UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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Commission File Number 0-29195
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado (7310) 84-1463284
----------------------------- ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization Classification Code Number) Identification No.)
200 9th Avenue North, Suite 210
Safety Harbor, Florida 34695
(727) 797-6664
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(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
John "JT" Thatch, President
New Millennium Media International, Inc.
200 9th Avenue North, Suite 210
Safety Harbor, Florida 34695
(Name, Address and Telephone Number of Agent for Service)
1
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $0.001.
The issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Transitional Small Business Disclosure Format: [ ] Yes [X] No
The issuer's revenues for its most recent fiscal year ended December 31, 2003
were $308,634.
The aggregate market value of the voting common equity held by non-affiliates as
of February 17, 2004 was $25,141,748 (calculated by excluding shares owned
beneficially by affiliates, directors and officers).
As of December 31, 2003, the registrant had 13,589,776 shares of common stock
outstanding and an obligation to issues 8,199,907 additional common shares,
2,639,080 shares of Series A Convertible Preferred Stock outstanding and no
shares of Series B Preferred outstanding.
2
INDEX
Part I
Item 1. Description of Business 4
Industry Overview 4
OnScreen(TM) Technology 5
OnScreen(TM) Market Potential 6
Market Analysis 7
OnScreen(TM) Business Strategy 8
Rights to OnScreen(TM) 9
Intellectual Property 10
Employees 11
Risks Related to Our Business 11
Risks Related to Our Common Stock 14
Item 2. Description of Property 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II 16
Item 5. Market for Common Equity and Related Stockholder Matters 16
Item 6. Management's Discussion and Analysis 24
Liquidity and Capital Resources 25
Results of Operations 27
Operating Expenses 28
Trends and Events 32
Inflation 32
Item 7. Financial Statements 32
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 33
Item 8A. Controls and Procedures 33
Part III 33
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance With Section 16(a) of the Exchange Act 33
Business Experience of Executive Officers and Directors 34
Audit Committee 35
Item 10. Executive Compensation 35
Employment Agreements 36
Item 11. Security Ownership of Certain Beneficial Owners and Management 37
Item 12. Certain Relationships and Related Transactions 39
Item 13. Exhibits and Reports 40
Financial Statements and Supplementary Data 40
Item 14. Principal Accountants Fees and Expenses 44
Signatures 44
Certifications 45
3
This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about our industry, management's beliefs, and assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results and outcomes may differ materially from what is expressed or
forecasted in any such forward-looking statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
New Millennium Media International, Inc. (sometimes hereafter referred to as
"NMMI" or "New Millennium" or "the Company") is a Colorado corporation organized
on April 21, 1998. NMMI's principal place of business is located at 200 9th
Avenue North, Suite 210, Safety Harbor, Florida 34695. As a result of the
successful completion of a working prototype of its proprietary technology,
OnScreen(TM), New Millennium has redirected its business focus from the
EyeCatcherPlus and the traditional Light Emitting Diode (LED) signage to the
commercialization of the OnScreen(TM) technology. The OnScreen(TM) LED display
architecture, which has a patent pending, is a new generation of bright LED
video display architecture that is expected to provide key design improvements
in cost, weight and brightness of LED displays for such applications as compact
portable signage, billboards, large outdoor venue video screens and outdoor
video advertising. As part of the shift of the business focus, New Millennium
assigned its EyeCatcherPlus business to a marketing company, subject to a
security interest retained by New Millennium and a 15% non-dilutive ownership
interest in the marketing company. This assignment included all rights to both
the IllumiSign-EyeCatcher and Front-Lit EyeCatcher Powered by Insight that had
been the mainstay of New Millennium over the past years. Also, as a part of this
new focus, New Millennium is currently seeking a purchaser of its mobile truck
mounted LED unit. The Company's plan is to focus all of its resources on the
commercialization of the OnScreen(TM) technology.
INDUSTRY OVERVIEW
For years, the billboard industry has seen several consolidations with large
corporate owners acquiring smaller independent operators. The purpose of these
consolidations was to provide a platform for the corporate owners to attract
large regional and national advertisers. Billboard advertising has evolved from
painted signs without lights, to lighted signs, to vinyl covered signs, to prism
boards (three-sided boards which rotate three ads), to LED signs.
The utilization of high brightness LED's in large-scale video display boards is
relatively new. LED's have become the technology of choice for video display
boards because they offer significant advantages in brightness, energy
efficiency and longer product life over traditional illumination choices. Until
the advent of high-brightness LED display technology, few options, if any,
existed for daytime videotext and motion displays.
4
Significant energy is required to illuminate a motion display in bright
sunshine. Energy consumption has become a limiting factor in the advancement of
outdoor LED displays. Also, significant heat is generated when powering LED's to
a brightness adequate to be seen outdoors in direct sunlight. Current LED
packages and heat transfer mechanisms cannot easily accommodate close pixel
spacing on this generation of signs - a limiting factor when viewed from any
distance less than a couple hundred feet. It also means that a commercial
product with real market potential, i. e., outdoor television and medium scale
display advertising boards, up to now have been technologically difficult and
expensive to produce. The required pixel spacing for high resolution displays
and the corresponding heat transfer with current display architectures is
difficult and expensive to achieve.
ONSCREEN(TM) TECHNOLOGY
To date, the leading cause preventing a larger proliferation of large-scale LED
signs has been cost. A typical 14' x 40' billboard with a 25 mm pitch may cost
in excess of $500,000 to purchase and install. The Company believes that a more
cost effective display board technology can result in a significantly deeper
market penetration for these boards.
The OnScreen(TM) LED display architecture is a new generation of bright LED
video display architecture that is expected to provide significant improvements
in design, cost, weight and brightness of LED displays for such applications as
billboards, large outdoor venue video screens and outdoor video advertising.
According to the Outdoor Advertising Association of America (OAAA), the
worldwide outdoor advertising market is approximately $19 billion, with the US
representing $5.2 billion in 2001.
OnScreen(TM) is expected to create a range of products with significantly better
resolution and brighter pictures than the current generation of displays.
OnScreen(TM) will be visible in direct sunlight, avoiding many of the
disadvantages associated with current displays, including sun-loading,
wind-loading and excessive weight. In addition, the new LED architecture of
OnScreen(TM) results in a lightweight, pliable display that offers more
flexibility in its application. The OnScreen(TM) simple see-through array
eliminates the need for complex modules. It is thin, flexible and utilizes
pixels that can be individually replaced. Placement of OnScreen(TM) on curved
surfaces is easily accomplished.
The Company believes that the High Brightness LED market is expected to grow
from $1.2 billion in 2000 to $4 billion in 2006. These projections are made
based on existing technology and do not take into account emerging technologies,
such as OnScreen(TM), that can rapidly alter the size and shape of this market.
One of the main constraints of large-scale outdoor LED screens has been the
excess heat generated by using enough power to drive the LED screens to make
them visible in direct sunlight. Although boards exist today that provide full
motion video in an outdoor environment, the LED's are widely spaced to reduce
heat buildup. This wide spacing results in lower resolution. The "OnScreen(TM)"
designs are expected to dramatically reduce the heat impact, thereby enabling
much closer spacing of LED's, resulting in a higher resolution image that
provides the brightness necessary for high visibility outdoors at both close and
far range. These display systems will be lightweight and pliable compared to the
current generation of rigid LED displays.
5
Basic OnScreen(TM) Architecture
-------------------------------
In OnScreen(TM) products, light emitting diodes (LEDs) are placed periodically
on a porous metal screen. The metal screen forms a grid (similar to a
large-scale window screen) of electrical conductors to provide power for LED
operation. The grid is composed of dielectrically coated metal wires that act as
electrical, thermal and structural conductors. In addition, the grid serves to
transfer heat from the LEDs to the local environment via airflow through and
along the grid and the grid is intended to act as a tensile structural support
element.
Materials and Manufacturing Cost
--------------------------------
OnScreen(TM) uses woven insulated metal wire grid instead of the rigid printed
circuit boards of current systems. A reel-to-reel manufacturing process (akin to
printing) could be used to manufacture the grid element and to attach the LED's
onto it. Although final manufacturing details will vary depending on
application, it is anticipated that the manufacturing process used to produce
the OnScreen(TM) product will yield significant cost benefits to the end-user
over currently available technologies.
Maintenance Cost
----------------
Instead of the traditional module level replacement method, OnScreen(TM) is
engineered to allow pixel level replacement. While a 15 mm module in current
systems might contain 512 LED's with significant electronics and may require
total replacement, the OnScreen(TM) architecture permits the replacement of
individual pixel packages. This can create significant savings in both labor and
material, resulting in lower maintenance costs.
Structure Cost
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The OnScreen(TM) weight per unit area is less than traditional systems primarily
due to the OnScreen(TM) woven grids compared to the complex rigid circuit boards
in traditional LED displays. Because of this lighter weight and the reduced wind
loading of the OnScreen(TM) architecture, the foundation and support structure
can be reduced in size and cost.
Storage, Shipping, Handling and Setup Cost
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OnScreen(TM) is up to 70% lighter than most traditional systems and its ability
to be rolled up and modularized can offer significant savings in storage,
shipping, handling and installation.
ONSCREEN(TM) MARKET POTENTIAL
The Company believes that there are no new architectural developments in the
area of LED display technology that address the key limitations of current LED
display systems. Now that the OnScreen(TM) prototype is complete, NMMI is
focusing its efforts towards further defining the market environment, size,
growth, trends, competitive analysis, product roadmap, partnering strategy and
commercial sales program. Specific applications of OnScreen(TM) include:
billboards, store windows, large screen indoor and outdoor video displays,
outdoor commercial and residential televisions, curved and complex shaped
displays, artistic light displays, Amber Alert project, Homeland Security,
roadway "intelligent transportation systems" (ITS) and see-through displays on
buildings. NMMI's initial marketing strategy is directed toward licensing the
OnScreen(TM) intellectual property (IP) to worldwide manufacturers of LED
display products and components.
NMMI is pursuing markets related to LED video displays which include:
o Monochrome Variable Message Signs (VMS).
o Stationary or fixed VMS through standard Department of Transportation
(DOT) programs. The primary benefits are associated with the reduced
infrastructure required for OnScreen(TM) based signs. Most of the
current sign installation cost is directly related to the huge support
structures that are required to meet wind loading specifications and
the weight to support current architectures.
6
o NMMI is pursuing contractual relationships with established Department
of Transportation contractors.
o Full color LED Displays. Target markets include Times Square, Las
Vegas, all major advertising venues and international LED
manufacturers and major advertising companies.
MARKET ANALYSIS
In August 2003, New Millennium contracted with an independent third party new
product research consulting firm for a comprehensive market analysis of standard
LED display application programs to analyze and assist New Millennium in
determining the saleable features and breadth of applications for the
OnScreen(TM) technology and the viable options for generating returns via
intellectual property licensing of the OnScreen(TM) technology. This market
analysis was designed to accomplish NMMI's objectives of increased revenue and
profitability through sale or licensing of its OnScreen(TM) technology. The
market analysis included analyses of Market Segmentation, Technology Valuation
and Licensing Strategy Development. Based upon the market analysis and assuming
that there are no "technological breakthroughs" in direct competition with the
OnScreen(TM) technology, NMMI believes that there exists a directly addressable
market of nearly $1 billion for OnScreen(TM) based products.
Market Segmentation.
--------------------
The objective of market segmentation is to provide NMMI with the requisite
framework to effectively implement a licensing strategy for the OnScreen(TM)
technology. The research consulting firm analyzed the market segments for
OnScreen(TM) by compiling the market size, growth rate, potential
licensees/competitors, estimated time-to-market, value proposition of
OnScreen(TM) technology and competing technologies within each application. The
potential licensees/competitors within each application were assessed in
accordance to their technical/manufacturing capabilities, financial position and
domestic and international distribution capabilities.
The total addressable market in 2002 for OnScreen(TM) technology in Large Screen
Displays was approximately $1.5 billion and the total market potential for
OnScreen(TM) was nearly $1 billion, as shown in the table below based on a study
provided by the research consulting firm.
2002 Addressable and OnScreen(TM) Market Potential
For Large Screen Displays By Market Segment
---------------------------- -------------------------------------- ------------
OnScreen(TM) Market
Addressable Market Potential
---------------------------- -------------------------- ------------------------
Market Segment $ Million % of Total $ Million % of Total
---------------------------- ------------ ------------- ------------ -----------
Retail/Signage/Billboards $432 29% $299 31%
---------------------------- ------------ ------------- ------------ -----------
Indoor Arenas $392 26% $155 16%
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Transportation $258 17% $231 24%
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Outdoor Events $200 13% $173 18%
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Rental and Mobile $177 12% $82 9%
---------------------------- ------------ ------------- ------------ -----------
Financial Exchanges $24 2% $15 2%
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Total $1483 100% $956 100%
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ONSCREEN(TM) BUSINESS STRATEGY
It is the intention of New Millennium to secure partnering agreements from
several LED display or component manufacturers to embed the OnScreen(TM)
technology in their product lines. The Company expects to commercialize the
OnScreen(TM) technology during the fourth quarter of 2004. In furtherance of
this objective New Millennium has developed a three-part approach to building
the OnScreen(TM) business. The three-part OnScreen(TM) business plan includes
the following components:
Part A (Licensing)
------------------
NMMI intends to implement a broad intellectual property licensing program in
order to commercialize the OnScreen(TM) technology on a larger scale than is
possible with the financial resources currently available to the Company. The
OnScreen(TM) technology will be exploited through the development of worldwide
license and royalty agreements. This strategy has been adopted for several
reasons:
o It is considerably less capital intensive than developing
manufacturing and marketing capabilities.
o It provides revenue streams immediately through advance licensing
fees.
o It provides an opportunity to fund further research and to strengthen
the intellectual property portfolio surrounding OnScreen(TM).
o It can provide continuous long-term revenue streams.
o It provides a more rapid adaptation and proliferation of the
OnScreen(TM) technology.
o It expedites finding potential corporate "copartners".
o It provides the opportunity for greater margins.
Part B (Research and Development)
---------------------------------
In order to scale NMMI's revenues and create multiple revenue streams, NMMI
intends to create component intellectual property and fund production of certain
support components necessary for successful OnScreen(TM) deployment.
Manufacturing will be pursued in an environment where the Company will outsource
production to a variety of manufacturers and resell the resulting components.
Examples of potential areas to which the company will look to create market
opportunity include: custom chip drivers, LED pixel packages, custom mounting
hardware, ventilation support systems and electronic subsystems.
Part C (Product Launch)
-----------------------
This part consists of the refinement of products and outsourcing or licensing or
inhouse fabrication. Currently planned products are as follows:
RediAlert Rapid Dispatch Emergency Signs (RDES)
The RDES is a compact portable signage system with the capability of
displaying three lines of variable text for detailed messaging at traffic
accidents and other places where it is important to convey a message to
motorists and pedestrians. Independently powered and with optional remote
control, this easily deployable, folding 3' x 5' illuminated screen will
provide law enforcement and emergency management personnel with the latest
in technology and equipment to assist in communicating with the public. The
RediAlert signs have been designed to collapse and fit into the trunk of
emergency vehicles. The signs are capable of being deployed by a single
person and represent a significant new market for our company. Our target
markets include the rapidly expanding Homeland Security effort, federal and
state Homeland Defense, law enforcement agencies, emergency management
8
personnel and military applications. By fourth quarter 2004, we anticipate
outsourcing the manufacture of the RDES.
Monochrome Variable Message Signs (VMS)
The VMS is a stationary sign capable of displaying variable text. The
Company intends to outsource the manufacture of the VMS and initially
market the VMS through standard Department of Transportation (DOT)
programs. NMMI is pursuing contractual relationships with established
Department of Transportation contractors. The VMS are intended to be used
primarily as roadway information and emergency information dissemination
such as Amber Alert, Emergency Ahead, Homeland Security Warnings and other
emergency warnings. The primary benefits of OnScreen(TM) VMS are associated
with the reduced infrastructure and operating costs required for
OnScreen(TM) based signs.
Large Full Color LED Video Display Systems (VDS)
The VDS is a large, variable message, stationary sign suitable for
licensing the fabrication to LED manufacturers and advertising companies.
The Company intends to target markets in such high profile signage venues
as New York City, Las Vegas, Los Angeles, Miami, Hong Kong, Tokyo and other
high profile venues.
Mid-scale Outdoor Television/Display System
Through additional research, improvements to early stage OnScreen(TM)
designs and further improvements in thermal handling, the Company believes
the OnScreen(TM) technology can accommodate the developments of a mid-scale
outdoor television/display board that can fill the needs of resorts,
casinos, sidewalk advertising, bars and restaurants, marinas, storefronts
and more.
In addition to the advertising, variable sign message and outdoor
television market, another application for OnScreen(TM) is artistic
lighting in dramatic curved and shaped displays in places like Las Vegas,
New York City and other high profile venues.
RIGHTS TO ONSCREEN(TM)
In July 2001, NMMI entered into a Contract and License Agreement (hereafter the
"OnScreen(TM) License Agreement") with the inventor of the OnScreen(TM)
technology which agreement entitled NMMI to 75% of the revenue generated from
the OnScreen(TM) technology and guaranteed the inventor a minimum royalty of
$50,000 the first year, $100,000 the second year and $250,000 each year
thereafter. The OnScreen(TM) License Agreement also provides that if John "JT"
Thatch, CEO/President, is no longer employed with New Millennium he has the
right to be involved with the OnScreen(TM) project, on terms acceptable to him
(hereafter "Thatch OnScreen(TM) Rights").
In August 2002, New Millennium entered into an agreement with Fusion Three, LLC
("F3") pursuant to which F3 agreed to pay the initial royalty of $50,000 in
consideration for 5% of New Millennium's interest in the OnScreen(TM) License
Agreement.
NMMI entered into an agreement with F3 whereby F3 paid the $100,000 second year
guaranteed royalty. Subsequently, in December 2002, NMMI and F3 entered into an
addendum
9
to the August 2002 agreement in consideration for which F3 received an
additional 10% of the NMMI interest in the OnScreen(TM) License Agreement.
In July 2003, F3 entered into an Option Agreement with the OnScreen(TM) inventor
granting F3 the right to purchase all of the inventor's contract rights,
including all royalty rights, in the OnScreen(TM) License Agreement in
consideration for $500,000 (hereafter the "Option Agreement"). This agreement
was contingent on NMMI approving the terms of the Option Agreement.
On January 14, 2004, the inventor agreed to accept $175,000 from NMMI in lieu of
the $250,000 third year guaranteed royalty payment.
On January 15, 2004, NMMI notified F3 that it declined to consent to the Option
Agreement. Also, on March 23, 2004, NMMI paid $400,000 to the inventor in
consideration for all of the inventor's contract rights, including all royalty
rights in the OnScreen(TM) License Agreement. This conveyance resulted in New
Millennium owning 100% of the OnScreen(TM) licensing rights.
On February 3, 2004, Mr. Thatch agreed to relinquish all Thatch OnScreen(TM)
Rights in consideration for 1% of all revenue derived from any licensing fees
received by NMMI in connection with the OnScreen(TM) technology. On February 3,
2004, NMMI, F3 and all the beneficial owners of F3 entered into a Master
Settlement and Release Agreement whereby, in consideration for the exchange of
mutual releases and F3 relinquishing any claim to any of the benefits of the
OnScreen(TM) technology. NMMI agreed to pay F3 $150,000 within 5 days after
receipt by NMMI of proceeds of the 2004 Private Placement (the Private Placement
is discussed hereafter in this filing at page 17.) plus an annual percentage of
New Millennium's revenues declining annually from 5% to 2% and thereafter at 2%
in perpetuity. In the event of a change in control of NMMI, the percentage of
revenue shall terminate and NMMI must make a single payment transaction fee to
F3 ranging from 10% of the OnScreen(TM) appraised value up to $200,000,000 which
percentage decreases to 0% to the extent that the appraised value exceeds
$600,000,000.
INTELLECTUAL PROPERTY
We rely on various intellectual property laws and contractual restrictions to
protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
employees, contractors, suppliers and strategic partners. The confidentiality
and nondisclosure agreements with employees, contractors and suppliers are in
perpetuity or for a sufficient length of time so as to not threaten exposure of
proprietary information. In addition, we intend to pursue the registration of
our trademarks and service marks in the U.S. and internationally.
A provisional patent was filed August 26, 2002 on the OnScreen(TM) technology.
The patent was filed July 23, 2003 on the OnScreen(TM) technology that contains
over 50 separate claims. NMMI retained Knobbe, Martens, Olson & Bear, LLP to
manage our current interests relative to the inventor's prosecution of the full
national and international patents.
A provisional patent application was prepared and filed by Banner & Witcoff,
Ltd., Intellectual Property Attorneys, Washington, D.C. on behalf of New
Millennium on March 15, 2004 in the U.S. Patent and Trademark Office regarding
Rapid Dispatch Emergency Signs.
10
On February 25, 2004, we were notified by the United States Patent and Trademark
Office that the examining attorney reviewed the OnScreen(TM) trademark
application and found no similar registered or pending mark registered under
Trademark Act Section 2(d), U.S.C. Section 1052(d) TMEP sect 1105.01. We were,
however, required to disclaim the unitary expression "onscreen technology"
because the individual component words of a complete descriptive phrase is not
registerable. This disclaimer does not affect the OnScreen(TM) trademark nor the
OnScreen(TM) technology words when used in conjunction with the trademark.
We have recently filed an application for trademark registration relating to the
New Millennium "RediAlert" and "Ready Dispatch Emergency Sign" relating to rapid
deployment OnScreen(TM) signage.
There is no assurance we will be successful in registering these marks.
Furthermore, we are exposed to the risk that other parties may claim we infringe
their rights on these marks, which could result in our ceasing use of these
marks, licensing the marks or becoming involved in costly and protracted
litigation.
EMPLOYEES
As of March 30, 2004, NMMI had nine full time employees. None of our employees
is represented by a labor union. We consider our relations with our employees to
be good. We plan to add additional staff as needed to handle all phases of our
business.
RISKS RELATED TO OUR BUSINESS
Our limited operating history makes evaluating our business and prospects
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difficult.
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We have been involved in the LED based business since July 2001, but have only
recently begun to direct all of our efforts to commercialization of the
OnScreen(TM) technology. Our limited operating history in this industry and the
unproven nature of the OnScreen(TM) technology makes an evaluation of our future
prospects very difficult. To date we have not achieved profitability and we
cannot be certain that we will sustain profitability on a quarterly or annual
basis in the future. You should carefully consider our prospects in light of the
risks and difficulties frequently encountered by early stage companies in new
and rapidly evolving technology.
We have all the risks of a new product developer in the LED technology business.
--------------------------------------------------------------------------------
New Millennium, as the license owner of the OnScreen(TM) patent, assumed the
responsibility for completing the development of the OnScreen(TM) technology as
well as determining which products to commercialize utilizing the OnScreen(TM)
technology. Because OnScreen(TM) is a new and unproven technology, there is a
risk that the technology, operation and development could be unsuccessful or
that the products, if any, developed with the OnScreen(TM) technology will not
be marketable. Such failures would negatively affect our business, financial
condition and results of operations.
There is no assurance we will achieve profitability.
