NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
UNITED STATES 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 quarter ended June 30, 2003
Commission File Number 0-29195
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
Colorado (7310) 84-1463284
--------------------------------------------------------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
200 9th Avenue North, Suite 210
Safety Harbor, Florida 34695
(727) 797-6664
--------------
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
John D. Thatch, President
New Millennium Media International, Inc.
200 9th Avenue North, Suite 210
Safety Harbor, Florida 34695
(Name, Address and Telephone Number of Agent for Service)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of June 30, 2003 there were 10,774,848 shares of the Company's common stock
issued and outstanding.
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
INDEX
Page
----
Part I Financial Information.................................................3
Item 1 Financial Statements ........................................3
Condensed Balance Sheet......................................3
Condensed Statement of Operations............................4
Condensed Statement of Cash Flows............................5
Notes to the Condensed Financial Statements..................6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations...............10
Overview....................................................10
Critical Accounting Policies................................11
Liquidity and Capital Resources.............................11
Material Changes in Financial Condition.....................11
Results of Operations.......................................11
Operating Expense...........................................12
Loss From Operations........................................13
Net Loss....................................................13
Trends and Events...........................................14
Item 3 Quantitative and Qualitative Disclosures
About Market Risk...........................................14
Part II Other Information....................................................14
Item 1 Legal Proceedings...........................................14
Item 2 Changes in Securities and Use of Proceeds...................15
Common Stock Transferred....................................15
Use of Proceeds.............................................15
Item 3 Defaults Upon Senior Securities.............................15
Item 4 Submission of Matters to a Vote of Security Holders.........15
Item 5 Other Information...........................................15
Item 6 Exhibits and Reports on Form 8-K............................16
Signatures....................................................................16
Exhibit Index.................................................................17
Certifications................................................................18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
BALANCE SHEETS
ASSETS
------
June 30, 2003
(Unaudited) December 31, 2002
------------ ------------
CURRENT ASSETS
Cash $ 41,445 $ 16,335
Accounts receivable, net 9,415 1,006
Other receivables, net -- 2,891
------------ ------------
TOTAL CURRENT ASSETS 50,860 20,232
------------ ------------
PROPERTY AND EQUIPMENT, NET 978,274 1,065,870
------------ ------------
OTHER ASSETS
Deferred royalty expense 25,000 75,000
Deposits 21,276 21,276
------------ ------------
TOTAL OTHER ASSETS 46,276 96,276
------------ ------------
TOTAL ASSETS $ 1,075,410 $ 1,182,378
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Notes and loans payable 586,430 1,297,940
Notes payable, related party -- 303,657
Accounts payable 498,238 449,865
Royalties payable 151,152 83,924
Preferred stock dividends payable 68,898 --
Accrued expenses 342,745 330,707
Accrued compensation 148,005 154,250
Customer deposits -- 28,500
Deferred revenues 68,718 41,609
Deferred gain on sale of future revenues 150,000 150,000
Accrued commitment penalty -- 200,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,014,186 3,040,452
------------ ------------
REDEEMABLE PREFERRED STOCK (1,021,655 SHARES) 1,021,655 --
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $0.001; 10,000,000 shares
authorized Convertible Series A, Preferred stock,
5,000,000 shares authorized, 714,673 and 12,173
shares issued and outstanding, respectively,
June 30, 2002 and December 31, 2002 715 12
Common stock, par value $0.001; 15,000,000 shares authorized,
10,774,848 and 10,253,508 shares issued and outstanding,
respectively, June 30, 2003 and December 31, 2002 10,774 10,254
Common stock issuable, at par value. (1,000 shares) 1 1
Additional paid in capital 5,967,470 5,101,664
Accumulated deficit (7,889,452) (6,915,826)
------------ ------------
(1,910,493) (1,803,895)
Less deferred consulting expense (36,114) (44,104)
Less subscriptions receivable (13,825) (10,075)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (1,960,432) (1,858,074)
------------ ------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIENCY $ 1,075,410 $ 1,182,378
============ ============
See accompanying notes to financial statements
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE
FOR THE FOR THE SIX MONTHS SIX MONTHS
QUARTER ENDED QUARTER ENDED ENDED ENDED
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002
------------ ------------ ------------ ------------
REVENUES $ 90,444 $ 225,145 $ 203,177 $ 538,471
COST OF REVENUES 1,161 5,825 75,821 107,724
------------ ------------ ------------ ------------
GROSS PROFIT 89,283 219,320 127,356 430,747
