U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
(Amendment No. 4)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934.
ECLIPSE ENTERTAINMENT GROUP, INC.
(Name of Small Business Issuer in its charter)
Nevada 91-1766849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 N.E. 8th Street, Suite 900, Bellevue, Washington 98004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (425) 990-5969
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
None
(Title of Class)
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
Eclipse Entertainment Group, Inc. ("Company") 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. Company 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 Company
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 Company are handled by the officers and
directors at this time.
Business of the Company.
The business objectives of the Company, 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
Company 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 Company has entered into a distribution agreement with Westar
Entertainment, Inc. ("Westar") on January 1, 1998 pursuant to which this firm
markets the Company's products both domestically and worldwide (see Exhibit
10.1 to this Form 10-SB) (thus, the Company will be obligated to distribute
its films exclusively through this company). Under this agreement, the
Company and Westar Entertainment, Inc. will share gross receipts on a 50-50
basis. Under this agreement, Westar has complete authority to distribute the
Company's films. Any and all distribution expense incurred by Westar are to
be reimbursed to Westar by the Company. 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 Company 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 Company
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 Company 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 Company (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-SB). The Company 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 Company 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
Company has the right to use Mr. Columbu's name and likeness in connection
with the distribution of these films.
In addition, the Company 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 Company, is also
President of that company) (see Exhibit 10.3 to this Form 10-SB). The Company
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
Company; (b) on gross receipts between $250,000 U./S. and $1,000,000 U.S.: 75%
to the Company and 25% to the licensor; (c) on gross receipts between
$1,000,000 U.S. and $2,500,000 U.S.: 80% to the Company and 20% to the
licensor; and (d) on gross receipts above $2,500,000 U.S.: 85% to the Company
and 15% to the licensor. Under this agreement, which has an initial term of
fifty years, the Company 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 Company 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 Company 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,DVD,TV 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
The licensee from each of the countries listed have licensed various
rights to the films for 5 year terms. During this term, these licencees have
the right to exploit any of the rights that they have purchased within their
respective territory. Upon receipt of payment, the licensee receives a
Betacam SP or Digibeta tape version of the film and film trailer. This
satisfies their requirements for Television, Home Video, and Hotel releases.
While most of the films have been released on Home Video and Television, it is
impossible for the Company to track the release within a given territory as
Westar is not currently participating in any revenue sharing or tracking
agreements with the various licensees. If a licensee wishes to release a film
theatrically, a 35mm film print must be released by Westar to that licensee.
To date, there have been no known theatrical releases of any of the film
products as no licensees have purchased 35mm film prints from the Company.
Even though 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 Company may not
realize any revenue from these distributions.
Although the Company 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 Company does not currently have any agreements,
commitments, or understandings to make any acquisitions.
(a) 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 Company, 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.
(b) 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.
(c) 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.
(1) 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.
(2) 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 Company's home video revenues.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(d) Motion Picture Acquisition.
In addition to its own production activities, the Company 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
Company must locate and track the development and production of numerous
independent feature films.
(1) Types of Motion Pictures Acquired. The Company generally seeks to
produce or acquire motion pictures of the action and action/adventure genres
which will individually appeal to a targeted audience. The Company 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 Company 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 Company 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 Company 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.
(2) Methods of Acquisition. The Company 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 Company 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 Company has
viewed the film to evaluate its commercial viability.
The "pre-buy" basis refers to films in which the Company 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 Company may work with the producer to modify certain of these
elements. Once the modifications are considered acceptable, the Company's
obligation to accept delivery and make payment will be conditioned upon
receipt of a finished film conforming to the script reviewed by the Company
and other specifications considered important by the Company.
(3) Sources of Distribution Rights. Typically, projects will be submitted
directly to the Company for consideration. The Company 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.
(4) Acquisition Process. If the Company locates a motion picture project
which it believes satisfies its criteria, the Company 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 Company from the exploitation of a film in each licensed
media. The minimum guarantee is generally paid prior to the film's release.
