U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________
TO
______________
COMMISSION FILE NUMBER: 000-28219
ECLIPSE ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada 91-1766849
(State or jurisdiction of incorporation (I.R.S.Employer
or organization) Identification No.)
10990 N.E. 8th Street, Suite 900, Bellevue, Washington 98004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (425) 990-5969
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $0.001 Par Value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) been subject
to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB [ ].
The Registrant had no revenues for the fiscal year ended on
December 31, 1999. The aggregate market value of the voting stock
held by non-affiliates of the Registrant as of March 31, 2000:
Common Stock, par value $0.001 per share -- $8,751,620. As of
March 31, 2000, the Registrant had 12,016,140 shares of common
stock issued and outstanding.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION TO MATTERS TO VOTE
OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 10
ITEM 6. PLAN OF OPERATION 12
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 15
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 15
ITEM 10. EXECUTIVE COMPENSATION 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES,
AND REPORTS ON FORM 8-K 20
SIGNATURES 21
PART I.
ITEM 1. BUSINESS.
(a) Business Development.
Eclipse Entertainment Group, Inc. ("Registrant") was incorporated
on January 27, 1997 in the State of Nevada with the objective of
satisfying a worldwide demand for quality, American
entertainment that is developed under carefully managed
budgets. Registrant will work to establish a network of foreign and
domestic buyers to produce or acquire programming that directly meets
their needs in terms of content and cost. The Registrant currently has no
employees, other than the officers and directors, but anticipates
adding several employees over the next twelve months. Therefore, the
business activities of the Registrant are handled by the officers and
directors at this time.
(b) Business of the Registrant.
The business objectives of the Registrant, as developed by its
Board of Directors, are strongly focused on the production and
acquisition of action oriented feature films with strong domestic
and universal appeal that have been developed and/or produced
within well managed low to medium budgets. The Registrant intends
to develop a well integrated portfolio of these feature
films by producing or co-producing one or two action feature films
each year and by acquiring the rights to other similar films which are
available at attractive prices.
The Registrant has entered into a distribution agreement with
Westar Entertainment, Inc. ("Westar") on January 1,
1998 pursuant to which this firm markets the Registrant's products
both domestically and worldwide (see Exhibit
10.1 to this Form 10-KSB) (thus, the Registrant will be obligated
to distribute its films exclusively through this
company). Under this agreement, the Registrant and Westar
Entertainment, Inc. will share gross receipts on a 50-
50 basis. Under this agreement, Westar has complete authority to
distribute the Registrant's films. Any and all
distribution expense incurred by Westar are to be reimbursed to
Westar by the Registrant. The initial term of this
agreement is five years; it is to continue for successive one year
periods thereafter, unless cancelled by either party
on sixty days prior written notice.
Working with Westar, the Registrant is working toward establishing
a strong network of domestic and foreign buyers and will produce and/or
acquire motion pictures that meet their needs in terms of content and cost.
The Registrant intends to develop its portfolio to respond quickly and
effectively to market needs, and has attended and will continue to attend
the major film markets in order to stay in touch with the dictates of the
domestic and international markets. The major markets include the American
Film Market ("AFM") in Santa Monica, California, the Cannes Film Market
(Marche du Film de Cannes) in Cannes, France, and MIFED ("E.P. Fiera
Internazionale Di Milano") in Milan, Italy.
The AFM is an annual one week event which takes place in Santa
Monica, California in late February.
Distributors of pictures and buyers of rights to exhibit pictures
from around the world meet to make deals. Westar
rents a suite each year at the Loews Hotel which is the focal site
of the market where there are eight floors of
exhibitor suites. Buyers come to the suite to negotiate purchases
of rights for territories. Distributors and buyers
are registered attendees at the Market. There are scheduled
screenings of pictures at local movie theaters. The
annual Market is organized by the American Film Marketing
Association. Associated with the Market are film
finance conferences and location exhibitions.
MIFED is an annual five day film Market that takes place in Milan,
Italy at the beginning of October. The venue is the Fiera di Milano
(Milan Convention Center) and operates under the same aforementioned
system as the American Film Market except that films are viewed in
screening rooms and theatres located within the Fiera di Milano
itself. Buyers and Distributors do not have to leave the
convention center.
The Registrant has acquired the worldwide distribution rights to
the action/adventure films Beretta's Island and Double Cross through
a distribution agreement dated September 2, 1997,
with Franco Columbu, an officer and director of the Registrant
(this agreement also covered another film to be called Assault of the
Lost Goddess, which was not produced) (see Exhibit 10.2
to this Form 10-KSB). The Registrant paid the sum of $75,000 for
the rights to Beretta's Island and $150,000 for the rights to Double Cross;
the gross receipts from the distribution from each film are to be shared
equally. Under the terms of this agreement, the Registrant has a right of
first refusal for a term of five years to meet any bona fide offer to
produce, finance, or develop any film project which Mr. Columbu is
developing as a producer. Also, the Registrant has the right to
use Mr. Columbu's name and likeness in connection with the
distribution of these films.
In addition, the Registrant has entered into a distribution
agreement dated January 30, 1997 with Pinoy Productions, Inc. covering
the martial arts film The Process (Arthur Birzneck, an officer
and director of the Registrant, is also President of that company)
(see Exhibit 10.3 to this Form 10-KSB). The Registrant paid the sum of
$100,000 for the rights to The Process; the gross receipts are to be
shared as follows: (a) on gross receipts to $250,000 U.S.: 100% to the
Registrant; (b) on gross receipts between $250,000 U./S. and
$1,000,000 U.S.: 75% to the Registrant and 25% to the licensor;
(c) on gross receipts between $1,000,000 U.S. and $2,500,000 U.S.:
80% to the Registrant and 20% to the licensor; and (d) on gross receipts
above $2,500,000 U.S.: 85% to the Registrant and 15% to the licensor.
Under this agreement, which has an initial term of fifty years, the
Registrant has the right to deduct from gross receipts all
reasonable expenses incurred in the distribution of these films.
This distribution agreement is exclusive to the Registrant and has no
limitation on the territory.
Beretta's Island stars Franco Columbu (MR. OLYMPIA) and Ken
Kercheval with a special appearance by Arnold Schwartzenegger. Double Cross
stars Franco Columbu, William Smith (Conan), Frank Stallone and Barbara Niven.
The Process stars and is directed by Ernie Reyes, Jr.
(Red Sonja, Ninja Turtles I & II), Cori Nemec (Drop Zone) and
Ernie Reyes, Sr. (Surf Ninjas). Under the agreement with Westar, the rights
obtained by the Registrant to these three films have been assigned to Westar
for distribution.
To date, Westar has, in the ordinary course of business, entered
into distribution agreements covering the films noted above, as follows:
Title Rights Territory Licensee
Beretta's Isl. TH,V,TV Baltics Taiments
Beretta's Isl. V Benelux TRS
Beretta's Isl. HV, TV Brazil Mystic Ent.
Beretta's Isl. ALL Bulgaria Tandem Video
Beretta's Isl. V China NATV
Beretta's Isl. ALL C.I.S. Paradise/MGN
Beretta's Isl. V Germany VCL
Beretta's Isl. TH,V,TV Greece CineNet
Beretta's Isl. TV Indonesia Indo-American
Beretta's Isl. TH,V,TV Japan Shochiku Co.
Beretta's Isl. TV Korea William Cooke
Beretta's Isl. V Korea William Cooke
Beretta's Isl. TH,V,TV Malaysia Award Gallery
Beretta's Isl. V/TV Middle east HABIB
Beretta's Isl. TH, H Pakistan Kamal
Beretta's Isl. TH,V Panama King Trading
Beretta's Isl. All Spain Sogedesa/Filmax
Beretta's Isl. V/TV Taiwan Mystic Ent.
