U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________.
Commission File No.: 000-27777
Innovation Holdings, Inc. f/k/a Blagman Media International, Inc.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Nevada 91-192-3501
---------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14622 Ventura Blvd., Suite 1015
Sherman Oaks, CA 91403
---------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 310.788.5444
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(G) of the Act:
COMMON STOCK -- $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 10,356,047,473 shares of common stock
as of September 2003.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS 3
CONDENSED Consolidated Balance Sheet As Of SEPTEMBER 30, 2003 (Unaudited) 5
CONDENSED CONSOLIDATED Statements Of Operations For The Three AND NINE Months Ended
SEPTEMBER 30, 2003 And 2002 (Unaudited) 6
CONDENSED CONSOLIDATED Statements Of Cash Flows For The NINE Months Ended SEPTEMBER
30, 2003 And 2002 (Unaudited) 7
Notes To CONDENSED CONSOLIDATED Financial Statements As Of SEPTEMBER 30, 2003
(Unaudited) 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 18
ITEM 3. CONTROLS AND PROCEDURES 23
PART II - OTHER INFORMATION 23
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
CERTIFICATIONS 26
2
INNOVATION HOLDINGS, INC.
AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA
INTERNATIONAL, INC.)
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONTENTS
PAGE 1 CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2003 (UNAUDITED)
PAGE 2 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
PAGE 3 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
PAGE 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2003 AND 2002 (UNAUDITED)
PAGES 5 - 13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2003
(UNAUDITED)
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
ASSETS
Current assets
Cash $ 2
Prepaid expenses, media and other current assets 236,419
Assets related to discontinued operations 9,645
------------
Total Current Assets 246,066
------------
PROPERTY & EQUIPMENT - NET 80,843
------------
OTHER ASSETS
License agreement 149,468
------------
TOTAL ASSETS $ 476,377
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable - current portion $ 352,225
Accounts payable and accrued expenses 1,877,743
Accrued compensation - officers 1,766,844
Due to officer 49,591
Capital lease obligation - current portion 33,540
Liabilities related to discontinued operations 10,400,999
------------
Total Current Liabilities 14,480,942
------------
LONG-TERM LIABILITIES
Notes and loans payable - long-term portion 445,500
------------
Total Liabilities 14,926,442
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, series A, $.001 par value, super convertible redeemable
preferred stock, 10,000,000 shares authorized, 0 shares issued and outstanding --
Preferred stock, series B, $.001 par value, super convertible redeemable
preferred stock, 100 shares authorized, 100 shares issued and outstanding 1
Common stock, $.001 par value, 20,000,000,000 shares authorized 10,356,047,473
shares issued and outstanding 10,356,047
Additional paid-in capital 30,951,888
Accumulated deficit (54,158,117)
Deferred stock based compensation (1,599,884)
------------
Total Stockholders' Deficiency (14,450,065)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 476,377
============
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
For The Three For The Three For The Nine For The Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
--------------- --------------- --------------- ---------------
REVENUES - NET $ 5,128 $ (17,062) $ 83,652 $ 377,017
--------------- --------------- --------------- ---------------
OPERATING EXPENSES
Selling, general and administrative 2,098,267 3,380,729 5,166,921 10,259,244
Depreciation 7,113 8,695 22,059 17,097
--------------- --------------- --------------- ---------------
Total Operating Expenses 2,105,380 3,389,424 5,188,980 10,276,341
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (2,100,252) (3,406,486) (5,105,328) (9,899,324)
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (10,249) (12,725) (37,117) (30,483)
Interest income -- 28 4 525
--------------- --------------- --------------- ---------------
Total Other Expense (10,249) (12,697) (37,113) (29,958)
--------------- --------------- --------------- ---------------
LOSS FROM CONTINUING OPERATIONS (2,110,501) (3,419,183) (5,142,441) (9,929,282)
LOSS FROM DISCONTINUED OPERATIONS -- (9,585,135) -- (11,851,351)
--------------- --------------- --------------- ---------------
NET LOSS $ (2,110,501) $ (13,004,318) $ (5,142,441) $ (21,780,633)
=============== =============== =============== ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED -
CONTINUING OPERATIONS $ (0.00) $ (2.40) $ (0.00) $ (9.60)
=============== =============== =============== ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED -
DISCONTINUED OPERATIONS $ -- $ (6.70) $ -- $ (11.50)
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
- BASIC AND DILUTED 7,230,008,520 1,429,477 1,155,511,877 1,024,566
=============== =============== =============== ===============
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES ON STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
Additional Deferred
Preferred Stock Common Stock Paid-In Accumulated Stock Based
Shares Amount Shares Amount Capital Deficit Compensation Total
------ ---------- --------------- ----------- ----------- ------------ ----------- ------------
Balance, December 31, 2002 100 $ 1 3,819,639 $ 3,819 $35,587,400 $(49,015,676) $ -- $(13,424,456)
Stock issued for legal fees -- -- 526,245,000 526,245 458,055 -- -- 984,300
Stock issued for consulting -- -- 8,176,657,534 8,176,658 (3,905,860) -- -- 4,270,798
Stock issued for wages -- -- 151,270,000 151,270 (69,680) -- -- 81,500
Stock issued for Board fees -- -- 631,000 631 219,869 -- -- 220,500
Stock issued for license fees -- -- 1,494,675,300 1,494,675 (1,345,207) -- -- 149,468
Stock issued for settlement of
accounts payable -- -- 2,800,000 2,800 25,200 -- -- 28,000
Stock cancelled in association
with Board fees -- -- (51,000) (51) (17,799) -- -- (17,850)
Deferred stock compensation -- -- -- -- -- -- (4,010,122) (4,010,122)
Amortization of deferred stock
compensation -- -- -- -- -- -- 2,410,238 2,410,238
Net loss -- -- -- -- -- (5,142,441) -- (5,142,441)
------ ---------- --------------- ----------- ----------- ------------ ----------- ------------
BALANCE,
SEPTEMBER 30, 2003 100 $ 1 10,356,047,473 $10,356,047 $30,951,888 $(54,158,117) $(1,599,884) $(14,450,065)
