e10qsb
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
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QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005.
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TRANSITION REPORT UNDER SECTION 13 OR 15(D)OF THE EXCHANGE ACT |
For the Transition Period from to
Commission File Number: 000-26073
IMMEDIATEK, INC.
(Exact name of small business issuer as specified in its charter)
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Nevada
(State or other jurisdiction
of incorporation)
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86-0881193
(I.R.S. Employer
Identification) |
2435 N. Central Expressway Suite 1200, Richardson, TX
(Address of principal executive offices)
75080
(Zip Code)
Registrant’s telephone number, including area code: (972) 852-2876
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the past 12 months (or 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 o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No o
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be filed by Section 12, 13
or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a
court. Yes o No o
APPLICABLE ONLY TO CORPORATE ISSUERS
Common Stock, $0.001 par value per share, 500,000,000 shares authorized, as of September 30, 2005
the issuer had 38,769,655 shares of common stock outstanding.
Traditional Small Business Disclosure Format (check one) Yes o No o
Part I. Financial Information
Item 1. Financial Statements
Immediatek, Inc.
Consolidated Balance Sheet
(unaudited)
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September 30, |
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2005 |
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Assets |
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Current assets |
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Cash |
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$ |
5,312 |
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Accounts Receivable |
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3,000 |
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Total current assets |
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8,312 |
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Fixed assets, net |
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502,620 |
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Other assets |
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Goodwill |
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324,142 |
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Total assets |
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$ |
835,074 |
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Liabilities and Stockholders’ (Deficit) |
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Current liabilities |
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Accounts payable |
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$ |
431,799 |
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Accrued liabilities |
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15,703 |
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Accrued interest |
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62,215 |
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Convertible notes payable |
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1,071,900 |
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Total current liabilities |
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1,581,617 |
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Stockholders’ (deficit): |
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Preferred stock, $0.001 par value, 5,000,000 shares
authorized, 1,650,000 shares issued and outstanding |
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1,650 |
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Common stock, $0.001 par value, 500,000,000 shares
authorized, 38,769,655 shares issued and outstanding |
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38,770 |
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Additional paid-in-capital |
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6,080,808 |
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Accumulated (deficit) |
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(6,867,771 |
) |
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(746,543 |
) |
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$ |
835,074 |
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3
Immediatek, Inc.
Consolidated Statements of Operations
(unaudited)
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Revenue, net |
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$ |
35,019 |
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$ |
99,299 |
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$ |
185,095 |
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$ |
721,988 |
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Expenses: |
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General and administrative |
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126,470 |
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320,063 |
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327,890 |
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785,809 |
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General and
administrative —
related party |
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— |
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— |
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— |
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37,263 |
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Depreciation |
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19,452 |
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19,398 |
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57,907 |
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48,694 |
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Direct costs |
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54,802 |
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189,464 |
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94,880 |
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563,512 |
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Consulting fees |
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— |
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36,147 |
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31,879 |
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146,294 |
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Non-cash consulting fees |
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12,500 |
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— |
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56,180 |
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— |
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Non-cash compensation expense |
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— |
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— |
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365,407 |
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— |
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Sales and marketing expenses |
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— |
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12,713 |
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— |
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92,455 |
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Network infrastructure |
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— |
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— |
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— |
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— |
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Research and development |
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— |
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395 |
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— |
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50,500 |
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Administrative salaries |
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2,507 |
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102,279 |
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59,890 |
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304,321 |
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Officers salaries |
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125,600 |
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48,585 |
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176,600 |
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119,161 |
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Total expenses |
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341,331 |
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729,044 |
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1,170,633 |
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2,148,009 |
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Net (loss) from operations |
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(306,312 |
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(629,745 |
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(985,538 |
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(1,426,021 |
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Other (expenses): |
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Interest (expense) |
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(24,535 |
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(2,500 |
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(56,706 |
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(5,000 |
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Net (loss) |
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$ |
(330,847 |
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$ |
(632,245 |
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$ |
(1,042,244 |
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$ |
(1,431,021 |
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Weighted average number of
Common shares outstanding —
basic and
fully diluted |
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33,448,459 |
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27,941,755 |
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32,170,963 |
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19,386,457 |
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Net (loss per share — basic and fully diluted |
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$ |
(.01 |
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$ |
(.02 |
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$ |
(.03 |
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$ |
(.07 |
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4
Immediatek, Inc.
