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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SEURITIES OF
SMALL BUSINESS ISSUERS Under Section 12(b) or
(g) of the Securities Exchange Act of 1934
FINELINE PROPERTIES.COM, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 58-2376296
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3250 West Market Street, Suite 302, Fairlawn, Ohio 44333
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(Address of principal executive offices) (zip code)
330-678-5558 (Phone) 330-678-1334 (FAX)
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Issuer's Telephone Numbers
Securities to be registered under section 12(b) of the Act:
Title of Each Class Name on each exchange on which
to be registered each class is to be registered
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Securities to be registered under section 12(g)of the Act:
Common Stock, $0.001 par value per share, 20,000,000 shares authorized,
9,145,477 issued and outstanding as of September 30, 1999. Preferred
Non-Voting Stock, $0.001 par value per share, 1,000,000 shares authorized,
none issued nor outstanding as of September 30, 1999.
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FORWARD LOOKING STATEMENTS
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
FINELINE PROPERTIES.COM, Inc., ("FineLine Properties.com," "Company" or the
"Registrant") cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements that may be deemed to have been made in this
Document or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Document that are not statements of
historical fact may be deemed to be forward-looking statements. This
Registration contains statements that constitute "forward-looking statements."
These forward-looking statements can be identified by the use of predictive,
future-tense or forward-looking terminology, such as "believes," "anticipates,"
"expects," "estimates," "plans," "may," "will," or similar terms. These
statements appear in a number of places in this Registration and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i) trends
affecting the Company's financial condition or results of operations for its
limited history; (ii) the Company's business and growth strategies; (iii) the
Internet and Internet commerce; and, (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
Factors that could adversely affect actual results and performance include,
among others, the Company's limited operating history, dependence on continued
growth in the use of the Internet, the Company's inexperience with the
Internet, potential fluctuations in quarterly operating results and expenses,
security risks of transmitting information over the Internet, government
regulation, technological change and competition.
The accompanying information contained in this Registration, including,
without limitation, the information set forth under the heading "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" identifies important additional factors
that could materially adversely affect actual results and performance. All
of these factors should be carefully considered and evaluated. All forward-
looking statements attributable to the Company are expressly qualified in
their entirety by the foregoing cautionary statement. Any forward-looking
statements in this report should be evaluated in light of these important
risk factors. The Company is also subject to other risks detailed herein or
set forth from time to time in the Company's filings with the Securities and
Exchange Commission.
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
Part I ......................................................... 4
Item 1. Description of Business.................................. 4
Item 2. Management's Discussion and Analysis or Plan of
Operation................................................ 31
Item 3. Description of Property.................................. 32
Item 4. Security Ownership of Management and Others and Certain
Security Holders......................................... 34
Item 5. Directors, Executives, Officers and Significant
Employees................................................ 36
Item 6. Remuneration of Directors and Executive
Officers................................................. 40
Item 7. Certain Relationships and Related Transactions........... 41
Part II ......................................................... 42
Item 1. Market Price of and Dividends of the Registrant's
Common Equity and Other Stockholder Matters.............. 42
Item 2. Legal Proceedings........................................ 43
Item 3. Recent Sales of Unregistered Securities.................. 44
Item 4. Description of Securities................................ 45
Item 5. Indemnification of Directors and Officers................ 46
Part F/S ......................................................... 49
Item 1. Financial Statements..................................... 49
Item 2. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 49
Part III ........................................................ 50
Item 1. Index to Exhibits....................................... 50
The following Registration should be read in conjunction with, the more
detailed information and the Financial Statements and Notes related thereto
appearing in this Registration. All references in this Registration to the
"Registrant" or the "Company" or "FINELINE PROPERTIES.Com" refer to FINELINE
PROPERTIES.COM, Inc., a Nevada corporation, (b) the "Web" refer to the World
Wide Web and (c) the "site" refer to the Company's Web site.
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Part I
Item 1. DESCRIPTION OF BUSINESS
A. Business Development, Organization and Acquisition Activities
The Company was incorporated under the laws of the State of Ohio, on January
11, 1988. On or about March 30, 1998 the Issuer filed a Certificate of Merger
with the Secretary of State of Nevada pursuant to an Agreement and Plan of
Merger and Reorganization (see Exhibit 2.1) executed on February 27, 1998
between FineLine Properties, Inc. (Ohio) and FineLine Properties, Inc.
(Nevada), which was incorporated on January 12, 1998. The Company filed
Restated Articles of Incorporation on March 12, 1999, in Nevada, correcting
the number of authorized common shares to 20,000,000, which was erroneously
stated in the January 12, 1998 filed Articles (see Exhibit 3.1). By this
merger, the Issuer effected a re-domiciling of the Company to the State of
Nevada. The Company in accordance with Section 78.250 of the Nevada Revised
Statues and as a result of the majority consent of shareholders executed on
February 27, 1999 changed the name of the Company from FineLine Properties,
Inc. to FineLine Properties.com, Inc. The Company is engaged in the
creation, development, licensing and merchandising of cartoon characters.
The Company's mailing address is 3250 Market Street, Suite 302, Fairlawn,
Ohio 44433, and its telephone number is (330) 678-5558. The Company's
E-mail address is: [email protected]. The Company also
maintains an Nevada address at 7631 Bermuda Road, Las Vegas, Nevada 89123
and a Studio at 110 West Main Street, Kent, Ohio, telephone number
(330) 678-4593.
1) Principal Products, Services and Principal Markets.
The Company creates and develops cartoon characters for licensing and
merchandising to major corporations for a fee and/or royalty payments
which permits these companies to use the cartoon images. The Company may
in certain instances, as called for by either contractual points, or as
part of offering services to a particular company (licensee or
merchandiser), to aid it in maximizing the usage of the product by
either modifications to character positioning and settings, or usage -
market recommendations. The Company's principle markets are the North
American region (consisting of the United States, Canada and Mexico),
Western Europe (primarily consisting of Great Britain, France, Spain,
Belgium, Germany, Italy), Asia - which for the purposes of Company
marketing targets consists of Japan, Hong Kong, Korea, and South America
(primarily consisting of Brazil, Argentina, Paraguay).
Management believes that its membership in LIMA is important in
negotiations with potential licensing and merchandising clients in that
it might help them establish and/or qualify certain contractual frameworks, fee
structure basis points, methods for the computation of fees, royalty
payments, usage, renewal options and other critical contract points.
Membership in LIMA provides recognition within the industry, and most
certainly among LIMA members. However, there are no assurances that the
Company's membership in LIMA will lead to any new business for the Company.
(a) Operating History
The Company was first incorporated in the State of Ohio on January 11,
1988. The Company was basically inactive until May 26, 1996, when the
Board of Directors resolved to take certain steps pursuant to effectively
activating it. The Company through research, and an evaluation of
business opportunities which had became apparent in the cartoon
industry, decided to enter this field at that time.
Accordingly, the Company has a limited operating history upon which
an evaluation of the Company, its current business and its prospects can
be based, each of which must be considered in light of the risks, expenses
and problems frequently encountered by all companies in the early stages of
development, and particularly by such companies entering new and rapidly
developing markets like the Internet. The Company's prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce. Such risks include, without limitation, the lack of broad
acceptance of the company's products on the Internet, the possibility that
the Internet will fail to achieve broad acceptance, the inability of the
Company to generate significant e-Commerce-based revenues from Internet
customers, the company's inability to anticipate and adapt to a developing
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market, the failure of the company's network infrastructure (including its
server, hardware and software) to efficiently handle its Internet traffic,
changes in laws that adversely affect the company's business, the ability of
the Company to manage its operations, including the amount and timing of
capital expenditures and other costs relating to the expansion of the
company's operations, the introduction and development of different or more
extensive communities by direct and indirect competitors of the Company,
including those with greater financial, technical and marketing resources, the
inability of the Company to maintain and increase levels of traffic on its
Web site, the inability of the Company to attract, retain and motivate
qualified personnel and general economic conditions.
(b) Description of The Business
The Company operations entail a number of variables as a result of the
creative nature of the business and industry. The Company researches
trends in the industry and then creates cartoons that it believes fill a
particular void and or accepts specific developmental assignments for
the design of characters. These characters are drafted, reviewed,
redesigned and finalized for either internal Company licensing and
merchandising programs or as contracted for by special assignment. The
Company, by request and/or as a condition of a specific license
clause(s), will redraw the cartoons in varied poses, utilization's,
etc., to fit defined design considerations as expressed by the Licensee
or it can grant the Licensee the right to redraw the character(s) to fit
conditions, specifications and or circumstances as granted under the
license and as approved by the Company prior to public usage.
In addition to the aforementioned, the Company researches, implements
and develops internally apparel designs for its own branded merchandise
lines, animation concepts, software game designs, animation cells, and
other product utilization(s) for those cartoon characters groups which
are either unlicensed, or for segments of the licensing - merchandising
process for which contracted licensing agreements have not been granted.
The Company, at its own discretion, can decide to cease internal
production and/or sales of merchandise items when a suitable outside
Licensee applies for said rights to a Company revenue line.
(c) Company Products
The Company's product are cartoons and this begins with the creation and
development of cartoon characters which are based either upon researched
formats and niches, or as a result of requests by corporations for characters
to be utilized in either brand identification, promotions or product
introductions. At present, the Company has 147 trademarked and copyrighted
cartoons which are in the following character groups: The Moodies(tm), The
Tasties(tm), The Hogstturrs(tm), Soft(tm), The Majors(tm), The Icers(tm), The
Hoopsters(tm), Red Zone(tm), The Kooties(tm), The eKids(tm), The Computoons(tm),
The Internauts(tm), The Milk Drops(tm), The Healthy Dozen(tm). The Company
also maintains an E-Commerce Internet Signature Store which sells FineLine
branded apparel and products, ranging from designer shirts and women(s)
Jersey Tops and dresses, to T-shirts.
The products, goods and or services which the Company's cartoon characters can
appear upon range from apparel items, board games, toys, dolls, lunch boxes,
stickers, software games, posters, comic books, children's books, company event
and promotional venues as well as animation for television, commercials and
feature length movies.
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Additionally, the Company has developed the FineLine Signature Store, which
has designed and established an e-Commerce Store on the Internet which sells
over 90 different items, including various apparel items either embroidered or
silk screened with Company cartoon characters. At present, the available
merchandise includes T-shirts, Men's Casual Shirts, Men's Denim Shirts, Ladies
Denim Shirts, designer shirts, casual shirts, Ladies Jerseys, Ladies
Jersey Dresses. The FineLine Sports Group includes products featuring football,
baseball, basketball and hockey featured from entertainment institutions
here in the United States, as well as globally. The Company has developed
character groups for these sports using the specific sporting terms of each
game to name the characters varied positions. Targeted at all age groups,
these cartoon teams have a wide variable of merchandising, promotional and
licensing possibilities. With established sports leagues in the United States,
South America, Europe and Asia, the Company is targeting licensing and
merchandising activities at all of these regions through a comprehensive
program of internal efforts combined with licensing representatives. The
Signature Store is accessible directly from the FineLine Properties new
Internet Web site at http://www.finelineproperties.com.
(d) Specific Product Lines
The competitive factors and realities of the industry were all taken
into account in the Company's developmental stage for the creation of its
cartoon character groups. These character groups have a broad cross section of
appeal as well as specified audience profiles. As the products of the Company
are cartoon characters and cartoon character groups, said characters represent
the basis for Company's marketing, licensing, merchandising activities
and revenues. At present, the Company has 147 cartoons in 16 character
groups for which the Company holds copyrights and trademarks on all of its
cartoon character groups. The following are the Company's current character
groups with a brief description:
1) The Moodies(tm)
The Moodies were developed to reflect human moods and emotions such as
happiness, sadness, being broke, extravagance, etc. (the corresponding
characters are - Happy(tm), Sad(tm), Penniless(tm), Extravagant(tm),
etc.). The 9 cartoons in this character group (Happy(tm), Angry(tm),
Extravagant(tm), Penniless(tm), Innocent(tm), Sad(tm), Ornery(tm), Worried(tm),
Sexy(tm) through the promotional efforts of Marvel Entertainment, they have
appeared on over 450 licensed products in over 20 countries as well as in
promotions for the Wendy's Hamburger chain, Kellogg's Rice Krispies, Daiwa
Securities of Japan, Tom McCan shoes and other venues. These characters
are targeted at all age groups.
The Moodies(tm) are presently under license with The Marvel Entertainment
Group, Inc. (Marvel Comics) in an international license and merchandising
agreement. (See "--Strategic Alliances." and Marvel Agreement, Exhibit 10b)
2) The Tasties(tm)
These characters represent various taste sensations of the palette
such as Chocolate(tm), Fruity(tm), Barbecue(tm), Hot & Spicy(tm),
Natural(tm), Sweet(tm), Lite(tm), Sugar Free(tm), Whole Grain(tm),
Salt Free(tm) for a total of 10 cartoons in this group. The characters
are targeted at the age groups 4 through 12. The Tasties(tm) are
presently under license with The Marvel Entertainment Group, Inc.
(Marvel Comics) in an international license and merchandising
agreement. (See "--Strategic Alliances.")
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3) The Hogstturrs(tm)
The Hogstturrs(tm) are cartoons based on the popularity of motor cycles in the
United States as well as globally. An interesting cartoon family utilizing
elements of the city mixed strongly with a country foundation. The appeal
of these characters are age groups 9 through adult.
Based on the current motorcycle riding craze, The Hogstturrs(tm) are a cartoon
family of 17 characters with personality types such as: Boss Hog(tm), Athletic
Hog(tm), Grandma Hog(tm), Grandpa Hog(tm), Lucky Hog(tm), Doc Hog(tm), Sexy
Hog(tm), Bubba Hog(tm), Hot Dog Hog(tm), Warrior Hog(tm), Humble Hog(tm), Rodeo
Hog(tm), Butler Hog(tm), Hard Luck Hog(tm), Professor Hog(tm), Bodybuilder
Hog(tm), and Construction Hog(tm) . These characters are targeted at the age
groups 8 through young adults and adults. The Hogstturrs(tm) are presently
under license with The Marvel Entertainment Group, Inc. (Marvel Comics) in an
international license and merchandising agreement.
4) Y2K(tm)
Over the past four years and increasingly so as the millennium approaches,
significant public and business attention has been focused on the global
situation involving the potential for computer based problems brought about
as a result of the digital computer clock cross over to the year 2000. The six
Y2K(tm) characters give a face to this millennium bug depicted via humorous
adaptations off of the main character theme. Offered free of charge for use by
members of the media to help to publicize the Company, Y2K's media usage is
gaining interest and inquiry as the year 200 draws closer. The characters
appeal is targeted at all age groups.
Drawn to reflect various depiction's of the Millennium Bug, the six Y2K(tm)
characters with names such as Shrug(tm), Crystal(tm), etc., are targeted at all
age groups. The Y2K(tm) character group is current under license to Boein Co.,
Ltd., a division of Intersac, Ltd. of Seoul, Korea for the country of Korea,
with agent representation rights for the Pacific Rim countries. In addition,
Boein Co., Ltd. has options for all the other Company cartoon character groups
which the Licensee can proceed to represent officially for a fee, based upon
the area(s) of usage as well as territory(s). (See "Boein Agreement" Exhibit.)
5) Soft(tm)
A puffy, cuddly creature, Soft(tm) is primarily targeted at the preschool age
group category. This character is not currently under license.
6) The Kooties(tm)
Developed and designed to appeal to all age groups, the Kooties(tm) utilize the
well known word heretofore utilized to describe imaginary creatures. The name
recognition value of the word - Cootie - adds instant consumer awareness for
these characters. The foregoing benefits were translated into visual appeal by
the creation of a character group with multiple image variations to provide
animation and game story lines as well as appeal to the targeted audience via
cartoons that signified differing attitudes. The Kooties(tm) are under option
with Boein Co., Ltd. as well as in negotiation for licensing and adorn apparel
items on the Company's Internet E-Commerce Signature Store. Additionally, the
Company has a representation agreement with Fierst & Pucci, LLP of Northampton,
Massacuetcetts for the marketing of this character line to secure various
contractual agreements for both licensing and merchandising.
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Based upon the extremely well known and heretofore unseen imaginary
creature of our childhood, the Kooties(tm) moods are reflected by their color
and by the condition of their hair which also changes with their moods.