----------------------------------------------------
To date we have not received any revenue from the OnScreen(TM) technology. We
have narrowed our scope of operation from EyeCatcherPlus and traditional LED
screens to the singular product line of the OnScreen(TM) technology. For the
year ended December 31, 2003 we had a net loss of $3,438,507. We will need to
begin generating significant revenues from the OnScreen(TM) product line to
offset current operational and development losses if the Company is to cover its
current overhead expenses and cover further development and marketing expenses.
There is no assurance that we will achieve profitability.
11
We are currently funding our operations with proceeds of approximately
$4,423,000 we received from a recent private offering of our securities.
According to our current plans, and assuming that we receive no revenues from
commercialization of the OnScreen(TM) technology, these proceeds along with the
balance of the private placement funding will sustain our current level of
operations through the end of 2004.
We will probably be dependent on only a few customers for a substantial portion
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of our revenues.
----------------
Licensing of fabrication and marketing of the OnScreen(TM) through third-party
manufacturers and distributors rather than directly to the end user, will cause
us to be dependent on the manufacturing and marketing expertise of a few
customers rather than many end users. Because of this dependence, if there is a
fault in any single manufacturer/distributor relationship the financial impact
could have a materially adverse affect on New Millennium. Because of the
competitive nature of our business and the uncertainty of success of new
OnScreen(TM) products, we may be unable to secure sufficient customers quickly
enough to attain and sustain profitability.
We will be dependent on third parties and certain relationships to fulfill our
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obligations.
------------
Because the OnScreen(TM) technology will be licensed to companies better
equipped financially and technologically to fabricate and manufacture
OnScreen(TM) end products, we are heavily dependent on third parties to
adequately and promptly provide the end product. New Millennium is dependent
upon its ability to enter into agreements with these manufacturers and other
providers of raw materials and components who provide these necessary elements
at the negotiated prices.
We initially depend on government agencies to use our OnScreen(TM).
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We initially intend to market OnScreen(TM) products to government agencies, such
as departments of transportation, police departments and other emergency
personnel. Generally, the inspection, approval process and funding involved with
government agencies can take many months and are subject to cancellation by the
governmental agency without penalty. Our business could suffer if we are not
successful in marketing our products to a significant number of governmental
agencies or if contracts we enter into with such agencies are cancelled.
The market for LED signage is extremely competitive.
----------------------------------------------------
Because the LED signage industry is highly competitive, we cannot assure you
that we will be able to compete effectively. We are aware of several other
companies that offer LED signs, although not identical to our OnScreen(TM)
technology. These competitors provide their services primarily to the billboard
industry. All of these competitors have been in business longer than we have and
have significantly greater assets and financial resources than currently
available to us. We expect competition to intensify as innovation in the LED
industry advances and as current competitors expand their market into the
portable, lightweight signage that is the initial market for the OnScreen(TM).
We cannot assure you that we will be able to compete successfully against
current or future competitors. Competitive pressures could force us to reduce
our prices and may make it more difficult for us to attract new customers and
retain current customers.
The use of portable emergency roadway signage is a recent development and the
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extent of customer acceptance is not yet known.
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Portable emergency roadway signage is a relatively new and evolving industry.
For the Company to be successful, government agencies must be willing to obtain
government administrative approval and public results satisfaction. There is no
way to be sure that a
12
sufficient number of government agencies will utilize our product to enable us
to remain profitable.
We depend on key personnel and will need to recruit new personnel as we grow.
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As a small company we are currently dependent on the efforts of a limited number
of management personnel. We believe that given the development stage of our
business and the large amount of responsibility being placed on each member of
our management team, the loss of the services of any member of this team at the
present time would harm our business.
If we are successful in expanding our product and customer base, we will need to
add additional key personnel as we continue to grow. If we cannot attract and
retain enough qualified and skilled staff, the growth of our business may be
limited. Our ability to provide services to customers and expand our business
depends, in part, on our ability to attract and retain staff with professional
experiences that are relevant to technology development and other functions we
perform. Competition for personnel with these skills is intense. We may not be
able to recruit or retain the caliber of staff required to carry out essential
functions at the pace necessary to sustain or expand our business.
We believe our future success will depend in part on the following:
o the continued employment and performance of our senior management,
o our ability to retain and motivate our officers and key employees, and
o our ability to identify, attract, hire, train, retain, and motivate
other highly skilled technical, managerial, marketing and customer
service personnel.
If we fail to adequately protect our trademarks and proprietary rights, our
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business could be harmed.
-------------------------
The steps we take to protect our proprietary rights may be inadequate. We regard
our patents, trademarks, trade secrets and similar intellectual property as
critical to our success. We rely on trademark and patent law, trade secret
protection and confidentiality or license agreements with our employees,
customers, partners and others to protect our proprietary rights. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. Although we have
been granted registration rights for OnScreen(TM) technology, there is no
assurance our pending trademark application for RediAlert will be approved.
Effective trademark, patent and trade secret protection may not be available in
every country in which we may in the future offer our products. Therefore, we
may be unable to prevent third parties from infringement on or otherwise
decreasing the value of our trademarks, patents and other proprietary rights.
If we are to remain competitive, we must be able to keep pace with rapid
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technological change.
---------------------
Our future success will depend, in part, on our ability to develop or license
leading technologies useful in our business, enhance the ease of use of existing
products, develop new products and technologies that address the varied needs of
our customers, and respond to technological advances and emerging industry
standards and practices on a cost-effective and timely basis. If we are unable,
for technical, legal, financial or other reasons, to incorporate new technology
in new features or products, we may not be able to adapt in a timely manner to
changing market conditions or customer requirements.
We may infringe intellectual property rights of third parties.
--------------------------------------------------------------
Litigation regarding intellectual property rights is common in the software and
technology industries. We may in the future be the subject of claims for
infringement, invalidity or indemnification claims based on such claims of other
parties' proprietary rights. These claims,
13
with or without merit, could be time consuming and costly to defend or litigate,
divert our attention and resources, or require us to enter into royalty or
licensing agreements. There is a risk that such licenses would not be available
on reasonable terms, or at all. Although we believe we have the ability to use
our intellectual property to operate and market our existing products without
incurring liability to third parties, there is a risk that our products infringe
the intellectual property rights of third parties.
Third parties may infringe on our intellectual property rights
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There can be no assurance that other parties will not claim infringement by us
with respect to our current or future technologies. We expect that participants
in our markets will be increasingly subject to infringement claims as the number
of services and competitors in our industry segment grows. Any such claim, with
or without merit, could be time-consuming, result in costly litigation, cause
service upgrade delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to us, or at all. As a result, any such claim of infringement against
us could have a material adverse effect upon our business, results of operations
and financial condition.
RISKS RELATED TO OUR COMMON STOCK
Our Common Stock price may be volatile, which could result in substantial losses
--------------------------------------------------------------------------------
for individual stockholders.
----------------------------
The market price for our Common Stock is volatile and subject to wide
fluctuations in response to factors including the following, some of which are
beyond our control, which means our market price could be depressed and could
impair our ability to raise capital:
o actual or anticipated variations in our quarterly operating results;
o announcements of technological innovations or new products or services
by us or our competitors;
o changes in financial estimates by securities analysts;
o conditions or trends in relating to the LED industry;
o changes in the economic performance and/or market valuations of other
LED related companies;
o additions or departures of key personnel.
o fluctuations in the stock market as a whole.
Our Certificate of Incorporation limits director liability thereby making it
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difficult to bring any action against them for breach of fiduciary duty.
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As permitted by Colorado law, the Company's Certificate of Incorporation limits
the liability of directors to the Company or its stockholders for monetary
damages for breach of a director's fiduciary duty except for liability in
certain instances. As a result of the Company's charter provision and Colorado
law, stockholders may have limited rights to recover against directors for
breach of fiduciary duty.
We may be unable to meet our future capital requirements.
---------------------------------------------------------
We are substantially dependent on receipt of additional capital to effectively
execute our business plan. If adequate funds are not available to us on
favorable terms we will not be able to develop new services or enhance existing
services in response to competitive pressures, which would affect our ability to
continue as a going concern. We do not anticipate issuing any additional shares
of our Series A Preferred Stock as a source of capital. We cannot be certain
that additional financing will be available to us on favorable terms when
required, or at all. If we raise additional funds through the issuance of
equity, equity-related or debt securities, such
14
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience additional
dilution.
Penny stock regulations may impose certain restrictions on marketability of our
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stock.
------
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
our Common Stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities.
We have never paid dividends on our Common Stock and do not expect to pay any in
--------------------------------------------------------------------------------
the foreseeable future. We are subject to restrictions on our ability to pay
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dividends.
----------
A potential purchaser should not expect to receive a return on their investment
in the form of dividends on our Common Stock. We have never paid cash dividends
on our Common Stock and we do not expect to pay dividends in the foreseeable
future. Our ability to pay dividends on our Common Stock is restricted by the
terms of our agreements with the holders of our Series A Convertible Preferred
Stock and Series B Preferred Stock. Holders of our Series A Preferred Stock are
entitled to annual dividends of 10% (currently aggregating $68,452 quarterly,
assuming no conversion). Holders of our Series B Convertible Preferred Stock are
entitled to annual dividends of $1.00 per share (currently aggregating $7,500
quarterly, assuming no conversion and the exercise of all warrants). To date, we
have fulfilled our dividend obligations on the Series A Preferred Stock and
Series B Convertible Preferred Stock through the issuance of additional shares
of our Series A Convertible Preferred Stock to the holders of our series A
Preferred Stock as well as cash payments. No dividends have yet accrued
regarding the Series B Convertible Preferred Stock.
Substantial sales of our Common Stock could cause our stock price to rapidly
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decline.
--------
The market price of our Common Stock may fall rapidly and significantly due to
sales of our Common Stock from other sources such as:
o The sale of Common Stock underlying the conversion rights of our
Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock.
o The sale of shares of our Common Stock underlying the exercise of
outstanding options and warrants.
o The sale of shares of our Common Stock, which are available for resale
under Rule 144 or are otherwise freely tradable and which are not
subject to lock-up restrictions.
15
Any sale of substantial amount of our Common Stock in the public market, or the
perception that these sales might occur, whether as a result of the sale of
Common Stock received by shareholders upon conversion of our Series A Preferred
Stock or Series B Preferred Stock, exercise of outstanding warrants or options
or otherwise, could lower the market price of our Common Stock. Furthermore,
substantial sales of our Common Stock by such parties in a relatively short
period of time could have the effect of depressing the market price of our
Common Stock and could impair our ability to raise capital through the sale of
additional equity securities.
The covenants with our Series A Convertible Preferred and Series B Convertible
Preferred Stock Shareholders restrict our ability to incur debt outside the
normal course, acquire other businesses, pay dividends on our Common Stock, sell
assets or issue our securities without the consent of the Series A Convertible
Preferred and Series B Convertible Preferred Stock Shareholders. Such
arrangements may adversely affect our future operations or may require us to
make additional concessions to the holders of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock in order to enter into
transactions or take actions management deems beneficial and in our best
interests of the holders of our Common Stock.
The forward-looking information in this Form 10-KSB may prove inaccurate.
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This Form 10-KSB contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by, and information
currently available to, management. When used in this prospectus, words such as
"anticipate," "believe," "estimate," "expect," and, depending on the context,
"will" and similar expressions, are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including the specific risk factors described above. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
estimated or expected. We do not intend to update these forward-looking
statements and information.
ITEM 2. DESCRIPTION OF PROPERTY
NMMI owns no real estate. On March 29, 2001 the Company signed a lease with
Safety Harbor Centre commencing May 1, 2001 for five years with an option for
five additional years. The lease became effective August 27, 2001, the date that
the Company first occupied the facility, at a monthly rental of $10,972.24.
Effective February 1, 2004, the Company negotiated with the lessor a reduction
of the office rental space with a resulting monthly gross rent reduction of
$2,465.97.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders held on December 18, 2003, the number of
authorized $0.001 par value common shares was increased from 15,000,000 common
shares to 150,000,000 authorized common shares.
16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Value
------------
Our Common Stock is traded on the OTC Bulletin Board (OTCBB) under the trading
symbol "NMMG". The following table sets forth, the high and low bid prices for
the four quarters of 2002 and 2003 of our Common Stock as reported by the
National Quotation Bureau. The bid prices quoted on the OTCBB reflect
inter-dealer prices without retail mark-up, markdown or commission and may not
represent actual transactions.
Year High Bid Low Bid
---- -------- -------
2002
----
First Quarter 1.330 .910
Second Quarter* .430 .330
Third Quarter .290 .210
Fourth Quarter .290 .260
2003
----
First Quarter .390 .320
Second Quarter .260 .180
Third Quarter .300 .240
Fourth Quarter 1.050 .850
Description of Securities
-------------------------
The Company authorized capital stock consists of 150,000,000 shares of Common
Stock, $.001 par value ("Common Stock"), and 10,000,000 of preferred stock,
$.001 par value ("Preferred Stock"), issuable in series. The following
description of our capital stock does not purport to be complete and is subject
to and qualified in its entirety by our Articles of Incorporation and Bylaws,
amendments thereto, including the Certificates of Designation for our Series A
Convertible Preferred Stock, and Series B Convertible Preferred Stock and by the
provisions of applicable Colorado law. Our transfer agent is Computershare Trust
Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado 80401.
Private Placement
-----------------
During the fourth quarter of 2003, the Company undertook a private placement of
Units, each Unit consisting of 4,000 shares of our common stock, a warrant to
purchase 4,000 shares of common stock at a price of $0.50 per share ("Warrant
#1") and a warrant to purchase 2,000 shares of common stock at a price of $0.75
per share ("Warrant #2"). Additionally, through a first quarter 2004 amendment
to the private placement, purchasers of Units were issued, or will be issued, an
aggregate of 30,000 shares of our Series B Convertible Preferred Stock as
follows:
12,000 shares pro-rata upon purchase of Units;
12,000 shares pro-rata to investors who exercise Warrant #1; and
6,000 shares pro-rata to investors who exercise Warrant #2.
Series B Convertible Preferred Stock has privilege and preferences as follows: a
cumulative $1.00 per share annual dividend preference, payable quarterly; a
$240.00 per share liquidation preference; 1,000 votes per preferred share;
shareholder conversion privilege to convert each share of Series B Convertible
Preferred Stock into 1,000 shares of common stock; antidilution protection; and
a prohibition against designating other shares of preferred stock having
dividend, liquidation or other preferences equal to or prior to the rights of
holders of the Series B
17
Convertible Preferred without the written consent of two thirds (66.66%) of the
holders of Series B Convertible Preferred Stock.
From this offering, the Company received $1,575,000 of cash proceeds and
recorded a $100,000 subscriptions receivable at December 31, 2003. The investors
received 6,700,000 common stock shares, 1,675 warrants (Warrants #1) exercisable
for 6,700,000 common shares at an exercise price of $0.50 and an expiration date
of February 28, 2004 and 1,675 warrants (Warrants #2) exercisable for 3,350,000
common shares at an exercise price of $0.75 and an expiration date of May 30,
2004. The 6,700,000 shares of common stock were issued during the first quarter
of 2004. During February 2004, 1,675 of Warrants #1 were exercised. As of April
1, 2004, no Warrants #2 have been exercised. As of December 31, 2003, the
Company has issued 24,000 shares of Series B Convertible Preferred stock, with
6,000 shares remaining to be issued upon exercise of Warrant #2. The Company
received $3,200,000 ($2,848,000 net of cash offering costs) of cash, will
receive $20,000 cash that is currently in escrow and received notes for $130,000
related to the exercise of Warrants #1.
In conjunction with raising these funds, the Company paid offering costs of
$229,750 and issued 630,000 warrants with an exercise price of $0.001 per share
that expire on January 30, 2004 valued at $541,170, which cost is included in
warrants granted for services in the additional paid-in capital (total offering
costs of $770,920). These warrants have not yet been issued and will expire 60
days after grant date.
All of the shares of common and preferred stock were issued in reliance on an
exemption from registration under the Securities Act of 1933. As a result, these
shares are subject to restrictions on transfer under the applicable provisions
of the Securities Act. Subject to terms and conditions as detailed in the Unit
Subscription Agreement, NMMG agreed to: (i) use its best efforts to effect a
registration statement under the Securities Act covering the Common Shares and
Common Shares issuable upon exercise of the Warrants; however, NMMI is not
obligated to file any Registration Statement until thirty (30) days after the
completion of the last closing of the purchase and sale of Units and release of
funds from escrow; (ii) undertake commercially reasonable best efforts to cause
such Registration Statement to be declared effective by the SEC within one
hundred twenty (120) days after such filing; and (iii) if the Registrant is
eligible to incorporate periodic reports by reference into such Registration
Statement, and such Registration Statement is declared effective, undertake
commercially reasonable efforts to keep the Registration Statement continuously
effective, supplemented and amended for a period of one year.
Upon exercise of all warrants the combined voting share ownership of investors
who purchased Units will own, in the aggregate, in excess of 50% of all voting
shares.
Common Stock
------------
As of December 31, 2003, there were approximately 13,589,776 shares of our
Common Stock issued and outstanding, not including 6,700,000 shares issuable in
connection with the sale of Units described above and another 1,499,907 shares
issuable. In addition, as of December 31, 2003 there were 2,639,080 shares of
our Series A Convertible Preferred Stock issued and outstanding. There were no
shares of Series B Convertible Preferred Stock issued as of December 31, 2003;
however, the Company will be obligated to issue 12,000 shares of its Series B
Convertible Preferred shares to investors who purchased Units. As of December
31, 2003, shares of common stock were subject to 15,990,000 warrants and options
that were issued principally in consideration for the offering of Units and
OnScreen(TM) Scientific Advisory Board services and consulting services rendered
by others. The exercise prices range from
18
$0.001 to $1.50 per share. As of December 31, 2003, we had in excess of 2,000
shareholders of record.
The holders of Common Stock are entitled to one vote per share for the election
of directors and all other purposes and do not have cumulative voting rights.
The holders of our Common Stock are entitled to receive dividends when, as, and
if declared by our Board of Directors, and in the event of our liquidation to
receive pro-rata, all assets remaining after payment of debts and expenses and
liquidation of the preferred stock. Holders of our Common Stock do not have any
pre-emptive or other rights to subscribe for or purchase additional shares of
capital stock, no conversion rights, redemption, or sinking-fund provisions.
We have not paid any dividends on our common stock since inception. We expect to
continue to retain all earnings generated by our operations for the development
and growth of our business and do not anticipate paying any cash dividends to
our shareholders in the foreseeable future. The payment of future dividends on
the common stock and the rate of such dividends, if any, will be determined by
our Board of Directors in light of our earnings, financial condition, capital
requirements and other factors.
During 2002, the Company sold the following common stock for cash. In May 2002
the Company sold 80,000 restricted shares of its common stock to one investor
for $40,000 pursuant to a warrant exercise. In September 2002, the Company sold
166,667 restricted shares of its common stock at $0.30 per share and 100,000
restricted shares of its common stock at $0.50 per share to one investor as one
transaction for aggregate proceeds of $100,000 or an average price of $0.375 per
share. From May 2002 to December 2002, the quoted trading price for freely
traded common shares was generally below the private sales price for restricted
common shares and therefore the Company used the lower quoted trading price as a
measure to value non-cash issuances during these dates.
During 2002, the Company issued an aggregate of 325,000 shares of its common
stock pursuant to the exercise of the rights of certain note holders granted
under the default provisions of certain promissory notes. The issuance resulted
in cash proceeds of $1,175 and subscriptions receivable of $6,950 for a total
issuance price of $8,125, or $.025 per share.
During 2002, the Company issued 730,292 shares of its common stock to various
non-employee consultants and service providers for services rendered to the
Company. These shares were valued at prices ranging from $0.35 to $0.53 based on
contemporaneous quoted trading prices or cash sale prices, as applicable, for an
aggregate value of $276,719 charged to expense in 2002. The $276,219 was
allocated to a consulting expense of $299,919 and a settlement gain of $23,200
since one of the transactions has been contractually valued $23,200 lower than
the value of the stock issued.
In December 2002, the Company issued 505,502 common shares to its president as a
bonus under his employment agreement. These shares were valued at the $0.26
quoted trading price at the grant date resulting in a compensation expense
charged to operations in December 2002 of $131,431.
During 2002, the Company issued 65,000 common shares under two settlements. In
April 2002, a settlement for 40,000 common shares was valued at the quoted
trading price of $1.00 per share at the settlement date; and in October 2002 a
settlement for 25,000 common shares valued at the quoted trading price of $0.22
per share at the settlement date resulting in an aggregate settlement charge to
operations of $45,500.
19
During 2002, the Company settled various loans totaling $322,046 through the
issuance of 570,000 shares of common stock. The stock was valued at an aggregate
$231,200 based on the quoted trading price which ranged from $0.21 to $0.56 on
each of the various settlement dates resulting in a settlement gain of $98,299
and a settlement loss of $7,052.
During 2002, the Company issued 100,000 common shares to a vendor/creditor as a
forbearance to avoid or delay potential legal action relating to collection of
the debt. These shares were valued at the $0.94 per share quoted trading price
on the forbearance date resulting in a forbearance expense of $94,000 included
in general and administration expense.
During 2002, the Company issued 1,000 common shares as part of the purchase
price of certain used equipment. The shares were valued at the $0.40 quoted
trading price on the purchase date resulting in an asset of $400.
During April 2002, the Company agreed to issue 1,000 shares as a loan fee. These
shares were valued at the $1.25 quoted trading price on the agreement date
resulting in an expense of $1,250. During 2003, these shares were issued in
conjunction with a settlement.
During 2003, the Company issued an aggregate of 300,000 common stock shares
pursuant to the exercise of the warrants granted certain note holders under the
default provisions of certain promissory notes. The issuance resulted in an
additional subscriptions receivable of $7,500 ($0.025 per share) of which cash
proceeds of $250 were received during 2003. Total subscriptions receivable
related to these shares issued under the default provisions of the promissory
notes is $17,325 at December 31, 2003.
During 2003, the Company issued 2,186,748 shares and has 120,000 share to be
issued of its common stock for services rendered to various consultants and
service providers valued at prices ranging from $0.23 to $0.95 (average of
$0.66) per share based on quoted trading prices on the grant date which was the
measurement date since the shares were contractually full vested and
nonforfeitable at the grant date. The Company recognizes the $1,516,254 of
consulting expense related to these consulting agreements over the period of the
contract terms ranging from one day to one year. At December 31, 2003, 120,000
shares of these shares were not issued and are reflected in the common stock
issuable equity account.
During 2003, the Company issued 310,640 shares of its common stock to employees
as compensation or to pay accrued compensation. These shares were valued at
$122,112 using the quoted trading price on the grant date or per the employee's
agreement which was using a thirty-day average price. During 2003, the Company
recorded a settlement gain of $3,261 related to these transactions.
During 2003, the Company issued 537,880 shares of its common stock to settle
certain debts and claims against the Company.
In August 2003, the Company issued 200,000 common shares as collateral for
amounts due to the Company's landlord.
