of interests. The consolidated statement of operations
includes the Company and its predecessors WEI and MCTV from inception of WEI.
In September 1998, the Company purchased Desert Rain Internet Services
("DSRT"), a Santa Fe, New Mexico-based ISP. The Company acquired DSRT for
$25,000 in cash.
Note 4. Notes Payable to Shareholder
September 30, 1998
(unaudited)
Notes payable to majority
stockholder, interest accrues
at 8%, due on demand and
unsecured $125,223
In addition, during the nine months ended September 30, 1998, the same
stockholder advanced to the Company a total of $8,941 on open account, at
8% per annum, which is payable on demand.
Note 5. Joint Venture
During the nine months ended September 30, 1998, the Company incurred no
further costs relating to a joint venture formed to exploit the Company's
Wireless Internet technology, which joint venture has never had operations
and, since December 31, 1997, has been abandoned.
Note 6. Stock Issuances
During the nine months ended September 30, 1998, the Company issued a total
of 1,285,759 shares of common stock, as follows:
A. 400,000 shares were issued to prepay legal services, which shares were
valued at $.10 per share, or $40,000 in the aggregate.
B. 36,092 shares were issued in payment of financial public relations and
communications consulting services, which shares were valued at $.953125
per share, or $34,400, in the aggregate.
C. 22,667 shares were issued to prepay internet and communications
consulting services, which shares were valued at $.375 per share, or
$8,500, in the aggregate.
D. 80,000 shares were issued to four of the directors of the Company in
payment for services rendered by such persons in their capacities as
directors. These shares were valued at $.80 per share, or $64,000, in the
aggregate. However, for financial reporting purposes, such shares were
valued at $.56 per share, the last closing bid price, as reported by the
OTCBB, prior to the issuances.
E. 10,000 shares were issued under a Business Acquisition Agreement, which
shares were valued at $1.00 per share, or $10,000 in the aggregate.
F. 37,000 shares were issued to prepay financial public relations
services, which shares were valued at $2.00 per share, or $74,000 in the
aggregate.
G. 400,000 shares were issued to prepay legal services, which shares were
valued at $1.00 per share, or $400,000 in the aggregate.
H. 300,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $1.10 per share, or
$330,000, in the aggregate.
Note 7. Private Offering
In April 1998, the Company entered into a selling agreement with Centex
Securities, Inc., La Jolla, California, with respect to the private sale of
up to 600,000 units of securities of the Company, at an offering price of
$2.00 per unit. Each unit was comprised of two shares of common stock of
the Company and one warrant to purchase one share each of the common stock
of the Company at an exercise price of $2.00 per share. This private
offering was terminated by the Company after having received $340,000.
Note 8. Subsequent Events
Subsequent to September 30, 1998, the Company has issued a total of 255,000
shares of common stock, as follows:
A. 5,000 shares were issued under a Merger Agreement, which shares were
valued at $1.00 per share, or $5,000 in the aggregate.
B. 100,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $.70 per share, or
$70,000, in the aggregate.
C. 150,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $.50 per share, or
$75,000, in the aggregate.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.
Background
The Company's primary focus is on the development and exploitation of its
proprietary Wireless Internet Access System. In February 1998, the Company
obtained its first Wireless Internet customer in Baton Rouge, Louisiana.
Substantially all of the Company's business efforts and resources will, for
the foreseeable future, be committed to its Wireless Internet business
segment. In exploiting its Wireless Internet business opportunity, it is
the Company's plan either (1) to acquire an existing hard-wire dependent,
dial-up Internet Service Provider [ISP] in a particular market and
"plug-in" its proprietary Wireless Internet Access System, (2) construct a
Wireless Internet Access System in a particular market or (3) license the
use of the Company Wireless Internet Access System in a particular market.
The Company is seeking capital with which to exploit its Wireless Internet
technology.
In July 1998, the Company changed its name to "Internet Media Corporation".