====== ========== =============== =========== =========== ============ =========== ============
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(5,142,441) $(9,929,282)
Adjustments to reconcile net loss from continuing operations to net cash
(used in) provided by operating activities:
Depreciation and amortization 22,059 17,097
Provision for bad debt 75,147 --
Stock issued for compensation and services 3,939,274 8,601,715
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (43,368) (22,929)
Prepaid expenses, media and other current assets 105,142 (126,696)
Deposits 4,576 (17,580)
Increase (decrease) in:
Accounts payable and accrued expenses 364,767 1,388,019
Accrued compensation - officers 452,452 436,603
Deferred revenue -- (240,000)
----------- -----------
Net Cash (Used In) Provided By Operating Activities (222,392) 106,947
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (61,263)
Payment for acquisition, net of cash acquired -- (367,213)
----------- -----------
Net Cash Used In Investing Activities -- (428,476)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to officer (63,253) 119,000
Proceeds from notes and loans payable 302,225 --
Cash overdraft (decrease) increase (11,782) --
Capital lease obligation (4,796) 43,007
----------- -----------
Net Cash Provided By (Used In) Financing Activities 222,394 162,007
----------- -----------
NET INCREASE (DECREASE) IN CASH 2 (159,522)
Cash - beginning of Period -- 199,924
----------- -----------
Cash - end of Period $ 2 $ 40,402
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ 97,563
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the period ended September 30, 2003, the Company entered into a license
agreement with a value of $149,468 paid by the issuance of 1,494,675,300 shares
of common stock valued at the fair market value of the stock on the date of
grant.
During the period ended September 30, 2003, the Company settled $2,000 of
accrued payroll by giving the employee a computer with a net book value of
$2,000.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
On February 10, 2003, the stockholders of the Blagman Media
International, Inc. approved an amendment to the articles of
incorporation to change its name to Innovation Holdings, Inc.
The accompanying unaudited condensed consolidated financial statements
include the accounts of Innovation Holdings, Inc. and its subsidiaries
(the "Company"). All significant inter-company transactions and balances
have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America and the rules and regulations of
the Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information necessary for a
comprehensive presentation of financial position and results of
operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
The accompanying condensed consolidated financial statements and the
information included under the heading "Management's Discussion and
Analysis or Plan of Operation" should be read in conjunction with the
Company's Annual Report Form 10-KSB for the year ended December 31, 2002,
filed on May 16, 2003.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reported
period. Actual results could differ from those estimates.
Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current presentation.
Net loss per common share for the three and nine months ended September
30, 2003 and 2002 is computed based upon the weighted average common
shares outstanding as defined by Financial Accounting Standards No. 128,
"Earnings Per Share". All share and per share amounts have been restated
to give effect to a 5,000 for 1 reverse stock split in February 2003.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
NOTE 2 RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities". SFAS
No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The changes in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. This statement is effective
for contracts entered into or modified after September 30, 2003 and all
of its provisions should be applied prospectively.
The FASB has issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The
Statement improves the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange
for cash or other assets. A second type, which includes put options and
forward purchase contracts, involves instruments that do or may require
the issuer to buy back some of its shares in exchange for cash or other
assets. The third type of instruments that are liabilities under this
Statement is obligations that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a variable such
as a market index, or varies inversely with the value of the issuers'
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
In addition to its requirements for the classification and measurement of
financial instruments in its scope, SFAS No. 150 also requires
disclosures about alternative ways of settling the instruments and the
capital structure of entities, all of whose shares are mandatorily
redeemable. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of this
Statement for the fiscal period beginning after December 15, 2003.
Management does not expect the impact from the adoption of these
statements to have a material impact on the Company's consolidated
financial position or results of operations.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
NOTE 3 DISCONTINUED OPERATIONS
Pursuant to an Agreement and Plan of Reorganization dated March 4, 2002,
effective March 22, 2002, the Company acquired 100% of the outstanding
stock of Century Media, Inc., a California corporation ("Century") by
merging Blagman USA, Inc., into Century. Pursuant to the transaction, the
Company acquired all of the capital stock of Century for cash and common
stock of the Company, assumed current debt obligations and unexercised
option and stock appreciation rights of Century and assumed accrued and
ongoing trade and other ordinary course obligations and relationships.
Prior to the closing, the parties negotiated with the holders of portions
of the outstanding Century debt to restructure the term and payments of
such debt and in certain cases, to allow for the issuance of shares of
common stock of the Company in lieu of cash payments. Currently, the
Company remains obligated on certain contingent obligations including
$1.25 million from the TMT Media Corporation acquisition by Century in
2000.
At closing, holders of Century shares received twenty cents per Century
share, of which two and one-half cents was payable in cash and the
balance of seventeen and one-half cents was payable by the delivery of
shares of common stock of the Company, for a total of $903,292 and 14,377
options.