Beretta's Isl. ALL Taiwan Ta Lai
Beretta's Isl. V Thailand New World/Star
Beretta's Isl. TV Turkey Piano
Beretta's Isl. V,TV Turkey Saran
Beretta's Isl. V U.A.E. Music Box
Double Cross TH,V,TV Baltics Taiments
Double Cross V China NATV
Double Cross ALL C.I.S. Paradise/MGN
Double Cross TH,V,TV Greece CineNet
Double Cross V Korea TTL Korea
Double Cross TH,V,TV Malaysia Award Gallery
Double Cross TV Mexico Romari
Double Cross V,TV Middle east HABIB
Double Cross TH,H Pakistan Kamal
Double Cross TH,V Panama King Trading
Double Cross ALL Taiwan Ta Lai
Double Cross TH,V,TV Turkey Piano
Double Cross V U.A.E. Music Box
Double Cross All Spain Sogedesa/Filmax
Double Cross V Thailand Crystal Disc
Process ALL Baltics Taiments
Process V Brazil Penta Video
Process V,TV Brazil Preview
Process V China NATV
Process ALL C.I.S. Paradise/MGN
Process ALL C.I.S. Arpenium
Process V, TV Czech/Slovak Indigo Film
Process V France La Petite Reine
Process TH,V,TV Greece CineNet
Process All Indonesia PT Menara
Process V,TV Korea CineTank
Process All Malaysia Award Gallery
Process FTV Mexico Romari
Process V/TV Middle east HABIB
Process TH, H Pakistan Kamal
Process TH, V Panama King Trading
Process TH,V,TV Singapore CineStar
Process TH/V/TV Taiwan Kings
Process ALL Thailand New World/Star
Process TH,V,TV Turkey Piano
Process V U.A.E. Music Box
Process All U.S. Mercury
Process V Vietnam New World/Star
Process All Spain Sogedesa/Filmax
V = Home Video
TV = Free TV/Pay TV
TH = Theatrical
DVD = Digital Video Disc
H = Hotel
Even though the Westar anticipates that such distributions will
result in gross receipts being generated during the
current calendar year, such receipts, under the Westar agreement,
must first be applied to expenses incurred by
Westar with respect to trailers, art work, promotional materials,
delivery materials, advertising, and any and all
other expenses incurred for the sales, marketing and distribution
of these films. Therefore, the Registrant may not
realize any revenue from these distributions.
Although the Registrant is, at the moment, focused on the
production, co-production and acquisition of low to
medium budget action films, it is also within its mandate to
branch out into similar genres of television
programming as well as documentaries and docudramas within
budgetary constraints. Longer-range projects
include the acquisition of a movie studio project in Sardinia,
Italy, the formation or acquisition of a domestic video
label, and acquisition of a music division. However, such
projects are only possibilities and may not be realized.
The Registrant does not currently have any agreements,
commitments, or understandings to make any acquisitions.
(1) The Motion Picture Industry.
The business of the motion picture industry may be broadly divided
into two major segments: production, involving the development, financing
and making of motion pictures, and distribution, involving the promotion and
exploitation of completed motion pictures in a variety of media.
Historically, the largest companies, the so-called "Majors" and
"mini-Majors," have dominated the motion picture industry by both producing
and distributing a majority of the motion pictures which generate significant
box office receipts. Over the past decade, however, "Independents" or
smaller film production and distribution companies, such as the
Registrant, have played an increasing role in the production and distribution
of motion pictures to fill the increasing worldwide demand for filmed
entertainment product.
The Majors (and mini-Majors) include Universal Pictures, Warner
Bros. Pictures, Metro-Goldwyn-Mayer Inc., Twentieth Century Fox Film
Corporation, Paramount Pictures Corporation, Sony Pictures Entertainment
(including Columbia Pictures, TriStar Pictures and Triumph
Releasing) and The Walt Disney Company (Buena Vista Pictures,
Touchstone Pictures and Hollywood Pictures). Generally, the Majors own their
own production studios (including lots, sound stages and post-production
facilities), have nationwide or worldwide distribution
organizations, and provide a continual source of pictures to film
exhibitors. In addition, some of the Majors have divisions which are promoted
as "independent" distributors of motion pictures. These "independent" divisions
of Majors include Miramax Films (a division of The Walt Disney Company), Sony
Classics (a division of Sony Pictures), The Samuel Goldwyn Company (a
division of Metro-Goldwyn-Mayer), October Films (a division of
Universal), New Line (a division of Time Warner) and its Fine Line distribution
label, and Republic Pictures (a division of Viacom).
In addition to the Majors, the Independents engaged primarily in
the distribution of motion pictures produced by
companies other than the Majors include, among others, Trimark
Holdings and Artisan Entertainment. The
Independents typically do not own production studios or employ as
large a development or production staff as the Majors.
The Process, Beretta's Island, and Double Cross are
termed "independent feature films". This means that the movies were
produced without the initial backing of a major studio.
(2) Motion Picture Production And Financing.
The production of a motion picture usually involves four steps:
development, pre-production, production and post-production. The
development stage includes developing a concept internally, or
obtaining an original screenplay or a screenplay based on a pre-
existing literary work, or acquiring and rewriting a screenplay.
Creative personnel may be contacted to determine availability and
for planning the timing of the project, or in some cases actually
hired. In pre-production, a budget is prepared, the remaining
creative personnel, including a director, actors and various
technical personnel are hired, shooting schedules and locations
are planned and other steps necessary to prepare for principal
photography are completed. Production is the principal
photography of the project and generally continues for a period
of not more than three months. In post-production, the film is
edited and synchronized with music and dialogue and, in certain
cases, special effects are added. The final edited synchronized
product, the negative, is used to manufacture release prints
suitable for public exhibition.
The production of a motion picture requires the financing of the
direct and indirect overhead costs of production. Direct
production costs include film studio rental, cinematography,
post-production costs and the compensation of creative and other
production personnel. Distribution costs (including costs of
advertising and release prints) are not included in direct
production costs.
The Majors generally have sufficient cash flow from their motion
picture and related activities, or in some cases, from unrelated
businesses (e.g., theme parks, publishing, electronics, and
merchandising) to pay or otherwise provide for their production
costs. Overhead costs are, in substantial part, the salaries and
related costs of the production staff and physical facilities
which the Majors maintain on a full-time basis. The Majors often
enter into contracts with writers, producers and other creative
personnel for multiple projects or for fixed periods of time.
Independents generally avoid incurring substantial overhead costs
by hiring creative and other production personnel and retaining
the other elements required for pre-production principal
photography and post-production activities only on a project-by-
project basis. Unlike the Majors, Independents also typically
finance their production activities from various sources,
including bank loans, "pre-sales," equity offerings and joint
ventures. Independents generally attempt to complete their
financing of a motion picture production prior to commencement of
principal photography, at which point substantial production
costs begin to be incurred and require payment.
"Pre-sales" are often used by Independents to finance all or a
portion of the direct production costs of a motion picture. Pre-
sales consist of fees or advances paid or guaranteed to the
producer by third parties in return for the right to exhibit the
completed motion picture in theatres or to distribute it in home
video, television, international or other ancillary markets.
Independents with distribution capabilities may retain the right
to distribute the completed motion picture either domestically or
in one or more international markets. Other independents may
separately license theatrical, home video, television,
international and other distribution rights among several
licensees. Payment commitments in a pre-sale are typically
subject to delivery and to the approval of a number of
prenegotiated factors, including script, production budget, cast
and director.
Both Majors and Independents often acquire motion pictures for
distribution through an arrangement known as a negative pickup"
under which the Major or Independent agrees to acquire from
another production company some or all rights to a film upon its
completion. The Independent often finances production of the
motion picture pursuant to financing arrangements with banks or
other lenders wherein the lender obtains a security interest in
the film and in the Independent's rights under its distribution
arrangement. When the Major or Independent "picks up" the
completed motion picture, it may assume some or all of the
production financing indebtedness incurred by the production
company in connection with the film. In addition, the Independent
is often paid a production fee and is granted a participation in
the profits from distribution of the motion picture.