The Company entered into a stock purchase agreement on October 31, 2003 pursuant
to which the buyer agreed to purchase 1,000,000 shares of the Company's common
stock for $250,000 and also received warrants to purchase up to 1,000,000 shares
of the Company's common stock at an exercise price of $0.50 with an expiration
date of February 28, 2004. The Company
20
recorded $1,000 in its common stock issuable equity account for the 1,000,000
shares which are to be issued upon receipt of payment. The Company recorded the
purchase price of $250,000 for the 1,000,000 shares of the Company's common
stock in subscriptions receivable as the funds had not been received by the
Company at December 31, 2003. Subsequent to year-end, this subscription was not
fulfilled and the warrants expired. The Company does not expect to receive any
monies related to this subscription agreement and will reduce the common stock
issuable equity account by $1,000, the subscriptions receivable account by
$250,000 and additional paid-in-capital account by $249,000 during March 2004.
Preferred Stock and Related Warrants
------------------------------------
Our Board of Directors (without further action by the shareholders) has the
option to issue from time to time authorized unissued shares of Preferred Stock
and determine the terms, limitations, residual rights, and preferences of such
shares. The Company has the authority to issue up to 10,000,000 shares of
Preferred Stock pursuant to action by its Board of Directors.
On April 10, 2003, the Board of Directors created 5,000,000 shares of Series A
Convertible Preferred Stock. In summary, the Series A Preferred Stock
preferences provide as follows: a cumulative $0.10 per share annual dividend
preference payable quarterly; a $1.00 per share liquidation preference; one
share-one vote privilege; shareholder conversion privilege to convert each share
of Series A Convertible Preferred Stock into 4 shares of common stock; no
reissuance of retired Series A Convertible Preferred Shares; and antidilution
privileges.
As of December 31, 2003, we had 2,639,080 shares of Series A Convertible
Preferred Stock issued and outstanding. These shares were issued at a per share
value equivalent of $1.00 per share in consideration for existing debt
forgiveness, current services rendered or investment cash payment. These
proceeds were use for general operating purposes.
On February 5, 2004, the Board of Directors created 30,000 shares of Series B
Convertible Preferred Stock providing preferences as follows: a cumulative $1.00
per share annual dividend preference, payable quarterly; a $240.00 per share
liquidation preference; 1,000 votes per preferred share; shareholder conversion
privilege to convert each share of Series B Convertible Preferred Stock into
1,000 shares of common stock; no reissuance of retired Series B Convertible
Preferred Shares; antidilution privileges; and a prohibition against designating
other shares of preferred stock having dividend, liquidation or other
preferences equal to, subsequent to or prior to the rights of holders of the
Series B Convertible Preferred without the written consent of two thirds
(66.66%) of the holders of Series B Convertible Preferred Stock.
For a detailed discussion of issued shares, please see Notes to the Financial
Statement, December 31, 2003 and 2002, Note 7, Stockholders' Equity.
Subject to the limitations imposed by existing Series A Convertible Preferred
and Series B Convertible Preferred Stock, our Board of Directors has the
authority to issue additional shares of our Preferred Stock in series with
rights, designations and preferences as determined by the Board of Directors.
When any shares of our Preferred Stock are issued, certain rights of the holders
of our Preferred Stock may affect the rights of the holders of Common Stock. The
authority of the Board of Directors to issue shares of our Preferred Stock with
characteristics which it determines (such as preferential voting, conversion,
redemption and liquidation rights) may have a deterrent effect on persons who
may otherwise desire to purchase our shares at a price which might be attractive
to our shareholders.
21
Certain Provisions of the Articles of Incorporation and Colorado Business
-------------------------------------------------------------------------
Corporation Act
---------------
Our Articles of Incorporation provides that, "To the fullest extent permitted by
Colorado Business Corporation Act as the same exists or may hereafter be
amended, a director of the corporation shall not be liable to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director."
The Company shall indemnify and advance expenses to a director or officer in
connection with a proceeding to the fullest extent permitted or required by or
in accordance with the indemnification sections of the Colorado Business
Corporation Act that provides that, "The corporation shall indemnify a person
who was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding."
Dividends
---------
We have not paid any cash dividends on our common stock and do not anticipate
paying any such cash dividends in the foreseeable future. We expect to continue
to retain all earnings generated by our operations for the development and
growth of our business and do not anticipate paying any cash dividends to our
shareholders of Common Stock in the foreseeable future. We shall, however,
commence payment of the $0.10 per share annual dividend on the Series A
Preferred Stock and the $1.00 per share annual dividend on the Series B
Preferred Stock.
Shares Eligible for Future Sale
-------------------------------
As of December 31, 2003, we had outstanding 13,589,776 shares of Common Stock
and issuable 8,199,907 shares of common stock. Of these shares, 7,334,965 shares
are freely tradable without restriction or limitation under the Securities Act.
The 6,254,811 shares of Common Stock held by existing shareholders as of
December 31, 2003 that are "restricted" within the meaning of Rule 144 adopted
under the Securities Act (the "Restricted Shares"), may not be sold unless they
are registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 promulgated under the
Securities Act. The Restricted Shares were issued and sold by us in private
transactions in reliance upon exemptions from registration under the Securities
Act and may only be sold in accordance with the provisions of Rule 144 of the
Securities Act, unless otherwise registered under the Securities Act.
As of December 31, 2003, we had issued and outstanding 2,639,080 shares of
Series A Convertible Preferred Stock, all of which are "restricted" within the
meaning of Rule 144 as noted above. Also as of December 31, 2003, we were
obligated to issue 12,000 shares of our Series B Convertible Preferred Stock.
Upon issuance, these shares will also be "restricted" securities.
We are required to register the shares of Common Stock underlying conversion
features of our Series A Convertible Preferred Stock. The sale of our Common
Stock underlying any such registration statement may also adversely affect the
market price of our Common Stock, result in substantial dilution to our
stockholders and might also adversely affect our ability to raise additional
capital. Shares of common stock underlying our Series B Convertible Preferred
stock do not have registration rights.
22
The possibility of future sales by existing stockholders under Rule 144 or
otherwise will, in the future, have a depressive effect on the market price of
our Common Stock, and such sales, if substantial, might also adversely affect
our ability to raise additional capital.
Acquisition of Total OnScreen Contract Ownership by NMMI
--------------------------------------------------------
In connection with the purchase of Units (as defined herein), the exercise of
Warrant #1, and assuming the exercise of Warrant #2, the investors who took part
in the Private Placement and the Company agreed to the following facts and
terms:
o On or about July 23, 2001 NMMI entered into a Contract and License
Agreement (hereafter the "OnScreen License Agreement") with the
inventor of the OnScreen technology which agreement entitled NMMI to
75% of the revenue generated from the OnScreen technology and
guaranteed the inventor a minimum royalty of $50,000 the first year,
$100,000 the second year and $250,000 each year thereafter as well as
providing that if John "JT" Thatch were no longer employed with NMMI,
he be involved to his satisfaction with terms between NMMI and himself
to continue with the OnScreen project (hereafter "Thatch OnScreen
Rights").
o On or about August 28, 2002, NMMI entered into an agreement with
Fusion Three, LLC (hereafter "F3") whereby F3 paid the annual $50,000
OnScreen(TM) license fee in consideration for NMMI conveying to F3 5%
of the NMMI interest in the OnScreen License Agreement. In December
2002 NMMI and F3 entered into an addendum to the August 28, 2002
agreement whereby F3 paid the $100,000 second year revenue guarantee
in consideration for an additional 10% of the NMMI interest in the
OnScreen(TM) License Agreement.
o In July 2003 F3 entered into an Option Agreement with the OnScreen(TM)
inventor for F3 to purchase all of the inventor's contract rights,
including all royalty rights, in the OnScreen License Agreement in
consideration for $500,000 (hereafter the "Option Agreement"). This
agreement was contingent on NMMI consenting to the terms of the Option
Agreement.
o January 14, 2004, the inventor agreed to accept $175,000 in lieu of
the $250,000 third year annual revenue guarantee payment. NMMI paid
this sum.
o January 15, 2004, NMMI refused to consent to the July 2003 Option
Agreement and entered into an agreement with the inventor wherein it
was agreed that in consideration for the sum of $400,000 to be paid to
the inventor by March 31, 2004, the inventor will convey to NMMI all
of the inventor's contract rights, including all royalty rights, in
the OnScreen License Agreement. This $400,000 sum was paid on March
23, 2004.
o On February 3, 2004, John "JT" Thatch, CEO/President of the Company,
agreed to relinquish all Thatch OnScreen(TM) Rights in consideration
for 1% of all revenue derived from any licensing fees received by NMMI
in connection with the OnScreen(TM) technology.
o February 3, 2004, NMMI, F3 and all of the beneficial owners of F3
entered into a Master Settlement and Release Agreement whereby, in
consideration for the exchange of mutual releases and F3 relinquishing
any claim to any of the benefits of the OnScreen(TM)technology, NMMI
agreed to pay to F3 $150,000 within 5 days from receipt by NMMI of
proceeds of our recent private placement of Units plus an annually
declining percentage of revenue from 5% to 2% indefinitely. In the
event of a change in control of NMMI, the percentage of revenue shall
terminate and a single payment transaction fee shall be paid by NMMI
to F3 ranging from 10% of the consideration received by the Company in
connection with such change in control up to $100,000,000; 7.5% of
such consideration between $100,000,001 and $200,000,000; 5% of such
consideration between $2,000,001 and $3,000,000; 4% of such
consideration between $3,000,001 and
23
$4,000,000; 3% of such consideration between $4,000,001 and
$5,000,000; 2% of such consideration between $5,000,001 and
$6,000,000. No additional payment is required if total consideration
were to exceed $6,000,000.
o All contract/licensing rights relating to OnScreen(TM) are now owned
by New Millennium.
John "JT" Thatch Employment Contract and Share Entitlement:
-----------------------------------------------------------
o On November 2, 1999, we entered into an employment agreement with John
"JT" Thatch, our CEO and President. The agreement has a term of three
years and provides for an annual salary of $120,000 and issuance to
Mr. Thatch of shares of our common stock equal to 10% of all issued
and shares of common stock. The agreement also provides for
reimbursement of certain expenses and payment of certain benefits for
Mr. Thatch.
o On June 1, 2000, the employment agreement was amended to increase the
annual salary to $140,000 for calendar year 2000. For subsequent
years, the salary remained at $120,000 annually.
o On November 18, 2002, the employment agreement was extended for an
additional 3 years beginning January 1, 2003 through December 31,
2005.
o On February 3, 2004, a Second Addendum to the Employment Agreement was
entered into pursuant to which the Company agreed to cap Mr. Thatch's
entitlement to shares of common stock at 3,000,000 and pay him 1% of
all revenue derived from any licensing fees received by the Company in
connection with the OnScreen(TM) technology, provided that the Company
consummates the Private Placement in its entirety and receives the
portion of the Unit purchase price to which it is entitled.
Mark R. Chandler Employment Contract and Share Entitlement
-----------------------------------------------------------
o On December 16, 2003, the Company executed a three-year employment
agreement that is effective January 1, 2004 with its Chief Operating
Officer and Chief Financial Officer. The terms of this agreement are
as follows: i) Base salary of $120,000 during 2004, $150,000 during
2005 and $180,000 during 2006, ii) a sign-on bonus for $10,000 payable
before March 31, 2004 and eligible for the bonus plan as set up by the
Company, iii) receive 120,000 shares of Series A convertible preferred
stock for each period of June 2004, January 2005 and June 2005 and iv)
receive a warrant to purchase 100,000 shares of common stock at an
exercise price of $0.25 which expires on November 30, 2006. In the
event of a change of control, the Series A Convertible Preferred stock
shall immediately accelerate and be issued within 30 days of written
notice from the employee.
Stephen K. Velte Employment Contract and Share Entitlement:
-----------------------------------------------------------
o On May 1, 2003, NMMI entered into an employment agreement with Stephen
K. Velte to be employed as Director of Research and Development for a
six months term for a monthly salary of $10,000 in addition to 3 year
warrants to purchase 500,000 common shares at a per share price of
$0.25 at signing of the employment agreement; 750,000 common shares at
a per share price of $0.35 at completion of the OnScreen Phase II
prototype; 500,000 common shares at a per share price of $0.40 upon
NMMI receiving funding in excess of $150,000; and 250,000 common
shares at a per share price of $0.50 upon receipt by NMMI of payment
for commercial orders for OnScreen in excess of $200,000.
o Effective November 1, 2003, the employment agreement with Mr. Velte
was extended for an indefinite term at an increased salary of $150,000
for the first year, $180,000 for the second year and $240,000 for the
third year. The extension also provides for annual
24
discretionary bonus, initial stock grant of 450,000 shares of common
stock, which shares, if Mr. Velte is terminated for cause, may be
repurchased by NMMI at a declining graduated scale.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
--------
We have generated our cash needs through equity financings and loans from
officers and stockholders. As an operational company, we devote substantially
all of our efforts to securing and establishing new business. We have engaged in
limited activities in the advertising business, but no significant revenues have
been generated to date.
New Millennium has redirected its business focus from the EyeCatcherPlus and the
traditional LED signage to the innovative OnScreen(TM) technology. Because of
the redirection of the business focus, New Millennium assigned the
EyeCatcherPlus business to a marketing company, subject to a security interest
retained by New Millennium and a 15% non-dilutive ownership interest in the
marketing company. This assignment includes all rights to both the
IllumiSign-EyeCatcher and Front-Lit EyeCatcher Powered by Insight that had been
the mainstay of New Millennium over the past years. As a part of this business
plan, New Millennium is currently negotiating for conveyance of the mobile truck
mounted LED unit. This restructured plan is to totally focus all of the Company
resources on the OnScreen(TM) technology. The Company continues to devote
substantial present efforts to implementing its marketing plans designed to
establish new business accounts for its mobile LED boards and the motion display
boards. The Company presently conducts all marketing in-house and continues to
use the EyeCatcherPlus logo, marketing material and website.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that have a significant impact on the results we
report in the Company's financial statements. Some of the Company's accounting
policies require us to make difficult and subjective judgments, often as a
result of the need to make estimates of matters that are inherently uncertain.
Actual results may differ from these estimates under different assumptions or
conditions.
Asset Impairment
----------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset exceeds
its fair value and may not be recoverable. In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition. If 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 is recognized as the
excess of the carrying amount over the fair value. Otherwise, an impairment loss
is not recognized. Management estimates the fair value and the estimated future
cash flows expected. Any changes in these estimates could impact whether there
was impairment and the amount of the impairment.
Allowance for Doubtful Accounts
-------------------------------
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
Company regularly evaluates the collectability of its trade receivables. At the
point in time the Company determines that the
25
customer may not be able to meet its full obligation to the Company, the Company
records an allowance for doubtful accounts for the amounts the Company estimates
are not collectable. Any changes in these estimates could impact the Company's
statement of operations and financial position.
LIQUIDITY AND CAPITAL RESOURCES
The Company recently completed a Private Placement (as defined earlier).
The Private Placement consisted of 1,675 Units, which were offered at a purchase
price of $1,000 per Unit. Each unit consisted of 4,000 shares of common stock, a
warrant (Warrant #1) to purchase 4,000 shares of common stock at an exercise
price of $0.50 per share and a warrant (Warrant # 2) to purchase 2,000 shares of
common stock at an exercise price of $0.75 per share. The Private Placement also
consisted of the distribution to the purchasers of Units 30,000 shares of Series
B Convertible Preferred Stock, allocable on a pro-rata basis as follows: 12,000
shares allocable to the Unit purchasers, 12,000 shares allocable to the
exercisors of Warrant #1 and 6,000 shares allocable to the exercisors of Warrant
#2. As of February 2004 all 1,675 units had been sold and all investors had
exercised their rights with respect to Warrant # 1. All payments for Warrant #1
have been received by the Company, except for $150,000 which amount has been
paid by delivery to the company of promissory notes.
The total commissions, expenses and fees paid by the Company for this funding to
date was $770,920. As additional funding is received, additional fees and
commissions will be incurred up to a maximum of approximately 23% of the gross
proceeds of the offering. We believe that cash that will be generated from the
financing will be sufficient to meet our working capital requirements through
the end of 2004. The Company expects to begin generating revenue from its
OnScreen(TM) product line by the end of 2004. We cannot assure you that we will
generate revenues by that date or that our revenues will be sufficient to cover
all operating and other expenses of the Company. If revenues are not sufficient
to cover all operating and other expenses, we will require additional funding.
Although the EyeCatcherPlus and the mobile LED jumbo screen truck are believed
to be economically viable, management, in conjunction with the investors, made
the decision to ultimately divest the Company of the EyeCatcherPlus and mobile
LED unit in favor of total focus on the OnScreen(TM) development and marketing.
Our management continues to analyze our operations and streamline where
appropriate. On February 1, 2004, the Company and the building lessor agreed to
reduce the rent by approximately $2,000 per month and to reduce the square
footage of the office from 6,143 to 4,515. Management continues to explore
additional cost savings strategies, including the termination of personnel.
As an integral part of this focus it was determined that it was time for the
Company to retain the expertise of an experienced Chief Financial Officer with
operations experience and to solidify an already existing relationship with the
Chief Technical Officer. These additions to management brought about a
reevaluation of the employment contract with the current Company President/Chief
Executive Officer which resulted in an increase of compensation and bonus.
During the due diligence review of the various documents relating to the
Company's ownership of OnScreen(TM) licensing rights it was determined that it
was in the best interest of the Company that earlier agreements which conveyed
away certain small percentages of the Company's licensing rights be regained by
the Company. It was further determined that the original contract between the
Company and the OnScreen(TM) inventor, wherein the inventor retained
26
certain royalty rights, be renegotiated resulting with the Company purchasing
all OnScreen(TM) royalty rights.
With all of these conditions having been completed, the Company is now in the
process of marketing the OnScreen(TM) product, manufacturing rights and
licensing rights. Management expects the OnScreen(TM) technology to be
commercialized during the fourth quarter of 2004.
Heretofore, the Company has funded its operations and investments in equipment
through cash from operations, equity financings and borrowing from private
parties as well as related parties; however, there is no assurance that there
will be proceeds from these sources in the future. For a further explanation of
these loan transactions please see hereafter in this filing Notes to the
Financial Statement, December 31, 2003 and 2002, Note 7, Stockholders' Equity.
Stockholders' Deficiency increased from ($1,858,074) to ($94,637), an increase
of $1,763,437 from calendar year 2002 to 2003. As discussed below, this is the
result of a $740,762 increase of Total Assets and a $1,022,675 decrease of Total
Current Liabilities.
Cash increased from $16,335 at December 31, 2002 to $1,323,923 at December 31,
2003. This is the direct result of the Private Placement proceeds as discussed
in Notes to the Financial Statement, December 31, 2003 and 2002, Note 7,
Stockholders' Equity, (D) Private Placement. This infusion of capital was an
essential element in the change in focus of New Millennium from the
EyeCatcherPlus to the OnScreen(TM) technology as discussed above in Item 1,
Description of Business, OnScreen(TM) Technology.
The Property and Equipment value decreased from $1,065,870 in year-end 2002 to
$569,711 in year-end 2003. The $496,159 decrease is primarily the result of
depreciation of $175,192, write offs of $49,112 of LED equipment due to shortage
and impairment of $270,355 of the second LED mobile unit. These issues are
described in Notes to the Financial Statement, December 31, 2003 and 2002, Note
3, Property and Equipment.
Notes and Loans Payable and notes payable, related party decreased from
$1,297,940 and $303,657, respectively, at 2002-year end to $537,979 at 2003-year
end. Of this remaining payable, $334,412 has been satisfied and paid in full as
of March 12, 2004. During 2003, certain note holders converted $1,112,844 of
debt to Series A convertible preferred stock. See Notes to the Financial
Statement, December 31, 2003 and 2002, Note 7(A), Convertible Preferred Stock
Series A.
RESULTS OF OPERATIONS
The accompanying financial statements reflect the operations of New Millennium
for the fiscal years ended December 31, 2003 and 2002.
Revenue
-------
Total revenue for the year ended December 31, 2003 was $308,634, consisting
primarily of $115,204 in LED truck revenue, $62,700 from sale of EyeCatcherPlus
displays, $17,396 graphic work $12,228 in distributor fees and $88,791
advertising display income. Total revenue for the year ended 2002 was $615,475,
consisting primarily of $190,837 in LED truck revenue, $38,144 graphic work,
$63,629 advertising display income and $285,700 of EyeCatcherPlus display sales.
Total revenues decreased approximately $306,841, or 50%, compared to
approximately $615,475 for the year ended December 31, 2002. This decrease is
primarily the result of the refocus of the business from the EyeCatcherPlus to
the OnScreen(TM) technology.
27
Revenues are recognized as the services are completed. For all revenue types,
recognition criteria also includes assessing whether pervasive evidence of an
arrangement exits, the sales price is fixed or determinable, and collectability
is reasonably assured.
Graphic arts revenue is the revenue resulting from the design and printing of
the posters that are displayed in the EyeCatcherPlus displays. This revenue is
recognized at completion of services.
Territory Fees consist of fees paid by distributors for the contractual
exclusive right to purchase EyeCatcherPlus displays for a specific geographic
area. These fees are recorded as deferred revenue liability and then recognized
over the term of the distributor contract.
Advertising revenue is recognized pro-rata over the term of the customer
contract or arrangement and customer prepayments received are recorded as
deferred revenue until revenue recognition is earned.
EyeCatcherPlus displays are placed in service for a fee and revenue is
recognized over the placement period. On occasion, the EyeCatcher Displays are
sold on a special order basis. Revenue and cost of revenue from these special
order basis sales of the EyeCatcher Displays are recognized at the time the
boards are shipped to the customer.
LED Truck rental revenue is recognized pro-rata as earned over the rental
period. Rental periods generally do not exceed 14 days.
During 2003, 55% of revenues were derived from two customers at 32% and 23%.
Cost of Revenues
----------------
The $125,021 Cost of Revenues as of December 31, 2003 is comprised principally
of $49,112 Boards Shrinkage (damage, lost and stolen boards) and $74,400 Cost of
Goods Sold. The $187,300 Cost of Revenues as of December 31, 2002 is comprised
mainly of $158,045 Cost of Goods Sold (purchase of new boards, sales commissions
to host venues). The result is a net decrease of $62,279 when comparing year-end
2003 to the same term of 2002.
As an integral part of the Company re-direction, on February 3, 2004, the
Company entered into an agreement with Visual Response Media Group, Inc.
pursuant to which the Company conveyed and assigned its right, title and
interest in EyeCatcherPlus and Drive Time Network (except to its Display assets)
as well as the right for the third party to place fifty of the EyeCathcherPlus
Displays. The third party will pay the Company five percent of the gross
advertising sales revenue derived from these Displays. When an average of at
least four annual advertisements per each of the fifty Displays have been sold
and paid for, the third party can then place the next fifty EyeCatcherPlus
displays. This will continue in increments of fifty displays until the total New
Millennium remaining display inventory have been placed. The five percent fee
will continue for the duration of the 10 year contract. In addition to the
foregoing payments, the third party has issued fifteen percent of its stock to
the Company. The Company has also agreed to issue warrants to this third party
once it receives 200,000 shares of the Company's common stock back from another
company. The warrants will authorize the purchase of 200,000 shares of New
Millennium $0.001 par value common shares at a price of $0.50 per share for a
term of 2 years. The Company has also agreed to contribute $5,000 monthly to
this party for the five months beginning February 2004.
28
It is anticipated that by year-end 2004 all direct revenue from the
EyeCatcherPlus and mobile LED truck will cease. Although the Company is no
longer seeking new EyeCatcherPlus customers because of the assignment of the
EyeCatcherPlus business as noted above, New Millennium is still encouraging new
business development for the mobile LED truck because it remains a source of
revenue and management feels that sale of the mobile LED Truck can better be
marketed as a revenue producing element.
