UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
Neo Modern Entertainment Corp.
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(Name of Small Business Issuer in its charter)
California 95-4627285
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
442 N. La Cienega Blvd., Suite 206, West Hollywood, CA 90048
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (310) 652-7556
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Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
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Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, par value $.001 per share
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(Title of class)
[Cover page 1 of 2 pages]
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Forward Looking Statements: This Form 10-SB contains, or incorporates by
reference, certain statements that may be deemed "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, each as amended. All statements, other
than statements of historical facts, that address activities, events or
developments that the Company intends, expects, projects, believes or
anticipates will or may occur in the future are forward-looking statements. Such
statements are based on certain assumptions and assessments made by management
of the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes to be appropriate. The forward-looking statements included in this Form
10-SB are also subject to a number of material risks and uncertainties,
including but not limited to public acceptance of film projects, ability to meet
cost and time estimates in budgets, availability of distribution agreements, and
general economic factors affecting the Company's operations and markets.
Stockholders and prospective investors are cautioned that such forward-looking
statements are not guarantees of future performance and that actual results,
developments and business decisions may differ from those envisaged by such
forward-looking statements.
Documents Incorporated By Reference
None.
Transitional Small Business Disclosure Format
Yes |X| No |_|
[Cover page 2 of 2 pages]
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Part I
Item 1. Description of Business
Principal Products and Associated Markets:
Neo Modern Entertainment Corp. (the "Company" or "we") was formed pursuant
to the corporation laws of the State of California on March 19, 1997, and we
have our principal office in West Hollywood, California. We were created to
develop, produce and arrange distribution of feature-length motion pictures.
However, lack of funds now makes it unlikely at this time that we will currently
undertake production of the type of more costly products. Our new strategy is to
attempt to produce extremely low budget film projects in order to develop a base
of active operations. Our management believes that we will be able to produce
between one to three films at an out-of pocket cost of $50,000 to $125,000 each.
This can be accomplished through the expertise developed by our chief executive,
Rafal Zielinski, who has extensive experience in the direction and production of
films. In addition, modern technology to be resorted to, such as the use of
digital filming methods, will be expected to greatly reduce this aspect of a
film's cost of production. However, our new strategy will require us to find a
film distribution firm which is willing to undertake to distribute our new films
and thereby obligate itself to spend upwards of $50,000 to create duplicate 35mm
film prints for theatrical exhibition.
Our management consists of our President and Director, Rafal Zielinski,
and our two other directors, Mike Gabrawy, and Regina A. Musolino. Mr Gabrawy
and Ms. Musolino were elected to our board recently. Mr. Zielinski and Mr.
Gabrawy have an established track record in the business of non-studio financed
films and have each produced three independent films. Through such productions,
he has established business contacts and associations with distributors and
foreign sales agents ("Contacts"). We may use such Contacts in connection with
our proposed slate of films to better control distribution, keep distribution
fees low and maximize revenues. Exploiting such Contacts may enhance the
possibilities of having our films distributed on a national level through a
major distributor, should we wish to exploit that distribution option.
Alternatively, we should ultimately become capable of self-distribution in both
the domestic and foreign markets, if needed. By controlling the distribution
process and keeping distribution fees and expenses to a minimum, we intend to
ultimately maximize revenues and profits.
Our long term strategy is to vertically integrate our involvement in the
film production and exploitation process so as to own, or create and maintain
lasting relationships with distributors in all primary and ancillary markets. We
would also seek to eventually acquire our own studio facilities and equipment.
When appropriate, we would also provide prints and advertising funding to create
a larger net income per film by decreasing the distribution fees and distributor
overhead. However, this long term strategy must await substantial financing and
a successful track record with the films we are now seeking to produce.
We believe that the screenplays underlying our initial slate of films
require minimal refinement prior to the commencement of principal photography.
Mr. Zielinski intends to direct each such film. We hope to produce at least one
to two films of increasing budget-size per year. We intend to manage and
accumulate an ever-increasing revolving production, distribution and development
fund and to prudently manage the use and occasional rental of our digital
post-production facilities. We also intend to build a stable asset base
consisting of film libraries and
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related going concerns through an acquisition strategy, utilizing our stock as
consideration whenever possible. Our library currently consists of partial
rights to three films previously produced by Mr. Zielinski: Hey Babe (1987);
Ginger Ale Afternoon (1990); and Fun (1993) (collectively, the "Film Library").
Our artistic vision is to produce independent, alternative, "art-house"
films that are character-driven and non-formulaic. We intend to produce films
targeted at both the youth and the more specialized markets. Our management
believes that quality, commercially viable films can be produced on a
limited-budget basis through proper planning, execution and intelligent
management. Such films require less capital to produce, and consequently need to
generate less revenue to recoup costs and derive profits. If successful, the
return per dollar invested has the potential of being a significant multiple of
total costs. Our long-term agenda is to produce as many commercially successful
films as possible, thus creating a viable production vehicle through which we
would control our creative destiny and continue making films on a going forward
basis.
Distribution:
With respect to the theatrical distribution of motion pictures in the
United States, arrangements for the distribution and exhibition of a film vary
greatly. However, certain fundamental economic relationships remain constant.
The distributor of a film licenses the exhibition of said film typically for a
period of between five and twenty-five years. The distributor normally has the
responsibility for advertising and supplying exhibitors with film prints and
other promotional materials. The exhibitor presents the film to a paying
audience at which time its collects the admission fees paid at the box office
(the "Gross Box Office Receipts"). In accordance with a license agreement with
the distributor, the exhibitor retains a percentage (somewhere between 10-90%,
although a 50/50 split is typical) of the Gross Box Office Receipts. The
exhibitor may also recover its actual operating costs incurred in presenting the
film and expenses incurred in the advertising and promotion thereof. After the
exhibitor has deducted the funds due it, the remaining balance (the "Gross Film
Rentals") is then remitted to the distributor. The distributor initially deducts
15-35% for the distribution of the film in the United States (the "Distribution
Fee"). The distributor also reimburses itself for its actual expenses incurred
in connection with distributing the film and expenses incurred in the
advertising and promotion of the film. After all Distribution Fees have been
paid, the remaining balance (the "Negative Cost") is furnished to the company
producing the film (the "Production Company"). The Negative Cost is the cost
incurred by the Production Company in creating the negative of the film.
Generally, a film financed and distributed by a major film studio will include a
substantial "overhead" charge of 20% of the film's budget or a set fee, to cover
the cost of that studio's production facilities, investments in the development
of motion picture properties which ultimately are not produced, and additional
staff assigned to production. After the Negative Cost, plus interest, if any, is
recouped by the Production Company, any remaining amounts constitute the film's
net profits (the "Net Profits"). Net Profits are usually first distributed to
parties who have deferred their compensation for work done on the film and are
then distributed to the film's other participants pursuant to their negotiated
agreements. Foreign distribution and television exhibition vary somewhat from
this general description.
Since we ultimately plan to control all rights to our films, and since the
films may be fully financed, we may obtain favorable distribution terms in all
primary and ancillary markets. If we
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ultimately self-distribute, there will be no separate Distribution Fee. However,
it is likely that we will have to use the services of independent distribution
companies, sales agencies, or consultants which will charge Distribution Fees,
for some or all markets. Domestic and foreign theatrical exhibition rights,
including non-English language rights, will be licensed by us to recognized
distributors and exhibitors. Alternatively, we may self-distribute in
association with our Contacts domestically and utilize a sales agent for each
territory in the foreign market. The private use of video cassettes, both
domestic and foreign, will be licensed by us to established home video
distributors, or possibly joint-ventured with an independent video distributor
to maximize our revenues.
As modern technology provides the entertainment industry with DVD, cable,
t.v. satellite and internet distribution, the latter through increased broadband
technology, we will continue to explore the use of such media for distribution
and exploitation of our product.
Competition:
We compete in business with an almost infinite number of large and small
entities producing motion pictures in this country and abroad. Success in our
business is determined by a number of factors, including the skill of our
personnel, ability to secure attractive scripts and name talent, the quality of
our products and our ability to obtain suitable distribution agreements and
outlets.
The rising costs associated with the operation of major film studios and
the increased demand for film product has opened the door for independent film
production. In 1960, independent film producers worldwide only accounted for
approximately 30 out of a total of 277 films made, or about 11% of the market.
In 1987, independent producers were responsible for the production of 423 out of
a total of 578 films made, or about 73% of the market. Although the number of
films made by independent producers decreased in 1992 to 352 out of a total of
575 films made, or about 64% of the market, a number of newly-created
independent production and distribution companies have developed into highly
successful companies within a few short years. Overall, total revenue for sales
of independent films for theatrical exhibition, home video and television
surpassed $1.8 billion in fiscal 1997, up 11% from 1996. While weakening foreign
pre- sales are a result of an abundance of product from the major studios,
Europe and Eastern Europe in particular remain developing markets. The
theatrical and home video markets--softer in years past--show stronger
percentage growth, thus reflecting the boom in theater construction and VCR
penetration in international markets. In the last three years the public's
appetite for independent film has increased, the number of independent films
produced skyrocketed, and with the launch of several specialty cable channels
(i.e., Sundance Channel, Independent Film Channel, Bravo) focusing on
independent and art house films, the boom in construction of multiplexes, the
prospect of distribution on the internet as the availability of broadband
increases and the successful track record of many independent distribution
companies, such as Miramax, Fox Searchlight, Fine Line, Paramount Classics,
Artisan Entertainment, Sony Pictures Classics, Trimark, Lion's Gate Films, USA
Films (the amalgam of October Films and Gramercy Pictures), Stratosphere, Strand
Releasing and the newly formed Screen Gems, the demand for product has increased
substantially.
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The 1999's produced big success stories in the film industry ranging from
"Shakespeare in Love" which grossed about $100 million for Miramax to the
micro-budget "The Blair Witch Project" which was produced for $40,000.00 and
sold by its producers to Artisan Entertainment for $1.1 million and a percentage
of the profits. Blair Witch went on to gross $142 million domestically alone.
A current market trend has been the purchase of independent film companies
by major film studios. In recent years, once-independent companies such as
Miramax Films, Fine Line Features and Gramercy Pictures have been acquired by
entities such as The Walt Disney Company and Time-Warner, Inc. A specialized
film company can experience competitive advantages by being part of a major
studio. Such advantages include piggybacking onto an international distribution
system to tap into the growing foreign appetite for American independent fare;
utilizing a studio's music division for soundtrack recording and mastering; and
having films' trailers appear on such studio's releases, including on occasion,
the studio's home video releases.
Our artistic vision is to produce independent, alternative, "art-house"
films that are character-driven and non-formulaic. We intend to produce films
targeted at both the youth and the more specialized markets. Our management
believes that quality, commercially viable films can be produced on a
limited-budget basis through proper planning, execution and intelligent
management. We intend to compete by offering better and more distinctive
entertainment value through superior production, directing, and acting.
Intellectual Property:
We expect that our scripts and film productions will have copyright and
similar protection. Apart from this, we do not expect to have any formal legal
protection for our trade secrets or other intellectual property and know-how and
do not have confidentiality agreements or non-competition agreements in place.
In addition, modern technology fosters illegal copying and use of protected
material and we will be hard pressed, as is the film and music industry in
general, to stop this piracy.
We also seek to retain merchandising and other rights to the characters in
our films so that, if a trend is launched by our films by way of its music,
decor, lifestyle or characters, we have additional ways in which to financially
capitalize on it.
We also hold the right to produce several screen plays and literary
properties, subject to payments to authors and reimbursement of development
costs with interest to Filmart Inc. with interest for each respective property.
