U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 205491
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________.
Commission File No.: 000-27777
INNOVATION HOLDINGS, INC.
(f/k/a Blagman Media International, Inc.)
(Exact name of Registrant as specified in its Charter)
Nevada 91-1923501
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14622 Ventura Blvd., Suite 1015
Sherman Oaks, CA 91403
-------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 818-426-8737
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(G) of the Act:
COMMON STOCK -- $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 11,235,455 shares of common stock as
of December 15, 2004.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2004
(UNAUDITED) AND DECEMBER 31, 2003 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) 2
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED) 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED) 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004 (UNAUDITED) 5-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 11-15
ITEM 3. CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
CERTIFICATIONS 18-20
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONTENTS
PAGE 1 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER
30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
PAGE 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
PAGE 3 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' DEFICIENCY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2004 (UNAUDITED)
PAGE 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
PAGES 5-10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS
OF SEPTEMBER 30, 2004 (UNAUDITED)
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, 2004 December 31,
(Unaudited) 2003
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 2 $ 2
Prepaid expenses, media and other current assets 94,091 --
Assets related to discontinued operations 9,645 9,645
------------ ------------
Total Current Assets 103,738 9,647
------------ ------------
PROPERTY & EQUIPMENT - NET 53,061 73,751
------------ ------------
OTHER ASSETS
License agreement, net of amortization of $11,518 and
$7,781 respectively 630,476 141,687
------------ ------------
TOTAL ASSETS $ 787,275 $ 225,085
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable - current portion $ 374,725 $ 359,725
Accounts payable 760,321 830,006
Accrued expenses 803,117 950,018
Accrued compensation - officers 2,324,844 1,897,344
Due to officer 101,857 68,406
Capital lease obligation - current portion 33,540 33,540
Liabilities related to discontinued operations 10,835,472 10,835,472
------------ ------------
Total Current Liabilities 15,233,876 14,974,511
------------ ------------
LONG-TERM LIABILITIES
Notes and loans payable - long-term portion 558,000 445,500
------------ ------------
Total Liabilities 15,791,876 15,420,011
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' DEFICIENCY
Preferred stock, series A, $.001 par value, super convertible
redeemable preferred stock, 10,000,000 shares authorized, 0
shares issued and outstanding -- --
Preferred stock, series B, $.001 par value, super convertible
redeemable preferred stock, 100 shares authorized, 100 shares
issued and outstanding 1 1
Common stock, $.001 par value, 25,000,000,000 shares authorized
14,359,018 and 31,682,095 shares issued and outstanding,
respectively 14,359,018 31,682
Additional paid-in capital 34,368,842 41,824,753
Accumulated deficit (60,380,146) (57,051,362)
Deferred stock based compensation (3,352,316) --
------------ ------------
Total Stockholders' Deficiency (15,004,601) (15,194,926)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 787,275 $ 225,085
============ ============
See accompanying notes to condensed consolidated financial statements.
1
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Three For the Nine For the Nine
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUES - NET $ -- -- -- 83,652
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 1,014,566 2,098,267 3,251,794 5,166,921
Depreciation 10,431 7,113 31,901 22,059
----------- ----------- ----------- -----------
Total Operating Expenses 1,024,997 2,105,380 3,283,695 5,188,980
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,394,997) (2,100,252) (3,633,695) (5,105,328)
OTHER INCOME (EXPENSE)
Interest expense, net (12,001) (10,249) (45,089) (37,113)
----------- ----------- ----------- -----------
Total Other Income (Expense) (12,001) (10,249) (45,089) (37,113)
----------- ----------- ----------- -----------
NET LOSS $(1,036,998) $(2,110,501) $(3,328,784) $(5,142,441)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.00) $ (0.00)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- BASIC AND DILUTED 7,230,008,520 1,155,511,877
=========== ============= =========== =============
See accompanying notes to condensed consolidated financial statements.
2
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES ON STOCKHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
Additional Deferred Stock
Preferred Stock Common Stock Paid-In Accumulated Based
Shares Amount Shares Amount Capital Deficit Compensation Total
------- ------- -------------- ------------ ------------ ------------- ----------- -----------
Balance,
December 31, 2003 100 $ 1 31,682,095 $ 31,682 $ 41,824,753 $ (57,051,362) $ -- $(15,194,926)
Stock issued
for prepaid
expenses -- -- 2,000,000 2,000 98,000 -- -- 100,000
Stock issued
for legal fees -- -- 362,500,000 362,500 320,000 -- -- 682,500
Stock issued
for consulting -- -- 8,866,426,750 13,883,427 (8,511,901) -- -- 4,854,526
Stock issued for
settlement of
accrued expenses -- -- 23,659,250 23,659 247,615 -- -- 271,274
Stock issued
for board of
directors fees -- -- 69,000,000 69,000 393,000 -- -- 462,000
Stock issued
for debt issuance -- -- 3,750,000 3,750 (2,625) -- -- 1,125
Stock issued for
license agreement -- -- 5,000,000,000 5,000,000 (4,500,000) -- -- 500,000
Deferred
stock compensation -- -- -- -- -- -- (4,917,726) (4,917,726)
Amortization of
deferred stock
compensation -- -- -- -- -- -- 1,565,410 1,565,410
Net loss -- -- -- -- -- (3,328,784) -- (3,328,784)
------- ------- -------------- ------------ ------------ ------------- ----------- -----------
BALANCE,
SEPTEMBER 30, 2004 100 $ 1 14,359,018,095 $ 14,359,018 $ 34,368,842 $ (60,380,146) $(3,352,316) $(15,004,601)
======= ======= ============== ============ ============ ============= =========== ============
See accompanying notes to condensed consolidated financial statements.
