SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
Commission File Number 333-51683
World House Entertainment, Inc.
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(Name of small business issuer in its charter)
Nevada 87-0567884
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2831 Dogwood Place
Nashville, Tennessee 37204
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (615) 269-8682
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock $.001 Par Value
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Title of Class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for the most recent fiscal year. $27,398.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $0. There is no public trading market for the Company's common
stock.
There were 780,000 shares of common stock $.001 par value outstanding as of
April 8,1999.
Documents incorporated by reference:
None
Transitional Small Business Format (check one): Yes No X
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Item 1. Description of Business
Introduction
The Company was incorporated in the State of Nevada on December 5, 1996,
under the name "Sportsfair Television, Inc." The Company's plan at that time was
to create and promote sporting goods shows for home shopping networks
transmitted via satellite or cable television. These plans did not come into
fruition. On December 31, 1997, the Company acquired from Elizabeth Ann Peters
all of the issued and outstanding common stock of Songs for the Planet in
exchange for 200,000 shares of Common Stock. Songs for the Planet was organized
in August of 1997 and had limited operations at the time of the foregoing
acquisition. These operations primarily consisted of providing copyright
administrative services to affiliates of Mr. Peters. See "Certain Relationships
and Related Transactions." The Company conducted no business operations prior to
the acquisition of Songs for the Planet and currently serves as a holding
company of shares of common stock of Songs for the Planet. Business operations
of the Company are conducted through Songs for the Planet. Prior to the
acquisition of Songs for the Planet, the Company conducted no operations
whatsoever. At the time of its formation, the promoter of the Company was Mr.
David Owen, the father of Mrs. Peters. Prior to the acquisition of Songs for the
Planet by the Company, Mr. Owen divested his interests in the Company. Elizabeth
Ann Peters is the Company's sole employee.
Copyright Administration Services
The primary business of the Company is to provide copyright administration
services to the music and entertainment industry. These copyright administration
services include (a) the registration of copyrights with the United States
Copyright Office, (b) the preparation of assignments of copyrights, (c) the
negotiation, preparation and execution of mechanical licenses, synchronization
licenses and other rights agreements respecting musical compositions, and (d)
the collection of royalties in connection with such licenses or rights
agreements. The Company anticipates that it will also provide similar services
to producers of recorded music products, including the obtaining of mechanical
licenses and synchronization licenses for the use of musical compositions and
the computation and payment of royalties. The following describes the legal and
market context in which these services are provided.
Copyrights
Original musical compositions, as well as derivative works such as
arrangements and editions, are primarily created by individuals or small groups.
Upon creation of an original or derivative work, the creator possesses a
copyright in the work. A copyright is a form of protection provided by the laws
of the United States to the authors of "original works of authorship" including
literary, dramatic, musical, artistic, and certain other intellectual works. A
copyright arises simply from creation of the work. The owner of a copyright has
the exclusive right to: (i) reproduce copies of the work; (ii) prepare
derivative works; (iii) distribute copies of the work; (iv) perform the work
publicly; (v) display the work publicly; and (vi) in the case of sound
recordings, to perform the copyrighted work publicly by means of a digital audio
transmission.
If the composition is the product of more than one author (for example, a
composer and a lyricist), the work is treated as a joint work. Each author has
an undivided ownership interest in the work taken as a whole which interest does
not terminate upon his or her death (i.e., there is no right of survivorship).
Each owner is therefore entitled to exploit the copyright, subject to a right of
accounting to the co-owners.
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While registration with the United States Copyright Office is not required
for copyright protection, it is a prerequisite for filing a copyright
infringement action based on a work of United States origin and for the recovery
of statutory damages and attorneys' fee incident thereto. Registration also
serves as prima facie evidence of ownership and validity of the copyright.
For works created on or after January 1, 1978, a copyright exists from the
date of creation and, generally stated, a period of fifty years beyond the life
of the author. In the case of anonymous works, pseudonymous works or works made
for hire, the term of a copyright is seventy-five years from the date of first
publication or 100 years from the date of creation, whichever comes first.
For works created but neither in the public domain, nor published or
copyrighted prior to January 1, 1978, the basic term of the copyright is the
same as indicated above. In all cases, however, the copyright will not expire
before December 31, 2002; and, if the work is published on or before December
31, 2002, the copyright will not expire before December 31, 2027.
For works that were either published or copyrighted before January 1, 1978,
the copyright was secured on the date the work was published or on the date of
registration if the work was registered. In either case, the works are protected
for an initial term of twenty-eight years and, during the last year of the first
term, the copyright may be renewed for an additional forty-seven years.
The federal courts have original and exclusive jurisdiction over all civil
actions arising under the federal copyright statute. Such an action must be
brought within three years from the date the copyright owner has knowledge of a
violation (or is imputed to have such knowledge). In addition to injunctive
relief, a copyright owner may recover either (i) actual damages and any
additional profits of the infringer or (ii) statutory damages between $500 and
$20,000 for all infringements with respect to any one work. If the infringement
was willful, the court has the discretion to increase the award of statutory
damages to $100,000; but, if the defendant had no reason to know that it was
infringing a copyright, the court has the discretion to decrease the award of
statutory damages to $200. The court has the discretion to award attorneys' fees
and costs to the prevailing party in a copyright action.
The Process of Copyright
One of the Company's primary services will be in assisting clients in
registering their copyrights. The owner of the copyright registers a work by
filing an application with the Copyright Office. With this application, the
owner must also deposit a filing fee and the requisite number of copies of the
work. The copies of the work deposited are the "best edition" of the work. For
example, if a work is recorded and manufactured on a cassette tape or a compact
disc, then the deposit copy should be the compact disc.
The form used for musical compositions is Form PA. The filing fee is
$20.00. The material required to register a claim of copyright is set forth in
the following table:
Type of Work Material Required
Unpublished work 1 copy (or phonorecord)(1)
Published work 2 copies (or 1 phonorecord) of the best
edition
Work first published outside 1 copy (or phonorecord) of the first foreign
the United States edition
Contribution to a collective 1 copy (or phonorecord) of the best edition
work of the collective work
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(1) The Copyright Act defines phonorecords as follows:
"Phonorecords" are material objects in which sounds, other than those
accompanying a motion picture or other audiovisual work, are fixed by any
method now known or later developed, and from which the sounds can be
perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device. The term "phonorecords" includes the
material object in which the sounds are first fixed.
Multiple applications may be needed depending on the circumstances. The
following describes the range of forms used by the Copyright Office.
Form Purpose
CA For supplementary registration to correct
or amplify information given in the
copyright record of an earlier registration
SE For registration of each individual issue
of a serial.
PA For published and unpublished works of the
performing arts (musical and dramatic works,
pantomimes and dramatic works, motion pictures
and other audiovisual works). Used to copyright
songs.
RE For claims to renewal of copyright in works
copyrighted under the law in effect through
December 31, 1997.
SR For published and unpublished sound recordings.
TX For published and unpublished nondramatic
literary works.
VA For published and unpublished works of the
visual arts (pictorial, graphic and sculptural
works).