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Government Approvals:
We are aware of three governmental agencies which could exert influence on
us: The Los Angeles Film Commission ("LAFC"), the Occupational Safety Hazard
Administration ("OSHA") and the Los Angeles Fire Department ("LAFD"). When we
are on location outside of Los Angeles County there may be other similar
governmental agencies which could affect our operations. The LAFC controls the
issuance of permits for filming in the Los Angeles City and County areas,
collecting a fee for its services. OSHA governs occupational health and safety
conditions in the workplace and ensures the adherence to safety guidelines so as
to minimize risk to employees and visitors. We intend to conspicuously post and
actively promote strict adherence to all applicable OSHA rules, so as to negate
any possible ramifications for noncompliance by us. The LAFD monitors film
production companies to ensure their compliance with applicable safety
guidelines and to reduce unacceptable fire and other hazardous risks to
employees or visitors. Our management will accommodate the LAFD in conducting
"spot-checks" of its stages and production facilities to ensure their safe
working condition. Our cooperation in the operation of these "spot-checks" will
ensure a safe workplace environment.
Employees:
The Company presently has no employees or representatives, other than our
three Directors who also function in executive and administrative capacities.
The Company may hire two part-time employees within the next 12 months,
consisting of a clerical secretary and a Production Assistant to facilitate
operations.
Investment Considerations and Risk Factors:
An investment in our Common Stock is highly speculative, and brings with
it a number of investment considerations and risk factors which an existing
stockholder or prospective purchaser of our Common Stock should take into
account. Among these are the following:
We Have Experienced Operational Losses Throughout the Life of Our Company.
We have a history of losses and a cumulative deficit in our earnings.
Accordingly, it may be expected that it would be more difficult for us to
achieve profitable operations.
We Have a Need to Raise Capital in Order to Continue Our Operation.
At the current juncture, we do not have sufficient cash to pursue our goal
of producing motion pictures, even those of the low budget variety. To do so, we
will have to raise additional capital, and the only viable way in which to do so
is to issue additional shares of our Common Stock. This will have the effect of
diluting the interest of existing stockholders. Further, if such financing is
not available, it is unlikely that we will be able to continue our business
operations.
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Our New Strategy of Producing Low Budget Films May Not Prove Viable.
Because of our lack of capital and non-existent liquidity, we have
undertaken a new corporate strategy which entails the production of low cost --
low budget films. However, we have no experience with this type of filmaking and
it will depend, in part, upon newly developed digital filming and production
methods. Accordingly, there is a risk that we will not be able to implement our
new strategy or, if we produce one or more films using this method, these films
may not be commercially successful. In addition, our new strategy does not
provide for such customary items that we have used in the past as completion
bonds and various types of insurance coverage, which would provide a reserve to
ensure the completion of production and post-production work on a film. We will
not have these coverages with our contemplated low budget products because of
the cost of putting these in place.
Our Continued Listing of Shares on the Electronic Bulletin Board Has Been Placed
in Question.
The electronic bulletin board of the National Association of Securities
Dealers, Inc., upon which our Common Stock is currently listed for trading, has
advised all companies, including our own, that their shares will be delisted
from trading in the event that they do not meet filing requirements for
registering as a reporting company under the Securities Exchange Act of 1934, as
amended. We are filing this Report on Form 10-SB, among other things, in order
to attempt to comply with this requirement. However, this Report may not be
deemed to be timely filed; if this is the case, then our shares of Common Stock
will then trade in a less visible manner by being listed in the "pink sheets" or
some equivalent forum. This will tend to make the shares even less liquid. In
addition, we point out that our shares of Common Stock are subject to the "penny
stock rules" promulgated by securities authorities which require purchasers to
complete and submit additional material regarding the suitability of the Common
Stock in connection with a purchase of our shares.
Competition in Our Industry is Intense and Our Projects are Subject to Fashion
and Other Vagaries Which Makes Their Acceptance Uncertain.
We have a vast array of competitors in the production of films, many of
whom have much greater resources than we do. In addition, public acceptance of
our product is subject to elements of fashion, style and the like which places
additional uncertainties upon acceptance of our future products and its
potential for commercial success.
We Are Dependent Upon a Few Individuals for Management and Conduct of Our
Business.
As noted throughout this Report, we are highly dependant upon Rafal
Zielinski, our Chief Executive Officer and sole full-time employee, and his
ability to evaluate, produce, raise capital and generally conduct our business.
Although he will be assisted, on a part-time basis, by our two directors, and
may resort to a variety of outside consultants, our present and future reliance
upon Mr. Zielinski places an additional risk upon our business, particularly
should we lose the service of Mr. Zielinski for any reason.
Item 2. Management's Discussion and Analysis or Plan of Operation
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Plan of Operation:
We have had a limited operational history over our last three-and-a-half
years with no appreciable revenues and may be regarded as a developments stage
company. Our plan of operation is to raise capital sufficient to fund the
production of several extremely low-budget films, and thereby supplement our
film library and generate revenue for the subsequent production of films. We
have completed partial principal photography on our first low-budget feature
film tentatively entitled "Bohemia", and our plan calls for finishing the film
if and when we have raised sufficient capital for "Bohemia" as well as one or
more of the micro-budget films. The modest revenues received by us so far have
been from the exploitation of our film library and are utilized towards
operating costs and to pay down a portion of the debt against the film library.
Liquidity & Capital Resources:
We have historically raised capital to fund our operations by the sale of
our common stock. For the immediately foreseeable future, we will be required to
sell common stock or other equity securities to raise capital to fund our
operations. There can be no assurance that such capital investment will be
available on terms that will be acceptable to us. Furthermore, the sale of such
capital will further dilute the interest of current stockholders. Other capital
may also be raised through loans, deferments of goods and services, pre-sales of
rights and/or co-financing with other entities.
Item 3. Description of Property
Presently, offices are rented on a month-to-month basis at a cost of $150
per month, due on the 1st day of each month. These facilities are suitable for
our current operations.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table of stock ownership and notes thereto relate as of
December 31, 1999 to the ownership of Common stock, par value $.001 per share
(the "Common Stock") of the Company by (i) each person known to be the
beneficial owner of more than 5% of such voting security, (ii) each director,
(iii) each named executive officer and (iv) all executive officers and directors
as a group. The percentages have been calculated by taking into account all
shares of Common Stock owned on such date as well as all such shares with
respect to which such person has the right to acquire beneficial ownership at
such date or within 60 days
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thereafter. Unless otherwise indicated, all persons listed below have sole
voting and sole investment power over the shares owned.
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1)(2) of Class
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Rafal Zielinski 7,063,230(3) 76%
James R. Zatolokin 1,000,000(4) 11%
29259 Heathcliff Street
Los Angeles, CA
Filmart, Inc. 4,106,250(5) 44%
Mike Gabrawy 27,967 *
Regina A. Musolino 13,267 *
All directors and executive officers
as a group (3 Persons)(4) 7,086,954 76%
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(1) Based on a total of 9,317,709 shares of Common Stock issued and
outstanding. Unless otherwise stated, all address are c/o the Company, 442
N. La Cienega Blvd., Suite 206, West Hollywood, CA 90048.
(2) All such ownership is direct unless otherwise stated.
(3) Reflects conversion of 1,000,000 shares of Class A Preferred Stock on
April 9, 1999; Also includes 4,106,250 shares held by Filmart, Inc. a
corporation whose shares are owned by Mr. Zielinski.
(4) Company stop transfer order was issued against these shares on July 17,
1999. We intend to negotiate a settlement with Jim Zatolokin as a result
of his resignation as director, officer and general counsel on October 3,
1997 to disgorge a portion of these founder's shares. The disgorged shares
will be reissued to Rafal Zielinski for additional services in areas such
as business affairs and management of our company resulting from Jim
Zatolokin's absence. Mr. Zatolokin assigned his voting rights to Mr.
Zielinski by contingent proxy per agreement of April 23, 1997 as well as
granting Mr. Zielinski a right of first negotiation to purchase Mr.
Zatolokin's shares, if he elects to sell any of them.
(5) Rafal Zielinski is President of Filmart, Inc. Shares issued hereunder are
pursuant to President/CEO Agreement by and between the Company and Filmart
Inc. dated as of March 21, 1997, pursuant to which Filmart loans out the
services of Zielinski to the Company, to act as and perform all duties of
President of the Company.
* Less than 1%
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Item 5. Directors and Executive Officers, Promoters and Control Persons
We have three directors, each of whose term will expire at next year's
Annual Meeting of Stockholders. The following table contains information
regarding all directors and executive officers:
Name Age Position / Offices Held Director Since
Rafal Zielinski 46 President / CEO and Director 1997
Mike Gabrawy 30 Director 1999
Regina A. Musolino 32 Director 1999
The following is a brief account of the business experience for the last
five years for the above mentioned individuals:
Rafal Zielinski:
Mr. Zielinski has feature credits as a producer; director or writer on
seventeen feature films of diverse genres and budgets ranging from
$250,000 to $5,000,000. He has an established track record in the business
of independent, non-studio financed films. His films have been shown all
over the world, including American theatres, cable, TV and video
cassettes.
As a teenager, Mr. Zielinski attended Stowe School in England, where he
received a grant to make his first 16mm film in India. He studied cinema
verite filmaking with veteran Richard Leacock at MIT, receiving a Bachelor
of Science Degree in Art and Design from that institution. Graduate film
studies were continued at Concordia University in Montreal, Canada.
Mr. Zielinski's first feature, "Hey Babe" (1987), opened the Taormina Film
Festival, and also showed at the Toronto, Montreal and Filmex festivals.
His independent feature "Ginger Ale Afternoon" (1990) showed in
competition at the Sundance Film Festival and was picked up by Skouras
Pictures for domestic theatrical release in the United States.
Mr. Zielinski's film "Fun" (1993), also premiered at the Sundance Film
Festival, where it received two Special Jury Awards for Acting Achievement
and went on to show at the Toronto, Vancouver and Montreal Film Festivals,
as well as many international film festivals including Sydney, Edinburgh,
Munich, Vienna, London, Stockholm, Sao Paulo, Rimini and Mill Valley.
Mike Gabrawy:
Mr. Gabrawy's wealth of technical knowledge and story sense come from
years of exposure to the medium in all facets of development and
production. Mr
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Gabrawy holds a Bachelor's degree in Film Studies from the University of
Kansas, where he made several films for various academic departments on
subjects as diverse as Religion and Psychology. After graduation in 1992,
Mr. Gabrawy immediately began working in Los Angeles where he started out
as a production assistant on over twenty commercials and eventually served
as location manager on several independent features.
Soon after Mr. Gabrawy segued into larger feature films holding various
posts in the production departments on such major film releases as "Naked
Gun 33 1/3", "Little Princess," "Stargate", "Waterworld" and "Independence
Day". Late in 1995, Mr. Gabrawy was hired at Constantin Film, an
international production and distribution company, where he served as a
production-development executive for nearly three years. Mr. Gabrawy was
actively involved if not integral in the production and or development of
such projects as "Prince Valiant" (co-produced with Lakeshore
Entertainment), "Wrongfully Accused" (co-produced with Morgan Creek),
"Silver Surfer" and the film adaptation of the blockbuster Sony
Playstation game "Resident Evil" (for which he is currently an Associate
Producer).
In July 1998, Mr. Gabrawy left Constantin Film to pursue independent
producing full time. Most recently, Mr. Gabrawy co-produced the Venice
cult favorite "And Other Urban Myths" with Aaron Skalka, co-produced the
highly experimental feature "Green and Dimming", which was directed by
Sundance award-winner Britta Sjogren and finally line produced the quirky
dramedy "East of A".
Additionally, Mr. Gabrawy serves as a consultant to the Independent
Feature Project West, the organization responsible for the Independent
Spirit Awards, the indie alternative to the Academy Awards, under its
Resident Line Producer program.
Regina A. Musolino:
Ms. Musolino has had a diversity of experiences in her career. She was
born in Ohio and spent a number of years there studying such varied
disciplines as biology, fashion design and accounting. After working for a
Big Six accounting firm as a tax consultant for four years, she entered
law school and received her J.D. from the University of Southern
California in 1998.
