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UNITED STATES
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 September 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 (I.R.S. Employer
of Incorporation) 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 |X| 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 [ ]
Indicate by check |X| whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 11, 2003 3,297,363 shares of the issuer's common stock, par value
$0.01 per share, were outstanding.
Index
Page
----
PART I-- FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets
as of September 30, 2003 (unaudited) and December 31, 2002.....................................3
Statements of Operations (unaudited)
for the three and nine month periods ended
September 30, 2003 and September 30, 2002.......................................................4
Statements of Cash Flows (unaudited)
for the nine month periods ended
September 30, 2003 and September 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
September 30, December 31,
2003 2002
--------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,640,109 $575,454
Precious metals 1,374,340 4,028,115
Prepaid expenses and other current assets 229,885 1,220,756
--------------- ---------------
Total current assets 4,244,334 5,824,325
Investment in partnership 596,021 596,021
Investment in available-for-sale securities 210,403 1,611,874
--------------- ---------------
Total assets $5,050,758 $8,032,220
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $320,247 $1,185,272
Other current liabilities 4,400 1,915,535
--------------- ---------------
Total current liabilities 324,647 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 September
30, 2003 and December 31, 2002, respectively, and
3,289,006 and 3,280,614 shares outstanding at
September 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 209,833 164,372
Accumulated deficit (180,883,636) (180,620,873)
Treasury stock, 69,438 shares at cost (91,533) (91,533)
--------------- ---------------
Total stockholders' equity 4,726,111 4,931,413
--------------- ---------------
Total liabilities and stockholders' equity $5,050,758 $8,032,220
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 3-
MM COMPANIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
--------------------------------- --------------------------------
2003 2002 2003 2002
---------- ---------- ----------- -----------
Revenues
Interest and divided income $ 16,177 $ 24,988 $ 32,324 $ 99,483
Dividend income from cash
distribution - - 190,318 -
Gain on sale of precious metals - - 325,095 -
Gain (loss) on sale of available-
for-sale securities - (18,429) - 43,302
---------- ---------- ----------- -----------
Total revenues 16,177 6,559 547,737 142,785
General and administrative expenses 229,585 (250,416) 810,500 74,721
---------- ---------- ----------- -----------
Net income (loss) available to common
stockholders $(213,408) $256,975 $(262,763) $68,064
========== ========== =========== ===========
Basic and diluted net income (loss)
per common share $(0.06) $0.08 $(0.08) $0.02
========== ========== =========== ===========
Weighted average shares outstanding 3,289,006 3,303,019 3,285,963 3,314,745
========== ========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
- 4 -
MM COMPANIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
--------------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (262,763) $ 68,064
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of available-for-sale securities -- (43,302)
Services received in exchange for stock 12,000 45,212
Changes in operating assets and liabilities:
Precious metals 2,653,775 (4,037,790)
Prepaid expenses and other current assets 990,871 (171,047)
Other assets -- (310,000)
Accounts payable and accrued expenses (865,025) (2,865,729)
Other current liabilities (1,911,135) 1,860,428
----------- -----------
Net cash provided by (used in) operating activities 617,723 (5,454,164)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from return of investment 1,446,932 --
Investment in partnership -- (596,186)
Proceeds from sale of available-for-sale securities -- 601,483
Purchase of available-for-sale securities -- (446,494)
----------- -----------
Net cash provided by (used in) investing activities 1,446,932 (441,197)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities,
repurchases of stock -- (93,852)
Net increase (decrease) in cash and cash equivalents 2,064,655 (5,989,213)
Cash and cash equivalents at beginning of period 575,454 7,596,588
----------- -----------
Cash and cash equivalents at end of period $ 2,640,109 $ 1,607,375
=========== ===========
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 September 30, 2003 and for
the three-month and nine-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 September 30, 2003, the Company had $2,640,109 in cash and cash
equivalents and $1,374,340 in precious metals (see note 3) compared to
$4,603,569, in aggregate at December 31, 2002. The Company expects to experience
negative cash flows for the foreseeable future. Based on its current level of
operations, the Company believes that it has sufficient cash and cash
equivalents to satisfy its obligations, 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 September 30, 2003 and for the
three-month and nine-month periods ended September 30, 2003 and 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 nine-month periods ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the 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 holding 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 September 30, 2003 and December 31, 2002, the Company had
available-for-sale securities with a fair market value of $210,403 and
$1,611,874, respectively, and a cost basis of approximately $570 and $1,447,502,
respectively. The gross unrealized gains as of September 30, 2003 and December
31, 2002 of $209,833 and $164,372 have been recorded as a separate component of
stockholders' equity as accumulated other comprehensive income.
As of September 30, 2003 and December 31, 2002, the Company held the
following equity positions:
September 30, 2003 December 31, 2002
------------------ -----------------
Dynabazzar Inc., formerly known as Fairmarket, Inc.
(NASDAQ: FAIM) 500 shares 500 shares
Liquid Audio, Inc. (OTCBB: LQID) 654,900 shares 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 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.
- 7 -
Other Comprehensive Income (Loss)
The Company separately reports net income (loss) and comprehensive
income (loss) pursuant to SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income (loss) includes net income (loss) and other comprehensive
income (loss). Other comprehensive income (loss) includes accumulated unrealized
gain (loss) on investment in available-for-sale securities. The components of
comprehensive income (loss) are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ --------------------------------
2003 2002 2003 2002
------------- ------------ -------------- --------------
Comprehensive income (loss):
Net income (loss)........................ $ (213,408) $256,975 $ (262,763) $ 68,064
Unrealized gain (loss) on investment in
available-for-sale securities............ (22,927) 89,347 45,461 144,200
---------- -------- ---------- --------
Total Comprehensive income (loss) $ (236,335) $346,322 $ 217,302 $212,264
========== ======== ========== ========
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 September 30, 2003, were excluded in the
computation of diluted earning per share for the three-month and nine-month
periods ended September 30, 2003 because the options' exercise price was greater
than the average market price of the Company's common stock. Since the effects
of the outstanding options and warrants are anti-dilutive in the respective
periods, it has 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 implementation of this standard is not expected to have a
material impact on the Company's financial position, results of operations or
cash flows.