Typically, the Company will recoup the minimum guarantee and certain other
amounts from the distribution revenues realized by the Company prior to paying
any additional revenue participation to the production company.
(5) Film Library. The Company'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.
(e) Feature Film Production.
The Company intends to produce one or more low-budget films each year.
The Company has contracted with Westar to be the worldwide distributor of its
films. The Company intends to retain distribution rights for licensing to
third parties internationally through Westar. In unique circumstances, the
Company may undertake limited domestic distribution or co-distribution
activities.
The Company'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 Company's financing risk or to obtain production loans, the Company
often intends to purchase completion bonds to guarantee the completion of
production.
ITEM 2. PLAN OF OPERATION.
Twelve Month Plan of Operation.
The following discussion should be read in conjunction with the financial
statements of the Company and notes thereto contained hereafter in this Form
10-SB. Also, please refer to the subsequent section entitled Risk Factors
Connected with Plan of Operation.
For the period from the Company's inception through the date of this
Form 10-SB, there have been no revenues and operating activities related
primarily to establishing the management and operating infrastructure. The
Company created the ability to acquire and license worldwide or sell
distribution rights to independently produced feature films. The Company
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 Company has a limited operating history. The Company 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 Company will be successful in addressing these needs.
Film costs represent a major component of the Company'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
Company 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 Company currently has not generated revenues from such film costs;
however, the three movies which the Company 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 Company'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 Company 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 Company has only limited operations and is subject to all the risks
inherent in the creation of a new business. Since the Company'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 Company will be able to achieve its business plans. In
addition, the Company has only limited assets. As a result, there can be no
assurance that the Company will generate significant revenues in the future;
and there can be no assurance that the Company will operate at a profitable
level. If the Company is unable to obtain customers and generate sufficient
revenues so that it can profitably operate, the Company's business will not
succeed.
(b) Need for Additional Financing May Affect Operations.
Current funds available to the Company will not be adequate for it to be
competitive in the areas in which it intends to operate. Therefore, the
Company will need to raise additional funds in order to fully implement its
business plan. The Company 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 Company will be successful in raising such additional funds. Regardless
of whether the Company's cash assets prove to be inadequate to meet the
Company's operational needs, the Company might seek to compensate providers
of services by issuance of stock in lieu of cash.
The Company's continued operations therefore will depend upon its ability to
raise additional funds through bank borrowings, equity or debt financing.
There is no assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, can be obtained on
terms acceptable to the Company. If the Company cannot obtain needed funds,
it may be forced to curtail or cease its activities. If additional shares
were issued to obtain financing, current shareholders may suffer a dilutive
effect on their percentage of stock ownership in the Company.
(c) Risks in Connection with Distribution of Films.
The Company typically acquires distribution rights in a motion
picture for a specified term in one or more territories and media.
In some circumstances, the Company also acquires the copyright to the
motion picture. The arrangements the Company enters into to acquire
rights may include the Company 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 Company dramatically increase to the extent the Company takes such
actions.
The Company also incurs significant risk to the extent it engages in
development or production activities itself. The Company 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
Company 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 Company 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 Company and may be in a better position than the Company
to obtain access to attractive products. There are a number of larger
companies which will directly compete with the Company. Such competition
could have a material adverse effect on the Company's profitability or
viability.
(e) Other External Factors May Affect Viability of Company.
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 Company will result in commercially profitable business.
The marketability of its products will be affected by numerous factors beyond
the control of the Company. 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
Company will likely have an adverse effect on the Company. The exact effect
of these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on invested
capital.
(f) Control of the Company by Officers and Directors Over Affairs of
the Company.
The Company's officers and directors beneficially own
approximately 27% (see "Security Ownership of Certain Beneficial Owners and
Management") of the outstanding shares of the Company'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 Company. 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 Company.
(g) Success of Company Dependent on Management.
The Company'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 Company. Therefore, there can be no assurance
that these personnel will remain employed by the Company. Should any of these
individuals cease to be affiliated with the Company for any reason before
qualified replacements could be found, there could be material adverse effects
on the Company's business and prospects.
