<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-SB/A
General Form Form Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
MILLIONAIRE.COM
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 23-2970840
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
18 Plantation Park Drive, Bluffton, South Carolina 29910
- -------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(843) 757-6600
--------------
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FORWARD LOOKING STATEMENTS................................................................................... 1
PART I....................................................................................................... 1
Item 1. Description of Business........................................................................ 1
Item 2. Management's Discussion and Analysis or Plan of Operation...................................... 18
Item 3. Description of Property........................................................................ 24
Item 4. Security Ownership of Certain Beneficial Owners and Management................................. 25
Item 5. Directors, Executive Officers, Promoters and Control Persons................................... 26
Item 6. Executive Compensation......................................................................... 27
Item 7. Certain Relationships and Related Transactions................................................. 32
Item 8. Description of Securities...................................................................... 34
PART II...................................................................................................... 35
Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters.. 35
Item 2. Legal Proceedings.............................................................................. 36
Item 3. Recent Sales of Unregistered Securities........................................................ 36
Item 4. Indemnification of Directors and Officers...................................................... 37
PART F/S - INDEX TO FINANCIAL STATEMENTS..................................................................... 42
PART III..................................................................................................... 41
Item 1. Index to Exhibits.............................................................................. 41
SIGNATURES................................................................................................... 42
</TABLE>
<PAGE>
FORWARD LOOKING STATEMENTS
Many of the statements included in this Registration Statement on Form 10-
SB contain forward-looking statements and information relating to our company.
We generally identify forward-looking statements by the use of terminology such
as "may," "will," "expect," "intend," "plan," "estimate," "anticipate,"
"believe," or similar phrases. We base these statements on our beliefs as well
as assumptions we made using information currently available to us. Because
these statements reflect our current views concerning future events, these
statements involve risks, uncertainties and assumptions. Our actual future
performance could differ materially from these forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties.
Important factors that could cause actual results to differ materially from our
expectations include matters not yet known to us or not currently considered
material by us.
PART I
Item 1. Description of Business
Overview
We are a provider of luxury goods and services to the affluent through the
Internet, traditional print media and auctions. We offer our customers quality
merchandise or services available worldwide. In order to reach and serve our
target audience effectively, we employ a variety of distribution channels which
provides opportunities for cross-promotional marketing. Our business is based
on the following major components:
. Our Internet website located at www.millionaire.com, which currently
offers, among other things, a comprehensive group of luxury products and
services for sale, online auctions, an online mall and catalog;
. Our Millionaire magazine, a monthly lifestyle publication for the
affluent and those aspiring to be; and
. Our auction marketplaces, which are held live periodically at our auction
venue in South Carolina, the Global Emporium and online on our website.
In the second quarter of 2000, we plan to add the following components and
services to our business:
. Various Internet search engines, all geared to fit our affluent users'
lifestyles; and
. Our Global Business to Business concept, that we are developing and which
will offer art, antiques dealers and auction houses access to inventory
around the globe on our website.
We are a development stage company which began to operate in December 1998.
Our first issue of Millionaire magazine in February 1999 was published in a
quarterly format. Since July 1999, we have published Millionaire magazine on a
monthly basis combining the January and February issues into one issue. To
date, we have published one issue of Billionaire magazine which currently is an
annual enhanced version of Millionaire monthly magazine.
<PAGE>
We believe we are positioned to capitalize on the growth of the Internet by
combining the power and reach of the Internet with traditional publishing,
advertising, auctions and luxury retail, thereby offering our customers
consolidated, comprehensive and user friendly access to the fragmented multi-
billion dollar marketplace for luxury goods and services, while attracting
advertisers who desire multi-media exposure.
Our Strategy
We seek to establish ourselves as a leading provider of luxury products and
services to affluent people worldwide. Our objective is to satisfy the growth
in the market for luxury products and services in conjunction with the
exponential growth of online shopping. The key elements of our strategy
include:
. offering our customers a website that contains a comprehensive array of
luxury products and services;
. providing an e-commerce infrastructure to traditional providers of luxury
products and services;
. offering our products and services through a variety of distribution
channels including traditional print media, actual physical auction sites
and the Internet; and
. taking advantage of the cross-promotional opportunities that these varied
distribution channels provide for marketing our products and services.
Our History and Headquarters
We were incorporated on February 15, 1995 under the laws of the State of
Florida as World Circle Trust Fund, Inc. On November 3, 1995, we changed our
name to Charter Investor Relations of North America, Inc. On November 24, 1998,
we changed our jurisdiction of incorporation to Nevada and we changed our name
to Millionaire.com. On December 15, 1998, we acquired Lifestyle Media
Acquisition Corp. ("LMAC"), a Pennsylvania corporation, which publishes
magazines, including Millionaire magazine and Billionaire magazine. Lifestyle
Media Acquisition's wholly-owned subsidiary, Lifestyle Media Properties, Inc.,
("LMPI") is a Delaware corporation which holds the trademarks for "Millionaire"
and "Billionaire." Prior to the purchase of LMAC, we did not conduct any
business.
LMAC was a privately owned company prior to our acquisition and was
purchased from Douglas and Jennifer Lambert and Robert L. White in exchange for
the issuance of 2,400,000 shares of our common stock. Douglas and Jennifer
Lambert currently own in excess of 5% of our issued and outstanding common stock
and Robert L. White is our Chief Executive Officer and holds nearly 19% of our
issued and outstanding common stock.
On July 20, 1998, we formed U.S. Auctions, Inc. a Delaware corporation and
wholly-owned subsidiary.
Our headquarters are located at 18 Plantation Park Drive, Bluffton, South
Carolina, 29910, and our telephone number at that office is (843) 757-6600. Our
website is located at
-2-
<PAGE>
www.millionaire.com. Information contained on our website does not constitute a
part of this Registration Statement.
PRODUCTS AND SERVICES
Our Internet Site: www.millionaire.com
The centerpiece of our business is our website which is currently available
on the Internet at www.millionaire.com and is expected to be completed in
February 2000 with regular updates of features thereafter.
Our website is multi-functional, and offers an array of features and
services to attract our target market, including the following:
. Editorial content geared toward our affluent users' lifestyles;
. Excerpts from Millionaire magazine which we make available to non-
subscribers;
. An online merchandise catalog of our own products, as well as those of
third party merchants; and
. The complete auction catalog for our periodic auctions at the Global
Emporium.
Upon completion of our website, the following features and services will
be available:
A complete copy of the current issue of Millionaire magazine, available
to current users and members of our Millionaire.com Club, including easy access
to back issues;
. Periodic real-time broadcasts of our Global Emporium auctions with audio
and video capabilities providing users with the excitement and real-time
momentum of our live auctions;
. Online person-to-person auctions of high quality, but reasonably priced,
merchandise, which are both our own products as well as those consigned
by third parties;
. An auction venue for dealers and regional/niche auction houses to conduct
their own auctions on our website as part of our Global Clearinghouse
concept;
. Consumer advertising geared to the upscale buyer, including hyperlinks to
websites of individual advertisers, allowing potential buyers to view
additional offerings of such advertisers, make e-mail inquiries, and
complete purchases in real time; and
. Other useful tools and services for our users, including e-mail, news,
financial information, stock quotes, classifieds, business opportunities,
online chat rooms, newsletters, Millionaire.com forums and other services
and features designed exclusively for our users by experts in their
fields.
E-Commerce. In addition to the sale of our own products, our website
will provide a venue for other merchants, galleries and dealers to sell their
luxury products to our users. Other
-3-
<PAGE>
merchants may access our user base by either placing a link to their own website
on www.millionaire.com or by setting up their retail catalog directly on our
website.
Advertising. Our website also features banner and other advertisements and
will have the ability, through hyperlinks, to transport our customers directly
to the websites of our advertisers.
On-line Auctions. We hold periodic auctions live at our auction venue, the
Global Emporium, which is located just outside of Hilton Head in South Carolina.
These live auctions will also be available to our website users in real-time on
the Internet through an audio/video arrangement which allows the absentee bidder
to become a part of the auction.
In addition to the auctions we hold at the Global Emporium, we will hold
other online auctions on our website. We believe our approach of selling
premium products and services will differentiate Millionaire.com from the many
websites dedicated to facilitating the sale of low value personal items. Our
online auctions will feature our own merchandise and will give our advertisers
and other dealers and auction galleries the ability to place individual items
into online auctions.
We will also assist other dealers and regional auction galleries in holding
their own auctions over the Internet. Auctions will be co-branded, but the
dealer or gallery will operate as a separate entity, managing their own
auctions. We also have the ability to manage an entire auction for smaller
dealers and auction galleries.
Technology. We currently use only state-of-the-art hardware and software,
emphasizing important issues such as ease of use, transparent linkage to
advertisers, speed of downloading and security. Our auction technology is
currently provided by Ibuy.com.au. We will use the Secure Socket Layer (SSL)
security system which is widely used in the e-commerce industry. The SSL system
forces a directory on the web server to run only in a secure mode (https) which
encrypts data being transferred between a user and web server, and provides
security when sending sensitive or private information, generally related to
purchasing merchandise or services. Technology advances will be evaluated in a
timely fashion and will be incorporated into the site if a cost/benefit analysis
warrants their introduction.
Our Millionaire Magazine
Through our wholly-owned subsidiary Lifestyle Media Acquisitions, we own
Millionaire magazine, a lifestyle publication for the affluent. We acquired
Millionaire in an effort to accelerate our entry into the market as a provider
of luxury goods and services. At the time of purchase, the magazine was a
quarterly publication, sold only through newsstands. It had a circulation of
approximately 52,000, plus a pass-on readership/*/ of approximately three times
that number, and had an advertising base of approximately 120 companies.
Our strategy has been to grow the magazine and increase its profitability
while continuing to offer our readers "The Best the World Has to Offer." Since
the acquisition, we
- --------------------
/*/ "Pass on readership" means the number of different individuals who have the
opportunity to pick up and read one magazine.
-4-
<PAGE>
have converted the magazine into a premium "magalog,"/**/ dedicating
approximately 75% of its pages to advertising. Since the acquisition, we have:
. increased the number of issues published during 1999 to result in a
monthly publication; and
. increased our advertising revenues from $344,316 to $2,585,034
Starting in July 1999, we have published Millionaire on a monthly
basis.
Prior to our acquisition and publishing of Millionaire, 50,000 copies were
being published on a quarterly basis for a total of 200,000 copies in 1998.
Following our acquisition and publishing of Millionaire, 100,000 copies were
published monthly (for eight months during 1999) for a total of 800,000
copies.
In comparing the change in revenues resulting from our transition to a
monthly format, in 1998, the quarterly Millionaire magazine generated a total of
$320,000 in revenues; while in 1999, Millionaire magazine generated total
revenues of more than $2,828,000.
At the same time, we continue to provide entertaining and informative
editorial content to the reader who leads or aspires to a luxury lifestyle. Our
articles focus primarily on the lifestyles of successful people. We have also
broadened the editorial content to include new features of interest including
investment strategies, fashion, fitness, technology and collectibles. The
magazine also serves as a venue for the sale of luxury products that we have
acquired at favorable prices or through barter arrangements. In addition, our
auction catalogs are included as part of the subscription and the magazine
heavily promotes our auctions and our website.
Design. Millionaire's design conveys a luxury image. Millionaire magazine
is printed in four colors throughout, rather than black and white (which is
referred to as one color). The paper used for printing the interior pages is a
high quality 70 pound enamel paper (70 pound means that 500 pages of the 25" x
38" paper used weighs 70 pounds). The cover stock (paper) is a much heavier 100
pound product manufactured with a high gloss finish. The magazine is "perfect
bound," which means the individual pages are glued to the cover rather than the
less desirable and less expensive "saddle stich" where pages are stapled to the
cover. These components combined add both cost and quality to the publication.
The ratio of editorial pages to advertising pages is maintained between 25%-30%
editorial to 75%-70% advertising. As more advertising pages are sold, the
percentage of editorial pages increase at the same ratio. The number of pages
has been increased to almost 300 to accommodate additional editorial features
and advertising pages.
- ----------------------
/**/ Magalog means a publication that offers the features of a magazine
(editorials, pictorials, advertising pages) with pages offering the reader
company owned products that can be purchased in a catalog format.
-5-
<PAGE>
Editorial Content. Millionaire has traditionally been written as a guide
for enjoying a luxury lifestyle. Though we have maintained many features and
departments of the magazine's editorial content, we are expanding such content
to cover people-based stories, rather than the traditional place or product-
based approach. We are featuring articles about the backgrounds and lifestyles
of the owners, operators, and managers of major businesses. These articles
describe entrepreneurs' road to success, for instance, and their luxurious
lifestyles. We are continuing to feature our travel and resorts sections, and
have added new departments covering investment information, financial advice,
fashion, food, wine, health, fitness, technology, antiques, and many other
popular categories. Each article references how to access the products or
services described. Most feature writers are freelancers located around the
world. Articles are approximately 600 words and include photographs.
In addition, Millionaire magazine posts and promotes various events of
interest in advance, whether such events are sponsored by Millionaire.com or
other organizations. Our Global Emporium auctions have a high profile in both
the magazine's editorial content and advertising. The magazine also provides
recommendations regarding little-known services available around the world.
We plan to produce several special issues throughout the year, including
the holiday edition, Millionaire, the World's Best Catalog, and a once-a-year
supplement, Billionaire, Wealth in America, in the spring. Billionaire will
feature mostly company-owned products, which sales may allow us to realize
significantly higher margins.
Most advertisements are four color, full-page ads. The magazine offers
nine advertisement sizes, ranging from two page spreads to a 1/6th of a page ad
which is specifically targeted to "for-sale-by-owner" advertisements where
readers can present their own homes, cars, boats, planes, and antiques. We have
been offering discounted introductory rates to all first time advertisers in
order to more rapidly increase the number of advertising pages. There will also
be special incentives for advertisers who pay up-front. We believe
Millionaire's advertising rates to be relatively low compared to other
advertising rates in the luxury magazine segment; however, we expect that the
demographics of Millionaire will translate into premium rate advertising over
time. Currently, the cost of a full page in color advertisement in Millionaire
runs under $10,000, compared to $13,000 for Robb Report and $69,000 for Vogue.
We believe this disparity in cost gives us latitude to increase rates without
depressing demand for space. Current Millionaire advertisers will be converted
to a new rate schedule at the time of contract renewal.
Subscriptions/Memberships. We target a highly selective subscriber base by
providing them with a broad range of luxury products and services. We have 2100
paid subscribers.
Subscriptions to our magazine are available at $75 per year for 12 issues.
In addition to our regular magazine subscriptions, we offer membership in our
Millionaire Club at an annual premium of $100 per year or a lifetime membership
priced at $500. Club members receive subscriptions to our Millionaire magazine
in addition to access to a wide range of perquisites such as front row seating
at our Global Emporium auctions, access to the entire millionaire.com website,
placement on advertisers' lists for special mailings and promotions, and premium
services such as prearranged "no wait" service in exclusive restaurants. Our
goal is to reach a customer base comprised of 80% Millionaire Club members and
20% subscribers.
We generate subscription and membership sales through public relations
efforts, the media, the return of magazine inserts from single copy sales ("blow
in" cards), direct mail
-6-
<PAGE>
targeted at our proprietary mailing list, advertising in other upscale
periodicals often through barter arrangements on a no-cash cost basis, selected
television and radio advertising, advertising on the Internet both through our
own website and through other upscale websites, often utilizing barter
arrangements with these other sites.
Newsstand Distribution. We also distribute Millionaire magazine through
newsstand sales, which also serve as an important marketing tool. We have
improved our approach to newsstand distributions by focusing on newsstand sites
located in affluent areas and places where the affluent tend to gather such as
in upscale bookstores like Barnes & Noble and Borders, upscale gift shops, hotel
lobbies and airports.
In order to expand circulation, our direct mail campaign is providing
Millionaire, free-of-charge, to select from a database of approximately 450,000
individuals in the United States with an average net worth in excess of $9
Million. Through mailings, public relations campaigns, media advertising,
responses from magazine inserts, direct mail solicitation, obtaining proprietary
mailing lists, and advertising on the Internet (both at our own web site and
other upscale web sites), we plan to build our subscription base up to 200,000
paid subscribers although there is no guarantee that this number can be reached.
We intend to duplicate our marketing efforts overseas. We believe increased
circulation will attract new and repeat advertisers, which can result in
increased advertising rates.
