UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended - SEPTEMBER 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 000-28601
MILLIONAIRE.COM INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 23-2970840 |
18 Plantation Park Drive, Bluffton, South Carolina 29910
(Address of principal executive offices)
(843)757-0010
(Issuer's telephone number)
7 Plantation Park Drive, Bluffton, South Carolina 29910
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesü No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of October 18, 2001: 10,887,237 shares $.01 par value common stock.
Transitional Small Business Disclosure Format (check one) Yes Noü .
FORM 10-QSB
MILLIONAIRE.COM AND SUBSIDIARIES
TABLE OF CONTENTS
| PAGE |
PART 1. Financial Information |
|
Item 1. Financial Statement | F1 - F |
Item 2. Management's Discussion and Analysis or Plan of Operation |
|
PART II. Other Information |
|
Item 1. Legal Proceedings |
|
Item 2. Defaults Upon Senior Securities |
|
Item 3. Exhibits and Reports on Form 8-K |
|
SIGNATURES |
|
|
|
ASSETS |
$109,436 | |
Total Current Assets | 109,436 | |
Property and equipment, net | 204,731 | |
Other Assets | 79,057 | |
$393,224 | ||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) |
$229,449 | |
Accounts payable | 1,678,737 | |
Accrued expenses | 664,221 | |
Due to related parties | 326,743 | |
Other current liabilities | 44,619 | |
Deferred revenue | 132,136 | |
Convertible notes | 1,822,000 | |
Total Current Liabilities | 4,897,905 | |
Stockholders' (Deficit) |
| |
Common stock, $.01 par value, 50,000,000 |
| |
Paid in capital | 10,317,965 | |
Accumulated deficit | (14,341,410) | |
Deferred compensation | (491,400) | |
(4,504,681) | ||
$393,224 |
Millionaire.com, Inc.
Consolidated Statements of Operations
For the Three Months and Nine Months
Ended September 30, 2001
(Unaudited)
| Three Months |
| Nine Months | ||||
| 2001 |
| 2000 |
| 2001 |
| 2000 |
Revenue | $273,307 |
| $1,246,411 |
| $661,704 |
| $3,175,886 |
Operating expenses: | 198,740 |
| 904,941 |
| 483,000 |
| 2,517,983 |
General and administrative expenses | 261,377 |
| 1,077,298 |
| 1,137,927 |
| 3,691,998 |
| 460,117 |
| 1,982,239 |
| 1,620,927 |
| 6,209,981 |
Income (loss) from operations | (186,810) |
| (735,828) |
| (959,223) |
| (3,034,095) |
Other (income) expense: |
|
|
|
|
|
|
|
Interest expense | 31,992 |
| 139,988 |
| 94,378 |
| 1,715,041 |
Other income | (11,666) |
| (250,041) |
| (47,946) |
| (272,874) |
| 20,326 |
| (110,053) |
| 46,432 |
| 1,442,167 |
(Loss) from continuing operations | (207,136) |
| (625,775) |
| (1,005,655) |
| (4,476,262) |
Discontinued operations: |
|
|
|
|
|
|
|
(Loss) from operation of discontinued subsidiary | - |
| (1,665) |
| (153,590) |
| (76,962) |
Net (loss) | $(207,136) | $(627,440) | $(1,159,245) | $(4,553,224) | |||
Per share information: |
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and fully diluted | 10,164,237 | 8,763,095 | 10,164,237 | 8,754,734 | |||
Net (loss) per share |
|
|
|
|
|
|
|
Continuing operations | $(0.02) |
| $(0.07) |
| $(0.10) |
| $(0.51) |
Discontinued operations | - |
| (0.00) |
| (0.02) |
| (0.01) |
$(0.02) | $(0.07) | $(0.11) | $(0.52) | ||||
NEED TO BREAK DISCONTINUED OPERATIONS FOR 3 AND 9 MOS END 9/30/2000 |
|
|
|
|
|
|
|
Millionaire.com, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(Unadited)
| 2001 |
| 2000 |
Cash flows from operating activities: |
|
|
|
Net cash (used in) operating activities | $(536,113) |
| $(2,413,126) |
Cash flows from investing activities: |
|
|
|
Net cash provided by investing activities | - |
| 153,289 |
Cash flows from financing activities: |
|
|
|
Net cash provided by financing activities | 530,658 |
| 2,354,253 |
Net increase (decrease) in cash | (5,455) |
| 94,416 |
Beginning - cash and cash equivalents | 5,455 |
| 19,554 |
Ending - cash and cash equivalents | $- | $113,970 |
MILLIONAIRE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and Item 310(b) of Regulation S-B. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company as of December 31, 2000 and for the two years then ended, including notes thereto included in the Company's Form 10-KSB.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding.