In relation to the acquisition, the Company recorded goodwill in the
amount of $3,048,484, of which $2,321,360 was on the balance sheet of
Century Media on the acquisition date, and recorded an intangible asset
of $5,855,286 related to the customer list acquired. The Company
evaluated the customer list and assigned it a three-year life.
The Company's management performs on-going business reviews based on
quantitative and qualitative measures and assesses the need to record
impairment losses when impairment indicators are identified. In the third
quarter of 2002, the review made by management of the Company determined
that the goodwill related to Century's business and the customer list
acquired in the acquisition were not recoverable. The Company then
recorded impairment charges of $3,048,484 and $5,599,007 (net of
amortization) related to the goodwill and customer list, respectively.
In December 2002, management of the Company determined that it would no
longer invest its capital and human resources into Century and entered
into a plan to discontinue and abandon the operations of Century.
Effective with the fourth quarter of 2002, this operating entity is
reflected as a discontinued operation.
For the nine months ended September 30, 2003, Century was not operating
and therefore did not have any revenues or operating expenses. For the
period from acquisition to September 30, 2002, revenues and loss from
discontinued operations were as follows:
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
Revenues $ 3,566,947
Net loss from discontinued operations $ 5,290,313
Assets and liabilities of the discontinued operations as of September 30,
2003 were as follows:
Assets
Cash $ 313
Prepaid expenses 7,005
Deposits 2,327
-----------
Total Assets $ 9,645
-----------
Liabilities
Accounts payable $ 5,606,399
Accrued expenses 1,113,699
Deferred revenue 1,364,866
Notes payable 2,286,755
Capital lease obligation 29,280
-----------
Total Liabilities 10,400,999
-----------
Net liabilities of discontinued operations $10,391,354
===========
The creditors of Century Media have filed various actions for breach of
contract. The actions arose out of obligations incurred by Century Media
prior to the merger with the Company. The Company disputes these claims
and is actively seeking to resolve these matters.
NOTE 4 NOTES AND LOANS PAYABLE
The following schedule reflects notes and loans payable as of September
30, 2003:
$50,000 note payable, interest at 6%, principal and interest due March 31, 2001. The
holder of the note is currently not demanding payment and the note continues to
accrue interest. $ 50,000
$163,500 note payable, interest at 6%, principal and interest due March 30, 2006 163,500
$85,000 note payable - stockholder, interest at 6%, principal and interest due
April 2, 2006 85,000
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
$197,000 note payable - stockholder, interest at 6%, principal and interest due
April 9, 2006 197,000
$100,000 note payable, interest at 3.8%, principal and interest due January 10, 2004 93,450
$75,000 note payable, interest at 4%, principal and interest due January 27, 2004 33,700
$10,000 note payable, interest at 2.8%, principal and interest due February 11, 2004 10,000
$45,000 note payable, interest at 4%, principal and interest due April 2, 2004, face
amount $45,000 33,075
$112,000 note payable, interest at 4%, principal and interest due June 24, 2004, face
amount $112,000 112,000
$20,000 note payable, interest at 4%, principal and interest due September 8, 2004 20,000
----------------
797,725
Less: current portion (352,225)
----------------
Notes and loans payable - long-term portion $ 445,500
================
On January 10, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $100,000 at
an interest rate of 3.8% per annum. Principal and interest are due no
later than January 10, 2004.
On January 27, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $75,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than January 27, 2004.
On February 11, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $10,000 at
an interest rate of 2.8% per annum. Principal and interest are due no
later than February 11, 2004.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
On June 24, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $112,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than June 24, 2004.
On April 2, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $45,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than April 2, 2004.
On September 8, 2003, the Company entered into a note payable whereby the
lender agreed to fund the Company on an as needed basis up to $20,000 at
an interest rate of 4% per annum. Principal and interest are due no later
than September 8, 2004.
NOTE 5 STOCKHOLDERS' DEFICIENCY
In February 2003, the Board of Directors authorized a 5,000 for 1 reverse
stock split. All share and per share amounts in the accompanying
condensed consolidated financial statements and footnotes have been
restated to give effect to such reverse stock split.
In March 2003 and on May 5, 2003, 6,245,000 and 20,000,000 shares,
respectively, of common stock were issued to the Company's attorney for
services valued at $934,300. The amount has been expensed to selling,
general and administrative expenses in the accompanying condensed
consolidated statement of operations for the nine months ended September
30, 2003. The fair value of the issued shares was based upon the market
price of the Company's stock on the date of grant.
During the nine months ended September 30, 2003, the Company issued
8,179,458,000 shares of common stock for consulting services valued at
$4,297,998. The fair value of the issued shares was based upon the market
price of the Company's stock on the date of grant. Of the total value,
$2,698,114 has been expensed to selling, general and administrative
expenses in the accompanying condensed consolidated statement of
operations for the nine months ended September 30, 2003 and $1,599,884 is
presented as deferred stock based compensation in the accompanying
condensed consolidated balance sheet.
During the nine months ended September 30, 2003, the Company issued
approximately 6,300,000 shares of restricted common stock to the Chief
Executive Officer and subsequently cancelled and rescinded the issuance.
