UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
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 - June 30, 2000
----------------------
[ ] 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
---------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 23-2970840
------------------ ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
18 Plantation Park Drive, Bluffton, South Carolina 29910
----------------------------------------------------------------------
(Address of principal executive offices)
(843) 757-6600
-----------------------
(Issuer's telephone number)
-------------------------------------------------
(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. Yes X 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 3, 2000: 8,763,095 shares $.01 par value common stock.
---------
Transitional Small Business Disclosure Format (check one) Yes No X .
--- ---
On October 5, 2000 we inadvertently filed our June 30, 2000 10-QSB prior to
completion of our auditor's review of the quarterly financial statements. As a
result, the impairment analysis and net carrying value of our trademark assets,
"Millionaire" and "Billionaire" as stated in the October 5, 2000 filing were
incorrect. The impairment analysis and net carrying value of the trademarks were
corrected in Amendment No. 1 to the June 30, 2000 10-QSB filed on October 24,
2000.
FORM 10-QSB
MILLIONAIRE.COM AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
PAGE
----
PART I. Financial Information
Item 1. Financial Statements.........................................3
Item 2. Management's Discussion and Analysis or Plan of Operation....14
PART II. Other Information
Item 1. Legal Proceedings............................................17
Item 3. Defaults Upon Senior Securiites..............................17
Item 6. Exhibits and Reports on Form 8-K.............................17
SIGNATURES......................................................................19
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 185,406 $ 19,554
Certificate of deposit - 253,198
Accounts receivable - net 448,705 440,049
Inventories 416,854 472,241
Employee and related party advances 135,500 75,129
Prepaid expenses and other 63,972 78,129
---------- -----------
Total current assets 1,250,437 1,338,300
EQUIPMENT AND SOFTWARE
Equipment 396,619 301,964
Software 141,263 140,623
---------- ----------
537,882 442,587
Less accumulated depreciation 122,835 62,715
---------- ----------
415,047 379,872
OTHER ASSETS
Deposits 54,539 77,311
Goodwill, net - 33,549
Trademarks, net - 1,228,036
---------- ----------
54,539 1,338,896
---------- ----------
$1,720,023 $3,057,068
========== ==========
The accompanying notes are an integral part of these statements.
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,500,429 $ 1,844,030
Due to related parties 105,399 132,267
Accrued expenses 147,710 60,182
Deferred revenue 256,154 186,590
Notes payable 7,812 7,812
Current portion of long-term note 1,287,071 92,776
Capitalized lease obligation, current portion 4,044 3,993
----------- -----------
Total current liabilities 3,308,619 2,327,650
CAPITALIZED LEASE OBLIGATION 14,700 16,082
LONG-TERM DEBT - 1,194,295
CONVERTIBLE DEBT 1,900,000 -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 4,063 3,915
Preferred stock - -
Additional paid-in capital 10,242,512 8,518,660
Deferred compensation (1,711,000) (1,980,000)
Accumulated deficit (12,038,871) (7,023,534)
----------- -----------
Total stockholders' deficit (3,503,296) (480,959)
----------- -----------
$ 1,720,023 $ 3,057,068
=========== ===========
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales
Magazine sales $ 114,934 $ 103,442 $ 188,419 $ 146,038
Advertising sales 1,142,448 899,652 1,732,694 1,126,785
Inventory sales 266,717 180,083 425,433 224,207
----------- ----------- ----------- -----------
1,524,099 1,183,177 2,346,546 1,497,030
Cost of goods sold (exclusive of
Depreciation and Amortization shown
separately below)
Publishing costs 868,677 922,986 1,582,115 1,728,640
Inventory cost of sales 264,769 78,611 329,065 122,248
----------- ----------- ----------- -----------
1,133,446 1,001,597 1,911,180 1,850,888
Operating expenses
Employee compensation 255,733 84,570 728,329 559,814
Selling and marketing 118,420 502,765 306,140 672,756
Professional fees 111,205 101,105 608,143 256,142
