\<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, 1999
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.)
269 South Beverly Drive, Beverly Hills, California 90212
(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 31, 2000: 3,852,690
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, 1999
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,512
Software development costs 95,867
Prepaid expenses and other current assets 9,023
---------------
Total current assets $ 123,402
OTHER ASSETS:
Fixed assets, net of accumulated depreciation of $77,800 64,899
Deposits 32,772
---------------
Total other assets 97,671
--------------
$ 221,073
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,967,350
Current maturities of contracts payable 11,943
Loans payable 589,298
Loans payable, officer-shareholder 18,689
---------------
Total current liabilities $ 2,587,280
CONTRACTS PAYABLE, less current maturities 5,081
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, 3,760,372 shares issued and outstanding 12,889,767
Deficit accumulated during development stage (15,261,055)
---------------
Total shareholders' deficit (2,371,288)
--------------
$ 221,073
==============
</TABLE>
2
<PAGE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From inception on
Six months ended Six months ended Three months ended Three months ended June 30, 1992 to
December 31, 1999 December 31, 1998 December 31, 1999 December 31, 1998 December 31, 1999
----------------- ------------------ ------------------ ------------------ -----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
SUBSCRIPTIONS $ - $ 3,144 $ - $ - $ 552,845
EDITORIAL, PRODUCTION AND
DISTRIBUTION COST - 906 - 1,484 3,313,352
----------- ----------- ----------- ----------- -------------
GROSS MARGIN - 2,238 - (1,484) (2,760,507)
OPERATING EXPENSES 263,793 298,471 140,110 146,631 9,159,623
RESEARCH AND DEVELOPMENT - 2,000 - - 840,376
----------- ----------- ----------- ----------- -------------
LOSS FROM OPERATIONS (263,793) (298,233) (140,110) (148,115) (12,760,506)
NONCASH OPTION COMPENSATION AND
CONSULTING FEES - - - - 2,026,204
LEGAL SETTLEMENT - - - - 30,000
OTHER EXPENSES, NET - 13,892 - 6,946 84,841
INTEREST EXPENSE 39,376 31,780 19,686 10,938 424,014
INTEREST INCOME 478 1,054 151 872 69,310
----------- ----------- ----------- ----------- -------------
LOSS BEFORE INCOME TAXES (302,691) (342,851) (159,645) (165,127) (15,256,255)
INCOME TAXES - - - - 4,800
----------- ----------- ----------- ----------- -------------
NET LOSS $ (302,691) $ (342,851) $ (159,645) $ (165,127) $ (15,261,055)
=========== =========== =========== =========== =============
NET LOSS PER SHARE,
basic and diluted $ (0.09) $ (0.11) $ (0.05) $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING, basic and diluted 3,403,615 3,233,237 3,446,394 3,245,963
=========== =========== =========== ===========
</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, 1999 December 31, 1998 December 31, 1999
------------------ ------------------ -------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $ (302,691) $ (342,851) $ (159,645)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 13,051 13,892 6,526
Amortization of debt issuance costs - - -
Amortization of loans payable discount 6,248 15,103 3,122
Non-cash litigation settlement - - -
Non-cash compensation - 5,000 -
Non-cash payment for services rendered - - -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable - 445 -
Prepaid expenses - 42,587 -
Software development costs - - -
Deposits - - -
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 217,941 111,043 114,836
Deferred revenue - - -
============ ============ ============
Net cash used for operating activities (65,451) (154,781) (35,161)
------------ ------------ ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
acquisition of fixed assets - - -
============ ============ ============
<CAPTION>
From inception on
Three months ended June 30, 1992 to
December 31, 1998 December 31, 1999
------------------- ------------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $ (165,127) $(15,261,055)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 6,946 77,801
Amortization of debt issuance costs - 138,168
Amortization of loans payable discount 6,249 31,249
Non-cash litigation settlement - 30,000
Non-cash compensation 5,000 4,643,481
Non-cash payment for services rendered - 132,500
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable - 445
Prepaid expenses - 42,140
Software development costs - (124,110)
Deposits - (23,367)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 59,444 479,254
Deferred revenue - 1,459,238
============ ============
Net cash used for operating activities (87,488) (8,374,256)
------------ ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES -
acquisition of fixed assets - (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, 1999 December 31, 1998 December 31, 1999
----------------- ----------------- ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 20,000 - 20,000
Proceeds from revolving line of credit - - -