Accordingly, the Company has not included these shares in its equity. The
Company also issued 631,000 shares of common stock to three directors of
the Company for services valued at $220,500. The fair value of the issued
shares was based upon the market price of the Company's stock on the date
of grant. The amount was expensed to selling, general and administrative
expenses in the accompanying condensed statement of operations for the
nine months ended September 30, 2003. During the nine months ended
September 30, 2003, the Company issued 151,270,000 shares of common stock
for employee bonus compensation valued at $81,590. The fair value of the
issued shares was based upon the market price of the Company's stock on
the date of grant. The amount was expensed to selling, general and
administrative expenses in the accompanying condensed statement of
operations for the nine months ended September 30, 2003.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
During the nine months ended September 30, 2003 the Company issued
1,494,675,300 shares of restricted common stock to an unrelated party as
consideration for a license agreement entered into on June 28, 2003
valued at $149,468. The fair value of the issued shares was based upon
the market price of the Company's stock on the date of grant. The amount
was included in other assets in the accompanying condensed consolidated
balance sheet as of September 30, 2003.
Pursuant to the terms and conditions of two separate trust agreements,
shares of the Company's common stock were transferred in trust to an
attorney who will act as trustee of the Innovative Holdings, Inc.
Shareholder and Creditor Trusts ("Shareholder Trust" or "Creditor
Trust"). In addition to the shares, the Company has assigned to the
trusts the results and possible proceeds of pending future litigation.
The Shareholder Trust has been established to respond to the Company's
concern that shareholders of record as of January 1, 2002 through July
31, 2002 were adversely affected by the action of outside parties
effecting the share price and value of the Company throughout these
dates. The Company intends to provide some measure of compensation to its
shareholders for their related losses.
The Creditor Trust has been established to return the maximum amount to
Century Media's creditors (assumed by the Company as a result of the
Century Media acquisition) and to allow the Company to continue to
operate without interruption.
Following the submission of claims and validation of such claims, the
trustee will liquidate the trust property and distribute the proceeds to
the trust beneficiaries in a manner the trustee deems most beneficial.
During the quarter ended September 30, 2003, the Company issued 2 billion
shares of restricted stock to the trusts. The trust shares are not
included in the outstanding shares because they are being held in escrow
by the trustee. Additional stock will be required to be issued to achieve
this financial goal (See Note 9).
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
On August 18, 2003, the Company issued 500,000,000 shares of common stock
valued at $50,000 to an attorney for services rendered in connection with
the establishment of the trust agreements. The fair value of the shares
issued was based upon the market price of the Company's common stock on
the date of grant.
NOTE 6 LITIGATION
On November 11, 2003, the Company reached a settlement with a corporation
as a result of a claim brought against the corporation by the Company on
May 6, 2002 and a cross complaint filed by the corporation on June 14,
2002. As part of the terms and conditions of the settlement, the Company
will pay to the corporation $260,000 and 10% simple interest over one
year. This will be accomplished by the issuance of 1 billion shares of
free trading stock 30 days after the execution of the agreement. The
shares will be held in a trust account for the purpose of selling the
stock and paying the corporation on a continuous basis. In the event the
Company does not pay the corporation the total amount of the settlement
on or before one year and 30 days from the execution date of the
settlement agreement, the corporation will enforce a stipulated judgment
in the amount of $750,000 against the Company. The Company has recorded a
liability of $260,000 as of September 30, 2003 and this amount is
included in accounts payable and accrued expenses in the accompanying
condensed consolidated balance sheet as of September 30, 2003. As of
December 23, 2003, the Company has not yet issued the corporation the 1
billion shares as per the terms of the settlement.
Other than the legal settlement discussed in the above paragraph, the
Company is a party to a number of lawsuits and claims, which have been
disclosed in the Company's Form 10-KSB for the year ended December 31,
2002 filed on May 16, 2003. In the opinion of management and external
legal counsel, the status of the pending lawsuits and claims have not
materially changed from what was disclosed in the Company's Form 10-KSB.
NOTE 7 CAPITAL LEASE OBLIGATIONS
The Company is in default of its capital lease agreement at September 30,
2003. The Company is also in discussions with the lessor to settle the
matter. Due to the default, the entire amount due under the lease has
been classified as current in the accompanying condensed consolidated
balance sheet.
NOTE 8 GOING CONCERN
The Company's condensed consolidated financial statements for the nine
months ended September 30, 2003 have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The
Company incurred a net loss of $5,142,441 and a negative cash flow from
operations of $222,392 for the nine months ended September 30, 2003, and
has a working capital deficiency of $14,400,099 and a stockholders
deficiency of $14,450,065 as of September 30, 2003. The Company's working
capital deficiency as of September 30, 2003 may not enable it to meet
such objectives as presently structured. The condensed consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
The ability of the Company to continue as a going concern is dependent on
the Company's ability to raise additional capital and implement its
business plan. Management believes that actions presently taken to obtain
additional funding provide the opportunity for the Company to continue as
a going concern. The Company is also actively seeking businesses to
acquire.
NOTE 9 AGREEMENTS
On June 28, 2003, the Company entered into a license agreement with an
unrelated company for the exclusive rights to an extensive video library.
The initial term of the agreement is for a period of ten years. There are
automatic renewal options if the Company reaches a specified revenue
amount during the initial term. The Company issued restricted common
stock to pay for the license fee (See Note 5). If the proceeds from the
sale of these shares over the period of 18 months from the date of this
agreement are less than $1,000,000, the Company will be obligated to
issue the licensor additional shares equal to two times the difference.
There are no royalties to be paid in connection with this agreement. The
Company has not generated any revenue from the use of this license
through September 30, 2003.
NOTE 10 SUBSEQUENT EVENTS
During the period from October 1, 2003 through December 16, 2003, the
Company has issued 2,285,000,000 common shares, in the aggregate, to four
different consultants for consulting services to be provided over varying
terms, which expire at various dates during the fiscal years 2004 and
2005.
