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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 NUMBER: 000-26585
MM COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 54-1811721
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
888 SEVENTH AVENUE, 17TH FLOOR, NEW YORK, NY 10019
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (212) 974-5730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 12, 2003 3,289,006 shares of the issuer's common stock, par value
$0.01 per share, were outstanding.
Index
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Page
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PART I-- FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
as of June 30, 2003 (unaudited) and December 31, 2002.......................3
Statements of Operations (unaudited)
for the three and six month periods ended
June 30, 2003 and June 30, 2002.............................................4
Statements of Cash Flows (unaudited)
for the six month periods ended
June 30, 2003 and June 30, 2002............................................5
Notes to Financial Statements...............................................6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................10
Item 3 Quantitative and Qualitative Disclosures
About Market Risk..........................................................12
Item 4 Controls and Procedures....................................................12
PART II-- OTHER INFORMATION
Item 1 Legal Proceedings..........................................................13
Item 2 Changes in Securities and Use Of Proceeds..................................13
Item 3 Defaults Upon Senior Securities............................................13
Item 4 Submission of Matters to a Vote of Securities Holders......................13
Item 5 Other Information..........................................................13
Item 6 Exhibits and Reports On Form 8-K...........................................13
Signatures.................................................................14
-2-
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
MM COMPANIES, INC.
BALANCE SHEETS
June 30, December 31,
2003 2002
(unaudited)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,781,629 $ 575,454
Precious metals 1,374,340 4,028,115
Prepaid expenses and other current assets 306,993 1,220,756
------------- -------------
Total current assets 4,462,962 5,824,325
Investment in partnership 596,021 596,021
Investment in available-for-sale securities 233,330 1,611,874
------------- -------------
Total assets $ 5,292,313 $ 8,032,220
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 325,465 $ 1,185,272
Other current liabilities 4,400 1,915,535
------------- -------------
Total current liabilities 329,865 3,100,807
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
3,358,444 and 3,350,052 shares issued at June 30,
2003 and December 31, 2002, respectively, and
3,289,006 and 3,280,614 shares outstanding at
June 30, 2003 and December 31, 2002, respectively 33,585 33,501
Additional paid-in capital 185,457,862 185,445,946
Accumulated other comprehensive income 232,760 164,372
Accumulated deficit (180,670,226) (180,620,873)
Treasury stock, 69,438 shares at cost (91,533) (91,533)
------------- -------------
Total stockholders' equity 4,962,448 4,931,413
------------- -------------
Total liabilities and stockholders' equity $ 5,292,313 $ 8,032,220
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-3-
MM COMPANIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues
Interest and divided income $ 8,765 $ 37,359 $ 16,146 $ 74,496
Dividend income from cash
distribution -- -- 190,318 --
Gain on sale of precious metals 15,075 -- 325,095 --
Gain on sale of available-for-sale
securities -- 43,791 -- 61,731
----------- ----------- ----------- -----------
Total revenues 23,840 81,150 531,559 136,227
General and administrative expenses 322,165 68,469 580,912 325,137
----------- ----------- ----------- -----------
Net income (loss) available to common
stockholders $ (298,325) $ 12,681 $ (49,353) $ (188,910)
=========== =========== =========== ===========
Basic and diluted net income (loss)
per common share $ (0.09) $ 0.004 $ (.02) $ (0.06)
=========== =========== =========== ===========
Weighted average shares outstanding 3,288,176 3,327,023 3,284,217 3,320,545
=========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-4-
MM COMPANIES INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
--------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net loss $ (49,353) $ (188,910)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Gain on sale of available-for-sale securities -- (61,731)
Services received in exchange for stock 12,000 --
Changes in operating assets and liabilities:
Precious metals 2,653,775 --
Prepaid expenses and other current assets 913,763 81,786
Other assets -- (310,000)
Accounts payable and accrued expenses (859,807) (198,979)
Other current liabilities (1,911,135) 35,000
----------- -----------
Net cash provided by (used in) operating activities 759,243 (642,834)
----------- -----------
INVESTING ACTIVITIES
Proceeds from return of investment 1,446,932 --
Proceeds from sale of available-for-sale securities -- 277,805
Purchase of investment in partnership -- (596,021)
Purchase of available-for-sale securities -- (446,494)
----------- -----------
Net cash provided by (used in) investing activities 1,446,932 (764,710)
----------- -----------
FINANCING ACTIVITIES
Purchase of treasury stock -- (3,633)
Net cash used in financing activities -- (3,633)
Net increase (decrease) in cash and cash equivalents 2,206,175 (1,411,177)
Cash and cash equivalents at beginning of period 575,454 7,596,588
----------- -----------
Cash and cash equivalents at end of period $ 2,781,629 $ 6,185,411
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-5-
MM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND GOING CONCERN CONSIDERATION
On January 3, 2001, the Board of Directors of MM Companies, Inc.
