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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 September 30, 2000
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 October 31, 2000: 5,095,372
Transitional Small Business Disclosure Format (CHECK ONE) : Yes [ ] No [X]
1
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PART I
FINANCIAL INFORMATION
<TABLE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - SEPTEMBER 30, 2000
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 94
Software development costs 25,696
Prepaid expenses 7,375
----------------
Total current assets $ 33,165
FIXED ASSETS, net of accumulated depreciation of $97,334 45,363
---------------
$ 78,528
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,277,277
Current maturities of contracts payable 13,737
Loans payable, related parties 592,420
Loans payable, officer-shareholder 2,932
----------------
Total current liabilities $ 2,886,366
CONTRACTS PAYABLE, less current maturities 3,288
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, 5,095,372 shares issued and outstanding 13,044,736
Deficit accumulated during development stage (15,855,862)
----------------
Total shareholders' deficit (2,811,126)
---------------
$ 78,528
===============
</TABLE>
See accompanying notes to unaudited financial statements.
2
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<TABLE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<CAPTION>
From inception on
Three months ended Three months ended June 30, 1992 to
September 30, 2000 September 30, 1999 September 30, 2000
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUE:
SUBSCRIPTIONS $ - $ - $ 552,845
EDITORIAL, PRODUCTION AND
DISTRIBUTION COST - - 3,313,352
--------------- --------------- ---------------
GROSS MARGIN - - (2,760,507)
OPERATING EXPENSES 69,803 123,684 9,664,837
RESEARCH AND DEVELOPMENT - - 840,376
--------------- --------------- ---------------
LOSS FROM OPERATIONS (69,803) (123,684) (13,265,720)
NONCASH OPTION COMPENSATION AND
CONSULTING FEES - - (2,026,204)
LEGAL SETTLEMENT - - (30,000)
DEPRECIATION (6,505) - (97,334)
OTHER EXPENSES, NET - - (20,091)
INTEREST EXPENSE (19,686) (19,690) (480,551)
INTEREST INCOME - 328 69,638
--------------- --------------- ---------------
LOSS BEFORE INCOME TAXES (95,994) (143,046) (15,850,262)
INCOME TAXES - - 5,600
--------------- --------------- ---------------
NET LOSS $ (95,994) $ (143,046) $ (15,855,862)
=============== =============== ===============
NET LOSS PER SHARE, basic and diluted $ (0.02) $ (0.04)
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 5,095,372 3,360,372
=============== ===============
</TABLE>
See accompanying notes to unaudited financial statements.
3
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<TABLE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
From inception on
Three months ended Three months ended June 30, 1992 to
September 30, 2000 September 30, 1999 September 30, 2000
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Net loss $ (95,994) $ (143,046) $ (15,855,862)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 6,505 6,525 97,334
Amortization of debt issuance costs - - 138,168
Amortization of loans payable discount 3,122 3,126 34,371
Non-cash litigation settlement - - 32,000
Non-cash compensation - - 4,693,481
Non-cash payment for services rendered - - 135,469
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable - - 445
Prepaid expenses - - 43,790
Software development costs - - (53,939)
Deposits - - 9,405
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 69,971 103,105 789,268
Deferred revenue - - 1,459,238
-------------- -------------- --------------
Net cash used for operating activities (16,396) (30,290) (8,476,832)
-------------- -------------- --------------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES -
acquisition of fixed assets - - (142,697)
-------------- -------------- --------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock - - 6,819,734
Proceeds from revolving line of credit - - 50,000
Proceeds from loans payable and warrants - - 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 exercise of stock options - - 84,638
Proceeds from exercise of warrants - - 51,074
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 - - (110,377)
Repayment of loans receivable from shareholder 12,059 15,588 97,392
Loans payable, shareholders 2,932 14,702 (94,020)
Loans to shareholders - - (12,059)
Cash paid for offering costs - - (304,528)
Purchase of treasury stock - - (50,000)
-------------- -------------- --------------
Net cash provided by financing activities 14,991 30,290 8,619,623
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (1,405) - 94
CASH, beginning of period 1,499 13 -
-------------- -------------- --------------
CASH, end of period $ 94 $ 13 $ 94
============== ============== ==============
</TABLE>
See accompanying notes to unaudited financial statements.