Licenses and Assignments
Copyright ownership allows the owner to reproduce and distribute copies of
the work or to permit someone else to perform these functions (which is
generally called a "license") on either an exclusive or non-exclusive basis.
Under the federal copyright statute, transfers of copyright ownership (which are
generally called "assignments") must be in a written instrument signed by the
transferor which explicitly identifies those rights being transferred. A
non-exclusive license is not generally considered an assignment of ownership. An
assignment is recordable with the Copyright Office so as to give others
constructive notice of the assignment. Each of the exclusive rights granted to a
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copyright owner are distinct and may be assigned separately. For example, the
owner of a copyright may assign the right to reproduce a copyrighted work, but
retain the right to authorize and prepare derivative works.
Although licenses are generally negotiated transactions, the copyright
statute provides for mandatory licenses under certain situations. For example,
the statute permits proprietors of establishments to perform nondramatic musical
works in public by means of a coin operated phonorecord player (i.e., a jukebox)
as long as there are no direct or indirect charges for admission.
The copyright statute also permits others to record a musical work and to
distribute phonorecords to the public for private use. Compact discs which
encode both the audio rendition of a song and also contemporaneous display of
the song's lyrics (known as "compact discs plus graphics" or "CD+G's") are not
phonorecords under the statute. Moreover, except when embodied in a phonorecord,
the lyrics to a song may enjoy independent copyright protection as a literary
work which may not be reproduced without the owner's consent. On the other hand,
a compulsory license includes the privilege of making a musical arrangement of
the work as long as the arrangement does not change the basic melody or
fundamental character of the work. But, such an arrangement is not subject to
copyright protection without the express consent of the copyright owner of the
original work.
There are four types of licenses or rights agreements which frequently
pertain to musical compositions. A mechanical license is an authorization from
the owner of the copyright (or the owner's agent) to manufacture and distribute
an audio recording of the composition. This includes music embodied in piano
rolls, phonograph recordings, cassette tapes, compact discs, digital audio tape
and computer chips. Works accompanying a motion picture or other audio visual
work are not included. A synchronization license is an authorization from the
owner of the copyright (or the owner's agent) to use an audio recording of the
composition in conjunction with visual images such as motion pictures,
television, videotapes and computer programs. Synchronization licenses are
typically used in connection with theatrical motion pictures, video cassettes,
commercial and noncommercial television, corporate media presentations, CD+G's
and commercial advertising. A performance right is an authorization from the
owner of the copyright (or the owner's agent) to perform a musical composition
publicly, including the broadcast of a work over radio or television or the
playing of a recording at a place of business. A music publishing license
involves the right to create printed sheet music for a composition.
For every phonorecord made and distributed on or after January 1, 1996, the
royalty rate payable with respect to each composition is the greater of 6.95
cents or 1.3 cents per minute of playing time or fraction thereof. The Copyright
Office adjusted this rate, effective January 1, 1998, as follows:
Date Phonorecord Made
and Distributed Rate
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On or after January 1, 1998 .............greater of 7.1 cents or 1.35 cents
.........................................per minute of playing time or
.........................................fraction thereof
On or after January 1, 2000 .............greater of 7.55 cents or 1.45 cents
.........................................per minute of playing time or
.........................................fraction thereof
On or after January 1, 2002 .............greater of 8.0 cents or 1.55 cents
.........................................per minute of playing time or
.........................................fraction thereof
On or after January 1, 2004 .............greater of 8.5 cents or 1.65 cents
.........................................per minute of playing time or
.........................................fraction thereof'.
On or after January 1, 2006 .............greater of 9.1 cents or 1.75 cents
.........................................per minute of playing time or
.........................................fraction thereof
These rates are subject to change.
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A copyright owner (or the owner's agent) may grant a mechanical license for
less than the statutory rate. For synchronization licenses and music publishing
licenses, the royalty rate is negotiated on a case by caw, basis between the
copyright owner (or owner's agent) and the prospective user.
Performance rights are generally licensed through performing rights
associations, such as the American Society of Composers, Authors and Publishers
("ASCAP"), Broadcast Music, Inc. ("BMI"), and the Society of European Stage
Authors and Composers ("SESAC"), on either a blanket fee or per program fee
basis.
Music Industry Market
The music industry is the business of (i) discovering and signing musical
artists, (ii) licensing the recording and performance of their music, and (iii)
engaging in printing, manufacturing, packaging, distributing and marketing
activities in connection therewith. According to the most recent survey of the
National Music Publishers Association (the "NMPA'), world soundcarrier sales in
1995 were $39.68 billion and royalty payments totaled $6.2 billion. The United
States represents approximately 21% of the world market. The following table
shows the allocation of these royalty payments according to source.
Source of Income Percentage
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Performance Based Income ...............................44.00%
Reproduction Based Income ..............................43.00%
Distribution Based Income ..............................10.00%
Interest Investment Income ..............................3.00%
Miscellaneous Income ....................................0.31%
[Source: NMPA 6th Annual International Survey]
Typically, music publishing agreements with songwriters grant the music
publishing company exclusive rights with respect to all compositions created by
the songwriter, in whole or in part, during the term of the agreement usually in
exchange for the payment of an advance to the songwriter and, after the
recoupment of the advance, the payment of royalties on sales of soundcarriers
using such compositions. In some cases, the publishing company may be required
to seek the songwriter's approval before licensing the composition for certain
uses.
Music publishing companies frequently acquire a catalog of compositions
previously created by a a songwriter or group of songwriters as a music
publishing asset. It is not uncommon for music publishing companies to be owned
or controlled by individual songwriters. Music publishing companies derive
revenues primarily from (a) license fees paid for the use of such musical
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compositions on radio, on television, in motion pictures and in other public
performances, (b) royalties paid for the use of such musical compositions on
compact discs, audio cassettes, music videos and in television commercials, and
(c) sales of published sheet music and song books. There are literally thousands
of music publishing companies in business throughout the world. Competition
amongst music publishing companies is intense in acquiring musical compositions
and in having them recorded and performed.
The recorded music industry produces, manufactures, distributes and markets
recorded music products on a retail or wholesale basis. The recorded music
industry is dominated by six major companies: Warner Bros. Records, Inc.;
PolyGram Records, Inc.; Sony Corporation of America; BMG Music; MCA
Inc./Universal City Studios, Inc.; and Thorn EMI Music. These six companies are
vertically integrated, such that they (or their affiliates) are able to perform
all aspects of the business. The remainder of the recorded music industry is
represented by numerous small independent companies.
Copyright owners generally receive royalties based upon a percentage of
gross sales and of performance-related income. On the other hand, it is the
general practice in the recorded music industry to sell recorded music products
on a returnable basis. As a consequence, music publishing revenues tend to be
collected later than soundcarrier sales.
Revenues of the music industry are adversely affected by the unauthorized
reproduction of recordings for commercial sale, commonly referred to as
"piracy," and by home taping for personal use. The industry may also be
adversely affected by the ability of consumers to download quality sound
recordings via the Internet.
Expert Services
The Company intends to provide the following expert services.
