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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[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 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
Securities registered pursuant to Section 12(b) of the Securities Act: None.
Securities registered pursuant to Section 12(g) of the Securities Act: Common
stock, par value $.01 per value.
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
[X] 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2): Yes [ ] No [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $ 5,044,965 as of March 24, 2004, based upon the
closing price of such equity as of such date.
As of March 24, 2004, 3,297,363 shares of the issuer's common stock were
outstanding.
MM COMPANIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
PART I PAGE
Item 1. Business..............................................................................................3
Item 2. Properties............................................................................................5
Item 3. Legal Proceedings.....................................................................................5
Item 4. Submission of Matters to a Vote of Security Holders...................................................5
Item 5. Market For Registrant's Common Equity, Related Stockholder Matters....................................5
Item 6. Selected Financial Data...............................................................................6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................7
Item 8. Financial Statements and Supplementary Data..........................................................12
Item 9 Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.................27
Item 9A. Controls and Procedures..............................................................................32
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................36
Item 11. Executive Compensation..............................................................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.....................................................................41
Item 13 Certain Relationships and Related Transactions......................................................41
Item 14 Principal Accountant Fees and Services..............................................................42
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................46
-2-
PART I
Note Regarding Forward-Looking Information
The statements contained in this Annual 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 Annual Report to conform them to actual results or
to changes in our expectations.
ITEM 1. Business.
The Company was formed in Delaware on April 23, 1996. On January 3,
2001, the Board of Directors of MM Companies, Inc., f/k/a musicmaker.com,
Inc. (as used herein, the "Company" or "we"), 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.
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.
On February 25, 2002 the Board of Directors authorized a stock
repurchase program for up to 500,000 shares of the Company's common stock.
Shares of common stock are expected to be purchased from time to time in open
market transactions and privately negotiated transactions, subject to
availability and price, prevailing market and business conditions and regulatory
compliance.
On June 11, 2002, we changed our name from musicmaker.com, Inc. to MM
Companies, Inc.
The Company's financial statements as of December 31, 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. At December 31, 2003, the Company had $3,811,826 in cash and cash
equivalents and $687,170 in precious metals (see below) compared to $575,454 and
$4,028,115, respectively, 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. The Company has not yet settled on an operating plan, and
can give no assurance that the Company's existing cash and cash equivalents are
sufficient to fund the Company's current operations and satisfy its obligations.
The Company believes these obligations will primarily relate to costs associated
with our operation as a public company (legal, accounting, insurance, etc.), and
expenses related to any new business activities which may be undertaken by the
Company. 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.
-3-
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, 2001, 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 for a
purchase price of $4,028,115. As of December 31, 2002, the Company borrowed
approximately $1.9 million secured by that gold bullion, which was included in
other current liabilities on the Company's balance sheet, which has since been
repaid. As a result of such acquisition, "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 purchased such gold bullion and
therefore "investment securities" held by the Company no longer exceed 40% of
its total assets (excluding cash and government securities), the Company could
be deemed 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. As of December 31, 2003 the
Company has reduced its gold position to $687,170.
The Company believes that, at all relevant times prior to the date of
filing of this annual report, either it has not been an investment company as
defined by 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 is seeking 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.
As of December 31, 2003, the Company had no employees other than its
President and Chief Executive Officer, and its Chief Financial Officer.
During the period August 2001 to March 2002, the Company, along with
certain other entities (the "Reporting Entities"), purchased 1,448,535 shares of
L Q Corporation, Inc. (f/k/a Liquid Audio, Inc.) ("L Q") at a cost of
approximately $2.20 per share, representing an approximately 6.9% ownership of L
Q. On February 22, 2002, the Reporting Entities offered to acquire L Q for $2.50
per share in cash, which was ultimately rejected by L Q's management. On May 3,
2002, the Company, on behalf of the Reporting Entities, filed a lawsuit against
L Q in Delaware Chancery Court. The suit alleged that L Q had failed to hold a
timely annual meeting. On May 14, 2002, L Q announced that it had scheduled its
2002 annual meeting for July 1, 2002. The Company notified L Q of its intention
to nominate Seymour Holtzman and James Mitarotonda as Class III directors.
L Q thereafter announced that it agreed to enter into a reverse merger
with Alliance Entertainment Corp. and in addition it would conduct a self tender
offer for up to 10 million shares of its common stock for $3.00 per share. On
July 16, 2002, the Company wrote to L Q expressing its opposition to the
proposed transactions. As an alternative the Company proposed that L Q
distribute $3.00 per share to all L Q shareholders.
At the September 26, 2002, Annual Shareholders Meeting of L Q, the
Company's nominees were elected to the Board. Subsequently, the CEO resigned and
L Q terminated its merger agreement with Alliance Entertainment and suspended
its self tender offer. On January 24, 2003, L Q announced that it had sold its
digital music fulfillment business to Anderson Merchandisers for $3.2 million.
On January 29, 2003, L Q distributed $2.50 per share, in cash, to all of its
shareholders. The Company understands that L Q is currently exploring options
for the disposition and/or use of its remaining assets.
-4-
ITEM 2. PROPERTIES.
Our headquarters are located in New York City, in an office maintained
by Barington Capital Group, L.P., an entity which along with certain entities
and individuals owns approximately 40% of the Company's common stock.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS.
Market Price of our Common Stock.
The Company's common stock is traded on the over-the-counter bulletin
board ("OTC-BB") under the symbol "MMCO."
At March 24, 2004 the Company had 3,297,363 shares of common stock
outstanding, held by 55 shareholders of record. This does not reflect persons or
entities that held their stock in nominee or "street" name. The following table
sets forth the high and low bid quotations per share as reported by the OTC-BB
for the periods stated. The quotations set forth below reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
2002 Quarterly Period High Bid Low Bid
- --------------------- -------- -------
First Quarter $2.03 $1.40
Second Quarter $2.03 $1.30
Third Quarter $1.65 $1.18
Fourth Quarter $1.60 $1.31
2003 Quarterly Period High Bid Low Bid
- --------------------- -------- -------
First Quarter $ 1.50 $ 1.35
Second Quarter $ 1.47 $ 1.33
Third Quarter $ 1.40 $ 1.26
Fourth Quarter $ 1.33 $ 1.25
On March 25, 2004, the last sale price of our common stock on the
OTC-BB was $1.51 per share.
Recent Sales of Unregistered Shares.
None.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction
with the financial statements and the related notes thereto and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Annual Report on Form 10-K. The
statement of operations data for the years ended December 31, 2003, 2002 and
2001 and the balance sheet data at December 31, 2003 and 2002 are derived from
the financial statements of the Company that are included elsewhere in this
Annual Report. The statement of operations data for the years ended December 31,
2000 and 1999 and the balance sheet data at December 31, 2000 and 1999 are
derived from the Company's 2000 Annual Report on Form 10-K. The results of
operations of prior periods are not necessarily indicative of results that may
be expected for any other period.
-5-
Statement of Operations Data
Year ended December 31,
------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------
Net sales $ -- $ -- $ 3,201,412 $ 5,583,505 $ 1,043,841
Cost of sales -- -- 1,925,333 11,045,929 2,314,210
------------------------------------------------------------------------------------
Gross margin -- -- 1,276,079 (5,462,424) (1,270,369)
Operating expenses:
Sales and marketing -- -- (647,685) 16,093,084 7,682,436
Operating and development -- -- 85,444 2,595,802 1,596,505
General and administrative 877,325 (74,521) 8,005,124 10,658,425 5,213,998
Depreciation and amortization -- -- 2,976,630 102,038,806 12,081,971
Reorganization -- -- 2,087,746 774,573 --
Loss on investment -- -- -- 1,200,000 --
------------------------------------------------------------------------------------
Total operating expenses 877,325 (74,521) 12,507,259 133,360,690 26,574,910
------------------------------------------------------------------------------------
Profit (loss) from operations (877,325) 74,521 (11,231,180) (138,823,114) (27,845,279)
Net interest and dividend income 238,943 105,907 528,116 2,313,009 1,150,550
Other income 903,253 42,691 27,898 - -
------------------------------------------------------------------------------------
Net profit (loss) before extraordinary
item 264,871 $ 223,119 (10,675,166) (136,510,105) (26,694,729)
Gain on extinguishment of debt 151,429 - -
------------------------------------------------------------------------------------
Net profit (loss) 264,871 223,119 $(10,523,737) $(136,510,105) $(26,694,729)
====================================================================================
Net profit (loss) before
extraordinary item per share $ 0.08 $ 0.07 $ (3.22) $ (41.22) $ (13.45)
Gain on extinguishment of debt
per share -- -- 0.04 -- --
====================================================================================
Basic and diluted net profit (loss) $ 0.08 $ 0.07 $ (3.18) $ (41.22) $ (13.45)
per share
====================================================================================
Weighted average shares outstanding 3,286,730 3,305,073 3,314,042 3,311,719 2,038,989
====================================================================================
Balance Sheet Data
At December 31,
---------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------
Cash and cash equivalents 3,811,826 $ 575,454 $7,596,588 $26,451,805 $ 58,290,808
Precious metals 687,170 4,028,115 -- -- --
Working capital 4,681,955 2,723,518 4,350,455 20,790,395 56,295,669
Total assets 5,308,394(1) 8,032,220 9,460,059 33,541,049 165,400,220
Debt, long-term portion - - - 128,572 171,429
Total stockholders' equity (deficit) 5,233,428 4,931,413 4,695,044 24,959,608 161,244,771
- ----------
(1) The decline in total assets in 2003 of $2.7 million from 2002 was
primarily due to the repayment of $1.9 million previously borrowed to
fund the lease termination settlement with respect to our previously
leased premises in Reston, Virginia. Additionally, we paid
approximately $500,000 to settle certain litigation with Koch
Entertainment and the Profile Publishing.
-6-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements contained in Item 8 of this Form 10-K.
Results of Operations
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
NET SALES. The Company's net sales were zero for the years ended
December 31, 2003 and 2002. This is attributable to the Company's cessation of
its Internet-based custom CD marketing business while the Board continues to
pursue the potential acquisition of other businesses.
COST OF SALES. Cost of sales was zero for the years ended December 31,
2003 and 2002. This is attributable to the Company's cessation of its
Internet-based custom CD marketing business while the Board continues to pursue
the potential acquisition of other businesses.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were zero
for the years ended December 31, 2003 and 2002. This is attributable to the
Company's cessation of its Internet-based custom CD marketing business while the
Board continues to pursue the potential acquisition of other businesses.