OPERATING EXPENSES
Compensation 284,763 107,599 425,086 189,327
Bad debt 71,624 49,183 87,032 45,714
Consulting fees 12,538 195,099 123,689 265,949
Depreciation 43,798 43,629 87,596 86,996
General and administrative 74,419 44,604 180,061 243,971
Professional fees 71,283 32,929 105,904 65,778
Rent expense 44,955 31,703 70,002 60,214
Commitment Penalty Expense - Swartz 100,000 -- 100,000 --
Royalties 88,219 666 112,827 51,841
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 791,599 505,412 1,292,197 1,009,790
------------ ------------ ------------ ------------
Loss from Operations (702,316) (286,092) (1,164,841) (579,043)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Other income 16,650 28,500 28,022 28,500
Settlement gain, net 300,116 -- 312,495 --
Interest expense (27,126) (34,311) (72,870) (64,119)
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES, NET 289,640 (5,811) 267,647 (35,619)
------------ ------------ ------------ ------------
Loss before cumulative effect of change
in accounting principle (412,676) (291,903) (897,194) (614,662)
Cumulative effect of change in accounting principle -- -- (565,095)
------------ ------------ ------------ ------------
NET LOSS $ (412,676) $ (291,903) $ (897,194) $ (1,179,757)
Preferred Stock Dividends (76,432) -- (76,432) --
============ ============ ============ ============
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (489,108) $ (291,903) $ (973,626) $ (1,179,757)
Basic and Diluted Loss Per Common Share:
Loss before cumulative effect of
change in accounting principle (0.05) (0.031) (0.09) (0.067)
Cumulative effect of change in
accounting principle -- -- (0.062)
------------ ------------ ------------ ------------
Net Loss Per Common share-Basic and Diluted (0.05) (0.031) (0.09) (0.129)
============ ============ ============ ============
Weighted average common shares outstanding 10,741,782 9,442,547 10,618,024 9,171,547
============ ============ ============ ============
See accompanying notes to financial statements
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (973,626) $ (1,152,512)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect of change in accounting principle -- --
Stock and options for services 169,280 25,176
Stock based settlement gain (loss), net (12,379) --
Expense of option grants to noteholders 37,750 --
Gain on forgiveness of accrued penalties (300,000) --
Bad Debt 87,032 --
Depreciation 86,096 43,629
Other non-cash income (354) --
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (95,441) (18,770)
Other receivables 2,891 --
Deferred royalty expense 50,000 --
Other assets -- (36,348)
INCREASE (DECREASE) IN LIABILITIES:
Loans payable - related party-accrued interest 9,407 --
Notes payable - related party - accrued interest (3,922) --
Accounts payable and accrued expenses 48,373 (102,529)
Royalties payable 67,228 --
Accrued expenses 12,038 --
Accrued compensation 34,230 --
Preferred stock dividends payable 68,898 --
Customer deposits (28,500) --
Deferred revenues 27,109 --
Accrued commitment penalty 100,000 --
(Increase) decrease in prepaid expenses -- (7,500)
Increase (decrease) in related party payables -- 165,836
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (613,890) (1,083,018)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment 1,500 (7,940)
------------ ------------
NET USED IN INVESTING ACTIVITIES 1,500 (7,940)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes and loans payable 87,500 186,198
Proceeds from sale of preferred stock 550,000 --
Proceeds from common stock transactions -- 40,000
Proceeds from exercise of common stock options -- --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 637,500 226,198
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
Net Increase (Decrease) in cash $ 25,110 $ (864,760)
Cash beginning of year 16,335 6,906
------------ ------------
CASH END OF YEAR $ 41,445 $ (857,854)
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Preferred shares issued in exchange for loans $ 27,500
Common share issued for subscriptions receivable $ 1,250
See accompanying notes to financial statements
NOTE 1 BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
-----------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information and footnotes necessary for a comprehensive presentation of
financial position and results of operations and should be read in conjunction
with the Company's Annual Report Form 10-KSB for the year ended December 31,
2002.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
Certain amounts in the 2002 financial statements have been reclassified to
conform with the 2003 presentation.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. . The adoption of this pronouncement does not have a material effect on
the earnings or financial position of the Company.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities.: FIN 46 requires that if an entity
has a controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the financial statements of the entity. FIN 46 requires that its
provisions are effective immediately for all arrangements entered into after
January 31, 2003. The Company does not have any variable interest entities
created after January 31, 2003. For those arrangements entered into prior to
January 31, 2003, the FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The Company has not identified any variable interest entities to date and will
continue to evaluate whether it has variable interest entities that will have a
significant impact on its balance sheet and results of operations.
