PINX:IWDM Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
 (Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________
 
Commission file number:  000-27574
 
IOWORLDMEDIA, INCORPORATED
  (Exact name of registrant as specified in its charter)
 
Florida
 
59-3350778
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
5025 West Lemon Street, Suite 200
Tampa, Florida
 
 
33609
(Address of principal executive offices)
 
(Zip Code)
 
(813) 637-2229
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No x
 
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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
 
           
Non-accelerated filer
o
 
Smaller reporting company
x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yeso    No x
 
APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
 
As of August 13, 2012 there were 224,878,246 shares of $0.001 par value common stock issued and outstanding.
 
 
 

 
 
FORM 10-Q
IOWORLDMEDIA, INCORPORATED.
 
 
TABLE OF CONTENTS
   
 Page
     
PART I.
Financial Information
 
     
 
Item 1.  Financial Statements.
3
     
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Plan of Operation.
17
     
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
22
     
 
Item 4.  Controls and Procedures.
22
     
PARTII.
Other Information
 
     
 
Item 1.  Legal Proceedings.
23
     
 
Item 1A. Risk Factors.
23
     
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
23
     
 
Item 3.  Defaults Upon Senior Securities.
23
     
 
Item 4.  Mine Safety Disclosures.
23
     
 
Item 5.  Other Information.
23
     
 
Item 6.  Exhibits.
23
     
 
Signatures
24
 
 
2

 

 
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
 
ioWorldMedia, Incorporated and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS
 
             
             
   
June 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
       
ASSETS            
             
  Current assets
           
  Cash
  $ 10,957     $ 14,319  
  Accounts receivable
    29,656       25,454  
  Prepaid expense
    138,390       129,974  
  Accrued revenue
    54,791       45,368  
    Total current assets
    233,794       215,115  
                 
  Property and equipment, net of accumulated depreciation
    98,414       115,978  
                 
  Other assets
               
  Advance payments for contractual obligations
    77,536       134,819  
  Goodwill, net of impairement allowance
    1,204,000       1,204,000  
    Total other assets
    1,281,536       1,338,819  
                 
     Total assets
  $ 1,613,744     $ 1,669,912  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
  Current liabilities
               
  Advances from related parties
  $ 205,696     $ 12,000  
  Note payable
    400,000       400,000  
  Accounts payable and accrued expenses
    831,145       611,229  
  Deferred revenue
    325,137       321,035  
    Total current liabilities
    1,761,978       1,344,264  
                 
  Deferred revenue
    207,269       345,460  
                 
     Total liabilities
    1,969,247       1,689,724  
                 
  Temporary Equity
               
  Preferred stock, $.001 par value, 5,000,000 shares authorized,  3,025,000
               
    shares issued and 3,000,000 outstanding at June 30, 2012
               
    and December 31, 2011
    5,772,304       5,772,304  
      5,772,304       5,772,304  
                 
  Stockholders' equity
               
  Common stock, $.001 par value; 250,000,000 authorized, 163,447,479
               
    shares issued and outstanding at June 30, 2012 and
               
    and December 31, 2011, respectively
    163,548       163,548  
  Additional paid-in capital
    58,722,274       58,722,274  
  Treasury stock, 25,000 shares of preferred, at cost
    (25,931 )     (25,931 )
  Accumulated defcit
    (64,987,698 )     (64,652,007 )
    Total stockholders' equity
    (6,127,807 )     (5,792,116 )
                 
     Total liabilities and stockholders' equity
  $ 1,613,744     $ 1,669,912  
                 
 
 
See notes to consolidated financial statements.
 
3

 
 
ioWorldMedia, Incorporated and Subsidiaries
 
CONSOLIDATED STATEMENT OF OPERATIONS
 
                         
                         
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
                         
   
2012
   
2011
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
                         
Sales
  $ 403,492     $ 473,321     $ 805,272     $ 766,472  
Cost of sales
    179,284       220,935       362,503       371,088  
Gross profit
    224,208       252,386       442,769       395,384  
                                 
Operating expenses:
                               
Selling and general and administrative
    361,683       564,724       750,193       931,962  
Depreciation and amortization
    5,988       18,277       28,267       36,322  
Total expenses
    367,671       583,001       778,460       968,284  
                                 
Net operating income
    (143,463 )     (330,615 )     (335,691 )     (572,900 )
                                 
Other income (expense)
                               
Other comprehensive income
    -       -       -       -  
Interest income (expense)
    -       -       -       (5,895 )
Total other income (expense)
    -       -       -       (5,895 )
                                 
Net income (loss) before income taxes
    (143,463 )     (330,615 )     (335,691 )     (578,795 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net income (loss)
  $ (143,463 )   $ (330,615 )   $ (335,691 )   $ (578,795 )
                                 
                                 
                                 
Net loss per weighted share,
                               
basic and fully diluted
  $ (0.0009 )   $ (0.0025 )   $ (0.0021 )   $ (0.0050 )
                                 
                                 
Weighted average number of common
                               
shares outstanding, basic and fully diluted
    163,447,479       132,298,669       163,447,479       115,936,119  
                                 

 
See notes to consolidated financial statements.
 
4

 
 
ioWorldMedia, Incorporated and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 
                                     
                                     
               
Additional
                   
   
Common Stock
   
Paid-in
   
Treasury
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Stock
   
Deficit
   
Total
 
                                     
Balance, December 31, 2010
    108,702,874     $ 108,803     $ 56,934,164     $ (25,931 )   $ (63,697,355 )     (6,680,319 )
                                                 
Common shares issued for cash
    1,000,000       1,000       199,000                       200,000  
Common shares issued for
                                               
  debt conversion
    1,942,905       1,943       219,895                       221,838  
Restricted common shares issued
    2,420,000       2,420       21,780                       24,200  
  for services
                                               
Restricted common shares issued
                                               
  for Directors' Fees
    9,000,000       9,000       81,000                       90,000  
Restricted common shares issued
                                               
  as part of Talent contract
    10,000,000       10,000       90,000                       100,000  
Restricted common shares issued
                                               
  to Early Enlister subscribers
    281,700       282       2,535                       2,817  
Common shares issued for in
                                               
  exchange for Up Your Ratings, Inc.
    30,100,000       30,100       1,173,900                       1,204,000  
Net loss
                                    (954,652 )     (954,652 )
                                                 
Balance, December 31, 2011
    163,447,479     $ 163,548     $ 58,722,274     $ (25,931 )   $ (64,652,007 )   $ (5,792,116 )
                                                 
Net loss
                                    (335,691 )     (335,691 )
                                                 
Balance, June 30, 2012
    163,447,479     $ 163,548     $ 58,722,274     $ (25,931 )   $ (64,987,698 )   $ (6,127,807 )
                                                 
 
 
See notes to consolidated financial statements.
 