Consolidated Statements of Cash Flow
(unaudited)
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Nine
months ended
September 30, |
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2005 |
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2004 |
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Cash flows from operating activities |
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Net (loss) |
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$ |
(1,042,244 |
) |
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$ |
(1,431,021 |
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Adjustment to reconcile net (loss) to
net cash (used) by operating activities: |
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Depreciation |
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57,907 |
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48,694 |
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Shares issued for compensation |
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492,907 |
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110,146 |
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Shares issued for consulting services |
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46,180 |
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— |
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Shares issued as payment on notes payable |
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33,000 |
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— |
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Changes in operating assets and liabilities: |
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Decrease (increase) in accounts receivable |
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70,281 |
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(23,441 |
) |
Decrease in prepaid expenses |
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6418 |
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11,332 |
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Decrease (increase) in other assets |
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13,760 |
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(2,660 |
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Increase (decrease) in accounts payable |
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84,930 |
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(8,665 |
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Increase in accrued interest |
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62,215 |
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— |
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(Decrease) increase in accrued liabilities |
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(45,112 |
) |
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216,205 |
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Net cash (used) by operating activities |
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(219,758 |
) |
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(1,079,410 |
) |
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Cash flows from investing activities |
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Cash received from DiscLive acquisition |
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— |
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20,662 |
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Purchase of fixed assets |
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(8,080 |
) |
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(30,616 |
) |
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Net cash (used) by investing activities |
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(8,080 |
) |
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(9,954 |
) |
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Cash flows from financing activities |
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Common stock issuances |
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— |
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857,423 |
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Payments on notes payable |
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(340,400 |
) |
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— |
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Proceeds from notes payable |
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552,000 |
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118,000 |
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Net cash provided by financing activities |
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211,600 |
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975,423 |
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Net increase (decrease) in cash and equivalents |
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(16,238 |
) |
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(113,941 |
) |
Cash and equivalents — beginning |
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21,550 |
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118,562 |
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Cash and equivalents — ending |
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$ |
5,312 |
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$ |
4,621 |
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Supplemental disclosures: |
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Interest paid |
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$ |
3,147 |
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$ |
5,000 |
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Income taxes paid |
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$ |
— |
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$ |
— |
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5
Immediatek, Inc.
Notes to Consolidated Financial Statements
Note 1 — Basis of Presentation
The consolidated interim financial statements included herein, presented in accordance with United
States generally accepted accounting principles and stated in US dollars, have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. 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, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the
opinion of management, are necessary for fair presentation of the information contained therein. It
is suggested that these consolidated interim financial statements be read in conjunction with the
financial statements of the Company for the year ended December 31, 2004 and notes thereto included
in the Company’s 10-KSB annual report. The Company follows the same accounting policies in the
preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
Note 2 — Going concern
The Company’s financial statements are prepared using the generally accepted accounting principles
applicable to a going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company has not generated significant
revenues. In order to obtain the necessary capital, the Company has obtained funds from a primary
investor to provide the minimum funding obligations on an as needed basis. The Company and the
primary investor have agreed to provide sufficient funds as a loan over the next twelve-month
period. However, the Company is also dependent upon its ability to secure equity and/or debt
financing beyond these minimum funding obligations and there are no assurances that the Company
will be successful and without sufficient financing, it would be unlikely for the Company to
continue as a going concern.