NOTE 2 NOTES PAYABLE, CONVERSION AND REDEEMABLE PREFERRED STOCK
----------------------------------------------------------------
The company borrowed $65,000 from 3 individuals during the quarter of which
$50,000 was converted to stock in January 2003. (See Note 3)
In January 2003 certain note holders converted their $1,021,655 of loans to
Series A convertible preferred stock. For financial accounting purposes, the
preferred shares were valued at $1.00 per share based on the common stock quoted
trading
price of $0.20 per share of the conversion date and the 4 for 1 conversion ratio
of the preferred stock to common stock. Accordingly, no gain or loss on
conversion of the loans was recognized except for an $882 loss from an
overissuance which was not refunded since it was not material. The conversion is
contingent on the Company raising $1,000,000 by the sale of Series A,
Convertible Preferred Stock by May 15, 2003. If the Company does not raise such
funds, the creditors may cancel the conversion agreement at any time prior to
September 25, 2003 by written notice to the Company. Accordingly, these
preferred shares are considered redeemable at the holders' option and classified
as a contingency between liabilities and equity in the accompanying balance
sheet at June 30, 2003.
The company entered into a promissory note in the amount of $22,500 with a
non-employee for services rendered on April 17, 2003. The note, along with a
previous loan from this individual in the amount of $5,000 was converted to
27,500 Series A convertible preferred shares in April 2003. For financial
accounting purposes, the preferred shares were valued at $1.00 per share based
on the contemporaneous sales of Series A preferred stock resulting in no gain or
loss on conversion.
NOTE 3 COMMITMENTS
------------------
The Company executed a six-month consulting agreement on February 17, 2003
whereby the consultant will provide public relations services. The Company
agreed to issue 100,000 free trading shares under their ESOP, 100,000 restricted
shares, and warrants to purchase 150,000 common shares (50,000 at an exercise
price of $0.50; 50,000 at $0.75 and 50,000 at $1.00), which vest 1/3 every 30
days. The resulting estimated expense will be recognized over the contract term.
(See Notes 5 and 6)
The Company executed a one-year consulting agreement on February 28, 2003
whereby the consultant will provide management and financial consulting services
to the Company. The consultant was granted 30,000 common shares as compensation
which were issued immediately. The resulting expense will be recognized over the
contract term.
(See Note 5)
The company executed an agreement on May 21, 2003 for the creation of a Phase II
prototype demonstrating the Company's OnScreen LED display technology. The
anticipated cost of this prototype is $100,000, with payments to be made at
various stages of completion. The estimated time to complete the prototype is
three months.
NOTE 4 PREFERRED STOCK ISSUANCES AND DIVIDENDS
----------------------------------------------
The Company has not yet filed with the State a certificate of designations and
preferences for the Series A preferred stock, however, management has
represented to preferred stock investors that the preferred stock pays 10%
cumulative dividends, payable quarterly. The Company has paid dividends of
$7,534 to certain holders of the preferred stock and has accrued dividends
payable of $68,898.
In January 2003, the Company granted 100,000 Series A convertible preferred
shares in exchange for $100,000 of loans. 50,000 shares were valued at $1.00 per
share based on the quoted trading price of the common stock on January 6, 2003
and the 4-for-1 conversion ratio for the preferred shares which were immediately
convertible, 50,000 shares were valued at $0.80 per share based on the quoted
trading price of the common stock on January 23, 2003 and the 4-for-1 conversion
ratio for the preferred shares which were immediately convertible. Accordingly,
the Company recorded a settlement gain of $10,000.
During the quarter ended March 31, 2003, the Company sold Series A preferred
shares for cash. In January, the Company sold 50,000 preferred shares to one
investor for $50,000. In February, the Company sold 75,000 preferred shares for
two investors for $75,000. In March 2003 the Company sold 50,000 preferred
shares to one investor for $50,000. The latter 50,000 shares were reflected as
issuable at March 31, 2003 and issued in April 2003.
In April 2003, the company issued 25,000 shares Series A preferred stock for
services rendered by a non-employee. The shares were valued at $1.00 per share
based on the contemporaneous sales of Series A preferred stock at $1.00 per
share resulting in a contract labor expense of $25,000.
During the quarter ended June 30, 2003, the company sold Series A preferred
shares for cash at $1.00 per share. In April 2003, the company sold 125,000
shares to two investors for $125,000. In May 2003, the company sold 250,000
shares to one investor for $250,000.
NOTE 5 COMMON STOCK ISSUANCES
-----------------------------
On January 1, 2003 the Company issued 77,640 shares to an employee under his
employment agreement, requiring $25,000 worth of stock using the 30-day average
price prior to fiscal 2002 year-end. For financial accounting purposes, the
stock was valued on the earned date of December 31, 2002 resulting in a value of
$21,739 and a settlement gain of $3,261 in January 2003. The $25,000
compensation expense had been expensed and accrued in December 2002.
During the quarter ended March 31, 2003, the Company issued 100,000 common
shares pursuant to exercises of options granted under the default provisions of
certain promissory notes. The issuance resulted in subscriptions receivable of
$2,500 for an exercise price of $.025 per share. Total subscriptions receivable
related to exercised options under default provisions of promissory notes
through March 31, 2003 were $12,575 at March 31, 2003.