The Company was incorporated on November 1, 1996, under the name "Media
Entertainment, Inc.", to act as a holding company primarily in the wireless
cable and community (low power) television industries. To this end, the
Company acquired Winter Entertainment, Inc. (WEI), which owns and operates
a community (low power) television station in Baton Rouge, Louisiana, and
Missouri Cable TV Corp. (MCTV), which owns the licenses necessary to
operate wireless cable systems in Poplar Bluff and Lebanon, Missouri, has
acquired licenses and leases of licenses necessary to operate wireless
cable systems in Port Angeles, Washington, Astoria, Oregon, Sand Point,
Idaho, The Dalles, Oregon, and Fallon, Nevada, and has acquired licenses
necessary to operate community (low power) television stations in
Monroe/Rayville, Louisiana, Bainbridge, Georgia, and Natchitoches,
Louisiana. Due to wireless cable industry conditions, the Company intends
to utilize its wireless-cable-related assets in implementing its Wireless
Internet Access System in such markets. In addition, the Company is to
transfer all of its community-television-related assets to a new company,
in exchange for 1,500,000 shares of stock of such new company, and the
shares of the new company distributed as a dividend to the shareholders of
the Company. The Company currently is pursuing only the development of its
Wireless Internet business opportunity.
In September 1998, the Company acquired Desert Rain Internet Services
("DSRT"), a Santa Fe, New Mexico-based ISP. The Company acquired DSRT for
$25,000 in cash. In July 1998, the Company executed an agreement to
acquire an ISP located in St. George, Utah, for cash, the closing of which
has been postponed indefinitely by mutual consent, due to the Company's
lack of capital. In August 1998, the Company executed an agreement to
acquire an ISP located in Santa Fe, New Mexico, for cash and stock, which
agreement has been abandoned by the parties.
Because the Company, WEI and MCTV were combined in a reorganization of
entities under common control, the presentation contained in the financial
statements of the Company has been prepared in a manner similar to the
pooling-of-interests method. In this regard, reference is made to Notes 1
and 3 of the Company's financial statements appearing elsewhere herein.
The following discussion reflects such financial statement presentation.
Results of Operations
Nine Months Ended September 30, 1998, versus Nine Months Ended September
30, 1997. The Company had revenues from operations for the nine months
ended September 30, 1998 ("Interim 98") of $3,200, compared to revenues of
$1,110 (unaudited) for the nine months ended September 30, 1997 ("Interim
97"). The Company expects that, during the fourth quarter of 1998, the
Wireless Internet Segment will generate increased revenues from operations,
following its acquisition of DSRT, and the implementation of its Wireless
Internet System in Santa Fe. The Company's net loss of $847,083
(unaudited) is attributable in large part to the issuance of 1,205,759
shares pursuant to various consulting agreements, which shares were valued
at a total of $896,900. During Interim 98, approximately $660,000 of the
Company's pre-paid consulting expenses (including previously issued shares
for consulting services) was expensed. Similar expenses will be incurred
during the remainder of Fiscal 98 and first half of 1999.
Wireless Internet Segment. This Segment did not exist during Interim 97.
The sale of Wireless DataLink Systems has accounted for this Segment's
revenues, to date. The Company continues to market its proprietary
Wireless DataLink System, although the Company's primary focus during the
remainder of Fiscal 98 will be on the exploitation of its proprietary
Wireless Internet System. Beginning in September 1998, the Company began
to implement its Wireless Internet System in Santa Fe, New Mexico, and
revenues from these efforts began in October.
Acquisition. In September 1998, the Company acquired DSRT. The
acquisition was made for $25,000 in cash. Since September 30, 1998, DSRT
has generated revenues from operations of approximately $3,000 per month.
In addition, the Company has begun to receive revenues from the
implementation of its Wireless Internet System in Santa Fe. Due to the
Company's limited capital, no prediction can be made with respect to the
rate of growth in the Santa Fe market.
Acquisition Agreements. In July 1998, the Company executed an
agreement to acquire an ISP located in St. George, Utah, for cash, the
closing under which has been postponed indefinitely by mutual agreement,
due to the Company current lack of capital. (See "Liquidity and Capital
Resources" below).