Circulation. Our current circulation profile includes:
Total Circulation (print run) 50,000- 100,000
Controlled Circulation/*/ 25,000-50,000
Newsstand Distribution/*/ 50,000
Sales and Marketing. The magazine employs an in-house sales staff as well
as regional salespersons employed under incentivized partnership arrangements.
The Millionaire magazine portion of our business employs ten in-house
salespersons, of which eight are based at our headquarters in Bluffton, South
Carolina, one in Tennessee, and one in Georgia. Each in-house salesperson is
assigned a specific category of advertising, rather than a geographic area, and
their quotas are based on the area of specialization. Four in-house salespeople
are dedicated to major advertisers in fashion, sports, real estate, and jewelry.
Our representative in Hawaii specializes in hideaway resorts. Sales personnel
also solicit Internet-related advertising.
The magazine plans on opening approximately ten field sales offices over
the next twenty-four months. Offices are slated to be opened in Florida,
Illinois, California and New York during 2000 plus six additional offices in
states to be determined during the year 2001. Negotiations are presently
underway to open offices in Chicago, Illinois and Ft. Lauderdale, Florida.
These offices will focus on selling 1/6th page advertising from readers in
certain pre-
- --------------------
/*/ Controlled Circulation means magazines distributed by mail and other
sources of delivery to individuals, at no charge, who meet the
demographic criteria that conforms to the magazine's average demographic
profile.
/*/ Newsstand Distribution means magazines shipped to newsstands to be
offered for sale. Warner Distribution distributed 43,500 magazines in
December 1999. World Wide Services distributed 8,745 magazines in
December 1999.
-7-
<PAGE>
selected categories of products. A partnership arrangement has been designed to
incentivize field sales personnel. Under this arrangement sales personnel could
evolve into partners within a branch operation, eventually owning up to a 51%
interest in such branch. As sales quotas are met, individually set,
pre-determined buyout levels can be triggered; buyout costs could be as little
as $30,000-$50,000. Millionaire.com would, in each case, continue to own 49% of
the business.
Product Sales. Originally our plan was to offer wholly-owned products for
sale through the magazine in a section to be called the "White Pages." That
section has recently been renamed "millionaire.com Emporium" and debuted in our
March 1999 issue. We believe that this opportunity to participate as a
principal in sales transactions will substantially increase our overall profits,
especially because we will realize a substantial mark-up on the items offered
through this section. Any merchandise which does not sell through the magazine
will be offered through our online auctions, Internet advertising, or our retail
and auction galleries located in resort areas like Hilton Head.
Our Auction Marketplaces
Our retail outlet and auction gallery, the Global Emporium, is a 16,840
square feet facility located just outside of Hilton Head, South Carolina. We
hold live auctions at the Global Emporium for the sale of luxury merchandise
either owned by Millionaire.com or on consignment to us by third party
merchants. Those who buy at auction pay the industry standard 15% buyer's
premium (15% added on to the "hammer down" price of items sold). In addition,
consignors are charged a 15% seller's commission on items the company sells for
the consignors at the Global Emporium. The site also operates as a retail
showroom; the items to be auctioned are displayed at the Global Emporium for one
month prior to the auction and are available for sale to our walk-in customers
at the full retail price. Each auction features a wide variety of items,
including architectural antiques, furnishings, decorative accessories, cars,
boats, planes, sports and advertising collectibles, jewelry and art.
Auction catalogs are mailed in advance to our Millionaire Club Members and
to our Millionaire magazine subscribers along with each monthly edition. The
auction catalogs are also featured in their entirety on our website and are
available to all users. The live Global Emporium auctions are planned to be
broadcast on our website in real time. Those attending our auctions over the
Internet will be able to call in their bids. As added bandwidth becomes more
widely available, we plan to offer real time bidding in our auctions over the
Internet.
Auctions are held on Saturdays and Sundays and each auction is preceded by
a preview party held the prior Friday evening. The Global Emporium location is
open six days a week. Millionaire.com anticipates opening similar
auction/retail facilities in other upscale resort areas in the future, since
resorts comparable to Hilton Head generally attract the affluent, vacationers
and permanent retirees throughout the year.
During 1999, Millionaire.com held three auctions in Hilton Head, South
Carolina.
In the future, Millionaire.com plans to provide its Members and subscribers
with a very personalized service at the Global Emporium called "Let Us Find It
For You," by which we will locate specific goods and merchandise for customers.
-8-
<PAGE>
Our Global Clearinghouse Concept
We plan to create a global clearinghouse of dealers and auction firms
having outstanding regional reputations or expertise in certain niche product
areas. The dealer and regional auction gallery market is highly fragmented,
made up of thousands of small, often undercapitalized, local and regional firms.
Many of these firms lack the ability to source product, and lack sufficient
distribution capabilities. We will select the most attractive dealers and
auction galleries to showcase in our global clearinghouse location on the
Millionaire.com Internet site. We will also offer dealers and auctions
inventory around the world over our dealer exclusive web site.
While old established companies like Sothebys, Christies and Butterfield
now have an Internet presence and major companies like Ebay exclusively auction
on the Internet, there are hundreds of auction houses, galleries, dealers and
specialty retailers who sell high-end art, antiques and collectibles without the
benefit of an Internet presence. Our Global Clearinghouse will offer our
technical resources to assist these merchants in expanding their businesses via
the Internet. Our website offers these merchants a venue to promote their
product offerings and to broaden their potential customer base through online
advertisements, e-commerce and online auctions. If these dealers and galleries
lack the technology to conduct business over the Internet, Millionaire.com will,
for a fee, provide them with a variety of software products to retail their
products or to conduct online auctions on Millionaire.com's website.
Our Competitors
The market for our services is highly competitive. Our competitors fall
into three categories: publishing companies, Internet companies catering to the
high-end customer base and auction companies.
Publishing Companies. Millionaire magazine is one of the market leaders in
subscriptions and circulation of magazines catering to the affluent. Other such
publications include the Robb Report, which was founded by Robert L. White,
Chief Executive Officer of millionaire.com; Vogue, primarily a fashion magazine;
Cigar Aficionado; Town and Country; and Architectural Digest. These six
magazines, out of more than 4,000 magazines published in the United States (as
per standard rate and data), focus their editorial and advertising content to
reach the affluent. In the case of Millionaire magazine, its readership
includes 373 billionaires, 2,273 individuals with a net worth in excess of
twenty million dollars and 5,564 millionaires. The average net worth of
Millionaire's controlled circulation is more than nine million dollars which,
according to Standard Rate and Data Services, makes Millionaire's controlled
circulation have the highest average net worth of any of the luxury lifestyle
publications in print in the United States.
Internet Companies. Other Internet companies catering to the affluent
include www.foofoo.com, www.luxuryfinder.com, designersdirect.com and
netsgoods.com. Unlike these companies, Millionaire.com has an established brand
name and a substantial pool of regular advertising customers. We believe that
our website is significantly ahead of the other competitors in terms of brand
awareness, content and number of daily users.
Auction Companies. Auction companies generally fall into two categories:
online and offline auctions. We compete with both types of auctions companies.
Although auction houses such as Sotheby's and Christie's offer consistently high
quality goods and services to the
-9-
<PAGE>
affluent, we plan to distinguish ourselves by providing in the online auction
arena premium luxury products and services.
Government Regulation
General. Until recently, there were few laws or regulations directly or
expressly applicable to the Internet. Because of the increasing popularity and
use of the Internet, there is an increasing number of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by various agencies and commissions in the
Unites States. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Uncertainty and new regulations could
increase our costs and prevent us from delivering some or all of our products
and services over the Internet. It could also slow the growth of the Internet
which, in turn, could delay growth in demand for our products and limit the
growth of our revenues.
Internet Taxation. A number of legislative proposals have been made at the
United States federal, state and local level that would impose additional taxes
on the sale of goods and services over the Internet and certain states have
taken measures to tax Internet-related activities. Although the United States
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially impede the growth of
commerce on the Internet and, as a result, adversely affect our opportunity to
derive financial benefit from those activities.
Domain Names. Domain names are Internet "addresses." The current system
for registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
We have registered our domain name. We may seek to register additional domain
names, although there is no assurance we will successfully obtain the
registrations and third parties may bring claims for infringement against us for
the use of our domain names or other trademarks. There can be no assurance that
our domain name will not lose its value, or that we will not have to obtain an
entirely new domain name in addition to or in lieu of our current domain name if
reform efforts result in a restructuring in the current system.
Our Employees
We currently have 38 fulltime employees. Management considers its
relations with our employees to be good.
-10-
<PAGE>
Research and Development
We plan to devote significant resources to continued research of the luxury
services and products market and to further development of our current channels
of distribution. Research and development expenditures totalled $140,623 during
our past two fiscal years.
RISK FACTORS
Ownership of our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
Form 10-SB before investing in our common stock. If any of the following risks
occur, our business, operating results and financial condition could decline and
you may lose all or part of your investment.
A start-up business is difficult to evaluate
The Millionaire and Billionaire trademarks and Millionaire magazine were
acquired in our acquisition of our wholly-owned subsidiary Lifestyle Media
Acquisition Corporation on December 15, 1998. The first issue of the magazine
published under current management was shipped in February 1999, our first
auction was held in March 1999 and we are in the process of transitioning our
magazines and auction house to the Internet. In addition, our current senior
management team and other new employees have worked together at our company for
only a short period of time. As a result, there is a limited operating history
upon which to evaluate our prospects. Our business must be considered with the
risks, expenses and difficulties of an early stage enterprise.
We cannot predict whether the monthly
format of Millionaire magazine will result
in increased revenues
In July 1999, the magazine format was changed to monthly from quarterly,
increasing both the amount of available advertising revenue pages and
availability of our magazine to readers. We do not know whether the number of
advertising pages can be consistently sold or whether demand for our magazine
among readers will meet its increased availability. Competition for advertising
dollars is primarily based upon advertising rates, the nature and scope of
readership and reader response to advertisers' products and services. Since
advertisers are currently our principal source of revenues, we must compete
successfully for both advertisers and readers in order for our monthly format to
result in increased revenues.
Our auction house needs to continue to
acquire properties
Our first auction was held in March 1999, with the second being held in
July 1999. The success of the auction house is dependent on the continued
acquisition of high quality auction properties from sellers. Its success will
depend in part on the ability to maintain an adequate supply of high quality
auction property, particularly fine and decorative arts and collectibles. There
is intense competition for these pieces with other auction companies and
dealers. In addition, a small number of key senior management and specialists
maintain the relationships with the primary sources of auction property and the
loss of any of these
-11-
<PAGE>
individuals could harm our ability to acquire an adequate supply and quality of
auction property.
We may not be successful in transitioning
our magazines and land-based auctions to
the Internet
Our business plan calls for the transition of both the magazines and
auction house to the Internet. We have almost no experience in managing an
Internet based company. Moreover, the anticipated benefits of any or all of the
transition to the Internet may not be realized. Our success depends on
commercial validation of our beliefs that Internet usage and popularity will
continue to grow rapidly and that we can achieve profitability based on revenue
sources other than non Internet-based advertising, subscription and auction
revenues. Our Internet business model is unproven and, to our knowledge, none
of our competitors has achieved profitability in this business segment. We
cannot predict whether demand for our products and services on the Internet will
continue to develop, particularly at the volume or prices we need to become
profitable.
We will not be able to attract and retain
visitors if we do not continually enhance
and develop attractive and compelling
content on our site.
We may be unable to further develop our website and to deliver compelling
products and services that will attract consumers with demographic
characteristics necessary for the success of our business. The market for
online services is characterized by rapidly changing technology, emerging
industry standards and consumer requirements that are subject to rapid change
and frequent new service introductions. These characteristics are exacerbated
by the expectation that many companies may introduce new internet products and
services addressing our targeted market in the near future. There can be no
assurance that we will be successful in developing our website to deliver the
comprehensive services and products we plan to offer our customers on a timely
basis, or that such products and services will effectively address consumer
requirements and achieve market acceptance. Our failure, for technological or
other reasons, to develop and enhance our website in a manner compatible with
emerging industry standards that allows us to attract, retain and expand a
consumer base possessing demographic characteristics necessary for our success
would decrease our ability to generate revenues.
We expect net losses to occur
We incurred substantial net losses in 1998 of $797,051 and in 1999 of
$5,541,800, and we expect to continue experiencing substantial losses through at
least through fiscal year 2000. This is based upon the following:
. we expect the development of the infrastructure for the Internet to
increase operating expenses;
. we expect the marketing and promotional expenses related to the magazine
itself, as well as the auction gallery and launch of the revised Internet
site to increase operating expenses; and
-12-
<PAGE>
. we expect the payment for consigned inventory to sell through our auction
gallery to continue as a high percentage of sales in an effort to attract
unusual merchandise, resulting in lower gross margins.
To the extent that increases in operating expenses are not matched by
increased revenue, our business, operating results and financial condition will
be harmed. We cannot guarantee that we can attract the number of new customers
necessary to offset these operating expenses.
We will need to become profitable or obtain
additional financing in order to continue
operation and fully implement our business
plan
We have had insufficient revenues to satisfy our ongoing expenses of
operation. Due to our history of losses, we cannot assure you that we will ever
be profitable. If we do not become profitable or obtain additional financing,
we will be unable to continue our current level of operations. See
"Management's Discussion and Analysis or Plan of Operations" and Note B to the
"Financial Statements" for a more detailed discussion of our losses, sources of
funds for operations and other financial information.
We are in a highly competitive and
evolving market
Many of our existing and potential competitors have substantially greater
financial, technical, marketing and distribution resources than we do.
Additionally, many of these companies have greater name recognition and more
established relationships with our target customers. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.
Electronic commerce is characterized by low cost of entry. Some of our
competitors have or may establish relationships with and among themselves that
could emerge and rapidly acquire marketshare. Accordingly, we cannot assure you
that we will be able to maintain or increase our revenues or increase our
Internet site traffic. If this occurs and our other business plan efforts are
not successful, the business will be harmed.
Our operating results fluctuate and are
difficult to predict
The rapidly evolving market for purchase of on-line luxury items, services
and auctions makes it difficult to predict our operating results. Our
profitability depends on a variety of factors including the following:
. The ability to maintain current users and attract new users to the
magazine, the auction house and to the Internet site;
. The ability to manage the inventory mix being offered at the auction
house as well as on the Internet site;
. The ability to increase gross margins by increasing the amount of owned
inventory being offered at auction;
-13-
<PAGE>
. The ability to attract merchandise and the pricing related to that
merchandise;
. The cost and availability of advertising for the magazine as well as the
Internet site;
. Delays in revenue recognition at the end of a reporting period;
. Delays in shipping or other logistical problems; and
. General economic conditions that may affect advertising revenues or
electronic commerce.
Due to the factors discussed above and elsewhere in this Form 10-SB, our
operating results in any fiscal reporting period may not meet the expectations
of securities analysts and investors, and accordingly the price of our common
stock may decline.
We must build brand loyalty
It is our belief that development and awareness of the "Millionaire" brand,
for the magazine and the Internet is critical to our success. The importance of
brand loyalty will become more important as Internet websites proliferate. If
we are unsuccessful in continuing to build strong brand loyalty, our business
will be harmed.
In order to attract and retain users and advertisers, and to promote and
maintain the "Millionaire" brand, we intend to increase our spending for
marketing and advertising, which will include television media as well as
printed and electronic. Despite our efforts, we cannot assure you that
consumers or advertisers will perceive our products or website as superior to
those of our competitors.
Risks of Expansion
We may seek to expand through acquisition if acquisition candidates present
opportunities to provide a reliable source of merchandise to our auction house
and to our Internet site. There are risks related to expansion by acquisition,
as has already been experienced resulting in our unsuccessful acquisition of The
Great Gatsby's Auction Gallery, Inc. There are certain risks inherent in
acquiring other businesses such as the general risk that we may invest time and
money into such acquisition or expansion without success. The integration of
these businesses into our business and website would also increase operating
expenses. We cannot guarantee that the historical revenues generated by the
business acquired would continue.
Our Investors May Find it Difficult to
Trade Our Common Stock Due to the
"Penny Stock" Rules
On February 10, 2000 our common stock was delisted from the Over the
Counter Bulletin Board because we did not meet the requirement of being a
"reporting issuer" subject to the disclosure requirements of the Securities Act
of 1934. In order to meet this requirement, this Form 10-SB must be declared
effective by the SEC. Once this registration statement is declared effective,
we will apply for reinstatement of our listing on the Over the
-14-
<PAGE>
Counter Bulletin Board. Until our listing is reinstated on the Over the Counter
Bulletin Board the price of our common stock and the ability to sell them may be
negatively affected.
