<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended - September 30, 2000
--------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 000-28601
-------------
MILLIONAIRE.COM
---------------
(Exact name of small business issuer as specified in its charter)
Nevada 23-2970840
-------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
18 Plantation Park Drive, Bluffton, South Carolina 29910
----------------------------------------------------------------------
(Address of principal executive offices)
(843)757-6600
---------------------
(Issuer's telephone number)
-------------------------------------------------
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [_] No [_].
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 10, 2000: 8,763,095 shares $.01 par value common stock.
---------
Transitional Small Business Disclosure Format (check one) Yes [_] No [X].
<PAGE>
FORM 10-QSB
MILLIONAIRE.COM AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
PAGE
----
PART I. Financial Information
Item 1. Financial Statements..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation 16
PART II. Other Information
Item 1. Legal Proceedings........................................ 20
Item 3. Defaults Upon Senior Securities.......................... 21
Item 6. Exhibits and Reports on Form 8-K......................... 21
SIGNATURES............................................................... 22
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<PAGE>
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 113,970 $ 19,554
Certificate of deposit - 253,198
Accounts receivable - net 508,645 440,049
Inventories 512,039 472,241
Employee and related party advances 111,359 75,129
Prepaid expenses and other 58,417 78,129
---------- ----------
Total current assets 1,304,430 1,338,300
EQUIPMENT AND SOFTWARE
Equipment 401,233 301,964
Software 141,263 140,623
---------- ----------
542,496 442,587
Less accumulated depreciation 151,835 62,715
---------- ----------
390,661 379,872
OTHER ASSETS
Deposits 54,539 77,311
Goodwill, net - 33,549
Trademarks, net - 1,228,036
---------- ----------
54,539 1,338,896
---------- ----------
$1,749,630 $3,057,068
========== ==========
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 1,452,401 $ 1,844,030
Due to related parties 130,864 132,267
Accrued expenses 228,356 60,182
Deferred revenue 321,321 186,590
Notes payable 7,812 7,812
Current portion of long-term note 1,287,071 92,776
Capitalized lease obligation, current portion 4,103 3,993
Convertible debt 2,200,000 -
------------ -----------
Total current liabilities 5,631,928 2,327,650
CAPITALIZED LEASE OBLIGATION 13,052 16,082
LONG-TERM DEBT - 1,194,295
STOCKHOLDERS' DEFICIT
Common stock 4,063 3,915
Preferred stock - -
Additional paid-in capital 10,196,226 8,518,660
Deferred compensation (1,458,000) (1,980,000)
Accumulated deficit (12,637,639) (7,023,534)
------------ -----------
Total stockholders' deficit (3,895,350) (480,959)
------------ -----------
$ 1,749,630 $ 3,057,068
============ ===========
-4-
<PAGE>
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales
Magazine sales $ 132,545 $ 43,719 $ 320,964 $ 189,757
Advertising sales 1,113,866 682,692 2,846,560 1,809,477
Inventory sales 89,376 212,606 514,809 436,813
---------- ----------- ----------- -----------
1,335,787 939,017 3,682,333 2,436,047
Cost of goods sold (exclusive of
items shown separately below)
Publishing costs 540,416 682,783 1,117,079 1,430,366
Inventory cost of sales 51,323 371,110 380,388 493,358
---------- ----------- ----------- -----------
591,739 1,053,893 1,497,467 1,923,724
Operating expenses
Employee compensation 445,473 56,404 1,533,049 911,513
Selling and marketing 420,314 253,698 1,385,262 1,604,370
Professional fees 38,779 122,066 646,922 378,208
Depreciation and amortization 9,682 96,063 241,834 273,095
Rent 73,850 81,946 257,533 314,224
Bad debt expense 164,071 150,000 264,071 202,962
Administrative 300,700 191,090 938,580 730,765
Trademark and goodwill impairment - - 1,089,553 -
---------- ----------- ----------- -----------
1,452,869 951,267 6,356,804 4,415,137
---------- ----------- ----------- -----------
Loss from operations (708,821) (1,066,143) (4,171,938) (3,902,814)
Other income (expenses)
Interest income 2,763 45,757 14,970 65,746
Interest expense (142,751) (23,325) (1,730,011) (113,631)
Other income (expense) 25,041 6,959 47,874 20,576
Gain on settlement 225,000 - 225,000 -
---------- ----------- ----------- -----------
110,053 29,391 (1,442,167) (27,309)
---------- ----------- ----------- -----------
Loss before provision for
income taxes (598,768) (1,036,752) (5,614,105) (3,930,123)
Income tax expense - - - -
---------- ----------- ----------- -----------