Depreciation and amortization 118,136 88,378 232,152 177,032
Rent 99,012 161,723 196,286 224,432
Bad debt expense - 52,962 100,000 52,962
Administrative 109,239 273,683 637,880 539,675
Trademark and goodwill impairment 1,089,553 - 1,089,553 -
----------- ----------- ----------- -----------
1,901,298 1,265,186 3,898,483 2,482,813
----------- ----------- ----------- -----------
Loss from operations (1,510,645) (1,083,606) (3,463,117) (2,836,671)
Other income (expenses)
Interest income 446 11,523 12,207 19,989
Interest expense (228,734) (37,773) (1,587,260) (90,306)
Other income (expenses) 309 (2,716) 22,833 13,617
----------- ----------- ----------- -----------
(227,979) (28,966) (1,552,220) (56,700)
----------- ----------- ----------- -----------
Net loss before provision
for income taxes (1,738,624) (1,112,572) (5,015,337) (2,893,371)
Income tax expense - - - -
----------- ----------- ----------- -----------
Net loss $(1,738,624) $(1,112,572) $(5,015,337) $(2,893,371)
=========== =========== =========== ===========
Net loss per common share $ (0.20) $ (0.13) $ (0.57) $ (0.34)
Weighted average number of shares
Basic 8,763,095 8,565,095 8,749,813 8,521,996
=========== =========== =========== ===========
Diluted 8,763,095 8,565,095 8,749,813 8,521,996
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
June 30, 2000
(Unaudited)
Common Stock Additional Retained
----------------------- paid-in Deferred Earnings
Shares Amount capital compensation (Deficit) Total
------------ -------- ---------- ------------- ------------ -----------
Balance, December 31, 1999 8,615,095 $ 3,915 $ 8,518,660 $(1,980,000) $ (7,023,534) (480,959)
Issuance of common shares 120,000 120 419,880 - - 420,000
Issuance of common shares 28,000 28 41,972 - - 42,000
Issuance of convertible debt - - 1,302,000 - - 1,302,000
Issuance of convertible debt - - 20,000 - - 20,000
Forfeiture of compensatory
stock options - - (60,000) 60,000 - -
Compensation expense - - - 209,000 - 209,000
Net loss - - - - (5,015,337) (5,015,337)
---------- -------- ----------- ----------- ------------ -----------
Balance, June 30, 2000
(unaudited) 8,763,095 $ 4,063 $10,242,512 $(1,711,000) $(12,038,871) $(3,503,296)
========== ======== =========== =========== ============ ===========
The accompanying notes are an integral part of this statement.
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
---------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $(5,015,337) $(2,893,371)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 232,152 177,032
Beneficial conversion feature of convertible debt 1,322,000 -
Issuance of common stock for services rendered 270,000 520,000
Compensation expense of stock option 209,000 255,000
Bad debt expense 100,000 52,962
Impairment loss 1,089,553 -
Changes in operating assets and liabilities:
Increase in accounts receivable (91,344) (543,923)
Increase in inventories 55,387 (717,471)
Decrease in prepaid expenses and deposits 36,929 (33,603)
Increase (decrease) in accounts payable (343,601) 441,297
Increase (decrease) in accrued expenses 87,528 1,416
Increase in deferred revenue 69,564 117,400
------------ -----------
Net cash used in operating activities (1,978,169) (2,623,261)
Cash flows from investing activities:
Purchase of equipment and software (99,747) (205,260)
Sale (purchase) of certificate of deposit 253,198 (1,550,000)
------------ -----------
Net cash (used in) provided by investing activities 153,451 (1,755,260)
Cash flows from financing activities:
Principal payments on capital lease obligations (1,331) -
Principal payments on notes payable - (225,000)
Net proceeds from (payments to) related parties (100,099) -
Proceeds from issuance of convertible debt 1,900,000 -
Proceeds from common stock offering, net 192,000 1,500,000
------------ -----------
Net cash provided by financing activities 1,990,570 1,275,000
------------ -----------
Net increase (decrease) in cash and cash equivalents 165,852 (3,103,521)
Cash and cash equivalents at beginning of period 19,554 3,226,634
------------ -----------
Cash and cash equivalents at end of period $ 185,406 $ 123,113
=========== ===========
Supplemental disclosure
- -----------------------
Interest paid $ 57,104 $ -
=========== ===========
Income taxes paid $ - $ -
=========== ===========
The accompanying notes are an integral part of these statements.
