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25-May-2004
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company acquired all of the assets of RadioTV Network, Inc ("RTV") on July16, 2001 in a transaction treated as a recapitalization of RTV. RTV has beendeveloping and operating, for the past few years, a new television network thatproduced and distributed TV adaptations of top rated radio programs and alsoproduces and distributes radio programs through a partnership with anestablished radio network.
On June 27, 2002 the Company entered into agreement with four (4) institutionalinvestors to provide the Company $750,000 in capital through a SecuredConvertible Debenture Offering ("Debenture")..
On June 28, 2002 the Company entered into an Option Agreement and Plan of Merger("Agreement") to acquire all of the assets of Live Media Enterprises, Inc("Live"), a west coast based independent producer of consumer lifestyle events.On September 3, 2002 the Company elected to terminate the Agreement with Liveand will not proceed with the acquisition even on modified terms. In connectionwith the Agreements the Company has loaned Live the sum of $56,000. This loan isdocumented in two Promissory Notes and is collateralized by substantially all ofthe assets of Live and personally guaranteed by Live's principal shareholder andofficer. The Company is presently attempting to collect its debts from Live inthe Los Angeles Superior Court.
On September 5, 2002, the Company entered into agreement with Sports Byline USA,L.P. to own and operate a new, national radio network, Radio X. Radio X intendsto develop, produce, license, broadcast and distribute radio programs, targetedto young males that will be distributed via traditional terrestrial stations,via satellite and over the Internet. The Company has contributed the sum of$100,000 to this business plus certain management services. Our partnershipinterest is 50%, however, we have an overriding voting control over all mattersof the partnership. Radio X currently has three radio programs in distribution.
The Company intended to use the net proceeds from the Debenture to develop,operate and expand the businesses of RTV and Radio X and continues to seek otheropportunities for the Company. In 2004, the Company entered into loan agreementsand borrowed a total of $824,000 and received proceeds f $741,600, net of debtissue costs and paid back the debenture holders $750,000. The Company believesthat through its loan borrowings, it will have sufficient capital to operatethrough the end of 2004. The Company will, however, continue to seek additionalcapital to fund further development, expansion and operation of its businesses.Upon conversion of the Debentures into the Company common stock there will besubstantial shareholder dilution.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2004 compared to the three months ended March 31,
REVENUES
Revenues for the three months ended March 31, 2004 were $2,415 as compared torevenues for the three months ended March 31, 2003 of $1,119 and were derivedfrom our consolidated subsidiary, Radio X Network.
OPERATING EXPENSES
Compensation was $37,500 for the three months ended March 31, 2004 compared to$40,986 for the comparable period in 2003. Compensation relates solely tocompensation under our employment agreement with our president.
Amortization of radio programs of $0 and $3,699 for the three months ended March31, 2004 and 2003, respectively, results from amortizing the radio programsintangible assets that resulted from the investment by our subsidiary, RadioTVNetwork, Inc, in the Radio X Network.
Consulting expense for the three months ended March 31, 2004 was $1,112,233compared to $7,805 for the three months ended March 31, 2003. During the threemonths ended March 31, 2004, consulting expense related to the issuance ofcommon stock for services.
The Debenture penalty of $30,000 and $100,726 for the three months ended March31, 2004 and 2003, respectively, represents the accrued penalty under theprovisions of the Convertible Debentures. The penalties relate to the deadlinesassociated with the Company filing a Registration Statement in connection withthe Convertible Debentures and liquidated damages penalty for not having enoughauthorized shares to allow for the issuance of all dilutive securities based ona formula as stipulated in the Debenture agreement and a default penalty on theJune 28, 2003 and August 8, 2003 maturity of $500,000 of debentures
For the three months ended March 31, 2003, the Company had an impairment loss of$20,910 as compared to $0 for the three months ended March 31, 2004. Theimpairment relates to certain capital stock received in a German private companyin lieu of a refund of a prepaid expense paid to a service provider. Since therewas no objective valuation data supporting the value of the capital stockreceived, the Company elected to impair this asset.
Professional fees for the three months ended March 31, 2004 were $10,143compared to $31,443 for the three months ended March 31, 2003. The decrease isprimarily related to accounting and legal, audit and registration statementrelated services regarding our filing a SB-2 in the 2003 period.
Other selling, general and administrative expenses were $34,711 for the threemonths ended March 31, 2004 as compared to $25,578 for the three months endedMarch 31, 2003. The increase in expenses is primarily due to an increase intravel related expense for the three months ended March 31, 2004 as compared tothe three months ended March 31, 2003.
Interest expense was $19,581 for the three months ended March 31, 2004 comparedto $20,581 for the three months ended March 31, 2003. Interest expense isattributed to the Convertible Debenture offering and includes accrued interestof the Convertible Debentures and amortization of the debt discount as well asaccrued interest on the Convertible Debentures due to the default on payment.
For the three months ended March 31, 2004, we recognized settlement expense of $$57,334 related to the redemption of the debentures. On February 4, 2003, theCompany settled a lawsuit by issuing 1,000,000 common shares and $6,500 in cash.The shares were valued at the quoted trading price of $0.03 per share on thesettlement date resulting in a total settlement expense of $36,500.