(formerly musicmaker.com, Inc.) (the "Company"), as then constituted, voted
unanimously to cease the operations of its Internet-based custom CD-marketing
business. The then-Board concluded at that time that this business no longer
represented a viable alternative to provide maximum value to the Company's
stockholders. Thereafter, the Board determined to seek to pursue one or more
potential acquisitions of other publicly traded or privately held companies or
significant interests in such companies, with a view to refocusing the Company's
strategic direction. While the Company continues to actively examine certain
potential acquisition transactions and believes that attractive opportunities
exist, there can be no assurance whether, when, or on what terms the Company
will complete any such acquisition.
The accompanying financial statements as of June 30, 2003 and for the
three-month and six-month periods then ended have been prepared assuming the
Company will continue as a going concern, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. At June 30, 2003, the Company had $2,781,629 in cash and cash
equivalents and $1,374,340 in precious metals (see note 3) compared to
$4,603,569, in the aggregate, at December 31, 2002. The Company expects to
experience negative cash flows for the foreseeable future. Based on our current
level of operations, the Company believes that it has sufficient cash and cash
equivalents to satisfy its obligations until March 31, 2004, although it can
give no assurance in that regard. The Company believes these obligations will
primarily relate to costs associated with the operation as a public company
(legal, accounting, insurance, etc.), as well as the satisfaction of any
potential legal judgments or settlements and the expenses associated with any
new business activities, which may be undertaken by the Company. These factors,
among others, indicate that the Company may be unable to continue operations as
a going concern. No adjustment has been made in the accompanying financial
statements to the amounts and classifications of assets and liabilities which
could result should the Company be unable to continue as a going concern. The
Company continues to consider future alternatives, including the possible
acquisition of other businesses. However, the Company has not consummated any
significant transactions to date and the Company's business prospects remain
uncertain. To the extent that management of the Company moves forward on any
alternative strategy, such strategy may have an impact on the Company's
liquidity.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements as of June 30, 2003 and for the three-month
and six-month periods ended June 30, 2003 and as of the year ended December 31,
2002 have been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). These financial statements
are unaudited and, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments and accruals) necessary to present
fairly, the results for the periods presented. The balance sheet at December 31,
2002 has been derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to applicable SEC rules and regulations. Operating
results for the three-month and six-month periods ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2003. The financial statements included herein should be
read in conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002. Certain prior period balances have been reclassified to conform to the
current period presentation.
-6-
Cash and Cash Equivalents
The Company considers all highly-liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Investments
Securities classified for accounting purposes as "available-for-sale"
securities consist of marketable equity securities not classified as either
held-to-maturity or trading securities. Available-for-sale securities are stated
at fair value with unrealized gains and losses reported as a separate component
of stockholders' equity as other comprehensive income. Dividends on marketable
equity securities are recognized as income when declared. Realized gains and
losses and declines in value deemed to be other-than-temporary are included in
revenues. The cost basis for realized gains and losses is determined on the
basis of the actual cost of the securities sold.
As of June 30, 2003 and December 31, 2002, the Company had
available-for-sale securities with a fair market value of $233,330 and
$1,611,874, respectively, and a cost basis of approximately $570 and $1,447,502,
respectively. The gross unrealized gain (loss) as of June 30, 2003 and December
31, 2002 of $232,760 and $164,372 have been recorded as a separate component of
stockholders' equity as accumulated other comprehensive income.