OPERATING EXPENSES
Selling, General and Administrative expenses
--------------------------------------------
Selling, General and Administrative expenses includes such items as contract
labor, general office supplies and printing, management fees and expenses,
telephone, cell phone, automobile and travel expenses, Internet service, office
security, utilities, transfer agent fees, legal and accounting fees, insurances,
business promotion and entertainment.
Selling, General and Administrative expenses in fiscal 2003 were $2,788,608
compared to $3,138,157 in fiscal 2002, a decrease of $349,549 (11%). The primary
contributing elements to this expense total for 2003 are compensation for
management including technical OnScreen(TM) personnel ($565,353), other
compensation of $303,402, contract labor ($78,131), expenses for outside
consultants relating to management and financial matters ($605,613), royalties
paid relating to the OnScreen(TM) ($200,327), research and development expenses
relating to the OnScreen(TM) ($204,750), professional accounting and legal fees
($150,447), office and warehouse rent ($147,477) and depreciation of property
and equipment ($175,192).
SG&A expenses in fiscal 2002 were $3,138,157. The contributing elements to this
expense total for 2002 are compensation for management including technical
OnScreen(TM) personnel ($301,432), contract labor ($5,572), expenses for outside
consultants relating to management and financial matters ($175,559), royalties
paid relating to the OnScreen(TM) ($138,943), professional accounting and legal
fees ($105,852), office and warehouse rent ($133,183) and depreciation of
equipment ($173,874).
The Company executed a 5-year office lease commencing May 1, 2001. With sixty
days prior written notice, the Company has the right to renew this lease for an
additional five years. The annual rent escalation is the greater of the CPI or
3%. Rental expense was $147,478 and $133,183 in 2003 and 2002, respectively.
During August 2003, the Company issued 200,000 shares of common stock to be held
as collateral for future payments on this lease.
On February 1, 2004, the Company and the building lessor agreed to reduce the
rent by approximately $2,000 per month and to reduce the square footage of the
office from 6,143 to 4,515.
Although there is the $349,549 decrease in Operating Expenses, the Company began
its refocus as mentioned above in mid 2003. This refocus is the major cause for
the decrease in operating expense.
Bad Debt
--------
Bad Debt has increased by $58,183 from December 31, 2002 ($80,484) to December
31, 2003 ($138,667). This sum is the aggregate of allowance for rent receivable
and write off of uncollectable EyeCatcherPlus accounts. The uncollectable
account is primarily due to inability to collect receivables from advertisers
and former distributors over the past two years. In an effort to minimize future
uncollectables, management requires advertisers to pay in advance
29
and current distributors are required to purchase geographic territories by
paying in advance and, in most instances, purchasing the EyeCatcherPlus displays
by payment in full prior to delivery.
Commitment Penalty Expense - Swartz
-----------------------------------
At December 31, 2003, the Commitment Penalty Expense - Swartz was $266,126,
$4,890 more than the $261,236 amount at December 31, 2002. The Company had an
agreement with Swartz Private Equity, LLC (Swartz) to provide certain funding to
the Company. If the Company did not meet certain requirements it was subject to
a penalty of up to $100,000 for each six-month period. During 2002, the Company
computed $400,000 in penalties, of which $200,000 were waived by Swartz. During
2003, the Company computed $200,000 in penalties and $300,000 in penalties were
waived by Swartz which resulted in a $100,000 accrued commitment penalty at
December 31, 2003. The commitment penalty expense in 2003 also includes a
$66,126 expense to modify some of the Swartz warrants (see below).
During 2002, the Company issued 299,284 of warrants to purchase common stock in
accordance with the agreement with an exercise price of $0.29 and an expiration
date of December 31, 2007 and these warrants were valued at $102,555. This
brought a total warrants issued and outstanding to Swartz of 541,558. During
2003, the Company and Swartz entered into an amendment that extended the terms
of each of the 541,558 warrants by two additional years. On October 22, 2003,
Swartz exercised all of the 541,558 warrants in a cashless exercise transaction
which resulted in Swartz being entitled to receive 379,907 shares of the
Company's common stock.
On February 3, 2004, the Company and Swartz entered into a settlement and
termination of investment agreement. The Company agreed to issue the 379,907
shares of common stock from the cashless exercise of the Swartz warrants of
which Swartz agreed to limit its sales of these shares of Company stock to ten
percent of the Company's trading volume for any calendar month, Swartz retained
the 100,000 shares of stock that had been issued during 2002 per the initial
agreement and the investment agreement between the Company and Swartz was
terminated. During February 2004, the Company issued the 379,907 shares of
common stock.
Impairment Loss
---------------
At December 31, 2003, the Impairment Loss was $270,355 compared to $250,000 for
the same term in 2002, an increase of $20,355.
Prior to 2003, the Company incurred costs totaling $520,355 for the development
of a second LED Truck to be used to generate LED Truck rental revenues. The
development of this second truck experienced technical problems and delays
resulting in cost increases. At December 31, 2003, the Company had not taken
possession of that truck as the truck did not meet the specifications the
Company required, thus the truck had not been placed into service and
accordingly, no depreciation has been taken on that truck. During 2002,
management evaluated the recovery of the recorded value of this truck and
determined there was an impairment loss of $250,000 that was recorded in 2002.
Management is currently in a dispute with the LED truck vendor and since the
outcome is unknown as to whether the Company will receive the truck or any
monetary recovery from the vendor, the Company wrote off the remaining balance
and recorded an impairment loss of $270,355 during 2003.
Total Operating Expenses
------------------------
Total Operating Expenses decreased by $266,121 from the year-end of 2002
($3,729,877) compared to $3,463,756 at December 31, 2003. This decrease is, in
large part, the result of the
30
$349,549 decrease in SG&A expenses as noted above which is caused by redirecting
the Company toward OnScreen(TM).
Loss From Operations
--------------------
Loss From Operations at December 31, 2003 was $3,280,143 compared to $3,301,702
for the same period of 2002, a $21,559 decrease (1%). This loss is a direct
function of Gross Profit and Total Operating Expenses as detailed above.
Other Income
------------
Other Income declined by $12,602 when comparing the $61,800 amount at December
31, 2002 to $49,198 for December 31, 2003. This consists primarily of $29,670 of
sublease income from the Company's renting to an affiliate and $19,529 from a
non-affiliate. For year-end 2002 the Other Income was primarily from the same
parties.
Settlement Gain (Loss), Net
---------------------------
At year-end 2003 the Company recognized a Settlement Gain of $314,193 and a
Settlement loss of $248,206 for a net Settlement Gain of $65,987. The Settlement
Gain in 2003 relates primarily to a waiver by Swartz Private Equity in 2003 of
$300,000 in accrued penalties. Settlement Gain increased by 8% ($4,923) from the
2002 year-end ($61,064) compared to $65,987 for the period ending 2003.
Settlement Losses reflect the various issuances of capital stock as settlements
of debt or accrued obligations or other matters where the value of the stock
exceeded the recorded obligation.
Interest Expense
----------------
Interest Expense for 2003-year end was $273,549 compared to $264,922 at December
31, 2002, an increase of $8,627 (3%). For both years this expense relates to
interest on loans and notes and the value of options issued under default
provisions of certain notes.
In 2001 the Company borrowed $250,000 and agreed to pay 5% per annum interest.
The lenders had a right to purchase 25,000 of common shares for each month
during 2002 and 2003 because the Company was in default on the notes during
these years. During 2002, the Company granted 300,000 warrants under the default
provisions that were valued at $85,002 and charged to interest. All of these
warrants were exercised as of December 31, 2002. During 2003 the Company granted
300,000 warrants under the default provisions of the notes that were valued at
$122,500 and charged to interest expense. All of these warrants were exercised
as of December 31, 2003. These notes were paid in full on March 12, 2004 by
paying the note holders $250,000 and issuing 12,500 shares of the Company's
common stock.
The Company had loans payable including accrued interest to its President/CEO
totaling $303,657 at December 31, 2002. During 2003, the Company recorded
interest expense of $16,435, made loan payments of $4,371 and converted the
total loan and accrued interest total of $315,721 to Series A Convertible
preferred Stock during 2003.
A creditor alleged that he holds a convertible promissory note for $234,869 at
8% interest accruing from August 1999. It is the position of the Company that
the note is not valid; however, as a contingency, the Company recorded interest
expense of $24,301 and $53,897 in 2003 and 2002, and has a total of $328,058 in
accrued expenses at December 31, 2003 relating to this matter. On February 5,
2004, the Company satisfied this alleged debt with 60,000 shares of the
Company's common stock and will record a settlement gain of $275,860 in February
2004.
31
Total Other Expenses, Net
-------------------------
The Total Other Expenses, Net for yearend 2003 was $158,364 compared to $142,058
at year-end 2002, an increase of $16,306 (11%). As noted above, the $12,602
decrease in Other Income exceeded by $7,699 the $4,923 Settlement Gain. This
$12,602 decrease together with the $8,628 increase in Interest Expense comprises
the 11% increase in Total Other Expenses, Net.
Net Loss
--------
The $5,253 Net Loss decrease from the yearend 2002 loss ($3,443,760) is less
than 1%. Management feels that this nearly constant amount is indicative of
overhead cost savings measures (See SG&A above) as a part of the revised Company
business model.
Preferred Stock Dividends
-------------------------
In 2002, the Company designated 5,000,000 shares of preferred stock as new
Series A Convertible Preferred Stock. The Series A Convertible Preferred stock
is convertible to common shares on a four-for-one basis, is due dividends at
$0.10 per share as authorized by the Board, has a liquidation value of $1.00 per
share and has equivalent voting rights as common shares on a share for share
basis.
During 2003, the Company recorded $951,765 for the intrinsic value associated
with the embedded beneficial convertible feature of the Series A Convertible
Preferred stock. This amount was computed as the difference between the
conversion price and the fair value of the preferred stock, which was computed
as the fair value of the common stock based on the quoted trading price and the
various preferred stock issuance dates, multiplied by the four-for-one
conversion ratio (this intrinsic value is limited to the amount of the proceeds
allocated to the preferred stock). For financial statement purposes, this
$951,765 was recorded as a preferred stock dividend. The Company recorded Series
A Convertible Preferred stock dividends of $102,835 during 2003.
Basic and Diluted Loss Per Common Share
---------------------------------------
In accordance with, Statement of Financial Accounting Standards No. 128
"Earnings per Share", basic net loss per share is computed by dividing the net
loss less preferred dividends for the period by the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed by dividing net loss less preferred dividends by the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares outstanding as of December 31, 2003 and 2002, which
consist of options, warrants, convertible notes and convertible preferred stock,
have been excluded from the diluted net loss per common share calculations
because they are anti-dilutive. Accordingly, basic and diluted net loss per
share is the same as basic net loss per share as of December 31, 2003 and 2002.
The following table summarizes the Company's common stock equivalents
outstanding at December 31, 2003, which may dilute future earning per share.
Convertible notes 804,408
Convertible preferred stock 10,756,320
Warrants and options 15,990,000
Contingently returnable shares 200,000
-----------
27,750,728
===========
32
TRENDS AND EVENTS
At the last quarter of 2003 the Company implemented a revised business plan that
encompasses the divestment of the EyeCatcherPlus and mobile LED unit and the
infusion of up to $7,537,500 operational capital; total company focus on the
OnScreen(TM) technology; hiring and restructuring contracts relating to the
President, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Chief Technical Officer; reducing current debt by paying or
converting debt to equity and the Company obtaining ownership of all
OnScreen(TM) licensing rights. A great deal of time and effort has been invested
by Company management in structuring this revised business plan. Because of the
newness of this plan, there is not yet any evident trend relating to this
business strategy. Although there is no real assurance that this revised
business model will generate revenue, in the opinion of management, the
cumulative effect of these revisions will reflect a positive trend in company
revenues.
INFLATION
We believe that the impact of inflation and changing prices on our operations
has been negligible.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements are attached as an exhibit.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
-------------------------------------------------
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of the design and operations of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of December 31, 2003. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective such that the
material information required to be included in our Securities and Exchange
Commission ("SEC") reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms relating to New
Millennium Media International, Inc. during the period when this report was
being prepared.
Changes in internal controls over financial reporting.
------------------------------------------------------
In addition, there were no significant changes in our internal control over
financial reporting that could significantly affect these controls during fiscal
year ended December 31, 2003. We have not identified any significant deficiency
or materials weaknesses in our internal controls, and therefore there were no
corrective actions taken.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
33
The following are officers and directors of the Company.
Name Age Position
---------------- --- ----------------------------------
John Thatch 41 Chief Executive Officer, President
and Director
Mark R. Chandler 49 Chief Operating Officer and
Chief Financial Officer
Russell L. Wall 60 Director
Jennifer Freeman 30 Corporate Secretary
Because we are a small company, we are currently dependent on the efforts of a
limited number of management personnel. We believe that because of the large
amount of responsibility being placed on each member of our management team, the
loss of the services of any member of this team at the present time would harm
our business. Each member of our management team supervises the operation and
growth of one or more integral parts of our business.
All directors hold office until the next annual meeting of shareholders of the
Company and until their successors are elected and qualified. Officers hold
office until the first meeting of directors following the annual meeting of
shareholders and until their successors are elected and qualified, subject to
earlier removal by the Board of Directors.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS AND DIRECTORS
John "JT" Thatch, President/CEO and Director
--------------------------------------------
Mr. Thatch, age 42 years, has served as, Chief Executive Officer, President and
a Director of New Millennium Media International, Inc. since January 2000. His
responsibility is to oversee all functions of the company, including day-to-day
operations. Mr. Thatch was directly responsible for securing the OnScreen
licensing rights for New Millennium and has been instrumental in securing talent
and identifying opportunities associated with the technology. Mr. Thatch has
over 15 years of entrepreneurial business experience that includes executive
management positions in various companies that he has founded or managed. Mr.
Thatch holds positions on various Boards ranging from private and public
companies to non-profit organizations and is an active member of the CEO
Council. Mr. Thatch attended Saint Petersburg College and holds a Bachelor of
Arts Degree in Business Administration from Middleham University. He brings
leadership, marketing and strong management skills to the company.
Mark R. Chandler, Chief Operating Officer and Chief Financial Officer
---------------------------------------------------------------------
Mark R. Chandler - Mr. Chandler joined NMMI in January 2004 after working 23
years with Sara Lee Corporation where he held several senior positions in
finance, general management and operations. He most recently was the CEO of
Business Development Europe and was a member of the Board of Directors of Sara
Lee Apparel Europe. Previously, he was the Group Chief Financial Officer for the
$2 billion European apparel group for Sara Lee and responsible for all financial
and administrative activities, IT, and strategic planning. Additionally, he led
the organization and launch of a new technological breakthrough product for the
European apparel market. Mr. Chandler has extensive and diversified
international experience in finance, IT, strategic planning and implementation,
operations and general management, treasury, business development and corporate
development including acquisitions and divestments. Mr. Chandler began his
career with American Express as an internal consultant and held several
financial positions with General Foods. He moved to Playtex, Inc. in 1980 and
actively participated in two leverage buyouts prior to the company being sold to
Sara Lee in 1991. Mr. Chandler holds
34
a bachelor of arts degree in mathematics and economics from Whitman College in
1976 and a MBA in finance and marketing from Columbia University Graduate School
of Business in 1978. Mr. Chandler is a member of the European Executive Council
and is a Director of the non-profit Frontier Foundation.
Jennifer H. Freeman-Goggin, Corporate Secretary
-----------------------------------------------
Jennifer H. Freeman-Goggin has served as Corporate Secretary since August 7,
2001. During this time she has prepared, managed and maintained as permanent
records of the corporation, all official corporate minutes (shareholder and
board of directors meetings), official corporate records and contracts as well
as additional corporate secretarial duties customarily performed by corporate
secretaries and as authorized by the corporate by-laws. Ms. Freeman-Goggin has 6
years of corporate management experience and three years of college level
business management education.
Russell L. Wall, Director
-------------------------
Mr. Wall was appointed to the Board of Directors in November 2003. He also
serves as Chairman of the Audit Committee. Mr. Wall holds a Bachelor of Science
degree in Engineering from Iowa State University, a MBA degree in
finance/marketing from University of Santa Clara and a Chartered Financial
Analyst designation. Prior to his retirement in 2000, Mr. Wall was Chief
Financial Officer for 12 years which was a publicly traded company. His
responsibilities included financial/accounting management, internal and external
financial reporting, strategic planning and other operational duties. Mr. Wall
brings 5 years experience in the financial securities industry as a consultant
and portfolio manager with a Wall Street and a private investment management
firm. He also brings 10 years Fortune 100 company experience in the engineering
and construction industry with assignments as Analysis and Development Engineer,
Planning and Control Manager and Project Manager.
Steven Velte, Director of Research and Development and Chief Technology Officer
--------------------------------------------------------------------------------
Mr. Velte spent 18 years with Hewlett-Packard and the HP spin-off, Agilent
Technologies. He provided first customer market placement and design input for a
variety of technologies including state-of-the-art Remote Fiber Test Systems
deployed in the 1996 Atlanta Olympics, PC- based instrumentation and
Hewlett-Packard's "acceSS7" system. With Mr. Velte as a key team leader,
"acceSS7" system sales grew from zero to over $1 billion of installed base. For
Agilent, Mr. Velte also spearheaded a variety of global partnering arrangements
with companies providing leading edge solutions for telecommunications fraud and
advanced telecom billing. He has been personally recognized by the CEO of
Agilent for his contributions as an editor to the widely respected
Telecommunications News and the creation of the first worldwide "acceSS7" User's
Conference. Mr. Velte personally holds two US patents and received his
electrical engineering degree from Virginia Polytchenic Institute in 1984.
AUDIT COMMITTEE
The Audit Committee is established pursuant to the Sarbanes-Oxley Act of 2002
for the purposes of overseeing the company's accounts and financial reporting
processes and audits of its financial statements. An independent member of the
Board of Directors, Russell L. Wall, was appointed as the Audit Committee's
chairman. The Audit Committee is one of the three elements of financial
reporting, with the other two being the CFO and the independent auditor. The
Audit Committee's role includes oversight of the independent auditor, review of
financial reporting, internal company processes of business/financial risk and
applicable legal, ethical and regulatory requirements. The Audit Committee has
established a procedure to receive complaints regarding accounts, internal
controls and auditing issues.
35
ITEM 10. EXECUTIVE COMPENSATION
The following table lists the cash remuneration paid or accrued during 2001,
2002 and 2003 to our officers, executives and directors who received
compensation of $100,000 or more in 2001, 2002 and 2003.
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
--------------------------------------------------------------------------------------------------------------------
Securities
Name and Restricted Underlying LTIP
Principle Salary Bonus Other Annual Stock Options/SARs Payouts All Other
Position Year ($) ($) Compensation($) Award(s) (#) ($) Compensation ($)
--------------------------------------------------------------------------------------------------------------------
John Thatch, 2003 140,000 10,000 311,777
Pres./CEO 2002 120,000 10,000 156,706
2001 120,000 none 10,000 825,000 none none none
--------------------------------------------------------------------------------------------------------------------
Director Compensation
---------------------
Other than as noted below, no Director is compensated for the performance of
duties in that capacity or for his/her attendance at Director meetings. In
November 2003 Russell L. Wall was appointed to the Board of Directors. In
February 2004 he received a director fee of a 3 year warrant for the purchase of
100,000 common shares at a per share price of $0.25.
EMPLOYMENT AGREEMENTS
President
---------
In November 1999, the Company executed a three-year employment agreement with
its president that was amended on June 2000. The agreement provides for a base
salary of $140,000 in year one and $120,000 per year in years two and three, a
non-accountable expense allowance of $10,000 per year, a stock issuance equal to
10% of the outstanding common shares, and discretionary incentive compensation
payments. It also provided that the President/CEO would receive incentive
compensation payments which are not less than the highest such payments provided
to any other senior executive of the Company. This agreement was renewed in late
2002 for another three-year term with the same provisions expiring December 31,
2005.
On February 3, 2004, a Second Addendum to the Employment Agreement was entered
into pursuant to which the Company agreed to cap Mr. Thatch's entitlement to
shares of common stock at 3,000,000 and pay him 1% of all revenue derived from
any licensing fees received by the Company in connection with the OnScreen(TM)
technology, provided that the Company consummates the Private Placement in its
entirety and receives the portion of the Unit purchase price to which it is
entitled. On February 10, 2004, the Company's board of directors approved
increasing the President's salary to $150,000 for the duration of his employment
agreement since the employment agreement for the President included the
provision that he would get paid equal compensation to any other senior
executive of the Company (the Director of Research and Development's salary is
$150,000). The President will receive $120,000 in cash and the remaining $30,000
will be accrued.
36
Chief Operating Officer and Chief Financial Officer
---------------------------------------------------
On December 16, 2003, the Company executed a three-year employment agreement
that is effective January 1, 2004 with its Chief Operating Officer and Chief
Financial Officer. The terms of this agreement are as follows: i) Base salary of
$120,000 during 2004, $150,000 during 2005 and $180,000 during 2006, ii) a
sign-on bonus for $10,000 payable before March 31, 2004 and eligible for the
bonus plan as set up by the Company, iii) receive 120,000 shares of Series A
convertible preferred stock for each period of June 2004, January 2005 and June
2005 and iv) receive a warrant to purchase 100,000 shares of common stock at an
exercise price of $0.25 which expires on November 30, 2006. In the event of a
change of control, the Series A Convertible Preferred stock shall immediately
accelerate and be issued within 30 days of written notice from the employee.
Director of Research and Development and Chief Technology Officer
-----------------------------------------------------------------
In May 2003, the Company executed a six-month employment agreement (the
"Agreement") with the Director of Research and Development. The employee's
compensation was for $10,000 per month accrued but deferred until such time the
Company's technical division has sufficient cash on hand to pay the salary. At
the employee's option, such accrued salary may be converted to common or
preferred shares of the Company at the current bid price. In addition, the
employee is granted, upon execution of the employment agreement, three-year
warrants for 500,000 shares of the Company's common stock at an exercise price
of $0.25 per share; three-year warrants for 750,000 shares at $0.35 per share
upon completion of Phase II prototype as defined in the Agreement; three-year
warrants for 500,000 shares at $0.40 per share upon receipt by the Company of
any Next Stage OnScreen funding in excess of $150,000 as defined in the
Agreement and three-year warrants for 250,000 shares at $0.50 per share upon
receipt by the Company of payment for commercial orders in excess of $200,000.
During 2003, the Company issued 1,750,000 of the warrants in accordance with the
Director of Research and Development's agreement. The remaining 250,000 warrants
were not issued at December 31, 2003, as the criteria for the shares to be
issued had not been met. The expense relating to the warrant to purchase 500,000
shares of common stock was recognized over the six-month agreement term and the
warrant to purchase 1,250,000 of common stock was recognized at the time the
related milestones were met.