3
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine For the Nine
Months Ended Months Ended
September 30, 2004 September 30, 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,328,784) $(5,142,441)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 31,901 22,059
Stock issued for compensation and services 2,712,838 3,939,274
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable -- (43,368)
Prepaid expenses, media and other current assets 105,142
Deposits -- 4,576
Increase (decrease) in:
Accounts payable and accrued expenses (4,406) 364,767
Deferred revenue -- --
Accrued compensation - officer 427,500 452,452
----------- -----------
Net Cash Used In Operating Activities (160,951) (222,392)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft - (decrease) increase -- (11,782)
Due to officer 33,451 (63,253)
Proceeds from officer --
Payments to officer --
Proceeds from notes payable 127,500 302,225
Payments under capital lease obligation -- (4,796)
----------- -----------
Net Cash Provided By Financing Activities 160,951 222,394
----------- -----------
NET INCREASE IN CASH -- 2
Cash - beginning of Period 2 --
----------- -----------
Cash - end of Period $ 2 $ 2
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
During the period ended September 30, 2004, the Company issued 2,000,000 shares
of common stock having a fair market value of $100,000 to its legal counsel for
future legal services recorded as a prepaid expense.
During the period ended September 30, 2004, the Company issued 362,500,000
shares of common stock having a fair market value of $682,500 to its legal
counsel for future legal services recorded as deferred stock compensation.
During the period ended September 30, 2004, the Company issued 8,866,426,750
shares of common stock having a fair market value of $4,854,526 to various
consultants for consulting fees recorded as deferred stock compensation which is
being expensed over the lives of the related consulting agreements.
During the period ended September 30, 2004, the Company issued 23,659,250 shares
of common stock in settlement of accrued expenses and accrued interest totaling
$260,000 and $11,274, respectively.
During the period ended September 30, 2003, the Company issued 69,00,000 shares
of common stock having a fair market value of $462,000 to its Board Members for
services rendered.
During the period ended September 30, 2004, the Company issued 3,750,000 shares
of common stock having a fair market value of $1,125 for debt issuance cost.
See accompanying notes to condensed consolidated financial statements.
4
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
On February 10, 2003, the stockholders of the Blagman Media
International, Inc. approved an amendment to the articles of
incorporation to change its name to Innovation Holdings, Inc.
The accompanying unaudited condensed consolidated financial statements
include the accounts of Innovation Holdings, Inc. and its subsidiaries
(the "Company"). All significant inter-company transactions and balances
have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules and regulations of
the Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information necessary for a
comprehensive presentation of financial position and results of
operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
The condensed consolidated balance sheet information at December 31, 2003
was derived from the Company's audited consolidated financial statements
included in its Annual Report Form 10-KSB. The accompanying condensed
consolidated financial statements and the information included under the
heading "Management's Discussion and Analysis or Plan of Operation"
should be read in conjunction with the Company's Annual Report Form
10-KSB for the year ended December 31, 2003, filed on May 19, 2004.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current presentation.
Basic loss per common share is based on net loss divided by the weighted
average number of common shares outstanding. Common stock equivalents
were not included in the calculation of diluted loss per share because
their effect would be anti-dilutive.
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In March 2004, the U.S. Securities and Exchange Commission's Office of
the Chief Accountant and the Division of corporate Finance released Staff
Accounting Bulletin ("SAB") No. 105, "Loan commitments Accounted for as
Derivative Instruments." This bulletin contains specific guidance on the
inputs to a valuation-recognition model to measure loan commitments
accounted for at fair value, and requires that fair-value measurement
include only differences between the guaranteed interest rate in the Loan
commitment and market interest rate, excluding any expected future cash
flows related to the customer relationship or loan servicing. In
addition, SAB 105 requires the disclosure of the accounting policy for
loan commitments, including methods and assumptions used to estimate the
fair value of loan commitments and any associated hedging strategies. SAB
105 is effective for derivative instruments entered into subsequent to
March 31, 2004 and should also be applied to existing instruments as
appropriate. The Company has not yet completed its evaluation of SAB 105,
but does not anticipate a material impact on its financial statements.
5
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 3 DISCONTINUED OPERATIONS
Pursuant to an Agreement and Plan of Reorganization dated March 4, 2002,
effective March 22, 2002, the Company acquired 100% of the outstanding
stock of Century Media, Inc., a California corporation ("Century") by
merging Blagman USA, Inc., into Century. Pursuant to the transaction, the
Company acquired all of the capital stock of Century for cash and common
stock of the Company, assumed current debt obligations and unexercised
option and stock appreciation rights of Century and assumed accrued and
ongoing trade and other ordinary course obligations and relationships.
Prior to the closing, the parties negotiated with the holders of portions
of the outstanding Century debt to restructure the term and payments of
such debt and in certain cases, to allow for the issuance of shares of
common stock of the Company in lieu of cash payments. Currently, the
Company remains obligated on certain contingent obligations including
$1.25 million from the TMT Media Corporation acquisition by Century in
2000. (See Note 5(A)).
At closing, holders of Century shares received twenty cents per Century
share, of which two and one-half cents was payable in cash and the
balance of seventeen and one-half cents was payable by the delivery of
shares of common stock of the Company, for a total of $903,292 and 14,377
options.
In relation to the acquisition, the Company recorded goodwill in the
amount of $3,048,484 and recorded an intangible asset of $5,855,286
related to the customer list acquired. The Company evaluated the customer
list and assigned it a three-year life.