Publishing Administration
The publishing administration services offered by Songs for the Planet
include all forms of licensing, (including mechanical, synchronization, print
and multimedia), registration of copyrights with the performing rights
organizations, preparation of songwriter/publisher agreements, preparation of
assignments of copyright and co-ownership agreements, registration of copyrights
and renewal of copyrights with the U.S. Copyright Office, and world-wide royalty
collection and royalty accounting services.
Music Clearance Services
Songs for the Planet provides services to clients who are music users for
the purposes of negotiating and clearing rights with copyright owners. The
rights negotiated on behalf of its client(s) are for the use of music in
software, advertising for a company or corporation, feature television or film,
manufacture of CD's, cassettes, etc. Songs for the Planet relies on the
negotiating expertise of its staff to provide favorable licensing terms and
rates for the client(s). These services also include royalty monitoring,
long-term royalty accounting, and preparation of income tax reports under Form
1099.
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Studio Facility
The studio facility operated by Songs for the Planet offers recording
capabilities for producers, artists, and songwriters, etc. for the purpose of
recording music in digital format. The equipment consists of a 48-channel
digital console with complete automation, 2 digital high-8 Tascam recording
units, as well as another 128 Midi tracks for sequencing/studio recording
purposes. The studio contains equipment capable of producing master recordings
for a variety of purposes.
Differentiation from Competition
Songs for the Planet offers a range of intellectual property and copyright
management services. The Company seeks to offer the most efficient and timely
service to its clients while relying on its extensive copyright administration
experience. Music publishing rights and other related music rights are extremely
complicated and require a solid understanding of the business. Songs for the
Planet offers a diversity of services to help manage these rights without the
client paying large fees to a copyright attorney, CPA, and licensing
administration company who typically handle similar services and can often
compound the fees. Songs for the Planet offers a more comprehensive and cost
effective solution to the client by offering consulting services, publishing
administration and music clearance service on a more affordable basis.
Consulting Services
Consulting services such a catalog valuations and contract negotiations and
preparations are often handled by copyright attorneys and CPAs who can charge
extensive fees to a client requiring consultation services. Songs for the Planet
offers these types of services without rendering legal or accounting advice on a
more affordable basis. This, coupled with a working knowledge of the music
business, makes Songs for the Planet a more attractive solution.
Publishing Administration
Careful and accurate management of an intellectual property is crucial to
its long term value. Music publishing catalogs are far less valuable if licenses
are not issued and royalties are uncollected. Songs for the Planet offers a
service to help a music publisher better manage these copyrights and as a result
increase their value. The Harry Fox Agency is the largest mechanical rights
organization in the U.S., representing over 17,000 music publishers. However
their services are limited to licensing in the United States only. Songs for the
Planet offers a wide range of services including licensing, administration and
royalty accounting for one fee. Typically these services needed by a music
publisher are handled by separate companies who can compound fees and restrict
the accurate flow of information. Copyright share information is critical to the
flow of accurate licensing and royalty accounting. Also, this flow of
information from one company to another can often cause inefficient licensing
and delayed royalty payments. Songs for the Planet can give its publishing
clients a more timely, accurate and cost-effective service.
Music Clearance Services
It has been the nature of copyright laws created by a government to grant
exclusive rights to a copyright owner, but only for a limited time. After that
time expires the work becomes available to the public (hence the term "in the
public domain"). This means that once a copyright term expires, anyone can use
the work without permission or payment to anyone. Prior to the expiration of the
term, use of the work without permission is considered a violation of federal
law and subject to remedies outlined in the U.S. Copyright Law. It is therefore
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the obligation of the user of music to first obtain permission from the
copyright owner before utilizing a copyrighted work. Clearing these rights can
be costly and time consuming. Songs for the Planet offers a service to music
users such as TV, Film, multimedia, software and advertising producers to
efficiently clear these rights. The expertise Songs for the Planet offers is a
strong relationship with the music industry to acquire these rights in a timely
and cost effective way. The music clearance service also requires an extensive
knowledge of the rights involved, accurate copyright research, expert
negotiation and contract administration. With over 10 years of synchronization
and other related contract negotiation experience, Songs for the Planet offers a
more professional and cost effective solution to a music users needs.
Studio Facility
Independent producers and artists often need an affordable place to record
a music project. Songwriters and music publishers often solicit their created
works by making a demonstration recording and submitting it to recording artists
and music producers. Songs for the Planet offers a facility with a state-of
the-art recording console and digital format that provides a more cost-effective
way to make quality recordings. The relationships Songs for the Planet has with
clients utilizing its other services provides a potential client base to the
studio facility.
Business Strategy
The Company's business strategy is to provide a full range of
administration services to music publishers, the recorded music industry and the
entertainment industry ' generally. These services will include administering
(1) mechanical licenses, (2) synchronization licenses for media other than
phonorecords (including licenses relating to motion pictures, television and
video productions, and multimedia), and (3) literary licenses with respect to
song lyrics (when used, for example, in print advertising).The Company's
management believes that this strategy sets the Company apart from its
competition in that the competition tends to specialize in certain aspects of
the business. The Company, however, does not intend to provide services relating
to performance rights.
The Company's revenue for providing copyright administration services is a
percentage of royalties actually collected on behalf of its music publishing
clients, less all costs of collection and fees paid by the Company to collection
agents and subpublishers. Typically, such services are expected to be transacted
pursuant to written agreements having a term of three years. The amount of the
Company's fee is negotiated with each client; however, it is estimated that the
average fee will be five percent (5%) for licensing services and ten percent
(10%) for full administration services. The Company's revenues will be dependent
upon the demand for its clients' musical compositions. For recorded music
clients, the Company will bill at hourly rates between $40.00 to $60.00 per
hour.
The Company's business operations to date have been limited. The Company
has five clients: Truthworks Music of Brentwood, Tennessee, Tourmaline Music,
Inc. ("Tourmaline"), LITA Music ("LITA'), Justin Peters Music ("JPM"), and
Platinum Planet Music, Inc. ("Platinum Planet"), each of Nashville, Tennessee.
LITA, JPM, Platinum Planet and Tourmaline are each owned and controlled by
Benjamin Justin Peters. See "Certain Relationships and Related Transactions."
Apart from regulations pertaining to copyrights, the Company's management
does not believe that governmental regulation will have a significant effect
upon the Company's operations.
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Recording Services
As a service incidental to its primary business, the Company provides
recording services to musical artists. These recording services are primarily
furnished for preparing demonstration records ("demos") on behalf of artists for
use in soliciting recording companies to sign the artist. In addition, these
services may also include producing master recordings suitable for the purpose
of manufacturing quality phonograph records and for the purpose of assisting in
the development of the artist's career. The Company receives a negotiated fee
for these services. The Company is generally responsible for paying musicians
and acquiring additional equipment used in connection with a recording project.
Competition
Copyright administration and recording services of the type provided music
publishing companies are provided by numerous other companies throughout the
world. The market for licensing services to music publishing companies is
dominated by the Harry Fox Agency, a division of the NMPA, which represents more
than 17,000 music publishers. Moreover, the six major recorded music companies
have their own staffs which furnish for internal use copyright administration
services provided or contemplated by the Company to recording companies.