Net loss $ (598,768) $(1,036,752) $(5,614,105) $(3,930,123)
========== =========== =========== ===========
Net loss per common share $(.07) $(0.12) $(0.64) $(0.46)
========== =========== =========== ===========
Weighted average number of shares
Basic 8,763,095 8,565,095 8,754,734 8,532,165
========== =========== =========== ===========
Diluted 8,763,095 8,565,095 8,754,734 8,532,165
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Nine months ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Stock paid-in Deferred Earnings
Shares Amount capital compensation (Deficit) Total
--------- ------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 8,615,095 $3,915 $ 8,518,660 $(1,980,000) $ (7,023,534) $ (480,959)
Issuance of common shares 120,000 120 419,880 - - 420,000
Issuance of common shares 28,000 28 41,972 - - 42,000
Issuance of convertible debt - - 1,302,000 - - 1,302,000
Issuance of convertible debt - - 20,000 - - 20,000
Issuance of convertible debt - - 85,714 - - 85,714
Forfeiture of compensatory
stock options - - (192,000) 192,000 - -
Compensation expense - - - 330,000 - 330,000
Net loss - - - - (5,614,105) (5,614,105)
--------- ------ ----------- ----------- ------------ -----------
Balance, September 30, 2000
(unaudited) 8,763,095 $4,063 $10,196,226 $(1,458,000) $(12,637,639) $(3,895,350)
========= ====== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE>
Millionaire.com and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
2000 1999
---------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(5,614,105) $(3,930,123)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization 241,834 273,095
Beneficial conversion feature of convertible debt 1,407,714 -
Issuance of common stock for services rendered 270,000 520,000
Compensation expense of stock option 330,000 382,500
Bad debt expense 264,701 202,962
Impairment loss 1,089,553 -
Gain on settlement (225,000) -
Changes in operating assets and liabilities:
Increase in accounts receivable (332,667) (1,019,066)
Increase in inventories (39,798) (475,283)
Decrease (increase) in prepaid expenses and deposits 58,366 (102,590)
Increase (decrease) in accounts payable (166,629) 810,903
Increase (decrease) in accrued expenses 168,174 (45,177)
Increase in deferred revenue 134,731 336,801
----------- -----------
Net cash used in operating activities (2,413,126) (3,045,978)
Cash flows from investing activities:
Purchase of equipment and software (99,909) (241,870)
Sale (purchase) of certificate of deposit 253,198 (1,038,928)
----------- -----------
Net cash (used in) provided by investing activities 153,289 (1,280,798)
Cash flows from financing activities:
Principal payments on capital lease obligations (2,920) -
Principal payments on notes payable - (225,000)
Net proceeds from (payments to) related parties (34,827) 22,536
Proceeds from issuance of convertible debt 2,200,000 -
Proceeds from common stock offering, net 192,000 1,500,000
Principal payments on long-term debt - (87,525)
----------- -----------
Net cash provided by financing activities 2,354,253 1,210,011
----------- -----------
Net increase (decrease) in cash and cash equivalents 94,416 (3,116,765)
Cash and cash equivalents at beginning of period 19,554 3,226,634
----------- -----------
Cash and cash equivalents at end of period $ 113,970 $ 109,869
=========== ===========
Supplemental disclosure
-----------------------
Interest paid $ 57,104 $ 82,475
=========== ===========
Income taxes paid $ - $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements included in this report have been
prepared by Millionaire.com (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission for interim reporting and
include all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. These financial statements have
not been audited by an independent accountant. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures are adequate to
make the information presented not misleading. However, these financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Registration Statement on Form
10SB12G/A, for the year ended December 31, 1999. The financial data for the
interim periods presented may not necessarily reflect the results to be
anticipated for the complete year.
Certain reclassifications have been made to prior financial statements to
conform to the September 30, 2000 presentation.
NOTE 2 - LOSS PER COMMON SHARE
Basic net loss per common share is based upon the weighted average number of
common shares outstanding during the period. Diluted net loss per common share
is based upon the weighted average number of common shares outstanding plus
dilutive potential common shares, including options and warrants outstanding
during the period.