Ms. Musolino has worked as an entertainment tax attorney where she
consulted with studios and production companies on tax related
implications of such matters as motion picture financing, intellectual
property and corporate structuring.
Currently, Ms. Musolino is working as an independent film producer on two
future films: a romantic comedy and an all female hip hop action film.
Item 6. Executive Compensation
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Two of our directors, Mr. Gabrawy and Ms. Musolino, are compensated solely
through the issuance of Common Stock as follows: (i) 1,000 shares on the date of
such member's appointment to the Board; and (ii) 4,000 shares per month for a
term of one year starting from December 1, 1999, in addition to 22,967 shares
issued to Mr. Gabrawy for services up to November 30, 1999 and 8,267 shares
issued to Ms. Musolino for services up to November 30, 1999. Such compensation
payable to Mike Gabrawy and Regina A. Musolino shall be inclusive of any
compensation payable to them in their contemplated capacities of Vice President
of Production and Vice President of Business Affairs, respectively, until such
time as they may hold part time or non-exclusive full-time employment with us.
We expect that they will be a Producer and an Executive Producer on our future
films.
Rafal Zielinski, as our President / CEO, is compensated for his executive
services pursuant to the President / CEO's Memorandum Agreement, dated as of
March 21, 1997, by and between Filmart Corp., an entity controlled by Mr.
Zielinski ("Filmart") and us (the "Services Agreement"). Pursuant to the
Services Agreement, Mr. Zielinski's non-exclusive services are to be furnished
to us at a rate of $2,000 per month for the first year followed by an increase
of 25% in successive years over the next seven years, as indicated in the
following table:
CASH COMPENSATION PAYABLE TO FILMART INC. BY THE COMPANY
Year Payment Per Month
---- -----------------
1 $ 2,000.00
2 $ 2,500.00
3 $ 3,125.00
4 $ 3,906.25
5 $ 4,882.81
6 $ 6,103.52
7 $ 7,629.39
If we do not have sufficient funding to pay the above sums, such
compensation shall be deferred and paid in full or in installments at future
date(s) to be determined in good faith by us, with ten percent (10%) annual
simple interest. To date, we have not furnished Filmart with cash compensation
for Mr.. Zielinski's executive services. Mr. Zielinski receives no additional
compensation for being a board member.
Additionally, pursuant to the Services Agreement, Filmart will have the
option to purchase our Common Stock, at a price of its par value per share,
$.001 per share, in accordance with the following table:
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OUR COMMON SHARES THAT MAY BE ACQUIRED BY FILMART
Number of Shares per Month Year Total Number Per Year
-------------------------- ---- ---------------------
100,000 1 1,200,000
125,000 2 1,500,000
156,250 3 1,875,000
195,312 4 2,343,750
244,140 5 2,929,687
305,175 6 3,662,109
381,469 7 4,577,636
Pursuant to the Services Agreement, on October 21, 1999, Rafal Zielinski,
as President of Filmart, exercised its option to acquire 3,637,500 shares of
Common Stock for the period of March 21, 1997 - September 20, 1999 in exchange
for $3,637.50 and on December 20, 1999, 468,750 shares for the period of
September 21 to December 20, 1999 in exchange for $468.75.
In addition to compensation as President/CEO, Rafal Zielinski originally
received 1,000,000 shares of Common Stock as a founder on March 21, 1997, as
well as 1,000,000 Series A Convertible Preferred Shares on May 1,1997 (converted
to shares of Common Stock on April 9,1999( in consideration for the exchange of
property outlined in the Acquisition Agreement of May 1, 1997, between Rafal
Zielinski and affiliated corporations, as well as Mr. Zielinski taking reduced
fees (below Director's Guild of America minimums) for directing the initial
slate of up to three films for the Company. Pursuant to the Acquisition
Agreement, there are sums owing, with interest, to Filmart for "Ginger Ale
Afternoon" and "Fun", to be recouped from the respective revenues of the two
films, as well as development costs for "Bohemia" and other scripts/literary
properties, payable with interest upon production of each respective film.
Resulting from the resignation of Phil Kueber as a director and officer and the
consequent cancellation of his founder's shares, Rafal Zielinski was issued
956,980 shares of Common Stock on August 10, 1999, per "non-dilution" policy
adapted by the board on February 23, 1998, for additional services to the
Company, in areas such as the raising of financing and management, resulting
from Mr. Kueber's absence. This compensation is in addition to the stock options
granted to Filmart pursuant to the Services Agreement.
Producer, Director, Writer Fees
In addition to managing the Company, Rafal Zielinski shall perform
producing, directing and writing services for our films. As is customary in the
industry, these services shall be subject to his availability and non-exclusive,
thus allowing him to loan out his services for films produced by other companies
or entities simultaneously with his services as our President.
Rafal Zielinski will be a Producer of each film we produce and his
producer fee shall be 2.5% of each film budget and 2.5% of our net profit from
each film.
-14-
<PAGE>
Rafal Zielinski Director's fee will be 2.5% of the budget on each film as
well as 2.5% on our net profit from each film for the first three films he
directs for us. The Director's fee for films after the initial three films shall
be the Director's Guild minimum, or 5% of the film budget, whichever is greater,
and 2.5% of our net profit for each film.
Mr. Zielinski's writer fees will be negotiated, subject to the proportion
of his writing services contributed to each story and screenplay, if any. Total
story and screenplay costs customarily are 5-15% of the budget of a film and
2.5-5% of the net profit participation.
Mike Gabrawy will be a Producer and Regina Musolino an Executive Producer
on each of our films. These services will be subject to his and/or her
availability and on a non-exclusive basis, as is customary in the industry, to
allow them to simultaneously lend out their services to other non-Company
projects. Mr. Gabrawy's and Ms. Musolino's Producer and Executive Producer fees
for each film will be negotiated and may include cash, stock, and net profit
participation. As is customary in the film industry the total aggregate producer
fees (inclusive of all producers, executive producers, co-producers, and third
party producers, if any) and net profit participation should be in the 10-15%
range.
Item 7. Certain Relationships and Related Transactions.
Transactions with Promoters:
Philip T. Kueber received 1,000,000 shares of our Common Stock (the
"Kueber Shares") in exchange for services rendered and $1,000; this was for
activities from and after our formation on March 19, 1997. Mr. Kueber was
subsequently named to our Board of Directors and held executive positions as
Treasurer and Vice President of Business Development. On May 26, 1998, Mr.
Kueber resigned from all executive positions and from his board membership.
Pursuant to a Settlement Agreement and Release, dated as of September 10, 1998,
by and with Mr. Kueber, he relinquished all right, title and interest in and to
the Kueber Shares in exchange for 200,000 shares of our Common Stock.
We have also described the Service Agreement, which is an Exhibit to this
Report, pursuant to which Filmart makes available the services of Mr. Zielinski.
Item 8. Description of Securities.
We are authorized to issue up to 100,000,000 shares of our Common Stock,
par value .001 per share. We have also authorized the issuance of 10,000,000
shares of Class A Preferred Stock (the "Class A Preferred") and 10,000,000
shares of Class B Preferred Stock (collectively, the "Preferred Stock"). Shares
of the Class A Preferred are convertible into shares of Common Stock at a
conversion ratio of 1:1. In the event of our liquidation, holders of the Class A
Preferred shall be paid out ahead of the holders of the Common Stock. No shares
of the Preferred Stock are currently issued and outstanding.
-15-
<PAGE>
Part II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
Market Information:
(a) Trading in our shares of Common Stock presently takes place on the OTC
Bulletin Board under the symbol NEOE.
The following table sets forth the range of high and low bids for our
Common Stock for our two most recent fiscal years:
Fiscal 1998: High Low
- ----------- ---- ---
July 1, 1997-- September 30, 1997 N/A N/A
October 1, 1997-- December 31, 1997 N/A N/A
January 1, 1998-- March 21, 1998 N/A N/A
April 1, 1998-- June 30, 1998 $1.00 $0.218
Fiscal 1999: High Low
- ----------- ---- ---
July 1, 1998-- September 30, 1998 $0.1875 $0.0625
October 1, 1998-- December 1998 0.10 0.006
January 1, 1999-- March 31, 1999 0.125 0.05
April 1, 1999-- June 30, 1999 0.55 0.05
------- -------
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
On January 4, 2000, our shares of common stock was quoted at between $.05
and $.125 per share.
(b) The number of holders of our Common Stock was approximately 135 on
December 1, 1999, computed by the number of record holders, inclusive of
holders for whom shares are being held in the name of brokerage houses and
clearing agencies.
(c) We have not paid any cash dividends with respect to our Common Stock, nor
does our Board of Directors intend to declare cash dividends on our Common
Stock in the foreseeable future, in order to conserve cash for working
capital purposes.
Item 2. Legal Proceedings.
We are not engaged in any litigation or governmental proceedings.
Item 3. Changes in and Disagreements with Accountants.
None.
-16-
<PAGE>
Item 4. Recent Sales of Unregistered Securities
We have engaged in several recent sales of unregistered securities.
I.
(a) Date: May 1, 1997.
Title: Neo Modern Entertainment Corp. Common Stock.
Amount Sold: 291,800 shares consisting of 251,800 shares for an aggregate
of $125,900, and 40,000 shares in exchange for accounting services.
(b) The offering was self-underwritten and was offered to a select group
personally known to Philip T. Kueber, the original organizer.
(c) The total offering price was $1,000,000 for 2,000,000 shares, the maximum
number of shares to be sold and $50,000 for 100,000 shares, the minimum
number of shares to be sold.
(d) The offering was conducted pursuant to Rule 504 promulgated under
Regulation D ("Rule 504") of the Securities Act of 1933, as amended (the
"Act"). In making the offering, we relied upon the opinion of outside
legal counsel, who, upon examination of our (i) Certificate of
Incorporation; (ii) Offering Memorandum and (iii) other relevant documents
and instruments, opined that the offering was properly conducted pursuant
to Rule 504 of the Act; and with reliance thereon, the shares sold
thereunder may be issued without being registered under the Act.
II.
(a) Date: February 19, 1998
Title: Neo Modern Entertainment Corp. Common Stock.
Amount Sold: 471,445 shares consisting of 54,000 shares for an aggregate
of $27,000, and 417,445 in exchange for services.
(b) The offering was self-underwritten and was offered to a select group
personally known to Philip T. Kueber, our original promoter and/or Rafal
Zielinski, our president.
(c) In exchange for the shares issued hereunder we received a number of
services in lieu of cash consideration. These services include the
following: (i) management and corporate planning services; (ii) consulting
services in creative affairs; (iii) consulting services for Neo Modern's
screenplays; (iv) providing readers reports and script evaluation; (v)
administration services and financial planning; (vi) writing services in
creating corporate literature; (vii) legal and administrative services;
(viii) bookkeeping services; and (ix) secretarial services.
(d) The offering was conducted pursuant to Rule 504 of the Act. In making the
offering, we relied upon the opinion of outside legal counsel, who, upon
examination of the Company's (i) Certificate of Incorporation; (ii)
Offering Memorandum and (iii) other relevant documents and instruments,
opined that the offering was properly conducted pursuant to Rule 504 of
the Act; and with reliance thereon, the shares sold thereunder may be
issued without being registered under the Act.
III.
-17-
<PAGE>
Issuance of 3,637,500 and 468,750 shares of Common Stock to Filmart Inc.,
a company controlled by our President, for $3,637.50 and $468.75,
respectively, pursuant to exercise of the options granted Filmart Inc.
This offering was a private placement under Section 4(2) of the Act.
IV. Issuance of 100,000 shares of Common Stock to a single individual on July
13, 1999 for price of $25,000, together with other services rendered. This
offering was a private placement of restricted stock under Section 4(2) of
the Act.
