<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____________ to ______________.
COMMISSION FILE NUMBER: 0-29050
TOMORROW'S MORNING, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-4379805
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 South Barrington Place, Los Angeles, California 90049
(Address of principal executive offices)
Issuer's telephone number: (310) 440-2778
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 /X/ No / /
Number of shares of common stock outstanding at January 29, 1999: 3,352,690
Transitional Small Business Disclosure Format (CHECK ONE) : Yes / / No /X/
1
<PAGE>
PART I
FINANCIAL INFORMATION
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,056
Loan receivable, officer-shareholder 60,333
Software development costs 23,367
Prepaid expenses and other current assets 81,523
--------------
Total current assets $ 169,279
OTHER ASSETS:
Fixed assets, net of accumulated depreciation of $50,857 91,840
Deposits 32,772
--------------
Total other assets 124,612
--------------
$ 293,891
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,566,282
Current maturities of contracts payable 5,731
Loans payable, related parties 536,798
--------------
Total current liabilities $ 2,108,811
CONTRACTS PAYABLE, less current maturities 11,598
SHAREHOLDERS' DEFICIT:
Preferred stock; no par value, 1,000,000 shares
authorized, no shares issued and outstanding -
Common stock; no par value, 10,000,000 shares
authorized, 3,360,372 shares issued and outstanding 12,869,767
Deficit accumulated during development stage (14,696,285)
--------------
Total shareholders' deficit (1,826,518)
--------------
$ 293,891
==============
</TABLE>
2
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended Six months ended Three months ended
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUE:
SUBSCRIPTIONS $ 3,144 $ 229,666 $ -
EDITORIAL, PRODUCTION AND
DISTRIBUTION COST 906 537,992 1,484
------------ ------------ ------------
GROSS MARGIN 2,238 (308,326) (1,484)
OPERATING EXPENSES 298,471 2,085,237 146,631
RESEARCH AND DEVELOPMENT 2,000 463,460 -
------------ ------------ ------------
LOSS FROM OPERATIONS (298,233) (2,857,023) (148,115)
NONCASH OPTION COMPENSATION AND
CONSULTING FEES - 2,026,204 -
LEGAL SETTLEMENT - 30,000 -
OTHER EXPENSES, NET 13,892 11,176 6,946
INTEREST EXPENSE 31,780 2,525 10,938
INTEREST INCOME 1,054 25,865 872
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (342,851) (4,901,063) (165,127)
INCOME TAXES - 800 -
------------ ------------ ------------
NET LOSS $ (342,851) $ 4,901,863 $ (165,127)
============ ============ ============
NET LOSS PER SHARE, basic and diluted $ (0.11) $ (0.05)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 3,233,237 3,245,963
============ ============
<CAPTION>
From inception on
Three months ended June 30, 1992 to
December 31, 1997 December 31, 1998
------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C>
REVENUE:
SUBSCRIPTIONS $ 101,434 $ 552,845
EDITORIAL, PRODUCTION AND
DISTRIBUTION COST 330,330 3,313,352
------------ ------------
GROSS MARGIN (228,896) (2,760,507)
OPERATING EXPENSES 1,089,881 8,682,973
RESEARCH AND DEVELOPMENT 180,820 842,376
------------ ------------
LOSS FROM OPERATIONS (1,499,597) (12,285,856)
NONCASH OPTION COMPENSATION AND
CONSULTING FEES 1,451,592 2,026,204
LEGAL SETTLEMENT 30,000 30,000
OTHER EXPENSES, NET 6,585 70,949
INTEREST EXPENSE 1,443 345,258
INTEREST INCOME 5,530 66,782
------------ ------------
LOSS BEFORE INCOME TAXES (2,983,687) (14,691,485)
INCOME TAXES - 4,800
------------ ------------
NET LOSS $ (2,983,687) $(14,696,285)
============ ============
NET LOSS PER SHARE, basic and diluted $ (1.07)
============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 2,800,528
============
</TABLE>
3
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended Six months ended Three months ended
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $ (342,851) $ (4,901,863) $ (165,127)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 13,892 11,176 6,946
Amortization of debt issuance costs - - -
Amortization of loans payable discount 15,103 - 6,249
Non-cash litigation settlement - 30,000 -
Non-cash compensation 5,000 2,026,204 5,000
Non-cash payment for services rendered - - -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable 445 (324,882) -
Prepaid expenses 42,587 300,752 -
Software development costs - (11,535) -
Deposits - (1,117) -
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 111,043 423,094 59,444
Deferred revenue - 221,182 -
------------ ------------ ------------
Net cash used for operating activities (154,781) (2,226,989) (87,488)
------------ ------------ ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
acquisition of fixed assets - (71,383) -