At September 30, 2000 and 1999, the Company had approximately 3,380,000 and
920,000, respectively, of potentially dilutive common shares. The potentially
dilutive shares pertain to outstanding common stock options and common shares
that may be obtained from the conversion of debt.
NOTE 3 - 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. At December 31, 1999 and September 30,
2000 inventories are shown net of reserves of $64,141 and $0, respectively.
-8-
<PAGE>
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 and 1999
(Unaudited)
NOTE 4 - CONVERTIBLE NOTES PAYABLE
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 was recorded as interest expense during
the first quarter in the year ended December 31, 2000.
On June 29, 2000, the Company entered into three separate unsecured promissory
notes payable. The notes payable have substantially the same terms and totaled
$150,000. 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 December
29, 2000. The notes are convertible, at the option of the holders, to shares
of common stock of the Company at any time prior to December 29, 2000 at a
price of $.75 per share. The excess of the aggregate fair value of common
stock that the holder received upon issuance of the promissory notes
approximated $20,000. This amount was recorded as interest expense during the
second quarter in the year ended December 31, 2000.
On August 24, 2000, the Company entered into three separate unsecured
promissory notes payable. The notes payable have substantially the same terms
and totaled $300,000. 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 December 24, 2000. The notes are convertible, at the option of
the holders, to shares of common stock of the Company at any time prior to
December 24, 2000 at a price of $.35 per share. The excess of the aggregate
fair value of common stock that the holder received upon issuance of the
promissory notes amounted to $85,714. This amount was recorded as interest
expense during the third quarter in the year ended December 31, 2000.
Millionaire.com and Subsidiaries
-9-
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 and 1999
(Unaudited)
NOTE 5 - SEGMENT INFORMATION
The Company has two reportable segments magazine operations and auction
operations.
<TABLE>
<CAPTION>
Reportable Segment Information
------------------------------
Magazine Auction
Operations Operations Totals
------------- ------------ --------
<S> <C> <C> <C> <C>
For the quarter ended September 30, 2000
----------------------------------------
Revenues from external customers $ 1,246,411 $ 89,376 $ 1,335,787
Segment profit (loss) 757,038 (448,735) 308,303
Segment assets, net 732,960 902,700 1,635,660
For the quarter ended September 30, 1999
----------------------------------------
Revenues from external customers 726,411 212,606 939,017
Segment profit (loss) (562,956) (300,658) (863,614)
For the nine months ended September 30, 2000
--------------------------------------------
Revenues from external customers 3,167,524 514,809 3,682,333
Segment profit (loss) (2,388,917) (1,108,825) (3,497,742)
For the nine months ended September 30, 1999
--------------------------------------------
Revenues from external customers 1,999,234 436,813 2,436,047
Segment profit (loss) (2,698,562) (992,796) (3,691,358)
As of December 31, 1999
-----------------------
Segment assets, net 1,869,903 914,413 2,784,316
Reconciliation to Consolidated Amounts
--------------------------------------
For the quarter ended For the nine months ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
Revenues
--------
Total external revenues for reportable segments $1,335,787 $ 939,017 $ 3,682,333 $ 2,436,047
---------- ----------- ----------- -----------
Total consolidated revenues $1,335,787 $ 939,017 $ 3,682,333 $ 2,436,047
========== =========== =========== ===========
Profit (loss)
-------------
Total loss for reportable segments $ 308,303 $ (863,614) $(3,497,742) $(3,691,358)
Unallocated amounts
Corporate expense $ (907,071) (173,138) (2,166,363) (238,765)
---------- ----------- ----------- -----------
Consolidated loss before income taxes $ (598,768) $(1,036,752) $(5,614,105) $(3,930,123)
========== =========== =========== ===========
</TABLE>
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
-10-
<PAGE>
September 30, 2000 and 1999
(Unaudited)
NOTE 5 - SEGMENT INFORMATION - Continued
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ----------
Assets
------
<S> <C> <C>
Total assets for reportable segments $1,635,660 $2,784,316
Other unallocated assets 113,970 272,752
---------- ----------
Total consolidated assets $1,749,630 $3,057,068
========== ==========
</TABLE>
At September 30, 2000 and December 31, 1999, the other unallocated assets were
comprised solely of the total cash and certificate of deposit balance of the
Company in the amounts of $113,970 and $272,752, respectively.