As of June 30, 2003 and December 31, 2002, the Company held the
following public company equity positions:
Fairmarket Inc. (NASDAQ: FAIM) 500 shares
Liquid Audio, Inc. (NASDAQ: LQID) 654,900 shares
On January 29, 2003, Liquid Audio, Inc. distributed $2.50 per share in
cash to all of its shareholders, of which $1,446,932 was recorded as a return of
investment and $190,318 was recorded by the Company as dividend income from cash
distribution.
Stock-Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 148 "Accounting for Stock-Based Compensation, Transition
and Disclosure." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method accounting for stock-based employee
compensation be displayed more prominently and in a tabular format.
Additionally, SFAS No. 148 requires disclosure of the pro forma effect on
interim financial statements. The transition and annual disclosure requirements
of SFAS No. 148 are effective for fiscal years ended after December 15, 2002.
The interim disclosure requirements are effective for interim periods ending
after December 15, 2002. The adoption of SFAS No. 148 did not have a material
impact on the Company's financial condition or results of operations.
Other Comprehensive Income
The Company separately reports net income (loss) and comprehensive
income (loss) pursuant to SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive loss includes net loss and other comprehensive income (loss).
Other comprehensive income (loss) includes accumulated unrealized gain (loss) on
investments. The components of comprehensive loss are as follows:
-7-
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Comprehensive loss:
Net income (loss) $(298,325) $ 12,681 $ (49,353) $(188,910)
Unrealized gain (loss) on investments 22,962 59,076 68,388 54,853
--------- --------- --------- ---------
$(275,363) $ 71,757 $ 19,035 $(134,057)
========= ========= ========= =========
Net Income (Loss) Per Share
The Company complies with SFAS No. 128, "Earnings Per Share." SFAS No.
128 requires dual presentation of basic and diluted income (loss) per share for
all periods presented. Basic income (loss) per share excludes dilution and is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then share in the income
of the Company. Diluted net loss per share excludes common equivalent shares,
unexercised stock options and warrants, as the computation would be
anti-dilutive. Unexercised stock options to purchase 103,756 shares of the
Company's common stock as of June 30, 2003, were excluded in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price of the Company's common stock, for the three-month and
six-month periods ended June 30, 2003. Since the effects of the outstanding
options and warrants are anti-dilutive in the respective periods, they have been
excluded from the computation of net loss per common share.
New Accounting Pronouncements
In April 2003, the 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, and for
hedging activities under SFAS No. 133. The Statement is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003 and should be applied
prospectively. The Company is currently evaluating SFAS No. 149 and has not yet
determined the impact of adopting its provisions.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with characteristics of both liabilities and equity." SFAS
No. 150 requires certain freestanding financial instruments, such as mandatorily
redeemable preferred stock, to be measured at fair value and classified as
liabilities. The adoption of SFAS No. 150 is not expected to have a material
effect on the Company's financial position or results of operations.
3. PRECIOUS METAL
In 2003, the Company sold an aggregate of 8,500 ounces of its gold
bullion for approximately $3,003,000, of which approximately $1.9 million was
used to pay off the outstanding liability which was secured by the gold bullion
as of December 31, 2002. As of June 30, 2003, the Company still has 4,400 ounces
of gold bullion with a cost basis of $1,374,340.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at June 30, 2003 and December
31, 2002, were $306,993 and $1,220,756, respectively. The balance as of June 30,
2003 is comprised primarily of $306,446 in prepaid insurance for the renewed
Directors and Officers Liability policy. This amount is being expensed monthly
over the life of the policy. The December 31, 2002 amount is comprised primarily
of costs associated with various proxy statements and related matters related to
Liquid Audio, Inc.