During the quarter ending March 31, 2003, the Company issued 293,700 shares for
services rendered to various non-employee consultants and service providers. On
January 6, 2003, 23,700 shares were issued for services rendered and valued at
the $0.25 per share quoted trading price on the grant date resulting in a
consulting expense of $5,925. On February 18, 2003, 200,000 shares were issued
under a February 17, 2003 six-month consulting agreement. The shares were valued
at the quoted trading price of $0.23 on the grant date which was the measurement
date since the shares were contractually fully vested at the grant date.
Accordingly, the Company recognized an expense through March 31, 2003 of $10,674
and a deferred expense of $35,326 at March 31, 2003. On February 21, 2003,
40,000 shares were issued for services rendered and valued at the $0.37 quoted
trading price on the grant date resulting in a consulting expense of $14,800. On
March 4, 2003, 30,000 shares were issued to a consultant under a February 28,
2003 one-year consulting agreement. The shares were valued at the $0.25 quoted
trading price on the grant date which was the measurement date since the shares
were considered fully vested at the grant date. Accordingly, an expense through
March 31, 2003 of $625 was recognized and a deferred expense of $6,875 was
recorded at March 31, 2003.
During third quarter ended June 30, 2003 the Company issued 50,000 common shares
pursuant to exercises of options granted under the default provisions of certain
promissory notes. The issuances resulted in subscriptions receivable of $1,250
based on an exercise price of $0.025 per share. Total subscriptions receivable
related to exercised options under default provisions of promissory notes
through June 30, 2003 were $13,825 at June 30, 2003.
Note 6 Warrant and Options Grants
---------------------------------
On January 2, 2003 the Company granted 62,500 5-year warrants with an exercise
price of $0.25 per share to its Scientific Advisory Board members. The warrants
were valued at $0.28 per warrant or an aggregate $17,432 for these non-employees
using the Black-Scholes Options Pricing Model with the following assumptions;
expected life of 5 years, volatility of 253%, zero expected dividends and a
discount rate of 3.05%. Based on the members service term of three years the
Company recognized an expense through March 31, 2003 of $841 and a deferred
consulting expense of $16,591 at March 31, 2003.
On January 6, 2003 the Company granted to an employee 5,000 warrants with an
exercise price based on the 5-day average prior to the date of exercise and
expiring January 6, 2006. These variable warrants were valued under the
intrinsic value method of APB 25 at the balance sheet date of March 31, 2003
resulting in a value of $0.10 per warrants or a total $500.
On February 18, 2003 the Company granted 150,000 warrants (50,000 at an exercise
price of $0.50; 50,000 at $0.75 and 50,000 at $1.00) expiring April 20, 2004 to
a consultant for a service period through August 17, 2003. The warrants were
valued at $0.0065, $0.0039 and $0.1253 respectively per warrant or an aggregate
$6,785 using the Black-Scholes Options Pricing Model with the following
assumptions; expected life of 30 to 428 days, volatility of 161% to 214%, zero
expected dividends and a discount rate of 1.2% to 1.3%. Accordingly, the Company
recorded a consulting expense of $1,056 through March 31, 2003 and deferred
consulting of $5,729 at March 31, 2003. (see Note 3)
Amortization of the above deferred consulting was $36,781 for the three months
ended June 30, 2003.
During the quarter ended June 30, 2003, the company granted options to purchase
50,000 common shares pursuant to the default provisions of certain promissory
notes. The options were valued at the $0.22 quoted trading price on the grant
date resulting in an interest expense of $9,750.
Note 7 Going Concern
--------------------
As reflected in the accompanying financial statements, the Company has a net
loss to common stockholders of $973,626 and cash used in operations of $613,890
in the six months ended June 30, 2003 and an accumulated deficit, stockholders'
deficit and working capital deficit of $7,889,452, $1,960,432 and $1,963,326,
respectively, at June 30, 2003. The ability of the Company to continue as a
going concern is dependent on the Company's ability to further generate sales
and raise additional capital.
The Company is working towards re-filing its Form SB-2 with the United States
Securities and Exchange Commission in order for it to become effective. The
Swartz $25,000,000 equity line should then become available for the Company to
obtain the necessary funding to expand its operations.
Note 8 Subsequent Events
------------------------
In July the Company executed an employment agreement (the "Agreement")for a
Director of Research and Development. The employee will received $10,000 per
month accrued but deferred until such time the Company's technical division has
sufficient cash on hand to pay the salary. At the employee's option, such
accrued salary may be converted to common or preferred shares of the Company at
the current bid price. In addition, the employee is granted three-year options
for 500,000 common shares at an exercise price of $0.25 per share; three-year
options for 750,000 shares at $0.35 per share upon completion of Phase II
prototype as defined in the Agreement; three-year options for 500,000 shares at
$0.40 per share upon receipt by the Company of any Next Stage ONScreen funding
in excess of $150,000 as defined in the Agreement and three-year options for
250,000 shares at $0.50 per share upon receipt by the Company of payment for
commercial orders in excess of $200,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Management's discussion and analysis contains various "forward looking
statements." Such statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may," "expect," "anticipate," "estimate," or "continue" or use of
negative or other variations or comparable terminology.
