As filed with the Securities and Exchange Commission on November 1, 2001
Registration Statement No. 333-68504
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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BLAGMAN MEDIA INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Nevada 9995 84-1108499
------ ---- ----------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
1901 Avenue of the Stars, Suite 1710, Los Angeles, California 90067
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(Address of registrant's principal executive offices) (Zip Code)
(310) 788-5444
(Registrant's Telephone Number, Including Area Code)
Robert Blagman
1901 Avenue of the Stars, Suite 1710
Los Angeles, California 90067
Telephone: 310-788-5444
-----------------------
(Name, address and telephone number of agent for service)
Copies of all communications to:
Edward T. Swanson, Esq.
1135 17th Street, Suite E
Santa Monica, California 90403
(310) 283-1035
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933 registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===========================================================================================================
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate registration
to be registered registered per share (1) offering price (1) fee
-----------------------------------------------------------------------------------------------------------
Common stock, $.001 par 300,000,000 $0.0235 (3) $7,050,000.00 $1,762.50 (4)
value shares (2)
Common stock, $.001 par 278,300,000 $0.01 (5) $2,783,000.00 $ 695.75
value shares (2)
===========================================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended.
1
(2) Includes shares of our common stock issuable to Gazelle Group LLP and
DRH Investment Company LLC pursuant to an Equity Line of Credit
Agreement, shares of our common stock issuable upon the conversion of
our Series B Convertible Preferred Stock to other selling shareholders,
and shares of our common stock issuable upon the exercise of warrants
issued to other selling shareholders.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, based on the average of the high and low prices for our common
stock as reported on the OTC Electronic Bulletin Board on August 20,
2001.
(4) Previously paid.
(5) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, based on the average of the high and low prices for our common
stock as reported on the OTC Electronic Bulletin Board on October 30,
2001.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
2
Preliminary Prospectus
Blagman Media International, Inc.
578,300,000 shares of common stock
This prospectus relates to the sale by the selling shareholders of up to
578,300,000 shares of our common stock, including:
(1) 450,000,000 shares of our common stock issuable by us from time to time
upon the exercise of an equity line of credit agreement with Gazelle Group
LLP and DRH Investment Company LLC;
(2) 125,000,000 shares issuable by us upon the conversion of outstanding Series
B Convertible Preferred Stock; and
(3) 3,300,000 shares underlying certain outstanding warrants.
The exact number of shares issuable upon the conversion of the Series B
Convertible Preferred Stock and the exercise of the warrants could increase or
decrease based upon the market price of our common stock at the time of such
conversion or exercise. If the number of shares increases, we will reduce the
number of shares issuable upon the exercise of the equity line of credit by
reducing our exercise of the equity line of credit. Based upon the market price
of our common stock on October 30, 2001, we would be able to raise up to
approximately $4 million from the equity line of credit with the shares included
in this prospectus.
The selling shareholders may sell the stock from time to time in the
over-the-counter market at the prevailing market price or in negotiated
transactions. We will not receive any proceeds from the sale of our common stock
by the selling shareholders. However, we will receive the sale price of any
common stock that we sell to Gazelle Group LLP and DRH Investment Company LLC
under the equity line of credit agreement with our company, and the exercise
price of the warrants. Gazelle Group LLP and DRH Investment Company LLC are
"underwriters" within the meaning of the Securities Act of 1933 in connection
with their sales.
The shares of common stock have not been registered for sale by the
selling security holders under the securities laws of any state as of the date
of this prospectus. Brokers or dealers effecting transactions in the shares
should confirm the registration thereof under the securities laws of the states
in which transactions occur or the existence of any exemption from registration.
Our common stock is quoted on the over-the-counter electronic bulletin
board under the symbol "BMII." On October 30, 2001, the closing price of our
common stock was $0.01 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
INVEST IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
The date of this prospectus is _________, 2001
Subject to Completion
1
TABLE OF CONTENTS
Prospectus Summary 3
Risk Factors 5
Use Of Proceeds 8
Selling Shareholders 8
Plan Of Distribution 11
Management 12
Business 14
Management's Discussion And Analysis Of Financial Condition And Results Of Operations 17
Certain Relationships And Related Transactions 22
Market Information 22
Principal Shareholders 23
Description Of Securities 23
Indemnification Of Officers And Directors 24
Legal Matters 24
Experts 24
Additional Information 24
Consolidated Financial Statements as of December 31, 2000 and 1999 26
Consolidated Financial Statements as of June 30, 2001 xx
2
PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common stock. You should
read the entire prospectus carefully, including the "Risk Factors." This
prospectus describes our company, finances and products.
About Our Company
Blagman Media International, Inc. is a Nevada corporation which is the
successor to an enterprise founded in 1962. 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.
About Our Equity Line of Credit Agreement
We have entered into an equity line of credit agreement with Gazelle and
DRH to raise funds through a series of sales of our common stock to Gazelle and
DRH. We are registering 450,000,000 shares of our common stock issuable by us
from time to time upon the exercise of the equity line of credit agreement. We
currently would be able obtain about $4 million pursuant to the equity line of
credit from the shares included in this prospectus, although the line of credit
covers up to $15 million. If the market price of our common stock declines, the
funds which we can obtain will decline. If the market price increases, the funds
which we can obtain will increase up to a maximum of $15 million. The dollar
amount of each sale is determined by us, subject to a maximum limit based on our
common stock's trading volume. At least 13 trading days must occur between
sales. In turn, Gazelle and DRH will sell our stock in the open market, sell our
stock to other investors through negotiated transactions or hold our common
stock in their own portfolios.
Additional Shares We Are Registering
We also are registering:
125,000,000 shares of our common stock issuable upon the
conversion of our Series B Convertible Preferred Stock
previously sold in an exempt private offering, and
3,300,000 shares of our common stock underlying warrants granted
to certain persons in consideration for their assistance with
the equity line of credit agreement and the sale of our Series B
Convertible Preferred Stock.
The number of shares issuable upon conversion of the Series B
Convertible Preferred Stock and upon the exercise of the warrants is
based upon the price of our common stock at the time of such conversion
or exchange. If the number of shares required to be issued exceeds the
amounts indicated above, we will reduce the number of shares covered by
this prospectus for the equity line of credit agreement.
The Offering
Common stock outstanding prior to this 334,431,736 shares
offering
Common stock being registered by us: 578,000,000 shares
Price per share to the public No set price; open market transactions will be at
the then-prevailing market price, while
negotiated transactions may be at a price greater
or less than the then-prevailing market price
Total proceeds which could be raised by the
equity line, based on the number of shares
registered and a market price of
$0.01 as listed on the OTC Bulletin $4,095,000
Board on October 30, 2001
Total proceeds from the exercise of
warrants held by the selling shareholders $33,000
Use of proceeds We plan to use the proceeds for general corporate
purposes and possibly for acquisitions
3
SUMMARY FINANCIAL INFORMATION
The summary financial data for the years ended December 31, 2000 and
1999 have been derived from the Financial Statements and Notes to Financial
Statements, audited by Weinberg & Company, P.A., independent auditors. The
summary financial data for the six months ended June 30, 2001 and 2000 are
derived from our unaudited financial statements which, in the opinion of
management, includes all adjustments necessary for a fair presentation of the
financial position and results of operations for such periods. The financial
information for the six months ended June 30, 2001 and 2000 are not necessarily
indicative of the results of operations for subsequent periods or a full fiscal
year. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this prospectus.
Years Ended Six Months Ended
--------------------- ------------------------
December 31, June 30,
2000 1999 2001 2000
---------- --------- --------- ----------
Statements of Income Data:
Revenues - net $ 468,405 $ 639,602 $ 192,594 $ 239,940
Operating expenses 4,454,955 755,464 2,426,121 2,248,417
Loss from operations (3,986,550) (116,606) (2,238,078) (2,005,413)
Net loss (3,990,309) (125,948) (2,250,112) (2,187,883)
December 31, 2000 June 30, 2001
----------------- -------------
Balance Sheet Data:
Total assets $ 403,131 $ 304,627
Current liabilities 810,121 1,139,786
Long-term liabilities 0 445,500
Stockholders' deficiency (406,990) (1,280,659)
4
RISK FACTORS
An investment in the common stock being offered for sale by the selling
shareholders is very risky. You should carefully consider the risk factors
described below, together with all other information in this prospectus before
making an investment decision. If any of the following risks actually occurs,
our business, financial condition or operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES.
We reported net losses of $3,990,309 for 2000 and $125,948 for 1999. For
the six months ended June 30, 3001, we reported net losses of $2,250,112.
IF WE DO NOT OBTAIN ADEQUATE FINANCING TO FUND OUR FUTURE OPERATIONS AND TO
EFFECT ACQUISITIONS WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
PLAN.
Although it is difficult to estimate the amount of additional financing
we will require, we anticipate that over the next twelve months we will need
approximately $5 million for acquisitions, working capital and general corporate
purposes. This estimate could increase. Based on our potential rate of cash
operating expenditures and our current plans, we anticipate our cash
requirements may need to come primarily from the proceeds of the equity line of
credit agreement. However, our ability to raise funds under the equity line of
credit agreement is subject to certain conditions, as described under "Selling
Shareholders -- Equity Line of Credit Agreement." These conditions include the
effectiveness of a registration statement for the shares to be sold, and a
requirement that the number of shares sold in a put not exceed the lesser of
150% of the aggregate daily reported trading volume of our common stock during
the 40 trading days after the date of our put notice, or a dollar limit of
$750,000. We anticipate that our future cash requirements may be fulfilled by
improved sales of product, the sale of additional equity securities and/or debt
financing. However, we cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations would be significantly limited.
WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE MARKETING AND
ADVERTISING INDUSTRY.
The marketing and advertising industry is highly competitive, and we
expect it to remain so. Our principal competitors include both large marketing
and advertising companies and numerous smaller agencies. We must compete with
these other companies and agencies to maintain existing client relationships and
to obtain new clients and assignments. We compete principally on the basis of
the following factors:
- creative reputation;
- knowledge of media;
- geographical coverage and diversity;
- relationships with clients;
- quality and breadth of services; and
- financial controls.
New competitors also include smaller companies such as systems integrators,
database marketing and modeling companies and telemarketers, which offer
technological solutions to marketing and advertising issues faced by clients.
WE ARE DEPENDENT UPON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF OUR REVENUES
FROM, A LIMITED NUMBER OF CLIENTS.
A significant reduction in the marketing and advertising spending by, or the
loss of one or more of, our largest clients could weaken our financial condition
and cause our business and results of operations to suffer. A relatively small
number of clients contribute a significant percentage of our consolidated
revenues. In 1999 and 2000, our largest client was 21st Century Insurance, which
had accounted for advertising placements in excess of $4,000,000 and represented
approximately 27% of our revenues in 1999. This company was acquired in 1999,
and ceased using our services in 2000. This has materially adversely affected
our revenues since
5
2000. Metrx and Greenpeace each are expected to account for more than 10% of
our revenues this year Our dependence on revenues from these client accounts may
increase in the future as we pursue our strategy of increasing penetration of
existing large clients.
Our clients may not continue to use our services to the same extent, or
at all, in the future. Most of our agreements with clients are cancelable on
30-45 days' notice. In addition, clients generally are able to reduce marketing
and advertising spending or cancel projects at any time for any reason.
WE MAY NOT BE ABLE TO ATTRACT NEW CLIENTS FOR OUR MARKETING AND ADVERTISING
SERVICES.
Our success, like the success of other marketing and advertising
organizations, depends on our continuing ability to attract and retain clients.
Clients may move their advertising and other marketing assignments from agency
to agency, or may divide their assignments among two or more agencies, with
relative ease. As is typical in the marketing and advertising industry, we have
lost or resigned client accounts and assignments for a variety of reasons. We
may not be successful in replacing clients or revenues when a client
significantly reduces the amount of work given to us.
CONFLICTS POLICIES COULD ADVERSELY AFFECT OUR ABILITY TO COMPETE FOR NEW CLIENTS
When we represent a client, we do not necessarily handle all advertising
or marketing for that client. In addition, the ability of agencies within
marketing and advertising organizations to acquire new clients or additional
assignments from existing clients may be limited by the conflicts policy
followed by many clients. This conflicts policy typically prohibits agencies
from performing similar services for competing products or companies.
Accordingly, our ability to compete for new advertising and marketing
assignments may be limited by these conflicts policies.
THE SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK THAT ARE ELIGIBLE FOR
FUTURE SALE IN THE PUBLIC MARKET COULD ADVERSELY AFFECT PREVAILING MARKET PRICES
OF OUR COMMON STOCK OR LIMIT OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
Future sales of substantial amounts of our common stock in the public
market, or the perception that these sales might occur, could adversely affect
the prevailing market price of our common stock or limit our ability to raise
additional capital. We currently have 334,431,736 shares of our common stock
issued and outstanding and an additional 578,300,000 shares which are the
subject of this prospectus may be issued in connection with the equity line of
credit agreement, the conversion of our Series B Preferred Stock, and the
exercise of certain warrants.
No precise prediction can be made of the effect, if any, that market
sales of our common stock or the future availability of shares for sale will
have on the market price of our common stock from time to time. Sales of
substantial amounts of our common stock in the public market could adversely
affect prevailing market prices and limit our ability to raise additional
capital.
THE SALE OF MATERIAL AMOUNTS OF OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR
COMMON STOCK AND ENCOURAGE SHORT SALES.
If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced, and
these securities may have rights, preferences or privileges senior to those of
our stockholders. As we sell shares of our common stock to Gazelle and DRH
pursuant to our put rights and if, and to the extent that Gazelle and DRH sell
our common stock, our common stock price may decrease due to the additional
shares in the market. As the price of our common stock decreases, and if we
decide to exercise our right to put shares to Gazelle and DRH, we will be
required to issue more shares of our common stock upon exercise of our put
rights for any given dollar amount invested by Gazelle and DRH. This may
encourage short sales, which could place further downward pressure on the price
of our common stock.
THE EXERCISE OF OUR PUT RIGHTS MAY SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER
HOLDERS.
The shares of our common stock issuable upon exercise of our put rights
will be available for sale immediately upon issuance. Accordingly, the exercise
of our put rights may result in substantial dilution to the interests of the
other holders of our common stock. Shares sold to Gazelle and DRH pursuant to
the equity line of credit will be priced at 91% of the lowest bid price during
the 10 trading days immediately prior to our exercise of the put. Gazelle and
DRH could sell short during this period, which could decrease the price of our
common stock and reduce the purchase price for the shares. This would cause them
to receive additional shares of our common stock.
6
A DECLINE IN THE MARKET PRICE FOR OUR COMMON STOCK WOULD REDUCE THE AMOUNT OF
FUNDS WE CAN OBTAIN THROUGH OUR EQUITY LINE OF CREDIT AGREEMENT.