-8-
5. INVESTMENT IN PARTNERSHIP
On February 27, 2002, the Company along, with certain other entities
(together with the Company, the "Reporting Entities"), was party to a joint
filing on Schedule 13D reporting the purchase of 3,485,500 shares of common
stock of Fairmarket Inc. ("Fairmarket") (NASDAQ: FAIM) (such amount representing
approximately 12.0% of Fairmarket's outstanding common stock). Of the total
amount of outstanding common stock reported as beneficially owned by the
Reporting Entities, the Company may be deemed to account for 627,390 shares of
such common stock (such amount representing approximately 3.0% of Fairmarket's
outstanding common stock and such amount does not include 500 shares of
Fairmarket owned directly by the Company described in Note 2). This represents
the Company's investment of $596,021 in JHC Investment Partners, LLC for the
purchase of 627,390 shares of Fairmarket common stock. JHC Investment Partners,
LLC is an entity created to purchase shares of Fairmarket common stock, which
currently holds a total of 3,485,500 shares. The Company has accounted for this
investment at cost. The Reporting Entities include, in addition to the Company,
Barington Companies Equity Partners, L.P., an affiliate of Barington Capital
Group, L.P. and a major shareholder of the Company, and Jewelcor Management,
Inc., an entity whose Chairman and Chief Executive Officer is Seymour Holtzman,
the Chairman of the Company's Board of Directors.
On May 8, 2002, Fairmarket appointed Joseph Wright, Jr., to
Fairmarket's Board of Directors. Mr. Wright is also a director of the Company.
Mr. Wright was appointed to the Board of Fairmarket pursuant to an agreement
that Fairmarket entered into with the Reporting Entities. The agreement provides
that the Reporting Entities will not proceed with their proposed proxy contest
and limit actions that the group may take with respect to their ownership of
Fairmarket common stock prior to January 22, 2005. In addition, James
Mitarotonda, President and Chief Executive Officer of the Company, was granted
observer status to Fairmarket's Board.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 2003 and December
31, 2002 are comprised of the following:
June 30, December 31,
2003 2002
---------- ------------
Accounts payable $ 231,656 $ 534,605
Professional fees 42,975 50,543
License and royalty fees 18,133 520,000
Other 32,701 80,124
---------- ----------
$ 325,465 $1,185,272
========== ==========
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note Regarding Forward Looking Information
The statements contained in this quarterly report that are not
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. Without
limiting the foregoing, the words "anticipates," "believes," "expects,"
"intends," "may" and "plans" and similar expressions are intended to identify
forward-looking statements. The Company intends that all forward-looking
statements be subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's views as of the date they are made with respect to future events, but
are subject to many risks and uncertainties, which could cause the actual
results of the Company to differ materially from any future results expressed or
implied by such forward-looking statements. These statements speak only as of
the date hereof. We are under no duty to update, and do not undertake to update,
any of the forward-looking statements contained in this quarterly report to
conform them to actual results or to changes in our expectations. The following
discussion should be read in conjunction with the financial statements contained
in Item 1 of Part I of this Form 10-Q.
Overview
The Company was incorporated on April 23, 1996. On January 3, 2001, the
Board of Directors of the Company as then constituted voted unanimously to cease
its operations as a provider of customized music CD compilations and music
digital downloads. The Company had sold its products primarily over the Internet
through its website and through marketing partners, strategic alliances and
direct mail order promotions. The then-Board concluded at that time that this
business no longer represented a viable alternative to provide maximum value to
the Company's stockholders.
The Board then determined to review alternatives for the Company going
forward, which included, among other things, potential dispositions of assets,
the possibility of one or more additional cash distributions to stockholders,
and the potential continued operation of the Company as a public company which
might pursue other business opportunities as they arise, as well as other
possible steps intended to provide stockholder value, all subject to the ongoing
review and consideration of the Board, some of which would require stockholder
approval. On February 15, 2001, the Company announced that the Board of
Directors had approved a cash distribution in the amount of $3.00 per share to
the holders of record of Common Stock as of March 1, 2001, the record date,
pursuant to which the Company distributed $9,941,998 to its stockholders.
In connection with the Company's cessation of its Internet-based custom
CD-marketing business, the Company sold all of the Company's remaining furniture
and equipment.
Thereafter, the Board determined to seek to pursue one or more
potential acquisitions of other publicly traded or privately held companies or
significant interests in such companies, with a view to refocusing the Company's
strategic direction. While the Company continues to actively examine certain
potential acquisition transactions and believes that attractive opportunities
exist, there can be no assurance whether, when, or on what terms the Company
will complete any such acquisition.
The Company's principal executive offices are in a space maintained by
Barington Capital Group, L.P. ("Barington"), a limited partnership whose general
partner is a corporation of which James Mitarotonda is Chairman, President and
Chief Executive Officer. Barington and an affiliate are members, and Mr.
