SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO 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
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
Commission File No. 000-27777
INNOVATION HOLDINGS, INC.
F/K/A BLAGMAN MEDIA INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 91-1923501
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14622 Ventura Boulevard, Suite 1015
Sherman Oaks, California 91403
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(Address of Principal Executive Offices) (Zip Code)
(818) 426-8737
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock $.001 par value
Check whether the issuer (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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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]
Indicate by check mark whether the issue has filed all documents and reports
required to be file by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. [X] Yes [ ] No
Issuer's net revenues for 2003 were $83,652.
The number of shares outstanding of each of the Issuer's classes of common
stock, as of December 31, 2003 was 31,682,095 As of May 18, 2004 the stock
totals 39,397,187 to reflect the 1-500 split effective on April 23, 2004.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
TABLE OF CONTENTS
PART I PAGE
Item 1. Description of Business......................................... 4
Item 2. Description of Property......................................... 10
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............. 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters..................................... 12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 13
Item 7. Financial Statements............................................ 17
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure................................. 17
Item 8a. Controls and Procedures........................................... 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....... 18
Item 10. Executive Compensation........................................... 19
Item 11. Security Ownership of Certain Beneficial Owners and Management... 20
Item 12. Certain Relationships and Related Transactions................... 21
Item 13. Exhibits, List and Reports on Form 8-K........................... 21
Item 14: Principal Accountant Fees and Services......................... 21
Signatures................................................................. 23
NOTE RELATING TO STOCK SPLIT
On April 23, 2004, we effectuated a 1-for-500 reverse stock split with respect
to our Common Shares. Whenever we make any reference in this annual report to
the grant or issuance of Common Shares, or options or warrants to purchase
Common Shares, such references shall, for comparison purposes, be made in
reference to post-reverse numbers and, in the case of options and warrants,
post-reverse exercise prices, unless we state otherwise.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this annual report we make a number of statements, referred to as
"forward-looking statements," which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through the
words and phrases such as "seek," "anticipate," "believe," "expect," "intend,"
"plan," "budget," "project," "may be," "may continue," "may likely result," and
similar expressions. When reading any forward-looking statement, you should
remain mindful that all forward-looking statements are inherently uncertain as
they are based on current expectations and assumptions concerning future events
or future performance of our company, and that actual results or developments
may vary substantially from those expected as expressed in or implied by that
statement for a number of reasons or factors, including those relating to:
o whether or not markets for our products develop and, if they do
develop, the pace at which they develop;
o our ability to attract the qualified personnel to implement our
growth strategies;
o our ability to develop sales, marketing and distribution
capabilities;
o the accuracy of our estimates and projections;
o our ability to fund short-term and long-term financing needs;
o changes in our business plan and corporate strategies; and o other
risks and uncertainties discussed in greater detail in the section
of this annual report entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and our
business made elsewhere in this annual report, as well as other public reports
filed with the United States Securities and Exchange Commission (the "SEC"). You
should not place undue reliance on any forward-looking statement contained in
this annual report to reflect new events or circumstances unless and to the
extent required by applicable law.
iii
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Innovation Holdings, Inc. f/k/a Blagman Media International, Inc. is a Nevada
corporation (collectively with its subsidiaries, the "Company," "we," "us," or
"our"), which is the successor to a corporation founded in 1961. We are a direct
marketing firm that has transitioned into a form of a holding company seeking
out business opportunities and product ownership focused on direct response
opportunities. Through these investments and ownership opportunities, Innovation
will through direct response advertising, market products directly to consumers.
Innovation Holdings is based in Sherman Oaks, California and principally
provides direct market services for our clients and their products and services
through television, radio, Internet, print and outdoor advertising media. In
addition, we provide extensive assistance in backend marketing and creative
production.
CORPORATE HISTORY AND DEVELOPMENT
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.
4
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 $100.00 per share to the shareholders of Century ($12.50 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 $0.4429,
resulting in the issuance of 5,111,303 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.
Following the acquisition of Century Media in March 2002, the Company had
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.
BUSINESS ACTIVITIES
Our principal business is media buying, with a specific focus on direct
marketing and direct response advertising. Direct marketing is any communication
or advertisement to a consumer or business that is designed to generate a direct
interest in the form of an order for a specific product of service, a request
for information, or a visit to a place of business with a predetermined
demographic audience. Direct marketing efforts generally attract the response by
offering an incentive to the targeted audience through a broad range of media
vehicles including catalogs, bill inserts, coupon mailings, telemarketing,
events, and traditional direct mail. Direct marketing is intended to gain
consumer interest and awareness and produce sales over a period of time through
a response to the materials or the broadcast but, generally, direct marketing
does not solicit an immediate response or purchase. The Company's revenues for
direct marketing services are generated from media commissions which are paid in
advance to us as media is placed and purchased and from fees for direct services
to the client.
5
In contrast to direct marketing, direct response utilizes direct marketing's
array of media vehicles, but also targets a non-specific demographic audience
through media time available as "remnants" or "surplus" after normal network and
prime advertising has been purchased. When there is a slowdown or recession in
the "general advertiser" market, as existed in the 2001 economic slowdown, the
direct response industry can flourish because of the excess media inventory.
That trend has slowed due to the dramatic extent of the economic slowdown.
Direct response's main purpose is to generate an immediate profitable
transaction from the broad non-targeted audience it reaches. Direct response
firms handle all aspects of a media campaign by merging the roles of product
developer, marketer, and merchant. They often receive a percentage of sales
revenues, as well as fees based on time purchased or actual services rendered.
While direct response media buys and programming can be either long form (more
than 2 minutes and generally 30 minutes in length) or short form (generally 30
to 120 seconds in length), the most commonly recognized direct response format
is the "infomercial," a 30-minute television program demonstrating a product,
providing testimonials, offering additional tie-in merchandise and motivating
the audience to order the product while they are watching.
To date, our major focus has been on direct marketing services. According to the
Direct Marketing Association (DMA), overall sales through direct marketing
(during 2002, the most recent period available) in the United States were
approximately $1.8 trillion and are expected to continue to increase. The
proliferation of cable, network and non-network television, Internet and radio
has made traditional media choices less effective and audiences harder to reach.
This proliferation has increased the obstacles to reaching a mass audience in
traditional media formats and increased the cost of capturing a consumer's
attention. In contrast to traditional general media marketing, the results of a
direct marketing or a direct response campaign are easily quantifiable because
any responses can be tied directly to the marketing dollars used to generate
them. Clients utilizing direct marketing and direct response campaigns have
immediate feedback on whether or not their advertising has effectively
translated into sales or revenues.
The direct marketing system requires advertisers to focus on the most effective
time and media slots for the product they are selling. As a result, media buying
has become more precise and agencies have tended to specialize in certain
product lines or media outlets. We believe that there is a need to reverse the
fragmentation through business and service consolidation so clients can benefit
from broader marketing, increased buying power and the economies of scale.
The following chart compares the characteristics of traditional advertising with
the direct marketing and direct response approaches:
6
GENERAL ADVERTISING VS. DIRECT MARKET AND DIRECT RESPONSE
GENERAL ADVERTISING DIRECT MARKET AND DIRECT RESPONSE
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Purpose is to create positive awareness Purpose is to create an instant sale or inquiry for a
product or service for product of service
Builds awareness for a sale Makes a sale or contact now, directly with time and
place, under the buyer's control. The customer, at a time
and place under the seller's control.
Provides information Seller tests and receives information from the advertiser.
Sells products Sells offers.
Creates markets Discovers markets.
Seeks to influence behavior Seeks to model or repeat behavior.
Creates sales Creates customers.
Vaguely measurable Fully accountable. Every response is a "market share"
measured (cost/order, cost/lead, etc.).
If advertising is an "art," direct mail and direct response are a "science"
because variables are documented, tested, and turned into constants, which are
"replicated" in further "applications" to achieve the same or better results.
Direct response employs a range of strategies and techniques and tests them in
various combinations to achieve maximum marketing results at the lowest cost.
Based on the current and continuing trends in advertising, direct marketing will
be a common form of advertising as the century continues, especially as more and
more companies embrace direct marketing to improve their operations results and
consumer exposure.