Such a decline could substantially impair our ability to obtain funding
from the equity line of credit, and other sources of funds may not be available.
Such an event could materially impair our ability to obtain necessary capital.
SIGNIFICANT FUTURE EXPENSES WILL BE RECOGNIZED AS AN OPERATING EXPENSE.
We have issued a substantial number of shares of common stock for
current and future services. Although this has reduced our actual cash outlay,
we are required to expense this deferred compensation in future periods, and it
will be recognized as an operating expense. Such expense could create
significant net losses if revenues do not significantly increase from their
present levels.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION THAT MAY AFFECT THE
LIQUIDITY FOR OUR COMMON STOCK.
Shares of our common stock are subject to the rules adopted by the
Securities and Exchange Commission that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules, deliver a standardized risk
disclosure document prepared by the Securities and Exchange Commission, which
contains the following:
a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading;
a description of the broker's or dealer's duties to the customer and of
the rights and remedies available to the customer with respect to
violation to such duties or other requirements of Securities' laws;
a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and significance of the spread
between the "bid" and "ask" price;
a toll-free telephone number for inquiries on disciplinary actions;
definitions of significant terms in the disclosure document or in the
conduct of trading in penny stocks; and
such other information and is in such form (including language, type,
size and format), as the Commission shall require by rule or regulation.
Prior to effecting any transaction in penny stock, the broker-dealer also must
provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market
for such stock; and
o month account statements showing the market value of each penny stock
held in the customer's account.
In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written acknowledgment
of the receipt of a risk disclosure statement, a written agreement to
transactions involving penny stocks, and a signed and dated copy of a written
suitably statement. These disclosure requirements may have the effect of
reducing the trading activity in the secondary market for a stock such as our
common stock that is subject to the penny stock rules.
WE MAY BE ADVERSELY AFFECTED BY A DOWNTURN IN THE MARKETING AND ADVERTISING
INDUSTRY, WHICH IS CYCLICAL.
The marketing and advertising industry is cyclical and as a result it is
subject to downturns in general economic conditions and changes in client
business and marketing budgets. Our prospects, business, financial condition and
results of operations may be materially adversely affected by a downturn in
general economic conditions in one or more markets or changes in client business
and marketing budgets.
7
TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED THEREBY
MAKING IT MORE DIFFICULT FOR INVESTORS TO RESELL THEIR SHARES OF OUR COMMON
STOCK.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin
Board is not an exchange and, because trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on an
exchange or Nasdaq, you may have difficulty reselling any of the shares that you
purchase from the selling shareholders.
WE DEPEND ON OUR CEO AND THE LOSS OF HIS SERVICES COULD HARM OUR BUSINESS.
We place substantial reliance upon the efforts and abilities of Robert
Blagman, our Chairman and Chief Executive Officer. The loss of the services of
Mr. Blagman could have a material adverse effect on our business, operations,
revenues or prospects. We presently have an employment agreement with Mr.
Blagman. We have no assurance, however, that upon the expiration of the
employment agreement he will remain in our employ. We do not maintain and we do
not intend to obtain key man like insurance on the life of Mr. Blagman.
WE HAVE NOT PAID ANY DIVIDENDS SINCE INCEPTION AND HAVE NO CURRENT PLANS TO PAY
ANY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock
since our inception. We currently intend to retain any future earnings for
funding growth and therefore, do not expect to pay any dividends in the
foreseeable future.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common stock
being offered by the selling shareholders. We may, however, receive up to
approximately $4 million, based on the market price of our common stock on
October 30, 2001 of $0.01 per share, from the sale of common stock included in
this prospectus to Gazelle and DRH pursuant to the equity line of credit
agreement. We also may receive up to approximately $33,000 from the exercise of
warrants held by certain selling shareholders. If all of the shares of common
stock included in this prospectus which we can sell to Gazelle and DRH are sold,
and the warrants are exercised, we estimate that we will receive net proceeds of
approximately $4,085.000. Net proceeds are determined after deducting all
expenses of the equity line of credit agreement (estimated to be approximately
$200,000) and all expenses of this offering (estimated to be approximately
$43,000).
We intend to use the net proceeds from this offering for working capital
and general corporate purposes, including possible acquisitions. No specific
acquisitions have been determined at this time. We previously entered into an
agreement with Century Media for its acquisition for $5.7 million. However, our
financial due diligence of Century Media raised several issues impacting the
valuation of Century Media. There is no definitive agreement yet, and we are
negotiating revised terms for the acquisition. We intend to pay any cash portion
of the Century Media acquisition out of funds obtained from the equity line of
credit. We have entered into a letter of intent with WellWorld Group to acquire
51% of WellWorld for $500,000 cash and an additional $1,000,000 in cash or
stock. No definitive agreement has been executed, and there is no assurance that
this acquisition will be completed. We intend to pay any cash portion of the
acquisition out of funds obtained from the equity line of credit.
Pending the use of any proceeds as discussed above, we intend to invest
these funds in short term, interest bearing investment-grade obligations.
SELLING SHAREHOLDERS
The following table sets forth certain information as of the date of
this prospectus, with respect to Gazelle, DRH and the other selling shareholders
for whom we are registering shares for resale to the public. Selling
shareholders are under no obligation to sell all or any portion of their shares.
Particular shareholders may sell less than the number of shares indicated. The
table assumes that the selling shareholders will sell all of their shares.
The exact number of shares issuable to selling shareholders will depend
on the market price for our common stock at or immediately prior to the exercise
by us of a put under the equity line of credit agreement, the conversion of
Series B Preferred Stock, or the exercise of the warrants. The number of shares
set forth in the table below assumes (1) the exercise by us of puts for all
shares covered by this prospectus for issuance under the equity line of credit
agreement, based on an exercise price of 91% of $0.01, the market price for our
common stock at the close of business on October 30, 2001; (2) the conversion of
the Series B Preferred Stock into
8
common stock at a conversion price of $0.01 per share; and (3) the exercise of
the warrants for the number of shares into which they are currently exercisable.
The table below provides the names of the selling shareholders, the
number of shares they beneficially own before this offering assuming (1) the put
of all shares issuable under the equity line of credit agreement which are
covered by this prospectus, (2) the conversion of all shares of Series B
Convertible Preferred Stock, and (3) the exercise of the warrants. Except as set
forth below, none of the selling shareholders currently is an affiliate of ours,
and none of them has had a material relationship with us during the past three
years. None of the selling shareholders are or were affiliated with registered
broker-dealers. An asterisk indicates if their common stock ownership is less
than one percent.
Number of Shares Number of Shares
Beneficially Owned Number of to be Owned
Prior to the Shares Being After the
Name of Selling Shareholder Offering(1) Offered Offering
--------------------------- ------------------ ------------ ----------------
David Lee 625,000 625,000 0
Wei Z. Yen 6,250,000 6,250,000 0
Gerald Simpson 9,375,000 9,375,000 0
Gary Kitchell 6,250,000 6,250,000 0
Dr. Michael Jessen 3,125,000 3,125,000 0
Dr. David Hungerford 5,000,000 5,000,000 0
William Murphy 6,250,000 6,250,000 0
David Miller 3,125,000 3,125,000 0
Frank Shaffa 625,000 625,000 0
James Railiff 1,250,000 1,250,000 0
Dr. Riyazh Jinnah 6,250,000 6,250,000 0
John Martin 1,250,000 1,250,000 0
Robert Anoff 1,250,000 1,250,000 0
Marvin Strauss 5,000,000 5,000,000 0
Chien Chun Chang 6,250,000 6,250,000 0
John Diesel 6,250,000 6,250,000 0
Tim Borne and Anne Borne J/T 10,000,000 10,000,000 0
Lam King Shan 18,750,000 18,750,000 0
Peter Che Nan Chen 25,000,000 25,000,000 0
Kwok Leung Lai 3,125,000 3,125,000 0
May Davis Group (1) 2,640,000 2,640,000 0
Martin Schneider 660,000 660,000 0
Gazelle Group LLP 225,000,000 225,000,000 0
DRH Investment Company LLC 225,000,000 225,000,000 0
-------------------
(1) Owen May and G. Davis have voting and investment control over May Davis.
The securities we issued to the selling shareholders were sold in
private, unsolicited transactions that did not involve a public offering
pursuant to an exemption from registration under Section 4(2) of the Securities
Act. The holders of Series B Convertible Preferred Stock acquired such shares in
a private transaction in July 2001. May Davis Group and Martin Schneider
received their warrants in consideration for their assistance to us in
connection with exploring our financing alternatives, including the sale of the
Series B Convertible Preferred Stock and obtaining the equity line of credit.
Gazelle and DRH will receive shares to the extent we exercise puts in accordance
with the equity line of credit agreement.
Equity Line of Credit Agreement
On July 12, 2001, we entered into an equity line of credit agreement
with Gazelle and DRH. This prospectus covers a total of 450,000,000 shares of
common stock which may be issued by us pursuant to the equity line of credit
agreement. The equity line of credit agreement entitles us to issue and sell our
common stock to Gazelle and DRH for up to an aggregate of $15 million from time
to time during a three-year period beginning on the date of the agreement. Based
on the closing market price of our common stock on October 30, 2001 of $0.01 per
share, we would be able to receive only about $4 million from the 450,000,000
shares we have registered for issuance and sale pursuant to the equity line of
credit agreement. Each election by us to sell stock to Gazelle and DRH is
referred to as a put right.
9
The current number of shares that Gazelle and DRH could receive and
resell under the equity line for each of our puts is the lesser of (1) 150% of
the aggregate daily reported trading volume of our common stock for the last 40
trading days or (2) the number of shares which would be issued under the
agreement for $750,000, which currently calculates to approximately 68,000,000
shares. We estimate that we will make to Gazelle and DRH no more than six puts
per year. Using the pricing mechanism and the current market price and trading
volume of our common stock, we estimate that we may put to Gazelle and DRH all
450,000,000 shares covered by this prospectus for issuance under the equity line
of credit agreement may be issued during the 12 to 18 months, for which we would
receive approximately $4 million.
Assuming that all 450,000,000 shares covered by this prospectus for
issuance pursuant to the equity line of credit are issued to Gazelle and DRH for
approximately $4 million, they would have acquired approximately 45% of the
aggregate shares then outstanding, assuming the conversion of the Preferred
Stock and the exercise of the warrants, for $4,095,000. Existing shareholders,
who presently own an aggregate of 334,431,736 shares, would have their
percentage interest in our outstanding stock reduced by approximately two-thirds
if all shares covered by this prospectus are issued. For example, a person who
presently owns 10% of our outstanding shares would own, after all shares covered
by this prospectus were issued, 3 1/3% of our outstanding shares.
The following table sets forth, for the specified conversion prices,
funds we would receive from Gazelle and DRH. If the conversion price exceeds
$0.03 1/3, fewer than 450,000,000 shares would be needed for use of the entire
$15 million equity line of credit, and the percentage of outstanding shares
owned by Gazelle and DRH after the full use of the equity line of credit would
be less than 45%.
Funds we would receive for % of total shares
450,000,000 shares of outstanding owned
Conversion Price our common stock by Gazelle and DRH
---------------- -------------------------- ------------------
$0.005 $2,250,000 45%
$0.01 $4,500,000 45%
$0.02 $9,000,000 45%
$0.03 $13,500,000 45%
$0.03 1/3 $15,000,000 45%
Put Rights. In order to invoke a put right, we must have an effective
registration statement on file with the SEC registering the sale of shares of
our common stock that may be issued as a consequence of the exercise of our put
right. We also must have obtained all material permits and qualifications
required by any applicable state for the offer and sale of the shares, or have
exemptions from such requirements available, and must have filed with the
Securities and Exchange Commission in a timely manner all reports, notices and
other documents required of a reporting company. We must also give at least 13
trading days' advance notice to Gazelle and DRH of the date on which we intend
to exercise a particular put right and we must indicate the dollar amount of
shares of our common stock that we intend to sell to Gazelle and DRH (which may
not exceed $750,000). The number of shares of our common stock sold to Gazelle
and DRH in a put may not exceed the lesser of 150% of the aggregate daily
reported trading volume of our common stock during the 40 trading days after the
date of our put notice, or a dollar amount of $750,000.
For each share of our common stock, Gazelle and DRH will pay us 91% of
the lowest closing bid price of our common stock during the ten consecutive
trading day period that begins on the first trading day after an advance notice
date. However, we will be entitled to an advance only if the closing bid price
of our common stock on the closing date is equal to or great than the purchase
price.
Limitations And Conditions Precedent To Our Put Rights. Gazelle and DRH
is not required to acquire and pay for any shares of our common stock with
respect to any particular put for which, between the date we give advance notice
of an intended put and the date the particular put closes:
- The registration statement registering the sale of our common stock
ceases to be effective;
- We have not obtained all permits and qualifications required by any
applicable state in accordance with the registration rights
agreement for the offer and sale of the shares, unless there is an
available exemption from such requirements;
- There is a fundamental change to the information set forth in the
registration statement which would require us to file a
post-effective amendment to the registration statement;
- We have not performed or complied in all material respects with all
covenants, agreements and conditions required by the equity line of
credit agreement and the registration rights agreement;
10
- There is an injunction, statute, rule, order, decree or ruling that
prohibits or adversely affects the transactions contemplated by the
equity line of credit agreement;
- The trading of our common stock has been suspended by the Securities
and Exchange Commission or by the NASD OTC Bulletin Board; or
- We have knowledge of any event more likely than not to have the
effect of causing the registration statement to be suspended or
otherwise ineffective.
Indemnification. We and Gazelle and DRH have agreed to indemnify each
other (including our respect officers, directors, employees and agents) from all
liability and losses resulting from any misrepresentations or breaches the
indemnifying party makes in connection with the equity line of agreement
agreement, the registration rights agreement, other related agreements, or
performance or enforcement of the agreements.
Additional Securities Being Registered
In July 2001, we entered into a securities purchase agreement with
certain of the selling shareholders pursuant to which we issued 100 shares of
our Series B Convertible Preferred Stock for an aggregate purchase price of
$1,000,000. Each share of the Series B Convertible Preferred Stock currently is
convertible into 1,250,000 shares of our common stock, or an aggregate of
125,000,000 shares.
In July 2001, we granted warrants to purchase up to an aggregate of
3,300,000 shares, as adjusted, of our common stock at an exercise price of $0.01
per share, as adjusted, to two selling shareholders in partial consideration for
their assistance in connection with the equity line of credit agreement and the
securities purchase agreement. As a result of anti-dilution provisions, the
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell his or her shares of
our common stock at such times, in such manner and at such prices as he or she
may determine. The types of transactions in which the shares of our common stock
are sold may include transactions in the over-the-counter market (including
block transactions), negotiated transactions, the settlement of short sales of
our common stock, or a combination of such methods of sale. The sales will be at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers. The selling shareholders
have advised us that they have not entered into agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
shares. The selling shareholders do not have an underwriter or coordinating
broker acting in connection with the proposed sale of our common stock.