Item 5. Indemnification of Directors and Officers
As delineated in our By-Laws, we have chosen to restrict the liability of
our directors pursuant to the laws of the State of California, as follows: We
eliminate or limit the personal liability of a director for monetary damages in
an action brought by or in the right of the corporation for breach of a
director's duties to our corporation and our shareholders, provided, however,
that (i) such provision may not eliminate or limit the liability of directors
for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law; (ii) for acts or omissions that a director believes
to be contrary to the best interests of the corporation or its shareholders or
that involves the absence of good faith on the part of the directors; (iii) for
any transaction from which a director derived an improper personal benefit; (iv)
for acts or omissions that show a reckless disregard for the director's duty to
the corporation or its shareholders in circumstances in which the director was
aware or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders; and (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duties to the
corporation or its shareholders.
-18-
<PAGE>
PART F/S
Financial Statements
Filed with this Report on Form 10-SB are the following financial
statements for our years ended June 30, 1997, 1998 and 1999 and for the six
month period ended December 31, 1999, have been certified by Richard &
Associates, our independent public accountants:
-19-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED
JUNE 30, 1999, 1998 AND 1997
<PAGE>
RICHARD & ASSOCIATES
Accountancy Corporation o Certified Public Accountants
Member of AICPA o Member of CSCPA
5857 Uplander Way o Culver City, CA 90230
Phone 310-348-4188 o Fax 310-348-4189
- --------------------------------------------------------------------------------
January 18, 2000
Neo Modern Entertainment, Corp.
Los Angeles, CA 90048
To the Shareholders and the Board of Directors of Neo Modern Entertainment,
Corp.:
We have audited the accompanying balance sheets of Neo Modern Entertainment,
Corp. as of June 30, 1999 and 1998 and the related statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1999, 1998 and
1997. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating an overall financial statement presentation.
We believe that our audits provide 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 Neo Modern Entertainment, Corp.
as of June 30, 1999 and 1998 and the results of their operations and their cash
flows for the years ended June 30, 1999, 1998 and 1997 in accordance with
generally accepted accounting principles.
Richard & Associates
An Accountancy Corporation
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
BALANCE SHEET
June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 169 $ 9
Subscription Receivable 22,500
--------- ---------
Total Current Assets $ 22,669 $ 9
--------- ---------
Other assets:
Completed film less accumulated amortization of
$340,248 in 1999 and $333,532 in 1998 125,000 140,147
Organization costs less accumulated amortization of
$1,900 and $1,100 2,100 2,900
Projects in process (Note 7) 339,938 333,349
--------- ---------
Total assets $ 489,707 $ 476,405
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 120,001 $ 89,990
Accrued interest (Note 11) 19,066 6,362
--------- ---------
Total current liabilities 139,067 96,352
Long term liabilities (Note 11) 288,535 296,975
--------- ---------
Total Liabilities 427,602 393,327
--------- ---------
Stockholders' equity:
Common stock $.001 par value; shares authorized 100,000,000
issued and outstanding 5,172,225 and 3,863,245
at June 30, 1999 and 1998 5,172 3,863
Preferred stock $.50 par value; authorized 20,000,000 1,000
shares; issued and outstanding, none and 1,000,000
Paid-in capital 261,603 236,653
Retained earnings (deficit) (204,670) (158,438)
--------- ---------
Total stockholders' equity 62,105 83,078
--------- ---------
Total liabilities and stockholders' equity $ 489,707 $ 476,405
========= =========
</TABLE>
See accompanying notes to the financial statements.
-2-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
Net sales (Notes 4 and 10) $ 6,726 $ 25,474 $ 36,602
----------- ----------- -----------
Costs and expenses:
Amortization of film costs 6,726 25,474 36,602
Selling and shipping 2,000 8,000 47,820
Administrative and general 31,528 38,050 58,200
Interest expense 12,704 6,368 --
Total costs and expenses 52,958 77,892 142,622
----------- ----------- -----------
Loss before income taxes (46,232) (52,418) (106,020)
Income tax (benefit) (Note 10) -- -- --
----------- ----------- -----------
Net (loss) $ (46,232) $ (52,418) $ (106,020)
=========== =========== ===========
Loss per average share outstanding:
Basic and diluted $ (0.01) $ (0.02) $ (0.07)
========================================
Average number of outstanding shares
used in the per share calculation:
Basic and diluted 4,517,735 3,481,622 1,550,000
========================================
See accompanying notes to the financial statements.
-3-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Restricted Common Stock Common Stock Convertible Preferred
----------------------- ----------------------- ------------------------
Number Number Number Paid-In
of Shares Amount of Shares Amount of Shares Amount Capital
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 3,100,000 $ 3,100 -- $ -- 1,000,000 $ 1,000 $ --
Issuance of common stock for cash -- -- 296,000 296 -- -- 147,704
Issuance of restricted shares for cash 9,800 10 -- -- -- -- 4,890
Issuance of common stock for services -- -- 457,445 457 -- -- 228,266
Stock issuance cost -- -- -- -- -- -- (144,207)
Net loss for the year ended
June 30, 1998 -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 3,109,800 3,110 753,445 753 1,000,000 1,000 236,653
Conversion of preferred stock 1,000,000 1,000 -- -- (1,000,000) (1,000) --
Net issuance of restriced
common stock for cash 50,000 50 24,950
Net issuance of common shares for services -- -- 200,000 200 -- --
Net issuance of restricted common shares
for services 58,980 59 -- -- -- --
Stock issuance cost -- -- -- -- -- --
Net loss for the year ended
June 30, 1999 -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 4,218,780 $ 4,219 953,445 $ 953 -- $ -- $ 261,603
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
Retained Stockholders'
Earnings Equity
---------- -------------
<S> <C> <C>
Balance, June 30, 1997 $ (106,020) $ (101,920)
Issuance of common stock for cash -- 148,000
Issuance of restricted shares for cash -- 4,900
Issuance of common stock for services -- 228,723
Stock issuance cost -- (144,207)
Net loss for the year ended
June 30, 1998 (52,418) (52,418)
---------- ----------
Balance, June 30, 1998 (158,438) 83,078
Conversion of preferred stock -- --
Net issuance of restriced
common stock for cash 25,000
Net issuance of common shares for services -- 200
Net issuance of restricted common shares
for services -- 59
Stock issuance cost -- --
Net loss for the year ended
June 30, 1999 (46,232) (46,232)
---------- ----------
Balance, June 30, 1999 $ (204,670) $ 62,105
========== ==========
</TABLE>
See accompanying notes to the financial statements.
-4-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (46,232) $ (52,418) $(106,020)
Ammortization of Flm Cost and Organization Expense 7,526 26,274 37,402
Issuing of Common Stock for Services 8,680
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Changes in assets and liabilities:
Increase in subscription receivable (22,500)
Trade payables and accrued expenses 42,715 36,352 30,000
--------- --------- ---------
Net cash (used in) operating activities (9,811) 10,208 (38,618)
--------- --------- ---------
Cash flows from investing activities:
Film costs (6,589) (133,493) (216,201)
Proceeds from issuance of stock 25,000 152,500
--------- --------- ---------
Net cash provided by (used in) investing activities 18,411 19,007 (216,201)
--------- --------- ---------
Cash flows from financing activities:
Borrowing (repayment) of long-term debt (8,440) (29,206) 254,819
--------- --------- ---------
Net cash provided by (used in) financing activities (8,440) (29,206) 254,819
--------- --------- ---------
Net increase (decrease) in cash 160 9 --
Cash and cash equivalents at beginning of year 9 -- --
--------- --------- ---------
Cash and cash equivalents at end of year $ 169 $ 9 $ --
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 12,704 $ 6,368 $ --
========= ========= =========
Income taxes paid $ -- $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to the financial statements.
-5-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 1 Organization
The company was incorporated on March 19, 1997, under laws of the state of
California. The Company is engaged in the development, production and
distribution of motion pictures.
Note 2 Method of Accounting
Assets, liabilities, revenues and expenses are recorded under the accrual
method of accounting for both financial statements and income tax purposes.
Note 3 Accounting 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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Note 4 Film Library and Projects under Development
Film Library and projects in progress are stated at the lower of amortized
cost or market. Upon completion, cost are amortized on an individual production
basis in the proportion of current gross revenues divided by the Management's
estimate of total gross revenues with such estimates being reviewed at least
quarterly pursuant to FASB 53.
Note 5 Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards SFAS) No. 109 "Accounting for Income Taxes". The Statement
employs an asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred income taxes of a change in tax rates is
recognized income in the period that includes the enactment date.
Note 6 Development Stage Company
Since the inception, the Company has been primarily involved in raising
capital, commencing production schedules for various projects under progress,
and acquiring services in the field of legal, financial, and entertainment to
promote the company and develop it's future infrastructure.
The Company has devoted substantially all of its efforts toward
establishing the entity, by developing various projects and operating the day to
day activities. The Company has not generated any significant revenues since its
inception. Upon development, release and distribution of motion pictures, more
steady revenue can be expected. Theses financial statements comply with the
reporting requirements under SFAS No. 7 for Development Stage Companies
-1-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 7 Film Library and Projects in Progress
On May 1, 1997 the Company acquired the rights, interests, and titles to
certain feature motion pictures and projects in progress from Filmart, Inc.,
Rafael Zelinsky and related companies subject to the related liabilities. The
Company incurred additional costs for Projects in Progress, which were
capitalized pursuant to FASB 53. As of June 30, 1999 the cost for the completed
film "Fun" amounted $465,248 less accumulated amortization of $340,248 and the
cost of the film in progress "Bohemia" is $339,938 with an estimated cost to
complete of $200,000 ($100,000 for the completion of principal photography and
$100,000 for post production).
Note 8 Organization Cost
Organization cost is amortized ratably over a 60 months period.
Note 9 Accounts Payable
Account payable includes project development costs, which consists of
expenses incurred but not paid. The accounts payable includes liabilities and
obligation acquired as part of the agreement with Filmart, Inc., as explained in
Note 7, in addition to the Company's current payable.
Note 10 Long Term Payable
Long term debt consist of the following of as June 30, 1999 and 1998:
1999 1998
---- ----
Rafael Zelinsky & Filmart Inc.
including interest @ prime plus one 163,872 149,278
Other plus interest @
prime plus one 34,663 30,197
-----------------------
Sub-total 288,535 296,975
Secured by the distribution rights of "Bohemia".
1999 1998
---- ----
Deluxe Lab 90,000 117,500
-----------------------
Sub-total 90,000 177,500
Secured by the U.S. video rights of "Fun".
Total of long-term liabilities 378,535 414,475
=======================
Note 11 Capital Stock
Due to limited cash resources, the Company engaged various individuals or
entities to provide legal, financial, creative, script writing and
administrative services by issuing common stock.
Note 12 Subsequent Events
Common stock issued in July and August 1999 has been given affect to at
June 30, 1999.
-2-
<PAGE>
[LETTERHEAD OF RICHARD & ASSOCIATES]
January 18, 2000
Neo Modern Entertainment, Corp.
Los Angeles, CA 90048
To the Board of Directors of Neo Modern Entertainment, Corp.:
We have audited the accompanying balance sheet of Neo Modern Entertainment,
Corp. as of December 31, 1999 and the related statements of operations,
stockholders' equity and cash flows for the period of July 1, 1999 - December
31, 1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating an overall financial statement presentation.
We believe that our audits provide 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 Neo Modern Entertainment, Corp.
as of December 31, 1999 and the results of their operations and their cash flows
for the period of July 1, 1999 - December 31, 1999 in accordance with generally
accepted accounting principles.