The Kooties (tm) are Smiley(tm), Jumpy(tm), Meanie(tm), Scaredy(tm) and
Gloomy(tm). These characters are targeted at all age groups. The Kooties(tm)
are under option with Boein Co., Ltd. as well as in negotiation for licensing
and adorn apparel items on the Company's Internet E-Commerce Signature Store.
7) The Computoons(tm)
These characters are targeted at preschool and grades 1 through 4 for
which the Company is developing storyboards with the Computoons(tm)
interacting not only with themselves, but with children as well in a
multiple role teaching, learning modes as well as entertainment, as
children learn and understand faster when experiences are translated
into memorable fun situations and events. Storyboard development
utilizing these cartoons is part of a marketing strategy whereby they
are utilized in presentations to various companies to show in visual
terms the use of these characters in children's books, games and varied
products, such as keypads, keyboard overlays (panels which are placed
over a computer keyboard), screen savers and other uses. Storyboards
depicting varied usage and applications of these characters is scheduled
for completion before the end of the fourth quarter of 1999 with
presentation to companies scheduled for all of the first quarter of
2000. The Company will evaluate the effectiveness of such marketing
efforts and reach a determination at the end of said period with respect
to the prospects of continued efforts to license these characters to
outside companies, seek a potential partner to either develop products
(such as keyboards, books, keypads, etc.) for direct marketing to outlet
stores and over the Internet, as well as through the Company's own
e-comerce Store over the Internet.
The computer, hardware and software variation of the eKids(tm), the
Computoons(tm) were also developed to serve a multiple marketing, merchandising
and licensing mode. These characters and their names, such as Scanner(tm), Plug
and Play(tm), Keyboard(tm), Monitor(tm), etc. familiarize children ages 4
through 9 with computer terms as well as hardware and the applications range
from teaching aids in an entertaining format, software games, board games,
stickers, etc..
These 15 characters are named - Scanner(tm) - Plug(tm) and Play(tm) - Laptop
(tm) - Power Strip(tm) - Floppy Disk(tm) - Hard Drive(tm) - Monitor(tm) -
Speaker(tm) - Printer(tm) - Keyboard(tm) - Touch Pad(tm) - Mouse(tm) - Modem
(tm) - CD Rom(tm) and were developed as a result of the high interest which
children have in computers. The Company is developing storyboards with the
Computoons(tm) interacting not only with themselves, but with children as well
in a multiple role teaching, learning modes as well as entertainment, as
children learn and understand faster when experiences are translated into
memorable fun situations and events. Targeted at preschool and grades 1
through 4, these characters are in developmental storyboard, book and product
stages. These characters are under option with Boein Co., Ltd. as well as
in negotiation.
The Computoons (tm), are under option with Boein Co., Ltd. (See "Boein
Agreement" Exhibit.), as well as being actively marketed via internal
Company programs exposing these characters to major corporations for
licensing and or merchandising consideration. In addition, the Company
has a representation agreement with Fierst & Pucci, LLP of Northampton,
Massacuetcetts for the marketing of this character line to secure
various contractual agreements for both licensing and merchandising.
8) The eKids(tm)
They were created with the same thought in mind as the Computoons(tm), the
eKids(tm) are intended to represent a fun and entertaining way for children to
become
familiar with the Internet. Targeted at preschool and grades 1 through
4, these characters are in developmental storyboard, book and product
stages scheduled for completion before the end of the fourth quarter of
1999 with presentation to companies scheduled for all of the first
quarter of 2000.. Storyboard development utilizing these cartoons is
part of a marketing strategy whereby they are utilized in presentations
to various companies to show in visual terms the use of these characters
in children's books, games and varied products such as screen savers and
other uses. The Company will evaluate the effectiveness of such
marketing efforts and reach a determination at the end of said period
with respect to the prospects of continued efforts to license these
characters to outside companies, seek a potential partner to either
develop products for direct marketing to outlet stores and over the
Internet, as well as through the Company's own e-comerce Store over the
Internet.
Representing the Internet side of the Computoons(tm), the 12 eKids(tm)
represent Web terms such as Dot.com(tm), E-Mail(tm), Java(tm), Home Page(tm),
Search(tm), Web(tm), Bit(tm), Byte(tm), Megabyte(tm), Cursor(tm), URL(tm),
Pixel(tm) as international cartoon characters. Created with the same thought
in mind as the Computoons(tm), the eKids(tm) represent a fun and entertaining
way for children to become familiar with the Internet. Targeted at preschool
and grades 1 through 4, these characters are in developmental storyboard, book
and product stages. These characters are under option with Boein Co., Ltd. as
well as in negotiation.
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9) The Internauts(tm)
The Company is developing these characters for utilization in a CD-ROM
software game in the Company's own Software Games Division, as well as
through marketing programs seeking the licensing of these characters
directly to companies to develop software game products along with
merchandising tie-ins. The Company is currently in the process of
developing storyboard games concepts for CD-ROM software game
utilization and projects that this phase will be completed during the
first quarter of 2000. If the Company has not either found or contracted
with a suitable outside company to take the concept through to
production and marketing of a software game concept during the first
quarter of 2000, the Company will continue the development of the game
concept into a demonstration games version consisting of approximately 2
through 8 minutes to animate the viability of the concept and as a
further aid in the location of a suitable licensee or co-production
partner.
The Company has adequate understanding of the process to proceed through
the indicated game developmental stages, but, neither management, nor
staff have the expertise to complete the process of the development of a
full scale commercially viable CD-ROM software game which meets the
standards and the demands of todays competitive marketplace. Through
both existing character representation agreements as well as active
marketing and presentation programs to expose said software game
concept, the Company is seeking to either license or enter into a
co-software game arrangement by the end of the second quarter of 2000.
This strategy and approach has been formulated to reduce Company
exposure to the financial risks and costs of developing a project for
which it does not have suitable personnel resources or management talent
to proceed further than the indicated steps. Furthermore, the Company
recognizes the requirement to either license or enter into a
co-production arrangement for the development of this project to
maximize the potential for a successful product introduction. The
undertaking is part of the company's marketing strategy to expose its
cartoon lines both to industry and the general target audience (children
and teenagers 8 through 18), in a framework consistent with today's
marketing techniques which are largely based upon gaining exposure and
acceptance through presenting new characters in software game formats.
Said techniques are largely employed by companies who do not have the
financial and marketing clout of companies such as Walt Disney - Warner
Brothers - Mainframe Entertainment - DIC - Hanna Barbara, all which can
take a new cartoon concept and move directly to either animated
television or feature length movie format from internal resources.
10) eHeroes & e.V.I.L. (tm)
This character segment is another of the Company's computer related cartoon
groups, the developed story for these characters is the relationship between
good and evil. e.V.I.L.(tm) (Electronic Viral Infestation League) want
dominance and control of your computer as well as the Internet and attack
these systems from within. And where there is e.V.I.L.(tm), there are heroes,
eHeroes(tm) to be exact. These characters combat e.V.I.L.(tm) where ever and
when ever they rear their ugly heads in the never-ending battle to keep your
computer and the Internet free for you to use as you wish. Company focus group
tests surprising found that the age groups 4 through 7 were also highly
interested in the Internauts(tm), when the Company thought that the operative
age groups would be 8 through young adult, depending upon the merchandising
mode, which spans animation, computer games, etc. These characters are under
option with Boein Co., Ltd. as well as in negotiation.
11) The Icers(tm)
A cartoon hockey team with team players sporting popular sports terms such as
Target(tm), Deek(tm), Wheels(tm), Check(tm), Blue Liner(tm) and Sniper(tm)
these character appeal to age groups 7 through young adult and are under option
with Boein Co., Ltd. as well as in negotiation.
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12) The Majors(tm)
Cartoon baseball players with sports term names such as Heat(tm),
Wallcrawler(tm), Meaty(tm), Range(tm), Stretch(tm), Gunner(tm),
Wheels(tm), Turn2(tm), Knuckles(tm), and Scoop(tm) these character
appeal to age groups 7 through young adult and are currently in a
promotional venue in Europe. The Company is utilizing a promotional
tie-in with apparel items (T-shirts, polo shirts and Henley type
collar-less shirts), with depictions of The Majors(tm) are given to
customers who present to the store 4 coupons showing they have
purchased food items during the promotional period. The participation
of the Company in this test venue will provide information as to how
many customers actually collect said coupons to receive the free
apparel item this indicating the degree of interest in the character
group or groups being offered. As a customer can only obtain a free
apparel item by presenting said coupons, this will provide meaningful
numbers as well as a localized consumer reaction for the Company's
cartoons in a foreign market, where tastes and appeal aspects tend to
differ from Americans.
13) The Hoopsters(tm)
Cartoon basketball players with sports term names such as Got Game(tm),
Inzone(tm), Floor Burns(tm), Punch(tm), Swatt(tm), Handles(tm), and
Hops(tm) these character appeal to age groups 7 through young adult and
are in a promotional test venue.
The Company is utilizing a promotional tie-in with apparel items (T-shirts,
polo shirts and Henley type collar-less shirts), with depictions of The
Hoopsters(tm) are given to customers who present to the store 4 coupons
showing they have purchased food items during the promotional period.
The participation of the Company in this test venue will provide
information as to how many customers actually collect said coupons to
receive the free apparel item this indicating the degree of interest in
the character group or groups being offered. As a customer can only
obtain a free apparel item by presenting said coupons, this will provide
meaningful numbers as well as a localized consumer reaction for the
Company's cartoons in a foreign market, where tastes and appeal aspects
tend to differ from Americans.
14) Red Zone(tm)
Cartoon football players with sports term names such as Slobberknocker(tm),
Work Horse(tm), Clutch(tm), Hitman(tm), Shadow(tm), Snap(tm), Blindside(tm),
Soft Hands(tm), Plug(tm), Pancake(tm), Laser(tm) these character appeal to
age groups 7 through young adult and are in a promotional test venue.
The Company is utilizing a promotional tie-in with apparel items (T-shirts,
polo shirts and Henley type collar-less shirts), with depictions of The
Red Zone(tm) are given to customers who present to the store 4 coupons
showing they have purchased food items during the promotional period.
The participation of the Company in this test venue will provide
information as to how many customers actually collect said coupons to
receive the free apparel item this indicating the degree of interest in
the character group or groups being offered. As a customer can only
obtain a free apparel item by presenting said coupons, this will provide
meaningful numbers as well as a localized consumer reaction for the
Company's cartoons in a foreign market, where tastes and appeal aspects
tend to differ from Americans.
15) The Milk Drops(tm)
Developed as a special project, the Milk Drops(tm) are characters to be
utilized depicting the health benefits of milk . This character group is
designed to appeal to all age groups. This character group will be
marketed to milk industry companies
16) The Healthy Dozen(tm)
Developed as a special project for the egg industry, the Healthy
Dozen(tm) will be utilized in promotions to extol the benefits of eggs.
This character group is designed to appeal to all age groups. This
character group will be marketed to egg industry companies.
(e) Developing and Changing Market
The market for films and entertainment products and peripheral technologies
is continually evolving and changing. The Company does not believe that these
risks are material at this time. However, there can be no assurance that the
Company's assessment of the market place is correct, nor that the Company's
products will continue to be accepted in the future.
The profile for the Company's cartoon characters and character groups range
from children aged 4 - 8, preteens 9 - 12, teenagers 13-19, young adults
20 - 26, adults 27 - 44, and older age groups as well. This extremely wide
demographic profile is based upon the fact that the Company has 16 distinct
character groups whose context and concepts were designed to provide the
Company with the widest spectrum of age profiles. This cross-demographic
profile strategy was specifically designed to enable one character group to
help expose and sell another character group as a result of the diverse
spread of cartoon types and categories. The market demographic spread is also
enhanced by the various products, goods, services and entertainment mediums the
product (cartoons) can be and are utilized for.
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The market for the Company's products consist of corporations which are sold
under contract for the rights to utilize the Company's cartoon character images
in various licensing and or merchandising formats, as well as to consumers who
purchase products as offered by the Company from its e-commerce Internet
Signature Store or other direct selling techniques. The contractual revenues
for corporate licensing and merchandising agreements can vary from an average
agreement of $50,000 per year, to $25,000,000 based upon the type of usage
format, exposure patterns and or territories involved. Typically, an agreement
in the neighborhood of $50,000 is for the use of a cartoon image on a product
or extremely limited advertising format with territorial restrictions
encompassing a city and or surrounding suburbs.
Generally, a licensing/merchandising agreement for the use of a cartoon image
averages between $100,000 to $175,000 per year with a similar fee for some
national licenses (countries in Europe, South America, Asia, etc.), for
general category utilization's such as caps, T-shirts, etc. Toys, dolls and
board games typically command license fees of between $175,000 to $300,000
per annum. The inclusion of a deal for animation for television multiplies
the aforementioned figures 5 to 10 fold, with an animation deal bringing in
revenues for all merchandising, licensing and broadcast rights in the areas
of $15,000,000 to $50,000,000 per annum in the United States for a moderate
success and $7,000,000 to $25,000,000 for Europe (England, Germany, France,
Belgium, Italy, Spain, Switzerland). An animation deal in Europe, including
the parameters as indicated, for one country can range between $1,500,000 to
$10,000,000+ depending upon the country, station, population, merchandising
and allied aspects.
Because cartoons appeal to varied age groups and take on a life of their own,
cartoons which become animated can be sold, resold and sold over and over again
thus never really losing their revenue generation capability, just the amount
of revenues they take in based upon popularity at any given time in any given
market / territory market. Unless it grants an international license, the
Company is free to sell and contract licenses and merchandising agreements on
a global basis utilizing only the laws of what the market will bear as the
pricing ranges for these agreements. The more popular or exposed a
character group is, the more in up front fees and overall contractual
revenue guarantees it can command. In addition, as a character group
gains in exposure, use and popularity - recognition, later licensing and
merchandising agreements command considerably more in up front fees,
contractual revenue minimums and guarantees than prior agreements.
The Company is also in the process of implementing, or is selling
products directly to either consumers or corporations for those
characters groups not under license for specific segments in specific
regions, countries or areas. The Company's E-Commerce Signature Store
on the Internet sells various apparel items for Y2K(tm), The
Kooties(tm), The Internauts(tm), The Majors(tm), The Icers(tm), The
Hoopsters(tm), Red Zone(tm), The Computoons(tm) and the eKids (tm) at
present, and will continue to do so until a suitable license or
merchandising agreement is reached which exceeds Company estimates for
revenues for a specific character group and or product utilization.
As a cartoon development and creative operation, the Company is
unprepared to enter and conduct operations as a manufacturing and or
direct supplier of branded products to the general public through outlet
store, department store or similar direct sell methodologies, due to the
extensive capital, contacts and distribution channels required. The
foregoing are not components of the Company's business or operational
plans and do not fit within the core segment of its business, which is
the development, design and completion of cartoon images for licensing
and merchandising. However, as stated in the foregoing excerpts, the
Internet has shown and proven to be a low cost, low staffing, effective
entry to a huge consumer and business environment which is manageable
when combined with the proper resources (e-commerce store vendor
services, product and pricing schemes, delivery methodologies and
minimum inventory stocking requirements). Within this scheme and in
keeping with the Company's core business strategies and purpose, the
Company has uncovered certain product types which fit within these
conceptual parameters as well as further the licensing and merchandising
of cartoon characters.
These exceptions which fit within the indicated parameters entail
computer software game products and animation as mentioned in;
(e) Developing and Changing Market
The Company is also designing computer software games via its Software
Games Division to sell completed versions first over the Internet as
download versions for trial and then purchase. This marketing /
merchandising methodology was selected due to the fact it eliminates the
high cost outlays associated with the packaging and distribution of
product in retail outlets. Via marketing and advertising campaigns
conducted on the Internet as well as in other media, the Company can
promote its software games, induce trial and then charge for the codes
to release the full version all via the Internet. This elimination of
costly packaging, distribution, and related costs permits the Company to
maximize its investment in the games themselves, rather than portioning
money for distribution and packaging measures thus lowering the break
even, profit generation curve attainment point. The Company is
interviewing game designers, developers and programmers for this new
product segment with the schedule first game targeted for the third
quarter of 2000.
