UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
|
|
FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 2008.
|
OR
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the transition period from __ to
__
|
Commission
File Number 333-136806
LATERAL
MEDIA, INC.
(formerly
Asianada, Inc.)
(Exact
name of registrant as specified in its charter)
DELAWARE
|
|
98-0539032
|
(State of other jurisdiction of incorporation or
organization)
|
|
(IRS
Employer Identification
Number)
|
|
|
|
2121 Avenue of the Stars Suite
2550 Los Angeles, CA90067
|
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
|
(310)
601- 2500
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the 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 the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o Smaller
reporting company x
(do not
check if smaller reporting company)
Indicate
by check mark whether the registrant is a Shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
As of
February 19, 2009, the Company had 9,143,836 shares of common stock par value
$0.001 per share issued and outstanding.
LATERAL
MEDIA, INC.
(formerly
Asianada, Inc.)
PART I -
FINANCIAL INFORMATION
Item
1.
|
Unaudited
Interim Financial Statements
|
1
|
|
|
|
|
● Balance
Sheet
|
1
|
|
● Statements
of Operations
|
2
|
|
●
Statements of
Stockholders' Equity
|
3
|
|
● Statements of Cash
Flows
|
4
|
|
● Notes to Financial
Statements
|
5
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
14
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
14
|
PART II –
OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
15
|
|
|
|
Item
1A.
|
Risk
Factors
|
15
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
15
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
15
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
15
|
|
|
|
Item
5.
|
Other
Information
|
15
|
|
|
|
Item
6.
|
Exhibits
|
15
|
|
|
|
|
Signatures |
16
|
LATERAL
MEDIA INC.
|
(formerly
Asianada, Inc.)
|
(A
Development Stage Company)
|
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
June
30, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
|
$ |
4,694 |
|
|
$ |
85,187 |
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
4,694 |
|
|
|
85,187 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
Technology
software, net
|
|
|
495,488 |
|
|
|
- |
|
Domain
names
|
|
|
190,000 |
|
|
|
- |
|
Covenant
not-to-compete, net
|
|
|
409,766 |
|
|
|
- |
|
Total
Other Assets
|
|
|
1,095,254 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,099,948 |
|
|
$ |
85,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
292,608 |
|
|
$ |
105,579 |
|
Current
portion of note payable
|
|
|
192,495 |
|
|
|
- |
|
Related
party loan payable and accrued interest
|
|
|
- |
|
|
|
518,767 |
|
Total
Current Liabilities
|
|
|
485,103 |
|
|
|
624,346 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES, LESS CURRENT PORTION
|
|
|
|
|
|
|
|
|
Note
payable, net of current portion
|
|
|
623,362 |
|
|
|
- |
|
Total
Liabilities
|
|
|
1,108,465 |
|
|
|
624,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock 5,000,000 shares authorized at par value $0.001 - none
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock 75,000,000 shares authorized at $0.001 par value; 9,143,836 and
8,080,000 shares issued and outstanding at December 31, 2008 and June 30,
2008, respectively
|
|
|
9,144 |
|
|
|
8,080 |
|
Additional
paid - in capital
|
|
|
1,149,322 |
|
|
|
44,651 |
|
Deficit
accumulated in the development stage
|
|
|
(1,166,983 |
) |
|
|
(591,890 |
) |
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficiency
|
|
|
(8,517 |
) |
|
|
(539,159 |
) |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$ |
1,099,948 |
|
|
$ |
85,187 |
|
See notes
to unaudited financial statements.