On October 1, 2003 and November 6, 2003, 150,000,000 and 50,000,000
shares of common stock were issued, respectively, to an attorney as
compensation for legal services rendered.
On November 24, 2003, 2,000,000,000 shares of common stock were issued to
the Company's SEC attorney as compensation for legal services rendered.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Innovation Holdings, Inc. f/k/a Blagman Media International, Inc. is a Nevada
corporation (collectively with its subsidiaries, the "Company"), which is the
successor to a corporation founded in 1961. We are a direct marketing, direct
response and media enterprise based in Century City, California which
principally provides direct market services and media buying for our clients and
their products and services through television, radio, Internet, print and
outdoor advertising media. In addition, we organize direct response media
campaigns on radio, television and in print and provide assistance in backend
marketing and creative production.
We began operations in 1994 as a sole proprietorship and formed a corporation,
Blagman Media International, Inc., in early 1999. On August 2, 1999, we
completed a reverse acquisition with Unisat, Inc., an inactive, public
non-reporting company, founded in 1961 and formerly known as Combined Companies,
Inc. On the same date, Unisat, Inc. changed its name to Blagman Media
International, Inc. and we therefore have two Nevada entities with the same
name. The transaction was structured as a share exchange, in which Robert
Blagman exchanged all of his shares in the privately held entity for 8,200,000
common shares of Unisat, Inc. In April 2000, we entered into a share exchange
agreement with MNS Eagle Equity Group I, an inactive, reporting Nevada
corporation, which resulted in our becoming the parent reporting company.
The primary purpose of these transactions was to give us access to a public
market, to create a new corporate vehicle with which to build a more expansive
media-buying infrastructure, thereby allowing us to leverage our direct
marketing and direct response efforts. Currently, we are actively pursuing
acquisitions and various strategic and working relationships which, if
successful, will allow us to create a "network" of alliance partners with the
capacity to deliver a broader range of services in a more cost-efficient manner.
In 2001, internally we focused on our core competencies by making quantitative
media buys and in assisting our clients in implementing traditional radio,
television and out of home media strategies. Given the general uncertainties in
Internet advertising and Internet business models that developed in late 2000,
and which continue, we plan to monitor the use and styles of Internet
advertising. In this way, we can assess the opportunities available to us in
Internet advertising while not making any firm financial commitments to an
Internet strategy. In addition to considering merger and acquisition
opportunities for consolidation and industry growth, we are continuing to pursue
an expansion in the television production field through strategic alliances.
In 2001, we also actively pursued acquisitions and completed our first industry
acquisition transaction in March 2002 when Century Media, Inc. ("Century")
became a wholly-owned subsidiary under the name Blagman-Century Media, Inc.
("Blagman-Century"), subsequently renamed Century Media, Inc. We had been
negotiating since early 2001 to acquire Century Media, a Santa Monica based
advertising agency in business for over ten years with historical billings and
placements that ranged from $35 million to $110 million. In 2001, we entered
into agreements to acquire all of the outstanding stock of Century, but certain
requirements were not satisfied. In October 2001, we concluded that the purchase
price for Century, which was then set at $5.7 million cash plus the assumption
of significant debt, needed to be substantially reduced as a result of our due
diligence conclusions.
In March 2002, we completed the transaction through a merger of a wholly-owned
special purpose subsidiary into Century in exchange for the payment of the
equivalent of $0.20 per share to the shareholders of Century ($0.025 in cash and
the balance in shares of the common stock of the parent company (hereafter
"Common Shares"), repayment of $749,778 in debentures through the issuance of
Common Shares, and the recognition of debts. As a result, at closing
approximately $600,000 in cash and $2.2 million in restricted Common Shares were
distributed to holders of existing Century shares, debentures, and certain stock
rights. Under the merger agreement, the Common Shares were valued at the closing
bid price over the seven days prior to the date of the agreement or $0.0008857,
resulting in the issuance of 2,555,651,387 new Common Shares to the holders of
Century shares, debentures and certain stock rights. Century also had continuing
debt obligations due to affiliates and third parties of approximately $1.6
million, exclusive of trade and contingency obligations. In connection with our
interest in the Century transaction, we provided management services to Century
from late 2001 to early 2002, essentially on a reimbursement basis. As a result
of the overwhelming debt and departures by members of Century, we no longer
consider this acquisition viable. We are in the process of resolving all issues
related to the Century acquisition.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
Following the acquisition of Century Media in March 2002, the Company has
determined that Century Media was not strategic to the Company's ongoing
objectives and has discontinued capital and human resource investment in Century
Media effective as of December 2002.
Results of Operations
Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002
2003 2002
------------ ------------
Total net revenues $ 5,128 $ (17,062)
Operating Expenses:
General and Administrative $ 2,098,267 $ 3,380,729
Net Loss from Operations $(2,100,252) $(3,406,486)
Net Loss Per Share $ (0.00) $ (2.40)
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
2003 2002
------------ ------------
Total net revenues $ 83,652 $ 377,017
Operating Expenses:
General and Administrative $ 5,166,921 $ 10,259,244
Net Loss from Operations $ (5,105,328) $ (9,899,324)
Net Loss Per Share $ (0.00) $ (9.60)
Net Revenues
Net Revenues (principally from advertising placements, commissions and revenue
sharing arrangements) for the three months ended September 30, 2003 as compared
to the three months ended September 30, 2002 increased from $(17,062) to $5,128.
