10QSB 1 form10q_15903.txt FORM 10-QSB DATED MARCH 31, 2008 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number: 000-50292 MM2 GROUP, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW JERSEY 20-2554835 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5 REGENT STREET, SUITE 520 LIVINGSTON, NJ 07039 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (732) 290-0019 Securities registered under Section 12(b) of the Exchange Act: NONE. Securities registered under Section 12(g) of the Exchange Act: CLASS A COMMON, NO PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] Number of shares of outstanding Class A, Common Stock, No par value, outstanding as of May 19, 2008: 377,105,051 Transitional Small Business Disclosure Format (check one). YES [ ] NO [X] ================================================================================ MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 TABLE OF CONTENTS ----------------- Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Balance Sheet - March 31, 2008 2-3 Statements of Income - For the nine months and three months ended March 31, 2008 and 2007 4 Statements of Accumulated Other Comprehensive Loss - For the nine months ended March 31, 2008 5 Statements of Cash Flows - For the nine months ended March 31, 2008 and 2007 6-8 Notes to Condensed Consolidated Financial Statements 9-20 Item 2. Management's Discussion and Analysis or Plan of Operations 21-24 Item 3A(T). Controls and Procedures 25-26 PART II. OTHER INFORMATION Item 6. Exhibits 27 1 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) MARCH 31, 2008 ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 154,241 Securities available for sale 4,000 Accounts receivable, net of allowance for doubtful accounts of $0 469,688 Inventory 144,393 Prepaid expenses 60,241 ---------- Total current assets 832,563 ---------- PROPERTY AND EQUIPMENT, net of accumulated depreciation of $3,767 7,393 ---------- OTHER ASSETS Deposits and other assets 3,183 ---------- TOTAL ASSETS $ 843,139 ========== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $1,536,885 Due to related parties 877,453 Convertible debentures payable, net of discount of $379,594 1,399,464 Derivative liability 1,297,895 Warrant liability 1,009,437 ---------- Total current liabilities 6,121,134 ---------- TOTAL LIABILITIES 6,121,134 ---------- COMMITMENTS AND CONTINGENCIES The accompanying notes are an integral part of these condensed consolidated financial statements. 2 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED) MARCH 31, 2008 TEMPORARY EQUITY Common stock: Class B - no par value, authorized 50,000,000 shares; 10,000,000 shares issued and outstanding 1,000 ---------- STOCKHOLDERS' DEFICIT Preferred stock, $1.00 par value; authorized 1,000,000 shares; no shares issued and outstanding -- Common stock: Class A - no par value; authorized 450,000,000 shares; 226,216,161 shares issued and outstanding 1,275,324 Class B - no par value; authorized 50,000,000 shares; 10,000,000 shares issued and outstanding -- Additional paid-in capital 750,000 Accumulated comprehensive loss (276,000) Accumulated deficit (7,028,319) ---------- Total stockholders' deficit (5,278,995) ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 843,139 ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 3 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 2008 AND 2007
For the nine months ended For the three months ended March 31, March 31, 2008 2007 2008 2007 ------------- ------------- ------------- ------------- SALES, net $ 1,888,499 $ 674,230 $ 685,663 $ 247,954 COST OF SALES 1,463,814 250,864 498,373 96,610 ------------- ------------- ------------- ------------- GROSS PROFIT 424,685 423,366 187,290 151,344 ------------- ------------- ------------- ------------- GENERAL AND ADMINISTRATION EXPENSES Selling and marketing expenses 23,186 27,960 424 20,460 General and administrative expenses 1,076,789 1,197,307 327,673 615,118 Depreciation expenses 1,426 994 558 551 Amortization of financing costs 23,438 7,812 7,813 7,812 ------------- ------------- ------------- ------------- Total general and administration expenses 1,124,839 1,234,073 336,468 643,941 ------------- ------------- ------------- ------------- (LOSS) FROM OPERATIONS (700,154) (810,707) (149,178) (492,597) ------------- ------------- ------------- ------------- OTHER (INCOME) EXPENSES Other (income) (9,782) (57,816) (1,490) (8,496) Interest expense 147,526 108,589 47,387 46,460 Liquidated damages 333,423 119,531 108,275 38,107 (Gain) loss on revaluation of derivatives (3,212,437) 57,382 (2,711,630) (766,235) Consulting (income) (70,000) (280,000) -- (280,000) Beneficial interest expense 165,152 -- 165,074 -- Amortization of discount on debt conversion 670,033 513,783 223,344 223,344 Write-off of deferred financing costs -- 369,625 -- -- ------------- ------------- ------------- ------------- Total other (income) expenses (1,976,085) 831,094 (2,169,040) (746,820) ------------- ------------- ------------- ------------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 1,275,931 (1,641,801) 2,019,862 254,223 PROVISION FOR INCOME TAXES -- -- -- -- ------------- ------------- ------------- ------------- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 1,275,931 $ (1,641,801) $ 2,019,862 $ 254,223 ============= ============= ============= ============= NET INCOME (LOSS) PER COMMON SHARE Basic $ 0.01 $ (0.01) $ 0.01 $ 0.00 ============= ============= ============= ============= Diluted $ 0.00 $ (0.01) $ 0.00 $ 0.00 ============= ============= ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING Basic 173,416,986 138,179,546 196,783,162 144,349,948 ============= ============= ============= ============= Diluted 450,000,000 138,179,546 450,000,000 165,099,948 ============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) FOR THE NINE MONTHS ENDED MARCH 31, 2008 Balance at July 1, 2007 $ -- Unrealized loss on securities available for sale: Unrealized losses arising during the period $ (276,000) ---------- Net change for the period (276,000) ---------- Balance at March 31, 2008 $ (276,000) ========== The accompanying notes are an integral part of these condensed consolidated financial statements. 5 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007