Item 2. Description of Property
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The Company does not own any real property. The Company's corporate offices
and studio facilities are located in a building owned by Mr. Peters' father. The
Company pays no cash consideration for the use of this building. .
Item 3. Legal Proceedings.
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There are no legal proceedings, pending or threatened, to which the Company
is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1998, either through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
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No public trading market for the Company's common stock has been
established. The Company has not paid any dividends on its common stock and the
Board of Directors presently intends to continue a policy of retaining earnings,
if any, for use in the Company's operations and to finance expansion of its
business. The declaration and payment of dividends in the future, of which there
can be no assurance, will be determined by the Board of Directors in light of
conditions then existing, including earnings, financial condition, capital
requirements and other factors. There are no restrictions that currently
materially limit the Company's ability to pay dividends or which the Company
reasonably believes are likely to limit materially the future payment of
dividends on common stock.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- --------------------------------------------------------------------------------
General
The Company primarily provides copyright administration services to music
publishers, including (a) the registration of copyrights with the United States
Copyright Office, (b) the preparation of assignments of copyrights, (c) the
negotiation, preparation and execution of mechanical licenses, synchronization
licenses and other rights agreements respecting musical compositions, and (d)
the collection of royalties pertaining to the use of such compositions.
The Company's revenues are derived from commissions for its services based
upon a percentage of the gross income received by the Company on behalf of its
clients after deducting certain costs and fees. With respect to copyright
administration services provided recorded music producers, the Company is
compensated at a negotiated hourly rate.
In order for the Company to obtain significant revenues from its planned
endeavors, the Company must establish professional relationships with a
significant number of clients and develop a favorable professional reputation
within the music industry. While management believes that progress has been made
to achieve these goals, marketing activities must continue to progress in order
for the Company to become profitable. From inception through December 31, 1998,
the Company has incurred an accumulated deficit of $204,696 and losses are
expected to continue at least through the second quarter of the year ending
December 31, 1999; no assurances can be given that losses will not be incurred
thereafter.
REUSLTS OF OPERATIONS
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Years Ended December 31, 1998 and December 31, 1997
- ---------------------------------------------------
The Company incurred a net loss from operations of $64,395 in the year
ended December 31, 1998 compared to a net loss from operations of $130,446 in
the year ended December 31, 1997. The primary reason for the narrowing loss was
because the Company reduced its reserve for an uncollected note receivable from
$100,000 for the year ended December 31, 1997 to $9,199 for the year ended
December 31, 1998. Without this reduction in reserve, the loss from operations
for the year ended December 31, 1998 would have actually increased by $24,750 to
$155,196. Revenues for the year ended December 31, 1998 were $27,398, which
represented an increase of $25,845 when compared to revenues of $1,553 for the
year ended December 31, 1997. The increase in revenues is attributed primarily
to the initiation of operations on a full time basis during the year ended
December 31, 1998. General, selling and administrative expenses increased
substantially to $64,396 for the year ended December 31, 1998 from $6,115 for
the year ended December 31, 1997, an increase of $58,281. This reflects the
payment of salaries and related expenses as well as the payment of rent and
other expenses incident to full time operations. Management expects that if the
Company's operations expand, of which there is no assurance, general and
administrative expenses necessary to support the increased level of activity
will also increase. Product development expenses dropped from $18,384 for the
year ended December 31, 1997 to -0- for the year ended December 31, 1998 as the
Company conserved its cash assets and focused its attention on client
development.
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Interest income increased substantially to $10,699 for the year ended
December 31, 1998 due to accrual of interest for a full year on a note
receivable. Interest expense increased substantially to $17,160 for the year
ended December 31, 1998 from $3,379 for the year ended December 31, 1997. This
increase was the result of the Company's paying interest on debt for a full one
year period in contrast to a partial year's interest payments for the year ended
December 31, 1997. The level of interest expense is expected to drop
substantially in the year ending December 31, 1999 because the Company retired
$150,000 of debt subsequent to December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
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Revenues for the period from December 5, 1996 (inception) through December
31, 1998 were $28,951 while expenses were $223,807, resulting in a loss from
operations since inception of $194,856. Net cash used in operating activities
from inception through December 31, 1998 was $11,503. For the year ended
December 31, 1998, cash used in operating activities was $8,830. Thus, while the
revenues derived from the Company's operations are indicative of support within
the music industry, they have not been sufficient to cover expenses. The Company
has historically provided for its cash needs primarily from borrowings from
shareholders of the Company. Net cash provided by proceeds from the issuance of
demand promissory notes amounted to $128,750 in the year ended December 31, 1997
and an additional $28,750 in the year ended December 31, 1998. Net cash used in
investing activities amounted to $125,368 for year ended December 31, 1997 and
an additional $1,321 in the year ended December 31, 1998.
Subsequent to December 31, 1998, the Company sold 80,000 shares of its
common stock at $2.50 per share and realized net proceeds therefrom of $174,269
after deducting deferred offering expenses of $25,731. The proceeds from the
offering were used to retire $150,000 of notes payable and $18,438 in accrued
interest that were outstanding at December 31, 1998.
The Company has no material long term commitments or material commitments
for capital expenditures. To date, the Company has obtained its revenues by
providing client services and has used such revenues to defray a portion of the
Company's operating costs.
The Company's auditors have included a "going concern" qualification to
their opinion issued in connection with their audit of the Company's financial
statements for the year ended December 31, 1998. This qualification is issued
when there appears to be substantial concern about the ability of the Company to
meet its obligations as they come due and the inability of the Company to
continue in business because of a lack of cash and cash equivalent assets. The
Company intends to provide for its cash needs by selling its common stock,
although there is no assurance that the Company will be able to sell stock in
sufficient amounts to satisfy its cash requirements.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is concerned with whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Year 2000 problem is pervasive and complex as virtually
11
<PAGE>
every company's computer operation will be affected in some way. The Company's
computer system which logs and keeps track of its copyright material was
designed and developed without considering the impact of the upcoming change in
century. Nevertheless, as a result of the Company's analysis of its computer
programs and operations, it has reached the conclusion that "Year 2000" problems
will not seriously impact or have a material adverse effect on the Company's
expenses, business or operations.
It is possible, however, that "Year 2000" problems incurred by the clients
of the Company could have a negative impact on future operations and financial
performance of the Company, although the Company has not been able to
specifically identify any such problems among its clients or suppliers.
Furthermore, the Year 2000 problem may impact other entities with which the
Company transacts business and the Company cannot predict the effect of the Year
2000 problem on such entities or the resulting effect on the Company. The
Company has not yet developed a contingency plan to operate in the event that
any non-compliant client or supplier systems that materially impact the Company
are not remedied by January 1, 2000 and has not yet determined a time table for
developing such a plan. As a result, if preventative and/or corrective actions
by the Company or those entities with which the Company does business are not
made in a timely manner, the Year 2000 issue could have a material adverse
effect on the Company's business, financial condition and results of operations.
12
<PAGE>
Item 7. Financial Statements.