OPERATING AND DEVELOPMENT EXPENSES. Operating and development expenses
were zero for the years ended December 31, 2003 and 2002. This is attributable
to the Company's cessation of its Internet-based custom CD marketing business
while the Board continues to pursue the potential acquisition of other
businesses.
GENERAL AND ADMINISTRATIVE EXPENSES. During the twelve month period
ended December 31, 2003 general and administration 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 $877,325 for the year ended December 31, 2003,
compared to $(74,521) for the year ended December 31, 2002. General and
administrative expenses for the year ended December 31, 2002 were $(74,521)
caused by the reversal of accruals made in previous accounting periods in the
amount of $1,639,472. Of this amount, $289,469 was attributable to the lease
termination for the Company's Wiehle Avenue location and $294,804 was
attributable to the lease termination for the Company's office and production
facility at Parkridge Boulevard in Reston, Virginia. The remaining $1,055,199
was due to the reversal of previously accrued accounts payable and general
liabilities.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was zero for the years ended December 31, 2003 and 2002. This is
attributable to the Company's cessation of its Internet-based custom CD
marketing business while the Board continues to pursue the potential acquisition
of other businesses.
REORGANIZATION COSTS. Reorganization costs were zero for the years
ended December 31, 2003 and 2002. This is attributable to the Company's
cessation of its Internet-based custom CD marketing business while the Board
continues to pursue the potential acquisition of other businesses. The Company
does not expect to incur any significant additional reorganization costs in the
foreseeable future.
INTEREST AND DIVIDEND INCOME. Interest and dividend income was $238,943
for the year ended December 31, 2003, compared to $105,907 for the year ended
December 31, 2002. The decline in interest income reflects the general decline
in interest rates. Dividend income included $190,318 in 2003 related to the cash
distribution from the Company's investment in LQ Corporation Inc.
OTHER INCOME. Other income was $903,253 for the year ended December 31,
2003, compared to $42,691 for the year ended December 31, 2002. Other income in
2003 consisted of realized gains on the sale of gold bullion of $236,000, a gain
relating to the cash distribution from the Company's investment in a limited
liability company holding shares of common stock of Dynabazaar Inc. of $220,000
and a recovery of a note receivable settlement of $250,000.
-7-
STOCK SPLIT. On June 11, 2002, the Company's Board of Directors and a
majority of the stockholders authorized a one for one hundred reverse stock
split followed by a one hundred for one forward stock split. On July 12, 2002,
the Company commenced effecting the approved reverse/forward split. Fractional
shares were purchased by the Company at $1.35 per share. As of December 31,
2003, we have purchased 69,438 shares.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
NET SALES. Net sales include the selling price of products sold by the
Company, net of returns, as well as sales promotions and discounts. The
Company's net sales were zero for the year ended December 31, 2002, compared to
$3,201,412 for the year ended December 31, 2001. This decrease is attributable
to the Company's cessation of its Internet-based custom CD marketing business
while the Board continues to pursue the potential acquisition of other
businesses.
COST OF SALES. Cost of sales principally consists of content acquisition
costs, production and shipping costs, and credit card receipt processing costs.
Content acquisition costs include royalty advances that were paid upon signing
of royalty agreements with independent music labels and royalty charges that
were assessed on a per music track usage basis. Production costs include jewel
cases, CD trays and CD inserts. Cost of sales was zero for year ended December
31, 2002, compared to $1,925,333 for year ended December 31, 2001.
SALES AND MARKETING EXPENSES. Sales and Marketing expenses were zero
for the year ended December 31, 2002, as compared to $ (647,865) for the year
ended December 31, 2001. The decrease is attributable to the Company's cessation
of its internet-based custom CD marketing business while the Board continues to
pursue the potential acquisition of other businesses. The negative sales and
marketing expenses included in the year ended December 31, 2001 are due to the
reversal of sales and marketing expenses which had been previously accrued as an
expense by the Company.
OPERATING AND DEVELOPMENT EXPENSES. Operating and development expenses
were zero for the year ended December 31, 2002, as compared to $85,444 for the
year ended December 31, 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses primarily consist of legal and professional fees, payroll costs and
related expenses for accounting and administrative personnel, and other expenses
associated with general and corporate functions. Also included in general and
administrative expenses are expenses associated with the issuance of warrants to
various consultants. For the year ended December 31, 2002, general and
administrative expenses were $(74,521) compared to $8,005,124 for the year ended
December 31, 2001. Expenses were reduced to $(74,521) by the reversal of
accruals made in previous accounting periods in the amount of $1,639,472. Of
this amount, $289,469 is attributable to the lease termination for the Company's
Wiehle Avenue location and $294,804 is attributable to the lease termination for
the Company's office and production facility of Parkridge Boulevard in Restom,
Virginia. The remaining $1,055,199 is due to the reversal of previously accrued
accounts payable and general liabilities. General and administrative expense for
the year ended December 31, 2001 included $3,237,302 in rent accruals, a
$104,000 accrual for future payments under certain licensing agreements, legal
and other professional fees of $907,253, and $600,000 in insurance premiums.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses were zero for the year ended December 31, 2002, as compared to
$2,976,630 for the year ended December 31, 2001. Depreciation decreased as a
result of the sale of all of the Company's remaining equipment and furniture
during the second quarter of 2001.
REORGANIZATION COSTS, Reorganization costs were zero for the year
ending December 31, 2002, compared to $2,087,745 for the year ending December
31, 2001. The reorganization costs incurred in 2001 were a result of the Company
suspending its website and terminating its workforce with the exception of the
president and chief executive officer, and chief financial officer. The Company
paid severance payments to its terminated employees in varying amounts based on
the length of service to the Company. The Company does not expect to incur any
significant additional reorganization costs in the foreseeable future.
-8-
INTEREST INCOME AND EXPENSE. Interest income was $105,907 for the year
ended December 31, 2002, compared to $528,116 for the year ended December 31,
2001. The decline in interest income reflects the decline in cash balances
available for investment.
OTHER INCOME. Other income was $42,691 for the year ending December 31,
2002, compared to $27,898 for the year ending December 31, 2001. Other income
was derived from the sale of the Company's remaining furniture and equipment.
EXTRAORDINARY GAIN. In May 2001, the Company settled its obligation of
$171,429 to the Music Maker Relief Fund for $20,000 and recorded an
extraordinary gain on the early extinguishments of debt of $151,429.
Extraordinary gain in 2002 was zero.
Critical Accounting Policies
The SEC has 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
those accounting policies considered most critical. FRR 60 considers an
accounting policy to be critical if it is important to the Company's financial
condition and results, and requires significant judgment and estimates on the
part of management in its application. The Company believes the following
represent the critical accounting policies of the Company as contemplated by FRR
60 based on our current state of operations. For a summary of all of the
Company's significant accounting policies, including the critical accounting
policies discussed below, see Note 2 to the accompanying consolidated financial
statements based on the Company's current activities.
Investments in Available-for-Sale Securities
The Company purchased marketable equity securities, which it has
classified, for accounting purposes, as available-for-sale 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
accumulated other comprehensive income. The fair market value of
available-for-sale securities is based on quoted market prices from nationally
recognized exchanges. The Company also assesses whether any impairment of the
fair value of an available-for-sale security below its cost basis is other than
temporary and might require a write down through earnings.
Operating Lease Accruals
The Company has vacated possession of its premises subject to operating
leases. This should be read in conjunction with the statements contained in Item
2, Part 1, of this Form 10-K.
Liquidity and Capital Resources
Net Cash provided by operating activities was $982,832 for the year
ended December 31, 2003. The cash provided resulted from the Company's sale of
gold bullion of $3,340,945 and a reduction in prepaid expenses and other current
assets of $1,058,483, offset by a reduction in accounts payable and accrued
expenses of $963,165 and other current liabilities of $904,500. Cash provided by
investing activities was from the liquidation of an investment in a limited
liability company (JHC Investment Partners LLC) created to purchase shares in
Dynabazaar, Inc. (f/k/a Fairmarket, Inc.) ("Dynabazaar") of $806,608 and the
distribution from L Q of which $1,446,932 was recorded as a return on
investment.
On February 25, 2002, the Board of Directors authorized a stock
repurchase program for up to 500,000 shares of the Company's common stock.
Shares of common stock are expected to be purchased from time to time in open
market transactions and privately negotiated transactions, subject to
availability and price, prevailing market and business conditions, and
regulatory compliance.
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 Dynabazaar Inc. (NASDAQ: FAIM) (such amount representing approximately
12.0% of Dynabazaar'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 Dynabazaar's outstanding
common stock). The Reporting Entities include, in addition to the Company,
Barington Companies Equity Partners, L.P., an affiliate of Barington Capital
Group, L.P., 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.
-9-
On May 8, 2002, Dynabazaar appointed Joseph Wright, Jr., to
Dynabazaar's Board of Directors. Mr. Wright is also a director of the Company.
Mr. Wright was appointed to the Board of Dynabazaar pursuant to an agreement
that Dynabazaar entered into with the Reporting Entities. The agreement provides
that the Reporting Entities will not proceed with their proposed proxy contest
and limits actions that the group may take prior to January 22, 2005 with
respect to their ownership of Dynabazaar common stock. In addition, James
Mitarotonda, President and Chief Executive Officer of MM Companies, Inc., was
granted observer status to Dynabazaar's Board.
In November 2003, Dynabazaar distributed $1.30 per share in cash to all
of its shareholders. Upon the dissolution of JHC Investment Partners LLC (the
entity created to purchase stock in Dynabazaar), the Company received cash of
$806,608 and 627,390 shares of Dynabazaar common stock, and recorded a gain on
investment in partnership of $417,626.
At December 31, 2003, the Company had $3,811,826 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. The Company has not yet settled on an operating plan, and
can give no assurance that the Company's existing cash and cash equivalents are
sufficient to fund the Company's current operations and satisfy its obligations.
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 expenses associated with any new business activities which may be
undertaken by the Company.
To the extent that management of the Company moves forward on its
alternative strategies, such strategies may have a significant impact on our
liquidity.
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, 2001, 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 for a
purchase price of $4,028,115. As of December 31, 2002, the Company borrowed
approximately $1.9 million secured by that gold bullion, which was included in
other current liabilities on the Company's balance sheet and has since been
repaid. As of December 31, 2003 the Company has reduced its gold position to
$687,170. As a result of such acquisition, "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 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 of this Annual Report, either it has 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.