Richard & Associates
An Accountancy Corporation
<PAGE>
NEO MODERN ENTERTAINMENT CORP
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 710
Contract Recievable 15,000
---------
Total Current Assets 15,710
---------
Other assets:
Completed film less accumulated amortization of $355,248 in 1999 (NOTE 4, 7, and 13) 110,000
Organization costs less accumulated amortization of $2500 (NOTE 8) 1,700
Projects in process (NOTE 4 and 7) 341,476
---------
Total assets $ 468,886
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables (NOTE 9) $ 150,610
---------
Total current liabilities 150,610
Long term liabilities (NOTE 10) 303,897
---------
Total Liabilities 454,507
---------
Commitment and Contigencies: (Note 13)
Stockholders' equity:
Common stock $.001 par value; shares authorized 100,000,000 reserved for
stock option 13,981,932 issued and outstanding
9,317,709. (NOTE 11) 9,318
Preferred stock $.50 par value; authorized 20,000,000
shares; issued and outstanding, none
Paid-in capital 245,743
Retained earnings (deficit) (231,364)
---------
Total stockholders' equity 14,379
---------
Total liabilities and stockholders' equity $ 468,886
=========
</TABLE>
See accompanying notes to the financial statements.
-2-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF OPERATIONS
JULY 1 - DECEMBER 31, 1999
Net sales $ 15,000
-----------
Costs and expenses:
Amortization of film costs 15,000
Administrative and general 11,332
Interest expense 15,362
-----------
Total costs and expenses 41,694
-----------
Loss before income taxes (26,694)
Income tax (benefit) --
-----------
Net (loss) $ (26,694)
===========
Loss per average share outstanding:
Basic and diluted $ (0.004)
===========
Average number of outstanding shares
used in the per share calculation:
Basic and diluted 7,244,967
===========
See accompanying notes to the financial statements.
-3-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
JULY 1 - DECEMBER 31, 1999
<TABLE>
<CAPTION>
Restricted Common Stock Common Stock
----------------------- -----------------
Number Number Paid-In Retained Stockholders'
of Shares Amount of Shares Amount Capital Earnings Equity
--------- ------ --------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1999 4,218,780 $4,219 953,445 $954 $261,603 $(204,670) $ 62,106
Issuance of restricted shares for services 39,234 39 39
Options excercised for restricted shares 4,106,250 4,106 4,106
Stock issuance cost (15,860) (15,860)
Net loss for the period (26,694) (26,694)
--------- ----- ------- --- ------- -------- ------
Balance, December 31, 1999 8,364,264 8,364 953,445 953 245,743 (231,364) 23,697
========= ===== ======= === ======= ======== ======
</TABLE>
See accompanying notes to the financial statements.
-4-
<PAGE>
NEO MODERN ENTERTAINMENT CORP.
STATEMENT OF CASH FLOWS
JULY 1 - DECEMBER 31, 1999
Cash flows from operating activities:
Net (loss) $(26,694)
Ammortization of Flm Cost and Organization Expense 15,400
Issuing of Common Stock for Services
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Changes in assets and liabilities:
Reduction of Recievables (7,500)
Trade payables and accrued expenses 26,195
--------
Net cash (used in) operating activities 7,401
--------
Cash flows from investing activities:
Film costs (1,538)
Stock issuance cost (9,428)
Proceeds from issuance of stock 4,106
--------
Net cash provided by (used in) investing activities (6,860)
--------
Net increase (decrease) in cash 541
Cash and cash equivalents July 1, 1999 169
--------
Cash and cash equivalents December 31, 1999 $ 710
========
Supplemental disclosure of cash flow information:
Interest paid
========
Income taxes paid $ --
========
See accompanying notes to the financial statements.
-5-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 1 Organization
The company was incorporated on March 19, 1997, under laws of the state of
California. The Company is engaged in the development, production and
distribution of motion pictures.
Note 2 Method of Accounting
Assets, liabilities, revenues and expenses are recorded under the accrual
method of accounting for both financial statements and income tax purposes.
Note 3 Accounting 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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Note 4 Film Library and Projects under Development
Film Library and projects in progress are stated at the lower of amortized
cost or market. Upon completion, cost are amortized on an individual production
basis in the proportion of current gross revenues divided by the Management's
estimate of total gross revenues with such estimates being reviewed at least
quarterly pursuant to FASB 53.
Note 5 Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards SFAS No. 109 "Accounting for Income Taxes". The Statement
employs an asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
SFAS No. 109, the effect on deferred income taxes of a change in tax rates is
recognized income in the period that includes the enactment date.
Note 6 Development Stage Company
Since the inception, the Company has been primarily involved in raising
capital, commencing production schedules for various projects under progress,
and acquiring services in the field of legal, financial, and entertainment to
promote the company and develop it's future infrastructure.
The Company has devoted substantially all of its efforts toward
establishing the entity, by developing various projects and operating the day to
day activities. The Company has not generated any significant revenues since its
inception. Upon development, release and distribution of motion pictures, more
steady revenue can be expected. Theses financial statements comply with the
reporting requirements under SFAS No. 7 for Development Stage Companies
-1-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)
Notes to Financial Statements
Note 7 Film Library and Projects in Progress
On May 1, 1997 the Company acquired the rights, interests, and titles to
certain feature motion pictures and projects in progress from Filmart, Inc.,
Rafael Zelinsky and related companies subject to the related liabilities. The
Company incurred additional costs for Projects in Progress, which were
capitalized pursuant to FASB 53. As of November 30, 1999 the cost for the
completed film "Fun" amounted $465,248 less accumulated amortization of $355,248
and the cost of the film in progress "Bohemia" is $341,476 with an estimated
cost to complete of $200,000 ($100,000 for the completion of principal
photography and $100,000 for post production).
Note 8 Organization Cost
Organization cost is amortized ratably over a 60 months period.
Note 9 Accounts Payable
Account payable includes project development costs, which consists of
expenses incurred but not paid. The accounts payable includes liabilities and
obligation acquired as part of the agreement with Filmart, Inc., as explained in
Note 7, in addition to the Company's current payables.
Note 10 Long Term Payable
Long term debt consist of the following:
Rafael Zelinsky & Filmart Inc.
including interest @ prime plus one $175,539
Deluxe Lab (NOTE 13) 90,000
Other plus interest @
prime plus one 36,163
--------
Total $301,702
========
Note 11 Capital Stock
Due to limited cash resources, the Company engaged various individuals or
entities to provide legal, financial, creative, script writing and
administrative services by issuing common stock.
Note 12 Compensation
On October 31, 1999 the Board of Directors ratified an employment contract
to the President/CEO for a term of seven years starting from March 21, 1997
calling for the issuance of 18,088,182 in stock options at par value exercisable
4,575,000 shares by March 21, 2000 of which 4,106,250 have been exercised to
date, the balance exercisable every 90 days incrementally through March 21,
2004. The contract also calls for compensation starting March 21, 1997, of
$2,000 per month increasing by 25% each year for seven years to be paid plus 10%
-2-
<PAGE>
NEO MODERN ENTERTAINMENT, CORP.
(A Development Stage Company)
Notes to Financial Statements
simple interest when funds are available in excess of operating needs as
approved by the Board of Directors. No salary has been paid to date.
In addition the other 2 members of Board of Directors will receive 8000 shares
per month until November 2000.
Note 13 Commitment & Contigencies
The company owes Deluxe Lab $90,000 collateralized by the U.S. video rights of
the movie "Fun". They will be paid from the income from sales. Compensation owed
to the President/CEO due to date is $79,000 plus interest. This will be paid by
Board approval (see Note 12).
Note 14 Subsequent Events
Common stock issued in December 1999 has been given affect to at November 30,
1999.
-3-
<PAGE>
Part III
Item 1. Index to Exhibits
Exhibit
No. Description
- ------- -----------
3.(i) Articles of Incorporation.
3.(ii) By-Laws.
6.(i) President/CEO's Memorandum Agreement dated as of March 21,
1997 with Filmart Inc.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEO MODERN ENTERTAINMENT CORP.
By: /s/ Rafal Zielinski
------------------------------
Name: Rafal Zielinski
Title: President
Date: January 13, 2000
-21-
ARTICLES OF INCORPORATION
OF
NEO MODERN ENTERTAINMENT CORP.
I
The name of this corporation is: NEO MODERN ENTERTAINMENT CORP.
II
The purpose of this corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California, other than the banking business, the trust company business of the
practice of a profession permitted to be incorporated by the California
Corporation Code.
III
The name and address in the State of California of this corporation's initial
agent for the service of process is Stan Medley, 120 S. San Fernando Road, No.
418, Burbank, California, 91502.
IV
1. The aggregate number of shares which the Corporation shall have authority to
issue is 120,000,000 of which 10,000,000 shares (of the par value of $.001 per
share) shall be designated "Class A Preferred Shares" and 10,000,000 shares (of
the par value of $.001 per share) shall be designated "Class B Preferred Shares"
and 100,000,000 shares (of the par value of $.001 per share) shall be designated
"Common Shares".
2. Authority is hereby expressly granted to the Board of Directors from time to
time to issue the Class A and Class B Preferred Shares and to fix by the
resolution or resolutions providing for the issue of shares thereof, the
designations, powers, preferences, and rights and the qualifications,
limitations, and restrictions, of each Class, to the full extent now or
hereafter permitted by the laws of the State of California.
V
The Board of Directors shall have the power to adopt, amend or repeal the
By-Laws.
Dated: March 12, 1997 ---------------------------------
STAN MEDLEY
INCORPORATOR
I hereby declare, under penalty of perjury, that I am the person who executed
the foregoing Articles of Incorporation, which execution is my act and deed.
---------------------------------
STAN MEDLEY
<PAGE>
CERTIFICATE OF DETERMINATION
for
NEO MODERN ENTERTAINMENT CORP.
a California Corporation
Rafal Zielinski, President, and Rafal Zielinski, Secretary, certify
that:
1. They are the President and Secretary, respectively, of Neo Modern
Entertainment Corp., a California corporation.
2. The authorized number of shares of the corporation's Preferred
stock constituting Class A Preferred Shares is 10,000,000, and Class B Preferred
Shares is 10,000,000. None of the shares of preferred stock has been validly
issued.
3. Pursuant to authority granted by the corporation's Articles of
Incorporation, the following resolution has been duly adopted and approved by
the Board of Directors.
"RESOLUTION OF THE BOARD OF DIRECTORS
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of shares known as Class A Preferred Shares, issuable from
time to time in one or more series; and
WHEREAS, the Board of Directors of this corporation is authorized to
fix resolution providing for the issue of shares thereof, the designation,
powers, preferences, and rights and the qualifications, limitations, and
restrictions, of said class of Preferred stock to the full extent
permitted by the laws of the State of California; and
WHEREAS, this corporation has not validly issued any shares of
Preferred Stock and the Board of Directors of this corporation desires,
pursuant to its authority, to determine and fix the designation, powers,
preferences, and rights and the qualifications, limitations, and
restrictions relating to the initial series of Class A Preferred Stock and
the number of shares constituting and the designation of the series;
IT IS THEREFORE RESOLVED, that the Board of Directors authorizes the
original issue of a series of Class A Preferred shares. The number of
shares shall be Ten Million (10,000,000). All shares in this series are
subject to the same voting rights, and amount and rate of distribution as
apply to common stock. In the event of liquidation of the company, the
Class A Preferred shares shall have only one preference which is that they
shall be paid out ahead of common stock.
IT IS FURTHER RESOLVED, that each share of Class A Preferred Stock
may be converted to one share of common stock at the option of the holder
of the Class A Preferred Stock.
<PAGE>
IT IS FURTHER RESOLVED, that any officer of the corporation is
authorized to execute, verify, and file in the office of the California
Secretary of State, a Certificate of Determination in accordance with this
resolution and the law of the State of California."
4. We further declare, under penalty of perjury under the laws of
the State of California, that the matters set forth in this Certificate are true
and correct of our own knowledge.
Executed this 9th day of April, 1999 at Montreal, Canada.
----------------------------------
RAFAL ZIELINSKI, President
----------------------------------
RAFAL ZIELINSKI, Secretary
BY-LAWS
OF
NEO MODERN ENTERTAINMENT, INC.