The Company's management performs on-going business reviews based on
quantitative and qualitative measures and assesses the need to record
impairment losses when impairment indicators are identified. In the third
quarter of 2002, the review made by management of the Company determined
that the goodwill related to Century's business and the customer list
acquired in the acquisition were not recoverable. The Company then
recorded impairment charges of $3,048,484 and $5,599,007 (net of
amortization) related to the goodwill and customer list, respectively.
In December 2002, management of the Company determined that it would no
longer invest its capital and human resources into Century and entered
into a plan to discontinue and abandon the operations of Century.
Effective with the fourth quarter of 2002, this operating entity is
reflected as a discontinued operation.
For the nine months ended September 30, 2004, Century was not operating
and therefore did not have any revenues or operating expenses.
Assets and liabilities of the discontinued operations as of September 30,
2004 were as follows:
Assets
Cash $ 313
Prepaid expenses 7,005
Deposits 2,327
-----------
Total Assets $ 9,645
-----------
Liabilities
Accounts payable $ 5,606,399
Accrued expenses 1,478,352
Deferred revenue 1,364,866
Notes payable 2,356,575
Capital lease obligation 29,280
-----------
Total Liabilities 10,835,472
-----------
Net liabilities of discontinued operations $10,825,827
===========
6
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
The creditors of Century Media have filed various actions for breach of
contract. Said actions arose out of obligations incurred by Century Media
prior to the merger with the Company. The Company disputes these claims
and is actively seeking to resolve these matters.
NOTE 4 STOCKHOLDERS' DEFICIENCY
In February 2003, the Board of Directors authorized a 5,000 for 1 reverse
stock split. In April 2004, the Board of Directors authorized a 500 for 1
reverse stock split. All share and per share amounts in the accompanying
condensed consolidated financial statements and footnotes have been
restated to give effect to such reverse stock splits. (See Note 7).
During the nine months ended September 30, 2004, 2,000,000 shares of
common stock were issued to the Company's attorneys for an agreement to
provide legal services valued at $100,000. The fair value of the issued
shares was based upon the market price of the Company's stock on the date
of grant.
During the nine months ended September 30, 2004, 362,500,000 shares of
common stock were issued to the Company's attorneys for an agreement to
provide legal services valued at $682,500. The fair value of the issued
shares was based upon the market price of the Company's stock on the date
of grant. The $682,500 is presented as deferred stock based compensation
in the accompanying condensed consolidated balance sheet.
During the nine months ended September 30, 2004, the Company issued
8,866,426,750 shares of common stock for consulting services valued at
$4,854,526. The fair value of the issued shares was based upon the market
price of the Company's stock on the date of grant. Of the total value,
$2,154,099 has been expensed to selling, general and administrative
expenses in the accompanying condensed consolidated statement of
operations for the nine months ended September 30, 2004 and $2,700,427 is
presented as deferred stock based compensation in the accompanying
condensed consolidated balance sheet.
During the nine months ended September 30, 2004, the Company issued
69,000,000 shares of common stock for board of directors fees valued at
$462,000. The fair value of the issued shares was based upon the market
price of the Company's stock on the date of grant. The amount was
expensed to selling, general and administrative expenses in the
accompanying condensed statement of operations for the nine months ended
September 30, 2004.
During the nine months ended September 30, 2004, the Company issued
23,659,250 shares of common stock valued at $271,274 to satisfy certain
liabilities related to a legal settlement reached in 2003. (See Note
5(d). The fair value of the issued shares was based upon the market price
of the Company's stock on the date of grant.
7
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
During the nine months ended September 30, 2004, 3,750,000 shares of
common stock valued at $1,125 were issued for debt issuance for costs
related to notes payable. The fair value of the issued shares was based
upon the market price of the Company's stock on the date of grant.
During the nine months ended September 30, 2004, 5,000,000,000 shares of
common stock were issued to a vendor for a license agreement valued at
$500,000. The fair value of the issued shares was based upon the market
price of the Company's stock on the date of grant.
NOTE 5 LITIGATION
(A) Subsequent to the Blagman/Century merger transaction described in Note 2,
TMT Media Corporation ("TMT") has asserted that under the April 2000
acquisition agreement (whereby Century acquired TMT), as a result of the
transaction between the Company and Century, it is entitled, as of April
22, 2002, to the $1,250,000 contingent amount and to the payment in full
of the balance of $609,564 due on the $700,000 note delivered in the 2000
acquisition by Century.
The Company and Century dispute this position and are seeking to resolve
the matter. In May 2002, TMT initiated a proceeding, TMT MEDIA
CORPORATION vs. BLAGMAN CENTURY MEDIA, INC. et al. (Superior court of
California, County of Los Angeles, Case BC273368) against the Company,
Century and a shareholder personally, claiming the accelerated amount of
$1,859,564. Management has filed a general denial to TMT's allegations
and has asserted numerous affirmative defenses and plans to begin
mediation in June to resolve this case. In December 2003, TMT was granted
a Summary Judgment against the Company in the accelerated amount of
$2,242,975, which includes additional interest on the $1,250,000
contingent amount and the $609,564 note plus attorney's fees and costs
incurred by TMT. The Company's former attorney failed to file any
opposition to the summary judgment motion. The Company's current attorney
filed a motion to be relieved of the default as to this summary judgment.
On July 6, 2004, the judgment of $2,242,975 was set aside and vacated by
the court. The Company can now properly defend the matter to either a
successful conclusion or settlement. As of September 30, 2004, the
Company has recorded additional liabilities in the amount of $383,411 in
order to record the full liability of $2,242,975 as per the summary
judgment. This liability is included in Liabilities related to
Discontinued Operations in the accompanying consolidated balance sheet at
September 30, 2004.