The selling shareholders may sell their shares directly to purchasers or
to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of our common stock for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Gazelle and DRH each is, and each remaining selling shareholder and any
broker-dealer that assists in the sale of our common stock may be deemed to be,
an "underwriter" within the meaning of Section 2(a)(11) of the Securities Act.
Any commissions received by such broker-dealers and any profit on the sale of
the shares of our common stock sold by them while acting as principals might be
deemed to be underwriting discounts or commissions. The selling shareholders may
agree to indemnify broker-dealers for transactions involving sales of our common
stock against certain liabilities, including liabilities arising under the
Securities Act.
Because Gazelle and DRH each is, and each remaining selling shareholder
may be deemed to be, an underwriter within the meaning of Section 2(a)(11) of
the Securities Act, the selling shareholders will be subject to prospectus
delivery requirements.
We have informed Gazelle and DRH that the anti-manipulation rules of the
SEC, including Regulation M promulgated under the Securities Exchange Act, will
apply to their sales in the market, and we have informed the other selling
shareholders that these anti-manipulation rules may apply to their sales in the
market. We have provided all of the selling shareholders with a copy of such
rules and regulations.
Regulation M may limit the timing of purchases and sales of any of the
shares of our common stock by the selling shareholders and any other person
distributing our common stock. The anti-manipulation rules under the Securities
Exchange Act may
11
apply to sales of shares of our common stock in the market and to the activities
of the selling shareholders and their affiliates. Furthermore, Regulation M of
the Securities Exchange Act may restrict the ability of any person engaged in
the distribution of shares of our common stock to engage in market-making
activities with respect to the particular shares of common stock being
distributed for a period of up to five business days prior to the commencement
of such distribution. All of the foregoing may affect the marketability of our
common stock and the ability of any person or entity to engage in market-making
activities with respect to our common stock.
Rules 101 and 102 of Regulation M under the Securities Exchange Act,
among other things, generally prohibit certain participants in a distribution
from bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security.
The selling shareholders, other than Gazelle and DRH, also may resell
all, or a portion, of the common shares in open market transactions in reliance
upon Rule 144 under the Securities Act, provided they meet the criteria and
conform to the requirements of such Rule. Gazelle and DRH may not rely upon Rule
144 since Gazelle and DRH each is an underwriter within the meaning of Section
2(a)(11) of the Securities Act and the safe-harbor provided by Rule 144 is not
available to underwriters of our common stock.
Gazelle and DRH and the other selling stockholders will pay all
commissions, transfer taxes and other expenses associated with their sales. The
shares offered hereby are being registered pursuant to our contractual
obligations, and we have agreed to pay the expenses of the preparation of this
prospectus.
MANAGEMENT
The following table sets forth certain information with respect to our directors
and executive officers:
Name Age Position
---- --- --------
Robert Blagman (1) 45 Chairman of the Board, CEO and Financial Officer
Andy Given 42 Director
Walter Lubars (2) 69 Director
Jeff Wald (2) 49 Director
Robert Blagman founded our business as a sole proprietorship in 1994 and
has been the chief executive of the company since the transactions with Unisat,
Inc. in August 1999. Prior to founding the enterprise, he was an executive in
advertising marketing at: Disney KCAL Channel in Los Angeles (national
advertising sales manager 1992-1994); KCOP in Los Angeles (local advertising
sales manager 1989-1992); and Katz Communications (various titles leading to
national advertising sales manager 1978-1989).
Andy Given has served as President of Production for The Shooting
Gallery and as head of Gun For Hire (motion picture/television production). From
1990 to 1999, he held numerous management and other positions at Universal
Studios, including an executive producer focused on cost management of films.
Walter Lubars has been a professor of advertising at Boston University
for over 30 years. Mr. Lubars now is semi-retired and works part-time as a
professor emeritus.
Jeff Wald has been the New Director for KTLA Channel 5 in Los Angeles
for the past five years. KTLA is part of the Tribune Company.
Each director will hold office until the next annual meeting of
shareholders and until the election and qualification of his successor. None of
the directors is a director of any other reporting company.
Executive Compensation
The following table sets forth for 2000 each component of compensation
paid or awarded to, or earned by, our executive officers. There were no other
persons who were serving as executive officers as of December 31, 2000.
12
Securities All other
Name and principal Other annual Restricted underlying compen-
position Year Salary Bonus compensation stock awards options/SARs sation
------------------ ---- ------ ----- ------------ ------------ ---------
Robert Blagman, Chief 2000 $240,000(2) $150,000(2) $286,500(3)
Executive Officer
1999 $142,700
Leslie Blagman, Former 2000 $135,000(2) $116,667(2) $150,000(3) 50,000(4)
Chief Operating
1999 $136,000
(1) Robert Blagman and Leslie Blagman became Chief Executive Officer and Chief
Operating Officer, respectively, of our company in August 1999 in connection
with a transaction with Unisat, Inc. Prior to that date, they served in similar
capacities for the sole proprietorship which was the predecessor to our
business. The compensation reflected is for payments received from that
predecessor as well as our company. Leslie Blagman resigned as our Chief
Operating Officer on June 1, 2001.
(2) Includes $55,000 and $34,000 of 2000 compensation which Robert and Leslie
Blagman, respectively, have deferred under their employment agreements dated
January 1, 2000. During 2001, the Blagmans are continuing to defer receipt of
compensation due to them under their employment agreements. Excludes a loan of
$75,000 to the Blagmans in 2000, which was repaid in 2001 with interest at 8%
per annum. In addition, on December 31, 2000, the Company had a receivable of
$45,488 from Robert Blagman for advances which have been recorded as a loan.
(3) The shares were valued at $1.00 per share, the closing market price on June
2, 2000, the date of issuance. The 286,500 shares issued to Robert Blagman were
returned to our company in 2000 for cancellation.
(4) Reflects options to acquire 50,000 common shares granted on July 14, 2000 to
all Board members, other than Robert Blagman, and to Leslie Blagman as Secretary
to the Board. The options are fully vested and exercisable until July 2005 at
$0.25 per share.
Option/SAR Grants in Last Fiscal Year
The following table sets forth stock options granted by us during the
last fiscal year.
(Individual Grants)
Number of Securities Percent Of Total Options/Sars
Underlying Options Granted To All Employees in
Granted Fiscal Year Price($/Sh) Expiration Date
-------------------- ----------------------------- ----------- ---------------
Leslie Blagman(1) 50,000 20%(2) $0.25 7/14/05
(1) In addition, in January 2001, Leslie Blagman received 100,000 options
exercisable at $0.09 per share and expiring on January 23, 2006.
(2) This percentage is based on the total options granted through the last
fiscal year; it is not based on the total options granted through
January 31, 2001.
There were no option exercises in 2000.
Employment Agreements
On January 1, 2001, we entered into employment agreements with Robert
Blagman, our Chief Executive Officer and Leslie Blagman, then our Chief
Operating Officer, for five and three years, respectively. The employment
agreements call for a base salary, after annual incremental increases, ranging
from $240,000 to $420,000 for the Chief Executive Officer and ranging from
$135,000 to $180,000 for the Chief Operating Officer. The agreements also call
for signing bonuses of $750,000 for the Chief Executive Officer and $350,000 for
the Chief Operating Officer to be paid in equal monthly payments over the term
of their respective employment agreements. For the year ended December 31, 2000,
we recorded expenses related to these agreements in the aggregate of $641,677,
of
13
which $355,667 has been accrued and is included in accounts payable and accrued
expenses at December 31, 2000. On June 1, 2001, Leslie Blagman resigned as our
Chief Operating Officer.
BUSINESS
Blagman Media International, Inc. is a Nevada corporation, which is the
successor to an enterprise founded in 1962. We are a successor to a sole
proprietorship founded by Robert Blagman. 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. On August 2, 1999,
we completed a reverse acquisition with Unisat, Inc., an inactive, public
non-reporting company, founded in 1962 and formerly known as Combined Companies,
Inc. On the same date, Unisat, Inc. changed its name to Blagman Media
International, Inc. The transaction was structured as a share exchange, in which
Robert Blagman exchanged all of his shares in the privately held the Company 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 a 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, and thereby allow us to leverage our
direct marketing and direct response efforts. Currently, we are actively
pursuing acquisitions and strategic relationships in order to create a "network"
of alliance partners that will have the capacity to deliver a broader range
services in a more cost-efficient manner. Our strategic relationships are
non-contractual.
We have been negotiating to acquire Century Media, Inc., a Santa Monica
based advertising agency. We have entered into previous agreements to acquire
all outstanding stock of Century Media, but in each instance certain
requirements to consummating the acquisition were not satisfied. In October of
2001, a due diligence review of Century Media's financial status raised concerns
which must be resolved before we can enter into a definitive agreement to
acquire all outstanding stock of Century. Based on our due diligence, we believe
that the purchase price for Century Media, which most recently was to be $5.7
million cash, will need to be substantially reduced. We are also pursuing other
possible acquisitions and strategic arrangements.
On September 2, 2001, we entered into a letter of intent with
WellWorld Partners Ltd. with respect to our purchase of 51% of the outstanding
common stock of WellWorld. The purchase price for 51% of WellWorld is an
aggregate of $1,500,000 in cash and/or stock, as follows: $500,000 cash within
two weeks of the execution of the letter of intent or execution of the purchase
agreement; $500,000 in cash or 25 million shares of our common stock within two
weeks after the execution of the purchase agreement; and $500,000 cash or 25
million shares of our common stock due within six weeks after the execution of
the purchase agreement. WellWorld is to use the funds provided by us to (i)
locate and acquire equity interests in Neutraceuticals or health promoting
products and services and (ii) develop directly and through third parties
private labeling products for entertainment, sports and fitness and established
high profile institutions of a private and public nature. The execution of a
definitive agreement is subject to various conditions, including the approval of
our Board of Directors and the due diligence review by our representatives.
There is no assurance that this acquisition will be completed.
During 2000, in addition to considering merger and acquisition
opportunities for consolidation and industry growth, we considered establishing
an immediate expansion in the television production field. At the same time 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.
Overview
Our principal business is media buying, with a specific focus on direct
marketing and direct response advertising. Direct marketing is any communication
or advertisement to a consumer or business that is designed to generate a direct
interest in the form of an order for a specific product of service, a request
for information, or a visit to a place of business with a predetermined
demographic audience. Direct marketing efforts generally attract the response by
offering an incentive to the targeted audience through a broad range of media
vehicles including catalogs, bill inserts, coupon mailings, telemarketing,
events, and traditional direct mail. Direct marketing is intended to gain
consumer interest and awareness and produce sales over a period of time through
a response to the materials or the broadcast but, generally, direct marketing
does not solicit an immediate response or purchase. The Company's revenues for
direct
14
marketing services are generated from media commissions which are paid in
advance to us as media is placed and purchased and from fees for direct services
to the client.
In contrast, direct response utilizes direct marketing's array of media
vehicles, but also targets a non-specific demographic audience through media
time available as "remnants" or "surplus" after normal network and prime
advertising has been purchased. At times of "general advertiser" recession
(which exists in the first quarter of 2001) the direct response industry can
flourish due to an excess of media inventory. Direct response's main purpose is
to reach an audience and generate an immediate profitable transaction. Direct
response firms handle all aspects of a media campaign by merging the roles of
product developer, marketer, and merchant. They often receive a percentage of
sales revenues, as well as fees based on time purchased or actual services
rendered. While direct response media buys and programming can be either long
form (more than 2 minutes and generally 30 minutes in length) or short form
(generally 30 to 120 seconds in length), the most commonly recognized direct
response format is the "infomercial," a 30 minute television program
demonstrating a product, providing testimonials, offering additional tie-in
merchandise and motivating the audience to order the product while they are
watching.
To date, our major focus has been on direct marketing services.
According to the Direct Marketing Association (DMA), overall sales through
direct marketing (during 2000) in the United States were approximately $1.5
trillion and are expected to continue to increase. The proliferation of cable,
network and non-network television, Internet and radio has made traditional
media choices less effective and audiences harder to reach. This proliferation
has increased the obstacles to reaching a mass audience in traditional media
formats and increased the cost of capturing a consumer's attention. In contrast
to traditional general media marketing, the results of a direct marketing or a
direct response campaign are easily quantifiable since any responses are the
direct result of the marketing dollars used to generate them. Clients utilizing
direct marketing and direct response campaigns have immediate feedback on
whether or not their advertising has effectively translated to sales or
revenues.
The direct marketing system requires advertisers to focus on the most
effective time and media slots for the product. As a result, media buying has
become more precise and agencies have tended to specialize. We believe that
there is a need to reverse the fragmentation through consolidation so clients
can benefit from broader marketing, increased buying power and the economies of
scale. The following chart compares the characteristics of traditional
advertising with the direct marketing and direct response approaches:
General Advertising vs. Direct Market And Direct Response
---------------------------------------------------------------------------------
Advertising Direct Market And Direct Response
----------- ---------------------------------
Purpose is to create positive awareness Purpose is create instant sale or inquiry product or service.
for product of service.
Builds awareness for a sale at some other Makes a sale or contact now, directly with
time and place, under the buyer's control. the customer, at a time a time and place
under the seller's control.
Transitive communication. Information Interactive. Seller tests and receives
flows from the advertiser to the prospect. information from the prospect.
Sells products. Sells offers.
Creates markets. Discovers markets.
Seeks to influence behavior. Seeks to model or repeat behavior.
Creates sales. Creates customers.
Vaguely measurable, usually in terms of Fully accountable. Every response is "market share."
measured (cost/order, cost/lead, etc.).
If advertising is an "art," direct mail and direct response are a
"science" because variables are documented, tested, and turned into constants,
which are "replicated" in further "scientific experiments" to achieve the same
or better results. Direct response employs a range of strategies and techniques
and tests them in various combinations to achieve maximum marketing results at
lowest cost.
15
During 2001 and 2002, we plan to grow through the acquisitions of
complementary firms serving niche direct marketing and direct response markets,
to continue to build on our established network of alliances and to develop
depth in our database management, expansion marketing, production services, and
corporate reinvestment strategies. To enhance sales and marketing results, we
currently perform in-house research and conduct selective competitive
intelligence on consumer and customer trends. Through strategic acquisitions and
alliances, we expect to have access to broad demographic data on consumers and
their purchasing habits.