Currently our shares are traded on the "pink sheets" for the over-the-
counter market. As a result, trading in our shares is covered by "penny stock"
rules promulgated for non-exchange listed securities. Under these rules, any
broker/dealer who recommends our shares to persons other than prior customers
and investors meeting certain financial requirements, must, prior to sale, make
a special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction. Securities are exempt from
these rules if the market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market.
The price and ability to sell our shares may be negatively affected because
the shares can only be sold in compliance with the penny stock rules. We cannot
be sure that our securities will not be subject to the penny stock regulations
or other regulations that would negatively affect the market for our
securities.
Risks associated with an increased
investment in inventory
We presently purchase merchandise from individuals, estates and dealers.
We also consign inventory for sale and collect a corresponding commission for
the sale of that item. Our present plans include increasing the amount of
purchased inventory as a percentage of items sold in an effort to increase our
gross margins. Inherent in the increased purchases of inventory are the risks
associated with carrying inventory. These risks include but are not limited to
the following:
. Potential declines in the market value of the merchandise being purchase
and sold;
. The management of customer returns and credits associated with sold
merchandise being returned;
. Shrinkage resulting from theft or loss of inventory;
. Unpredictable sale prices due to the nature of the auction process; and
. The reliance on third parties of verifying authenticity of rare and
expensive items.
In addition, our auction business relies on the availability of antique and
unique items, purchased both domestically and internationally. Consequently, we
cannot guarantee the availability of the quantity of those items necessary to
maintain or increase our revenues. Should sources of these items be adversely
affected by events out of our control, our business would be harmed.
-15-
<PAGE>
Risks associated with online companies
We currently depend and are increasing our dependence on our agreements
with other online companies for advertising, promotion and sponsorships. This
could result in the uncertainty of whether significant spending on these
relationships will have the desired increase in revenues. The possibility
exists that space on websites may increase in price or cease to be available. A
competitor could purchase exclusive rights to critical spaces that we rely upon.
We depend upon third parties for the
operation of our website
We presently rely on a third party to support and maintain our Internet
gateway. We also rely on third party operating systems, as well as the internal
network system being used. Our credit card processing is conducted through one
company and is our sole credit card processor. If we are unable to develop and
maintain relationships with such third parties on a basis acceptable to us, or
if the quality of the product being provided to us does not maintain the
required standards, our business could be harmed.
The secure transmission of confidential
information over public networks continues to
be a significant barrier to electronic commerce
We may be required to expend significant capital and other resources to
protect against the threat of security breaches. To the extent that these types
of security breaches occur either with us or a third party contractor, we could
be exposed to risk of loss or possible liability.
We are subject to the risks of system failure
Substantially all of our communications hardware and operating software is
located in Hickory, North Carolina. Our systems are vulnerable to damage from
loss of power, telecommunications failures, vandalism and similar occurrences.
Our servers are also vulnerable to computer viruses and attempts by third
parties to deliberately exceed the capacity of our systems. Although we
maintain insurance against these risks, our coverage limits may not be adequate
to compensate us for all losses that may occur.
We face litigation risks
In addition to intellectual property disputes, the sale of products online
at auction could result in product liability claims. Due to the nature and
uniqueness of some of the items auctioned, product liability insurance may not
be available in amounts adequate to fully compensate for substantial claims.
This could have a harmful effect on our business.
Legislation has been proposed that prohibits the transmission of certain
types of information over the Internet. The potential imposition of liability
on online companies for information carried on or through their services could
force a change in the method of conducting online auctions and could force us to
alter our offerings.
-16-
<PAGE>
The electronic commerce industry is characterized
by the rapid change in technology, as well as
industry standards and consumer demands
Certain introductions of technology could render our existing website
technology obsolete, resulting in the possible write off of capital expenditures
as well as increased capital expenditures to remain in compliance with the new
technology. Our future will depend upon our ability to respond to technological
changes in a timely manner.
The market for the sale of goods over the
Internet, particularly through online
auctions, is still in the development stage
Market acceptance for recently introduced products over the Internet is
subject to a high level of uncertainty. It is difficult to predict the size of
this market or its overall future growth rate. The success of our Internet
auctions and magazine will depend upon the continued growth of the Internet as a
medium for commerce.
We must manage our growth
We expect to continue to expand our operations and will face the challenge
of improving existing and implementing new operational, financial and inventory
system procedures and controls. We will also need to integrate new key
management into the existing management team. We will be required to train and
motivate the growing employee base.
The management of the risks associated with the increase in accounts
receivable will need to be addressed in terms of credit exposure and collection.
Our future performance depends upon members of our senior management and
other key personnel. Certain senior management have employee contracts with
significant pay out clauses.
We may be unable to protect our intellectual property
Our performance and ability to compete are dependent to a significant
degree upon our ability to protect and enforce our intellectual property rights.
Our registered trademarks and our domain name are critical to our success. We
rely on a combination of patent, trademark, regulations governing domain names
and other laws to protect our proprietary rights. We may not be able to protect
our proprietary rights or we may choose to litigate to protect our rights, which
could result in a significant cost of resources to us. We cannot ensure the
success in any such litigation that may be undertaken.
Third parties have a security interest in our trademarks
Our trademarks "Millionaire" and "Billionaire" were obtained through our
purchase of our wholly-owned subsidiary Lifestyle Media Acquisition Corp.
("LMAC") on December 15, 1998. In August 1998, LMAC purchased the trademarks
from Lifestyle Media Corporation and Douglass and Jennifer Lambert in exchange
for the issuance of stock and a note in the amount of $1,674,595 of which
$300,000 was paid prior to closing of that acquisition on August 14, 1998. The
Lamberts have a security interest in the trademarks to insure payment of
outstanding amounts due under the note. If we are unable to meet our
obligations under the note, we may be
-17-
<PAGE>
required to transfer ownership of our trademarks to the Lamberts or other third
parties. If we lose ownership of our trademarks, it could have a harmful effect
on our business.
Our stock price is volatile
The market price of the shares of our common stock has been, and is likely
to be, highly volatile and subject to fluctuation. Fluctuations may occur in
response to actual or anticipated variations in results of operations or various
announcements directly by us or in conjunction with the Internet and e-commerce
industries. Prices of technology related stocks have experienced extreme price
and volume fluctuations that typically have been unrelated or disproportionate
to the operating performance of the underlying businesses. Market conditions,
as well as general economic and political climates may adversely affect the
price of our stock. In the past, stockholders have instituted securities class
action litigation against several companies following periods of volatility in
the market price of their securities. Such litigation, if instituted against
us, could result in the diversion of our management's attention and resources
and result in substantial financial costs to our business.
Because we intend to expand internationally, we
will be subject to risks of conducting business
in foreign countries.
If, as we anticipate, we expand our operations outside the United States,
we will be subject to the risks of conducting business in foreign countries,
including:
. our inability to adapt our products and services to local cultural
traits, customs and mobile user preferences;
. our inability to locate qualified local employees, partners and
suppliers;
. the potential burdens of complying with a variety of foreign laws, trade
standards and regulatory requirements, including the regulation of
e-commerce and the Internet and uncertainty regarding liability for
information retrieved and replicated in foreign countries; and
. general geopolitical risks, such as political and economic instability
and changes in diplomatic and trade relationships.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion of our financial condition and results of
operations should be read together with the financial statements and the related
notes included in another part of this Form 10-SB and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties.
General
We publish magazines under the trademarks "Millionaire" and "Billionaire".
We also operate an auction gallery located in Bluffton, South Carolina. The
magazine and auction gallery also conduct business on the Internet at
www.millionaire.com.
- -------------------
-18-
<PAGE>
For the period from the inception of the business in February 1995 through
December 15, 1998 we did not conduct any business. From December 15, 1998 to
the present, our operating activities have consisted primarily of recruiting
personnel, purchasing operating assets, establishing vendor relationships and
developing the infrastructure required to support the businesses that we are
engaged in, including development of the computer systems required to conduct
business over the Internet. As a result of these activities, net losses have
been incurred. We expect to expand our operations including increasing our
staffing and marketing efforts to increase the "Millionaire" brand loyalty.
Accordingly, we expect to experience net losses through the year 2000.
On January 14, 1999, we entered into an agreement to merge with an auction
house in Chamblee, Georgia. A change in control of the Board of Directors
resulted from the merger. Accordingly, delays related to the design and
implementation of the website occurred. Costs and expenses related to the
integration of the businesses were also incurred. Subsequent to the merger
agreement, situations arose which resulted in a determination to unwind the
merger. Specifically, certain representations made by the stockholders of the
auction house within the merger agreement were not substantiated by the
stockholders, the primary representation being the actual net worth of the
business. As of September 27, 1999, we and the shareholders of the acquired
company agreed to rescind the merger. The Agreement to Rescind allows the
parties to restore, to the extent possible, their respective positions prior to
the merger including cancellation of the 4,300,000 shares of our stock that were
issued to the shareholders of the auction house, our release from our obligation
to pay the $1,000,000 promissory note executed at the time of merger and our
release and the release of Robert L. White from the guarantee of a $1,750,000
line of credit for the auction house.
Results of Operations
Revenue
Revenues for the magazine are generated from the sale of advertising as
well as the sale of the magazines themselves through subscriptions, newsstand
distribution and controlled mailing list circulation. Revenues for the auction
house are generated by auction sales held on the premises and auctions held on
the Internet as well as retail trade.
Advertising revenues for the years ended December 31, 1999 and 1998 were
$2,585,034 and $344,316, respectively, representing an increase of $2,240,718 or
651%. Magazine sales for the years ended December 31, 1999 and 1998 were
$241,105 and $100,737, respectively, representing an increase of $140,368 or
139%. The auction house held three auctions during 1999 and conducted retail
sales. Revenues from inventory sales increased from $1,422 for the year ended
December 31, 1998 to $565,230 for the year ended December 31, 1999. Revenues
for the auction house are reported net of consignments paid, reflecting only the
commission or fee received for items that were sold but not owned by us. The
increase in revenues can be attributed to management's emphasis on promoting our
business and attempting to create a subscriber and repeat customer base.
Bad debt expense for the year ended December 31, 1999 was $523,362 or 15.4%
of sales. Bad debt expense for the year ended December 31, 1998 amounted to
$49,603 or 11.7% of sales. The increase in bad debt expense can be attributed
to the non-payment of accounts purchased from Lifestyle Media Corporation, which
amounted to approximately $
-19-
<PAGE>
105,000, and the aggressive sales effort made to re-launch the magazine.
Management is in the process of enlisting a factoring group to formalize the
credit approval process as well as attempting to collect the accounts for which
the reserve was provided.
During the year ended December 31, 1999, we exchanged magazine
advertisements for goods and services with an approximate value of $1,162,000.
These non-monetary transactions have been accounted for under APB Opinion No.
29, Accounting for Nonmonetary Transactions and EITF issue No. 93-11, Accounting
for Barter Transactions Involving Barter Credits. The non-monetary transactions
were accounted for based on the fair value of the goods and services exchanged.
An impairment of the non-monetary asset exchanged is recognized prior to
recording the exchange if the fair value of the advertising space exchanged has
a fair value greater than the goods or services received. The impairment is
measured as the amount by which the carrying amount of the asset exceeds its
fair value. Accordingly, the accompanying financial statements reflect only cash
transactions.
Sources of Revenue Growth. Beginning with the July 1999 issue, the
magazine was changed to a monthly format from the quarterly format begun in
1998. The "Billionaire" issue is presently a supplemental annual issue.
Additionally, certain issues contain a larger page count, resulting in increased
advertising revenues. The transition of our customer base to our website will
provide additional incremental advertising revenues, the launching of our
internet auction catalog which will provide additional advertising revenue as
well as additional product sales.
Constraints on Revenue Growth. Delays in the development of our website
resulted in less advertisement sales and fewer on line auctions being conducted.
The delays encountered were primarily due to the change in the control of the
Board of Directors resulting from the merger with The Great Gatsby's, Inc.
Auction Gallery which resulted in a change of the internet team charged with the
design and implementation of the website. Accordingly, this activity could not
be restarted until the merger was rescinded.
Gross Profit
The cost of magazine publishing consists primarily of printing and
distribution costs related to advertising and magazine sales. The cost of goods
sold for the auction house consist primarily of merchandise purchased and
consigned. Gross profit dollars generated from sales amounted to $608,638 or
17.9% of net sales and $151,458 or 33.9% of net sales. Gross profit dollars
generated by the magazine for the year ended December 31, 1999 were $695,219 or
24.6% of net magazine sales as compared to $153,523 or 34.5% of net magazine
sales for the year ended December 31, 1998. The decrease as a percentage of
sales in gross profit for the magazine resulted from the printing and
distribution of issues on a monthly basis, as opposed to quarterly in 1998, and
to printing and distributing additional copies to a controlled circulation in an
effort to build a subscriber base. The auction house incurred a gross
profit/(loss) of $(86,581) or -15.3% of net auction sales for the year ended
December, 1999. The auction house generated a gross profit of $335 or 23.5% of
auction sales for the year ended December 31, 1998. The decrease in gross profit
reflected promotional pricing related to the start up of the auction house, as
well as high commission costs to induce sales.
-20-
<PAGE>
Operating Expenses
Operating expenses increased significantly reflecting the recruiting of
personnel, development of the computer infrastructure and increased efforts to
expand and market the "Millionaire" brand and auction services. Operating
expenses will continue to increase as the expansion of the website
infrastructure continues and the magazine and auction house operations are
expanded. Total operating expenses were $6,114,214 or 180.3% of net sales and
$919,909 or 206.0% for the years ended December 31, 1999 and 1998,
respectively. The increase resulted from the additional operations related to
publishing the magazine and transitioning it to a monthly publication from a
quarterly, as well as the development of the auction house and internet
businesses.
Selling and Marketing. These expenses consist primarily of advertising and
marketing the magazine and auction house to our identified customer base, and
also includes the commissions related to sales and promotions. Selling and
marketing expenses for the year ended December 31, 1999 were $2,196,541 or 64.8%
of net sales. Selling and marketing expenses for the year ended December 31,
1998 were $146,029 or 32.7% of net sales. The increase in selling and marketing
reflects the promotional efforts provided to re-launch the magazine as well as
transition the magazine to a monthly publication from a quarterly and to promote
auctions that were held during the year. The increase also reflects the
additional commissions paid related to increased advertising revenues.
Expenditures in 2000 will also be made to build the subscription base for the
magazine, as well as the auction catalog and the website. Accordingly, it is
anticipated that these expenses will continue to increase.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive, accounting and
logistical personnel, bad debt expense, facilities expenses, recruiting and
professional fees, as well as other general corporate expenses.
General and administrative expenses amounted to $3,917,673 or 115.5% of
net sales and $ 773,880 or 173.3% of net sales for the years ended December 31,
1999 and 1998, respectively. The increase in general and administrative expenses
in total dollars was due to increases in salaries and related costs resulting
from the hiring of additional personnel, additional professional fees required
of a publicly held company and expenses related to reserves established in
connection with accounts receivable and inventory. We expect the dollar amount
of general and administrative expenses to increase in 2000, as we increase our
operations and expand our Internet capabilities.
Agreement to Rescind Merger. As of December 31, 1999, approximately
$300,000 of direct legal and other expenses can be attributed to the merger and
the agreement to rescind. As part of the agreement, both parties have agreed to
arbitration in an effort to reimburse each other for fees and expenses incurred.
On December 28, 1999, the arbitration hearing resulted in our company being
awarded a net amount of $33,500 in cash and the return of a vehicle. As of
December 31, 1999, all but approximately 440,000 shares of the 4.3 million
shares originally issued had been returned.
Interest Income (Expense) and Other Income, Net
Interest and other income (expense), net, was $(36,224) and (28,600), for
the years ended December 31, 1999 and 1998, respectively. Interest income is
attributed primarily to the interest
-21-
<PAGE>
earned on the cash and certificate of deposits resulting from the cash received
from capital raised during 1998 and 1999. Interest expense was $133,750 and
$30,957 for the years ended December 31, 1999 and 1998, respectively. Interest
expense is primarily related to the note payable to the former shareholders of
Lifestyle Media Corporation which, in part, financed the acquisition of the
"Millionaire" and "Billionaire" trademarks and "Millionaire" magazine.
Income Taxes
We incurred a net loss of $(5,541,800) for the year ended December 31,
1999. For the year ended December 31, 1998, the net loss was $(797,051).
There were no current or deferred provisions for income taxes. At December 31,
1999 and 1998, we had net deferred tax assets related primarily to net operating
losses in the amount of $2,106,492 and $42,132, respectively. The net deferred
tax assets were fully reserved with a valuation allowance. The net operating
losses begin expiring in 2019.