Research and market conditions have uncovered that certain global market
segments offer exceptional potential for new animation products as well
as the market size to support a direct specialty product aimed developed
specifically for that market. Traditionally, animation has been designed
and targeted for the huge United States market, due to a common language
and in place marketing, merchandising support systems to capitalize upon
these efforts. Animators and animation companies in Canada, Japan,
France and Germany devote talent and resources to the development of
animation for the United States market and have innovated a number of
successful series and shows. Naturally, these companies also develop and
produce animated products for their home markets and in some cases
neighboring countries, but mostly, those products are simply dubbed in
the secondary language and sold as is with respect to the original
version(s).
The second largest language market globally, Spanish, has exceptionally
few animated products developed or designed for that market and culture
save for those Spanish firms engaged in this market segment.
Furthermore, the vast majority of animated products seen by children in
the Spanish market are dubbed versions of public domain cartoons
developed for the U.S. or other markets more than 20 years hence. The
foregoing is due to the limited budgets in most Spanish markets (Brazil,
Argentina, Venezuela, etc.), for original or current animation products
and more specifically for animated products aimed at the younger
generation. Entertainment in these countries utilize live shows and
games which are less costly to air, are in the mode of the market itself
and replace the lack of suitable and cost affordable animated product.
The Company, has researched the foregoing and as a direct result of the
technological developments in enhanced animation software and computing
power at affordable costs, is in the beginning stages of developing
animation products specifically for this market segment. The Company is
in the process of producing its own animated shorts for defined market
segments in South America. Cost factors for animation software have
dropped from $350,000 just seven years ago to $20,000 today for
animation software used in movies such a "Star Trek", "Men in Black",
"Rug Rats" etc. The high animation budget costs are a result of
animation complexities and length, not software and hardware costs.
Hardware capable of running animation software has dropped from the
$200,000 Hewlett Packard and Silicon Graphics workstations of just 10
years ago to the present 450 Mhz Macintosh G3 series computers with
benchmark speeds in excess of 700 Mhz due to unique backside cache
architecture and other innovations. The foregoing has brought down the
cost of setting up the appropriate software and hardware segment of
animation development and production to well under $75,000.00. The
process at the Company is in the beginning stages of storyboard
development and scripts with a projected first animation project
completion date set for the third quarter of 2000.
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(f) Internet e-Commerce
The Internet has become a significant marketplace for buying and selling
goods and services. Industry estimates that the amount of goods or services
purchased in on-line consumer transactions will grow from approximately $14.9
billion in 1998 (Reference: Nua Ltd. Internet Survey 1999), to approximately
$36 billion in 1999 (Reference: Boston Consulting Group 7/19/99). Improvements
in security, interface design and transaction-processing technologies have
facilitated an increase in online consumer transactions. Early adopters of
such improvements include online merchants offering broad product catalogs
(such as books, music CDs and toys), those seeking distribution efficiencies
(such as PCs, flowers and groceries) and those offering products and services
with negotiable pricing (such as automobiles and mortgages). The Company
believes that as the volume of online transactions increases, traditional
retailers will offer a wide variety of products and services online. The
Company believes that online companies provide businesses an opportunity to
link Internet customers with like interests. The Internet allows marketers
to collect meaningful demographic information.
The Company is utilizing the Internet as a global platform for the Company as
well as for marketing, licensing and merchandising. The corporate Internet Web
Site located at www.finelineproperties.com is comprised of over 75 pages
showcasing the various character groups as well as information on the Company.
This cyberspace brochure accomplishes more in the presentation of the Company
than any printed material could as a result of the ease in updating and
maintaining a current presentation of all corporate developments and cartoon
lines. The Company established a presence on the Internet in early 1997 and has
either upgraded or completely changed its web site on over 50 occasions as a
result of new character additions, revised design elements and other factors.
The Company's Web presence is also reflected by its listing on over 30 search
engines under 15 categories and cross reference headings. The foregoing is
essential in alerting individuals of the Company's Web Site and driving them to
it. To further increase the global nature of the Web Site, the Company is
translating the entire site into Spanish, French, German. This coincides with
the Company's physical move into the European market, not only via marketing,
merchandising and licensing activities, but also by the establishment of a
European office. With a population base of 379,596,000 people, this region
exceeds the 274,028,000 individuals in the United States and represents the
largest population base outside of China with its 1,255,698,000 people
(Reference: United Nations Population Division, Department of Economic & Social
Affairs 1998). In keeping with this, the Company is also engaged in market
testing and preliminary market exposure programs via promotional venues in
Europe, as well as the evaluation of licensing agents and the projected opening
of a Signature Store in Madrid, which is tentatively scheduled for the first
quarter of 2000.
The public relations aspect of the Company's Internet presence is reflected
by the corporate Web Site on potential new customer's and or shareholders
seeking information on the Company, or to see what the Company is and does.
A further extension of this is the e-commerce Signature Store which is
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directly accessible from the Company's Web Site. Offering over 150 differing
apparel items ranging from T-shirts, casual shirts, dress shirts, ladies
jerseys and dresses, the Signature Store is being expanded and upgraded in
terms of look, product offerings and character group additions. Rather than
approach the marketing and promotion of the corporate Web Site and e-commerce
Signature Store Site as separate entity's, the Company promotes both sites
via a singular strategy. This methodology has been undertaken in the
recognition of the tremendous number of commercial sites on the Internet (in
excess of 200,000 in the United States and 500,000 globally, Reference:
Computer Industry Almanac 1998), as well as the varied budgets and marketing
activities of other firms.
According to Nielsen Media 10/12/98, the Entertainment category for packaged
software sales accounted for $861,900,000 out of the total $10,580,400,000 in
packaged software revenues sold. They projected that during the first six
months of 1999 almost 25% of consumers who connected to the Internet will
make an on-line purchase. The Company's presence on the Internet can provide
and afford the Company an opportunity to accomplish and establish a number of
marketing areas in consort with overall business plans and objectives.
The Company utilizes the on-line aspects of the Internet to aid in this aspect
by maintaining a corporate web site to showcase the Company's cartoons in a
manner and setting which provides a better framework than printed materials
and is decidedly more cost effective. Through the utilization of extensive site
placement on Internet search engines, bulk e-mail campaigns, the Company's
e-commerce Store listings and press releases, the Company generates traffic
to the web site to help accomplish this objective. Future plans call for the
Company to design and develop CD-ROM games as well as brief on-line playable
and downloadable games as attraction measure to heighten target audience web
site traffic and expose the cartoon characters to ever increasing audience
figures thus widening the exposure of the characters and increasing the
commercial side of the equation.
This strategy has resulted in unsolicited inquiries for the utilization of
the companies cartoon characters as screen savers, usage on other Internet
web sites, vehicle mud flaps, as well as inquiries that are being followed
up by the Company's representation firm of Fierst & Pucci, LLP which range
from licensing and animation inquiries from companies and corporate licensing
representatives in Asia as well as South America.
The Company's Internet web site is its best means of presenting its
cartoon character line up as well as providing corporate information. As
the Company added over 100 new cartoons in 1999, the costs involved in
the revision and printing of corporate brochures would have required
over 12 changes and the corresponding waste associated with such. The
fast paced changes occurring within the Company has been best served by
the utilization of the Internet to present the Company in a highly
creative format which the Company can change, upgrade, revise and tailor
to its needs and objectives as it desires and business as well as
consumer objectives demand. This benefit could not be realized by any
other means but the Internet and the creative instantaneous changes
which can be effected as a result of this medium.
The presentation aspects of the Company's Internet web site were
directly responsible for the agreement it reached with Boein Co.Ltd of
Korea. Through the use of e-mails directed at LIMA (The International
Licensing and Merchandisers Association), the Company directed companies
to view its characters on its web site. Boein did so, and immediately
inquired as to the licensing possibilities of the character group Y2K as
well as options on other available characters with such resulting in an
agreement.
To capitalize on the foregoing, the Company maintains an active and
comprehensive Internet bulk e-mail program which is supported by the Company's
Investor Relations Department's fast e-mail reply program. Under this
operation, all e-mails are responded to a time frame of forty-eight hours,
and replied to on an individual basis. This approach and care for inquiries
has been well received by shareholders, e-commerce store purchasers and the
general public. Corporate executives also reply, where warranted, to certain
e-mails requiring their attention or when the subject manner dictates their
response and/or attention.
(g) Dependence on Continued Growth and Viability of the Internet and E-Commerce
The extremely high growth rate and importance of the World Wide Web has been
factored into the Company's immediate, as well as long range plans for both
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marketing, promotion and sales. The Company maintains a comprehensive 75 page
corporate web site which showcases the Company's cartoon character groups as
well as provides an in-depth and current picture of the Company's operations,
progress, new developments and products. The Internet Corporate Web Site at -
www.finelineproperties.com - also links directly to the Company's e-commerce
Signature Store which sells directly to the public varied apparel items
utilizing the Company's own cartoon characters.
With over 179 million on-line Internet subscribers and users worldwide and over
75 million in the United States, the importance of the Internet as a revenue
medium is supported by the gross sales of over $14.9 billion in 1998
(Reference: Nua Ltd. Internet Survey 1999), with projections for that figure to
exceed $36 billion on 1999 (Reference: Boston Consulting Group 7/19/99).
Projections conducted by The Computer Industry Almanac (7/6/99), indicate that
there will be over 133 million Internet users in the United States by the year
end 2000, with worldwide Internet users expected to top 318 million. These
growth rates exceed those for any medium during this period and mark the
Internet as the number one consumer marketing tool.
Global commerce and the online exchange of information is new and evolving,
it is difficult to predict with any assurance whether the Web will prove to
be a viable commercial marketplace in the long term. The Web has
experienced, and is expected to continue to experience, significant growth in
the numbers of users and amount of traffic. To the extent that the Web
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users, there can be no assurance that the
Web infrastructure will continue to be able to support the demands placed on
it by this continued growth or that the performance or reliability of the Web
will not be adversely affected.
With 51% of all Internet household incomes topping $40,000.00 (39.2% represent
household incomes in excess of $50,000.00 per annum), over 77.8% of all
Internet users in the United States have ordered over this medium. The
foregoing, compares favorably with Europe, where 73.2% have ordered on-line,
with the rest of the world's ordering rate at 64.7% (Reference: GVU 9th WWW
Survey 4/98). The most important statistic to the Company is the age
composition of both Internet users and buyers as well as their purchasing
habits. Fully 28.1% of all Internet users are between the ages of 5 and 25,
with another 15.7% in the 26 through 30 age group (Reference: Nua Ltd.
Internet Survey 1999). This preponderance of youth on the Internet is also
reflected in the percentage of how these age groups use the Internet. 54.8%
of all individuals in the 11 through 20 age group have ordered on-line, with
74.1% of those in the 21 through 25 category buying, according to GVU 9th WWW
Survey 4/98. These categories represent the prime demographic groups for the
Company.
Management's understanding of this electronic medium is reflected in the
corporate name, which is also the Company's web site address - FineLine
Properties.com (Inc.). With the on-line e-commerce Signature Store in place,
the Company will be designing special items and product lines for the upcoming
Christmas holiday selling season as well as Millennium celebration. Management
believes that the experience it has gained from having had an Internet presence
for over two years has provided the foundation and platform to enable the
Company to maximize on the current and future Internet explosion in growth, on-
line sales and as a global marketing tool.
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The Company's future success with its FineLine Signature Store, which sells
various apparel items either embroidered or silk screened with Company
cartoon characters is dependent upon continued growth in the use of the
Internet. To generate product sales for FineLine Properties.com, Inc., the
Internet's recent and rapid growth must continue, and e-Commerce on the
Internet must become widespread. None of these can be assured. The Internet
may prove not to be a viable commercial marketplace. Additionally, due to the
ability of consumers to easily compare prices of similar products or services
on competing Web sites, gross margins for e-Commerce transactions may narrow
in the future and, accordingly, the Company's revenues from e-Commerce
arrangements may be materially negatively impacted.
If use of the Internet does not continue to grow, the Company's business,
results of operations and financial condition would be materially and
adversely affected. Additionally, to the extent that the Internet continues
to experience significant growth in the number of users and the level of use,
there can be no assurance that its technical infrastructure will continue to
be able to support the demands placed upon it. The necessary technical
infrastructure for significant increases in e-Commerce, such as a reliable
network backbone, may not be timely and adequately developed. In addition,
performance improvements, such as high-speed modems, may not be introduced
in a timely fashion. Furthermore, security and authentication concerns with
respect to transmission over the Internet of confidential information, such
as credit cared numbers, may remain. Issues like these could lead to
resistance against the acceptance of the Internet as a viable commercial
marketplace. Also, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of activity, or due to increased governmental regulation.
Changes in or insufficient availability of telecommunications services could
result in slower response times and adversely affect usage of the Internet.
Demand and market acceptance for recently introduced services and products
over the Internet are subject to a high level of uncertainty, and there exist
few proven services and products.
The Internet allows marketers to collect meaningful demographic information
and feedback from consumers, and to rapidly respond to this information with
new messages. This offers a significant new opportunity for businesses to
increase the effectiveness of their marketing campaigns. In traditional
media, a significant portion of all advertising budgets are spent on direct
marketing because of its effectiveness. However, the effectiveness of direct
marketing campaigns is dependent upon the quality of consumer data used to
develop and place complementary products, services or facilities are
developed and the Web becomes a viable commercial marketplace in the long
term, the Company might be required to incur substantial expenditures in
order to adapt its products to changing Web technologies, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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The Internet may not be commercially viable in the long term for a number of
reasons, including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, performance
improvements and security measures. To the extent that the Internet continues
to experience significant growth in the number of users, their frequency of
use or their band width requirement, there can be no assurance that the
infrastructure for the Internet and other on-line services will be able to
support the demands placed upon them. In addition, the Internet or other
on-line services could lose their viability due to delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet or other on-line service activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet or other on-line services also could result
in slower response times and adversely affect usage of the Internet and other
on-line services generally and FineLine Properties.com, Inc. in particular.
If use of the Internet and other on-line services does not continue to grow or
grows more slowly than expected, if the infrastructure for the Internet and
other on-line services does not effectively support growth that may occur, or
if the Internet and other on-line services do not become a viable commercial
marketplace, the Company's business, results of operations and financial
condition would be adversely affected.
(g) Risk of System Failures
The Company's ability to facilitate trade successfully and provide high quality
customer service, depends on the efficient and uninterrupted operation of its
computer and communications through its designated Internet Service Provider
(ISP). These systems and operations are vulnerable to damage or interruption
from earthquakes, floods, fires, power loss, telecommunication failures,
break-ins, sabotage, intentional acts of vandalism and similar events. The
Company does not have fully redundant systems, a formal disaster recovery plan
or alternative providers of hosting services and does not carry business
interruption insurance to compensate it for losses that may occur. Despite
any precautions taken by, and planned to be taken by the Company, the
occurrence of a natural disaster or other unanticipated problems with its ISP
could result in interruptions in the services provided by the Company.
In addition, the failure by the ISP to provide the data communications capacity
required by the Company, as a result of human error, natural disasters other
operational disruption, could result in interruptions in the Company's
service. Any damage to or failure of the systems of the Company could result
in reductions in, or termination's of, the FineLine Properties.com service,
which could have a material adverse effect on the Company's business, results
of operations and financial condition. In the case of frequent or persistent
system failures, the Company's reputation and name brand could be materially
adversely affected. Although the Company has implemented certain network
security measures, the Company and its IPS are also vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, which
could lead to interruptions, delays, loss of data or the inability to complete
customer auctions. In addition, although the Company works to prevent
unauthorized access to Company data, it is impossible to eliminate this risk
completely. The occurrence of any and all of these events could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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Furthermore, the Web has experienced a variety of outages and other delays
as a result of damage to portions of its infrastructure, and could face such
outages and delays in the future, including outages and delays resulting from
the inability of certain computers or software to distinguish dates in the
21st century from dates in the 20th century. These outages and delays could
adversely affect the level of Web usage and also the level of traffic for
FineLine Properties.com, Inc. In addition, the Web could lose its viability
due to delays in the development or adoption of new development or adoption of
new standards and protocols to handle increased levels of activity or due to
increased governmental regulation.