---------------------
13
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Index to Consolidated Financial Statements
Page
----
Independent auditor's report........................................ F-2
Consolidated statement of financial position,
December 31, 1998................................................ F-4
Consolidated statements of operations,
years ended December 31, 1998 and 1997............................ F-5
Consolidated statement of shareholder's deficit,
January 1, 1997 through December 31, 1998........................ F-6
Consolidated statements of cash flows,
years ended December 31, 1998 and 1997........................... F-7
Notes to consolidated financial statements.......................... F-9
F-1
<PAGE>
To the Board of Directors and Shareholders
World House Entertainment, Inc.
Independent Auditors' Report
We have audited the consolidated statement of financial position of World House
Entertainment, Inc. and subsidiary as of December 31, 1998, and the related
consolidated statements of operations, shareholders' deficit and cash flows for
the years ended December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
World House Entertainment, Inc., and subsidiary were affiliated for the period
from inception to the effective date of the Agreement To Acquire Shares
(December 31, 1997). The Agreement To Acquire Shares is described in Note F. The
historical financial statements of World House Entertainment, Inc., and
subsidiary have been combined for the period from January 1, 1997 to the
effective date of the Agreement To Acquire Shares.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
World House Entertainment, Inc., and subsidiary as of December 31, 1998, and the
results of their operations and their cash flows for the years ended December
31, 1998 and 1997 in conformity with generally accepted accounting principles.
F-2
<PAGE>
Independent Auditors' Report
Page 2
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company has incurred net losses since
inception and has a limited amount of cash at December 31, 1998, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also discussed in Note A. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Cordovano and Harvey, P.C.
Denver, Colorado
March 18, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Consolidated Statement of Financial Position
December 31, 1998
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 577
Note receivable, related party, net of allowance of $100,000 (Note B) --
Accrued interest receivable, related party, net of allowance
of $9,199 (Note B) --
---------
TOTAL CURRENT ASSETS 577
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$9,060 (Note C) 16,849
OTHER ASSETS:
Deposits 450
---------
$ 17,876
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts and notes payable:
Accounts payable, trade $ 27,244
Notes payable, related parties (Notes B&D) 143,750
Other notes payable (Note D) 13,750
Other current liabilities
Due to employee (Note B) 130
Accrued interest payable 22,179
Accrued payroll 8,750
---------
TOTAL CURRENT LIABILITIES 215,803
---------
COMMITMENTS (Note G) --
SHAREHOLDERS' DEFICIT (Note F)
Preferred stock, $.001 par value; 5,000,000 shares authorized,
-0- issued and outstanding --
Common stock, $.001 par value; 50,000,000 shares authorized,
700,000 issued and outstanding 700
Additional paid-in capital 31,800
Deferred offering costs (25,731)
Retained deficit (204,696)
---------
TOTAL SHAREHOLDERS' DEFICIT (197,927)
---------
$ 17,876
=========
See accompanying notes to consolidated financial statements
F-4
</TABLE>
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Consolidated Statements of Operations
For The Years Ended
December 31,
----------------------
1998 1997
---- ----
REVENUES
Agent fees $ 11,728 $ 1,553
Agent fees, related parties (Note B) 15,670 --
--------- ---------
27,398 1,553
--------- ---------
GENERAL, SELLING AND ADMINISTRATIVE 64,396 6,115
OTHER OPERATING EXPENSES
Reserve for uncollectible note receivable
and related accrued interest (Note B) 9,199 100,000
Fair value of contributed office space (Note B) 6,000 2,500
Fair value of contributed services (Note B) 12,000 5,000
Product development -- 18,384
Loss on write-off of organization costs 198 --
--------- ---------
91,793 131,999
--------- ---------
LOSS FROM OPERATIONS (64,395) (130,446)
INTEREST INCOME (Note B) 10,699 --
INTEREST EXPENSE (17,160) (3,379)
--------- ---------
LOSS BEFORE INCOME TAXES (70,856) (133,825)
INCOME TAX BENEFIT (EXPENSE) (Note E)
Current 15,314 6,511
Deferred (15,314) (6,511)
--------- ---------
NET LOSS $ (70,856) $(133,825)
========= =========
LOSS PER COMMON SHARE (Note A)
Basic weighted average common shares outstanding 700,000 700,000
========= =========
Basic loss per common share $ (0.10) $ (0.19)
========= =========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Consolidated Statement of Shareholders' Deficit
January 1, 1997 through December 31, 1998
Preferred Stock Common stock
---------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 -- $-- 360,000 $ 360
Sale of common stock -- -- 140,000 140
Issuance of common stock for all of the issued and
outstanding voting stock of Songs For The Planet, Inc.,
December 31, 1997 (Note F) -- -- 200,000 200
Services contributed by shareholder, reflected
at fair value (Note B) -- -- -- --
Office space contributed by shareholder, reflected
at fair value (Note B) -- -- -- --
Deferred offering costs incurred -- -- -- --
Net loss for the year ended December 31, 1997 -- -- -- --
------ ---- --------- ---------
BALANCE DECEMBER 31, 1997 -- -- 700,000 700
Services contributed by shareholder, reflected
at fair value (Note B) -- -- -- --
Office space contributed by shareholder, reflected
at fair value (Note B) -- -- -- --
Deferred offering costs incurred -- -- -- --
Net loss for the year ended December 31, 1998 -- -- -- --
------ ---- --------- ---------
BALANCE, DECEMBER 31, 1998 -- $-- 700,000 $ 700
====== ==== ========= =========
F-6
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Consolidated Statement of Shareholders' Deficit
January 1, 1997 through December 31, 1998
(Continued)
Additional Deferred Total
Paid-in Offering Retained Shareholders'
Capital Costs Deficit Deficit
------- ----- ------- -------
Balance, January 1, 1997 $ 3,240 $ -- $ (15) $ 3,585
Sale of common stock 1,260 -- -- 1,400
Issuance of common stock for all of the issued and
outstanding voting stock of Songs For The Planet, Inc.,
December 31, 1997 (Note F) 1,800 -- -- 2,000
Services contributed by shareholder, reflected
at fair value (Note B) 5,000 -- -- 5,000
Office space contributed by shareholder, reflected
at fair value (Note B) 2,500 -- -- 2,500
Deferred offering costs incurred -- (4,336) -- (4,336)
Net loss for the year ended December 31, 1997 -- -- (133,825) (133,825)
--------- --------- --------- ---------
BALANCE DECEMBER 31, 1997 13,800 (4,336) (133,840) (123,676)
Services contributed by shareholder, reflected
at fair value (Note B) 12,000 -- -- 12,000
Office space contributed by shareholder, reflected
at fair value (Note B) 6,000 -- -- 6,000
Deferred offering costs incurred -- (21,395) -- (21,395)
Net loss for the year ended December 31, 1998 -- -- (70,856) (70,856)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 31,800 $ (25,731) $(204,696) $(197,927)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Consolidated Statements of Cash Flows
For The Years Ended
December 31,
----------------------
1998 1997
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (70,856) $(133,825)
Expenses not requiring cash:
Depreciation and amortization 8,336 856
Loss on write-off of organization costs 198 --
Allowance for uncollectible note receivable (Note B) -- 100,000
Allowance for uncollectible interest receivable (Note B) 9,199 --
Services and office space contributed (Note B) 18,000 7,500
--------- ---------
(35,123) (25,469)
Changes in current assets and current liabilities:
Receivables and other current assets (9,199)
Accounts payable and accrued expenses 35,492 22,811
--------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES (8,830) (2,658)
--------- ---------
INVESTING ACTIVITIES
Purchase of furniture and equipment (1,321) (24,588)
Cash paid for security deposit -- (450)
Cash paid for organizational matters -- (330)
Investment in related party promissory note (Note B) -- (100,000)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (1,321) (125,368)
--------- ---------
FINANCING ACTIVITIES
Sale of common stock -- 3,400
Offering costs incurred (25,731) --
Proceeds from the issuance of demand promissory
notes (Notes B&D) 28,750 128,750
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,019 132,150
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,132) 4,124
Cash and cash equivalents, beginning of year 7,709 3,585
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 577 $ 7,709
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ --
========= =========
Cash paid for income taxes $ -- $ --
========= =========
NONCASH INVESTING ACTIVITIES:
On December 31, 1997, World House Entertainment, Inc. issued 200,000 shares
of its common stock in exchange for all the outstanding common stock of
Songs For the Planet, Inc. (see Note F).