On February 5, 2004, the above agreement was extended with an effective date of
November 1, 2003 for a three-year term. The salary will be $150,000 in the first
year, $180,000 in the second year and $240,000 in the third year. This employee
has a right to 450,000 shares of the Company's common stock, these shares, if
the employee is terminated for cause or resigns, may be repurchased from the
employee for $450. The amount of shares that can be repurchased by the Company
declines by 150,000 shares each year, resulting in the shares being fully vested
on November 1, 2006.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of the date of this filing by: (i) each
shareholder known by us to be the beneficial owner of 5% or more of the
outstanding common stock, (ii) each of our directors and (iii) all directors and
executive officers as a group. Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. Shares of
common stock issuable upon exercise of options and
37
warrants that are currently exercisable or that will become exercisable within
60 days of filing this document have been included in the table.
Beneficial Interest Table
-------------------------
----------------------------------------------------------------------------------------------------------------------
Series A Convertible Series B Convertible
Common Stock Preferred Stock Preferred Stock
----------------------------------------------------------------------- Percent of
Name and address of Percent of Percent of Percent of all Voting
Beneficial Owner(1) Number Class(2) Number Class(3) Number Class(4) Securities(5)
----------------------------------------------------------------------------------------------------------------------
Brad Hallock (6) 5,260,000 18.99% -- -- 9,421 36.53% 25.67%
Makena Ventures, LLC 2,260,000 8.16% -- -- 4,048 16.87% 11.60%
Excipio Group, S.A. (7) 2,480,000 8.83% -- -- 2,150 8.70% 8.34%
Helen Duewel (8) 900,000 3.21% -- -- 1,613 6.57% 4.55%
Sid Ferris (8) 1,500,000 5.32% -- -- 2,687 10.79% 7.50%
Sid Ferris/Helen Duewel (8) 2,400,000 8.42% 4,300 16.91% 11.83%
Shelton Washburn (9) 1,250,000 4.45% -- -- 2,240 9.06% 6.29%
Steve Velte (10) 2,200,000 7.36% 250,782 9.29% -- -- 4.33%
Steven S. Hallock (11) 800,000 2.87% -- -- 1,432 5.88% 4.06%
John Thatch 3,000,000 10.22% 315,721 11.69% -- -- 5.91%
Mark Chandler (12) 366,667 1.32% 418,726 15.51% -- -- 1.44%
William F. Ryan (13) -- -- 424,276 15.71% -- -- *
Florence H. Ganson Trust -- -- 300,631 11.13% -- -- *
Russell Wall (14) 280,000 1.01% -- -- -- -- *
Maryatha Miller -- -- 210,000 7.78% -- -- *
Richard S. Kearney -- -- 150,000 5.55% -- -- *
Officers, Directors,
Executives as a group 5,846,667 18.41% 985,229 36.48% -- -- 11.69%
* Less than 1 percent
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
New Millennium Media International, Inc., 200 9th Avenue North, Suite 200,
Safety Harbor, Florida 34695.
(2) Calculated on the basis of 27,699,683 shares of common stock issued and
outstanding as of February 17, 2004 except that shares of common stock
underlying options and warrants exercisable within 60 days of the date
hereof are deemed to be outstanding for purposes of calculating the
beneficial ownership of securities of the holder of such options or
warrants. This calculation excludes shares of common stock issuable upon
the conversion of Series A Preferred Stock and Series B Preferred Stock.
(3) Calculated on the basis of 2,700,580 shares of Series A Preferred Stock
issued and outstanding as of February 17, 2004.
(4) Calculated on the basis of 24,000 shares of Series B Preferred Stock issued
and outstanding as of February 17, 2004.
(5) Calculated on the basis of an aggregate of 27,699,683 shares of common
stock with one vote per share, 2,700,580 shares of Series A Preferred Stock
with one vote per share, and 24,000 shares of Series B Preferred Stock with
1,000 votes per share, issued and
38
outstanding as of February 17, 2004, except that shares of common stock
underlying options and warrants exercisable within 60 days of the date
hereof are deemed to be outstanding for purposes of calculating beneficial
ownership of securities of the holder of such options or warrants.
(6) Includes direct entitlement and third party management shares. Mr. Brad
Hallock has the right to acquire 1,000,000 common shares pursuant to a
warrant and 1,791 Series B Convertible Preferred stock shares pursuant to
exercising the above warrant. As co-manager of Makena Ventures, LLC, Mr.
Brad Hallock's common stock shares include 2,260,000 shares owned by Makena
Ventures, LLC and the Series B Convertible Preferred shares include 4,048
shares owned by Makena Ventures, LLC.
(7) Includes 400,000 common stock shares Excipio Group S.A. has a right to
acquire pursuant to exercising a warrant and 717 Series B preferred stock
shares Excipio Group S.A. has a right to acquire pursuant to exercising the
above warrant.
(8) Mr. Ferris owns 1,000,000 shares of common stock and his wife, Ms Duewel
owns 600,000 shares of common stock. Includes 500,000 common shares Mr.
Ferris has the right to acquire pursuant to a warrant and 896 Series B
convertible preferred stock shares Mr. Ferris has a right to acquire
pursuant to exercising his warrant. Includes 300,000 common shares Ms.
Duewel has the right to acquire pursuant to a warrant and 538 Series B
convertible preferred stock shares Ms. Duewel has a right to acquire
pursuant to exercising her warrant.
(9) Includes 400,000 common shares Mr. Washburn has the right to acquire
pursuant to a warrant and 717 Series B preferred stock shares Mr. Washburn
has a right to acquire pursuant to exercising the above warrant.
(10) Includes direct entitlement and third party management shares Mr. Velte has
the right to acquire through warrants 1,750,000 common stock shares and
450,000 shares of common stock pursuant to his employment agreement. The
Series A Convertible Preferred shares include 99,604 shares owned by RSV
Productions, LLC and 101,178 shares owned by Fusion Three, LLC.
(11) Includes 200,000 common shares Mr. Steven Hallock has the right to acquire
pursuant to a warrant and 358 Series B preferred stock shares Mr. Steven
Hallock has a right to acquire pursuant to exercising the above warrant.
(12) Includes 100,000 common shares Mr. Chandler has the right to acquire
pursuant to a warrant.
(13) Includes 101,178 Series A shares owned by Fusion Three, LLC and 210,667
shares owned by Ryan Family Partners, LLC.
(14) Includes 100,000 shares Mr. Wall has the right to purchase pursuant to a
warrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth below, none of our directors or officers, nor any proposed
nominee for election as one of our directors or officers, nor any person who
beneficially owns, directly or indirectly, shares carrying more than 10% of the
voting rights attached to our outstanding shares, nor any relative or spouse of
any of the foregoing persons has any material interest, direct or indirect, in
any transaction in any presently proposed transaction which has or will
materially affect the Company.
We have entered into employment agreements with all of our senior management.
These employment contracts include provisions for the issuance of Common and
Series A Convertible Preferred shares as well as incremental salary increases.
For description of these employment agreements and related rights to our stock
options, see above Item 10, Executive Compensation, Employment Agreements.
39
In consideration for serving on our Board of Directors, on February 10, 2004 the
Company issued to Russell L. Wall a warrant to purchase 100,000 common shares
within 3 years at a per share price of $0.25.
ITEM 13. EXHIBITS AND REPORTS
Indemnification of Directors and Officers
-----------------------------------------
The Colorado General Corporation Act provides that each existing or former
director and officer of a corporation may be indemnified in certain instances
against certain liabilities which he or she may incur, inclusive of fees, costs
and other expenses incurred in connection with such defense, by virtue of his or
her relationship with the corporation or with another entity to the extent that
such latter relationship shall have been undertaken at the request of the
corporation; and may have advanced such expenses incurred in defending against
such liabilities upon undertaking to repay the same in the event an ultimate
determination is made denying entitlement to indemnification. The Company's
bylaws incorporate the statutory form of indemnification by specific reference.
The Company has never acquired or applied for any policy of directors' and
officers' liability insurance as a means of offsetting its obligation for
indemnity.
Reports to Shareholders
-----------------------
We intend to voluntarily send annual reports to our shareholders, which will
include audited financial statements. We are a reporting company, and file
reports with the Securities and Exchange Commission (SEC), including this Form
10-KSB as well as quarterly reports under Form 10-QSB. The public may read and
copy any materials filed with the SEC at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The
company files its reports electronically and the SEC maintains an Internet site
that contains reports, proxy and information statements and other information
filed by the company with the SEC electronically. The address of that site is
http://www.sec.gov.
The company also maintains an Internet site, which contains information about
the company, news releases and summary financial data. The address of that site
is http://www.nmmimedia.com.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, which are furnished herein as of
December 31, 2003 and for the years ended December 31, 2003 and 2002, have been
audited by Salberg & Company, P.A., Boca Raton, Florida, independent auditors,
as described in its reports with respect thereto.
The following list sets forth a brief description of each of the Company's
financial statements and exhibits being filed as a part of this Form 10-KSB, as
well as the page number on which each statement or exhibit commences:
Audited Fiscal Year End December 31, 2003
40
Index to Financial Statements F-2
Independent Auditor's Report - Salberg F-3
and Company, P.A.
Balance Sheet, December 31, 2003 F-4
Statements of Operations for
the years ended December 31, 2003
and 2002 F-5
Statements of Shareholder's Deficiency
Years ended December 31,
2003 and 2002 F-6
Statements of Cash Flows for the years
ended December 31, 2003 and 2002 F-8
Notes to Financial Statements F-10
41
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1* Amended Articles of Incorporation of the Company.
3.2* Bylaws of the Company.
3.3** Articles of Amendment to Certificate of Incorporation -
Certificate of Designations, Preferences, Limitations and
Relative Rights of the Series A Preferred Stock, filed July
25, 2002.
3.4** Articles of Amendment to Articles of Incorporation-Terms of
Series A Convertible Preferred Stock, filed November 13, 2003.
3.5** Amendment to Restated Articles of Incorporation, filed
December 23, 2003.
3.6** Articles of Amendment to Certificate of Incorporation -
Certificate of Designations of the Series B Convertible
Preferred Stock, filed April 1, 2004.
4.1* Investment Agreement dated May 19, 2000 by and between the
Registrant and Swartz Private Equity, LLC.
4.2* Form of "Commitment Warrant" to Swartz Private Equity, LLC for
the purchase of 1,000,000 shares common stock in connection
with the offering of securities.
4.3* Form of "Purchase Warrant" to purchase common stock issued to
Swartz Private Equity, LLC from time to time in connection
with the offering of securities.
4.4* Warrant Side-Agreement by and between the Registrant and
Swartz Private Equity, LLC.
4.5* Registration Rights Agreement between the Registrant and
Swartz Private Equity, LLC related to the registration of the
common stock to be sold pursuant to the Swartz Investment
Agreement.
10.1** Employment Agreement between the Registrant and John Thatch,
dated November 2, 1999.
10.2** Contract and License Agreement between the Registrant and John
Popovich, dated July 23, 2001.
10.3** Agreement by and among the Registrant, John Popovich and
Fusion Three, LLC, dated January 14, 2004.
10.4** Letter Agreement between the Registrant and John Popovich,
dated January 15, 2004.
42
10.5** Master Settlement and Release Agreement by and among the
Registrant, Fusion Three, LLC, Ryan Family Partners, LLC, and
Capital Management Group, Inc., dated February 3, 2004.
10.6** First Amendment to Contract and License Agreement, dated
February 3, 2004.
10.7** Employment Agreement between the Registrant and Mark R.
Chandler, COO/CFO, dated December 16, 2003.
10.8** Employment Agreement between the Registrant and Stephen K.
Velte, CTO dated November 7, 2003.
10.9** Reserved.
10.10*** Consulting Services Agreement by and among the Registrant,
David Coloris, Excipio Group, S.A., dated December 22, 2003.
10.11** Commission Agreement between the Registrant and Gestibroker
dated September 12, 2003.
10.12** Addendum to Lease Agreement dated February 1, 2004.
10.13** Reserved.
10.14** Reserved.
10.15** Lockup Agreement between the Registrant and Excipio Group,
S.A., dated December 12, 2003.
10.16** Agreement between the Registrant and Visual Response Media
Group, Inc., dated February 3, 2004.
31** Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Exchange Act Rules 13a-15(e) and
15d-15(e), As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32** Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99** Senior Financial Officers Code of Ethics.
* Incorporated by reference to our Registration Statement on Form SB-2/A filed
with the Commission on October 26, 2001.
** Filed herewith.
*** Incorporated by reference to our Current Report on Form S-8 filed with the
Commission on January 15, 2004.
43
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 15, 2004 in connection
with the execution of a Consulting Services Agreement with David Coloris and
Excipio Group, S.A.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND EXPENSES
Compensation of Auditors
------------------------
Audit Fees. The financial statements of the Company, which are furnished herein
as of December 31, 2003, have been audited by Salberg & Company, P.A., Boca
Raton, Florida, independent auditors. Salberg & Company, P.A. billed the Company
an aggregate of $52,000 in fees and expenses for professional services rendered
in connection with the audit of the Company's financial statements for the
fiscal year ended December 31, 2003 and the reviews of the financial statements
included in each of the Company's Quarterly Reports on Form 10-QSB during the
fiscal year ended December 31, 2003. Salberg & Company, P.A. billed the Company
an aggregate of $49,000 in fees and expenses for professional services rendered
in connection with the audit of the Company's financial statements for the
fiscal year ended December 31, 2002 and the reviews of the financial statements
included in each of the Company's Quarterly Reports on Form 10-QSB during the
fiscal year ended December 31, 2002.
The Company paid these sums.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
New Millennium Media International, Inc.
Name Title Date
---- ----- ----
/s/ John "JT" Thatch CEO/President/Director April 14, 2004
-------------------------
John "JT" Thatch
/s/ Mark R. Chandler COO/CFO April 14, 2004
-------------------------
Mark R. Chandler
/s/ Russell L. Wall Director/Audit Committee April 14, 2004
-------------------------
Russell L. Wall
44
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
F-1
New Millennium Media International, Inc.
Contents
Page
--------
Independent Auditors' Report F-3
Balance Sheet F-4
Statements of Operations F-5
Statement of Changes in Stockholders' Deficiency F-6-F-7
Statements of Cash Flows F-8-F-9
Notes to Financial Statements F-10-F-35
F-2
Independent Auditors' Report
To the Board of Directors of:
New Millennium Media International, Inc.
We have audited the accompanying balance sheet of New Millennium Media
International, Inc. as of December 31, 2003 and the related statements of
operations, changes in stockholders' deficiency and cash flows for the years
ended December 31, 2003 and 2002. 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 auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly in all
material respects, the financial position of New Millennium Media International,
Inc. as of December 31, 2003, and the results of its operations, changes in
stockholders' deficiency and cash flows for the years ended December 31, 2003
and 2002, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net loss of $3,438,507 in 2003, an
accumulated deficit of $11,408,933 at December 31, 2003; cash used in operations
in 2003 of $1,253,958, and a working capital deficit of $689,270 at December 31,
2003. In addition, the Company is in default on certain promissory notes at
December 31, 2003. Those matters raise substantial doubt about its ability to
continue as a going concern. Management's Plan in regards to these matters is
also described in Note 1. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 24, 2004
F-3
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents 1,323,923
Accounts receivable, net of allowance for doubtful accounts of $149,907 4,584
------------
TOTAL CURRENT ASSETS 1,328,507
PROPERTY AND EQUIPMENT, NET 569,711
------------
OTHER ASSETS
Due from affiliate 3,646
Deposits 21,276
------------
TOTAL OTHER ASSETS 24,922
------------
TOTAL ASSETS 1,923,140
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Notes and loans payable 537,979
Accounts payable 366,866
Royalties payable 52,501
Preferred stock dividends payable 65,325
Settlement payable 56,250
Accrued expenses 413,929
Accrued compensation 216,689
Deferred revenues 58,238
Deferred gain on sale of future revenues 150,000
Accrued commitment penalty 100,000
------------
TOTAL CURRENT LIABILITIES 2,017,777
------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $0.001; 10,000,000 shares authorized Convertible
Series A, Preferred stock, 5,000,000 shares authorized,
2,639,080 shares issued and outstanding at December 31, 2003;
liquidation preference of $2,639,080 at December 31, 2003 2,639
Convertible Series B preferred stock, 30,000 shares authorized, no shares
issued and outstanding, liquidation preference of $240
per share --
Preferred stock issuable, at par value (50,000 shares) 50
Common stock, par value $0.001; 150,000,000 shares authorized,
13,589,776 shares issued and outstanding at December 31, 2003 13,590
Common stock issuable, at par value. (8,199,907 shares) 8,200
Additional paid-in capital 13,125,449
Accumulated deficit (11,408,933)
------------
1,740,995
Less deferred consulting expense (1,418,307)
Less subscriptions receivable (417,325)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (94,637)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1,923,140
============
See accompanying notes to financial statements
F-4
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
REVENUES $ 308,634 $ 615,475
COST OF REVENUES 125,021 187,300
------------ ------------
GROSS PROFIT 183,613 428,175
OPERATING EXPENSES
Selling, general and administrative 2,788,608 3,138,157
Bad debt 138,667 80,484
Commitment penalty and warrant modification expense 266,126 261,236
Impairment loss 270,355 250,000
------------ ------------
TOTAL OPERATING EXPENSES 3,463,756 3,729,877
------------ ------------
Loss from operations (3,280,143) (3,301,702)
------------ ------------
OTHER INCOME (EXPENSE)
Other income 49,198 61,800
Settlement gain (loss), net 65,987 61,064
Interest expense (273,549) (264,922)
------------ ------------
TOTAL OTHER EXPENSES, NET (158,364) (142,058)
------------ ------------
NET LOSS (3,438,507) (3,443,760)
Preferred stock dividends (1,054,600) --
------------ ------------
NET LOSS ALLOCABLE TO COMMON STOCKHOLDERS $ (4,493,107) $ (3,443,760)
============ ============
Basic and diluted loss per common share: $ (0.37) $ (0.39)
============ ============
Weighted average common shares outstanding 12,087,148 8,848,176
============ ============
See accompanying notes to financial statements
F-5
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 2003 AND 2002
PREFERRED STOCK COMMON STOCK
AND PREFERRED AND COMMON ADDITIONAL
STOCK ISSUABLE STOCK ISSUABLE PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 -- -- 7,610,047 7,610 3,598,828
Common stock issued for cash -- -- 346,667 347 139,653
Common stock issued for services of
non-employees -- -- 730,292 730 275,989
Common stock issued for services of officer -- -- 505,502 506 130,925
Common stock issued as settlement -- -- 65,000 65 45,435
Common stock issued as debt settlement -- -- 570,000 570 230,630
Common stock issued as a forbearance -- -- 100,000 100 93,900
Common stock issued to purchase equipment -- -- 1,000 1 399
Common stock issuable as loan fee -- -- 1,000 1 1,249
Common stock options exercised under
promissory notes -- -- 325,000 325 7,800
Amortization of deferred consulting -- -- -- -- --
Payment on subscription receivable with
services rendered -- -- -- -- --
Cumulative subscriptions due on
warrant exercise -- -- -- -- --
Preferred stock issuable in exchange
for debt 12,173 12 -- -- 42,344
Warrants granted and price reset pursuant
to investment agreement -- -- -- -- 61,235
Warrants granted for services -- -- -- -- 388,275
Warrants granted under default provisions
of promissory notes -- -- -- -- 85,002
Net loss for the year ended
December 31, 2002 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2002 12,173 12 10,254,508 10,255 5,101,664
Warrants granted for services including
offering costs -- -- -- -- 766,509
Warrants granted for settlement -- -- -- -- 41,070
Warrants extension and price reset pursuant
to investment agreement -- -- -- -- 66,126
Warrants granted under default provisions
of promissory notes -- -- -- -- 122,500
Options granted to employee for services -- -- -- -- 295,500
Common stock to be issued for cashless
exercise of options -- -- 379,907 380 (380)
Common stock issued for exercise of options
issued to promissory note holders -- -- 300,000 300 7,200
Common stock issued and issuable
for services -- -- 2,306,748 2,307 1,513,947
Common stock issued for services and
accrued services of employees -- -- 310,640 310 121,802
Common stock issued as debt settlement -- -- 537,880 538 286,657
Common stock subscribed -- -- 1,000,000 1,000 249,000
Common stock issuable for cash under
offering -- -- 6,700,000 6,700 1,668,300
Offering costs of private placement -- -- -- -- (770,920)
Preferred stock issued for services
of employees 50,000 50 -- -- 49,950
Preferred stock issued for payment of
Series A dividends 29,976 30 -- -- 29,946
Preferred stock issued for cash 1,195,000 1,195 -- -- 1,193,805
Preferred stock issued for accrued services 37,500 38 -- -- 37,462
Preferred stock issuable for subscription 50,000 50 -- -- 49,950
Preferred stock issued for notes payable 1,225,089 1,225 -- -- 1,213,863
Preferred stock issued for settlement of
accounts payable 89,342 89 -- -- 89,253
Preferred stock dividends, $0.10 per share -- -- -- -- --
Preferred stock dividend resulting from
intrinsic value of convertible
preferred stock -- -- -- -- 951,765
Settlement gain with related party -- -- -- -- 40,480
Amortization of deferred consulting -- -- -- -- --
Net loss of the year ended
December 31, 2003 -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 2,689,080 2,689 21,789,683 21,790 13,125,449
============ ============ ============ ============ ============
(CONTINUED)
F-6
(CONTINUED)
TOTAL
ACCUMULATED DEFERRED SUBSCRIPTIONS STOCKHOLDERS'
DEFICIT CONSULTING RECEIVABLE DEFICIENCY
------------ ------------ ------------ ------------
(3,472,066) (149,954) (333,375) (348,957)
Common stock issued for cash -- -- -- 140,000
Common stock issued for services of non-employees -- -- -- 276,719
Common stock issued for services of officer -- -- -- 131,431
Common stock issued as settlement -- -- -- 45,500
Common stock issued as debt settlement -- -- -- 231,200
Common stock issued as a forbearance -- -- -- 94,000
Common stock issued to purchase equipment -- -- -- 400
Common stock issuable as loan fee -- -- -- 1,250
Common stock options exercised under promissory notes -- -- -- 8,125
Amortization of deferred consulting -- 105,850 -- 105,850
Payment on subscription receivable with services rendered -- -- 333,375 333,375
Cumulative subscriptions due on warrant exercise -- -- (10,075) (10,075)
Preferred stock issuable in exchange for debt -- -- -- 42,356
Warrants granted and price reset pursuant to investment
agreement -- -- -- 61,235
Warrants granted for services -- -- -- 388,275
Warrants granted under default provisions of promissory notes -- -- -- 85,002
Net loss for the year ended December 31, 2002 (3,443,760) -- -- (3,443,760)
------------ ------------ ------------ ------------
(6,915,826) (44,104) (10,075) (1,858,074)
Warrants granted for services including offering costs -- (221,006) -- 545,503
Warrants granted for settlement -- -- -- 41,070
Warrants extension and price reset pursuant to investment
agreement -- -- -- 66,126
Warrants granted under default provisions of promissory notes -- -- -- 122,500
Options granted to employee for services -- (11,667) -- 283,833
Common stock to be issued for cashless exercise of options -- -- --
Common stock issued for exercise of options issued to
promissory note holders -- -- (7,250) 250
Common stock issued and issuable for services -- (1,342,419) -- 173,835
Common stock issued for services and accrued services of
employees -- -- -- 122,112
Common stock issued as debt settlement -- -- -- 287,195
Common stock subscribed -- -- (250,000) --
Common stock issuable for cash under offering -- -- (100,000) 1,575,000
Offering costs of private placement -- -- -- (770,920)
Preferred stock issued for services of employees -- -- -- 50,000
Preferred stock issued for payment of Series A dividends -- -- -- 29,976
Preferred stock issued for cash -- -- -- 1,195,000
Preferred stock issued for accrued services -- -- -- 37,500
Preferred stock issuable for subscription -- -- (50,000) --
Preferred stock issued for notes payable -- -- -- 1,215,088
Preferred stock issued for settlement of accounts payable -- -- -- 89,342
Preferred stock dividends, $0.10 per share (102,835) -- -- (102,835)
Preferred stock dividend resulting from intrinsic value of
convertible preferred stock (951,765) -- -- --
Settlement gain with related party -- -- -- 40,480
Amortization of deferred consulting -- 200,889 -- 200,889
Net loss of the year ended December 31, 2003 (3,438,507) -- -- (3,438,507)
------------ ------------ ------------ ------------
(11,408,933) (1,418,307) (417,325) (94,637)
============ ============ ============ ============
See accompanying notes to financial statements
F-7
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (3,438,507) $ (3,443,760)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock, warrants and notes issued for compensation and services 686,307 1,216,811
Stock based settlement gain (loss), net 234,013 (61,064)
Non-cash interest expense for stock issued to note holders that were in default 122,500 85,002
Non-cash interest expense 96,499 22,427
Non-cash interest expense - related party 16,435 22,026
Settlement gain on forgiveness of accrued penalties (300,000) --
Amortization of deferred consulting 200,889 105,850
Provision for losses on accounts receivable 138,667 80,484
Depreciation 175,192 173,874
Impairment of long-lived assets 270,355 250,000
Loss on asset shrinkage 49,112 --
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (142,245) (58,095)
Other receivables 2,891 (2,891)
Due from affiliate (3,646)
Prepaid expenses -- 36,255
Deferred royalty expense 75,000 (75,000)
Deposits -- 3,682
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 6,344 440,403
Royalties payable 106,701 69,424
Accrued expenses 83,222 58,370
Accrued compensation 178,184 154,250
Customer deposits (28,500) 28,500
Deferred revenues 16,629 (98,954)
Accrued commitment penalty 200,000 200,000
Deferred gain on sale of future revenues -- 150,000
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,253,958) (642,406)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (27,320)
Proceeds from sale of property and equipment 1,500 --
------------ ------------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES 1,500 (27,320)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash preferred stock dividends paid (7,534) --
Proceeds from notes and loans payable 38,423 497,197
Proceeds from notes payable - related party (11,343) --
Proceeds from issuance of common stock 1,345,500 141,625
Proceeds from issuance of preferred stock - Series A 1,195,000 --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,560,046 638,822
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 1,307,588 $ (30,904)
Cash and Cash Equivalents at Beginning of Year 16,335 47,239
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,323,923 $ 16,335
============ ============
(continued)
F-8
(continued)
2003 2002
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Approximate interest paid in cash -- --
Income taxes paid -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt settled with common stock $ 74,553 $ 30,904
============ ============
Subscription receivable paid with services $ -- $ 333,375
============ ============
Common stock paid for equipment (1,000 shares) $ -- $ 400
============ ============
Debt and accrued interest - related party settled with capital stock $ 305,721 $ --
============ ============
Debt and accrued interest settled with Series A preferred stock $ 909,368 $ --
============ ============
Royalties paid with common stock $ 138,124 $ --
============ ============
Series A dividends paid with preferred stock $ 29,976 $ --
============ ============
Series A dividends from intrinsic value $ 951,765 $ --
============ ============
Accounts payable settled with Series A preferred stock $ 89,342 $ --
============ ============
Common stock issued for cashless exercise of warrants $ 380 $ --
============ ============
See accompanying notes to financial statements
F-9
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
New Millennium Media International, Inc. (the Company) upon successful
completion of a working prototype of its proprietary technology
OnScreen, is directing its focus from the EyeCatcherPlus and the
traditional LED signage to the OnScreen technology. The Company is
focused on commercializing its innovative technology to the world of
visual communications. The Company concentrates on motion display
advertising solutions and seeks to develop innovative approaches to
motion advertising products and delivery systems. The Company's
technology division is focused on the design, development, licensing
and sale of LED video displays based on the OnScreen architecture.