In addition, all decisions with respect to the management of the Company
will be made exclusively by the officers and directors of the Company.
Investors will only have rights associated with minority ownership interest
rights to make decision which effect the Company. The success of the Company,
to a large extent, will depend on the quality of the directors and officers of
the Company. Accordingly, no person should invest in the Shares unless he is
willing to entrust all aspects of the management of the Company 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 Company. As a result, certain conflicts of
interest may exist between the Company 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 Company. 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 Company, any proposed investments for its evaluation.
(i) Limitations on Liability, and Indemnification, of Directors and
Officers May Result in Expenditures by the Company.
The Company'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
Company for monetary damages arising from a breach of their fiduciary duties
as directors. The By-Laws of the Company include provisions to the effect
that the Company 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 Company
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 Company'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 Company
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 Company 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 Company, and
the minority shareholders will not be able to elect a representative to the
Company'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 Company. The common stock of the Company is
currently quoted on the National Quotation Bureau's Pink Sheets; the Company
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 Company'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
Company'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 Company 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 Company 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 Company'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 Company,
including those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
The Company currently believes that its systems are Year 2000 compliant in all
material respects. The Company 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 Company 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
Company does not currently have any information about the Year 2000 status of
its potential material suppliers. The Company's Year 2000 plans are based on
management's best estimates.
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 Company's business strategies, continued
growth in the Company's markets, projections, and anticipated trends in the
Company'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 Company's expectations and are
subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. The Company 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 Company's
products, competitive pricing pressures, changes in the market price of
ingredients used in the Company's products and the level of expenses incurred
in the Company'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 Company disclaims any intent
or obligation to update "forward looking statements."
ITEM 3. DESCRIPTION OF PROPERTY.
The Registrant maintains executive offices at 10900 N.E. 8th Street,
Suite 900, Bellevue, Washington 98004. The lease on these offices recently
expired, and they are now provided at no charge by Brent Nelson, one of the
directors of the Company. These offices are currently adequate for the needs
of the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial ownership
of shares of the Company's common stock as of March 31, 2000 (12,016,140
issued and outstanding) by (i) all stockholders known to the Company to be
beneficial owners of more than 5% of the outstanding common stock; and (ii)
all directors and executive officers of the Company as a group:
Title of Name and Address Amount of Beneficial Percent of
Class of Beneficial Owner Ownership (1) Class
Common Stock Brent Nelson 2,771,270 (2) 1.38%
10900 N.E. 8th
Street, Bellevue,
WA 98004
Common Stock Arthur Birzneck, 424,500 3.53%
16766 16th Avenue,
Surrey, British
Columbia V4P 2P7
Common Stock Franco Columbu, 68,750 0.57%
1732 South
Sepulveda
Boulevard, Los
Angeles, CA 90025
Common Stock David Gideon Thomson 0 0.0%
1732 South Sepulveda
Boulevard, Los
Angeles, CA 90025
Common Stock John G. Smith, 0 0.0%
1185 West Georgia
Street, Suite 910,
Vancouver, British
Columbia V6E 4E6
Common Stock Shares of all 3,264,520 27.17%
directors 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 5. DIRECTORS, OFFICERS, PROMOTERS, AND CONTROL PERSONS.
The names, ages, and respective positions of the directors and officers of the
Company are set forth below. The Directors named below will serve until the
next annual meeting of the Company'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 Company's
affairs. Messrs. Birzneck and Nelson joined the Company on its founding in
1997; Mssrs. Thomson, Columbu, and Smith joined the Company as directors on
May 1, 1999.
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.
Franco Columbu, Chief Executive Officer/Director.
Dr. Columbu, age 58, oversees all film and television activities of the
Company. 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
Arthur Birzneck, President/Director.
Mr. Birzneck, age 31, has been with the Company 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
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
Brent Nelson, Secretary/Treasurer/Director.
Mr. Nelson, age 38, has been with the Company 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 Company's current feature film The Process.
During 1997, Mr. Nelson also served as a Director of Westar
ITEM 6. EXECUTIVE COMPENSATION.