2008 2007 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) $ 1,275,931 $(1,641,801) Adjustments to reconcile net income (loss) to net cash (used in) operating activities Depreciation 1,426 994 Common stock issued for services and compensation 81,377 226,546 Amortization of discount on debt conversion 670,033 513,783 Amortization of prepaid financing costs 23,438 7,812 (Gain) loss on revaluation of derivatives (3,212,437) 57,382 (Gain) on disposition of derivative liability -- (40,192) Write-off of financing costs -- 369,625 Beneficial interest expense 165,152 -- Securities receivable for consulting income (70,000) (280,000) Changes in operating assets and liabilities: Accounts receivable 125,692 (111,027) Inventory 57,304 (208,915) Prepaid expenses and other assets 23,477 (1,065) Accounts payable and accrued liabilities 400,811 490,945 Due to related parties 158,970 216,390 ----------- ----------- Total cash (used in) operating activities (298,826) (399,523) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (4,532) (2,196) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt financing -- 625,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (303,358) 223,281 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 457,599 504,598 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 154,241 $ 727,879 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest expense $ -- $ -- =========== =========== Income taxes $ -- $ -- =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES For the nine months ended March 31, 2008: ----------------------------------------- The Company issued 4,738,148 shares of its Class A Common Stock valued at $38,458, as compensation to Meritz & Muenz LLP for repayment of legal services valued at $38,380, which was provided during the year ended June 30, 2006, pursuant to the terms of the MM2 Plan. A beneficial interest expense of $78 was charged to operations. The Company issued 2,999,600 shares of its Class A Common Stock valued at $42,997, as compensation to officers of Genotec Nutritionals for bonuses pursuant to the provisions of the Genotec Plan. The Company issued 72,750,890 shares of its Class A Common Stock to YA Global Investments (f/k/a Cornell Capital Partners) ("YA Global"), valued at $291,324, for conversion of $126,250 of Secured Convertible Debentures issued on April 7, 2005 and subsequently amended on July 20, 2006. A beneficial interest expense of $165,074 was charged to operations. For the nine months ended March 31, 2007: ----------------------------------------- The Company issued 1,849,689 shares of Class A common stock with a total value of $120,230, which represents full satisfaction of the Commitment Shares under the Standby Equity Distribution Agreement, pursuant to the Termination Agreement of July 20, 2006. The Company issued 3,150,311 shares of Class A common stock with a total value of $204,770, for Commitment Shares pursuant to the Amended and Restated Securities Purchase Agreement of July 20, 2006. The Company issued 600,000 shares of its Class A common stock with a total value of $30,000, as compensation to Stephen Wien for services provided. The Company issued 825,852 shares of its Class A common stock with a total value of $45,046, as compensation for the strategic alliance with UTEK Corporation to identify synergistic technology acquisition opportunities. The Company concluded the acquisition of Genotec Nutritionals, Inc. Pursuant to the Asset Purchase Agreement, the Company issued 10,000,000 shares of Class A common stock valued at $300,000 to to George Kontonotas, Joseph Freedman, Susan Blancato, Michael Logerfo, Maureen McLaughlin, Paula Daddone, Maureen Bridges and Robert Blancato. The accompanying notes are an integral part of these condensed consolidated financial statements. 7 MM2 GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) FOR THE NINE MONTHS ENDED MARCH 31, 2008 AND 2007 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES -Continued The net effect of the acquisition on cash flows is as follows: Accounts receivable $ 179,002 Inventory 34,191 Prepaid expenses 2,149 Security deposit 3,183 Goodwill 250,490 Accounts payable and accrued expense (169,015) Common stock (300,000) ---------- Total $ -- ========== The Company issued 300,000 shares of its Class A common stock with a total value of $10,500, as compensation for the consulting services with Allison Investment Corp. on matters related to mergers and acquisitions. The Company issued 100,000 restricted shares of its Class A common stock with a total value of $4,000, to Dr. Yevsey Belinky for the continuing development of a new cardiac supplement product line. The Company issued 500,000 restricted shares of its Class A common stock with a total value of $25,000, to William Maier pursuant to his consulting agreement for product marketing services. The Company issued 3,086,420 shares of Class A common stock to YA Global (f/k/a/ Cornell Capital Partners) as repayment of principal on outstanding convertible debentures, valued at $50,000. The Company received 4,000,000 shares of Class A common stock of Deep Field Technologies as compensation for consulting services to be provided pursuant to the terms of the Consulting Agreement entered into on February 13, 2007. The value of the agreement was determined to be $1,120,000 and is being amortized over six months ending August 13, 2007. The Company issued 2,000,000 restricted shares of its' Class A Common Stock with a total value of $112,000, to Dr. Jeffrey Shapiro, and his assignees, as a partial fee for joining the Company's Board of Scientific Advisors and for providing the Company consulting services relating to the development of a new cardiac supplement product line. The accompanying notes are an integral part of these condensed consolidated financial statements. 8 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2008 AND 2007 NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of business ----------------------- MM2 Group, Inc. ("MM2", or the "Company"), was incorporated in New York on March 18, 1968 under the name John DeNegris Associates, Inc. In 1974, John DeNegris Associates, Inc. changed its name to Wien Group, Inc. ("Wien (NY)"). Wien (NY) conducted a public relations business and traded in the public market until December 1991 when the corporation ceased operations. Wien (NY) remained inactive until September 1998 when it reacquired its good standing status with the State of New York. Wien (NY) did not conduct any business prior to July 2001, at which time it initiated its business of providing corporate financial advisory services to small and emerging companies that require advisory services to continue their growth within their respective industries. Wien (NY) primarily focused on the manufacturing, retail, music & entertainment, and health care industries. These services include: general corporate finance, merger and acquisition advisory services, consulting on overall corporate strategy, facilitating asset-based lending, and arranging equipment leasing contracts. On September 23, 2005, Wien (NY) reincorporated in the state of New Jersey pursuant to a Plan and Agreement of Merger. Pursuant to such Plan and Agreement of Merger, Wien (NY) merged with and into its wholly owned subsidiary ("Wien (NJ)") with Wien (NJ) being the surviving entity. Wien (NJ)'s charter provided for the authorization of Class A Common Stock (the "Wien (NJ) Class A Common"), Class B Common Stock ("Wien (NJ) Class B Common"), and Preferred Stock ("Wien (NJ) Preferred"). Pursuant to the Plan and Agreement of Merger, each holder of Wien (NY)'s Common Stock received one share of Wien (NJ) Class A Common in exchange for each share of such holder's Common Stock. On October 19, 2005, Wien (NJ) completed its previously disclosed acquisition (the "Acquisition") of all of the outstanding shares of MM2 Group, Inc., a New Jersey corporation ("OldMM2"). The Acquisition was effected pursuant to the terms of the Acquisition Agreement dated July 8, 2005 (the "Acquisition Agreement") between Wien (NY), Wien (NJ), Stephen Wien, OldMM2 and the stockholders of OldMM2 as of the date of the Acquisition Agreement. Prior to the closing of the Acquisition, certain terms and conditions of the Acquisition Agreement were amended by the parties thereto. The primary changes were to (i) allow fractional shares of Wien (NJ) to be issued in connection with the Acquisition (ii) correctly state the authorized capital stock of Wien (NJ) and Wien (NY) and (iii) specify the authorized stock of Wien (NJ) following the reincorporation. The Company had nominal operations immediately before and after the Acquisition. OldMM2 was a corporation formed on December 8, 2004. Other than the Acquisition, no significant business activity has been conducted by OldMM2 from the date of its creation to the date of the consummation of the Acquisition. The primary activity of OldMM2 involved seeking merger or acquisition candidates with whom it could either merge or acquire. The Company is publicly traded and is currently traded on the NASD Over The Counter Bulletin Board ("OTCBB") under the symbol "MMGP". 