<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
ANNUAL REPORT ON FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-26197
STUDIO CITY HOLDINGS CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in it charter)
New York 13-322-7032
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
153 Stevens Avenue, Mount Vernon, NY 10550
Issuer telephone number, including area code: (352) 347-3947
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the
Act:
Common Stock, par value $.002 per share
---------------------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B 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]
The Issuer's revenues for the most recent fiscal year were $45,591.
The aggregate market value of the Common Stock of the Registrant held
by non-affiliates of the Registrant on December 31, 1999, was approximately $0.
The number of shares of the Registrant's Common Stock outstanding as of
December 31, 1999 was 31,057,001 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check One):
Yes [ ]; No [X]
<PAGE> 2
STUDIO CITY HOLDINGS CORPORATION
ANNUAL REPORT ON FORM 10-KSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business ...................................................................... 3
Item 2. Properties..................................................................... 5
Item 3. Legal Proceedings.............................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............................ 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....................... 6
Item 6. Management's Discussion and Analysis and Plan of Operations.................... 6
Item 7. Financial Statements........................................................... 7
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 7
PART III
Item 9. Directors and Executive Officers of the Registrant............................. 8
Item 10. Executive Compensation......................................................... 10
Item 11. Security Ownership of Certain Beneficial Owners and Management................. 11
Item 12. Certain Relationships and Related Transactions................................. 12
Item 13. Exhibits, List and Reports on Form 8-K......................................... 14
Signatures............................................................................... 15
</TABLE>
2
<PAGE> 3
PART I
This Annual Report on Form 10-KSB includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These include
the statements about Studio City Holdings Corporation's plans and strategies
under the headings "Business" and "Management's Discussion and Analysis and Plan
of Operations." Although Studio City Holdings Corporation believes that its
plans, intentions and expectations reflected in or suggested by such forward
looking statements are reasonable, it cannot assure that such plans, intentions
or expectations will be achieved. Actual results may differ materially from the
forward-looking statements made in this Annual Report on Form 10-KSB.
ITEM 1. BUSINESS
GENERAL
Studio City Holdings Corporation ("Studio City" or the "Company") is a
development stage media holding company specializing in the creation of
entertainment franchises and the development of its media subsidiaries. Except
for certain limited operations, primarily involving the publication of three
limited first editions of "The Nicholas Stories" series of three children's
books, the Company's activities to date primarily have consisted of raising
capital, obtaining financing, acquiring intellectual properties, and
administrative activities relating to the foregoing. Each of its subsidiaries is
in the development stage with a limited or no operating history; each of the
subsidiaries has generated little or no revenue.
The Company's business is capital intensive and it expects to incur
losses for the foreseeable future as it seeks to develop and grow its business.
The Company's plan of operation for fiscal 2000 is dependent upon the
availability of necessary financing until operations generate sufficient funds
to meet anticipated costs and expenses, of which there can be no assurance. The
Company anticipates that it will continue to meet its cash requirements as it
has in the past, through the private sale of securities and from loans and
advances from stockholders and management. The Company has no agreement,
arrangement or understanding with any person for any financing, so that there
can be no assurance that the necessary financing will be available at all or on
favorable terms. If necessary financing were not available, the Company's
activities would have to be curtailed and its financial position and condition
would be adversely affected.
The Company's corporate offices are located at 153 Stevens Avenue,
Mount Vernon, New York 10550, and its principal executive offices are located at
14400 Southwest 46th Court, Ocala, Florida 34484, where its telephone number is
(352) 347-3947. References to the "Company" herein include Studio City Holdings
Corporation and its consolidated subsidiaries, unless the context otherwise
requires.
BACKGROUND
The Company amended its Articles of Incorporation and By-Laws on June
29, 1996, and subsequently the following changes were made: (i) Name Change from
CVT Corporation of America to Studio City Holdings Corporation, (ii) scope of
business enterprises was expanded, (iii) capitalization was increased from
40,000,000 shares to 75,000,000 shares, which included the authorization of
10,000,000 shares of Preferred Class A stock and 25,000,000 shares of Preferred
Convertible Class B, stock both of which having a par value of $1.00 per share,
(iv) service of process for the company as a limited liability company was
designated to be the Secretary of State, (v) rights to shares was expanded as
follows: each share of common has one vote, each share of preferred A has ten
votes, each share of preferred B has cumulative preferential dividends of 12%
per annum based on earnings, in liquidation each share of preferred A and B
shall receive $.06 per share with preferred A having preference over preferred
B,
3
<PAGE> 4
preferred B is convertible to common at a ratio of 1 preferred to 10 common,
(vi) number of directors shall not be less than three nor more than ten, (vii)
shareholders have no preemptive or preferential right to subscribe or purchase
shares, and (viii) limitation of shareholder liability.
The Company merged on July 1, 1996 with Studio City Incorporated
Holding (a Florida corporation with twelve subsidiaries). The merger was duly
filed and accepted and recorded by the Secretary of State of the State of New
York. The plan of merger was submitted to the shareholders of both companies in
December of 1994, and, after shareholder approval the merger was duly completed
on July 1, 1996. The company filed a Form SB-2 with the Securities and Exchange
Commission which became effective on May 26, 1999, and filed a 10-Q on June 30,
1999.
The Company is a Union based company with Signatory obligations as
follows: Alliance of Motion Picture and Television Producers, Writers Guild of
America, Directors Guild of America, National Association of Television Program
Executives, AFL-CIO, International Association of Stage and Theatrical
Employees, Teamsters, Screen Acts Guild, Screen Extras Guild, Cartoonist Guild,
American Federation of Television Actors, National Association of Broadcast
Engineers, and all other signatory unions and guilds.
The Company owns a portfolio of intellectual properties and has
production rights to numerous other intellectual properties for the creation of
products for print, publication, television, recording, and cinematic
distribution. The Company has built its Business Plan through the creation of an
internal business incubator system, which creates, finances, develops, produces,
distributes and exploits products and product lines through each of its
subsidiary operations. Current operations include intellectual properties and
projects in various states of completion or development. The Parent Company's
operations can be capsulized as follows:
STUDIO CITY HOLDING CORPORATION - provides initial capital,
finds/locates/acquires intellectual properties for development,
supervises the development of a management and product creation team,
oversees the production of its product and product lines, provides
business acumen, financial support, administrative logistics, and
coordinates the marketing and distribution of the finished product and
its ancillary spin-off products.
ZWEIG KNIGHTS PUBLISHING CORPORATION - is an "A" Class
publisher with forty-four titles in its portfolio of intellectual
properties to publish. In 1995, the Company contracted Calico Creations
and Animation in California to create the "animation key cel art" and
"master paintings" for an "entertainment franchise" entitled, "The
Nicholas Stories," which is comprised of a trilogy of children's books
entitled, "The Boy With a Wish," "The First Flight of St. Nicholas,"
and "The Maiden Voyage of Kris Kringle."
The Company has thirteen other subsidiaries that have limited activity
in the publishing, motion picture, and software industries. Even though these
Subsidiaries are beginning to create product and revenue streams, the most
important asset besides the intellectual properties is centralization of key
personnel who have a vested interest in the development and maximum exploitation
of their product lines. These key individuals work as per need and no overhead
is carried at the present time for the development and distribution of products.
Management feels that with proper capitalization, then each Subsidiary will
stand on its own and create substantial revenues for the stockholders of the
Parent Company.
Subsequent to the Company's registration, which became effective on May
26, 1999, the Company and its Subsidiaries have commenced development plans for
various intellectual properties.
4
<PAGE> 5
MARKETING AND PROMOTION
From inception the Company has marketed its product lines and
operations internally through its officers, directors and special advisors. The
Company expects to expand its marketing of the Company through financial
marketing companies in New York who are current stockholders of the Company. To
date, no final agreement for outside representation has been completed.
COMPETITION
The Company expects to be competitive in every area of its business
activities, even though there are no other companies which the Company can be
compared. In relationship to entertainment products, the Company has chosen to
focus on the development of single intellectual properties with broad base
market potential.
EMPLOYEES
As of December 31, 1999, Studio City had no employees. Currently, the
Company has 11 unsalaried officers, who provide services as needed. Other than
Larry D. Faw, none of the Company's officers are covered by a collective
bargaining agreement. The Company believes that it has a good relationship with
its personnel, and expects that six officers will become salaried in the year
2000 and five other officers will be salaried in the year 2001.
ITEM 2. DESCRIPTION OF PROPERTY
Studio City maintains its registered office in the shared office of New
York counsel in Mount Vernon, New York. There is no lease nor cost to the
current status.
The Company currently leases approximately 410 square feet for its
executive offices, at 14400 Southwest 46th Court, Ocala, Florida, for $400 per
month on a month-to-month basis from Larry D. Faw, its Chairman. The Company
believes that the terms of such leasing arrangement are no less favorable to the
Company than those that could have been obtained from an independent third
party.
The Company also leases approximately 1700 square feet at $721 per
month for its television post production studio and insert stage at 4716 North
Lois Avenue, Tampa, Florida. The original lease expired in 1998, and has been
placed on a month-to-month basis since 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceeding,
other than routine litigation that is incidental to its business or is covered
by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5
<PAGE> 6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Studio City's Common Stock and Class B Preferred are registered stock,
which are not currently being traded. The Company anticipates a public market
will be created through its Primary Stock Offering. As of December 31, 1999,
there were approximately 550 holders of record of Studio City Common Stock. As
of December 31, 1999, there were approximately 110 holders of record of Studio
City Class B Preferred Stock.
Studio City has never declared or paid any cash dividends on its
capital stock and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Studio City currently intends to retain future
earnings to finance its operations and fund the growth of its business. Any
payment of future dividends will be at the discretion of the Board of Directors
of Studio City and will depend upon, among other things, Studio City's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that
Studio City's Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
OVERVIEW
The following information should be read in conjunction with the
consolidated condensed financial statements. The Company filed its first
Quarterly Report on August 15, 1999. The attached financial statements represent
annual reports from inception to December 31, 1999. The Company has broadened
its operations to include the development of non-entertainment businesses.