(B) In March 2002, the Company advised authorities, market members and
regulators and initiated an internal reconciliation investigation
relating to a substantial amount of common shares of the Company
improperly and fraudulently issued and possibly transferred, including
possible improper releases of restrictions and transfers of restricted
securities warrant negotiations or an exemption from registration,
without the knowledge of the Company ("Curative Review Process"). The
Curative Review Process is continuing. The Company filed a Registration
Statement on Form S-8 for a 2002 Employee Stock Compensation Plan
("Registration Statement") effective August 2002 to register shares. In
connection with the Curative Review Process, the Company subsequently
placed stop transfer orders on all of the original certificates and
derivatives of those certificates, advised market members and
depositories of its actions and has been working with these parties and
its transfer agent and other resources to ascertain which shares of
Common Stock need to remain in commerce to recognize the interests of the
8
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
transferee, which shares should be cancelled or returned to the Company
and therefore removed from registration ("Removed Shares") and which
shares are held by or were delivered to parties who were eligible to
receive and hold the same pursuant to the Plan. The Company intends to
file an amendment to this Registration Statement as soon as practicable
when the reconciliation in the curative Review Process is complete to
withdraw the Removed shares from registration. In connection with this,
the Company has had a suit filed against them by a third party pending
the circuit court of Cook County, Illinois. The Company has responded to
this matter and is actively cooperating in other investigations relating
to the plaintiff and others. The Company expects additional litigation
from the plaintiff and is intending to assert the indemnification and
disgorgement rights under its agreements with the plaintiff. As stated
above, more information on issues related to the collateral damage of the
company's association with certain financial advisors and organizations
can be found on the Securities and Exchange Commission (SEC) website.
Additional lawsuits may be filed by the Company against all parties
involved in the fraud if any issues related to such fraud have an adverse
effect on the company. The Company has initiated a complaint against a
third party in the Superior Court of California in the County of Los
Angeles for breach of contract, fraud and deceit, intentional
misrepresentation of facts, and rescission. The third party filed a
general denial to the complaint, has asserted numerous affirmative
defenses, and has filed a cross-complaint alleging breach of written
contract, breach of the implied covenant of good faith and fair dealing,
conversion, common counts, breach of fiduciary duties, fraud and deceit,
negligent misrepresentation, imposition of constructive trust and/or
resulting trust, intentional and tortuous inducement to breach and
interference with contract and prospective economic advantage, and unfair
trade practices. The Company has filed a general denial to the
allegations. The parties are currently seeking a business settlement.
On March 31, 2003, the SEC filed a complaint for injunctive and other
equitable relief, obtained a temporary restraining order and has frozen
the assets of this third party. The SEC complaint specifically alleges
that this third party and his associates forged stock issuance
resolutions and entered into bogus consulting agreements in an effort to
wrongfully convert the Company's S-8 shares. The SEC has alleged that
this third party and his associates stole approximately 2,160 shares of
the Company's stock valued at $3,300,000.
(C) A claim has been brought against the Company by a corporation for breach
of contract. On January 30, 2004, this corporation was granted a summary
judgment in the amount of $203,064, which includes interest plus
attorney's fees and costs incurred by the corporation. The Company's
current attorney filed a motion to be relieved of the default as to this
summary judgment. As of September 30, 2004, the Company has recorded
additional liabilities in the amount of $51,064 in order to record the
full liability of $203,064 as per the summary judgment. This liability is
included in Liabilities from Discontinued Operations in the accompanying
consolidate balance sheet at September 30, 2004. There are currently
cross-actions in the case that are pending for binding arbitration in
November 2004.
(D) On November 11, 2003, the Company reached a settlement with a corporation
as a result of a claim brought against the corporation by the Company on
May 6, 2002 and a cross complaint filed by the corporation on June 14,
2002. As part of the terms and conditions of the settlement, the Company
will pay to the corporation $260,000 and 10% simple interest over one
year. This will be accomplished by the issuance of 2 million shares of
free trading stock 30 days after the execution of the agreement. The
shares will be held in a trust account for the purpose of selling the
stock and paying the corporation on a continuous basis. In the event the
Company does not pay the corporation the total amount of the settlement
on or before one year and 30 days from the execution date of the
settlement agreement, the corporation will enforce a stipulated judgment
in the amount of $750,000 against the Company. This liability has been
paid in full as of September 30, 2004.
9
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
Other than the litigation discussed in the above paragraphs, the Company
is a party to a number of lawsuits and claims that the Company believes
will ultimately have a favorable outcome and are not material in dollar
amounts.
NOTE 6 CAPITAL LEASE OBLIGATIONS
The Company is in default of its capital lease agreement at September 30,
2004. The Company is also in discussions with the lessor to settle the
matter. Due to the default, the entire amount due under the lease has
been classified as current in the accompanying condensed consolidated
balance sheet.
NOTE 7 GOING CONCERN
The Company's condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the normal
course of business. The Company incurred a net loss of $3,328,784 and a
negative cash flow from operations of $3,633,695 for the nine months
ended September 30, 2004, and has a working capital deficiency of
$15,130,138 and a stockholders deficiency of $15,504,601 at September 30,
2004 which raises substantial doubt about its ability to continue as a
going concern. The Company's working capital deficiency as of September
30, 2004 may not enable it to meet such objectives as presently
structured. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The ability of the Company to continue as a going concern is dependent on
the Company's ability to raise additional capital and implement its
business plan. Management believes that actions presently taken to obtain
additional funding provide the opportunity for the Company to continue as
a going concern. The Company is also actively seeking businesses to
acquire.
NOTE 8 SUBSEQUENT EVENTS
In the fourth quarter of 2004, the Company issued 21,000,000 common
shares, in the aggregate, to various consultants for consulting services
to be provided over varying terms, which expire at various dates during
the fiscal years 2005 and 2006.