-10-
The Company is seeking 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.
Factors That May Affect Our Business,
Financial Condition and Results of Operations
Our common stock has been delisted from the Nasdaq and is currently subject to
"penny stock" rules.
Since our common stock is not listed on a national securities exchange
or listed on a qualified automated quotation system, and does not qualify for
any available exceptions, it is subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and "accredited
investors." (Accredited investors are, generally, individuals with a net worth
in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000
together with their spouses.)
For transactions covered by Rule 15g-9, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock. Consequently, such Rule may affect the ability of broker-dealers to
sell the Company's securities and may affect the ability of purchasers to sell
any of the Company's securities in the secondary market.
Concentration of stock ownership may delay or prevent a change of control.
Our directors, executive officers and principal stockholders and their
affiliates own a significant percentage of our outstanding common stock. As a
result, these stockholders may have the ability to influence the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company.
Certain alternatives being considered by the Board, if they occur, could have a
substantially dilutive effect on your investment.
The Company's Board of Directors has determined to seek to pursue one
or more potential acquisitions. See Item 1, "Business." Such acquisitions could
involve the issuance of additional equity in the Company or a future business
combination involving the Company. Depending on the terms of any such event, you
could experience a substantially dilutive effect on your investment.
Our stockholders may have difficulty in recovering monetary damages from
directors.
Our certificate of incorporation contains a provision, which eliminates
personal liability of our directors for monetary damages to be paid to us and
our stockholders for some breaches of fiduciary duties. As a result of this
provision, our stockholders may be unable to recover monetary damages against
our directors for their actions that constitute breaches of fiduciary duties,
negligence or gross negligence. Inclusion of this provision in our certificate
of incorporation may also reduce the likelihood of derivative litigation against
our directors and may discourage lawsuits against our directors for breach of
their duty of care even though some stockholder claims might have been
successful and benefited stockholders.
We may be deemed to be an investment company and subjected to related
restrictions
The regulatory scope of the federal Investment Company Act, which was
enacted principally for the purpose of regulating vehicles for pooled
investments in securities, extends generally to companies engaged primarily in
the business of investing, reinvesting, owning, holding or trading in
securities. The Investment Company Act may, however, also be deemed to be
applicable to companies which do not intend to be characterized as an investment
company but which, nevertheless, may be deemed to be within the definitional
scope of certain provisions of the Investment Company Act. We do not intend and
do not consider the Company to be an investment company and our anticipated
activities going forward are expected to involve acquiring one or more related
or other businesses. If we were deemed to be an investment company, our
activities would be restricted, including restrictions on the nature of our
investments and the issuance or repurchase of securities. We might also be
required to register under the Investment Company Act and file reports, or adopt
corporate governance rules including significant reporting, record keeping,
voting, proxy, disclosure and other rules and regulations. In the event we were
deemed to be an investment company, our failure to satisfy such regulatory
requirements have a material adverse effect on us.
-11-
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The majority of our sales and expenses 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, it does not expect that any related gains or losses will be
significant. The Company has not engaged in foreign currency hedging to date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements Page
Report of Independent Auditors...................................................................................13
Balance Sheets
As of December 31, 2003 and 2002........................................................................15
Statements of Operations
For the years ended December 31, 2003, 2002 and 2001....................................................16
Statements of Stockholders' Equity
For the years ended December 31, 2003, 2002 and 2001....................................................17
Statements of Cash Flows
For the years ended December 31, 2003, 2002 and 2001....................................................18
Notes to Financial Statements....................................................................................19
-12-
Report of Independent Auditors
Board of Directors and Stockholders MM Companies, Inc.
We have audited the accompanying balance sheets of MM Companies, Inc.
(the "Company"), as of December 31, 2003 and 2002, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MM Companies, Inc.
as of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1, certain
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note 1. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 5, 2004
-13-
Report of Independent Auditors
Board of Directors and Stockholders Musicmaker.com, Inc.
We have audited the accompanying statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 2001. Our
audit also included the financial statement schedule for the year ended December
31, 2001 listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations of Musicmaker.com,
Inc and its cash flows for the year ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying financial statements and schedule have been prepared
assuming that Musicmaker.com, Inc. will continue as a going concern. As
described more fully in Note 1, on January 3, 2001, Musicmaker.com, Inc. ceased
operation of its Internet-based custom compact disc marketing business and has
no current substantive business operations. The Board of Directors continues to
review alternatives for the Company, but has not consummated any significant
transactions to date. As a result, the Company's business prospects remain
uncertain. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements and schedule do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
McLean, Virginia
January 26, 2002
-14-
MM COMPANIES, INC.
Balance Sheets
December 31,
--------------------------------------
2003 2002
--------------------------------------
Assets
Current assets:
Cash and cash equivalents........................................... $ 3,811,826 $ 575,454
Precious metals..................................................... 687,170 4,028,115
Note receivable, current portion.................................... 95,652 --
Prepaid expenses and other current assets........................... 162,273 1,220,756
--------------------------------------
Total current assets................................................... 4,756,921 5,824,325
Note receivable, less current portion.................................. 154,348 --
Investments in partnership............................................. -- 596,021
Investments in available-for-sale securities........................... 397,125 1,611,874
--------------------------------------
Total assets........................................................... $ 5,308,394 $ 8,032,220
======================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses............................... $ 74,966 $ 1,185,272
Other current liabilities........................................... -- 1,915,535
--------------------------------------
Total current liabilities.............................................. 74,966 3,100,807
--------------------------------------
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
3,358,444 and 3,350,052 shares issued at December 31, 2003 and
2002, respectively, and 3,289,006 and 3,280,614 shares
outstanding at December 31, 2003 and 2002, respectively........... 33,585 33,501
Additional paid-in capital.......................................... 185,457,862 185,445,946
Accumulated other comprehensive income.............................. 189,516 164,372
Accumulated deficit................................................. (180,356,002) (180,620,873)
Treasury stock, 69,438 shares, at cost.............................. (91,533) (91,533)
--------------------------------------
Total stockholders' equity.......................................... 5,233,428 4,931,413
--------------------------------------
Total liabilities and stockholders' equity............................. $ 5,308,394 $ 8,032,220
======================================
See accompanying notes to these financial statements.
-15-
MM COMPANIES, INC.
Statements of Operations
Year Ended December 31,
-----------------------------------------------------------
2003 2002 2001
-----------------------------------------------------------
Net sales................................... $ -- $ -- $ 3,201,412
Cost of sales:
Product............................... -- -- 1,911,686
Content............................... -- -- 13,647
-----------------------------------------------------------
Gross margin................................ -- -- 1,276,079
Operating expenses:
Sales and marketing...................... -- -- (647,685)
Operating and development................ -- -- 85,444
General and administrative............... 877,325 (74,521) 8,005,124
Depreciation ............................ -- -- 2,976,630
Reorganization........................... -- -- 2,087,746
-----------------------------------------------------------
877,325 (74,521) 12,507,259
-----------------------------------------------------------
Income (loss) from operations............... (877,325) 74,521 (11,231,180)
Other:
Interest and dividend income............ 238,943 105,907 528,116
Gain on sale of precious metals 235,628 -- --
Gain on investment in partnership 417,625 -- --
Recovery of note receivable settlement 250,000 -- --
Gain (loss) on sale of available-for-sale
securities -- 42,691 --
Other income -- -- 27,898
-----------------------------------------------------------
Total other 1,142,196 148,598 556,014
-----------------------------------------------------------
Net income ( loss ) before extraordinary item 264,871 223,119 (10,675,166)
Gain on extinguishment of debt.............. -- -- 151,429
------------------------------------------------------------
Net income ( loss) available to common stockholders $ 264,871 $ 223,119 $ (10,523,737)
===========================================================
Basic and diluted net income (loss) before
extraordinary item per common share $ .08 $ .07 $ (3.22)
===========================================================
Basic and diluted gain on extinguishment of debt
per common share........................ $ -- $ -- $ 0.04
===========================================================
Basic and diluted net income (loss) per common
share $ .08 $ .07 $ (3.18)
===========================================================
Weighted average shares outstanding......... 3,286,730 3,305,073 3,314,042
===========================================================
See accompanying notes to these financial statements.
-16-
MM COMPANIES, INC.
Statements of Stockholders' Equity
Accumulated
Common Stock Additional Other
---------------------- Paid-In Comprehensive Accumulated Treasury
Shares Amount Capital Income Deficit Stock Total
----------- ---------- --------------- ------------- ---------------- ----------- -------------
Balance at December 31, 2000 3,314,042 $33,140 $195,246,723 $ -- $(170,320,255) $ -- $ 24,959,608
Distribution to shareholders.... (9,941,988) (9,941,988)
Amortization compensatory stock
options....................... 4,572 4,572
Refund on excess distribution .. 82,500 82,500
Unrealized holding gain on
available-for-sale securities. 114,089 114,089
Net loss........................ (10,523,737) (10,523,737)
----------- ---------- --------------- ------------- ---------------- ----------- -------------
Balance at December 31, 2001..... 3,314,042 33,140 185,391,807 114,089 (180,843,992) 4,695,044
Common stock, issued to
outside directors............. 36,010 361 54,139 54,500
Purchase of treasury stock (91,533) (91,533)
Unrealized holding gain on
available-for-sale securities... 50,283 50,283
Net income....................... 223,119 223,119
----------- ---------- --------------- ------------- ---------------- ----------- -------------
Balance at December 31, 2002..... 3,350,052 33,501 185,445,946 164,372 (180,620,873) (91,533) 4,931,413
Common stock issued to outside
directors........................ 8,392 84 11,916 12,000
Unrealized holding gain on
available-for-sale securities... 25,144 25,144
Net income....................... 264,871 264,871
----------- ---------- --------------- ------------- ---------------- ----------- -------------
Balance at December 31, 2003..... 3,358,444 $ 33,585 $185,457,862 $189,516 $(180,356,002) $(91,533) $ 5,233,428
=========== ========== =============== ============= ================ =========== =============
See accompanying notes to these financial statements.
-17-
MM COMPANIES, INC.
