SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 2002
UMDN, Inc.
----------
(Exact name of small business issuer as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation or organization)
95-4817171
----------
(I.R.S. Employer Identification No.)
217 Ashland Avenue, Santa Monica California 90405
-------------------------------------------------
(Address of Principal Executive Offices)
(310) 396-1475
--------------
(Issuer's telephone number)
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ] No [X]
10-KSB (special report pursuant to Rule 15(d)(2))
- --------------------------------------------------------------------------------
The number of outstanding shares of the Issuer's Common Stock, $0.0001 par
value, was 14,924,000 as of January 15, 2003.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
Part I
Item 1. Financial Statements
UMDN, INC.
BALANCE SHEETS
August 31, 2002 and November 30, 2002
ASSETS
August 31, November 30,
2002 2002
(Unaudited)
CURRENT ASSETS
Cash $ 1,825 $ -
Prepaid expenses 310 310
Deferred offering costs 155,356 180,920
--------- ---------
TOTAL CURRENT ASSETS 157,491 181,230
--------- ---------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation 15,563 13,797
--------- ---------
TOTAL ASSETS $ 173,054 $ 195,027
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Bank overdraft $ - $ 8,911
Accounts payable 39,109 46,129
Accrued interest
11,970 18,515
Consulting fees payable 6,000 15,000
Legal fees payable 94,050 114,804
Current portion of long-term debt 2,870 2,370
Deferred income 19,388 13,439
--------- ---------
TOTAL CURRENT LIABILITIES 173,387 219,168
--------- ---------
LONG-TERM DEBT 4,542 4,366
--------- ---------
NOTES PAYABLE, STOCKHOLDERS 308,000 339,576
--------- ---------
COMMITMENT
STOCKHOLDERS' DEFICIENCY
Series A convertible preferred stock, $.0001 par value:
Authorized 10,000,000 shares;
Issued and outstanding, zero shares at
August 31, 2002 and November 30, 2002 - -
Common stock, $.0001 par value:
Authorized 40,000,000 shares;
Issued and outstanding, and 14,924,000
shares at August 31, 2002 and November 30, 2002 1,492 1,492
Paid-in capital 422,457 467,457
Accumulated deficit (736,824) (837,032)
--------- ---------
TOTAL STOCKHOLDERS'
DEFICIENCY (312,875) (368,083)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 173,054 $ 195,027
========= =========
See accompanying notes to financial statements.
2
UMDN, INC.
STATEMENTS OF OPERATIONS
For the three months ended November 30, 2001 and 2002 (unaudited)
November 30, November 30,
2001 2002
----------- ------------
REVENUE $ 17,641 $ 24,519
----------- ------------
OPERATING EXPENSES
General, selling and administrative
expense 79,479 116,027
Rescinded transaction costs 10,553 -
----------- ------------
TOTAL OPERATING EXPENSES 90,032 116,027
----------- ------------
LOSS FROM OPERATIONS (72,391) ( 91,508)
INTEREST EXPENSE 3,966 8,700
----------- ------------
NET LOSS $(76,357) $(100,208)
=========== ============
Basic and diluted loss per common share $ .02 $ .01
=========== ============
Weighted average number of shares 4,350,667 14,924,000
See accompanying notes to financial statements.
3
UMDN, INC.
STATEMENTS OF CASH FLOWS
For the months ended November 30, 2001 and 2002 (unaudited)
November 30, November 30,
2001 2002
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (76,357) $ (100,208)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,588 1,766
Non-cash payments for services 37,000 42,000
Non-cash payments for rent 3,000 3,000
Changes in assets and liabilities:
Increase in accounts receivable (400) -
Increase in deferred offering costs - (25,564)
Increase in accounts payable 2,099 7,020
Increase (decrease) in consulting fees payable (31,000) 9,000
Increase in legal fees payable 6,865 20,754
Increase in accrued interest 2,493 6,545
Increase (decrease) in deferred income 5,608 (5,949)
---------------- -----------------
Net cash used in operating activities (49,104) (41,636)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, stockholders 25,000 31,576
Long-term debt paid (511) (676)
---------------- -----------------
Net cash provided by financing activities 24,489 30,900
---------------- -----------------
NET DECREASE IN CASH (24,615) (10,736)
CASH - BEGINNING OF YEAR 30,704 1,825
---------------- -----------------
$
CASH / (BANK OVERDRAFT) - END OF PERIOD $ 6,089 (8,911)
================ =================
See accompanying notes to financial statements.
4
UMDN, INC.
NOTES TO FINANCIAL STATEMENTS
For the three months ended November 30, 2001 and 2002 (unaudited)
NOTE 1: BUSINESS OF THE COMPANY
The Company provides sales and marketing services through a benefits
program that it created specifically for unions and association
members. This benefits program utilizes the collective bargaining power
of the unions to obtain purchasing power with businesses ("providers").