REVENUE SOURCES
The Company expects to generate revenue from the investment of capital in
certain opportunities it is now seeking out in the direct response arena.
Revenues have been curtailed over the past year while the firm regroups and
evolves out of the problems associated with its association with a financial
firm now being investigated by the SEC.
7
For full details please refer to
HTTP://WWW.SEC.GOV/LITIGATION/LITRELEASES/LR18057.HTM. The ramifications of the
association with the group named in the SEC investigation have caused a dramatic
slowdown of the company's day to day business.
The Company also represents its advertising clients for exclusive placement of
services covering productions, advertising, marketing/media, telemarketing and
fulfillment activities. These services generally include a monthly fee for
developing and advising on the complete marketing strategy and tactics, and
related market research to establish the target identity and demographic for TV,
radio and outdoor placements and a commission on the actual production series.
Consistent with industry practice, we approve the media purchase orders, receive
full payment from the client before the media airs and remit the media payments
after deducting commissions and the media charges as they are billed to us.
COMPETITION
We compete with much larger advertising agencies that have greater financial and
personnel resources to service their accounts. We seek to meet the competitive
challenges these larger agencies pose. Our boutique size, ability to offer
advanced client services and personal attention allows the Company to
differentiate itself from many competitors. We compete through our thorough
research, selective competitive intelligence on consumer and customer trends,
use of our growing database on what motivates people to buy, and the quality and
reliability in executing our client's direct response targeted programs. Our
main competitors are Hawthorne Media, Cmedia, Mercury Media and most general/
traditional advertising firms.
DEPENDENCE ON LIMITED CLIENTS
During 2002, the firm had a small group of clients that included Greenpeace,
Amnesty International, the Red Skelton Estate and a variety of other small
companies. During 2003 due to a refocus of our business direction, most if not
all of our media and advertising transactions are being outsourced to third
party entities to enhance the financial growth of Innovation Holdings. By year's
end Innovation Holdings held no client contracts as it regroups and prepares to
invest and acquire new product opportunities.
ALLIANCES
We originally expanded our market presence through alliances with larger
enterprises and associations where our particular expertise was valuable and our
ability, as a smaller entity, to respond quickly in a flexible manner allowed
the larger organization to enhance its marketing and advertising services.
Historically, our main alliance was with Eicoff & Company, a subsidiary of
Ogilvy & Mather. Eicoff & Company is the oldest, largest, and one of the most
successful direct marketing firms in the country and the number one short
form-advertising agency in the world with billings exceeding $150 million. After
becoming a publicly traded company, this alliance was compromised due to
possible conflicts with our pending acquisitions, we are currently actively
seeking new affiliations.
8
FINANCING TRANSACTIONS
On July 12, 2001, we entered into an equity line of credit agreement for up to
$15 million in credit with Gazelle Group LLP ("Gazelle") and DRH Investment
Company LLC ("DRH"). This agreement covers a total of 900,000 Common Shares
pursuant to the equity line of credit agreement from time to time during a
three-year period beginning on the date of the agreement. The amount of issuable
securities is tied to the market price of our Common Stock and as a result of
our low stock price during 2002 and 2003; we have been unable to draw against
the equity line of credit.
Pursuant to the terms of the equity line of credit agreement, the dollar amount
of each sale is to be determined by us, subject to a maximum limit based on our
Common Shares' trading volume. At least 13 trading days must occur between
sales. In turn, Gazelle and DRH may sell our stock in the open market, sell our
stock to other investors through negotiated transactions or hold our Common
Shares in their own portfolios. As a practical matter, access to the equity line
also requires an effective registration statement for the resale of such
securities and our registration statement is not yet effective.
In July 2001, the Company entered into an agreement with May Davis Group, Inc.
to act as exclusive agent in connection with a Securities Purchase Agreement for
issuance and sale by the Company through a private placement of 100 Series B
convertible preferred shares with a par value of $0.001 per share at a
securities purchase price of $10,000 per share for an aggregate amount of
$1,000,000 for which the Company has received a full net amount of $810,000 and
has issued the Series B Preferred Stock which is convertible as specified, into
Common Shares.
INTELLECTUAL PROPERTY
We have no patents, trademarks, licenses or any other intangible assets that
would impact its value or earnings.
RESEARCH AND DEVELOPMENT OF ADVERTISING ACTIVITIES
We estimate that we spend approximately 68% of our time on research and
development activities related to marketing strategies or techniques. We believe
research on consumer trends is one of our competitive advantages.
ENVIRONMENTAL REGULATION
The cost and effects of compliance with environmental laws for federal, state or
local governments are inconsequential.
9
EMPLOYEES
As of December 31, 2003, we had one full-time employee, the Chief Executive
Officer, who is not represented by a collective bargaining unit. We also have
one independent contractor working for us on an as-needed basis to assist in the
bookkeeping for the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The lease term on our office space located at 1901 Avenue of the Stars, Los
Angeles, California, ended on April 30, 2003. We currently are renting a small
executive office on a month-to-month basis and are looking for new space in
which to relocate our executive offices when cash flow permits.
ITEM 3. LEGAL PROCEEDINGS
Subsequent to the Century Media transaction, TMT Media Corporation asserted that
under the April 2000 Acquisition Agreement with Century Media, as a result of
the transaction between the Company and Century Media, it is entitled, as of
April 22, 2002, to a $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 of TMT by Century Media. The Company and Century Media dispute this
position and are seeking to resolve the matter. In May 2002, TMT filed a lawsuit
captioned TMT MEDIA CORPORATION V. BLAGMAN CENTURY MEDIA, INC. ET AL, in
Superior Court of California, County of Los Angeles, Case No. BC273368, naming
the Company, Century Media and Robert Blagman personally, seeking the
accelerated amount of approximately $1,859,564. The named defendants have filed
a general denial to TMT Media's allegations and have asserted numerous
affirmative defenses. Mr. Blagman demurred to the allegations raised against him
and since the pleading was successful, Robert Blagman is no longer a party to
this lawsuit. On December 2, 2003, TMT Media Corporation was granted Summary
Judgment against Blagman-Century Media, Inc., Blagman Media International, Inc.
and Century Media, Inc. in the amount of $2,081,291.60. The Company's prior
legal counsel failed to file any opposition to the summary judgment motion which
resulted in attorneys' fees and costs being granted for $152,320.75 and
$9,361.69 respectively. Newly retained legal counsel for the Company's has found
that former counsel failed to file any opposition to the motion. The Company's
current legal counsel will aggressively and vigorously file a motion to be
relieved of the default as to the summary judgment motion, file the proposed
opposition to reopen the case and seek damages against prior legal counsel based
upon a theory of legal malpractice.
10
PRINVEST CAPITAL CORP. V. CENTURY MEDIA, INC. ET AL, is pending in the Superior
Court of Los Angeles County, Case No. BC292131. This litigation was initiated by
a creditor of Century Media in regards to an obligation incurred prior to the
merger of Innovation with Century Media. Prinvest Capital is claiming an amount
owed of $166, 653.67. On January 30, 2004, Prinvest Capital Corp. was granted
Summary Judgment against Century Media, Inc. and Blagman Media International,
Inc. a/k/a Innovation Holdings in the amount of $166,653.67 and interest in the
amount of $72,308.71. The Company's prior legal counsel failed to file any
opposition to the summary judgment motion. On May 4, 2004, motion for attorneys'
fees and costs was granted for $35,115.50 and $1,294.30 respectively. The motion
was vigorously opposed by the Company's new legal counsel on the grounds there
was an unethical conflict of interest with plaintiff's counsel, Buchalter Nemer
Fields &Younger, associating with Reed Smith. There are currently cross-actions
in this case brought by Century Media, Inc. and Innovation Holdings, Inc.
against former management Peter Lambert and Al Lapin and Peter Lambert, Yona
Lapin and Al Lapin against Innovation Holdings, Inc., Blagman Media
International, Inc. and Century Media, Inc. A settlement was recently reached
with Reed Smith Crosby Heafy LLP. The remaining cross-actions are set for
binding arbitration on November 2004. On May 18, 2004 a hearing for a charging
order is pending against co-defendants Lambert and Lapin. The Company's new
legal counsel will aggressively and vigorously file a motion to be relieved of
the default as to the summary judgment motion and file the proposed opposition
to reopen the case for a defense. An appeal of the attorneys' fees and costs
will also be filed. The binding arbitration will be aggressively prosecuted to
indemnify the companies against any liability that may occur by the summary
judgment and attorneys' fees and costs awarded to date.