STATEMENTS
OF OPERATIONS
|
For
the Three and Six Months ended December 31, 2008 and 2007 and
the
|
period
February 17, 2006 (Inception) to December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended December 31,
|
|
|
Six
Months Ended
December 31,
|
|
|
(inception)
to December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$ |
388,950 |
|
|
$ |
157,446 |
|
|
$ |
575,093 |
|
|
$ |
245,124 |
|
|
$ |
1,166,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$ |
(388,950 |
) |
|
$ |
(157,446 |
) |
|
$ |
(575,093 |
) |
|
$ |
(245,124 |
) |
|
$ |
(1,166,983 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON
SHARE
|
|
$ |
(0.05 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding - Basic and diluted
|
|
|
8,231,977 |
|
|
|
8,080,000 |
|
|
|
8,155,573 |
|
|
|
8,080,000 |
|
|
|
8,093,196 |
|
See notes to unaudited financial statements.
LATERAL
MEDIA, INC.
|
(formerly,
Asianada, Inc.)
|
(A
Development Stage Company)
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
|
For
the Six Months Ended December 31, 2008 and the years ended June 30, 2008
and 2007 and for the
|
period
February 17, 2006 (inception) to June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid
- In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 17,
2006 (date of inception)
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash at $0.002 - April 18, 2006
|
|
|
5,200,000 |
|
|
|
5,200 |
|
|
|
5,200 |
|
|
|
- |
|
|
|
10,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash at $0.01 - June 28, 2006
|
|
|
2,880,000 |
|
|
|
2,880 |
|
|
|
25,920 |
|
|
|
- |
|
|
|
28,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,010 |
) |
|
|
(5,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2006
|
|
|
8,080,000 |
|
|
|
8,080 |
|
|
|
31,120 |
|
|
|
(5,010 |
) |
|
|
34,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,190 |
) |
|
|
(44,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2007
|
|
|
8,080,000 |
|
|
|
8,080 |
|
|
|
31,120 |
|
|
|
(49,200 |
) |
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
- |
|
|
|
- |
|
|
|
13,531 |
|
|
|
- |
|
|
|
13,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(542,690 |
) |
|
|
(542,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2008
|
|
|
8,080,000 |
|
|
|
8,080 |
|
|
|
44,651 |
|
|
|
(591,890 |
) |
|
|
(539,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants under asset purchase agreement - December 2,
2008
|
|
|
- |
|
|
|
- |
|
|
|
294,261 |
|
|
|
- |
|
|
|
294,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in payment of outstanding related party loan payable
and accrued interest thereon - December 18,
2008
|
|
|
1,063,836 |
|
|
|
1,064 |
|
|
|
796,812 |
|
|
|
- |
|
|
|
797,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
- |
|
|
|
- |
|
|
|
13,598 |
|
|
|
- |
|
|
|
13,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(575,093 |
) |
|
|
(575,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2008 (Unaudited)
|
|
|
9,143,836 |
|
|
$ |
9,144 |
|
|
$ |
1,149,322 |
|
|
$ |
(1,166,983 |
) |
|
$ |
(8,517 |
) |
See notes to unaudited
financial statements.
LATERAL
MEDIA, INC.
|
(formerly
Asianada, Inc.)
|
(A
Development Stage Company)
|
STATEMENTS
OF CASH FLOWS
|
(UNAUDITED)
|
For
the Six Months Ended December 31, 2008 and 2007 and the
|
period
February 17, 2006 (inception) to December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 17, 2006
|
|
|
|
For
the Six Months Ended
|
|
|
(inception) to
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(575,093 |
) |
|
$ |
(245,124 |
) |
|
$ |
(1,166,983 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
13,598 |
|
|
|
3,384 |
|
|
|
27,129 |
|
Amortization
of intangibles
|
|
|
14,864 |
|
|
|
- |
|
|
|
14,864 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
216,138 |
|
|
|
56,545 |
|
|
|
340,484 |
|
Net
cash used in operating activities
|
|
|
(330,493 |
) |
|
|
(185,195 |
) |
|
|
(784,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
- |
|
|
|
- |
|
|
|
39,200 |
|
Proceeds
from related party loan payable
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
789,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in cash
|
|
|
(80,493 |
) |
|
|
64,805 |
|
|
|
4,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
85,187 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$ |
4,694 |
|
|
$ |
64,805 |
|
|
$ |
4,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of assets (in exchange for issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
of
note payable and a warrant to purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock)
|
|
$ |
1,110,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issurance
of common stock in payment of related
|
|
|
|
|
|
|
|
|
|
|
|
|
party
loan payable and accrued interest thereon
|
|
$ |
797,876 |
|
|
|
|
|
|
|
|
|
See notes
to unaudited financial statements.