(h) Risk Of Capacity Constraints And Systems Failures
A key element of the Company's strategy is to generate a volume of user
traffic to its Web site. The Company's ability to attract customers and to
achieve market acceptance of its products depends significantly upon the
performance of the Company and its network infrastructure (including its
server, hardware and software). Any system failure that causes interruption
or slower response time of the Company's products and services could result
in less traffic to the Company's Web site and, if sustained or repeated,
could reduce the attractiveness of the Company's products. An increase in the
volume of user traffic could strain the capacity of the Company's technical
infrastructure, which could lead to slower response time or system failures,
and could adversely affect the delivery of the number of impressions that are
owed to advertisers and thus the Company's advertising revenues. In addition,
as the number of Web pages on and users of FineLine Properties.com increase,
there can be no assurance that the Company and its technical infrastructure
will be able to grow accordingly, and the Company faces risks related to its
ability to scale up to its expected customer levels while maintaining superior
performance. Any failure of the Company's server and networking systems to
handle current or higher volumes of traffic would have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company is also dependent upon third parties to provide
potential users with Web browsers and Internet and online services necessary
for access to the site. In the past, users have occasionally experienced
difficulties with Internet and online services due to system failures,
including failures unrelated to the Company's systems. Any disruption in
Internet access provided by third parties could have a material adverse
effect on the Company's business, results of operations and financial
condition. Furthermore, the Company is dependent on hardware suppliers for
prompt delivery, installation and service of equipment used to deliver the
Company's products and services. The Company's operations are dependent in
part upon its ability to protect its operating systems against damage from
human error, fire, floods, power loss, telecommunications failures,
break-ins and similar events. The Company does not presently have redundant,
multiple-site capacity in the event of any such occurrence. The Company's
servers are also vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering with the Company's computer systems.
The occurrence of any of these events could result in the interruption, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, the Company's reputation
could be materially and adversely affected.
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(i) Risks Associated With New Services, Features and Functions
There can be no assurance that the Company would be able to expand its
operations in a cost-effective or timely manner or that any such efforts
would maintain or increase overall market acceptance. Furthermore, any new
business launched by the Company that is not favorably received by consumers
could damage the Company's reputation and diminish the value of its brand
name. Expansion of the Company's operations in this manner would also
require significant additional expenses and development, operations train the
Company's management, financial and operational resources. The lack of
market acceptance of the Company's products would result in the Company's
inability to generate satisfactory revenues and its inability to offset their
costs could have a material adverse effect on the Company's business, results
of operations and financial condition.
(j) Online Commerce Security Risks
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. There can
be no assurance that advances in computer capabilities, new discoveries
in the field of cryptography, or other events or developments will not
result in a compromise or breach of the technology used by the Company to
protect customer transaction data.
The Company's Internet web site is secure. It is a closed end site where
access only occurs when the Company revises the site to add, modify or
revision its characters and/or presentation.
If any such compromise of the Company's security were to occur, it could have
a material adverse effect on the Company's reputation and, therefore, on its
business, results of operations and financial condition. Furthermore, a
party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the
Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
transactions conducted on the Internet and other online services and the
privacy of users may also inhibit the growth of the Internet and other online
services generally, and the Web in particular, especially as a means of
conducting commercial transactions. To the extent that activities of the
Company involve the storage and transmission of proprietary information, such
as credit card numbers, security breaches could damage the Company's reputation
and expose the Company to a risk of loss or litigation and possible liability.
There can be no assurance that the Company's security measures will prevent
security breaches or that failure to prevent such security breaches will not
have a material adverse effect on the Company's business, results of
operations and financial condition.
(k) Risks Associated with Acquisitions
If appropriate opportunities present themselves, the Company would acquire
businesses, technologies, services or product(s) that the Company believes
are strategic.
The Company currently has no understandings, commitments or agreements with
respect to any other material acquisition and no other material acquisition
is currently being pursued. There can be no assurance that the Company will
be able to identify, negotiate or finance future acquisitions successfully,
or to integrate such acquisitions with its current business. The process of
integrating an acquired business, technology, service or product(s) into the
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Company may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of the Company's business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition will be realized.
Future acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, results of operations
and financial condition. Any future acquisitions of other businesses,
technologies, services or product(s) might require the Company to obtain
additional equity or debt financing, which might not be available on terms
favorable to the Company, or at all, and such financing, if available,
might be dilutive.
(l) Risks Associated With International Operations
A component of the Company's strategy is to offer its products to international
customers. Expansion into the international markets will require management
attention and resources. The Company has limited experience in localizing its
service, and the Company believes that many of its competitors are also
undertaking expansion into foreign markets. There can be no assurance that
the Company will be successful in expanding into international markets. In
addition to the uncertainty regarding the Company's ability to generate
revenues from foreign operations and expand its international presence, there
are certain risks inherent in doing business on an international basis,
including, among others, regulatory requirements, legal uncertainty regarding
liability, tariffs, and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, different accounting
practices, problems in collecting accounts receivable, political instability,
seasonal reductions in business activity and potentially adverse tax
consequences, any of which could adversely affect the success of the
Company's international operations.
To the extent the Company expands its international operations and has
additional portions of its international revenues denominated in foreign
currencies, the Company could become subject to increased risks relating to
foreign currency exchange rate fluctuations. There can be no assurance that
one or more of the factors discussed above will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, results of operations and financial condition.
2) Description of The Industry (Licensing and Merchandising)
The Company's niche in the Licensing and Merchandising Industry, operates in
the same manner as other cartoon companies such as Disney, Warner Brothers,
Steven Spielberg's Tiny Toons, etc., in that it permits contracted companies
to have the "rights" to use its copyrighted and trademarked characters for a
negotiated fee in licensing agreements with an agreed upon royalty payment
based upon unit sales. The negotiated fee is generally 10 to 15% of the
projected sales estimates of the venture over a combined three year period
with the royalty payments generally in the range of anywhere from 3% to 7% of
net sales revenues as generated by the Licensee. License rights are granted
to corporations in varied industries and the characters are utilized in many
different formats and variations. A Licensee can use an image to adorn
product items, packaging, in conjunction with a logo, or the image might be
utilized for toys, games, dolls as well as in varied animated forms such as
software games, television commercials, television shows and or feature
length movies.
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Licensing/merchandising rights can be territorial (such as a state or country),
regional such as a few states or a few countries, national, multinational or
international. These variables as well as the nature of the license being
granted all affect the fee and royalty structure involved. In addition, a
license might grant the Licensee the right to sublicense segments of the
agreement as well as territories. In all cases, the agreement stipulates the
projected minimum sales for the usage of the cartoon image(s), as well as
the term over which the Licensee is active and indicates renewal options. The
Licensor, has the right to revoke the license if the revenues from said
agreement do not meet the minimums as stated in the agreement, as well as other
stipulated contractual clauses.
3) Status of Any Announced New Product or Service
The Company has announced that it recently formed a "Software Games Division"
for the development of interactive game platforms for its cartoon character
groups. The Company plans to model its gaming strategies utilizing the
industry standard techniques of Activision (ATVI), Electronic Arts (ERTS),
and others. The company plans to utilize its Web Site as its retail outlet,
which would enable it to avoid the high merchandising expenditures associated
with software retail outlets. This Internet marketing approach will enable the
Company to place its products in the over 200 Internet web sites which sell and
or promote software games. The Internet sales strategy was decided upon as a
based on the fact that approximately 15% of all software games are sold over
the Internet with projections estimating this number might double by 2001.
Additionally, in June, 1999 FineLine Properties.com Inc. announced that its
Signature e-Commerce Store plans to include its latest new cartoon creations,
THE RED ZONE and INTERNAUTS. The Company also announced a new pricing
structure and the company's move to start marketing its product lines in
Europe. The company has decided to add The Red Zone and Internauts to its
apparel line up as a result of customer inquiries the company asking for these
characters to be offered. At the same time, the Company also announced that it
is reducing its prices for most items on its e-commerce store due to improved
efficiencies in order techniques, economies of scale in supply costs as well as
quantity manufacturing price reductions.
FineLine's planned entry into Europe will start in Spain as its initial
European roll out market, moving into France, England and other countries
thereafter. The company plans to test market some of its apparel lines in
Spain to gauge initial acceptance and receptivity and met with highly
favorable results. Management believes that in Europe, the younger generation
is receptive to American music, movies and cartoons.
FineLine's planned entry into Europe will start in Spain as its initial
European roll out market, moving into France, England and other countries
thereafter. The company plans to test market some of its apparel lines in
Spain to gauge initial acceptance and receptivity and met with highly favorable
results. Management believe that in Europe, the younger generation is
receptive to American music, movies and cartoons. Therefore, the company
hopes to develop outlet store locations in Spain and later European countries
to go with its Internet e-commerce branding strategy which is modeled on
established and successful online. Further steps with regard to entry
into the European market were implemented via a promotional venue in
conjunction with one small fast food establishment in Madrid in August of
1999 which offered free cartoon logo T-shirts and polo shirts with coupons
purchase showing more than four visits. This promotional was conducted as a
market test to determine the consumer reaction to the Company's cartoons and
to gauge the possibilities with respect to the planning of market entry.
4) Competition
The Company's competition for its various cartoon characters includes such
companies as Disney, Warner Brothers, DIC Entertainment, Mainframe
Entertainment, Dreamworks and other internationally known cartoon firms in the
forefront of the industry. Due to the already established positioning of these
firms as well as their long standing network television, movie industry,
licensing, merchandising arrangements and consumer awareness. These companies,
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as a result of their long standing associations and past cartoon successes
have developed networks of distribution, advertising support, products
in the market, products consistently being aired on television as well
as released in major motion picture theaters. As basically self contained
operations which can take a concept or idea all the way from that status
through story development, internal character design, storyboards, script,
animation, filming and readiness for release (using established distribution
channels for the finished product, toy - game and allied product merchandising
as well as in place licensing affiliations), these companies have a major
edge over Fineline Properteries.com, Inc. As a result of this positioning,
the management at the Company does not view these companies as its
direct competition in that their (major studios), cartoon properties are
considered as established brands.
FineLine Properties.com, Inc. feels that their status does not represent actual
direct competition for the Company at this time. Management, based upon an
analysis of past industry trends with regard to newer cartoon character groups,
feels that the Company's competition stems from less well known cartoon
character companies with new cartoon introductions, as this is the
theater where direct competition for the Company's character lines will
come from.
The foregoing is based upon factors such as the competition for licenses
with companies looking for new and up and coming cartoons that
demonstrate the potential to capture the minds of targeted consumer
profiles. As this represents the actual direct competition at this time
for the Company, management prepared for this by the development of a
broad assortment of different cartoon character types aimed at differing
yet overlapping demographic profiles. The foregoing was undertaken and
planned for by the Company's development of its broad cross section of
cartoon character groups designed to appeal to varied age group
categories as well as competitive variables.
The popularity of cartoons as both an entertainment, marketing and
revenue medium has been demonstrated by the movie industry, the
television industry, toy and game industries, software industry and
advertising. In 1998, more feature length animated movies were released
than at any time in the industry's history. The popularity of cartoons
as both an entertainment, marketing and revenue medium has been
demonstrated by the movie industry, the television industry, toy and
game industries, software industry and advertising. In 1998, more
feature length animated movies were released than at any time in the
industries history. "Mulan", "Out of Egypt", "Antz", "A Bug's Life", "The
Rug Rats Movie" are examples of Hollywood's understanding of the
universal audience appeal and entertainment value of cartoons.
Television is the medium which fueled the foregoing, via prime time
programming and the success of such animated series as "The Simpson's",
"King of the Hill", "Dilbert" and others. The advertising industry has
always known that kids, puppies, kittens and cartoons with their "cute"
appeal, have the highest consumer recall factor in commercial focus
group tests. Companies such as AT&T with his Michael Jordan Space Jam
buddies, the Tazmanian Devil Chevrolet commercials, Warner Brothers use
of the Warner Frog to publicize its television programming, and other
examples point to the longevity, selling appeal and revenue generation
of cartoons.
The Company has understood the foregoing and developed cartoon character
groups designed to capitalize upon these variables. Rather than focus
upon a single age group segment, the Company has undertaken the
development of character group types which either address broad
demographic profiles, or attract segments of the market by virtue of
the broad character group profiles.
The Company competes with some major companies. Many of these
competitors have substantially greater resources than the Company. The
Company has identified a niche in the market. Should a larger and better
financed company decide to directly compete with the Company, and be
successful in its competitive efforts, the Company's business could be
adversely affected.
The market for selling apparel products over the Internet is relatively
new, rapidly evolving and intensely competitive, and the Company
expects competition to intensify further in the future. Barriers to
entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially-available
software. The Company potentially competes with a number of other
companies marketing similar products over the Internet. Competitive
pressures created by any of the Company's competitors, could have a
material adverse effect on the Company's business, results of operations
and financial condition. The Company believes that the principal
competitive factors in its market are volume and selection of goods,
population of buyers and sellers, community cohesion and interaction,
customer service, reliability of delivery and payment by users, brand
recognition, WEB site convenience and accessibility, price, quality of
search tools and system reliability. Some of the Company's potential
competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial,
marketing, technical and other resources than the Company. In addition,
other on-line trading services may be acquired by, receive investments
from or enter into other commercial relationships with larger,
well-established and well-financed companies as use of the Internet and
other on-line services increases.
Therefore, certain of the Company's competitors with other revenue
sources may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to Web site and systems development than
the Company or may try to attract traffic by offering services for
free. Increased competition may result in reduced operating margins,
loss of market share and diminished value in the Company's brands.
There can be no assurance that the Company will be able to compete
successfully against current and future competitors. Further, as a
strategic response to changes in the competitive environment, the
Company may, from time to time, make certain pricing, service or
marketing decisions or acquisitions that could have a material adverse
effect on its business, results of operations and financial condition.
New technologies and the expansion of existing technologies may increase
the
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competitive pressures on the Company by enabling the Company's
competitors to offer a lower-cost service. Certain Web-based
applications that direct Internet traffic to certain Web sites may
channel users to services that compete with the Company. Although the
Company plans to establish arrangements with on-line services and search
engine companies, there can be no assurance that these arrangements will
be renewed on commercially reasonable terms or that they will otherwise
bring traffic to the FineLine Properties.com WEB site. In addition,
companies that control access to transactions through network access or
Web browsers could promote the Company's competitors or charge the
Company substantial fees for inclusion. Any and all of these events
could have a material adverse effect on the Company's business, results
of operations and financial condition.
5) Customers
The Company believes that establishing and maintaining brand identity is a
critical aspect of its efforts to attract new customers, Internet traffic and
advertising and commerce relationships. In order to attract new customers,
advertisers and commerce vendors, and in response to competitive pressures,
the Company intends to make a commitment to the creation and maintenance of
brand loyalty among these groups. The Company plans to accomplish this,
although not exclusively, through advertising its Web site through the
various search engines, through other Web sites, marketing its site to
businesses/customers through e-mail, online media, and other marketing and
promotional efforts.
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There can be no assurance that brand promotion activities will yield increased
revenues or that any such revenues would offset the expenses incurred by the
Company in building its brands. Further, there can be no assurance that any
new users attracted to FineLine Properties.com will conduct transactions over
FineLine Properties.com. on a regular basis. If the Company fails to promote
and maintain its brand or incurs substantial expenses in an attempt to
promote and maintain its brand or if the Company's existing or future
strategic relationships fail to promote the Company's brand or increase brand
awareness, the Company's business, results of operations and financial
condition would be materially adversely affected.
6) Strategic Alliances
The success of the Company will be dependent in part upon a number of strategic
relationships that the Company intends to enter. At present, the Company is in
discussions with several companies, both locally and internationally. The
amount and timing of resources which future strategic partners devote to
assisting the Company will not be within the control of the Company. There can
be no assurance that strategic partners will perform their obligations as
expected or that any revenue will be derived from strategic arrangements. If
any of the Company's strategic partners breaches or terminates an agreement
with the Company, or otherwise fails to conduct its collaborative activities
in a timely manner, the development, commercialization, or marketing of the
product, which is the subject of the agreement may be delayed and the Company
may be required to undertake unforeseen additional responsibilities or to
devote additional resources to development, commercialization or marketing of
its products. The inability to enter into strategic relationships or the
failure of a strategic partner to perform its obligations could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to
negotiate acceptable strategic agreements in the future. Or that the
resulting relationships will be successful, or that the Company will continue
to maintain or develop strategic relationships, or to replace strategic
partners in the event any such relationships are terminated. The Company's
failure to maintain any strategic relationship could materially and adversely
affect the Company's business, financial condition and results of operations.
The Company has an agreement with The Marvel Entertainment Group, Inc. which is
dependent upon factors which are not under or within the Company's control.