Proceeds from loans payable and warrants 30,000 100,000 30,000
Proceeds from notes payable - - -
Proceeds from contracts payable - - -
Cash paid for debt issuance costs - - -
Proceeds from loans payable, officer-shareholders 18,689 - 3,660
Proceeds from exercise of stock options - 2,100 -
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) -
Repayment from shareholder, net of unpaid interest 15,588 18,000 -
Loans to shareholders (327) (17,013) -
Cash paid for offering costs - - -
Purchase of treasury stock - - -
------------ ------------ ------------
Net cash provided by financing activities 83,950 112,683 53,660
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 18,499 (42,098) 18,499
CASH, beginning of period 13 46,154 13
------------ ------------ ------------
CASH, end of period $ 18,512 $ 4,056 $ 18,512
============ ============ ============
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 $ -
============ ============ ============
Issuance of warrants connected to debt conversion $ - $ - $ -
============ ============ ============
<CAPTION>
From inception on
Three months ended June 30, 1992 to
December 31, 1998 December 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock - 6,769,734
Proceeds from revolving line of credit - 50,000
Proceeds from loans payable and warrants 100,000 939,276
Proceeds from notes payable - 1,705,086
Proceeds from contracts payable - 127,401
Cash paid for debt issuance costs - (210,757)
Proceeds from loans payable, officer-shareholders - 18,689
Proceeds from exercise of stock options - 84,638
Proceeds from exercise of warrants - 1,074
Proceeds from shareholders - 11,619
Repayment of revolving line of credit - (50,000)
Repayment of loans payable - (423,400)
Repayment of notes payable - (11,456)
Repayment of contracts payable (648) (110,377)
Repayment from shareholder, net of unpaid interest 9,000 85,745
Loans to shareholders (17,013) (97,279)
Cash paid for offering costs - (304,528)
Purchase of treasury stock - (50,000)
------------ ------------
Net cash provided by financing activities 91,339 8,535,465
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,851 18,512
CASH, beginning of period 205 -
------------ ------------
CASH, end of period $ 4,056 $ 18,512
============ ============
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 $ 5,000 $ 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, 1999
(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, 1999.
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, 1999, 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, 1999, the Company had
negative cash flows from operations of $65,451 and incurred a
net loss of $302,691. 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-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; (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 its present
operations. 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, 1999
(2) NON CASH TRANSACTIONS:
During December 1999 the Company entered into a stipulated judgement to
settle a lawsuit brought by their landlord for past due rent. The
stipulated judgement provided for payment of $125,000 in cash and
20,000 shares of the Company's common stock.
(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 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 ACTUAL RESULTS OF TOMORROW'S MORNING, INC. (THE "COMPANY")
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, 1999, the Company had no revenues
and experienced a net loss of $159,645, as compared to no revenues and a net
loss of $165,127 for the three months ended December 31, 1998. For the six
months ended December 31, 1999, revenues were also zero and the Company incurred
a net loss of $302,691, as compared to revenues of $3,144 and a net loss of
$342,851 for the six months ended December 31, 1998. 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- 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, 1999 AND 1998. Revenues for the quarter
ended December 31, 1999 were zero, the same as for the three months ended
December 31, 1998. Costs and expenses decreased to $140,110 during the three
months ended December 31, 1999, a 5% change from $148,115 during the quarter
ended December 31, 1998 as the Company continued to cut its operations to a
minimum level.
Total interest expense for the quarter ended December 31, 1999 was $19,686, as
compared to $10,938 for the same three month period in 1998. This increase of
approximately 80% was attributable to increased borrowing to satisfy ongoing
fixed obligations.
For the three months ended December 31, 1999, the Company experienced a net loss
of $159,645, a decrease of approximately 3% from the $165,127 net loss incurred
in the three months ended December 31, 1998. 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, 1999 AND 1998. Revenues for the six months
ended December 31, 1999 were zero, as compared to $3,144 for the six months
ended December 31, 1998. Costs and expenses decreased to $263,793 during the six
months ended December 31, 1999, a change of 12% from $301,377 during the six
months ended December 31, 1998.