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements included in this report have been
prepared by Millionaire.com (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission for interim reporting
and include all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. These financial statements have
not been audited by an independent accountant. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that the disclosures
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Registration Statement
on Form 10SB12G/A, for the year ended December 31, 1999. The financial data
for the interim periods presented may not necessarily reflect the results to
be anticipated for the complete year.
Certain reclassifications have been made to prior financial statements to
conform to the June 30, 2000 presentation.
NOTE 2 - LOSS PER COMMON SHARE
Basic net loss per common share is based upon the weighted average number of
common shares outstanding during the period. Diluted net loss per common share
is based upon the weighted average number of common shares outstanding plus
dilutive potential common shares, including options and warrants outstanding
during the period.
At June 30, 2000 and 1999, the Company had 2,700,000 and 970,000,
respectively, of potentially dilutive common shares. The potentially dilutive
shares pertain to outstanding common stock options and common shares that may
be obtained from the conversion of debt.
NOTE 3 - INVENTORIES
Inventories are comprised solely of antiques and other luxury goods.
Inventories are stated at the lower of cost or market; cost is determined
using the specific identification method. At December 31, 1999 and June 30,
2000 inventories are shown net of reserves of $64,141 and $0, respectively.
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
June 30, 2000 and 1999
(Unaudited)
NOTE 4 - CONVERTIBLE NOTES PAYABLE
On January 24, 2000, the Company entered into two separate unsecured promissory
notes payable. Both notes payable have substantially the same terms and totaled
$1,750,000, The notes payable were received from current shareholders of the
Company. The notes bear interest at 7% per annum. There are no required
principal or interest payments on the notes until their maturities on January
24, 2001. The notes are convertible, at the option of the holders, to shares of
common stock of the Company at any time prior to January 24, 2001 at a price of
$1.25 per share. The excess of the aggregate fair value of common stock that the
holder received upon issuance of the promissory notes approximated $1,302,000.
This amount was recorded as interest expense during the first quarter in the
year ended December 31, 2000.
On June 29, 2000, the Company entered into three separate unsecured promissory
notes payable. Both notes payable have substantially the same terms and totaled
$150,000. The notes payable were received from current shareholders of the
Company. The notes bear interest at 7% per annum. There are no required
principal or interest payments on the notes until their maturities on December
29, 2000. The notes are convertible, at the option of the holders, to shares of
common stock of the Company at any time prior to December 29, 2000 at a price of
$.75 per share, The excess of the aggregate fair value of common stock that the
holder received upon issuance of the promissory notes approximated $20,000. This
amount was recorded as interest expense during the second quarter in the year
ended December 31, 2000.
NOTE 5 - SEGMENT INFORMATION
The Company has two reportable segments magazine operations and auction
operations.
Reportable Segment Information
- ------------------------------
Magazine Auction
Operations Operations Totals
---------- ---------- ----------
For the quarter ended June 30, 2000
- -----------------------------------
Revenues from external customers $ 1,257,382 $266,717 $ 1,524,099
Segment profit (loss) (2,218,360) (419,145) (2,637,505)
Segment assets, net 702,716 831,901 1,534,617
For the quarter ended June 30, 1999
- -----------------------------------
Revenues from external customers 1,003,094 180,083 1,183,177
Segment profit (loss) (1,466,289) (459,739) (1,926,028)
As of December 31, 1999
- -----------------------
Segment assets, net 1,869,903 914,413 2,784,316
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
June 30, 2000 and 1999
(Unaudited)
NOTE 5 - SEGMENT INFORMATION - Continued
Reconciliation to Consolidated Amounts
--------------------------------------
For the quarter ended
June 30
--------------------------------
2000 1999
---------- ----------
Revenues
--------
Total external revenues for reportable segments $1,524,099 $1,183,177
---------- ----------
Total consolidated revenues $1,524,099 $1,183,177
========== ==========
Loss
----
Total loss for reportable segments $(2,637,505) $(1,926,0028)
Unallocated amounts
Corporate expense (2,377,832) (967,343)
---------- ----------
Consolidated loss before income taxes $(5,015,337) $(2,893,371)
========== ==========
June 30, December 31,
Assets 2000 1999
------ ---------- ----------
Total assets for reportable segments $2,624,170 $2,784,316
Other unallocated assets 185,406 272,752
---------- ----------
Total consolidated assets $2,809,576 $3,057,068
========== ==========
At June 30, 2000 and December 31, 1999, the other unallocated assets were
comprised solely of the total cash and certificate of deposit balance of the
Company in the amounts of $185,406 and $272,752, respectively.