NOTE 6 - STOCKHOLDERS' DEFICIT
Common Stock and Additional Paid-in Capital
-------------------------------------------
During the nine months ended September 30, 2000, the Company's stockholders'
deficit increased from $(480,959) on December 31, 1999 to $(3,895,350) on
September 30, 2000. The Company issued common stock for services rendered and
sold common stock. The issuance of common stock for services and cash payment
of $1.25 per share increased common stock and additional paid-in capital by
$120 and $419,880, respectively. The Company sold the discounted common stock
for professional services performed in the year ended December 31, 2000. The
excess of the fair value of the common stock issued over the cash payment of
$1.25 per share resulted in the recording of $270,000 in compensation expense.
The Company sold 28,000 shares of common stock at fair market value of $1.50
per share. This increased common stock by $28 and additional paid-in capital by
$41,972. The Company also entered into promissory notes with beneficial
conversion features. These transactions increased additional paid-in capital by
$1,407,714.
Millionaire.com and Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
-11-
<PAGE>
September 30, 2000 and 1999
(Unaudited)
NOTE 6 - STOCKHOLDERS' DEFICIT - Continued
Deferred Compensation
---------------------
On December 15, 1998, 970,000 stock options were granted at an exercise price
of $1.00 and the fair value was determined to be $4.00. The total potential
compensation expense that may be recognized in the Company's financial
statements is $2,910,000. The stock options vest over a five-year period.
During the nine-month periods ended September 30, 2000 and 1999, compensation
expense of $330,000 and $382,500, respectively, along with a corresponding
reduction of additional paid-in capital were recognized. This resulted from the
ratable recognition of compensatory stock options expense. The Company removed
$192,000 of forfeited deferred compensation and additional paid-in capital
during the period ended September 30, 2000.
NOTE 7 - IMPAIRMENT LOSS
On August 14, 1998 the Company purchased all of the outstanding shares of Life
Style Media Corporation ("LMC"), a magazine publishing business, and the
trademarks "Millionaire" and "Billionaire" (the "Trademarks"). In
consideration for the purchase of LMC and the Trademarks, the Company issued a
note payable in the amount of $1,674,595 to the sellers. As part of the
transaction, the Company formed Life Style Media Properties ("LMPI") to hold
the Trademarks. The sellers of LMC and the Trademarks (the "Lamberts") were
granted a security interest in the Trademarks and the stock of LMPI to secure
the performance of the note payable. As of June 30, 2000, all payments due
under the note were current.
On June 30, 2000, the Company was notified that the Lamberts had seized the
stock of LMPI and cancelled all agreements that provided the Company with the
rights to use the Trademarks based on the Lamberts' claim that the Company was
not adequately protecting the "Millionaire" trademark. The Company maintains
that the only basis for the Lamberts to enforce their security interest was
failure to make scheduled payments on the note. The Company's management and
legal counsel believe that the actions of the Lamberts were illegal and
occurred without regard to the binding agreements between the Company and the
Lamberts that detailed the ownership and usage of the trademarks. The Company
initiated legal action against the Lamberts on August 31, 2000, intended to
affirm the Company's ownership of the Trademarks and to recover damages caused
as a result of the Lamberts' actions. The litigation is in the preliminary
stages, as such, no counterclaims have been filed by the Lamberts, no discovery
has commenced and no court hearings or proceedings have been scheduled.
Millionaire.com and Subsidiaries
-12-
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 and 1999
(Unaudited)
NOTE 7 - IMPAIRMENT LOSS - Continued
Management believes that it has continued ownership and rights to the
Trademarks. In order to insure that publication of the Company's magazine was
not interrupted and to protect vendors and advertisers from claims of trademark
infringement, the Company decided to change the name of its magazine from
Millionaire to Opulence. As a result of the decision to change the name of the
magazine, the Trademarks and related goodwill were deemed to be impaired assets
and the carrying value of $1,089,553 was written off as of June 30, 2000.
As a result of the Lamberts' actions, the note payment due to the Lamberts on
August 14, 2000, was not made, causing the note to be in default at that time.