9 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 Basis of presentation --------------------- The acquisition was accounted for as a reverse merger under the purchase method of accounting. Accordingly, MM2 Group, Inc. will be treated as the continuing entity for accounting purposes. The accompanying financial statements include the accounts of Old MM2, Wien (NY) and its wholly owned subsidiary Wien (NJ). These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated financial statements be read in conjunction with the June 30, 2007 audited financial statements and the accompanying notes thereto filed with the Securities and Exchange Commission on Form 10-KSB. On September 21, 2006, the Company completed the acquisition of Genotec Nutritionals, Inc, a New York based manufacturer and distributor of nutritional supplements. Pursuant to the Asset Purchase Agreement, the Company issued 10,000,000 shares of Class A common stock valued at $300,000 to George Kontonotas, Joseph Freedman, Susan Blancato, Michael Logerfo, Maureen McLaughlin, Paula Daddone, Maureen Bridges and Robert Blancato. In addition, the Company executed three-year employment agreements with Mr. Kontonotas, Mr. Freedman and Ms Blancato and purchased $75,000 of Genotec's Series A Convertible Preferred Stock, which was used to fund the working capital. The result of operations for the nine months ending March 31, 2008 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes included in Form 10-KSB for the year ended June 30, 2007. References to the "Company," "we," "us" and "our" refer to MM2 Group Inc. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had cash equivalents at March 31, 2008 of $50,418. The cash equivalents represent investments in Triple A credit rated money market funds that have 7-day auction rates competitive with current market conditions. Concentration of Credit Risk ---------------------------- Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and accounts receivable. The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances may exceed FDIC insured levels at various times during the year. The Company has uninsured cash balances at March 31, 2008 of $119,020. 10 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 The Company provides credit terms to its corporate customers based on their negotiated contracts, which range from "payment on delivery" to "90 days" terms. Our two largest customers represent approximately $360,000, or 76%, of our receivables at March 31, 2008. Both of these customers have excellent payment histories and we do not expect to experience any losses on these collections. Marketable Securities --------------------- The Company has evaluated its investment policies consistent with FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in Stockholders' Equity under the caption Accumulated Other Comprehensive Loss. Revenue Recognition ------------------- The Company recognizes revenues when products are shipped from its warehouse or when the Company is notified that product has been drop-shipped from the suppliers or from our outsourced packagers Our largest customer at March 31, 2008, represented approximately 80% of our product sales for the nine months ended March 31, 2008. This customer is satisfied with our products and service and we expect to continue to do business with them for the foreseeable future. Accounts Receivables -------------------- Accounts receivables consist primarily of uncollected invoices for product sales. Payment terms vary from customer to customer and range from "payment on delivery" to "90 days" terms. In addition, collection on credit card sales is generally settled in 5 days. The Company does not provide for customer returns, but will accommodate customers in special circumstances. Management has determined that, based on its experience, that no provision for product returns is required at March 31, 2008. Inventory --------- Inventory consists primarily of bulk supplies of capsules and sealed powders, bottles, caps and shipping containers are stored in our warehouse. Product shipments from our warehouse are bottled and packaged immediately before delivery. Inventory is valued at the average cost of all purchases. Inventory reserves are estimated for excess and slow-moving inventory. These estimates are based on current assessments about future demands, market conditions and related management initiatives. If market conditions and actual demands are less favorable than those projected by management, inventory write-downs may be required. Management has determined that no provision for excess and slow-moving inventory is required at March 31, 2008. 11 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 Share-Based Payment ------------------- On December 16, 2004, the Financial Accounting Standards Board ("FASB") published Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective for small business issuers as of the first interim period that begins after December 15, 2005. Accordingly, the Company has implemented the revised standard in the quarter ending December 31, 2005. The adoption of FAS 123R has not had any effect on the financial statements of the Company. The Company measures compensation expense for its non-employee stock-based compensation under the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, "ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES". The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. Basic and Diluted Earnings Per Common Share ------------------------------------------- SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). The computation of basic EPS is computed by dividing income (loss) available to common stockholders by weighted average number of common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise, or contingent exercise of securities that would have an anti-dilutive effect on earnings resulting from the Company's net loss position. 12 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 The shares used in the computations are as follows:
Nine months ended March 31, -------------------------------- 2008 2007 ------------ ------------ Basic net income (loss) per share computation: ---------------------------------------------- Net (loss) attributable to common stockholders $ 1,275,931 $ (1,641,801) Weighted-average common shares outstanding 173,416,986 138,179,546 Basic net income (loss) per share attributable to common stockholders $ 0.01 $ (0.01) Diluted net income (loss) per share computation: ------------------------------------------------ Net (loss) attributable to common stockholders $ 1,275,931 $ (1,641,801) Weighted-average common shares outstanding 173,416,986 138,179,546 Incremental shares attributable to the assumed conversion of Class B common stock, convertible debentures and warrants 276,583,014 N/A Total adjusted weighted-average shares 450,000,000 138,179,546 Diluted net income (loss) per share attributable to common stockholders $ 0.00 $ (0.01)