Both Majors and Independents often grant third-party
participations in connection with the distribution and production
of a motion picture. Participations are contractual rights of
actors, directors, screenwriters, producers, owners of rights and
other creative and financial contributors entitling them to share
in revenues or profits (as defined in the respective agreements)
from a particular motion picture. Except for the most sought-
after talent, participations are generally payable only after all
distribution and marketing fees and costs, direct production
costs (including overhead) and financing costs are recouped by
the producer in full.
(3) Motion Picture Distribution.
Distribution of a motion picture involves the domestic and
international licensing of the picture for (i) theatrical
exhibition, (ii) home video, (iii) presentation on television,
including pay-per-view, video-on-demand, satellites, pay cable,
network, basic cable and syndication, (iv) non-theatrical
exhibition, which includes airlines, hotels, armed forces
facilities and schools and (v) marketing of the other rights in
the picture, which may include books, CD-ROMs, merchandising and
soundtrack recordings.
Theatrical Distribution and Exhibition. Motion pictures are often
exhibited first in theatres open to the public where an admission
fee is charged. Theatrical distribution involves the manufacture
of release prints; licensing of motion pictures to theatrical
exhibitors; and promotion of the motion picture through
advertising and promotional campaigns. The size and success of
the promotional and advertising campaign may materially affect
the revenues realized from its theatrical release, generally
referred to as "box office gross." Box office gross represents
the total amounts paid by patrons at motion picture theatres for
a particular film, as determined from reports furnished by
exhibitors. The ability to exhibit films during summer and
holiday periods, which are generally considered peak exhibition
seasons, may affect the theatrical success of a film. Competition
among distributors to obtain exhibition dates in theatres during
these seasons is significant. In addition, the costs incurred in
connection with the distribution of a motion picture can vary
significantly depending on the number of screens on which the
motion picture is to be exhibited and the ability to exhibit
motion pictures during peak exhibition seasons. Similarly, the
ability to exhibit motion pictures in the most popular theatres
in each area can affect theatrical revenues. Exhibition
arrangements with theatre operators for the first run of a film
generally provide for the exhibitor to pay an amount of ticket
sales in excess of fixed amounts relating to the theatre's costs
of operation and overhead, or a minimum percentage of ticket
sales, decreasing each subsequent week to the final weeks of the
engagement. The length of an engagement depends principally on
the audience response to the film.
Home Video. The home video distribution business involves the
promotion and sale of videocassettes and videodiscs to video
retailers (including video specialty stores, convenience stores,
record stores and other outlets), which then rent or sell the
videocassettes and videodiscs to consumers for private viewing.
The home video marketplace now generates total revenues greater
than the domestic theatrical exhibition market.
Major feature films are usually scheduled for release in the home
video market four to six months after theatrical release to
capitalize on the recent theatrical advertising and publicity for
the film. Promotion of new home video releases is generally
undertaken during the nine to twelve weeks before the home video
release date. Videocassettes of feature films are generally sold
to domestic wholesalers on a unit basis. Unit-based sales
typically involve the sales of individual videocassettes to
wholesalers or distributors and are rented by consumers (with all
rental fees retained by the retailer). Wholesalers who meet
certain sales and performance objectives may earn rebates, return
credits and cooperative advertising allowances. Selected titles
including certain made-for-video programs, are priced
significantly lower to encourage direct purchase by consumers.
The market for direct sale to consumers is referred to as the
"priced-for-sale" or "sell-through" market.
Technological developments, including videoserver and compression
technologies which regional telephone companies and others are
developing, and expanding markets for DVD and laser discs, will
make competing delivery systems economically viable and will
significantly impact the home video market generally and, as a
consequence, the Registrant's home video revenues.
Pay-per-view. Pay-per-view television allows cable television
subscribers to purchase individual programs, primarily recently
released theatrical motion pictures, sporting events and music
concerts, on a "per use" basis. The fee a subscriber is charged
is typically split among the program distributor, the pay- per-
view operator and the cable operator.
Pay Cable. The domestic pay cable industry (as it pertains to
motion pictures) currently consists primarily of HBO/Cinemax,
Showtime/The Movie Channel, Encore/Starz and a number of regional
pay services. Pay cable services are sold to cable system
operators for a monthly license fee based on the number of
subscribers receiving the service. These pay programming services
are in turn offered by cable system operators to subscribers for
a monthly subscription fee. The pay television networks generally
acquire their film programming by purchasing the distribution
rights from motion picture distributors.
Non-Theatrical Markets. In addition to the distribution media
described above, a number of sources of revenue exist for motion
picture distribution through the exploitation of other rights,
including the right to distribute films to airlines, schools,
libraries, hotels, armed forces facilities and hospitals.
International Markets. The worldwide demand for motion pictures
has expanded significantly as evidenced by the development of new
international markets and media. This growth is primarily driven
by the overseas privatization of television stations,
introduction of direct broadcast satellite services, growth of
home video and increased cable penetration.
(4) Motion Picture Acquisition.
In addition to its own production activities, the Registrant
continually seeks to acquire rights to films and other
programming from Independent film producers, distribution
companies and others in order to maximize the number of films it
can distribute in the emerging new delivery systems. To be
successful, the Registrant must locate and track the development
and production of numerous independent feature films.
Types of Motion Pictures Acquired. The Registrant generally seeks
to produce or acquire motion pictures of the action and
action/adventure genres which will individually appeal to a
targeted audience. The Registrant will be very selective in
acquiring higher budget (over $10,000,000) films because of the
interest that the Majors have shown in acquiring such films, and
the associated competition and higher production advances,
minimum guarantees and other costs. The Registrant will acquire
projects when it believes it can limit its financial risk on such
projects through, for example, significant presales, and when it
believes that a project has significant marketability. In most
cases, the Registrant will attempt to acquire rights to motion
pictures with a recognizable marquis "name" personality with
public recognition, thereby enhancing promotion of the motion
pictures in the home video or international markets. The
Registrant believes that this approach increases the likelihood
of producing a product capable of generating positive cash flow,
ancillary rights income and the possibility of a theatrical
release.
Methods of Acquisition. The Registrant will typically acquires
films on either a "pick-up" basis or a "pre-buy" basis. The
"pick-up" basis refers to those films in which the Registrant
acquires distribution rights following completion of most or all
of the production and post-production process. These films will
generally be acquired after management of the Registrant has
viewed the film to evaluate its commercial viability.
The "pre-buy" basis refers to films in which the Registrant will
acquire distribution rights prior to completion of a substantial
portion of production and post-production. Management's
willingness to acquire films on a pre-buy basis is based upon
factors generally including the track record and reputation of
the picture's producer, the quality and commercial value of the
screenplay, the "package" elements of the picture, including the
director and principal cast members, the budget of the picture
and the genre of the picture. Before making an offer to acquire
rights in a film on a pre-buy basis, the Registrant may work with
the producer to modify certain of these elements. Once the
modifications are considered acceptable, the Registrant's
obligation to accept delivery and make payment will be
conditioned upon receipt of a finished film conforming to the
script reviewed by the Registrant and other specifications
considered important by the Registrant.
Sources of Distribution Rights. Typically, projects will be
submitted directly to the Registrant for consideration. The
Registrant will rely upon the personal contacts of its senior
officers which have been generated through their prior business
and personal dealings with Majors, other Independents, legal and
accounting firms, business management firms, talent agencies,
production lenders and personal managers who are actively
involved in the production community.
Acquisition Process. If the Registrant locates a motion picture
project which it believes satisfies its criteria, the Registrant
may pay an advance or a guaranteed minimum payment conditioned
upon delivery of a completed film ("minimum guarantee") against a
share or participation in the revenue actually received by the
Registrant from the exploitation of a film in each licensed
media. The minimum guarantee is generally paid prior to the
film's release. Typically, the Registrant will recoup the minimum
guarantee and certain other amounts from the distribution
revenues realized by the Registrant prior to paying any
additional revenue participation to the production company.
Film Library. The Registrant's distribution rights, which may
include either worldwide, foreign, or domestic rights, will
generally range from an initial licensing cycle of seven to 21
years to perpetuity.