5

 
 
ioWorldMedia, Incorporated and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
             
   
Six Months Ended
 
   
June 30,
 
             
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
             
Cash flows from operations
           
Net income (loss)
  $ (335,691 )   $ (578,795 )
                 
Adjustment to reconcile net loss to net cash:
               
Depreciation and amortization
    28,267       36,322  
Expenses settled by issuance of common stock
            128,128  
Changes in operating assets and liabilities:
               
Accounts receivable
    (4,202 )     (29,802 )
Deposits
    -       1,046  
Accounts payable and accrued expenses
    219,916       114,263  
Accrued revenue
    (9,423 )     (13,407 )
Prepaid expenses
    (8,416 )     (105,581 )
Advance payments on contractual obligations
    57,283       (142,103 )
Deferred revenue
    (134,089 )     822,899  
Net cash provided by (used for) operating activities
    (186,355 )     232,970  
                 
Cash flows from investing activities
               
                 
Capital expenditures
    (10,703 )     (10,904 )
Net cash provided by financing activities
    (10,703 )     (10,904 )
                 
Cash flows from financing activities
               
Issuance of common stock
            200,000  
Due to related party shareholders
    193,696       -  
Proceeds from long-term borrowing
    -       -  
Payments on capital lease obligation
    -       (4,072 )
                 
Net cash provided by financing activities
    193,696       195,928  
Net increase (decrease) in cash
    (3,362 )     417,994  
Cash, beginning of period
    14,319       2,057  
                 
Cash, end of period
  $ 10,957     $ 420,051  
                 
Supplemental disclosures:
               
                 
Cash paid during the year for:
               
                 
Interest
  $ -     $ 113  
                 

See notes to consolidated financial statements.
 
6

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

1.    Nature of operations

PowerCerv Corporation was incorporated in Florida in January 1995 as a holding company. The Company’s Articles of Incorporation were amended in January of 2006 to change its name to IOWORLDMEDIA, INCORPORATED.  Unless otherwise specified, references herein to “the Company” mean ioWorldMedia, Incorporated and its subsidiaries and controlled limited liability companies.
 
On December 1, 2002, the Company completed the sale of substantially all of its operating assets to PCV Acquisition Inc., a subsidiary of ASA International, Ltd., a holding company of Vertical Enterprise Software Solutions based in Framingham, Massachusetts (collectively referred to as “ASA”).

During 2003 and 2004, there were no significant operations.

On December 30, 2003, the Company entered into a management and finance agreement with WhiteKnight SST (“WhiteKnight”), a related party, to develop and implement a business plan for the Company. Pursuant to this agreement, WhiteKnight agreed to infuse $250,000 into the Company.  In exchange, WhiteKnight was able to elect to receive up to a 50 percent equity interest in the Company through the conversion of the $250,000 debt to common stock, par value $0.001 per share,  of the Company (the “Common Stock”). WhiteKnight exercised this conversion right prior to the completion of the SearchPlay purchase described below.

WhiteKnight investigated various possibilities and ultimately proposed to the Company’s Board of Directors that the Company set a plan in motion to engage in the business of providing Internet radio services.  As part of this plan, WhiteKnight proposed that the Company acquire the intellectual property owned by the related entities SearchPlay, LLC and Radioio.com, LLC, (collectively,“SearchPlay”).  At the time, SearchPlay owned several patents pending and other intellectual property that WhiteKnight believed would be advantageous to the Company as it sought to develop its Internet radio operations.
 
To complete the SearchPlay purchase, the Company entered into a Contribution Agreement in November 2005.  Pursuant to the agreement, the Company agreed to exchange shares of its Common Stock for the membership interests of SearchPlay.  As part of this agreement, the Company also agreed to exchange shares of its Common Stock for certain debt owed to several individuals some of whom are principals or affiliates of WhiteKnight.

In January 2006 the Company officially changed its name to IOWORLDMEDIA, INCORPORATED.
 
The Company is engaged in providing media content delivery via the Internet to listeners around the world.  It operates three main subsidiaries; Radioio, ioBusinessMusic and RadioioLive.

2.  
Liquidity
 
During the six months ended June 30, 2012, and 2011, the Company incurred net losses of approximately $336,000 and $579,000 respectively. Cash used in operations was approximately $186,000 for the six months ended June 30, 2012 while cash provided by operations was $233,000 for the six months ended June 30, 2011. The Company has not attained a level of revenues sufficient to support recurring expenses.
 
3.  
Summary of significant accounting policies
 
Basis of Presentation and Principles of Consolidation
 
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, Radioio, SearchPlay, ioBusinessMusic (formerly io4business) and Radioio Live.   All intercompany balances and transactions have been eliminated in consolidation.

These financial statements were approved by management and available for issuance on August 13, 2012.  Subsequent events have been evaluated through this date.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures.  Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 
7

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

Cash and Cash Equivalents

The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts.

Accounts Receivable and accrued revenue

Accounts receivable are recorded at the invoiced amount.  Any allowance for doubtful accounts is the Company’s best estimate of the amount of probable losses to the Company’s existing accounts receivable.  No allowance for doubtful accounts was recorded for the quarter ended June 30, 2012.

Accrued Revenue

Accrued revenues represent estimates of ad revenue, based on ad runs, expected collections on those runs and reports of expected amounts to be paid by third parties placing ads.

Securities Owned

All securities owned are valued at market and unrealized gains and losses are reflected in revenues.

Property and Equipment

Equipment is stated at cost less accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized.

The Company provides for depreciation and amortization over the following estimated useful lives:
 
Computers and office equipment
5 years
Furniture and fixtures
7 years
 
Long-Lived Assets

In accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.  There were no impairment charges for the quarters ended June 30, 2012 or 2011, respectively.