Revenue Sources
The Company currently generates approximately 75% of its total revenues
from direct marketing media commissions of which approximately 18% is from
radio, 72% is from television and 10% is from print and outdoor advertising and
other advertising avenues. Frequently, these commissions are earned and split
with other media or advertising agencies. The remaining 25% in revenues
represents fees for service contracts and commissions where the Company
represents its advertising clients for exclusive placement of services covering
productions, advertising, marketing/media, telemarketing and fulfillment
activities. These services generally include a monthly fee for developing and
advising on the complete marketing strategy and tactics, and related market
research to establish the target identity and demographic for TV, radio and
outdoor placements and a commission on the actual production series. Consistent
with industry practice, we approve the media purchase orders, receive full
payment from the client before the media airs and remit the media payments after
deducting commissions and the media charges as they are billed to us.
Competition
We compete with much larger advertising agencies that have greater
financial and personnel resources to service their accounts. We seek to meet the
competitive challenges these larger agencies pose through research, selective
competitive intelligence on consumer and customer trends, use of our growing
database on what motivates people to buy, and the quality and reliability in
executing our client's direct response targeted programs. In addition, our
boutique size, ability to offer advanced client services and personal attention
allows the Company to differentiate itself from many competitors. During 2000,
some of our clients could also be considered competitors, to the extent they did
not outsource the advertising and direct marketing services to us, and the
larger worldwide direct marketing and direct response entities. Our main
competitors are Hawthorne Media, Century Media, which we are seeking to acquire,
Mercury Media and Fredrickson Television.
Dependence on Limited Clients
During 2000, we had one major customer, 21st Century, which represented
67% of our accounts receivable. 21st Century was sold in 1999 and left us in
2000. During 2000, we focused on obtaining new business to offset this loss and
as of December 31, 2000, we had 11 active clients. During the first six months
of 2001, two clients each represented more than 10% of our revenues: Metrx and
Greenpeace.
Our principal clients have included Eastman Kodak, Dodge-Chrysler, Black
and Decker, One World Live, Emson, Liberty Medical, Greenpeace, the Red Skelton
Estate and Amnesty International. The Company's experience with well respected,
nonprofit agencies is helping to enhance the market perception of the long form
infomercial industry by shifting the focus of this medium toward a higher
quality and more respected products and companies. Currently our client list
includes Greenpeace, Amnesty International, North Shore Animal League of
America, MetRx, the Red Skelton estate, Veterinary Pet Insurance, Aussi Nads,
BrushMate and Synergy Inc.
Alliances
We originally expanded our market presence through alliances with larger
enterprises and associations where our particular expertise is valuable and our
ability, as a smaller entity, to respond quickly in a flexible manner allows the
larger organization to enhance its marketing and advertising services.
Currently, our main alliance is with Eicoff Infomercial. Eicoff Informercial is
engaged in direct response long form media buying in association with Eicoff &
Company, a subsidiary of Ogilvy & Mather. Eicoff Infomercial purchases all long
form media for Eicoff & Company, and the Company has an exclusive, verbal
agreement, which is not legally binding, to place this media. Eicoff & Company
is the oldest, largest, and one of the most successful direct marketing firms in
the country, and the number one short form-advertising agency in the world with
billings exceeding $150 million. Al Eicoff, the company's founder, is considered
the "father of the direct response industry." We do not receive any revenue
directly from alliances. However, we believe that such alliances will enable us
to better attract clients.
Intellectual Property
We have no patents, trademarks, licenses or any other intangible assets
that would impact its value or earnings.
16
Research And Development Of Advertising Activities
We estimate that we spend approximately 38% of our time on research and
development activities related to marketing strategies or techniques. We believe
research on consumer trends is one of our competitive advantages.
Environmental Regulation
The cost and effects of compliance with environmental laws for federal,
state or local governments are inconsequential.
Employees
As of December 31, 2000, we had 6 full-time employees, in marketing and
sales and in operations and general management. None of the employees is a
member of any union or collective bargaining organization. We consider our
relationship with our employees to be excellent. All of our public relations and
marketing is performed by independent contractors from whom we expect to acquire
new customer billings. As of December 31, 2000, we also had 5 independent
contractors concentrating primarily on marketing and public relations to improve
our visibility in branding its names and services. All of these sales and
marketing representatives work on a month-to-month, commission basis.
Properties
Our executive office is located in Los Angeles, California where we
occupy approximately 3,725-square feet with an annual rent of approximately
$9,089.00. The lease term on the space commenced on February 29, 2000 and
continues through April 30, 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and
operations in conjunction with the consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to, those
described under "Risk Factors" and elsewhere in this prospectus.
General
Blagman Media International, Inc. (established in 1994) ("the Company")
was incorporated on January 29, 1999 as a successor to a sole proprietorship.
The Company is a global direct response marketing and advertising agency that
produces response-driven infomercials, and provides product placement, media
buying, medical marketing, production and syndication of television programming,
and other associated transactional media business products.
On August 2, 1999, the Company completed a reverse acquisition with
Unisat, Inc., an inactive, public non-reporting company, founded in 1962 and
formerly known as Combined Companies, Inc. On the same date, Unisat, Inc.
changed its name to Blagman Media International, Inc. The transaction was
structured as a share exchange, in which Robert Blagman exchanged all of his
shares in Blagman Media International, Inc., a privately-held entity with the
same name owned by Robert Blagman for 8,200,000 common shares of Unisat, Inc. In
April 2000, the Company entered into a share exchange agreement with MNS Eagle
Equity Group I ("MNS"), an inactive, reporting Nevada corporation, which
resulted in the Company becoming the parent entity. After the filing of a Report
on Form 8-K, the Company became the successor reporting entity. The corporate
relationships are the result of transactions in 1999 and 2000, through which the
Company became the reporting, trading, development stage Nevada corporation with
shares publicly traded on the NASDAQ Bulletin Board Exchange.
Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000
Net revenues (principally from advertising placements, commissions and
revenue sharing arrangements) for the six month period ended June 30, 2001
decreased to $192,594 from $239,940 (27%). For the six month period ended June
30, 2000, the Company previously reported as net revenues and as the cost of
those revenues, the gross advertising placed for clients of the Company, as well
as the associated media costs. To accommodate accounting pronouncements, for the
six months ended June 30, 2001, the Company has reported only the net revenues,
which consist of the commissions and margins due to it rather than the entire
advertising placements. It has also restated the same categories for June 30,
2000. For comparison, the net revenues retained by the Company (and properly
reported under applicable accounting pronouncements) were $192,594 for the six
month period ended June 30, 2001, compared to $239,940 for the same period in
2000. Gross profits for the six months ended June 30, 2001 was $188,043 compared
to $243,004, a
17
23% decrease before commissions of $87,435 and $84,361 in the same periods. The
reduction was principally the result of the loss of a major insurance company
account, which had accounted for advertising placements of more than $4,000,000
for the Company, when that insurer was acquired by another insurer which then
ceased all advertising efforts. The acquisition occurred in late 1999 but the
change in advertising policy fully impacted the Company commencing in the second
quarter of 2000. The changes in gross profit were consistent with the restated
revenues. As noted above, the Statements of Operations for the six month period
ended June 30, 2000 have been restated to reflect the amount of revenues
retained and to be reported by the Company under applicable accounting
pronouncements.
Total operating expenses increased from $2,248,417 during the six months
ended June 30, 2000 to $2,426,121 for the six months ended June 30, 2001, an
increase of $177,704 (7.9%). The decrease in operating revenues and increase in
operating expenses resulted in an increase in operating losses from $2,005,413
for the six months ended June 30, 2000 to $2,238,078 for the six months ended
June 30, 2001, an increase of $232,665 or 12%.
During the six months ended June 30, 2001, the Company issued 71,419,000
common shares as compensation to consultants and for future and current
services. Under GAAP, the Company is required to record the current portion of
these amounts or $1,255,674 as a compensation expense based on the market price
of the Company's shares on the date of issuance, even though no cash payments
were made. As a result, the Company recorded $1,255,674 in additional
compensation and consulting fees.
The level of operating costs reflects, in part, the Company's status as
a public entity and the legal, accounting and other costs incurred when the
Company was pursuing acquisition and merger transactions during 2000 and 2001.
These transactions have not been consummated to date but the Company is
responsible for the costs incurred. Travel and entertainment expenses declined
from $131,804 during the six months ended June 30, 2000 to $41,395 during the
six months ended June 30, 2001, a reduction of 69%. In addition, the Company
decreased aggregate officer compensation from $586,500 during the six months
ended June 30, 2000 to $358,334 during the six months ended June 30, 2001, a
decrease of $228,166 (39%). Management has been focused on aligning its
operating overhead with its revenues and in obtaining working capital through
loans and other arrangements which it believes will position the Company for
internal growth and allow it to focus on an increased client base and expanded
business operations.
Other expenses decreased from $182,470 for the six months ended June 30,
2000 to $12,034 for the six months ended June 30, 2001, due primarily to a
one-time subsidiary acquisition cost of $179,220 in 2000.
Cost Of Revenues
Cost of revenues before commissions generally are non-material cost to
the Company and principally consist of production costs that are not funded by
clients. Media acquisition and airtime costs are not reflected as revenues in
the current period and have been restated for the prior periods to eliminate the
costs and to record as revenues only the commissions and margins being retained
by the Company but before commissions payable to co-agents. The Company intends
to report only its internal margins and commissions (before any payments to
co-agents) during future periods and to comment with respect to media costs
since, as a general matter, the Company incurs media costs in direct proportion
to operating revenues. The cost of revenues, net of media costs, increased from
($3,064) for the six months ended June 30, 2000, to $4,551 for the six months
ended June 30, 2001, representing an increase of $7,615 (249%).
General And Administrative Expenses
Total general and administrative expenses increased from $2,248,417 to
$2,426,121 (8%) for the six months ended June 30, 2000 and 2001 respectively.
The increase consisted of the $,1360,899 of Non-Cash Compensation in 2001
compared to $1,311,500 of Non-Cash Compensation for the first six months of
2000, offset by decreases in officers compensation and travel and advertising
costs and the fact that the other costs remained at levels consistent with 2000.
The Non-Cash Compensation amount is not expected to be a recurring item. The
Company anticipates that the other increases will moderate in future periods as
management gains experience overseeing a publicly held enterprise and is able to
manage and predict those costs and needs more effectively.
Interest Expense And Outstanding Loans
In the six month period ended June 30, 2001, the interest expense
increased from $6,441 to $13,666 from the same period in 2000 due to interest on
the $445,500 loans and short term financing costs incurred on certain payables.
Since the Company records revenues as received and generally commits to time
expenditures only when there is assurance of payment from its clients, interest
costs and advertising revenue adjustments are small. Also, during 2001, as noted
above, the Company has restated its revenues to eliminate media costs from its
reported revenues. At June 30, 2001, the Company had loans of $124,345 due from
shareholders who have deferred salary and have received certain short term
advances and had loans of $445,500 due to three unaffiliated parties that have
advanced funds on up to five year repayment schedules.
18
Subsidiary Acquisition Cost
In the six months ended June 30, 2000, the Company recorded an expense
of $179,220 as the costs related to acquisition of MNS. This amount consists of
$100,000 in cash and $79,200 representing the fair value of the 50,000 common
shares of the Company exchanged for the MNS shares.
Liquidity And Capital Resources
For the six months ended June 30, 2001, compared to December 31, 2000,
the Company's available cash decreased from $179,744 to $20,563, but was partly
offset by an increase in accounts receivable and other current assets resulting
in an overall decrease in current assets from $326,938 to $236,018 (39%) from
December 31, 2000 until June 30, 2001. Accounts payable and accrued expenses at
June 30, 2001 were $979,786 compared to $496,353 at December 31, 2000, a 97%
increase resulting principally from accrued officer compensation and accrued
expenses and other obligations incurred in pursuing possible acquisitions and
mergers. Since June 30, 2001, the Company's cash position has improved as it
received the remaining proceeds from the $445,000 loans recorded at June 30,
2001 and the net proceeds of $830,000 from a preferred stock offering undertaken
in July 2001.
During the first six months of 2001, the Company has focused on
resolving various equity issues, the underlying preferred stock offering,
acquiring debt financing, deciding whether to pursue acquisitions and mergers
and, principally, on acquiring and servicing new business accounts. Management
anticipates that the additional accounts that have been acquired to date and the
other new accounts being sought by the Company will replace all, or a
substantial portion, of the lost revenues from the loss of the large insurance
account and that a significant portion of those revenues will be recognized
during the balance of 2001, but there is no assurance that the Company will be
successful in fully offsetting the lost account and completing its business
plans.
During the six months ended June 30, 2001, the Company issued 71,419,000
common shares with a fair value of $10,956,274 as Non-Cash Compensation, of
which $1,255,674 was charged to operations during the first six months of 2001
and the balance has been deferred based on the service terms under the
contracts. These transactions resulted in 94,322,450 common shares outstanding
at June 30, 2001 and a total shareholders deficit of $1,280,659 at June 30, 2001
compared to a deficit of $406,990 at December 31, 2000.
Management is currently pursuing various initiatives to expand the
Company's operations internally and through strategic alliances with other
industry partners. These endeavors may require additional capital funding which
the Company expects to fund, as necessary, from the credit facilities and
preferred stock issuances and other financings. The Company intends to focus on
operations and new business and clients and these funding sources to meet its
operating requirements, to retire the accumulated accounts payable from the
acquisition and mergers that are not being pursued at this time and to provide
further capital for expansion, acquisitions or strategic alliances with
businesses that are complementary to the Company's long term business
objectives. While the Company believes that additional capital will be needed to
maintain the growth plans of the Company, management believes that the working
capital now available to it, its increased client base and funds generated from
operations and from the equity line of credit agreement will be sufficient to
meet capital requirements for the next 12 months even if other substantial
additional working capital does not become available. The Company estimates that
$1,000,000 from the equity line of credit agreement during the next 12 months
will be sufficient for it to meet its capital requirements for such period, when
combined with anticipated operating revenues. The Company has sought and will
continue to pay expenses with stock rather than cash where possible to reduce
capital requirement. At June 30, 2001, $644,554 (57%) of the $1,139,786 in total
current liabilities was accrued compensation, most of which the Company believes
can be paid in stock. In the long term, the Company must expand its operations
to generate sufficient working capital to meet its ongoing capital requirements.
Acquisitions to further the Company's growth plans probably will require either
the issuance of significant equity in the Company or obtaining additional
capital through loans or the sale of stock. The Company may not be able to
complete acquisitions for stock and may not be able to obtain sufficient cash
for such acquisitions, in which event the Company's growth plans will not be
able to be achieved and the Company will be forced to rely on internal growth.
New Accounting Pronouncements
The Financial Accounting Standards Board has adopted several notices
with regard to the treatment of interim financial statements. These issues are
presented in the Company's interim financial statements. As discussed in the
notes to the interim financial statements, the implementation of these new
pronouncements is not expected to have a material effect on the financial
statements.
Year Ended December 31, 2000 Compared To The Year Ended December 31, 1999
Net Revenues (principally from advertising placements, commissions and
revenue sharing arrangements) for the year ended December 31, 2000 as compared
to the year ended December 31, 1999 decreased from $639,602 to $468,405 (27%).