The Company had common stock equivalents in excess of its authorized capital at March 31, 2008, so the maximum authorized shares of 450,000,000 are shown for diluted earnings per common share calculations. The Company had common stock equivalents of 20,750,000 at March 31, 2007. Comprehensive Income (Loss) --------------------------- FAS No. 130, "Reporting Comprehensive Income", establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. As of March 31, 2008, the Company has several items that represent comprehensive income, and thus, has included a statement of comprehensive income (loss). Derivative Liabilities ---------------------- During April 2003, the Financial Accounting Standards Board issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires that contracts with comparable characteristics be accounted for similarly and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except in certain circumstances, and for hedging relationships designated after June 30, 2003. The financial statements for the nine months ended March 31, 2008 include the recognition of the derivative liability on the underlying securities issuable upon conversion of the YA Global Convertible Debentures. Recent Accounting Pronouncements -------------------------------- In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair 13 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 value hierarchy used to classify the source of the information. In February 2008, the FASB issued FASB Staff Position ("FSP") 157-2, EFFECTIVE DATE OF FASB STATEMENT NO. 157, which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 is effective for us beginning July 1, 2008; FSP 157-2 delays the effective date for certain items to July 1, 2009. We are currently assessing the potential impact that adoption of this statement may have on our financial statements. In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES. SFAS No. 159 gives us the irrevocable option to carry many financial assets and liabilities at fair values, with changes in fair value recognized in earnings. SFAS No. 159 is effective for us beginning July 1, 2008. We are currently assessing the potential impact that electing fair value measurement would have on our financial statements and have not determined what election we will make. In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS, AN AMENDMENT OF ARB NO. 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent's equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for us beginning July 1, 2009. We are currently assessing the potential impact that adoption of SFAS No. 160 may have on our financial statements. In December 2007, the FASB issued SFAS No. 141R, BUSINESS COMBINATIONS, which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning July 1, 2009 and will apply prospectively to business combinations completed on or after that date. In March 2008, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133, which requires additional disclosures about the objectives of the derivative instruments and hedging activities, the method of accounting for such instruments under SFAS No. 133 and its related interpretations, and a tabular disclosure of the effects of such instruments and related hedged items on our financial position, financial performance, and cash flows. SFAS No. 161 is effective for us beginning January 1, 2009. We are currently assessing the potential impact that adoption of SFAS No. 161 may have on our financial statements. 14 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 NOTE 3 - SECURITIES AVAILABLE FOR SALE On February 13, 2007, the Company received 4,000,000 shares for Deep Field Technologies Class A Common Stock as compensation pursuant to the Consulting Agreement with Deep Field Technologies, valued at $1,120,000. The Company provided general corporate finance advisory and other similar consulting services for a period of six (6) months from the date of the agreement. Subsequent to the issue date of these securities, circumstances had changed which impaired the expected fair value of the shares and management reduced the fair value to $280,000. At March 31, 2008, the fair value of these securities is $4,000. The President and CEO of the Company was also the President and CEO of Deep Field Technologies prior to execution of the Consulting Agreement. NOTE 4 - INCOME TAXES Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are summarized as follows: At March 31, 2008 2007 ------------ ------------ Deferred tax asset $ 1,300,000 $ 1,581,000 Less: Valuation allowance (1,300,000) (1,581,000) ----------- ------------ Net deferred tax assets $ -- $ -- ============ ============ As of March 31, 2008 and 2007, the Company has net operating loss carry forwards of approximately $3,400,000 and $4,650,000, respectively, that can be utilized to offset future taxable income for Federal income tax purposes through 2026. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382. Because of the current uncertainty of realizing the benefit of the tax carry forward, a valuation allowance equal to the tax benefit for deferred taxes has been established. The full realization of the tax benefit associated with the carry forward depends predominantly upon the Company's ability to generate taxable income during the carry forward period. NOTE 5 - RELATED PARTY TRANSACTIONS As of March 31, 2008, the Company has accrued $877,453 of deferred compensation for the Non-executive Chairman and the President of the Company. These deferrals will remain unpaid until the Board of Directors determines that the Company has sufficient liquidity to make such payments. The Non-executive Chairman and the President of the Company have further agreed, however, to accept payment or partial payment, from time to time, in the form of the Company's Class A Common Stock and/or the Company's Class B Company Stock, at such time as the Board of Directors determines to issue such shares in satisfaction of these accrued liabilities. 