Management is currently reviewing and preparing updated business plans to
complement new business opportunities. The purpose of this effort is to add
value to the Company and its subsidiaries and to create core activities that
will increase and maintain revenues for an extended period of time.
RESULTS OF OPERATIONS
Revenues. The Company's revenues are derived from providing debt,
equity, or debt/equity financing to its subsidiaries. The operating results have
fluctuated in the past and may fluctuate significantly in the future as a result
of a variety of factors, some of which are outside the Company's control. In
response to the demand for entertainment products, the Company has recently
introduced a plan to create new product lines and to fully develop various
intellectual properties. The Company expects that it will continue to net losses
at least through and including the second quarter of 2000 and until December 31,
2000. There is no guarantee that the Company can fully capitalize its
operations.
COST OF REVENUES
The Company has limited revenues and it projects that revenues will
increase substantially if its products are accepted by consumers for the period
of January 1, 2000 through year ending December 31, 2000. The increase in
revenues will include significant increases in the sale of existing inventory of
the first three Limited First Editions of "The Nicholas Stories" through a
majority owned subsidiary, which is consolidated in the Company's financial
statements. The Company expects the costs of revenues will continue to increase
in absolute dollars, as the Company capitalizes itself. There are no guarantees
that the Company can increase its capitalization, product lines and revenue
base.
6
<PAGE> 7
PRODUCT DEVELOPMENT
Total product development expenses for the periods ending December 31,
1999 in comparison are $129,810 in 1999 and $78,380 in 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from ($511,129) in 1998
to ($565,432) in 1999. This increase in absolute dollars was primarily
attributable to an increase in consulting and professional fees, and the costs
associated with the Company's planned primary offering for the year 2000.
NET LOSS
The lack of significant revenues and higher operating expenditures
incurred in the year ending December 31, 1999, which has resulted in a net loss
or $649,651 in 1999 and $523,483 on December 31, 1998. The loss per share is
computed as $0.0168 in 1998 as compared to a net loss of $0.0209 in 1999.
INCOME TAXES
There was no provision for income taxes for the year ended December 31,
1999 as the Company had a net loss. No provision for income taxes was expected
for 1999 other than state minimum taxes as the Company expected to incur a loss
for the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through short-term
indebtedness. The Company's operating activities provided cash of approximately
$888,784 in 1999 and $328,000 in 1998.
The Company has curtailed its investing activities with no outside
investments. The Company's financing activities provided $328,000 in 1998 and
$888,784 in 1999. Although the Company has no material capital commitments, it
expects a substantial portion of the net proceeds of its Primary Public Offering
in the year 2000 will be utilized for the completion of various product lines to
be distributed in 2000 and 2001. The term loan which is secured by substantially
all of the Company's assets, require that the Company maintain certain financial
ratios and requires that revenues produces will cover the costs associated with
a public offering. There were no outstanding borrowings as of December 31, 1999.
The Company is presently pursuing a credit facility with several national banks
and investment banks, some of which who own shares in the Company.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplemental data required by this Item 7
follow the index to financial statements appearing at Item 14 of this Annual
Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
<PAGE> 8
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Larry D. Faw 51 Chairman of the Board and President
Vincent J. Neville 68 Vice Chairman of the Board and Chief Executive Officer
Genevieve H. Faw 39 Senior Vice President, Secretary and Director
Andrew C. Rigrod 57 Chief Operations Officer
Walter Johnson Williams 50 Chief Financial Officer
Harry B. Knights 52 Senior Vice President - Operations
Charles H. Flood 49 Senior Vice President - Sales
Wallis M. Spence 51 Senior Vice President - Financial Marketing
James W. Courchaine 68 Senior Vice President - Logistics
John A. Churchill, Jr. 60 Controller
</TABLE>
Each director is elected to hold office until the next annual meeting
of stockholders and until his successor is elected and qualified. All officers
serve at the discretion of the Board of Directors. Of all the directors and
executive officers of the Company, only Mr. Faw, Mrs. Faw and Mr. Knights devote
full time and attention to its affairs; the other directors and executive
officers devote only such (usually minimal) time to the Company's affairs as is
required from time to time.
The following sets forth certain biographical information with respect
to the directors and executive officers of the Company.
Larry D. Faw has served as Chairman of the Board of Directors and
President of the Company since inception of Studio City-Florida in 1991. Mr. Faw
has twenty-seven years of experience in the financing, production and
distribution of feature motion pictures, documentaries, television commercials,
and short films.
Mr. Faw is the husband of Genevieve Faw.
Vincent J. Neville was a director and Senior Vice President of the
Company from November 1995 until December 1997, when he became Vice Chairman and
Chief Executive Officer. He has served as President of Finest Security Service,
Inc., Flushing, New York, since 1986, and as President of T. J. Catering, Inc.,
Flushing, New York, since June 1997. Also, Mr. Neville has over twenty years
experience in law enforcement as a former Detective with the New York City
Police Department, where for eleven years he served as an Investigator and
Personal Bodyguard for the District Attorney of Queens County.
Genevieve H. Faw has served as a Senior Vice President, Secretary and
director of the Company since inception of Studio City-Florida in 1991. Mrs.
Faw's background includes accounting, business management, feature-length motion
picture production, and the publication of children's books and specialty niche
market publications. Mrs. Faw is the wife of Larry Faw.
Andrew C. Rigrod has served as Chief Operations Officer since April
1998. Mr. Rigrod, who graduated from Cornell Law School in 1966 and was an
editor of the Cornell Law Review, has been
8
<PAGE> 9
practicing law for 30 years, specializing in entertainment law exclusively for
the last 24 years, representing producers, writers, directors and actors.
Walter Johnson Williams has served as Chief Financial Officer since
January 1998. Mr. Williams has served as an adviser to the Company since 1992.
Mr. Williams is the President of American Business Econometrics, Inc., an
economic consultancy firm he founded in 1983 which publishes The Straight
Shooter Newsletter and analyzes government reports through the Shadow Bureau of
Government Statistics. He also provides consulting services to major financial
institutions and Fortune 500 companies, as well as to private individuals; he
also provides economic commentary to financial newspapers, journals and other
publications and radio and television business and finance programs.
Harry B. Knights has served as Senior Vice President-Operations since
March 1998. Mr. Knights also has served as Co-Publisher and Chief Operations
Officer of Zweig Knights Publishing Corporation, a majority owned subsidiary,
since May 1994. Mr. Knights authored "The Nicholas Stories: The Boy With A Wish,
The First Flight of St. Nicholas; The Maiden Voyage of Kris Kringle," "The
Spirit of Christmas" and "The Homecoming." He was discharged from personal
bankruptcy in April 1994.
Charles H. Flood has served as Senior Vice President-Sales since
October 1996. Mr. Flood also has served as Co-Publisher and President of
National Sales of the Eleemosynary/Traditional Publishing Division of Zweig
Knights Publishing Corporation since July 1994. Mr. Flood has over twenty years
of experience in sales management, product development, marketing, education and
publishing. His experience includes custom publishing, interactive CD ROM
development, sub-rights and co-publishing for animation, joint venture
television and publishing programs, and, eleemosynary publishing.
Wallis M. Spence has served as Senior Vice President-Financial
Marketing since February 1998. He owns The Striker Steel Co. (steel framed
homes), since February 1996, and is a self-employed financial consultant
specializing in portfolio/pension funds for long term investments, since 1989.
James W. Courchaine has served as Senior Vice President-Logistics since
June 1998. In 1979, Mr. Courchaine retired from the United States Air Force
after twenty years and became a self-employed financial consultant specializing
in financial services and planning for insurance companies. He was discharged
from personal bankruptcy in October 1995.
John A. Churchill, Jr. will serve as Controller after the effective
date of the Registration Statement of which this Prospectus is a part. He owns
Central Business Services Corporation, a financial services company, since 1990.
He serves as Treasurer of E. L. Trevena, Inc., a demolition company, since 1996,
and was Chairman of Agrovit, Inc., a fertilizer brokerage, from 1991 to 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and beneficial owners of more than 10% of the Company's
Common Stock are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file. Based solely on review of the copies
of such forms furnished to the Company, or written representations that no
reports on Form 5 were required, the Company believes that for the period
through September 26, 1999, all officers, directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them.
9
<PAGE> 10
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
None of the executive officers of the Company received a total salary
and bonus in excess of $100,000 in any of the fiscal years ended December 31,
1996, 1997 or 1998. Roger Hefler, who died on December 26, 1997, received
$24,000 as Vice Chairman and Chief Executive Officer during each of the fiscal
years ended December 31, 1996 and 1997.
DIRECTORS' COMPENSATION
Directors of the Company are not compensated for their services.
EMPLOYMENT AGREEMENTS
On April 8, 1998, the Company entered into employment agreements with
all executive officers. The employment agreements provide for remuneration,
stock awards, and performance awards. Each executive officer will receive (i) a
sign-on award of 25,000 shares of stock, (ii) cash compensation at the end of
recapitalization level 1 ($1,000,000 in new capital) of $48,000 per annum; (iii)
stock award of 25,000 shares at the end of the 1st year of employment; (iv) cash
compensation at the end of capitalization level 2 ($10,000,000 in new capital)
of $75,000 per annum; (v) stock award of 25,000 shares at the end of the 2nd
year of employment; and (vi) stock award of 25,000 shares at the end of the 3rd
year of employment. Each employment agreement expires on April 8, 2000. Pursuant
to the employment agreements, Larry D. Faw serves as Chairman of the Board of
Directors and President, Vincent J. Neville serves as Vice Chairman and Chief
Executive Officer, Genevieve H. Faw serves as a Director, Secretary and Senior
Vice President-Children's Programming, Andrew C. Rigrod, Esquire serves as Chief
Operations Officer, Walter Johnson Williams serves as Chief Financial Officer,
Wallis M. Spence serves as Senior Vice President-Financial Marketing, Harry B.