We experienced a change in control as defined under Section 382 of
the Internal Revenue Code, during calendar year 1998. As a result, approximately
$750,000 of tax loss carryforwards will be limited to annual utilization
amounts. None of these limited amounts have been reflected in the financial
statements.
We anticipate that the Agreement to Rescind will be held as a non-taxable
event and accordingly have not provided for taxes related to that transaction.
Should the merger unwind be held as a taxable event, we believe that we have net
operating losses in an amount sufficient to mitigate any unfavorable tax
consequences that may result.
Liquidity and Capital Resources
Cash Inflows and Outflows
Financing Activities. Our operations have been financed primarily through
the sale of common stock in a Section 504, Regulation D offering in 1998 that
netted proceeds of approximately $945,000 and a private placement begun in 1998
and completed in January, 1999, that netted proceeds of approximately
$4,632,474. As part of the purchase price of the trademarks purchased from
Lifestyle Media Corporation, Lifestyle Media Acquisition Corporation entered
into a long-term debt agreement with the former shareholders of Lifestyle Media
Corporation. The initial balance entered into was $1,674,595 of which $300,000
was paid prior to closing. There are no operating covenants associated with
this debt. On January 24, 2000, we entered into two separate unsecured
convertible promissory notes payable in the aggregate amount of $1,750,000. The
notes payable were received from two of our current shareholders. Also, in
January and February of 2000, private sales of our common stock resulted in
$192,000 of additional capital.
Operating Activities. Net cash used in operating activities amounted to
$3,877,496 for the year ended December 31, 1999. For the year ended December
31, 1998, net cash used in operating activities was $689,877. The net cash used
in operations was primarily attributable to the net losses from operations of
$5,541,800 and $797,051, for the respective periods indicated. Cash used in
operations for the year ended December 31, 1999 reflect a net increase in
inventory of $468,350, a net increase in accounts receivable of $900,866 which
are offset by an increase in accounts payable of $1,737,640.
Investing Activities. Net cash used in investing activities amounted to
$649,327 and $76,783 for the years ended December 31, 1999 and 1998,
respectively. Net cash used in investing activities reflects purchases of
office equipment and furniture, purchases of hardware
-22-
<PAGE>
and software related to the development of our Internet business, and the
purchase of a certificate of deposit as well as the deposit related to a letter
of intent for a proposed acquisition.
Cash and Cash Equivalents. As December 31, 1999, we had approximately
$19,554 of cash and cash equivalents. The certificate of deposit had a maturity
which is greater than three months, accordingly it is not classified as a cash
equivalent.
Commitments. As of December 31, 1999, our principal commitment was a lease
obligation of approximately $3,146,278 in future minimum lease payments for the
auction house, magazine and corporate offices. As of January 1, 2000, lease
payments for additional space for the magazine offices will commence resulting
in an additional commitment of $65,124 expiring in December, 2000. We are
currently committed as an additional guarantor of a $1,750,000 line of
credit.
As of October, 1999, we engaged International Strategies to launch a new
website resulting in various hardware and software commitments that we believe
will amount to approximately $500,000. As of February, 2000, International
Strategies stopped work on the website. We are presently updating our website
with our own personnel and are searching for a new technology partner.
We routinely enter into promotional and sponsorship agreements on a
bartered basis, resulting in the trade of magazine advertising for the
participation in the sponsored products. At December 31, 1999, that amount
obligated was approximately $250,000.
On December 22, 1999, we entered into a Letter of Intent with the
shareholders of an auction gallery located in New Orleans. We have agreed to
purchase 49% of the outstanding capital stock in exchange for $2,000,000 in cash
and 1.5 million shares of restricted stock. At the closing of the 49%
acquisition, we will also receive an option to purchase the remaining 51% of the
outstanding stock of the auction gallery for $2,000,000 in cash and 1 million
shares of restricted stock.
We anticipate requiring additional cash to support the anticipated growth
in accounts receivable and inventory. We expect our operating expenses to
increase as we continue to expand the "Millionaire" brand by increasing our
staffing, marketing and Internet infrastructure. We expect to incur losses
through the year 2000 and as a result we will need to raise additional cash to
finance the increased inventory, accounts receivable, capital expenditures and
operating expenses. As of October, 1999, we engaged Aldare Investments, Ltd. to
implement our internet strategy and provide the necessary technology to support
our website. Aldare Investments, Ltd. was also engaged to help raise the
capital necessary to implement our internet and business plan. Our commitment
to them for their services was 1,050,000 shares of common stock, or
approximately 10% of the outstanding shares, as well as $15,000 a month for
consulting fees. As of February, 2000, Aldare Investments, Ltd. is no longer
active in the development of our website nor our internet strategy. The
original commitment made to Aldare Investments, Ltd. is being negotiated.
We are attempting to engage an investment banking firm to help identify and
evaluate various financing alternatives, including a proposed $12 - $15 million
public offering of our common stock.
The delays related to finding a technology partner will result in losses
continuing through the second half of 2000. Accordingly, as we attempt to comply
with the necessary reporting and legal requirements to raise capital through a
public offering, we may consider alternative
-23-
<PAGE>
financing, such as the issuance of additional equity or debt securities or
obtaining further credit facilities.
Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk, for changes in interest rates, relates
primarily to our long term debt, which has a fixed rate of interest of 6% and
matures in 2003, and to our cash holdings, which are in interest bearing
commercial bank accounts yielding annualized returns of 5.15% to 5.75%,
compounded monthly. The promissory notes made in January, 2000 carry a 7%
interest rate with the rate increasing to 12% on any past due principal
balance.
Year 2000 Compliance Issue
Many currently installed computer systems and software products are coded
to accept or recognize only two digits rather than four digits to define the
year in the date code field. These systems and software products will need to
accept four digit year entries to distinguish 21st century dates from 20th
century dates. Systems and products that are not corrected to do this could
cause a disruption of operations including a temporary inability to deliver
messages, process transaction, send invoices or engage in other normal business
activities.
We have completed assessments of all internal systems, including our
existing business and accounting systems, as well as our security system and
telephone equipment and deem them to be Year 2000 compliant. We continue to
seek assurances from our vendors and other parties with which we do business
that they are working toward or are in compliance.
Most of our system purchases have been made within the period during which
the Year 2000 problem was already identified. Accordingly, we expect our total
cost for ensuring Year 2000 compliance to be minimal. We are developing a
contingency plan to address situations that may result from external forces that
might generally affect industry and business, such as power, telephone or
transportation failures. We make no guarantees with respect to these external
forces and their impact on our ability to operate.
New Accounting Pronouncements
In 1998, the AICPA issued SOP 98-1, which provides guidance for determining
whether computer software is internal use software and on accounting for the
proceeds of computer software originally developed or obtained for internal use
and then subsequently sold to the public. It also provides guidance on
capitalization of the costs incurred for computer software developed or obtained
for internal use. We adopted SOP 98-1 as of January 1, 1998.
Also in 1998, the AICPA issued SOP 98-5, which provides guidance on the
reporting of start-up costs and organization costs. It requires the costs
associated with start-up activities and organization costs to be expensed as
incurred. We adopted SOP 98-5 as of January 1, 1998.
Item 3. Description of Property.
Our principal offices will be housed in 3,625 square feet of office space
at 7 Plantation Park Drive, Bluffton, South Carolina, 29910, pursuant to a
Commercial Space Lease dated November 19, 1999 by and between Millionaire.com
and Carolina Office Park, LLC. The
-24-
<PAGE>
lease is for a team of 1 year and shall commence as of completion of
improvements to the space as set forth in the lease.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding ownership of
Millionaire.com's common stock as of December 31, 1999 by:
(i) each person known to us to own beneficially more than 5% of our
outstanding common stock;
(ii) each director of Millionaire.com;
(iii) each executive officer named in the summary compensation table;
and
(iv) all directors and executive officers of Millionaire.com as a
group.
Share ownership is based on 9,055,095 shares of common stock outstanding on
December 31, 1999. Unless otherwise noted, the address for each stockholder is
c/o Millionaire.com, 18 Plantation Park Drive, Bluffton, South Carolina, 29910.
<TABLE>
<CAPTION>
Percent of Shares
Name and Address of Beneficial Owner Number of Shares Beneficially Owned
- ----------------------------------- ------------------- -------------------
<S> <C> <C>
W. Kenneth Costanzo 12,000 0.13%
112 Meilland Drive
Greer, SC 29650
Lynn Dixon 459,800 5.10%
311 S. State Street
Salt Lake City, UT 84111
Douglas Lambert and Jenny Lambert 530,000 5.87%
1924 Bayhill Drive
Las Vegas, NV 89117
Lancer Offshore Inc. 1,200,000 13.25%
375 Park Avenue, Suite 2006
New York, NY 10152
Frank Osborne 20,000(1) 0.22%
Richard Seibert 50,000 0.55%
David Strong 20,000(2) 0.22%
Robert L. White 1,766,000(3) 19.58%
</TABLE>
<TABLE>
<CAPTION>
Percent of Shares
Name and Address of Beneficial Owner Number of Shares Beneficially Owned
- ------------------------------------ ---------------- ------------------
<S> <C> <C>
All Directors and Executive Officers as a Group 1,868,000(4) 20.72%
(6 persons)
</TABLE>
__________________________
-25-
<PAGE>
(1) Includes 20,000 shares issuable upon exercise of currently exercisable
options by Mr. Osborne.
(2) Includes 20,000 shares issuable upon exercise of currently exercisable
options by Mr. Strong.
(3) Includes 30,000 shares issuable upon exercise of currently exercisable
options by Mr. White and 8,000 shares issuable upon exercise of currently
exercisable options by Mr. White's wife.
(4) Includes shares issuable upon the exercise of options referenced in notes
(1) through (3) above.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Directors and Executive Officers
The following table sets forth information regarding the directors and
executive officers of Millionaire.com as of December 31, 1999. A description of
their respective backgrounds follows below.
Name Age Position
- ---- --- --------
Robert L. White 54 Chief Executive Officer, President and Director
Richard Seibert 43 Chief Financial Officer and Director
David Strong 56 Senior Vice President of Marketing, Secretary
and Director
Frank Osborne 52 Vice President, General Manager and Director
Dean Echols 54 Director
W. Kenneth Costanzo 46 Director
All of the officers identified above serve at the discretion of the Board
of Directors of Millionaire.com.
Robert L. White. Mr. White has served as the Chief Executive Officer and
Chairman of the Board of Directors of Millionaire.com since November 24, 1998
and President of Millionaire since December 15, 1998. Mr. White has worked in
the publishing, antique and collectible industry for over 30 years. In 1968,
Mr. White founded the Robb Report, a monthly lifestyle magazine for the
affluent, which he sold in 1983. From 1991 through August 1998, Mr. White was a
self-employed appraiser, buyer and seller of fine art, automobiles, antiques and
high-end collectibles. Through these activities, Mr. White developed a broad
network of relationships with art and auction galleries and dealers, as well as
luxury product manufacturers and retailers. In addition, Mr. White served as
the Chairman of American Heritage Archives in Atlanta, Georgia from 1992 through
1997.
Richard Seibert. Mr. Seibert has served as the Chief Financial Officer and
a Director of Millionaire.com since October, 1999. Prior to Millionaire.com,
Mr. Seibert served as the Controller of The Great Gatsby's Auction Gallery,
Inc., an auction gallery, from April 1999 to August 1999, as Vice President of
Finance of Biscayne Apparel International, Inc., Varon Division, an apparel
manufacturer, from March 1997 to March 1999, as Controller of Activewear
Corporation of America, Inc., an apparel manufacturer, from June 1996 to March
1997 and Chief Financial Officer of VHC, Ltd., a holding company, from June 1995
to March 1996. His responsibilities in those positions included financial
reporting, international banking, as well as management information systems and
other operational management.
-26-
<PAGE>
David Strong. Mr. Strong has served as the Senior Vice President of
Marketing and a Director of Millionaire.com since November, 1998. From 1993 to
1998, Mr. Strong was a Real Estate Broker with Prudential Commercial Services.
Frank Osborne. Mr. Osborne has served as the Vice President, General
Manager and a Director of Millionaire.com since November, 1998. Mr. Osborne has
significant experience in sales, marketing and general management. From October
1997 to April 1998, Mr. Osborne served as Senior Vice President of Sales and
Marketing of Mother Oil Remediation Products. From May 1997 to September 1997,
Mr. Osborne served as the Vice President of Sales of ISP Alliance. From
December 1995 to April 1997, Mr. Osborne gained direct experience in the auction
marketplace while serving as the Vice President of Sales of American Heritage
Equities, a retail and wholesale antiques and auction business.
Dean Echols. Mr. Echols has served as a Director of Millionaire.com since
November, 1998. For more than a decade, Mr. Echols has been serving as the
President and a Director of Manheim Government Auction Services, an auction
company that sells over 6,000,000 units (valued at $30 Billion) from 80 auction
locations annually.
W. Kenneth Costanzo. Mr. Costanzo has served as a Director of
Millionaire.com since March 10, 1999. In September, 1998, Mr. Costanzo founded
and is President of Executive Solutions, Inc., which develops, manages and
provides worldwide marketing and executive search consulting services to various
Fortune 500 and new public companies. Prior to Executive Solutions, Inc., Mr.
Costanzo was employed by W.R. Grace & Co., where he served as the Vice President
of Global Marketing & Business Development for the Cryovac Division from May
1997 to September 1998, as the Vice President of Ventures and New Operations for
the Cryovac Division from January 1996 to June 1997 and as Vice President of
Global Human Resources from January 1994 to January 1996.
Director Compensation
We have no established compensation arrangements with our directors but
directors may be reimbursed for their reasonable expenses incurred in connection
with the attendance at board and committee meetings. Directors are eligible to
receive options to purchase common stock under our option plans.
Involvement in Certain Legal Proceedings
On August 26, 1997, Robert White filed for personal bankruptcy under
Chapter 7 in the United States Bankruptcy Court for the Northern District of
Georgia. On March 17, 1998, Mr. White was discharged of all of his debts. On
March 30, 1999, while Richard Seibert was serving as the Vice President of
Finance, Biscayne Apparel International, Inc. filed for bankruptcy under Chapter
11 with United States Bankruptcy Court for the Southern District of New York.
Item 6. Executive Compensation.
The following table sets forth information for the fiscal year ended
December 31, 1999 concerning the compensation paid and awarded to our Chief
Executive Officer and all other executive officers whose total annual salary and
bonus exceeded $100,000 during such period.
-27-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
---------------------------------- ------------------------
Other Securities
Name and Fiscal Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------------- ------ -------- ------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. White 1999 $180,000 $90,000 $11,019.00(1) -- --
Chief Executive Officer
and President
Frank Osborne 1999 $144,000 -- $ 7,519.03(2) -- --
Vice President,
General Manager
Richard Seibert 1999 $100,000 -- -- 100,000 --
Chief Financial Officer
David Strong 1999 $120,000 $60,000 $ 3,105.02(3) -- --
Senior Vice President
of Marketing
</TABLE>
________________________
(1) Includes 11,019.79 of premium payments made by us on behalf of Mr. White
for his personal and family life insurance coverage.
(2) Includes $7,519.03 of premium payments made by us on behalf of Mr. Osborne
for his personal and family life insurance.
(3) Includes $3,105.02 of premium payments made by us on behalf of Mr. Strong
for his life insurance coverage.
Option Grants in 1998
The following table sets forth grants of stock options for the year ended
December 31, 1999 to our executive officers named in the Summary Compensation
Table. The percentage of total options granted to employees in the last fiscal
year is based on options to purchase an aggregate of 270,000 shares of common
stock granted to our directors, officers, employees and consultants in the last
fiscal year.