(a) The current officers and directors have not received any
compensation to date. They will not be remunerated until the Company turns
profitable.
(b) There are no annuity, pension or retirement benefits proposed to be
paid to officers, directors, or employees of the Company in the event of
retirement at normal retirement date as there is no existing plan provided for
or contributed to by the Company.
(c) No remuneration is proposed to be paid in the future directly or
indirectly by the Company to any officer or director since there is no
existing plan which provides for such payment, including a stock option plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, there are no relationships, transactions, or
proposed transactions to which the Company 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 Company controlled by Brent Nelson, a
Director of the Company. The note was unsecured and payable on demand. In
October 1999 the Company 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 Company the sum of
$51,165. There are no specific repayment terms on this advance. The purpose
of this advance was that the Company required additional funding to continue
operating.
The Company entered into a marketing agreement with Westar
Entertainment, Inc., on January 1, 1998 under which this firm is providing
marketing for the Company'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 Company has entered into distribution agreement with Mr. Columbu, an
officer and director of the Company, covering the films Beretta's Island and
Double Cross (see Exhibit 10.2 to this Form 10-SB). In addition, the Company
has entered into a distribution agreement with Pinoy Productions, Inc.
covering the film The Process (Mr. Birzneck, an officer and director of the
Company, 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 Company, on the basis of what is in the best interests of the
Company 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.
The lease on the offices of the Company in Bellevue, Washington recently
expired, and they are now provided at no charge by Brent Nelson, one of the
directors of the Company. These offices are currently adequate for the needs
of the Company.
Certain of the officers and directors of the Company 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 Company and its officers
and directors. The Company will attempt to resolve such conflicts of interest
in favor of the Company by carefully reviewing each proposed transaction to
determine its fairness to the Company 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
Company are accountable to it and its shareholders as fiduciaries, which
requires that such officers and directors exercise good faith and integrity in
handling the Company's affairs. A shareholder may be able to institute legal
action on behalf of the Company 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 Company.
ITEM 8. DESCRIPTION OF SECURITIES.
General Description.
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001. The holders of the Shares: (a)
have equal ratable rights to dividends from funds legally available therefore,
when, as, and if declared by the Board of Directors of the Company; (b) are
entitled to share ratably in all of the assets of the Company available for
distribution upon winding up of the affairs of the Company; and (c) are
entitled to one non-cumulative vote per share on all matters on which
shareholders may vote at all meetings of shareholders. These securities do not
have any of the following rights: (a) cumulative or special voting rights; (b)
preemptive rights to purchase in new issues of shares; (c) preference as to
dividends or interest; (d) preference upon liquidation; or (e) any other
special rights or preferences. In addition, the Shares are not convertible
into any other security. There are no restrictions on dividends under any
loan other financing arrangements or otherwise. See a copy of the Articles of
Incorporation, and an amendment thereto, and Bylaws of the Company, attached
as Exhibits to this Form 10-SB. As of the date of this Form 10-SB, the
Company had 12,016,140 shares of common stock issued and outstanding. No
preferred stock has been issued to date.
Non-Cumulative Voting.
The holders of shares of common stock of the Company do not have cumulative
voting rights, which means that the holders of more than 50% of such
outstanding Shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose. In such event, the holders of the
remaining Shares will not be able to elect any of the Company's directors.
Dividends.
The Company does not currently intend to pay cash dividends. The Company's
proposed dividend policy is to make distributions of its revenues to its
stockholders when the Company's Board of Directors deems such distributions
appropriate. Because the Company does not intend to make cash distributions,
potential shareholders would need to sell their shares to realize a return on
their investment. There can be no assurances of the projected values of the
shares, nor can there be any guarantees of the success of the Company.
A distribution of revenues will be made only when, in the judgment of the
Company's Board of Directors, it is in the best interest of the Company's
stockholders to do so. The Board of Directors will review, among other things,
the investment quality and marketability of the securities considered for
distribution; the impact of a distribution of the investee's securities on its
customers, joint venture associates, management contracts, other investors,
financial institutions, and the company's internal management, plus the tax
consequences and the market effects of an initial or broader distribution of
such securities.