In August 1998, the Company executed an agreement to acquire an ISP
located in Santa Fe, New Mexico, for cash and stock, which agreement has
been abandoned.
Acquisition Letters of Intent. During the third quarter of Fiscal 1998,
the Company executed letters of intent to acquire ISPs located in Wichita
Falls and Midland, Texas, and Canon City, Colorado, these in addition to
the previously executed letter of intent to acquire a Baton Rouge,
Louisiana-based ISP. There is no assurance that the Company will be able
to reach a definitive agreement with any of the four ISPs or that the
Company will ever possess sufficient capital to complete the acquisition of
any of these ISPs. The Company is pursuing alternative methods by which it
would be able to implement its Wireless Internet System in conjunction with
each of these ISPs. There is no assurance that the Company will be able to
accomplish this objective. (See "Liquidity and Capital Resources" below).
Marketing Agreement. During Interim 98, the Company entered into a
marketing agreement with a Baton Rouge, Louisiana, dial-up ISP, and has
begun to place customers onto its Wireless Internet system, which marketing
agreement will remain in place until such time as the proposed acquisition
of such dial-up ISP is consummated, of which there is no assurance. (See
"Liquidity and Capital Resources" below). Due to the Company's continuing
lack of capital, the Baton Rouge Wireless Internet System has been
designated as a test system by the Company and, as such, the current
customers are not charged. However, the Company intends to require the
Baton Rouge customers to begin paying for service beginning in the first
quarter of 1999. Should the proposed acquisition be abandoned, the Company
expects that it will continue to operate under its marketing agreement with
the Baton Rouge dial-up ISP. (See "Liquidity and Capital Resources" below).
Joint Venture. Also, the Company has entered into a joint venture
agreement to develop a Wireless Internet system in Monroe, Louisiana. The
Company expects that this joint venture will begin to produce revenues
during the fourth quarter of Fiscal 98.
Community Television Segment. No revenues from the operations of the
Community Television Segment for Interim 98 were generated compared to
revenues of $1,110 (unaudited) for Interim 97. In October 1998, the
Company agreed to transfer all of its community-television-related assets
to a new company, tentatively named "New Wave Media Corp.", in exchange for
1,500,000 shares of stock of New Wave. The Board of Directors declared a
dividend as to all 1,500,000 shares of New Wave to shareholders of record
as of December 1, 1998. Thus, the Company no longer will have a Community
Television Segment.
Wireless Cable Segment. Due to industry conditions, the Company has
determined that it will utilize all of its Wireless Cable assets in the
implementation of its Wireless Internet System in its Wireless Cable
markets, should capital be available for such development.
Liquidity and Capital Resources
September 30, 1998. The Company remained in a substantially illiquid
position throughout Interim 98. At September 30, 1998, the Company's
working capital deficit was $130,332 (unaudited), compared to a working
capital deficit at December 31, 1997, of $198,714 (audited). This
improvement in the Company's working capital deficit is attributable to the
sale of securities in a private offering, whereby the Company obtained,
after deduction of offering commissions and expenses, approximately
$300,000. The offering proceeds were applied to accounts payable
($150,000), purchase of DSRT ($25,000), purchase of equipment ($50,000) and
operating expenses of the Company ($75,000). During Interim 98, one of the
Company's officers, David M. Loflin, advanced to the Company a total of
$30,941, which funds were used primarily for operating expenses of the
Company and the purchase of equipment. Such advances were made on open
account, bear interest at 8% per annum and are payable on demand. As of
the date of this Quarterly Report on Form 10-QSB, the Company owed Mr.
Loflin approximately $140,000, plus accrued and unpaid interest of
approximately $10,068. During Interim 98, the Company repaid $30,000 of
loans to Mr. Loflin. The Company does not currently possess funds
necessary to repay the remaining loans. Mr. Loflin has advised the Company
that he does not intend to make demand for repayment of the loans for the
foreseeable future. Nevertheless, should Mr. Loflin make such demand for
repayment, the Company could be unable to satisfy such demand, which would
have a materially adverse effect of the Company. In addition, none of the
officers of the Company will be paid a salary, and such persons have agreed
to work without pay, until such time as payment of such officers' salaries
would have no adverse affect on the Company's financial condition.