Option Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise of Expiration
Name Options Granted Fiscal Year Base Price Date
- ---- --------------- ----------- ---------- ----
<S> <C> <C> <C> <C>
Richard F. Seibert 100,000 37% $1.50 11/01/04
</TABLE>
-28-
<PAGE>
Year-End Option Values
The following table provides some information about stock options held as
of December 31, 1999 by our executive officers. No options were exercised by
any officer or director during the fiscal year ended December 31, 1999. The
potential realizable value is calculated based on the term of the option at its
time of grant. It is calculated assuming that the fair market value of common
stock on the date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised and
sold on the last day of its term for the appreciated stock price. These numbers
are calculated based on the requirements of the Securities and Exchange
Commission and do not reflect our estimate of future stock price growth.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised/ Value of Unexercised
Unexercisable In-the-Money Options at
Shares Value Options at Fiscal Fiscal Year End
Acquired on Realized Year End Exercisable/ Exercisable/
Name Exercise ($) Unexercisable Unexercisable
- ---- -------- --- ------------- -------------
<S> <C> <C> <C> <C>
Robert L. White 0 0 120,000 (u) $345,000
30,000 (e) $ 86,250
Frank Osborne 0 0 80,000 (u) $230,000
20,000 (e) $ 57,500
David Strong 0 0 80,000 (u) $230,000
20,000 (e) $ 57,500
Richard Seibert 0 0 100,000(u) $287,500
</TABLE>
Stock Option Plan
General. We adopted a Stock Option Plan on November 24, 1998. The plan
authorizes options to purchase up to 1,500,000 shares of our common stock. If
options granted under the plan expire or are terminated for any reason without
being exercised, the shares of common stock underlying such grant will again be
available for purposes of the plan.
Eligibility for Participation. Grants may be made to any of our employees
and consultants.
Administration of the Plan. A Stock Option Committee comprised of Robert
L. White and Richard F. Seibert administers and interprets the plan. Such
committee has the sole authority to:
. determine the employees, officers, directors or consultants to whom grants
will be made under the plan,
-29-
<PAGE>
. determine the type, size and terms of the grants to be made to each
optionee,
. determine the time when the grants will be made, the vesting period and
the duration of any applicable exercise or restriction period, including
the criteria for vesting, and
. deal with any other matters arising under the plan.
Types of Grants. Grants under the plan may consist of:
. options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code and
. nonqualified stock options that are not intended to so qualify.
Exercise Price of Options. Generally, the exercise price of common stock
underlying an option shall be the fair market value per share of our common
stock on the date of grant, provided that the exercise price of an incentive
stock option granted to an employee who owns more than 10% of the common stock
may not be less than 110% of the fair market value of the underlying shares of
common stock on the date of grant. In order to exercise any option, the
participant must pay the exercise price in cash.
Term of Options. The Stock Option Committee will determine the term of
each option which may be up to a maximum of ten years from the date of grant,
except that the term of an incentive stock option granted to an employee who
owns more than 10% of the common stock may not exceed five years from the date
of grant.
Vesting of Options. Unless otherwise provided by the Stock Option
Committee, the options granted are exercisable immediately. The Stock Option
Plan generally provides that options granted under the plan vest in accordance
with the following vesting schedule: 20% shall vest on the first anniversary of
the grant date and an additional 20% shall vest every year thereafter,
contingent upon continued employment. In the event of termination, incentive
stock options must be exercised within 30 days of termination of employment.
Non-transferability of Options. An incentive stock option granted under
the plan shall not be transferable otherwise than by will or by the laws of
descent and distribution, and may be exercised during the lifetime of the
optionee only by him.
Amendment and Termination of the Plan. The Stock Option Committee may
amend or terminate the plan at any time; except that it may not make any
amendment without stockholder approval that:
. increases the maximum number of shares as to which options may be granted
under the plan,
. changes the class of persons eligible to receive options under the plan
or
. materially increases the benefits accruing to the optionees under the
plan.
The plan will terminate on the 10th anniversary of its effective date,
unless the Board of Directors terminates the plan earlier or extends it with
approval of the stockholders.
-30-
<PAGE>
Tax Consequences. The following description of the tax consequences of
awards under the Stock Option Plan is based on present federal tax laws and does
not purport to be a complete description of the tax consequences of the Stock
Option Plan. There are generally no federal tax consequences as to the optionee
or to us upon the grant of an option. On the exercise of an incentive stock
option, the optionee will not recognize any income, and we will not be entitled
to a deduction for tax purposes, although such exercise may give rise to
liability for the optionee under the alternative minimum tax provisions of the
Internal Revenue Code. However, if the optionee disposes of shares acquired
upon the exercise of an incentive stock option within two years of the date of
grant or one year of the date of exercise, the optionee will recognize ordinary
income, and we will be entitled to a deduction for tax purposes in the amount of
the excess of the fair market value of the shares of common stock on the date of
exercise over the option exercise price (or the gain on sale, if less); the
remainder of any gain, and any loss, to the optionee will be treated as capital
gain or loss to the optionee. On the exercise of a nonqualified stock option,
the amount by which the fair market value of common stock on the date of the
exercise exceeds the option exercise price will generally be taxable to the
optionee as ordinary income and will generally be deductible for tax purposes by
us. The disposition of shares acquired upon exercise of a non-qualified option,
or an incentive stock option, if after the one year and two year periods
described above, will generally result in capital gain or loss to the optionee
but will have no tax consequences to us.
Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total remuneration
would include amounts received upon the exercise of stock options. An exception
exists, however, for "performance-based compensation," including amounts
received upon the exercise of stock options pursuant to a plan approved by
stockholders that meets certain requirements. The plan has been approved by
stockholders and it is intended that grants of options thereunder meet the
requirements of "performance-based compensation."
Employment Agreements
Millionaire.com entered into an Employment Agreement with Robert L. White on
December 23, 1998. The Agreement was amended on February 12, 1999 and on August
27, 1999. The employment agreement terminates on December 22, 2003, but
automatically renews for additional five-year periods unless otherwise
terminated under the terms of the agreement. Pursuant to the employment
agreement, as amended, Mr. White is employed as Chairman of the Board, Chief
Executive Officer and President at an annual base salary of $180,000 plus an
annual bonus based on monthly auction sales and subscriptions/memberships, which
bonus shall not be less than $60,000 nor more than $180,000 per year. Mr. White
receives reimbursements for business-related expenses and is entitled to
participate in our benefit plans. In addition, Millionaire.com has agreed to
pay or reimburse Mr. White up to a maximum of $50,000 for an automobile. The
automobile belongs to Millionaire.com and Mr. White must return the automobile
upon termination of his employment. Mr. White is entitled to four weeks of paid
vacation per year. The agreement may be terminated by either Mr. White or
Millionaire.com at any time. If the agreement is terminated as a result of Mr.
White's death we must continue to pay his salary to his spouse for a period
which is the greater of (i) two years or (ii) the remainder of the term. If
the agreement is terminated as a result of Mr. White's disability, we must
continue to pay his salary for a period of not less than five years less by the
amount of any
-31-
<PAGE>
disability payments received by Mr. White. If we terminate the agreement without
cause, we must pay to Mr. White within five days after such termination a lump
sum payment equal to five times the sum of his then annual base salary and
maximum annual bonus or immediately enter into a ten-year consulting agreement
with him. If Mr. White is terminated by us upon a change of control, other than
for cause, death or disability, or if he voluntarily terminates such employment
within six months subsequent to one of the following events, then we must pay
him for a period of five years thereafter a severance payment of his annual
salary, maximum annual bonus and benefits:
. the change, reduction or alteration in Mr. White's duties,
responsibilities or job status following a change of control;
. the discontinuation of Mr. White's insurance, disability, stock
option or other benefits coverage or arrangements upon a change of
control;
. the failure of a successor corporation to assume and agree to
perform under the employment agreement; or
. a material decrease in Mr. White's salary, benefits or incentive
or other form s of compensation following a change of control.
Each of David Strong and Frank Osborne are parties to Employment
Agreements with Millionaire.com. expiring on February 27, 2002. Pursuant to
their respective agreements, David Strong is employed as Senior Vice President
of Marketing at an annual salary of $120,000 and Frank Osborne is employed as
Vice President and General Manager at an annual salary of $140,000. The other
terms of their employment agreements are identical. Messrs. Strong and Osborne
each receive four weeks of paid vacation per year and each receives
reimbursements for business-related expenses and is entitled to participate in
our benefit plans. Each agreement may be terminated by either party. If we do so
without cause, we must continue to pay salary and benefits for the remainder of
the term.
Item 7. Certain Relationships and Related Transactions.
There was a change in control in Millionaire.com on June 5, 1998, when
David Cohen paid us $150,000 for 9,000,000 shares of our common stock and was
appointed as our sole officer and director. The $150,000 was used to pay legal
fees and a finder's fee to persons who introduced us to Mr. Cohen. The
9,000,000 shares were subsequently sold to other persons at Mr. Cohen's cost.
Mr. Cohen resigned as the sole officer and director on September 1, 1998, after
appointing Glen Ulmer of Salt Lake City, Utah to fill the vacancies created by
his resignation.
Lynn Dixon, Salt Lake City, Utah, was the principal purchaser of the
9,000,000 shares from Mr. Cohen and cancelled all but 100,000 of those shares in
connection with the acquisition of LMAC. 100,000 shares became 300,000 shares
after the 3 to 1 forward split which took place on November 24, 1998, 150,000 of
which are owned by Mr. Dixon and 150,000 which are owned by an entity controlled
by Mr. Dixon.
During July-August 1998, one of our shareholders, who had served as an
officer and director sold 942,000 shares of his stock for $100,000 to various
persons. Lynn Dixon was a
-32-
<PAGE>
purchaser of a portion of this stock along with Mr. Abraham Salaman of
Philadelphia, Pennsylvania, and persons introduced by them.
Mr. Dixon and Mr. Salaman were key in locating LMAC as an acquisition
candidate and in negotiating the terms of the acquisition.
On December 15, 1998, we granted to the following executive officers and/or
directors of Millionaire.com options to purchase the following amounts of shares
of Millionaire.com's common stock at an exercise price of $1.00 per share:
. 150,000 options to Robert White who serves as our Chairman of the Board,
Chief Executive Officer, President and as one of our directors,
. 40,000 options to Robin White, the wife of Robert White,
. 100,000 options to Frank Osborne who serves as our Vice President,
General Manager and as one of our directors,
. 100,000 options to David Strong who serves as our Senior Vice President
of Marketing, Secretary and as one of our directors,
. 100,000 options to Dean Echols who serves as one of our directors.
On November 1, 1999, we granted 100,000 options to purchase shares of our
common stock at an exercise price of $1.50 per share to Richard F. Seibert, who
serves as our Chief Financial Officer and as one of our directors.
The above options vest in equal installments over 5 years, subject to
continued employment.
On January 14, 1999, Millionaire.com entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") and related ancillary
documents with Auction Acquisition, Inc., a Georgia corporation, The Great
Gatsby's Auction Gallery, Inc., a Georgia corporation, A.J. Nassar, Ted
Tzavaras, Robert Slack and Robert White. Pursuant to the Merger Agreement,
Millionaire.com's wholly-owned subsidiary, Auction Acquisition, Inc., merged
with and into Great Gatsby's, with Great Gatsby's being the surviving
corporation. Under the terms of the Merger Agreement, the Great Gatsby's
shareholders received, among other things, an aggregate of 4,300,000 shares of
common stock of Millionaire.com in exchange for 100% of the issued and
outstanding capital stock of Great Gatsby's. Following the merger transaction
on, June 8, 1999 Millionaire.com and its Chief Executive Officer, Robert L.
White agreed to guaranty a certain NationsBank Line of Credit of Great Gatsby's
in the original principal amount of $1,750,000. On September 27, 1999, however,
the parties entered into an Agreement to Rescind all of the transactions
contemplated under the Merger Agreement. Pursuant to the Agreement to Rescind,
the parties agreed, among other things, (a) that the 4,300,000 shares of
Millionaire.com's common stock issued to the Great Gatsby's shareholders are
deemed cancelled, as if never issued and (b) Great Gatsby's shall secure from
NationsBank the release of the guarantees provided by Millionaire.com and Mr.
White for the Line of Credit. Each of the Great Gatsby's shareholders have
agreed to return the certificates representing the 4,300,000 shares of
Millionaire.com to be cancelled and Millionaire.com has agreed to return the
certificates representing the Great Gatsby's shares. The parties are currently
in the process of
-33-
<PAGE>
collecting such certificates and obtaining the release of guarantees. All other
conditions precedent in the Agreement to Rescind have been satisfied by the
parties thereto. The parties agreed to submit to arbitration the expenses and
legal fees related to the transition. Arbitration was concluded on December 28,
1999.
Item 8. Description of Securities.
General
Our authorized capital stock consists of 50,000,000 shares of common stock,
$0.001 par value per share, of which 9,055,095 shares were issued and
outstanding on December 31, 1999 and 5,000,000 shares of Preferred Stock, $0.001
par value per share, none of which are issued and outstanding immediately prior
to the filing of this Form 10-SB.
Common Stock
The holders of our common stock are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of common stock has pre-emptive rights to subscribe for any
additional shares of common or preferred stock, nor are any common shares
subject to redemption or convertible into other securities. Upon liquidation,
dissolution or winding up, and after we pay our creditors and preferred
stockholders, if any, the assets will be divided pro-rata on a share-for-share
basis among the holders of the share of common stock.. Each share of common
stock is entitled to one vote with respect to the election of any director or
any other matter upon which shareholders are required or permitted to vote.
Holders of our common stock do not have cumulative voting rights, so the holders
of more than 50% of the combined shares voting for the election of directors may
elect all of the directors if they choose to do so, and, in that event, the
holders of the remaining shares will not be able to elect any members to the
Board of Directors.
Blank Check Preferred Stock
We are authorized to issue up to 5,000,000 shares of preferred stock. Under
our Articles of Incorporation, the Board of Directors has the power, without
further action by the holders of the common stock, to designate the relative
rights and preferences of the preferred stock, and to issue the preferred stock
in one or more series as designated by the Board of Directors. The designation
of rights and preferences could include preferences as to liquidation,
redemption and conversion rights, voting rights, dividends or other preferences,
any of which may be dilutive of the interest of the holders of the common stock
or the preferred stock of any other series. The issuance of preferred stock may
have the effect of delaying or preventing a change in control without further
shareholder action and may adversely affect their rights and powers, including
voting rights, of the holders of common stock. Issuance of our preferred stock,
while providing desirable flexibility in connection with possible acquisitions,
could have the effect of making it more difficult for a third party to acquire,
or could discourage or delay a third party from acquiring, a majority of our
outstanding stock. The Board of Directors effects a designation of each series
of preferred stock by filing with the Nevada Secretary of State a Certificate of
Designation defining the rights and preferences of each such series. These
documents are
-34-
<PAGE>
matters of public record and may be examined in accordance with procedures of
the Nevada Secretary of State, or copies thereof may obtained from of us.
Stock Options
To date, we have granted an aggregate of 1,240,000 options to our employees
and consultants. The options are evidenced by agreements between
Millionaire.com and the individual optionees. Unless otherwise provided by the
Stock Option Committee, the options have a 5-year term and are exercisable at
the market price at date of grant pursuant to the following vesting schedule:
20% vest on the first anniversary of the grant date and an additional 20% vest
every year thereafter, contingent upon continued employment of the
optionee.
Transfer Agent
Our transfer agent is Interwest Transfer Co., Inc., 1981 East 4800 South,
Salt Lake City, Utah 84117, (801) 272-9294.
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.
On May 6, 1998, our common stock was approved for trading on the Nasdaq OTC
Bulletin Board under the trading symbol "CRNA." We changed our trading symbol
to "MLRE" on December 15, 1998. The following table sets forth, for the periods
indicated, the range of the high and low bid quotations (as reported by Nasdaq).
The bid quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions:
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
Fiscal Year 1999
- ----------------
<S> <C> <C>
First Quarter 18.87 2.00
Second Quarter 6.25 2.13
Third Quarter 3.06 1.38
Fourth Quarter (through December 31, 1999) 2.90 4.125
Fiscal Year Ended December 31, 1998
- -----------------------------------
Fourth Quarter (ended December 31, 1998) 26.50 0.00
Third Quarter
Second Quarter (from May 6, 1999)
</TABLE>
As of December 31, 1999, there are approximately 2,636 holders of record of
Millionaire's common stock.
We have never declared or paid cash dividends on our common stock. We
intend to retain our earnings for use in the operation of our business and do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.
-35-
<PAGE>
Item 2. Legal Proceedings.
St. Ives, Inc. v. Millionaire.com. The plaintiff, Millionaire magazine's
former printer, brought an action in Broward County, Florida, against
Millionaire.com alleging that amounts were due under certain printing bills.
The plaintiff seeks $552,873.82. Millionaire.com counterclaimed, alleging that
the printer caused substantial problems on numerous occasions and requests an
offset of damages in excess of such amount. The case was settled for $375,000.
We are paying this amount in accordance with an agreed upon payment plan.