The reduction was principally the result of the loss of a major insurance
company account, which had accounted for advertising placements of more than
$4,000,000 for the Company, when that insurer was acquired by another insurer
which then ceased all advertising efforts. The
19
acquisition occurred in late 1999 but the change in advertising policy fully
impacted the Company's revenues commencing in the second quarter of 2000. The
decrease in revenues between the two years of $171,197 (27%) was reflected in
gross profits, which decreased from $638,858 in 1999 to $468,405 in 2000,
reflecting a decrease of $170,453 (26%). The gross profit margins reflect both
the changes in revenues, since the nature of the Company's business provides
margins which tend to be proportionate to its revenues, and the improved
operating results because of efficiencies from the use of computer tracking
systems which began to be reflected during the third quarter of 2000.
The decrease in revenues as well as a $3,699,461 (490%) increase in
total operating expenses (consisting principally of the $2,209,523 in Non-Cash
Compensation described below) from $755,464 in 1999 to $4,454,955 in 2000
resulted in a loss (before other expenses of $11,613) in 2000 of $3,986,550
compared to operating losses of $116,606 for 1999 or a 3319% increase in
operating losses. During 2000, the Company issued 4,583,577 common shares as
compensation for services to various consultants and professionals. Under GAAP,
the Company is required to record these amounts as a compensation expense based
on the market price of the Company's shares on the date of issuance, even though
no cash payments were made. As a result, the Company recorded $2,209,523 in
non-cash compensation, which has been reflected as a portion of both the
Professional and Consulting Fees and Other General and Administrative Expenses
(collectively "Non-Cash Compensation").
The increase in operating costs also resulted from the Company's status
as a public entity which accounted for a $589,002 increase in cash and non-cash
amounts for professional fees and a $163,222 aggregate increase in other cash
general and administrative expenses during 2000 as compared to 1999. In
addition, the Company experienced aggregate increases from $799,467 (286%)
compensation to officers and in other compensation related costs, rents,
advertising and related items, principally in connection with the expanded
operating requirements and the need for some additional operating staff since
certain executives were required to devote a substantial portion of their time
to the public aspects of the Company rather than to day-to-day sales and
marketing activities for the Company. The increases experienced over 1999 was
partially offset by the increased use of the computer tracking system and
technology systems, by management's increased experience with public company
status which has allowed more focus on day-to-day operating activities and the
retention of professionals familiar with public company requirements generally.
Also, management believes that it has now addressed the principal effects of the
direct and indirect Non-Cash Compensation and other equity commitments and
dilution matters which arose from the Unisat and NMS transactions, from the
Company's early experiences as a public entity and from deferrals of cash
compensation by officers and consultants.
General and Administrative Expenses
Total general and administrative expenses increased from $755,464 to
$4,454,955 (590%) for 2000 as compared to 1999. The increase consisted
principally of the $2,209,523 of Non-Cash Compensation and the increase in
professional and consulting fees from $41,309 to $206,461 for 1999 and 2000
respectively. Cash expenditures increased in each category to accommodate the
public company requirements and the expanded staffing and overhead costs to
accommodate the public status and the sales and advertising personnel added when
certain executives shifted a portion of their efforts from sales and marketing
to public company matters, all of which were partially offset by the savings
from computer tracking and reduced travel and entertainment costs. The Non-Cash
Compensation amount which was reflected in 2000 is not expected to be a
recurring item in future periods because obligations from the prior entities and
other commitments have generally been satisfied. The Company anticipates that
the other increases will moderate in future periods as management gains
experience overseeing a publicly held enterprise and is able to manage and
predict those costs and needs more effectively.
Interest Expense and Outstanding Loans
Interest expense was not a significant item in 1999 or 2000 and
increased from $10,812 in 1999 to $11,613 (.7%) in 2000. Since the Company
records revenues as received and generally commits to time expenditures only
when there is assurance of payment from its clients, interest costs and
advertising revenue adjustments are small. At December 31, 2000, the Company had
loans of $106,767 due from shareholders who have deferred salary and have
received certain short term advances, and taken advances from the Company, all
or a portion of which are being converted to compensation expense when
employment agreements are finalized. In February 2001, $75,000 in shareholder
loans were repaid.
20
Liquidity and Capital Resources
For the year ended December 31, 2000, compared to December 31, 1999, the
increase in cash to $179,744 was offset by a reduction from $479,054 to $15,569
in accounts receivable resulting in a decrease in current assets from $519,920
to $326,938 (37%) from December 31, 1999 until December 31, 2000. However, the
accounts payable at December 31, 2000 was $496,353 compared to $460,587 at
December 31, 1999, an 8% increase. Those shifts in accounts receivable and
accounts payable were the result of the impact of the loss of the large
insurance company account, the initial impact from new accounts and improved
internal controls. Management anticipates that additional accounts now being
acquired by the Company will replace all, or a substantial portion, of the lost
revenues from the insurance account. A portion of those revenues was recognized
during late 2000 and further increases should be reported in 2001, but there is
no assurance that the Company will be successful in fully offsetting the lost
account.
During 2000, the Company issued 10,333,577 common shares of which
5,239,500 were issued for new capital, 50,000 were issued in connection with the
MNS transaction, 460,500 were issued for debt and 4,583,577 common shares were
issued as Non-Cash Compensation. These transactions resulted in 22,403,500
common shares outstanding at December 31, 2000. During 2000, the Company
received additional paid-in capital of $3,962,910, consisting of the cash
proceeds of the sale of additional common shares. These funds, along with the
Non-Cash Compensation and the MNS transaction, resulted in a total shareholders
deficit of $406,990 at December 31, 2000 compared to a deficit of $138,590 at
December 31, 1999. The additional capital was applied to meet working capital
requirements.
Management is currently pursuing various initiatives to expand the
Company's operations internally and through strategic alliances or acquisitions
with other industry partners. These endeavors will require additional capital
funding which the Company hopes to raise through debt or equity financing
arrangements, if appropriate financing is available, on reasonable and accepted
terms. Century Media of Santa Monica is a leading direct response agency that
has entered into an agreement for full acquisition by the Company.
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 and to complete the transaction with
Century Media and in other possible acquisitions. If substantial additional
working capital does not become available, management believes that the working
capital now available to it along with funds generated from operations will be
sufficient to meet essential capital requirements for the next 12 months but
will not support growth. However, the Company currently has a significant
deficit. As a result, the Company's financial statements for the period ended
December 31, 2000 have been prepared on a going concern basis which contemplated
the realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Company incurred a net loss of $3,990,309 for
the year ended December 31, 2000, and has a working capital deficiency of
$483,183 and a stockholders deficiency at December 31, 2000 may not enable it to
meet such objectives as presently structured. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
New Financial Pronouncements
The Financial Accounting Standards Board has adopted several notices
with regard to the treatment of interim financial statements. These issues are
presented in the Company's interim financial statements. As discussed in the
notes to the interim financial statements, the implementation of these new
pronouncements is not expected to have a material effect on the financial
statements.
Forward-Looking Statements
Except for historical information contained herein, the matters
discussed herein are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products
and prices and other factors discussed in prospectus.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the grants of options, stock and the loans to the
Blagmans described under "Business -- Executive Compensation," the following
related-party transactions were undertaken in 2000 or 2001:
Joseph Lynch, consultant to the Company, received 450,000 Common Shares
of the Company on June 2, 2000 (valued at $450,000 on the date of grant) and
100,000 Common Shares of the Company on October 10, 2000 (valued at $17,000 on
the date of grant). These amounts were recorded as a compensation expense.
John Smith, then counsel to the Company, received 250,000 Common Shares
of the Company on June 2, 2000 (valued at $250,000 on the date of grant). These
amounts were recorded as a legal expense.
Richard Elliott Square, consultant to the Company, received 150,000
Common Shares of the Company on July 14, 2000 (valued at $79,650 on the date of
grant) for his services to the Company and Unisat, Inc., the predecessor of the
Company. These amounts were recorded as a compensation expense.
Earl Greenburg, consultant to the Company, received 300,000 Common
Shares of the Company on September 25, 2000 (valued at $84,000 on the date of
grant). These amounts were recorded as a compensation expense.
Charles Flynn, consultant to the Company, received 600,000 Common Shares
of the Company on December 6, 2000 (valued at $114,000 on the date of grant) for
his services to the Company and Unisat, Inc., the predecessor of the Company.
These amounts were recorded as a compensation expense.
Kendra Sturgeon received 75,000 Common Shares of the Company on August
15, 2000 (valued at $28,125 on the date of grant). Chris Kurstin received 37,000
Common Shares of the Company on July 1, 2000 (valued at $23,865 on the date of
grant) and 240,000 Common Shares of the Company on October 10, 2000 (valued at
$40,800 on the date of grant). FG&P Consulting received 75,000 Common Shares of
the Company on September 13, 2000 (valued at $27,750 on the date of grant).
These amounts were recorded as a compensation expense.
George Weiss, an adviser to the Company and a shareholder through a
partnership in which he is a general partner, received a grant to purchase
2,000,000 Common Shares of the Company, but the grant expired in 2000 without
exercise and therefore, no compensation expense was recorded.
Robert Blagman received 100,000,000 shares in August 2001 in
consideration for certain liabilities of the Company to him for accrued
compensation.
MARKET INFORMATION
Our common stock is traded in the over-the-counter market and is quoted
on the Nasdaq Over-The-Counter Bulletin Board system under the symbol "BMII.OB."
as of September 30, 2001, there were 478 stockholders of record for our common
stock.
The following table sets forth the high and low bid quotations for our
common stock for the fiscal years ended December 31, 2001, 2000 and 1999. Prices
reported represent prices between dealers, do not include markups, markdowns or
commissions and do not necessarily represent actual transactions.
High Low
Sales Price Sales Price
----------- -----------
1999 First Quarter $ 4.875 $ 1.125
Second Quarter 2.75 0.437
Third Quarter 0.625 0.125
Fourth Quarter 3.25 0.20
2000 First Quarter $ 4.625 $ 1.50
Second Quarter 2.625 0.625
Third Quarter 0.80 0.19
Fourth Quarter 0.30 0.08
22
2001 First Quarter $ xxxx $ xxx
Second Quarter xxxx xxx
Third Quarter xxxx xxx
Fourth Quarter (through xxxx xxx
_______, 2001)
PRINCIPAL SHAREHOLDERS
The following table sets forth information (except as otherwise
indicated by footnote) as to Common Shares owned as of September 30, 2001 or
which can be acquired in sixty days, by (i) each person known by management to
beneficially own more than five percent (5%) of BMII's outstanding Common
Shares, (ii) each of our directors, and officers, (iii) all executive officers
and directors as a group. On September 30, 2001 there were 334,431,736 shares
outstanding.
Name and address of Beneficial Amount and Nature of Percent
Owner(1) Beneficial Ownership(2) of Class
------------------------------ ----------------------- --------
Robert Blagman(3) 107,314,000 32.1%
Andrew Given 0 *
Walter Lubars 10,000 *
Jeffrey Wald 0 *
All directors and executive
officers as a group (4 persons) 107,324,000 32.1%
* Indicates that the percentage of shares beneficially owned does not exceed one
percent (1%) of the class.
(1) Each of the directors and officers named can be reached at our executive
offices located at 1901 Avenue of the Stars, Suite 1700, Los Angeles,
California, 90067. The persons named in the table have sole voting and
investment power with respect to all shares shown to be beneficially owned by
them, subject to community property laws, where applicable, and the information
contained in the footnotes to this table.
(2) Calculation includes options to purchase 250,000 shares exercisable at $0.09
per share, and expiring on July 14, 2005. These options were granted in July 14,
2001.
(3) Includes 150,000 shares held by Leslie Blagman, the spouse of Robert
Blagman, as to which shares Mr. Blagman disclaims any beneficial ownership
interest.
DESCRIPTION OF SECURITIES
The following summary description of our capital stock is a summary and
is qualified in its entirety by reference to our Articles of Incorporation, as
amended to date, our Bylaws, and the Certificate of Designation with respect to
the Series B Convertible Preferred Stock. All material terms of these referenced
documents are disclosed in this document. Our authorized capital stock consists
of 1,000,000,000 shares of common stock, $0.001 par value per share, and
100,000,000 shares of preferred stock, $0.001 per share. The authorized number
of shares was increased by a majority of the shareholders to 500,000,000 in
September 2001 and 1,000,000 in October 2001.
Common Stock
As of August 20, 2001, a total of 62,000,000 shares of our common stock
were issued and outstanding. The holders of our common stock are entitled to one
vote for each share held. The affirmative vote of a majority of votes cast at a
meeting that commences with a lawful quorum is sufficient for approval of
matters upon which shareholders may vote, including questions presented for
approval or ratification at the annual meeting. Our common stock does not carry
cumulative voting rights, and holders of more than 50% of our common stock have
the power to elect all directors and, as a practical matter, to control our
company. Holders of our common stock are not entitled to preemptive rights, and
our common stock may only be redeemed at our election.
After the satisfaction of requirements with respect to preferential
dividends, if any, holders of our common stock are entitled to receive, pro
rata, dividends when and as declared by our board of directors out of funds
legally available therefore. Upon our
23
liquidation, dissolution or winding-up, after distribution in full of the
preferential amount, if any, to be distributed to holders of the preferred
stock, holders of our common stock are entitled to share ratably in our assets
legally available for distribution to our shareholders. All outstanding shares
of common stock are fully paid and non-assessable.
Preferred Stock
Our board of directors is authorized to issue up to 100,000,000 shares
of preferred stock, without any further action by the stockholders. Our board of
directors may also divide any and all shares of preferred stock into series and
fix and determine the relative rights and preferences of the preferred stock,
such as the designation of series and the number of shares constituting such
series, dividend rights, redemption and sinking fund provisions, liquidation and
dissolution preferences, conversion or exchange rights and voting rights, if
any. Issuance of preferred stock by our board of directors will result in such
shares having dividend and/or liquidation preferences senior to the rights of
the holders of our common stock and could dilute the voting rights of the
holders of our common stock.
We currently have only one class of preferred stock outstanding, the
Series B Convertible Preferred Stock, of which 100 shares are authorized for
issuance and all of which are issued. The shares are convertible into our common
stock on the basis of 1,250,000 shares of common stock for each outstanding
share of Series B convertible Preferred Stock.
Dividends
We have not paid any cash dividends to date, and we do not intend to
declare any cash dividends on the common shares in the foreseeable future.