Knights serves as a Senior Vice President-Operations, Charles H. Flood serves as
Senior Vice President-Sales, James W. Courchaine serves as Senior Vice
President-Logistics, and John A. Churchill, Jr. serves as Controller. Each of
the executive officers will be entitled to receive reimbursement for all
reasonable expenses incurred in connection with the performance of any of
his/her obligations pursuant to the employment agreements. The employment
agreements contain a covenant not to compete and an agreement to keep
confidential certain information.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate of Amendment and Restated Certificate of Incorporation,
and the By-Laws of the Company, as amended, provide that the Company shall
indemnify its officers and directors to the full extent permitted by the
Business Corporation Law of the State of New York.
Reference is hereby made to Section 402(b) of the Business Corporation
Law of the State of New York relating to the indemnification of officers and
directors, which Section is hereby incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or others pursuant to the
foregoing provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore unenforceable.
10
<PAGE> 11
INCENTIVE STOCK OPTION PLAN
In March 1993, the Board of Directors and shareholders approved in
principle an Employee Incentive Stock Option Plan (the "Plan") for full time
employees including executive officers. Under the Plan, the Company would issue
options to purchase shares of the Company's Common Stock, exercisable at the
current market value (110% of current market value only to 10% or greater
stockholders) up to $100,000 annually. The Plan would terminate on March 1,
2001, unless renewed.
Under the Plan, any officer or director owning 10% of the voting plan
of the Company would be restricted from exercising his/her options to three
years after the receipt of such Grant. Additional provisions would be as
follows: (1) options terminated or expired, revert back to the Plan, (2)
unpurchased option shares remain in the Plan, (3) options are exercisable by the
optionee or his/her estate, (4) options are not transferable, and, (5) carryover
amounts from one year to the next year cannot exceed 50% of the Plan. The
Company will reserve 500,000 shares of Common Stock for issuance under the Plan.
The Plan has not been implemented and no options have been granted under the
Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1999, (a) by each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (b) by each of the Company's Directors and (c) by all
officers and Directors of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name of Beneficial Owners Ownership of Common Stock (1)(2) Percent of Total Voting Power (2)
- ------------------------- -------------------------------- ---------------------------------
<S> <C> <C>
Larry D. Faw 10,221,277 (2)(3) 83.1%
14400 Southwest 46th Court
Ocala, Florida 34473
Vincent J. Neville 467,000 (4) *
Genevieve H. Faw 10,221,277 (2)(3) 83.1%
14400 Southwest 46th Court
Ocala, Florida 34473
Andrew C. Rigrod 50,000 *
Walter Johnson Williams 551,000 *
Harry B. Knights 206,000 (5) *
Charles H. Flood 55,000 *
Wallis M. Spence 50,000 *
James W. Courchaine 314,400 (6) *
John A. Churchill, Jr. 1,179,400 (7) *
All directors and officers as a group 13,119,077 85.2%
</TABLE>
- -----------------------
* Less than one percent.
(1) Except as otherwise indicated, each of the persons named has sole voting and
investment power with respect to all shares of Common Stock beneficially
owned. Beneficial ownership is calculated in accordance with Rule 13d-3(d)
of the Securities Exchange Act of 1934.
(2) The Company has two classes of voting securities, Common Stock and Class A
Preferred Stock. Holders of Class A Preferred Stock vote together with
holders of Common Stock and are entitled to ten votes for each share of
Class A
11
<PAGE> 12
Preferred Stock on all matters voted upon by the shareholders of the
Company. Larry D. Faw, Chairman of the Board and President of the Company
beneficially owns all outstanding shares of Class A Preferred Stock, or 100%
of that class, and therefore is the beneficial owner of 83.1% of the voting
power of the Company. The Class A Preferred Stock is included in the
calculation of the percent of total voting power. The Class B Preferred
Stock, each share of which is convertible into ten shares of Common Stock at
the annual rate of 20% commencing two years after acquisition, are not
included in the calculations.
(3) Includes: 2,870,000 shares held by Larry D. Faw, Incorporated, of which Mr.
Faw is the President; 401,277 shares held by the Von Falconbourg Family
Trust, of which Mr. Faw is the Managing Trustee; 1,000,000 shares held by
Morgan Rothchild Anzo, Inc. for the account and benefit of Mr. Faw; warrants
to purchase 5,000,000 shares at $1.00 per share; and 925,000 shares held by
Genevieve H. Faw, Mr. Faw's wife. Does not include 10,000,000 shares of
Class A Preferred Stock held by Mr. Faw, or 1,000,000 shares of Class B
Preferred Stock held by each of Mr. Faw and the Von Falconbourgh Family
trust or 300,000 shares of Class B Preferred Stock held by Mrs. Faw. Each of
Mr. Faw and Mrs. Faw disclaims beneficial ownership of the other's shares.
(4) Includes 5,000 shares held by Mr. Neville's wife.
(5) Includes 6,000 shares held jointly with Mr. Knights' wife. Does not include
35,000 shares of Class B Preferred Stock.
(6) Includes 153,400 shares held by the Courchaine Family Partnership, of which
Mr. Courchaine is the managing partner. Includes 10,000 shares held jointly
with Mr. Courchaine's wife. Does not include 35,000 shares of Class B
Preferred Stock held jointly with Mr. Courchaine's wife.
(7) Includes 12,000 shares held by five members of Mr. Churchill's family.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FAW PURCHASE AGREEMENT
In February 1993, Studio City-Florida entered into an agreement with
Larry D. Faw, Chairman of the Board of Directors and President, to acquire
direct ownership of various intellectual properties having an estimated value of
$7,226,000, including 72 motion picture properties, four television pilot
programs, 48 books for publication, four inventions, one franchise program and
one specialty product design and marketing program, in exchange for a promissory
note payable in the amount of $1,554,027 and warrants to purchase 5,000,000
shares of Common Stock of Studio City-Florida exercisable at $1.00 per share
until February 16, 2003. The principal amount was due and payable on February
16, 1995, with interest at the annual rate of 2%. Since maturity, when the
Company was unable to pay the Faw Note, it has been extended for consecutive six
month terms at an annual interest rate of 9%. Since 1993, the Company has paid
$130,000 in interest on the Faw Note and accrued interest payable to Mr. Faw at
December 31, 1998 was $395,833. The Faw Note is a demand obligation, but there
is no schedule for repayment of principal or interest.
The estimated value of the intangible assets of $7,226,000 was
determined by Mr. Faw, without arm's length negotiations, by reference to
industry standards as detailed in the National Labor Relations Board's
Collective Bargaining Agreement between the Alliance of Motion Picture and
Television Producers and the Writers Guild of America which reflects the minimum
replacement costs and pass through financial obligations to industry-wide motion
picture and television producers and purchasers of intellectual properties. The
industry standards referred to in that agreement may have no relationship to
commercial, economic or fair market value of the intangible assets. See
"Collective Bargaining Agreement."
The purchase price of the intangible assets were determined by
reference to industry standards as detailed in the National Labor Relations
Board's Collective Bargaining Agreement between the Alliance of Motion Picture
and Television Producers and the Writers Guild of America which reflects the
minimum replacement costs and pass through financial obligations to
industry-wide motion picture and television producers and purchasers of
intellectual properties. The industry standards referred to in that agreement
may have no relationship to commercial, economic or fair market value of the
intangible assets. See "Collective Bargaining Agreement."
12
<PAGE> 13
For financial reporting purposes, in accordance with generally accepted
accounting principles, the recorded amount of the intellectual properties was
zero, by virtue of the lack of evidence of historical predecessor cost.
OTHER
Effective July 1, 1996, Studio City-Florida merged with and into the
Company, pursuant to the Plan of Merger. Pursuant to the Plan of Merger (i)
100,000,000 shares of Common Stock of Studio City-Florida held by Larry D. Faw
was converted into 10,000,000 shares of the Company's Class A Preferred Stock,
(ii) 10,000,000 shares of Common Stock of Studio City-Florida held by Mr. Faw
was converted into 1,000,000 shares of the Company's Class B Preferred Stock,
(iii) warrants to purchase 5,000,000 shares of Common Stock of Studio
City-Florida were converted into warrants to purchase 5,000,000 shares of Common
Stock of the Company, and (iv) each of the remaining issued and outstanding
shares of Common Stock of Studio City-Florida were converted into one share of
the Company's Common Stock. In addition, Mr. Faw received 1,000,000 shares of
Class B Preferred Stock in connection with the merger.
See "Business - Subsidiaries" for a description of the ownership
interests of certain directors and executive officers in subsidiaries of the
Company and Note 12 to Consolidated Financial Statements for information about
the potential profit participation of certain directors and executive officers
in certain literary properties of such subsidiaries. No amounts have been paid
to date to any director or executive officer in connection with any of those
interests and it is not possible to predict whether or when any amounts might be
paid in the future or the magnitude of any future amounts.
In July, 1999, the Company mutually terminated a contingent product
agreement with Radio Cinema/Marc Rose with no appreciable costs outlayed for the
project.
Effective on July 21, 1999, the Company's subsidiary, Studio City
Amusements, Incorporated changed its name to SCA Global Resources, Incorporated.
On November 20, 1999, Studio City Holding entered into an agreement
with Problem Solvers, Incorporated (a Kansas corporation) to establish an
irrevocable business royalty trust to receive contributions, revenue and to hold
residual interests of both Studio and PSI in any oil and gas ventures, and all
other assets from which these companies may experience financial benefits
through SCA/Studio's control.