(5) Feature Film Production.
The Registrant intends to produce one or more low-budget
films each year. The Registrant has contracted with Westar to be
the worldwide distributor of its films. The Registrant intends
to retain distribution rights for licensing to third parties
internationally through Westar. In unique circumstances, the
Registrant may undertake limited domestic distribution or co-
distribution activities.
The Registrant's feature film strategy generally will be to
develop and produce feature films when the production budgets for
the films are expected to be substantially covered through a
combination of pre-sales, output arrangements, equity
arrangements and production loans with "gap" financing. To
further limit the Registrant's financing risk or to obtain
production loans, the Registrant often intends to purchase
completion bonds to guarantee the completion of production.
ITEM 2. PROPERTIES.
The Registrant maintains executive offices at 10900 NE 8th
Street, Suite 900, Bellevue, Washington, 98004.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Registrant has been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information.
From June 27, 1997 to November 5, 1999, the Registrant's
common stock was traded on the Over the Counter Bulletin Board.
After the latter date, the shares have been traded in the
National Quotation Bureau's Pink Sheets (symbol "ECLE") and the
range of closing bid prices shown below is reported while trading
on the Bulletin Board and the Pink Sheets. The quotations shown
reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ending on December 31, 1999
High Low
Quarter Ended March 31, 1999 0.48 0.25
Quarter Ended June 30, 1999 * 0.37 0.25
Quarter Ended September 30, 1999* 0.69 0.50
Quarter Ended December 31, 1999** 1.00 0.19
*The shares did not trade from May 1, 1999 through September 12, 1999.
**The shares only traded for 13 days in the fourth quarter.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1998
High Low
Quarter Ended March 31, 1998 0.75 0.50
Quarter Ended June 30, 1998 1.31 0.64
Quarter Ended September 30, 1998 1.50 0.38
Quarter Ended December 31, 1998 0.81 0.37
In order to qualify for relisting on the Bulletin Board, the
Registrant must comply with the new eligibility rules of the
Bulletin Board (that is, all listed companies must be reporting
companies), and accordingly the Registrant filed its Form 10-SB
Registration Statement with the Securities and Exchange
Commission on November 19, 1999.
Holders of Common Equity.
As of March 24, 2000, there were approximately 60 shareholders of
record of the Registrant's common stock.
Dividends.
The Registrant has not declared or paid a cash dividend to
stockholders since it became a "C" corporation. The Board of
Directors presently intends to retain any earnings to finance
Registrant operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the Registrant's
earnings, capital requirements and other factors.
Equity Securities Sold Without Registration.
On April 11, 1997, the Registrant sold 2,000,000 (post
reverse split) shares to the 15 founding shareholders of the
Registrant for $0.01 per share (post reverse split), resulting in
total proceeds of $20,000.
On May 28, 1997, the Registrant sold 1,000,000 (post reverse
split) shares to 39 individual for $0.10 per share, (post reverse
split) resulting in total proceeds of $100,000. The shares did
not commence trading on the Bulletin Board until June 27, 1997.
Between November 19, 1998 and December 31, 1998, the
Registrant sold 215,000 (post reverse split) shares to 2
individuals for $1.51 per share (post reverse split), resulting
in total proceeds of $325,407. This per share price was above
the highest public trading price of $0.87 during this period.
On January 1, 1999, the Registrant sold 24,125 (post reverse
split) shares of its common stock to 4 non-affiliates for $0.79
per share (post reverse split), resulting in total proceeds of
$19,000. The public trading price for the shares on this date
was $0.37.
On January 11, 1999, the Registrant sold 150,000
(post reverse split) shares of its common stock to 2 non-
affiliates for $0.24 per share (post reverse split), for a total
consideration of $36,425, and issued 15,000 (post reverse split)
shares of its common stock to a non-affiliate in consideration
of legal services rendered. The public trading price of the
shares on this date was $0.40.
On January 18, 1999, the Registrant issued 8,995
(post reverse split) shares of its common stock to a non-
affiliate in consideration of legal services rendered. The
public trading price of the shares on the last trading date prior
to this date was $0.50.
On April 4, 1999, the Registrant issued 7,500 (post reverse
split) shares of its common stock to 2 non-affiliates in
consideration of legal services rendered. The public trading
price of the shares on the last trading date before this date was
$0.44.
On April 5, 1999, the Registrant sold 6,000,000 (post
reverse split) shares of its common stock to 10 non-affiliates
for $0.01 per share (post reverse split), for a total
consideration of $60,000. This sale was done to being needed
capital into the Registrant, and the pricing of the shares was
done with a view to attracting this capital. The public trading
price of the shares on this date was $0.37.
On April 6, 1999, the Registrant issued 40,000 shares
of its common stock to a non-affiliate in consideration for legal
services rendered. The public trading price of the shares on
this date was $0.25.
On October 27, 1999, the Registrant issued 2,305,520
shares of restricted common stock to an affiliate in
consideration of cancellation of a promissory note in the amount
of $442,285. The public trading price of the share on the
nearest trading date was $0.25.
No commissions or fees were paid in connection with these
sales. All of the above sales, except for the last one, were
undertaken pursuant to the limited offering exemption from
registration under the Securities Act of 1933 as provided in Rule
504 under Regulation D as promulgated by the U.S. Securities and
Exchange Commission, and all the offerings were made to
sophisticated investors; that is, the investor either alone or
with his purchaser representative(s) has such knowledge and
experience in financial and business matters that he is capable
of evaluating the merits and risks of the prospective investment,
or the issuer reasonably believes immediately prior to making any
sale that such purchaser comes within this description (the last
sale was made under Rule 506 of Regulation D).
ITEM 6. PLAN OF OPERATION.
Twelve Month Plan of Operation.
The following discussion should be read in conjunction with the
financial statements of the Registrant and notes thereto
contained hereafter in this Form 10-KSB. Also, please refer to
the subsequent section entitled Risk Factors Connected with Plan
of Operation.
For the period from the Registrant's inception through
December 31, 1999, there have been no revenues and operating
activities related primarily to establishing the management and
operating infrastructure. The Registrant created the ability to
acquire and license worldwide or sell distribution rights to
independently produced feature films. The Registrant can
obtain rights to motion pictures at various stages of completion
(either completed, in production or in development) and licenses
distribution rights (including video, pay television, free
television, satellite and other ancillary rights) of motion
pictures to various sub-distributors in the United States and in
foreign markets.
The Registrant has a limited operating history. The
Registrant must establish and maintain distribution on current
rights to motion pictures, implement and successfully execute its
business and marketing strategy, provide superior distribution of
motion pictures, anticipate and respond to competitive
developments and attract and retain qualified personnel. There
is no assurance that the Registrant will be successful in
addressing these needs.
Film costs represent a major component of the
Registrant's assets. Film costs represent those costs incurred
in the acquisition and distribution of motion pictures or in
the acquisition of distribution rights to motion pictures. This
includes minimum guarantees paid to producers or other
owners of film rights, recoupable distribution and production
costs. The Registrant will amortize film costs using the
individual film forecast method under which film costs are
amortized for each film in the ratio that revenue earned in the
current period for such film bears to management's estimate of
the total revenue to be realized from all media and markets for
such film. The Registrant currently has not generated revenues
from such film costs; however, the three movies which the
Registrant has obtained the distribution rights to (and
subsequently assigned to Westar under the Distribution Agreement)
have recently commenced distribution, and revenue from such
distributions is anticipated during the current fiscal year. Net
income in future years is in part dependent upon the
Registrant's amortization of its film costs and may be
significantly affected by periodic adjustments in such
amortization.
General and administrative expenses consist of related
general corporate functions, including marketing expenses,
professional service expenses and travel. The Registrant expects
general and administrative expenses to increase as it commences
to promote and market its motion picture distribution rights.
Risk Factors Connected with Plan of Operation.
(a) Only Limited Prior Operations.