Payment of dividends is solely at the discretion of our board of directors.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
As permitted by applicable law, our Bylaws provide that we will
indemnify our officers, directors, employees, consultants and agents. This
includes indemnification against attorneys' fees and other expenses and
liabilities they incur to defend, settle or satisfy any civil or criminal action
brought against them arising out of their association with or activities on
behalf of our company. However, they will not be indemnified if they are
adjudged to have acted with gross negligence, engaged in willful misconduct,
knowingly violated the law, breached their duty of loyalty or received improper
personal benefit. We may also bear the expenses of such litigation for any such
persons upon their promise to repay such sums if it is ultimately determined
that they are not entitled to indemnification. Such expenditures could be
substantial and may not be recouped, even if we are so entitled. We have
provided for indemnification for liabilities arising under the Securities Act of
1933 as they may be permitted to directors, officers or persons controlling us.
The SEC has informed us that such indemnification is against public policy and
may be unenforceable.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby has
been passed upon for us by Edward T. Swanson, Esq. located in Santa Monica,
California.
EXPERTS
Our financial statements for the period from inception to December 31, 2000,
appearing in this prospectus and registration statement have been audited by
Weinberg & Company, P.A. and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We file reports with the SEC. We file a 10-KSB for each fiscal year and
10-QSB reports for the first three quarters of each year. We intend to furnish
our shareholders with annual reports containing financial statements audited by
our independent public accountants and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year. We mail
a copy of our audited Annual Report on Form 10-KSB along with a proxy statement
to our shareholders prior to our annual meeting.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the rules and
regulations of the SEC. For further
24
information with respect to our company and this offering, we refer you to the
registration statement and exhibits filed as part of it. You may inspect the
registration statement, including the exhibits thereto, without charge at the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the regional offices of the SEC located at 7 World
Trade Center, 13th Floor, New York, New York. You may obtain copies of all or
any portion of the registration statement and of our other filings with the SEC
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, upon payment of the prescribed fees.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also access such material
electronically by means of the Commissions home page on the Internet at
http://www.sec.gov. Descriptions contained in this prospectus as to the contents
of an contract or other document filed as an exhibit to the registration
statement are not necessarily complete and each such description is qualified by
reference to such contract or document.
25
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
CONTENTS
PAGE INDEPENDENT AUDITORS' REPORT
PAGE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2000 AND 1999
PAGE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER
31, 2000 AND 1999
PAGE CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR
THE YEARS ENDED DECEMBER 31, 2000 AND 1999
+
PAGE CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER
31, 2000 AND 1999
PAGES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Blagman Media International, Inc.
We have audited the accompanying consolidated balance sheets of Blagman Media
International, Inc. and Subsidiaries December 31, 2000 and 1999 and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years ended December 31, 2000 and 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH AUDITING STANDARDS GENERALLY ACCEPTED
IN THE UNITED STATES OF AMERICA. THOSE STANDARDS REQUIRE THAT WE PLAN AND
PERFORM THE AUDITS TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL
STATEMENTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A
TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL
STATEMENTS. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND
SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL
FINANCIAL STATEMENT PRESENTATION. WE BELIEVE THAT OUR AUDITS PROVIDE A
REASONABLE BASIS FOR OUR OPINION.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Blagman Media
International, Inc. and Subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for the years ended December
31, 2000 and 1999 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 11 to the
financial statements, the Company has a loss from operations of $3,990,309, a
working capital deficiency of $483,183, and stockholders' deficiency of
$406,990. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan in regards to these matters is
also described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 22, 2001
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
----------- -----------
CURRENT ASSETS
Cash $ 179,744 $ --
Accounts receivable 15,569 479,054
Other current assets 2,974 1,918
PREPAID INSURANCE 21,884 --
NOTE AND LOAN RECEIVABLE - STOCKHOLDER 106,767 38,948
----------- -----------
TOTAL CURRENT ASSETS 326,938 519,920
----------- -----------
PROPERTY & EQUIPMENT - NET 71,737 6,942
----------- -----------
OTHER ASSETS
DEPOSITS 4,456 --
----------- -----------
TOTAL OTHER ASSETS 4,456 --
----------- -----------
TOTAL ASSETS $ 403,131 $ 526,862
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable -- current portion $ 63,768 $ 80,152
Line of credit -- 74,713
Accounts payable and accrued expenses 107,399 460,587
Accrued compensation -- officers 355,667 --
Media cost refunds payable 33,287 --
Deferred revenue 250,000 --
----------- -----------
Total Current Liabilities 810,121 615,452
----------- -----------
LONG-TERM LIABILITIES
Notes and loans payable -- 50,000
----------- -----------
Total Liabilities 810,121 665,452
----------- -----------
STOCKHOLDERS' DEFICIENCY
Common stock, $.001 par value, 100,000,000 shares authorized, 22,403,450
and 12,069,873 shares issued and outstanding in 2000 and 1999, respectively 22,403 12,070
Additional paid in capital 3,951,540 24,630
Accumulated deficit (4,165,599) (175,290)
----------- -----------
(191,656) (138,590)
Less subscriptions receivable (215,334) --
----------- -----------
Total Stockholders' Deficiency (406,990) (138,590)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 403,131 $ 526,862
=========== ===========
See accompanying notes to consolidated financial statements.
2
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 2000 AND 1999
2000 1999
----------- -----------
REVENUES - NET $ 468,405 $ 639,602
COST OF REVENUES -- 744
----------- -----------
GROSS PROFIT 468,405 638,858
----------- -----------
OPERATING EXPENSES
Officers' compensation 1,078,167 278,700
Employee compensation and taxes 245,867 84,293
Commissions 193,664 119,359
Professional and consulting fees 2,066,461 41,309
Subsidiary acquisition costs 179,220 --
Other general and administrative 213,850 50,628
Travel and entertainment 185,890 80,020
Advertising 151,718 17,975
Rent 84,300 28,356
Utilities 26,517 18,074
Auto 17,321 15,799
Depreciation 11,980 4,951
Loan fee -- 16,000
----------- -----------
TOTAL OPERATING EXPENSES 4,454,955 755,464
----------- -----------
LOSS FROM OPERATIONS (3,986,550) (116,606)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense -- other (10,321) (8,190)
Interest expense -- related party (1,292) (2,622)
Interest income 7,854 1,470
----------- -----------
TOTAL OTHER (EXPENSE) (3,759) (9,342)
----------- -----------
NET LOSS $(3,990,309) $ (125,948)
=========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.25) $ (0.013)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - 15,855,128 9,800,961
BASIC AND DILUTED =========== ===========
See accompanying notes to consolidated financial statements.
3
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock Additional
------------------------- Paid-In Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
----------- ----------- ----------- ----------- ------------- ------------
Balance, January 1, 1999 8,200,000 $ 8,200 $ -- $ (49,342) $ -- $ (41,142)
Recapitalization 3,819,873 3,820 (3,820) -- -- --
Stock issued for services 50,000 50 12,450 -- -- 12,500
Stock options issued as a loan fee -- -- 16,000 -- -- 16,000
Net Loss 1999 -- -- -- (125,948) -- (125,948)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 12,069,873 12,070 24,630 (175,290) -- (138,590)
Stock issued in 504 offering 1,250,000 1,250 998,750 -- (15,334) 984,666
Stock issued in acquisition of
MNS Eagle 50,000 50 79,170 -- -- 79,220
Stock issued for debt 460,500 461 102,084 -- -- 102,545
Stock issued for cash 3,989,500 3,989 541,966 -- (200,000) 345,955
Stock issued for compensation and
services 4,583,577 4,583 2,204,940 -- -- 2,209,523
Net Loss 2000 -- -- -- (3,990,309) -- (3,990,309)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2000 22,403,450 $ 22,403 $ 3,951,540 $(4,165,599) $ (215,334) $ (406,990)
=========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 2000 AND 1999
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,990,309) $ (125,948)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 11,980 4,951
Deferred revenue 250,000 --
Stock issued for compensation and services 2,209,523 12,500
Stock options issued as a loan fee -- 16,000
Stock based acquisition cost of subsidiary 79,220 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 463,485 (459,081)
Other current assets (22,940) (1,918)
Loan receivable -- stockholder (81,500) (33,695)
Increase (decrease) in:
Accounts payable and accrued expenses (283,901) 410,739
Accrued compensation -- officers 355,667 --
Loan payable - stockholder 13,842 --
----------- -----------
Net cash used in operating activities (994,933) (176,452)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (76,775) --
Deposits (4,456) --
----------- -----------
Net cash used in investing activities (81,231) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan proceeds -- 116,546
Repayment of loans -- (17,378)
Cash from issuance of common stock to investors 1,330,621 --
Line of credit - net (74,713) 9,942
----------- -----------
Net cash provided by financing activities 1,255,908 109,110
----------- -----------
NET INCREASE (DECREASE) IN CASH 179,744 (67,342)
CASH - BEGINNING OF YEAR -- 67,342
----------- -----------
CASH - END OF YEAR $ 179,744 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for -- Interest $ 11,613 $ 10,812
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 2000, the Company issued 460,500 shares of common stock as payment for
accounts payable and loans of $36,000 and $66,545, respectively.
See accompanying notes to consolidated financial statements.
5
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
Blagman Media International, Inc. (the "Company") was formed on January
29, 1999 upon incorporation from a sole proprietorship. The Company is a
global direct response marketing and advertising agency that produces
response-driven infomercials, and provides product placement, media
buying, medical marketing, production and syndication of television
programming, and other associated transactional media business pursuits.
On August 2, 1999 one hundred percent of the issued and outstanding
common stock of Blagman Media International, Inc. was acquired by
Unisat, Inc. in a transaction accounted for as a recapitalization of
Blagman Media International, Inc. Unisat, Inc. subsequently changed its
name to Blagman Media International, Inc. (See Note 10(A)).
Effective April 20, 2000 the Company acquired one hundred percent of MNS
Eagle Equity Group I, Inc., an inactive development stage company
incorporated in Nevada (See Note 10(B)).
(B) PRINCIPLES OF CONSOLIDATION
The accompanying 2000 and 1999 consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
significant inter-company transactions and balances have been eliminated
in consolidation.
(C) USE OF ESTIMATES
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.
(D) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
(E) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of
information about the fair value of certain financial instruments for
which it is practicable to estimate the value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
willing parties other than in a forced sale or liquidation.
The carrying amounts of the Company's accounts receivable, loan
receivable, accounts payable and accrued liabilities, and notes and
loans payable, approximates fair value due to the relatively short
period to maturity for these instruments.
6
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated, using the
straight line method over the estimated economic useful lives of 5 to 7
years. Expenditures for maintenance and repairs are charged to expense
as incurred. Major improvements are capitalized.
(G) REVENUE RECOGNITION
The Company recognizes revenue from the sale of media time to
advertising clients when the related advertisement is broadcasted.
Included in the monies received from advertising clients are amounts
which represent the reimbursement of media time purchased on behalf of
the customer for the related advertisements. These media purchase
reimbursements have been accounted for as an offset to the related media
purchases for the respective advertisement and not as gross revenues
under EITF 99-19 and SAB 101. The effect of the adoption of EITF 99-19
and SAB 101 was to reduce gross revenues and cost of reviews by
$1,407,651 in 2000 and $2,542,497 in 1999. Monies received prior to the
broadcast of the related advertisement are recorded as deferred revenue.
In addition, the Company earns commissions in connection with the
procurement of media time on behalf of advertising clients. Such
commissions are also considered earned when the underling advertisement
is broadcasted. Additionally, the Company has entered into contractual
agreements with other advertising firms to share revenues based upon the
terms of the specific agreements. The income produced by these
revenue-sharing contracts are recognized as media or commission income
depending upon the nature of the income earned from the agreement.
(H) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
(J) EARNINGS (LOSS) PER SHARE
Net loss per common share for the years ended December 31, 2000 and 1999
is computed based upon the weighted average common shares outstanding as
defined by Financial Accounting Standards No. 128, "Earnings Per Share".
Common stock equivalents were not included in the computation of diluted
earnings per share in 1999 since the effect would have been
anti-dilutive. At December 31, 1999 there were 100,000 common stock
options outstanding which could have diluted future earnings per share.
These stock options were not exercised before their expiration date of
September 1, 2000 and were void at December 31, 2000.
(K) SEGMENT INFORMATION
The Company follows Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information."
During 2000 and 1999, the Company only operated in one segment,
therefore, segment disclosure has not been presented.
7
(L) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by Statement No. 137 and
138, establishes accounting and reporting standards for derivative
instruments and related contracts and hedging activities. This statement
is effective for all fiscal quarters and fiscal years beginning after
June 15, 2000. The Company believes that its adoption of pronouncement
No. 133, as amended by No. 137 and 138, will not have a material effect
on the Company's financial position or results of operations.
(M) STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting For Stock Based Compensation" ("SFAS 123"), the Company has
elected to account for Stock Options issued to a loan guarantor in
accordance with SFAS 123.
NOTE 2 NOTE AND LOAN RECEIVABLE - STOCKHOLDER
The following schedule reflects notes and loans receivable from a
stockholder as of December 31:
2000 1999
-------- --------
Note receivable, interest at 8% per annum, due
December 31, 2001, unsecured $ 75,000 $ --
Loan receivable, non-interest bearing, due on
demand, unsecured 31,767 38,948
-------- --------
106,767 38,948
Less current portion 106,767 38,948
-------- --------
$ -- $ --
======== ========
NOTE 3 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment as of December 31:
2000 1999
--------- ---------
Computer equipment $ 38,690 $ 8,514
Furniture and fixtures 51,831 9,770
Office equipment 13,879 12,217
Leasehold improvements 2,876 --
--------- ---------
107,276 30,501
Less: Accumulated depreciation (35,539) (23,559)
--------- ---------
Property and equipment - net $ 71,737 $ 6,942
========= =========
Depreciation expense was $11,980 and $4,951 in 2000 and 1999,
respectively.
8
NOTE 4 NOTES AND LOANS PAYABLE
The following schedule reflects notes and loans payable as of December
31:
2000 1999
-------- --------
Note payable, interest at 6% due March 31, 2001. In
addition, the Company provided an option to
purchase up to 100,000 shares of common stock, at
$0.25 per share, at any time until September 1,
2000 (See Note 6(C)) $ 50,000 $ 50,000
Note payable -- related party, non- interest
bearing, due on demand -- 66,545
Loan payable -- stockholder, interest at 9.5%, due
on demand 13,768 13,607
-------- --------
63,768 130,152
Less current portion 63,768 80,152
-------- --------
Notes and loans payable $ -- $ 50,000
======== ========
NOTE 5 LINE OF CREDIT
The Company had a line of credit agreement with a bank that provides
that it may borrow up to $75,000 at 2% over Prime. The line matured on
February 7, 2000 and all principal and interest due was paid.
NOTE 6 EQUITY
(A) COMMON STOCK ISSUANCE
The Company issued 3,989,500 shares of common stock for cash of $345,955
and subscriptions receivable of $200,000.
The Company issued 4,583,577 shares of common stock for compensation,
consulting, legal and other services having a fair value of $2,209,523
based upon the per share fair value at the date of the issuance.