On November 26, 1999, Studio City Holding and Problem Solvers created
The Hammer Trust, an irrevocable business royalty trust, which is to commence
operations in the year 2000. Initially, Studio City Holding contributes the
following to the Trust: (1) cash of $1,000, (2) a promissory demand note made
payable to the Trust for an amount of $2,500,000, which shall be redeemed by
Studio in a future public or private offering, (3) 1,500,000 shares of common
stock in Studio, (4) 1,200,000 shares of Class B Preferred shares in Studio,
and, any other additional assets, cash, stock, corporate bonds and/or stock in
non-related companies; and PSI shall contribute the following: (1) cash of
$1,000, (2) 2,333,300 shares of Class B Preferred stock of SCA Global Resources,
and, any other additional assets, cash, stock, corporate bonds and/or stock in
non-related companies. Both Studio City Holding and PSI shall receive equal
distributions from the Trust. Initial trustees representing Studio City Holding
is Larry D. Faw (Managing Trustee) and representing Problem Solvers if Hurschel
Buscher.
13
<PAGE> 14
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements.
The audited consolidated financial statements of Studio City
Enterprises, Inc. and Subsidiaries filed as a part of this Annual Report on Form
10-KSB are listed in the "Index to Consolidated Financial Statements" preceding
the Company's Consolidated Financial Statements, which directly follow this Part
IV of this Annual Report on Form 10-KSB, which "Index to Consolidated Financial
Statements" is hereby incorporated herein by reference.
(b) Exhibits.
See index to exhibits.
(c) Reports on Form 8-K.
None.
3. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of Studio City (incorporated by
reference to Exhibit 3.1 of Studio City's Form SB-2 (File No.
333-62557) (the "SB-2")).
3.2 Bylaws of Studio City (incorporated by reference to Exhibit 3.2 of
the SB-2).
10.1 Agreement for Trading Stock with Wellspring Investment
10.2 The Hammer Trust
21.1 Subsidiaries of Studio City
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K.
None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1943, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STUDIO CITY HOLDINGS CORPORATION
By: /s/ Larry D. Faw
----------------------------
Larry D. Faw
Chairman of the Board of Directors and
President
(Principal Financial/Accounting Officer)
Date: March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Vincent J. Neville Vice Chairman of the Board of March 28, 2000
- ---------------------- Directors and Chief Executive Officer
Vincent J. Neville
/s/ Genevieve H. Faw Senior Vice President, Secretary and March 28, 2000
- ---------------------- Director
Genevieve H. Faw
</TABLE>
15
<PAGE> 16
STUDIO CITY HOLDING CORPORATION
AND SUBSIDIARIES
Independent Auditor's Report
and
Financial Statements
October 21, 1991 (Inception ) To December 31, 1999
<PAGE> 17
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
October 21, 1991 (Inception) To December 31, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
</TABLE>
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Studio City Holding Corporation
We have audited the accompanying consolidated balance sheets of Studio City
Holding Corporation (a New York corporation) (a development stage company) and
subsidiaries (development stage companies) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years ended December 31, 1991 through 1999
(inception through December 31, 1999). These consolidated financial statements
are the responsibility of the Company'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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Studio City Holding Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations, changes in stockholders' equity and their cash flows for the years
ended December 31, 1991 through 1999 (inception through December 31, 1999) in
conformity with generally accepted accounting principles.
Peel, Schatzel & Wells, P.A.
St. Petersburg, Florida
February 28, 2000
1
<PAGE> 19
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 80,178 $ 55,843
Intangible assets (Note 3) 77,315 77,315
Investment in joint ventures and stock 56,823 56,823
Prepaid services 3,469 3,469
Office equipment (cost $52,506 and $53,312 in 1998 and 1999;
accumulated depreciation $33,320 and $40,480 in 1998 and 1999) 19,186 12,832
Organization costs (net of accumulated amortization) 446 190
Accounts receivable 7,445 5,170
----------- -----------
TOTAL ASSETS $ 244,862 $ 211,642
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable-majority stockholder $ 1,554,027 $ 1,554,027
Loans from minority stockholders 328,000 888,784
Accrued interest on majority stockholder note 375,069 415,952
Accrued interest on minority stockholder loans 10,653 74,631
Accrued expenses 54,631 7,417
CONTINGENT LIABILITIES--Collective Bargaining Agreement (Note 3) -- --
LEASE COMMITMENTS--(Note 15) -- --
----------- -----------
TOTAL LIABILITIES 2,322,380 2,940,811
EQUITY SECURITIES SUBJECT TO RESCISSION (Note 20) 1,003,100 1,003,100
STOCKHOLDERS' EQUITY
Common stock - par value $.002 in 1998 and 1999;
150,000,000 shares authorized; 31,057,001
shares issued and outstanding in 1998 and 1999 61,077 61,077
Common stock warrants 5,000,000 5,000,000
Preferred stock--A - par value $.0001 in 1998 and 1999;
10,000,000 shares authorized, issued and outstanding in 1998 and 1999 1,000 1,000
Preferred stock--B - par value $.0001 in 1998 and 1999;
10,000,000 shares authorized; 3,825,834 issued and outstanding
in 1998 and 1999 383 383
Additional paid-in capital 1,392,737 1,392,737
Deficit accumulated during development stage (2,309,815) (2,959,466)
Less treasury stock--cost of 400 shares (2,000)
Less special distribution to stockholder (Note 3) (7,226,000) (7,226,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (3,080,618) (3,732,269)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 244,862 $ 211,642
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 20
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative For The Year Ended
From Inception December 31,
October 21, 1991 to -------------------------
December 31, 1999 1998 1999
------------------ -------------------------
<S> <C> <C> <C>
INCOME $ 331,759 $ 66,026 $ 45,591
EXPENSES
Accounting fees 133,209 36,406 20,979
Advertising 15,792 236
Amortization--organization costs 1,792 329 255
Auto expenses 176,442 13,988 13,797
Bad debts 167,695
Bank charges 1,653 513 511
Commissions 36,906
Consulting fees 136,992 11,098 13,448
Contributions 1,702 724 751
Depreciation 40,483 9,829 7,162
Dues and publications 19,428 3,854 3,058
Equipment rental 320,237 102,702 95,027
Insurance 23,414 217
Interest 822,498 150,516 203,841
Legal fees 309,599 101,564 111,579
Licenses 24,395 4,432 2,860
Meals 30,796 2,115 3,879
Medical reimbursement--officer 22,280 5,644 8,119
Miscellaneous expenses 47,980 12,622 6,583
Offering costs 32,051
Office expenses 141,754 12,222 19,392
Officer compensation 5,000
Postage 60,593 8,760 10,036
Professional fees 86,632 521
Project costs 294,023 78,380 129,810
Rent 150,349 15,267 18,875
Repairs and maintenance 1,361 1,026 335
Seminars 604
Telephone expense 80,824 8,704 6,016
Travel 68,287 4,655 15,486
Utilities 22,537 3,706 2,922
Wages 13,917
----------- --------- ---------
TOTAL EXPENSES 3,291,225 589,509 695,242
----------- --------- ---------
NET LOSS $(2,959,466) $(523,483) $(649,651)
=========== ========= =========
EARNINGS (LOSS) PER
COMMON SHARE
(Basic and Diluted Loss Per Share
----------- --------- ---------
are the same--See Note 2) $ (0.0181) $ (0.0168) $ (0.0209)
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 21
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------
Additional Common
Common Paid-In Stock Preferred
Shares Amount Capital Warrants Stock A
------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 748,000 $ 11,920 $1,138,500 $ -- $ --
Special distribution (Note 3)
Common shareholder loss for period
October 21, 1991 to December 31, 1991
------------ --------- ---------- ---------- ------
Balance at December 31, 1991 748,000 11,920 1,138,500 -- --
Issuance of common stock 610,201 1,662 72,770
Common shareholder loss for year
ended December 31, 1992
------------ --------- ---------- ---------- ------
Balance at December 31, 1992 1,358,201 13,582 1,211,270 -- --
Stock split 1 to 100 134,461,899
Shares for properties (1,151,004)
Special distribution (Note 3)
Issuance of common and preferred
stock and common warrants 16,749,900 1,675 56,976 5,000,000
Common shareholder loss for year
ended December 31, 1993
------------ --------- ---------- ---------- ------
Balance at December 31, 1993 152,570,000 15,257 117,242 5,000,000 --
Issuance of common stock (13,420,000) (1,342) 242,670
Common shareholder loss for year
ended December 31, 1994
------------ --------- ---------- ---------- ------
Balance at December 31, 1994 139,150,000 13,915 359,912 5,000,000 --
Issuance of common stock 4,150,000 415 406,095
Common shareholder loss for year
ended December 31, 1995
------------ --------- ---------- ---------- ------
Balance at December 31, 1995 143,300,000 14,330 766,007 5,000,000 --
Issuance of common stock 6,700,000 670 431,506
Equity securities subject to rescission (Note 20) (670) (431,506)
Common shareholder loss for year
ended December 31, 1996
------------ --------- ---------- ---------- ------
Balance at December 31, 1996 150,000,000 14,330 766,007 5,000,000 --
Issuance of common stock 155,000 310 481,113
Equity securities subject to rescission (Note 20) (310) (481,113)
Common shareholder loss for year
ended December 31, 1997
Shares issued, exchanged or converted (119,126,500) (11,000) 9,000 1,000
Merger adjustments 57,747 617,730
------------ --------- ---------- ---------- ------
Balance at December 31, 1997 31,028,500 61,077 1,392,737 5,000,000 1,000
Issuance of common stock 28,501 57 89,444
Equity securities subject to rescission (Note 20) (57) (89,444)
Common shareholder loss for year
ended December 31, 1998
------------ --------- ---------- ---------- ------
Balance at December 31, 1998 31,057,001 61,077 1,392,737 5,000,000 1,000
Cost of 400 shares of common stock
Common shareholder loss for year
ended December 31, 1999
------------ --------- ---------- ---------- ------
Balance at December 31, 1999 31,057,001 $ 61,077 $1,392,737 $5,000,000 $1,000
============ ========= ========== ========== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 22
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Special
During Distribution Total
Preferred Development Treasury To Stockholders'
Stock B Stage Stock Stockholder Equity
-------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock $ -- $ -- $ -- $ -- $ 1,150,420