The Registrant has only limited operations and is subject to all
the risks inherent in the creation of a new business. Since the
Registrant's principal activities to date have been limited to
organizational activities and prospect development, it has no
record of any revenue-producing operations. Consequently, there
is only a limited operating history upon which to base an
assumption that the Registrant will be able to achieve its
business plans. In addition, the Registrant has only limited
assets. As a result, there can be no assurance that the
Registrant will generate significant revenues in the future; and
there can be no assurance that the Registrant will operate at a
profitable level. If the Registrant is unable to obtain
customers and generate sufficient revenues so that it can
profitably operate, the Registrant's business will not succeed.
(b) Need for Additional Financing May Affect Operations.
Current funds available to the Registrant will not be adequate
for it to be competitive in the areas in which it intends to
operate. Therefore, the Registrant will need to raise additional
funds in order to fully implement its business plan. The
Registrant will attempt to raise approximately $1.5 million in
additional funds over the next 12 months through a private
placement for production of its next feature film. However,
there can be no assurance that the Registrant will be successful
in raising such additional funds. Regardless of whether the
Registrant's cash assets prove to be inadequate to meet the
Registrant's operational needs, the Registrant might seek to
compensate providers of services by issuance of stock in lieu of
cash.
Over the next 12 months the Registrant will continue to attend
all major sales markets to sell its film products. The
Registrant's existing capital will not be sufficient to meet
the Registrant's cash needs, including costs of its registration
and complying with its continuing reporting obligations under the
Securities Exchange Act of 1934. Accordingly, additional capital
will be required.
Since inception, the Registrant has financed operations
primarily through private placements of common stock. The
Registrant has significant ongoing liquidity needs to support its
existing business and continued growth. The Registrant's
continued operations therefore will depend upon its ability to
raise additional funds through bank borrowings, equity or debt
financing. Adequate funds may not be available when needed or
may not be available on favorable terms. If funding is
insufficient at any time in the future, the Registrant may be
unable to develop or enhance its service offering, take
advantage of business opportunities or respond to competitive
pressures, any of which could have a negative impact on the
business, operating results and financial condition. In
addition, if additional shares were issued to obtain financing,
current shareholders may suffer a dilutive effect on their
percentage of stock ownership in the Registrant.
(c) Risks in Connection with Distribution of Films.
The Registrant typically acquires distribution rights in a motion
picture for a specified term in one or more territories
and media. In some circumstances, the Registrant also
acquires the copyright to the motion picture. The
arrangements the Registrant enters into to acquire rights
may include the Registrant agreeing to pay an advance or minimum
guarantee for the rights acquired and/or agreeing to advance
print and advertising costs, obligations which are independent
of the actual financial performance of the motion picture being
distributed. The risks incurred by the Registrant increase to
the extent the Registrant takes such actions.
The Registrant also incurs significant risk to the
extent it engages in development or production activities
itself. The Registrant may, in certain circumstances, reduce
some of the foregoing risks by sub-licensing certain
distribution rights in exchange for minimum guarantees from
sub-licensees such as foreign sub-distributors. The investment
by the Registrant in a motion picture includes the cost of
acquisition of the distribution rights (including any advance or
minimum guarantee paid to the producer), the amount of the
production financed, and the marketing and distribution costs
borne.
(d) Substantial Competition.
The Registrant may experience substantial competition in its
efforts to locate and attract customers for its products. Many
competitors in the motion picture industry have greater
experience, resources, and managerial capabilities than the
Registrant and may be in a better position than the Registrant to
obtain access to attractive products. There are a number of
larger companies which will directly compete with the Registrant.
Such competition could have a material adverse effect on the
Registrant's profitability or viability.
(e) Other External Factors May Affect Viability of Registrant.
The motion picture industry in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the Registrant will
result in commercially profitable business. The marketability of
its products will be affected by numerous factors beyond the
control of the Registrant. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect peoples' discretionary spending. Factors which leave less
money in the hands of potential customers of the Registrant will
likely have an adverse effect on the Registrant. The exact
effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Registrant not
receiving an adequate return on invested capital.
(f) Control of the Registrant by Officers and Directors
Over Affairs of the Registrant.
The Registrant's officers and directors beneficially own
approximately 27% of the outstanding shares of the Registrant's
common stock. As a result, such persons, acting together, have
the ability to exercise significant influence over all matters
requiring stockholder approval. Accordingly, it could be
difficult for the investors hereunder to effectuate control over
the affairs of the Registrant. Therefore, it should be assumed
that the officers, directors, and principal common shareholders
who control these voting rights will be able, by virtue of their
stock holdings, to control the affairs and policies of the
Registrant.
(g) Success of Registrant Dependent on Management.
The Registrant's success is dependent upon the hiring and
retention of key personnel. None of the officers or directors
has any employment or non-competition agreement with the
Registrant. Therefore, there can be no assurance that these
personnel will remain employed by the Registrant. Should any of
these individuals cease to be affiliated with the Registrant for
any reason before qualified replacements could be found, there
could be material adverse effects on the Registrant's business
and prospects.
In addition, all decisions with respect to the management of
the Registrant will be made exclusively by the officers and
directors of the Registrant. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the Registrant. The success of the
Registrant, to a large extent, will depend on the quality of the
directors and officers of the Registrant. Accordingly, no person
should invest in the Shares unless he is willing to entrust all
aspects of the management of the Registrant to the officers and
directors.
(h) Conflicts of Interest May Affect Independence of Officers
and Directors.
The officers and directors have other interests to which they
devote time, either individually or through partnerships and
corporations in which they have an interest, hold an office, or
serve on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary to
the business of the Registrant. As a result, certain conflicts of
interest may exist between the Registrant and its officers and/or
directors which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
Registrant. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
Board of Directors to the Registrant, any proposed investments
for its evaluation.
(i) Limitations on Liability, and Indemnification, of
Directors and Officers May Result in Expenditures by the
Registrant.
The Registrant's Articles of Incorporation include
provisions to eliminate, to the fullest extent permitted by the
Nevada Revised Statutes as in effect from time to time, the
personal liability of directors of the Registrant for monetary
damages arising from a breach of their fiduciary duties as
directors. The By-Laws of the Registrant include provisions to
the effect that the Registrant may, to the maximum extent
permitted from time to time under applicable law, indemnify any
director, officer, or employee to the extent that such
indemnification and advancement of expense is permitted under
such law, as it may from time to time be in effect. Any
limitation on the liability of any director, or indemnification
of directors, officer, or employees, could result in substantial
expenditures being made by the Registrant in covering any
liability of such persons or in indemnifying them.
(j) Absence of Cash Dividends.
The Board of Directors does not anticipate paying cash
dividends on the common stock for the foreseeable future and
intends to retain any future earnings to finance the growth of
the Registrant's business. Payment of dividends, if any, will
depend, among other factors, on earnings, capital requirements
and the general operating and financial conditions of the
Registrant as well as legal limitations on the payment of
dividends out of paid-in capital.
(k) No Cumulative Voting.
Holders of the shares of common stock of the Registrant are not
entitled to accumulate their votes for the election of directors
or otherwise. Accordingly, the holders of a majority of the
shares present at a meeting of shareholders will be able to elect
all of the directors of the Registrant, and the minority
shareholders will not be able to elect a representative to the
Registrant's board of directors.
(l) No Assurance of Continued Public Trading Market; Risk
of Low Priced Securities.
Since June 27, 1997, there has been only a limited
public market for the common stock of the Registrant. The common
stock of the Registrant is currently quoted on the National
Quotation Bureau's Pink Sheets; the Registrant intends to reapply
for relisting on the Over the Counter Bulletin Board after
clearing comments on this registration statement. As a result,
an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the market value of the Registrant's
securities. In addition, the common stock is subject to the low-
priced security or so called "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell
such securities. The Securities Enforcement and Penny Stock
Reform Act of 1990 ("Reform Act") requires additional disclosure
in connection with any trades involving a stock defined as a
penny stock (generally, according to recent regulations adopted
by the U.S. Securities and Exchange Commission, any equity
security that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining
the penny stock market and the risks associated therewith. The
regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell the Registrant's common
stock and thus, ultimately, the ability of the investors to sell
their securities in the secondary market.