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the corporation is hereby fixed and located at 442 NORTH LA CIENEGA
BOULEVARD #206 City of WEST HOLLYWOOD, County of LOS ANGELES, State of
California. The location may be changed by approval of a majority of the
authorized Directors, and additional offices may be established and maintained
at such other place or places, either within or without California, as the Board
of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE I I
DIRECTORS -- MANAGEMENT
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions
of the General Corporation Law and to any limitations in the Articles of
Incorporation of the corporation relating to action required to be approved by
the Shareholders, as that term is defined in Section 153 of the California
Corporations Code, or by the outstanding shares, as that term is defined in
Section 152 of the Code, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the Board of Directors. The Board may delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
person, provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board.
Section 2. STANDARD OF CARE Each Director shall perform the duties of a
Director, including the duties as a member of any committee of the Board upon
which the Director may serve, in good faith, in a manner such Director believes
to be in the best interests of the corporation, and with such care, including
reasonable inquiry, as an ordinary prudent person in a like position would use
under similar circumstances. (Sec. 309)
Section 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions
of Section 1, in the event that this corporation shall elect to become a close
corporation as defined in sec. 158, its Shareholders may enter into a
Shareholders' Agreement as defined in Sec. 186.
<PAGE>
Said Agreement may provide for the exercise of corporate powers and the
management of the business and affairs of this corporation by the 1
Shareholders, provided, however, such agreement shall, to the extent and so long
as the discretion or the powers of the Board in its management of corporate
affairs is controlled by such agreement, impose upon each Shareholder who is a
party thereof, liability for managerial acts performed or omitted by such person
pursuant thereto otherwise imposed upon Directors as provided in Sec. 300 (d);
and the Directors shall be relieved to that extent from such liability.
Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
Directors shall be THREE (3) until changed by a duly adopted amendment to the
Articles of Incorporation or by an amendment to this by-law adopted by the vote
or written consent of holders of a majority of the outstanding shares entitled
to vote, as provided in Sec. 212.
Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the Shareholders to hold office until the next
annual meeting. Each Director, including a Director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 6. VACANCIES. Vacancies in the Board of Directors may be filled by
a majority of the remaining Directors, though less than a quorum, or by a sole
remaining Director, except that a vacancy created by the removal of a Director
by the vote or written consent of the Shareholders or by court order may be
filled only by the vote of a majority of the shares entitled to vote represented
at a duly held meeting at which a quorum is present, or by the written consent
of holders of a majority of the outstanding shares entitled to vote. Each
Director so elected shall hold office until the next annual meeting of the
Shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in the event of the death, resignation, or removal of any Director, or if the
Board of Directors by resolution declares vacant the office of a Director who
has been declared of unsound mind by an order of court or convicted of a felony,
or if the authorized number of Directors is increased, or if the shareholders
fail, at any meeting of shareholders at which any Director or Directors are
elected, to elect the number of Directors to be voted for at that meeting.
The Shareholders may elect a Director or Directors at any time to fill any
vacancy or vacancies not filled by the Directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
No reduction of the authorized number of Directors shall have the effect
of removing any Director before that Director's term of office expires.
Section 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual Director may be removed from office as provided by Secs. 302, 303 and
304 of the Corporations
2
<PAGE>
Code of the State of California. In such case, the remaining Board members may
elect a successor Director to fill such vacancy for the remaining unexpired term
of the Director so removed.
Section 8. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of
Directors may be called by the Chairman of the Board, or the President, or any
Vice President, or the Secretary, or any two (2) Directors and shall be held at
the principal executive office of the corporation, unless some other place is
designated in the notice of the meeting. Members of the Board may participate in
a meeting through use of a conference telephone or similar communications
equipment so long as all members participating in such a meeting can hear one
another. Accurate minutes of any meeting of the Board or any committee thereof,
shall be maintained as required by Sec. 1500 of the Code by the Secretary or
other Officer designated for that purpose.
Section 9. ORGANIZATION MEETINGS. The organization meetings of the Board
of Directors shall be held immediately following the adjournment of the annual
meetings of the Shareholders.
Section 10. OTHER REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at the corporate offices, or such other place as may be
designated by the Board of Directors, as follows:
Time of Regular Meeting: 10:00 AM
Date of Regular Meeting: MARCH 21
If said day shall fall upon a holiday, such meetings shall be held on the
next succeeding business day thereafter. No notice need be given of such regular
meetings.
Section 11. SPECIAL MEETINGS - NOTICES - WAIVERS. Special meetings of the
Board may be called at any time by any of the aforesaid officers, i.e., by the
Chairman of the Board or the President or any Vice President or the Secretary or
any two (2) Directors.
At least forty-eight (48) hours notice of the time and place of special
meetings shall be delivered personally to the Directors or personally
communicated to them by a corporate Officer by telephone or telegraph. If the
notice is sent to a Director by letter, it shall be addressed to him or her at
his or her address as it is shown upon the records of the corporation, or if it
is not so shown on such records or is not readily ascertainable, at the place in
which the meetings of the Directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail, postage prepaid, in the
place in which the principal executive office of the corporation is located at
least four (4) days prior to the time of the holding of the meeting. Such
mailing, telegraphing, telephoning or delivery as above provided shall be due,
legal and personal notice to such Director.
When all of the Directors are present at any Directors, meeting, however
called or noticed, and either (i) sign a written consent thereto on the records
of such meeting, or, (ii) if a majority of
3
<PAGE>
the Directors are present and if those not present sign a waiver of notice of
such meeting or a consent to holding the meeting or an approval of the minutes
thereof, whether prior to or after the holding of such meeting, which said
waiver, consent or approval shall be filed with the Secretary of the
corporation, or, (iii) if a Director attends a meeting without notice but
without protesting, prior thereto or at its commencement, the lack of notice,
then the transactions thereof are as valid as if had at a meeting regularly
called and noticed.
Section 12. SOLE DIRECTOR PROVIDED BY ARTICLES OR INCORPORATION OR
BY-LAWS. In the event only one (1) Director is required by the By-Laws or
Articles of Incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the Directors
shall be deemed to refer to such notice, waiver, etc., by such sole Director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to a Board of Directors.
Section 13. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting and with the same force and effect as if taken by a unanimous vote of
Directors, if authorized by a writing signed individually or collectively by all
members of the Board. Such consent shall be filed with the regular minutes of
the Board.
Section 14. QUORUM. A majority of the number of Directors as fixed by the
Articles of Incorporation or By-Laws shall be necessary to constitute a quorum
for the transaction of business, and the action of a majority of the Directors
present at any meeting at which there is a quorum, when duly assembled, is valid
as a corporate act; provided that a minority of the Directors, in the absence of
a quorum, may adjourn from time to time, but may not transact any business. A
meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of Directors, if any action taken is
approved by a majority of the required quorum for such meeting.
Section 15. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given to absent Directors if the time and place
be fixed at the meeting adjourned and held within twenty-four (24) hours, but if
adjourned more than twenty-four (24) hours, notice shall be given to all
Directors not present at the time of the adjournment.
Section 16. COMPENSATION OF DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but by resolution of the Board a
fixed sum and expense of attendance, if any, may be allowed for attendance at
each regular and special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 17. COMMITTEES. Committees of the Board may be appointed by
resolution passed by a majority of the whole Board. Committees shall be composed
of two (2) or more
4
<PAGE>
members of the Board, and shall have such powers of the Board as may be
expressly delegated to it by resolution of the Board of Directors, except those
powers expressly made non-delegable by Sec. 311.
Section 18. ADVISORY DIRECTORS. The Board of Directors from time to time
may elect one or more persons to be Advisory Directors who shall not by such
appointment be members of the Board of Directors. Advisory Directors shall be
available from time to time to perform special assignments specified by the
President, to attend meetings of the Board of Directors upon invitation and to
furnish consultation to the Board. The period during which the title shall be
held may be prescribed by the Board of Directors. If no period is prescribed,
the title shall be held at the pleasure of the Board.
Section 19. RESIGNATIONS. Any Director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The Officers of the corporation shall be a President,
a Secretary, and a Chief Financial Officer. The corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other Officers as may be appointed in accordance with the
provisions of Section 3 of this Article III. Any number of offices may be held
by the same person.
Section 2. ELECTION. The Officers of the corporation, except such Officers
as may be appointed in accordance with the provisions of Section 3 or Section 5
of this Article, shall be chosen annually by the Board of Directors, and each
shall hold office until he or she shall resign or shall be removed or otherwise
disqualified to serve, or a successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint
such other Officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the By-Laws or as the Board of Directors may from time to
time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an Officer under any contract of employment, any Officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting of the Board, or, except in case of an Officer chosen by the
Board of Directors, by any Officer upon whom such power of removal may be
conferred by the Board of Directors.
5
<PAGE>
Any Officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Officer is a
party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-Laws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned by the Board of Directors or prescribed by the By-Laws. If
there is no President, the Chairman of the Board shall in addition be the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article III.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and Officers of the
corporation. He or she shall preside at all meetings of the Shareholders and in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Directors. The President shall be ex officio a member of all the
standing committees, including the Executive Committee, if any, and shall have
the general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-Laws.
Section 8. VICE PRESIDENT. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to, all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-Laws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a
book of minutes at the principal office or such other place as the Board of
Directors may order, of all meetings of Directors and Shareholders, with the
time and place of holding, whether regular or special, and if special, how
authorized, the notice thereof given, the names of those present at Directors'
meetings, the number of shares present or represented at Shareholders' meetings
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the
6
<PAGE>
Shareholders and their addresses; the number and classes of shares held by each;
the number and date of certificates issued for the same; and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the Shareholders and of the Board of Directors required by the By-Laws or by
law to be given. He or she shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained in accordance with
generally accepted accounting principles, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
earnings (or surplus) and shares. The books of account shall at all reasonable
times be open to inspection by any Director.
This Officer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the Board of Directors. He or she shall disburse the funds of the corporation as
may be ordered by the Board of Directors, shall render to the President and
Directors, whenever they request it, an account of all of his or her
transactions and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the By-Laws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be
held at the principal executive office of the corporation unless some other
appropriate and convenient location be designated for that purpose from time to
time by the Board of Directors.
Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall
be held, each year, at the time and on the day following:
Time of Meeting: 9:00 AM
Date of Meeting: AUGUST 22
If this day shall be a legal holiday, then the meeting shall be held on
the next succeeding business day, at the same hour. At the annual meeting, the
Shareholders shall elect a Board of Directors, consider reports of the affairs
of the corporation and transact such other business as may be properly brought
before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be
called at any time by the Board of Directors, the Chairman of the Board, the
President, a Vice President,
7
<PAGE>
the Secretary, or by one or more shareholders holding not less than one-tenth
(1/10) of the voting power of the corporation. Except as next provided, notice
shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman, President,
Vice President, or Secretary, mailed or delivered personally to such Officer by
any person (other than the Board) entitled to call a special meeting of
Shareholders, such Officer shall cause notice to be given, to the Shareholders
entitled to vote, that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of such request. If such notice is not given
within twenty (20) days after receipt of such request, the persons calling the
meeting may give notice thereof in the manner provided by these By-Laws or apply
to the Superior Court as provided in Sec. 305 (c).
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual or
special, shall be given in writing not less than ten (10) nor more than sixty
(60) days before the date of the meeting to Shareholders entitled to vote
thereat. Such notice shall be given by the Secretary or the Assistant Secretary,
or if there be no such Officer, or in the case of his or her neglect or refusal,
by any Director or Shareholder.
Such notices or any reports shall be given personally or by mail or other
means of written communication as provided in Sec. 601 of the Code and shall be
sent to the Shareholder's address appearing on the books of the corporation, or
supplied by him or her to the corporation for the purpose of notice, and in the
absence thereof, as provided in Sec. 601 of the Code.
Notice of any meeting of Shareholders shall specify the place, the day and
the hour of meeting, and (1) in case of a special meeting, the general nature of
the business to be transacted and no other business may be transacted, or (2) in
the case of an annual meeting, those matters which the Board at date of mailing,
intends to present for action by the Shareholders. At any meetings where
Directors are to be elected, notice shall include the names of the nominees, if
any, intended at date of notice to be presented by management for election.