YIGAL I. BOSCH V. BLAGMAN MEDIA INTERNATIONAL, INC., INNOVATION HOLDINGS, INC.
is pending in U.S.D.C. So. Dist.,
Texas, Case No. H032860. This is a shareholder action against the Company for
alleged mismanagement and issuing alleged misleading statements. The Company is
engaging counsel in Texas to represent the Company to aggressively defend this
action that management strongly believes was brought in bad faith.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters were submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders, through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
Until March 10, 2003, our Common Shares traded on the Over the Counter on the
Bulletin Board under the symbol BMII.OB. From March 10, 2003 until April 23,
2004, our Common Shares traded Over the Counter on the Bulletin Board under the
symbol INOV.OB. In April 2004, the Company effectuated a 1-for-500 reverse split
and NASDAQ assigned the Company a new trading symbol, IVHO.OB, under which our
Common Shares are now trading. All references to the number of shares issued and
the sales price of our Common Shares have been adjusted to reflect the 1-for-500
reverse split.
11
The following table sets forth the high and low sales price of our Common Shares
on its principal market for the fiscal years ended December 31, 2002 and
December 31, 2003.
BID PRICE
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PERIOD HIGH LOW
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2003*:
Fourth Quarter $0.0001 $0.0001
Third Quarter $0.0002 $0.0001
Second Quarter $0.05 $0.0001
First Quarter $0.42 $0.0001
2002*:
Fourth Quarter $0.0001 $0.0001
Third Quarter $0.0001 $0.0001
Second quarter $0.0001 $0.0001
First Quarter $0.0001 $0.0001
* Throughout the fiscal years ended December 31, 2003 and 2002, our Common
Shares traded at prices well below $0.001 per share.
DIVIDEND POLICY
We have not paid any cash dividends on our Common Shares, and we do not
anticipate that we will pay any dividends with respect to those securities in
the foreseeable future. Our current business plan is to retain any future
earnings to finance the expansion development of our business. Any future
determination to pay cash dividends will be at the discretion of our board of
directors, and will be dependent upon our financial condition, results of
operations, capital requirements and other factors as our board may deem
relevant at that time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
related notes included as part of this annual report. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors.
12
GENERAL
RESULTS OF OPERATIONS
Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002
NET REVENUES
Net Revenues for the year ended December 31, 2003 as compared to the year ended
December 31, 2002 decreased from $437,241 to $83,652.
Operating expenses decreased to $7,419,165 (71%) from $25,434,569 in 2002 due
primarily to the Company canceling consultant contracts and a decrease in stock
issuances for legal, wages, consulting, board fees and license agreements as
well as an overall decrease in overhead. Stock issued for compensation and
services decreased from $23,182,439 to $6,011,658 (74%).
The Company also recognized in 2002 a $3,300,000 expense which represented the
market value of fraudulently issued common shares of the Company, and a loss
from discontinued operations of $12,966,399. In 2003 no such event took place
reducing the total other income expense to $265,789 in 2003 from $3,358,421 in
2002 a decrease of 92%. During 2002, the Company acquired Century Media, Inc.
and subsequent to the acquisition the Company determined that Century Media,
Inc. did not meet its strategic objectives and decided to discontinue and
abandon the operations of Century Media, Inc. Therefore, the operations of
Century Media, Inc. are included in discontinued operations.
The total net loss of the Company in 2003 was $8,035,776 compared to $41,322,148
for 2002 or an 81% decrease.
The Company is continuing to rationalize its operating expenses to its revenues
and the needs of a public entity. While management believes that it has now
addressed the principal effects of the direct and indirect Non-Cash
Compensation and other equity commitments and dilution matters which arose from
the Unisat and MNS transactions, from the Company's early experiences as a
public entity and from consultant payments, the Company may continue to use
equity, debt and cash to complete acquisitions or to fund other compensation
matters, including amounts due to Mr. Blagman as deferred salary and signing
bonus amounts under his employment agreement and the pre-existing Board
commitment to allow Mr. Blagman to maintain up to 51% equity ownership in the
Company.
Interest expense was not a significant item in 2002 or 2003 and decreased from
$58,958 in 2002 to $53,304 (9.6%) in 2003. Because the Company records revenues
as received and generally commits to time expenditures only when there is
assurance of payment from its clients, interest costs and advertising revenue
adjustments are small.
13
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2003, compared to December 31, 2002, there was
no appreciable cash available. In 2002 there was $31,779 in accounts receivable
while posting at $0 in 2003. These conditions, including the addition of $9,645
at December 31, 2003 of assets related to discontinued operations, resulted in
an overall decrease in current assets from $382,985 to $9,647 (98% decrease)
from December 31, 2002 to December 31, 2003.
Accounts payable and accrued expenses, including cash overdraft at December 31,
2003 was $1,780,024 compared to $1,554,758 at December 31, 2002 (15% increase).
Accrued compensation to officer and amounts due to officer increased from
$1,314,392 at December 31, 2002 to $1,897,344 at December 31, 2003 (44%
increase). Additionally, the Company reflected $10,835,472 as total liabilities
related to discontinued operations. The significant decrease in the working
capital of the Company continues to be a direct result of the acquisition of
Century Media as well as the adverse effects of the departure of key employees
in third quarter 2002. As the employees departed most of the active accounts
departed Century as well. The debt associated with Century was the single and
most devastating factor. The attempt to manage the debt, the layoffs,
resignations and loss of major accounts resulted in a total shut down of the
Century operation. The Century operation also caused a tremendous drain on all
cash flow, time, focus and assets at Innovation Holdings.
During 2003, the Company issued Common Shares of which 23,323,315 related to
consulting, 302,540 were issued as Non-Cash Compensation, 5,052,490 were issued
for legal fees, and 2,989,351 were for license agreements. These transactions
resulted in 31,682,095 Common Shares outstanding at December 31, 2003.
During 2003, the market price of our Common Shares continued to be well below
expected levels. We believe that there continues to be pertinent 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 and to effect the Century
transaction.
Management is currently sorting out the Century transaction and collateral
issues associated with that transaction 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.
14
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 Companies 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
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 December 31, 2003 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 $8,035,686 for the year ended December 31, 2003,
and has a working capital deficiency of $ tbd and a stockholders deficiency at
December 31, 2003 of $15,194,926, 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.
NEW FINANCIAL PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued new accounting
pronouncements. Please see Note 1 to the financial statements for a summary of
these pronouncements. Management does not believe that the adoption of these
pronouncements will have a material effect on the financial position or results
of operations of the Company.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed herein
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 this annual report. (See page iii of this report, "Special
Note Regarding Forward-Looking Statements.")
15
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 recognizes revenue from the sale of media time to advertising
clients when the related advertisement is broadcasted. 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 earns commissions in connection with the
procurement of media time on behalf of advertising clients. 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.
Asset Impairment
The Company reviews its long-lived assets and identifiable intangibles for
impairment in accordance with SFAS 144, and 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.
16
ITEM 7. FINANCIAL STATEMENTS
Financial statements as of and for the year ended December 31, 2003, and for the
year ended December 31, 2002 are presented in a separate section of this report
following Item 14.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report (the Evaluation Date), we
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and President, our
Executive Vice President and Secretary and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as
amended (the "Exchange Act"). Based upon this evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that, as of the Evaluation
Date, our disclosure controls and procedures were effective under Rule 13a-15.