Mitarotonda is one of the managing members, of BCG Strategic Investors LLC,
which, together with certain affiliates, beneficially owns approximately 38% of
the Company's common stock. Mr. Mitarotonda is also the President and Chief
Executive Officer of the Company. Barington has also made available to the
Company the services of a Barington employee to serve as the Chief Financial
Officer and Secretary of the Company, and began providing the Company with the
assistance of certain other Barington employees, and administrative services
provided by Barington.
-10-
On August 9, 2002, in connection with the review of the Company's
contested solicitation of proxies for the annual shareholders meeting of another
public company, the Company received a letter from the SEC's Division of
Investment Management inquiring as to the possible status of the Company as an
unregistered "investment company" within the meaning of the Investment Company
Act of 1940. The Company believes that, consistent with the discussion of
Investment Company Act matters in its Annual Report on Form 10-K for the year
ended December 31, 2002, the Company may have become an inadvertent investment
company during 2001. The Company has relied on the "transient investment
company" exemption from the applicable provisions of the Investment Company Act
contained in Rule 3a-2 thereunder, which provides for a one-year "safe harbor."
Accordingly, prior to the expiration of such one-year safe harbor
period, on August 29, 2002, the Company acquired ownership of gold bullion with
a purchase price of $4,028,115. The Company borrowed approximately $1.9 million
secured by that gold bullion, which has since been repaid from the proceeds of
the sale of some of the gold bullion. As a result, "investment securities" held
by the Company no longer exceed 40% of its total assets (excluding cash and
government securities), and the Company believes that it is no longer within the
relevant definition of "investment company" for purposes of the Investment
Company Act. Notwithstanding the fact that the Company has purchased gold
bullion, and "investment securities" held by the Company no longer exceed 40% of
its total assets (excluding cash and government securities), the Company could
be deemed to be an investment company under Section 3(a)(1)(A) of the Investment
Company Act, which covers companies that are engaged primarily in the business
of investing, reinvesting or trading in securities.
The Company believes that, at all relevant times prior to the date of
filing this Quarterly Report, it has either not been an investment company as
defined in the Investment Company Act, or it has been a "transient investment
company" exempt from the Investment Company Act. The Company believes that
because of the character of its assets it does not currently fall within the
definition of an investment company.
The Company intends to seek to acquire one or more operating businesses
in the near term, which the Company believes would, among other things,
eliminate any concern that it may be deemed to be primarily engaged in the
business of investing, reinvesting or trading in securities. A determination by
the SEC that the Company is in fact an unregistered investment company could
have a material adverse effect on the Company's business. An unregistered
investment company can be prohibited from, among other things, engaging in
interstate commerce.
The Company's financial statements as of June 30, 2003 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. As of June 30, 2003, the Company had $2,781,629 in cash and cash
equivalents and $1,374,340 in precious metals (see below). Substantially all of
the Company's remaining cash was provided by our initial public offering of
common stock. The Company expects to experience negative cash flows for the
foreseeable future. Based on our current level of operations, the Company
believes that it has sufficient cash and cash equivalents to satisfy its
obligations until March 31, 2004, although it can give no assurance in that
regard. The Company believes these obligations will primarily relate to costs
associated with our operation as a public company, the satisfaction of any legal
judgments or settlements, and expenses related to any new business activities
which may be undertaken. As noted above, the Company continues to pursue the
potential acquisition of other businesses. However, the Company has not
consummated any significant transactions to date and the Company's business
prospects remain uncertain. To the extent that management of the Company moves
forward on any alternative strategy, such strategy may have an impact on the
Company's liquidity.
Results of Operations
---------------------
REVENUE. Revenue principally consisted of interest income, a gain from
the cash distribution made by Liquid Audio, Inc. and the gain on the sale of a
portion of the Company's gold bullion. Interest and dividend income was $8,765
and $16,146, respectively, for the three and six months ending June 30, 2003,
compared to $37,359 and $74,496, respectively, for the three and six months
ended June 30, 2002. The decrease is due to a reduction in the funds invested.