The Company issued 460,500 shares of common stock for the settlement of
accounts payable of $36,000 and a loan of $66,545.
In connection with its acquisition of MNS Eagle, the Company issued
50,000 shares of common stock having a value of $79,220 (See Note
10(B)).
In 1999 the Company issued 50,000 shares of common stock as
consideration for services. The shares were valued, for financial
accounting purposes, at $.25 per share, based upon the quoted trading
price at the grant date, resulting in a consulting expense of $12,500.
(B) COMMON STOCK OFFERING
On February 16, 2000, the Board of Directors agreed to offer up to
1,250,000 shares of common stock, pursuant to Regulation D, Section 4(6)
of the Securities and Exchange Act of 1933, as amended, at $0.80 per
share. The offer was fully subscribed to by September 30, 2000 and
$984,666 of the $1,000,000 subscription has been received as of December
31, 2000.
(C) STOCK OPTIONS GRANTED UNDER LOAN GUARANTEE AGREEMENT
For options issued in connection with a note (See Note 4), the Company
applies SFAS 123. Accordingly, a loan fee of $16,000 was charged to
operations during the year ended December 31, 1999.
9
For financial statement disclosure purposes and for purposes of valuing
stock options issued to new employees and service providers, the fair
market value of each stock option granted was estimated on the date of
grant using the Black-Scholes Options-Pricing Model in accordance SFAS
123.
The options issued in connection with the note under the loan guarantee
agreement expired on September 1, 2000 and were not exercised.
NOTE 7 COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES
During 2000, the Company entered into new lease agreements for corporate
offices, copiers and a company car. Minimum annual rentals under these
leases are as follows:
Years Ending December 31 Amount
------------------------- ----------
2001 $ 104,287
2002 104,287
2003 42,437
2004 5,023
2005 3,767
Rent expense under operating leases for the years ended December 31,
2000 and 1999 was $84,300 and $28,356, respectively.
(B) CONSULTING AGREEMENT
On December 1, 1999, the Company entered into a five-year agreement with
a consultant to provide advisory business services. The agreement called
for the consultant to receive 25,000 shares of the Company's common
stock upon execution of the agreement, and an additional 25,000 shares
upon expiration of each quarter year during the first year term to an
aggregate of 100,000 shares. None of the above shares were issued. On
March 21, 2000, the parties entered into a settlement agreement and
mutual release and the Company issued 50,000 shares of common stock as
consideration.
(C) LEGAL ACTIONS
On April 1, 1999, a Nevada Corporation filed suit against the Company,
its former Chairman of the Board and a former director in the Second
Judicial District Court of the State of Nevada, in and for the County of
Washoe. In the complaint, the plaintiff alleged intentional interference
with contractual relations between the Company and a third party,
intentional interference with prospective economic advantage,
conspiracy, unfair business practices, breach of fiduciary duty, unjust
enrichment, rescission of contract, incomplete accounting and permanent
injunction. On February 7, 2000, the parties to the legal action
stipulated that the alleged complaints in the lawsuit be dismissed
without prejudice.
(D) EMPLOYMENT AGREEMENTS
On January 1, 2000 the Company entered into employment agreements with
the Chief Executive Officer (CEO) and Chief Operations Officer (COO) for
five and three years, respectively. The agreements call for a base
salary, after annual incremental increases, ranging from $240,000 to
$420,000 for the CEO and $135,000 to $180,000 for the COO. The
agreements also call for signing bonuses of $750,000 for the CEO and
$350,000 for the COO to be paid in equal monthly payments over the term
of the respective employment agreements. For the year ended December 31,
2000, the Company incurred expenses related
10
to these agreements in the aggregate of $641,677, of which $355,667 has
been accrued and is included in accounts payable and accrued expenses at
December 31, 2000.
NOTE 8 CONCENTRATIONS
Approximately 88% and 51% of revenues were derived from four customers
for the years 2000 and 1999, respectively. Approximately 67% of accounts
receivable was due from one customer at December 31, 2000.
NOTE 9 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2000 and
1999 is summarized as follows:
2000 1999
---------- ----------
Current:
Federal $ -- $ --
State -- --
Deferred - Federal and State -- --
---------- ----------
Income tax expense (benefit) $ -- $ --
========== ==========
The Company's tax expense differs from the "expected" tax expense for
the years ended December 31, 2000 and 1999 as follows:
2000 1999
------------- -------------
U.S. Federal income tax benefit $ (1,238,865) $ (32,370)
Effect on net operating loss carryforward 1,238,865 32,370
------------- -------------
$ -- $ --
============= =============
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 2000 and
1999 are as follows:
2000 1999
----------- --------
Deferred tax assets:
Net operating loss carryforward $ 1,271,235 $ 32,370
----------- --------
Total gross deferred tax assets 1,271,235 32,370
Less valuation allowance (1,271,235) (32,370)
----------- --------
Net deferred tax assets $ -- $ --
=========== ========
At December 31, 2000, the Company had a net operating loss carryforward
of approximately $3,738,926 for U.S. Federal income tax purposes
available to offset future taxable income expiring on various dates
beginning in 2018 through 2020.
The valuation allowance at January 1, 2000 was $32,370. The net change
in the valuation allowance during the period ended December 31, 2000 was
an increase of approximately $1,238,865.
NOTE 10 BUSINESS COMBINATIONS
(A) ACQUISITION AND RECAPITALIZATION -- UNISTAT, INC.
Under a Stock Exchange Agreement (the "Agreement") consummated on August
2, 1999, Unisat, Inc., ("Unisat"), a non-reporting public shell with no
operations at that time, acquired one hundred percent of the issued and
outstanding common stock (9,000,000 shares) of Blagman Media
International, Inc. ("Blagman") in exchange for 8,200,000 shares of the
$0.001 par value common stock of Unisat. As a
11
result of the exchange, the Company became a wholly owned subsidiary of
Unisat and the stockholders of Blagman become stockholders of
approximately sixty-eight percent of Unisat. Generally Accepted
Accounting Principles require that the Company whose shareholders retain
a majority interest in a business combination be treated as the acquirer
for accounting purposes. As a result, the exchange was treated as an
acquisition of Unisat by Blagman, and a recapitalization of Blagman. The
Company's consolidated financial statements immediately following the
acquisition were as follows: (1) The Balance Sheet consists of Blagman's
net assets at historical cost and Unisat's net assets at historical cost
and (2) the Statement of Operations includes Blagman's operations for
the period presented and Unisat's operations from the date of
acquisition. The Company filed an amendment to its articles of
incorporation to change its name from Unisat, Inc. to Blagman Media
International, Inc.
(B) STOCK EXCHANGE AGREEMENT
Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated
as of April 20, 2000, as amended, between the Company and the
shareholders of MNS Eagle Equity Group I, Inc. ("MNS"), a Nevada
Corporation, 100% of the outstanding shares of common stock held by the
MNS shareholders were exchanged for 50,000 shares of common stock of the
Company having a fair value of $79,220 and $100,000 cash in a
transaction in which the Company effectively became the parent
corporation of MNS.
The Exchange Agreement was adopted by the unanimous consent of the Board
of Directors of the Company and MNS on April 20, 2000. No approval of
the shareholders of either the Company or MNS was required under
applicable state corporate law.
At the date of the acquisition, MNS Eagle was an inactive public shell
corporation with no assets or liabilities. Therefore, the cost of
acquiring MNS was not attributable to an intangible asset or goodwill,
but was accounted for as a charge to operations and classified as an
other deduction on the statement of operations in the account,
subsidiary acquisition costs.
(C) ACQUISITION AND RECISION AGREEMENTS
Under a Stock Exchange Agreement (the "Agreement") consummated in 2000,
the Company was to acquire Mullinger Media & Communications, Ltd.
("MMC") in exchange for 600,000 shares of Series A Preferred Stock of
the Company. As a result of the exchange, MMC would have become a wholly
owned subsidiary of the Company. Subsequent thereto, the Company's
rescinded this agreement for failure of consideration and other
deficiencies.
(D) ACQUISITION OF MERCURY MEDIA
On December 1, 2000 the Company entered into a share purchase agreement
(the "Agreement") to acquire all of the outstanding stock of Mercury
Media, a corporation in the fields of placement and management of direct
response programming, advertising and global marketing. The Agreement
calls for the Company to pay $20,000,000 for all of the outstanding
shares of Mercury Media. The purchase price is subject to reduction
based upon stipulations provided in the Agreement. The proposed
acquisition has not closed as of the date of these financial statements
and has an automatic termination date of April 30, 2001, if not
exercised or extended. The Company is involved with various investment
bankers concerning the funds required to effect a closing.
NOTE 11 GOING CONCERN
The Company's financial statements for the year ended December 31, 2000
have been prepared on a going concern basis which contemplated the
realization of assets and the settlement of liabilities and commitments
in the normal course of business. The Company incurred a net loss of
$3,990,309 for the year ended December 31, 2000, and has a working
capital deficiency of $483,183 and a stockholders deficiency of $406,990
as of December 31, 2000. The Company's working capital deficiency as of
12
December 31, 2000 may not enable it to meet such objectives as presently
structured. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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.
13
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001
CONTENTS
PAGE 1 INDEPENDENT ACCOUNTANTS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 (UNAUDITED) AND
DECEMBER 31, 2000
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
PAGE 4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY FOR THE SIX
MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
PAGE 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000 (UNAUDITED)
PAGES 6 - 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2001
(UNAUDITED)
14
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of:
Blagman Media International, Inc.
We have reviewed the accompanying consolidated balance sheet of Blagman Media
International, Inc. and Subsidiaries as of June 30, 2001 and the consolidated
statements of operations , changes in stockholders' deficiency and cash flows
for the six and three months ended June 30, 2001 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
August 15, 2001
2
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
(Unaudited)
------------ -----------
CURRENT ASSETS
Cash $ 20,563 $ 179,744
Accounts receivable (net of allowance for bad debts of $27,879 at June 30, 2001) 22,224 15,569
Other current assets 53,500 2,974
Prepaid insurance 15,386 21,884
Note and loan receivable -- stockholder 124,345 106,767
------------ -----------
Total Current Assets 236,018 326,938
------------ -----------
PROPERTY AND EQUIPMENT -- NET 64,153 71,737
------------ -----------
OTHER ASSETS
Deposits 4,456 4,456
------------ -----------
Total Other Assets 4,456 4,456
------------ -----------
TOTAL ASSETS $ 304,627 $ 403,131
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable -- current portion $ 50,000 $ 63,768
Deferred revenue 110,000 250,000
Accounts payable and accrued expenses 317,936 107,399
Media cost refunds payable 17,296 33,287
Accrued compensation 644,554 355,667
------------ -----------
Total Current Liabilities 1,139,786 810,121
------------ -----------
LONG-TERM LIABILITIES
Notes payable 445,500 --
------------ -----------
TOTAL LIABILITIES 1,585,286 810,121
------------ -----------
STOCKHOLDERS' DEFICIENCY
Common stock, $.001 par value, 100,000,000 shares authorized, 94,322,450
and 22,403,450 shares issued and outstanding, respectively 94,322 22,403
Additional paid-in capital 14,671,439 3,951,540
Accumulated deficit (6,415,711) (4,165,599)
------------ -----------
8,350,050 (191,656)
Subscriptions receivable (15,334) (215,334)
Deferred stock based compensation (9,615,375) --
------------ -----------
Total Stockholders' Deficiency (1,280,659) (406,990)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 304,627 $ 403,131
============ ===========
See accompanying notes to consolidated financial statements.
2
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The
For The Six For The Six Three For The
Months Ended Months Ended Months Three Months
June 30, June 30, Ended June Ended June
2001 2000 30, 2001 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ----------- ------------
REVENUES -- NET $ 192,594 $ 239,940 $ 63,357 $ 258,101
COST OF REVENUES 4,551 (3,064) 180 800
----------- ----------- ----------- -----------
GROSS PROFIT 188,043 243,004 63,177 257,301
----------- ----------- ----------- -----------
OPERATING EXPENSES
Officers' compensation 358,334 586,500 179,167 512,000
Employee compensation and taxes 112,530 123,098 56,141 84,017
Commissions 87,435 84,361 15,389 60,792
Travel and entertainment 41,395 131,804 10,869 73,884
Other general and administrative 111,177 102,106 81,342 63,408
Professional and consulting fees 1,577,391 1,031,085 1,241,368 939,231
Rent 47,203 38,244 27,227 30,616
Telephone 15,602 15,476 9,170 8,775
Advertising 46,120 123,067 2,995 95,830
Auto 21,350 8,360 8,429 7,766
Depreciation 7,584 4,316 3,793 2,422
----------- ----------- ----------- -----------
Total Operating Expenses 2,426,121 2,248,417 1,635,890 1,878,741
----------- ----------- ----------- -----------
(LOSS) FROM OPERATIONS (2,238,078) (2,005,413) (1,572,713) (1,621,440)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Subsidiary acquisition cost -- (179,220) -- (179,220)
Interest expense -- other (13,343) (5,795) (10,367) (2,079)
Interest expense -- related party (323) (646) -- (323)
Interest income 1,632 3,191 238 2,279
----------- ----------- ----------- -----------
Total Other (Expense) (12,034) (182,470) (10,129) (179,343)
----------- ----------- ----------- -----------
NET (LOSS) $(2,250,112) $(2,187,883) $(1,582,842) $(1,800,783)
=========== =========== =========== ===========
Net (loss) per common share -- basic and diluted $ (0.06) (0.17) (0.06) (0.13)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
3
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Weighted average number of common shares outstanding --
basic and diluted 39,889,183 13,140,048 28,106,736 13,865,353
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Common Stock Additional Deferred
----------------------- Paid-In Accumulated Subscriptions Stock Based
Shares Amount Capital Deficit Receivable Compensation Total
---------- ------- ----------- ------------- ------------- ------------ ------------
Balance, January 1, 2001 22,403,450 $22,403 $ 3,951,540 $(4,165,599) $(215,334) $ -- $ (406,990)
Stock issued for subscriptions 500,000 500 39,500 -- (40,000) -- --
Stock issued for services 71,419,000 71,419 10,664,855 -- 240,000 (9,615,375) 1,360,899
Forgiveness of debt to related
party -- -- 15,544 -- -- -- 15,544
Net Loss June 30, 2001 -- -- -- (2,250,112) -- -- (2,250,112)
---------- ------- ----------- ----------- --------- ----------- -----------
BALANCE, JUNE 30, 2001 94,322,450 $94,322 $14,671,439 $(6,415,711) $ (15,334) $(9,615,375) $(1,280,659)
========== ======= =========== =========== ========= =========== ===========
See accompanying notes to consolidated financial statements.