As a result, the Company will not estimate or project revenues for which it
has no basis for determining the soundness of the estimates or related factors
comprising same. The Company received a flat payment from The Marvel
Entertainment Group, Inc., in 1997 for $25,000.00 as a signing and conditional
payment based upon Marvel proceeding under a schedule spread over a three year
period, with secondary payments during said term to secure permanent retention
of these character groups by Marvel. If the secondary payment schedules are not
exercised by Marvel, which include certain revenue totals, these character
groups revert back to the Company. After such period, if either Marvel elects,
or it has failed to meet certain revenue minimums, the Company can elect to
exercise its option to reclaim The Moodies(tm), Hogstturrs(tm) and Tasties(tm).
As the performance of Marvel under this international licensing agreement is
subject to considerations outside of the Company's control, scheduling,
promotion of the indicated cartoon characters and other factors, estimation of
revenue results for these character groups has not been included here.
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7) Potential Fluctuations in Operating Results; Quarterly Fluctuations
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside the Company's
control. See "--Operating History." As a strategic response to
changes in the competitive environment, the Company may from time to time
make certain pricing, marketing decisions or acquisitions that could have
a material short-term or long-term adverse effect on the Company's business,
results of operations and financial condition.
In particular, in order to accelerate the promotion of FineLine
Properties.com. Inc., the Company intends to heavily market its Web site.
The Company believes that it may experience seasonality in its business, with
use of the Internet and FineLine Properties.com being somewhat lower during
the summer vacation and year-end holiday periods. Advertising impressions
(and therefore revenues) may be expected to decline accordingly in those
periods. Additionally, seasonality may affect significantly any potential
advertising revenues during the first and third calendar quarters, as
advertisers historically spend less during these periods.
There can be no assurance that such patterns will not have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition to selling its brands, it is the Company's strategy
is to generate additional revenues through e-Commerce arrangements including
for other companies to advertise on the company's Web site. There can be no
assurance that the Company will receive any material amount of revenue
under these agreements in the future. The foregoing factors, in some future
quarters, may lead the Company's operating results to fall below the
expectations.
8) Raw Materials and Suppliers
The Company is a service-type, which creates cartoons, and thus does not use
any raw materials or have any principal suppliers of raw materials.
9) Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements, or Labor Contracts
The Company relies on a combination of copyrights, trade secret laws and non-
disclosure agreements to protect its proprietary technology. At present, the
Company has 147 trademarked and copyrighted cartoons which are in the following
character groups: The Moodies(tm), The Tasties(tm), The Hogstturrs(tm),
Soft(tm), The Majors(tm), The Icers(tm), The Hoopsters(tm), Red Zone(tm), The
Kooties(tm), The eKids(tm), The Computoons(tm), The Internauts(tm), The Milk
Drops(tm), The Healthy Dozen(tm). All of the Company's cartoon names are
followed by "tm" registered trademarks in the U.S. The Company's success
will depend to a significant degree on its ability to obtain and maintain
copyright protection and preserve its trade secrets, and operate without
infringing on the proprietary rights of third parties. The Company is in the
process of evaluating the registration of its trademarks outside of the U.S.
Based on International jurisdictions, the company's trademarks are unprotected
outside of the U.S. The company also seeks to protect its intellectual
property rights by limiting access to the distribution of its software,
documentation and other proprietary information.
Many of the processes and much of the know-how of importance to the Company's
technology depend upon the non-patentable technology, knowledge, and experience
of its technical personnel and collaborators. To help protect its rights, the
Company requires employees, collaborators, and significant consultants and
advisors with access to confidential information, to enter into confidentiality
agreements with the Company. There can be no assurance, however, that these
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agreements will provide adequate protection for the Company's trade secrets,
know-how or proprietary information in the event of any unauthorized use or
disclosure. The Company's success and ability to compete is dependent in part
upon its proprietary technology. There can be no assurance that the steps taken
by the Company in this regard will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technologies.
The Company regards substantial elements of its Web site and underlying
infrastructure and technology as proprietary and attempts to protect them
by relying on trademark, service mark, copyright and trade secret laws
and restrictions on disclosure and transferring title and other methods.
The Company plans to enter into confidentiality agreements with its
future employees, future suppliers and future consultants and in connection
with its license agreements with third parties and generally seeks to control
access to and distribution of its technology, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's proprietary
information without authorization or to develop similar technology
independently.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of the Company's proprietary rights. There can be
no assurance that the steps taken by the Company will prevent misappropriation
or infringement of its proprietary information, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation might result in substantial costs and diversion of resources and
management attention. Furthermore, there can be no assurance that the
Company's business activities will not infringe upon the proprietary rights
of others, or that other parties will not assert infringement claims against
the Company, including claims that by directly or indirectly providing
hyperlink text links to Web sites operated by third parties. Moreover, from
time to time, the Company may be subject to claims of alleged infringement by
the Company or service marks and other intellectual property rights of third
parties. Such claims and any resultant litigation, should it occur, might
subject the Company to significant liability for damages, might result in
invalidation of the Company's proprietary rights and, even if not meritorious,
could result in substantial costs and diversion of resources and management
attention and could have a material adverse effect on the Company's business,
results of operations and financial condition.
10) Regulation
The law relating to the liability of online companies is currently unsettled.
It is possible that claims could be made against online e-Commerce companies
under both United States and foreign law for defamation, libel, invasion of
privacy, negligence, copyright or trademark infringement, or other theories
based on the nature and content of the materials disseminated through their
Web site. Several private lawsuits seeking to impose such liability upon
other online companies are currently pending.
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11) Effect of Existing or Probable Government Regulations
Government legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information.
The imposition upon the Company and other online providers of potential
liability for information carried on or disseminated through their services
could require the Company to implement measures to reduce its exposure to such
liability, which may require the Company to expend substantial resources
and/or to discontinue certain service offerings. In addition, the increased
attention focused upon liability issues as a result of these lawsuits and
legislative proposals could impact the growth of Internet use.
The Company does not believe that such regulations, which were adopted prior
to the advent of the Internet, govern the operations of the Company's
business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however,
that State government will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a material
adverse effect on the Company's business, results of operations and
financial condition. Several States have also proposed legislation that would
limit the uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has also
recently settled a proceeding with one online service regarding the manner in
which personal information is collected from users and provided to third
parties. Changes to existing laws or the passage of new legislation,
could create uncertainty in the marketplace that could reduce demand for the
services of the Company or increase the cost of doing business as a result of
litigation costs or increased service delivery costs, or could in some other
manner have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, because the Company's
services are accessible worldwide, and the Company may facilitate sales of
goods to users worldwide, other jurisdictions may claim that the Company
is required to qualify to do business as foreign corporation in particular
state or foreign country.
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. Although sections of the Communications Decency Act of
1996 (the "CDA") that, among other things, proposed to impose criminal
penalties on anyone distributing "indecent" material to minors over the
Internet, were held to be unconstitutional by the U.S. Supreme Court, there
can be no assurance that similar laws will not be proposed and adopted.
Certain members of Congress have recently discussed proposing legislation
that would regulate the distribution of "indecent" material over the Internet
in a manner that they believe would withstand challenge on constitution law.
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Any new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to the Company's
business, for third-party activities and jurisdiction. The adoption of new
laws or the application of existing laws may decrease the growth in the use
of the Internet, which could in turn decrease the demand for the Company's
services, increase the Company's cost of doing business or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company does not believe that such regulations, which were adopted prior
to the advent of the Internet, govern the operations of the Company's
business nor have any claims been filed by any state implying that the
Company is subject to such legislation. There can be no assurance, however,
that State government will not attempt to impose these regulations upon the
Company in the future or that such imposition will not have a material
adverse effect on the Company's business, results of operations and
financial condition.
12) Research and Development Activities
The Company, among other things, plans to execute its business and marketing
strategy successfully, continue to develop and upgrade its technology and
information-processing systems, meet the needs of a changing market, provide
superior customer service, respond to competitive developments and attract,
integrate, retain and motivate qualified personnel provided the company can
generate sales and profit.
The Company also needs to develop and identify products that achieve
market and licensing acceptance. There can be no assurance that any company,
including FineLine Properties.com, will achieve market acceptance. No
assurance can be given that the Company's business model will be successful
or that it can sustain revenue growth or be profitable. The market for the
Company's products are characterized by an increasing number of market
entrants. As is typical of any new and rapidly evolving market, demand and
market acceptance for products are subject to a high level of uncertainty and
risk. Moreover, because Internet market is new and rapidly evolving, it is
difficult to predict its future growth rate, if any, and its ultimate size.
If the market fails to develop, develops more slowly than expected or becomes
saturated with competitors, or if the Company's products do not achieve or
sustain market acceptance, the Company's business, results of operation may
be materially and adversely affected.
There can be no assurances the Company will be successful in accomplishing
all of these things, and the failure to do so could have a material adverse
effect on the company's business, results of operations and financial
condition.
13) Impact of Environmental Laws
The Company is not aware of any federal, state or local environmental laws
which would effect is operations.
14) Employees
The Company presently employs five full time employees and eleven part time or
contracted artists, programmers and designers. Three full time employees are
working management employees.
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(i) The Company's performance is substantially dependent on the performance of
its president, Robert Petry. In particular, the Company's success
depends on his ability to develop, design and market the company's products.
(ii) The Company does not carry key person life insurance on any of its
personnel. The loss of the services of any of its executive officers or other
key employees could have a material adverse effect on the business, results of
operations and financial condition of the Company. The Company's future
success also depends on its ability to retain and attract highly qualified
technical and managerial personnel.
(iii) There can be no assurance that the Company will be able to retain its
key managerial and technical personnel or that it will be able to attract and
retain additional highly qualified technical and managerial personnel in the
future. The inability to attract and retain the technical and managerial
personnel necessary to support the growth of the Company's business, due to,
among other things, a large increase in the wages demanded by such personnel,
could have a material adverse effect upon the Company's business, results of
operations and financial condition.
15) Year 2000 Compliance
The Year 2000 issue is the potential for system and processing failures of
data-related data and the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions.
The Company may be affected by Year 2000 issues related to compliant
information technology ("IT") systems operated by the Company or by third
parties.
The Company does not design, develop, produce or manufacture products which
utilize processors or other electronic devices which would or does put it in
the position of having problems with Year 2000 compliance. All corporate
computers have been purchased after 1997 and are Apple Macintosh computers
which management believes has no year 2000 compliance problems. All
corporate software has been purchased and or replaced after 1997, and
management also believes this software has no Year 2000 compliance problems.
At this time, the Company is not currently aware of any Year 2000 problems
relating to systems operated by the Company or by third parties that would
have a material effect on the Company's business, results of operations or
financial condition, without taking into account the Company's efforts to
avoid such problems. Based on its assessment to date, the Company does not
anticipate that costs associated with remediating the Company's systems will
be material, although there can be no assurance to such effect.
The Company believes that the primary business risks, in the event of such
failure, would include, but not be limited to, lost of potential revenues,
increased operating costs, loss of customers or persons accessing the
Company's Web site, or other business interruptions of a material nature, as
well as claims of mismanagement, misrepresentation, or breach of contract,
any of which could have a material adverse effect on the Company's business,
results of operations and financial condition.
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16) The Industry & Potential Effect on the Company's Plan of Operations
The overall international licensing and merchandising industry market size in
terms of annual revenues, is in excess of $130 billion per year and the
industry has been growing at an annual rate of between 7 to 10% per annum for
the past 15 years (Reference: International Licensing and Merchandisers
Association (LIMA), 2/99). These revenues come from items, goods and services
such as toys, dolls, board games, computer games, stickers, decals, lunch
boxes, apparel items, food, corporate logos and spokescartoons, movies,
animated television shows, animated shorts, commercials, advertising, books,
comics, posters, animation cells, stationary, greeting cards, wrapping paper,
corporate promotions, special events, promotional tie-ins, license plate
decorations, etc.
The rapid adoption of the Internet as a means to gather information,
communicate, interact and be entertained, combined with the vast
proliferation of Web sites, has made the Internet an important new mass
medium. Doing business in the cartoon industry to generate revenues, means
primarily conducting licensing and merchandising activities to secure
royalty and fee agreements. As these activities are conducted through
the utilization of licensing agents and representatives, statistics
relating to this aspect of the Company's business via Internet sources
is not available.
The Company's future success will depend in part on its ability to continually
improve the performance, features and reliability of the site in response to
both evolving demands of the marketplace and competitive product and service
offerings; and, there can be no assurance that the Company will be successful
in doing so. Accordingly, the Company's future success will depend on its
ability to adapt to rapidly changing technologies, to adapt to evolving
industry standards and to continually improve the performance, features and
reliability of its service in response to competitive service and product
offerings and evolving demands of the marketplace. The failure of the Company
to adapt to such changes would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require substantial
expenditures by the Company to modify or adapt its services or infrastructure,
which could have a material adverse effect on the Company's business, results
of operations and financial condition.
30
<PAGE>
17) Present Licensing Status
The Company markets its character groups via mass mailings to major firms,
licensing agents and manufacturing firms which produce licensed products. As
a member of the International Licensing and Merchandisers Association out of
New York (LIMA), the Company belongs to the largest licensing group in the
world. Its membership includes such companies as: Disney, McDonalds, The
National Hockey League, The National Football League, Major League Baseball,
Warner Brothers, etc. The licensing and merchandising industry generated over
$130 billion dollars globally in 1998 and has been growing at the rate of
10% per a year for the past fifteen years.
The company has entered into a licensing representation agreement with the
firm of Fierst & Pucci, LLP, of Northhampton, Massachusetts. The licensing
and merchandising industry, is essentially an entertainment based category,
and as such affiliations, positioning and associations represent important
factors. Mr. Frederick Fierst is known for his involvement with the success
of the Teenage Mutant Ninja Turtles, which at the time broke all records in
the industry for revenue generation (in excess of $400 million globally).
This associative development provides the Company with licensing
representation at levels of the industry hierarchy which the Company might not
have been able avail itself of for some time. At the same time, there are no
assurances that any new associations will develop.
31
<PAGE>
Item 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Forward Looking Statements
This registration statement contains forward-looking statements. The Company's
expectation of results and other forward-looking statements contained in this
registration statement involve a number of risks and uncertainties. Among the
factors that could cause actual results to differ materially from those
expected are the following: business conditions and general economic
conditions, competitive factors, such as pricing and marketing efforts; and
the pace and success of product research and development. These and other
factors may cause expectations to differ.
All statements, trend analysis and other information contained in this
Registration relative to markets for the Company's products and trends in
revenues, gross margin and anticipated expense levels, as well as other
statements including words such as "believe," "anticipate," "expect,"
"estimate," "plan" and "intend" and other similar expressions, constitute
forward-looking statements. Those forward-looking statements are subject to
business and economic risks, and the Company's actual results of operations
may differ from those contained in the forward-looking statements.
The following discussion of the financial condition and results of operations
of the Company should also be read in conjunction with the Financial
Statements and Notes related thereto included elsewhere in this Registration.
1) Plan of Operations
The Company is engaged in the business of the design and development of new
cartoon character groups, internal merchandising, external licensing,
merchandising and promotion to primarily corporations who then either
manufacturer products for sale to consumers or utilize the Company's cartoons
in promotions, advertising, animation or similar aspects. The Company has
financed its operations to date through the sale of its securities (see Item
10-Sales of Unregistered Securities) as well as licensing revenues and
direct sales from the corporate e-commerce Internet Signature Store site.
With the addition of the 12 new cartoon product lines introduced in 1999, the
Company is expanding upon its revenue generation strategies for licensing,
merchandising, Internet e-commerce Signature Store sales, new product
development in the form of computer software games, internal animation shorts
and new cartoon character introductions to capitalize upon these diverse spread
of character types and their corresponding demographic profiles. The foregoing,
will be accomplished via the indicated procedures, techniques and operational
venues as detailed under Internet and Internet E-Commerce and The Market, in
this document.
2) Since inception of January 11, 1988 through December 31, 1998, the Company
incurred a net loss of $1,791,763 from operations. The Company was dormant from
inception until May 26, 1996. From May 26, 1996 through December 31, 1997, the
Company generated no income, and incurred a net loss from its operations of
$512,034, of which $309,410 of this amount of expenses was deferred Officer's
salaries and $202,624 represented selling, general and administrative costs.