The Company has recorded a valuation allowance of $9,199 at December 31,
1998 for accrued interest on a note receivable (see Note B).
See accompanying notes to consolidated financial statements.
F-8
</TABLE>
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note A: Summary of significant accounting policies
Basis of Presentation:
World House Entertainment, Inc. and subsidiary (the "Company") is engaged in
promoting and administering copyright royalties in the recorded music industry.
The Company has established a consulting practice specializing in intellectual
property rights and licensing agreements and providing administrative services
to prospective clients who hold musical copyrights.
In 1998 the Company emerged from the development stage in accordance with
Statement of Financial Accounting Standard No. 7. Since its inception, the
Company has sustained continuing operating losses and expects such losses to
continue for the foreseeable future. In addition, at December 31, 1998 the
Company has a limited supply of cash available with which to continue
operations. The Company plans to continue to finance its operations with a
combination of common stock sales, which have commenced in 1998, and debt
financings. The Company's ability to continue as a going concern is dependent on
successful completion of additional financings and ultimately, upon achieving
profitable operations.
Principles of consolidation:
The consolidated financial statements include the accounts of World House
Entertainment, Inc. (WHEI) and its wholly owned subsidiary, Songs for the
Planet, Inc. (SFPI). A principle shareholder in WHEI is also a blood relative of
the sole shareholder of SFPI. Because the two companies were affiliated, by
virtue of common control since inception, their financial statements have been
consolidated for all periods presented. All intercompany transactions have been
eliminated.
Use of estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash equivalents:
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Property and equipment and depreciation:
Property and equipment are stated at cost and depreciated using the
straight-line method over their useful lives.
F-9
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note A: Summary of significant accounting policies (continued)
Income Taxes:
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the recorded book basis and tax basis
of assets and liabilities for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income and tax
credits that are available to offset future federal income taxes.
Earnings (loss) per share:
The Company reports earnings per share using a dual presentation of basic and
diluted earnings per share. Basic earnings per share excludes the impact of
common stock equivalents. Diluted earnings per share utilizes the average market
price per share when applying the treasury stock method in determining common
stock equivalents. However, the Company has a simple capital structure for the
periods presented and, therefore, there is no variance between the basic and
diluted earnings per share.
The loss per share has been computed on the basis of the weighted average number
of shares outstanding during the period, according to the rules of the
Securities and Exchange Commission. Such rules require that any shares sold at a
nominal value prior to a public offering, should be considered outstanding for
all periods presented.
Fair value of financial instruments:
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash,
receivables, payables and other current liabilities approximate fair value due
to the short-term maturity of the instruments.
F-10
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note B: Related party transactions
During the year ended December 31, 1998, certain shareholders of the Company
provided temporary financing to the Company in the amount of $21,250 (See Note
D). The temporary financing is expected to be repaid with the proceeds of an
initial public offering, planned for in 1999 (see Note I). In addition, a note
payable to shareholder totaling $6,250 was extinguished.
During the years ended December 31, 1998 and 1997, the Company recognized
revenues totaling $15,670 from related parties. The $15,670 made up 57 percent
of the Company's total revenues for the year ended December 31, 1998.
During the year ended December 31, 1998, the Company paid an expense totaling
$670 on behalf of an employee. The employee repaid the Company $800, resulting
in a net amount due to the employee of $130 at December 31, 1998. The $130 is
included in the accompanying consolidated financial statements at due to
employee.
During the years ended December 31, 1998 and 1997, certain shareholders of the
Company provided temporary financing to the Company in the amount of $143,750
(see Note D). The temporary financing is expected to be repaid with the proceeds
of an initial public offering, planned for in 1999 (see Note I).
During the period from October 2 through October 15, 1997, the Company loaned a
total of $100,000 to an affiliate pursuant to the terms of an unsecured
promissory note. The business purpose of this transaction was to provide the
affiliate with cash sufficient to purchase an assignment of right, title and
interest in certain published musical copyrights. Management established an
allowance for uncollectible note receivable of $100,000 to reflect the note at
its estimated net realizable value in the accompanying financial statements. In
addition, the Company recognized $10,699 of interest income of which $1,500 was
paid and $9,199 was accrued. Management established an allowance for
uncollectible interest receivable of $9,199 to reflect the receivable at its
estimated net realizable value in the accompanying financial statements.
Compensation expense has been reflected for the fair value of services provided,
without remuneration, by certain shareholders of the Company. A corresponding
credit to additional paid-in capital has also been made. The accompanying
statements of operation reflect a credit of $12,000 and $5,000 for the years
ended December 31, 1998 and 1997, respectively.
The Company has used office space provided by certain shareholders, on a
rent-free basis. The accompanying statements of operation reflect the fair value
of the office space; $6,000 and $2,500 for the years ended December 31, 1998 and
1997, respectively.
F-11
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note C: Property and equipment
Property and equipment, as of December 31, 1998, consisted of the following:
1998
-------
Furniture............................ $ 1,127
Office equipment..................... 5,975
Studio equipment..................... 18,807
-------
25,909
Less: accumulated depreciation....... (9,060)
=======
$ 16,849
========
Depreciation expense for the years ended December 31, 1998 and 1997 was $8,270
and $790, respectively.
Note D: Notes payable
Note payable consisted of bridge financing to be extinguished upon closing of
the Company's common stock offering (see Note I).
The Company is indebted to an entity for $13,750 as of December 31, 1998. The
note is due on demand, at 10 percent interest.