(m) Effects of Failure to Maintain Market Makers.
If the Registrant is unable to maintain a National
Association of Securities Dealers, Inc. member broker/dealers as
market makers, the liquidity of the common stock could be
impaired, not only in the number of shares of common stock which
could be bought and sold, but also through possible delays in the
timing of transactions, and lower prices for the common stock
than might otherwise prevail. Furthermore, the lack of market
makers could result in persons being unable to buy or sell shares
of the common stock on any secondary market. There can be no
assurance the Registrant will be able to maintain such market
makers.
(n) Uncertainty Due to Year 2000 Problem.
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 the year
2000 date is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 issue
may be experienced after January 1, 2000, and if not addressed,
the impact on operations and financial reporting may range from
minor errors to significant system failure which could affect the
Registrant's ability to conduct normal business operations. This
creates potential risk for all companies, even if their own
computer systems are Year 2000 compliant. It is not possible to
be certain that all aspects of the Year 2000 issue affecting the
Registrant, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
The Registrant currently believes that its systems are Year 2000
compliant in all material respects. The Registrant estimates
that it has incurred minimal costs of less than $10,000 related
to its Year 2000 initiative. Although management is not aware of
any material operational issues or costs associated with
preparing its internal systems for the Year 2000, the Registrant
may experience serious unanticipated negative consequences (such
as significant downtime for one or more of its suppliers) or
material costs caused by undetected errors or defects in the
technology used in its internal systems. Furthermore, the
purchasing patterns of customers may be affected by Year 2000
issues. The Registrant does not currently have any information
about the Year 2000 status of its potential material suppliers.
The Registrant's Year 2000 plans are based on management's best
estimates.
(o) Forward-Looking Statements.
The foregoing Plan of Operation contains "forward looking
statements" within the meaning of Rule 175 under the Securities
Act of 1933, as amended, and Rule 3b-6 under the Securities Act
of 1934, as amended, including statements regarding, among other
items, the Registrant's business strategies, continued growth in
the Registrant's markets, projections, and anticipated trends in
the Registrant's business and the industry in which it operates.
The words "believe," "expect," "anticipate," "intends,"
"forecast," "project," and similar expressions identify forward-
looking statements. These forward-looking statements are based
largely on the Registrant's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond
the Registrant's control. The Registrant cautions that these
statements are further qualified by important factors that could
cause actual results to differ materially from those in the
forward looking statements, including, among others, the
following: reduced or lack of increase in demand for the
Registrant's products, competitive pricing pressures, changes in
the market price of ingredients used in the Registrant's products
and the level of expenses incurred in the Registrant's
operations. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained
herein will in fact transpire or prove to be accurate. The
Registrant disclaims any intent or obligation to update "forward
looking statements."
ITEM 7. FINANCIAL STATEMENTS.
Financial statements as of and for the year ended December
31, 1999, and for the year ended December 31, 1998 are presented
in a separate section of this report following Part IV.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
Officers and Directors.
The names, ages, and respective positions of the directors and
officers of the Registrant are set forth below. The Directors
named below will serve until the next annual meeting of the
Registrant's stockholders or until their successors are duly
elected and have qualified. Directors will be elected for a
one-year term at the annual stockholders' meeting. Officers
will hold their positions at the will of the board of directors,
absent any employment agreement, of which none currently exist or
are contemplated. There are no arrangements, agreements or
understandings between non-management shareholders and management
under which non-management shareholders may directly or
indirectly participate in or influence the management of the
Registrant's affairs. Messrs. Birzneck and Nelson joined the
Registrant on its founding in 1997; Mssrs. Thomson, Columbu, and
Smith joined the Registrant as directors on May 1, 1999.
(a) David Gideon Thomson, Chairman of the Board.
Mr. Gideon Thomson, age 62, is a British entertainment
consultant, executive and producer. He has been semi-retired for
the last five years. Prior to that, he held top management
positions including Managing Director of Polytel (Polygram's
film and TV division), Deputy Chairman of the Robert
Stigwood Organization and Chairman of Charisma Records and
Films. During his tenure at Polytel and Robert Stigwood, Mr.
Gideon Thomson was involved with many award-winning films
and television programs, including such films as Saturday Night
Fever and Grease; the stage production of Evita; McVicar;
and the acclaimed film, Too Far To Go for NBC New York. He
was also the executive producer of the feature film
Quadrophenia. He has been an advisor to many US, UK and other
European film and TV production and distribution companies.
(b) Franco Columbu, Chief Executive Officer/Director.
Dr. ' Columbu, age 58, oversees all film and television activities
of the Registrant. Dr. Columbu's extensive career in
bodybuilding and powerlifting has earned him every major title
including the prestigious Mr. Olympia, Mr. World and Mr.
Universe titles. His connections in the film industry are
extensive, having appeared in film such as Pumping Iron, Stay
Hungry, Conan the Barbarian, Running Man, and Terminator. He has
produced two feature films, Beretta's Island and Doublecross,
through his production company Franco Columbu Productions, Inc.
He also has been featured in several national commercials and
been a guest on numerous talk shows. In addition to his
industry experience, Dr. Columbu maintains an active
chiropractic practice and consults with private individuals on
health concerns for over five years. From October 1997 to the
present, Mr. Columbu has also served as a Director of Westar
(c) Arthur Birzneck, President/Director.
Mr. Birzneck, age 31, has been with the Registrant since its
inception and is responsible for overseeing all operating
activities and the development of its domestic and international
ventures. He is an executive producer of Westar's current
feature film, The Process. Prior to Eclipse, Mr. Birzneck spent
three years as president of Bask Entertainment Inc., a
Vancouver, Canada based production company. He has
participated financially in several film projects, most
recently as an investor in Canadian-based HPP Production's
Hero of the Planet. Mr. Birzneck also has been involved in
promoting numerous Hip-Hop music groups. As a principal of MB
Productions, his clients included Hip Hop artists Candy Man,
Lighter Shade of Brown and the Rascalz. From October 1997 to the
present, Mr. Birzneck has also served as a Director of Westar
(d) John G. Smith, Vice President Legal Affairs/Director.
Mr. Smith, age 62, is a Cambridge, England-educated lawyer, who
has practiced corporate and commercial law in Western Canada for
more than 30 years, with a specialization in entertainment
and communications law. He is a principal, co-owner, and
corporate counsel of The Beacon Group of Companies that manages
the production, marketing, distribution and financing of
motion pictures, studio projects and entertainment software.
He is a member of the Canadian Bar Association and the Law
Society of British Columbia; and was previously a governor of
the Canadian Tax Foundation and a director of the BC Motion
Picture Foundation, as well as a variety of performing
arts organizations. From January 1998 to the present, Mr. Smith
has also served as a Director of Westar
(e) Brent Nelson, Secretary/Treasurer/Director.
Mr. Nelson, age 38, has been with the Registrant since its
inception. He has more than 15 years experience in corporate
and project financing and serves on the boards of several
companies in the United States and abroad: Palmworks, Inc.,
CybeRecord, Inc., Interactive Objects, Inc., International
Digital Technology, Inc., Mobile PET Systems, Inc. and Polar
Cargo Systems, Inc. Mr. Nelson has participated financially
in several film and music industry projects, including
MB Productions and the Canadian Hip Hop label Masiv Music.
Approximately 5 years ago, he founded and became Managing
Director of Northwest Capital Partners, L.L.C. a Bellevue,
Washington based venture capital company. Northwest Capital is
very active in both private and public financing on an
international basis. Mr. Nelson also is executive producer of
the Registrant's current feature film The Process. During 1997,
Mr. Nelson also served as a Director of Westar
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires
executive officers and directors, and persons who beneficially
own more than 10% of any class of the Registrant's equity
securities to file initial reports of ownership and reports of
changes in ownership with the U.S. Securities and Exchange
Commission ("SEC"). Executive officers, directors and beneficial
owners of more than 10% of any class of the Registrant's equity
securities are required by SEC regulations to furnish the
Registrant with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to
the Registrant during or with respect to fiscal 1999, and certain
written representations from executive officers and directors,
the Registrant is aware that each such reporting persons
inadvertently failed to file a Form 3 at the time the Registrant
became registered under Section 12 of such act (January 18,
2000). Such forms are now in the process of being prepared and
filed.