During Interim 98, the Company received $300,000 (net of offering
commissions and expenses) from the sale of shares of its Common Stock,
pursuant to a private offering. The Company remains in need of additional
capital with which to pursue the full-scale development of its Wireless
Internet System and there is no assurance that it will be able to obtain
such additional capital.
During Interim 98, the Company issued shares of its Common Stock on seven
occasions:
A. 400,000 shares were issued to prepay consulting and legal services,
which shares were valued at $.10 per share, or $40,000 in the aggregate.
B. 36,092 shares were issued in payment of financial public relations
and communications consulting services, which shares were valued at
$.953125 per share, or $34,400, in the aggregate.
C. 22,667 shares were issued to prepay internet and communications
consulting services, which shares were valued at $.375 per share, or
$8,500, in the aggregate.
D. 37,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $2.00 per share, or
$74,400, in the aggregate.
E. 80,000 shares were issued to four of the directors of the Company in
payment for services rendered by such persons in their capacities as
directors. These shares were valued at $.80 per share, or $64,000, in the
aggregate. On the date of such issuances, the last closing bid price, as
reported by the OTCBB, for the common stock of the Company was $.56 per share.
F. 400,000 shares were issued to prepay consulting and legal services,
which shares were valued at $1.00 per share, or $400,000 in the aggregate.
G. 300,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $1.10 per share, or
$330,000, in the aggregate.
H. 10,000 hares were issued under a Business Acquisition Agreement,
which shares were valued at $1.00 per share, or $10,000, the aggregate.
Subsequent to Interim 98, the Company has issued shares of its Common
Stock on three occasions:
A. 5,000 hares were issued under a merger agreement, which shares were
valued at $1.00 per share, or $5,000, the aggregate
B. 100,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $.70 per share, or
$70,000, in the aggregate.
C. 150,000 shares were issued in payment of financial public relations
consulting services, which shares were valued at $.50 per share, or
$75,000, in the aggregate.
Private Offering. During Interim 98, the Company received $300,000 (net
of offering commissions and expenses) from the sale of shares of its Common
Stock, pursuant to a private offering. The private offering consisted of
units of securities consisting of two shares of Common Stock and one
warrant to purchase a share of Common Stock at an exercise price of $2.00.
Each unit was sold at a price of $2.00, or $1.00 per share of Common Stock
included therein. However, the Company is in need of additional capital
with which to pursue the full-scale development of its Wireless Internet
business opportunity. Without such additional funding, the Company will be
unable achieve its objectives.
Wireless ISP Markets. The Company's strategy calls, first, for the
identification of a satisfactory market. Next, the Company attempts to
identify an existing dial-up ISP for acquisition, as a joint venture or a
licensee of the Company's Wireless Internet System. Should the Company be
unable to locate such an ISP, the Company will build-out and start-up an
all-wireless system. There is no assurance that funding will be available
to the Company at such times as it attempts acquire an ISP or build-out and
start-up any one of its targeted Wireless ISP markets or than any ISP will
be amenable to engaging in business with the Company.
Acquisition. In September 1998, the Company acquired DSRT, a Santa Fe,
New Mexico-based ISP. The acquisition was made for $25,000 in cash. DSRT
has begun to provide revenues from operations during the fourth quarter of
Fiscal 98 of approximately $3,000 per month, which revenues are expected to
increase as the Company places Wireless Internet customers online in Santa
Fe. However, no prediction as to the level of such increased revenues can
be made.
Acquisition Agreements. In July 1998, the Company executed an
agreement to acquire an ISP located in St. George, Utah, for cash, the
closing of which has been postponed indefinitely by mutual agreement,
pending the Company's obtaining capital with which to acquire such ISP.
There is no assurance that the Company will ever possess sufficient capital
with which to complete this acquisition.
In August 1998, the Company executed an agreement to acquire an ISP
located in Santa Fe, New Mexico, for cash and stock, which agreement has
been abandoned, following extensive negotiations.