Tieken Design and Creative Services v. Millionaire.com. and Millionaire.com
v. Tieken Design and Creative Services. Plaintiffs brought this action, alleging
that they have provided graphic design services for Millionaire.com in the
amount of approximately $51,700. Management denies the claim stating that the
services provided were defective and not usable. The Company filed a claim
against Tieken Design and Creative Services. The Company has accrued $41,731,
the balance which it believes that it may owe, in accounts payable at December
31, 1999.
Annelise Kolde, et. al. v. Millionaire.com. Kolde, a former independent
contractor/salesperson for Millionaire magazine, has sued Millionaire.com for
alleged commissions owed and seeks to invoke certain stock options. The
plaintiff seeks general damages in an undetermined amount, special damages in an
amount exceeding $15,000, punitive damages, pre-judgment and post-judgment
interest, pre-judgment garnishment and declaratory relief, injunctive relief,
attorneys' fees and other costs as the court deems justified. This case is
pending in Kauai, Hawaii.
Luxury Media Corp. and Robb Report, Inc. v. Millionaire.com. Plaintiffs
recently brought this action, alleging that Millionaire.com has violated a non-
competition covenant and has infringed upon the Robb Report trademark. This
case is pending in the Unites States District Court for the District of
Massachusetts.
In the Matter of Millionaire.com. In March 1999, we received a subpoena
from the Securities and Exchange Commission in connection with an investigation
the SEC has begun into Millionaire.com. We have provided the SEC documents in
response to the subpoena and some of our employees have provided testimony.
Item 3. Recent Sales of Unregistered Securities
The following securities were issued by us within the past three years and
were not registered under the Securities Act of 1933, as amended (the "Act").
On June 5, 1998, we issued 9,000,000 restricted shares of our common stock
to David Cohen for $150,000.
On December 15, 1998, we issued 2,400,000 restricted shares of our common
stock in exchange for all the issued and outstanding shares of Lifestyles Media
Acquisition Corporation.
On December 15, 1998, we issued 1,000,000 unrestricted shares of our common
stock to purchasers in a private offering.
On December 15, 1998, we granted options to purchase an aggregate of
970,000 shares of common stock at an exercise price of $1.00 per share to some
of our employees and consultants for services rendered pursuant to Rule 701 of
the Act.
On December 30, 1998 we issued 1,200,000 restricted shares of our common
stock to purchasers in a private offering.
On January 6, 1999, we issued 25,000 restricted shares of our common stock
to Fortune Marketing and Capital for services rendered.
-36-
<PAGE>
On January 6, 1999, we issued 15,000 restricted shares of our common stock
to Merchants T&F in repayment of a bridge loan made to us in December 1998.
On January 14, 1999, we issued 600,095 restricted shares of our common
stock to purchasers in a private offering.
On March 5, 1999, we issued 25,000 restricted shares of our common stock to
Fortune Marketing and Capital for services rendered.
On April 13, 1999, we issued 4,300,000 restricted shares of our common
stock in exchange for all the issued and outstanding shares of The Great
Gatsby's Auction Gallery, Inc.
On November 29, 1999, we issued 50,000 restricted shares of our common
stock to Richard Seibert for services rendered.
On January 14, 2000, we issued 120,000 restricted shares of our common
stock to purchasers in a private offering.
On March 3, 2000, we issued 20,000 restricted shares of our common stock to
purchasers in a private offering.
The sale and issuance of securities in the transactions described set forth
above were exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act, Regulation D or Regulation S promulgated
thereunder as transactions by an issuer not involving a public offering where
the purchasers were sophisticated investors who represented their intention to
acquire securities for investment only and not with a view to distribution and
received or had access to adequate information about Millionaire.com.
The sale and issuance of the options described above were exempt from
registration under the Securities Act in reliance on Rule 701 as transactions
under a written compensatory benefit plan established by Millionaire.com for the
participation of its employees, directors, officers, consultants and advisors.
No underwriters were employed in any of the above transactions.
Item 4. Indemnification of Directors and Officers.
Under the Nevada General Corporation Law, as amended, a director, officer,
employee or agent of a Nevada corporation may be entitled to indemnification by
the corporation under certain circumstances against expenses, judgments, fines
and amounts paid in settlement of claims brought against them by a third person
or by or in right of the corporation.
We are obligated under our Articles of Incorporation to indemnify, to the
fullest extent allowed under Nevada law, any person who is or was one of our
directors or officers or any person who served at our request as a director or
officer of another organization against expenses, judgments, fines and amounts
paid in settlement of claims brought against them by a third person or by or in
right of the corporation if such director acted in good faith or in a manner
such director reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal action or proceeding, if such
director had no reason to believe his or her conduct was unlawful. We have
entered into Indemnification Agreements, dated as of
-37-
<PAGE>
October 28, 1999, with each of Robert L. White, Frank Osborne, David Strong,
Rick Seibert, W. Kenneth Costanzo and Dean Echols which incorporate these terms.
In addition, the Indemnification Agreements provide that the conclusion of
any proceeding by judgment, order of court, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, by itself, create a
presumption that the person did not act in good faith, in a manner which he
reasonably believed to be in our best interests, or with respect to any
proceeding of a criminal nature, that such person had reasonable cause to
believe that his conduct was unlawful.
Before indemnification can be authorized under the Indemnification
Agreements can, we must decide that indemnification is proper in the
circumstances because the person has met standard of conduct we have outlined in
the previous paragraph. This decision can be made in either of the following
manners:
. by the Board of Directors, (A) when there are two or more disinterested
directors, by a majority vote of all of the disinterested directors or by
a majority of the members of a committee of two or more disinterested
directors appointed by such a vote, or (B) when there are fewer than two
disinterested directors, then by the affirmative vote of a majority of
directors present, in the presence of a quorum, unless the vote of a
greater number of directors is required for action by the board and in
which authorization directors who do not qualify as disinterested
directors may participate, or
. by the stockholders, but the shares owned or voted under the control of
the person to be indemnified may not be voted on the authorization.
-38-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Millionaire.com
December 31, 1999 and 1998
<PAGE>
<TABLE>
<CAPTION>
C O N T E N T S
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) 7
CONSOLIDATED STATEMENTS OF CASH FLOWS 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
</TABLE>
2
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors
Millionaire.com
We have audited the accompanying consolidated balance sheets of Millionaire.com
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of stockholders' equity, operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Millionaire.com and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $5,541,800 and $797,051 and cash used in
operating activities of $3,877,496 and $689,877 during the years ended December
31, 1999 and 1998, respectively. These factors, among others, as discussed in
Note B to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Atlanta, Georgia
February 2, 2000
3
<PAGE>
Millionaire.com
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash (Note A-4) $ 19,554 $3,226,634
Certificate of deposit 253,198 -
Accounts receivable - trade, less allowance
for doubtful accounts of $500,000 and $49,603
1999 and 1998, respectively (Note A-8) 440,049 62,545
Inventories (Note A-7) 472,241 3,891
Prepaid expenses 153,258 23,133
---------- ----------
Total current assets 1,338,300 3,316,203
EQUIPMENT AND SOFTWARE
(Notes A-5, C and G)
Equipment 301,964 21,554
Software 140,623 54,829
---------- ----------
442,587 76,383
Less accumulated depreciation 62,715 1,545
---------- ----------
379,872 74,838
OTHER ASSETS
Deposits 27,311 54,539
Trademarks, net of accumulated amortization
of $148,851 and $37,213 in 1999 and 1998,
respectively (Notes A-9 and C) 1,575,744 1,637,382
---------- ----------
1,603,055 1,691,921
---------- ----------
$3,321,227 $5,082,962
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,844,030 $ 106,390
Due to related parties (Note D) 132,267 -
Accrued expenses 60,182 93,545
Deferred revenue 186,590 45,620
Notes payable (Note E) 7,812 232,812
Current portion of long-term note (Note F) 92,776 87,524
Capitalized lease obligation, current portion (Note G) 3,993 -
----------- ----------
Total current liabilities 2,327,650 565,891
CAPITALIZED LEASE OBLIGATION (Note G) 16,082 -
LONG-TERM DEBT (Note F) 1,194,295 1,287,071
COMMITMENTS AND CONTINGENCIES
(Note G) - -
STOCKHOLDERS' EQUITY (DEFICIT)
(Note H)
Common stock, authorized, 50,000,000 shares
of $.001 par value, 8,615,095 and 7,900,000
shares issued and outstanding, respectively 8,615 7,900
Preferred stock, authorized 5,000,000 shares of
$.001 par value, no issued and outstanding
shares - -
Additional paid-in capital 6,186,660 4,092,375
Retained earnings (deficit) (6,412,075) (870,275)
----------- ----------
Total stockholders' equity (deficit) (216,800) 3,230,000
----------- ----------
$ 3,321,227 $5,082,962
=========== ==========
</TABLE>
5
<PAGE>
Millionaire.com
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net sales (Note A-3)
Magazine sales $ 241,105 $ 100,737
Advertising sales 2,585,034 344,316
Inventory sales 565,230 1,422
----------- ----------
3,391,369 446,475
Cost of sales
Publishing costs 2,130,920 293,930
Inventory cost of sales 651,811 1,087
----------- ----------
2,782,731 295,017
----------- ----------
Gross profit 608,638 151,458
Operating expenses
Employee compensation 1,362,039 326,846
Selling and marketing 2,196,541 146,029
Professional fees 533,037 172,126
Depreciation and amortization 172,808 42,209
Rent 320,801 14,545
Bad debt expense 523,362 49,603
Administrative 1,005,626 168,551
----------- ----------
6,114,214 919,909
----------- ----------
Loss from operations (5,505,576) (768,451)
Other income (expenses)
Interest income 73,691 30
Interest expense (133,750) (30,957)
Other income 23,835 2,327
----------- ----------
(36,224) (28,600)
----------- ----------
Net loss before provision for income taxes (5,541,800) (797,051)
Income tax expense (Note I) - -
----------- ----------
Net loss $(5,541,800) $ (797,051)
=========== ==========
Net loss per common share (Note A-13) $ (0.65) $ (0.22)
========== ==========
Weighted average number of shares
Basic 8,552,147 3,699,935
=========== ==========
Diluted 8,552,147 3,699,935
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Millionaire.com
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Retained
--------------------- paid-in Earnings
Shares Amount capital (Deficit) Total
----------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,000,000 $ 3,000 $ 17,000 $ (73,224) $ (53,224)
Issuance of common shares 9,000,000 9,000 141,000 - 150,000
Cancellation of common shares (8,700,000) (8,700) - - (8,700)
Merger transaction 2,400,000 2,400 - - 2,400
Issuance of common shares to
purchasers in private offering, net
of issuance costs of $63,425 1,000,000 1,000 935,575 - 936,575
Issuance of common shares 1,200,000 1,200 2,998,800 - 3,000,000
Net loss - - - (797,051) (797,051)
---------- ------- ---------- ----------- -----------
Balance, December 31, 1998 7,900,000 7,900 4,092,375 (870,275) 3,230,000
Issuance of common shares 600,095 600 1,499,400 - 1,500,000
Issuance of common shares
for services 15,000 15 44,985 - 45,000
Issuance of common shares
for services 25,000 25 137,475 - 137,500
Issuance of common shares
for services 25,000 25 337,475 - 337,500
Issuance of common shares
for employee services 50,000 50 74,950 - 75,000
Net loss - - - (5,541,800) (5,541,800)
---------- ------- ---------- ----------- -----------
Balance, December 31, 1999 8,615,095 $ 8,615 $6,186,660 $(6,412,075) $ (216,800)
========== ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
Millionaire.com
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(5,541,800) $ (797,051)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 172,808 42,209
Issuance of common stock for services rendered 595,000 -
Bad debt expense 523,362 49,603
Changes in operating assets and liabilities:
Increase in accounts receivable (900,866) (101,165)
Increase in inventories (468,350) (3,891)
Increase in prepaid expenses and deposits (102,897) (77,672)
Increase (decrease) in accounts payable 1,737,640 58,925
Increase (decrease) in accrued expenses (33,363) 93,545
Increase in deferred revenue 140,970 45,620
----------- ----------
Net cash used in operating activities (3,877,496) (689,877)
Cash flows from investing activities:
Purchase of equipment and software (346,129) (76,783)
Purchase of certificate of deposit (253,198) -
Earnest money for potential purchase (50,000) -
----------- ----------
Net cash used in investing activities (649,327) (76,783)
Cash flows from financing activities:
Proceeds from notes payable - 271,000
Principal payments on notes payable (225,000) (38,188)
Net proceeds from (payments to) related parties 132,267 (57,500)
Proceeds from common stock offering, net 1,500,000 4,077,474
Principal payments on long-term debt (87,524) (300,000)
----------- ----------
Net cash provided by financing activities 1,319,743 3,952,786
----------- ----------
Net increase (decrease) in cash and cash equivalents (3,207,080) 3,186,126
Cash and cash equivalents at beginning of year 3,226,634 40,508
----------- ----------
Cash and cash equivalents at end of year $ 19,554 $3,226,634
=========== ==========
Supplemental disclosure
- -----------------------
Interest paid $ 135,750 $ -
=========== ==========
Income taxes paid $ - $ -
=========== ==========
</TABLE>
8
<PAGE>
Millionaire.com
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Supplemental Disclosure of Non-cash Transactions
- ------------------------------------------------
Year ended December 31, 1998
----------------------------
The Company issued a $1,674,595 note payable to acquire the stock and the
trademarks of Lifestyle Media Corporation (see Note H).
Year ended December 31, 1999
----------------------------
The Company bartered approximately $1,162,000 in fair value of magazine
advertisements for goods and services.
The Company issued 50,000 shares of common stock for investor relations
services.
The Company issued 15,000 shares of common stock to obtain short-term
financing.
The Company issued 50,000 shares of common stock to an employee.
The accompanying notes are an integral part of these statements.
9
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Nature of Operations
--------------------
Millionaire.com was incorporated on February 15, 1995 under the laws of the
State of Florida as World Circle Trust Fund, Inc. On November 3, 1995, the
Company changed its name to Charter Investor Relations of North America, Inc.
On November 24, 1998, the Company changed the jurisdiction of incorporation to
Nevada and changed its named to Millionaire.com. On December 15, 1998, the
Company acquired Lifestyle Media Acquisition Corp. (LMAC), a Pennsylvania
corporation, which publishes magazines, including Millionaire magazine and
Billionaire magazine. The merger is in effect a reverse acquisition and is
accounted for as a recapitalization of LMAC, with LMAC as the acquirer (See
Note C). The Company operates under the name of Millionaire.com (the
"Company).
Millionaire.com is a magazine publisher and an auction gallery engaged in the
business of buying and selling antiques and other luxury goods.
2. Principles of Consolidation and Basis of Financial Statement Presentation
-------------------------------------------------------------------------
The consolidated financial statements include the Company's wholly-owned
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
3. Revenue Recognition
-------------------
The Company derives revenues from the sale of magazine subscriptions and
advertising as well as auction sales and related commissions. Magazine
revenues are recognized over the term of the subscription as the magazines are
delivered. Advertising revenue is initially deferred and recognized at the
time of delivery of the respective issue. Website advertising will be
amortized on a straight-line basis over the period of time that the
advertisement will appear on the website. Annual and lifetime membership fees
to the magazine are initially deferred and amortized on a monthly basis over
one year and fifty years, respectively. Auction revenues are recognized at the
time of delivery of the merchandise, assuming collectibility is reasonably
assured. Inventory items held for others and sold by the Company are
considered consigned inventory. Consigned inventory is not recorded in the
accompanying financial statements. A net consignment fee revenue is recognized
as the consigned items are sold.
10
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
3. Revenue Recognition - Continued
-------------------------------
Bartering
---------
Non-monetary transactions are accounted for based on the fair value of the
advertising provided. The fair value of the advertising provided in the
bartering transaction was determined by comparison to market prices of
competitive magazine publications. An impairment loss is recognized when the
advertising space exchanged has a fair value which is greater than the fair
value of the goods or services received. The significant terms of a barter
transaction include the identification of the advertising provided, the number
of issues in which the advertisement will be inserted, the items to be provided
to the Company and the fair value of those items provided to the Company. The
fair values of the items received by the Company are determined based on
competitive industry prices for goods and services received in an arms length
transaction. Goods received included inventory items such as chandeliers and
various art pieces. Services received included airline tickets, printing
services, car rental and lodging.
4. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with original
maturities of less than three months to be cash equivalents.