In the fourth quarter of 2004, a total of 70,000,000 shares of common
stock were issued to the Company's Securities and Exchange Commission
attorney as compensation for legal services rendered and for future legal
services.
In October 2004, the Company's Board of Directors authorized a
six-thousand-for-one reverse stock split of the Company's common stock.
In December 2004, the Company's Board of Directors authorized a
one-thousand-for-one reverse split of the Company's common stock. The
accompanying condensed consolidated financial statements and footnotes
have not been restated to give effect to such reverse stock splits.
10
INNOVATION HOLDINGS, INC.
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Innovation Holdings, Inc. f/k/a Blagman Media International, Inc. is a Nevada
corporation (collectively with its subsidiaries, the "Company"), which is the
successor to a corporation founded in 1961. We are a direct marketing, direct
response and media enterprise based in Century City, California which
principally provides direct market services and media buying for our clients and
their products and services through television, radio, Internet, print and
outdoor advertising media. In addition, we organize direct response media
campaigns on radio, television and in print and provide assistance in backend
marketing and creative production.
We began operations in 1994 as a sole proprietorship and formed a corporation,
Blagman Media International, Inc., in early 1999. On August 2, 1999, we
completed a reverse acquisition with Unisat, Inc., an inactive, public
non-reporting company, founded in 1961 and formerly known as Combined Companies,
Inc. On the same date, Unisat, Inc. changed its name to Blagman Media
International, Inc. and we therefore have two Nevada entities with the same
name. The transaction was structured as a share exchange, in which Robert
Blagman exchanged all of his shares in the privately held entity for 8,200,000
common shares of Unisat, Inc. In April 2000, we entered into a share exchange
agreement with MNS Eagle Equity Group I, an inactive, reporting Nevada
corporation, which resulted in our becoming the parent reporting company.
The primary purpose of these transactions was to give us access to a public
market, to create a new corporate vehicle with which to build a more expansive
media-buying infrastructure, thereby allowing us to leverage our direct
marketing and direct response efforts. Currently, we are actively pursuing
acquisitions and various strategic and working relationships which, if
successful, will allow us to create a "network" of alliance partners with the
capacity to deliver a broader range of services in a more cost-efficient manner.
In 2001, internally we focused on our core competencies by making quantitative
media buys and in assisting our clients in implementing traditional radio,
television and out of home media strategies. Given the general uncertainties in
Internet advertising and Internet business models that developed in late 2000,
and which continue, we plan to monitor the use and styles of Internet
advertising. In this way, we can assess the opportunities available to us in
Internet advertising while not making any firm financial commitments to an
Internet strategy. In addition to considering merger and acquisition
opportunities for consolidation and industry growth, we are continuing to pursue
an expansion in the television production field through strategic alliances.
In 2001, we also actively pursued acquisitions and completed our first industry
acquisition transaction in March 2002 when Century Media, Inc. ("Century")
became a wholly-owned subsidiary under the name Blagman-Century Media, Inc.
("Blagman-Century"), subsequently renamed Century Media, Inc. We had been
negotiating since early 2001 to acquire Century Media, a Santa Monica based
advertising agency in business for over ten years with historical billings and
placements that ranged from $35 million to $110 million. In 2001, we entered
into agreements to acquire all of the outstanding stock of Century, but certain
requirements were not satisfied. In October 2001, we concluded that the purchase
price for Century, which was then set at $5.7 million cash plus the assumption
of significant debt, needed to be substantially reduced as a result of our due
diligence conclusions.
In March 2002, we completed the transaction through a merger of a wholly-owned
special purpose subsidiary into Century in exchange for the payment of the
equivalent of $0.20 per share to the shareholders of Century ($0.025 in cash and
the balance in shares of the common stock of the parent company (hereafter
"Common Shares"), repayment of $749,778 in debentures through the issuance of
Common Shares, and the recognition of debts. As a result, at closing
approximately $600,000 in cash and $2.2 million in restricted Common Shares were
distributed to holders of existing Century shares, debentures, and certain stock
rights. Under the merger agreement, the Common Shares were valued at the closing
bid price over the seven days prior to the date of the agreement or $0.0008857,
resulting in the issuance of 2,555,651,387 new Common Shares to the holders of
Century shares, debentures and certain stock rights. Century also had continuing
debt obligations due to affiliates and third parties of approximately $1.6
million, exclusive of trade and contingency obligations. In connection with our
interest in the Century transaction, we provided management services to Century
from late 2001 to early 2002, essentially on a reimbursement basis. As a result
of the overwhelming debt and departures by members of Century, we no longer
consider this acquisition viable. We are in the process of resolving all issues
related to the Century acquisition.
11
Following the acquisition of Century Media in March 2002, the Company has
determined that Century Media was not strategic to the Company's ongoing
objectives and has discontinued capital and human resource investment in Century
Media effective as of December 2002.
The Company is required to have its consolidated financial statements reviewed
by its independent accounts prior to filing. As of the date of this report, we
have not submitted our financial statements to our independent accountants for
their review. We will file an amendment to this form 10-QSB when our independent
accountants complete their review of these financial statements.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003
2004 2003
----------- ------------
Total net revenues $ -- $ --
Operating Expenses:
General and Administrative $ 1,024,997 $ 2,105,380
Loss from Operations $(1,394,997) $(2,100,252)
Net Loss Per Share $ (0.01) $ (2.74)
Net Revenues
There were no net revenues for the three months ended September 30, 2004 and for
the three months ended September 30, 2003. Net revenues for the nine months
ended September 30, 2004 as compared to the nine months ended September 30, 2003
decreased from $83,652 to $0.