Acquisition Letters of Intent. During the third quarter of Fiscal 1998,
the Company executed letters of intent to acquire ISPs located in Wichita
Falls and Midland, Texas, and Canon City, Colorado, these in addition to
the previously executed letter of intent to acquire a Baton Rouge,
Louisiana-based ISP. There is no assurance that the Company will be able
to reach a definitive agreement with any of the four ISPs or that the
Company will ever possess sufficient capital to complete e acquisition of
any of these ISPs. Due to its current lack of capital, the Company is
pursuing alternative methods by which it would be able to implement its
Wireless Internet System in conjunction with each of these ISPs. There is
no assurance that the Company will be able to accomplish this objective.
Marketing Agreement. During Interim 98, the Company entered into a
marketing agreement with a Baton Rouge, Louisiana, dial-up ISP, and has
begun to place customers onto its Wireless Internet system, which marketing
agreement will remain in place until such time as the proposed acquisition
of such dial-up ISP is consummated, of which there is no assurance. Due to
the Company's continuing lack of capital, the Baton Rouge Wireless Internet
System has been designated as a test system by the Company and, as such,
the current customers are not charged. However, the Company intends to
require the Baton Rouge customers to begin paying for service beginning in
the first quarter of 1999. Should the proposed acquisition be abandoned,
the Company expects that it will continue to operate under its marketing
agreement with such dial-up ISP.
Joint Venture. During Interim 98, the Company entered into a joint
venture agreement to implement the Company's Wireless Internet System in
Monroe, Louisiana. The Company expects that this joint venture will begin
to produce revenues during the fourth quarter of Fiscal 98.
Cash Flows from Operating Activities. During Interim 98, the Company's
operations used cash of $341,484 (unaudited). The use of cash in the
current period is primarily due to the Company's net loss of $847,083
(unaudited), which offset a recognition of services performed for stock.
The Company intends to recognize approximately $200,000 for services
performed for stock the last quarter of Fiscal 98 and the first two
quarters of Fiscal 99. The Company's use of cash in operations during
Interim 97 is attributable primarily to the Company's net loss for the
period. The Company's management does not expect that operations for all
of Fiscal 98 will generate positive cash flow. However, management is
unable to predict the level of cash flow to be generated during such period
of time, due to the uncertainty of the level and timing of funding, if any,
with which to commence its proposed Wireless Internet operations. Without
any such funding, it can be expected that the Company will not be able to
generate positive cash flow from operations.
Cash Flows from Investing Activities. Investing activities of the
Company during Interim 98 used $30,000 (unaudited), which was for the
purchase of DSRT and equipment. In comparison, investing activities of the
Company during Interim 97 used $18,862 (unaudited), including $762
(unaudited) for the purchase of equipment, $13,100 (unaudited) for an
investment in a joint venture that was, during the first quarter of Fiscal
98, abandoned, and $5,000 (unaudited) for the purchase of licenses and
rights to leases of licenses. The Company's management is unable to
predict whether investing activities will provide cash during the remainder
of Fiscal 98 and the first half of 1999. This uncertainty is due to
uncertainty as to the level of future funding that the Company is able to
secure additional capital. Absent any such funding, it is expected that
investing activities will continue to use the Company's cash.
Cash Flows from Financing Activities. Financing activities of the
Company provided $348,941 (unaudited) in cash during Interim 98, compared
to Interim 97 when financing activities provided $120,000 (unaudited) in
cash. Substantially all of the cash during the current period was the
proceeds of the Company's private offering, which provided $340,000 I cash
to the Company. The sale of 20,000 shares of Company Common Stock for a
total of $50,000 in cash and loans from a shareholder ($33,000) provided
substantially all of the balance of cash from financing activities, during
Interim 97.