------------ ------------ ------------
<CAPTION>
From inception on
Three months ended June 30, 1992 to
December 31, 1997 December 31, 1998
------------------ -----------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $ (2,983,164) $(14,696,285)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 6,585 50,858
Amortization of debt issuance costs - 138,168
Amortization of loans payable discount - 18,749
Non-cash litigation settlement 30,000 30,000
Non-cash compensation 1,451,592 4,643,481
Non-cash payment for services rendered - 132,500
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable 423,545 -
Prepaid expenses 390,300 (81,523)
Software development costs (5,335) (23,367)
Deposits 25,176 (32,773)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 304,093 1,570,281
Deferred revenue (415,640) -
------------ ------------
Net cash used for operating activities (772,848) (8,249,911)
------------ ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
acquisition of fixed assets (26,356) (142,697)
------------ ------------
</TABLE>
(Continued)
4
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended Six months ended Three months ended
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock - - -
Proceeds from revolving line of credit - - -
Proceeds from loans payable and warrants 100,000 - 100,000
Proceeds from notes payable - - -
Proceeds from contracts payable - 23,471 -
Cash paid for debt issuance costs - - -
Proceeds from exercise of stock options 2,100 60,977 -
Proceeds from exercise of warrants - - -
Proceeds from shareholders 11,446 - -
Repayment of revolving line of credit - - -
Repayment of loans payable - - -
Repayment of notes payable - - -
Repayment of contracts payable (1,850) (32,547) (648)
Repayment from shareholder, net of unpaid interest 18,000 14,636 9,000
Loans to shareholders (17,013) - (17,013)
Cash paid for offering costs - - -
Purchase of treasury stock - - -
----------- ----------- -----------
Net cash provided by financing activities 112,683 66,537 91,339
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (42,098) (2,231,835) 3,851
CASH, beginning of period 46,154 2,342,849 205
----------- ----------- -----------
CASH, end of period $ 4,056 $ 111,014 $ 4,056
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Decrease in debt issuance costs recorded in connection
with the issuance of convertible notes payable $ - $ - $ -
=========== =========== ===========
Conversion of notes payable to common stock $ - $ - $ -
=========== =========== ===========
Non-cash compensation $ 5,000 $ 2,026,204 $ 5,000
=========== =========== ===========
Issuance of warrants connected to debt conversion $ - $ - $ -
=========== =========== ===========
<CAPTION>
From inception on
Three months ended June 30, 1992 to
December 31, 1997 December 31, 1998
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock - 6,749,734
Proceeds from revolving line of credit - 50,000
Proceeds from loans payable and warrants - 899,276
Proceeds from notes payable - 1,705,086
Proceeds from contracts payable - 127,401
Cash paid for debt issuance costs - (210,757)
Proceeds from exercise of stock options 60,977 84,638
Proceeds from exercise of warrants - 1,074
Proceeds from shareholders - 11,446
Repayment of revolving line of credit - (50,000)
Repayment of loans payable (4,000) (423,400)
Repayment of notes payable - (11,456)
Repayment of contracts payable (13,979) (110,071)
Repayment from shareholder, net of unpaid interest 7,410 42,186
Loans to shareholders - (113,965)
Cash paid for offering costs - (304,528)
Purchase of treasury stock - (50,000)
----------- -----------
Net cash provided by financing activities 50,508 8,396,664
----------- -----------
NET INCREASE (DECREASE) IN CASH (748,696) 4,056
CASH, beginning of period 859,710 -
----------- -----------
CASH, end of period $ 111,014 $ 4,056
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Decrease in debt issuance costs recorded in connection
with the issuance of convertible notes payable $ - $ (72,589)
=========== ===========
Conversion of notes payable to common stock $ - $ 1,532,707
=========== ===========
Non-cash compensation $ 1,451,592 $ 2,048,124
=========== ===========
Issuance of warrants connected to debt conversion $ - $ 18,750
=========== ===========
</TABLE>
5
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(1) SUMMARY SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation
of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results
to be expected for a full year. The financial statements
should be read in conjunction with the financial statements
included in the annual report of Tomorrow's Morning, Inc. (the
"Company") on Form 10-KSB for the year ended June 30, 1998.