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
June 30, 2000 and 1999
(Unaudited)
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock and Additional Paid-in Capital
- --------------------------------------------
During the six months ended June 30, 2000, the Company's stockholders' deficit
increased from $(480,959) on December 31, 1999 to $(3,503,296) on June 30, 2000.
As indicated in Notes 4 and 5, the Company issued common stock for services
rendered and sold common stock. The issuance of common stock for services and
cash payment of $1.25 per share increased common stock and additional paid-in
capital by $120 and $419,880, respectively. The Company sold the discounted
common stock for professional services performed in the year ended December 31,
2000. The excess of the fair value of the common stock issued over the cash
payment of $1.25 per share resulted in the recording of $270,000 in compensation
expense. The Company sold 28,000 shares of common stock at fair market value of
$1.50 per share. This increased common stock by $28 and additional paid-in
capital by $419,880. The Company also entered into promissory notes with
beneficial conversion features. These transactions increased additional paid-in
capital by $1,322,000.
Deferred Compensation
- ---------------------
On December 15, 1998, 970,000 stock options were granted at an exercise price of
$1.00 and the fair value was determined to be $4.00. The total potential
compensation expense that may be recognized in the Company's financial
statements is $2,910,000. The stock options vest over a five-year period. During
the six-month periods ended June 30, 2000 and 1999, compensation expense of
$209,000 and $255,000 respectively, along with a corresponding reduction of
additional paid-in capital were recognized. This resulted from the ratable
recognition of compensatory stock options expense. The Company removed $60,000
of forfeited deferred compensation and additional paid-in capital during the
period ended June 30, 2000.
NOTE 7 - IMPAIRMENT LOSS
On August 14, 1998 the Company purchased all of the outstanding shares of Life
Style Media Corporation ("LMC"), a magazine publishing business, and the
trademarks "Millionaire" and "Billionaire" (the "Trademarks"). In consideration
for the purchase of LMC and the Trademarks, the Company issued a note payable in
the amount of $1,674,595 to the sellers. As part of the transaction, the Company
formed Life Style Media Properties ("LMPI") to hold the Trademarks. LMPI is a
wholly owned nonoperating entity and the only assets held in the entity are the
Trademarks. The sellers of LMC and the Trademarks (the "Lamberts") were granted
a security interest in the Trademarks and the stock of LMPI to secure the
performance of the note payable. As of June 30, 2000, all payments due under the
note were current.
On June 30, 2000, the Company was notified that the Lamberts had seized the
stock of LMPI and cancelled all agreements that provided the Company with the
rights to use the Trademarks based on the Lamberts' claim that the Company was
not adequately protecting the "Millionaire" trademark. The Company maintains
that the only basis for the Lamberts to enforce their security interest was
failure to make scheduled payments on the note. The Company's management and
legal counsel believe that the actions of the Lamberts were illegal and
occurred without regard to the binding agreements between the Company and the
Lamberts that detailed the ownership and usage of the trademarks. The Company
initiated legal action against the Lamberts on August 31, 2000, intended to
affirm the Company's ownership of the Trademarks and to recover damages caused
as a result of the Lamberts' actions. The litigation is in the preliminary
stages, as such, no counterclaims have been filed by the Lamberts, no discovery
has commenced and no court hearings or proceedings have been scheduled.