The Lamberts' potential course of action, in addition to seizing the stock of
LMPI and voting those shares to cancel the agreement with the Company, is to
seek to recover the balance of the promissory note through litigation. The
Lamberts have made no demands for payment, but have not stated that they
consider the Company released from the debt. Management believes that the
damages incurred by the Company for the wrongful seizure of the trademarks far
exceed its obligations under the note. The Company intends to offset its
damages from the Lamberts' actions against future note payments. In view of the
default status of the note and the ongoing litigation regarding ownership of
the Trademarks, the Company continues to reflect the balance of the purchase
debt obligation and it has been classified as currently payable as of September
30, 2000.
As a result of the actions taken in response to the circumstances described
above, management believes that the Company will overcome the effects of the
impaired trademark and the name change for the magazine. Management is unable
to predict at this time the final outcome of the action against the Lamberts or
whether the resolution of this matter could result in a loss contingency that
may materially affect the Company's results of operations, cash flows or
financial position. However, management believes that subscription and
advertising revenues may be adversely impacted in the short term and that the
Company will incur costs of approximately $425,000 related to changing the name
of the magazine, acquiring a new trademark and publicizing the new name. These
costs will be recognized when incurred.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Realization of Assets
---------------------
The Company has sustained net losses of $5,614,105 and $3,930,123 for the nine
months ended September 30, 2000 and 1999, respectively. The Company has used,
rather than provided, cash in its operations for the nine months ended
September 30, 2000 and 1999. In addition, the Company is currently involved in
various lawsuits, in addition to Note 7, for which management is currently
unable to determine whether there will be a material impact on its results of
operations, financial position or cash flows.
Millionaire.com and Subsidiaries
-13-
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 and 1999
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES - Continued
Realization of Assets - Continued
---------------------------------
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 vigorously 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.
Litigation
----------
In addition to the litigation described in Note 7, 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.
Management does not believe that these lawsuits will have a material impact on
results of operations, financial position or cash flows.
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.
Leases
------
The Company is obligated under terms of various lease arrangements for its
operating facility and various equipment.
Millionaire.com and Subsidiaries
-14-
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 2000 and 1999
(Unaudited)
NOTE 8 - COMMITMENTS AND CONTINGENCIES - Continued
Proposed Public Offering
------------------------
In 1999, the Company's Board of Directors approved a future 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 an auction gallery and the
remainder for general corporate purposes.
NOTE 9 - GAIN ON SETTLEMENT
During 2000, the Company had a dispute with a printer concerning approximately
$600,000 in costs for the printing of the Millionaire magazine. This account
payable was recorded on the records of the Company during 1999. The Company's
management contended that the printing was of poor quality. The printer and
the Company settled the dispute. The settlement agreement called for the
Company to make payments totaling $375,000. Upon payment of the agreed-upon
settlement, $375,000, the Company recorded $225,000 of gain on settlement of
the dispute.
-15-
<PAGE>
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.
Revenue
-------
Magazine revenues are generated from the sale of advertising space,
subscriptions, single copy sales and the sale of Company owned products within
the magazine.
Other revenues are generated by selling Company owned art, antiques and
collectibles through existing auction houses throughout the United States, our
own auction gallery, over the Internet at www.millionaire.com, and by joint
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venturing the sale of items with other major Internet companies including Lycos
and Ebay. Management believes that the transition from the name Millionaire to
Opulence may adversely impact, in the short term, subscription and advertising
revenues.
Our Internet site is now leasing space within our Opulence "Mega Mall" where
1700 department stores (links) are available to potential on line retailers.
Space leases for $3,600 annually per store.
The average page rate in Opulence has increased substantially as has the
relationship between advertising pages to editorial. The Company has launched a
major national television campaign offering subscriptions to Opulence, a
television campaign that expects to reach 60 million T. V. households by the end
of 2001.
Results of Operations
---------------------
Net sales increased 51.2% to $3,682,333 for the nine-month period ended
September 30, 2000, as compared to $2,436,047 for the comparable period in 1999.
Net sales increased 42.3% to $1,335,787 for the three-month period ended
September 30, 2000, as compared to $939,017 for the comparable period in 1999.
Magazine sales increased by 69.1% to $320,964 for the nine-month period ended
September 30, 2000 as compared to $189,757 for the same period in 1999.
Magazine sales increased by 203.2% to $132,545 for the three-month period ended
September 30, 2000 as compared to $43,719 for the same period in 1999. The
principal reason for the increase in magazine sales was primarily due to the
Company's launch of a national subscription solicitation campaign and the
excellent distribution of the publication through Cable News.