Special distribution (Note 3) (1,150,000) (1,150,000)
Common shareholder loss for period
October 21, 1991 to December 31, 1991 (35,455) (35,455)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1991 -- (35,455) -- (1,150,000) (35,035)
Issuance of common stock 74,432
Common shareholder loss for year
ended December 31, 1992 (57,999) (57,999)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1992 -- (93,454) -- (1,150,000) (18,602)
Stock split 1 to 100
Shares for properties (1,151,004)
Special distribution (Note 3) (6,076,000) (6,076,000)
Issuance of common and preferred
stock and common warrants 671,974 5,730,625
Common shareholder loss for year
ended December 31, 1993 (73,409) (73,409)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1993 671,974 (166,863) -- (7,226,000) (1,588,390)
Issuance of common stock 241,328
Common shareholder loss for year
ended December 31, 1994 (172,174) (172,174)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1994 671,974 (339,037) -- (7,226,000) (1,519,236)
Issuance of common stock 406,510
Common shareholder loss for year
ended December 31, 1995 (316,578) (316,578)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1995 671,974 (655,615) -- (7,226,000) (1,429,304)
Issuance of common stock 432,176
Equity securities subject to rescission (Note 20) (432,176)
Common shareholder loss for year
ended December 31, 1996 (558,211) (558,211)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1996 671,974 (1,213,826) -- (7,226,000) (1,987,515)
Issuance of common stock 481,423
Equity securities subject to rescission (Note 20) (481,423)
Common shareholder loss for year
ended December 31, 1997 (572,506) (572,506)
Shares issued, exchanged or converted 1,182 182
Merger adjustments (672,773) 2,704
-------- ----------- -------- ----------- -----------
Balance at December 31, 1997 383 (1,786,332) -- (7,226,000) (2,557,135)
Issuance of common stock 89,501
Equity securities subject to rescission (Note 20) (89,501)
Common shareholder loss for year
ended December 31, 1998 (523,483) (523,483)
-------- ----------- -------- ----------- -----------
Balance at December 31, 1998 383 (2,309,815) -- (7,226,000) (3,080,618)
Cost of 400 shares of common stock (2,000) (2,000)
Common shareholder loss for year
ended December 31, 1999 (649,651) (649,651)
======== =========== -------- ----------- -----------
Balance at December 31, 1999 $ 383 $(2,959,466) $ (2,000) $(7,226,000) $(3,732,269)
======== =========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 23
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative For The Year Ended
From Inception December 31,
October 21, 1991 to ------------------------------
December 31, 1999 1998 1999
------------------ ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,959,466) $ (523,483) $ (649,651)
Amortization and depreciation 42,275 10,158 7,417
Changes in operating assets and liabilities:
Increase in prepaid services (1,024)
Increase in organizational costs (1,860)
(Increase) decrease in accounts receivable (5,170) (7,445) 2,275
Decrease in stock subscription 50,091
Increase (decrease) in accrued expenses 7,417 27,444 (47,214)
Increase in accrued interest payable 490,582 84,551 104,860
Decrease in intangible assets 19,750
------------ ----------- -----------
Net cash used in operating activities (2,407,496) (358,684) (582,313)
INVESTING ACTIVITIES
Investment in CVT Corporation of America (12,000)
Investment in joint ventures and stocks (56,823)
Acquisition of equipment (53,312) (806)
Acquisition of properties (97,066)
------------ ----------- -----------
Net cash used in investing activities (219,201) - (806)
FINANCING ACTIVITIES
Borrowings from stockholders 961,521 328,000 560,784
Proceeds for issuance of common stock 1,817,036 92,414
Repayment of stockholders loans (72,737)
Loan to affiliated company (21,280)
Purchase of 400 shares of common stock (2,000) (2,000)
------------ ----------- -----------
Net cash provided by financing activities 2,682,540 420,414 558,784
------------ ----------- -----------
Cash and cash equivalents - increase (decrease) 55,843 61,730 (24,335)
Cash and cash equivalents - Beginning - 18,448 80,178
------------ ----------- -----------
Cash and cash equivalents - Ending $ 55,843 $ 80,178 $ 55,843
============ =========== ===========
Supplemental Disclosures of Cash Flow Information:
------------ ----------- -----------
Cash paid for interest $ 331,915 $ 55,312 $ 98,979
============ =========== ===========
Noncash financing transaction:
Value of Studio City shares
------------ ----------- -----------
issued for services $ 3,647 $ - $ -
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 24
STUDIO CITY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 21, 1991 (Inception) THROUGH DECEMBER 31, 1999
NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF PRESENTATION
Organization and Background Information
STUDIO CITY INCORPORATED HOLDING (the Company) was incorporated in the State of
Florida on October 25, 1991 as Studio City Incorporated. Prior to
incorporation, pre-incorporation operations commenced in February of 1991. The
Company is engaged in asset development, business management, production and
post-production studio operation, motion picture studio operation, tourist
attraction operation, the development of motion pictures for theatrical
exhibition, for television (i.e. network, cable, pay-per-view, etc.) and home
video, and in the development, production, and distribution of printed
publications. The Company owns a significant number of intellectual properties
and has a partial interest in other intellectual properties.
FAWNSWORTH INTERNATIONAL PICTURES CORPORATION (FIPC) was incorporated in the
State of Florida on October 21, 1991. Prior to incorporation, pre-incorporation
operations commenced in February of 1991. FIPC is a full service motion picture
and television production and distribution company. As a result of the
stockholders of FIPC receiving 491,150 shares of common stock of Studio City
with a par value of $1.00 in exchange for their ownership in the shares of
FIPC, FIPC became a wholly owned subsidiary of the Company on October 18, 1992.
The Company owns 100% of the voting stock of FIPC.
Prior to the stock exchange and transfer, the stockholders of Studio City
Incorporated voted unanimously to increase the amount of common stock
authorized from 1,000,000 shares to 1,500,000 to accommodate the exchange with
FIPC stockholders. The end result was that Studio City, Incorporated became the
parent company of FIPC (a wholly owned subsidiary) with both companies being
developmental stage companies. In a unanimous vote of the stockholders of the
Company, it was voted to change the name of the Company to Studio City
Incorporated Holding, which also operated under the name SCI Holding.
In a unanimous vote of its stockholders, the Company was instructed to execute
a stock split to fully dilute the stock of the Company. The 100 to 1 stock
split was executed on March 1, 1993. On that date, the total authorized common
stock of 150,000,000 shares includes all of the stock authorized including
500,000 shares reserved under the Company's Employee Incentive Stock Option
Plan. The common stock of the Company originally had a par value of $1.00 per
share and was amended to $.01 per share at the time of the stock split.
Subsequent to the stock split, the par value has again been amended to reflect
the par value at $.0001 per share, and this is the par value per share for each
of the subsidiaries subsequently formed.
Realizing the necessity for expansion, the Company created another subsidiary,
POC-IT PUBLISHERS, INCORPORATED (Poc-It). Poc-It was incorporated in the State
of Florida on May 3, 1993.The Company owns 100% of the voting stock. This
subsidiary was created to assemble, acquire, produce and publish various
literary properties owned by Studio City Incorporated Holding.
6
<PAGE> 25
NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF
PRESENTATION - continued
On December 14, 1993, the Company entered into an agreement to acquire 77.5% of
CVT CORPORATION OF AMERICA (CVT), an inactive New York based public company.
The cost of the stock was $12,000 plus the Company assumed certain debts. The
purpose of this acquisition was as follows: (i) to reactivate the operations of
CVT after a subsequent reorganization, (ii) prepare CVT for a merger, (iii)
merge the Company into CVT, thus becoming Studio City Holding Corporation, a
New York public company, (iv) prepare the merged entity for SEC and NASD
registration, and (v) prepare the merged entity for a Secondary Offering.
The Company and its subsidiaries are in the developmental stage and have not
generated significant revenues. In addition, the development of commercial
products using the Company's proprietary technology and inventory of
intellectual properties have not been completed and will require significant
additional financing. There is no assurance that commercially successful
products will be developed and that the Company will achieve a profitable level
of operations.
Realizing the necessity to develop certain intellectual properties and assets
through the expansion of operations, the Company created six subsidiaries in
1994. They are as follows:
The Company formed POC-IT COMICS, INCORPORATED on March 29, 1994 as a Florida
corporation. The Company owns 96.93% of the voting stock. Poc-It Comics has
three comic book franchises for development-- "THE EARTH WARRIORS" created by
Larry Faw; "MAGNET MAN" created by Paul Piterski; and "SHADOW RAVEN" created by
Frank Zanca. Poc-It Comics owns literary properties, as well as character
artwork. The first comic book--SHADOW RAVEN PREMIER EDITION was distributed in
May 1995.
The Company formed ZWEIG KNIGHTS PUBLISHING CORPORATION on March 29, 1994 as a
Florida corporation. The Company owns 64.30% of the voting stock. Zweig Knights
Publishing owns twenty six literary properties for future development and
publication. On November 11, 1997, Zweig Knights published its first in a
series of "Limited First Editions", The Nicholas Stories: The Boy With A Wish.
The second book of The Nicholas Stories series, The First Flight of St.
Nicholas, was released on November 1, 1998, and the third book in the series,
The Maiden Voyage of Kris Kringle, was released on October 1, 1999. An animated
television special of The Nicholas Stories: A Holiday Classic is currently in
pre-production.
The Company formed THE INTERNATIONAL CHILDREN'S TELEVISION NETWORK,
INCORPORATED on April 14, 1994 as a Florida corporation. The Company owns
99.96% of the voting stock. The International Children's Television Network has
fifteen literary properties, which is the equivalent of twelve hours of
children's programming.