Revenue recognition

The Company derives revenue primarily from premium listener subscription plans and from advertising.  The Company offers a number of subscription plans on a monthly and annual basis.  Revenue from subscribers is recognized on a monthly pro-rata basis over the life of the subscription beginning January 1, 2011 effective with the launch of RadioioLive and the material level of annual and multi-year subscriptions sold.  The subscriptions collected in advance are recorded as deferred revenue with the portion to be earned over the upcoming year classified as a current liability and the portion to be earned after June 30, 2013 classified as a long term liability. Prior to January 1, 2011 subscription revenue was recognized as received from subscribers.

Advertising revenue is recognized in the period in which the advertisement is broadcast or run on the Company’s website.
 
Income Taxes

The Company files a consolidated income tax return with its subsidiaries.  The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes,” which requires accounting for deferred income taxes under the asset and liability method.  Deferred income tax asset and liabilities are computed for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
 
 
8

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.  Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.  The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a “more-likely-than-not” probability that the uncertain tax positions will withstand challenge, if any, from tax authorities.  When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.  Accrued interest and penalties related to income tax matters are classified as a component of income tax expense.
 
In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. state and local jurisdictions. . The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders’ equity. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.  It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported as an adjustment to stockholder’s equity as of January 1, 2009.  Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company’s financial statements upon adoption. However, management’s conclusions regarding this policy is subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.
 
Interest and Penalty Recognition on Unrecognized Tax Benefits

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Comprehensive Income

The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components.
 
Fair Value of Financial Instruments
 
The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying consolidated statements of financial condition at June 30, 2012 and December 31, 2011.
 
Loss Per Common Share
 
The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted loss per common share incorporates the dilutive effect of common stock equivalents on an average basis during the period.  The calculation of diluted net loss per share excludes the conversion of any convertible debt obligations into common or preferred stock as of June 30, 2012 and June 30, 2011, respectively, since the effect of any such conversion would be anti-dilutive.

Stock-Based Compensation

The Company complies with FASB ASC Topic 718 “Compensation – Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions).  That cost will be recognized over the period during which an employee is required to provide services in exchange for the award the requisite service period (usually the vesting period).  No compensation costs are recognized for equity instruments for which employees do not render the requisite service.  The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).  If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.  No stock-based compensation expense under FASB ASC 718 was recorded during the quarters ended June 30, 2012 or 2011.
 
 
9

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

Valuation of Investments in Securities at Fair Value—Definition and Hierarchy

FASB ASC Topic 820 “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles in the United States and requires expanded disclosures regarding fair value measurements.  ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. 

In determining fair value, the Company uses various valuation approaches.  In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations, as follows:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 securities.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
 
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
 
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
  
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
  
Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
 
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.  The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation.  In periods of market dislocation, the observability of prices and inputs may be reduced for many securities.  This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

Valuation Techniques

The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on NASDAQ at their last sales price as of the last business day of the year.  At June 30, 2012 and December 31, 2011, respectively, the Company had no investments classified as securities owned on the consolidated balance sheets.
 
 
10

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

Certificate of Deposits

The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.

Recently Adopted Accounting Pronouncements
 
On June 16, 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income (Topic 220),” which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. The components of comprehensive income will not be changed, nor does the ASU affect how earnings per share is calculated or reported. These amendments are to be reported retrospectively upon adoption. The adoption of the ASU was required for the Company’s June 30, 2012 Form 10-Q filing, and did not have a material impact on the Company.
 
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which works to achieve common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards. The update both clarifies the FASB’s intent about the application of existing fair value guidance, and also changes certain principles regarding measurement and disclosure.  The update is effective prospectively and is effective for annual periods beginning after December 15, 2011. Early application is permitted for interim periods beginning after December 15, 2011. The Company is currently evaluating the effect the update will have on its financial statements.

In December 2010, FASB issued ASC ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) — Intangibles — Goodwill and Other.” ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2, if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The amendments to this Update are effective for the Company in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to our beginning retained earnings. The adoption of ASU 2010-28 did not have any financial impact on our consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements” (ASU 2010-06), to require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements.  The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The additional disclosure requirements are effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010.  The adoption of the additional requirements did not have any financial impact on the Company’s consolidated financial statements.

Concentration of Credit Risk

The Company maintains its cash and cash equivalents in bank deposit accounts, that may at times exceed federally insured limits.  The Company has not experienced any losses in such accounts.  Management believes the Company is not exposed to any significant credit risk related to cash and cash equivalents.
 
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.  Currently, the Company has a minimum cash balance available for the payment of ongoing operating expenses, and its operations are not providing a source of funds from revenues sufficient to cover its operational costs to allow it to continue as a going concern.  Management intends to fund continued operations of the Company by generating revenues from operations and, if necessary, to attempt to raise sufficient capital through placement of its common stock or issuance of debt securities in the event that insufficient revenues are generated from operations.
 
In the event we do not generate sufficient funds from revenues or financing through the issuance of our common stock or from debt financing, we may be unable to fully implement our business plan and pay our obligations as they become due, any of which circumstances would have a material adverse effect on our business prospects, financial condition, and results of operations. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
 
 
11

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012


4.  
Property and equipment

Property and equipment consisted of the following at:
 
       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
       
             
Capitalized leases
 
$
248,077
   
$
248,077
 
Equipment and Software
   
234,210
     
223,507
 
                 
     
482,287
     
471,584
 
Less:  accumulated depreciation
   
(383,873
)
   
(355,606
)
                 
   
$
98,414
   
$
115,978
 
 
Depreciation expense was $28,267 and $36,322 for the quarters ended June 30, 2012 and 2011, respectively.
 
 
12

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

5.
Notes Payable

At various dates during the years 2010 and 2009, an individual investor advanced the Company funds, aggregating to a total of $400,000 at June 30, 2012 and December 31, 2011, respectively.  The advances are non-interest bearing and due on demand.  There were no advances prior to 2009.
 
6.
Intellectual Property
 
In November 2005, the Company acquired SearchPlay,  a provider of Internet based radio entertainment, in a transaction accounted for as a business combination.  There was $947,944 of the purchase price allocated to intellectual property which was fully amortized in 2010.
 
7.  
Income Taxes

At June 30, 2012 and December 31, 2011, the Company had approximately $45.0 million of net operating losses (“NOL”) carry-forwards for federal and state income purposes.  These losses are available for future years and expire through 2026.  Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.  The Company is not currently involved in any tax audits with the State of Florida or the Internal Revenue Service.  The Company is delinquent in its income tax filings beginning with the 2005 tax year.  There are not considered to be any material penalties for those delinquent periods as the Company has only incurred losses in the returns that are to be filed.
 