Management believes that it has continued ownership and rights to the
Trademarks. In order to insure that publication of the Company's magazine was
not interrupted and to protect vendors and advertisers from claims of trademark
infringement, the Company decided to change the name of its magazine from
Millionaire to Opulence. As a result of the decision to change the name of the
- ----------- --------
magazine, the Trademarks and related goodwill were deemed to be impaired assets
and the carrying value of $1,089,553 was written off as of June 30, 2000.
As a result of the Lamberts' actions, the note payment due to the Lamberts on
August 14, 2000, was not made, causing the note to be in default at that time.
The Lamberts' potential course of action, in addition to seizing the stock of
LMPI and voting those shares to cancel the agreements with the Company, is to
seek to recover the balance of the promissory note through litigation. The
Lamberts have made no demands for payment, but the Company expects the Lamberts
to counterclaim for the unpaid balance of the debt. Management believes that the
damages incurred by the Company for the wrongful seizure of the trademarks far
exceed its obligations under the note. The Company intends to offset its damages
from the Lamberts' actions against future note payments. In view of the default
status of the note and the ongoing litigation regarding ownership of the
Trademarks, the Company continues to reflect the balance of the purchase debt
obligation and it has been classified as currently payable as of June 30, 2000.
As a result of the actions taken in response to the circumstances described
above, management believes that the Company will overcome the effects of the
impaired trademark and the name change for the magazine. Management is unable to
predict at this time the final outcome of the action against the Lamberts or
whether the resolution of this matter could result in a loss contingency that
may materially affect the Company's results of operations, cash flows or
financial position. However, management believes that subscription and
advertising revenues may be adversely impacted in the short term and that the
Company will incur costs of approximately $425,000 related to changing the name
of the magazine, acquiring a new trademark and publicizing the new name. These
costs will be recognized when incurred.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Realization of Assets
- ---------------------
The Company has sustained net losses of $5,015,337 and $2,893,371 for the six
months ended June 30, 2000 and 1999, respectively. The Company has used, rather
than provided, cash in its operations for the six months ended June 30, 2000 and
1999. In addition, the Company is currently involved in various lawsuits for
which management is currently unable to determine whether there will be a
material impact on its results of operations, financial position or cash flows.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its operating cash requirements and
to succeed in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification Of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
In response to the matters described in the preceding paragraphs, management is
pursuing additional equity financing. Management believes that this additional
financing will allow the Company to vigorously pursue its expansion efforts in
the upcoming year and that this expansion will strengthen the Company's cash
flow position to provide the Company with the ability to continue in existence.
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
June 30, 2000 and 1999
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES - Continued
Litigation
- ----------
In addition to the litigation described in Note 7, the Company is engaged in
various pending or threatened lawsuits, either as plaintiff or defendant,
involving alleged violations of non-compete covenants, disagreements with its
former employees, breach of contract and nonpayment for legal services.
Management does not believe that these lawsuits will have a material impact on
results of operations, financial position or cash flows.
Other Legal Matters
- -------------------
In March 1999, the Company received a subpoena from the Securities and Exchange
Commission in connection with an investigation the SEC has begun into
Millionaire.com. The Company has provided the SEC documents in response to the
subpoena and some employees have provided testimony. Management intends to
cooperate fully with the SEC in this matter. The probability and amount of any
additional cost associated with this investigation cannot be reasonably
determined given the current circumstances of the matter. Accordingly, no
accrual has been made.
Leases
- ------
The Company is obligated under terms of various lease arrangements for its
operating facility and various equipment.
Proposed Public Offering
- ------------------------
In 1999, the Company's Board of Directors approved a future public offering of
$12 - $15 million of the Company's common stock. The Company intends to use
approximately $2 million of the proceeds to acquire an auction gallery and the
remainder for general corporate purposes.
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Revenue
Magazine revenues are generated from the sale of advertising space,
subscriptions, single copy sales and the sale of company owned products within
the magazine.
Other revenues are generated by selling company owned art, antiques and
collectibles through existing auction houses throughout the United States, our
own auction gallery, over the Internet at www.millionaire.com, and by joint
venturing the sale of items with other major Internet companies including Lycos
and Ebay.