Statements of Cash Flows
Year ended December 31,
----------------------------------------------------------
2003 2002 2001
----------------------------------------------------------
Cash flows from operating activities
Net income (loss).............................................. $ 264,871 $ 223,119 $(10,523,737)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation................................................. -- -- 2,976,630
Recovery of note receivable settlement....................... (250,000) -- --
Loss (gain) on sale of available-for-sale securities......... -- (42,691) --
Gain on investment in partnership............................ (417,626) -- --
Gain on disposition of liabilities........................... (110,488) (1,639,472) --
Gain on sale of fixed assets................................. -- -- (27,898)
Gain on early extinguishment of debt......................... (151,429)
Services received in exchange for stock ..................... 12,000 54,500 4,572
Changes in operating assets and liabilities:
Accounts receivable........................................ -- -- 533,112
Precious metals............................................ 3,340,945 (4,028,115)
Prepaid expenses and other current assets.................. 963,165 (1,028,277) 1,925,444
Related party account receivable........................... -- -- 88,041
Other assets............................................... -- -- 1,000,902
Accounts payable and accrued expenses...................... (904,500) (1,058,522) (462,160)
Deferred revenues.......................................... -- -- (3,100,779)
Other current liabilities.................................. (1,915,535) 2,085,580 58,366
Deferred rent and other.................................... -- -- (140,424)
Accrued lease payments..................................... -- (1,051,794) --
----------------------------------------------------------
Net cash provided by (used in) operating activities............ 982,832 (6,485,672) (7,819,360)
----------------------------------------------------------
Cash flows from investing activities
Proceeds from return of investment in available for sale
securities..................................................... 1,446,932 -- --
Proceeds from (purchase of) available-for-sale securities...... -- 152,092 (1,556,903)
Proceeds from (purchase of) investment in partnership 806,608 (596,021) --
Proceeds from sale of property and equipment................... -- -- 435,927
Purchases of property and equipment............................ -- -- (35,393)
----------------------------------------------------------
Net cash provided by (used in) investing activities............ 2,253,540 (443,929) (1,156,369)
----------------------------------------------------------
Cash flows from financing activities
Purchases of treasury stock.................................... -- (91,533) --
Payment on long-term obligations............................... -- -- (20,000)
Payment of cash distribution to shareholders................... -- -- (9,941,988)
Refund on excess distribution.................................. -- -- 82,500
----------------------------------------------------------
Net cash provided by (used in) financing activities............ -- (91,533) (9,879,488)
----------------------------------------------------------
Net (decrease) increase in cash and cash equivalents........... 3,236,372 (7,021,134) (18,855,217)
Cash and cash equivalents at beginning of year................. 575,454 7,596,588 26,451,805
----------------------------------------------------------
Cash and cash equivalents at end of year....................... $ 3,811,826 $ 575,454 $ 7,596,588
==========================================================
See accompanying notes to these financial statements.
-18-
MM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
1. ORGANIZATION
THE COMPANY
On January 3, 2001, the Board of Directors of MM Companies, 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 the business no longer represented a viable alternative to
provide maximum value to the Company's stockholders.
The accompanying financial statements 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 December 31, 2003, the Company had $3,811,826 in cash and cash
equivalents and $687,170 in precious metals (see note 3) compared to $575,454
and $4,028,115, respectively, at December 31, 2002. The Company expects to
experience negative cash flows for the foreseeable future. The Company has not
generated any revenue in the last two years. The Company has not yet settled on
an operating plan, and can give no assurance that the Company's existing cash
and cash equivalents are sufficient to fund the Company's current operations and
satisfy its obligations. 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 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
CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid investments with an original
maturity date of three months or less when purchased to be cash equivalents. A
portion of the Company's cash balances is held in an account managed by
Barington Capital Group, L.P. ("Barington"). Barington and an affiliate are
members of BCG Strategic Investors, which together with certain entities and
individuals beneficially owns approximately 40% of the Company's Common Stock.
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 accumulated other comprehensive income.
Dividends on marketable equity securities are recognized in income when
declared. Realized gains and losses and declines in value deemed to be
other-than-temporary are included in other income (expense). The cost basis for
realized gains and losses is determined on the basis of the actual cost of the
securities sold.
As of December 31, 2003 and 2002, the Company had available-for-sale
investments with a fair market value of $397,125 and $1,611,874, respectively
and a cost basis of $207,609 and $1,447,502 respectively. The gross unrealized
gains for the years ended December 31, 2003, 2002 and 2001 of $25,144, $50,283
and $114,089, have been recorded as a separate component of stockholders' equity
as accumulated other comprehensive income. On January 29, 2003 L Q Corporation,
Inc. (f/k/a 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. In November
2003, the Company received 627,390 shares of Dynabazzar, Inc. (f/k/a Fairmarket,
Inc.) common stock as a result of the dissolution of JHC Investment Partners,
LLC ("JHC")(see footnote 6).
-19-
As of December 31, 2003 and 2002 the Company held the following equity
positions:
2003 2002
L Q Corporation, Inc. (OTC.BB: LQID) 654,900 shares 654,900 shares
Dynabazzar, Inc. (NASDAQ: FAIM) 627,890 shares 500 shares
All investments are held in an account managed by Barington.
IMPAIRMENT OF LONG-LIVED ASSETS
At each balance sheet date, management determines whether any property
and equipment or any other assets have been impaired based on the criteria
established in Statement of Financial Accounting Standards ("SFAS") No. 144.
Accounting for the impairment of long-lived assets and long-lived assets to be
disposed of:
The Company evaluates the carrying amount of long-lived assets to be
held and used, including property and equipment and intangible assets, when
events and circumstances warrant such a review. The carrying amount of a
long-lived asset is considered impaired when the estimated undiscounted cash
flow from each asset is less than its carrying amount. In that event, the
Company records a loss equal to the amount by which the carrying amount exceeds
the fair market value of the long-lived asset. Assets to be disposed of are
measured at the lower of carrying amount or fair value less cost to sell. For
the year ended December 31, 2001 the Company recorded an impairment allowance of
$2,276,731. At December 31, 2003 and 2002, all property and equipment had a
carrying value of zero.
FAIR VALUE, OF FINANCIAL INSTRUMENTS
The Fair Value of the Company's assets and liabilities which qualify as
financial instruments under SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments," approximate the carrying amounts presented in the
accompany balance sheets.
INCOME TAXES
The Company complies with SFAS No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial reporting for income
taxes. Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in future taxable or deductible amounts, based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when necessary, to
reduce deferred income tax assets to the amount expected to be realized.
STOCK-BASED COMPENSATION
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amended SFAS No. 123,
"Accounting for Stock-Based Compensation." This Statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based compensation. It also amends the disclosure
provisions to require more prominent disclosure about the effects on reported
net income (loss) of an entity's accounting policy decisions with respect to
stock-based employee compensation. The provisions of this Statement are to be
applied to financial statements for fiscal years ending after December 15, 2002.
As permitted by the Statement, the Company does not plan to adopt the fair value
recognition provisions of SFAS No. 123 at this time. However, the Company has
adopted the disclosure provisions of the Statement.
-20-
The Company accounts for its stock-based employee compensation plans
under Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized in the accompanying statements of operations, as all
options granted under those plans had an exercise price equal to or in excess of
the market value of the underlying common stock at the date of grant (see Note
9).
Had compensation cost for these options been determined consistent with
the fair value method provided by SFAS No. 123, the Company's net income (loss)
and net income (loss) per common share would have been the following pro forma
amounts in each of the years during the three year period ended December 31,
2003.
2003 2002 2001
Net income (loss):
As reported $ 264,871 $ 223,119 $ (10,523,737)
Deduct:
Total stock based compensation
Expense determined under fair
value method for all awards, net
of related tax effect (2,827) (98,398) --
------------------ ------------------ ---------------------
Pro forma $ 262,044 $ 124,721 $ (10,523,737)
================== ================== =====================
Basic and diluted EPS:
As reported $0.08 $ 0.07 $ (3.18)
Pro forma $0.08 $ 0.04 $ (3.18)
The fair value of each option grant is estimated on the grant date
using the Black-Scholes option-pricing model with the following assumptions for
2003 and 2002: Risk-free interest rate 4.0%, no dividend yield, expected life 5
years and expected volatility of 21.41% for 2003 and 373% for 2002.
OTHER COMPREHENSIVE INCOME (LOSS)
The Company separately reports net income and comprehensive income
pursuant to SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income
(loss) includes net income and other comprehensive income. Other comprehensive
income (loss) includes accumulated unrealized gain on investment in
available-for-sale securities. The components of comprehensive income are as
follows:
Year Ended
December 31,
2003 2002 2001
------------ -------------- -----------------
Comprehensive income (loss):
Net income (loss)..................... $264,871 $223,119 $(10,523,737)
Unrealized gain on investment in
available-for-sale securities......... 25,144 50,283 114,089
------------ -------------- -----------------
Total comprehensive income (loss).......... $290,015 $273,402 $(10,409,648)
============ ============== =================
-21-
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 and warrants to purchase 91,892 and
392,734 shares of the Company's common stock as of December 31, 2003 and 2002
were excluded in the computation of diluted earning per share because the
options' and warrants' exercise price was greater than the average market price
of the Company's common stock. For the year ended December 31, 2001, since the
effects of the outstanding options and warrants are anti-dilutive, it has been
excluded from the computation of net loss per common share.
REVENUE RECOGNITION
Net sales were recognized at the time merchandise was shipped to
customers for custom CDs and upon execution of orders for digitally downloaded
songs.
SIGNIFICANT CUSTOMERS
In February 2001, the Company fulfilled its contract with the
Pepsi-Cola Company. As a result, the Company recognized the remaining $3,100,779
of revenue under the contract, which represented approximately 97% of the
Company's total sales for the year ended December 31, 2001.
COST OF SALES
In accordance with SFAS No. 50, "Financial Reporting in the Record and
Music Industry," royalty advances and minimum guarantees to music labels were
recorded as an asset if the past performance and current popularity of the music
to which the advance related provided a sound basis for estimating the probable
future recoupment of such advances. Advances were then expensed as subsequent
royalties were earned. Any portion of advances that subsequently appeared not to
be fully recoverable from future royalties were charged to expense during the
period in which the loss became evident.
The Company included in cost of sales royalty expenses incurred based
on usage per music track. Royalty charges resulted in cost of sales, related to
music content, of zero, zero and $13,647 for the years ended December 31, 2003,
2002 and 2001 respectively. The Company has included in cost of sales royalty
advances that were paid upon signing of certain initial royalty agreements with
independent music labels, due to management's expectations of minimal revenues
expected during the one-year period following the signing of the contracts. The
Company may be required to make additional advances upon the anniversaries of
the signing of these initial contracts and expenses them as incurred.