Advertising revenues increased by 57.3% to $2,846,560 for the nine-month period
ended September 30, 2000 as compared to $1,809,477 for the comparable period in
1999. Advertising revenues increased by 63.2% to $1,113,866 for the three-month
period ended September 30, 2000 as compared to $682,692 for the comparable
period in 1999. The principal reason for the increase in advertising was
increasing the number of professional sales representatives, an increase in the
price of advertising spaces and repeat, as well as new, advertising sales.
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<PAGE>
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.
Inventory sales and revenues increased by 17.9% to $514,809 for the nine-month
period ended September 30, 2000 as compared to $436,813 for the comparable
period in 1999. Inventory sales and revenues decreased by 60.0% to $89,376 for
the three-month period ended September 30, 2000 as compared to $212,606 for the
comparable period in 1999. The principal reason for the increase in product
sales during the nine months ended September 30, 2000 was offering items through
non Company owned auction houses on a consignment basis. During the three months
ended September 30, 2000, inventory sales declined primarily due to the Company
not holding any auctions during the period to sell company owned inventory.
Publishing costs (exclusive of items shown separately) as a percentage of
magazine and advertising sales decreased from 70.0% to 35.3% when comparing the
nine months ended September 30, 1999 to September 30, 2000, respectively.
Publishing costs (exclusive of items shown separately) as a percentage of
magazine and advertising sales decreased from 94.0% to 43.4% when comparing the
three months ended September 30, 1999 to September 30, 2000, respectively. Cost
of goods sold (exclusive of items shown in operating expenses) decreased by
22.2% to $1,497,467 for the nine-month period ended September 30, 2000 as
compared to $1,923,724 for the comparable period in 1999. Cost of goods sold
(exclusive of items shown in operating expenses) decreased by 43.9% to $591,739
for the three-month period ended September 30, 2000 as compared to $1,053,893
for the comparable period in 1999. During the nine months ended September 30,
2000 the Company increased the advertising content from 60% to 70% of the total
magazine. This resulted in more magazine advertising revenue as compared to
1999. As the Company continues to refine the distribution of the magazine to a
larger number of high net worth readers, advertisers are willing to pay more for
pages. At the same time, our page rates have increased and our production costs
have decreased by replacing expensive outside production houses and one-time set
up costs with our own internal staff of professional designers and computer
technologists.
Selling, general, administrative and other expenses increased by 44.0% to
$6,356,804 for the nine-month period ended September 30, 2000 as compared to
$4,415,137 for the comparable period in 1999. Selling, general, administrative
and other expenses increased by 62.2% to $1,542,869 for the three-month period
ended September 30, 2000 as compared to $951,267 for the comparable period in
1999. The principal reason for the increase resulted primarily from
expenditures made to increase sales. The impairment loss on the trademarks and
goodwill increased net loss $1,089,553 during the nine months ended September
30, 2000. See Item 1, Note 7.
Interest and other expenses increased by 5,180.9% to $1,442,167 for the nine-
month period ended September 30, 2000 as compared to $27,309 for the comparable
period in 1999. Interest and other income increased by 274.4% to $110,053 of
income for the three-month period ended September 30, 2000 as compared to
$29,391 of income for the comparable period in 1999. The increase in interest
expense for the nine months ended September 30, 2000 was primarily related to
the $1,407,714 of interest expense related to the beneficial conversion features
of convertible notes payable issued during 2000.
-17-
<PAGE>
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.
The increase in the other income during the quarter ended September 30, 2000
when compared to 1999, resulted from the Company settling a disputed accounts
payable with a vendor. The Company previously recorded approximately $600,000
in accounts payable during 1999. The Company completed agreed-upon payments of
$375,000 to the vendor during the quarter ended September 30, 2000. The
remainder of the accounts payable $225,000, is considered by the Company's
management to be a gain on settlement.
The Company, due to the loss position from operations, did not record a tax
provision for the nine-month period ended September 30, 2000 nor did it in the
same period of 1999.
The Company's net loss of $5,614,105 for the nine-month period ended September
30, 2000 increased $1,683,982 or 42.8% when compared to a net loss of $3,930,123
for the comparable period in 1999. The Company's net loss of $598,768 for the
three-month period ended September 30, 2000 decreased $437,984 or 42.2% when
compared to a net loss of $1,036,752 for the comparable period in 1999. The
increase was partly due to the $1,407,714 interest charge related to the
beneficial conversion feature of notes payable for the nine-month period ended
September 30, 2000 as compared to $0 interest expense for similar notes during
the comparable period in 1999.