Notes payable to related parties, all due on demand, at 10 percent interest to
related parties consisted of the following at December 31, 1998:
Note payable to affiliate ........................... $ 37,500
Note payable to affiliate ........................... 25,000
Note payable to affiliate ........................... 7,500
Note payable to affiliate ........................... 5,000
Note payable to affiliate ........................... 6,250
Note payable to affiliate ........................... 12,500
Note payable to affiliate ........................... 37,500
Note payable to affiliate ........................... 10,000
Note payable to affiliate ........................... 2,500
---------
$ 143,750
=========
F-12
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note E: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective
tax rate follows for the years ended December 31, 1998 and 1997:
1998 1997
------------ ------------
U.S. federal statutory graduated rate...... 17.55% 15.00%
State income tax rate,
net of federal benefit.................. 4.12% 4.25%
Allowance for receivables.................. --% (14.38%)
Net operating loss for which no tax
benefit is currently available.......... (21.67%) (4.87%)
-------- ---------
--% --%
======== =========
Deferred taxes consisted of the following at December 31, 1998 and 1997:
1998 1997
-------- -------
Deferred tax asset,
Net operating loss carryforward........ $ 21,828 $ 6,514
Valuation allowance....................... (21,828) (6,514)
-------- -------
$ -- $ --
======== =======
The valuation allowance offsets the deferred tax assets for which there is no
assurance of recovery. The change in the valuation allowance from December 31,
1997 through December 31, 1998 was $15,314 and from December 31, 1996 through
December 31, 1997 was $6,511. The net operating loss carryforwards for 1998 will
expire through 2018.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
F-13
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note F: Shareholders' deficit
Preferred stock
- ---------------
The Company is authorized to issue five million shares of $.001 par value
preferred stock which may be issued in series, with such designations,
preferences, stated values, rights, qualifications or limitations as determined
by the Board of Directors.
Agreement to acquire shares
- ---------------------------
Effective December 31, 1997, WHEI entered into an agreement with the sole
shareholder of SFPI to acquire all of the issued and outstanding common stock of
SFPI in exchange for 200,000 shares of WHEI's $.001 par value common stock. The
purchase price was valued at the fair value of WHEI's common stock, $2,000. For
financial accounting purposes, the transaction was accounted for as a transfer
of assets between companies under common control and has been recorded at
historical cost in the separate financial statements of each entity. The excess
of $69,058 of the purchase price over historical cost was recorded as a
reduction of equity in the unconsolidated separate financial statements of WHEI.
Note G: Commitments
The Company has entered into a vehicle lease, which is classified as an
operating lease. The lease expires in August 2000, at which time the Company may
elect to purchase the vehicle at fair market value as determined by the lessor.
Lease charges on the vehicle for the years ended December 31, 1998 and 1997 were
$5,243 and $1,748, respectively. Future minimum lease payments are $5,243 and
3,495 for 1999 and 2000, respectively.
Note H: Year 2000 compliance
Year 2000 compliance is the ability of computer hardware and software to respond
to the problems posed by the fact that computer programs traditionally have used
two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to send invoices,
engage in normal business activities, or to operate equipment such as telephone
systems, facsimile machines, and network operations equipment. The Company plans
to work with its equipment suppliers to confirm that its equipment is Year 2000
compliant. The Company believes this review will be completed during 1999 and
that the cost of this review will not be material. Until this review has been
completed, the Company has no estimate of the cost to correct any deficiency in
Year 2000 compliance for this equipment.
F-14
<PAGE>
WORLD HOUSE ENTERTAINMENT, INC.
-------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
Note I: Subsequent events
During February 1999, the Company offered for sale 80,000 shares of its $.001
par value common stock for $2.50 per share pursuant to registration under Form
SB-2 provided under the Securities Act of 1933, as amended. The Company sold
80,000 shares for net proceeds of $174,269 after deducting deferred offering
costs of $25,731.
The proceeds from the offering were used to pay off $150,000 of notes payable
and $18,438 in accrued interest that were outstanding at December 31, 1998.
F-15
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
- --------------------------------------------------------------------------------
The executive officers and directors of the Company and their ages are as
follows:
Name Age Position
---- --- --------
Elizabeth Ann Peters ..... 34 President and Director
Benjamin Justin Peters.... 35 Chairman of the Board and Secretary
Elizabeth Ann Peters co-founded Songs for the Planet in August of 1997.
Mrs. Peters received a bachelors degree in mass communications from Belmont
University of Nashville, Tennessee, in 1986. From 1987 until 1995, Mrs. Peters
was employed in various capacities by Copyright Management, Inc. of Nashville,
Tennessee, a firm which provides copyright administration services to music
publishers similar to those provided by the Company. From 1995 to 1997, Mrs.
Peters administered publishing companies owned or controlled by Mr. Peters. Mrs.
Peters has served as President and Director of the Company since December 31,
1997. Mrs. Peters and Mr. Peters are wife and husband.
Benjamin Justin Peters co-founded Songs for the Planet in August of 1997.
Mr. Peters received a bachelors degree in music business from Belmont University
of Nashville, Tennessee, in 1986. Since 1981, Mr. Peters has been a professional
songwriter and has been involved in numerous music publishing ventures. In 1988,
Mr. Peters was named American Songwriter of the Year (Gospel Music Category) by
American Songwriter Magazine. Mr. Peters has served as Chairman of the Board and
Secretary of the Company since December 31, 1997. Mr. Peters and Mrs. Peters are
husband and wife. Mr. Peters owns and controls Tourmaline, LITA, JPM and
Platinum Planet.
The directors of the Company are elected each year at the annual meeting of
shareholders for a term of one year. Each director serves until the expiration
of his or her term and thereafter until his or her successor is duly elected and
qualified. Executive officers of the Company are appointed by the Board of
Directors on an annual basis.
The Company's executive officers and directors are required to file reports
of ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission as required under provisions of the
Securities Exchange Act of 1934. Based solely on the information provided to the
Company by individual directors and executive officers, the Company believes
that during the last fiscal year all dircto5s and executive officers have
complied with applicable filing requirements.
14
<PAGE>
Item 10. Executive Compensation
----------------------
Summary Compensation Table
The following table shows all cash compensation paid or to be paid by the
Company during the fiscal years indicated to the chief executive officer and the
highest paid executive officers of the Company as of the end of the Company's
last fiscal year whose salary and bonus for such period in all capacities in
which the executive officer served exceeded $100,000. No executive officer
received or held any stock options, stock appreciation rights, stock grants or
any other similar rights to receive additional compensation of any kind as of
December 31, 1998.
Annual Compensation
Fiscal Salary Bonus
Name and Principal Position Year ($)
- --------------------------- ---- ---
Elizabeth Ann Peters .......... 1998 30,000 -0-
President
............................... 1997 10,000 -0-
There are no employment agreements between the Company and any of its
executive officers. Mrs. Peters currently receives a salary of $30,000 per year.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
On December 9, 1996, the Company received subscriptions for 500,000 shares
of its Common Stock to Owen & Associates, Inc. Profit Sharing Plan, Peterson &
Sons Holding Company, Melissa K. Meyer, Brenda M. Hall and David N. Nemelka at
$0.01 per share, payable in cash. The 120,000 shares held by Mr. Nemelka were
subsequently transferred to Ms. Hall without consideration. The 120,000 shares
held by Owen & Associates, Inc. Profit Sharing Plan were sold to Peterson & Sons
Holding Company at $0.01 per share. The following table sets forth information
concerning the beneficial ownership of the Common Stock as of the date of the
Prospectus, for (a) each person known to the Company to be a beneficial owner of
the Common Shares; (b) each director; (c) each executive officer designated in
the section captioned "MANAGEMENT-Executive Compensation;" and (d) all directors
and executive officers as a group. Except as otherwise noted, each person named
below had sole voting and investment power with respect to such securities.