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 provisions of SFAS No. 150 are effective beginning July 1,
2003. The adoption of SFAS No. 150 is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.
3. PRECIOUS METAL
In the nine months ending September 30, 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 its outstanding liability,
which was secured by the gold bullion as of December 31, 2002. As of September
30, 2003, the Company still has 4,400 ounces of gold bullion with a cost basis
of $1,374,340.
- 8 -
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at September 30, 2003 and
December 31, 2002, were $229,885 and $1,220,756. The balance as of September 30,
2003 is comprised of $229,885 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 related to Liquid Audio, Inc.
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 Dynabazzar Inc., formerly known as Fairmarket, Inc. ("Dynabazzar")
(NASDAQ: FAIM) (such amount representing approximately 12.0% of Dynabazzar'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 Dynabazzar's outstanding common stock). This
represents the Company's investment of $596,021 in JHC Investment Partners, LLC
for the purchase of 627,390 shares of Dynabazzar common stock. JHC Investment
Partners, LLC is the entity created to purchase 3,485,500 shares of Dynabazzar
common stock. 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, Dynabazzar appointed Joseph Wright, Jr., to
Dynabazzar's Board of Directors. Mr. Wright is also a director of the Company.
Mr. Wright was appointed to the Board of Dynabazzar pursuant to an agreement
that Dynabazzar 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
Dynabazzar common stock prior to January 22, 2005. In addition, James
Mitarotonda, President and Chief Executive Officer of the Company, was granted
observer status to Dynabazzar's Board.
On October 10, 2003 Dynabazzar declared a dividend of $1.30 per share
to holders of record on October 20, 2003. The dividend is payable on November 3,
2003. The Company will receive approximately $815,000 from the cash
distribution, of which a portion will be a return of it's investment in JHC
Investment Partners LLC and the balance will be recorded as dividend income. The
Company, through its investment in JHC Investment Partners LLC still owns
627,390 shares of Dynabazzar, of which such shares have been trading in a range
of $.40 - $.50 subsequent to the cash dividend.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of September 30, 2003 and
December 31, 2002 are comprised of the following:
September 30, December 31,
2003 2002
--------------------- --------------------
Accounts payable $231,656 $ 534,605
Professional fees 7,768 50,543
License and royalty fees 27,507 520,000
Other 53,316 80,124
--------------------- --------------------
$320,247 $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. 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.
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 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.
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 is 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.
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."
- 10 -
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 of September 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 cost of
business. As of September 30, 2003, the Company had $2,640,109 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, 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. Total revenue was $16,177 and $547,737
for the three and nine months ending September 30, 2003, compared to $6,559 and
$142,785 for the three and nine months ended September 30, 2002. For the nine
months ended September 30, 2003, the Company recorded a gain on the sale of a
portion of the gold bullion in the amount of $325,095.
GENERAL AND ADMINISTRATIVE EXPENSES. During the nine month period ended
September 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 was $229,585 and $810,500 for the three and nine
months ended September 30, 2003 compared to $(250,416) and $74,721 for the three
and nine months ended September 30, 2002. During the nine month period ended
September 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 by operating activities was $617,723 for the nine
months ended September 30, 2003 compared to net cash used of $5,454,164 for the
nine months ended September 30, 2002. During the nine months ended September 30,
2003, cash provided of $617,723 was primarily 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 stockholder derivative action. During the nine months
ended September 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 by investing activities was $1,446,932 for the nine
months ended September 30, 2003, as compared to cash used of $441,197 for nine
months ended September 30, 2002. The total amount of cash provided in investment
activities during the nine months ended September 30, 2003 was from the January
29, 2003 distribution by Liquid Audio, Inc. to its shareholders of $2.50 per
share, all of which represented a return of capital.
At September 30, 2003, the Company had $2,640,109 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, 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 September 30, 2003, pursuant to Exchange Act Rule 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
None.
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
The following two proposals were submitted to and approved by the
Company's stockholders at the annual meeting of stockholders held on July 30,
2003:
1. To elect Seymour Holtzman, James Mitarotonda, Jesse Choper, William J. Fox
and Joseph Wright, Jr. to serve as members of the Company's Board of Directors.
The shareholders voted in favor of each of the nominees as follows: 1,963,975
shares voted for Seymour Holtzman and 6,395 shares withheld from voting;
1,964,037 shares voted for James Mitarotonda and 6,333 shares withheld from
voting; 1,963,937 shares voted for Jesse Choper and 6,433 shares withheld from
voting; 1,963,937 shares voted for William J. Fox and 6,433 shares withheld from
voting; and 1,964,037 shares voted for Joseph Wright, Jr. and 6,333 shares
withheld from voting.
2. To ratify the selection of Rothstein, Kass & Company, P.C. as the Company's
independent accountants for the fiscal year ending December 31, 2003. This
proposal was approved: 1,967,045 shares voted in favor of the proposal, 2,485
shares voted against the proposal and 840 shares abstained.
Item 5. Other Information
None.
Item 6. Exhibit 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 22, 2003.
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SIGNATURES
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: November 14, 2003
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