The weighted average and diluted shares outstanding increased to 8,754,734 for
the period ended September 30, 2000 as compared to weighted average and diluted
shares outstanding of 8,532,165 for the comparable period in 1999. The increase
was due to the sale and issuance of approximately 148,000 shares of common
stock.
Liquidity and Capital Resources of the Company
----------------------------------------------
The Company has been able to fund its operations and working capital
requirements from cash flow generated by the sale of common stock and the
proceeds from loans, convertible to stock.
Net cash used in operating activities decreased by 20.8% to $2,413,126 for the
nine-month period ended September 30, 2000 as compared to $3,045,978 for the
comparable period in 1999. The decrease in cash use was primarily the result of
a decrease in the purchasing of inventory and an increased accounts receivable
collection efforts.
Net cash provided by financing activities amounted to $2,354,253 for the nine-
month period ended September 30, 2000 as compared to net cash provided by
financing activities of $1,210,011 for the comparable period in 1999. In 2000,
the Company received $2,200,000 of convertible debt compared to $0 in 1999. In
contrast, during the nine months ended September 30, 1999, the Company received
$1,500,000 in proceeds from common stock offerings. The Company received
$192,000 in common stock offerings for the nine months ended September 30, 2000.
-18-
<PAGE>
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.
The note payment due to the sellers of the Trademarks (the "Lamberts") in the
amount of $170,000 on August 14, 2000, was not made, causing the note to be in
default at that time. The Lamberts have made no demands for payment, but have
not stated that they consider the Company released from the debt. The Company
believes that the damages incurred by the Company for the wrongful seizure of
the trademarks far exceed its obligations under the Note. The Company intends to
offset its damages from the Lamberts' actions against future note payments.
In view of the default status of the note and uncertainty surrounding the
ongoing litigation regarding ownership of the Trademarks, the Company continues
to reflect the purchase debt obligation, $1,287,071 at September 30, 2000, and
it has been classified as currently payable as of September 30, 2000. The
Company is pursuing legal action intended to affirm the Company's ownership of
the Trademarks and to recover damages caused as a result of the Lamberts'
actions. The Company has commenced litigation seeking $6.7 million in actual
damages.
As a result of the actions taken in response to the circumstances described
above, management believes that the Company will overcome the effects of the
impaired trademark and the name change for the magazine. Management is unable to
predict at this time the final outcome of the action against the Lamberts or
whether the resolution of this matter could result in a loss contingency that
may materially affect the Company's results of operations, cash flows or
financial position. However, management believes that subscription and
advertising revenues may be adversely impacted in the short term and that the
Company will incur costs of approximately $425,000 related to changing the name
of the magazine, acquiring a new trademark and publicizing the new name. These
costs will be recognized when incurred.
The Company intends to meet its existing financial obligations by continuing to
decrease our overhead as we increase profit margins. By doing so we will become
self-supportive. Additionally, we have added several new income streams. Our
Internet site now includes a Mall where space (links to other sites) is being
rented. Our site also includes a new Catalog where advertising space is being
sold. Both the Mall and the Catalog are now generating income. If the Company
has the need for additional capital for operations, as it will have the need in
order to acquire profitable existing auction houses, we intend to raise that
capital from investors and/or financial institutions.
The Company had cash and cash equivalents of $113,970 and $109,869 respectively,
as of September 30, 2000 and September 30, 1999.
The Company's business has not been capital intensive and, accordingly, capital
expenditures have not been material. To date, the Company has funded all
capital expenditures from working capital, proceeds from the public offering and
loans.
-19-
<PAGE>
PART I-ITEM 2
MILLIONAIRE.COM AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.
The Company believes that its cash resources will not be sufficient to finance
its operating and capital requirements in fiscal 2000, therefore the Company
intends to raise capital by selling Rule 144 stock and financing receivables.
Cash requirements for future expansion of the Company's operations will be
evaluated on an as-needed basis and may involve external financing. The Company
does not expect that such expansion, should it occur, will have a materially
negative impact on the Company's ability to fund its existing operations.
This document contains certain forward-looking statements 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.