Note 3 — Asset acquisition
On February 28, 2005, the Company entered into an “Asset Purchase Agreement” with Moving Records,
LLC, (“MR”) a private company established and operated in the State of Minnesota. Pursuant to the
agreement, the Company acquired recording equipment valued at $258,043 and agreed to assume a total
of $120,000 in debt from MR under separate promissory note and $15,703 in accounts payable, in
exchange for 2,500,000 shares of the Company’s $0.001 par value common stock. The fair value of the
Company’s common stock on the date of the agreement was $450,000. The difference between the value
of the stock issued and the fair market value of the assets acquired is $365,406, which the Company
expensed as non-cash compensation.
Note 4 — Fixed assets
During the nine months ended September 30, 2005, the Company acquired equipment valued at $258,043
pursuant to an Asset Acquisition Agreement and $8,080 of
6
equipment in the normal course of business. Depreciation expense totaled $57,907 and $48,694 for
the nine months ended September 30, 2005 and 2004, respectively.
Note 5 — Accounts payable
As of September 30, 2005, the Company had outstanding accounts payable in the amount of $430,173 of
which $347,079 has been outstanding over 90 days. The carrying value of accounts payable
approximates fair value due to the short-term nature of the obligations.
Note 6 — Note payable
On March 15, 2005 the Company entered into a $425,000 Secured Promissory Note and a Collateral
Assignment and General Security Agreement with Mr. Osias Blum, an individual. The Note provides for
the principal and interest, at the rate of 10% per annum, to be paid on the maturity date of April
1, 2006 or at an earlier date if the Company is successful in completing an exempt Regulation D
private placement of their common stock of $1,000,000 or more. The Note is secured by all the
Company’s tangible and intangible assets other than those assets previously pledged on prior debt
transactions to other secured parties.
Interest expense totaled $56,706 and $5,000 for the nine months ended September 30,2005 and 2004,
respectively.
Note 7 — Stockholders’ equity
Common Stock
The Company is authorized to issue 500,000,000 shares of $0.001 par value common stock.
On February 28, 2005, the Company issued 2,500,000 shares of its $0.001 par value common stock
pursuant to an “Asset Acquisition Agreement”. The fair market value of the underlying shares is
$450,000.
On March 4, 2005 and July 6, 2005, the Company issued 64,000 shares and 50,000 shares, respectively
of its $0.001 par value common stock for consulting services valued at $7,680 and $2,500,
respectively.
On September 15, 2005 and September 23, 2005, the Company issued 5,775,000 shares and 600,000
shares, respectively of its $0.001 par value common stock to key employees of the Company valued at
$115,000 and $12,000, respectively.
There were no other issuances of common stock during the nine months ended September 30, 2005.
Preferred Stock
The Company is also authorized to issue 5,000,000 shares of $0.001 par value preferred stock.
On September 15, 2005, the Company issued 1,650,000 shares of its $0.001 par value preferred stock
to a key employee in lieu of a note payment valued at $33,000.
7
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Immediatek, Inc. is a technology company specializing in software and technology solutions,
specifically geared towards the music and entertainment industry. Utilizing the strength of its
core “instant CD” and “instant DVD” product and copy control software, Immediatek is striving to
become the leading supplier of live and pre-recorded content through a variety of distribution
sources.
On April 9, 2004, the Company completed the purchase of DiscLive, Inc., a privately held company
that secures contracts with various music artists to record live concert performances, through the
issuance of 1,666,667 shares of the Company’s common stock in exchange for all of the outstanding
capital stock of DiscLive. The DiscLive acquisition was valued at $600,000, based on the average
market price of the Company’s common shares at the time of acquisition. The company allocated
$324,142 of the acquisition price to goodwill and the balance of $275,858 to assets and
liabilities.