15 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 NOTE 6 - CONVERTIBLE DEBENTURES PAYABLE On April 1, 2005, we entered into a Securities Purchase Agreement with YA Global for the sale of $2,500,000 of secured convertible debentures. The agreement was amended and restated on July 20, 2006 and January 4, 2007 to reflect the change in the funding formulas. Pursuant to the terms of the agreement with YA Global, on April 1, 2005 we issued a secured convertible debenture in the principal amount of $1,250,000. On July 20, 2006, the secured convertible debenture was amended and restated and reissued in an aggregate principal amount of $1,330,308, which included accrued and unpaid interest on the original convertible debenture of $80,308. Interest on the outstanding principal balance of the Secured Convertible Debentures accrues at the annual rate of 10%. Payment of principal and accrued interest shall be paid on or before July 1, 2008 on the July 20, 2006 debenture. During the year ended June 30, 2007, we issued 3,086,420 shares of Class A common stock as repayment of principal of $50,000. During the nine months ended March 31, 2008, we issued 72,750,890 shares of Class A common stock as repayment of principal of $126,250. As of March 31, 2008 the remaining principal balance of the convertible debenture was $1,154,058 plus $216,181 of accrued interest. On January 4, 2007, we issued a secured convertible debenture in the principal amount of $625,000. Interest on the outstanding principal balance of this Secured Convertible Debentures accrues at the annual rate of 10%. Payment of principal and accrued interest shall be paid on or before January 1, 2009. As of March 31, 2008 the remaining principal balance of the convertible debenture was $625,000 plus $77,397 of accrued interest. The Company has the option to redeem a portion or all of the outstanding debentures at 120% of the amount redeemed plus accrued interest. The holder shall be entitled to convert in whole or in part at any time and from time to time, any amount of principal and accrued interest at a price equal to 90% of the lowest closing bid price of the Common Stock during the 30 trading days immediately preceding the conversion date, as quoted by Bloomberg, LP ("Conversion Price"). In the event of a default, the full principal amount of this Debenture, together with interest and other amounts owing, shall be due and payable in cash, provided however, the holder of the debenture may request payment of such amounts in Common Stock of the Obligor at the Conversion Price then in-effect. A holder of the debenture may not convert this Debenture or receive shares of Common Stock as payment of interest hereunder to the extent such conversion or receipt of such interest payment would result in the holder of the debenture beneficially owning in excess of 4.9% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of, and payment of interest on, this Debenture. Upon execution of the above agreements, the Company issued to YA Global 1,849,689 shares of Class A common stock, in accordance with the Termination Agreement of July 20, 2006, and another certificate for 3,150,311 shares of Class A common stock, for the aggregate total of 5,000,000 shares of Common Stock (collectively, the "Commitment Shares"). 16 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 The aggregate principal value of the Amended and Restated Secured Convertible Debenture is $1,779,058. This amount is shown net of the unamortized portion of the discount on conversion of $379,594. This discount is being amortized over the life of the debenture and is being recorded as a charge to amortization of discount on debt conversion on the statement of operations. NOTE 7 - DERIVATIVE LIABILITY In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" and EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the conversion feature associated with the YA Global Secured Convertible Debentures represents embedded derivatives. As such, the Company had recognized embedded derivatives in the amount of $1,161,755 as a liability in the accompanying condensed consolidated balance sheet, and it is now measured at its estimated fair value of $1,297,895. The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions: Fair market value of stock $0.0010 Lowest closing bid price last 30 trading days $0.0010 Exercise price $0.0009 Dividend yield 0.00% Risk free interest rate 5.60% Expected volatility 297.49% Expected life .25 to .75 Years The derivative value of the January 4, 2007 debenture exceeded the face amount of the debenture and as such, the excess value of $855,597 was charged to the Loss on revaluation of derivatives on the consolidated statements of operations in the year ended June 30, 2007. Changes in the fair value of the embedded derivatives are calculated at each reporting period and recorded in (gain) loss on revaluation of derivatives in the consolidated statements of operations. During the nine months ended March 31, 2008, there was a change in the fair value of the embedded derivatives, which resulted in a total gain of $3,212,437. In accordance with SFAS 133, SFAS 150 and EITF 00-19, the initial fair market value of the derivatives is recorded as a debt discount. The initial value of the debt discount of $1,786,755 is being amortized over the life of the convertible debentures. Amortization expense on the derivative for the nine months ending March 31, 2008 was $670,033. NOTE 8 - TEMPORARY EQUITY As of March 31, 2008, the Company does not have sufficient quantity of authorized Class A common stock to meet it potential obligations for conversions of the Class B common stock, the YA Global Secured Convertible Debentures and the YA Global Warrants. The Class B common stock is convertible into approximately 10.5 billion shares of Class A common stock. The YA 17 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 Global Secured Convertible Debentures are convertible into approximately 2 billion shares of Class A common stock. The YA Global Warrants are convertible into approximately 21 million shares of Class A common stock. The aggregate amount of shares outstanding and those due upon these conversions is in excess of 12.5 billion, which exceeds the 450 million authorized in the Certificate of Incorporation. As such, the Class B common stock has been reclassified to temporary equity until the situation can be resolved. Management intends to remedy this situation by increasing the number of authorized shares with the consent of the shareholders, or, alternatively, seeking a written forbearance from the holders of the Class B Common Stock whereby those holders will consent to not converting their Class B Common Stock to Class A Common Stock unless and until there is sufficient Class A Common Stock authorized by the Corporation to honor such conversion. NOTE 9 - STOCKHOLDERS' DEFICIT In accordance with its Certificate of Incorporation as filed on July 7, 2005, the Company is authorized to issue 1,000,000 shares of Preferred stock, $1.00 par value, 450,000,000 shares of Class A common stock, no par value; and 50,000,000 shares of Class B Common Stock, no par value. PREFERRED STOCK Preferred Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par value. As of March 31, 2008, no shares were issued or outstanding. CLASS A COMMON STOCK Class A Common Stock consists of the following as of March 31, 2008: 450,000,000 shares of authorized common stock with no par value, 226,216,161 shares were issued and outstanding. Each holder of Class A common stock is entitled to receive ratably dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. The Company has never paid any dividends on its common stock and does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance the growth objectives. For the nine months ended March 31, 2008, the Company had the following transactions in its Class A common stock: The Company issued 4,738,148 shares of its Class A Common Stock valued at $38,458, as compensation to Meritz & Muenz LLP for the repayment of legal services valued at $38,380, which was provided during the year ended June 30, 2006, pursuant to the terms of the MM2 Plan. A