Operating Expenses
Total operating expenses decreased 51.4% from $2,105,380 in 2003 to $1,024,997
in 2004 for the three months ending September 30. Included in operating expenses
are general and administrative expenses which decreased 51.7% from $2,098,267
for the three month period ended September 30, 2003 to $1,014,566 for the three
month period ended September 30, 2004.
Total operating expenses decreased 36.8% from $5,188,980 in 2003 to $3,283,695
in 2004 for the nine months ending September 30. Included in operating expenses
are general and administrative expenses which decreased 37.1% from $5,166,921
for the nine month period ended September 30, 2003 to $3,251,794 for the three
month period ended September 30, 2004.
The total net loss of the Company for the three-month period ending September
30, 2004 was $(1,036,998) compared to $(2,110,501) for 2003, a 50.9% decrease.
The total net loss of the company for the nine-month period ending September 30,
2004 was $(3,328,784) compared to $(5,142,441) for 2003, a 35.3% decrease.
Other Income (Expenses)
Other income (expenses) for the three-month period ending September 30 increased
from $(10,249) in 2003 to $(12,001) (17.1%) in 2004 due to higher interest
expenses.
12
Other income (expenses) for the nine-month period ending September 30 increased
from $(37,113) in 2003 to $(45,089) (21.5%) in 2004 due to higher interest
expenses.
Liquidity and Capital Resources
The Company's current assets increased from $9,647 at December 31, 2003 to
$103,738 for the nine month period ended September 30, 2004, mainly due to the
issuance of stock valued at $100,000 as a retainer for legal counsel.
In connection with the various initiatives being pursued by management to expand
the Company's operations internally and through strategic alliances or
acquisitions with other industry partners, additional capital funding will be
required. The Company hopes to raise these funds through an increase in general
business profits due to a shift in the main focus of its core business. The
Company plans to pass low profit making activity such as media buying to third
party contracted companies. The Company also plans to invest in product
ownership and development as well as actively pursue opportunities to expand the
marketing aspects of these products. As the advertising industry goes through
its transitions, the Company plans to react by adjusting its focus away form
pure media buying to product development. Product development continues to be a
strong avenue for the direct response advertising business. Affiliations and
associations with other advertising agencies will also expand the Company's
ability to increase cash flow and revenues without adding staff. The Company
also plans to investigate the possibility of additional acquisitions that will
allow the Company to become a holding company in name only. By diversifying and
expanding its base operations The Company will endeavor to create a more
productive future.
During 2003 and in the current quarter, the market price of our common shares
has continued to drop precipitously. We believe that there are two underlying
causes. First, we apparently were one of the companies targeted in an organized
pattern of depressing prices through "shorting" by a group pursuing a
coordinated effort to effect and profit from a falling share price and from
attempts to extort favorable stock issuances from the Company without fair
consideration. Management initiated referrals to appropriate regulatory agencies
for their action. While actions from these referrals may reduce future
manipulation, it cannot eliminate the impact of the downward price spiral. The
second factor apparently affecting our price was the market reaction to the
increase in authorized and issued common shares which we undertook to compensate
consultants in our industry, to support Company growth to effect the Century
transaction. Following the acquisition of Century Media in March 2002, the
Company has determined that Century Media was not strategic to the Company's
ongoing objectives and has discontinued capital and human resource investment in
Century Media effective as of December 2002.
Management is currently unwinding the Century transaction, evaluating other
opportunities and pursuing other initiatives to expand the Company's operations
internally and through strategic alliances or acquisitions with other industry
partners. These endeavors will be funded in part from operations but will also
require additional capital funding which the Company hopes to raise through debt
or equity financing arrangements, if appropriate financing is available, on
reasonable and acceptable terms.
During 2003, we focused a significant effort to the unwinding of Century Media.
While the Century Media transaction adds existing debt and trade payables,
management believes that these obligations are being contained and can be funded
from operations, internal organic growth, increased billings, legal avenues and
extensive operating cost reductions and efficiencies. We have departed from our
earlier strategy to assist in funding selected aspects of the growth of Century
Media and new strategic hires and alliances that will not facilitate positive
financial growth.
The Company intends to continue to seek additional working capital to meet its
operating requirements and to provide further capital for expansion,
acquisitions or strategic alliances with businesses that are complementary to
the Company's long-term business objectives. Additional capital will be needed
to maintain the growth plans of the Company. In addition negotiations and
payment plans will be established for preexisting Century debt.
Another factor which has taken a substantial amount of time and funding to
overcome is the Company's victimization at the hands of a specific financial
firm now under investigation with the SEC. More details are available at
http://www.sec.gov/litigation/complaints/comp18057.htm.
13
If substantial additional working capital does not become available, management
believes that the active search and completion of key acquisitions along with
proper legal restructuring and planning will be sufficient to meet essential
capital requirements for the next 12 months but will not support growth.
However, the Company currently has a deficit. As a result, the Company's
financial statements for the period ended September 30, 2004 have been prepared
on a going concern basis which contemplated the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company incurred a net loss of $3,328,784 and a negative cash flow from
operations of $3,633,695 for the nine months ended September 30, 2004, and has a
working capital deficiency of $15,130,138 and a stockholders deficiency as of
September 30, 2004 of $15,004,601, and may not enable it to meet such objectives
as presently structured. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In October 2004 the Company announced it was moving forward on its letter of
intent to acquire an equity interest in Ironwood Furnishings, Inc., a
privately-held corporation in the business of wholesale distribution of
furniture. Due to the Company's inability to raise capital, it has been unable
to complete the acquisition and the plans have been put on hold.