There was no change in our internal control over financial reporting that
occurred during the period covered by this Annual Report on Form 10-KSB that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCEWITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information with respect to our directors
and executive officers:
NAME AGE POSITION
-----------------------------------------------------------------------------
Robert Blagman 47 Chairman of the Board, Chief
Executive Officer, Secretary
Andrew Given 45 Director
Walter Lubars (1) 73 Director
Jeff Wald (1) 52 Director
BUSINESS EXPERIENCE OF DIRECTORS
ROBERT BLAGMAN founded our business as a sole proprietorship in 1994 and has
been the Chief Executive Officer of the Company and Chairman of the Board of
Directors since the transactions with Unisat, Inc. in August 1999. Prior to
founding the enterprise, he was an executive in advertising marketing at: Disney
KCAL Channel in Los Angeles (national advertising sales manager 1992-1994); KCOP
in Los Angeles (local advertising sales manager 1989-1992); and Katz
Communications (various titles leading to national advertising sales manager
1978-1989).
17
ANDREW GIVEN has served as President of Production for The Shooting Gallery and
as head of Gun For Hire (motion picture/television production). From 1990 to
1999, he held numerous management and other positions at Universal Studios,
including an executive producer focused on cost management of films. Mr. Givens
has served on the Company's Board of Directors since August 1999.
WALTER LUBARS has been a professor of advertising at Boston University for over
30 years. Mr. Lubars now is semi-retired and works part-time as a professor
emeritus. He has served on the Board of Directors of the Company since August
1999.
JEFF WALD has been the News Director for KTLA Channel 5 in Los Angeles for the
past five years. KTLA is part of the Tribune Company. He has served on the Board
of Directors of the Company since August 1999.
Each director will hold office until the next annual meeting of shareholders and
until the election and qualification of his successor. None of the directors is
a director of any other reporting company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
All of the directors and executive officers of the Company did not file initial
reports on Form 3 until November 2000 when they were first aware of the
requirement. Based solely on the review of Form 4 and 5 filed since then, all
subsequent reports were filed without delinquencies.
18
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth for 2001, 2002, and 2003 each component of
compensation paid or awarded to, or earned by, our executive officers.
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ -------------- --------------
Securities All
Underlying Long Other
Name of Executive and Restricted Options & Term Compen-
Principal Position Year Salary Bonus Other Stock SARS Incentive sation
--------------------- ------ ----------- -------- ------ -------------------------- ----------- -----------
Robert Blagman 2003 $376,200(1) $150,000(4) $ -- -- -- -- --
Chief Executive 2002 $342,000(2) $150,000(4) $ -- -- -- -- --
Officer / Chief 2001 $300,000(3) $150,000(4) $ -- -- -- -- --
Financial Officer
(1) Includes $ 376,200 of 2003 compensation which Mr. Blagman has deferred under
his employment agreement dated January 1, 2000.
(2) Includes $204,750 of 2002 compensation which Mr. Blagman has deferred under
his employment agreement dated January 1, 2000.
(3) Includes $77,500 of 2001 compensation which Mr. Blagman has deferred under
his employment agreement dated January 1, 2000.
(4) Bonuses for Mr. Blagman for the years 2001, 2002 and 2003 have been
deferred.
Pursuant to a pre-existing Board commitment which allows Mr. Blagman to maintain
up to a 51% equity ownership in the Company, Mr. Blagman may elect to use all or
a portion of his deferred salary and signing bonus amounts to acquire Common
Shares of the Company.
OTHER COMPENSATION
(a) There are no annuity, pension or retirement benefits proposed to be paid to
officers, directors, or employees of the Registrant in the event of retirement
at normal retirement date as there was no existing plan as of December 31, 2003
provided for, or contributed to, by the Registrant.
(b) No remuneration is proposed to be paid in the future directly or indirectly
by the Registrant to any officer or director since there was no existing plan as
of December 31, 2003 which provides for such payment, except for an employee
stock incentive plan. The Registrant had granted options to purchase 37,200
shares of common stock pursuant to the 2002 Stock Compensation Plan during the
fiscal year ended December 31, 2002.
COMPENSATION OF DIRECTORS
The directors have served without cash compensation. In November 2000 and
January 2001, each of the directors was granted options to acquire 50,000 100
and 100,000 200 Common Shares, respectively, at an exercise price of $0.25 and
$0.09 per share, respectively, the market price on that date. The options are
fully vested and exercisable until September 30, 2005 and January 23, 2006,
respectively.
19
EMPLOYMENT AGREEMENTS
On January 1, 2000, we entered into an employment agreement with Robert Blagman,
our Chairman and Chief Executive Officer, for a term of five years. The
employment agreement calls for a base salary, after annual incremental
increases, ranging from $240,000 to $420,000. The agreement also calls for a
signing bonus of $750,000 to be paid over the term of the employment agreement.
In addition, pursuant to a pre-existing Board commitment which allows Mr.
Blagman to maintain up to a 51% equity ownership in the Company, Mr. Blagman may
elect to use all or a portion of his deferred salary and signing bonus amounts
to acquire Common Shares of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
shares of the Company's common stock as of December 31, 2003, (31,682,095 issued
and outstanding) by (i) all stockholders known to the Company to be beneficial
owners of more than 5% of the outstanding common stock; and (ii) all directors
and executive officers of the Company, individually and as a group:
------------------------------------------------------------------------------------------------------------------------
Name and Address Amount of Percent
of Beneficial Owner (1) Title of Class Ownership (2) of Class
------------------------------------------------------------------------------------------------------------------------
Robert Blagman
14622 Ventura Boulevard
Suite 1015 Common Shares 1,256,128 4.0%
Sherman Oaks, CA 91403
------------------------------------------------- ------------------------- -------------------------- ---------------
Andrew Given
14622 Ventura Boulevard
Suite 1015 Common Shares 300 (3) *
Sherman Oaks, CA 91403
------------------------------------------------- ------------------------- -------------------------- ---------------
Walter Lubars
14622 Ventura Boulevard Common Shares 10,300 (3) *
Suite 1015
Sherman Oaks, CA 91403
------------------------------------------------- ------------------------- -------------------------- ---------------
Jeff Wald
14622 Ventura Boulevard
Suite 1015 Common Shares 300 (3) *
Sherman Oaks, CA 91403
------------------------------------------------- ------------------------- -------------------------- ---------------
Marc R. Tow, Esq.
3900 Birch Street Common Shares 4,001,000 (4) 12.6%
Suite 113
Newport Beach, CA 92660
------------------------------------------------- ------------------------- -------------------------- ---------------
Leanna Sidhu
6720 Muirlands Drive Common Shares 600,000 1.9%
La Jolla, CA 92037
------------------------------------------------- ------------------------- -------------------------- ---------------
Directors and executive officers as a group Common Shares 1,267,028 4.0%
------------------------------------------------- ------------------------- -------------------------- ---------------
(1) Except as noted in any footnotes below, each person has sole voting power
and sole dispositive power as to all of the shares shown as beneficially owned
by them.
(2) The amount owned is based on issued common stock, as well as stock options
that are currently exercisable.
20
(3) Includes 100 common shares issuable upon the exercise of fully vested common
share purchase options at an exercise price of $0.025 per share, granted on
November 8, 2002 pursuant to the Company's Employee Stock Incentive Plan, which
expire on September 30, 2005. Includes 200 common shares issuable upon the
exercise of fully vested common share purchase options at an exercise price of
$0.09 per share, granted on November 23, 2001 pursuant to the Company's Employee
Stock Incentive Plan, which expire on January 23, 2006.
(4) These common shares were issued for legal services.
* Owns less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2003, and subsequently through March 2004,
the Company issued 4,001,000 common shares to Marc R. Tow, as compensation for
legal services to be rendered to the Company. These shares represent 10.15% of
the issued and outstanding shares of the Company. In March 2004, the Company
terminated the services of Mr. Tow. Pending a review of legal bills and value or
services rendered the stock issued to Mr. Tow have been placed on hold.
During the fiscal year ended December 31, 2003, there have not been any other
transactions that have occurred between the Registrant and its officers,
directors, and five percent or greater shareholders.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
a) Exhibits.
Exhibits included or incorporated by reference herein are set forth under the
Exhibit Index
b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the last quarter of the fiscal
year covered by this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit fees
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for our audit of annual financial
statements and review of financial statements included in our Form 10-KSBs and
10-QSBs or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal years
were:
2003: $58,182 - Weinberg & Company, P.A.
2002: $105,022- Weinberg & Company, P.A.