beneficial interest expense of $78 was charged to operations. The Company issued 2,999,600 shares of its Class A Common Stock valued at $42,997, as compensation to officers of Genotec Nutritionals for bonuses pursuant to the provisions of the Genotec Plan. 18 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 The Company issued 72,750,890 shares of its Class A Common Stock to YA Global, valued at $291,324, for conversion of $126,250 of Secured Convertible Debentures issued on April 7, 2005 and subsequently amended on July 20, 2006. A beneficial interest expense of $165,074 was charged to operations. For the nine months ended March 31, 2007, the Company had the following transactions in its Class A common stock: The Company issued 1,849,689 shares of Class A common stock with a total value of $120,230, which represents full satisfaction of the Commitment Shares under the Standby Equity Distribution Agreement, pursuant to the Termination Agreement of July 20, 2006. The Company issued 3,150,311 shares of Class A common stock with a total value of $204,770, for Commitment Shares pursuant to the Amended and Restated Securities Purchase Agreement of July 20, 2006. The Company issued 600,000 shares of its Class A common stock with a total value of $30,000, as compensation to Stephen Wien for services provided. The Company issued 1,411,765 shares of its Class A common stock with a initial value of $77,005, as compensation for the strategic alliance with UTEK Corporation to identify synergistic technology acquisition opportunities in the future. On March 1, 2007, the Company terminated it agreement with UTEK Corporation and canceled the 1,411,725 shares of Class A Common Stock previously issued. The Company reissued 825,852 shares of its' Class A Common Stock with a total value of $45,046, in settlement of all fees earned through the termination date. The Company concluded the acquisition of Genotec Nutritionals, Inc. Pursuant to the Asset Purchase Agreement, the Company issued 10,000,000 shares of Class A common stock valued at $300,000 to George Kontonotas, Joseph Freedman, Susan Blancato, Michael Logerfo, Maureen McLaughlin, Paula Daddone, Maureen Bridges and Robert Blancato. The Company issued 300,000 shares of its Class A common stock with a total value of $10,500, as compensation for the consulting services with Allison Investment Corp. on matters related to mergers and acquisitions. The Company issued 100,000 restricted shares of its' Class A Common Stock with a total value of $4,000, to Dr. Yevsey Belinky for the continuing development of a new cardiac supplement product line. The Company issued 500,000 restricted shares of its' Class A Common Stock with a total value of $25,000, to William Maier pursuant to his consulting agreement for product marketing services. 19 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 The Company issued 3,086,420 restricted shares of its' Class A Common Stock to YA Global (f/k/a/ Cornell Capital Partners) upon conversion of $50,000 of the YA Global Convertible Debentures. On March 1, 2007, the Company issued 2,000,000 restricted shares of its' Class A Common Stock with a total value of $112,000, to Dr. Jeffrey Shapiro, and his assignees, as a partial fee for joining the Company's Board of Scientific Advisors and for providing the Company consulting services relating to the development of a new cardiac supplement product line. CLASS B COMMON STOCK As of March 31, 2008, Class B Common Stock consisted of 50,000,000 shares of authorized common stock with no par value, 10,000,000 shares were issued and outstanding. Class B stock has voting rights of 100 to 1 with respect to Class A Common Stock. Class B common stockholders are entitled to receive dividends in the same proportion as the Class B Common Stock conversion and voting rights have to Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 50% discount of the lowest price that the Company had ever issued its Class A Common Stock. Upon the liquidation, dissolution, or winding-up of the Company, holders of Class B Common Stock will be entitled to receive distributions. NOTE 10 - STOCK INCENTIVE PLANS 2007 STOCK INCENTIVE PLANS -------------------------- On July 18, 2007, the Company adopted the MM2 Group, Inc. 2007 Stock Incentive Plan ("MM2 Plan") and the Genotec Nutritionals, Inc. 2007 Stock Incentive Plan ("Genotec Plan"). The purpose of the 2005 plans is to (i) provide long-term incentives and rewards to employees, directors, independent contractors or agents of iVoice, Inc. and its subsidiaries; (ii) assist the Company in attracting and retaining employees, directors, independent contractors or agents with experience and/or ability on a basis competitive with industry practices; and (iii) associate the interests of such employees, directors, independent contractors or agents with those of the Company's stockholders. Under the plans, the Board of Directors shall have all the powers vested in it by the terms of the plans to select the Eligible Participants to be granted awards under the plans, to determine the type, size and terms of awards to be made to each Eligible Participant selected, to determine the time when awards will be granted, when they will vest, when they may be exercised and when they will be paid, to amend awards previously granted and to establish objectives and conditions, if any, for earning awards and whether awards will be paid after the end of the award period. The Board shall have full power and authority to administer and interpret the plans and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the plans and for the conduct of its business as the Board deems necessary or advisable and to interpret same. The Board's interpretation of the plans, and all actions taken and determinations made by the Board 20 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company stockholders, any participants in the plans and any other Eligible Participant of the Company. All employees of the Company and all employees of Affiliates shall be eligible to participate in one of the plans. The Board, in its sole discretion, shall from time to time designate from among the eligible employees and among directors, independent contractors or agents those individuals who are to receive awards under and thereby become participants in the plans. NOTE 11 - COMMITMENTS AND CONTINGENCIES The Company entered into two employment agreements with Jerome Mahoney, its Non-executive Chairman of the Board and Mark Meller, its President and Board Member, as of December 15, 2004. Each of the employment agreements is for a term through March 31, 2011 and provides for annual compensation of $200,000 with an annual increase of 10%. In addition, each executive shall be entitled to Company sponsored fringe benefits and annual bonuses in accordance with the Company policies and plans in effect for Executive officers of the Company. The executives shall also be granted stock options under the Company's stock option plan as adopted by the Board of Directors and the shareholders of the Company. The executives will each receive a $750,000 bonus for the successful completion of the registration of the Company's stock on Form S-1, SB-2 and any other such form of registration statement declared effective by the Securities and Exchange