GENERAL AND ADMINISTRATIVE EXPENSES. During the three- and six month
periods ended June 30, 2003, general and administrative expenses primarily
consisted of legal and professional fees and related expenses for accounting and
administrative personnel, as well as other general corporate expenses. General
and administrative expenses were $322,165 and $580,912, respectively, for the
three and six months ended June 30, 2003 compared to $68,469 and $325,137,
respectively, for the three and six months ended June 30, 2002. During the six
month period ended June 30, 2002, general and administrative expenses were
reduced by $289,469 resulting from the reversal of the accrual for rent of the
Company's Wiehle Avenue location that had been vacated in 2001. During June
2002, the Company terminated the lease agreement and paid a termination fee of
$129,431.
-11-
Liquidity and Capital Resources
-------------------------------
Net cash provided in operating activities was $759,243 for the six
months ended June 30, 2003 compared to net cash used of $642,834 for the six
months ended June 30, 2002. During the six months ended June 30, 2003, cash
provided of $759,243 was from the Company's sale of 8,500 ounces of gold bullion
and the receipt of $929,000 for reimbursed legal expenses in the settlement of a
lawsuit. During the six months ended June 30, 2003, the Company repaid an
outstanding liability of $1.9 million that was secured by the gold bullion. In
addition, payment of $190,000 was made in settlement of the Koch Entertainment
lawsuit and $311,868 was paid to settle the Profile Lawsuit.
Cash provided in investing activities was $1,446,932, for the six
months ended June 30, 2003, as compared to cash used of $764,710 for six months
ended June 30, 2002. During the six months ended June 30, 2003, cash provided in
investing activities was from the January 29, 2003 distribution by Liquid Audio,
Inc. of $2.50 per share, of which $1,446,932 represented a return of capital.
At June 30, 2003, the Company had $2,781,629 in cash and cash
equivalents compared to $575,454 at December 31, 2002. Substantially all of the
Company's remaining cash was provided by our initial public offering of Common
Stock in 1999. The Company expects to experience negative cash flows for the
foreseeable future. Based on our current level of operations, we believe that we
have sufficient cash and cash equivalents to satisfy our obligations until March
31, 2004, although we can give no assurances in that regard. The Company
believes these obligations will primarily relate to costs associated with the
operation as a public company (legal, accounting, insurance, etc.), as well as
the satisfaction of any potential legal judgments or settlements and the
expenses associated with any new business activities that may be undertaken by
the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk. Currently substantially all of the Company's
transactions are denominated in U.S. dollars and as a result, foreign exchange
gains and losses to date have been insignificant. While the Company may effect
some transactions in foreign currencies during 2003, it does not expect that any
related gains or losses will be significant. The Company has not engaged in
foreign currency transactions or foreign currency hedging to date.
Item 4. Controls and Procedures
The Company maintains a system of controls and procedures designed to
provide reasonable assurance as to the reliability of the financial statements
and other disclosures included in this report, as well as to safeguard assets
from unauthorized use or disposition. The Company's management, including the
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
as of June 30, 2003, pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e).
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. There have
been no significant changes in internal controls, or in other factors that could
significantly affect internal controls, subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their evaluation.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in a lawsuit arising out of a
licensing agreement with Profile Publishing and Management Corporation ApS. The
plaintiff seeks damages equal to the amount which the plaintiff alleges is the
balance owed by the Company under the agreement. The Court granted the
plaintiff's motion and denied the Company's cross motion. The Company and its
attorneys were both sanctioned by the Court. On April 1, 2003, a civil judgment
was entered into the District Court of New York awarding the plaintiff $326,838.
An amount of $330,000 was accrued for in accounts payable and accrued expenses
at December 31, 2002. After further negotiation, on June 13, 2003, the Company
paid $311,868.01 in final settlement of the case.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits required by Item 601 of Regulation S-K:
31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
B. Reports on Form 8-K:
Current Report on Form 8-K filed on July 7, 2003.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MM COMPANIES, INC.
By: /s/ James A. Mitarotonda
-------------------------------------
James A. Mitarotonda
President and Chief Executive Officer
By: /s/ Mel Brunt
-------------------------------------
Mel Brunt
Chief Financial Officer
Date: August 14, 2003
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