The first revenues generated by the Company from its operations took place in
calendar year 1998. During 1998 the Company generated $22,544 in revenues,
with total operating expenses of $1,279,729. These expenses included deferred
Officer's salaries of $165,000; selling, general and administrative costs of
$553,945, depreciation expenses of $74,510 and amortization of intangible
assets of $486,274. This resulted in a 1998 net loss for the Company of
$1,257,185. The Company's selling, general and administrative costs more
than doubled from calendar year 1997 to 1998. This was due to increased
operational overhead, as the company moves forward in its operations. For
calendar year, 1998, the Company's net loss per share of common stock was
$0.19.
32
<PAGE>
An original stock offering was made in reliance upon an exemption from the
registration provisions of Section 5 of the Securities Act of 1993, as amended,
pursuant to Regulation D, Rule 504, of the Act. January 19, 1988, two
founding shareholders purchased, at that time the outstanding and issued
stock, which now equates to 3,956,350 shares of the Company's authorized but
unissued treasury stock for bearing the cost of incorporating. Additionally,
on March 13, 1998, the Company completed an offering of seventy-eight
thousand Fifteen shares (78,015) at two dollars and fifty cents ($2.50) per
share of the Common Stock of the Company to approximately 78 unaffiliated
shareholders. The Company raised one hundred ninety-five thousand
thirty-seven dollars and fifty cents ($195,036.50) through this offering.
This offering was made in reliance upon an exemption from registration
provisions 4(2) of the Securities Act of 1933, as amended, pursuant to
Regulation D, Rule 504 of the Act. In connection with this Offering, the
Company issued three (3) Stock Purchase Warrants for each share sold during
this Offering. This represents 234,045 shares of Common Stock (the
"Warrants"). These Warrants are exercisable at $2.50 per share on or prior
to November 28, 1999, the expiration date of the Warrants. The Company may
call the Warrants for exercise, on fifteen (15) days notice if not exercised
by the shareholder(s) prior to the expiration of the fifteen (15) days
notice period should the average closing bid price for the Company's Common
Stock is equal to or greater than $3.00 per share of Common Stock for any
consecutive period of ten (10) consecutive trading days. No Warrants have
been exercised as of August 31, 1999. As of August 31, 1999, the Company has
nine million one hundred forty-five thousand four hundred seventy-seven
(9,145,477) shares of its $0.001 par value common voting stock issued and
outstanding which are held by approximately one hundred eleven (111)
shareholders of record, including the company's founder. Five Million Four
Hundred Forty-eight Thousand Three Hundred Fifty (5,448,350) common shares of
the total number issued are restricted shares. The Company issued 1,000,000
shares of its common stock in January, 1999 for $200,000 in cash and a note
receivable in the amount of $590,000. In March, 1999, the Company issued
500,000 shares of its common stock for a note receivable in the amount of
$400,000. Management fully anticipates that the proceeds from the sale of all
of the Common Shares sold delineated above will be sufficient to provide the
Company's capital needs for the next twelve (12) months.
The Company currently anticipates that it has enough available funds to meet
its anticipated needs for working capital, capital expenditures and business
expansion for the next 12 months. The Company expects that it will continue
to experience negative operating cash flow for the next twelve (12) months as
a result of significant spending on advertising and infrastructure. The company
does not have significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs and to
allow it to continue as a going concern. The Company does not have any
preliminary agreements or understandings between the company and its
stockholders/officers and directors with respect to loans or financing to
operate the company. It is, however, the intent of the Company to seek to
raise additional capital via a private placement offering pursuant to
Regulation "D" Rule 505 or 506 or a private placement, should it need
additional funding to continue as a going concern.
If the Company needs to raise additional funds in order to fund expansion,
develop new or enhanced services or products, respond to competitive
pressures or acquire complementary products, businesses or technologies, any
additional funds raised through the issuance of equity or convertible debt
securities, the percentage ownership of the stockholders of the Company will
be reduced, stockholders may experience additional dilution and such
securities may have rights, preferences or privileges senior to those of the
Company's Common Stock. The Company does not currently have any contractual
restrictions on its ability to incur debt and, accordingly, the Company could
incur significant amounts of indebtedness to finance its operations. Any
such indebtedness could contain covenants which would restrict the Company's
operations. There can be no assurance that additional financing will be
available on terms favorable to the Company, or at all. If adequate funds
are not available or are not available on acceptable terms, the Company may
not be able to continue in business, or to a lessor extent not be able to
take advantage of acquisition opportunities, develop or enhance services
or products or respond to competitive pressures.
3) No engineering, management or similar report has been prepared or provided
for external use by the Company in connection with the offer of its securities
to the public.
33
<PAGE>
4) Management believes that the Company's future growth and success will
depend on its ability to find products and suppliers who will permit such
products to be sold over the Internet, and to find customers for these
products. The Company expects to continually evaluate its potential products
to determine what additional products or enhancements are required by the
Internet marketplace.
The Company has yet to incur any research and development costs January 1
through June 30, 1999. The only research and development the Company plans
to incur in developing suitable products which offer the Company potential for
revenues and profits, as the Company markets these products through their Web
site.
(5) Management does not anticipate any significant changes in the number of
its employees over the next approximately twelve (12) months.
B. Segment Data
For fiscal year, ended December 31, 1998, $22,544 sales revenue has been
generated by the Company. For the first nine months of fiscal year 1999, the
Company generated $7,500 from operations. There is no table showing percentage
breakdown of revenue by business segment or product line is included.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases its executive offices at 3250 Market Street, Suite 302,
Fairlawn, Ohio 44333 and maintains a Artist Studio at 110 West Main Street,
Kent, Ohio 44240. The Company also leases an office address at 7631 Bermuda
Road, Las Vegas, Nevada 89123.
The Company holds United States Trademarks and Copyrights for the cartoon
characters as described under Copyrights and Trademarks. As indicated in the
financial statements, the value(s) of these trademarks and copyrights varies in
relationship to the licenses, merchandising and other agreements the Company
has or projects with corporations. In the case of estimated value, such is
calculated based upon outstanding agreements as well as the revenue generation
potentials in accordance with GAAP accounting standards.
ITEM 4. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock of the Company as of the end of the
fiscal year, 1998, by (i) each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the issued and outstanding
shares of common stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a group.
34
<PAGE>
<TABLE>
<CAPTION>
Title Name & Address Amount of Percent
of of Beneficial Date shares of
Class Owner of Shares Acquired held by Owner Class
- ------ --------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Common Robert Petry(1) 01-19-88 3,263,000 30.65 %
Common Traveler's
Investments, Ltd.(2) 04-30-98 1,211,000 11.37 %
Common Harcourt Wiltshire(3) 01-19-88 693,350 6.51 %
Common Sidney Rudick(4) 02-18-99 10,000 0.001%
Common Carl White(5) 02-18-99 10,000 0.001%
---------------------------------------------------------------------
All Executive Officers Beneficial Owners
and Directors as a Group (5 persons) 5,187,350 48.53 %
</TABLE>
(1) Robert Petry, President/CEO, 7337 Westview Drive, Kent, OH 44240.
Additionally, Robert V. Petry II, son to Robert Petry owns 140,000
shares of common restricted stock.
(2) Traveler's Investments, Ltd., East Bay Street, Nassau, Bahamas
(3) Harcourt A. Wiltshire, Retired Officer of Company, 4362 SW 52 Street,
Fort Lauderdale, FL 33314
(4) Sidney Rudick, Secretary, 4362 SW 52 Street, Fort Lauderdale, FL 33314
(5) Carl White, 3250 Market Street, Suite 302, Fairlawn, Ohio 44433,
B. Persons Sharing Ownership of Control of Shares
Robert Petry, President/CEO and Traveler's Investments, Ltd., owns or
shares the power to vote ten percent (10%) or more of the Company's
securities.
C. Non-voting Securities and Principal Holders Thereof
The Company has not issued any non-voting securities.
D. Options, Warrants and Rights
The Company issued three (3) Stock Purchase Warrants for each share sold
during its 504 Offering. These Warrants represent 234,045 shares of Common
Stock (the "Warrants"). These Warrants are exercisable at $2.50 per share
on or prior to November 28, 1999, the expiration date of the Warrants. The
Company may call the Warrants for exercise, on fifteen (15) days notice if
not exercised by the shareholder(s) prior to the expiration of the fifteen
(15) days notice period should the average closing bid price for the
Company's Common Stock is equal to or greater than $3.00 per share of Common
Stock for any consecutive period of ten (10) consecutive trading days. No
Warrants have been exercised as of August 31, 1999. (See: Management's
Discussion and Analysis of Plan of Operations, Number 2.)
E. Parents of Issuer
Under the definition of parent, as including any person or business entity
who controls substantially all (more than 80%) of the issuers of common
stock, the Company has no parents.
35
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
A. Directors, Executive Officers and Significant Employees
The names, ages and positions of the Company's directors and executive
officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------- ------ ----------
<S> <C> <C>
Robert Petry 53 President
Chairman of the Board
Carl White 44 Vice President, Director
Sidney Rudick 64 Vice President, Board Secretary
</TABLE>
A list of the current officers and directors of the Company appears below.
The directors of the Company are elected annually by the shareholders. The
officers serve at the pleasure of the Board of Directors. The directors do
not presently receive fees or other remuneration for their services save for
the reimbursement of travel and accommodation expenses directly associated with
the attendance of Board meetings.
B. Family Relationships
None - Not Applicable
C. Work Experience
Robert Petry, President Chairman of the Board
1969 - 1975, President, Growth Opportunities, Inc., Kent, Ohio. Owned and
operated a financial, investment company which assisted individuals in
opening store and mall based business of various types for an equity position.
He created business financing measures, bank loan assistance and document
preparations, equity partnerships and lease negotiations. The company
employed seven people and grew from an initial one outlet to ownership
participation in over 20 business operations in the immediate region. During
its operations, the company helped to finance and open over 43 businesses.
1975 - 1988, President, RVPetry Enterprises, Inc., Kent, Ohio. Owned and
operated this real estate investment company which located and financed
various real estate ventures in the Kent, Fairlawn areas on a company owned
and well as multi partnership basis for varied speculation, income, growth
and tax shelter variables in differing percentages of ownership. The company
brought, sold and owned properties ranging from farms to small mall outlets
and both single and multi-residential properties under varied methodologies
and participation levels.
1988 - Present, President, FineLine Properties, Inc., Fairlawn, Ohio.
Established using the resources of RVPetry Enterprises, Inc., FineLine became
a cartoon development company in its own right after participating as a
financial resource for various companies needing start up capital and
management expertise. The company acquired the rights to various cartoon
characters which it utilized to transform its operations to full time cartoon
creation and development in 1995.
36
<PAGE>
His duties with the Company are defined as follows, from the Company
By-laws:
Section 3. President. The President shall be the chief executive officer of
the Corporation and, subject to the control of the Board of Directors, shall
control all business affairs of the Corporation including, but not restricted
to, routine purchasing of inventory, sales and marketing strategies pursued,
hiring and firing of employees of the Corporation, determination of salaries
of employees, risk management, etc. and the devolution of any of these duties
to subordinates as he or she deems necessary and appropriate. He or she
shall execute the decisions of the Board of Directors in a timely manner, or
on any other relevant corporate matter, as Directors or any Director shall
dictate, within the bounds of these By-laws.
Section 7. Chairman of the Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of the Corporation or adjournments
thereof. The Chairman of the Board shall be elected by, and serve exclusively
at the discretion of, the Board of Directors, and shall serve a term
co-incident with that of all other Board members. The Chairman of the Board
of Directors shall be the spokesperson for the Board of Directors, unless he
or she assigns this duty to another Director. The Chairman of the Board of
Directors shall have no special powers other than those explicitly described in
this Article.
Personal Data: Date of Birth: 7/25/46, Married, Three children excellent
health. Education: 1961 - 1965, Kent State University High School, Kent,
Ohio; 1965 - 1969, Kent State University, Kent, Ohio, Business Degree.
Carl White, Director
1977 - 1982, Producer, Director of Prime Time Programming, Major Market Video
Productions, Inc., Long Beach, California
Responsible for the selection properties as well as editing of purchased
properties for cable television broadcast in the Southern California
region. Supervised a staff of eight employees in the production
department and reported directly to the Vice President of Program
Development / Marketing of the company. Duties included serving on the
finance committee, and interfacing with the editing department as well
as outside contact with cable companies. Attended and organized trade
show participation, presentations and assisted in marketing program
Development and implementation.
1982 - 1984 Distribution Manager, First Tell, Inc., Hollywood,
California. Organized and arranged the distribution of video properties
in the Western Region of the United States, California, Nevada, Colorado,
Washington, New Mexico and Utah, to cable television stations of video
programming as well as selected movies. Opened up markets in Utah,
Washington and New Mexico for the distribution of product, as well as
expansion of the company's programming lines to include movies.
37
<PAGE>
1983 - Present, Co-Owner Belmont Heights Manor, Long Beach, California
Assisted in the founding of a senior care facility with his mother
Mrs. White who secured financing and backing to set up the first 8
person care unit which remained in operation for six years before
moving to the present location which maintains and cares for 34 patients.
Licensed by the State of California, Belmont Heights Manor has
established a reputation for personal care of its residents that has
enabled it to secure a clientele of higher income retirees thereby
permitting the company charge rates which allow the operation to
maintain its high standards.
1996 - Present, Director FineLine Properties.com, Inc.
A member of the Board of Directors, Mr. White serves the Company in
the capacity as follows: Section 1. By-Laws, Nominative Offices. The
named offices of the Board of Directors shall be that of a President,
a Treasurer, and a Secretary. A single Director may hold more than one
named office, but not more than two. Such Directors as do not hold a
named office shall be called and considered Members-at-Large of the
Board of Directors. Mr. White contributes on average 35 hours per
week to Company business.
Personal Data: Date of Birth: 1/6/55, Single, excellent health.
Education: 1969 - 1973, Long Beach Poly High School, Long Beach,
California; 1973 - 1975, Long Beach City College, Long Beach,
California; 1975 - 1977, Long Beach State, Long Beach, California,
Bachelor of Arts Degree
Sidney Rudick, Secretary, Treasurer
1943 - 1945, United States Marines, Honorable Discharge
PROFESSIONAL
Sidney Rudick, Secretary, Treasurer
1943 - 1945, United States Marines, Honorable Discharge PROFESSIONAL
1946 - 1950, Furniture Manager, Hearn's Department Store, Bronx, New
York. Began as a trainee working various departments within the department
store and was promoted to Manage the furniture and furnishings department
after two years. Reported directly to the Floor Manager.
1950 - 1955, Electronics and Furnishings Manager, R.H. Macy's, Manhattan,
New York. Managed these departments at Macy's Herald Square location in
Manhattan. Responsibilities included personnel management, inventory and
promotional venues. Increased floor revenues per square foot to equal the
higher volume cosmetics and personal beauty aids departments. Oversaw a
department of 24 people.
1955 - 1962, Sales Manager, Montgomery & Company, New York, New York.
Started in one of the first retail carpet operations in the United States
servicing both business and residential locations. Prior to this, carpet was
sold and installed by the mills themselves through their outlets. Directed
efforts and a sales force that established regional accounts as well as
supplier relationships with the various mills.
1962 - 1993, President, Carpet & Draperies, New York, N. Y. And Fort
Lauderdale, Florida Founder of this home decoration and installation business
which services the Dade and Broward Country regions of Southern Florida. The
company grew from a one person establishment to the become the leader of
carpet and drapery retailing installations in the state of Florida during
1984 through 89. Pioneered various retail advertising placement/display ads
which enabled the company to obtain the sales volume to accomplish the
foregoing.
38
<PAGE>
1993 - Present, Owner, Installations Etc., Inc., Fort Lauderdale, Florida.
The business specializes in offering carpet at discount prices to residential
and businesses and measures as well as sees to the installation completion and
satisfaction. The company services the Southern Florida region.
1996 - Present, Secretary - Treasurer - Director, FineLine Properties, Inc.,
Fairlawn, Ohio. Serve as a member of the Board of Directors in the capacity
of Secretary and Treasurer. Mr. Rudick contributes on average 35 hours per
week to Company business. Responsibilities include the defined duties for
these positions as contained in the Corporate By-laws, as:
Section 5. Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and the Board of Directors; (b) see that all
notices are duly given in accordance with the provisions of these By-laws or
as required by law; (c) be custodian of the corporate records and of the seal
of the Corporation; (d) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary of each shareholder;
(e) sign, with the President, certificates for shares of the Corporation
which have been authorized by the Board of Directors or the shareholders;
(f) have general charge of the stock transfer books of the Corporation; and
(g) in general perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him or her by the
Chairman or Board of Directors.