4
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<TABLE>
TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
From inception on
Three months ended Three months ended June 30, 1992 to
September 30, 2000 September 30, 1999 September 30, 2000
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
income taxes paid $ - $ - $ 5,600
============== ============== ==============
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 $ - $ - $ 2,103,093
============== ============== ==============
Issuance of warrants connected to debt conversion $ - $ - $ 18,750
============== ============== ==============
</TABLE>
See accompanying notes to unaudited financial statements.
5
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TOMORROW'S MORNING, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2000
(1) SUMMARY OF 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, 2000.
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 September 30, 2000, 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.
GOING CONCERN:
For the three months ended September 30, 2000, the Company had
negative cash flows from operations of $16,396 and incurred a
net loss of $95,994. 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, 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.
6
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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 September 30, 2000, the Company had no revenues
and experienced a net loss of $95,994, as compared to no revenues and a net loss
of $143,046 for the three months ended September 30, 1999. The Company continues
to sustain substantial losses, which 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 Company's newspaper (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 SEPTEMBER 30, 2000 AND 1999. Revenues for the quarter
ended September 30, 2000 were zero, the same as for the three months ended
September 30, 1999. Costs and expenses decreased to $69,803 during the three
months ended September 30, 2000, an approximately 44% change from $123,684
during the quarter ended September 30, 1999, as the Company continued to reduce
its operations to a minimum level.
Total interest expense for the quarter ended September 30, 2000 was $19,686, as
compared to $19,690 for the same three month period in 1999. This lack of change
was attributable to the Company maintaining its borrowing at fixed levels.
For the three months ended September 30, 2000, the Company experienced a net
loss of $95,944, a decrease of approximately 33% from the $143,046 net loss
incurred in the three months ended September 30, 1999. The decrease in net loss
was due to the factors described above with respect to costs and operating
expenses.
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, 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 September 30, 2000, the Company had current assets of $33,165. As a result
of its lack of working capital, the Company continues to be unable to meet its
financial obligations to its lenders and other creditors, including its former
landlord and the vendor which had printed the Newspaper. In order to resume its
proposed business activities, the Company must immediately raise approximately
$500,000 to $1 million 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.
7
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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. Even if the
near-term funds described above are obtained, unless long-term funds also become
available, the Company will be required to curtail its future operations, which
would have a material adverse effect on the Company's business, operating
results and financial condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
In December 1999, the Securities and Exchange Commission (the Commission) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
which is to be applied beginning with the fourth fiscal quarter of fiscal years
beginning after December 15, 1999, to provide guidance related to recognizing
revenue in circumstances in which no specific authoritative literature exists.
The Company is reviewing the application of the Staff Accounting Bulletin to the
Company's financial statements, however, any potential accounting changes are
not expected to result in a material change in the amount of revenues we
ultimately expect to realize.
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), "Accounting for Certain Transactions
Involving Stock Compensation". Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under APB Opinion No. 25, Accounting for
Stock-Based Compensation. Interpretation 44 is effective July 1, 2000, with
certain provisions that are effective retroactively to December 15, 1998 and
January 12, 2000. Interpretation 44 is not expected to have an impact on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000. SFAS No. 133 requires the Company to recognize all derivatives as either
assets or liabilities and measure those instruments at fair value. It further
provides criteria for derivative instruments to be designated as fair value,
cash flow and foreign currency hedges and establishes respective accounting
standards for reporting changes in the fair value of the derivative instruments.
Upon adoption, the Company will be required to adjust hedging instruments to
fair value in the balance sheet and recognize the offsetting gains or losses as
adjustments to be reported in net income or other comprehensive income, as
appropriate. The Company does not expect the adoption will be material to the
Company's financial position or results of operations since the Company does not
believe it participates in such activities.
8
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
Other than legal proceedings which have previously been reported in the
Company's reports on Form 10-KSB and Form 10-QSB, to the knowledge of
management, there is no pending litigation by or against the Company.
Item 3. Defaults Upon Senior Securities
------- -------------------------------
The Company is in default in its obligations to virtually all of its creditors.
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 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) The following Exhibit is attached hereto:
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the Company's fiscal quarter
ended September 30, 2000.
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: November 30, 2000 By: /s/ ADAM LINTER
--------------------------------------
Adam Linter, President and Treasurer
9
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule
10
