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IO WORLD MEDIA, INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion of the financial condition and results of operation of the Company for the periods ended June 30, 2011 and 2010 should be read in conjunction with the selected financial data, the financial statements, and the notes to those statements that are included elsewhere in this quarterly report. Some of the information contained in this discussion and analysis or set forth elsewhere in this quarterly report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. In this quarterly report, references to "ioWorldMedia," "the Company," "we," "our," and "us," refer to ioWorldMedia, Incorporated. We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can", "could," "may," "should," "will," "would," and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws. Recent Developments On April 4, 2011, the Company filed with the Secretary of State of Florida an amendment to its articles of incorporation to fix the terms of the Company's preferred stock, par value $0.001 ("Preferred Stock"). The Preferred Stock shall have a stated value of $3.00 per share and may be converted by the holder into the Company's Common Stock after two years from its issuance at a 25% discount to the preceding twenty-day average closing price of the Company's Common Stock. Upon a Change of Control Event, however, or an equity raise for the company, or its subsidiaries, of $20 million or greater, and at the discretion of the new control party or equity party, the Preferred Stock may be (a) redeemed for cash plus 8% per annum accrued interest rate from its issuance, (b) converted using a 50% to the preceding twenty-day average closing price of the Company's Common Stock prior to the change of control event or equity infusion as described above or (c) a combination of (a) and (b). On April 26, 2011, Bubba the Love Sponge Clem was appointed as a member of the Company's Board of Directors to fill a vacancy due to the resignation of John Stanton. His appointment was effective immediately. Mr. Stanton resigned to focus his attention on his other business ventures. Mr. Stanton will continue to guide emerging technology companies and corporate turnarounds and serve as Chairman of Bulova Technologies Group and AlternaFuels, Inc. Mr. Clem, 45, is a radio personality and is the host of The Bubba the Love Sponge Show on Radioio, the Company's internet radio service. There are no arrangements or understandings between Mr. Clem or any other persons pursuant to which Mr. Clem was appointed as a director. Mr. Clem does not have any family relationships with any of the Company's other directors or executive officers. Critical Estimates and Judgments The preparation of the Company's financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates its estimates and judgments, including those related to receivables and accrued expenses. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable based on the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company's financial statements include estimates as to the appropriate carrying value of the Company's intangible assets, the amount of stock compensation, and the amount of accrued liabilities that are not readily attainable from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements. 16 -------------------------------------------------------------------------------- The discussion in this report contains forward-looking statements that involve risks and uncertainties. The Company's future actual results may differ materially from the results discussed herein, including those in the forward-looking statements. Results of Operations The following table presents the percentage of period-over-period dollar change for the line selected items in the Company's Consolidated Statements of Operations for the quarters ended June 30, 2011 and 2010. These comparisons of financial results are not necessarily indicative of future results. Three Months ended June 30 2011 2010 % Change Sales $ 473,321 $ 191,544 147% Cost of goods sold 220,935 102,343 116% Gross profit 252,386 89,201 183% Operating expenses: Selling and general and administrative 564,724 336,067 68% Depreciation and amortization 18,277 27,457 (33%) Total expenses 583,001 363,524 60% Net operating income (330,615) (274,323) 21% Interest (income) expense (69,151) 6,738 1,126% Net income (loss) before income taxes (261,464) (281,061) (7%) Three Months Ended June 30, 2011 and 2010 Revenue Revenue increased by $281,777, or 147%, for the three months ended June 30, 2011 to $473,321 compared to $191,544 for the three months ended June 30, 2010. Revenue consists primarily of subscription and advertising fee revenue. The increase in revenue is due to the successful launch of Radioio Live. General and administrative We incurred $564,724 and $336,067 of administrative expenses attributable to the services performed through ioWorldMedia and its Subsidiaries for the three months ended June 30, 2011 and 2010, respectively. Administrative expenses for the three months ended June 30, 2011 increased by $228,657 or 68% as compared to the same period in 2010. The increase in the Administrative expenses was primarily due to one-time charges for the issuance of restricted common shares to directors for years of service and for services performed by other individuals for the Company. There were also increased