(formerly
Asianada, Inc.)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2008
(Unaudited)
1.
ORGANIZATION
Lateral
Media, Inc. (the “Company”) was incorporated under the laws of the State of
Nevada on February 17, 2006. On September 27, 2007, the Company
reincorporated in Delaware and increased its authorized capital stock from
75,000,000 shares to 80,000,000 shares, consisting of 75,000,000 shares of
common stock, par value $0.001, per share, and 5,000,000 shares of “blank check”
preferred stock, par value $0.001, per share. No terms have been established for
the preferred stock.
On
December 4, 2008, the Company merged into its newly formed, wholly-owned
subsidiary, Lateral Media, Inc., a Delaware corporation, effectively changing
its name from Asianada, Inc. to Lateral Media, Inc.
The
Company was planning to acquire and explore mineral properties through June 15,
2007 when this was abandoned and became an inactive development stage
company. On December 2, 2008, the Company commenced
nominal operations and, on January 12, 2009, launched The Recycler
Publishing Network, websites designed to help sellers of cars, boats, RV’s and
motorcycles to market their products using the internet.
The
Company has elected June 30 as its fiscal year end.
2.
GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has incurred operating losses and negative operating cash flow since
inception and future losses are anticipated. The Company's plan of operations,
even if successful, may not result in cash flow sufficient to finance and expand
its business. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Realization of assets is dependent upon
continued operations of the Company, which in turn is dependent upon
management's plans to meet its financing requirements and the success of its
future operations. These financial statements do not include any adjustments
related to the recoverability and classification of asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim unaudited financial statements and related notes have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the rules and
regulations set forth in Regulation S-X of the Securities and Exchange
Commission for Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statement presentation. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the financial position, results of
operations and cash flows for the interim periods have been included. These
financial statements should be read in conjunction with the financial statements
of Lateral Media, Inc. together with Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Form 10-K for the
year ended June 30, 2008. Interim results are not necessarily indicative of the
results for a full year.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income
Taxes
Effective
July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109" (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in the Company's financial statements in accordance with FASB
Statement 109, "Accounting for Income Taxes", and prescribes a recognition
threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
Management
has evaluated and concluded that there are no significant uncertain tax
positions requiring recognition in the Company's financial statements as of
December 31, 2008.
The
Company's policy is to classify assessments, if any, for tax related interest as
interest expenses and tax related penalties as general and administrative
expenses.
New
Accounting Pronouncements
In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141(R), “Business Combinations” (“SFAS 141R”), which replaces SFAS No. 141,
“Business Combinations.” SFAS 141R establishes principles and
requirements for determining how an enterprise recognizes and measures
the fair value of certain assets and liabilities acquired in a business
combination, including noncontrolling interests, contingent consideration,
and certain acquired contingencies. SFAS 141R also
requires acquisition-related transaction expenses and restructuring costs
be expensed as incurred rather than capitalized as a component of the
business combination. SFAS 141R will be applicable prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. SFAS 141R would have an impact on accounting for any
businesses acquired after the effective date of this pronouncement.
In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, "Noncontrolling Interests in Consolidated Financial Statements - an
Amendment of ARB No. 51" (“SFAS No. 160”). The objective of this statement is to
improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards that require the
following changes. The ownership interests in subsidiaries held by parties other
than the parent shall be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but separate from
the parent’s equity. The amount of consolidated net income attributable to the
parent and to the noncontrolling interest must be clearly identified and
presented on the face of the consolidated statement of income. When a subsidiary
is deconsolidated, any retained noncontrolling equity investment in the former
subsidiary is initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
noncontrolling equity investment rather than the carrying amount of that
retained investment and entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of SFAS No. 160 before
December 15, 2008 is prohibited. The Company has not determined the effect, if
any, that may result from the adoption of SFAS No. 160 on its financial
statements.