The Company intends to continue to seek additional working capital to meet its
operating requirements and to provide further capital for expansion,
acquisitions or strategic alliances with businesses that are complementary to
the Company's long-term business objectives. Additional capital will be needed
to maintain the growth plans of the Company.
Forward-Looking Statements
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Except for historical information contained herein, the matters discussed
in this filing are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products
and prices and other factors discussed in the Company's various filings with the
Securities and Exchange Commission.
Critical Accounting Policies.
The Securities and Exchange Commission ("SEC") recently issued Financial
Reporting release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" (FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR 60,
the SEC defined the most critical accounting policies as the ones that are most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.
Based upon the foregoing definition, the registrant's most critical accounting
policies include:
Revenue Recognition
The Company has historically recognized revenue from the sale of media time to
advertising clients. Included in the monies received from advertising clients
are amounts which represent the reimbursement of media time purchased on behalf
of the customer for the related advertisements. These media purchase
reimbursements have been accounted for as an offset to the related media
purchases for the respective advertisement and not as gross revenues as required
under EITF 99-19 and SAB 101. Monies received prior to the broadcast of the
related advertisement are recorded as deferred revenue. In addition, the Company
has earned commissions in connection with the procurement of media time on
behalf of advertising clients in the past. Such commissions are also considered
earned when the underling advertisement is broadcasted. Additionally, the
Company has entered into contractual agreements with other advertising firms to
share revenues based upon the terms of the specific agreements. The income
produced by these revenue-sharing contracts are recognized as media or
commission income depending upon the nature of the income earned from the
agreement.
14
Asset Impairment
The Company reviews its long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset 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.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles would be based on the
fair value of the asset.
Item 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, in consultation with
advisors as appropriate, carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-QSB pursuant to Rule 13a-15(e) promulgated under the
Securities and Exchange Act of 1934 ("Exchange Act"). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of the date of the evaluation, our disclosure controls and procedures
are effective in making known to them on a timely basis material information
relating to our company (including any consolidated subsidiaries) required to be
included in this report. There were no significant changes to our internal
controls or in other factors that could significantly affect these controls,
known to our Chief Executive Officer or Chief Financial Officer, subsequent to
the date of the evaluation, including any significant deficiencies or material
weaknesses that would require corrective action.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
(A) Subsequent to the Blagman/Century merger transaction described in Note 2,
TMT Media Corporation ("TMT") has asserted that under the April 2000
acquisition agreement (whereby Century acquired TMT), as a result of the
transaction between the Company and Century, it is entitled, as of April
22, 2002, to the $1,250,000 contingent amount and to the payment in full
of the balance of $609,564 due on the $700,000 note delivered in the 2000
acquisition by Century.
The Company and Century dispute this position and are seeking to resolve
the matter. In May 2002, TMT initiated a proceeding, TMT MEDIA
CORPORATION vs. BLAGMAN CENTURY MEDIA, INC. et al. (Superior court of
California, County of Los Angeles, Case BC273368) against the Company,
Century and a shareholder personally, claiming the accelerated amount of
$1,859,564. Management has filed a general denial to TMT's allegations
and has asserted numerous affirmative defenses and plans to begin
mediation in June to resolve this case. In December 2003, TMT was granted
a Summary Judgment against the Company in the accelerated amount of
$2,242,975, which includes additional interest on the $1,250,000
contingent amount and the $609,564 note plus attorney's fees and costs
incurred by TMT. The Company's former attorney failed to file any
opposition to the summary judgment motion. The Company's current attorney
filed a motion to be relieved of the default as to this summary judgment.
On July 6, 2004, the judgment of $2,242,975 was set aside and vacated by
the court. The Company can now properly defend the matter to either a
successful conclusion or settlement. As of September 30, 2004, the
Company has recorded additional liabilities in the amount of $383,411 in
order to record the full liability of $2,242,975 as per the summary
judgment. This liability is included in Liabilities from Discontinued
Operations in the accompanying consolidated balance sheet at September
30, 2004.
(B) In March 2002, the Company advised authorities, market members and
regulators and initiated an internal reconciliation investigation
relating to a substantial amount of common shares of the Company
improperly and fraudulently issued and possibly transferred, including
possible improper releases of restrictions and transfers of restricted
securities warrant negotiations or an exemption from registration,
without the knowledge of the Company ("Curative Review Process"). The
Curative Review Process is continuing. The Company filed a registration
statement on Form S-8 for a 2002 Employee Stock Compensation Plan
15
("Registration Statement") effective August 2002 to register shares. In
connection with the Curative Review Process, the Company subsequently
placed stop transfer orders on all of the original certificates and
derivatives of those certificates, advised market members and
depositories of its actions and has been working with these parties and
its transfer agent and other resources to ascertain which shares of
Common Stock need to remain in commerce to recognize the interests of the
transferee, which shares should be cancelled or returned to the Company
and therefore removed from registration ("Removed Shares") and which
shares are held by or were delivered to parties who were eligible to
receive and hold the same pursuant to the Plan. The Company intends to
file an amendment to this Registration Statement as soon as practicable
when the reconciliation in the curative Review Process is complete to
withdraw the Removed shares from registration. In connection with this,
the Company has had suit filed against them by a third party pending the
circuit court of Cook County, Illinois. The Company has responded to this
matter and is actively cooperating in other investigations relating to
the plaintiff and others. The Company expects additional litigation from
the plaintiff and is intending to assert the indemnification and
disgorgement rights under its agreements with the plaintiff. As stated
above, more information on issues related to the collateral damage of the
company's association with certain financial advisors and organizations
can be found on the Securities and Exchange Commission (SEC) website.