If a Shareholder supplies no address, notice shall be deemed to have been
given if mailed to the place where the principal executive office of the
corporation, in California, is situated, or published at least once in some
newspaper of general circulation in the County of said principal office.
Notice shall be deemed given at the time it is delivered personally or
deposited in the mail or sent by other means of written communication. The
Officer giving such notice or report shall prepare and file an affidavit or
declaration thereof.
When a meeting is adjourned for forty-five (45) days or more, notice of
the adjourned meeting shall be given as in case of an original meeting. Save, as
aforesaid, it shall not be
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necessary to give any notice of adjournment or of the business to be transacted
at an adjourned meeting other than by announcement at the meeting at which such
adjournment is taken.
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of Shareholders, however called and noticed, shall
be valid as though had at a meeting duly held after regular call and notice, if
a quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the Shareholders entitled to vote, not present in person or
by proxy, sign a written waiver of notice, or a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance shall constitute a waiver of notice, unless
objection shall be made as provided in Sec. 601 (e).
Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING - DIRECTORS. Any action
which may be taken at a meeting of the Shareholders, may be taken without a
meeting or notice of meeting if authorized by a writing signed by all of the
Shareholders entitled to vote at a meeting for such purpose, and filed with the
Secretary of the corporation, provided, further, that while ordinarily directors
can only be elected by unanimous written consent under Sec. 603 (d), if the
Directors fail to fill a vacancy, then a Director to fill that vacancy may be
elected by the written consent of persons holding a majority of shares entitled
to vote for the election of Directors.
Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided in
the California Corporations Code or the Articles, any action which may be at any
annual or special meeting of Shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Unless the consents of all Shareholders entitled to vote have been
solicited in writing, (1) Notice of any Shareholder approval pursuant to Seas.
310, 317, 1201 or 2007 without a meeting by less than unanimous written consent
shall be given at least ten (10) days before the consummation of the action
authorized by such approval, and (2) Prompt notice shall be given of the taking
of any other corporate action approved by Shareholders without a meeting by less
than unanimous written consent, to each of those Shareholders entitled to vote
who have not consented in writing.
Any Shareholder giving a written consent, or the Shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
Shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the corporation.
9
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Section 8. QUORUM. The holders of a majority of the shares entitled to
vote thereat, present in person, or represented by proxy, shall constitute a
quorum at all meetings of the Shareholders for the transaction of business
except as otherwise provided by law, by the Articles of Incorporation, or by
these By-Laws. If, however, such majority shall not be present or represented at
any meeting of the Shareholders, the Shareholders entitled to vote thereat,
present in person, or by proxy, shall have the power to adjourn the meeting from
time to time, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented, any business may be transacted which might have been transacted at
a meeting as originally notified.
If a quorum be initially present, the Shareholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum, if any action taken is approved by a
majority of the Shareholders required to initially constitute a quorum.
Section 9. VOTING. Only persons in whose names shares entitled to vote
stand on the stock records of the corporation on the day of any meeting of
Shareholders, unless some other day be fixed by the Board of Directors for the
determination of Shareholders of record, and then on such other day, shall be
entitled to vote at such meeting.
Provided the candidate's name has been placed in nomination prior to the
voting and one or more Shareholder has given notice at the meeting prior to the
voting of the Shareholder's intent to cumulate the Shareholder's votes, every
Shareholder entitled to vote at any election for Directors of any corporation
for profit may cumulate their votes and given one candidate a number of votes
equal to the number of Directors to be elected multiplied by the number of votes
to which his or her shares are entitled, or distribute his or her votes on the
same principle among as many candidates as he or she thinks fit.
The candidates receiving the highest number of votes up to the number of
Directors to be elected are elected.
The Board of Directors may fix a time in the future not exceeding sixty
(60) days preceding the date of any meeting of Shareholders or the date fixed
for the payment of any dividend or distribution, or for the allotment of rights,
or when any change or conversion or exchange of shares shall go into effect, as
a record date for the determination of the Shareholders entitled to notice of
and to vote at any such meeting, or entitled to receive any such dividend or
distribution, or any allotment of rights, or to exercise the rights in respect
to any such change, conversion or exchange of shares. In such case only
Shareholders of record on the date so fixed shall be entitled to notice of and
to vote at such meeting, or to receive such dividend, distribution or allotment
of rights, or to exercise such rights, as the case may be notwithstanding any
transfer of any share on the books of the corporation after any record date
fixed as aforesaid. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period.
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Section 10. PROXIES. Every Shareholder entitled to vote, or to execute
consents, may do so, either in person or by written proxy, executed in
accordance with the provisions of Secs. 604 and 705 of the Code and filed with
the Secretary of the corporation.
Section 11. ORGANIZATION. The President, or in the absence of the
President, any Vice President, shall call the meeting of the Shareholders to
order, and shall act as chairman of the meeting. In the absence of the President
and all of the Vice presidents, Shareholders shall appoint a chairman for such
meeting. The Secretary of the corporation shall act as Secretary of all meetings
of the Shareholders, but in the absence of the Secretary at any meeting of the
Shareholders, the presiding Officer may appoint any person to act as Secretary
of the meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders the Board of Directors may, if they so elect, appoint inspectors of
election to act at such meeting or any adjournment thereof. If inspectors of
election be not so appointed, or if any persons so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the request of any
Shareholder or his or her proxy shall, make such appointment at the meeting in
which case the number of inspectors shall be either one (1) or three (3) as
determined by a majority of the Shareholders represented at the meeting.
Section 13. (A) SHAREHOLDERS' AGREEMENTS. Notwithstanding the above
provisions, in the event this corporation elects to become a close corporation,
an agreement between two (2) or more Shareholders thereof, if in writing and
signed by the parties thereof, may provide that in exercising any voting rights
the shares held by them shall be voted as provided therein or in Sec. 706, and
may otherwise modify these provisions as to Shareholders' meetings and actions.
(B) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders' Agreement
authorized by Sec. 300 (b), shall only be effective to modify the terms of these
ByLaws if this corporation elects to become a close corporation with appropriate
filing of or amendment to its Articles as required by Sec. 202 and shall
terminate when this corporation ceases to be a close corporation. Such an
agreement cannot waive or alter Sec. 158, (defining close corporations), 202
(requirements of Articles of Incorporation), 500 and 501 relative to
distributions, 111 (merger), 1201 (e) (reorganization) or Chapters 15 (Records
and Reports) or 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22
(Crimes and Penalties). Any other provisions of the code or these By-Laws may be
altered or waived thereby, but to the extent they are not so altered or waived,
these By-Laws shall be applicable.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of
such form and device as the Board of Directors may designate and shall state the
name of the record holder of the shares represented thereby; its number; date of
issuance; the number of
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shares for which it is issued; a statement of the rights, privileges,
preferences and restrictions, if any; a statement as to the redemption or
conversion, if any; a statement of liens or restrictions upon transfer or
voting, if any; if the shares be assessable or, if assessments are collectible
by personal action, a plain statement of such facts.
All certificates shall be signed in the name of the corporation by the
Chairman of the Board or Vice Chairman of the Board or the President or Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In case
any Officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that Officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an Officer,
transfer agent, or registrar at the date of issue.
Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary to
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of the fact and shall, if the Directors so require, give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the Board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint one or more transfer agents or transfer clerks, and one or more
registrars, which shall be an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that the
corporation may determine the Shareholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other action.
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If no record date is fixed, the record date for determining Shareholders
entitled to notice of or to vote at a meeting of Shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held. The record date for
determining Shareholders entitled to give consent to corporate action in writing
without a meeting, when no prior action by the Board is necessary, shall be the
day on which the first written consent is given.
The record date for determining Shareholders for any other purpose shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
Section 6. LEGEND CONDITION. In the event any shares of this corporation
are issued pursuant to a permit or exemption therefrom requiring the imposition
of a legend condition, the person or persons issuing or transferring said shares
shall make sure said legend appears on the certificate and shall not be required
to transfer any shares free of such legend unless an amendment to such permit or
a new permit be first issued so authorizing such a deletion.
Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing
shares of this corporation, in the event it shall elect to become a close
corporation, shall contain the legend required by Sec. 418 (c).
ARTICLE VI
RECORDS - REPORTS - INSPECTION
Section 1. RECORDS. The corporation shall maintain, in accordance with
generally accepted accounting principles, adequate and correct accounts, books
and records of its business and properties. All of such books, records and
accounts shall be kept at its principal executive office in the State of
California, as fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided
for in Sec. 1500 shall be open to inspection of the Directors and Shareholders
from time to time and in the manner provided in said Sec. 1600 - 1602.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy
of these By-Laws, as amended or otherwise altered to date, certified by the
Secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the Shareholders of the corporation at all
reasonable times during office hours, as provided in Sec. 213 of the
Corporations Code.
Section 2. POWERS OF DIRECTORS. Subject to the right of the ~ shareholders
to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article
VIII, and the limitations of Sec. 204 (a) (5) and Sec. 212, the Board of
Directors may adopt, amend or repeal any of these
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<PAGE>
By-Laws other than a By-Law or amendment thereof changing the authorized number
of Directors.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is
adopted, it shall be copied in the book of By-Laws with the original By-Laws, in
the appropriate place. If any By-Law is repealed, the fact of repeal with the
date of the meeting at which the repeal was enacted or written assent was filed
shall be stated in said book.
ARTICLE IX
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the year or date of its incorporation, and
the word "California".
ARTICLE X
MISCELLANEOUS
Section 1. REFERENCES TO CODE SECTIONS. "Sec." references herein refer to
the equivalent Sections of the California Corporations Code effective January 1,
1977, as amended.
Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President
and the Secretary or an Assistant Secretary.
Section 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one (1) or more subsidiaries.
Section 4. INDEMNIFICATION AND LIABILITY. The liability of the Directors
of the corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) for breach of duty
to the corporation and shareholders, through By-Law provisions or through
agreements with the agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
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Section 5. ACCOUNTING YEAR. The accounting year of the corporation shall
be fixed by resolution of the Board of Directors.
CERTIFICATE OF ADOPTION OF BY-LAWS
ADOPTION BY INCORPORATOR(S) OR FIRST DIRECTOR(S).
The undersigned person(s) named in the Articles of Incorporation as the
Incorporator(s) or First Director(s) of the above named corporation hereby adopt
the same as the By-Laws of said corporation. Executed this 21st day of March,
1997.
- ------------------------------
STAN MEDLEY, Incorporator
CERTIFICATE By SECRETARY
I DO HEREBY CERTIFY AS FOLLOWS:
That I am the duly elected, qualified and acting Secretary of the
above-named corporation, that the foregoing By-Laws were adopted as the By-Laws
of said corporation on the date set forth above by the person(s) named in the
Articles of Incorporation as the Incorporator(s) or First Director(s) of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate
seal this 21st day of March, 1997.
- -------------------------------
JAMES R. ZATOLOKIN, Secretary
15
PRESIDENT/CEO'S MEMORANDUM AGREEMENT
(NEO MODERN ENTERTAINMENT CORP./FILMART INC. (loan out-services
of RAFAL ZIELINSKI)
The following agreement, dated as of March 21, 1997 (the "Agreement")
shall constitute the basic terms and conditions of the agreement between FILMART
INC. ("Loan-Out Corp.") a California Corporation, providing the services of
RAFAL ZIELINSKI ("Employee") and NEO MODERN ENTERTAINMENT CORP., a California
corporation ("Company"), as follows:
1. Loan-Out Corp. Fed Id#
Employee. Social Security Number ###-##-####.