Management
does not believe that any other recently issued, but not yet effective,
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
4.
RELATED PARTY TRANSACTIONS
Loan
Agreement
On July
11, 2007, as amended on November 15, 2007, April 18, 2008 and August 1,
2008, the Company executed a loan agreement (the “Loan Agreement”), with Trinad
Capital Master Fund (“TCMF”), a stockholder of the Company, whereby TCMF agreed
to lend the Company up to a principal amount of $750,000 (the “Loan”). The Loans
bear interest at the rate of 10%, per annum. The entire outstanding principal
amount of the Loans and accrued interest thereon are due and payable by the
Company upon a sale of securities (other than a sale of shares of the Company’s
common stock to officers, directors or employees of or
consultants to the Company in connection with their provision of services to the
Company) to a third party or parties with proceeds to the Company of not less
than $1,000,000. TCMF may, at its option, receive any payment of
principal and interest due on the Loan in the form of common stock or other
securities that may be issued by the Company in the event the Company
consummates a financing in connection with a change of control or similar
transaction involving the Company, calculated based on the value of the shares
of common stock or other securities sold or issued by the Company in such
financing transaction.
$500,000
was advanced during the year ended June 30, 2008 and an additional $250,000 was
advanced through December 31, 2008.
On
December 18, 2008, the Company entered into an agreement with TCMF to repay all
outstanding principal and accrued interest thereon by issuance of shares of the
Company’s common stock whereby $750,000, plus accrued interest of $47,876 was
repaid by the issuance of 1,063,836 shares of common stock of the Company. TCMF
may also continue to make additional loans to the Company in accordance with the
Loan Agreement.
During
January 2009, the Company borrowed an additional $350,000 from
TCMF.
For the
six months ended December 31, 2008 and 2007, interest expense was $29,109 and
$2,844, respectively.
Management
Agreement
On July
11, 2007, the Company entered into a Management Agreement (the “Management
Agreement”) with Trinad Management, LLC (“Trinad”), an affiliate of TCMF.
Pursuant to the terms of the Management Agreement, which is for a term of 5
years, Trinad will provide certain management services, including, without
limitation, the sourcing, structuring and negotiation of a potential business
combination transaction involving the Company. The Company has agreed to pay
Trinad a management fee of $90,000 per quarter, plus reimbursement of all
expenses reasonably incurred by Trinad in connection with the provision of
management services. Either party may terminate by mutual written agreement. The
Company may terminate immediately by giving written notice and payment of a
termination fee of $1,000,000. The Company has paid $180,000 in management fees
for the six months ended December 31, 2008.
On August
1, 2008, the Company entered into an amendment to the Management
Agreement with Trinad providing that payment of the termination fee may be
satisfied by the issuance of shares of the Company’s common stock or other
securities that may be issued by the Company in the event the Company
consummates a financing in connection with a change of control or similar
transaction involving the Company, calculated based on the value of the shares
of common stock or other securities sold or issued by the Company in such
financing transaction.
Lease
On May 1,
2008, the Company entered into a sublease for office space with Trinad, on a
month-to-month basis, with rent of $3,500, per month, for fifteen percent (15%)
of the current premises leased by Trinad.
5.
FAIR VALUE MEASUREMENTS
Effective
July 1, 2008, the Company adopted both SFAS No. 157 and SFAS No.
159.
Statement
of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS
157"), defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 applies to other
accounting pronouncements that require the use of fair value measurements. A
fair value measurement assumes that the transaction to sell an asset or transfer
a liability occurs in the principal market for the asset or liability, or, in
the absence of a principal market, the most advantageous market for the asset of
liability.
SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement 115” (“SFAS 159”), permits an entity to
elect to measure various financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. Unrealized
gains and losses on items for which the fair value option has been elected
should be reported in earnings at each subsequent reporting date.
6.
ASSET PURCHASE
On
December 2, 2008, the Company entered into an asset purchase agreement (the
“Purchase Agreement”) with an entity owned by the Company’s new chairman of the
board of directors/chief executive officer to purchase a variety of internet
domain names and technology software, including some relating to the automobile
industry, such as AutoSuperSaver.com and LuxuryCarSpot.com., in exchange
for a warrant to purchase 1,800,000 shares of the Company’s common stock,
exercisable at $1.25, per share, over five years, and an unsecured
contingent promissory note of $1,000,000. The Purchase Agreement also
provides for, together with the employment agreement, an agreement
not-to-compete for an aggregate period of five years.
The
shares of common stock underlying the warrant are subject to a two
year lock-up period, commencing upon issuance of the shares under the
warrant. The note bears interest at 6%, per annum, and is
payable in 36 equal monthly installments contingent upon sufficient cash
flow of the Company during each monthly period, as defined. Principal and
interest under the note which is not paid by the monthly due dates shall be
deferred and, on the final due date, any deferred payments shall be cancelled
and the note and interest thereon shall be deemed to be paid-in
full.
The
Company determined the fair values of the assets purchased under SFAS 157, “Fair
Value Measurements”, and, as part of the determination, utilized the services of
an independent valuation specialist. Based on the determination, the
Company recorded the assets purchased, note payable and warrant at their
estimated fair values at the date of purchase, as follows:
Technology
software
|
|
$ |
503,886 |
|
Internet
domain names
|
|
|
190,000 |
|
Covenant
not-to-compete
|
|
|
416,232 |
|
|
|
|
|
|
Total
assets purchased
|
|
$ |
1,110,118 |
|
|
|
|
|
|
Note
payable
|
|
$ |
815,857 |
|
|
|
|
|
|
Warrant
|
|
$ |
294,261 |
|
The
purchased technology software and covenant not-to-complete are being amortized
over 5 years. Amortization expense for the six months ended December 31, 2008
was $14,864. As of December 31, 2008, amortization expense for each
of the five succeeding years was as follows:
2009
|
|
$ |
184,020 |
|
2010
|
|
$ |
184,020 |
|
2011
|
|
$ |
184,020 |
|
2012
|
|
$ |
184,020 |
|
2013
|
|
$ |
169,174 |
|
The
effective interest rate on the note payable is 19%, per annum.
7.
EMPLOYMENT AGREEMENT
On
December 2, 2008, the Company entered into an employment agreement with its
chairman of the board of directors and chief executive officer for a term of
three years. The agreement provides for a base salary of $250,000,
per year, and a bonus on terms and conditions pursuant to the discretion of the
board of directors of the Company, prior to February 15 of each calendar year
during which the executive remains employed by the Company.
8. 2007
EMPLOYEE DIRECTOR AND CONSULTANT STOCK PLAN
On
December 2, 2008, the Company amended its 2007 Employee, Director, and
Consultant Stock Plan (the “Plan”) to increase the number of shares of common
stock that may be issued under the Plan from 1,000,000 to 4,000,000
shares.
9.
SUBSEQUENT EVENT
On
January 9, 2009, the Company purchased certain office equipment and domain names
for an aggregate of $19,940.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special
Note Regarding Forward-Looking Statements
We may,
in discussions of our future plans, objectives and expected performance in
periodic reports filed by us with the Securities and Exchange Commission, or the
SEC (or documents incorporated by reference therein) and in written and oral
presentations made by us, include projections or other forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) or Section 21E of the Securities Act of
1933, as amended (the “Securities Act ”). When used in this Quarterly report on
Form 10-Q (“Form 10-Q”), the words “anticipate”, “believe”, “estimated”,
“expect” and other similar expressions as they relate to our management or us,
are intended to identify such forward looking statements. Such
projections and forward-looking statements are based on assumptions, which we
believe are reasonable but are, by their nature, inherently uncertain. You are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors. The factors that might cause such differences
include, among others, the following: (i) our inability to obtain sufficient
cash to fund ongoing obligations and continue as a going concern; (ii) our
ability to carry out our operating strategy; and (iii) other factors, including
those discussed below. We undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances after the date of
this Form 10-Q or to reflect the occurrence of unanticipated
events.