NATURE OF BUSINESS:
The Company was incorporated in June 1992 in the State of
California and is engaged in the publication of a children's
weekly newspaper. As of December 31, 1998, the Company is a
development stage enterprise, as defined in Financial
Accounting Standards Board Statement No. 7. The Company is
devoting substantially all of its efforts toward establishing
new business and product.
In June 1996 the Company filed for an initial public offering
("IPO") of its common stock on Form SB-2 with the Securities
and Exchange Commission. That offering was successfully
completed in March 1997.
BASIS OF PRESENTATION:
For the six months ended December 31, 1998, the Company had
negative cash flows from operations of $154,781 and incurred a
net loss of $342,851. The Company's expenses continue to
greatly exceed its income, and its future depends on: (i)
finding a strategic partner; (ii) the development of
complementary products; (iii) completion and successful
marketing of the SCOOP CD-ROM journalism game; (iv) the
formation of joint-marketing alliances for corporate
sponsorship of schools through the Company's Reading Partners
Program and/or the sale of advertising space; (v) getting one
or more television shows, or interstitial news "flashes", on
the air; and (vi) expansion into ancillary publishing and
merchandising through redirecting the Company's content and/or
licensing the Company's characters and identity. The Company
has used all of the net proceeds of its initial public
offering and finds that it requires substantial additional
funds in order to reach the above long-term goals. In
addition, as discussed below in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," the Company requires an
immediate infusion of working capital to continue operating.
There can, however, be no guarantee that the Company will be
able to obtain such additional long- and short-term funds or
that, if obtained, it will be able to achieve or sustain
significant revenues or profitability in the future.
REVENUE RECOGNITION:
Subscription sales are recorded as deferred revenue at the
time of sale. Revenues from subscriptions are recognized
ratably over the subscription period as newspapers are
delivered. Deferred revenue represents unfulfilled
subscription sales at period-end.
6
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1998
(2) LOANS PAYABLE:
<TABLE>
<CAPTION>
<S> <C>
A summary is as follows:
Unsecured demand loans with no stated interest, due to
related parties $ 74,298
Note payable, net of discount - shareholder, due September 9,
1998 with interest at 10% per annum, increased to 15% per
annum as the note is in default 125,000
Note payable, net of discount - shareholder, due December 24,
1998, with interest at 10% per annum, increased to 15% per
annum as the note is in default 250,000
Note payable, net of discount - shareholder, due December 14,
1999, with interest at 10% per annum, increased to 15% per
annum if the note is in default. 100,000 shares of the Company's
stock were issued with no additional consideration. 87,500
------------
$ 536,798
============
</TABLE>
(3) LEGAL PROCEEDINGS:
On August 17, 1998, the Company received a notice of levy from the
Internal Revenue Service as to $30,761 for back taxes. Upon receipt of
the notice, the Company contacted that agency and negotiated a payment
plan. This amount was subsequently paid.