The increase in revenues is attributed to the Company's ability to outsource
many functions and reduce staffing dramatically thereby allowing the Company to
decrease losses. For the nine months ended September 30, 2003 as compared to the
nine months ended September 30, 2002 net revenues decreased from $377,017 to
$83,652. This decrease is due to the company's discontinuation of many internal
operations that previously brought in aspects of income.
Operating Expenses
Total operating expenses decreased (37.9%) from $3,389,424 in 2002 to $2,105,380
in 2003 for the three months ending September 30. Total operating expenses
decreased (229.8%) from $10,276,341 in 2002 to $5,188,980 in 2003 for the nine
months ending September 30. Included in operating expenses are general and
administrative expenses which decreased from $3,380,729 for the three month
period ended September 30, 2002 to $2,098,267 (37.8%) for the three month period
ended September 30, 2003. General and administrative expenses decreased from
$10,259,244 for the nine-month period ended September 30, 2002 to $5,166,921
(49.6%)
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
The total net loss of the Company for the three-month period ending September 30
2003 was $(2,110,501) compared to $(13,006,318) for 2002, a 83.3% decrease. The
total net loss of the Company for the nine-month period ending September 30 2003
was $(5,142,441) compared to $(21,780,633) for 2002, a 76.4% decrease.
Other Income (Expenses)
Other income expenses for the three month period ending September 30 decreased
from $(12,697) in 2002 to $(10,249) (-19.3%) in 2003 primarily due to lower
interest expenses. For the nine month period the other income expenses increased
from $(29,958) in 2002 to $(37,113) in 2003 (+23.9%). The increase in income
expense is due to the company's reliance on loans and borrowed capital.
Liquidity and Capital Resources
The Company's current assets decreased from $382,985 at December 31, 2002 to
$246,066 at September 30, 2003, this decrease due to the decrease in active
business within INOV.
In connection with the various initiatives being pursued by management to expand
the Company's operations internally and through strategic alliances or
acquisitions with other industry partners, additional capital funding will be
required. The Company hopes to raise these funds through an increase in general
business profits due to a shift in the main focus of its core business. The
Company plans to pass low profit making activity such as media buying to third
party contracted companies. The Company also plans to invest in product
ownership and development as well as actively pursue opportunities to expand the
marketing aspects of these products. As the advertising industry goes through
its transitions, the Company plans to react by adjusting its focus away form
pure media buying to product development. Product development continues to be a
strong avenue for the direct response advertising business. Affiliations and
associations with other advertising agencies will also expand the Company's
ability to increase cash flow and revenues without adding staff. The Company
also plans to investigate the possibility of additional acquisitions that will
allow the Company to become a holding company in name only. By diversifying and
expanding its base operations The Company will endeavor to create a more
productive future.
During 2002 and in the current quarter, the market price of our common shares
has continued to drop precipitously. We believe that there are two underlying
causes. First, we apparently were one of the companies targeted in an organized
pattern of depressing prices through "shorting" by a group pursuing a
coordinated effort to effect and profit from a falling share price and from
attempts to extort favorable stock issuances from the Company without fair
consideration. Management initiated referrals to appropriate regulatory agencies
for their action. While actions from these referrals may reduce future
manipulation, it cannot eliminate the impact of the downward price spiral. The
second factor apparently affecting our price was the market reaction to the
increase in authorized and issued common shares which we undertook to compensate
consultants in our industry, to support Company growth to effect the Century
transaction. Following the acquisition of Century Media in March 2002, the
Company has determined that Century Media was not strategic to the Company's
ongoing objectives and has discontinued capital and human resource investment in
Century Media effective as of December 2002.
Management is currently unwinding the Century transaction, evaluating other
opportunities and pursuing other initiatives to expand the Company's operations
internally and through strategic alliances or acquisitions with other industry
partners. These endeavors will be funded in part from operations but will also
require additional capital funding which the Company hopes to raise through debt
or equity financing arrangements, if appropriate financing is available, on
reasonable and acceptable terms.
The Company intends to continue to seek additional working capital to meet its
operating requirements and to provide further capital for expansion,
acquisitions or strategic alliances with businesses that are complementary to
the Company's long-term business objectives. Additional capital will be needed
to maintain the growth plans of the Company.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
New Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The changes in SFAS No. 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. This statement is effective for contracts entered into or modified
after September 30, 2003 and all of its provisions should be applied
prospectively.
The FASB has issued SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity." The Statement improves the
accounting for certain financial instruments that, under previous guidance,
issuers could account for as equity. The new Statement requires that those
instruments be classified as liabilities in statements of financial position.
SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments. One type is mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or other assets. A
second type, which includes put options and forward purchase contracts, involves
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are
liabilities under this Statement is obligations that can be settled with shares,
the monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the issuers'
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
In addition to its requirements for the classification and measurement of
financial instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after September 15, 2003. For private companies,
mandatorily redeemable financial instruments are subject to the provisions of
this Statement for the fiscal period beginning after December 15, 2003.
Management does not expect the impact from the pronouncements in these
statements to have a material impact on the Company's consolidated financial
position or results of operations.
Forward-Looking Statements
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Except for historical information contained herein, the matters discussed
in this filing are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products
and prices and other factors discussed in the Company's various filings with the
Securities and Exchange Commission.
Critical Accounting Policies.
The Securities and Exchange Commission ("SEC") recently issued Financial
Reporting release No. 60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies" (FRR 60"), suggesting companies provide additional
disclosure and commentary on their most critical accounting policies. In FRR 60,
the SEC defined the most critical accounting policies as the ones that are most
important to the portrayal of a company's financial condition and operating
results, and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain.