(3) Impairment of Long Lived Assets
Long lived assets and certain identifiable intangibles held and used by the Company are reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable or is impaired. Management has not identified any impairment losses as of September 30, 2001.
(4) Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes", which requires use of the liability method. FAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled, or realized.
The Company's deferred tax asset resulting from net operating loss carryforwards is fully offset by a valuation allowance. The Company has recorded a valuation allowance to state its deferred tax assets at estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income.
The provision for income taxes differs from the amount computed by applying the statutory rate of 34% to income before income taxes due to the effect of the net operating loss.
(5) Contingencies
Litigation
The Company is party to claims and lawsuits, either as plaintiff or defendant, arising in the normal course of operations involving alleged violations of non-compete covenants, disagreements with its former employees, breach of contract and nonpayment for legal services. Management is of the opinion that these claims and lawsuits will not have a material effect on the financial position of the Company. The Company believes these claims and lawsuits should not exceed $800,000 and, accordingly, has established a reserve included in accounts payable and accrued expenses.
The following are legal proceedings involving the Company and include, but may not be limited to:
St. Ives, Inc. v. Millionaire. com. The plaintiff, Millionaire magazine's former printer, brought an action against Millioniare.com alleging that amounts were due under certain printing bills. The plaintiff seeked $552,984. Millionaire.com counterclaimed, alleging that the printer caused substantial problems on numerous occasions and requests an offset of damages in excess of such amount. This case was pending in Broward County, Florida. The Company accrued these costs in accounts payable and accrued expense as of December 31, 1999. On February 16, 2000, the Company settled its legal proceedings with St.Ives, Inc. The settlement called for total payments by the Company to St. Ives, Inc. in the amount of $375,000. The Company made a $250,000 payment on March 1, 2000 and, beginning May 2000, made $25,000 payments on approximately the fifteenth day of each of the following five months. If the Company failed to make any scheduled payment by its due date, the Company would have been liable for a total indebtedness of $600,000 less any previously remitted payments. As of December 31, 2000, all payments were made and the Company was relieved from any further obligation.
Annelise Kolde, et al v. Millionaire.com. Kolde, a former independent contractor/salesperson for Millionaire magazine, has sued Millionaire.com for alleged commissions owed and seeks to invoke certain stock options. The plaintiff seeks general damages in an undetermined amount, special damages in an amount exceeding $15,000 punitive damages, pre-judgment and post-judgment interest, pre-judgment garnishment and declaratory relief, injunctive relief, attorneys' fees and other costs as the court deems justified. This case is pending in Kauai, Hawaii. An estimated loss can neither be readily determined nor reasonably probable given the current circumstances of the legal proceeding. Accordingly, no accrual has been made for this litigation. Management cannot determine whether this lawsuit will have a material impact on results of operations, financial position or cash flows.
Luxury Media Corp. and Robb Report, Inc. v. Millionaire.com. Plaintiffs recently brought this action, alleging that Millionaire.com had violated a non- competition covenant and had infringed upon the Robb Report trademark. This case has been settled as of December 31, 2000.
Tieken Design and Creative Services v. Millionaire.com. and Millionaire.com v. Tieken Design and Creative Services. Plaintiffs brought this action, alleging that they have provided graphic design services for Millionaire.com in the amount of approximately $51,700. Management denies the claim stating that the services provided were defective and not usable. The Company filed a claim against Tieken Design and Creative Services. This case has been settled as of December 31, 2000.
Broadus and Associates, Inc. v. Millionsair.com. Plaintiff was a provider of services to the Company's magazine division and asserted a claim for $53,373. Management denies the claim, but does admit that some amount is due. As of September 30, 2001 and December 31, 2000, management has accrued $40,000 relating to these services.
World Graphics Companies v. Millionaire.com. Plaintiffs were a provider of services to the Company's magazine division and asserted a claim for $6,233. This claim was settled during 2000.
Earthlink v. Millionaire.com. Earthlink is a provider of internet services through a mall site agreement dated December 31, 1999. Earthlink claims a total of $75,000 is due for services rendered under this agreement. As of September 30, 2001 and December 31, 2000, $75,000 is accrued for by the Company.
Quebecor World (USA) v. Millionaire.com. Quebecor was a provider of printing services to the Company's magazine division. They have demanded for payment of $580,000 for these services. As of September 30, 2001 and December 31, 2000, this amount is accrued for by the Company.
SEC Investigation
During March 1999, the Company received a subpoena from the Securities and Exchange Commission in connection with an investigation the SEC had begun into Millionaire.com. The Company provided the SEC with documents in response to the subpoena and some employees provided testimony. Management has cooperated fully with the SEC in this matter. During October 2001 an officer of the Company agreed to pay $25,000 to settle the investigation. This amount has been accrued at September 30, 2001.