21
(2) Tax Fees
The aggregate fees billed in each of the last two fiscal years for tax services
provided by the principal accountant were:
2003: $17,031- Weinberg & Company, P.A.
2002: $10,535- Weinberg & Company, P.A.
(2) All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products
and services provided by the principal accountant other than the services in
paragraph (1) were:
2003: $0
2002: $13,441 - Weinberg & Company, P.A.
22
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 on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 21, 2004 Innovation Holdings, Inc.
By: /S/ ROBERT J. BLAGMAN
-----------------------------
Robert J. Blagman,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated
Date: May 21, 2004 /s/ ANDREW GIVEN
-------------------------------
Andrew Given
Date: May 21, 2004 /s/ WALTER LUBARS
-------------------------------
Walter Lubars
Date: May 21, 2004 /s/ JEFFREY WALD
------------------------------
Jeffrey Wald
23
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN
MEDIA INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN
MEDIA INTERNATIONAL, INC.) AND SUBSIDIARIES
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
PAGE 4-5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE YEARS ENDED
DECEMBER 31, 2003 AND 2002
PAGE 6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
PAGES 7 - 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Innovation Holdings, Inc.
(Formerly Blagman Media International, Inc.)
We have audited the accompanying consolidated balance sheets of Innovation
Holdings, Inc. (f/k/a Blagman Media International, Inc.) and Subsidiaries (the
"Company") as of December 31, 2003 and 2002 and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Innovation Holdings,
Inc. (f/k/a Blagman Media International, Inc.) and Subsidiaries as of December
31, 2003 and 2002 and the consolidated results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has a net loss of $8,035,776
and a negative cash flow from operations of $248,707 for the year ended December
31, 2003, and a working capital deficiency of $14,964,864 and a stockholders'
deficiency of $15,194,926 at December 31, 2003. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regards to these matters is also described in Note 12. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
May 18, 2004
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
ASSETS
------
2003 2002
---------------- ----------------
CURRENT ASSETS
Cash $ 2 $ --
Accounts receivable -- 31,779
Prepaid media and other current assets, net of allowance of 236,418 at December 31, 2003 -- 341,561
Assets related to discontinued operations 9,645 9,645
-------------- --------------
Total Current Assets 9,647 382,985
-------------- --------------
PROPERTY & EQUIPMENT - NET 73,751 104,902
-------------- --------------
OTHER ASSETS
License agreement, net of amortization of $7,781 141,687 --
Deposits -- 4,576
-------------- --------------
Total Other Assets 141,687 4,576
-------------- --------------
TOTAL ASSETS $ 225,085 $ 492,463
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Cash overdraft $ -- $ 11,782
Notes payable-current portion 359,725 50,000
Accounts payable 830,006 893,108
Accrued expenses 950,018 649,868
Accrued compensation - officers 1,897,344 1,314,392
Due to officer 68,406 112,844
Capital lease obligation - current portion 33,540 19,978
Liabilities related to discontinued operations 10,835,472 10,400,999
-------------- --------------
Total Current Liabilities 14,974,511 13,452,971
-------------- --------------
LONG-TERM LIABILITIES
Notes payable 445,500 445,500
Capital lease obligation - long-term portion -- 18,358
-------------- --------------
Total Long-Term Liabilities 445,500 463,858
-------------- --------------
TOTAL LIABILITIES 15,420,011 13,916,829
-------------- --------------
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, 20,000,000,000 shares authorized, 31,682,095 and 7,639 shares
issued and outstanding in 2003 and 2002, respectively 31,682 7
Additional paid in capital 41,824,753 35,591,212
Accumulated deficit (57,051,362) (49,015,586)
-------------- --------------
Total Stockholders' Deficiency (15,194,926) (13,424,366)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 225,085 $ 492,463
---------------------------------------------- ============== ==============
See accompanying notes to consolidated financial statements.
2
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------------ ------------------
REVENUES - NET $ 83,652 $ 437,241
------------------ ------------------
OPERATING EXPENSES
Selling, general and administrative 7,382,234 25,401,245
Depreciation and amortization 36,931 33,324
------------------ ------------------
Total Operating Expenses 7,419,165 25,434,569
------------------ ------------------
LOSS FROM OPERATIONS (7,335,513) (24,997,328)
------------------ ------------------
OTHER INCOME (EXPENSE)
Loss on fraudulent issuance of common stock -- (3,300,000)
Interest expense (53,304) (58,958)
Legal settlement (224,212) --
Interest income 4 537
Other income 11,723 --
------------------ ------------------
Total Other Income (Expense) (265,789) (3,358,421)
------------------ ------------------
LOSS FROM CONTINUING OPERATIONS (7,601,302) (28,355,749)
LOSS FROM DISCONTINUED OPERATIONS (434,474) (12,966,399)
------------------ ------------------
NET LOSS $ (8,035,776) $ (41,322,148)
--------
================== ==================
NET LOSS PER COMMON SHARE - BASIC AND DILUTED - CONTINUING OPERATIONS $ (2.50) $ (7,308.18)
================== ==================
NET LOSS PER COMMON SHARE - BASIC AND DILUTED - DISCONTINUED OPERATIONS $ (0.14) $ (3,341.86)
================== ==================
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (2.64) (10,650.04)
================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED 3,043,747 3,880
================== ==================
See accompanying notes to consolidated financial statements.
3
INNOVATION HOLDINGS, INC. AND (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- -------------- ------------ ------------- --------------
Balance, January 1, 2002 100 1 303 -- 24,709,705 (7,693,438)
Stock issued for acquisition of
Century Media, Inc. -- -- 408 -- 903,292 --
Stock issued for Century Media
debentures -- -- 589 1 1,304,539 --
Stock issued for services -- -- 4,379 4 5,216,512 --
Stock issued for failed
acquisition -- -- 30 -- 172,500 --
Stock issued fraudulently -- -- 1,930 2 3,299,998 --
Subscription receivable -- -- -- -- (15,334) --
Deferred stock compensation -- -- -- -- -- --
Net Loss 2002 -- -- -- -- -- (41,322,148)
---------- --------- -------------- ------------ ------------- -------------
BALANCE,
DECEMBER 31, 2002 100 $ 1 7,639 $ 7 $ 35,591,212 $ (49,015,586)
========== ========= ============== ============ ============= =============
Deferred Stock
Subscriptions Based
Receivable Compensation Total
--------------- ---------------- -------------
Balance, January 1, 2002 (15,334) (17,965,923) (964,989)
Stock issued for acquisition of
Century Media, Inc. -- -- 903,292
Stock issued for Century Media
debentures -- -- 1,304,540
Stock issued for services -- -- 5,216,516
Stock issued for failed
acquisition -- -- 172,500
Stock issued fraudulently -- -- 3,300,000
Subscription receivable 15,334 -- --
Deferred stock compensation -- 17,965,923 17,965,923
Net Loss 2002 -- -- (41,322,148)
--------------- ---------------- ------------
BALANCE,
DECEMBER 31, 2002 $ -- $ -- $ (13,424,366)
=============== =============== ============
See accompanying notes to consolidated financial statements.
4
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-------- ------------- -------------- ------------ ------------- --------------
Stock issued for legal fees 5,052,490 $ 5,052 1,179,248 --
Stock issued for consulting 23,323,315 23,323 4,595,884
Stock issued for wages 302,540 303 81,287 --
Stock issued for board of
directors fees 1,262 1 220,499 --
Stock issued for license
agreement 2,989,351 2,989 146,479 --
Stock issued for settlement
of accounts payable 5,600 6 27,994 --
Stock cancelled in
association with board of
directors fees (102) -- (17,850) --
Net Loss, 2003 (8,035,776)
-------- ------------- -------------- ------------ ------------- --------------
BALANCE,
DECEMBER 31, 2003 100 $ 1 31,682,095 $ 31,682 $ 41,824,753 $ (57,051,362)
======== ============= ============== ============ ============= ==============
Deferred
Subscriptions Stock Based
Receivable Compensation Total
--------------- --------------- -------------
Stock issued for legal fees -- -- 1,184,300
Stock issued for consulting 4,619,208
Stock issued for wages -- -- 81,590
Stock issued for board of
directors fees -- -- 220,500
Stock issued for license
agreement -- -- 149,468
Stock issued for settlement
of accounts payable -- -- 28,000
Stock cancelled in
association with board of
directors fees -- -- (17,850)
Net Loss, 2003 -- -- (8,035,776)
--------------- --------------- -------------
BALANCE,
DECEMBER 31, 2003 $ -- $ -- $ (15,194,926)
=============== =============== =============
See accompanying notes to consolidated financial statements.