On September 15, 1998, the Company's landlord filed an unlawful
detainer action in Los Angeles County Municipal Court seeking
possession of the Company's executive offices and past due rent. Such
action was resolved on October 6, 1998 by a stipulated judgment in
which the Company agreed to pay the landlord $40,429 in cash in two
installments and deliver 40,000 shares of Company Common Stock. The
amount owed to the landlord was paid in full in December 1998. As part
of the stipulated judgment, a judgment obtained by the landlord in a
similar action in May 1998 was satisfied in full.
On December 17, 1998, Starbright Graphics, Inc. filed an action against
the Company in the Superior Court of New Jersey Law Division, Middlesex
County, seeking $699,231, included in accounts payable, for services
rendered in connection with the printing and distribution of the
newspaper. This action was dismissed in New Jersey by stipulation
without prejudice on March 23, 1999, and filed in Los Angeles County
Superior Court for breach of contract on July 13, 1999.
On March 10, 1999, Peter Li Inc. filed an action against the Company in
Los Angeles County Superior Court seeking $33,711 in damages for breach
of contract in connection with services provided to the Company.
On May 14, 1999, the Company's landlord filed an action in Los Angeles
County Superior Court, West District, against the Company and Adam
Linter seeking $238,519 in connection with the Company's breach of its
lease payment obligations. In December 1999, this action was settled by
a stipulated judgment providing for payments of $125,000 in cash and
20,000 shares of the Company's common stock. $30,000 of this amount has
subsequently been paid.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS TREND INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 THAT INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD- LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY INCLUDE, BUT ARE NOT LIMITED TO, THOSE IDENTIFIED
BELOW IN "OVERVIEW."
OVERVIEW. For the quarter ended December 31, 1998, the Company had no revenues
and experienced a net loss of $165,127, as compared to revenues of $101,434 and
a net loss of $2,983,164 for the three months ended December 31, 1997. For the
six months ended December 31, 1998, revenues were $3,144 and the Company
experienced a net loss of $342,857, as compared to revenues of $229,666 and a
net loss of $4,901,396 for the six months ended December 31, 1997. The Company
continues to sustain substantial losses, which have resulted in suspension of
publication of the Tomorrow's Morning newspaper (the "Newspaper"), the Company's
only product to date. As a result, such losses threaten the Company's ability to
continue as a going concern. In the long run, the Company's future depends on:
(i) finding a strategic partner; (ii) the development of complementary products;
(iii) completion and successful marketing of the SCOOP-TM- CD-ROM journalism
game; (iv) the formation of joint-marketing alliances for corporate sponsorship
of schools through the Company's READING PARTNERS PROGRAM and/or the sale of
advertising space in the Newspaper should publication resume; (v) getting one or
more television shows, or interstitial news "flashes", on the air; and (vi)
expansion into ancillary publishing and merchandising through redirecting the
Company's content and/or licensing the Company's characters and identity.
However, as discussed below in "Liquidity and Capital Resources," because
virtually all available cash has been exhausted due to continuing losses, the
Company requires an immediate infusion of working capital to remain in
operation. There can, however, be no guarantee that the Company will be able to
obtain such working capital.
RESULTS OF OPERATIONS.
THREE MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997. Revenues for the quarter
ended December 31, 1998 were zero, as compared to $101,434 for the three months
ended December 31, 1997. This decrease in revenues was the result of suspension
of Newspaper publication in May 1998. Costs and expenses decreased to $148,115
during the three months ended December 31, 1998, a 91% change from $1,600,567
during the quarter ended December 31, 1997.
Total interest expense for the quarter ended December 31, 1998 was $10,938, as
compared to $1,385 for the same three month period in 1997. This increase of
approximately 690% is attributable to increased borrowing to satisfy outstanding
obligations.