The average page rate in Opulence has increased substantially as has the
relationship between advertising pages to editorial. The company has launched a
major national television campaign offering subscriptions to Opulence, a
television campaign that will reach 60 million T. V. households by the end of
2001.
Results of Operations
- ---------------------
Net sales increased 56% to $2,346,546 for the six-month period ended June 30,
2000, as compared to $1,497,030 for the comparable period in 1999.
Magazine sales increased by 29% to $188,419 for the six-month period ended June
30, 2000 as compared to $146,038 for the same period in 1999. The principal
reason for the increase in magazine sales was primarily due to the Company's
launch of a national subscription solicitation campaign and the excellent
distribution of the publication through Cable News.
Advertising revenues increased by 54% to $1,732,694 for the six-month period
ended June 30, 2000 as compared to $1,126,785 the comparable period in 1999.
The principal reason for the increase in advertising was increasing the number
of professional sales representatives, an increase in the price of advertising
spaces and repeat, as well as new, advertising sales.
Inventory sales and revenues increased by 90% to $425,433 for the six-month
period ended June 30, 2000 as compared to $224,207 for the comparable period in
1999. The principal reason for the increase in product sales was offering items
through non company owned auction houses on a consignment basis.
Publishing costs (exclusive of Depreciation and Amortization shown separately)
as a percentage of magazine and advertising sales decreased from 135.8% to 82.4%
when comparing the six months ended June 30, 1999 to the six months ended June
30, 2000. During the six months ended June 30, 2000 the Company increased the
advertising content from 60% to 70% of the total magazine. This resulted in more
magazine advertising revenue as compared to 1999. As the Company continues to
refine the distribution of the magazine to a larger number of high net worth
readers, advertisers are willing to pay more for pages. At the same time, our
page rates have increased and our production costs have decreased by replacing
expensive outside production houses and one-time set up costs with our own
internal staff of professional designers and computer technologists.
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Cost of sales increased (exclusive of Depreciation and Amorization shown in
operating expenses) by 169.2% to $329,065 for the six-month period ended June
30, 2000 as compared to $122,248 for the comparable period in 1999. Inventory
cost of sales (exclusive of Depreciation and Amortization shown in operating
expense) increased due to increased revenue levels.
Selling, general, administrative and other expenses increased by 57.0% to
$3,898,483 for the six month period ended June 30, 2000 as compared to
$2,482,813 for the comparable period in 1999. The principal reason for the
increase resulted primarily from the impairment loss on the trademarks and
goodwill increased net loss $1,089,553 during the quarter ended June 30, 2000.
See Item 1, Note 7.
Interest and other expenses increased by 1,658% to $1,587,260 for the six-month
period ended June 30, 2000 as compared to $90,306 for the comparable period in
1999. The increase was primarily related to the issuance of convertible debt and
approximately $1,322,000 of interest expense related to the beneficial
conversion features of those notes payable.
The Company, due to the loss position from operations, did not record a tax
provision for the six month period ended June 30, 2000 nor did it in the same
period of 1999.
The Company's net loss of $5,015,337 for the six-month period ended June 30,
2000 increased $2,121,966 or 73% when compared to a net loss of $2,893,371 for
the comparable period in 1999. The increase was partly due to the $1,322,000
interest charge related to the beneficial conversion feature of notes payable
for the six-month period ended June 30, 2000 as compared to $90,306 for the
comparable period in 1999.
The weighted average and diluted shares outstanding increased to 8,749,813 for
the period ended June 30, 2000 as compared to weighted average and diluted
shares outstanding of 8,521,996 for the comparable period in 1999. The increase
was due to the sale and issuance of approximately 228,000 shares of common
stock.
Liquidity and Capital Resources of the Company
- ----------------------------------------------
The Company has been able to fund its operations and working capital
requirements from cash flow generated by the sale of common stock and the
proceeds from loans, convertible to stock.