Based upon the foregoing definition, the registrant's most critical accounting
policies include:
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
Revenue Recognition
The Company has historically recognized revenue from the sale of media time to
advertising clients. Included in the monies received from advertising clients
are amounts which represent the reimbursement of media time purchased on behalf
of the customer for the related advertisements. These media purchase
reimbursements have been accounted for as an offset to the related media
purchases for the respective advertisement and not as gross revenues as required
under EITF 99-19 and SAB 101. Monies received prior to the broadcast of the
related advertisement are recorded as deferred revenue. In addition, the Company
has earned commissions in connection with the procurement of media time on
behalf of advertising clients in the past. Such commissions are also considered
earned when the underling advertisement is broadcasted. Additionally, the
Company has entered into contractual agreements with other advertising firms to
share revenues based upon the terms of the specific agreements. The income
produced by these revenue-sharing contracts are recognized as media or
commission income depending upon the nature of the income earned from the
agreement.
Goodwill
In July 2001, the FASB issued SFAS No. 142, 'Goodwill and Other Intangible
Assets,' which was required to be adopted for fiscal 2002. SFAS No. 142
established accounting and reporting standards for goodwill and intangible
assets resulting from business combinations. SFAS No. 142 included provisions
discontinuing the periodic amortization of, and requiring the assessment of the
potential impairments of, goodwill (and intangible assets deemed to have
indefinite lives). As SFAS No. 142 replaced the measurement guidelines for
goodwill impairment, goodwill not considered impaired under previous accounting
literature may be considered impaired under SFAS No. 142. SFAS No. 142 also
required that the Company complete a two-step goodwill impairment test. The
first step compared the fair value of each reporting unit to its carrying
amount, including goodwill. If the fair value of a reporting unit exceeded its
carrying amount, goodwill is not considered to be impaired and the second step
was not required. SFAS 142 required completion of this first step within the
first six months of initial adoption and annually thereafter. If the carrying
amount of a reporting unit exceeded its fair value, the second step is performed
to measure the amount of impairment loss. The second step compared the implied
fair value of goodwill to the carrying value of a reporting unit's goodwill. The
implied fair value of goodwill is determined in a manner similar to accounting
for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting
unit. The excess of the fair value of the reporting unit over the amounts
assigned to the assets and liabilities is the implied fair value of goodwill.
This allocation process was only performed for purposes of evaluating goodwill
impairment and did not result in an entry to adjust the value of any assets or
liabilities. An impairment loss is recognized for any excess in the carrying
value of goodwill over the implied fair value of goodwill. Upon the initial
adoption, any impairment loss identified was presented as a change in accounting
principle, net of applicable income tax benefit, and recorded as of the
beginning of that year. Subsequent to the initial adoption, any impairment loss
recognized would be recorded as a charge to income from operations.
Asset Impairment
The Company reviews its long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. In performing the review
for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles would be based on the
fair value of the asset.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As of September 30, 2003, the Registrant carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Rule 13a-14 under the Securities and Exchange Act of 1934
("Exchange Act"). This evaluation was done under the supervision and with the
participation of the Registrant's President. Based upon that evaluation, they
concluded that the Registrant's disclosure controls and procedures are effective
in gathering, analyzing and disclosing information needed to satisfy the
Registrant's disclosure obligations under the Exchange Act.
(b) Changes in internal controls.
There were no significant changes in the Registrant's internal controls or in
its factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Subsequent to the Century Media transaction, TMT
Media Corporation asserted that under the April 2000 Acquisition Agreement with
Century Media, as a result of the transaction between the Company and Century
Media, it is entitled, as of April 22, 2002, to a $1,250,000 contingent amount
and to the payment in full of the balance of $609,564 due on the $700,000 note
delivered in the 2000 acquisition of TMT by Century Media. The Company and
Century Media dispute this position and are seeking to resolve the matter. In
May 2002, TMT filed a lawsuit captioned TMT Media Corporation v. Blagman Century
Media, Inc., et al, in Superior Court of California, County of Los Angeles, Case
No. BC273368, naming the Company, Century Media and Robert Blagman personally,
seeking the accelerated amount of approximately $1,859,564. The named defendants
have filed a general denial to TMT Media's allegations and have asserted
numerous affirmative defenses. Mr. Blagman has demurred to the allegations
raised against him. As a result of a Demurrer, Robert Blagman is no longer
personally a party to this lawsuit. The Company is in the process of preparing a
cross-complaint for damages with claims including indemnification,
apportionment, breach of fiduciary duty and legal malpractice against the
Company's former counsel and former principals of Century Media, Inc.
Suburban Capital Corp. v. Robert Blagman et al., No. 02 CH 12321, is pending in
the Circuit Court of Cook County, Illinois, County Department, Chancery
Division. This litigation was initiated to seek delivery of shares allegedly due
on account of two loans claimed to have been advanced by Suburban. The Company
has delivered shares to the Court pending delivery of the originally pledged
shares by the plaintiff. This matter is a result of the Company's actions in
connection with the internal investigations on stock activities by the plaintiff
and others. The Company has responded to this matter and is actively cooperating
in other investigations related to the plaintiff, including pending regulating
investigations. The Company anticipates additional litigation from the plaintiff
and is intending to assert the indemnification and disgorgement rights under its
agreement with the plaintiff and others.
Innovation Holdings, Inv. f/k/a Blagman Media International, Inc. v. Voxcorp,
Case No.: SC 071975, has been settled. The Voxcorp lawsuit alleged a breach of
contract, fraud and deceit, intentional misrepresentation of facts, and
rescission. Innovation Holdings has filed a general denial to Voxcorp's
cross-complaint and asserted numerous affirmative defenses to each cause of
action. As stated this matter has settled.