2. Position. President/CEO.
3. Duties.
a. Subject to such supervisory powers, if any, as may be given by
the Board of Directors of the Company to the Chairman of the Board, if there be
such an officer, the Employee, as President/CEO shall be the Chief Executive
Officer of the Company and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
Officers of the Company. He shall preside at all meetings of the Shareholders
and in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. The Employee, as President/CEO, shall be ex
officio a member of all the standing committees, including the Executive
Committee, if any, and shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or the
By-Laws of the Company.
b. As President, Employee, shall have the sole "green light"
authority to choose which of the film projects the company will put into
production and shall have creative control as customarily defined in the film
industry (i.e. script approval, casting, final cut) over each film. Financial
controls such as budget approval and film distribution shall be in control of
the Board of Directors.
c. If a third party Chief Financial Officer is not elected by the
Board of Directors, Employee shall also be the Chief Fanancial Officer of the
Company. As such, he shall keep and maintain, or cause to be kept and maintained
in accordance with generally accepted accounting principles, adequate and
correct accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, earnings (or
<PAGE>
surplus) and shares. The book of account shall at all reasonable times be open
to inspection by any Director.
As Chief Financial Officer, he shall deposit all moneys and other valuables in
the name and to the credit of the Company with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the Company
as may be ordered by the Board of Directors, shall render to the Directors,
whenever they request it, an account of all of his transactions and of the
financial condition of the Company, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or the By-Laws
of the Company.
d. If a third party Secretary of the Company is not elected by the
Board of Directors, the Employee shall also be the Secretary of the Company (as
defined by the By-Laws of the Neo Modern Entertainment Corporation). As such, he
shall keep, or cause to be kept, a book of minutes at the principal office or
such other place as the Board of Directors may order, of all meetings of
Directors and Shareholders, with the time and place of holding, whether regular
or special, and if special, how authorized, the notice thereof given, the names
of those present at Director's meetings and the proceedings thereof.
As Secretary of the Corporation, he shall keep, or cause to be kept, at the
principal office or at the office of the corporation's transfer agent, a share
register, or duplicate share register, showing the names of the Shareholders and
their addresses; the number and classes of shares held by each; the number and
date of certificates issued for the same; and the number and date of
cancellation of every certificate surrendered for cancellation.
As Secretary of the Corporation, he shall give, or cause to be given, notice of
all the meetings of the Shareholders and of the Board of Directors required by
the By-Laws or by law to be given. He shall keep the seal of the Corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors of the By-Laws of the Neo Modern
Entertainment Corporation.
4. Term. Employee shall commence Employee's services hereunder on May 25,
1997 and Employee shall continue to render such services on an non-exclusive
basis until March 21, 2004. After expiration of the Term, this agreement will be
automatically renewed, subject to good faith negotiations.
5. Compensation. Company shall pay to Loan-Out the following compensation:
a. Fixed Cash Compensation. Two Thousand US Dollars ($2,000.00) per
month for the first year. There will be a 25% increase in the monthly Fixed Cash
Compensation, for each
<PAGE>
successive year, over the previous years Compensation, as follows:
year 1: $ 2,000.00 per month
year 2: $ 2,500.00 per month
year 3: $ 3,125.00 per month
year 4: $ 3,906.25 per month
year 5: $ 4,882.81 per month
year 6: $ 6,103.52 per month
year 7: $ 7,629.39 per month
If the Company does not have sufficient funding to pay the above sums, the
Compensation shall be deferred and paid in full or in installments at future
date(s) to be determined in good faith by the Company, with 10% annual simple
interest.
b. Stock Option Plan. The Loan-Out Corp. will have the option to
purchase common shares at par value of $.001 as follows:
100,000 shares per month for year 1. = 1,200,000 total
125,000 shares per month for year 2. = 1,500,000 total
156.250 shares per month for year 3. = 1,875,000 total
195.312 shares per month for year 4. = 2,343,750 total
244,140 shares per month for year 5. = 2,929,687 total
305,175 shares per month for year 6. = 3,662,109 total
381,469 shares per month for year 7 = 4,577,636 total
The shares will be restricted under Rule 144, and the Loan-Out Corp. shall have
the irrevocable right to sell these shares at any time, subject to Rule 144, to
any third party without any other restrictions by the Company.
If there are stock splits, the plan will be adjusted proportionally by the
multiple of the split factor. (i.e.: if the stock is split 1:2 the option price
shall be divided by 1/2, and the number of shares multiplied by 2).
The Loan-Out Corp. will have the irrevocable right to exercise the options every
90 days, per the above-mentioned plan.
Company hereby undertakes to provide the necessary legal opinion letters, and
issue any paperwork as may be necessary for the issuance of the above-mentioned
shares, and for the removal of the 144 legends, subject to Rule 144, when the
Loan-Out Corp. decides to sell these shares to any third party.
<PAGE>
In the event Company shall fail or refuse for any reason to execute and deliver
the share certificates, legal opinions, or any paperwork, legal opinion letters
above described and/or any such documents, then Company hereby irrevocably
appoints Loan-Out Corp. as Company's attorney-in-fact to cause such legal
opinion letters to be issued and execute said paperwork and/or documents in
Company's name and on Company's behalf. Company's failure to provide said legal
opinion letters or execute said paperwork and/or documents shall not affect or
limit any of Company's rights in and to the results and proceeds of Loan-Out
Corp.'s services thereunder.
6. Travel and Expenses. Company shall provide Employee with a monthly
allowance for automobile costs and shall reimburse Employee reasonable costs of
gasoline, entertainment, travel expenses, and out of town hotel or living
expenses and per-diems, connected directly with Employees services to the
Company.
7. Office & Secretary. Employee shall be provided with an office, and the
services of a secretary, during the period of Employee's services to Company
hereunder, subject to Company having the appropriate and sufficient financial
resources to provide such to Employee.
8. Insurance. Company shall have the right to apply for and take out, at
Company's expense, life, health, accident Directors & Officers Liability
Insurance or any other insurance covering Employee, in any amount Company deems
necessary to protect Company's interest hereunder. Employee shall not have any
right, title or interest in or to such insurance. Employee shall assist Company
in obtaining such insurance by submitting to usual and customary medical and
other examinations and by signing such applications, statements and other
instruments as may be reasonably required by any insurance company.
9. Default/Disability. No act or omission of Company hereunder shall
constitute an event of default or breach of this Agreement unless Employee shall
first notify Company in writing setting forth such alleged breach or default,
and Company shall cure said alleged breach or default within ten (10) days after
receipt of such notice (or commence said cure within said ten days if the matter
cannot be cured in ten days, and shall diligently continue to complete said
cure).
Upon any material breach or default by Employee of any of the terms and
conditions hereof, Company shall immediately have the right to suspend this
Agreement. If such breach or default is not cured within ninety (90) days after
Employee's receipt of written notice of such alleged breach or default (the
"Cure Period"), Company shall have the right, exercisable at any time after the
expiration of the Cure Period, to continue such suspension or terminate this
Agreement by written notice to Employee. Notwithstanding that Company may not
terminate this
<PAGE>
Agreement if Employee cures such alleged breach or default within the Cure
Period.
Upon any disability or incapacity of Employee which prevents Employee from
fully performing or complying with the terms and conditions hereof, Company
shall immediately have the right to suspend this Agreement. If such disability
or incapacity shall continue for more than ninety (90) consecutive days, Company
shall immediately have the right, exercisable at any time after such ninety (90)
day period, to continue such suspension or terminate this Agreement by so
notifying Employee in writing.
During the period of any suspension hereunder or upon any termination
hereof, Employee shall not be entitled to any further compensation hereunder;
provided, that if such suspension or termination is a result of a disability or
incapacity (and not a default or breach), Employee shall be entitled to that
compensation which had accrued prior to the date of the event giving rise to
such suspension and/or termination. If Company has the choice to continue a
suspension hereunder or to terminate and Company elects to continue the
suspension, then Company may terminate the Agreement by written notice to
Employee during the period of any such continued suspension. Nothing contained
herein above shall in any manner limit any other remedy which Company may have
against Employee (including without limitation, the right to offset Company's
damages caused by Employee's default or breach hereof from and against any
compensation due to Employee hereunder). Company's failure to suspend and/or
terminate this Agreement during periods when it may do so and/or Company's
payment of compensation to Employee during any period of suspension, shall not
be deemed a waiver of Company's right to later suspend and/or terminate this
Agreement or withhold further compensation due to Employee. A material breach of
any other agreement between the parties may, at Company's election, be deemed a
material breach of this Agreement.
10. Loan-Out Corp.'s & Employee's Remedies. In the event of any breach by
Company of this Agreement, Loan-Out Corp. and Employee shall be limited to
Employee's remedies at law for damages, if any, and shall not have the right to
terminate or rescind this Agreement.
11. Indemnification and Liability. The Loan-Out Corp.'s and Employees
liability for monetary damages is hereby eliminated to the fullest extent
permissible under California Law.
The Company hereby agrees to indemnify and hold Loan-Out Corp. and Employee
harmless for any and all acts performed by Employee, whether negligent,
intentional or unintentional related to the performance of his duties to the
Company and any other breach of duty (such as negligence, nonfeasance,
malfeasance, or other acts for which Employee or Loan-Out Corp. may held liable)
to the Company and Shareholders and from any claims of any other third
<PAGE>
parties related to any actions, activities or relationships between the Company,
Loan-Out Corp., Employee and such third parties.
The Company undertakes to provide Directors & Officers Liability Insurance, and
will pay the cost of the deductible if any suit shall arise resulting from
Employees services hereuder.
12. Notices and Payments. All notices and payments thereunder shall be
made to the appropriate party at the following address:
Loan-Out Corp. Company
- -------------- -------
FILMART INC. NEO MODERN ENTERTAINMENT CORP.
8033 Sunset Blvd. #640 442 N. La Cienega, #206
West Hollywood, CA 90046 West Hollywood, CA 90048
Atttn: Rafal Zielinski Attn: Rafal Zielinski
13. Standard Terms. This Agreement shall include all of the Standard Terms
and Conditions set forth in Employment Contracts of this nature, which are
incorporated by this reference as if fully set forth herein.
a. Governing Law. This Agreement shall be governed by the laws of
the State of California pertaining to contracts made and wholly performed
therein, and shall not be modified except by a written document executed by the
party to be charged. The parties agree to the exclusive jurisdiction of the
federal and state courts located in Los Angeles County, California in matters
relating to this Agreement.
b. Entire Agreement. This Agreement expresses the entire
understanding of the parties hereto and replaces any and all former agreements
or understandings, written or oral, relating to the subject matter hereof. The
parties acknowledge and agree that in entering into this Agreement they have not
relied upon or been induced by any promise or representation (express or
implied, oral or written) of any other party not contained herein.
c. Waiver. No waiver by any party hereto of any term or condition
hereof shall be deemed or construed to be a waiver of such term or condition in
the future, or of any preceding or subsequent breach of the same or any other
term or condition of this or any other agreement.
d. Severability. Except as may be expressly provided to the contrary
herein, each provision of this Agreement shall be considered separate and
divisible, and in the event that any such provision is held to be invalid, void
or unenforceable
<PAGE>
by a court of competent jurisdiction, the remaining provisions shall continue to
be in full force and effect without being impaired or invalidated in any way.
e. Remedies Cumulative. Except as may be expressly provided to the
contrary herein, the parties' various rights and remedies hereunder shall be
cumulative and the exercise or enforcement of any one or more of them shall not
preclude the enforcing party from exercising or enforcing any of the others or
any right or remedy provided for by law.
f. Binding Effect. This Agreement, and all rights and obligations
hereunder, shall be binding on and inure to the benefit of the parties hereto
and their respective heirs, successors, licensees and assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date and year above first indicated.
April 6th, 1999
NEO MODERN ENTERTAINMENT CORP.
____________________________________
per: Rafal Zielinski, president
This is to confirm that I have given Filmart Inc. the right to sign this
agreement and to loan-out my services, as described in detail above, per the
terms and conditions of this agreement.
_________________________
RAFAL ZIELINSKI, Employee
April 6th, 1999
APPROVED BY BOARD OF DIRECTORS:
date:____________________, 1999
director: _____________________
director: _____________________