The Company enrolls members of unions and other large affinity groups
to leverage their buying power to elicit proprietary discounts for
their benefit from both local and national businesses. The Company
provides their services through live operators, an online interface and
printed materials. The Company's revenues are derived from the
businesses that provide the discounts.
NOTE 2: BASIS OF PRESENTATION AND GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. However, the Company has
sustained operating losses since its inception. In addition, the
Company has used substantial amounts of working capital in its
operations. Further, at August 31, 2002 and November 30, 2002, current
liabilities exceeded current assets by approximately $172,000 and
$219,000 (excluding deferred offering costs), respectively, and total
liabilities exceeded total assets by approximately $313,000 and
$368,000, respectively. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
In view of these matters, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon a successful
financing and the success of the Company's future operations.
Management anticipates additional cash flows from a contract which is
currently suspended. Should this contract be terminated, the Company is
to receive a termination fee of $100,000 in the quarter ending May 31,
2003. In addition, the Company's stockholders intend to sell their
registered shares through a public offering from which they intend to
contribute a portion of the proceeds to the Company. Management
believes that these actions and revenues from operations, if
successful, will enable the Company to continue as a going concern.
Management also believes that if sufficient funds are not raised, the
Company will have to curtail its operations.
NOTE 3: DEFERRED OFFERING COSTS
Deferred offering costs consist mainly of professional fees incurred
relating to the Company's public stock offering on Form SB-2 which
became effective on October 2, 2002. These costs will be offset against
proceeds received from the sale of the Company's stock. As of January
18, 2003, there were no proceeds from the sale of the Company's stock.
The Company has engaged a financial consultant to assist with the sale
of its stock.
5
Item 2. Management's Discussion and Analysis
The following discussion should be read in conjunction with the Financial
Information and Notes thereto included in this report and is qualified in its
entirety by the foregoing.
Special Note Regarding Forward-Looking Statements
Some of the statements in this Management's Discussion and Analysis constitute
forward-looking statements. These statements involve risks known to us,
significant uncertainties and other factors which may cause our actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements.
In some cases, you can identify forward-looking statements by terminology, such
as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "intends," "potential" or "continue" or the
negative of such terms of other comparable terminology. These statements are
only predictions. In evaluating these statements, you should specifically
consider various factors, including the risks outlined above. These factors may
cause our actual results to differ materially from any forward-looking
statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of such statements.
General Notes
UMDN is a marketing company that has created a benefits program specifically for
affinity group members, currently primarily union members. Specifically, UMDN
enrolls members of these groups to leverage their buying power and elicit
proprietary discounts from businesses wanting to access this market. The
businesses pay UMDN fees to be listed with UMDN's live operators, in UMDN's
online interface and in printed materials to gain the patronage of the
membership.
During the three month period ended November 30, 2002, UMDN entered into
negotiations to create a Discount Network in Las Vegas, Nevada for Leisure
Industries (LESR), a Vacation Interval Ownership (Timeshare) company
headquartered in Las Vegas. These negotiations resulted in a three-year,
non-exclusive contract with potential revenue of approximately $700,000 to $1.2
million dollars. Revenues would be derived from both retail providers in the
local networks as well as from per member fees paid by LESR, which is a
departure from UMDN's historical reliance solely on fees payable by network
providers. Based on these discussions and the ensuing contract, UMDN hired
personnel, and expanded current personnel's duties with commensurate
compensation, to increase the effectiveness of UMDN's operations and to research
opportunities for the Timeshare market as well as other new markets. UMDN also
commissioned a $20,000 upgrade over several months of its proprietary PNA
(Provider Network Administration) software in order to meet certain requirements
of the new contract, as well as increase UMDN's capability to enter new markets,
give UMDN the capability to track member activity on its Networks, add new
on-line marketing capabilities, and increase UMDN's overall operational
efficiency. Shortly after hiring UMDN to build and administer a Las Vegas
Discount Network, LESR requested a suspension of the UMDN contract, as LESR had
just hired a new Vice President of Marketing who needed time to review all
vendor programs and implement a cohesive program going forward. In the following
quarter ending February 28, 2003, UMDN received a payment of $20,000 from LESR
for UMDN's agreement to suspend the contract until April 18, 2003. Pursuant to
an amendment to the agreement between UMDN and LESR, on or before April 18, LESR
must determine whether it will continue the contract with timely payments, or
terminate the contract with a one-time payment to UMDN of $100,000. During
December 2002, upon LESR's announcement of its intention to suspend the contract
for some time, UMDN laid-off its staff and re-hired several of them as
independent contractors. UMDN operations continue to be handled, uninterrupted,
by these contracted personnel.