Prinvest Capital Corp. v. Century Media, Inc. et al. Case No. BC292131, is
pending in the Superior Court of Los Angeles County. This litigation was
initiated by a creditor of Century Media in regards to an obligation incurred
prior to the merger of Innovation with Century Media. Prinvest Capital is
claiming an amount owed of $166, 653.00. The Company will be filing a general
denial to the complaint and a cross- complaint for damages with claims including
indemnification, apportionment, breach of fiduciary duty and legal malpractice
against the Company's former counsel and former principals of Century Media,
Inc.
INNOVATION HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY BLAGMAN MEDIA INTERNATIONAL, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2003
------------------------
(UNAUDITED)
The creditors of Century Media, Inc., a wholly owned subsidiary of the Company,
have filed various actions for breach of contract. Said actions arise out of
obligations incurred by Century Media prior to the merger with Innovation. The
Company disputes these claims and is actively seeking to resolve these matters:
Media Central v. Blagman Media Inc., et al. pending in Los Angeles County
Superior Court. Lin Television v. Century Media, Inc. et al. Pending in Los
Angeles County Superior Court Case No. 03100896; Infinity Broadcasting Corp. v.
Blagman-Century Media, Inc. et al. Pending in Civil Court of the City of New
York, County of New York; and Whitney Broadcasting, et al. v. Blagman-Century
Media, Inc. et al. Pending in Superior Court, Florida.
There have been no material changes in any pending legal proceedings to include
on this report.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On March 31, 2003 the following information was released by the Securities
Exchange Commission http://www.sec.gov/litigation/litreleases/lr18057.htm.
Within the body of the full SEC Federal Court action is the description of what
transpired to INOV f/k/a Blagman Media during 2001 and 2002 as it relates to The
Company's involvement with Suburban Capital.
Due to the actions and activities resulting from the relationship with Suburban
Capital, INOV has set up a shareholder's trust fund to compensate shareholders
who were adversely effected by the issues outlined within the documents of the
SEC. In addition, The Company performed its own review of suspect activity
during the same period of time further justifying The Company's intent on
assisting shareholders who were negatively effected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On July 18 2003 the Company filed an 8-K announcing the establishment of two
trust accounts one for shareholders and the other for creditors of INOV and the
subsidiary Century Media.
The Innovation Holdings, Inc. Shareholder Trust has been established to respond
to the Company's concern that shareholders of record as of January 1, 2002
through July 31, 2002 were adversely effected by the action of outside parties
effecting the share price and value of the Company throughout these
On July 3 2003 the Company filed an 8-K announcing that World Wide Digital Media
("WWDM"), a wholly owned subsidiary of Innovation Holdings (the "Registrant")
entered into a License Agreement with Vidway Interactive ("Vidway) to acquire
its video library, which consists of approximately 800 hours of programming.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INNOVATION HOLDINGS, INC. F/K/A BLAGMAN MEDIA
INTERNATIONAL, INC.
Dated: __________ /s/ ROBERT BLAGMAN
Robert Blagman, President
EXHIBIT LIST
2.11 Agreement and Plan of Reorganization (Incorporated by reference; Form
8-K filed on March 11, 2002)
3.1 Articles of Incorporation (Incorporated by reference; Form 8-K of MNS
Eagle Equity Group I, Inc. filed on April 27, 2000)
3.2 Bylaws (Incorporated by reference; Form 8-K of MNS Eagle Equity Group
I, Inc. filed on April 27, 2000)
3.3 Certificate of Designation for Series B Convertible Preferred Stock
(Incorporated by reference; Form 8-K of MNS Eagle Equity Group I, Inc.
filed on April 27, 2000)
10.1 Employment Agreement with Robert Blagman (Incorporated by reference;
Form 10-KSB/A filed on April 30, 2001)
10.2 Employment Agreement with Leslie Blagman (Incorporated by reference;
Form 10-KSB/A filed on April 30, 2001)
10.3 Equity Line of Credit Agreement dated July 12, 2001 with GazelleGroup
LLP and DRH Investment Company LLP (Incorporated by reference; Form
SB-2/A filed on November 1, 2001)
10.4 Registration Rights Agreement dated July 12, 2001 with GazelleGroup LLP
and DRH Investment Company LLP (Incorporated by reference; Form SB-2/A
filed on November 1, 2001)
10.5 Securities Purchase Agreement dated July 12, 2001 with certain named
buyers (Incorporated by reference; Form SB-2/A filed on November 1,
2001)
10.6 Placement Agent Agreement dated July 12, 2001 with May Davis Group,
Inc. (Incorporated by reference; Form SB-2/A filed on November 1, 2001)
10.7 Registration Rights Agreement dated July 12, 2001 with certain named
persons (Incorporated by reference; Form SB-2/A filed on November 1,
2001)
10.8 2000 Employee Stock Compensation Plan (Incorporated by reference; Form
S-8 for MNS Eagle Equity Group I, Inc. filed on September 11, 2000)
10.9 2001 Employee Stock Option Plan (Incorporated by reference; Form S-8
filed on August 27, 2001)
21.1 List of Subsidiaries (Incorporated by reference, Form 10KSB, as amended
filed on April 15, 2002)
31 Certification Pursuant to Section 302, Of The Sarbanes-Oxley Act Of
2002 (filed herewith)
32 Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley act of 2002