Commission. This bonus shall be paid in a lump sum on the date the registration statement is declared effective, or alternately, at the discretion of the Company and with the agreement of the Executive, in shares of the Company's Class B Common Stock. On February 1, 2005, our wholly owned subsidiary, Genotec Nutritionals amended its operating lease for office and warehouse space at 450 Commack Road, Deer Park, NY. The term of the lease is four years commencing March 1, 2005. Monthly base rental payments under the new lease range from $3,067 to $3,354 per month. We are required to pay property taxes, utilities, insurance and other costs relating to the leased facilities to include allocated common area maintenance charges, snow removal charges and landlord insurance charges as deemed necessary. NOTE 12 - GOING CONCERN The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Although the Company has reported a profit for this period, it has suffered recurring losses and experiences a deficiency of cash flow from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. The recoverability of a major portion of the recorded asset amounts shown in the accompanying condensed consolidated balance sheet is dependent upon continued operations of the Company, which in turn, is 21 MM2 GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) MARCH 31, 2008 AND 2007 dependent upon the Company's ability to raise capital and/or generate positive cash flows from operations. The Company is actively evaluating business combinations, through mergers or acquisitions that will provide sales growth potential and positive cash flows. As an example, on September 21, 2006, the Company completed the acquisition of Genotec Nutritionals, Inc, a New York based manufacturer and distributor of nutritional supplements. Management believes that this is an excellent opportunity to enter into the Nutraceuticals Market by acquiring an existing company with an established customer base. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 13 - SUBSEQUENT EVENTS Between April 7, 2008 and May 7, 2008, the Company has issued 85,888,890 shares of its Class A Common Stock to YA Global, valued at $129,322, for conversion of $40,300 of Secured Convertible Debentures. A beneficial interest expense of $89,022 will be charged to operations. 22 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this filing as well as our audited statements and related notes for the fiscal year ended June 30, 2007 filed with Form 10-KSB. The following discussion contains forward-looking statements. Please see "Forward Looking Statements - Cautionary Factors" for a discussion of uncertainties, risks and assumptions associated with these statements RESULTS OF OPERATIONS NINE MONTHS ENDED MARCH 31, 2008 COMPARED TO NINE MONTHS ENDED MARCH 31, 2007 ----------------------------------------------------------------------------- Prior to the acquisition of Genotec Nutritionals, Inc ("Genotec") on September 21, 2006, the Company had no sales and limited operations. Consequently, comparison of the current period results to prior period results may not be meaningful. Total sales for the nine months ended March 31, 2008 and 2007 were $1,888,499 and $674,230, respectively. Approximately 80% of the current period sales were derived from a new product that was introduced in the fourth quarter of the fiscal year 2007 by Genotec. Cost of sales for the nine months ended March 31, 2008 and 2007 were $1,463,814 and $250,864, respectively. The costs represent the costs of bulk supplies of capsules and sealed powders, bottles, caps, shipping containers, packaging and shipping of nutritional supplements by Genotec. Approximately 85% of the costs for the nine months ended March 31, 2008 were related to the new product, which carries an average 12% gross profit. Total operating expenses for the nine months ended March 31, 2008 and 2007, were $1,124,839 and $1,234,073, respectively. The decrease of $109,234 was primarily due to reductions of professional fees related to public relations programs that were instituted in 2007 but not repeated in 2008. In addition, the Company incurred approximately $50,000 in legal and accounting fees in 2007 for preparation of registration statement that was subsequently withdrawn. Total other (income) expense for the nine months ended March 31, 2008 was an income of $1,976,085. This total was primarily comprised of gains on revaluation of derivatives of $3,212,437, consulting income of $70,000 on the Deep Field Consulting Agreement and interest income of $8,292. These amounts are offset by amortization of the discount on debt conversion of $670,033, liquidated damages of $333,423, beneficial interest on stock issuance of $165,152, and interest expense of $147,526. The other (income) expense for the nine months ended March 31, 2007 was an expense of $831,094. This total was comprised of amortization of the discount on debt conversion of $513,783, the write-off of financing costs of $369,625, liquidated damages of $119,531, interest expense of $108,589 and loss on revaluation of derivatives of $57,382. These amounts are offset by consulting income of $280,000 on the Deep Field Consulting Agreement, interest income of $17,624 and a gain on disposition of derivative liability of $40,192. Interest expense is related to accrued interest on the YA Global Convertible Debentures and interest income is related to interest on the cash accounts. 23 Net income (loss) for the nine months ending March 31, 2008 was an income of $1,275,931 and a net loss of $1,641,801 for the nine months ended March 31, 2007. The increase in net income of $2,917,732, as compared to the prior year loss, is primarily due to favorable change in the gain on revaluation of derivatives of $3,269,819 and increases in new product sales. THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007 ------------------------------------------------------------------------------- Total sales for the three months ended March 31, 2008 and 2007 were $685,663 and $247,954, respectively. This was an increase of $437,709, primarily on the sales of a new product that was introduced in the fourth quarter of the fiscal year 2007 by Genotec. Cost of sales for the three months ended March 31, 2008 and 2007 were $498,373 and $96,610, respectively. A significant portion of the increase was related to the new product sales that carries an average gross profit rate of 12%. The remaining portion of the increase was related to the the costs of bulk supplies of capsules and sealed powders, bottles, caps, shipping containers, packaging and shipping of and an unfavorable mix of product sales compared to the prior year. Total operating expenses for the three months ended March 31, 2008 and 2007, were $336,468 and $643,941, respectively. The decrease of $307,343 was primarily due to reductions of professional fees related to public relations programs and product marketing and development programs that were instituted in 2007 but not repeated in 2008. Total other (income) expense for the three months ended March 31, 2008 was an income of $2,169,040. This total was primarily comprised of a gain on revaluation of derivatives of $2,711,630. This gain was offset by expenses on amortization of the discount on debt conversion of $223,344, beneficial