The accompanying financial statements have been prepared on the
assumption that the Company will continue as a going concern. As
reflected in the accompanying financial statements, the Company has a
net loss of $3,438,507 and cash used in operations of $1,253,958 for
the year ended December 31, 2003 and an accumulated deficit,
stockholders' deficiency and working capital deficit of $11,408,933,
$94,637 and $689,270, respectively, at December 31, 2003. The ability
of the Company to continue as a going concern is dependent on the
Company's ability to bring the OnScreen product to market, generate
increased sales, obtain positive cash flow from operations and raise
additional capital. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
During February 2004, the Company received $2,848,000 of net proceeds
related to the exercise of the $0.50 warrants from the 2003 private
placement. The Company is working on raising additional capital for
the commercialization of its OnScreen technology. If the Company can
raise this additional capital, the Company believes it will have
sufficient cash to meet its funding requirements to bring OnScreen
technology into production at the end of 2004. The Company has
experienced negative cash flows from operations and incurred large net
losses in the past and there can be no assurance as to the
availability or terms upon which such financing and capital might be
available.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. Significant
estimates in 2003 and 2002 include estimates used to review the
Company's long-lived assets for impairment, determine the Company's
allowance for doubtful accounts and valuations of non-cash capital
stock issuances.
(B) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statement, the Company considers all
highly liquid investments with maturities of three months or less at
the time of purchase to be cash equivalents.
F-10
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
(C) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit and financial
institution deposit accounts, which, at times, exceed federally
insured limits. The Company has not experienced any losses in such
accounts through December 31, 2003.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at the lower of fair value or
cost, less accumulated depreciation and amortization. Major additions
are capitalized, while minor additions and maintenance and repairs,
which do not extend the useful life of an asset, are charged to
operations when incurred. When property and equipment are sold or
otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations. Depreciation is provided primarily using the straight-line
method over the assets' estimated useful lives of five to seven years.
Estimated useful lives are periodically reviewed and, where
appropriate, changes are made prospectively.
(E) LONG-LIVED ASSETS
The Company periodically reviews its long-lived assets and certain
identifiable assets related to those assets for impairment whenever
circumstances and situations change such that there is an indication
that the carrying amounts may not be recoverable. If the
non-discounted future cash flows of the enterprise are less than their
carrying amount, their carrying amounts are reduced to fair value and
an impairment loss is recognized. See Note 3 for the impairment
amounts that were recorded during 2003 and 2002.
(F) STOCK-BASED COMPENSATION
For the stock options, warrants and stock issued to employees, the
Company has elected to apply the intrinsic value based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under the intrinsic value based method, compensation
cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price. Such
compensation amounts are amortized over the respective vesting periods
of the option grant. The Company provides pro forma disclosures of net
loss and pro forma loss per share as if the fair value based method of
accounting had been applied, as required by SFAS No. 123, "Accounting
for Stock-Based Compensation" and SFAS 148 "Accounting for Stock-Based
Compensation" - transition and disclosure, an amendment of SFAS No.
123.
F-11
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
The following table illustrates the effect on net loss allocable to
common stockholders and loss per common share had the Company applied
the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation during 2003 and 2002:
2003 2002
------------ ------------
Net Loss Available to Common Stockholders:
Net loss available to common stockholders
as reported $ (4,493,107) $ (3,443,760)
Plus total stock-based employee
compensation cost included in the net
loss, net of related tax effects 295,500 1,000
Less total stock-based employee
compensation expenses determined under
fair value based method for all awards,
net of related tax effects (765,006) (25,950)
------------ ------------
Pro forma net loss $ (4,962,613) $ (3,468,710)
============ ============
Loss per share:
As reported $ 0.37 $ 0.39
============ ============
Pro forma $ 0.41 $ 0.39
============ ============
See Note 7H, for additional disclosure and discussion of the Company's
employee stock plan and activity.
The Company accounts for services provided by non-employees who are
issued equity instruments based on the fair value of the consideration
received or the fair value of the equity instruments, whichever is
more reliably measurable on the measurement date. The amount related
to the value of the stock awards is amortized on a straight-line basis
over the required service periods.
(G) REVENUE RECOGNITION
The Company operates as one segment. All internal analysis and
financial reporting by management is performed as one segment. The
Company's revenues are recognized as the services are completed.
Deferred revenue represents the unearned portion of payments received
in advance of services being completed and no additional performance
is required by the Company. For all revenue types, recognition
criteria also includes assessing whether pervasive evidence of an
arrangement exits, the sales price is fixed or determinable, and
collectability is reasonably assured.
EyeCatcher Displays are placed in service for a fee and revenue is
recognized over the placement period. On occasion, the EyeCatcher
Displays are sold on a special order basis. Revenue and cost of
revenue from these special order basis sales of the EyeCatcher
Displays are recognized at the time the boards are shipped to the
customer.
Advertising revenue is recognized pro-rata over the term of the
customer contract or arrangement and customer prepayments received are
recorded as a deferred revenue liability until revenue is earned.
F-12
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
Graphic arts revenue is recognized at the completion of services and
no additional performance is required by the Company.
LED Truck rental revenue is recognized pro-rata as earned over the
rental period which generally does not exceed 14 days.
Territory fees from exclusive distributors are recorded as a deferred
revenue liability and then recognized over the term of the distributor
contract.
(H) ADVERTISING
In accordance with Accounting Standards Executive Committee Statement
of Position 93-7, costs incurred for producing and communicating
advertising of the Company, are charged to operations as incurred.
Advertising expense for the years ended December 31, 2003 and 2002 was
$1,510 and $59,615, respectively.
(I) INCOME TAXES
Income taxes are accounted for under the asset and liability method of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Valuation allowances have been established against the Company's
deferred tax assets due to uncertainties in the Company's ability to
generate sufficient taxable income in future periods to make
realization of such assets more likely than not. The Company has not
recognized an income tax benefit for its operating losses generated
during 2003 and 2002 based on uncertainties concerning the Company's
ability to generate taxable income in future periods. There was no
income tax receivable at December 31, 2003 and 2002. In future
periods, tax benefits and related deferred tax assets will be
recognized when management considers realization of such amounts to be
more likely than not.
(J) LOSS PER SHARE
In accordance with, Statement of Financial Accounting Standards No.
128 "Earnings per Share", basic net loss per share is computed by
dividing the net loss less preferred dividends for the period by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing net loss
less preferred dividends by the weighted average number of common and
common equivalent shares outstanding during the period. Common
equivalent shares outstanding as of December 31, 2003 and 2002, which
consist of options, warrants, convertible notes and convertible
preferred stock, have been excluded from the diluted net loss per
common share calculations because they are anti-dilutive. Accordingly,
basic and diluted net loss per share is the same as basic net loss per
share as of December 31, 2003 and 2002. The following table summarizes
F-13
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
the Company's common stock equivalents outstanding at December 31,
2003 which may dilute future earning per share.
Convertible notes 804,408
Convertible preferred stock 10,756,320
Warrants and options 15,990,000
Contingently returnable shares 200,000
-----------
$27,750,728
===========
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate that value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or liquidation.
The Company believes the carrying amounts of the short-term financial
instruments, including accounts receivable, and current liabilities
reflected in the accompanying balance sheet approximate fair value at
December 31, 2003 due to the relatively short-term nature of these
instruments.
(L) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements which may apply to the Company.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN
45 requires that upon issuance of a guarantee, a guarantor must
recognize a liability for the fair value of an obligation assumed
under a guarantee. FIN 45 also requires additional disclosures by a
guarantor in its interim and annual financial statements about the
obligations associated with guarantees issued. The recognition
provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods ending
after December 15, 2002. The adoption of this pronouncement does not
have a material effect on the earnings or financial position of the
Company.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires that if
an entity has a controlling financial interest in a variable interest
entity, the assets, liabilities and results of activities of the
variable interest entity should be included in the financial
statements of the entity. FIN 46 requires that its provisions are
effective immediately for all arrangements entered into after January
31, 2003. The Company does not have any variable interest entities
created after January 31, 2003. For those arrangements entered into
prior to January 31, 2003, the FIN 46 provisions are required to be
adopted at the beginning of the first interim or annual period
beginning after June 15, 2003. The Company has not identified any
variable interest entities to date and will continue to evaluate
whether it has variable interest entities that will have a significant
impact on its balance sheet and results of operations.
F-14
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". This statement establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and
equity. In accordance with the standard, a financial instrument that
embodies an obligation for the issuer is required to be classified as
a liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No.
150 did not have any impact on the Company's financial statements.
NOTE 3 PROPERTY AND EQUIPMENT, NET
Property and equipment is summarized as follows at December 31, 2003:
Boards available for lease $ 565,973
LED truck 450,000
Equipment 55,783
Graphic equipment 22,229
Furniture & fixtures 19,034
LED Truck (under construction), net of impairment --
-----------
1,113,019
Less accumulated depreciation (543,308)
-----------
$ 569,711
===========
Depreciation expense for the years ended December 31, 2003 and 2002 amounted to
$175,192 and $173,874, respectively.
During 2003, the Company wrote-off $103,000 of fixed assets and $54,000 of
accumulated depreciation related to screens that could no longer be used or were
no longer in the possession of the Company. The net impact of this write-off of
$49,112 was included in cost of sales.
The first LED truck that the Company owned and is currently in use by the
Company secures one of the Company's notes payable (See Note 5).
Prior to 2003, the Company incurred costs totaling $520,355 for the development
of a second LED Truck to be used to generate LED Truck rental revenues. The
development of this second truck experienced technical problems and delays
resulting in cost increases. At December 31, 2003, the Company had not taken
possession of that truck as the truck did not meet the specifications the
Company required, thus the truck had not been placed into service and
accordingly, no depreciation has been taken on that truck. During 2002,
management evaluated the recovery of the recorded value of this truck and
determined there was an impairment loss of $250,000 which was recorded in 2002.
Management is currently in a dispute with the LED truck vendor and since the
outcome is unknown as to whether the Company will receive the truck or any
monetary recovery from the vendor, the Company wrote off the remaining balance
and recorded an impairment loss of $270,355 during 2003.
F-15
NOTE 4 LICENSE AND ROYALTY AGREEMENTS
LICENSE 1
During 2001, the Company, under a license agreement, obtained an exclusive
--------------------------------------------------------------------------
license in a patent for the manufacture, sale, and marketing of direct view
video displays with an angular dimension of greater than 30 inches. Under the
agreement, the Company must pay 25% of revenues derived from the sale of
products utilizing the patented technology. This agreement also had certain
minimum payment requirements. The product was in R&D stages, and no product was
available for marketing or sale during 2003; therefore the Company had to pay
only the minimum royalty payments during 2002 and 2003. The Company paid the
2002 and 2003 minimum royalty payments totaling $150,000. The Company recorded
royalty expense of $75,000 in each year of 2002 and 2003, included in selling,
general and administrative in the statement of operations.
In order to satisfy the first two minimum royalty obligations of $150,000,
during 2002, the Company sold a total of 11.25% of all rights, title and
interest of the Company's license rights in its OnScreen large scale video
display technology (OSD) to a third party in exchange for that third party
paying the first $150,000 of royalties to the licensor above. This sale was
treated for accounting purposes as a sale of future revenues in accordance with
EITF 88-18, and the Company recorded a deferred gain liability of $150,000 as of
December 31, 2002 to be recognized as revenues pro-rata over the term of the
license. Since the Company has not received any revenues from this product, the
$150,000 remains recorded as a deferred gain liability at December 31, 2003.
The first agreement for the sale of future royalties from this third party also
contained a provision whereby this third party obtained a right of first refusal
to participate in further cash advances to the licensor. In the second
agreement, the third party also paid a $25,000 fee to the Company to convert the
first right of refusal to an absolute right to participate. This fee was
recorded as other income in 2002. The agreement also required the third party to
loan the Company up to $200,000 bearing interest at 8% only when the loan is
fully funded. $70,000 of the loan was funded during 2002 and was converted into
Series A Preferred stock during September 2003 (see note 7).
On February 3, 2004, this third party and the Company reached a master
settlement and release agreement whereby, in consideration for the exchange of
mutual releases and the third party relinquishing any claim to any of the
benefits of the OnScreen (including the 11.25% license payments) (see Note 11
for the terms of this agreement).
Based upon agreements reached subsequent to year end, the Company paid $575,000
during the first quarter of 2004 for all remaining royalty payments due and for
the licensor to convey to the Company its 25% royalty right in the OSD License
Agreement (see Note 11). There are no more royalty payments owed to the licensor
above and now the Company retains 100% exclusive license ownership of the OSD
license and agreement (see Note 6B for certain revenue payments owed related to
OSD.
SETTLEMENT OF LICENSE AGREEMENT OF EYE CATCHER PLUS BACK LIT DISPLAYS
---------------------------------------------------------------------
On October 31, 2003 ("Settlement Date") a settlement was reached relating to
alleged royalties due. In accordance with this settlement, the Company issued
150,000 shares of its common stock on October 31, 2003 and during November 2003
paid the first of four $18,750 quarterly payments owed. The remaining $56,250 is
recorded at December 31, 2003 as a settlement liability on the balance sheet.
The next quarterly payment is due March 1, 2004. If any payment is not made on
the scheduled date, the cash payment in total increases from $75,000 to $150,000
less amounts already paid. The 150,000 shares of the Company's common stock were
F-16
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
valued at the quoted trading price of $0.90, or $135,000, on the Settlement
Date. The Company had accrued $156,875 in royalties payable as of the Settlement
Date. Accordingly during the fourth quarter 2003, the Company recognized a
settlement loss of $53,125.
NOTE 5 NOTES AND LOANS PAYABLE
Notes and loans payable including accrued interest consist of the following at
December 31, 2003:
2003
-----------
$250,000 notes payable, with interest at 5% and rights to purchase 25,000 $ 284,412
common shares @ $.025 per share each month while in default, in default at
December 31, 2003.
One note payable for a total of $22,000, with interest at 8%. Balance in
default at December 31, 2003. 2,465
Note payable related party dated October 31, 2002, non-interest bearing,
unsecured, due November 30, 2002, in default at December 31, 2003 50,000
$125,000 convertible note payable, with interest at 15%, secured by the LED
board vehicle, convertible into common stock at $0.25 per share, matures April
15, 2004 201,102
------------
$ 537,979
============
The note holders with an original principal of $250,000 had a right to purchase
25,000 of additional common shares for each month during 2003 since the Company
was in default on these notes during 2003. The Company recorded the value of the
right to buy the 300,000 shares of common stock using the Black-Scholes Options
Pricing Model at $122,500. This amount was recorded as interest expense during
2003. These notes were paid in full on March 12, 2004 by paying the note holders
$250,000 and issuing 12,500 shares of the Company's common stock. These shares
were valued at $11,500 and after consideration of additional interest due for
2004 and a receivable of $18,575 due from the note holders from option
exercises, the Company recognized a gain of $7,103 in 2004. These note holders
also received 50,000 shares of common stock in early 2004 as a result of these
notes being in default during January and February 2004.
The note payable dated October 31, 2002, with a balance of $50,000, was paid in
full during the first quarter of 2004.
The Company borrowed $55,000 during 2003 (which was converted to Series A
convertible preferred stock during the year see Note 7A). The Company paid
compensation and services of $63,245 with notes during 2003 of which $6,000 of
the notes were paid in cash and the remainder was converted to Series A
convertible preferred stock (see Note 7A). Also, during 2003, certain other note
holders converted $1,112,844 to Series A convertible preferred stock (total of
$1,225,089 converted to Series A convertible preferred stock during 2003) (see
Note 7A).
F-17
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
NOTE 6 COMMITMENTS AND CONTINGENCIES
(A) LEGAL MATTERS
The Company may be involved in certain legal actions arising from the
ordinary course of business. While it is not feasible to predict or
determine the outcome of these matters, the Company does not
anticipate that any of these matters or these matters in the aggregate
will have a material adverse effect on the Company's business or its
financial position or results of operations.
(B) ROYALTY AND LICENSE FEE AGREEMENTS
Based upon agreements reached subsequent to year end, the Company paid
$575,000 during the first quarter of 2004 ($52,501 was accrued for at
December 31, 2003) for all remaining royalty fees owed on the OnScreen
License Agreement due and for the licensor to convey to the Company
its 25% royalty right in the OnScreen License Agreement (see Note 4
and Note 11).
On February 3, 2004, this third party and the Company reached a master
settlement and release agreement whereby, in consideration for the
exchange of mutual releases and the third party relinquishing any
claim to any of the benefits of the OnScreen (including the 11.25%
license payments), the Company agreed to pay to this third party
$150,000 within five days of receiving the $7.2 million funding plus
an annually declining percentage of revenue of 5% in 2005 declining to
2% in year 2008 and thereafter from the OnScreen revenues. In the
event of a change of control of the Company, the percentage of revenue
shall terminate and a single payment transaction fee shall be paid by
the Company to this third party (see Note 11).
Certain licensing fees may be owed to the President/CEO based on his
employment agreement dated February 3, 2004. See Note 11 below for a
discussion of these potential royalty payments.
(C) CONSULTING AGREEMENTS
The Company executed a one-year consulting agreement on October 10,
2003, whereby the consultant will provide investment advisory services
to the Company. For these services, the consultant was granted 593,048
shares of the Company's common stock during 2003 and has a right to
receive an additional 500,000 shares of the Company's common stock if
the consultant raises $3,000,000 aggregate gross proceeds from the
sale of notes or units on or before February 15, 2004. At December 31,
2003, the consultant had not met this milestone. Also, the consultant
has a right to receive $7,500 per month over the term of this
agreement after the consultant successfully raises a minimum of $1
million. The Company recognizes the $219,428 of consulting expense
related to the 593,058 shares issued over the one-year contract
period.
The Company entered into a one-year consulting contract for certain
financial and investor relations services. For these services, this
consultant was granted 120,000 shares of the Company's common stock
valued at $114,000 and $30,000 payable in six monthly installments of
$5,000. The Company recognizes the $144,000 of consulting expense over
the one-year term of this contract.
On January 2, 2004, the Company entered into a two-year consulting
agreement with an individual to perform various financial and
administrative duties. This consultant will be paid $75,000 annually
with a bonus of $25,000 worth of Company common stock which must be
issued within two and one-half
F-18
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
months after the end of each year. (This individual was previously the
Director of Operations and this consulting agreement replaced his
employment agreement).
On March 12, 2004, the Company committed to a contract of $15,800 for
web site consulting.
(D) EMPLOYMENT AGREEMENTS
PRESIDENT/CEO
-------------
In November 1999, the Company executed a three-year employment
agreement with its President /CEO which was amended on June 2000. The
agreement provides for a base salary of $140,000 in year one and
$120,000 per year in years two and three, a non-accountable expense
allowance of $10,000 per year, a stock issuance equal to 10% of the
outstanding common shares, and discretionary incentive compensation
payments. It also provided that the President/CEO would receive
incentive compensation payments which are not less than the highest
such payments provided to any other senior executive of the Company.
This agreement was renewed in late 2002 for another three-year term
with the same provisions expiring December 31, 2005.