Section 6. Treasurer. The Treasurer shall (a) have custody of and be
responsible for all funds and securities of the Corporation; (b)receive and
give receipts for all money due and payable to the Corporation, and deposit
all such moneys in the name of the Corporation in such banks or other
depositories as shall be designated by the Board of Directors; and (c) in
general perform all of the duties incident to the office of the Treasurer and
which may be assigned to him or her from time to time by the Chairman of the
Board.
Personal Data: Date of Birth 4/22/25, Divorced, Three children, excellent
Health. Education: 1936-1940, Dewitt Clinton High School, Bronx, N.Y.
D. Involvement on Certain Material Legal Proceedings During the Last Five
Years.
(1) No director, officer, significant employee or consultant has been
convicted in a criminal proceeding, exclusive of traffic violations.
(2) No bankruptcy petitions have been filed by or against any business or
property of any director, officer, significant employee or consultant of the
Company nor has any bankruptcy petition been filed against a partnership or
business association where these persons were general partners or executive
officers.
(3) No director, officer, significant employee or consultant has been
permanently or temporarily enjoined, barred, suspended or otherwise limited
from involvement in any type of business, securities or banking activities.
39
<PAGE>
(4) No director, officer or significant employee has been convicted of
violating a federal or state securities or commodities law.
(5) The directors serve for a term of one year, as stated in the Company's
By-laws, the directors are elected at the annual meeting of the stockholders
which shall be held on the third Friday in February.
Members of the Board of Directors hold office and serve until the next annual
meeting of the shareholders of the Company or until their respective successors
have been elected and qualified. Executive officers are appointed by and
serve at the discretion of the Board of Directors. The Company's directors do
not currently receive any cash compensation for service on the Board of
Directors save for the reimbursement of travel and accommodation expenses
directly associated with the attendance of Board meetings.
ITEM 6. EXECUTIVE COMPENSATION
A. Remuneration of Directors and Executive Officers
The following table sets forth the cash and noncash compensation paid by the
Company to its Chief Executive Officer and all other executive officers for
services rendered during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation
Deferred
Name Position Salary Bonus Salary
- -------- --------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Robert Petry President $90,000 0 0
Carl White VP, Director $55,000 0 0
Sidney Rudick VP, Board Secretary $55,000 0 0
</TABLE>
The Company entered into five-year employment agreement with Robert Petry
effective June 1, 1996 and other executives. The agreements require each of
these individuals to devote their entire productive time, ability and attention
to the business of the Company during the term of the agreement. As of the
date of this agreement, they provide for the payment of a base salary of
$90,000.00 to Mr. Petry, with the aforementioned salary from the date of these
agreement until deferred until January 1, 2000. During the indicated period
Mr. Petry is paid expenses only for business directly associated with the
administration and running of the Company. The agreement also provides for
automatic adjustments to base salary and cash bonuses from the Company upon the
satisfaction of certain performance goals based upon gross sales by the Company
during a rolling 12 month period. Employment agreement between the Company and
Mr. White and Mr. Rudick call for these individuals to be compensated at the
rate of $55,000.00 as base salary with performance options starting in January
2000. (See Exhibit 10 (b), (c), (d), "--Employment Agreements.")
40
<PAGE>
B. Compensation of Directors
There were no arrangements pursuant to which any director of the Company was
compensated for any service provided as a director. In addition, no such
arrangement is contemplated for the foreseeable future as the Company's only
directors are its current executive officers.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions since the beginning of fiscal year 1999, or any
currently proposed transactions, or series of similar transactions, to which
the Company was or is to be a party, in which the amount involved exceeds
$60,000, and in which any of the officers, or directors, or holders of over
5% of the Company's stock have or will have any direct or indirect material
interest. The Company does not currently have any policy toward entering into
any future transactions with related parties.
41
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
A. Market Information
(1) The Company's common stock is listed and trading on the NASDAQ Over The
Counter Bulletin Board under trading symbol FNLN. The Company's Market Maker
is National Capital, LLC, 2804 West Country Club Drive, Oklahoma City, OK
73116.
CERTAIN MARKET INFORMATION
The Company's Common Stock is traded on the OTC Bulletin Board under the
symbol "FNLN" and commenced its trading under that symbol on November 1, 1998.
The following table sets forth the high and low bid quotations for the Common
Stock for the periods indicated. These quotations reflect prices between
dealers, do not include retail mark-ups, mark-downs, and commissions and may
not necessarily represent actual transactions. These bid quotations have not
been adjusted retroactively by any stock split.
<TABLE>
<CAPTION>
Common Stock
PERIOD HIGH LOW
- ------ ---- ---
<S> <C> <C>
Calendar Year 1998
- ------------------
Fourth Quarter ended 12/31/99 $2.12 $0.37
Calendar Year 1999
- ------------------
First Quarter ended 3/31/99 $3.50 $0.27
Second Quarter ended 6/30/99 $1.44 $0.28
July 1 - August 31, 1999 $1.34 $0.19
</TABLE>
(2)(i) There is currently no Common Stock which is subject to outstanding
options or warrants to purchase, or securities convertible into, the Company's
Common Stock.
(ii) There is currently no common Stock of the Company which could be sold
under Rule 144 under the Securities Act of 1933, as amended, or that the
registrant has agreed to register for sale by the security holders.
(iii) There is currently no common equity that is being or is proposed to be
publicly offered by the registrant, the offering of which could have a material
effect on the market price of the issuer's common equity.
B. Dividends
The Company has not paid any cash dividends since its inception and does not
contemplate paying any in the foreseeable future. It is anticipated that
earnings, if any, will be retained for the operation of the Company's business.
42
<PAGE>
C. Holders
As of August 1, 1999, the Company has approximately one hundred eleven (111)
stockholders of record.
D. Reports to Shareholders
The Company intends to furnish its shareholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law. Upon the
effectiveness of this Registration Statement, the Company will be required to
comply with periodic reporting, proxy solicitation and certain other
requirements by the Securities Exchange Act of 1934.
E. Transfer Agent and Registrar
The Transfer Agent for the shares of common voting stock of the Company is
Shelley Godfrey, Pacific Stock Transfer Company, 5844 S. Pecos, Suite D, Las
Vegas, Nevada 89120 (702) 361-3033.
ITEM 2. LEGAL PROCEEDINGS
In October 1998, counsel for the United States Securities and Exchange
Commission (the "Commission") advised Mr. Robert V. Petry in writing that the
staff of the Commission had made a preliminary determination to recommend to
the Commission that it authorize the staff to file a civil enforcement action
against Robert V. Petry in an appropriate United States District Court for
violations of Section 5 of the Securities Act of 1933 seeking injunctive
relief, disgorgement, penalties and prejudgment interest. The staff's
recommendation is based on Robert V. Petry's alleged actions in connection
with Interactive Multimedia Publishers, Inc. including among other things his
direct or indirect sales of securities of IMP when no registration statement
was in effect as to IMP's securities. Mr. Petry received 450,000 unregistered
shares of IMP common stock for introducing the President of IMP to a third
party, who acted as a stockbroker for the company. Mr. Petry subsequently
sold these unregistered shares through his own nominee accounts. In November,
1999, Final Judgment of Permanent Injunction and Other Relief as to Robert Petry
was rendered by the United States District Court for the Northern District
of Ohio, Eastern Division, and Mr. Petry was ordered to pay a small civil
penalty for the sale of these unregistered shares.
Additionally, the Company has been informed that the Division of Enforcement
of the U.S. Securities and Exchange Commission has commenced an inquiry
investigation regarding certain matters which may be related to the Company.
No specifics were given to the Company by the SEC.
43
<PAGE>
ITEM 3. SALES OF UNREGISTERED SECURITIES
The Company's shares of Common Stock are not registered with the U.S.
Securities and Exchange Commission under the Securities Act of 1933, as
amended (hereinafter referred to as the "Act"), and with the exception of
certain shares issued pursuant to Regulation D-504, are "restricted
securities." Rule 144 of the Act provides, in essence, that holders of
restricted securities for a period of one year (unless an affiliate of the
Company) may, every three months, sell to a market maker or in ordinary
brokerage transactions an amount equal to one percent of the Company's
then outstanding securities. Affiliates may be required to hold for two
years. Non affiliates of the Company who hold restricted securities for a
period of two years may sell their securities without regard to volume
limitations or other restriction. There are a total of 5,448,350 of
restricted shares. Sales of shares of Common Stock under Rule 144 may
have a depressive effect on the market price of the Company's Common Stock,
should a public market develop for such stock. Such sales might also
impede future financing by the Company.
Since its inception in 1988, the Company has not paid cash dividends on its
Common Stock. It is the present policy of the Company not to pay cash
dividends and to retain future earnings to support the Company's growth. Any
payments of cash dividends in the future will be dependent upon, among other
things, the amount of funds available therefor, the Company's earnings,
financial condition, capital requirements, and other factors which the Board
of Directors deem relevant. As of August 1, 1999 there were approximately one
hundred eleven (111) Common Shareholders of record.
Private Placements
Prior to becoming listed on the NASDAQ OTC Bulletin Board, the Company
completed an exempt placement of securities of 78,015 shares of common
stock, pursuant to a Regulation D, Rule 504 exempt offering, which was
commenced on March 12, 1997 with the offering closed on March 13, 1998,
resulting in gross offering proceeds of $195,037.50. In connection with this
Offering, the Company issued three (3) Stock Purchase Warrants for each share
sold during this Offering. This represents 234,045 shares of Common Stock
(the "Warrants"). These Warrants are exercisable at $2.50 per share on or
prior to November 28, 1999, the expiration date of the Warrants. The Company
may call the Warrants for exercise, on fifteen (15) days notice if not
exercised by the shareholder prior to the expiration of the fifteen (15) days
notice period should the average closing bid price for the Company's Common
Stock is equal to or greater than $3.00 per share of Common Stock for any
consecutive period of ten (10) consecutive trading days. No Warrants have
been exercised as of August 31, 1999.
On March 13, 1998, the Company completed a public offering of shares of common
stock of the Company pursuant to Regulation D, Rule 504 of the Securities Act
of 1933, as amended, whereby it sold 78,015 shares of the Common Stock of the
Company to 78 unaffiliated shareholders of record. The Company filed an
original Form D on or about Aril 29, 1998 with the Securities and Exchange
Commission on or about March 22, 1998. The Company issued 1,000,000 shares of
its common stock in January, 1999 for $200,000 in cash and a note receivable in
the amount of $590,000. In March, 1999, the Company issued 500,000 shares of
its common stock for a note receivable in the amount of $400,000. As of
September 30, 1999, the Company has 10,645,477 shares of common stock issued
and outstanding held by approximately one hundred eleven (111) shareholders of
record.
44
<PAGE>
ITEM 4. DESCRIPTION OF SECURITIES
A. Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock, no par
value, of which, as of 10,645,477 shares are issued and outstanding and held of
record by approximately one hundred eleven (111) stockholders at the date of
the preparation of this document per information as supplied by the Company's
Transfer Agent, Pacific Stock Transfer. The Company cannot indicate the
number of shareholders which exist outside of those who have requested physical
delivery of shares or are trading the stock on a daily basis, with any degree
of accuracy. Holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders generally. The
approval of proposals submitted to stockholders at a meeting other than for the
election of directors requires the favorable vote of a majority of the shares
voting, except in the case of certain fundamental matters (such as certain
amendments to the Certificate of Incorporation, and certain mergers and
reorganizations), in which cases Nevada law and the Company's By-Laws require
the favorable vote of at least a majority of all outstanding shares.
Stockholders are entitled to receive such dividends as may be declared from
time to time by the Board of Directors out of funds legally available therefor,
and in the event of liquidation, dissolution or winding up of the Company to
share ratably in all assets remaining after payment of liabilities. The
holders of shares of Common Stock have no preemptive, conversion, subscription
or cumulative voting rights.
(1) Description of Rights and Liabilities of Common Stockholders
i. Dividend Rights - The holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at such
times and in such amounts as the Board of Directors of the Company may from
time to time determine. The board of directors of the Company will review its
dividend policy from time to time to determine the desirability and feasibility
of paying dividends after giving consideration the Company's earnings,
financial condition, capital requirements and such other factors as the board
may deem relevant.
ii. Voting Rights - Each holder of the Company's common stock are entitled to
one vote for each share held of record on all matters submitted to the vote of
stockholders, including the election of directors. All voting is
noncumulative, which means that the holder of fifty percent (50%) of the
shares voting for the election of the directors can elect all the directors.
The board of directors may issue shares for consideration of previously
authorized but unissued common stock without future stockholder action.
Shares of Common Stock do not have cumulative voting rights, which means that
the holders of a majority of the shareholder votes eligible to vote and voting
for the election of the Board of Directors can elect all members of the Board
of Directors. There are a total of 20,000,000 authorized regular common
shares.
iii. Liquidation Rights - Upon liquidation, the holders of the common stock are
entitled to receive pro rata all of the assets of the Company available for
distribution to such holders.
iv. Preemptive Rights - Holders of common stock are not entitled to preemptive
rights.
v. Conversion Rights - No shares of common stock are currently subject to
outstanding options, warrants, or other convertible securities.
45
<PAGE>
vi. Redemption rights - no redemption rights exist for shares of common stock.
vii. Sinking Fund Provisions - No sinking fund provisions exist.
viii. Further Liability For Calls - No shares of common stock are subject to
further call or assessment by the issuer. The Company has not issued stock
options as of the date of this registration statement.
<PAGE>
(2) Potential Liabilities of Common Stockholders to State and Local
Authorities
No material potential liabilities are anticipated to be imposed on stockholders
under state statutes. Certain Nevada regulations, however, require regulation
of beneficial owners of more than 5% of the voting securities. Stockholders
that fall into this category, therefore, may be subject to fines in
circumstances where non-compliance with these regulations are established.
B. Preferred Stock
The Company has 1,000,000 shares of Preferred Non-Voting Stock at $0.001 par
value authorized with none issued nor outstanding.
C. Debt Securities
The Company is not registering any debt securities, nor are any outstanding.
D. Other Securities To Be Registered
The Company is not registering any security other than its Common Stock.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation for the Company do contain provisions for
indemnification of the officers and directors; in addition, Section 78.751
of the Nevada General Corporation Laws provides as follows: 78.751
Indemnification of officers, directors, employees and agents; advance of
expenses.
1) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorney's fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suitor proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
46
<PAGE>
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections 1 and 2, or in defense of any claim,
issue or matter therein, he must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him
in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court or
advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made: (a) By the stockholders: (b) By the board of
directors by majority vote of a quorum consisting o directors who were not
parties to act, suit or proceeding; (c) If a majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written opinion; or (d) If a quorum
consisting of directors who were not parties to the act, suit or proceeding
cannot to obtained, by independent legal counsel in a written opinion; or
5. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by
corporation. The provisions of this subsection do not affect any rights to
47
<PAGE>
advancement of expenses to which corporate personnel other than the directors
or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to this section: (a) Does not exclude any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court pursuant to
subsection 2 or for the advancement of expenses made pursuant to subsection 5,
may not be made to or on behalf of any director or officer if a final
adjudication establishes that his act or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action. (b) Continues for a person who has ceased to be a director,
officer, employee or agent and endures to the benefit of the heirs, executors
and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities
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 Securities
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
Securities Act and will be governed by the final adjudication of such issue.
48
<PAGE>
Part F/S
Item 1. Financial Statements
The following documents are filed as part of this report:
a) FineLine Properties.com, Inc.
Financial Statements, report from James E. Slayton, CPA;
and notes to Financial Statements
b) Interim Financial Statements are provided at this time as they
are applicable.
c) Financial Statements of Businesses Acquired or to be acquired are not
provided at this time, as they are not applicable at this time.
d) Proforma Financial Information is not provided at this time, as it is
not applicable at this time.
Item 2. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None -- Not Applicable.
49
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
FineLine Properties.com, Inc.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
for the period ending
September 30, 1999
TABLE OF CONTENTS
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................... F-1
BALANCE SHEET......................................... F-2-3
STATEMENT OF OPERATIONS............................... F-4
STATEMENT OF STOCKHOLDERS' EQUITY..................... F-5
STATEMENT OF CASH FLOWS............................... F-6
NOTES TO FINANCIAL STATEMENTS......................... F-7-11
</TABLE>
<PAGE>
James E. Slayton, CPA
3867 WEST MARKET STREET
SUITE 208
AKRON, OHIO 44333
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors September 22, 1999
FineLine Properties.com, Inc. (The Company)
Las Vegas, Nevada 89104
I have audited the Balance Sheet of FineLine Properties.com, Inc.