5. Equipment and Software
----------------------
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Depreciation of equipment and software is calculated using accelerated methods
over the following estimated lives:
Equipment 5-7 years
Software 3 years
The Company capitalizes software development costs when project technical
feasibility is established and concludes capitalization when the product is
ready for release. Software development costs incurred prior to the
establishments of technical feasibility are expensed as incurred. Assets
recorded under capital leases are depreciated in a manner consistent with the
Company's normal depreciation policies for owned assets.
11
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
6. Income Taxes
------------
The Company accounts for income taxes using the asset and liability method in
accordance with Statement of Financial Accounting Standards Number 109 (SFAS
109), Accounting for Income Taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. A valuation allowance is provided
for deferred tax assets when it is more likely than not that the assets will
not be realized.
7. Inventories
-----------
Inventories are comprised solely of antiques and other luxury goods.
Inventories are stated at the lower of cost or market; cost is determined using
the specific identification method.
8. Allowance for Doubtful Accounts
-------------------------------
The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of accounts receivable. When amounts are determined to
be uncollectible, they will be charged to operations when that determination is
made. Accounts receivable are characterized mostly by a wide variety of
individual customers of the auction house and the magazine. Should the
customers fail to meet their contractual obligations to the Company, the
Company would suffer material losses.
9. Trademarks
----------
Trademarks are stated on the cost basis. Amortization is calculated using the
straight-line method over 15 years. Trademarks are periodically reviewed for
impairment of carrying amount as compared to the fair value of the assets. In
order to measure any impairment the Company evaluated whether there were any
events or circumstances that occurred that may have affected the carrying
amount of the intangible. Management believes that no such events have
occurred as of December 31, 1999. In the event that management determines that
a triggering event has occurred, the Company would estimate the future cash
flows expected to result from the use of the asset and its eventual
disposition. The future cash flows that would be used are the future cash
inflows expected to be generated by the asset less the future cash outflows
expected to be necessary to obtain those inflows. When the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss in accordance with SFAS 121
would be recognized.
12
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
10. Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments include cash, notes payable and long-term
debt. The carrying value of notes payable approximates fair value due to the
relatively short period to maturity. The carrying amount of the Company's
long-term debt approximates fair value based on estimated borrowing rates for
debt with comparable terms and conditions. The Company determined the present
value of the future cash flows as compared to the types of comparable debt
described above. The present value was compared to the present values of the
types of debt described above. Should an impairment of the debt be determined,
the carrying value of the debt will be adjusted accordingly.
11. Use of Estimates
----------------
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
12. Concentration of Credit Risk
----------------------------
The Company maintains its cash balances in financial institutions, which at
times may exceed federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
13. Loss Per Common Share
---------------------
Basic loss per common share has been calculated using the weighted average
number of shares of common stock outstanding during each period as adjusted for
the forward stock split as discussed in Note H. Diluted loss per common share
is not disclosed because the effect of the exchange or exercise of common stock
equivalents would be antidilutive. For the years ended December 31, 1999 and
1998, there were 1,100,000 and 970,000 common stock options that could
potentially dilute EPS, respectively (see Note M).
14. Advertising Costs
-----------------
Advertising costs are charged to expense as incurred. Advertising expense was
approximately $607,000 and $37,000 for the years ended December 31, 1999 and
1998, respectively.
13
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
15. Stock Options
-------------
Effective January 1, 1997, the Company adopted the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation in accordance with Accounting Principles Board (APB) Opinion
No. 25, Accounting For Stock Issued to Employees, and related interpretations,
as permitted by SFAS 123. Compensation expense for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee may pay to acquire the stock (see
Note M). Compensation expense is recognized for proforma purposes in the period
in which the related employee services are rendered. For stock options issued
to nonemployees, the issuance of stock options is accounted for based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. Compensation expense
is recognized in the financial statements for stock options granted to
nonemployees in the period in which the consideration is obtained from the
nonemployee.
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company, as a going concern. However, the Company has sustained net losses of
$5,541,800 and $797,051 for the years ended December 31, 1999 and 1998,
respectively. The Company has used, rather than provided, cash in its
operations for the years ended December 31, 1999 and 1998, respectively.
In view of the matters described in the preceding paragraph, recoverability of
a major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its operating cash requirements
and to succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
In response to the matters described in the preceding paragraphs, management is
pursuing additional equity financing. Management believes that this additional
financing will allow the Company to rigorously pursue its expansion efforts in
the upcoming year and that this expansion will strengthen the Company's cash
flow position to provide the Company with the ability to continue in existence.
14
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - MERGER
On December 15, 1998, the Company acquired Lifestyle Media Acquisition Corp.
(LMAC), a Pennsylvania corporation, which publishes magazines, including
Millionaire magazine and Billionaire magazine. The Company did not have any
assets or liabilities, contingent or otherwise, on the date of this
transaction. Millionaire.com was a shell company with no previous operating
activity and the transaction was in effect a recapitalization of LMAC. The
merger is in effect a reverse acquisition and is accounted for as a
recapitalization of LMAC, with LMAC as the acquirer. The Company operates
under the name of Millionaire.com. The merger was effected by Millionaire.com
issuing 2,400,000 shares of common stock for all the outstanding common shares
of LMAC.
On August 14, 1998, LMAC purchased all of the outstanding common shares of
Lifestyle Media Corporation ("LMC") and the trademarks "Millionaire" and
"Billionaire". LMC was a corporation which originally published the
Millionaire and Billionaire magazines and owned the trademarks "Millionaire"
and "Billionaire". The total purchase price of $1,674,575 was assigned to the
trademarks, as LMC had minimal assets and operations. The historical financial
statements prior to December 15, 1998 are those of LMAC (which has no
operations), which include those of LMC.
NOTE D - RELATED PARTY TRANSACTIONS
At December 31, 1997, $57,500 was due to shareholders for advances to the
Company. The advances were payable on demand, unsecured and non-interest
bearing. These advances were repaid during 1998.
At December 31, 1999, $143,267 was due to an officer of the Company. These
advances to the Company were payable on demand, unsecured and non-interest
bearing.
NOTE E - NOTES PAYABLE
The notes payable balances of $7,812 and $232,812 at December 31, 1999 and
1998, respectively consisted of :
A note payable to a finance company in the amount of $7,812 at December 31,
1999 and 1998. The note accrues interest at 9%, is unsecured and was payable
in full by February 18, 1999. There were no loan covenants associated with the
note. As of December 31, 1999, the Company was in a dispute with the creditor
and currently was in default of the loan.
A note payable to a financing company in the amount of $225,000 at December 31,
1998. The note carried interest at approximately 40%, was unsecured and was
paid in full by February 18, 1999. As an additional cost of obtaining the
loan, the Company issued 15,000 shares of the Company's common stock to the
financing company. In the event that the financing company is unable to sell
the shares of the Company's common stock within one year from the date of the
loan, the Company has guaranteed to repurchase the shares at $3.00 per share.
There were no loan covenants associated with the note.
15
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - LONG-TERM DEBT
As described in Note C, the Company's wholly-owned subsidiary, Lifestyle Media
Acquisition corporation (LMAC), purchased the trademarks and all of the
outstanding shares of LMC. As part of the purchase price of the trademarks,
LMAC entered into a long-term debt agreement with the shareholders of LMC. The
long-term debt consisted of an initial balance of $1,674,595, of which $300,000
was paid prior to closing the acquisition of LMC. The long-term debt is
secured by the trademarks "Millionaire" and "Billionaire". There are no
covenants associated with this long-term debt. The remaining principal portion
of the long-term debt, $1,287,071, accrues interest at 6% and is due in annual
installments on the anniversary date of the note as indicated below:
<TABLE>
<CAPTION>
Due on August 14,
<S> <C>
2000 $ 92,776
2001 268,342
2002 284,443
2003 641,510
----------
$1,287,071
==========
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is engaged in various pending or threatened lawsuits, either as
plaintiff or defendant, involving alleged violations of non-compete covenants,
disagreements with its former employees, breach of contract and nonpayment for
legal services. In the opinion of management, based upon advice of counsel,
the ultimate outcome of these lawsuits, in aggregate, will not have a material
impact on the Company's consolidated results of operation and financial
position beyond the amounts currently accrued. In the event that material
adverse judgments are awarded to any or all of the following plaintiffs, the
Company may suffer cash flow difficulties.
Legal proceedings involving the Company include, but may not be limited
to:
St. Ives, Inc. v. Millionaire. com. The plaintiff, Millionaire magazine's
former printer, brought an action against Millioniare.com alleging that amounts
were due under certain printing bills. The plaintiff seeks $552,984.
Millionaire.com counterclaimed, alleging that the printer caused substantial
problems on numerous occasions and requests an offset of damages in excess of
such amount. This case is pending in Broward County, Florida. The Company has
accrued these costs in accounts payable at December 31, 1999 and 1998.
Subsequent to year-end, the Company has arrived at a settlement agreement with
St. Ives, Inc. (see Note N).
16
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES - Continued
Litigation - Continued
Annelise Kolde, et. Al. v. Millionaire.com. Kolde, a former independent
contractor/salesperson for Millionaire magazine, has sued Millionaire.com for
alleged commissions owed and seeks to invoke certain stock options. The
plaintiff seeks general damages in an undetermined amount, special damages in
an amount exceeding $15,000 punitive damages, pre-judgment and post-judgment
interest, pre-judgment garnishment and declaratory relief, injunctive relief,
attorneys' fees and other costs as the court deems justified. This case is
pending in Kauai, Hawaii. An estimated loss can neither be readily determined
nor reasonably probable given the current circumstances of the legal
proceeding. Accordingly, no accrual has been made for this litigation.
Luxury Media Corp. and Robb Report, Inc. v. Millionaire.com. Plaintiffs
recently brought this action, alleging that Millionaire.com has violated a non-
competition covenant and has infringed upon the Robb Report trademark. This
case is pending the United States District Court for the District of
Massachusetts. An estimated loss can neither be readily determined nor
reasonably probable given the current circumstances of the legal proceeding.
Accordingly, no accrual has been made for this litigation.
Tieken Design and Creative Services v. Millionaire.com. and Millionaire.com v.
Tieken Design and Creative Services. Plaintiffs brought this action, alleging
that they have provided graphic design services for Millionaire.com in the
amount of approximately $51,700. Management denies the claim stating that the
services provided were defective and not usable. The Company filed a claim
against Tieken Design and Creative Services. The Company has accrued $41,731,
the balance which it believes that it may owe, in accounts payable at December
31, 1999.
Other Legal Matters
-------------------
In March 1999, the Company received a subpoena from the Securities and Exchange
Commission in connection with an investigation the SEC has begun into
Millionaire.com. The Company has provided the SEC documents in response to the
subpoena and some employees have provided testimony. Management intends to
cooperate fully with the SEC in this matter. The probability and amount of any
additional cost associated with this investigation cannot be reasonably
determined given the current circumstances of the matter. Accordingly, no
accrual has been made.
17
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES - Continued
Leases
------
The Company is obligated under the terms of various lease arrangements for its
operating facility and various equipment.
The minimum operating lease commitments of the operating facility as of
December 31, 1999 are due as follows:
<TABLE>
<CAPTION>
For the year ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 334,998
2001 340,455
2002 345,910
2003 351,366
2004 356,823
Thereafter 1,481,850
----------
$3,211,402
==========
</TABLE>
The minimum operating lease commitments for various equipment is minimal and
not included in the above schedule. Rent expense for 1999 and 1998 totaled
approximately $321,000 and $15,000, respectively.
Capital Leases
--------------
The Company conducts a portion of its operations with leased equipment. For
financial reporting purposes, minimum lese rentals relating to the equipment
have been capitalized.
The related assets and obligations have been recorded using the Company's
incremental borrowing rate at the inception of the leases. The leases expire
at various dates through 2004. The following is a schedule of leased equipment
under capital leases:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Equipment $21,641 $ -
Less accumulated depreciation (2,500) -
------- -----
$19,141 $ -
======= =======
</TABLE>
18
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES - Continued
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of December 31, 1999:
2000 $ 5,021
2001 5,021
2002 5,021
2003 5,021
2004 2,927
-------
Total minimum lease payments 23,011
Less amount representing interest (2,936)
-------
Present value of net minimum lease payments $20,075
=======
Current portion $ 3,993
Noncurrent portion 16,082
-------
$20,075
=======
Proposed Public Offering
------------------------
In 1999, the Company's Board of Directors approved the filing of a registration
statement under the Securities Act of 1934, for a public offering of $12 - $15
million of the Company's common stock. The Company intends to use
approximately $2 million of the proceeds to acquire a prospective auction
gallery and the remainder for general corporate purposes. The Company has
committed to compensate the investment company for raising a certain amount of
new equity capital. The Company will provide the investment banking firm with
approximately 1,050,000 common shares, or 10% of the Company's outstanding
common shares, for reaching the stated goals. As of December 31, 1999, no new
equity has been raised by this investment banking firm. The Company considers
the date of the commitment as the measurement date. The Company will recognize
compensation expense and an adjustment to equity in the same period(s) as the
performance measures are completed by the counter party.
As of February, 2000, the investment banking firm described above was no longer
active in any capacity with the Company. The original commitment made to that
investment banking firm is being renegotiated. The Company is attempting to
engage an investment banking firm to identify and evaluate various financing
alternatives, including the proposed public offering of the Company's common
stock.
Guarantee of Debt
-----------------
The Company and an officer of the Company have guaranteed a $1,750,000 line of
credit (see Note J).
19
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES - Continued
Advertising Contract
--------------------
Effective December 30, 1999, the Company entered into an advertising contract
with Earthlink Network, Inc. (Earthlink). During the twelve month term of the
contract, Earthlink will provide the Company with graphical and textual links
to the Company's internet website. The purpose of the contract is to increase
the exposure of the Company and to provide more internet traffic and potential
customers to the Company's website. Rent payable to Earthlink for the
advertising space is $25,000 monthly. The contract automatically renews for
separate one year terms unless terminated by either party.
NOTE H - STOCKHOLDERS' EQUITY
The Company was organized in the State of Florida on February 15, 1995 under
the name of World Circle Trust Fund, Inc. In November, 1995, the Company
changed its name to Charter Investor Relations of North America, Inc. The
Company later changed its name to Millionaire.com and changed its corporate
domicile to the State of Nevada.
In 1995, the Company issued 3,000,000 shares of common stock, retroactively
adjusted for the 3 for 1 forward split. The 3,000,000 shares were issued for
services rendered at an aggregate value of $10,000. There were no further
common stock transactions until 1998.
The Company has two types of stock, common stock and preferred stock. There
are 50,000,000 shares of authorized $.001 par value common stock of which
8,761,095 and 7,900,000 were outstanding at December 31, 1999 and 1998,
respectively. The amounts are adjusted for a 3 for 1 forward split and a
change in par value from $1.00 per share to $.001 per share. There are
5,000,000 shares of authorized $.001 par value preferred stock. As of December
31, 1999 and 1998 there were no outstanding shares of preferred stock.
During 1998, the Company sold 9,000,000 common shares for $150,000. The
$150,000 was subsequently used for legal and administrative matters.
Subsequently, a shareholder agreed to cancel 8,700,000 shares of common
stock.
20
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - STOCKHOLDERS' EQUITY - Continued
During 1998, the Company issued 2,400,000 common shares to acquire all of the
outstanding shares of Lifestyle Media Acquisition Corporation ("LMAC"). LMAC
was formed in 1998 and shortly after its formation issued $1,000,000 of
convertible notes payable, solely to accredited investors, which were
convertible into shares of the Company. Of the $1,000,000 of convertible notes
payable, $710,000 were issued to related parties and $290,000 were issued to
unrelated parties in exchange for cash. The convertible note payable carried an
interest rate of 9% per annum with a three month maturity. The note agreement
provides the holder the option to convert the note to shares of common stock of
any publicly-held corporation which merges with LMAC. The note holder was
entitled to shares of common stock at a price of $1 per share. Following the
issuance of the $1,000,000 in notes payable, LMAC acquired all of the
outstanding shares of Lifestyle Media Corporation ("LMC") and the trademarks,
Millionaire and Billionaire (See Note C). The convertible notes payable were
convertible, at the option of the holder into one common share of the Company
for each $1 of convertible note payable. The $1,000,000 convertible notes
payable issued by LMAC were subsequently converted to 1,000,000 common shares
of the Company on December 15, 1998.
In December 1998, the Company began a private placement to sell an additional
1,800,095 shares of $.001 par value common stock for a price of $2.50 per
share. As of December 31, 1998, the Company had collected $3,000,000 in
offering proceeds. During the year ended December 31, 1999, the Company
collected an additional $1,500,000 in offering proceeds. The 1,800,095 million
shares were issued to both related and unrelated parties.