On February 3, 2004, an addendum was made to this employment agreement
whereby the employee shall receive 3,000,000 shares of the Company's
common stock and one percent of all revenue derived from any licensing
fees received by the Company in connection with the OnScreen product.
The right to these 3,000,000 shares replaced the employee's right to
any additional shares under the November 1999 agreement. This addendum
becomes effective upon the Company closing and receiving funds in full
from the October 16, 2003 offering for $7,200,000 within the terms and
conditions as stated in the offering memorandum. On February 10, 2004,
the Company's board of directors approved increasing the President's
salary to $150,000 for the duration of his employment agreement since
the employment agreement for the President included the provision that
he would get paid equal compensation to any other senior executive of
the Company (the Director of Research and Development's salary is
$150,000). The President will receive $120,000 in cash and the
remaining $30,000 will be accrued.
DIRECTOR OF RESEARCH AND DEVELOPMENT AND CHIEF TECHNOLOGY OFFICER
-----------------------------------------------------------------
In May 2003, the Company executed a six-month employment agreement
(the "Agreement") with the Director of Research and Development. The
employee's compensation was for $10,000 per month accrued but deferred
until such time the Company's technical division has sufficient cash
on hand to pay the salary. At the employee's option, such accrued
salary may be converted to common or preferred shares of the Company
at the current bid price. In addition, the employee is granted, upon
execution of the employment agreement, three-year warrants for 500,000
shares of the Company's common stock at an exercise price of $0.25 per
share; three-year warrants for 750,000 shares at $0.35 per share upon
completion of Phase II prototype as defined in the Agreement;
three-year warrants for 500,000 shares at $0.40 per share upon receipt
by the Company of any Next Stage OnScreen funding in excess of
$150,000 as defined in the Agreement and three-year warrants for
250,000 shares at $0.50 per share upon receipt by the Company of
payment for commercial orders in excess of $200,000.
During 2003, the Company issued 1,750,000 of the warrants in
accordance with the Director of Research and Development's agreement.
The remaining 250,000 warrants were not issued at
F-19
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
December 31, 2003 as the criteria for the shares to be issued had not
been met. The expense relating to the warrant to purchase 500,000
shares of common stock was recognized over the six-month agreement
term and the warrant to purchase 1,250,000 of common stock was
recognized at the time the related milestones were met.
On February 5, 2004, the above agreement was extended with an
effective date of November 1, 2003 for a three-year term. The salary
will be $150,000 in the first year, $180,000 in the second year and
$240,000 in the third year. This employee has a right to 450,000
shares of the Company's common stock, these shares, if the employee is
terminated for cause or resigns, may be repurchased from the employee
for $450. The amount of shares that can be repurchased by the Company
declines by 150,000 shares each year, resulting in the shares being
fully vested on November 1, 2006 (See Note 11).
CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
---------------------------------------------------
On December 16, 2003, the Company executed a three-year employment
agreement that is effective January 1, 2004 with its Chief Operating
Officer and Chief Financial Officer. The terms of this agreement are
as follows: i) Base salary of $120,000 during 2004, $150,000 during
2005 and $180,000 during 2006, ii) a sign-on bonus for $10,000 payable
before March 31, 2004 and eligible for the bonus plan as set up by the
Company, iii) receive 120,000 shares of Series A convertible preferred
stock for each period of June 2004, January 2005 and June 2005 and iv)
receive a warrant to purchase 100,000 shares of common stock at an
exercise price of $0.25 which expires on November 30, 2006. In the
event of a change of control, the Series A convertible preferred stock
shall immediately accelerate and be issued within 30 days of written
notice from the employee.
(E) LEASES
The Company executed a non-cancelable 5-year office lease commencing
May 1, 2001. With sixty days prior written notice, the Company has the
right to renew this lease for an additional five years. The annual
rent escalation is the greater of the CPI or 3%. Future minimum lease
payments under this lease are as follows:
Year Ending December 31,
2004 $ 114,000
2005 116,000
2006 39,000
-----------
$ 269,000
===========
Rental expense was $147,478 and $133,183 in 2003 and 2002,
respectively, included in selling, general and administrative on the
statement of operations.
During August 2003, the Company issued 200,000 shares of common stock
as additional security for this office lease. For accounting purposes,
according to FASB 128, the shares are not considered outstanding and
not included in the computation of loss per share.
F-20
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
On February 1, 2004, the Company and the building lessor agreed to
reduce the rent by approximately $2,000 per month and to reduce the
square footage of the office from 6,143 to 4,515. This rent reduction
is reflected in the future minimum lease payments shown above.
During 2003, the Company subleased part of its corporate office space
to another company under common management, for $4,800 per month under
a month-to-month agreement. Beginning November 1, 2003, the space
sub-leased to the other company was reduced and accordingly, the rent
was reduced to $750 per month.
(F) OTHER COMMITMENTS
On February 3, 2004, the Company entered into an agreement with a
third party whereby the Company conveyed and assigned its right, title
and interest that the Company has relating to EyeCatcherPlus and Drive
Time Network (except to its Display assets). Related to this
agreement, the Company shall contribute $5,000 monthly for five months
to this third party (See Note 11).
NOTE 7 STOCKHOLDERS' DEFICIENCY
(A) CONVERTIBLE PREFERRED STOCK SERIES A
In 2002, the Company designated 5,000,000 shares of preferred stock as
new Series A Convertible Preferred Stock ("Series A"). The Series A is
convertible to common shares on a four-for-one basis, is due dividends
at $0.10 per share as authorized by the Board, has a liquidation value
of $1.00 per share and has equivalent voting rights as common shares
on a share for share basis.
On May 2, 2002 the Company granted 12,173 shares of Series A
convertible preferred stock in exchange for $12,173 of principal and
interest payable on loans to three individuals. These preferred shares
were valued at $3.48 per share based on the quoted trading price of
the common stock on May 2, 2002 and the four-for-one conversion ratio
for the preferred shares which were immediately convertible.
Accordingly, the Company recorded a settlement loss of $30,183.
During December 2003, the Company paid an employee's accrued
compensation of $50,000 by issuing 50,000 shares of Series A
convertible preferred stock as payment for certain services rendered.
These shares were valued at $1.00 per share based on contemporaneous
cash sales.
During the fourth quarter of 2003, the Company issued 29,976 shares of
Series A convertible preferred stock as payment for Series A preferred
dividends owed to certain shareholders. These shares were valued at
$1.00 per share based on contemporaneous cash sales.
During 2003, the Company sold 1,195,000 shares of Series A convertible
preferred stock for cash at $1.00 per share for total proceeds of
$1,195,000.
During 2003, the Company issued 37,500 shares of Series A convertible
preferred stock as payment for certain services rendered. These shares
were valued at $1.00 per share based on contemporaneous cash sales.
The measurement date was the date at which the performance of the
services had been completed. The $37,500 was recorded as an expense
during 2003.
F-21
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
During 2003, certain debt holders, an officer and an employee
converted $1,225,089 of notes and accrued compensation to 1,225,089
shares of Series A convertible preferred stock. The conversion of
certain of these notes and accrued compensation was contingent on the
Company raising $1,000,000 by the sale of Series A convertible
preferred stock by May 15, 2003 and if the Company did not raise these
funds, the debt holders had a right to cancel the conversion agreement
at any time prior to September 25, 2003 by written notice to the
Company. No notice was received by the Company; therefore the notes
and accrued compensation were converted to Series A convertible
preferred stock during 2003. 50,000 shares were valued at $0.80 per
share based on the quoted trading price of the common stock at the
time of conversion and the four-to one conversion ratio for the
preferred shares which resulted in the Company recording a settlement
gain of $10,000. The remaining 1,175,089 shares were valued at $1.00
per share based initially on the price of the common stock at the time
of conversion and the four-for-one conversion ratio for the preferred
shares and later in the year, based upon $1.00 per share
contemporaneous cash sales.
In September 2003, the Company issued 89,342 shares of Series A
convertible preferred stock for the settlement of certain accounts
payable of $89,342. These shares were valued at $1.00 per share based
on contemporaneous cash sales and thus no gain or loss was recognized
on the settlement.
In December 2003, the Company recorded a subscription receivable for
50,000 shares of Series A convertible preferred stock. The Company
received the $50,000 payment for these shares during January 2004.
During 2003, the Company recorded $951,765 for the intrinsic value
associated with the embedded beneficial convertible feature of the
Series A convertible preferred stock. This amount was computed as the
difference between the conversion price and the fair value of the
preferred stock, which was computed as the fair value of the common
stock based on the quoted trading price and the various preferred
stock issuance dates, multiplied by the four-for-one conversion ratio
(this intrinsic value is limited to the amount of the proceeds
allocated to the preferred stock). For financial statement purposes,
this $951,765 was recorded as a preferred stock dividend.
The Company recorded convertible preferred stock Series A dividends of
$102,835 during 2003.
(B) CONVERTIBLE PREFERRED STOCK SERIES B
On February 3, 2004, the Company's board of directors designated
30,000 shares of preferred stock as Series B Convertible Preferred
Stock ("Series B"). The Company is in the process of filing this
designation with the State of Colorado. The Series B is convertible to
common shares on a one thousand-for-one basis, is due dividends at $1
per share payable quarterly as authorized by the Board and the
dividends are cumulative. Series B has a liquidation value of $240 per
share and has voting rights of one thousand votes per Series B share.
At December 31, 2003, there were no Series B Convertible Preferred
Stock shares issued.
(C) COMMON STOCK AUTHORIZED
During the December 18, 2003 shareholders' meeting, the shareholders
voted to amend the Company's Restated Articles of Incorporation to
effect an increase in the number of $0.001 par value common stock
shares from 15,000,000 to 150,000,000 authorized common shares.
F-22
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
There is a restriction on the common stock dividends as any cumulative
preferred stock dividends are required to be paid prior to any common
stock dividends being paid. Also, the retained earnings of the Company
would be restricted upon an involuntary liquidation by the cumulative
unpaid preferred dividends to the preferred stockholders and for the
$1 per share Series A and $240 per share Series B liquidation
preferences.
(D) PRIVATE PLACEMENT
During the fourth quarter of 2003, the Company had a private placement
offering of common stock. From this offering, the Company received
$1,575,000 of cash proceeds and recorded a $100,000 subscriptions
receivable at December 31, 2003. The investors received 6,700,000
common stock shares, 6,700,000 common stock warrants with an exercise
price of $0.50 and an expiration date of February 28, 2004 and
3,350,000 common stock warrants with an exercise price of $0.75 and an
expiration date of May 30, 2004 (See Note 7G for details of warrants).
The 6,700,000 shares of common stock were not issued by the Company at
December 31, 2003, thus, the Company recorded $6,700 in its common
stock issuable equity account for these shares at December 31, 2003.
These shares were issued during the first quarter of 2004.
On February 5, 2004, as part of the private placement the Company's
Board of Directors approved issuing 12,000 shares of Series B
Convertible Preferred Stock to the private placement unit holders,
12,000 shares of Series B Convertible Preferred Stock upon the
exercise of the $0.50 warrant holders of the private placement and
6,000 shares of Series B Convertible Preferred Stock upon the exercise
of the $0.75 warrant holders of the private placement.
In conjunction with raising these funds, the Company paid in cash,
offering costs of $229,750 and issued 630,000 warrants with an
exercise price of $0.001 per share that expire sixty days from their
issuance valued at $541,170, which cost is included in warrants
granted for services in the additional paid-in capital (total offering
costs of $770,920) (See Note 7G).
During February 2004, 6,700,000 of the $0.50 warrants were exercised.
The Company received $3,200,000 ($2,848,000 net of cash offering
costs) of cash, will receive $20,000 cash that is currently in escrow
and received notes for $130,000 related to the exercise of these
warrants. The Company issued 6,400,000 shares of common stock and
300,000 shares are recorded as issuable.
(E) COMMON STOCK ISSUANCES
During 2002, the Company sold the following common stock for cash. In
May 2002 the Company sold 80,000 restricted shares of its common stock
to one investor for $40,000 or $0.50 per share pursuant to a warrant
exercise. In September 2002, the Company sold 166,667 restricted
shares of its common stock at $0.30 per share and 100,000 restricted
shares of its common stock at $0.50 per share to one investor as one
transaction for aggregate proceeds of $100,000 or an average price of
$0.375 per share. From May 2002 to December 2002, the quoted trading
price for freely traded common shares was generally below the private
sales price for restricted common shares and therefore the Company
used the lower quoted trading price as a measure to value non-cash
issuances during these dates.
F-23
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
During 2002, the Company issued an aggregate of 325,000 shares of its
common stock pursuant to the exercise of the rights of certain note
holders granted under the default provisions of certain promissory
notes (see Note 5). The issuance resulted in cash proceeds of $1,175
and subscriptions receivable of $6,950 for a total issuance price of
$8,125 or $.025 per share.
During 2002, the Company issued 730,292 shares for services rendered
to various non-employee consultants and service providers valued at
prices ranging from $0.35 to $0.53 based on contemporaneous quoted
trading prices or cash sale prices, as applicable, for an aggregate
value of $276,719 charged to expense in 2002. The $276,219 was
allocated to a consulting expense of $299,919 and a settlement gain of
$23,200 since one of the transactions has been contractually valued
$23,200 lower than the value of the stock issued.
In December 2002, the Company issued 505,502 common shares to its
president as a bonus under his employment agreement. These shares were
valued at the $0.26 quoted trading price at the grant date resulting
in a compensation expense charged to operations in December 2002 of
$131,431.
During 2002, the Company issued 65,000 common shares under two
settlements. In April 2002, a settlement for 40,000 common shares was
valued at the quoted trading price of $1.00 per share at the
settlement date; and in October 2002 a settlement for 25,000 common
shares valued at the quoted trading price of $0.22 per share at the
settlement date resulting in an aggregate settlement charge to
operations of $45,500.
During 2002, the Company settled various loans totaling $322,046
through the issuance of 570,000 shares of common stock. The stock was
valued at an aggregate $231,200 based on the quoted trading price
which ranged from $0.21 to $0.56 on each of the various settlement
dates resulting in a settlement gain of $98,299 and a settlement loss
of $7,052.
During 2002, the Company issued 100,000 common shares to a
vendor/creditor as a forbearance to avoid or delay potential legal
action relating to collection of the debt. These shares were valued at
the $0.94 per share quoted trading price on the forbearance date
resulting in a forbearance expense of $94,000 included in general and
administration expense.
During 2002, the Company issued 1,000 common shares as part of the
purchase price of certain used equipment. The shares were valued at
the $0.40 quoted trading price on the purchase date resulting in an
asset of $400.
During April 2002, the Company agreed to issue 1,000 shares as a loan
fee. These shares were valued at the $1.25 quoted trading price on the
agreement date resulting in an expense of $1,250. During 2003, these
shares were issued in conjunction with a settlement.
During 2003, the Company issued an aggregate of 300,000 common stock
shares pursuant to the exercise of the warrants granted certain note
holders under the default provisions of certain promissory notes (see
Note 5). The issuance resulted in an additional subscriptions
receivable of $7,500 ($0.025 per share) of which cash proceeds of $250
were received during 2003. Total subscriptions receivable related to
these shares issued under the default provisions of the promissory
notes is $17,325 at December 31, 2003.
F-24
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
During 2003, the Company issued 2,186,748 shares and has 120,000 share
to be issued of its common stock for services rendered to various
consultants and service providers valued at prices ranging from $0.23
to $0.95 (average of $0.66) per share based on quoted trading prices
on the grant date which was the measurement date since the shares were
contractually full vested and nonforfeitable at the grant date. The
Company recognizes the $1,516,254 of consulting expense related to
these consulting agreements over the period of the contract terms
ranging from one day to one year. At December 31, 2003, 120,000 shares
of these shares were not issued and are reflected in the common stock
issuable equity account.
During 2003, the Company issued 310,640 shares of its common stock to
employees as compensation or to pay accrued compensation. These shares
were valued at $122,112 using the quoted trading price on the grant
date or per the employee's agreement which was using a thirty-day
average price. During 2003, the Company recorded a settlement gain of
$3,261 related to these transactions.
During 2003, the Company issued 537,880 shares of its common stock to
settle certain debts and claims against the Company. These shares were
valued at the quoted trading price on the settlement dates for a total
value of $287,195. During 2003, the Company recorded a settlement loss
of $103,485 related to these settlements.
In August 2003, the Company issued 200,000 common shares as collateral
for amounts due to the Company's landlord. For accounting purposes,
according to FASB 128 these shares are not considered outstanding and
are not included in the computation of loss per share.
The Company entered into a stock purchase agreement on October 31,
2003 whereby the buyer agreed to purchase 1,000,000 shares of the
Company's common stock for $250,000 and also received warrants to
purchase up to 1,000,000 shares of the Company's common stock at an
exercise price of $0.50 with an expiration date of February 28, 2004.
The Company recorded $1,000 in its common stock issuable equity
account for the 1,000,000 shares which are to be issued upon receipt
of payment. The Company recorded the purchase price of $250,000 for
the 1,000,000 shares of the Company's common stock in subscriptions
receivable as the funds had not been received by the Company at
December 31, 2003. Subsequent to year end, this subscription was not
fulfilled and the warrants expired. The Company does not expect to
receive any monies related to this subscription agreement and will
reduce the common stock issuable equity account by $1,000, the
subscriptions receivable account by $250,000 and additional
paid-in-capital account by $249,000 during March 2004.
(F) INVESTMENT AGREEMENT
The Company had a prior agreement with Swartz Private Equity, LLC
(Swartz) to provide certain funding to the Company based upon this
agreement. If the Company did not meet certain requirements in the
agreement the Company was also subject to a penalty of up to $100,000
for each six month period and a $200,000 penalty if the put agreement
is terminated automatically or by the Company. During 2002, the
Company computed $400,000 in penalties, of which $200,000 were waived
by Swartz. During 2003, the Company computed $200,000 in penalties and
$300,000 in penalties were waived by Swartz which resulted in a
$100,000 accrued commitment penalty at December 31, 2003.
During 2002, the Company issued 299,284 of warrants to purchase common
stock in accordance with the agreement with an exercise price of $0.29
and an expiration date of December 31, 2007 and these
F-25
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
warrants were valued at $102,555. This brought the total warrants
issued and outstanding to Swartz of 541,558. During 2003, the Company
and Swartz entered into an amendment to this agreement which extended
the terms of each of the 541,558 warrants by two additional years. On
October 22, 2003, Swartz exercised all of the 541,558 warrants in a
cashless exercise transaction which resulted in Swartz being entitled
to receive 379,907 shares of the Company's common stock.
On February 3, 2004, the Company and Swartz entered into a settlement
and termination of investment agreement. The Company agreed to i) pay
$10, ii) promptly issue the 379,907 shares of common stock from the
cashless exercise of the Swartz warrants of which Swartz agreed to
limit its sales of these shares of Company stock to ten percent of the
Company's trading volume for any calendar month, iii) Swartz shall
retain the 100,000 shares of stock that had been issued during 2002
per the initial agreement and then were not valid as put shares as the
put transaction was never executed, but the shares had been issued to
Swartz and v) the investment agreement between the Company and Swartz
shall terminate subject to the completion of items i - iv above.
During February 2004, the Company issued the 379,907 shares of common
stock (without any restrictive legends).
(G) STOCK WARRANTS
The Company has 100,000 warrants that were granted during 2000 that
are still outstanding at December 31, 2003. These warrants have an
exercise price of $1.50 per share and expire on July 31, 2005.
During 2002, the Company granted 300,000 warrants under the default
provisions which were valued at $85,002 and charged to interest
expense using the Black-Scholes option pricing model with a 0.08
expected life, volatility of 164%, zero expected dividends and a
discount rate of 2%. All of these warrants were exercised as of
December 31, 2002.
In 2002, the Company granted 299,284 "additional warrants" per the
investment agreement with Swartz. These warrants to Swartz have
exercise price reset provisions which require the Company to use
variable accounting for expensing these warrants. Under variable
accounting, the Company estimates the fair value of the warrants at
each balance sheet date and adjusts the aggregate expense for all
warrants granted under this provision either up or down. During 2002
the Company issued the additional 299,284 warrants and priced and
valued those warrants under the Black-Scholes method based on the year
end quoted market price of the common stock. During 2002, the Company
also reset the exercise price of the prior warrants as follows: 16,796
warrants at $0.28; 25,478 at $0.51. The result under the variable
accounting method was a net charge to commitment expense of $61,235 in
2002. During 2003, the Company reset the exercise price of the prior
warrants as follows: 25,478 warrants at $0.20; and 200,000 warrants at
$0.25 The result under the variable accounting method was a net charge
to commitment expense of $12,349 during 2003. During 2003, the Company
and Swartz entered into an amendment to their agreement which extended
the terms of each of their 541,558 warrants by two additional years
and the Company recorded an additional expense of $53,777 related to
these extensions. On October 22, 2003, Swartz exercised all of their
541,558 warrants in a cashless exercise transaction which resulted in
Swartz being entitled to receive 379,907 shares of the Company's
common stock. At December 31, 2003, these shares had not been issued
and $380 was included in the Company's common stock issuable equity
account.
F-26
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
During 2002 the Company granted warrants to non-employee service
providers to purchase an aggregate 1,525,000 common shares at exercise
prices ranging from $0.20 to $1.00 The warrants to non-employees were
valued at an aggregate $388,275 which was charged to consulting
expense immediately since the services were considered completed. The
warrants were valued under a Black-Scholes option pricing model using
the following assumptions: expected terms of 2 years, expected
volatility of 164%, dividends of zero, and a discount rate of 2%.
1,500,000 of these warrants remain outstanding at December 31, 2003
(25,000 expired during 2003).
During 2003, the Company granted warrants to purchase 2,105,000 shares
of the Company's common stock to certain service providers at exercise
prices ranging from $0.001 to $0.75. These warrants were valued at an
aggregate of $766,509. The Company recorded $541,170 of the value of
these warrants as offering costs during 2003 and the remainder of
$225,339 is recognized as consulting expense over the period of each
consultants agreement. These warrants were valued using the
Black-Scholes Options Pricing Model using the following assumptions:
expected life of 30 - 428 days, volatility of 161% - 253%, zero
expected dividends and a discount rate of 0.91% to 1.2%. 1,505,000 of
these warrants are outstanding at December 31, 2003.
On November 12, 2003, the Company granted a warrant to purchase 50,000
shares of its common stock at an exercise price of $0.25 with an
expiration date of November 11, 2004 in conjunction with a settlement
of monies owed. These warrants were valued at $0.8214 per warrant, or
$41,070 using the Black-Scholes Options Pricing Model using the
following assumptions: expected life of 1 year, volatility of 209%,
zero expected dividends and a discount rate of 0.94%. During 2003, the
Company recorded a settlement loss of $28,570 related to this
settlement of monies owed. These warrants are outstanding at December
31, 2003.
During 2003 the Company granted 300,000 warrants under the default
provisions of certain notes payable which were valued at $122,500 and
charged to interest expense using the Black-Scholes option pricing
model with a 30 day expected life, volatility of 110% - 282%, zero
expected dividends and a discount rate of 0.89% - 1.20%. All of these
warrants were exercised as of December 31, 2003.