5
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (7,601,302) $ (28,355,749)
Adjustments to reconcile net loss from continuing operations to net cash (used in) operating
activities:
Depreciation and amortization 36,932 33,324
Provision for bad debt 311,565 24,474
Loss on fraudulent issuance of common stock -- 3,300,000
Stock issued for failed acquisition -- 172,500
Stock issued for compensation and services 6,011,658 23,182,439
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (43,368) (50,359)
Prepaid media and other current assets 105,143 (77,235)
Deposits 4,576 154,920
Increase (decrease) in:
Accounts payable and accrued expenses 343,137 1,200,734
Accrued compensation - officers 582,952 592,482
Deferred revenue -- (240,000)
--------------- --------------
Net Cash (Used In) Operating Activities (248,707) (62,470)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (27,401)
Deposit on investment -- (367,213)
--------------- --------------
Net Cash (Used In) Investing Activities -- (394,614)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from officer (44,438) 259,281
Loan proceeds 309,725 --
Cash overdraft (11,782) 11,782
Payments under capital lease obligation (4,796) (13,903)
--------------- --------------
Net Cash Provided By Financing Activities 248,709 257,160
--------------- --------------
NET (DECREASE) INCREASE IN CASH 2 (199,924)
CASH - BEGINNING OF YEAR -- 199,924
--------------- --------------
CASH - END OF YEAR $ 2 $ --
=============== ==============
Cash paid during the year for - interest $ -- $ 43,252
=============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In March 2002, the Company issued 859 shares of common stock with a fair value
of $1,901,582 for the acquisition of Century Media, Inc. including the payoff of
existing debentures, options and notes on the books of the acquiree.
The Company acquired $52,239 of property and equipment through capitalized
leases during the year ended December 31, 2002.
In June 2003, the Company entered into a license agreement with a value of
$149,468 paid by the issuance of 2,989,351 shares of common stock valued at the
fair market value of the stock on the date of grant.
In September 30, 2003, the Company settled $2,000 of accrued payroll by giving
the employees a computer with a net book value of $2,000.
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
On March 22, 2002, the Company acquired 100% of the outstanding common
stock of Century Media, Inc., a California corporation engaged in the
media business (See Note 2).
On February 10, 2003, the stockholders of the Company approved an
amendment to the articles of incorporation changing the name of the
Company to Innovation Holdings, Inc. (referred to as the "Company").
In February 2003, the Board of Directors authorized a 5,000 for 1 reverse
stock split. All share and par share amounts in the accompanying
consolidated financial statements and footnotes have been restated to
give effect to such 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
consolidated financial statements and footnotes have been restated to
give effect to such reverse stock split.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying 2003 and 2002 consolidated financial statements of the
Company include the accounts of the parent entity and its wholly owned
subsidiaries. All significant inter-company transactions and balances
have been eliminated in consolidation.
(C) USE OF ESTIMATES
In preparing consolidated 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 consolidated financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
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 carrying amounts of the Company's accounts payable and accrued
expenses, accrued compensation, capital lease obligation and notes and
loans payable, approximate fair value due to the relatively short period
to maturity for these instruments.
7
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated economic useful lives of 5 to 7
years. Expenditures for maintenance and repairs are charged to expense as
incurred. Major improvements are capitalized.
(F) IMPAIRMENT OF LONG-LIVED ASSETS
Beginning January 1, 2002, the Company reviews long-lived assets for
impairment under Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the asset. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
During the year ended December 31, 2002, the Company recorded impairment
charges of $3,048,484 created during the Century Media acquisition and
$5,599,007 related to the customer list obtained during the Century Media
acquisition and $167,649 for fixed assets acquired in the Century Media
acquisition as the Company determined these assets were not recoverable
(See Note 2).
(G) REVENUE RECOGNITION
The Company recognizes revenue from the sale of media time to advertising
clients when the related advertisement is broadcasted. 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 Staff Accounting Bulletin No. 101. Monies received prior to the
broadcast of the related advertisement are recorded as deferred revenue.
In addition, the Company earns commissions in connection with the
procurement of media time on behalf of advertising clients. 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.
(H) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing
8
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
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.
(I) LOSS PER COMMON SHARE
Basic loss per common share is based on net loss divided by the weighted
average number of common shares outstanding. All share and per share
amounts have been restated to give effect to a 5,000 for 1 reverse stock
split in February 2003, and a 500 for 1 reverse stock split in April
2004, as discussed in Note 6.
(J) RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 00-21, addressing how to account for arrangements that
involve the delivery or performance of multiple products, services, and
/or rights to use assets. Revenue arrangements with multiple deliverables
are divided into separate units of accounting if the deliverables in the
arrangement meet the following criteria: (1) the delivered item has value
to the customer on a stand-alone basis; (2) there is objective and
reliable evidence of the fair value of undelivered items; and (3)
delivery of any undelivered items is probable. Arrangement consideration
should be allocated among the separate units of accounting based on their
relative fair values, with the amount allocated to the delivered item
being limited to the amount that is not contingent on the delivery of
additional items or meeting other specified performance conditions. The
final consensus is applicable to agreements entered into in fiscal
periods beginning after June 15, 2003.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
changes in SFAS No. 149 improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly.
This statement is effective for contracts entered into or modified after
June 30, 2003 and all of its provisions should be applied prospectively.
9
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF 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". SFAS No. 150 changes the accounting for certain financial
instruments with characteristics of both liabilities and equity that,
under previous pronouncements, issuers could account for as equity. The
new accounting guidance contained in SFAS No. 150 requires that those
instruments be classified as liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange
for cash or other assets. A second type includes put options and forward
purchase contracts, which involves instruments that do or may require
the issuer to buy back some of its shares in exchange for cash or other
assets. The third type of instruments that are liabilities under this
SFAS is obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable such as a
market index, or varies inversely with the value of the issuers' shares.
SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of Statement 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this SFAS are
consistent with the FASB's proposal to revise that definition to
encompass certain obligations that a reporting entity can or must settle
by issuing its own shares. This SFAS is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise
shall be effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of a non-public entity, as to which the effective
date is for fiscal periods beginning after December 15, 2004.
In January 2003, and as revised in December 2003, the FASB issued
Interpretation No. 46, "Consolidation of Variable Interest Entities"
"Interpretation No. 46"), an interpretation of Accounting Research
Bulletin ("ARB") No. 51", "Consolidated Financial Statements".
Interpretation No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics: (i) the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional
subordinated support from other parties, which is provided through
another interest that will absorb some or all of the expected losses of
the entity; (ii) the equity investors lack
10
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
one or more of the following essential characteristics of a controlling
financial interest: the direct or indirect ability to make decisions
about the entity's activities through voting rights or similar rights; or
the obligation to absorb the expected losses of the entity if they occur,
which makes it possible for the entity to finance its activities; the
right to receive the expected residual returns of the entity if they
occur, which is the compensation for the risk of absorbing the expected
losses. Interpretation No. 46, as revised, also requires expanded
disclosures by the primary beneficiary (as defined) of a variable
interest entity and by an enterprise that holds a significant variable
interest in a variable interest entity but is not the primary
beneficiary.
Interpretation No. 46, as revised, applies to small business issuers no
later than the end of the first reporting period that ends after December
15, 2004. This effective date includes those entities to which
Interpretation No. 46 had previously been applied. However, prior to the
required application of Interpretation No. 46, a public entity that is a
small business issuer shall apply Interpretation No. 46 to those entities
that are considered to be special-purpose entities no later than as of
the end of the first reporting period that ends after December 15, 2003.
Interpretation No. 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied
or by restating previously issued financial statements for one or more
years with a cumulative-effect adjustment as of the beginning of the
first year restated.