OPERATING AND DEVELOPMENT COSTS
Operating and development costs relating to the Company's proprietary
custom CD compilation software technology were expensed as incurred. The Company
has incurred research and development costs of approximately zero, zero and,
$85,444 in the years ended December 31, 2003, 2002 and 2001, respectively.
Operating and development costs also include network and non-capitalized website
costs.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. The Company
incurred costs related to advertising of approximately zero, zero and
$(1,167,000) for the years ended December 31, 2003, 2002 and 2001, respectively.
-22-
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the prior periods have been reclassified to conform
with the current period presentation.
3. PRECIOUS METAL
In August 2002, the Company acquired 12,900 ounces of gold bullion for
a purchase price of $4,028,115. During 2003, the Company sold an aggregate of
10,700 ounces of gold bullion with a cost basis of $3,340,945 for approximately
$3,887,000. Approximately $1.9 million of the 2003 proceeds were used to pay off
its outstanding liability, which was secured by the gold bullion as of
December 31, 2002. As of December 31, 2003 the Company owns 2,200 ounces of gold
bullion.
4. NOTE RECEIVABLE
In connection with a royalty agreement signed on October 11, 1999, the
Company advanced $500,000 to an independent record label, in return for which
the Company received a note receivable that was due on April 11, 2000. In 2000,
the Company established a reserve for the entire receivable and pursued legal
action to collect the note. In January 2004 the parties agreed to a settlement
agreement whereby the Company would receive $50,000 due on each of May 1, 2004
and May 1, 2006 and $6,522 per month, for twenty-three months, commencing June
1, 2004 through May 1, 2006.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at December 31, 2003 and 2002
were $162,273 and $1,220,756, respectively. A portion of the balance at
December 31, 2003 is comprised of approximately $153,000 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 previous litigation and proxy
solicitation related to L Q Corporation, Inc. which was subsequently paid in
2003.
6. INVESTMENT 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 Dynabazaar Inc. (NASDAQ: FAIM) (such amount representing approximately
12.0% of Dynabazaar'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 Dynabazaar's outstanding
common stock). This represents the Company's investment of $596,021 in JHC
Investment Partners, LLC ("JHC") for the purchase of 627,390 shares of
Dynabazaar common stock. JHC is the entity created to purchase 3,485,500 shares
of Dynabazaar common stock. The Company has accounted for this investment as
cost. The Reporting Entities include, in addition to the Company, Barington
Companies Equity Partners, L.P., an affiliate of Barington 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, Dynabazaar appointed Joseph Wright, Jr., to
Dynabazaar's Board of Directors. Mr. Wright is also a director of MM Companies,
Inc. Mr. Wright was appointed to the Board of Dynabazaar pursuant to an
agreement that Dynabazaar 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 Dynabazaar common stock prior to January 22, 2005. In
addition, James Mitarotonda, President and Chief Executive Officer of MM
Companies, Inc., was granted observer status to Dynabazaar's Board.
-23-
On November 3, 2003 Dynabazaar distributed $1.30 per share in cash to
all of its shareholders. Upon the dissolution of JHC, the Company received cash
of $806,608 and 627,390 shares of Dynabazaar stock, and recorded a gain on
investment in partnership of $417,626.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2003 and 2002
are comprised of the following:
December 31,
--------------------------------------------
2003 2002
--------------------------------------------
Accounts payable $ -- $ 534,605
Professional fees 74,966 50,543
License and royalty fees -- 520,000
Other -- 80,124
--------------------------------------------
$ 74,966 $ 1,185,272
============================================
8. COMMON STOCK AND WARRANTS
On February 25, 2002, the Board of Directors authorized a stock
repurchase program for up to 500,000 shares of the Company's Common Stock.
Shares of Common Stock are expected to be purchased from time-to-time in open
market transactions and privately negotiated transactions, subject to
availability and price, prevailing market and business conditions and regulatory
compliance. In connection with the stock repurchase program, on June 11, 2002,
the Company's Board of Directors and a majority of the stockholders authorized a
one for one hundred reverse stock split followed by a hundred for one forward
stock split.
As of December 31, 2002, the Company had repurchased 69,438 shares of
its Common Stock at an average market price of $1.32 per share.
In 2003 and 2002 the Board of Directors approved the issuance of an
aggregate of 8,392 and 36,010 shares of Company Common Stock, respectively, and
7,500 and 35,000 stock options, respectively, to Board members for services
provided in their role as directors.
9. STOCK OPTION PLAN
The 1996 Stock Option Plan (the "Plan") was adopted by the Board of
Directors and approved by the stockholders in 1996. The purpose of the Plan is
to promote the long-term growth and profitability of the Company by providing
key people with incentives to contribute to the growth and financial success of
the Company. The aggregate number of shares of common stock for which options
may be granted under the Plan shall not exceed 650,000 shares as voted on by a
majority of the stockholders during the 2000 annual stockholder meeting.
Additional information with respect to stock option activity is summarized as
follows:
-24-
2003 2002 2001
----------------------- -------------------------------------------------------
Shares Weighted Weighted
average Average
exercise Weighted Average Exercise
price Shares Exercise Price Shares Price
----------------------- --------------- ---------------- ---------- ------------------
Outstanding at beginning of 103,756 $ 29.15 68,756 $ 42.93 258,713 $ 39.35
year
Options granted 7,500 1.36 35,000 2.08 -- --
Options exercised -- -- -- -- -- --
Options canceled or expired (19,364) 22.70 -- -- (189,957) 38.04
----------------------- --------------- ---------------- ---------- ------------------
Outstanding at end of year 91,892 $ 28.24 103,756 $ 29.15 68,756 $ 42.93
======================= =============== ================ ========== ==================
Exercisable at end of year 91,892 $ 28.24 103,756 $ 29.15 55,923 $ 39.15
======================= =============== ================ ========== ==================
Options Outstanding Options Exercisable
------------------------------------------------------- ----------------------------------
Number Weighted-Average Number
Outstanding Remaining Exercisable
Range of Exercise as of Contractual Weighted-Average as of Weighted-Average
Price 12/31/03 Life (In Years) Exercise Price 12/31/03 Exercise Price
----- -------- --------------- -------------- -------- --------------
$1.36 7,500 4.58 $ 1.36 7,500 $ 1.36
$2.02 -.$2.10 35,000 2.30 $ 2.08 35,000 $ 2.08
$20.70 10,892 4.89 $20.70 10,892 $20.70
$59.40 38,500 1.04 $59.40 38,500 $59.40
------ ---- ------ ------ ------
91,892 2.26 $28.24 91,892 $28.24
====== ==== ====== ====== ======
On December 31, 2002, the Company issued a stock appreciation right for
185,000 shares to each of James Mitarotonda and Seymour Holtzman. The stock
appreciation right provides that it may be exercised for cash in an amount equal
to the excess value, if any, by which the market value of the shares on the date
of exercise exceeds $1.852, as adjusted from time to time. The stock
appreciation right is exercisable immediately and expires on December 31, 2007.
No compensation expense has been recorded during the years ended December 31,
2003 and 2002, as the Company's stock price was lower than the stock
appreciation right's exercise price.
10. WARRANTS
The following table summarizes all common and preferred stock warrant
activity:
Year ended December 31,
---------------------------------------------------------------------
2003 2002 2001
-------------------- -------------------- --------------------
Outstanding at beginning of year 288,978 288,978 401,826
Warrants expired (288,978) -- (112,848)
-------------------- -------------------- --------------------
Outstanding at end of year -- 288,978 288,978
==================== ==================== ====================
11. INCOME TAXES
At December 31, 2003, the Company had net operating loss carry-forwards
of $90.4 million and capital loss carry-forwards of $1.2 million. The timing and
manner in which the remaining operating loss carry-forwards may be utilized in
any year will be limited to the Company's ability to generate future earnings
and by limitations imposed due to change in ownership. Current net operating
loss carry-forwards will expire principally in the years 2021 through 2022. The
capital loss carry-forwards will expire in 2005. As the Company has not
generated any revenues during 2003 and no assurance can be made of future
earnings, a valuation allowance in the amount of the deferred tax asset has been
recorded. The change in the valuation allowance was $14.4 million in 2003 and
$946,876 in 2002. There was no current or deferred provision for income taxes
for the years ended December 31, 2003, 2002 or 2001.
-25-
The total net operating loss carry-forwards ("NOL") of $90.4 million
has been reduced, for financial reporting purposes, by $54.4 million, which is
unlikely ever to be utilized due to the application of the Section 382
provisions. The remainder of the NOL also likely might effectively be obviated
if certain future events were to occur that would invoke additional Section 382
provisions. Future use of the NOLs therefore is extremely speculative and should
not be presumed absent extensive analysis of the complex Section 382 provisions.
Net deferred tax assets consist of:
December 31,
----------------------------------
2003 2002
----------------- ----------------
Deferred tax assets:
Reserves and other $ -- $ 204,584
Capital loss carry-forward 447,600 447,600
Net operating loss carry-forward 33,727,877 47,938,842
----------------- ----------------
Deferred tax assets before valuation allowance 34,175,477 48,591,026
Less valuation allowance (34,175,477) (48,591,026)
----------------- ----------------
Net deferred tax assets $ -- $ --
================= ================
The Company has not paid any income taxes since its inception.
The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate to the income (loss) before income
taxes due to the effects of the following:
Year ended December 31,
-----------------------------------------------------
2003 2002 2001
----------------- ----------------- -----------------
Expected tax expense (benefit) at federal statutory tax rate $ 90,056 $ 75,860 $ (3,578,071)
Future state expense (benefit), net of federal expense (benefit) 8,741 7,363 (347,283)
Non-deductible expenses and other 855
Utilization of NOL (98,797) (83,223) --
Increase in valuation allowance -- -- 3,924,499
----------------- ----------------- -----------------
$ -- $ -- $ --
================= ================= =================
12. INFRASTRUCTURE REORGANIZATION
On January 3, 2001, the Company's Board of Directors as then
constituted voted unanimously to cease the operations of its Internet-based
custom CD-marketing business. As a result, pending the present Board's ongoing
review of alternatives for the Company going forward, the Company suspended its
website, bought out several equipment leases and terminated 44 employees which
represented 83% of the work force. Severance packages, totaling approximately
$1,714,000, were granted to these employees based on length of service with the
Company. Additionally, the Company accrued the severance costs of approximately
$374,000 related to the remaining employees. All amounts related to this charge
have been paid as of December 31, 2001.