During the fourth quarter of 2003, the Company had a private placement
offering of common stock. In conjunction with this offering, the
Company granted 6,700,000 common stock warrants with an exercise price
of $0.50 with a February 28, 2004 expiration date and 3,350,000 common
stock warrants with an exercise price of $0.75 with a May 30, 2004
expiration date. The Company has a right to call the $0.50 warrants at
any time after the closing bid price for its common stock has been at
or above $1.00 per share for ten consecutive trading days, but in no
event may the Company call this warrant prior to January 15, 2004. The
Company may call the $0.75 warrant at any time after the closing bid
price for its common stock has been at or above $1.25 per share for
ten consecutive trading days, but in no event may the Company call
this $0.75 warrant prior to calling the $0.50 warrant. During February
2004, 6,700,000 of the $0.50 warrants were exercised. The Company
received $3,200,000 ($2,848,000 net of cash offering costs) of cash,
will receive $20,000 cash that is currently in escrow and received
notes for $130,000 related to the exercise of these warrants. The
Company issued 6,400,000 shares of common stock and 300,000 shares are
recorded as issuable. None of the $0.75 warrants have been exercised.
On October 31, 2003, the Company granted a warrant to purchase up to
1,000,000 shares of its common stock at an exercise price of $0.50
with an expiration date of February 28, 2004. These warrants were
F-27
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
granted in conjunction with a stock purchase agreement dated October
31, 2003 to purchase 1,000,000 shares of the Company's common stock
for $0.25 per share. These warrants are outstanding at December 31,
2003. Subsequent to year end, these warrants expired.
A summary of the warrants issued to non-employees for services as of
December 31, 2003 and 2002 and changes during the years is presented
below (this does not include 11,050,000 warrants related to the 2003
offering and a common stock subscription):
2003 2002
------------------------- -------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Warrants Price Warrants Price
---------- ---------- ---------- ----------
Balance at beginning of period 2,066,558 $ 0.68 367,274 $ 1.28
Granted 2,455,000 $ 0.25 2,024,284 $ 0.46
Exercised (841,558) $ 0.49 (325,000) $ 0.03
Forfeited (625,000) $ 0.27 -- $ --
---------- ----------
Balance at end of period 3,055,000 $ 0.47 2,066,558 $ 0.68
========== ==========
Warrants exercisable at end of
period 3,055,000 $ 0.47 2,066,558 $ 0.68
---------- ---------- ---------- ----------
Weighted average fair value of
warrants granted during the
period $ 0.36 $ 0.25
========== ==========
The following table summarizes information about non-employee stock
warrants outstanding that were issued for services at December 31,
2003:
Warrants Outstanding and Exercisable
Weighted
Number Average Weighted
Range of Outstanding Remaining Average
Exercise at December Contractual Exercise
Price 31, 2003 Life Price
------------- --------- ---------- ----------
$ 0.001 630,000 0.08 Years $ 0.0001
$ 0.20 - 0.35 675,000 2.54 Years $ 0.29
$ 0.50 950,000 0.92 Years $ 0.50
$ 0.75 350,000 1.65 Years $ 0.75
$ 1.00 - 1.50 450,000 1.64 Years $ 1.11
----------
3,055,000 1.30 Years $ 0.47
==========
(H) EMPLOYEE STOCK OPTIONS AND WARRANTS
On June 26, 2000, the Company's Board of Directors adopted the New
Millennium Media International, Inc. 2000 Stock Option Plan (the
"Plan"). The Plan provides for the issuance of incentive
F-28
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
stock options (ISO's) to any individual who has been employed by the
Company for a continuous period of at least six months. The Plan also
provides for the issuance of Non Statutory Options (NSO's) to any
employee who has been employed by the Company for a continuous period
of at least six months, any director, or consultant to the Company.
The Company may also issue reload options as defined in the plan. The
total number of common shares of common stock authorized and reserved
for issuance under the Plan is 600,000 shares. The Board shall
determine the exercise price per share in the case of an ISO at the
time an option is granted and such price shall be not less than the
fair market value or 110% of fair market value in the case of a ten
percent or greater stockholder. In the case of an NSO, the exercise
price shall not be less than the fair market value of one share of
stock on the date the option is granted. Unless otherwise determined
by the Board, ISO's and NSO's granted under the Plan have a maximum
duration of 10 years.
The Company accounts for its stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees";
accordingly, the differences between the exercise prices and the fair
values of the common stock underlying the options on the dates of the
grants are recorded as a compensation expense.
During 2003, the company granted to an employee 1,750,000 of common
stock warrants pursuant to his employment contract. The Company
recorded $295,000 of compensation expense related to 1,000,000 of
these warrants for the intrinsic value of these warrants, of which
$225,000 was recorded as compensation expense at the time of grant and
$70,000 is being recognized as compensation expense over the period of
his employment agreement. For the remaining 750,000 of common stock
warrants issued, there was no intrinsic value, thus no compensation
expense was recorded for these options.
During 2003, the Company granted 35,000 options to employees under the
stock option plan. These options were valued under the intrinsic value
method of APB 25 during 2003 resulting in a charge of $500 to
compensation expense.
F-29
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
A summary of the warrants and options issued to employees as of
December 31, 2003 and 2002 and changes during the year are presented
below:
2003 2002
------------------------- ------------------------
Weighted Weighted
Average Number of Average
Warrants Exercise Warrants Exercise
and Options Price and Options Price
---------- ---------- ---------- ----------
Balance at beginning of period 100,000 $ 0.25 -- $ --
Granted 1,785,000 0.34 100,000 0.25
Exercised -- -- -- --
Forfeited -- -- -- --
---------- ----------
Balance at end of period 1,885,000 $ 0.33 100,000 $ 0.25
========== ==========
Warrants and options
exercisable at end of period 1,885,000 $ 0.33 100,000 $ 0.25
========== ========== ========== ==========
Weighted average fair value
of warrants and options
granted during the period $ 0.43 $ 0.26
========== ==========
The fair value of warrants granted was estimated on the dates of the
grants using the following approximate assumptions: dividend yield of
0 %, expected volatilities of 229% - 356%, risk-free interest rates of
.91% - 2.18%, and expected lives of 3 - 5 years.
The following table summarizes information about employee stock
warrants and options outstanding at December 31, 2003:
Warrants and Options
Warrants and Options Outstanding Exercisable
---------------------------------------------------------- ----------------------------
Weighted Number
Number Average Weighted Exercisable Weighted
Range of Outstanding Remaining Average at Average
Exercise at December Contractual Exercise December 31, Exercise
Price 31, 2003 Life Price 2003 Price
------------ ------------- ----------- ---------- -------------- ----------
$ 0.25 605,000 2.29 Years $ 0.25 605,000 $ 0.25
0.35 775,000 2.70 Years 0.35 775,000 0.35
$ 0.40- 0.50 505,000 2.85 Years 0.40 505,000 0.40
------------- --------------
1,885,000 2.67 Years $ 0.33 1,885,000 $ 0.33
============= ==============
F-30
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
(I) DEFERRED CONSULTING EXPENSE FROM STOCK AND WARRANT ISSUANCES
During 2003, the Company entered into several consulting agreements
with various consultants to provide services for the Company. The
measurement date was typically the grant date for these agreements
since the shares were contractually fully vested and nonforfeitable at
the grant date. The Company amortizes the cost of each agreement over
the contract term. At December 31, 2003, the Company had $1,418,307 of
deferred consulting expense in its contra-equity account. The Company
will recognize $1,413,050, $4,764 and $493 as consulting expense
during 2004, 2005 and 2006, respectively.
NOTE 8 RELATED PARTY TRANSACTIONS
The Company subleases part of its corporate office space to another company,
under common management, for $4,800 per month under a one -year lease which
expires January 31, 2003. The receivable from this Company of $78,139 was fully
reserved during 2003 due to the Company's assessment that the tenant does not
have the current ability to pay. The total other income 2003 from this affiliate
was $29,644. Later in 2003, the Company received property & equipment valued at
$40,480 as partial payment of the monies owed by this company. The gain on this
transaction of $40,480 was recorded in the additional paid in capital equity
account since it resulted from a company under common control.
The Company had loans payable including accrued interest to its President/CEO
totaling $303,657 at December 31, 2002. During 2003, the Company recorded
interest expense of $16,435, made loan payments of $4,371 and converted the
total loan and accrued interest of $315,721 to Series A Convertible preferred
Stock during 2003.
During late 2002, the Company received a short-term loan payable from its
current Director of Research and Development/Chief Technology Officer totaling
$50,000. This loan remained outstanding at December 31, 2003 and was paid off in
full during March 2004. During 2003, the Company did not record any interest
expense related to this loan.
On February 3, 2004, a third party and the Company reached a master settlement
and release agreement whereby, in consideration for the exchange of mutual
releases and the third party relinquishing any claim to any of the benefits of
the OnScreen (including the 11.25% license payments), the Company agreed to pay
to this third party $150,000 within five days of receiving the $7.2 million
funding plus an annually declining percentage of revenue of 5% in 2005 declining
to 2% in year 2008 and thereafter from the OnScreen revenues. In the event of a
change of control of the Company, the percentage of revenue shall terminate and
a single payment transaction fee shall be paid by the Company to this third
party ranging from 10% of the OnScreen appraised value up to $100,000,000, 7
1/2% for the appraised value between $100,000,001 and $200,000,000, 5% of the
appraised value between $200,000,001 and $300,000,000, and 4% of the appraised
value between $300,000,001 and $400,000,000 and 3% for the appraised value
between $400,000,001 and $500,000,000 and 2% for any appraised amounts between
$500,000,001 and $600,000,000. (See Note 4 - License 1). The Company's Director
of Research and Development/Chief Technology Officer is a manager in this third
party company.
NOTE 9 INCOME TAXES
The Company recognized losses for both financial and tax reporting purposes
during each of the periods in the accompanying statements of operations.
Accordingly, no provision for income taxes and/or deferred income
F-31
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
taxes payable has been provided for in the accompanying financial statements.
At December 31, 2002, the Company has available net operating loss carry
forwards of approximately $6,320,000. These net operating loss carry forwards
expire in various years through the year ending December 31, 2023, however
because the Company has incurred significant operating losses, utilization of
the income tax loss carry forwards are not assured. As a result, the non-current
deferred income tax asset arising from these net operating loss carry forwards
and from other temporary differences are not recorded in the accompanying
balance sheets because we established a valuation allowance to fully reserve
such assets due to the uncertainty of the Company's realization of this benefit.
After consideration of all the evidence management has determined that a full
valuation allowance is necessary to reduce the deferred tax assets to the amount
that will more likely than not be realized.
At January 1, 2003 the valuation allowance was $1,980,000. The increase during
2003 was $500,000.
The Company's tax expense differs from the "expected" tax expense for the
periods ended December 31, 2003 and 2002, (computed by applying the Federal
Corporate tax rate of 34% to loss before taxes), as follows:
2003 2002
------------ ------------
Computed "expected" tax benefit $ (1,169,000) $ (1,171,000)
State tax benefit, net of federal effect (125,000) (125,000)
Change in valuation allowance 500,000 885,000
Intrinsic value of convertible preferred 359,000 --
stock
Equity instruments for services 435,000 411,000
------------ ------------
$ -- $ --
============ ============
At December 31, 2003, the tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities are as follows:
2003
------------
Deferred tax assets:
Net operating loss carry forwards $ 2,378,000
Difference between book and tax 102,000
Valuation allowance for deferred tax asset (2,480,000)
------------
$ --
============
NOTE 10 CONCENTRATIONS
During 2003, 55% of revenues were derived from two customers at 32% and 23%.
NOTE 11 SUBSEQUENT EVENTS
On January 2, 2004, the Company entered into a two-year consulting agreement
with an individual to perform various financial and administrative duties. This
consultant will be paid $75,000 annually with a bonus of $25,000 worth of
Company common stock which must be issued within two and one-half months after
the end
F-32
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
of each year. (This individual was previously the Director of Operations and
this consulting agreement replaced his employment agreement).
On January 14, 2004, the licensor discussed at Note 4 - License 1 agreed to
accept $175,000 in lieu of the remaining $250,000 minimum payment owed during
2004, which the Company paid on January 15, 2004. Also, on January 14, 2004, the
licensor agreed to accept an additional $400,000 by March 31, 2004 for the
licensor to convey to the Company its 25% royalty right in the OnScreen License
Agreement. This $400,000 was paid on March 16, 2004. After this payment, there
are no more royalty payments owed to this licensor and now the Company retains
100% ownership of the OnScreen license and agreement.
On February 3, 2004, a third party and the Company reached a master settlement
and release agreement whereby, in consideration for the exchange of mutual
releases and the third party relinquishing any claim to any of the benefits of
the OnScreen (including the 11.25% license payments), the Company agreed to pay
to this third party $150,000 within five days of receiving the $7.2 million
funding plus an annually declining percentage of revenue of 5% in 2005 declining
to 2% in year 2008 and thereafter from the OnScreen revenues. In the event of a
change of control of the Company, the percentage of revenue shall terminate and
a single payment transaction fee shall be paid by the Company to this third
party ranging from 10% of the OnScreen appraised value up to $100,000,000, 7
1/2% for the appraised value between $100,000,001 and $200,000,000, 5% of the
appraised value between $200,000,001 and $300,000,000, and 4% of the appraised
value between $300,000,001 and $400,000,000 and 3% for the appraised value
between $400,000,001 and $500,000,000 and 2% for any appraised amounts between
$500,000,001 and $600,000,000. (See Note 4 - License 1).
On February 3, 2004, an addendum was made to the President's employment
agreement whereby he shall receive 3,000,000 shares of the Company's common
stock and one percent of all revenue derived from any licensing fees received by
the Company in connection with the OnScreen product. The right to these
3,000,000 shares replaced his right to any additional shares under the November
1999 agreement. This addendum becomes effective upon the Company closing and
receiving funds in full from the October 16, 2003 offering for $7,200,000 within
the terms and conditions as stated in the offering memorandum. On February 10,
2004, the Company's board of directors approved increasing the President's
salary to $150,000 for the duration of his employment agreement since the
employment agreement for the President included the provision that he would get
paid equal compensation to any other senior executive of the Company (the
Director of Research and Development's salary is $150,000). The President will
receive $120,000 in cash and the remaining $30,000 will be accrued.
On February 3, 2004, the Company and Swartz entered into a settlement and
termination of investment agreement. The Company agreed to i) promptly issue the
379,907 shares of common stock from the cashless exercise of the Swartz warrants
of which Swartz agreed to limit its sales of these shares of Company stock to
ten percent of the Company's trading volume for any calendar month, ii) Swartz
shall retain the 100,000 shares of stock that had been issued during 2002 per
the initial agreement and then were not valid as put shares as the put
transaction was never executed, but the shares had been issued to Swartz and
iii) the investment agreement between the Company and Swartz shall terminate
subject to the completion of items i - iii above. During February 2004, the
Company issued the 379,907 shares of common stock (without any restrictive
legends). During February 2004, the Company will recognize a settlement loss of
$4,000 as a result of this settlement agreement.
On February 3, 2004, the Company entered into an agreement with a third party
whereby the Company conveyed and assigned its right, title and interest that the
Company has relating to EyeCatcherPlus and Drive
F-33
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
Time Network (except to its Display assets) as well as the right for the third
party to place fifty of the EyeCathcherPlus Displays. The Company retains
ownership and a security interest in all assets conveyed and assigned. The third
party will pay the Company five percent of the gross advertising sales revenue
derived from these Displays. When an average of at least four annual
advertisements per each of the fifty Displays have been sold and paid, then the
third party can place the next fifty Displays. This will continue in increments
of fifty Displays until the total Display agreed upon have been placed. The five
percent fee will continue until the Company receives the pre-agreed total amount
for the Displays. The third party shall issue fifteen percent of its stock to
the Company at the time of the agreement. The Company will issue warrants to
this third party once it receives 200,000 shares of the Company's common stock
back from another company. The Company shall contribute $5,000 monthly for five
months to this third party.
A plaintiff has alleged that he holds a convertible promissory note for $234,869
at 8% interest accruing from the note date of August 1999. The Company believes
the note is not valid; however, as a contingency, the Company has recorded
interest expense of $24,301 and $53,897 in 2003 and 2002, and has a total of
$328,058 in accrued expenses at December 31, 2003 related to this matter. On
February 5, 2004, the Company satisfied this alleged debt with 60,000 shares of
the Company's common stock and will record a settlement gain of $275,860 in
February 2004.
On February 5, 2004, the agreement with the Director of Research and Development
was extended with an effective date of November 1, 2003 for a three-year term
with the title changing to Director of Research and Development and Chief
Technology Officer. The salary will be $150,000 in the first year, $180,000 in
the second year and $240,000 in the third year. $120,000 of the first year's
salary is to be paid in cash and the remaining $30,000 will be accrued. The full
salary will be paid in cash when the Company achieves a positive cash flow for
two consecutive months. The accrued compensation will be paid when the Company
reaches aggregate sales of $2.5 million or at the employee's option he may
procure stock through the employee stock option plan. This employee has a right
to 450,000 shares of the Company's common stock, these shares, if the employee
is terminated for cause or resigns, may be repurchased from the employee for
$450. The amount of shares that can be repurchased by the Company declines by
150,000 shares each year, resulting in the shares being fully vested on November
1, 2006.
During February 2004, 6,700,000 of the $0.50 warrants from the private placement
were exercised. The Company received $3,200,000 ($2,848,000 net of cash offering
costs) of cash, will receive $20,000 cash that is currently in escrow and
received notes for $130,000 related to the exercise of these warrants. The
Company issued 6,400,000 shares of common stock and 300,000 shares are recorded
as issuable.
On February 3, 2004, the Company's board of directors designated 30,000 shares
of preferred stock as Series B Convertible Preferred Stock ("Series B"). The
Series B is convertible to common shares on a one thousand-for-one basis, is due
annual dividends at $1 per share payable quarterly as authorized by the Board
and the dividends are cumulative. Series B has a liquidation value of $240 per
share and has voting rights of one thousand votes per Series B share.
On February 5, 2004, as part of the private placement, the Company's Board of
Directors approved issuing 12,000 shares of Series B Convertible Preferred Stock
to the private placement unit holders, 12,000 shares of Series B Convertible
Preferred Stock upon the exercise of the $0.50 warrant holders of the private
placement and 6,000 shares of Series B Convertible Preferred Stock upon the
exercise of the $0.75 warrant holders of the private placement.
F-34
NEW MILLENNIUM MEDIA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------
On March 12, 2004, the Company paid the note holders with an original principal
of $250,000 in full. The Company paid these note holders $250,000 and issued
12,500 shares of the Company's common stock. Also during 2004, the Company
issued these note holders 50,000 shares of common stock related to the notes
being in default during January and February 2004 (See Note 5).
The note payable dated October 31, 2002, with a balance of $50,000, was paid in
full during the first quarter of 2004.
Subsequent to year end, the subscription agreement the Company had with an
investor was not fulfilled and the Company does not expect to get the $250,000
subscription receivable. Also, the warrants expired (see Note 7E).
F-35
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1* Amended Articles of Incorporation of the Company.
3.2* Bylaws of the Company.
3.3** Articles of Amendment to Certificate of Incorporation -
Certificate of Designations, Preferences, Limitations and Relative
Rights of the Series A Preferred Stock, filed July 25, 2002.
3.4** Articles of Amendment to Articles of Incorporation-Terms of Series
A Convertible Preferred Stock, filed November 13, 2003.
3.5** Amendment to Restated Articles of Incorporation, filed December
23, 2003.
3.6** Articles of Amendment to Certificate of Incorporation -
Certificate of Designations of the Series B Convertible Preferred
Stock, filed April 1, 2004.
4.1* Investment Agreement dated May 19, 2000 by and between the
Registrant and Swartz Private Equity, LLC.
4.2* Form of "Commitment Warrant" to Swartz Private Equity, LLC for the
purchase of 1,000,000 shares common stock in connection with the
offering of securities.
4.3* Form of "Purchase Warrant" to purchase common stock issued to
Swartz Private Equity, LLC from time to time in connection with
the offering of securities.
4.4* Warrant Side-Agreement by and between the Registrant and Swartz
Private Equity, LLC.
4.5* Registration Rights Agreement between the Registrant and Swartz
Private Equity, LLC related to the registration of the common
stock to be sold pursuant to the Swartz Investment Agreement.
10.1** Employment Agreement between the Registrant and John Thatch, dated
November 2, 1999.
10.2** Contract and License Agreement between the Registrant and John
Popovich, dated July 23, 2001.
10.3** Agreement by and among the Registrant, John Popovich and Fusion
Three, LLC, dated January 14, 2004.
10.4** Letter Agreement between the Registrant and John Popovich, dated
January 15, 2004.
42
10.5** Master Settlement and Release Agreement by and among the
Registrant, Fusion Three, LLC, Ryan Family Partners, LLC, and
Capital Management Group, Inc., dated February 3, 2004.
10.6** First Amendment to Contract and License Agreement, dated February
3, 2004.
10.7** Employment Agreement between the Registrant and Mark R. Chandler,
COO/CFO, dated December 16, 2003.
10.8** Employment Agreement between the Registrant and Stephen K. Velte,
CTO dated November 7, 2003.
10.9** Reserved.
10.10*** Consulting Services Agreement by and among the Registrant, David
Coloris, Excipio Group, S.A., dated December 22, 2003.
10.11** Commission Agreement between the Registrant and Gestibroker dated
September 12, 2003.
10.12** Addendum to Lease Agreement dated February 1, 2004.
10.13** Reserved.
10.14** Reserved.
10.15** Lockup Agreement between the Registrant and Excipio Group, S.A.,
dated December 12, 2003.
10.16** Agreement between the Registrant and Visual Response Media Group,
Inc., dated February 3, 2004.
31** Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e), As
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32** Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99** Senior Financial Officers Code of Ethics.
----------
* Incorporated by reference to our Registration Statement on Form
SB-2/A filed with the Commission on October 26, 2001.
** Filed herewith.
*** Incorporated by reference to our Current Report on Form S-8 filed
with the Commission on January 15, 2004.
43
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 15, 2004 in connection
with the execution of a Consulting Services Agreement with David Coloris and
Excipio Group, S.A.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND EXPENSES
Compensation of Auditors
Audit Fees. The financial statements of the Company, which are furnished herein
as of December 31, 2003, have been audited by Salberg & Company, P.A., Boca
Raton, Florida, independent auditors. Salberg & Company, P.A. billed the Company
an aggregate of $52,000 in fees and expenses for professional services rendered
in connection with the audit of the Company's financial statements for the
fiscal year ended December 31, 2003 and the reviews of the financial statements
included in each of the Company's Quarterly Reports on Form 10-QSB during the
fiscal year ended December 31, 2003. Salberg & Company, P.A. billed the Company
an aggregate of $49,000 in fees and expenses for professional services rendered
in connection with the audit of the Company's financial statements for the
fiscal year ended December 31, 2002 and the reviews of the financial statements
included in each of the Company's Quarterly Reports on Form 10-QSB during the
fiscal year ended December 31, 2002.
The Company paid these sums.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
New Millennium Media International, Inc.
Name Title Date
/s/ John "JT" Thatch CEO/President/Director April 14, 2004
------------------------------
John "JT" Thatch
/s/ Mark R. Chandler COO/CFO April 14, 2004
------------------------------
Mark R. Chandler
/s/ Russell L. Wall Director/Audit Committee April 14, 2004
------------------------------
Russell L. Wall
44