In June 2003, the FASB issued an Exposure Draft for proposed SFAS
entitled "Qualifying Special Purpose Entities ("QSPE") and Isolation of
transferred Assets", an amendment of SFAS No. 140 ("The Exposure Draft").
The Exposure Draft is a proposal that is subject to change and as such,
is not yet authoritative. If the proposal is enacted in its current form,
it will amend and clarify SFAS 140. The Exposure Draft would prohibit an
entity from being a QSPE if it enters into an agreement that obliged a
transferor of financial assets, its affiliates, or its agents to deliver
additional cash or other assets to fulfill the special-purposes entity's
obligation to beneficial interest holders.
The adoption of these recent pronouncements are not expected to have a
material effect on the Company's consolidated financial position or
results of operations.
(K) STOCK BASED COMPENSATION
The Company accounts for employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "According for Stock Issued
to Employees". Under APB 25, no compensation expense is recorded when the
terms of the award are fixed and the exercise price of the employee stock
option equals or exceeds the fair value of the
11
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
underlying stock on the date of grant. The Company adopted the
disclosure-only provisions of No. 123, "Accounting for Stock-Based
Compensation", as modified by the transitional and disclosure provisions
of SFAS NO. 148.
(L) RECLASSIFICATION
Certain reclassifications have been made to previously reported amounts
to conform to the current years presentation.
NOTE 2 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
obligations. 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 10(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.
12
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
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 period from acquisition to December 31, 2002, revenues and loss
from discontinued operations were as follows:
Revenues $ 3,459,294
Net loss from discontinued operations $ 12,966,399
For the year-ended December 31, 2003, a loss from discontinued operations
of $434,474 was incurred. This was primarily for additional interest
expense on notes payable and legal costs of defending lawsuits (See Note
11).
Assets and liabilities of the discontinued operations as of December 31,
2003 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
=====================
The creditors of Century Media have filed various actions for breach of
contract. Said actions arise 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.
13
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 3 DUE TO OFFICER
During the years ended December 31, 2003 and 2002, an officer of the
Company made advances to the Company to assist with operations. These
advances were non-interest bearing and have no set repayment terms. As of
December 31, 2003 and 2002, the Company owed the officer $68,406 and
$112,844, respectively.
NOTE 4 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31:
2003 2002
--------------- ---------------
Computer equipment $ 103,415 $ 106,083
Furniture and fixtures 43,851 43,852
Office equipment 14,974 14,973
Leasehold improvements - 2,876
---------------- ---------------
162,240 167,784
Less: Accumulated depreciation (88,489) (62,882)
---------------- ---------------
Property and equipment - net $ 73,751 $ 104,902
================ ===============
Depreciation expense was $29,150 and $33,324 in 2003 and 2002,
respectively.
NOTE 5 NOTES PAYABLE
The following schedule reflects notes and loans payable as of December 31:
2003 2002
----------- ------------
Note payable, interest at 6% due March 31, 2001. $ 50,000 $ 50,000
The holder of the note is currently not demanding
payment and the note continues to accrue interest.
Note payable - related party, interest at 6%, due
March 30, 2006, unsecured. 163,500 163,500
Note payable - stockholder, interest at 6%, due
April 2, 2006, unsecured. 85,000 85,000
$197,000 note payable - stockholder, interest at 6%,
principal and interest due April 9, 2006, unsecured. 197,000 197,000
14
2003 2002
------------- ---------------
$100,000 note payable, interest at 3.8%, principal and
interest due January 10, 2004, unsecured. 93,450 -
$75,000 note payable, interest at 4%, principal and
interest due January 27, 2004, unsecured. 41,200 -
$10,000 note payable, interest at 2.8%, principal and
interest due February 11, 2004, unsecured. 10,000 -
$45,000 note payable, interest at 4%, principal and
interest due April 2, 2004, face amount $45,000, unsecured. 33,075 -
$112,000 note payable, interest at 4%, principal and
interest due June 24, 2004, face amount $112,000, unsecured. 112,000 -
$20,000 note payable, interest at 4%, principal and interest
due September 8, 2004, unsecured. 20,000 -
------------- ----------------
805,225 495,500
Less: current portion (359,725) (50,000)
------------- ----------------
============= ================
Notes and loans payable - long-term portion $ 445,500 $ 445,500
============= ================
On January 10, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $100,000 at
an interest rate of 3.8% per annum. Principal and interest were due no
later than January 10, 2004. As of the report date, this loan has not been
repaid.
On January 27, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $75,000 at
an interest rate of 4% per annum. Principal and interest were due no later
than January 27, 2004. As of the report date, this loan has not been
repaid.
On February 11, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $10,000 at
an interest rate of 2.8% per annum. Principal and interest were due no
later than February 11, 2004. As of the report date, this loan has not
been repaid.
15
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
On June 24, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $112,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than June 24, 2004.
On April 2, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $45,000 at
an interest rate of 4% per annum. Principal and interest were due no later
than April 2, 2004. As of the report date this loan has not been repaid.
On September 8, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $20,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than September 8, 2004.
NOTE 6 STOCKHOLDERS' DEFICIENCY
In February 2003, the Board of Directors authorized a 5,000 for 1 reverse
stock split. All share and per share amounts in the accompanying
consolidated financial statements and footnotes have been restated to give
effect to such 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 consolidated
financial statements and footnotes have been restated to give effect to
such reverse stock split.
On August 18, 2003, the Company issued 1,000,000 shares of common stock
valued at $50,000 to an attorney for services rendered in connection with
the establishment of the trust agreements. The fair value of the shares
issued was based upon the market price of the Company's common stock on
the date of grant.
During 2003 the Company issued 2,989,351 shares of restricted common stock
to an unrelated party as consideration for a license agreement entered
into on June 28, 2003 valued at $149,468. 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 is included in other assets in the accompanying
consolidated balance sheet as of December 31, 2003. The term of this
license agreement is for a period of 10 years. Amortization expense for
the year ended December 31, 2003 was $7,781.
During 2003, the Company issued 302,540 shares of common stock for
employee bonus compensation valued at $81,590. 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 consolidated statement of
operations for the year ended December 31, 2003.
16
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
During 2003, the Company issued approximately 12,600 shares of restricted
common stock to the Chief Executive Officer and subsequently cancelled and
rescinded the issuance. Accordingly, the Company has not included these
shares in its equity. The Company also issued 1,262 shares of common stock
to three directors of the Company for services valued at $220,500. The
fair value of the issued shares was based upon the market price of the
Company's stock on the date of grant. The amount was expensed to selling,
general and administrative expenses in the accompanying statement of
operations for the year ended December 31, 2003.
During 2003, the Company issued 23,323,315 shares of common stock for
consulting services valued at $4,619,208. The fair value of the issued
shares was based upon the market price of the Company's stock on the date
of grant. The total value has been expensed to selling, general and
administrative expenses in the accompanying consolidated statement of
operations for the year ended December 31, 2003.
During 2003, 4,052,490 shares of common stock were issued to the Company's
attorney for services valued at $1,134,300. Of this amount $1,058,300 has
been expensed to selling, general and administrative expenses in the
accompanying consolidated statement of operations for the year ended
December 31, 2003 and $76,000 offset a previously recorded accounts
payable to this attorney. The fair value of the issued shares was based
upon the market price of the Company's stock on the date of grant.
During 2002, management of the Company deemed that 1,930 shares of common
stock were fraudulently issued. However these shares were not recorded by
the Company until December 31, 2002, when it was discovered that as part
of the fraud, such shares were also subsequently sold in the open market
and are no longer recoverable. These shares were recorded on the books at
their fair value and the Company recognized a charge of $3,300,000 as a
loss on fraudulent issuance of common stock at December 31, 2002.
During 2002, 4,379 shares of common stock with a fair value of $5,216,516
were issued for consulting services. The fair value of the issued shares
was based upon the market price of the Company's stock on the date of
grant.
On July 25, 2002, the Board of Directors of the Company increased the
total authorized common stock from 5,000,000,000 to 20,000,000,000 par
value $.001 per share.