We caution that these statements are further qualified by important factors that
could cause actual results to differ materially from those contained in the
forward-looking statements, that these forward-looking statements are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.
OVERVIEW
New Millennium Media International, Inc. (NMMI) is engaged in activities in the
advertising business. The primary activity of the Company currently involves
several types of visual advertising: The IllumiSign-EyeCatcher front-lit motion
display boards, the IllumiSign-EyeCatcher back-lit motion display boards, plasma
screens and LED display boards. NMMI sells advertising space on these display
boards on a contractual basis, payable monthly or in the case of the LED boards,
on an event basis. In certain instances we sell motion display boards. The
criteria that determines the sale rather than leasing the displays is two fold:
(i) sales in foreign countries where recovery of the displays in the event of
non-payment would be a major expense and recovery of the display economically
impractical and (ii) sales to customers in large quantity where leasing the
displays is determined to be nearly impossible and the customer retains the
displays for its own benefit and the customer intends to place the displays in
non-competition with the business model of the Company. The Company is
continuing to devote substantially all of its present efforts to implementing
its operational and marketing plans designed to establish new business accounts
for its mobile LED boards and the motion display boards.
On July 23, 2001, NMMI signed an exclusive licensing agreement with the inventor
of a new technology that allows the manufacture of large-scale LED (light
emitting diode) video displays with dramatic improvements in cost and
performance (hereafter referred to as "OnScreen"). Under this agreement, NMMI
will continue to participate in the research and development of this new
technology and will have the exclusive worldwide marketing rights to sell or
license the technology. The initial working prototype model for this technology
has been completed and successful and the development team has decided to pursue
fabrication of a larger, true-to-scale, prototype of the OnScreen display
technology that is scheduled for completion by the end of August 2003. In
further support of ongoing research and development of this innovative
technology, NMMI formed an OnScreen Scientific Advisory Board consisting of six
nationally recognized scientific technologic individuals in the field of science
and technology headed by David Pelka, all of whom have earned at least one
Doctor of Philosophy degree in a scientific discipline relating to LED. The
Company appointed Stephen K. Velte as Director of Research and Development for
the OnScreen technology project. Mr. Velte holds a Bachelor's degree in
Electrical Engineering with a special focus on mathematical systems. He spent 18
years with Hewlett Packard and Agilent Technologies.
NMMI continues to incur significant losses from operations. We incurred net
losses of $412,676 for the quarter ended June 30, 2003 compared to $291,903 for
the same term of 2002 a loss decrease of $120,773. As of June 30, 2003, we had
an accumulated deficit of $7,889,452.
CRITICAL ACCOUNTING POLICIES
Our financial statements and related financial information are based on the
application of accounting principles generally accepted in the United States
(GAAP). The preparation of financial statements under GAAP requires management
to make estimates and assumptions that affect the reported amount of revenue and
expenses during the periods. We believe our use of estimates and underlying
accounting assumptions adhere to GAAP and are consistently and conservatively
applied. Estimates have been made by management in several areas including, but
not limited, to accounts receivable allowances, valuation of long-lived and
intangible assets including goodwill. We have based our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances and review valuations based on estimates for
reasonableness and conservatism on a consistent basis. Actual results may differ
materially from these estimates under different assumptions or conditions.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in equipment
primarily through equity financings and borrowing from related parties that are
not necessarily isolated transactions; however, there is no assurance that there
will be proceeds from such transactions in the future.
MATERIAL CHANGES IN FINANCIAL CONDITION
As shown on the attached Balance Sheet, the Property and Equipment has decreased
from the $1,065,780 for the year-ended December 31, 2002 compared to $978,274
for the second quarter of 2003, a decrease of $87,506. primarily due to
depreciation. . The Total Current Assets shows an increase of $30,628, primarily
due to increased cash partly from cash raised from the sael of preferred shares
and to a lesser extent from loans.. The Accounts Receivable increased $8,409 as
well from sales. Deferred Royalty Expense decrease from $75,000 to $25,000 for
the second quarter as a result of amortization of this item. The net result of
these asset changes is stated as Total Assets that decreased by $106,968 from
December 31, 2002 to June 30, 2003. t
The Total Current Liabilities decreased by $1,026,266 during the six months
endedJune 30, 2003.. This is principally the result of a conversion of
$1,021,655 of debt to redeemable preferred stock and a decrease of the $200,000
Accrued Commitment Penalty offset primarily by increases inAccounts Payable of
$48,373, royalties payable of $67,228 and and Deferred Revenues of $27,109. The
other Liabilities remained constant or increased by insignificant amounts The
Company raised $550,000 during the six months ended June 30, 2003 from the sale
of preferred stock. The money received by the Company that gave rise to these
increases of Paid in Capital and Accumulated Deficit was used to fund the
ongoing operations of the Company, royalty expense and the development of the
OnScreen technology (See the Overview above for a brief description of the
OnScreen).