5
BLAGMAN MEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six For The Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(2,250,112) $(2,187,883)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 7,584 4,316
Stock based acquisition cost of subsidiary -- 79,220
Stock issued for compensation and services 1,360,899 1,311,500
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (6,665) 362,977
Other current assets (50,526) (26,135)
Prepaid insurance 6,498 --
Increase (Decrease) in:
Deferred revenue (140,000) --
Accounts payable and accrued expenses 482,559 (232,598)
----------- -----------
Net Cash Used In Operating Activities (589,763) (688,603)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (66,798)
----------- -----------
Net Cash Used In Investing Activities -- (66,798)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes and loans payable (11,905) --
Proceeds from notes payable 445,500 --
Proceeds from stock issuance -- 1,097,166
Proceeds from stockholder loan 85,987 (75,000)
Repayment of stockholder loan (89,000) 7,627
Line of credit - net -- (74,713)
----------- -----------
Net Cash Provided by Financing Activities 430,582 955,080
----------- -----------
NET (DECREASE) INCREASE IN CASH (159,181) 199,679
CASH -- BEGINNING OF PERIOD 179,744 --
----------- -----------
CASH -- END OF PERIOD $ 20,563 $ 199,679
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -- Interest $ -- $ 6,441
=========== ===========
See accompanying notes to consolidated financial statements.
6
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
The accompanying unaudited 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 statements presentation. The results for
the interim period are not necessarily indicative of the results to be
expected for the year.
The June 30, 2000 statement of operations has been reclassified to
reflect an offset of related media revenues and media purchases to
reflect the proper accounting financial statement presentation under
EITF 99-19 and SAB 101. The effect of this reclassification was to
decrease gross revenues and cost of revenues by $708,702 for the six
months ended June 30, 2000 and $265,827 for the three months ended June
30, 2000.
For further information, refer to the financial statements and footnotes
for the year ended December 31, 2000 included in the Company's Form
10-KSB filed April 16, 2001.
NOTE 2 STOCK ISSUANCES
During the six months ended June 30, 2001 the Company issued 71,419,000
shares of common stock (of which 68,604,000 shares were issued during
the three months ended June 30, 2001) with an aggregate fair value of
$10,736,274 for current and future services to be performed by
consultants with contracts having various terms. The Company has charged
$1,120,899 to operations during the six months ended June 30, 2001 for
the expense portion of these contracts and has deferred $9,615,375 at
June 30, 2001, which is classified as a contra to equity on the balance
sheet.
The deferred amounts will be expenses to operations over the next 2 1/2 years
ending as follows:
For the six months ending December 31, 2001 $ 1,827,519
For the six months ending December 31, 2002 $ 3,893,928
For the six months ending December 31, 2003 $ 3,893,928
NOTE 3 NEW SUBSIDIARY
On February 28, 2001, the Company incorporated a wholly owned
subsidiary, Blagman USA, Inc., for the purpose of initiating future
mergers. The subsidiary has had no activity for the period ended June
30, 2001.
NOTE 4 LONG-TERM DEBT
Long-term debt consists of three promissory notes aggregating $445,000,
bearing interest at 6% per annum and due five years from their original
dates of March 30 to April 9, 2001.
NOTE 5 SUBSEQUENT EVENT
During July 2001, the Company entered into an agreement with May Davis
Group, Inc. to act as exclusive agent in connection with a Securities
Purchase Agreement for issuance and sale by the Company through a
private placement of 100 Series B convertible preferred shares with a
par value of $0.001 per share at a securities purchase price of $10,000
per share for an aggregate amount of $1,000,000 for which the Company
has received a full net amount of $810,000.
See accompanying notes to consolidated financial statements.
1
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to our company's Bylaws, we may indemnify our directors and
officers under certain circumstances against reasonable expenses (including
court costs and attorneys' fees), judgments, penalties, fines, and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which any of them is a party by reason of his being a director, officer,
employee, or agent of our company if it is determined that he acted in
accordance with the applicable standard of conduct set forth in such statutory
provisions. Thus, the indemnification provisions will protect officers and
directors from liability only if the officer or director meets the applicable
standard of conduct and we have the financial ability to honor the indemnity.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We will pay all expenses in connection with the registration and sale of the
shares offered by the selling stockholders, except any selling commissions or
discounts allocable to sales of those shares, fees and disbursements of counsel
and other representatives of the selling stockholders, and any stock transfer
taxes payable by reason of any such sale. The estimated expenses of issuance and
distribution are set forth below.
Registration Fees $1,762.50
Costs of Printing and Engraving 5,000.00*
Legal Fees 20,000.00*
Accounting Fees 10,000.00*
Blue Sky Fees and Expenses 3,000.00*
----------
TOTAL..................... $39,762.50
* Estimated.
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales of unregistered securities within the last
three (3) years which would be required to be disclosed pursuant to Item 701 of
Regulation S-B, except for the following:
In July 1999, the Company issued 8,250,000 shares to the principal owner
of BMII in consideration for the acquisition of BMII. 50,000 of which were for
services rendered. This brought the total number of BMII shares to 12,069,873.
3,819,873 shares existed due to recapitalization. The Company believes that the
offering was exempt from registration under the Securities Act by reason of
Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
In February 2000, 900,000 shares were sold pursuant to a limited
offering intended to comply with Rule 504. In March an additional 350,000 shares
were sold totaling 1,250,000 shares. The aggregate proceeds from the offering
was $1,000,000. The Company believes that the offering was exempt from
registration under the Securities Act by reason of Section 4(2) and/or 3(b)
thereof and/or Regulation D under the Securities Act as an exempt sale of
securities due to the general nature and circumstances of the sale, including
the qualifications of the purchasers, and the restrictions on resales of the
securities acquired.
In March 2000, the Company issued options to purchase 25,000 shares of
Common Stock to each member of the board of directors. The total amount issued
totaled 125,000 shares. The options were exercisable at $0.25 per share. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired.
In March 2000, the Company issued 317,000 common shares for legal
services rendered. This was issued for cash debt. The Company believes that the
offering was exempt from registration under the Securities Act by reason of
Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
See accompanying notes to consolidated financial statements.
1
In April 2000, the Company issued 30,000 shares of common stock to an
employee as a bonus for work performed on the job. The Company believes that the
offering was exempt from registration under the Securities Act by reason of
Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
In June 2000, the Company issued 450,000 shares of common stock to an
outside public relations consultant in consideration for cash owed. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In June 2000, the Company issued 1,375,000 shares of common stock to 7
individuals who performed various services for the Company. The Company believes
that the offering was exempt from registration under the Securities Act by
reason of Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
In June 2000, the Company issued 750,000 shares of common stock to the
CEO of BMII in consideration for services rendered by the CEO for the benefit of
the Company prior to becoming CEO. This stock issued in lieu of cash. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired.
In August 2000, the Company issued an aggregate of 2,731,000 shares of
common stock to 27 individuals who performed various services for the Company
and (2) three charitable institutions (60,000 of the shares). The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In September 2000, the Company issued 300,000 shares of common stock to
8 individuals who performed various services for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In September 2000, the Company issued 1,768,000 shares of common stock
to 6 individuals who performed various services for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In September 2000, the Company issued 50,000 shares of common stock to
an individual who was instrumental in the MNS Eagle merger for BMII. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In October 2000, the Company issued 1,596,000 shares of common stock to
13 individuals who performed various services for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In December 2000, the Company issued 1,500,000 shares of common stock to
an individual who acted as a marketing consultant to BMII. The Company believes
that the offering was exempt from registration under the Securities Act by
reason of Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation,
See accompanying notes to consolidated financial statements.
2
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In December 2000, the Company issued 600,000 shares of common stock to
an individual who performed various services for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In December 2000, the Company issued 313,577 shares of common stock to a
company that acted as a marketing consultant to BMII. The stock was issued to
satisfy a debt owed the marketing firm under contract. The Company believes that
the offering was exempt from registration under the Securities Act by reason of
Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
In December 2000, the Company issued 97,500 shares of common stock for
legal services rendered by a firm representing BMII. The stock was issued to
satisfy a cash debt. The Company believes that the offering was exempt from
registration under the Securities Act by reason of Section 4(2) thereof and/or
Regulation D under the Securities Act as a non-public sale of securities due to
the absence of a general solicitation, the general nature and circumstances of
the sale, including the qualifications of the purchasers, and the restrictions
on resales of the securities acquired.
In January 2001, the Company issued 1,000,000 shares of common stock to
2 individuals who performed various services for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired
In January 2001, the Company cancelled 1,213,000 shares of common stock
and re- deposited those shares into the Company treasury.
In February 2001, the Company issued 1,075,000 shares of common stock to
two companies that acted as marketing consultants to BMII. 575,000 of the
1,075,000 shares were valued at $0.07 per share; the remaining shares were not
valued at any set price. The Company believes that the offering was exempt from
registration under the Securities Act by reason of Section 4(2) thereof and/or
Regulation D under the Securities Act as a non-public sale of securities due to
the absence of a general solicitation, the general nature and circumstances of
the sale, including the qualifications of the purchasers, and the restrictions
on resales of the securities acquired.
In February 2001, the Company cancelled 138,000 shares of common stock
and re- deposited those shares into the Company treasury.
In March 2001, the Company issued 1,700,000 shares of common stock to 4
individuals who performed various consulting services for the Company. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired
In Aril 2001, the Company issued 260,000 to an individual who performed
new business services for the Company. The Company believes that the offering
was exempt from registration under the Securities Act by reason of Section 4(2)
thereof and/or Regulation D under the Securities Act as a non-public sale of
securities due to the absence of a general solicitation, the general nature and
circumstances of the sale, including the qualifications of the purchasers, and
the restrictions on resales of the securities acquired.
In April 2001, the Company issued 2,700,000 shares of common stock to 4
individuals who performed various consulting services for the Company. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired
In May 2001, the Company issued options to purchase 150,000 shares of
Common Stock to each member of the board of directors. The total amount issued
totaled 600,000 shares. The options were exercisable at $0.05 per share. The
Company believes that
See accompanying notes to consolidated financial statements.
3
the offering was exempt from registration under the Securities Act by reason of
Section 4(2) thereof and/or Regulation D under the Securities Act as a
non-public sale of securities due to the absence of a general solicitation, the
general nature and circumstances of the sale, including the qualifications of
the purchasers, and the restrictions on resales of the securities acquired.
In May 2001, the Company issued 38,590,000 shares of common stock to 13
individuals who performed various consulting services for the Company. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired
In May 2001, the Company issued 500,000 shares of common stock as a loan
to 1 individual who performed various consulting services for the Company. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired
In June 2001, the Company issued 350,000 shares of common stock to a
consultant who assisted in shareholder communication and business services. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired.
In June 2001, the Company issued 53,950,000 shares of common stock to 12
consultants who assisted in shareholder communication and business services. The
Company believes that the offering was exempt from registration under the
Securities Act by reason of Section 4(2) thereof and/or Regulation D under the
Securities Act as a non-public sale of securities due to the absence of a
general solicitation, the general nature and circumstances of the sale,
including the qualifications of the purchasers, and the restrictions on resales
of the securities acquired.
In June 2001, the Company cancelled 26,940,000 shares of common stock
and re- deposited those shares into the Company treasury.
In July 2001, the Company issued 100 shares of Series B Convertible
Preferred Stock valued at $10,000 per share to a group of investors in
connection with a private placement of $1,000,000 to the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In July 2001, the Company issued an aggregate of 7,714,286 shares of
common stock to 4 individuals who aided in the process of locating and
finalizing a $15 million equity line of credit for the Company. The Company
believes that the offering was exempt from registration under the Securities Act
by reason of Section 4(2) thereof and/or Regulation D under the Securities Act
as a non-public sale of securities due to the absence of a general solicitation,
the general nature and circumstances of the sale, including the qualifications
of the purchasers, and the restrictions on resales of the securities acquired.
In August 2001 the Company issued 25,000,000 shares of common stock to
an individual who has worked with the Company for 6 years as a consultant,
100,000,000 shares of common stock to the CEO for monies owed and back pay due,
175,000 shares to an attorney for legal assistance, and a total of 145,000,000
shares to consultants for services to be rendered over the next five years. The
reason the amount of stock increased to these levels was due to the actual share
price for July and August. The Company believes that the offering was exempt
from registration under the Securities Act by reason of Section 4(2) thereof
and/or Regulation D under the Securities Act as a non-public sale of securities
due to the absence of a general solicitation, the general nature and
circumstances of the sale, including the qualifications of the purchasers, and
the restrictions on resales of the securities acquired.
See accompanying notes to consolidated financial statements.
4
ITEM 27 EXHIBITS
Copies of the following documents are filed with this registration statement as
exhibits:
3.1 Certificate of Incorporation (Charter Document)*
3.2 Bylaws*
3.3 Certificate of Designation for Series B Convertible Preferred Stock
5.1 Legal opinion of Edward T. Swanson, Esq.*
10.1 Employment Agreement with Robert Blagman*
10.2 Equity Line of Credit Agreement dated July 12, 2001 with GazelleGroup LLP and DRH Investment Company LLP
10.3 Registration Rights Agreement dated July 12, 2001 with GazelleGroup LLP and DRH Investment Company LLP
10.4 Securities Purchase Agreement dated July 12, 2001 with certain named buyers
10.5 Placement Agent Agreement dated July 12, 2001 with May Davis Group, Inc.
10.6 Registration Rights Agreement dated July 12, 2001 with certain named persons
10.7 2001 Employee Stock Option Plan*
10.8 Placement Agent Agreement dated July 12, 2001 with May Davis Group, Inc.
10.9 Employment Agreement with Leslie Blagman*
11. Statement Re: Computation of Per Share Earnings**
23.1 Consent of Independent Certified Public Accountants
23.2 Consent of Edward T. Swanson, Esq. (contained in Exhibit 5.1)*
24.1 Powers of Attorney (included in the signature page to the Registration Statement)
27. Financial Data Schedule
* To be filed by amendment.
**Included in Financial Statements
ITEM 28 UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of
Regulation S-B) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
See accompanying notes to consolidated financial statements.
5
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
See accompanying notes to consolidated financial statements.
6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Los Angeles, California, on this 31st day of
October, 2001.
BLAGMAN MEDIA INTERNATIONAL INC.
By ______________________________
Robert Blagman, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert Blagman Chief Executive Officer, October 31, 2001
-------------------------- President, Chief Financial
(Robert Blagman) Officer (Principal Financial
Officer and Principal Accounting
Officer) Chairman of the Board
and Director
/s/ Robert Blagman Director October 31 2001
--------------------------
(Robert Blagman)
Attorney In Fact for
ANDREW GIVEN
/s/ Robert Blagman
--------------------------
(Robert Blagman) Director October 31, 2001
Attorney In Fact for
WALTER LUBARS
/s/ Robert Blagman Director October 31 2001
--------------------------
(Robert Blagman)
Attorney In Fact for
JEFFREY WALD
See accompanying notes to consolidated financial statements.
7