For the three months ended December 31, 1998, the Company experienced a net loss
of $165,127, a decrease of approximately 94% from the $2,983,164 net loss
incurred in the three months ended December 31, 1997. The change in net loss was
primarily due to the factors described above with respect to costs and operating
expenses, partially offset by increased interest expense.
SIX MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997. Revenues for the six months
ended December 31, 1998 were $3,144, as compared to $229,666 for the six months
ended December 31, 1997. This decrease in revenues was the result of suspension
of Newspaper publication. Costs and expenses decreased to $310,337 during the
six months ended December 31, 1998, a change of 90% from $3,086,280 during the
six months ended December 31, 1997.
Total interest expense for the six months ended December 31, 1998 was $31,780,
as compared to $2,467 for the same six month period in 1997. This increase of
almost thirteen-fold was attributable to increased borrowing to satisfy
outstanding obligations.
For the six months ended December 31, 1998, the Company experienced a net loss
of $342,851, a decrease of approximately 93% from the $4,901,396 net loss
incurred in the six months ended December 31, 1997. The change in net loss was
primarily due to the factors described above with respect to costs and operating
expenses, partially offset by increased interest expense.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. To date, the Company's primary capital needs
have been to fund the development and growth of the Newspaper and the research
and development of synergistic children's media products. Since inception, sales
of the Newspaper and certain custom-published Newspaper inserts have been
essentially the sole source of Company revenue. To the extent that sales of the
Newspaper were directed at schools (which were the source of most
subscriptions), such business was seasonal, with most sales taking place between
September and June. Seasonality was not believed to be a factor with non-school
sales.
As of December 31, 1998, the Company had current assets of $169,279. The Company
has been seeking approximately $500,000 to $1,000,000 in outside debt and/or
equity funding in order to be able to complete the development of SCOOP-TM-. To
date, the Company has obtained only $125,000 of that funding. The Company is
also in discussions with several prospective distributors of SCOOP, which could
result in a royalty advance to the Company which would be used to complete the
production of that product. As a result of its lack of working capital, the
Company is currently unable to meet its financial obligations to its creditors,
including the vendor which has printed the Newspaper and its landlord. In order
for the Company to resume publication of the Newspaper and continue its normal
activities, the Company must immediately raise approximately $500,000 to
$1,000,000 through bank borrowings, public or private debt or equity offerings,
or otherwise. In addition to discussions with prospective lenders, as well as
continued solicitation of Newspaper sponsorships through the READING PARTNERS
PROGRAM, the Company is attempting to raise at least a portion of the needed
short-term funds through the private issuance of convertible debt or convertible
preferred stock. There can be no guarantee that any of such funding will be
available on terms favorable to the Company or its shareholders, if at all.
As to longer-term funding requirements, the Company is continuing to pursue
opportunities for a private equity offering of up to $5 million. In addition,
the Company is also investigating other approaches to obtain long-term operating
funds while also maximizing shareholder value. To date, those approaches
include, but are not limited to, a possible merger with the appropriate entity
or a sale of the Company or its assets. There can be no guarantee that any of
the Company's efforts will be successful or, if successful, that they will
result in a transaction on terms favorable to the Company or its shareholders.
If the short-term funds described above are obtained but long-term funds do not
become available, the Company may be required to curtail its future operations,
which could have a material adverse effect on the Company's business, operating
results and financial condition at that time.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
On June 30, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("FAS 130"). FAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. FAS 130 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented.
Management is currently evaluating the requirements of FAS 130.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position No. 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. The Company does not anticipate that the adoption of
this statement will have a material effect on its financial statements.
In April 1998, the AICPA issued SOP No. 98-5 "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company does not
anticipate that the adoption of this statement will have a material effect on
its financial statements.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 15, 1998, Barrington Plaza Partnership, the Company's landlord,
filed an unlawful detainer action in Los Angeles County Municipal Court seeking
possession of the Company's executive offices and past due rent. Such action was
resolved on October 6, 1998 by a stipulated judgment in which the Company agreed
to pay the landlord $40,428.73 in cash in two installments and deliver 40,000
shares of Company Common Stock. The amount owed to the landlord was paid in full
in December 1998. As part of the stipulated judgment, a judgment obtained by the
landlord in a similar action in May 1998 was satisfied in full.