RESULTS OF OPERATIONS
Revenue
The comparative revenue for the second quarter of 2003 compared to the same
period for 2002 shows a decrease of $134,701, 60%. This decrease is due
primarily to the Company redirecting its focus on the development of the
OnScreen technology and, in some instances, replacing the EyeCatcherPlus with
the more technically advanced plasma screens. Presently, the EyeCatcherPlus and
the mobile LED truck rental are the primary sources of revenue for the Company.
The Cost of Revenue relates to the graphics for the EyeCatcherPlus displays. The
net result of the Revenue decrease and the Cost of Revenue is a 59% decrease in
Gross Profit from $219,320 for the second three months of 2002 to $89,283 for
the same period of 2003. Notwithstanding this decrease, the Company continues to
lease the motion displays and to sell the displays on a limited basis, see the
section captioned "Overview" above. The Graphic Arts Department continues to be
a revenue source for the Company for both the leased and sold motion displays.
The Company retains the rights to print the display posters for the motion
displays whether they are leased or sold. As the Company installs additional
display boards, additional advertisements are sold. Generally, this is
cumulative, i. e., as the display boards are placed, the advertisements are sold
for a term of several months or yearly. Even though the advertisement contracts
expire, many are renewed with a minimal amount of sales effort so long as the
display board continues to produce revenue with no additional effort. No
additional effort is generally necessary to place the display board because it
remains in place at the host venue. Additionally, the Company continues to
develop the innovative OnScreen technology and to redirect, in some instances,
replacing the EyeCatcherPlus with the more technically advanced plasma screens.
Operating Expenses
There was an increase of165%% of Compensation Expense for the second quarter of
2003 compared to the same period of 2002, from $107,599 to $284,763. This
$177,164 increase is the result of including compensation paid to management on
a "when available" basis that heretofore was accumulated as debt.
Bad Debt of $71,624 was written off during this second quarter of 2003. $49,183
in Bad Debt was written off the same quarter a year ago.
Stock Dividends of the value of $7,534 were paid ipursuant to contracts with
shareholder lenders who participated in providing operating capital during the
second quarter of 2003. Total dividends of $76,432 were recorded with $68,898
remaining as payable at June 30, 2003.
Consulting Fees decreased from $195,099 to $12,538, 94% comparing the second
quarter periods for 2003 and 2002. This expense relates principally to
consulting services outside the Company relating to the OnScreen project and
relate to warrants issued to consultants.
The Depreciation expense is consistent with te prior comparative quarter. This
depreciation expense reflects the depreciation of the Company owned equipment.
There was a increase in the General and Administrative expenses of $29,815, 67%
for the second quarter comparison of 2003 and 2002. This takes into account such
expenses as general office expenses and supplies, commissions paid for
advertising sales, telephone and cell phone, Internet service, office utilities,
insurances, business promotion, travel and lodging and EyeCatcherPlus display
maintenance/repairs.
Professional Fees increased by 116% for the second quarter of 2003 compared to
the same period of 2002, from $32,929 to $71,283. This expense is principally
accounting and legal fees for the day to day operation of the Company.
Rent Expense increased by %, from $31,703 to $44,955 for the second quarter
comparison of 2002 to 2003. This expense is the rent and rent related expenses
for the Company offices and warehouse space. The office and warehouse rental
remains constant. The increase is the result of when the rent was paid.
The remaining $200,000 of the Commitment Penalty Expense that was carried on the
Company books of account has been forgiven by Swartz Private Equity, LLC. The
details of the Investment Agreement between the Company and Swartz Private
Equity, LLC can be seen on EDGAR as Exhibit 4.1 attached to the Form SB-2 filed
by the Company on September 13, 2000.
Royalties increased from $666 to $88,219for the second quarter of 2002 compared
to the second quarter of 2002. The Royalty expense is money paid pursuant to a
contract between the Company and the inventor of the OnScreen technology. This
contract provides for periodic quarterly payments that are made by the Company
out of operating capital or by borrowing money from third parties. It is
anticipated that the Company will continue to be responsible for payment of
royalties for the OnScreen technology through the development and licensing
phases of the OnScreen.
These aggregate of these expenses yield a Total Operating Expense of $791,599
for the second three months of 2003 compared to $505,412 for 2002, a increase of
57 Although the Company continues to grow, the current staffing of the Company
is expected to be sufficient to carry the Company through its growth during the
next six to twelve months at the present rate of growth.
Loss From Operations
Loss from Operations is a function of Gross Profit minus Total Operating
Expenses. This loss increased by $416,224, 145% for the second three months of
2003 compared to the same period of 2002.