-20-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Millionaire.com and Lifestyle Media Properties, Inc. v. Douglas Lambert and
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Jenny Lambert. Plaintiffs brought this action on August 31, 2000 in the
-------------
United States District Court of Nevada alleging breach of contract and
intentional interference with contract in connection with the defendants
transfer to themselves of stock in LifeStyle Media Properties which holds
the trademarks, Millionaire and Billionaire, in violation of pledge and
security agreements among the parties. Plaintiffs are seeking $6,695,000
in actual damages as well as punitive relief.
Millionaire.com and Lifestyle Media Properties, Inc. v. Douglass and Jenny
--------------------------------------------------------------------------
Lambert. Plaintiffs brought this action on October 16, 2000 in the
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District Court of Clark County, Nevada. The Company has brought this state
court action in anticipation that the federal court action detailed above
will be dismissed in the near future for lack of subject matter
jurisdiction. The Company asserts claims for damages and recovery of the
trademarks arising from the same facts detailed above in the federal court
action.
Douglas and Jenny Lambert (the "Lamberts") owned all of the stock of
LifeStyle Media Corporation and individually owned the trademarks
"Millionaire" and "Billionaire" ("the Marks"). LifeStyle Media Corporation
published the Millionaire and Billionaire Magazines. On or about August
14, 1998, a stock purchase agreement was executed (the "Transaction")
between Lifestyle Media Acquisition Corporation ("LMAC"), whereby LMAC
acquired all of the Lambers' stock in and to Lifestyle Media Corporation.
As part of the Transaction, the Lamberts executed an Assignment of
Trademark, assigning to Lifestyle Media Properties, Inc. ("LMPI") all of
the Lamberts' right, title and interest in the Marks.
As part of the Transaction, LMAC executed a promissory note in the
principal sum of $1,674,595.00 payable to the Lamberts ("Note"). LMPI also
executed a Trademark Security Agreement and LMAC executed a Pledge
Agreement as part of the Transaction. The Trademark Security Agreement
grants the Lamberts a security interest in the Trademarks to secure the
performance of certain of LMAC's obligations in the Note and Stock Purchase
Agreement. The Pledge Agreement grants the Lamberts a security interest in
the LMPI stock to also secure payment of the obligations contained in the
Note and Purchase Agreement.
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<PAGE>
By letter dated June 30, 2000 MLRE was notified by the Lamberts that the
Lamberts had seized the LMPI stock under the Pledge Agreement and voted
those shares to cancel all agreements between LMPI and MLRE to use the
Marks. The stated reason for the Lamberts' actions were alleged violations
of the agreements by MLRE, including failure to adequately protect the
Marks from infringement. Under the agreements, the Company was required to
protect the Marks from infringement, misappropriation and dilution, but had
no obligation to pursue claims that MLRE believed to be of negligible
economic value. The Company reviewed the Lamberts' contentions in light of
the contractual obligations and found them without merit. In particular,
the Company advised the Lamberts that there had been no monetary default in
the payments under the Note and that MLRE had taken all steps it believed
to be reasonably necessary to protect the Lamberts' collateral (the Marks).
The Company views the actions taken by the Lamberts as wrongful and in
violation of the contractual agreements between the Company and the
Lamberts. Claiming damages for the wrongful seizure of the Pledged Stock
of LMPI, the Company did not make the August 14, 2000 Note payment to the
Lamberts. It is the Company's position that the damages incurred by the
Company for the wrongful seizure of the stock far exceed its obligations
under the Note.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As part of the transaction whereby the Company (through its subsidiary
LMAC) acquired the Trademarks "Millionaire" and "Billionaire", the Company
(LMAC) executed a promissory note in the principal sum of $1,674,595.00 payable
to Doug and Jenny Lamberts ("Note"). As of June 30, 2000, the principal balance
of the Note was $1,287,071 and the Company was not in default. Due to the
actions taken by the Lamberts described in the section entitled "Legal
Proceeding," the Company did not make the schedule principal and interest
payment of $170,000 due on August 14, 2000. The Company does not intend to cure
this arrearage or make further payments on the Note due to pending outcome of
the litigation with the Lamberts.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - Exhibit 27 - Financial Data Schedule
B. Reports on Form 8-K - None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILLIONAIRE.COM
(Registrant)
Date: November 14, 2000 By:/s/ Robert L. White
-------------------
Robert L. White, Chief Executive Officer