(6) Segment Information
| Three Months | Nine Months | ||
(Loss) from reportable segments: | $ (186,810) | $ (735,828) | $ (959,223) | $(3,034,095) |
Other Income (loss) | (20,326) | 110,053 | (46,432) | (1,442,167) |
(Loss) from discontinued operations | - | (1,665) | (153,590) | (76,962) |
Net (loss) | $ (207,136) | $ (627,245) | $(1,159,245) | $(4,553,224) |
PART I-ITEM 2
MLLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our financial condition and results of operations should be read together with the financial statements and the related notes included in another part of this Form 10-QSB and which are deemed to be incorporated into this section as well as the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. This discussion contains forward-looking statements that involve risks and uncertainties.
General
The Company publishes a magazine under the trademark "Opulence" eight to twelve times each year. The Company also operates an e-commerce siteat www.opulence.comand sells fine art, antiques and collectibles through their magazine, website and by consigning these items to upscale existing auction houses throughout the United States.
For the period from the inception of the business in February 1995 through December 15, 1998 we did not conduct any business. From December 15, 1998 to the present, our operating activities have consisted primarily of recruiting personnel, purchasing operating assets, establishing vendor relationships and developing the infrastructure required to support the businesses that we are engaged in, including development of the computer systems required to conduct business over the Internet. As a result of these activities, net losses have been incurred. We expect to expand our marketing staff to increase the "Opulence" brand loyalty and advertising sales. We expect to experience net losses through the third quarter of the year 2001.
Results of Operations
Revenue
Revenue derived from the magazine are generated from the sale of advertising, as well as the sale of the magazines themselves through subscriptions, bookstore distribution and controlled circulation. Revenue is also generated by consigning Company owned goods to existing non company owned auction houses. We also lease mall space and rent catalog space on our website at www.opulence.com.
Revenue for the nine months ended September 30, 2001 and 2000 was $661,704 and $3,175,886 respectively, representing a decrease of $2,514,182. This decrease resulted from a reduction in the number of monthly issues published. Monthly issues published for the nine months ended September 30, 2001 and 2000 were four and eight respectively. A decrease in advertising sales personnel also contributed to the decrease.
Revenue for the three months ended September 30, 2001 and 2000 were $273,307 and $1,246,411, respectively, representing a decrease of $969,104. This decrease resulted froma reduction in the number of monthly issues published. Monthly issues published for the three months ended September 30, 2001 and 2000 were one and three respectively. A decrease in advertising sales personnel also contributed to the decrease.
During the nine months and three months ended September 30, 2001, we exchanged magazine advertisements for goods and services with an approximate value of $396,815 and $50,207. These non-monetary transactions have been accounted for under APB Opinion No. 29, Accounting for Non-monetary Transactions and EITF issue No. 93-11, Accounting for Barter Transactions Involving Barter Credits. The non-monetary transactions were accounted for based on the fair value of the goods exchanged. An impairment of the non-monetary asset exchanged is recognized prior to recording the exchange if the fair value of the advertising space exchanged has a fair value greater than the goods or services received. The impairment is measured as the amount by which the carrying amount of the asset exceeds its fair value. Accordingly, the accompanying financial statements reflect only cash transactions.
Cost of Goods and Services
Cost of goods and services for the nine months ended September 30, 2001 and 2000 was $483,000 and $2,517,983 respectively, representing a decrease of $2,034,983. This decrease resulted from a reduction in the number of monthly issues published. Monthly issues published for the nine months ended September 30, 2001 and 2000 were four and eight respectively. A decrease in advertising sales personnel also contributed to the decrease.
Cost of goods and services for the three months ended September 30, 2001 and 2000 was $198,740 and $904,941 respectively, representing a decrease of $706,201.This decrease resulted froma reduction in the number of monthly issues published. Monthly issues published for the three months ended September 30, 2001 and 2000 were one and three respectively. A decrease in advertising sales personnel also contributed to the decrease.
Selling, General and Administrative Expenses
Selling,General and Administrative. General and administrative expenses consist primarily of payroll and related expenses for executive, accounting and logistical personnel, bad debt expense, facilities expenses, recruiting and professional fees, as well as other general corporate expenses. Sellingexpenses consist primarily of advertising and marketing the magazine.
Selling, General and Administrative Expenses were $1,137,927 or 172% of net sales for the nine months ended September 30, 2001, compared to $3,691,998 or 116% of net sales for the nine months ended September 30, 2000. The decrease of $2,554,071 resulted mainly from the issuance of Common Stock and Options as compensation during the nine months ended September 30, 2000.