Total interest expense for the six months ended December 31, 1999 was $39,376,
as compared to $31,780 for the same six month period in 1998. This increase of
approximately 23% was attributable to increased borrowing to satisfy existing
fixed obligations.
For the six months ended December 31, 1999, the Company experienced a net loss
of $302,691, a decrease of approximately 12% from the $342,851 net loss incurred
in the six months ended December 31, 1998. 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, 1999, the Company had current assets of $123,402. As a result
of its lack of working capital, the Company is currently unable to meet its
financial obligations to its lenders and other creditors, including its landlord
and the vendor which has printed the Newspaper. In order to resume its proposed
business activities, the Company must immediately raise approximately $500,000
to $1,000,000 through private debt or equity offerings. While the Company
continues to engage in discussions with prospective financing sources, there can
be no guarantee that such funding will be available on terms favorable to the
Company or its shareholders, if at all. Until such near-term funding is
obtained, all of the Company's operations will remain at minimal levels.
As to long-term funding requirements, the Company continues 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 have
included 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 long-term
funding 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
near-term funds described above are obtained, unless long-term funds also become
available, the Company may be required to curtail its future operations, which
would have a material adverse effect on the Company's business, operating
results and financial condition at that time.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
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.
In June 1998, the United States Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for fiscal years beginning after June 15, 1999. The Company
anticipates that due to its limited use of derivative instruments, the adoption
of SFAS No. 133 will not have a material effect on its financial statements.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1999, the Company made its final payment to the Internal Revenue
Service with respect to a previously reported claim for back taxes.
On November 24, 1999, the Company settled a previously reported action by its
landlord, Barrington Plaza Partnership, by stipulated judgement. Under the terms
of the parties' agreement, the Company will issue 20,000 shares of its Common
Stock and pay the landlord a total of $125,000 in six payments. All of the
Company's obligations are secured by a lien on certain tangible assets. Under
the terms of the agreement, Adam Linter agreed to continue to personally
guarantee a portion of the obligation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On December 15, 1999, in return for $50,000 in cash, the Company issued
to Peter Rettman (i) 500,000 shares of Common Stock and (ii) warrants
to purchase another 500,000 shares for $0.10 per share until December
14, 2004. Based on Mr. Rettman's access to Company information and his
level of investment sophistication, the shares and warrants were issued
in reliance on the exemption provided in Section 4(2) of the Securities
Act of 1933 because no public offering was involved.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in default in its obligations to virtually all of its creditors,
as well as its landlord (although the default to the landlord has recently been
resolved, as described above in "Item 1. Legal Proceedings"). 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, a $250,000 loan
from Michael Fuchs and a $100,000 loan from Wolfgang Struss. Such defaults will
continue until funds are obtained as described in Part I above.
ITEM 5. OTHER INFORMATION
In October 1999, the Company moved out of its offices at 125 South Barrington
Place, Los Angeles, California due to its continuing inability to pay the
required rent. The Company's executive office has been relocated to another
location in the Los Angeles area where no rent payment is required.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are attached hereto:
EXHIBIT NO. DESCRIPTION
----------- -----------
10 Form of Warrant issued to Peter Rettman
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the Company's fiscal quarter
ended December 13, 1999.
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
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10 Form of Warrant issued to Peter Rettman
27 Financial Data Schedule
12
<PAGE>
EXHIBIT 10
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
FOR VALUE RECEIVED, Tomorrow's Morning, Inc. (the "Company") hereby
certifies that Peter Rettman, or a permitted successor or assign thereof, is
entitled to purchase from the Company, at any time or from time to time
commencing December 15, 1999 (the "Commencement Date") and prior to 5:00 P.M.,
P.S.T., on December 14, 2004 (the "Expiration Date"), Five Hundred Thousand
(500,000) fully paid and nonassessable shares of common stock of the Company,
for Ten Cents ($0.10) per share, subject to adjustment pursuant to Section 3.
(Hereinafter, (i) said common stock, together with any other equity securities
which may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock," (ii) the shares of the Common
Stock purchasable hereunder or under any other Warrant (as hereinafter defined)
are referred to as the "Warrant Shares," (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the "Aggregate
Warrant Price," (iv) the price payable hereunder for each of the Warrant Shares
is referred to as the "Per Share Warrant Price," (v) this Warrant, all identical
warrants issued on the date hereof and all warrants hereafter issued in exchange
or substitution for this Warrant or such other warrants are referred to as the
"Warrants" and (vi) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other Warrants are referred to as the
"Holders").