DESCRIPTION
OF BUSINESS
We were
inactive and were considered a “shell” company by the SEC through February 12,
2009 and are controlled by Trinad Capital Master Fund, Ltd. (“TCMF”), our
majority shareholder. We were planning to acquire and explore mineral properties
through June 15, 2007 when this was abandoned and the Company became a
development stage company. On December 2, 2008, the
Company commenced nominal operations, and on January 12, 2009, launched The
Recycler Publishing Network, websites designed to help sellers of cars, boats,
RV’s and motorcycles to market their products using the
internet
We plan
to build a unique combination of online publishing and performance marketing
companies through asset acquisitions, mergers, exchanges of capital stock or
other business combinations with domestic or foreign businesses. The Company
intends to operate online publishing and performance marketing, including the
automotive, financial services, and professional service
sectors. We have a portfolio of websites and domains in the
automobile industry which were launched as part of our Recycler Publishing
Network. Our domains are designed to facilitate the sales process for private
parties attempting to sell their car, classic, boat, motorcycle, or heavy
equipment online. These sites are designed to distribute their
inventory across the Internet to increase exposure for our private party
advertisers. The Company had minimal operations prior to February 12,
2009.
Results
of Operations
General
and administrative expenses have increased during the three and six months
ending December 31, 2008 as compared to the comparable periods ending December
31, 2007, as we increased our activities to seek and then commence
operations.
Asset
Purchase
In
December 2008, we purchased a variety of internet domain names and technology
software, including some relating to the automobile industry, such as
AutoSuperSaver.com and LuxuryCarSpot.com., in exchange for a note and a
warrant as explained in Note 6 to the financial statements. To assist in
determining the fair values, we engaged ValueScope, Inc. (“ValueScope”), an
independent valuation specialist. In determining the values of the
assets, note and warrant, they utilized the following methods and
assumptions:
•
Technology software –a hybrid of the income and market approaches. The valuation
of the technology utilizes the relief from royalty method. The analysis utilizes
a revenue forecast for the post-purchase entity with cash flows discounted at
the intangible assets’ rate of 19.0%.
•
Internet domain names – the cost approach. ValueScope examined the
market for domain names that consisted of automobile brand names and vehicle
category names. With consideration of the typical range of asking prices for
these domain names ValueScope estimated a domain price of $5,000 for the 31
automobile brand domain names and seven vehicle category domain
names.
•
Covenant not-to-compete – the discounted cash flow method, a form of the income
approach. ValueScope utilized the discounted cash flow method and
scenario analysis, including the details of consideration, incentive
compensation and the new executive’s role in the post-purchase entity, to
determine the value of the covenant not-to-compete.
ValueScope
considered the status of the Company as a development stage company and the
contingent nature of the note payment each month in calculating the fair value
analysis of the promissory note. Because payment is based on a calculation of
sufficient cash flow, of which amounts for expenses, liabilities and capital
expenditures may vary each quarter, the note was discounted at 13.5%. The fair
market rate of the promissory note was derived from the overall cost of equity
of 19.0%, minus the equity risk premium of 5.5%.
Black-Scholes
modeling was used to calculate the value of the equivalent call
option.ValueScope performed a valuation analysis to estimate the fair value of
the Company’s common stock to be $1.02, per share, assuming the purchase of the
operating assets. The exercise price for the warrants was $1.25, per share.