The Company formed STUDIO CITY AMUSEMENTS, INC. on November 10, 1994 as a
Florida corporation. The Company owns 100% of the voting stock. Studio City
Amusements owns two theatrical musical productions entitled "SLICING UP THE BIG
APPLE" and "TINTYPES ON AN INTERGALACTICAL STAGE". Studio City Amusements
purpose is to develop and manage entertainment properties, and to develop and
produce Specialty Entertainment Projects. During 1999, this entity changed its
name to SCA Global Resources, Inc.
7
<PAGE> 26
NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF
PRESENTATION - continued
The Company formed NON-EXISTENT MAJOR LEAGUE FANTASY SPORTS ASSOCIATION,
INCORPORATED on November 10, 1994 as a Florida corporation. The Company owns
100% of the voting stock. Non-Existent Major League Fantasy Sports Association
owns "The 1994 Fan's Choice Fantasy World Championship of Baseball", the first
in a series of interactive radio and television fantasy sporting events. This
satirical 12 hour long radio play of a "fantasy world series of baseball" was
completed December 1, 1994 and is now ready for radio broadcast and/or
distribution.
The Company formed ZINGRR N-2-AKTIV TELEVISION NETWORK, INC. on November 22,
1994 as a Florida corporation. The Company owns 94.95% of the voting stock.
Zingrr N-2-Aktiv was created to serve as a partner in development, creation,
maintenance and programming of FCC Licensed Wireless Cable Stations and
Systems.
The following seven subsidiaries were formed subsequently for the purposes of
diversification and expansion. They are as follows:
The Company formed QUAGGA ENTERTAINMENT CORPORATION on March 30, 1995 as a
Florida corporation. The Company owns 93.33% of the voting stock. Quagga is in
the development stage and is engaged in the exploitation of motion picture and
television properties including the creation of revenue streams and profits
from captive intellectual and franchiseable properties. These activities would
include creating products for television, theatrical release, spin-off book
products, and ancillary spin-offs.
The Company formed ACCINEMATRON RELEASING CORPORATION on September 13, 1995 as
a Florida corporation. The Company owns 100% of the voting stock. Accinematron
was created to coordinate the distribution of various product lines which
include films, television programming, videocassettes, audio products, and
ancillary merchandise.
The Company formed THE MAGIC SHOP, INC. on October 7, 1995 as a Florida
corporation. The Company owns 100% of the voting stock. The Magic Shop was
created to serve as a production center and business incubator for
entertainment related companies.
The Company formed ZOLLIPE CYBERSPACE CORPORATION on June 14, 1996 as a Florida
corporation. The Company owns 100% of the voting stock. Zollipe was created to
develop computer programming and software for interactive games and information
from both the CD-ROM platform and worldwide web.
The Company formed ZZOONZUIT, INC. on June 14, 1996 as a Florida corporation.
The Company owns 100% of the voting stock. Zzoonzuit was created to design and
manufacture a new line of beachwear, swimwear, and athletic clothing.
8
<PAGE> 27
NOTE 1 -- ORGANIZATION, BACKGROUND INFORMATION AND BASIS OF
PRESENTATION - continued
The Company formed XENOMORPH DIGITAL POST, INC. on June 14, 1996 as a Florida
corporation. The Company owns 100% of the voting stock. Xenomorph was created
to be a digital broadcast and video post-production center and on-line producer
of television programming.
The Company formed PRO-SPORTS ENTERTAINMENT GROUP, INC. on November 1, 1996 as
a Florida corporation. The Company owns 100% of the voting stock. Pro-sports
was created as a motion picture and television production group to produce
entertainment products focused on minority role models.
Basis of Presentation
The consolidated financial statements include the accounts of Studio City
Holding Corporation, and all subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
These consolidated financial statements have been prepared to comply with
disclosure requirements of Securities and Exchange Commission Regulation S-X
and conform to S-B format.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Office Furniture and Equipment: Office furniture and equipment is stated on the
basis of cost. Depreciation is computed by the straight-line method over useful
lives of 5-10 years.
Organization Costs: Costs to organize the corporations have been capitalized
and are stated on the basis of cost. Amortization is computed by the
straight-line method over 60 months.
Offering Costs: As discussed in Note 16, Quagga incurred specific incremental
costs in connection with a proposed Securities Act of 1993 Regulation D-504
offering. These offering costs were expensed in 1997 due to the expiration of
the offering on April 12, 1997.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
<PAGE> 28
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - continued
Earnings (Loss) Per Common Share: Basic Earnings (Loss) Per Share is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding during the year. Diluted Earnings (Loss)
Per Share is computed the same as Basic but also giving effect to all dilutive
potential common shares such as options, warrants and convertible preferred
stock. However, the computation of Diluted Earnings (Loss) Per Share does not
assume conversion of any potential common shares if that has an antidilutive
effect on earnings per share. Since there is a loss from operations, Diluted
Earnings (Loss) Per Share is computed the same as Basic Earnings (Loss) Per
Share. This is computed by dividing the net loss by weighted average number of
common shares outstanding during the year. The Earnings (Loss) Per Share are as
follows:
<TABLE>
<CAPTION>
Year Net Loss Weighted Average Shares Loss Per Share
---- -------- ----------------------- --------------
<S> <C> <C> <C>
1999 $649,651 31,057,001 $(.0209)
1998 $521,483 31,042,751 $(.0168)
1997 $572,506 30,950,955 $(.0185)
1996 $558,211 146,650,000 $(.0038)
1995 $316,578 141,225,000 $(.0022)
1994 $172,174 145,703,500 $(.0012)
1993 $ 73,409 144,038,550 $(.0005)
1992 $ 57,999 1,071,101 $(.0541)
1991 $ 35,455 784,000 $(.0452)
</TABLE>
NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS
Intangible assets consists of ownership of and rights to a significant number
of literary properties.
In October 1991, the date of incorporation of the Company and FIPC, stock was
issued for rights to several literary properties. 750,000 shares of Studio City
Incorporated Holding stock and 400,000 shares of Fawnsworth International
Pictures Corporation were issued at $1.00 per share in exchange for property
rights and exploitation. The recorded amount of these intangible assets for the
years 1991 and 1992 was zero based on the predecessor's cost. Larry D. Faw,
majority stockholder, was the predecessor owner. The total price of $1,150,000
has been reflected in the 1991 and 1992 financial statements as a reduction in
equity, specifically as a special distribution to stockholder.
Purchase Agreement: On February 16, 1993, the Company entered into an agreement
to acquire the direct ownership of various intellectual properties in the
amount of $7,226,000, which included 72 motion picture properties, 4 television
pilot properties, 48 books for publication, 4 inventions, 1 franchise program
and 1 Specialty Product Design and marketing program. The Company's Purchase
Agreement for these properties included an obligation in the form of a
promissory demand note in the amount of $1,554,027 payable to Larry D. Faw, the
majority stockholder. In addition, the Company granted to Larry D. Faw warrants
with the option to purchase 5,000,000 shares of common stock, which was
considered to be partial payment under
10
<PAGE> 29
NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued
the Purchase Agreement. These warrants are exercisable at $1.00 per share at a
maximum of 25% per year beginning the first anniversary of the effective date
of the grant and continues until one of the following occurs: (i) to the year
2003, or, (ii) when all warrants have been exercised, or, (iii) all rights to
such warrants have been terminated in a mutually agreed upon written agreement.
The Purchase Agreement additionally provided for the requirement that 51% of
the Company's preferred stock be issued to Larry D. Faw. The amount of
preferred stock was later decreased to 1,000,000 shares of redeemable
convertible and callable preferred B stock, with each share of preferred stock
being entitled to noncumulative dividends at 6% annual rate upon declaration of
the Board of Directors.
The preferred stock was recorded in the amount of $671,973, which was the
purchase price of the assets less the amount attributed to the promissory
demand note and the common stock warrants.
The Company, as part of the Purchase Agreement issued 1,000,000 shares of its
preferred B stock on February 15, 1995. The preferred stock can be converted to
common stock at market price, or, callable at any time by the Company at a
fixed price of $50 per share for preferred B stock and $105 per share for
preferred A stock, or in parts, on or after February 16, 1996, and will be
redeemable and/or callable until February 16, 2006.
In summary, the Purchase Agreement includes the $1,554,027 promissory demand
note, the $5,000,000 common stock warrants and $671,973 value of preferred
stock for a total price of $7,226,000. Management believes this Purchase
Agreement was at a significant discount which is evidenced by the Independent
Valuation as discussed below in Note 3. As previously stated, the recorded
amount of these intangible assets was zero based on the predecessor's cost.
Larry D. Faw, the majority stockholder, was the predecessor owner. The total
price of $7,226,000 has been reflected in the 1993 through 1999 financial
statements as a reduction in equity, specifically as a special distribution to
stockholder.
Pre-existing Rights: Ownership of certain literary properties were transferred
from the Company to its subsidiaries in 1993. Properties with a value of
$600,000 were transferred to Fawnsworth International Pictures Corporation,
increasing the intangible asset value from $400,000 to $1,000,000 (note:
properties were purchased in 1993 for $100, increasing intangible assets to
$1,000,100) and increasing its additional paid-in capital from $433,880 to
$1,033,880. Properties with a value of $1,200,000 were transferred to Poc-It
Publishers, Incorporated in exchange for its common stock. After these
transfers, the Company's intangible assets were $5,026,000. Incidental costs
have subsequently been incurred increasing the asset costs.
The purchase price of the intangible assets acquired from the majority
stockholder, Larry D. Faw, was determined by Industry Standards (i.e. Union
Minimums as detailed in the Writers Guild of America 1992 Minimum Basic
Agreement as collectively bargained with the Alliance of Motion Picture and
Television Producers, Producers Guild of America, Directors Guild of
11
<PAGE> 30
NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued
America, and all other signatory union business franchise valuation methods,
and other similar industry standards for product and merchandise development).