On February 28, 2005, the Company entered into an “Asset Purchase Agreement” with Moving Records,
LLC, (“MR”) a private company established and operated in the State of Minnesota. Pursuant to the
agreement, the Company acquired recording equipment valued at $258,043 and agreed to assume a total
of $120,000 in debt from MR under a separate promissory note and $15,703 in accounts payable, in
exchange for 2,500,000 shares of the Company’s common stock. The fair value of the Company’s common
stock on the date of the agreement was $450,000. The difference between the value of the stock
issued and the fair market value of the assets acquired was $365,406, which the Company expensed as
non-cash compensation.
The Company’s ability to continue as a going concern is contingent upon the successful marketing
and continued rollout of its DiscLive product, completion of additional financing arrangements, and
the development of its software and technology solutions to achieve and maintain profitable
operations. Management plans to raise equity capital to finance the operating and capital
requirements of the Company. Amounts raised will be used to further development of the Company’s
products, to provide financing for marketing and promotion, to secure additional property and
equipment and for other working capital purposes. While the Company is expending its best efforts
to achieve the above plans, there is no assurance that any such activity will generate funds that
will be available for operations.
These conditions raise doubt about the Company’s ability to continue as a going concern. The
Company’s financial statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amounts and classification of liabilities that may
be necessary should the Company be unable to continue in existence.
The Company has a limited operating history upon which an evaluation of the Company, its current
business and its prospects can be based. The Company’s prospects must be considered in light of the
risks, uncertainties, expenses and difficulties frequently encountered by companies in their early
stages. Such risks include, the Company’s inability to anticipate and adapt to a developing market,
the failure of the Company’s infrastructure, changes in laws that adversely affect the Company’s
business, the ability of the Company to manage its operations, including the amount and timing of
capital expenditures and other costs relating to the expansion of the Company’s operations, the
introduction and development of different or more extensive communities by direct and indirect
competitors of the Company, including those with greater financial, technical and marketing
resources, the inability of the Company to attract, retain and motivate qualified personnel and
general economic conditions.
8
Results of Operations
The Company generated $35,019 and $99,299 in revenues during the three months ended September 30,
2005 and 2004, respectively. The Company experienced net losses of $(330,847) or a net loss of
$(0.01) per share in the third quarter of 2005 compared to losses of $(632,245) or a net loss of
$(0.02) per share in the same period in 2004. For the three months and nine months ending September
30, 2005, the Company incurred costs of services and operating expenses, which amounted to $341,331
and $1,170,633, respectively.
The Company generated $185,095 in revenues during the nine months ended September 30, 2005 compared
to $721,988 for the same period in 2004. The Company had net losses of $(1,042,244) compared to a
net loss of $(1,431,021) for the same period in 2004.
The decrease in comparative revenue for the nine months ending is a direct result from a spike in
revenue experienced during the month of April 2004. April 2004 represented approximately half of
the entire revenue for the fiscal year of 2004. The majority of this revenue experienced in this
month came from a single business contract and did not continue until later that same year due to
the schedule of the musical band that was touring. Other factors affecting the decrease in
comparative revenues include the timing variances associated sales cycles as they relate to the
live concert business. Management estimates that the sales cycle for similar business as
experienced in April 2004 may take between three to six months before revenue is realized. As
management continues to develop its business it believes that the sales cycle can be reduced to one
to two months. Further it is expected that revenue from month to month will grow at a steadier rate
and become less volatile.
Even though management has identified various small competitors, it is only aware of one primary
competitor, Clear Channels, “Instant Live”. It is believed by management that as it continues to
execute its business model and improve its operations it will continue to increase its market share
and eventually become profitable. The Company has relied on the support of its existing investor
base for its liquidity.
Plan of Operation
Immediatek has several key products, DiscLive, however, represents the primary product of the
group. DiscLive represents the immediate opportunity to grow, to establish market share and revenue
- as well as providing a launching pad for Immediatek’s other products.
DiscLive provides a very unique and exciting service in both the wholesale and retail markets. The
Company’s clients are typically recording artists, managers and labels, and more recently, venues.