Ownership
-----------------------
Name and Address (2) Shares Percentage(1)
- -------------------- ------ -------------
Elizabeth Ann Peters ............................. 200,000 25.6
Benjamin Justin Peters ........................... 0 0.0
Melissa K. Meyer(3) .............................. 20,000 2.6
519 S. Madison
Raymore, Missouri 64803
Brenda M. Hall ................................... 240,000 30.8%
907 Artistic Circle
Springville, Utah 84663
Peterson & Sons Holding Co.(4) ................... 240,000 30.8%
4001 W 104th Terrace
Overland Park, Kansas 66207
All directors and executive officers as a group .... 200,000 25.6%
(2 persons)
15
<PAGE>
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.
(2) The address of each executive officer and director of the Company is c/o
World House Entertainment, Inc., 2831 Dogwood Place, Nashville, TN 37204.
(3) Melissa K. Meyer is the sister of Elizabeth Ann Peters.
(4) The shareholders of Peterson & Sons Holding Co. are Mark Peterson and Steve
Peterson.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
In a series of transactions, the Company borrowed in the aggregate $155,000
at an interest rate of 10% per annum, most of which was lent by the Company's
principal shareholders (or affiliates thereof)(the "Related Party Loans"). Each
of the Related Party loans is payable on demand. The following table sets forth
basic information relating to the Related Party Loans.
Lender Date Amount
- ------ ---- ------
Owen & Associates, Inc. Profit Sharing Plan(l) .............10/2/97 $ 12,500
Peterson & Sons Holding Company ............................10/7/97 $ 37,500
Dassity, Inc.(2) ...........................................10/9/97 $ 37,500
Owen & Associates Inc. Profit Sharing Plan ................10/14/97 $ 25,000
Owen Enterprises, L.L.C.(3)................................11/11/97 $ 10,000
Owen & Associates, Inc. Profit Sharing Plan ................1/16/98 $ 5,000
Owen & Associates, Inc. Profit Sharing Plan ................ 2/3/98 $ 1,250
R-Odyssey Ventures, Inc.(4) ................................ 2/9/98 $ 13,750
Owen Enterprises, LLC ......................................2/24/98 $ 7,500
Owen & Associates IBG, LLC(5)................................3/9/98 $ 5,000
Owen & Associates IBG, LLC..................................11/6/98 $ 2,500
--------
Total ......................................................... $157,500
16
<PAGE>
(1) Owen & Associates, Inc. is controlled by David Owen, the father of
Elizabeth Ann Peters. Mr. and Mrs. Peters have no financial interest in
Owen & Associates, Inc. and neither of them hold any position with Owen &
Associates, Inc.
(2) Dassity, Inc. is controlled by Brenda M. Hall.
(3) Owen Enterprises, L.L.C. is controlled by David Owen, the father of
Elizabeth Ann Peters.
(4) R-Odyssey Ventures, Inc. is not affiliated with any of the Company's
principal shareholders.
(5) Owen & Assocaites IBG,LLC is controlled by David Owen, the father of
Elizabeth Ann Peters.
In a series of transactions, Songs for the Planet loaned the aggregate amount of
$100,000 to Platinum Planet Music, Inc., a Tennessee corporation wholly-owned by
Benjamin Justin Peters, at an interest rate of 10% per annum. Such loans are due
on December 31, 1999. Accrued interest is payable on June 30, 1998, and at the
end of each six month period thereafter. Platinum Planet Music used the proceeds
of these loans to acquire a 50% undivided interest in certain music compositions
owned by Dez Dickerson d/b/a Truthworks; Music. In connection with this
acquisition, Truthworks and Platinum Planet entered into a copublishing and
coadministration agreement under which each agreed to utilize the administration
services of Songs for the Planet for a period of 3 years.
Songs for the Planet has entered into administration agreements with
Tourmaline, LITA, JPM and Platinum Planet. Each of these agreements has an
initial term of three years. The Company will receive compensation for its
services in an amount equal to 10% of the annual gross income derived as a
result of the Company's efforts.
The Company's corporate offices and studio facilities are located in a
building owned by Mr. Peters' father. The Company pays no cash consideration for
the use of this building.
On December 31, 1997, the Company entered into an exchange agreement with
Elizabeth Ann Peters. Under this agreement, Mrs. Peters received 200,000 shares
of Common Stock in exchange for all of the shares of common stock of Songs for
the Planet then issued and outstanding. As a result of this transaction, Songs
for the Planet became the wholly-owned subsidiary of the Company. There was no
cash consideration paid by either party in connection with this transaction.
Item 13. Exhibits and Reports on Form 8-K.
----------------------------------
(a) Exhibits
3.01 Articles of Incorporation(1)
3.02 Bylaws(2)
10.01-10.17 Material Contracts(3)
21.01 Subsidiaries of the Registrant(4)
23.01 Consent of Cordovano and Harvey, P.C.
27.01 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1998.
17
<PAGE>
(1) Incorporated by reference to Exhibit 3.01 to the registration statement on
Form SB-2 of Registrant filed with the Securities and Exchange Commission
on July 17, 1998 (file no. 333-51683).
(2) Incorporated by reference to Exhibit 3.02 to the registration statement on
Form SB-2 of Registrant filed with the Securities and Exchange Commission
on July 17, 1998 (file no. 333-51683).
(3) Incorporated by reference to Exhibits 10.01 to 10. 17 respectively to the
registration statement of Form SB-2 filed with the Securities and Exchange
Commission on July 17, 1998 (file no. 333-51683).
(4) Incorporated by reference to Exhibit 21.01 to the registration statement of
Registrant on Form SB-2 filed with the Securities and Exchange Commission
on July 17, 1998 (file no. 333-51683).
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
World House Entertainment, Inc.
By: /s/ Elizabeth Ann Peters
-----------------------------------
Elizabeth Ann Peters
President and Principal Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/Elizabeth Ann Peters President, Director April 14, 1999
- ----------------------- Principal Executive Officer
Elizabeth Ann Peters Principal Financial Officer
/s/Benjamin Justin Peters Secretary, Director April 14, 1999
- ------------------------- Principal Accounting
Benjamin Justin Peters Officer, Chairman of the Board
19
Exhibit 23.01
Consent of Independent
Certified Public Accountants
The Board of Directors
World House Entertainments, Inc.:
We consent to the use of our report dated March 18, 1999 relating to the balance
sheet of World House Entertainment, Inc. as of December 31, 1998 and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period ended December 31, 1998 in the December 31, 1998
annual report on Form 10-KSB of World House Entertainment, Inc.
Cordovano and Harvey, P.C.
Denver, Colorado
April 14, 1999
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