ValueScope used the following assumptions: historical volatility for
comparable companies of 85%, a risk free interest rate of 1% and a term of two
years. This value was further adjusted for dilution and
marketability.
Liquidity
and Capital Resources
As of the
date of the filing of the Form 10-Q, we have generated minimal revenues from the
launching of our websites. As of the quarter ended December 31, 2008,
we were considered a shell company under the rules of the SEC.
On
December 18, 2008, we repaid our outstanding loans to TCMF of $797,876 by
exchange of 1,063,836 shares of our common stock.
During
January 2009, we borrowed $350,000 from TCMF.
On
January 9, 2009, we purchased office equipment and additional domain names from
Venture Lending & Leasing IV, Inc. and Venture Lending & Leasing V, Inc.
for an aggregate of $19,940.
As of the
date of the filing of this Form 10-Q, we have no commitments to purchase any
additional websites, domain names or equipment, although we may in the
future.
Prior to
its growth, the Company was a public shell company with no operations. The
primary sources of liquidity have historically been issuances of common stock
and a loan agreement with TCMF and the Company dated as of July 11, 2007, as
subsequently amended on November 15, 2007, April 18, 2008 and August 1, 2008
(the “Loan Agreement”). Under the Loan Agreement, TCMF agreed to provide a loan
to the Company in the principal amount of up to $750,000. In the
future, we anticipate that our primary sources of liquidity will be cash
generated from our operating activities.
As of
January 31, 2009, the Company had $57,743 of cash and $400,000 available under
the Loan Agreement and management believes it has sufficient cash to satisfy the
Company’s monetary needs in the next twelve months. We may however, require
additional cash resources due to changed business conditions or other future
developments, including any investments or acquisitions we may decide to pursue.
If these sources are insufficient to satisfy our cash requirements, we may seek
to sell additional equity or debt securities in order to obtain a credit
facility. The sale of additional equity or debt securities could result in
additional dilution to our stockholders. The incurrence of increased
indebtedness would result in additional debt services obligations and could
result in additional operating and financial covenants that could restrict our
operations. In addition, there can be no assurance that any additional financing
will be available on acceptable terms, if at all.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
ITEM
3. QUANTITATVIE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable as we are a smaller
reporting company.
ITEM
4(T). CONTROLS AND PROCEDURES.
Evaluation of
Disclosure Controls and Procedures: Disclosure controls and
procedures are designed to ensure that information required to be disclosed in
the reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in
the reports filed under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. As of
the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon
and as of the date of that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports we
filed and submitted under the Exchange Act is recorded, processed, summarized
and reported as and when required.
Changes
in Internal Controls . There were no changes in our internal controls over
financial reporting, identified in connection with the evaluation of such
internal controls that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.
ITEM
1. LEGAL PROCEEDINGS.
None.
Not
applicable as we are a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.
None.
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.
The following Exhibits are attached hereto:
Exhibit No.
|
|
Document Description
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-15(a) and Rule 15d-
|
|
|
15(a),
promulgated under the Securities Exchange Act of 1934, as amended.
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-15(a) and Rule 15d-
|
|
|
15(a),
promulgated under the Securities Exchange Act of 1934, as amended.
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, as
|
|
|
adopted
pursuant to Section 302 Of The Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, as
|
|
|
adopted
pursuant to Section 302 Of The Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
|
|
LATERAL MEDIA,
INC.
(Registrant)
|
|
|
|
|
|
Date: February
20, 2009
|
By:
|
/s/ Jeffrey
Schwartz |
|
|
|
Jeffrey
Schwartz |
|
|
|
Chairman
and Chief Executive Officer
(Authorized
Officer and Principal Executive Officer)
|
|
|
|
|
|
Date: February
20, 2009 |
By: |
/s/
Charles Bentz |
|
|
|
Charles
Bentz |
|
|
|
Chief
Financial Officer
(Authorized
Officer and Chief Financial Officer)
|
|