 
13

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012
 
The deferred tax asset is summarized as follows:
 
       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
   
(Unaudited)
       
Deferred tax asset:
           
             
Net operating loss carry forwards
 
$
18,000,000
   
$
18,000,000
 
                 
Deferred tax asset
   
18,000,000
     
18,000,000
 
                 
Less:  Valuation allowance
   
(18,000,00
)
   
(18,000,000
)
                 
Net deferred tax asset
 
$
-
   
$
-
 
 
A reconciliation of income tax expense computed at the U.S. federal, state, and local statutory rates and the Company’s effective tax rate is as follows:

       
   
June 30,
   
December 31,
 
   
2012
   
2011
 
             
Statutory federal income tax expense
   
(34
)%
   
(34
)%
                 
State and local income tax
   
(4
)
   
(4
)
                 
(net of federal benefits)
               
                 
                 
Valuation allowance
   
38
     
38
 
                 
     
-
%
   
-
%
 
The Company has taken a 100% valuation allowance against the deferred tax asset attributable to the NOL carry forwards of $18.0 million at June 30, 2012 and December 31, 2011, respectively, due to the uncertainty of realizing the future tax benefits.

8.  
Common Stock

The Company is authorized to issue 250 million shares of Common Stock with a par value of $0.001. At June 30, 2012 and December 31, 2011, 163,447,479 such shares were outstanding, respectively.
 
9.  
Preferred stock

The Company is authorized to issue 5 million shares of preferred stock with a par value of $.001. The preferred stock has a conversion value of Three Dollars ($3.00) per share and the following rights:

1.  
Upon a Change of Control Event or an equity raise for the Company, or its subsidiaries, of Twenty million dollars ($20,000,000) or greater, and at the discretion of the new control party or equity party any of the following:

a.  
Cash redemption with an 8% per annum accrued interest rate, or
b.  
Stock conversion redemption with a 50% premium to the preceding Twenty (20) day average closing price of the Common Stock prior to a Change of Control Event or equity infusion as described above; or
c.  
Any combination of 1(a) or 1(b) above.

2.  
Conversion rights in to the Common Stock after Two Years from issue with a Twenty Five (25%) discount to the preceding Twenty (20) day average closing price of the Common Stock.

As of June 30, 2012 and December 31, 2011, 3,025,000 preferred shares were issued, 3,000,000 of which were outstanding, and 25,000 were in Treasury.

If the preferred shares were to be converted as of June 30, 2012 in the event of a change of control or an equity raise, as described in item 1 above, the holders of the preferred shares would be entitled to $9,914,400, or 705,882,353 shares of Common Stock, or some combination thereof.  The Company would be obligated to issue an additional 455,407,970 common shares for a decrease of $0.01 in the fair value of one share of Common Stock.
 
 
14

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

If the preferred shares were to be converted as of June 30, 2012 at the Holders’ discretion, as described in item 2 above, the holders of the preferred shares would be entitled to 470,588,235 shares of Common Stock.  The Company would be obligated to issue an additional 303,605,313 common shares for a decrease of $0.01 in the fair value of one share of Common Stock.

The conversion rights of the preferred shares are not limited as to the number of common shares that could be exchanged depending upon the preceding Twenty (20) day average closing price of the Common Stock.

Dividends

The holders of the Preferred Stock are entitled to receive dividends at the discretion of the Company.

10.
Stockholders’ Equity

In February 2011, the Company issued 1,000,000 million shares to a non-related party for an investment of $200,000.

In April 2011, the Company issued 3,000,000 restricted common shares to each of the directors, Thomas Bean, John Stanton, and Alex Edwards, in lieu of any compensation, which would have been received during the previous five years of service through December 31, 2010;

In April 2011, the Company issued 2,420,000 restricted common shares for services provided by nine individuals since the inception of the Company.

In April 2011, the Company converted the balance due Zanett Opportunity Fund, Ltd, a related party shareholder, against the unsecured, 5% convertible promissory note, due June 5, 2013, into 1,942,905 shares of Common Stock.

In April 2011, the Company issued 3,000,000 shares of preferred stock to convert all outstanding debt obligations of related party shareholders, exclusive of the debt obligation due the Zanett Opportunity Fund, Ltd, whose debt obligation was converted into common shares.

In April 2011, the Company issued 10,000,000 restricted shares to the Bubba Radio Network and related personnel as an obligation of the negotiated contract for providing content and services to Radioio Live.

In June 2011, the Company issued 281,700 restricted common shares in total to 2,817 subscribers that are part of the Bubba Army Early Enlistment subscription program.

In November 2011, the company issued 30,100,000 restricted common shares to the owners and professionals of Up Your Ratings, Inc. in exchange for all outstanding shares of Up Your Ratings, Inc.

11.  
Capital Lease - Future Minimum Lease Payments

The Company leases certain computer equipment under an agreement that is classified as a capital lease. At June 30, 2012 computer equipment with a cost basis of $39,031 and accumulated depreciation of $39,031 was recorded under a capital lease.

The final payment was made on March 31, 2011; therefore, there is no minimum lease balance due at June 30, 2012.

12.  
Related Party

At various dates during the years 2011 and 2008, a related party shareholder advanced the Company funds, aggregating to a total $110,178 and $80,000 at March 31, 2011 and December 31, 2010, respectively. The advances were non-interest bearing and due on demand.  The unsecured note obligation was converted into preferred stock on April 5, 2011.

At various dates during the years 2004 through 2011, a related party shareholder advanced the Company funds, aggregating to a total $1,903,271 and $1,853,271 at March 31, 2011 and December 31, 2010, respectively. The advances were non-interest bearing and due on demand.  The unsecured note obligation was converted into preferred stock on April 5, 2011.
 
 
15

 
ioWorldMedia, Incorporated and subsidiaries
Notes to Consolidated Financial Statements
June 30, 2012

At various dates during the years 2008 and 2007, a related party shareholder advanced the Company funds, aggregating to a total $1,519,496 at March 31, 2011 and December 31, 2010, respectively. The advances were non-interest bearing and due on demand.  The unsecured note obligation was converted into preferred stock on April 5, 2011.

At various dates during the years 2005 through 2011, a related party shareholder advanced the Company funds, aggregating to a total $1,440,107 and $1,425,107 at March 31, 2011 and December 31, 2010, respectively. The advances were non-interest bearing and due on demand.  The unsecured note obligation was converted into preferred stock on April 5, 2011.