In 2001, the Company issued 294 shares of common stock for compensation,
consulting, legal and other services having a fair value of $19,680,219
based upon the per share fair value at the date of the issuance. At
December 31, 2001, $17,965,923 of this amount was for future services, and
had been deferred and shown as a contra to equity. During 2002, the
underlying contracts and agreements for the above services and stock-based
17
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
compensation were cancelled, terminated or expired and therefore the
entire $17,965,923 was expensed for the year ended December 31, 2002.
On February 16, 2000, the Board of Directors agreed to offer up to .50
shares of common stock, pursuant to Regulation D, Section 4(6) of the
Securities and Exchange Act of 1933, as amended. The offer was fully
subscribed to by September 30, 2000 and $984,666 of the $1,000,000
subscription has been received as of December 31, 2001. In 2002, the
balance due on the subscription receivable of $15,334 was deemed
uncollectable and written off against additional paid-in capital.
Pursuant to the terms and conditions of two separate trust agreements,
shares of the Company's common stock were transferred in trust to an
attorney who will act as trustee of the Innovative Holdings, Inc.
Shareholder and Creditor Trusts ("Shareholder Trust" or "Creditor Trust").
In addition to the shares, the Company has assigned to the trusts the
results and possible proceeds of pending future litigation.
The Shareholder Trust has been established to respond to the Company's
concern that shareholders of record as of January 1, 2002 through July 31,
2002 were adversely affected by the action of outside parties effecting
the share price and value of the Company throughout these dates. The
Company intends to provide some measure of compensation to its
shareholders for their related losses.
The Creditor Trust has been established to return the maximum amount to
Century Media's creditors (assumed by the Company as a result of the
Century Media acquisition) and to allow the Company to continue to operate
without interruption. Following the submission of claims and validation of
such claims, the trustee will liquidate the trust property and distribute
the proceeds to the trust beneficiaries in a manner the trustee deems most
beneficial.
During 2003, the Company issued 4 million shares of restricted stock to
the trusts. The trust shares are not included in the outstanding shares
because they are being held in escrow by the trustee. Additional stock
will be required to be issued to achieve this financial goal.
NOTE 7 COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
On January 1, 2000, the Company entered into employment agreements with
the Chief Executive Officer (CEO) and Chief Operations Officer (COO) for
five and three years, respectively. The agreements call for a base salary,
after annual incremental increases,
18
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
ranging from $240,000 to $420,000 for the CEO and $135,000 to $180,000
for the COO. The agreements also call for signing bonuses of $750,000 for
the CEO and $350,000 for the COO to be paid in equal monthly payments
over the term of the respective employment agreements. For the years
ended December 31, 2003 and 2002, the Company incurred expenses related
to these agreements in the aggregate of $582,952 and $788,667, and
$1,897,344 and $1,314,392 has been accrued at December 31, 2003 and 2002,
respectively. Effective January 2002, the COO resigned her position with
the Company. The employment agreement will be fulfilled by the Company in
accordance with its original terms.
NOTE 8 CONCENTRATIONS
Approximately 90% and 97% of revenues were derived from three and one
customers, respectively, for the years ended 2003 and 2002. Approximately
87% of accounts receivable was due from one customer as of December 31,
2002.
NOTE 9 INCOME TAXES
The provisions for income taxes for the years ended December 31, 2003 and
2002 is summarized as follows:
2003 2002
---------------- ----------------
Current:
Federal $ -- $ --
State -- --
Deferred - Federal and State -- --
---------------- ----------------
Total provisions for income taxes $ -- $ --
================ ================
Deferred income taxes arise from the temporary differences in reporting
assets and liabilities for income tax purposes. These temporary
differences primarily resulted from net operating losses, different
amortization methods used for financial and tax purposes, and receivable
reserves deducted for financial statement purposes and accrued expenses.
At December 31, 2003, the Company has a net operating loss carryforward of
approximately $47,765,000 that may be offset against future taxable income
expiring on various dates beginning in 2018 through 2023. This net
operating loss may be restricted in future years under Section 382 of the
Internal Revenue Code.
19
The components of the deferred tax assets and liabilities at December 31,
2003 and 2002 are as follows:
2003 2002
------------------------------- -------------------------------
Deferred Deferred Deferred Deferred
Tax Tax
Tax Assets Liabilities Tax Assets Liabilities
------------- ------------- ------------- -------------
Deferred income taxes, current:
Accounts receivable reserves $80,382 $ -- $ -- $ --
------------ ------------ ------------ ------------
Total Current 80,382 -- -- --
------------ ------------ ------------ ------------
Valuation allowance (80,382) -- --
------------
Net Current -- -- -- --
------------ ------------ ------------ ------------
Deferred income taxes, non-current:
Net operating loss carryforward 16,240,170 -- 13,593,446 --
Amortization -- 2,646,132 -- --
Accrued expenses 645,096 -- -- --
------------ ------------ ------------ ------------
Total Long-Term 16,885,266 2,646,132 13,593,446 --
------------ ------------ ------------ ------------
Net Long-Term 14,239,134 -- 13,593,446 --
------------ ------------ ------------ ------------
Valuation allowance (14,239,134) -- (13,593,446) --
------------ ------------ ------------ ------------
Net Deferred Tax Assets/Liabilities $ -- $ -- $ -- $ --
============ ============ ============ ============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. A full valuation allowance
was recorded at December 31, 2003 and 2002 because the realization of
such deferred assets is not more likely than not.
The valuation allowance as of January 1, 2003 was $13,593,446. The net
change in the valuation allowance during the year ended December 31, 2003
was an increase of approximately $726,070.
NOTE 10 CAPITAL LEASE OBLIGATIONS
The Company is in default of its capital lease agreement at December 31,
2003. 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 consolidated balance
sheets.
20
NOTE 11 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 of TMT 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 a mediation in June to resolve this
case. In December 2003, TMT was granted a Summary judgement 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 judgement motion. The Company's current attorney will file
a motion to be relieved of the default as to this summary
judgement. As of December 31, 2003, 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 judgement. This
liability is included in Liabilities from Discontinued Operations
in the accompanying consolidated balance sheet at December 31,
2003.
(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 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
21
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
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 in 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 contact. On January 30, 2004, this corporation was granted
a summary judgement in the amount of $203,064, which includes
interest plus attorney's fees and costs incurred by the corporation.
The Company's current attorney will file a motion to be relieved of
the default as to this summary judgement. As of December 31, 2003,
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 judgement. This liability is included in Liabilities from
Discontinued Operations in the accompanying consolidated balance
22
INNOVATION HOLDINGS, INC. (FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.) AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
sheet at December 31, 2003. 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 as of December 31, 2003 and this amount is
included in accounts payable and accrued expenses in the
accompanying consolidated balance sheet as of December 31, 2003. As
of December 31, 2003, the Company had not yet issued the corporation
the 2 million shares as per the terms of the settlement. As of the
report date, the Company has issued 21 million shares to the
corporation valued at $250,000. The fair value of the shares issued
was based upon the market price of the Company's common stock on the
date of grant.
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 12 GOING CONCERN
The Company's financial statements for the year ended December 31,
2003 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 has a net
loss of $8,035,776 and a negative cash flow from operations of
$248,707 for the year ended December 31, 2003, and a working capital
deficiency of $14,964,864 and a stockholders' deficiency of
$15,194,926 at December 31, 2003. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
The 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
23
actively seeking businesses to acquire.
NOTE 13 SUBSEQUENT EVENTS
During the period from January 1, 2004 through May 4, 2004, the
Company has issued 74,036,000 common shares in the aggregate, to
eleven different consultants for consulting services to be provided
over varying terms, which expire at various dates during the fiscal
year 2005.
In March and May 2004, a total of 17,000,000 shares of common stock
were issued to the Company's Securities and Exchange attorney as
compensation for legal services rendered.
In April 2004, the Board of Directors authorized a 500 for 1 reverse
stock split. All share and per share amounts in the accompanying
consolidated financial statements and footnotes have been restated
to give effect to such reverse stock split.
24
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 Gazelle Group 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 Gazelle Group 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 10-KSB, as amended
filed on April 15, 2002)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act Of 2002 (filed herewith)
99.2 Certification of the chief executive officer pursuant to the securities
exchange act of 1934, rules 13a-14 and 15d-14 as adopted pursuant to
section 302 of the Sarbanes-Oxley act of 2002