Additional lawsuits may be filed by the Company against all parties
involved in the fraud if any issues related to such fraud have an adverse
effect on the company. The Company has initiated a complaint against a
third party in the Superior court of California in the County of Los
Angeles for breach of contract, fraud and deceit, intentional
misrepresentation of facts, and rescission. The third party filed a
general denial to the complaint, has asserted numerous affirmative
defenses, and has filed a cross-complaint alleging breach of written
contract, breach of the implied covenant of good faith and fair dealing,
conversion, common counts, breach of fiduciary duties, fraud and deceit,
negligent misrepresentation, imposition of constructive trust and/or
resulting trust, intentional and tortuous inducement to breach and
interference with contract and prospective economic advantage, and unfair
trade practices. The Company has filed a general denial to the
allegations. The parties are currently seeking a business settlement.
On March 31, 2003, the SEC filed a complaint for injunctive and other
equitable relief, obtained a temporary restraining order and has frozen
the assets of this third party. The SEC complaint specifically alleges
that this third party and his associates forged stock issuance
resolutions and entered into bogus consulting agreements in an effort
to wrongfully convert the Company's S-8 shares. The SEC has alleged
that this third party and his associates stole approximately 2,160
shares of the Company's stock valued at $3,300,000.
(C) A claim has been brought against the Company by a corporation for breach
of contract. On January 30, 2004, this corporation was granted a summary
judgment in the amount of $203,064, which includes interest plus
attorney's fees and costs incurred by the corporation. The Company's
current attorney filed a motion to be relieved of the default as to this
summary judgment. As of September 30, 2004, the Company has recorded
additional liabilities in the amount of $51,064 in order to record the
full liability of $203,064 as per the summary judgment. This liability is
included in Liabilities from Discontinued Operations in the accompanying
consolidate balance sheet at September 30, 2004. There are currently
cross-actions in the case that are pending for binding arbitration in
November 2004.
(D) On November 11, 2003, the Company reached a settlement with a corporation
as a result of a claim brought against the corporation by the Company on
May 6, 2002 and a cross complaint filed by the corporation on June 14,
2002. As part of the terms and conditions of the settlement, the Company
will pay to the corporation $260,000 and 10% simple interest over one
year. This will be accomplished by the issuance of 2 million shares of
free trading stock 30 days after the execution of the agreement. The
shares will be held in a trust account for the purpose of selling the
stock and paying the corporation on a continuous basis. In the event the
Company does not pay the corporation the total amount of the settlement
on or before one year and 30 days from the execution date of the
settlement agreement, the corporation will enforce a stipulated judgment
in the amount of $750,000 against the Company. The Company has recorded a
liability of $260,000 and this amount is included in accounts payable and
accrued expenses in the accompanying consolidated balance sheet as of
December 31, 2003. As of September 30, 2004, the liability has been paid
in full. The fair value of the shares issued was based upon the market
price of the Company's common stock on the date of grant.
16
Other than the litigation discussed in the above paragraphs, the Company
is a party to a number of lawsuits and claims that the Company believes
will ultimately have a favorable outcome and are not material in dollar
amounts.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INNOVATION HOLDINGS, INC. F/K/A
BLAGMAN MEDIA INTERNATIONAL, INC.
Dated: December 20, 2004 /s/ ROBERT BLAGMAN
---------------------------------
Robert Blagman, President and CEO
17
EXHIBIT LIST
2.11 Agreement and Plan of Reorganization (Incorporated by reference; Form 8-K
filed on March 11, 2002)
3.1 Articles of Incorporation (Incorporated by reference; Form 8-K of MNS
Eagle Equity Group I, Inc. filed on April 27, 2000)
3.2 Bylaws (Incorporated by reference; Form 8-K of MNS Eagle Equity Group I,
Inc. filed on April 27, 2000)
3.3 Certificate of Designation for Series B Convertible Preferred Stock
(Incorporated by reference; Form 8-K of MNS Eagle Equity Group I, Inc.
filed on April 27, 2000)
10.1 Employment Agreement with Robert Blagman (Incorporated by reference; Form
10-KSB/A filed on April 30, 2001)
10.2 Employment Agreement with Leslie Blagman (Incorporated by reference; Form
10-KSB/A filed on April 30, 2001)
10.3 Equity Line of Credit Agreement dated July 12, 2001 with GazelleGroup LLP
and DRH Investment Company LLP (Incorporated by reference; Form SB-2/A
filed on November 1, 2001)
10.4 Registration Rights Agreement dated July 12, 2001 with GazelleGroup LLP
and DRH Investment Company LLP (Incorporated by reference; Form SB-2/A
filed on November 1, 2001)
10.5 Securities Purchase Agreement dated July 12, 2001 with certain named
buyers (Incorporated by reference; Form SB-2/A filed on November 1, 2001)
10.6 Placement Agent Agreement dated July 12, 2001 with May Davis Group, Inc.
(Incorporated by reference; Form SB-2/A filed on November 1, 2001)
10.7 Registration Rights Agreement dated July 12, 2001 with certain named
persons (Incorporated by reference; Form SB-2/A filed on November 1,
2001)
10.8 2000 Employee Stock Compensation Plan (Incorporated by reference; Form
S-8 for MNS Eagle Equity Group I, Inc. filed on September 11, 2000)
10.9 2001 Employee Stock Option Plan (Incorporated by reference; Form S-8
filed on August 27, 2001)
10.10 1-for-500 stock split and marketing rights agreement (Incorporated by
reference; Form 8-K filed on April 26, 2004)
21.1 List of Subsidiaries (Incorporated by reference, Form 10KSB, as amended
filed on April 15, 2002)
31 Certification Pursuant to Section 302, of the Sarbanes-Oxley Act Of 2002
(filed herewith)
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002
18