Non-Cash Investing Activities. During Interim 98, the Company's non-cash
investing and financing activities included the following: (A) 400,000
shares issued for consulting and legal services, valued at $40,000; (B)
36,092 shares issued for communications consulting services, valued at
$34,400; (C) 22,667 shares issued for internet and communications
consulting services, valued at $8,500; (D) 10,000 shares issued under
business acquisition agreement, valued at $10,000; (E) 37,000 shares issued
for financial public relations consulting services, valued at $74,000; (F)
400,000 shares issued for consulting and legal services, valued at
$400,000; and (G) 300,000 shares issued for financial public relations
consulting services, valued at $330,000.
Management's Plans Relating to Future Liquidity
It is management's opinion that the Company will be unable to improve its
current liquidity position without a further infusion of cash in an amount
of not less than $200,000. For the remainder of Fiscal 98, the Company's
current operations will be unable, on their own, to alleviate the Company's
current lack of liquidity. In response to its lack of liquidity, the
Company has begun to attempt to license the use of its Wireless Internet
System in various cities, the licensee's to pay for the installation and
implementation of the company Wireless Internet System, such that the
Company will begin to generate immediate cash flow, as well as continuing
royalty income. No prediction can be made as to the likelihood that the
Company will be successful in implementing this strategy or otherwise
obtaining needed financing.
Capital Expenditures
During the remainder of Fiscal 98 and the first half of Fiscal 99, the
Company expects to apply substantially all of its available capital to the
build-out and start-up of one or more of its Wireless ISP markets and to
purchase equipment necessary to install and implement licensed Wireless
Internet Systems, if any. Currently, the Company is under contract to
acquire an existing ISP in St. George, Utah, and will be required to
deliver approximately $250,000 at the closing thereunder. Currently, the
Company does not possess capital with which to acquire this ISP and there
is no assurance that the necessary capital for such proposed transaction
will be available.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1998, the Company notified Tre Vega, a consultant to the
Company, of its intention to institute arbitration proceedings for Mr.
Vega's failure to perform under a consulting agreement with the Company.
The Company intends to pursue various causes of action against Mr. Vega,
including, without limitation, breach of contract, violations of the Texas
Deceptive Trade Practices Act, securities fraud, common law fraud and
tortious interference with beneficial business relationships. For damages,
the Company intends to seek, among other things, the return of 40,000
shares of Company Common Stock issued to Mr. Vega under the consulting
agreement, a ruling that the consulting agreement is void or voidable, the
cancellation of certain bonus compensation (shares of Company Common Stock)
described in the consulting agreement, unspecified monetary damages and
attorneys' fees. No specific date has been set with respect to the
institution of the arbitration proceeding against Mr. Vega. Counsel to the
Company is of the opinion that the Company will be successful in such an
arbitration proceeding, although no assurances in this regard can be given.
Item 2. Changes in Securities.
During the three months ended September 30, 1998, the Company issued
unregistered securities on four occasions, as follows:
1. (a) Securities Sold. On July 15, 1998, the Company issued 37,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to H+N
Partners.
(c) Consideration. Such shares were issued in under a Financial
Public Relations Consulting Services Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provision of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Not applicable.
2. (a) Securities Sold. On July 31, 1998, the Company issued 10,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Craig Boothe.
(c) Consideration. Such shares were issued in under a Business
Acquisition Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provision of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Not applicable.
3. (a) Securities Sold. On September 4, 1998, the Company issued 400,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares were issued in payment of consulting
and legal services.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provision of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Not applicable.
4. (a) Securities Sold. On September 7, 1998, the Company issued 300,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Capital Financial Consultants, Inc.
(c) Consideration. Such shares were issued in payment of consulting
services.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provision of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Not applicable.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote
of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
During the three months ended September 30, 1998, the Company filed
two Current Reports on Form 8-K, as follows:
A. On July 29, 1998, the Company filed a Current Report on Form 8-K
in which the Company reported a change of corporate name.
B. On September 22, 1998, the Company filed a Current Report on Form
8-K in which the Company reported the acquisition of Desert Rain Internet
Service. This Current Report on Form 8-K was amended November 23, 1998.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 23, 1998.
INTERNET MEDIA CORPORATION
By: /s/ David M. Loflin
David M. Loflin
President and
Principal Financial
Officer