ITEM 10. EXECUTIVE COMPENSATION.
(a) The current officers and directors have not received
any compensation to date. They will not be remunerated until the
Registrant turns profitable.
(b) There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
Registrant in the event of retirement at normal retirement date
as there is no existing plan provided for or contributed to by
the Registrant.
(c) No remuneration is proposed to be paid in the future
directly or indirectly by the Registrant to any officer or
director since there is no existing plan which provides for such
payment, including a stock option plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Registrant's common stock
as of March 31, 2000 (12,016,140 issued and outstanding) by (i)
all stockholders known to the Registrant to be beneficial owners
of more than 5% of the outstanding common stock; and (ii) all
directors and executive officers of the Registrant as a group:
Title of Name and Address of Amount of Percent of
Class Beneficial Owner Beneficial Class
Ownership(1)
Common Brent Nelson 2,771,270 1.38%
Stock 10900 N.E. 8th Street
Bellevue, WA 98004
Common Arthur Birzneck 424,500 3.53%
Stock 16766 16th Avenue
Surrey, British
Columbia V4P 2P7
Common Franco Columbu 68,750 0.57%
Stock 1732 South Sepulveda Blvd
Los Angeles, CA 90025
Common David Gideon 0 0.00%
Stock 1732 South Sepulveda Blvd
Los Angeles, CA 90025
Common John G. Smith 0 0.00%
Stock 1185 West Georgia Street
Suite 910
Vancouver,
British Columbia V6E
4E6
Common Shares of all directors 3,264,520 27.17%
Stock and executive officers
as a group (5 persons)
(1) Except as noted in footnote 2 below, each person has sole
voting power and sole dispositive power as to all of the shares
shown as beneficially owned by them
(2) This figure includes the 2,605,520 shares owned by Northwest
Capital Partners, L.L.C., 10900 N.E. 8th Street, Bellevue,
Washington 98004, since Mr. Nelson is the managing director of
this firm.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, there are no relationships,
transactions, or proposed transactions to which the Registrant
was or is to be a party, in which any of the named persons set
forth previously had or is to have a direct or indirect material
interest.
There was a promissory note for $442,285 payable to
Northwest Capital Partners, L.L.C., a shareholder of the
Registrant controlled by Brent Nelson, a Director of the
Registrant. The note was unsecured and payable on demand. In
October 1999 the Registrant issued 2,305,520 shares of Common
Stock pursuant to Rule 504 Regulation D of the Securities Act of
1933 in satisfaction of that note.
Northwest Capital Partners, L.L.C. has advanced the
Registrant the sum of $51,165. There are no specific repayment
terms on this advance. The purpose of this advance was that the
Registrant required additional funding to continue operating.
The Registrant entered into a marketing agreement with
Westar Entertainment, Inc., on January 1, 1998 under which this
firm is providing marketing for the Registrant's products both
domestically and worldwide (see Exhibit 10.1 to this Form 10-SB).
At the time this agreement was entered, and to this date, Messrs.
Columbu, Birzneck, and Nelson are directors of Westar
Entertainment, Inc.; Mr. Smith became a director at a later time.
Currently, Messrs. Birzneck and Columbu each own approximately
40% of the issued and outstanding shares of Westar Entertainment,
Inc.; Messrs. Smith and Nelson each currently own approximately
10% of such shares.
The Registrant has entered into distribution agreement with Mr.
Columbu, an officer and director of the Registrant, covering the
films Beretta's Island and Double Cross (see Exhibit 10.2 to this
Form 10-SB). In addition, the Registrant has entered into a
distribution agreement with Pinoy Productions, Inc. covering the
film The Process (Mr. Birzneck, an officer and director of the
Registrant, is also President of that company) (see Exhibit 10.3
to this Form 10-SB).
For each of the transactions noted above, the transaction was
negotiated, on the part of the Registrant, on the basis of what
is in the best interests of the Registrant and its shareholders.
In addition, in each case the interested affiliate did vote in
favor of the transaction; however, the full board of directors
did make the determination that the terms in each case were as
favorable as could have been obtained from non-affiliated
parties.
Certain of the officers and directors of the Registrant are
engaged in other businesses, either individually or through
partnerships and corporations in which they have an interest,
hold an office, or serve on a board of directors. As a result,
certain potential conflicts of interest, such as those set forth
above with the transactions, may arise between the Registrant and
its officers and directors. The Registrant will attempt to
resolve such conflicts of interest in favor of the Registrant by
carefully reviewing each proposed transaction to determine its
fairness to the Registrant and its shareholders and whether the
proposed terms of the transaction are at least as favorable as
those which could be obtained from independent sources. The
officers and directors of the Registrant are accountable to it
and its shareholders as fiduciaries, which requires that such
officers and directors exercise good faith and integrity in
handling the Registrant's affairs. A shareholder may be able to
institute legal action on behalf of the Registrant or on behalf
of itself and other similarly situated shareholders to recover
damages or for other relief in cases of the resolution of
conflicts is in any manner prejudicial to the Registrant.
PART IV.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants 28
Balance Sheet of the Registrant as
of December 31, 1999 29
Statements of Operations for the year ended
December 31, 1999 and the year ended December 31, 1998 30
Statements of Shareholders' Equity for the year
ended December 31, 1999 and the year ended
December 31, 1998 31
Statements of Cash Flows for the year ended
December 31, 1999 and the year ended
December 31, 199 32
Notes to Financial Statements 33
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the last quarter of the fiscal year covered by this
report.
(c) Exhibits included or incorporated by reference herein: See
Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Eclipse Entertainment Group, Inc.
Dated: July 7, 2000 By: /s/ Arthur Birzneck
Arthur Birzneck, President
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 date
indicated:
Signature Title Date
/s/ David Gideon Thomson Chairman of the Board July 7, 2000
David Gideon Thomson
/s/ Franco Columbu Chief Executive Officer/ July 7, 2000
Franco Columbu Director
/s/ Arthur Birzneck President/Director July 7, 2000
Arthur Birzneck
/s/ John G. Smith Vice President Legal July 7, 2000
John G. Smith Affairs/Director
/s/ Brent Nelson Director July 7, 2000
Brent Nelson
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Eclipse Entertainment Group, Inc.
Bellevue, Washington
We have audited the accompanying balance sheet of Eclipse
Entertainment Group, Inc. as of December 31, 1999, and the
related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1999 and 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Eclipse Entertainment Group, Inc. as of December 31, 1999, and
the results of its activities and cash flows for the years ended
December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
/s/ L.L. Bradford & Company
L.L. Bradford & Company
March 24, 2000
Las Vegas, Nevada
ECLIPSE ENTERTAINMENT GROUP, INC.
BALANCE SHEET
December 31, 1999
ASSETS
Cash $ 2,336
Film costs 1,109,895
Fixed assets, net 633
Other assets 685
Total assets $ 1,113,549
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities $ 89,312
Due to related parties 173,165
Total liabilities 262,477
Stockholders' equity
Preferred stock - $.001 par value,
10,000,000 shares authorized, no shares
issued -
Common stock - $.001 par value, 50,000,000
shares authorized, 12,016,140
shares issued and outstanding 12,016
Additional paid in capital 1,364,360
Accumulated deficit (525,304)
Total stockholders' equity 851,072
Total liabilities and stockholders' equity $ 1,113,549
The accompanying notes are an integral part of these financial
statements
ECLIPSE ENTERTAINMENT GROUP, INC.