13. RELATED PARTY TRANSACTIONS
In connection with the Company's cessation of its Internet-based custom
CD-marketing business, effective as of July 1, 2001, the Company relocated its
principal executive offices to 888 Seventh Avenue, 17th Floor, New York, New
York 10019, an office 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. Mr. Mitarotonda is also the President and Chief
Executive Officer of the Company.
Effective July 1, 2001, Barington has 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 the use of office space and administrative
services provided by Barington. In consideration of the foregoing, the Company
pays Barington a $21,500 monthly fee. This fee includes the salary and benefit
costs of the two Barington employees who devote 80% and 70% of their time to the
Company, in addition to the provision for occupancy, computer, telephone, fax,
Internet access, office supplies and stationary, and printing expenses. In
addition, the Company pays $5,000 per month, each, to Mr. Mitarotonda and Mr.
Holtzman for services performed. For the years ended December 31, 2003 and 2002,
the Company expensed approximately $378,000 and $328,000, respectively in
payments to related parties, which are included in general and administrative
expenses.
-26-
14. NET INCOME (LOSS) PER SHARE
The following equity instruments were not included in the diluted net
loss per share calculation because their effect would be anti-dilutive:
Year ended December 31,
-------------------------------------------------
2003 2002 2001
-------------------------------------------------
Warrants -- -- 288,978
15. SHAREHOLDER DISTRIBUTION
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. The distribution
totaled $9,941,988, and was paid in March 9, 2001. The distribution included
$82,500 paid in error to a former stockholder of the Company whose stock was not
returned to the Company until after the establishment of the record date for the
distribution, which amount was subsequently returned by the former stockholder,
leading the Company to record a net distribution of $9,859,488 as a reduction of
stockholders' equity.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Within 90 days prior to the filing date of this Annual Report on Form
10-K, the Company's management, including the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's current disclosure controls and procedures are effective. There have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the evaluation by the Chief Executive Officer and Chief Financial Officer.
The design of any system of controls and procedures is based in part
upon certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
-27-
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information regarding the directors and
executive officers of the Company.
Name Age Position
- ---- --- --------
Seymour Holtzman......................... 68 Director and Chairman of the Board of Directors
James Mitarotonda........................ 49 Director, President and Chief Executive Officer
Jesse Choper............................. 68 Director
William Fox.............................. 47 Director
Joseph Wright, Jr........................ 64 Director
Melvyn Brunt............................. 60 Chief Financial Officer and Secretary
Seymour Holtzman has been a member of the Company's Board of Directors
and Chairman of the Board since January 2001. Mr. Holtzman has been involved in
the retail business for over 30 years. For many years he has been the President
and Chief Executive Officer of Jewelcor, Inc., formerly a New York Stock
Exchange company that operated a chain of retail stores. From 1986 to 1988, Mr.
Holtzman was the Chairman of the Board and Chief Executive Officer of Gruen
Marketing Corp, an American Stock Exchange company involved in the nationwide
distribution of watches. For at least the last five (5) years, Mr. Holtzman has
been the Chairman and Chief Executive Officer of Jewelcor Management, Inc, an
entity primarily engaged in investment and management services; C.D. Peacock,
Inc., a prominent Chicago, Illinois retail jewelry establishment; and S.A. Peck
& Company, a retail and mail order jewelry company based in Chicago, Illinois.
Mr. Holtzman is currently a member of the Board of Directors and the Chairman of
the Board of two public companies: Casual Male Retail Group, Inc. (NASDAQ:CMRG)
and MM Companies, Inc. (OTC BB:MMCO). Mr. Holtzman is also a member of the Board
of Directors and Co-Chairman of the Board of a third public company, L Q
Corporation, Inc. (OTC BB:LQID). As of January 2000, Mr. Holtzman became one of
ten outside advisors to Barington Companies Equity Partners, L.P. James
Mitarotonda is the President and Chief Executive Officer of Barington Companies
Investors, LLC, which is the General Partner of Barington Companies Equity
Partners, L.P. Jewelcor Management, Inc. is a limited partner in Barington
Companies Equity Partners, L.P. Mr. Holtzman is a shareholder activist and has
been an investor in banks and savings and loans since 1972.
James Mitarotonda is President, Chief Executive Officer and a director
of the Company and has served in such capacities since January 2001. Mr.
Mitarotonda is also the Chairman of the Board, President and Chief Executive
Officer of Barington Capital Group, L.P. He has held these positions at
Barington for at least the last five years. Mr. Mitarotonda co-founded Barington
Capital Group, L.P. in November 1991. Mr. Mitarotonda is also President and
Chief Executive Officer of Barington Companies Investors, LLC, the general
partner of Barington Companies Equity Partners, L.P., a small capitalization,
value fund in which the general partner seeks to be actively involved with its
portfolio companies in order to enhance shareholder value. In addition, Mr.
Mitarotonda is a member of the Board of Directors co-Chairman of the Board and
co-Chief Executive Officer of L Q and a member of the Board of Directors of
Dynabazaar. In May 1988, Mr. Mitarotonda co-founded Commonwealth Associates, an
investment banking, brokerage and securities trading firm. Mr. Mitarotonda
served as Chairman of the Board and Co-Chief Executive Officer of JMJ Management
Company Inc., the general partner of Commonwealth Associates. From December 1984
to May 1988, Mr. Mitarotonda was Senior Vice President/Investments of DH Blair &
Co., Inc. Earlier in his career, Mr. Mitarotonda was employed by Citibank, N.A.
in an executive capacity having management responsibility for two of Citibank's
business banking branches. During his tenure at Citibank, Mr. Mitarotonda became
Regional Director of Citibank's Home Equity Financing and Credit Services. Mr.
Mitarotonda is a former member of the Alumni Advisory Council of New York
University's Stern School of Business and is a member of the Gotham Chapter of
the Young President's Organization, where he formerly served on the Executive
Committee and as the Co-Chairman of Membership. Mr. Mitarotonda is also a member
of the Board of Directors of The Friends of Green Chimneys, a charitable
organization. Mr. Mitarotonda graduated from New York University's Leonard N.
Stern School of Business with a Master of Business Administration degree and
from Queens College with a Bachelor of Arts degree in Economics.
-28-
Jesse Choper has served as a member of the Company's Board of Directors
since May 2001. Mr. Choper is the Earl Warren Professor of Public Law at the
University of California at Berkeley School of Law where he has taught since
1965. Professor Choper was the Dean of the Law School from 1982 to 1992. He has
been a visiting professor at Harvard Law School, Fordham Law School, University
of Milan in Italy Law School and Universitad Autonoma Law School in Barcelona,
Spain. From 1960 to 1961, Professor Choper was a law clerk for Supreme Court
Chief Justice Earl Warren. He is widely recognized author, lecturer, consultant
and commentator on issues of Constitution Law and Corporation Law. Mr. Choper is
also a member of the Board of Director's of Casual Male Retail Group Inc. and
LQ.
William J. Fox has been, since February 1999, Chairman, President and
Chief Executive Officer and Director of AKI Inc., the global leader in consumer
product multi-sensory marketing and sampling systems and related consumer
communication printing. Prior to his association with AKI, Mr. Fox was Senior
Executive Vice President of Revlon, Inc. and member of its Board of Directors;
Mr. Fox was concurrently Senior Vice President of MacAndrews & Forbes Holdings
Inc. Mr. Fox currently serves as Co-Chairman of the Board of Loehmann's Holding
Inc. (NASDAQ:LHMS). Mr. Fox is a director of L Q. Mr. Fox has served on the
Board of Revlon, Inc. (NYSE:REV), and was Vice Chairman and Director of both The
Cosmetic Centers Inc. (NASDAQ:COCQ) and The Hain Food Group (NASDAQ:HAIN). Mr.
Fox is Vice Chairman of the Advisory Board of Barington Companies Investors,
LLC.
Joseph R. Wright, Jr. has served as a member of the Company's Board of
Directors since January 2001. Mr. Wright is President and Chief Executive
Officer of PanAmSat Inc., one of the world's largest providers of global
satellite-based communications services; servicing news organizations,
telecommunications companies, DirecTV services, Internet networks and others
around the globe. In the six years prior to this position in 2001, Mr. Wright
was Vice Chairman of Terremark Worldwide Inc., a public company that develops
and operates Network Access Point (NAP) centers in the U.S. and Brazil. Mr.
Wright was also Chairman and Director of GRC International, Inc., a public
company providing advanced IT, Internet, and software systems technologies to
government and commercial customers, which was sold to AT&T. He was also
Co-Chairman and Director of Baker & Taylor Holdings, Inc., an international
book/video/software distribution and e-commerce company that is majority owned
by the Carlyle Group. From 1989 to 1994, Mr. Wright was Executive Vice
President, Vice Chairman and Director of W.R. Grace & Co., Chairman of Grace
Energy Company, and President of Grace Environmental Company. Mr. Wright was
Deputy Director and Director of the Federal Office of Management and Budget and
a member of the President's Cabinet during the Reagan Administration from 1982
to 1989 and Deputy Secretary of the Department of Commerce from 1981 to 1982. He
previously held positions as President of two of Citibank's subsidiaries, as a
partner of Booze Allen and Hamilton and in various management/economic positions
in the Federal Departments of Commerce and Agriculture. In addition, Mr. Wright
serves on the Board of Directors/Advisors of Terremark Worldwide Inc., Titan
Corporation, Baker & Taylor, Verso Technologies Inc., Proxim Corporation and the
AT&T Washington Advisory Board. Mr. Wright graduated from Yale University with a
Master's Degree in Industrial Administration and from Colorado School of Mines
with a Professional Engineering Degree.
Melvyn Brunt is Secretary and Chief Financial Officer and has served in
such capacity since January 2002. Before that Mr. Brunt was a Director and Chief
Financial Officer of Davies Turner & Co. an international freight forwarding
company with offices throughout the United States. From 1996 to 2001 he was
President of Air Mar Inc., located in Puerto Rico and a Director of TCX
International Inc., located in Miami. Both of those companies provide logistics
support services to a wide variety of importing and exporting client companies.