Possible Anti-Takeover Effects of Authorized but Unissued Stock.
The Company's authorized but unissued capital stock consists of
37,983,860 Shares of common stock. One effect of the existence of authorized
but unissued capital stock may be to enable the Board of Directors to render
more difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest, or otherwise, and thereby to
protect the continuity of the Company's management. If, in the due exercise of
its fiduciary obligations, for example, the Board of Directors were to
determine that a takeover proposal was not in the Company's best interests,
such shares could be issued by the Board of Directors without stockholder
approval in one or more private placements or other transactions that might
prevent, or render more difficult or costly, completion of the takeover
transaction by diluting the voting or other rights of the proposed acquiror or
insurgent stockholder or stockholder group, by creating a substantial voting
block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise.
Transfer Agent.
The Company has engaged the services of Liberty Transfer Company, 191 New York
Avenue, Huntington Station, New York 11743, to act as transfer agent and
registrar for the Company.
PART II.
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
From June 27, 1997 to November 5, 1999, the Company'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 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, 2000
High Low
Quarter Ended March 31, 2000 1.37 0.47
Quarter Ended June 30, 2000 1.00 0.40
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 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 Company must
comply with the new eligibility rules of the Bulletin Board (that is, all
listed companies must be reporting companies), and accordingly the Company
filed its Form 10-SB Registration Statement with the Securities and Exchange
Commission on November 19, 1999.
(b) Holders of Common Equity.
As of June 1, 2000, there were approximately 60 shareholders of record of the
Company's common stock.
(c) Dividends.
The Company 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 the Company's 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 Company's earnings, capital
requirements and other factors.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings and, to
the best of its knowledge, no such action by or against the Company has been
threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On April 11, 1997, the Company sold 2,000,000 (post reverse split)
shares to the 15 founding shareholders of the Company for $0.01 per share
(post reverse split), resulting in total proceeds of $20,000.
On May 28, 1997, the Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company 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 Company, 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 Company 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 Company 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 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Limitation of Liability.
No director of the Company will have personal liability to the Company or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director involving any act or omission of any such director since provisions
have been made in the Articles of Incorporation limiting such liability (see
Exhibit 3.1 to this Form 10-SB). The foregoing provisions shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or, which involve intentional misconduct or a knowing violation
of law, (iii) under applicable Sections of the Nevada Revised Statutes, (iv)
the payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes or, (v) for any transaction from which the director derived an
improper personal benefit.
Indemnification.
(a) Articles of Incorporation.
The Articles of Incorporation of the company provide the following with
respect to indemnification:
"XII. INDEMNIFICATION: Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person for whom he or she is the legal representative, is or was an officer or
director of the Company or is or was serving at the request of the Company as
an officer or director of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans whether the basis of such proceeding is alleged action in an
official capacity as an officer or director or in any other capacity while
serving as an officer or director shall be indemnified and held harmless by
the Company to the fullest extent authorized by the Nevada General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of
any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, excise taxes or
penalties and amounts to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be an officer or director
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided herein with respect
to proceedings seeking to enforce rights to indemnification, the Company
shall indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Company. The right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its
final disposition; provided however, that, if the Nevada General Corporation
Law requires the payment of such expenses incurred by an officer or director
in his or her capacity as an officer or director (and not in any other
capacity in which service was or is rendered by such person while an officer
or director, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding, payment shall be
made only upon delivery to the Company of an undertaking, by or on behalf of
such officer or director, to repay all amounts so advanced if it shall
ultimately be determined that such officer or director is not entitled to be
indemnified under this Section or otherwise.
If a claim hereunder is not paid in full by the Company within ninety
days after a written claim has been received by the Company, the claimant
may, at any time thereafter, bring suit against the Company to recover the
unpaid amount of the claim and, if successful, in whole or in part, the
claimant shall be entitled to be paid the expense of prosecuting such claim.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, is
required, has been tendered to the Company) that the claimant has not met
the standards of conduct which make it permissible under the Nevada General
Company Law for the Company to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Company. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Nevada General Corporation Law, nor an actual determination
by the Company (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of Stockholders or disinterested
directors or otherwise.