1. EXERCISE OF WARRANT. This Warrant may be exercised, in whole at any
time or in part from time to time, from the Commencement Date until 5:00 P.M.,
P.S.T., on the Expiration Date (the "Warrant Period"), by the Holder by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 8(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for the applicable number of
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company. If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (a) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of
any fractional share of the Common Stock to which the Holder shall be entitled,
pay to the Holder cash in an amount equal to the fair value of such fractional
share (determined in such reasonable manner as the Board of Directors of the
Company shall determine) and (b) deliver the other securities and properties
receivable by the Holder upon the exercise of this Warrant, or the proportionate
part thereof if this Warrant is exercised in part, pursuant to the provisions of
this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of Common Stock and other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
(except for applicable state or federal securities law restrictions) and free
and clear of all pre-emptive rights.
3. PROTECTION AGAINST DILUTION
(a) DISTRIBUTION OF DEBT, ASSETS OR SECURITIES. If, at any time
or from time to time after the date of this Warrant, the Company shall issue or
distribute (for no consideration) to the holders of shares of Common Stock
evidences of its indebtedness, any other securities of the Company or any cash,
property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Section 3(b)),(any such nonexcluded event being herein called a
"Special Dividend"), then in each case the Holder, upon the exercise of this
Warrant, shall be entitled to receive in addition to the shares then issuable
under this Warrant, (i) the assets or securities to which such Holder would have
been entitled as a holder of Common Stock if such Holder had exercised this
Warrant immediately prior to the record date for such Special Dividend and (ii)
with respect to clause (A) below only, any income earned on the assets or
securities
<PAGE>
distributed from the distribution date to the date of exercise. At the time of
any such distribution, the Company shall either (A) deposit the assets or
securities payable to the Holder pursuant hereto in trust for the Holder with an
"eligible institution" with instructions as to the investment of such property
and any proceeds therefrom so as to protect the value of such property and
income for the Holder upon exercise of the Warrant or (B) distribute to the
Holder the assets or securities to which it would be entitled upon exercise and,
upon any such distribution pursuant to this clause (B), the provisions of this
subparagraph (a) shall no longer apply to such event. Such election shall be
made by the Company giving written notice thereof to the Holder.
For the purposes of this subsection 3(a), the term "eligible
institution" shall mean a corporation organized and doing business under the
laws of the United States of America or of any state thereof, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000, and subject to supervision or examination by
Federal or state authority.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Per Share Warrant Price shall be proportionately
decreased in the case of a subdivision or proportionately increased in the case
of a combination. Upon each adjustment in the Per Share Warrant Price pursuant
to this paragraph, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Per Share Warrant Price by a fraction, the numerator of which
shall be the Per Share Warrant Price immediately prior to such adjustment and
the denominator of which shall be the Per Share Warrant Price immediately
thereafter.
(c) STOCK DIVIDEND. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in, or make any other distribution with respect to, Common Stock (except
any distribution provided for in subparagraphs (b) or (d) of this Section 3)
then the Per Share Warrant Price shall be decreased from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Per Share Warrant Price in effect
immediately prior to such date of determination by a fraction (a) the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution and (b) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution. Upon each adjustment in the Per
Share Warrant Price pursuant to this paragraph, the number of shares of Common
Stock purchasable hereunder shall be adjusted, to the nearest whole share, to
the product obtained by multiplying the number of shares purchasable immediately
prior to such adjustment in the Per Share Warrant Price by a fraction, the
numerator of which shall be the Per Share Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Per Share Warrant
Price immediately thereafter.
(d) MERGERS, REORGANIZATIONS AND OTHER TRANSACTIONS. In case of
any capital reorganization or reclassification, or any consolidation or merger
to which the Company is a party (other than a merger or consolidation in which
the Company is the continuing corporation and which does not result in any
reclassification or change of securities of the class issuable upon exercise of
this Warrant (other than as a result of a subdivision or combination)), or in
case of any sale or conveyance to another entity of the property of the Company
as an entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the
Company, or such successor or purchasing corporation shall execute a new Warrant
providing that the Holder of this Warrant shall have the right thereafter to
convert such Warrant into the kind and amount of securities, cash or other
property which such Holder would have owned or have been entitled to receive
immediately after such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been converted
immediately prior to the effective date of such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance.
Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
3 and shall otherwise be subject to the same provisions and upon the same terms
and conditions set forth herein. No consolidation or merger of the Company with
or into another corporation referred to in the first sentence of this paragraph
(d) shall be consummated unless the successor or purchasing corporation referred
to above shall have agreed to execute a new Warrant as provided in this Section
3. The above provisions of this Subsection 3(d) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any shares of stock or
other securities or property thereafter deliverable on the conversion of this
<PAGE>
Warrant shall be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance and of said
provisions to be made, shall be mailed to the Holders of the Warrants not less
than 10 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(e) ADJUSTMENT PROCEDURES. No adjustment in the Per Share Warrant
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 per share of Common Stock; provided, however, that
any adjustments which by reason of this Subsection 3(e) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment; provided, further, that adjustments shall be required and made in
accordance with the provisions of this Section 3 (other than this Subsection
3(e)) not later than such time as may be required in order to preserve the
tax-free nature of a distribution to the Holder of this Warrant or Common Stock
issuable upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent. Anything in this Section 3 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Per Share Warrant Price, in addition to those required by this Section 3, as it
in its discretion shall deem to be advisable in order that any stock dividend,
subdivision of shares or distribution of rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
(f) ACCOUNTANTS' CERTIFICATE. Whenever the Per Share Warrant
Price is adjusted as provided in this Section 3 and upon any modification of the
rights of a Holder of Warrants in accordance with this Section 3, the Company
shall promptly obtain, at its expense, a certificate of a firm of independent
public accountants of nationally recognized standing selected by the Board of
Directors (who may be the regular auditors of the Company) setting forth the Per
Share Warrant Price and the number of Warrant Shares after such adjustment or
the effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same, and cause
copies of such certificate to be promptly mailed (by first class mail, postage
prepaid) to the Holder of the Warrants at 3700 West Lawton, Seattle, Washington
98199, or at such other address as may be provided in writing by the Holder to
the Company.
(g) NOTICE OF CAPITAL CHANGES. In case:
(i) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the Holder of
this Warrant written notice, in the manner set forth in subparagraph (f) above,
of the date on which a record shall be taken for such dividend or distribution
or for determining shareholders entitled to vote upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and of the date when any such transaction shall take place, as the
case may be. Such written notice shall be given at least 30 days prior to the
transaction in question and not less than 20 days prior to the record date in
respect thereto.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to any liens, security interests, encumbrances, charges or pre-emptive rights,
and the Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Common Stock is at all
times equal to or less than the then Per Share Warrant Price. The Company
further covenants and agrees that it will pay, when due and payable, any and all
federal and state stamp, original issue, transfer or similar taxes which may be
payable in respect of the issue or delivery of any Warrant Share or certificate
therefor.
5. TRANSFERABILITY.
<PAGE>
(a) Neither the Warrants nor the Warrant Shares have been or will
be registered under the Act or qualified under the laws of any jurisdiction. In
agreeing to issue the Warrants, the Company has relied, among others, upon the
exemption from registration provided by Section 4(2) of the Act on the ground
that the Warrants are to be issued in a transaction by an issuer not involving
any public offering.
(b) Holder represents that he is acquiring the Warrants for his
own account and not with a view to the distribution thereof. Holder agrees not
to offer, sell, transfer, pledge or hypothecate any Warrants or any Warrant
Shares without an effective registration statement for such Warrants or Warrant
Shares under the Act and all required state qualifications or an opinion of
counsel satisfactory to the Company to the effect that such registration and
qualifications are not required.
(c) The certificates evidencing the Warrants and/or the Warrant
Shares shall contain a legend substantially in the form set forth below, and the
Company may issue orders to any duly authorized agent for the Warrants and to
its transfer agent for the Common Stock not to transfer the Warrants or Warrant
Shares if such restrictions are not satisfied.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR QUALIFIED
UNDER THE LAWS OF ANY STATE. THEY MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AND ALL REQUIRED STATE
QUALIFICATIONS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER HEREOF TO THE EFFECT THAT SUCH REGISTRATION AND
QUALIFICATIONS ARE NOT REQUIRED."