interest on stock issuances of $165,074, interest expense of $47,387 and liquidated damages of $108,275. The other (income) expense for the three months ended March 31, 2007 was an income of $746,820. This total was primarily comprised of a gain on revaluation of derivatives of $766,235 and consulting income of $280,000 on the Deep Field Consulting Agreement. These amounts are offset by amortization of the discount on debt conversion of $223,344, interest expense of $46,460 and liquidated damages of $38,107. Interest expense is related to accrued interest on the YA Global Convertible Debentures and interest income is related to interest on the cash accounts. Net income for the three months ending March 31, 2008 and 2007, was $2,019,862 and $254,223, respectively. The increase in net income of $1,765,639, as compared to the prior year, is primarily due to favorable change in the gain on revaluation of derivatives of $1,945,395, increases in new product sales and decreases in operating expense as discussed above. LIQUIDITY AND CAPITAL RESOURCES On April 1, 2005, we entered into a Securities Purchase Agreement with YA Global for the sale of $2,500,000 of secured convertible debentures. The agreement was amended and restated on July 20, 2006 and January 4, 2007 to reflect the change in the funding formulas. Pursuant to the terms of the agreement with YA Global, on April 1, 2005 we issued a secured convertible debenture in the principal amount of $1,250,000. On July 20, 2006, the secured convertible debenture was amended and restated and reissued in an aggregate principal amount of $1,330,308, which included accrued and unpaid interest on the original convertible debenture of 24 $80,308. On January 4, 2007, we issued a second secured convertible debenture to YA Global in the principal amount of $625,000. These debentures are convertible into Class A common stock at the discretion of the holders. These transactions required the Company to register for resale a number of shares to facilitate these financial transactions. The Company was unable to complete the registration statement in the time specified in the Registration Rights Agreement and as such, continues to incur liquidated damage charges as specified therein. The Company is seeking additional operating income opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors. To date, the Company has incurred substantial losses, and will require financing for working capital to meet its operating obligations. While we have raised sufficient working capital to fund our operations for what we believe should be sufficient for the next 6 months, we will subsequently need to raise additional capital to fund our future operations. We anticipate that we will require financing on an ongoing basis for the foreseeable future to fund our working capital needs. During the nine months ended March 31, 2008, the Company had a net decrease in cash of $303,358 and during the nine months ended March 31, 2007, the Company had a net increase in cash of $223,281. The Company's principal use of funds during these periods was as follows: CASH FLOWS FROM OPERATING ACTIVITIES. The Company used $298,826 in cash for operations in the nine months ended March 31, 2008, a decrease of $100,697 compared to $399,523 in cash used for operations in the nine months ending March 31, 2007. The decrease in cash used in operations was primarily the result of reductions in open receivables from the management of the collection process and the reductions in inventory levels to sustain the operations. CASH FLOWS FROM INVESTING ACTIVITIES. For the nine months ending March 31, 2008, the Company invested $4,532 to create a trade show booth for exhibitions and to upgrade their back office network. For the nine months ended March 31, 2007, the Company invested $2,196 to upgrade the back office network of their newly acquired subsidiary, Genotec Nutritionals. CASH FLOWS FROM FINANCING ACTIVITIES. The Company received $625,000 cash from financing in the nine months ended March 31, 2007. This represented the net proceeds from the sale of a $625,000 Secured Convertible Debenture to Cornell Capital Partners. The Company had no new financing activities for the nine months ended March 31, 2008. OFF-BALANCE SHEET ARRANGEMENTS The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 25 FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS Certain information included in this Form 10-QSB and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Information set forth in this discussion and analysis contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "should," "will," and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. 26 ITEM 3A(T). CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our Board of Directors were advised by Bagell, Josephs, Levine and Company, LLC, our independent registered public accounting firm, that during their performance of review procedures for the period ended March 31, 2008, they have identified a material weakness as defined in Public Company Accounting Oversight Board Standard No. 2 in our internal control over financial reporting. Our auditors have identified the following material weakness in our internal controls: A material weakness in the Company's internal controls existed as of March 31, 2008. The material weakness was identified as the Company's limited segregation of duties amongst the Company's employees with respect to the Company's preparation and review of the Company's financial statements. This material weakness is the result of the Company's limited number of employees. This material weakness may affect management's ability to effectively review and analyze elements of the financial statement closing process and prepare consolidated financial statements in accordance with U.S. GAAP. Subsequent to the notification from our independent registered public accounting firm, our chief executive officer evaluated our internal controls and concurred that, since the date of formation, our disclosure controls and procedures have not been effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the Company's employees as soon as the Company has the financial resources to do so. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures. 27 An evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rules 13a-15(e) or 240.15d-15(e) of the Securities Exchange Act of 1934, as amended, as of September 30, 2007. Based on that evaluation, management, including the Chief Executive Officer, concluded that the Company's disclosure controls and procedures are effective, except as to the material weakness in internal controls disclosed in Item 3 above. There has been no change in the internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of ss.240.13a-15 or ss.240.15d-15 of the Exchange Act that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting, other than what has been reported above. 28 PART II - OTHER INFORMATION ITEM 6. EXHIBITS 31.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 29 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MM2 Group, Inc. By: /s/ Mark Meller Date: May 20, 2008 --------------------- Mark Meller, President, Chief Executive Officer and Principal Accounting Officer 30 INDEX OF EXHIBITS 31.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31