The Company provides, on a large scale, the instant recording of live events made available to
attendees immediately succeeding an event. The Company makes this possible through its custom
mobile recording and manufacturing facilities procured in the acquisition of DiscLive and the asset
purchase of Moving Records. The mobile recording and duplication units are comprised of proprietary
software, custom-designed hardware, intellectual property, and trade secrets, which have enabled
DiscLive to become the first company to successfully implement such a product on a broad scale. In
connection with the on-site sales opportunities, there are extensions to the base distribution
model in which many more opportunities to grow exist. Such as offering content on the
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Internet, via USB key chain devices, and popular player devices such as Apple’s iPod.
Additionally, through the increased venue presence of DiscLive, the brand has become more
recognized and the Company has identified a new demand for DiscLive “systems” which can be
installed into venues, and which enable venues to produce live discs of their events with some
services provided by DiscLive. The Company plans to capture additional revenues through the sale of
hardware, maintenance contracts, and per disc royalty fees at permanent venue locations. The
Company also expects to generate revenue through ancillary services such as blank product,
e-commerce, and all other production requirements that a venue would need to successfully implement
our product.
The company expects to act swiftly to increase its bandwidth in order to handle multiple tours and
venue installations. By continuing to improve the brand, speed up the processes, offer new
innovations such as “instant” DVDs and USB key chain products, DiscLive will continue to gain
market share. As the company continues to gain momentum, we will springboard off of the original
Immediatek NetBurn Secure technology to offer artists and labels true end-to-end “secure” products
— helping to reduce piracy and bootlegging and to preserve artist and label revenues.
Liquidity and Capital Resources
The Company is authorized to issue 500,000,000 shares of common stock. In addition, the Company is
authorized to issue 5,000,000 shares of preferred stock.
The Company could be required to secure additional financing to fully implement its entire business
plan. There are no guarantees that such financing will be available to the Company, or if
available, will be on terms and conditions satisfactory to management.
At September 30, 2005, the Company had $8,312 of current assets and $1,581,617 of current
liabilities or negative working capital of $1,573,305 of negative working capital.
The Company used $219,578 in cash for operating activities for the nine months ending September 30,
2005 compared to $1,079,410 for the same period in 2004. The Company financed operations through
proceeds from notes payable of $552,000.
The Company currently has $18,000 of notes payable due immediately and $410,000 due on November 2,
2005.
The Company does not have any preliminary agreements or understandings between the company and its
stockholders/officers and directors with respect to loans or financing to operate the company or to
pay the notes currently due. The Company has no arrangements or commitments for accounts and
accounts receivable financing. There can be no assurance that any such financing can be obtained
or, if obtained, that it will be on reasonable terms.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital
resources that is material to investors.
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Item 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the specified time periods. As of the end of
the period covered by this report, Zach Blair, the Company’s Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures.
Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, Mr.
Blair, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures are effective. There were no changes in the Company’s internal
control over financial reporting that occurred during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are currently no material legal proceedings pending.
Item 2. Changes in Securities and Use of Proceeds
On September 15, 2005 and September 23, 2005, the Company issued 5,775,000 shares and 600,000
shares, respectively of its $0.001 par value common stock to key employees of the Company for
valued at $115,000 and $12,000, respectively.
There were no other issuances of common stock during the nine months ended September 30, 2005.
On September 15, 2005, the Company issued 1,650,000 shares of its $0.001 par value preferred stock
to a key employee in lieu of a note payment valued at $33,000.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended September 30, 2005, no matters were submitted to the Company’s security
holders.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act |
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| 32.1* |
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act |
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
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Immediatek, Inc. |
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(Registrant) |
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Dated: November 2, 2005
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By:
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/s/ Zach Bair |
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Zach Bair |
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Chairman of the Board |
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Chief Executive and Financial Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
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IMMEDIATEK, INC. |
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Date: November 2, 2005
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By:
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/s/ Zach Bair |
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Zach Bair |
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Chief Executive and Financial Officer |
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