On June 5, 2008, a related party shareholder loaned the Company $500,000, subsequently reduced to $250,000, which resulted from the sale of one half of the original note total to a third party.  The unsecured convertible promissory note bore interest at 5% per annum and was originally due June 5, 2013.  At March 31, 2011 and December 31, 2010, the balance due, including accrued interest, was $309,863 and $306,738, respectively.  The note obligation was converted to preferred stock on April 5, 2011.  In accordance with the convertible promissory note agreement all accrued interest amounts were forgiven upon conversion.

In May 2010, a related party shareholder, purchased one half of a note obligation from a related party shareholder in the amount of $250,000.  During 2010, a portion of the note obligation was converted to Common Stock.  The unsecured convertible promissory note bore interest at 5% and was originally due June 5, 2013. At March 31, 2011 and December 31, 2010, the balance due, including accrued interest, was $221,838 and $219,181, respectively.  The note obligation was converted to Common Stock on April 5, 2011.  In accordance with the convertible promissory note agreement all accrued interest amounts were forgiven upon conversion.

On various dates in the fourth quarter of 2011 and in the first two quarters of 2012, a related party shareholder advanced the Company funds, aggregating to a total $205,696 at June 30, 2012 and $12,000 at December 31, 2011. The advances are non-interest bearing and due on demand.
 
13.   Subsequent Events
 
On July 26, 2012 the Company and holders of the Company’s Preferred Stock both agreed to amend and restate in their entirety the terms and designations of the Preferred Stock to read substantially as follows:

1.  
All or a portion of the Preferred Stock shall be convertible at the option of the Company, in its sole and absolute discretion, of the Company into shares of the Company’s Common Stock at $0.0606 per share of Common Stock (the “ Conversion Price ”).
 
2.  
The holder of the Preferred Stock shall have the right to initiate a conversion thereof at any time at the Conversion Price, provided, however, that no such conversion would cause the number of shares of Common Stock issued and outstanding to exceed the figure that is 50,000,000 less than the authorized number of shares of Common Stock.  All prior conversion formulas are null and void.
 
3.  
To the extent any shares of Preferred Stock remain issued and outstanding on the one-year anniversary of this letter agreement, the Preferred Stock will begin accruing interest at the rate of five percent (5%).
 
These new terms above replace the original terms listed in footnote 9 above.
 
On July 27, 2012, the Company and prior holders of Up Your Ratings, Inc., an Ohio corporation, agreed to amend and restate sections 10.3 and 10.4 of the Share Exchange Agreement dated November 7, 2011 as per Exhibit 2.11: Amendment No. 1 to Share Exchange Agreement.

On July 31, 2012, the Company sold to an institutional investor 7,614,213 shares of the Company’s Common Stock, $.001 par value, for an aggregate purchase price of $150,000, or $0.0197 per share.  The quoted market price of the Common Stock on the prior day to the date of closing this transaction was $0.02 per share.  The Company incurred no offering costs in connection with this offering.  The Company will use the proceeds from this offering for working capital purposes.

On July 31, 2012, the Company also sold to Big Red Investments Partnership Ltd., a Florida based limited partnership of which Thomas Bean, Chairman, President and Chief Executive Officer of the Company is a limited partner owning 99.65% of the partnership, 22,316,554 shares of the Company’s Common Stock, $0.001 par value, for an aggregate purchase price of $439,636.12, or $0.0197 per share.  The Company owed Big Red Investments Partnership Ltd. $439,636.12 for loans and other accrued expenses made to the Company since January 1, 2011, and as such, $439,636.12 of Advances From Related Parties and Accounts Payable and Accrued Expenses on the Company’s balance sheet will be extinguished.

In connection with the issuance of the Common Stock described above, the Company relied on the exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act of 1933, as amended.
 
On July 31, 2012, the Company issued shares to three independent consultants that in aggregate consisted of 31,500,000 shares of the Company’s Common Stock, $.001 par value, for consulting services related to advertising operations, technology, finance, strategy and content development.
 
 
16

 
 
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of the financial condition and results of operation of the Company for the period ended June 30, 2012 should be read in conjunction with the financial statements, and the notes to those statements that are included elsewhere in this Quarterly Report, as well as our Annual Report for our fiscal year ended December 31, 2011 as filed with the SEC on Form 10-K on April 16, 2012.  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 “the Company,” “we,” “our,” and “us,” refer to ioWorldMedia, Incorporated and its subsidiaries.
 
We make certain forward-looking statements in this Quarterly 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

None

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 in the relevant sections of this discussion and analysis and in the notes to the consolidated financial statements.
 
The discussion in this Quarterly 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.
 
 
17

 
 
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, 2012 and 2011.  These comparisons of financial results are not necessarily indicative of future results.
 
   
Three Months ended June 30
       
   
2012
   
2011
   
% Change
 
Sales
  $ 403,492     $ 473,321       (14.8 %)
                         
Cost of goods sold
    179,284       220,935       (18.9 %)
                         
Gross profit
    224,208       252,386       (11.2 %)
                         
Operating expenses:
                       
                         
Selling and general and administrative
    361,683       564,724       (36.0 %)
Depreciation and amortization
    5,988       18,277       (67.2 %)
                         
Total expenses
    367,671       583,001       (36.9 %)
                         
Net operating income
    (143,463 )     (330,615 )     (56.6 %)
                         
Interest income (expense)
    0       0       N/A  
                         
Net income (loss) before income taxes
    (143,463 )     (330,615 )     (56.6 %)

Three Months Ended June 30, 2012 and June 30, 2011

Revenue
 
Revenue generated by Radioio consists primarily of subscription and advertising fee revenue.   ioBusinessMusic’s revenue is derived from subscriptions.  RadioioLive revenue consists of subscription and advertising fee revenue.  Revenue decreased by $69,829, or 14.8%, for the three months ended June 30, 2012 to $403,492 compared to $473,321 for the same period in 2011. 

 ioBusinessMusic had an attrition of clients, which resulted in the reduction of subscribers and decreased subscription service revenue by $53,529, or 21.0%.  

Radioio subscription revenue increased $4,287, or 53.0% in the second quarter of 2012 compared to the corresponding period in 2011, while advertising revenue increased $266, or 1% in the quarter ended June 30, 2012 compared to the same quarter 2011.  There were no changes to the operating programs of Radioio, with the increase in subscription revenue attributable to management’s efforts to retain existing subscribers and getting former subscribers to renew.  Management will continue to focus its efforts on attempting to contact former subscribers to renew their expired subscriptions.  