STATEMENTS OF OPERATIONS
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
Revenues $ -- $ --
General and administrative
Expenses 186,456 268,786
Loss from operations (186,456) (268,786)
Provision for income taxes -- --
Net loss (186,456) (268,786)
Basic and fully diluted loss per
common share (0.02) (0.08)
Weighted average number of common
shares used in per share calculation 8,565,042 3,275,329
The accompanying notes are an integral part of these financial
statements
ECLIPSE ENTERTAINMENT GROUP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-In Accumu Stockholder's
of Shares Amount Capital lated Equity
Deficit
Balance at
January 1, 1998 3,250,000 3,250 404,063 (70,062) 337,251
Issuance of
common stock
$1.51
weighted average
price per share 215,000 215 325,407 - 325,622
Net loss - - - (268,786) (268,786)
Balance at
December 31
1998 3,465,000 3,465 729,470 (338,848) 394,087
Issuance of
common stock
$0.02
weighted average
price per
share 6,174,125 6,174 109,251 - 115,425
Issuance of
common stock
for past
services, $0.58 71,495 71 41,431 - 41,502
Issuance of
common stock
in satisfac
tion of a
$486,514
promissory
note
(including
interest of
$44,229),
$0.21 2,305,520 2,306 484,209 - 486,514
Net loss - - - (186,456) (186,456)
Balance at
December 31
1999 12,016,140 12,016 1,364,360 (525,304) 851,072
The accompanying notes are an integral part of these financial statements
ECLIPSE ENTERTAINMENT GROUP, INC.
STATEMENTS OF CASH FLOWS
For the For the
Year Ended Year Ended
December 31, 1999 December 31, 1998
Cash flows from operating activities:
Net loss (186,456) $ (268,786)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 421 703
Expenses paid with common stock 85,731 -
Changes in operating assets and
liabilities:
Increase in film costs (133,420) (561,625)
Increase (decrease) in accounts
Payable and accrued liabilities 16,835 56,527
Increase in due to related parties 103,800 447,500
Net cash used by operating
Activities (113,089) (325,681)
Cash flows from financing activities:
Proceeds from issuance of common stock 115,425 325,622
Net cash provided by financing
activities 115,425 325,622
Net increase (decrease) in cash 2,336 (59)
Beginning balance - 59
Ending balance 2,336 -
Noncash financing activities:
2,305,520 shares of common stock issued
in satisfaction of promissory note 486,514 -
The accompanying notes are an integral part of these financial statements
ECLIPSE ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. Organization and summary of significant accounting policies.
Organization - Eclipse Entertainment Group, Inc. (hereinafter
referred to as the "Company") was incorporated in the state of
Nevada in January 1997 to engage in the business of developing,
producing and marketing films for worldwide distribution. The
fiscal year ends on December 31.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Film costs and amortization - Film costs represent costs incurred
in the acquisition of rights to distribute certain motion
pictures. These costs have been capitalized in accordance with
Statement of Financial Accounting Standards No. 53 (SFAS 53).
Film costs are amortized using the individual film forecast
method whereby expense is recognized in proportion to current
year revenues based upon management's estimate of future
revenues. Film costs are valued at the lower of unamortized cost
or estimated net realizable value. Revenue and cost forecasts
for films are regularly reviewed by management and revised when
warranted by changing conditions. When estimates of total
revenues and costs indicate that a film will result in an overall
loss, additional amortization will be provided to fully recognize
such loss.
Fixed assets - Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the
assets, which are generally 5 to 7 years. The cost of repairs
and maintenance is charged to expense as incurred. Expenditures
for property betterments and renewals are capitalized. Upon sale
or other disposition of a depreciable asset, cost and accumulated
depreciation are removed from the accounts and any gain or loss
is reflected in other income (expense).
The Company periodically evaluates whether events and
circumstances have occurred that may warrant revision of the
estimated useful lives of fixed assets or whether the remaining
balance of fixed assets should be evaluated for possible
impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the fixed
assets in measuring their recoverability.
Loss per share - Primary and fully-diluted loss per share is
based on the weighted-average number of outstanding common shares
during the applicable period.
Comprehensive income - The Company has no components of other
comprehensive income. Accordingly, net income equals
comprehensive income for all periods.
Advertising costs - Advertising costs incurred in the normal
course of operations are expensed accordingly. No advertising
costs were incurred for the years ended December 31, 1999 and
1998.
Income taxes - The Company accounts for its income taxes in
accordance with Statement of Financial Accounting Standards No.
109, which requires recognition of deferred tax assets and
liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
Impairment of long-lived assets to be disposed - The Company
continually monitors events and changes in circumstances that
could indicate carrying amounts of long-lived assets may not be
recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets
will be recovered through undiscounted expected future cash
flows. If the total of the future cash flows is less than the
carrying amount of those assets, the Company recognizes an
impairment loss based on the excess of the carrying amount over
the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value
less costs to sell.
2. Film costs.
Film costs totaling $1,109,895 at December 31, 1999 consist of
completed but not released films. As of December 31, 1999 and
1998, amortization expenses have not been recorded since revenues
have been not recognized for these periods. Management believes
that these capitalized film costs will provide future revenue
benefits. Accordingly, these costs will be amortized in the
related periods when such revenues are generated in accordance
with SFAS 53 as discussed in Note 1.
3. Fixed assets.
Fixed assets consist primarily of office equipment with a
historical cost of $2,196 and accumulated depreciation of $1,564
at December 31, 1999.
4. Related party transactions.
Due to related parties at December 31, 1999 consist of the
following:
Advances payable to an entity controlled by an officer
and shareholder of the Company represent advances,
unsecured, bearing no interest, and due on demand $ 51,165
Promissory note payable to a shareholder, unsecured,
bearing interest at 8%, and due on demand 115,000
Total due to related parties $173,165
5. Common stock.
On April 5, 1999, the Company's Board of Directors adopted a
resolution whereby it approved a 1 for 4 reverse stock split of
the issued and outstanding shares of common stock. Accordingly,
the accompanying financial statements have been retroactively
restated to reflect the 1-for-4 reverse stock split as if such
reverse stock split occurred as of the Company's date of
inception.
6. Income taxes.
The Company did not record any current or deferred income tax
provision or benefit for any of the periods presented due to
continuing net losses and nominal differences.
The Company has provided a full valuation allowance on the
deferred tax asset, consisting primarily of net operating loss,
because of uncertainty regarding its realizabillity.
As of December 31, 2000, the Company had a net operating loss of
approximately $500,000. Utilization of net operating loss, which
begins to exp[ire at various times starting in 2012, may be
subject to certain limitations under Section 382 of the Internal
Revenue Code of 1986, as amended, and other limitations under
state and foreign tax laws.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax assets are approximately as follows:
December 31, 1999 December 31, 1998
Net operating loss $(186,456) $(268,786)
Depreciation - -
Total deferred tax assets (186,456) (268,786)
Valuation allowance for deferred
tax assets 186,456 268,786
Net deferred tax assets $ - $ -
7. Fair value of financial instruments.
The carrying amounts of cash, accounts payable, accrued
liabilities, and due to related parties approximate fair value
because of the short-term maturity of these instruments.
8. Common stock.
In October 1999, the Company issued 125,000 shares of common
stock in error to an unrelated company. The Company has since
placed a stop on the 125,000 shares issued. Accordingly, the
12,016,140 shares of common stock issued and outstanding as of
December 31, 1999 does not reflect the 125,000 shares since these
shares were issued in error and a stop has been placed.
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 of the Form 10-SB/A filed on June 27, 2000).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 of the Form
10-SB/A filed on June 27, 2000).
10.1 Distribution Agreement between the Company and Westar
Entertainment, Inc., dated January 1, 1998 (see below).
10.2 Agreement between the Company and Franco Columbu, dated
September 2, 1997 (incorporated by reference to Exhibit 10.2 of
the Form 10-SB/A filed on June 27, 2000).
10.3 Distribution Agreement between the Company and Pinoy
Productions, Inc., dated January 30, 1997 (incorporated by
reference to Exhibit 10.3 of the Form 10-SB/A filed on June 27,
2000).
27 Financial Data Schedule (see below).