On December 17, 1998, Starbright Graphics, Inc. filed an action against the
Company in the Superior Court of New Jersey Law Division, Middlesex County,
seeking $699,231.06 for services rendered in connection with the printing and
distribution of the Newspaper. The Company intends to contest the action on
various grounds, including lack of jurisdiction over the Company in New Jersey.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On December 14, 1998, in return for a $100,000 loan from Wolfgang
Struss, the Company issued to Mr. Struss 100,000 shares of Common Stock
for no additional consideration. Based on Mr. Struss' access to Company
information and his investment sophistication, the issuance was made in
reliance on the exemption in Section 4(2) of the Securities Act because
no public offering was involved.
On December 15, 1998, the Company issued 20,000 shares of Common Stock
to its landlord as part of the stipulated judgement described above in
"Item 1. Legal Proceedings." Based on the landlord's access to Company
information and investment sophistication, the issuance was made in
reliance on the exemption in Section 4(2) of the Securities Act because
no public offering was involved.
On December 15, 1998, the Company also issued 20,000 shares of Common
Stock to Adam Linter as reimbursement for his delivery of 20,000 shares
of Common Stock to the Company's landlord pursuant to the stipulated
judgment described above. Based on Mr. Linter's access to information
as a Company director and officer and his level of investment
sophistication, the shares were issued in reliance on the exemption
provided in Section 4(2) of the Securities Act because no public
offering was involved.
(d) Not applicable.
10
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in default in its obligations to virtually all of its creditors
and its landlord. The Company is also in default as to the payment of principal
and interest on a $125,000 loan from Wilmington Trust Company, Trustee for
Andrea B. Currier and a $250,000 loan from Michael Fuchs. Such defaults will
continue until funds are obtained as described in Part I above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibit is attached hereto:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during the Company's fiscal quarter ended
December 31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
TOMORROW'S MORNING, INC.
Dated: May 2, 2000 By: /s/ ADAM LINTER
---------------------------------
Adam Linter
President and Treasurer
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 6-MOS 6-MOS 3-MOS 3-MOS
OTHER
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998 JUN-30-1999 JUN-30-1998
JUN-30-1999
<PERIOD-START> JUL-01-1998 JUL-30-1997 OCT-01-1998 OCT-01-1997
JUL-01-1992
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
DEC-31-1998
<CASH> 4,056 0 0 0
0
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 60,333 0 0 0
0
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 169,279 0 0 0
0
<PP&E> 142,697 0 0 0
0
<DEPRECIATION> 50,857 0 0 0
0
<TOTAL-ASSETS> 293,891 0 0 0
0
<CURRENT-LIABILITIES> 2,108,811 0 0 0
0
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 12,869,767 0 0 0
0
<OTHER-SE> 0 0 0 0
0
<TOTAL-LIABILITY-AND-EQUITY> 293,891 0 0 0
0
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 3,144 229,666 0 101,434
552,845
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 906 537,992 1,984 330,330
3,313,352
<OTHER-EXPENSES> 313,309 4,590,212 152,705 2,753,348
11,585,720
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 31,780 2,525 10,938 1,443
345,258
<INCOME-PRETAX> (342,851) (4,901,063) (165,127) (2,983,687)
(14,691,485)
<INCOME-TAX> 0 800 0 0
4,800
<INCOME-CONTINUING> (342,851) (4,901,863) (165,127) (2,983,687)
(14,696,285)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (342,851) (4,901,863) (165,127) (2,983,687)
(14,696,285)
<EPS-BASIC> (0.11) 0 (0.05) (1.07)
0
<EPS-DILUTED> (0.11) 0 (0.05) (1.07)
0
</TABLE>