As a result of these factors, we reported a net loss of $1,301,567 or $(.02) pershare for the three months ended March 31, 2004 as compared to a net loss of$282,970 or ($.01) per share for the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, we had a stockholders' deficit of $819,514. Our operationshave been funded by an equity investor in our common stock where we issued183,088 common shares for $82,390 cash during 2002, by the sale of convertibledebentures of $750,000 through November 2003, and net proceeds from loan of$741,600 through May 2004. These funds were used primarily for working capital,capital expenditures, advances to third parties in anticipation of entering intoa merger or acquisition agreement and to pay down certain related party loans.The cash balance at March 31, 2004 was $228,502 and was used to pay backdebenture holders and we will have to minimize operations until we receiveadditional cash flows from our businesses or complete additional financing.
We have no other material commitments for capital expenditures except for theanticipated launch of a RadioTV Network program in late 2004. Other than severalthousand dollars to be generated from our advertising sales from the broadcastof our initial program on the Radio X Network, debenture proceeds, loanproceeds, and warrant exercise proceeds we have no external sources ofliquidity. Although we believe we will have sufficient capital to fund ouranticipated operations through fiscal 2004, we are not currently generatingmeaningful revenues and, unless we raise additional capital, we may not be ableto continue operating beyond fiscal 2004.
Net cash used in operations during the three months ended March 31, 2004 was$44,377 and was substantially attributable to net loss of $1,301,567 offsetprimarily by non-cash stock based expenses of $1,112,233, settlement expense of$57,334, non-cash debt discount amortization of $875, amortization of deferreddebt issuance costs of $7,000, and net changes in operating assets andliabilities of $79,748. In the comparable period of 2003, we had net cash usedin operations of $121,943 primarily relating to the net loss of $211,833primarily offset by an impairment loss of $20,910 and stock-based consultingexpense of $36,500.
Net cash provided by financing activities for the three months ended March 31,2004 was $171,000 as compared to net cash provided by financing activities of$52,000 for the three months ended March 31, 2003. During the three months endedMarch 31, 2004, we received proceeds from loans of $490,000, paid debt issuancecosts of $49,000 and repaid debenture holders $270,000. In the comparable periodof 2003, we received a loan from a joint venture partner of $50,000 and proceedsfrom an officer loan of $2,000.
For the fiscal year ended December 31, 2003, our auditors have issued a goingconcern opinion in connection with their audit of the Company's financialstatements. These conditions raise substantial doubt about our ability tocontinue as a going concern if sufficient additional funding is not acquired oralternative sources of capital developed to meet our working capital needs.
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 1 to theaudited financial statements included in our Annual Report on Form 10-K, asamended, for the year ended December 31, 2002 as filed with the United StatesSecurities and Exchange Commission. We believe that the application of thesepolicies on a consistent basis enables us to provide useful and reliablefinancial information about our operating results and financial condition.
ESTIMATES
The preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results may differ from those estimates.
REVENUE RECOGNITION
We follow the guidance of the Securities and Exchange Commission's StaffAccounting Bulletin 104 for revenue recognition. In general, the Company recordsrevenue when persuasive evidence of an arrangement exists, services have beenrendered or product delivery has occurred, the sales price to the customer isfixed or determinable, and collectability is reasonably assured. The followingpolicies reflect specific criteria for the various revenues streams of theCompany:
We account for revenues from its Radio TV Network, Inc operations in accordancewith the AICPA Accounting Standards Executive Committee Statement of PositionNo. 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2").
We generally produce episodic television series and generates revenues from thesale of broadcast licenses and advertising sales. The terms of the licensingarrangement may vary significantly from contract to contract and may includefixed fees, variable fees with or without nonrefundable minimum guarantees, orbarter arrangements.
We recognize monetary revenues when evidence of a sale or licensing arrangementexists, the license period has begun, delivery of the film to the licensee hasoccurred or the film is available for immediate and unconditional delivery, thearrangement fee is fixed or determinable, and collection of the arrangement feeis reasonably assured. We recognize only the net revenue due to the Companypursuant to the formulas or amounts stipulated in the customer contracts.
We recognize revenues from barter arrangements in accordance with the AccountingPrinciples Board Opinion No. 29 "Accounting for Non-Monetary Exchanges," ("APB29") as interpreted by EITF No. 93-11 "Accounting for Barter TransactionsInvolving Barter Credits." In general, APB 29 and it related interpretationrequire barter revenue to be recorded at the fair market value of what isreceived or what is surrendered, whichever is more clearly evident.
We recognize revenues from the sale of radio program advertising in its Radio XNetwork operations when the fee is determinable and after the commercialadvertisements are broadcast. Any amounts received from customers for radioadvertisements that have not been broadcast during the period are recorded asdeferred revenues until such time as the advertisement is broadcast.
We recognize radio program license fee revenues when evidence of a licensingarrangement exists, the license period has begun, delivery of the program to thelicensee has occurred or is available for immediate and unconditional delivery,the arrangement fee is fixed or determinable, and collection of the arrangementfee is reasonably assured.
STOCK BASED COMPENSATION
We account for stock transactions with employees in accordance with APB OpinionNo. 25, "Accounting for Stock Issued to Employees." In accordance with Statementof Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting forStock-Based Compensation," we adopted the pro forma disclosure requirements ofSFAS 123. We account for stock issued to non-employees in accordance with SFAS123 and related interpretations.
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