Net cash used in operating activities decreased by 25% to $1,978,169 for the
six-month period ended June 30, 2000 as compared to $2,623,261 for the
comparable period in 1999. The
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
decrease in cash use was primarily the result of a decrease in the purchasing of
inventory and an increase in accounts receivable collection efforts.
Net cash provided by financing activities amounted to $1,990,570 for the
six-month period ended June 30, 2000 as compared to net cash provided by
financing activities of $1,275,000 for the comparable period in 1999. In 2000,
the Company received $1,900,000 of convertible debt compared to $0 in 1999. In
contrast, during the six months ended June 30, 1999, the Company received
$1,500,000 in proceeds from common stock offerings. The company only received
$192,000 in common stock offerings for the six months ended June 30, 2000.
The note payment due to the Lamberts in the amount of $170,000 on August 14,
2000, was not made, causing the note to be in default at that time. The Lamberts
have made no demands for payment, but have not stated that they consider the
Company released from the debt. The Company believes that the damages incurred
by the Company for the wrongful seizure of the trademarks far exceed its
obligations under the Note. The Company intends to offset its damages from the
Lamberts' actions against future note payments.
In view of the default status of the note and uncertainty surrounding the
ongoing litigation regarding ownership of the Trademarks, the Company continues
to reflect the purchase debt obligation, $1,287,071 at June 30, 2000, and it has
been classified as currently payable as of June 30, 2000. The Company is
pursuing legal action intended to affirm the Company's ownership of the
Trademarks and to recover damages caused as a result of the Lamberts' actions.
The Company has commenced litigation seeking $6.7 million in actual damages.
As a result of the actions taken in response to the circumstances described
above, management believes that the Company will overcome the effects of the
impaired trademark and the name change for the magazine. Management is unable to
predict at this time the final outcome of the action against the Lamberts or
whether the resolution of this matter could result in a loss contingency that
may materially affect the Company's results of operations, cash flows or
financial position. However, management believes that subscription and
advertising revenues may be adversely impacted in the short term and that the
Company will incur costs of approximately $425,000 related to changing the name
of the magazine, acquiring a new trademark and publicizing the new name. These
costs will be recognized when incurred.
The Company intends to meet its existing financial obligations by continuing to
decrease our overhead as we increase profit margins. Additionally, the Company
recently began offering to lease space within our Opulence "Mega Mall" where
1700 department stores (links) are available to potential on line retailers.
Space leases for approximately $3,000 annually per store. The total annual
potential revenue that could be generated, if all link spaces were leased, would
be approximately $5 million. If the Company has the need for additional capital
for operations, as it will have the need in order to acquire profitable existing
auction houses, we intend to raise capital from investors and/or financial
institutions.
The Company had cash and cash equivalent of $185,406 and $123,113 respectively,
as of June 30, 2000 and June 30, 1999.
The Company's business has not been capital intensive and, accordingly, capital
expenditures have not been material. To date, the Company has funded all capital
expenditures from working capital, proceeds from the public offering and loans.
The Company believes that its cash will not be sufficient to finance its
operating and capital requirements in fiscal 2000, therefore the company intends
to raise capital by the sale of common stock and financing receivables.
Cash requirements for future expansion of the Company's operations will be
evaluated on an as needed basis and may involve external financing. The Company
does not expect that such expansion, should it occur, will have a materially
negative impact on the Company's ability to fund its existing operations.
This document contains certain forward-looking statements. We generally identify
forward looking statements by the use of terminology such as "may," "will,"
"expect," "intend," "plan," "estimate," "anticipate," "believe," or similar
phrases. We base these statements on our beliefs as well as assumptions we made
using information currently available to us. Because these statements reflect
our current views concerning future events, these statements involve risks,
uncertainties and assumptions. Our actual future performance could differ
materially from these forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Important factors that
could cause actual results to differ materially from our expectations include
matters not yet known to us or not currently considered material by us.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Millionaire.com and Lifestyle Media Properties, Inc. V. Douglas Lambert and
---------------------------------------------------------------------------
Jenny Lambert. Plaintiffs brought this action on August 31, 2000 in the
-------------
United States District Court of Nevada alleging breach of contract and
intentional interference with contract in connection with the defendants
transfer to themselves of stock in LifeStyle Media Properties which holds
the trademarks, Millionaire and Billionaire, in violation of pledge and
security agreements among the parties. Plaintiffs are seeking $6,695,000 in
actual damages as well as punitive relief.