The Company may maintain insurance, at its expense, to protect itself
and any officer, director, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against
any expense, liability or loss, whether or not the Company would have the
power to indemnify such person against such expense, liability or loss under
the Nevada General Corporation Law.
The Company may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification to any employee or agent of the
Company to the fullest extent of the provisions of this section with respect
to the indemnification and advancement of expenses of officers and directors
of the Company or individuals serving at the request of the Company as an
officer, director, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise."
(b) Bylaws.
The Bylaws of the company (see Exhibit 3.2 to this Form 10-SB) provide the
following with respect to indemnification:
"5.1 Indemnification of Officers. Directors Employees and Agents.
Unless otherwise provided in the Articles of Incorporation, the corporation
shall indemnify any individual made a party to a proceeding because he is or
was an officer, director, employee or agent of the corporation against
liability incurred in the proceeding, all pursuant to and consistent with the
provisions of NRS 78.751, as amended from time to time.
5.2 Advance Expenses for Officers and Directors.
The expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, but only after receipt by the corporation of an undertaking by or
on behalf of the officer or director on terms set by the Board of Directors,
to repay the expenses advanced if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation.
5.3 Scope of Indemnification.
The indemnification permitted herein is intended to be to the fullest
extent permissible under the laws of the State of Nevada, and any amendments
thereto."
(c) Nevada Revised Statutes.
NRS 78.7502 Discretionary and mandatory indemnification of
officers, directors, employees and agents: General provisions.
(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 attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or 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
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, the corporation shall indemnify him
against expenses, including attorneys' fees, actually and reasonably incurred
by him in connection with the defense.
NRS 78.751 Authorization required for discretionary
indemnification; advancement of expenses; limitation on
indemnification and advancement of expenses.
(1) Any discretionary indemnification under NRS 78.7502 unless ordered
by a court or advanced pursuant to subsection 2, may 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:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors who were
not parties to the action, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
(2) 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 action, 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 the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than directors or officers may be entitled under any
contract or otherwise by law.
(3) The indemnification and advancement of expenses authorized in NRS
78.7502 or ordered by a court pursuant to this section:
(i) 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 or for the
advancement of expenses made pursuant to subsection 2, may not be made to or
on behalf of any director or officer if a final adjudication establishes that
his acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
NRS 78.752 Insurance and other financial arrangements against
liability of directors, officers, employees and agents.
(1) A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who 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 for
any liability asserted against him and liability and expenses incurred by him
in his capacity as a director, officer, employee or agent, or arising out of
his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
(2) The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(iv) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may provide
protection for a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional misconduct,
fraud or a knowing violation of law, except with respect to the advancement of
expenses or indemnification ordered by a court.
(3) Any insurance or other financial arrangement made on behalf of a person
pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
(4) In the absence of fraud:
(i) The decision of the board of directors as to the propriety of the terms
and conditions of any insurance or other financial arrangement made pursuant
to this section and the choice of the person to provide the insurance or other
financial arrangement is conclusive; and
(ii) The insurance or other financial arrangement:
(A) Is not void or voidable; and
(B) Does not subject any director approving it to personal liability for his
action, even if a director approving the insurance or other financial
arrangement is a beneficiary of the insurance or other financial arrangement.
(5) A corporation or its subsidiary which provides self-insurance for itself
or for another affiliated corporation pursuant to this section is not subject
to the provisions of Title 57 of NRS.
PART F/S.
ECLIPSE ENTERTAINMENT GROUP, INC.