(A Development Stage Company), as of December 31, 1998, and the related
Statements of Operations, Stockholders' Equity and Cash Flows for the year
ended December 31, 1998. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion
on these financial statements based on my audit. The financial statements
of FineLine Properties.com, Inc. as of December 31, 1997, were audited by
other auditors whose report dated March 15, 1999, expressed an unqualified
opinion on those statement and was furnished to us, and out opinion, insofar
as it related to the amounts included from December 31, 1997, is based
solely on the report of the other auditors.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis evidence supporting the amounts and
disclosures in the financial statement presentation. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of FineLine
Properties.com, Inc., (A Development Stage Company), at December 31,
1997 and December 31, 1998, and the results of its operations and cash
flows for the period January 11, 1988 (Date of Inception) to December
31, 1997 and the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company has had limited operations and has
not established a long term source of revenue. This raises substantial
doubt about its ability to continue as a going concern. Management's
plan in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
s/s James E. Slayton
- ----------------------------
James E. Slayton, CPA
Ohio License ID# 04-1-15582
F-1
<PAGE>
Fineline Properties.com, Inc.
BALANCE SHEET
AS AT
December 31, 1997 and December 31, 1998
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 31 December 31
1998 1997
------------------- ---------------
<S> <C> <C>
Current Assets
Cash $ 458.00 $ 63,284.00
Inventories 0.00 321,524.00
-------------------------------------
Total Current Assets 458.00 384,808.00
PROPERTY AND EQUIPMENT
Furniture and Fixtures 272,901.00 326,050.00
(net of depreciation)
Equipment 20,695.00 25,869.00
(net of depreciation)
Leasehold Improvements 4,445.00 0.00
------------------------------------
Total Property and Equipment 298,041.00 351,919.00
OTHER ASSETS:
Trademarks 1,880,000.00 2,350,000.00
Other Intangible assets 63,097.00 78,871.00
Organization Costs net
Of Amortization 2,000.00 2,500.00
--------------------------------------
Total Other Assets 1,945,097.00 2,431,371.00
--------------------------------------
TOTAL ASSETS $ 2,243,596.00 $ 3,168,098.00
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
Fineline Properties.com, Inc.
BALANCE SHEET
AS AT
December 31, 1998 and December 31, 1998
BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts Payable $ 0.00 $ 13,000.00
-------------------------------------------
Total Current Liabilities 0.00 13,000.00
OTHER LIABILITIES
Accrued salaries payable 474,566.00 309,410.00
Accrued payable other 232,208.00 301,460.00
Notes payable 2,500.00 2,500.00
-------------------------------------------
Total Long Term Liabilities 709,274.00 613,370.00
-------------------------------------------
Total Liabilities 709,274.00 626,370.00
EQUITY
Common Stock, no par value
authorized 20,000,000 shares 3,303,541.00 3,053,762.00
issued and outstanding at
December 31, 1998, 9,145,477
common shares of which 5,448,350
are restricted
Preferred Stock, $.001 par value,
Authorized 1,000,000 shares
None issued 0.00 0.00
Retained Earnings or (Deficit
accumulated during the
development stage) (1,769,219.00) (512,034.00)
--------------------------------------------
Total Stockholders' Equity 1,534,322.00 2,541,728.00
TOTAL LIABILITIES AND
OWNER'S EQUITY: $ 2,243,596.00 $ 3,168,098.00
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
Fineline Properties.com, Inc.
STATEMENT OF OPERATIONS
FOR PERIOD
January 11, 1988 (Date of Inception) to December 31, 1997 and
Period ended December 31, 1998
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
January 11
1988
(Date of
Inception)
To December 31 December 31 December 31
1998 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
REVENUE
Revenues $ 22,544.00 $ 22,544.00 0.00
COSTS AND EXPENSES
Selling, General and
Administrative 756,569.00 553,945.00 202,624.00
Officer's Salaries 474,410.00 165,000.00 309,410.00
Depreciation Expense 74,510.00 74,510.00
Amortization of Intangible
Assets 486,274.00 486,274.00
-----------------------------------------------------
Total Costs and
Expenses 1,791,763.00 1,279,729.00 512,034.00
-----------------------------------------------------
Net Ordinary Income
or (Loss) (1,769,219.00) (1,257,185.00) (512,034.00)
====================================================
Weighted average
number of common
shares outstanding 6,650,238 6,650,238 4,383,415
Net Earnings
Per Share ($0.27) ($0.19) ($0.12)
</TABLE>
See Accompanying Notes to Financial Statements
F-4
<PAGE>
FineLine Properties.com, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR PERIOD
January 11, 1988 (Date of Inception) to December 31, 1997 and Period ended
December 31, 1998
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
accumulated
Common during Total
Stock development Stockholder's
Shares Amount stage Equity
--------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock issued
for service
January 11, 1988 3,000,000 540,000.00 540,000.00
May 26, 1996
Acquisition of Wedge
Trade Mark 80,000 200,000.00 200,000.00
Acquisition of Moodies,
Taste Buddies, and
Lottery Trade Marks
and Prepaid Services 1,075,000 2,150,000.00 2,150,000.00
Issued for services
in 1997 434,790 108,662.00 108,662.00
Issued for cash
in 1997 22,040 55,100.00 55,100.00
Net loss
January 11, 1988
(Inception) to
December 31, 1997 (512,034.00) (512,034.00)
-----------------------------------------------------------
Balances as at
December 31, 1997 4,611,830 $3,053,762.00 ($512,034.00)$2,541,728.00
Issued for cash
in 1998 4,533,647 249,779.00 249,779.00
Net loss
January 1, 1998
to December 31,
1998
($1,257,185.00)(1,257,185.00)
---------------------------------------------------------------
Balances as at
December 31,
1998 9,145,477 $3,303,541.00 ($1,769,219.00)$1,534,322.00
===============================================================
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
FINELINE PROPERTIES.COM, INC.
STATEMENTS OF CASH FLOWS
FOR PERIOD
January 11, 1988 (Date of Inception) to December 31, 1997 and
Period ended December 31, 1998
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
(Date of
Inception)
to December 31 December 31 December 31
1998 1998 1997
---------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations (1,769,219.00) (1,257,185.00) (512,035.00)
Adjustments to reconcile net
Income to net cash provided
Depreciation Expense 74,510.00 74,510.00
Amortization of Intangible Assets 486,274.00 486,274.00
Services provided for stock and
noncash exchange 212,872.00 212,872.00
Decrease (increase) in current
assets 0.00 321,524.00 (321,524.00)
Increase (decrease) in payables
and accruals 722,274.00 95,904.00 626,370.00
Net cash flow provided (used) by
operating activities (273,289.00) (278,973.00) 5,684.00
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets 33,632.00 33,632.00 0.00
--------------------------------------------
Net cash used by investing
activities (33,632.00) (33,632.00) 0.00
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Capital Stock 304,879.00 249,779.00 55,100.00
Note from Individual 2,500.00 0.00 2,500.00
Cash paid for organizational costs 0.00 0.00 0.00
-------------------------------------------
Net cash provided by
financing activities 307,379.00 249,779.00 57,600.00
Cash and cash equivalents
beginning of year 458.00 63,284.00 0.00
Net increase (decrease)
in cash 273,747.00 (62,826.00) 0.00
Balance at end of period 458.00 458.00 63,284.00
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Fineline Properties.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized January 11, 1988(Date of Inception) under the laws
of the State of Ohio, as FineLine Properties, Inc. (The Company) has had
limited operations and in accordance with SFAS #7, the Company is considered
a development stage company. On or about March 30, 1998, the Company
effected a reorganization and merger with Fineline Properties.com, Inc.
(incorporated under the laws of the State of Nevada, January 12, 1998) which
had no assets or liabilities. The Company re-domiciled its location to the
state of Nevada. The Company is authorized to issue 20,000,000 shares of its
no par value common stock. The Company is authorized to issue 1,000,000 shares
of its $.001 par value preferred stock.
The Company has 9,145,677 shares of its common stock issued and outstanding;
5,448,350 of these shares are restricted.
There have been no other issues of common or preferred stock.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting polices and procedures have not been determined except as follows:
1. The Company uses the accrual method of accounting, recognizing revenue
when sales and services are provided and the Company is reasonably certain
of collection. Continuing periodic licensing revenues will be recognized
in the period in which they are received..
2. The cost of organization, $2,500.00 has been capitalized. Management has
elected to amortize these and other intangible costs under the straight line
method over sixty months. There was $486,274.00 in amortization of intangible
assets record in 1998.
3. Basic earnings per share is computed using the weighted average number of
shares
of common stock outstanding.
4. The Company has not yet adopted any policy regarding payment of dividends.
No dividends have been paid since inception.
5. The Company experienced losses during its last two fiscal tax years.
Therefore the Company has not provided for a provision for federal income
taxes. The Company will review its need for a provision for federal income
tax after each operating quarter. The Company has net operating losses of
$1,769,219.00. These losses are due to expire for tax purposes $512,034 in
tax year 2012 and $1,257,185.00 in tax year 2013. Deferred tax benefits
were not recorded as management determined that it was less likely that the
benefits would be utilized.
F-7
<PAGE>
FineLine Properties.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
6. The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions which affect the reported amounts of assets and liabilities as
at the date of the financial statements and revenues and expenses for the
period reported. Actual results may differ from these estimates.
7. The Company has not yet adopted certain accounting policies. The effects
of not adopting these polices are deemed to be insignificant and immaterial.
8. The Company's Statement of Cash Flows is reported utilizing cash (currency
on hand and demand deposits) and cash equivalents (short-term, highly liquid
investments with a maturity of less than three months). The Company's
Statement of Cash Flows is reported utilizing the direct method of reporting
cash flows. There were no cash equivalents at December 31, 1998.
9. On June 17, 1998 the Board of Directors decided to write off the Company's
inventory of products as contained in the December 31, 1997 financial
statements, due to accounting and value considerations.
10. The Company was inactive until May of 1996 and had no revenues or
expenses prior to January 1, 1997.
11. The Company has elected to depreciate its plant and equipment over sixty
months utilizing the straight method of depreciation. There was $74,510.00
of depreciation recorded in 1998.
12. Management assigned amounts to noncash services and acquisitions based on
fair market value of the services and acquisitions.
13. Management has adopted SFAS 121, and will review its inventories, long
lived assets and intangible assets for significant factors which would
require an evaluation of impairment to those assets.
F-8
<PAGE>
FineLine Properties.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the Company has no current
source of revenue. Without realization of additional capital, it would
be unlikely for the Company to continue as a going concern. To date,
the Company has directed its efforts to the development of uniqueness and
characteristics for its holdings. Company officials have also been
engaged in discussions and negotiations with potential strategic alliance
partners. In February of 1998, the Company entered into agreement with
Marvel Comics whereby certain of the Company's trademarked characters
will be licensed to and marketed by Marvel in such venues as animated
television series.
NOTE 4 - RELATED PARTY TRANSACTION
The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the
resolution of such conflicts.
NOTE 5 - WARRANTS AND OPTIONS
The Company issued 234,045 warrants in connection with the stock offering of
March 13, 1998. These warrants represent a potential 234,045 shares of
common stock. These Warrants are exercisable at $2.50 per share on or prior
to November 28, 1999, the expiration date of the Warrants. The Company may
call the Warrants for exercise if the average closing bid price for the
Company's Common Stock is equal to or greater than $3.00 per share of Common
Stock for any consecutive period of ten (10) trading days. No warrants have
been exercised through August 31, 1999.
F-9
<PAGE>
FineLine Properties.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 6 - YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000
issue may be experienced before on, or after January 1, 2000 and if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting
the entity, including those related to the efforts of customers,
suppliers, or other third parties will be fully resolved.
NOTE 7 - LONG TERM OBLIGATIONS
The Company leases real property at 3250 W Market St., Suite 302,
Fairlawn, Ohio and 110 W Main Street, Kent, Ohio. Rent was paid in the
amount of $12,450 for the year ending 12/31/1997 and $19,090 for the
year ending 1998.
The Company owes two officers/shareholders of the Company a total of
$706,774.00 in accrued salaries payable and inventory purchase. It will
be the policy of Management to retire these legitimate and recognized
obligations in such a time and manner as when the Company has determined,
at the Board level, that the Company has achieved profitability to the
extent that the repayment schedule will not severely impair or adversely
affect the Company's cash flow. As such, these liabilities are
represented on the financial statements as long-term.
There is a note payable of $2,500.00 at no interest and no demand date.
NOTE 8 - CERTAIN TRANSACTIONS
On January 11, 1998, the Company issued to its founders Three Million
(3,000,000) shares of Common stock valued in aggregated herewith at
Eight-one Thousand Three Hundred Seventy-one dollars (81,371). On May
26, 1996, the Company issued Eighty Thousand (80,000) shares of Common
stock as consideration for the acquisition of the trademark and rights
to a product called the Wedge TM, valued at Two Hundred Thousand dollars
($200,000.00). Additionally, on that same day, the Company issued One
Million Seventy-five Thousand (1,075,000) shares of Common stock as
consideration for acquisition of trademarks and rights to cartoon
characters
F-10
<PAGE>
FineLine Properties.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8 - CERTAIN TRANSACTIONS
called The Moodies TM and the Taste Buddies TM as well as certain lottery
trademarks and services and inventories related therto, the trademarks,
rights, and services being valued in aggregate at Two Million Seven Hundred
Twenty-one Thousand Nine Hundred Eighty-tree dollars ($2,721,983.00), with
$371,983 of that amount being applied to the acquisition of certain assets
and expenses. Management has chosen to recognize the value of the trademark
assets as constitution $2,150,000 of the $2,721,983 in its financial
statements. On April 30, 1997, the Company issued Four Hundred Thirty-four
Thousand Seven Hundred Ninety (434,790) shares of Common stock as
consideration for certain services which had been or were to be rendered,
these services being valued at One Hundred Eight Thousand Six Hundred and
Sixty-two Dollars ($108,662.00).
NOTE 9 - RELIANCE ON OTHER AUDITORS
The financial statements of FineLine Properties.com, Inc. as of December
31, 1997, were audited by other auditors whose report dated March 15, 1998,
expressed an unqualified opinion on those statements and was furnished to
use, and our opinion, insofar as it related to the amounts included from
December 31, 1997, is based solely on the report of the other auditors.
F-11
<PAGE>
Part III
Item 1. Exhibit Index
- -----------------------------------------------------------------------------
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession.
2.1 Agreement and Plan of Merger and Reorganization, Filed
February 23, 1998*
(3) Articles of Incorporation & By-Laws
3.1 Articles of Incorporation*
3.2 By-Laws*
(4) Instruments Defining the Rights of Security Holders
4.1 Those included in exhibit 3, and sample of Stock Certificate*
(10) Material Contracts
10.1 Lease*
10.2 Marvel Agreement*
10.3 Boein Co. LTD. Agreement*
10.4 Employment Agreements with Robert Petry*
10.5 Employment Agreements with Sidney Rudick*
10.6 Employment Agreements with Carl White*
(17) Letter of Director Resignation
17.1 Resignation Letter from Gaye Knowles*
(23) Consent Experts
23.1 Consent of James E. Slayton, CPA*
(27) Financial Data Schedule
27.1 Financial Data Schedule*
* Previously filed as an exhibit to the Company's Form 10-SB.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FINELINE PROPERTIES.COM, INC.
/s/ Robert Petry
- -------------------
ROBERT PETRY,
President and Chairman
Date: March 6, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
FINELINE PROPERTIES.COM, INC.
/s/ Sidney Rudick
- ------------------------
SIDNEY RUDICK, SECRETARY
Date: March 6, 2000
51
<PAGE>
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<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET, THE STATEMENT OF OPERATIONS, AND THE
STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1998
<CASH> 458
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 458
<PP&E> 2,828,922
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,243,596
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,303,541
<OTHER-SE> (1,059,945)
<TOTAL-LIABILITY-AND-EQUITY> 2,243,596
<SALES> 22,544
<TOTAL-REVENUES> 22,544
<CGS> 0
<TOTAL-COSTS> 1,279,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,257,185)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,257,185)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
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