(d) Subject to compliance with the foregoing, the Holder of any
Warrant may, prior to exercise or expiration thereof, surrender such Warrant at
the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered Holder of such
Holder's intention to make such exchange and without expense (other than
transfer taxes, if any) to such registered Holder, the Company shall issue in
exchange therefor another Warrant or Warrants, in such denominations as
requested by the registered Holder, for the same aggregate number of Warrants so
surrendered and containing the same provisions and subject to the same terms and
conditions as the Warrant(s) so surrendered. The Company may treat the
registered holder of this Warrant as he, she or it appears on the Company's
books at any time as the Holder for all purposes. The Company shall permit any
Holder of a Warrant or such Holder's duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of the Warrants. All Warrants
issued upon the transfer or assignment of this Warrant will be dated the same
date as this Warrant, and all rights of the Holder thereof shall be identical to
those of the original Holder.
6. LOSS, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. WARRANT HOLDER NOT A SHAREHOLDER. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect to any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
8. COMMUNICATION. No notice or other communication under this Warrant
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at such address as the Company has designated in
writing to the Holder; or
(b) the Holder at 3700 West Lawton, Seattle, Washington 98199, or
at such other address as the Holder has designated in writing to the Company.
9. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall
<PAGE>
not affect the construction hereof.
10. APPLICABLE LAW. Due to the fact that the Company is incorporated in
California and has its principal place of business in that state, this Warrant
shall be governed by and construed in accordance with the law of the State of
California, without giving effect to the principles of conflicts of law thereof.
11. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Warrant contains the
entire agreement of the parties with respect to its subject matter and
supersedes all prior understandings or agreements, written or oral, with respect
to such subject matter. Any provision of this Warrant may be amended or waived,
but only if such amendment or waiver is in writing and is signed by the Company
and the Holder.
12. NO IMPAIRMENT. The Company will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions in the
Warrant.
IN WITNESS WHEREOF, Tomorrow's Morning, Inc. has caused this Warrant to
be signed as of December 15, 1999.
TOMORROW'S MORNING, INC.
By:
--------------------------------
Adam Linter, President
<PAGE>
SUBSCRIPTION
The undersigned, _____________________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
shares of the Common Stock of Tomorrow's Morning, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
Dated: __________________ Signature: _____________________________
Address: _____________________________
_____________________________
ASSIGNMENT
FOR VALUE RECEIVED ____________________ hereby sells, assigns and
transfers unto _____________ the foregoing Warrant and all rights evidenced
thereby, and does irrevocably constitute and appoint ____________________, as
attorney, to transfer said Warrant on the books of Tomorrow's Morning, Inc.
Dated: __________________
Signature: _____________________________
Address: _____________________________
_____________________________
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED__________________ hereby assigns and transfers unto
____________________ the right to purchase ________ shares of the Common Stock
of Tomorrow's Morning, Inc. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced thereby, and does irrevocably
constitute and appoint _____________, as attorney, to transfer that part of said
Warrant on the books of Tomorrow's Morning, Inc.
Dated: __________________ Signature: _____________________________
Address: _____________________________
_____________________________
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-30-2000 JUN-30-1999 JUN-30-2000 JUN-30-1999
JUN-30-2000
<PERIOD-START> JUL-01-1999 JUL-01-1998 OCT-01-1999 OCT-01-1998
JUL-01-1992
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998
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<TOTAL-COSTS> 0 906 0 1,484
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<OTHER-EXPENSES> 263,315 313,309 139,959 152,705
12,071,734
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 39,376 31,780 19,686 10,938
424,014
<INCOME-PRETAX> (302,691) (342,851) (159,645) (165,127)
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<INCOME-TAX> 0 0 0 0
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<INCOME-CONTINUING> (302,691) (342,851) (159,645) (165,127)
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<DISCONTINUED> 0 0 0 0
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<NET-INCOME> (302,691) (342,851) (159,645) (165,127)
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<EPS-BASIC> (0.09) (0.11) (0.05) (0.05)
0
<EPS-DILUTED> (0.09) (0.11) (0.05) (0.05)
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