professional fees related to regulatory compliance and promotion of the Company. Net income (loss) The Company had consistent activities as a provider of Internet radio content during the three months ended June 30, 2011 and 2010, which resulted in general and administrative expenses attributable to this operation. The Company is in the process of developing and expanding the Internet radio operation. This process requires the addition of listeners and increasing the variety of content. This process also requires securing other sources of revenue such as advertisers. Consequently, the Company anticipates incurring losses through the rest of 2011 as it builds out its operations. As a result of its ramping up operations as an Internet radio provider, in addition to the one-time charges outlined in the above General and administrative section, the Company realized a net loss of $261,464 during the three months ended June 30, 2011, a decrease of $19,597 or 7% as compared to a net loss of $281,061 during the same period in 2010. 17 -------------------------------------------------------------------------------- Six months Ended June 30, 2011 and 2010 The following table presents the percentage of period-over-period dollar change for the line selected items in the Company's Consolidated Statements of Operations for the six months ended June 30, 2011 and 2010. These comparisons of financial results are not necessarily indicative of future results. Six Months ended June 30 2011 2010 % Change Sales $ 766,472 $ 373,191 105% Cost of goods sold 371,088 197,915 88% Gross profit 395,384 175,276 126% Operating expenses: Selling and general and administrative 931,962 618,846 51% Depreciation and amortization 36,322 54,914 (34%) Total expenses 968,284 673,760 44% Net operating income (572,900) (498,484) 15% Interest (income) expense (63,256) 14,353 541% Net income (loss) before income taxes (509,644) (512,837) (1%) Revenue Revenue increased by $393,281, or 105%, for the six months ended June 30, 2011 to $766,472 compared to $373,191 for the six months ended June 30, 2010. Revenue consists primarily of subscription and advertising fee revenue. The increase in revenue is due to the successful launch of Radioio Live. General and administrative We incurred $931,962 and $618,846 of administrative expenses attributable to the services performed through ioWorldMedia and its Subsidiaries for the six months ended June 30, 2011 and 2010, respectively. Administrative expenses for the six months ended June 30, 2011 increased by $313,116 or 51% as compared to the same period in 2010. The increase in the Administrative expenses was primarily due to one-time charges for the issuance of restricted common shares to directors for years of service and for services performed by other individuals for the Company. There were also increased professional fees related to regulatory compliance and promotion of the Company. Net income (loss) The Company had consistent activities as a provider of Internet radio content during the six months ended June 30, 2011 and 2010, which resulted in general and administrative expenses attributable to this operation. The Company is in the process of developing and expanding the Internet radio operation. This process requires the addition of listeners and increasing the variety of content. This process also requires securing other sources of revenue such as advertisers. Consequently, the Company anticipates incurring losses through the rest of 2011 as it builds out its operations. As a result of its ramping up operations as an Internet radio provider, in addition to the one-time charges outlined in the General and administrative section previously, the Company realized a net loss of $509,644 during the six months ended June 30, 2011, a decrease of $3,193 or 1% as compared to a net loss of $512,837 during the same period in 2010. Liquidity and capital resources We have generated operating losses since inception. We have incurred net losses of $509,644 and $512,837 for the six months ended June 30, 2011 and 2010. We may continue to experience net operating losses. Historically, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate raising additional capital within the next twelve months from investors for working capital as well as business expansion and we can provide no assurance that additional investor funds will be available on terms acceptable to us. If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business. Revenue increased by $393,281 or 105%, in the six months ended June 30, 2011 to $766,472 compared to $373,191 for the six months ended June 30, 2010. 18 -------------------------------------------------------------------------------- For the six months ended June 30, 2011, we had negative working capital of $620,719, as compared to $6,770,306 at June 30, 2010. During the six months ended June 30, 2011 we experienced cash flow from operations of $232,970, as compared to a negative cash flow of $368,763 during the same period in 2010. Net cash provided by operating activities in the six months ended June 30, 2011 was $232,970 compared to net cash used for operating activities of $368,763 for the comparable period in 2010. Net cash used in investing activities in the six months ended June 30, 2011 was $10,904. Net cash provided by financing activities in the six months ended June 30, 2011 was $195,928 as compared to $481,932 during the same period in 2010. |