Other Income (Expense)
The Total Other Expenses,The increase to $289,640 other income from $5,811 other
loss in the comparative period reflects primarily a settlement gain related to
the Swartz forgiveness of accrued penalties. Net Loss and Loss Before Cumulative
Effect of Change in Accounting Principle This loss increased by 41%, $102,773
for the second quarter comparison for years 2003 and 2002. This operational loss
is a function of the Operating Expenses and Other Expenses and is principally
the result of the continuing Company growth which requires additional display
boards and equipment as well as the in-house personnel necessary to provide
operational support.
Basic and Fully Diluted Net Loss Per Common Share
The Basic Loss Per Common Share before cumulative effect of change in accounting
principle for the second quarter of 2003 compared to the same quarter of 2002
increased from $(0.03) to $(0.05), a comparative Basic Loss Per Common Share
increase of approximately 67%. This increase in loss per common share is a
function of the increase in the net loss offset by the increase in weighted
average shares. We are continuing to concentrate on establishing new business
and increasing sales relating to the IllumiSign EyeCatcher backlit and frontlit
display boards as well as introducing plasma screens to our advertisers and host
venue locations. The LED display sign truck continues to generate
revenue. This net loss per share in 2003 also takes into account the preferred
stock dividends which are added from net loss when computing net loss per share.
TRENDS AND EVENTS
Over the past approximately fifteen months we have been engaged in a slight
change in our operations model primarily in that we have agreed to sell
IllumiSign-EyeCatcher motion displays in limited circumstances. This change in
Company policy is described above in the section entitled "Overview". Management
feels that this is a positive change in that the Company now has the opportunity
to earn additional revenue in foreign countries as well as certain United States
based advertising entities that otherwise would purchase from competitors of the
Company or not use motion displays at all. Thus far, all purchasers of the
displays have agreed to purchase all of the advertising posters from the
Company. This sale of in-house printed posters is an additional source of
Company revenue. As stated above, in some instances, the Company continues to
redirect the advertisers and host venues toward the more technically advanced
plasma screens. This will be a gradual transition that is anticipated to take
several years to complete.
Although the OnScreen technology is still in development, the OnScreen
Scientific Advisory Board advises Company management that it feels optimistic
that the second prototype will be complete by the end of August 2003 and upon
completion this prototype could produce commercial interest among LED
manufacturers.
Although forward looking with no real assurance that the future will unfold as
anticipated by management, the Company management certainly feels that the
current trend of the Company is toward an increased number of motion displays,
both EyeCatcherPlus and plasma screens, in place and a continuing increase in
the number of bookings for the mobile LED unit. In the opinion of management,
the cumulative effect of these events is a positive trend. Thus far the Company
has continued to grow at a slow, but steady pace, there is, however, no real
assurance that this positive trend will continue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Registrant is a Small business issuer as defined by these Regulations and need
not provide the information required by this Item 3.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is presently negotiating the settlement of an ongoing litigation in
Great Britain with the individual patent owner who licenses to the Company the
current manufacture and sale of the front-lit IllumiSign EyeCatcher display.
This litigation is described as Maurice Grosse and New Millennium Media
International, Inc., Claim Number HQ02X01340 in the High Court of Justice,
Queen's Bench Division. These settlement negotiations are progressing and should
be concluded in the next few months. This litigation was initiated as a result
of the Company deciding to phase out distribution of the IllumiSign-EyeCatcher
front-lit displays in deference to the more modern backlit displays.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
COMMON STOCK TRANSFERRED
The company relied on Section 4(2) of the Securities Act of 1933 as the basis
for an exemption from registration regarding the following transfers to
accredited investors because they did not involve a public offering.
During June 2003 the Company issued 50,000 common shares pursuant to exercises
of options granted under the default provisions of certain promissory notes.
USE OF PROCEEDS
The proceeds from these transactions (Common Stock Transferred) were used for
working capital and general corporate purposes, including acquisitions, funding
anticipated operating losses, sales and marketing expenses, purchase of
additional inventory, working capital, new product development and to fund
payment obligations for contemplated acquisitions, corporate partnering
arrangements and lawsuit settlement. We reserve the right to vary the use of
proceeds among these categories because our ability to use the proceeds is
dependent on a number of factors, including the extent of market acceptance of
our variety of display boards, unexpected expenditures for further technical
development, sales and marketing efforts and the effects of competition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
On March 19, 2002 the Company filed an amended Form 10-KSB/A for year-end 2001
and filed a second amended Post Effective Amendment to Form SB-2 Registration
Statement for Small Business Issuers the original of which was filed September
13, 2000. On April 22, 2002 the Securities and Exchange Commission commented on
the second amended Post Effective Amendment. A third amended Post Effective
Amendment to Form SB-2 Registration Statement for Small Business Issuers is
currently in process.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
3.1 *Amended Articles of Incorporation of the Company (Incorporated by
reference from our registration statement on Form SB-2/A filed with
the commission on October 26, 2001).