RadioioLive was launched in early January, 2011.  Programming was provided at no cost for the first quarter of 2011, while beginning the subscription recruiting drive.  The three year Early Enlister program generated over $840,000 in prepaid subscriptions on its own.  The revenue from the Early Enlisters is being recognized pro-ratably over the three year period from April 1, 2011 to March 31, 2014.  The subscriptions collected in advance are recorded as deferred revenue with the portion to be earned over the upcoming year classified as a current liability and the portion to be earned after June 30, 2013 classified as a long term liability.  RadioioLive recognized $69,095 in revenue from the Early Enlistment program in the second quarter, 2012 with a total of $129,275 in subscriber revenue recognized for the quarter, a decrease of $23,040 or 15.1% compared to the same time period 2011.  The decrease is due to the first annual renewals coming due in the 2012 quarter, and there being a decrease in subscriptions on an annual and monthly basis compared to initial launch quarter of 2011.  In addition RadioioLive generated $34,493 of advertising revenue in 2012 as compared to $31,935 in 2011, an increase of 8.0%.
 
Cost of Sales
 
The Company incurred $179,284 and $220,935 in cost of sales attributable to the services performed through ioWorldMedia and its subsidiaries for the quarters ended June 30, 2012 and 2011, respectively.  Cost of sales for the three months ended June 30, 2012 decreased by $41,651, or 18.9% as compared to the same period of 2011.  Cost of sales for all periods includes credit card fees incurred in connection with the use of credit cards by customers for payment of their subscriptions.  The result of the increase in subscription income for Radioio resulted in credit card fees increasing $40, or 6.2% in 2012 compared to 2011.   ioBusinessMusic incurrs direct fees to a third party to administer the subscription program and the cost of content and for the second quarter of 2012 those fees decreased $33,376, or 20.8% over the corresponding period in 2011.  RadioioLive’s cost of sales is comprised of contractual obligations paid to on air talent and content providers, which decreased $16,139 or 26.0% compared to the same period 2011, commissions paid on advertising programs to third parties increased $671 or 13.9%, along with a decrease in credit card fees of $693 or 16.4% in 2012 compared to 2011 in conjunction with the decrease in subscriptions.
 
 
18

 

Gross Profit
 
Gross profit was $224,208 and $252,386 for the quarters ended June 30, 2012 and June 30, 2011 respectively, a decrease of $28,178 or 11.2%.  This decrease resulted from the $4,321 decrease in gross profit generated by RadioioLive along with the decrease of $20,152 from ioBusinessMusic offset by the increase of $4,419 from Radioio.

Selling and general and administrative
 
The Company has had consistent activities as a provider of Internet radio content beginning in 2005 and continuing through 2012, which resulted in selling and 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, and the primary costs to deliver the content is the music programmers, Internet hosting, and related expenses.  This process also requires securing other sources of revenue such as advertisers, for which the Company predominantly utilizes the services of third parties in exchange for a commission.

For the quarters ended June 30, 2012 and June 30, 2011, the Company incurred selling and general and administrative expenses of $361,683 and $564,724, respectively, a decrease of $203,041, or 36.0%.  The continued development of RadioioLive increased expenses by $33,236, with a decrease of $18,406 for Internet hosting, an increase in cost of talent of $27,000, an additional $2,155 for production costs, $6,562 incurred for the development of the new advertising platform, along with $18,768 of additional costs in rent and costs to operate the studio in Tampa, FL.  Professional fees, which include legal, accounting, consulting and music programmer expenses, decreased by $56,881 during the three months ended June 30, 2012 compared to the same period of 2011. The cost of music programming and support for the website decreased by $18,098 in the ioBusinessMusic subsidiary and by $27,583 in the Radioio subsidiary for the three month period ended June 30, 2012, due to a change in the provider of the Internet hosting.  The professional fees and expenses related to regulatory compliance, investor relations and raising capital decreased by $30,537, as the Company filed the 2010 Form 10-K encompassing years ended December 31, 2005 through 2010, and incurred expenses related to hiring an investor relations firm to assist with raising capital in the second quarter of 2011, compared to incurring those expenses for the entire first quarter of 2012. There was also a non-recurring expense of $90,000 for directors’ fees in the quarter ended June 30, 2011.
 
Depreciation and amortization
 
The Company incurred amortization costs during the first six years of operations for the expensing of the intellectual property intangible asset. The Company incurs depreciation expense from long lived assets purchased.

For the quarter ended June 30, 2012, the Company incurred $5,988 for depreciation and amortization expense, a $12,289, or 67.2% decrease from the $18,277 reported for the quarter ended June 30, 2011.  This decrease is the result of most fixed assets becoming fully depreciated prior in the first quarter of 2012.

Interest expense
 
In 2007, the Company purchased computer equipment, on a capital lease basis, to support its business expansion, which resulted in the Company recording interest expense incurred in connection with the capital lease.  The Company also incurred interest expense in connection with convertible debt issued to two related party shareholders.  In April 2011, the debt was converted to equity and the capital lease was paid in full on March 31, 2011. The result of the Company not having any interest bearing debt obligations for the quarter was that no interest expense was recognized in the quarters ended June 30, 2012 or 2011.
 
Income tax provision
 
The Company has an income tax net operating loss carry forward (“NOL”) of approximately $45 million, which expires between 2011 and 2026. Section 382 of the Internal Revenue Code (“the Code”) provides limitations on a taxpayer’s ability to offset future taxable income after experiencing an ownership change as defined in the Code and Income Tax Regulations.  It appears that the Company may have experienced an ownership change in connection with the Contribution Agreement entered into during 2005.  Accordingly, it is likely that the Company is limited in its ability to use approximately $39.5 million of its NOL carry forwards to offset future taxable income.  The exact amount of this limitation has not yet been determined.  Due to the uncertainty of ultimately realizing a benefit from this NOL, a valuation allowance equal to 100% of this tax benefit has been recorded.
 
Net income (loss)
 
As a result of ramping up its operations as an Internet radio provider, the Company realized a net loss of $143,463 and $330,615 for the quarters ended June 30, 2012 and June 30, 2011, respectively.  See previous comments for explanation of the fluctuation in net losses.
 