Mr. Brunt is also the Secretary and Chief Financial Officer of L Q and
Dynabazaar. Mr. Brunt is Chief Financial Officer and Secretary of Barington
Capital Group, L.P., L Q and Dynabazaar, Inc. (NASDAQ:FAIM).
Devarajan Puthukarai and Irwin Steinberg resigned from the Board on
July 30, 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of the Company's Common Stock to file reports of ownership and
changes in ownership of the Company's Common Stock with the Securities and
Exchange Commission. Based solely on a review of the copies of such reports and
written representations from the reporting persons that no other reports were
required, the Company believes that during the fiscal year ended December 31,
2003, its executive officers, directors and greater than 10% stockholders filed
on a timely basis all reports due under Section 16(a) of the Exchange Act.
-29-
Code of Ethics
We have not yet adopted a code of ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions. However we are currently in
the process of evaluating and preparing a proposed code of ethics which is
expected to be presented to the Board of Directors for consideration and
approval during the fiscal quarter ended June 30, 2004.
Item 11..Executive Compensation.
The following table sets forth all compensation awarded to, earned by,
or paid for the years ended December 31, 2003, 2002 and 2001 for services
rendered to the Company for each person who acted as the Company's chief
executive officer during the year ended December 31, 2003 and its most highly
compensated executive officer other than the chief executive officer serving as
executive officer at December 31, 2003 (the "Named Executive Officers").
-30-
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Number of Shares
Name and Principal Position Year Salary($) Bonus($) Underlying SARs
(a) (b) (c) (d) (g)
- ------------------------------------------------ ---------- ------------------- ---------- ----------------
James A. Mitarotonda 2003 $60,000 -- --
President and Chief Executive Officer (1) 2002 $60,000 -- 185,000(2)
2001 $46,923 -- --
(1) Mr. Mitarotonda was appointed President and chief executive officer on
January 18, 2001.
(2) As of December 19, 2002, the Company granted Mr. Mitarotonda stock
appreciation rights to purchase 185,000 shares of our common stock at
an exercise price of $1.852 per share.
Compensation of Directors
On July 30, 2003 the Company changed from a stock/option based
compensation plan to a cash based compensation plan. Directors are entitled to
receive $7,500 on being appointed and $7,500 as an annual retainer upon the
anniversary of their appointment. Each director is entitled to a payment of
$1,000 for each board or committee meeting he attends; the chairperson of a
committee will receive $2,000 per meeting.
Employment Agreements and Consulting Agreements
Effective July 1, 2001, Barington Capital Group, L.P. has 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 the use of
office space and administrative services provided by Barington. In consideration
of the foregoing, the Company pays Barington a $5,000 monthly fee. Effective May
1, 2002, the Board of Directors approved an increase of the fee to Barington to
$23,500 per month later reduced to $21,500. This increase recognizes the salary
and benefits cost of the two Barington employees who devote 80% and 70% of their
time to the Company. It includes the provision for occupancy, computer,
telephone, fax, Internet access, office supplies and stationary and printing
expenses. In addition, the Company pays $5,000 per month, each, to Mr.
Mitarotonda and Mr. Holtzman for services performed in their capacity as
President and Chairman of the Board, respectively.
Compensation Committee Interlocks and Insider Participation.
On July 30, 2003, the Company created a new Compensation Committee
comprised of Jesse Choper as chairman and William Fox and Joseph Wright as
members. Prior to that time the Board of Directors had undertaken to review the
performance of the Company's management and recommend and approve the
compensation of and the issuance of stock options to executive officers and
employees under the Company's stock option plan.
Report of the Compensation Committee of the Board of Directors.
General Compensation Policy. The fundamental policy of the Board is to
provide the Company's executive officers with competitive compensation
opportunities based upon their contribution to the Company's development and
financial success and their personal performance. The compensation package for
each executive officer is comprised of three elements: (i) base salary, (ii)
bonus and (iii) equity incentive awards.
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Base Salary. The Board strives to offer salaries to its executive
officers, which are competitive with salaries offered by companies of similar
size and capitalization in the Company's industry. Base salaries are reviewed on
an annual basis and are subject to adjustment based upon the individual's
contribution to the Company and changes in salary levels offered by comparable
companies. Executive officers' salaries are determined by the Chief Executive
Officer, based on information from various sources, and approved by the Board of
Directors.
Bonuses. The amount of awards granted to the executive officers are
contingent upon the Company achieving certain performance goals established by
the Board of Directors. For executive officers, awards are also contingent on
the achievement of individual performance objectives. Target and minimum amounts
of bonuses for each executive officer are set annually by the Board of Directors
and are specifically weighted for identified financial, management, strategic
and operational goals.
Equity Incentives. The Board of Directors believes that employee equity
ownership is highly motivating, provides a major incentive to employees to build
stockholder value and serves to align the interests of employees with the
interests of the Company's stockholders. In determining the amount of equity
compensation to be awarded to executive officers in any fiscal year, the Board
considers the position of the officer, the current stock ownership of the
officer, the number of shares which continue to be subject to vesting under
outstanding options and the expected future contribution of the officer to the
Company's performance, giving primary weight to the officer's position and his
expected future contributions. In addition, the Board of Directors compares the
stock ownership and options held by each officer with the other officer's equity
positions and each officer's experience and value to the Company.
CEO Compensation. Commencing July 1, 2001, Mr. Mitarotonda received
$5,000 per month for services rendered in his capacity as President and Chief
Executive Officer. See "Summary Compensation Table" above.
Audit Committee Matters
The purpose of the audit committee is to assist our Board of Directors
in the oversight of the integrity of the financial statements of the Company,
the Companys' compliance with legal and regulatory matters, the independent
auditors' qualifications and independence, and the performance of the Company's
independent auditors. The primary responsibilities of the audit committee are
set forth in its charter, and include various matters with respect to the
oversight of the Company's accounting and financial reporting process and audits
of the financial statements of the Company on behalf of our Board of Directors.
The current members of the Company's audit committee are William J.
Fox, Jesse Choper and Joseph Wright, Jr. The Company's board has determined that
Mr. Fox is an audit committee financial expert and that he is independent as
defined in Item 7(d)(B)(iv) of Schedule 14A under the Exchange Act.
Company Stock Price Performance
The graph below compares the cumulative total stockholder return on the
Company's common stock, the S&P SmallCap 600 Index and the S&P Industrials
Index. Cumulative total stockholder return represents share value appreciation
through December 31, 2003, assuming the investment of $100 in the Common Stock
of the Company at the initial public offering on July 7, 1999 and in each of the
other indexes on the same date, and reinvestment to all dividends. The Company's
shareholder return illustrated below includes a cash distribution of $3.00 per
share paid to all stockholders of record on March 1, 2001. The comparisons in
the graph below are based on historical data and are not intended to forecast
the possible future performance of our common stock.
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The data points used in the graphical presentation is as follows:
[GRAPHIC OMITTED]
Cumulative Total Return
-----------------------
7/7/99 12/31/2003
------ ----------
MM COMPANIES, INC. 100.00 1.22
S&P SMALLCAP 600 INDEX 100.00 151.08
S&P INDUSTRIALS INDEX 100.00 79.18
ITEM 12 SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of March 24, 2004, by
(1) all persons who are beneficial owners of 5% or more of our common stock, (2)
each director and nominee, (3) the Named Officers in the Summary Compensation
Table above, and (4) all directors and executive officers as a group.
The number of shares beneficially owned is determined under rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within 60 days of March 24, 2004, through the exercise or
conversion of any stock option, convertible security, warrant or other right.
Including those shares in the tables does not, however, constitute an admission
that the named stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as owned by that
person or entity. Except as otherwise indicated in the table, the address of the
stockholders listed below is that of the Company's principal executive office.
Directors or executive officers not included in the table below do not hold
Company securities.
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Percent of Total
Name and Address Number of Shares Shares Outstanding(1)
Principal Stockholders
BCG Strategic Investors LLC 1,319,681(2) 40%
c/o Barington Capital Group, LP
888 Seventh Avenue, 17th Floor
New York, NY 10019
Rho Management Trust I 288,933(3) 8.8%
152 West 57th Street, Floor 23
New York, NY 10019-3310
Don C. Whitaker 189,341 5.7%
c/o Don C. Whitaker, Inc.
23 Beechwood
Irvine, CA 92604
Officers and Directors
Melvyn Brunt -- *
Jesse Choper 14,159(4) *
William Fox 7,500(5) *
Seymour Holtzman 185,000(6) 5.3%
James Mitarotonda 185,000(7) 5.3%
Joseph Wright, Jr. 16,461(8) *
All executive officers and directors as a group (6 persons) 408,120(9) 11.0%
* Less than 1%
(1) Percentage of beneficial ownership is calculated assuming 3,297,363
shares of common stock were outstanding on March 24, 2004.
(2) Includes 87,915 shares held by Barington Capital Group L.P., a member
of BCG Strategic Investors LLC, whose general partner is LNA Capital
Corp., and of which the Chairman, President and CEO is James
Mitarotonda; 26,200 shares acquired by dot com Investment Corp., a
member of BCG Strategic Investors, LLC, and of which the President and
sole director is Seymour Holtzman; and 16,900 shares held by Barington
Companies Equity Partners, L.P., whose general partner is Barington
Companies Investors, LLC, of which the managing member is James
Mitarotonda.
(3) Includes 78,790 shares of common stock issuable upon exercise of
Series B warrants and 43,828 shares of common stock issuable upon
exercise of Series C warrants. Rho Management Partners L.P., a
Delaware limited partnership, may be deemed the beneficial owner of
shares registered in the name of Rho Management Trust I, under an
investment advisory relationship by which Rho Management Partners L.P.
exercises sole voting and investment control over Rho Management Trust
I's shares and warrants.
(4) Includes options to purchase 7,500 shares of common stock; and 6,659
shares of restricted common stock.
(5) Includes options to purchase 7,500 shares of common stock.
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(6) As of December 19, 2002, the Company granted Mr. Holtzman a stock
appreciation right to purchase 185,000 shares of our common stock.
This number does not include shares of the Company owned by BCG
Strategic Investors LLC or dot com Investment Corp. Mr. Holtzman is a
managing member of BCG Strategic Investors LLC and the President and
sole director of dot com Investment Corp.
(7) As of December 19, 2002, the Company granted Mr. Mitarotonda a stock
appreciation right to purchase 185,000 shares of our common stock.