6
Results of Operations for the Three Months Ended November 30, 2002
Revenue for the three month period ended November 30, 2002 was $24,519 as
compared to $17,641 for the three month period ended November 30, 2001. This
represents an increase of $6,878 or 18%. This increase in sales is attributable
to the addition of personnel, specifically an additional telemarketer whose
responsibilities included, among other things, lead generation for the UMDN
salesperson. Currently, Management expects that sales will decline in the next
quarter, ending February 28, 2003, as December is historically a slow sales
month for UMDN and January sales will be affected by the loss of the
telemarketer that supported sales. Management expects to have replaced the
telemarketer and sales to continue normally by February 2003.
Total Operating Expenses for the three month period ended November 30, 2002 were
$116,027 as compared to $98,032 in the three month period ended November 30,
2001; an increase of $17,995, or 18%. As discussed in the General Notes above,
UMDN made the decision to add personnel, as well as increase certain commissions
and salaries in order to facilitate the development of new markets and increase
the output of current operations. The results of these efforts included the
three year contract with LESR (subsequently suspended as discussed in "General
Notes"), development of software that will allow UMDN to enter into additional
new markets seeking sustainable, incremental income, new relationships with
several important unions, and an increase in Sales commensurate with the
increase in Expenses.
Liquidity and Capital Resources
On November 30, 2002, the Company had a negative working capital of $218,858
(excluding deferred offering costs). Currently, Kent and Starla Keith, the
President and CFO, respectively, and principal stockholders, are not collecting
salaries and through the three month period ending November 30, 2002 have
contributed accrued salaries to capital. UMDN has continued operations with the
combination of cash flows generated from sales and supplemental loans from the
principal stockholders to cover deficiencies. In November 2001, the Company
entered into a promissory note with its principal stockholders and officers
under which it may borrow up to $350,000. As of January 2003, no amount remained
under this note. The Company's principal stockholders intend to sell their
registered shares through a public offering from which they intend to contribute
a portion of the proceeds to the Company. Management believes that these actions
together with revenues from operations will be sufficient to sustain operations
through April and into May, when LESR's contract will either be resumed,
creating positive cash flow, or terminated, at which time LESR is required to
pay UMDN a one-time payment of $100,000. During the months from February through
May, UMDN also anticipates selling from 1 to 3 new, smaller contracts to Los
Angeles based affinity groups which will add sustainable revenue to UMDN's cash
flow. Like the LESR agreement, these agreements are expected to provide that
revenue be received from payments by both the network providers and the affinity
groups themselves.
UMDN does not have any significant commitment for capital expenditures.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. UMDN maintains controls
and procedures designed to ensure that information required to be disclosed in
the reports filed or submitted by UMDN under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Based upon an evaluation of those controls and procedures performed within 90
days of the filing date of this report, UMDN's President and Chief Financial
Officer concluded that UMDN's disclosure controls and procedures were adequate.
(b) Changes in internal controls. There were no significant changes in UMDN's
internal controls or in other factors that could significantly affect UMDN's
controls subsequent to the date of the evaluation of such controls by the
President and Chief Financial Officer.
7
Part II
Item 6. Exhibits
Exhibit
Number Name
3.1 Certificate of Incorporation*
3.2 Bylaws*
10.1 Agreement dated October 4, 2002, between UMDN, Inc. and Leisure
Services Corporation
10.2 Amendment, dated as of December 19, 2002, to Agreement, dated October
4, 2002, between UMDN, Inc. and Leisure Services Corporation
- ----------
* Incorporated by reference as Exhibits of same number attached to
Registration Statement No. 333-88500 on Form SB-2.
8
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.
UMDN, Inc.
By: /s/ Kent Keith
----------------------
Kent Keith
President
By: /s/ Starla Keith
----------------------
Starla Keith
Chief Financial Officer
Dated: January 23, 2003
9
CERTIFICATIONS
I, Kent Keith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of UMDN, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 23, 2003 /s/ Kent Keith
---------------------------
Kent Keith, President
10
I, Starla Keith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of UMDN, Inc.
("Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 23, 2003 /s/ Starla Keith
---------------------------
Starla Keith,
Chief Financial Officer
11
EXHIBIT INDEX
Number Name
3.1 Certificate of Incorporation*
3.2 Bylaws*
10.1 Agreement dated October 4, 2002, between UMDN, Inc. and Leisure
Services Corporation
10.2 Amendment, dated as of December 19, 2002, to Agreement, dated October
4, 2002, between UMDN, Inc. and Leisure Services Corporation
- ----------
* Incorporated by reference as Exhibits of same number attached to
Registration Statement No. 333-88500 on Form SB-2.