 
 
19

 
 
 Six Months Ended June 30, 2012 and June 30, 2011

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, 2012 and 2011.  These comparisons of financial results are not necessarily indicative of future results.
 
   
Three Months ended June 30
       
   
2012
   
2011
   
% Change
 
Sales
  $ 805,272     $ 766,472       5.1 %
                         
Cost of goods sold
    362,503       371,088       (2.3 %)
                         
Gross profit
    442,769       395,384       12.0 %
                         
Operating expenses:
                       
                         
Selling and general and administrative
    750,193       931,962       (19.5 %)
Depreciation and amortization
    28,267       36,322       (22.2 %)
                         
Total expenses
    778,460       968,284       (19.6 %)
                         
Net operating income
    (335,691 )     (572,900 )     (41.4 %)
                         
Interest income (expense)
    0       (5,895 )     (100.0 %)
                         
Net income (loss) before income taxes
    (335,691 )     (578,795 )     (42.0
%)

Revenue
 
Revenue generated by Radioio consists primarily of subscription and advertising fee revenue.  ioBusinessMusic’s revenue is derived from subscriptions.  RadioioLive revenue consists of subscription and advertising fee revenue.  Revenue increased by $38,800, or 5.1%, for the six months ended June 30, 2012 to $805,272 compared to $766,472 for the same period in 2011.  

ioBusinessMusic had an attrition of clients, which resulted in the reduction of subscribers and decreased subscription service revenue by $46,218, or 10.4%.  

Radioio subscription revenue decreased $7,282, or 22.6%, while advertising revenue decreased $12,039, or 19.9% for the six months ended June 30, 2012 compared to the period of 2011.  There were no changes to the operating programs of Radioio, with the decrease in subscription revenue attributable to the economic conditions of consumers, and the fact that an Internet radio subscription is a discretionary item, along with a change in the subscription tracking program.  Management will continue to focus its efforts on attempting to contact former subscribers to renew their expired subscriptions.  The decrease in advertising revenue was due to not as many ads being sold and a short period where ad sales were lower while the company transitioned to a new consultant to sell, track and remit revenue from banner ads.  

RadioioLive was launched in early January, 2011.  Programming was provided at no cost for the first quarter of 2011, while beginning the subscription recruiting drive.  The three year Early Enlister program generated over $840,000 in prepaid subscriptions on its own.  The revenue from the Early Enlisters is being recognized pro-ratably over the three year period from April 1, 2011 to March 31, 2014.  The subscriptions collected in advance are recorded as deferred revenue with the portion to be earned over the upcoming year classified as a current liability and the portion to be earned after June 30, 2013 classified as a long term liability.  RadioioLive recognized $138,191 in revenue from the Early Enlistment program in 2012 with a total of $270,892 in subscriber revenue recognized for the six months ended June 30, 2012 compared to $152,315 for the same period in 2011.  In addition Radioio Live generated $64,197 of advertising revenue in 2012 as compared to $72,751 in 2011, a decrease of 11.8%, for the same reasons as the decrease in advertising revenue for Radioio.
 
Cost of Sales
 
The Company incurred $362,503 and $371,088 in cost of sales attributable to the services performed through ioWorldMedia and its subsidiaries for the six months ended June 30, 2012 and 2011, respectively.  Cost of sales for the first six months of 2012 decreased by $8,585, or 2.3% as compared to the same period of 2011.  Cost of sales for all periods includes credit card fees incurred in connection with the use of credit cards by customers for payment of their subscriptions.  The result of the decrease in subscription income for Radioio resulted in credit card fees decreasing $2,673, or 65.0 % in 2012 compared to 2011.   ioBusinessMusic incurs direct fees to a third party to administer the subscription program and the cost of content and for the first six months of 2012 those fees decreased $28,826, or 10.3% over the corresponding period in 2011.  RadioioLive’s cost of sales is comprised of contractual obligations paid to on air talent and content providers, which increased $33,029 or 60.4% compared to the same period in 2011, commissions paid on advertising programs to third parties decreased $672 or 6.7%, along with a decrease in credit card fees of $25,600 or 78.4% in 2012 compared to 2011 with the rollout of the Early Enlister program.
 
 
20

 

Gross Profit
 
Gross profit was $442,769 and $395,384 for the six months ended June 30, 2012 and June 30, 2011 respectively, an increase of $47,385 or 12.0%.  This increase resulted from the $103,267 increase in gross profit generated by RadioioLive offset by the decrease of $17,392 from ioBusinessMusic and the decrease of $14,545 from Radioio.

Selling and general and administrative
 
The Company has had consistent activities as a provider of Internet radio content beginning in 2005 and continuing through 2012, which resulted in selling and 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, and the primary costs to deliver the content is the music programmers, Internet hosting, and related expenses.  This process also requires securing other sources of revenue such as advertisers, for which the Company predominantly utilizes the services of third parties in exchange for a commission.

For the six months ended June 30, 2012 and June 30, 2011, the Company incurred selling and general and administrative expenses of $750,193 and $931,962, respectively, a decrease of $181,769, or 19.5%.  The launch of RadioioLive increased expenses by $81,060, with a decrease of $19,046 for Internet hosting, an increase in cost of talent of $56,383, an additional $9,507 for production costs, an increase of $6,562 in professional fees for the development of the new ad platform, along with $28,881 of additional costs in rent and costs to operate the studio in Tampa, FL.  Professional fees, which include legal, accounting, consulting and music programmer expenses, decreased by $70,890 during the six months ended June 30,2012 compared to same period of 2011. The cost of music programming and support for the website decreased by $13,148 in the ioBusinessMusic subsidiary and by $31,168 in the Radioio subsidiary for the six month period ended June 30, 2012, due to a change in the provider of the Internet hosting.  The professional fees and expenses related to regulatory compliance, investor relations and raising capital decreased by $33,965, as the Company filed the 2010 Form 10-K encompassing years ended December 31, 2005 through 2010, and incurred expenses related to hiring an investor relations firm to assist with raising capital in the second quarter of 2011, compared to incurring those expenses for the entire six month period of 2012. There was also a non-recurring expense of $90,000 for directors’ fees in the quarter ended June 30, 2011.
 
Depreciation and amortization
 
The Company incurred amortization costs during the first six years of operations for the expensing of the intellectual property intangible asset. The Company incurs depreciation expense from long lived assets purchased.
 