This number does not include shares of the Company owned by BCG
Strategic Investors LLC, Barington Capital Group L.P., or Barington
Equity Partners, L.P. Mr. Mitarotonda is a managing member of BCG
Strategic Investors LLC, the Chairman, President and CEO of LNA
Capital Corp., the general partner of Barington Capital Group L.P.,
and the managing member of Barington Company Investors, LLC, the
general partner of Barington Companies Equity Partners, L.P.
(8) Includes an option to purchase 7,500 shares of common stock and
8,961 shares of restricted common stock.
(9) See notes (4)-(8).
Equity Compensation Plan Information
The following table sets forth certain equity compensation plan
information with respect to both equity compensation plans approved by security
holders and equity compensation plans not approved by security holders.
- ---------------------------------------------------- ------------------- ---------------- ---------------------------
Number of Number of securities
securities to be Weighted-average remaining available for
issued upon exercise price future issuance
exercise of of outstanding under equity compensation
outstanding options, plans
options, warrants warrants and (excluding securities
and rights rights reflected in column (a))
Plan category (a) (b) (c)
- ---------------------------------------------------- ------------------- ---------------- ---------------------------
Equity compensation plans approved by security -- -- --
holders.............................................
- ---------------------------------------------------- ------------------- ---------------- ---------------------------
Equity compensation plans not approved by security 370,000 1.852 --
holders(1)..........................................
- ---------------------------------------------------- ------------------- ---------------- ---------------------------
Total............................................... 370,000 1.852 --
- ---------------------------------------------------- ------------------- ---------------- ---------------------------
(1) Issued to Mr. Mitarotonda and Mr. Holtzman in accordance with the terms
of the stockholders agreement, dated as of January 12, 2001.
Indemnification of Directors and Officers
The Company's Amended and Restated Certificate of Incorporation Charter
and Amended Bylaws provide that it shall indemnify all of its directors and
officers to the full extent permitted by the Delaware General Corporation Law.
Under these provisions, any director or officer who, in his or her capacity as
such, is made or threatened to be made a party to any suit or proceeding, may be
indemnified if the Board determines the director or officer acted in good faith
and in a manner the director reasonably believed to be in, or not opposed to,
the best interests of the Company. The Charter, Amended Bylaws, and Delaware law
further provide that indemnification is not exclusive of any other rights to
which directors and officers may be entitled under our Charter, Amended Bylaws,
any agreement, any vote of stockholders or disinterested directors, or
otherwise.
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The Company has the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any expense, liability, or loss incurred by
that person in the capacity he served for the Company or arising out of his
status as such, whether or not the Company would have the power to indemnify
that person against similar liability under Delaware law. The Company has
director and officer insurance coverage. Our directors and officers are insured
against liability of up to $5,000,000 in the aggregate each policy year.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
Rothstein, Kass and Company, P.C. billed the Company $92,510 for the
independent audits of the Company's annual financial statements for the years
ended December 31, 2003 and December 31, 2002 and for the reviews of the
financial statements included in the Company's quarterly report for the nine
months ended September 30, 2003, three months ended March 31, 2003, six months
ended June 30, 2003 and nine months ended September 30, 2003. The Company's
previous auditors, Ernst & Young LLP, billed the Company $19,700 for the
independent review of the financial statements included in the Company's
quarterly reports for the three months ended March 31, 2002 and the six months
ended June 30, 2002.
Audit Related Fees
There were no audit related fees in the year ended 2003.
Tax Fees
Rothstein, Kass and Company, P.C. billed the Company $9,220 for the
preparation of the Company's December 31, 2002 federal and state income tax
returns. In 2002 Ernst & Young LLP billed the Company $11,000 for tax
consultations related to Section 382 provisions of the Internal Revenue Code.
All Other Fees
In December 2002, Rothstein, Kass and Company, P.C. billed the Company
$4,000 relating to consultations with management regarding the Investment
Company Act of 1940. In December 2002, Ernst & Young LLP billed the Company
$2,000 related to the transition of the Company's auditors.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors.
The audit committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services, and
other services.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Index to Financial Statements
Please see the accompanying Index to Financial Statements, which
appears in Item 8 on page 14 of this report. The Report of Independent Auditors,
Financial Statements and Notes to Financial Statements which are listed in the
Index to Financial Statements and which appear beginning on page 15 of this
report are included in Item 8.
(a)(2) Financial Statement Schedules
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SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Description Balance at Additions
Beginning of Charged to Deductions From Balance at End
Year Expense Reserves of Year
---- ------- -------- -------
2003 $ -- $ -- $ -- $ --
- ----
Deducted from accounts
receivable:
For doubtful accounts
2002 $ -- $ -- $ -- $ --
- ----
Deducted from accounts
receivable:
For doubtful accounts
2001 $ 40,000 $ -- $ 40,000 $ --
- ----
Deducted from accounts
receivable:
For doubtful accounts
(a)(3) Exhibits
Please see subsection (c) below.
(b) Reports on Form 8-K
None.
(c) Exhibits.
1.1 Form of Underwriting Agreement between musicmaker.com, Virgin Holdings,
Inc. and Ferris, Baker Watts, Incorporated, Fahnestock & Co. Inc. and
C. E. Unterberg, Towbin as Representatives.(1)
3.1 Form of Amended and Restated Certificate of Incorporation.(1)
4.1 Form of Common Stock Certificate.(1)
5.1 Opinion of Venable, Baetjer and Howard, LLP regarding legality.(1)
10.1 Amended and Restated Employment Agreement between the Company and
Robert P. Bernardi dated December 8, 1997, amended on February 12,
1999.(1)
10.2 Amended and Restated Employment Agreement between the Company and
Devarajan S. Puthukarai dated December 8, 1997, amended on February 12,
1999 and on May 19, 1999.(1)
10.3 Consulting Agreement dated January 23, 1997, between the Company and
Irwin H. Steinberg, amended on January 1, 1998, and amended by letters
to the Company dated August 28, 1998 and August 31, 1998.(1)
10.4 Letter Agreement dated June 12, 1998, between the Company and The
Columbia House Company.(1)
10.5 The Company's Amended Stock Option Plan.(1)
10.6 Marketing Agreement dated September 30, 1998, between Platinum
Entertainment, Inc. and the Company.(1)
10.7 Memorandum of Understanding between the Company and Audio Book Club,
Inc. dated January 18, 1999.(1)
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10.8 Office/Warehouse/Showroom Lease dated January 15, 1998 between the
Company and Century Properties Fund XX.(1)
10.9 Form of Lock-up Agreement.(1)
10.10.1 Loan and Security Agreement between the Company and Imperial Bank
dated March 12, 1999.(1)
10.10.2 Standby Letter of Credit and Security Agreement dated March 9, 1999,
and Addendum thereto dated March 5, 1999.(1)
10.11 Master Equipment Lease dated January 8, 1999 between the Company and
Boston Financial & Equity Corporation.(1)
10.12 Agreement of Lease between 570 Lexington Company, L.P. and the Company
dated February 26, 1999.(1)
10.13 License Agreement between the Company and Virgin Holdings, Inc. dated
June 8, 1999.(1)
10.14 Agreement between the Company and Virgin Holdings, Inc. dated June 8,
1999.(1)
10.15 Stockholders' Agreement between the Company, Virgin Holdings, Inc. and
the other Stockholders listed on Schedule I dated June 8, 1999.(1)
10.16 Registration Rights Agreement between the Company, Virgin Holdings,
Inc., Rho Management Trust I, The Columbia House Company and the other
Stockholders listed on Schedules I and II dated June 8, 1999.(1)
10.17 Co-Branding and Media Purchase Agreement between the Company and
Spinner Networks, Inc. dated March 26, 1999.(1)
10.18 Note Purchase Agreement between Rho Management Trust I and the Company
dated as of June 23, 1999.(1)
10.19 Demand Promissory Note in the aggregate principal amount of $1,000,000
issued by the Company to Rho Management Trust I dated as of June 23,
1999.(1)
10.20 Office Lease (1740 Broadway, 23rd Floor, New York, NY 10019) commencing
January 15, 2000.(2)
10.21 Office Lease (10780 Parkridge Blvd., Suite 50, Reston, VA 20191)
commencing January 15, 2000.(2)
10.22 Loan agreement between the Company and Devarajan Puthukarai.(2)
10.23 Interactive marketing agreement between the Company and American
Online, Inc., dated September 15, 1999.(2)
10.24 Stockholders Agreement dated January 12, 2001, among musicmaker.com,
Inc. and BCG Strategic Investors, LLC, Barington Capital Group, L.P.,
Barington Companies Equity Partners, L.P. and Dot Com Investment
Corporation.(3)
10.25 Stock appreciation rights agreement, dated as of December 19, 2002,
between the Company and James Mitarotonda.(4)
10.26 Stock appreciation rights agreement, dated as of December 19, 2002,
between the Company and Seymour Holtzman.(4)
23.1 Consent of Ernst & Young LLP.(5)
23.2 Consent of Rothstein, Kass & Company, P.C.(5)
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act.(5)
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act.(5)
32.1 Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act.(5)
32.2 Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act.(5)
- ------------------------
(1) Previously filed as an exhibit to the Company's registration statement
on Form S-1, as amended and incorporated herein by reference.
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(2) Previously filed as an exhibit to the Company's annual report on Form
10-K for the year ended December 31, 1999 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's annual report on Form
10-K for the year ended December 31, 2000 and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's annual report on Form
10-K for the year ended December 31, 2002 and incorporated herein by
reference.
(5) Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MM COMPANIES, INC.
/s/ James Mitarotonda
President, Chief Executive Officer and Director
March 30, 2004
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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 dates
indicated.
Signature Title Date
--------- ----- ----
/s/ JAMES MITAROTONDA President, Chief Executive Officer and March 30, 2004
--------------------------- Director
James Mitarotonda
/s/ SEYMOUR HOLTZMAN Chairman of the Board of Directors and March 30, 2004
--------------------------- Director
Seymour Holtzman
/s/ WILLIAM FOX Director March 30, 2004
------------------
William Fox
/s/ JOSEPH WRIGHT, JR. Director March 30, 2004
---------------------------
Joseph Wright, Jr.
/s/ JESSE CHOPER Director March 30, 2004
---------------------------
Jesse Choper
/s/ MELVYN BRUNT Chief Financial Officer and Secretary March 30, 2004
---------------------------
Melvyn Brunt
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