Independent Valuation: In 1995, the Company engaged a major U.S. investment
banking firm to conduct an analysis of the Companies' intellectual properties
as an independent third party consultant. This Independent Valuation was in
direct response as a requirement of the Securities and Exchange Commission's
Chief Accounting Office. This Independent Valuation was prepared as a
Preliminary Valuation prior to a public offering and was created as an internal
document, which due to its sensitive contents, has been made available to the
Securities and Exchange Commission as a confidential sealed document. The
Preliminary Independent Valuation was prepared through the following:
(1) Independent Research: (a) the investment banker's Research Analysts
Reports, (b) Standard & Poor's Industry Surveys, (c) Mergers and Acquisitions
from Securities Data Corporation, and, (d) financial reports from publicly
traded media holding companies and motion picture/television production
companies.
(2) Industry Guidelines.
(3) Analysis of the Collective Bargaining Agreements: The 1992 Writers Guild of
America-Alliance of Motion Picture & Television Producers Theatrical and
Television Basic Agreement, Amended and Effective May 2, 1992 through May 1,
1995; and the 1995 Writers Guild of America-Alliance of Motion Picture &
Television Producers Theatrical and Television Basic Agreement, Amended and
Effective May 2, 1995 through May 1, 1998, and ratified and amended on May 2,
1998 through May 1, 2001. All of which are Collective Bargaining Agreements
under the auspices of the National Labor Relations Board.
(4) Management Interviews.
The Preliminary Valuation Summary was prepared utilizing two valuation
methodologies for 22 of the Companies' intellectual properties: (1) Cost
Approach projected as $9,700,000 and, (2) Discounted Cash Flow projected as
$46,000,000. Based on the two methodologies, the preliminary value achieved was
$9,659,980 for 22 intellectual properties having a projected
costs/obligations/value of $439,090 for each of the 22 intellectual properties.
At the time of the Independent Valuation, Studio City Holding Corporation and
its subsidiaries owned 152 intellectual properties, the majority of which were
not utilized in calculations of the Preliminary Valuation.
Contingent Liabilities-Collective Bargaining Agreement: Studio City Holding
Corporation, Fawnsworth International Pictures Corporation, the International
Children's Television Network, Incorporated, and Zingrr N-2-Aktiv Television
Network, Inc. are registered signatory companies to the 1995 Writer's Guild of
America-Alliance of Motion Picture & Television Producers Theatrical and
Television Basis Agreement ("MBA"), Amended and Effective May 2, 1995 through
May 1, 1998. Studio City Holding Corporation and its subsidiaries are
exclusively
12
<PAGE> 31
NOTE 3 -- INTANGIBLE ASSETS AND RELATED OBLIGATIONS - continued
represented by the Alliance of Motion Picture & Television Producers, Inc. The
collective bargaining agreement is under the auspices of the National Labor
Relations Board and is deemed to be a contingent liability for Studio City
Holding Corporation and its subsidiaries in regards to all literary properties
owned by the companies for development and/or sale. All aspects of intellectual
properties represented by the "MBA" have been tabulated and have pre-set
financial obligations that pass through to the Company and/or other type of
ownership, and, directly passes through to any and all purchasers of the
intellectual properties. The contingent liabilities, requisite costs, and
expense calculations as determined under the 1995 "MBA" are restrictive and
compliance is dictated by law.
NOTE 4 -- INVESTMENT IN JOINT VENTURE AND STOCK
The Companies currently own (in entirety) literary properties whose
"replacement cost/value" and/or "1995 Minimum Basic Agreements" contingent
liabilities/obligation and/or associated direct pass-through costs for
production and distribution are tabulated under the Agreement as of December
31, 1996 as $811,931 per intellectual property. Studio City Holding Corporation
and its subsidiaries current portfolio of intellectual properties are required
to comply with all of the aspects pertaining to the collective bargaining
agreement in its most current form, and, those contingent liabilities pass
through to the owner of record.
This investment represents costs of $6,823 paid by FIPC on behalf of Florida
Screen Gems Partners, a partnership of which the FIPC is a partner. The
Partnership is in the development stage. The Company has also invested in two
Corporations--Environmental Production Systems and Florida Film Investment
Company. These investments are recorded at cost for a total of $50,000.
NOTE 5 -- PREPAID SERVICES
The Company and FIPC issued common stock to several individuals in exchange for
future services and expertise. The asset values recorded were determined by
management.
NOTE 6 -- OFFICE FURNITURE AND EQUIPMENT AND NOTE PAYABLE-STOCKHOLDER
At the time of incorporation in October 1991, FIPC acquired office furniture
and equipment from a stockholder, Genevieve Faw in the amount of $13,600. The
Company became indebted for this amount plus $1,520 for supplies that was
expensed in 1991. Therefore, the total liability to the stockholder for this
transaction was $15,120 since 1991. In 1994 the liability was satisfied. In
1995, the Company and Poc-It Comics acquired office furniture and equipment. In
1996, 1997 and 1999, the Company acquired additional office furniture and
equipment. Office furniture and equipment is recorded at cost, less accumulated
depreciation. The provision for depreciation is
13
<PAGE> 32
NOTE 6 -- OFFICE FURNITURE AND EQUIPMENT AND NOTE PAYABLE-
STOCKHOLDER - continued
computed on the straight-line method over the estimated useful lives of the
assets which range from 5 to 7 years.
NOTE 7 -- NOTE PAYABLE-MAJORITY STOCKHOLDER
As discussed in Note 3 above, the Company became obligated under the Purchase
Agreement to its majority stockholder, Larry D. Faw. The promissory demand note
is dated the date of the Purchase Agreement, which is February 16, 1993. The
promissory demand note contains the following provisions: (i) due upon demand,
(ii) payments may be made at any time, and (iii) a balloon payment is due on
February 16, 1995. The note has an initial annual interest rate of 2%. On
February 16, 1995, the note became due and subsequently was extended for six
months at an annual interest rate of 9%. Since August 16, 1995, the note has
been extended eight times through February 16, 2000. No principal payments have
been made on this note, but partial interest payments have been made in 1995,
1996, 1997, 1998 and 1999. Accrued interest on this note was $415,952, as of
December 31, 1999, and $375,069, $290,518, $194,456, $108,593, $58,158 and
$27,078 as of December 31, 1998, 1997, 1996, 1995, 1994 and 1993 respectively.
NOTE 8 -- RELATED PARTY TRANSACTIONS
In February of 1991, both the Company and FIPC started incurring
pre-incorporation expenses that were expensed by the companies and were paid by
its majority stockholder, Larry D. Faw. This practice has continued through the
present and both companies have reimbursed the stockholder for these expenses.
The nature of these expenses were automobile expense, office rent expense,
telephone expense, office supplies expense and other operational expenses.
These expenses were corporate expenses that were paid by the majority
stockholder, Larry D. Faw and charged to the companies. The Company incurred
automobile expenses and reimbursed Larry D. Faw at the mileage rates as
prescribed by the Internal Revenue Service. Additionally, the Company incurred
office rent and utilities and reimbursed Larry D. Faw $500 and $84 per month
respectively. Additional expenses were incurred and reimbursed to Larry D. Faw
such as telephone expenses, office supplies, and other operational expenses.
As discussed in Note 3, the Company acquired various intellectual properties
from the majority stockholder, Larry D. Faw, for $7,226,000 in exchange for a
promissory demand note, preferred stock and warrants to purchase common stock
at a fixed price.
The Company executed a statutory merger with CVT Corporation of America (name
changed to Studio City Holding Corporation) on July 1, 1996 with Studio City
Holding Corporation (a New York Corporation) being the surviving entity.
Subsequently, the operations of Studio City Incorporated Holding (a Florida
Corporation) were wound up and the corporation dissolved. (See Note
17--Merger).
14
<PAGE> 33
NOTE 8 -- RELATED PARTY TRANSACTIONS - continued
Zweig Knights Publishing Corporation, a subsidiary of the Company, has earned
revenue from sale of three books of the Nicholas Stories series. Total revenue
earned was $45,591 and $66,026 for the years ended December 31, 1999 and 1998.
Of these amounts, $41,000 and $54,575 were from sales to Harry K, Inc. Harry K,
Inc. is a corporation 100% owned by Harry Knights, the author of the books, who
is also a stockholder and officer of the Company as well as the subsidiary,
Zweig Knights Publishing Corporation. In 1997, the Company enlisted Harry K,
Inc. to serve as chief marketer and retail sales coordinator. The Company sells
to Harry K, Inc. as a wholesaler at a price of $10 per unit/book. Harry K, Inc.
markets the books within the guidelines of the Board of directors. Harry
Knights coordinates advertising, public relations and sales management at major
trade and specialty products showcases and conventions. Harry Knights receives
no compensation for the duties he performs on behalf of the Company. The
Company does assist in providing reimbursements for some expenses that are
incurred above and beyond the requirements necessary for retail sales.
NOTE 9 -- STOCKHOLDERS' EQUITY
Common Stock and Preferred Stock
Studio City Holding Corporation immediately after the Merger and as of December
31, 1996 (See Note 17) had 150,000,000 shares authorized, issued and
outstanding with a par value of $.01 per share. Upon the Merger, Larry D. Faw,
the principal stockholder converted 100,000,000 shares of common stock into
10,000,000 shares of Class A Preferred Stock and 10,000,000 shares of common
stock into 1,000,000 shares of Class B Preferred Stock. Additionally, the
former stockholders of CVT exchanged their shares for 9,123,250 shares of
common stock. Additionally, some shareholders elected the option to exchange
their common shares for Class B Preferred Stock (10 shares of common for 1
share of Class B Preferred Stock). 18,258,340 shares of common stock were
exchanged for 1,825,834 shares of Class B Preferred Stock. Additional shares of
common were issued during 1997 and 1998. As of December 31, 1999 and December
31, 1998, there were 31,057,001 shares issued and outstanding. The par value
was amended to $.002 per share.