For the six months ended June 30, 2012, the Company incurred $28,267 for depreciation and amortization expense, an $8,055, or 22.2% decrease from the $36,322 reported for the six months ended June 30, 2011.  This decrease is the result of most fixed assets becoming fully depreciated prior in the first quarter of 2012.

Interest expense
 
In 2007, the Company purchased computer equipment, on a capital lease basis, to support its business expansion, which resulted in the Company recording interest expense incurred in connection with the capital lease.  The Company also incurred interest expense in connection with convertible debt issued to two related party shareholders.  In April 2011, the debt was converted to equity and the capital lease was paid in full on March 31, 2011. The result of the Company not having any interest bearing debt obligations for the six months was a $5,895 or 100.0% decrease in interest expense compared to 2011.

Income tax provision
 
The Company has an income tax net operating loss carry forward (“NOL”) of approximately $45 million, which expires between 2011 and 2026. Section 382 of the Internal Revenue Code (“the Code”) provides limitations on a taxpayer’s ability to offset future taxable income after experiencing an ownership change as defined in the Code and Income Tax Regulations.  It appears that the Company may have experienced an ownership change in connection with the Contribution Agreement entered into during 2005.  Accordingly, it is likely that the Company is limited in its ability to use approximately $39.5 million of its NOL carry forwards to offset future taxable income.  The exact amount of this limitation has not yet been determined.  Due to the uncertainty of ultimately realizing a benefit from this NOL, a valuation allowance equal to 100% of this tax benefit has been recorded.
 
Net income (loss)
 
As a result of ramping up its operations as an Internet radio provider, the Company realized a net loss of $335,691 and $578,795 for the six months ended June 30, 2012 and June 30, 2011, respectively.  See previous comments for explanation of the fluctuation in net losses.
 
 
21

 
 
Liquidity and Capital Resources

We have generated operating losses and negative cash flow from operations since inception in November, 2005. We incurred net losses of $335,691 and $578,795 for the six months ended June 30, 2012 and June 30, 2011, and 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 and business expansion needs.  We can provide no assurance that additional investor funds will be available on terms acceptable to us, if at all. If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail or cease our business operations.  Also, refer to the Going Concern paragraph in Note 3 above for further explanation.    
 
At June 30, 2012, we had negative working capital of $1,582,184, as compared to $1,129,149 at December 31, 2011. The working capital decrease is the result of additional advances made by a related party shareholder, the decrease in cash and the increase in accounts payable and accrued expenses.
 
During the six months ended June 30, 2012 we experienced negative cash flow from operations of $186,355, as compared to cash provided by operations of $232,970 during the six months ended June 30, 2011. The decrease in net cash provided by operating activities for the first six months of 2012 is primarily attributable to the decrease in deferred revenue ($956,988), the $8,055 decrease in depreciation expense and the decrease of $128,128 in expenses settled by the issuance of common stock offset by an increase in cash provided by contractual obligations expensed ($199,386), a decrease in accounts receivable ($25,600), an increase in accounts payable and accrued expenses ($105,653), a decrease in prepaid expenses ($97,165) and a decrease in accrued revenue ($3,984). The decrease in deferred revenue, prepaid expenses and advance payments on contractual obligations is the result of the launch of RadioioLive in the first quarter of 2011 and the payments made to talent and content providers that are recognized as expenses pro-rata in the same manner as subscription revenue in order to properly match expense to revenue.
 
The Company purchased $10,703 of capital assets in the first six months of 2012 as compared to $10,904 for the same period in 2011, a use of cash from investing activities, in order to continue to improve and expand the Company’s ability to utilize the most recent technological advances.

Net cash provided by financing activities in the first six months of 2012 was $193,696, compared to $195,928 for the same period of 2011, the result of a private placement in the quarter ended March 31, 2011 of $200,000 that did not occur in the first quarter of 2012, offset by additional advances of $193,696 from related party shareholders for the first six months of 2012 compared to the same period in the prior year, and there not being any debt payments in the six months ended June 30, 2012 compared to the final payments made under the capital lease in the same period of 2011.
 
Item 3.   Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable
 
Item 4.  Controls and Procedures.

The Company’s management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our principal executive and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d -15(e) under the Exchange Act, as of the end of the period covered by this quarterly report.  Based on his evaluation, he concluded that our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting that applied as of December 31, 2011 and continue to apply as of June 30, 2012.  Our management intends, to design and implement processes and procedures that will provide reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles, as funding becomes available to be able to put the components in place.

In making this assessment, management used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
Changes in Internal Control over Financial Reporting

Our management has determined that, during the period covered by this quarterly report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   

 
22

 
 
PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None.
 
Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.
 
Not applicable.

Item 5.    Other Information.

None.

Item 6.    Exhibits.

Copies of the following documents are included as exhibits to this Quarterly Report pursuant to Item 601 of Regulation S-K.

Exhibit No.
 
Title of Document
3.1
 
Articles of Incorporation of the Company effective as of January 1, 1996, as amended by the Articles of Amendment dated as of January 9, 1996 (1)
     
3.2
 
Bylaws of the Company (1)
     
3.3
 
Articles of Amendment of the Articles of Incorporation of IO World Media Corporation filed June 1, 2001 (2)
     
3.4
 
Articles of Amendment of the Articles of Incorporation of PowerCerv Corporation for Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock filed August 31, 2001 (2)
     
3.5
 
Amendment to the Articles of Incorporation of PowerCerv Corporation dated December 21, 2005 (3)
     
3.6
 
Amendment to the Articles of Incorporation, effective as of April 28, 2011 (2)
     
31.1
 
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
     
32.1
 
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

1.  
Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-00250).
2.  
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on August 8, 2011.
3.  
Incorporated herein by reference to the Company’s Annual Report on Form 10-K as filed with the SEC on April 21, 2011.

* The Exhibit attached to this Quarterly Report on Form 10-Q shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, except as expressly set forth by specific reference in such filing.  

 
23

 

SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
IOWORLDMEDIA, INCORPORATED
     
Date: August 14, 2012
By:  
/s/ Thomas J. Bean
 
Thomas Bean
Chief Executive Officer and Chief Financial Officer
 
 
 
24

PINX:IWDM Quarterly Report 10-Q Filling

PINX:IWDM Stock - Get Quarterly Report SEC Filing of PINX:IWDM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:IWDM Quarterly Report 10-Q Filing - 6/30/2012
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