Millionaire.com and Lifestyle Media Properties, Inc. V. Douglass and Jenny
Lambert. Plaintiffs brought this action on October 16, 2000 in the District
Court of Clark County, Nevada. The Company has brought this state court
action in anticipation that the federal court action detailed above will be
dismissed in the near future for lack of subject matter jurisdiction. The
Company asserts claims for damages and recovery of the trademarks arising
from the same facts detailed above in the federal court action.
Douglas and Jenny Lambert (the "Lamberts") owned all of the stock of
LifeStyle Media Corporation and individually owned the trademarks
"Millionaire" and "Billionaire" ("the Marks"). LifeStyle Media Corporation
published the Millionaire and Billionaire Magazines. On or about August 14,
1998, a stock purchase agreement was executed (the "Transaction") between
Lifestyle Media Acquisition Corporation ("LMAC"), whereby LMAC acquired all
of the Lamberts' stock in and to Lifestyle Media Corporation. As part of
the Transaction, the Lamberts executed an Assignment of Trademark,
assigning to Lifestyle Media Properties, Inc. ("LMPI") all of the Lamberts'
right, title and interest in the Marks.
As part of the Transaction, LMAC executed a promissory note in the
principal sum of $1,674,595.00 payable to the Lamberts ("Note"). LMPI also
executed a Trademark Security Agreement and LMAC executed a Pledge
Agreement as part of the Transaction. The Trademark Security Agreement
grants the Lamberts a security interest in the Trademarks to secure the
performance of certain of LMAC's obligations in the Note and Stock Purchase
Agreement. The Pledge Agreement grants the Lamberts a security interest in
the LMPI stock to also secure payment of the obligations contained in the
Note and Purchase Agreement.
By letter dated June 30, 2000 MLRE was notified by the Lamberts that the
Lamberts had seized the LMPI stock under the Pledge Agreement and voted
those shares to cancel all agreements between LMPI and MLRE to use the
Marks. The stated reason for the Lamberts' actions were alleged violations
of the agreements by MLRE, including failure to adequately protect the
Marks from infringement. Under the agreements, the Company was required to
protect the Marks from infringement, misappropriation and dilution, but had
no obligation to pursue claims that MLRE believed to be of negligible
economic value. The Company reviewed the Lamberts' contentions in light of
the contractual obligations and found them without merit. In particular,
the Company advised the Lamberts that there had been no monetary default in
the payments under the Note and that MLRE had taken all steps it believed
to be reasonably necessary to protect the Lamberts' collateral (the Marks).
The Company views the actions taken by the Lamberts as wrongful and in
violation of the contractual agreements between the Company and the
Lamberts. Claiming damages for the wrongful seizure of the Pledged Stock of
LMPI, the Company did not make the August 14, 2000 Note payment to the
Lamberts. It is the Company's position that the damages incurred by the
Company for the wrongful seizure of the stock far exceed its obligations
under the Note.
Item 3. Defaults Upon Senior Securities
As part of the transaction whereby the Company (through its subsidiary
LMAC) acquired the Trademarks "Millionaire" and "Billionaire", the Company
(LMAC) executed a promissory note in the principal sum of $1,674,595.00
payable to Doug and Jenny Lamberts ("Note"). As of June 30, 2000, the
principal balance of the Note was $1,287,071 and the Company was not in
default. Due to the actions taken by the Lamberts described in the section
entitled "Legal Proceeding", the Company did not make the schedule
principal and interest payment of $170,000 due on August 14, 2000. The
Company does not intend to cure this arrearage or make further payments on
the Note due to pending litigation with the Lamberts.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - Exhibit 27 - Financial Data Schedule
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 13, 2000 By: /s/ Robert L. White
-------------------------------------
Robert L. White, Chief Executive Officer