BALANCE SHEET
JUNE 30, 2000
(Unaudited)
ASSETS
Current assets
Cash $ 547
Note receivable 258,000
Total current assets 258,547
Film costs 1,109,895
Fixed assets, net 530
Deposits 175,000
Other assets 685
Total assets $ 1,544,657
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 66,262
Due to related party 447,004
Stock subscriptions payable 210,000
Total current liabilities 723,266
Total liabilities 723,266
Stockholders' equity
Preferred stock, $.001 par value;
10 million shares authorized;
no shares issued --
Common stock, $.001 par value; 50 million
shares authorized;
12,016,140 shares issued and outstanding 12,016
Additional paid-in capital 1,414,329
Accumulated deficit (604,954)
Total stockholders' equity 821,391
Total liabilities and stockholders' equity $ 1,544,657
See Accompanying Notes to Financial Statements
ECLIPSE ENTERTAINMENT GROUP, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
Revenues $ -- $ -- $ -- $ --
General and
Administrative
expenses 790 33,407 18,589 99,313
Loss from
Operations (790) (33,407) (18,589) (99,313)
Other expenses
Interest expense 5,014 2,483 11,092 3,327
Total other
Expenses 5,014 2,483 11,092 3,327
Provision for
income taxes -- -- -- --
Net loss $(5,804) $(35,890) $(29,681 $(102,640)
Basic and fully
diluted loss per
common share $ (.001) $(.004) $(.002) (.011)
Weighted average
number
of common
shares used
in per share
calculation 12,016,140 9,710,620 12,016,140 9,710,620
See Accompanying Notes to Financial Statements
ECLIPSE ENTERTAINMENT GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
Cash flows from operating activities:
Net loss $ (29,681) $(102,640)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 103 209
Services paid with common stock -- 41,502
Changes in operating assets and liabilities:
Increase in film costs -- (97,010)
Increase in deposits (175,000) --
Decrease in accounts payable and
accrued expenses (23,050) (2,513)
Net cash used by operating activities (227,628) (160,452)
Cash flows from investing activities:
Increase in promissory note receivable (258,000) --
Net cash used by investing activities (258,000) --
Cash flows from financing activities:
Net increase in due to related parties 273,839 45,635
Proceeds from stock subscriptions payable 210,000 --
Proceeds from common stocks issued -- 115,425
Net cash provided by financing activities 483,839 161,060
Net change in cash (1,789) 608
Cash-beginning balance 2,336 --
Cash-ending balance $ 547 $ 608
See Accompanying Notes to Financial Statements
ECLIPSE ENTERTAINMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The financial statements should be read in
conjunction with the financial statements of Eclipse Entertainment Group, Inc.
("the Company") for the fiscal year ended December 31, 1999, included in the
Form 10-KSB filed by the Company.
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full year. In the
opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operation. All such adjustments are of a
normal recurring nature.
NOTE 2 - RELATED PARTY TRANSACTIONS
Due to related parties at June 30, 2000 consist of the following:
Advances payable to an entity controlled by an
officer and shareholder of the Company represent
advances, unsecured, imputed interest at 8%, and due on
demand $333,504
Promissory note payable to a shareholder, unsecured,
bearing interest at 8%, and due on demand 113,500
Total due to related parties $447,004
NOTE 3 - STOCK SUBSCRIPTIONS PAYABLE
At June 30, 2000, stock subscriptions payable consist of several subscription
agreements totaling $210,000 for the future issuance of 700,000 shares of the
Company's common stock. The Company has subsequently issued such shares of
common stock in July 2000.