3.2 *Bylaws of the Company (Incorporated by reference from our
registration statement on Form SB-2/A filed with the commission on
October 26, 2001).
4.1 *Investment Agreement dated May 19, 2000 by and between the Registrant
and Swartz Private Equity, LLC. (Incorporated by reference from our
registration statement on form SB-2A filed with the Commission on
October 26, 2001).
4.2 *Form of "Commitment Warrant" to Swartz Private Equity, LLC for the
purchase of 1,000,000 shares common stock in connection with the
offering of securities. (Incorporated by reference from our
registration statement on form SB-2A filed with the Commission on
October 26, 2001).
4.3 *Form of "Purchase Warrant" to purchase common stock issued to Swartz
Private Equity, LLC from time to time in connection with the offering
of securities (Incorporated by reference from our registration
statement on form SB-2A filed with the Commission on October 26,
2001).
4.4 *Warrant Side-Agreement by and between the Registrant and Swartz
Private Equity, LLC (Incorporated by reference from our registration
statement on form SB-2A filed with the Commission on October 26,
2001).
4.5 *Registration Rights Agreement between NMMI and Swartz Private Equity,
LLC related to the registration of the common stock to be sold
pursuant to the Swartz Investment Agreement (Incorporated by reference
from our registration statement on form SB-2A filed with the
Commission on October 26, 2001).
13.1 * Form 10-KSB filed April 15, 2003 for year end December 31, 2002.
13.2 * Form 10-KSB/A filed April 17, 2003 for year end December 31, 2001.
99.1 CEO/CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Incorporated herein by reference as indicated.
(b) Reports on Form 8-K
The Company filed a Form 8-K on February 4, 2003 giving notice of a change in
Company independent auditors from Richard J. Fuller, C.P.A., P.A. to Salberg &
Company, P.A. This change was approved by the Board of Directors on February 3,
2003
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signed and submitted this 15th day of August 2003.
New Millennium Media International, Inc.
(Registrant)
by: /s/______________________________
John Thatch as President/CEO/Director
EXHIBIT INDEX
Exhibit
Number Description
3.1 * Amended Articles of Incorporation of the Company (Incorporated by
reference from our registration statement on Form SB-2/A filed with
the commission on October 26, 2001.
3.2 * Bylaws of the Company (Incorporated by reference from our
registration statement on Form SB-2/A filed with the commission on
October 26, 2001.
4.6 *Investment Agreement dated May 19, 2000 by and between the Registrant
and Swartz Private Equity, LLC. (Incorporated by reference from our
registration statement on form SB-2A filed with the Commission on
October 26, 2001).
4.7 *Form of "Commitment Warrant" to Swartz Private Equity, LLC for the
purchase of 1,000,000 shares common stock in connection with the
offering of securities. (Incorporated by reference from our
registration statement on form SB-2A filed with the Commission on
October 26, 2001).
4.8 *Form of "Purchase Warrant" to purchase common stock issued to Swartz
Private Equity, LLC from time to time in connection with the offering
of securities (Incorporated by reference from our registration
statement on form SB-2A filed with the Commission on October 26,
2001).
4.9 *Warrant Side-Agreement by and between the Registrant and Swartz
Private Equity, LLC (Incorporated by reference from our registration
statement on form SB-2A filed with the Commission on October 26,
2001).
4.10 *Registration Rights Agreement between NMMI and Swartz Private Equity,
LLC related to the registration of the common stock to be sold
pursuant to the Swartz Investment Agreement (Incorporated by reference
from our registration statement on form SB-2A filed with the
Commission on October 26, 2001).
13.1 * Form 10-KSB filed April 15, 2003 for year end December 31, 2002.
13.2 * Form 10-KSB/A filed April 17, 2003 for year end December 31, 2001.
16 Form 8-K filed February 4, 2003 giving notice of a change in Company
independent auditors from Richard J. Fuller, C.P.A., P.A. to Salberg &
Company, P.A, incorporated herein by reference.
99.1 CEO/CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Incorporated herein by reference as indicated.
(b) Reports on Form 8-K
The Company filed a Form 8-K on February 4, 2003 giving notice of a change in
Company independent auditors from Richard J. Fuller, C.P.A., P.A. to Salberg &
Company, P.A. This change was approved by the Board of Directors on February 3,
2003
CERTIFICATIONS
I, John "JT" Thatch, as CEO/President/Director/acting CFO of New Millennium
Media International, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of New Millennium Media
International, Inc.;
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 we 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 function):
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: August 15th, 2003 New Millennium Media International, Inc.
By: /s/____________________________
John "JT" Thatch CEO/President/
Director/acting CFO