Selling, General and Administrative Expenses were $261,377 or 96% of net sales for the three months ended September 30, 2001, compared to $1,077,298 or 86% of net sales for the three months ended September 30, 2000. The decrease of $815,921 resulted mainly from the issuance of Common Stock and Options as compensation during the three months ended September 30, 2000.
Other Income, (Expense)
Other income was $47,946 and $272,874 for the nine months ended September 30, 2001 and September 30, 2000, respectively. Interest income during the nine months ended September 30, 2000, was attributed primarily to the interest earned on the cash and certificate of deposits resulting from the cash received from capital raised during 2000.
Other income was $11,666 and $250,041 for the three months ended September 30, 2001 and September 30, 2000, respectively. Interest income during the three months ended September 30, 2000, was attributed primarily to the interest earned on the cash and certificate of deposits resulting from the cash received from capital raised during 2000.
Interest Expense
Interest expense was $94,378 and $1,715,041 for the nine months ended September 30, 2001 and September 30, 2000, respectively. This decrease resulted from the notes payable being converted to stock.
Interest expense was $31,992 and $139,988 for the three months ended September 30, 2001 and September 30, 2000, respectively. This decrease resulted from the notes payable being converted to stock.
Discontinued Operations
Discontinued operations relate to the Company shutting down its auction house during the year ended December 31, 2000. The auction house held auctions during 2000 and conducted retail sales. The income (loss) from auction operations for the nine months and three months ended September 30, 2001 was $(153,590) and $0.
Liquidity and Capital Resources
Cash Inflows and Outflows
Operating Activities. Net cash used in operating activities amounted to $536,113 for the nine months ended September 30, 2001 compared to net cash used in operating activities of $2,413,126 for the nine months ended September 30, 2000. The net cash used in operations was primarily attributable to the net losses from operations of $1,159,245 and $4,553,224 for the respective periods indicated.
Investing Activities. Net cash provided by investing activities amounted to $0 and $153,289 for the nine months ended September 30, 2001 and September 30, 2000, respectively.
Financing Activities. Our operations have been financed primarily through the sale of common stock in a Section 504, Regulation D offering in 1998 that netted proceeds of approximately $945,000 and a private placement begun in 1998 and completed in January, 2000, that netted proceeds of approximately $4,632,474. As part of the purchase price of the trademarks purchased from Lifestyle Media Corporation, Lifestyle Media Acquisition Corporation entered into a long-term debt agreement with the shareholders of Lifestyle Media Corporation. The initial balance entered into was $1,674,595 of which $300,000 was paid prior to closing. This note had a five year amortization and was secured by the "Millionaire" trademark. There are no operating covenants associated with this debt. On January 24, 2000, we entered into two separate unsecured convertible promissory notes payable in the aggregate amount of $1,750,000. The notes payable were received from two of our current shareholders, who, in agg regate own more than 5% of our outstanding common stock. These notes are in default as of January 24, 2001. On June 29, 2000, we entered into three separate unsecured convertible promissory notes payable in the aggregate amount of $195,000. The notes payable were received from three of our current shareholders. $35,000 principal amount is currently outstanding under these notes, $10,000 was repaid and the remaining $150,000 principal amount was converted into shares of our common stock. On August 24, 2000, we entered into 3 separate unsecured promissory notes payable in the aggregate amount of $300,000. The notes payable were received from three of our current shareholders. The amounts due under the notes were converted into shares of our common stock in September 2000. During the three months ended September 30, 2001, the Company received $159,783 additional financing through loans.
We anticipate requiring additional cash to support the anticipated growth in accounts receivable and inventory. We expect our operating expenses to decrease even as we continue to expand the "Opulence" brand. We have eliminated clerical help and increased our marketing staff who work either on a draw against commission or on a commission basis. We expect to incur losses through the third quarter of the year 2001 and as a result we will need to raise additional cash to finance accounts receivable, capital expenditures and operating expenses.
As described in Note 1, to the accompanying financial statements, there is a doubt as to our ability to continue as a going concern. We have incurred a loss of $1,159,245 for the nine months ended September 30, 2001 and $6,158,631 for the year ended December 31, 2000, and have an accumulated deficit of $14,341,410 as of September 30, 2001.
We are considering various sources of financing, such as the issuance of additional equity or debt securities or obtaining further credit facilities. As of March 2000, management has engaged a factoring firm to help collect accounts receivable as well as establish credit lines for existing customers. Should adequate financing not be available on a timely basis, merger discussions with other auction and luxury space providers, as well as other luxury publications, would be entered into in an effort to maximize the value of the existing assets and brand established and operated by the company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 3. DEFAULTS UPON SENIOR SECURITY - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None
B. Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MILLIONAIRE.COM
(Registrant)
Date: December 14, 2001 By:/s/ David M. Strong
David M. Strong, Secretary