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
Current Assets
Cash $ 2,336
Total current assets 2,336
Film costs 1,109,895
Fixed assets, net 633
Other assets 685
Total assets $ 1,113,549
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 89,312
Due to related parties 173,165
Total current liabilities 262,477
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 1,414,329
Accumulated deficit (575,273)
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 For the
Year Ended Year Ended
December 31, 1999 December 31, 1998
Revenues $ - $ -
General and administrative
Expenses 167,196 292,551
Loss from operations (167,196) (292,551)
Other expense
Interest expense 44,229 1,235
Total other expense 44,229 1,235
Provision for income taxes - -
Net loss $ (211,425) $ (293,786)
Basic and diluted loss per common
Share $ (0.025) $ (0.09)
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 Amount Paid-In Accumu Stockholders
of shares 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
Contributed
capital
related to
compensation - - 25,000 - 25,000
Net loss - - - (293,786) (293,786)
Balance at
December
31, 1998 3,465,000 3,465 754,470 (363,848) 394,087
Issuance of
common
stock $0.02
weighted average
price per share 6,174,125 6,174 109,251 - 115,393
Issuance of
common
stock for
past services
$0.58 71,495 71 41,431 - 41,502
Issuance of
common
stock in
satisfaction
of a $486,514
promissory note
(including
interest of
$44,229), $0.21 2,305,520 2,306 484,209 - 486,515
Contributed
capital
related to
compensation
- - 25,000 - 25,000
Net Loss - - - (211,425) (211,425)
Balance at
December
31, 1999 12,016,140 $12,016 $1,414,329 $(575,273) $ 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 December 31
1999 1998
Cash flows from operating activities:
Net loss $ (211,425) $ (293,786)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation 422 703
Services paid with common stock 41,502 -
Compensation services contributed 25,000 25,000
Interest expense paid with common stock 44,229 -
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
Net cash used by operating activities (216,857) (773,181)
Cash flows from financing activities:
Net increase in due to related party 103,800 447,500
Proceeds from issuance of common stock 115,425 325,622
Net cash provided by financing activities 219,193 773,122
Net increase (decrease) in cash 2,336 (59)
Cash - Beginning balance - 59
Cash - Ending balance $ 2,336 $ -
Noncash financing activities:
of promissory note $ 486,515 $ -
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 Company's 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 $1,563 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 $ 58,165
Promissory note payable to a shareholder, unsecured,
bearing interest at 8%, and due on demand 115,000
Total due to related parties $173,165
In October 1999, the company issued 2,305,520 shares of common stock in
satisfaction of a $486,515 promissory note (including interest of $44,229) due
to an entity controlled by an officer and shareholder of the Company.
5. Common stock.
In April 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 realizability.
As of December 31, 1999, the Company had net operating loss carry-forwards of
approximately $575,000. Utilization of the net operating loss carry-forwards,
which begins to expire at various times starting in 2012, may be subject to
certain limitations under section 382 of the Internal Revenue Service 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 $(211,425) $(293,786)
Depreciation - -
Total deferred tax assets (211,425) (293,786)
Valuation allowance for deferred
tax assets 211,425 293,786
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.
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.
PART III.
ITEMS 1 and 2. INDEX TO EXHIBITS; DESCRIPTION OF EXHIBITS.
The Exhibits required by Item 601 of Regulation S-B, and an index thereto, are
attached.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Eclipse Entertainment Group, Inc.
Date: August 22, 2000 By: /s/ Arthur Birzneck
Arthur Birzneck, President
Special Power of Attorney
The undersigned constitute and appoint Arthur Birzneck their true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place, and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Form 10-SB
Registration Statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting such attorney-in-fact the full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that such attorney-
in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registration statement has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ David Gideon
Thomson
David Gideon Thomson
Chairman of the Board
August 22, 2000
/s/ Franco Columbu
Franco Columbu
hief Executive Officer/Director
August 22, 2000
/s/ Arthur Birzneck
Arthur Birzneck
President/Director
August 22, 2000
/s/ John G. Smith
John G. Smith
Vice President Legal
Affairs/Director
August 22, 2000
/s/ Brent Nelson
Brent Nelson
Director
August 22, 2000
EXHIBIT INDEX
Number Exhibit Description
3.1 Articles of Incorporation (see below).
3.2 Bylaws (see below).
10.1 Distribution Agreement between the Company and Westar Entertainment,
Inc., dated January 1, 1998 (incorporated by reference to Exhibit 10 to
the Form 10-KSB filed on April 11, 2000).
10.2 Agreement between the Company and Franco Columbu, dated September 2,
1997 (see below).
10.3 Distribution Agreement between the Company and Pinoy Productions, Inc.,
dated January 30, 1997 (see below).
24 Special Power of Attorney (see signature page above).
27 Financial Data Schedules (see below).