During 1999, the Company issued 15,000 shares to a finance company as an
inducement to extend credit to the Company. The Company values the shares
issued at fair value of the shares or the fair value of the consideration
provided to the Company, whichever is more readily measurable. In all cases,
the fair value of the shares was more readily measurable. The Company also
issued 50,000 shares to an investor relations firm which resulted in $475,000
of expense recognition for the services. In November of 1999, the Company
issued 50,000 shares of common stock as an inducement to employ a new officer
for the Company. The issuance of these shares resulted in the recognition of
$75,000 in compensation expense.
At December 31, 1999 and 1998, the Company had 4,924,895 and 4,209,800 issued
and outstanding shares of restricted common stock, respectively. At December
31, 1999 and 1998, the Company had 3,690,200 issued and outstanding shares of
unrestricted common stock. The primary restrictions of the restricted common
stock are defined by Rule 144 of the Securities and Exchange Commission.
21
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - INCOME TAXES
Following is a summary of the significant components of the Company's deferred
tax assets and liabilities at:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
------------ ---------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for bad debts $ 189,800 $ 19,296
Inventory reserve 24,348 -
Operating loss carryforwards 1,821,135 -
Depreciation - (745)
Deferred revenue 70,830 17,746
Other 379 5,835
Valuation allowance (2,106,492) (42,132)
----------- --------
$ - $ -
=========== ========
December 31,
-----------------------
1999 1998
----------- --------
Long-term asset $ 1,821,135 $ 5,090
Short-term asset 285,357 37,042
Valuation allowance (2,106,492) (42,132)
----------- --------
$ - $ -
=========== ========
</TABLE>
At December 31, 1999 and 1998, the Company had net operating loss carryforwards
for tax reporting purposes of approximately $4,798,000 and $0, respectively.
These net operating loss carryforwards will begin expiring in the year
2019.
The Company experienced a change in control, as defined under Section 382 of
the Internal Revenue Code during calendar year 1998. As a result,
approximately $750,000 of tax loss carryforwards will be limited to annual
utilization amounts. None of these limited carryforwards have been reflected
above.
The income tax provisions for the years ended December 31, 1999 and 1998 differ
from the amount determined by applying the applicable U.S. statutory federal
income tax rate to pretax results of operations. This difference is a result
of applying valuation allowances against the deferred tax assets.
22
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - INCOME TAXES - Continued
Reconciliation of statutory Federal tax rates to the effective tax rate for the
years ended December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Income tax benefit at applicable Federal rate of 34% $1,884,212 $270,997
State tax benefit, net of Federal income tax effect 219,455 39,056
Permanent differences (38,290) -
Other (1,017) (2,734)
---------- --------
2,064,360 13,658
Increase in deferred income tax asset valuation allowance 2,064,360 13,658
---------- --------
Net income tax benefit $ - $ -
========== ========
</TABLE>
NOTE J - MERGER AND SUBSEQUENT RESCISSION
On January 14, 1999 the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with an auction house (the "Acquiree") located in
Chamblee, Georgia. The Merger was consummated on February 12, 1999. The
Acquiree is in the business of selling antiques and unique collectibles. The
Merger Agreement called for the wholly-owned subsidiary of the Company to merge
with the Acquiree. Under the terms of the Merger Agreement, the shareholders
of the Acquiree received, among other things, an aggregate of 4,300,000 shares
of common stock of the Company in exchange for 100% of the issued and
outstanding shares of the Acquiree. Subsequent to the Merger Agreement,
situations arose which prevented the continuation of the Merger Agreement as
previously agreed upon.
The Company and the Acquiree agreed, as of September 27, 1999 to rescind the
Merger Agreement. Accordingly, the Agreement to Rescind enables the two
parties to restore, to the extent possible, the Company and the Acquiree to
their respective positions prior to the Merger Agreement. The Agreement to
Rescind canceled the 4,300,000 common shares of the Company previously issued
to the Acquiree's shareholders. The shares of the Acquiree were returned to
the shareholders of the Acquiree. In addition to the returning of shares, the
Company will no longer be obligated to fulfill the $1,000,000 Promissory Note
executed at the time of Merger. The Company and an officer of the Company may
be released from their respective guarantees of a $1,750,000 line of credit.
As of February 2, 2000, the Company and the officer of the Company have not
been released from their guarantees.
As part of the Agreement to Rescind, the Acquiree and the Company have agreed
to reimburse the other for fees and expenses incurred during the time of the
merged company. Fees and expenses to be reimbursed relate primarily to legal
services, cost of sales and administrative costs. In arbitration settled in
late December, 1999, the Company was awarded a net $33,500 in cash and the
return of a vehicle. The Company has not recorded the receivable due, as the
collectibility is believed to be unlikely. Due to the fact that control of the
Acquiree was temporary, none of the financial reporting of the Acquiree have
been reflected in the accompanying financial statements. Management believes
that no additional contingent liabilities exist with respect to the Agreement
to Rescind.
23
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - MERGER AND SUBSEQUENT RESCISSION - Continued
The Agreement to Rescind requires, among other things, the shareholders of the
Acquiree who received shares of the Company's common stock in the merger to
return all of the Company's shares and these shares have been cancelled by
resolution of the Company's Board of Directors. Some of these shares were
transferred to third parties who are not signatories to the Agreement to
Rescind and who may not return the Company's shares. If all of the Company's
shares are not returned, up to 400,000 shares of the Company's common stock
will be owned by persons who did not pay any consideration for such shares.
Unfavorable tax consequences may result should the rescission not be given
recognition by the Internal Revenue Service.
NOTE K - YEAR 2000 ISSUE
The Year 2000 issue related to limitation in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issues on the Company and its business partners will not be fully
determinable until the Year 2000 and thereafter. If Year 2000 modifications
are not properly completed either by the Company or entities with which the
Company conducts business, the Company's revenues and financial condition could
be adversely impacted.
NOTE L - SEGMENT INFORMATION
The Company has two reportable segments: magazine operations and auction
operations.
The accounting policies used to develop segment information correspond to those
described in the summary of accounting policies. In addition, the Company does
not allocate certain corporate expenses to its segments. Segment profit or
loss is based on profit or loss from operations before income taxes. There
were no sales or transfers between segments. The reportable segments are
distinct business units operating in different industries. They are separately
managed, with separate marketing and distribution systems.
Reportable Segment Information
------------------------------
<TABLE>
<CAPTION>
Magazine Auction
1999 Operations Operations Totals
---- ---------- ---------- ------
<S> <C> <C> <C>
Revenues from external customers $ 2,826,139 $ 565,230 $ 3,391,369
Interest expense 133,750 - 133,750
Depreciation and amortization 142,616 30,192 172,808
Segment profit (loss) (3,440,035) (1,201,730) (4,641,765)
Segment assets, net 2,134,062 914,413 3,048,475
</TABLE>
24
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - SEGMENT INFORMATION - Continued
Reportable Segment Information - Continued
------------------------------------------
<TABLE>
<CAPTION>
Magazine Auction
1998 Operations Operations Totals
---- ---------- ---------- ------
<S> <C> <C> <C>
Revenues from external customers $ 445,053 $ 1,422 $ 446,475
Interest expense 30,957 - 30,957
Depreciation and amortization 42,209 - 42,209
Segment profit (loss) (646,422) (60,631) (707,053)
Segment assets, net 1,715,373 140,955 1,856,328
Reconciliation to Consolidated Amounts
--------------------------------------
Revenues 1999 1998
-------- ---- ----
Total external revenues for reportable segments $ 3,391,369 $ 446,475
----------- ----------
Total consolidated revenues $ 3,391,369 $ 446,475
=========== ==========
Loss
----
Total loss for reportable segments $(4,641,765) $ (707,053)
Unallocated amounts
Corporate expense (900,035) (89,998)
----------- ----------
Consolidated loss before income taxes $(5,541,800) $ (797,051)
=========== ==========
Assets 1999 1998
------ ---- ----
Total assets for reportable segments $ 3,048,475 $1,856,328
Other unallocated assets 272,752 3,226,634
----------- ----------
Total consolidated assets $ 3,321,227 $5,082,962
=========== ==========
</TABLE>
At December 31, 1999 and 1998, the other unallocated assets were comprised
solely of the total cash and certificate of deposit balance of the Company in
the amounts of $272,752 and $3,226,634, respectively.
Geographic Information
----------------------
Operations and sales are currently concentrated in the southeast United States.
25
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE M - STOCK OPTION PLAN
The Board of Directors has adopted and the stockholders of the Company have
approved a Stock Option Plan ( the Plan). The Plan is accounted for under APB
Opinion 25 and related interpretations. The Plan provides for the issuance up
to an aggregate of 1,500,000 shares of Common Stock. As of December 31, 1998,
the Company has reserved 1,500,000 shares of common stock for issuance under
the Plan. The option exercise price will be the average market price on the
day the option is granted. However, the exercise price for a ten percent or
greater owner of the combined voting power of all classes of stock shall not be
less than 110% of the average market price on the day the option is
granted.
Options currently outstanding vest 20% on the first anniversary of the grant
date and 20% shall vest every year thereafter contingent upon continued
employment and expire five years from the grant date. The Company uses the
intrinsic value method in accounting for its stock option plan. Accordingly,
no compensation cost has been recognized for options issued under the plan.
Had compensation cost for the Company's stock option plan been determined based
on the fair value of the stock options at the grant date, the Company's net
loss and net loss per share would have resulted in the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C> <C>
Net loss As reported $(5,541,800) $(797,051)
Pro forma (5,742,742) (797,051)
Net loss per common share As reported $ (0.65) $ (0.22)
basic Pro forma (0.67) (0.22)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
fair value method with the following weighted-average assumptions used for
grants in 1999 and 1998: no expected dividend yield for either year; expected
risk-free interest rate of 6.25% for 1999 and 6.0% for 1998; expected
volatility of 138% for 1999 and 300% for 1998; and expected life of 5.0 years
with no expected forfeitures for either year.
26
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE M - STOCK OPTION PLAN - Continued
A summary of the status of the Company's fixed stock option plan as of December
31, 1999 and 1998 and changes during the year ended is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
(000) Price (000) Price
----- ----- ----- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 970,000 $1.00 - $ -
Granted 270,000 2.13 970,000 1.00
Exercised - - - -
Expired - - - -
Forfeited (140,000) 1.00 - -
--------- ----- -------- --------
Outstanding at end of year end 1,100,000 $1.28 970,000 $1.00
========= ===== ======== ========
Options exercisable at year end 170,000 $1.00 - $ -
Weighted-average fair value of options
granted $1.37 $1.00
===== ========
</TABLE>
The following table summarizes information for stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-average
remaining
Year of Range of Number contractual life Weighted-average
issuance exercise prices outstanding (years) exercise price
- ---------- --------------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
1999 $1.50 - $3.375 270,000 4.7 $2.13
1998 $1.00 830,000 4.0 $1.00
</TABLE>
27
<PAGE>
Millionaire.com
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - SUBSEQUENT EVENTS
Letter of Intent
----------------
On December 22, 1999, the Company entered into a Letter of Intent with the
shareholders of an auction gallery. The auction gallery (the Acquiree) sells
unique collectibles and antiques and is located in New Orleans, Louisiana. The
Company has agreed to purchase 49% of the issued and outstanding capital stock
of the Acquiree for $2,000,000 cash and 1.5 million shares of common stock. At
the closing of the potential acquisition of the initial 49% of common stock,
the Company will receive an option to purchase the remainder of the issued and
outstanding capital stock of the Acquiree for $2,000,000 and one million shares
of common stock. All of the shares of the Company's common stock issued to the
Acquiree shall be restricted shares pursuant to Rule 144 of the Securities and
Exchange Commission.
Issuance of Promissory Notes
----------------------------
On January 24, 2000, the Company entered into two separate unsecured promissory
notes payable. Both notes payable have substantially the same terms and
totaled $1,750,000. The notes payable were received from current shareholders
of the Company. The notes bear interest at 7% per annum. There are no
required principal or interest payments on the notes until their maturities on
January 24, 2001. The notes are convertible, at the option of the holders, to
shares of common stock of the Company at any time prior to January 24, 2001 at
a price of $1.25 per share. The excess of the aggregate fair value of common
stock that the holder received upon issuance of the promissory notes
approximated $1,302,000. This amount will be recorded as interest expense
during the first quarter in the year ended December 31, 2000.
Factoring of Accounts Receivable
--------------------------------
On March 8, 2000, the Company entered into an Agreement to transfer certain
accounts receivable without recourse to a funding company. The funding company
will charge a 0.85% purchase fee and an additional 0.25% of the gross face
amount of each account receivable for each 30-day period for which the terms of
sale exceeds 30 days. The Company has guaranteed that a minimum of $30,000 per
year in fees will be paid to the funding company. Interest will be charged at
1% over the Chase Prime Rate, or a minimum of 5%. This agreement remains in
effect for one year and may be extended at the option of the funding company.
Settlement of Litigation
------------------------
On February 16, 2000, the Company settled its legal proceedings with St. Ives,
Inc. The settlement calls for total payments by the Company to St. Ives, Inc.
in the amount of $375,000. The Company shall make a $250,000 payment on March
1, 2000 and a $25,000 payment, beginning in May, 2000, on the fifteenth day of
each of the following five months. If the Company fails to make any scheduled
payment by its due date, the Company shall be liable for a total indebtedness
of $600,000 less any previously remitted payments.
28
<PAGE>
PART III
<TABLE>
<CAPTION>
Item 1. Index to Exhibits.
Exhibit No. Description of Exhibit
- ------------ ----------------------
<S> <C>
(3)(i) Articles of Incorporation filed in New York on November 24, 1998.
(3)(ii) By-Laws*
(4) (a) Stock Option Plan*
(10) a. Lease by and between Millionaire.com and Carolina Office Park, LLC, dated
November 19, 1999 for the premises located at #7 Plantation Park Drive,
Plantation Business Park, Bluffton, South Carolina, 29910*
b. Lease by and between D1D2, LLC and U.S.Auctions, Inc., dated July 24, 1998,
for the premises located at 18 Plantation Park Drive, Bluffton, South Carolina
29910.*
c. Frank Osborne Employment Agreement, dated February 28, 1999.*
d. David Strong Employment Agreement, dated February 28, 1999.*
e. Robin White Employment Agreement, dated December 23, 1998.*
f. Robert White Employment Agreement, dated December 23, 1998.*
g. First Amendment to the Robert White Employment Agreement, dated February
12, 1999.*
h. Second Amendment to Robert White Employment Agreement, dated August 27,
1999.*
i. Form of Indemnity Agreement.*
j. Stock Option Agreement with Robert L. White, dated December 15, 1998.*
(21) Subsidiaries of the Registrant*
(23) Consent of Grant Thornton LLP
(27) Financial Data Schedule (year)
- --------------------
* Previously Filed
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant caused this Form 10-SB/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 14, 2000
MILLIONAIRE.COM
By: /s/ Robert L. White
-------------------------
Robert L. White
Chief Executive Officer
By: /s/ Richard F. Seibert
-------------------------
Richard F. Seibert
Chief Financial Officer
<PAGE>
Exhibit 23
[LETTERHEAD OF GRANT THORNTON LLP]
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors
Millionaire.com
We have audited the accompanying consolidated balance sheets of Millionaire.com
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of stockholders' equity, operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
presently fairly, in all material respects, the consolidated financial position
of Millionaire.com and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $5,541,800 and $797,051 and cash used in
operating activities of $3,877,496 and $689,877 during the years ended December
31, 1999 and 1998, respectively. These factors, among others, as discussed in
Note B to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
February 2, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,554
<SECURITIES> 253,198
<RECEIVABLES> 940,049
<ALLOWANCES> 500,000
<INVENTORY> 472,241
<CURRENT-ASSETS> 1,338,300
<PP&E> 442,587
<DEPRECIATION> 62,715
<TOTAL-ASSETS> 3,321,227
<CURRENT-LIABILITIES> 2,327,650
<BONDS> 0
0
0
<COMMON> 8,615
<OTHER-SE> 6,186,660
<TOTAL-LIABILITY-AND-EQUITY> 3,321,227
<SALES> 3,391,369
<TOTAL-REVENUES> 3,391,369
<CGS> 2,782,731
<TOTAL-COSTS> 2,782,731
<OTHER-EXPENSES> 6,114,214
<LOSS-PROVISION> 523,362
<INTEREST-EXPENSE> 133,750
<INCOME-PRETAX> (5,541,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,541,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,541,800)
<EPS-BASIC> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