As discussed above, Larry D. Faw, the principal stockholder, converted common
stock into 10,000,000 shares of Class A Preferred Stock. This is the amount of
shares issued and outstanding as of December 31, 1999 and December 31, 1998.
The par value is $.0001 per share.
As discussed above, Larry D. Faw, the principal stockholder, converted common
stock into 1,000,000 shares of Class B Preferred Stock. He previously had
1,000,000 shares prior to this conversion. Additionally, other stockholders
exchanged common stock for 1,825,834 shares of Class B Preferred Stock. As of
December 31, 1999 and December 31, 1998, there were 3,825,834 shares issued and
outstanding. The par value is $.0001 per share.
Fawnsworth International Pictures Corporation has 500,000 shares authorized.
The par value is $.01 per share. There were 491,150 shares issued and
outstanding as of December 31, 1999 and 1998 with Studio City being the
registered beneficial owner.
15
<PAGE> 34
NOTE 9 -- STOCKHOLDERS' EQUITY - continued
Poc-It Publishers, Incorporated has 10,000,000 shares authorized, issued and
outstanding. The par value is $.0001 per share.
Poc-It Comics, Incorporated has one class of common stock and it is voting (one
share, one vote). The par value is $.0001 per share with 10,000,000 authorized.
10,000,000 shares are issued and outstanding. Poc-It Comics has 5,000,000
shares authorized, issued and outstanding of Class A Preferred Stock at $.0001
par value per share which is callable, voting and convertible to common. There
are also 5,000,000 shares authorized, issued and outstanding Class B Preferred
Stock at $.0001 par value per share which is non-voting with preferential
dividends.
Quagga Entertainment Corporation has one class of common stock and it is voting
(one share, one vote). The par value is $.001 per share with 10,000,000 shares
authorized and 7,000,000 shares issued and outstanding. Quagga has 5,000,000
shares of Class A Preferred Stock authorized, issued, and outstanding. The par
value of the Classs A shares is zero. The Class A shares (1) are voting--one
share, one vote (2) receive no dividends (3) are not convertible ( 4) are not
redeemable (5) are callable at $25.00 per share.
Quagga has 5,000,000 shares of Class B Preferred Stock of which 2,500,000 are
issued and outstanding. The par value of the Class B shares is zero. The Class
B shares (1) are non-voting (2) have special dividend rights based on earnings
(3) have the initial price of $6.00 (4) have a fixed dividend of 12% per annum
based on earnings (5) are callable at $7.50 per share after the first year's
dividend (6) are callable after 3 years at $10.00 per share (7) are convertible
to common (8) have preferential liquidation treatment above all other shares.
Additionally, Quagga has 500,000 shares of Class C Preferred Stock, however, no
shares have been issued. The par value of the Class C shares is zero. The Class
C shares (1) are non-voting (2) have special dividend rights based on earnings
(3) have the initial price of $2.00 (4) are callable any time after issuance
for $2.00 for a period up to two years (5) are callable for $2.50 after two
years (6) are convertible to common after three years on a one to one basis (7)
have preferential liquidation treatment over common stock and Class A Preferred
stock.
All other entities presented in these financial statements other than those
referred to above in this note, have one class of common stock and it is voting
(one share, one vote). The par value is $.0001 per share with 10,000,000
authorized, issued and outstanding. There are 5,000,000 shares authorized,
issued and outstanding each of Class A and B Preferred Stock at $.0001 par
value per share. Class A is voting and convertible to common and Class B is
non-voting with preferential dividends.
16
<PAGE> 35
NOTE 10 -- TRADEMARKS, COPYRIGHTS AND LICENSES
The Company uses its own and licensed trademarks from its subsidiaries for
spinoff product development and merchandising from its various intellectual
properties. The Company owns 126 copyrights and will seek patents for 4
products. Additionally, the Company will be purchasing new products and
literary properties for development, and/or, enter into joint ventures for the
development of intellectual properties or consumer products. Each such instance
will be earmarked by distinct contractual requirements and obligations by the
Company.
NOTE 11 -- EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFITS
The Company has had no full-time employees from inception to date except for
Quagga Entertainment Corporation during 1995. The Company has had contractual
relationships with independent contractors. Operations are managed by officers,
directors, and stockholders who receive no monetary compensation. The Company
has had no employment agreements with key officers from inception to date.
However, the Company anticipates entering into employment agreements with key
personnel and intends to obtain key-man insurance when the Company emerges from
the development stage.
The Company does maintain a medical reimbursement plan whereby the majority
stockholder, Larry D. Faw, is reimbursed for his medical costs. This does not
include any other family members.
NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS
As of December 31, 1999, the Company was obligated to make future contingent
payments under research and development contracts, which are based upon actual
utilization of certain intellectual properties in pre-publication, published or
cinematic form. These contingent payments will continue for an indeterminable
length of time, and will be payable in all cases at the time of funding for
each respective project. Under certain of these contracts, the Company is
obligated to pay royalties ranging from 1.5% to 5% of the gross net profits
which are distributable from the commercialization and merchandising of these
properties.
The Company has agreements with various individuals who will receive funds from
the initial distribution proceeds from the exploitation of certain literary
properties. These amounts are uncalculable because they are percentage rights
in individual properties which are identified in the Company's unaudited
financial statements and inventory analysis. These contracts and percentage
rights are as follows:
17
<PAGE> 36
NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS - continued
For the motion picture property "Bawdyhouse Bandits":
Frederick G. Spriggs 1% profit participation
Norman T. Godheim 1% profit participation
Heflar Family Trust 2% profit participation
Darlene C. Barror 1% profit participation
Suzanne Quinonez 1% profit participation
Genevieve H. Faw 2% profit participation
For each of the following motion picture properties-- "Return To Treasure
Island", "Bad News", "TampaVice or The Comic Misadventures of Nipit and Budd",
"Mistaken Identity", "Love Can Kill", "Billion Dollar Bunnies", "The Love
Bugs", "A Touch of Evil", "Eyes of Terror", "Rail Rider", "Swingtime", "Whooz
Choice", "The War Lords", "Captain J Ride Again", "Midnight Blues", "Belle of
Berry Hill", "Hells Revenge", "Vendetta", "A Miracle In Tibet", "The Junkyard
Gang", "Land of the GaNodds", "So Far From My Heart", "Water Drop Series",
"Damon Runyon Series", "Way Off Broadway", "Paparazzi", "Love Bugs-Television
Game Show", "Fright Night", "Fountain Blue", "The Worlds Greatest Escapes", and
"Seminole"--the following contractual agreements exist: Genevieve H. Faw--2%.
For each of the following motion picture properties under option--"Cut Throat
Ridge", "The Plunderers", "The Last Glider", "Silence Awaits", "Stihlman and
the Firestone", "The Orion Murders", "Battle of Buck Mountain", "A Delicate
Obsession", "Seven Eleven Sorority Street", "Happy Bob", "Ghost Rider", "Teeth
of Lions", "Dali", "The Hillsville Courthouse Murder Massacre", "The Last Great
Adventure", "Otto", "Wheels", "Freefalling", and "Like A Butterfly"-the
following contractual agreements exist: Genevieve H. Faw--1%.
For the following book rights and motion picture rights on "Cain and Abel
Revisited: The True Life Story of Earle Don Fagan, Jr."--the following
contractual agreement exists:
The E. Don Fagan, Jr. Trust $50,000 on contract to sale
$25,000 new purchase
1% net profit participation
The Company has separate contractual royalty agreements with Genevieve H. Faw
for deferred fees and royalties for each of the following inventions-- "Enviro
Tools"(tm), "Boot Valet"(r), "Book Lounge"(r), and "Radius Gauge"(r). The
following contracts exist: Genevieve H. Faw--1% royalty per number sold.
The Company has separate contractual agreements for royalties for books under
the research and development phase of the Company's wholly owned subsidiary,
Poc-It Publishers, Incorporated. All of the following book titles in each
series have royalty fees -- "Reward Series" (13 titles), "The Poc-It Mania
Series" (11 titles), "Self Help Manuals" (11 titles), and "Contemporary Career
Guide Series" (10 titles): The following contracts exist: Genevieve H. Faw--1%
royalty per number sold.
18
<PAGE> 37
NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS - continued
There are separate contractual agreements in connection with the assignment of
Artistic Property Agreement between Fawnsworth International Pictures
Corporation and Michael Fields for ownership rights of original art for 4 comic
books characters created by Larry D. Faw. These 4 characters are "Taren",
"Mercer", "Shrieve", and "Quant", all from the "Earth Warrior" series. Poc-It
Comics, Incorporated issued 10,000 shares of common stock to Michael Fields in
addition to $100 cash per contract--$400 total. Additionally, Fields is to
receive a flat fee of $5,000 for each agreement payable when and if the art
design is utilized in the production of a movie or animation product--$20,000
total if all character art is utilized.
There is a separate Purchase & Profit Participation Agreement between
Fawnsworth International Pictures Corporation and Paul and Brahm Piterski for
the ownership of the literary rights and artwork of the comic book character
"Willy the Magnet Man". Poc-It Comics, Incorporated issued 50,000 shares of
common stock to Piterski in addition to $100 cash. Additionally, Piterski is to
receive a $15,000 consultant/production fee at time of movie production plus
10% of the net profits generated from the exploitation of the entertainment
franchise.
There is a separate Agreement between the Company, Roger H. Hefler, Larry D.
Faw and Frank Zanca/Wingspan Productions for the ownership rights of the
literary property "Shadow Raven", which are assigned to Poc-It Comics,
Incorporated. Poc-It Comics, Incorporated issued 50,000 shares of common stock
and 100,000 shares of Class B preferred stock to Zanca.
There is a separate Assignment of Artistic Property Agreement between
Fawnsworth International Pictures Corporation and Calvin B. Clarke for the
ownership rights of original art for the comic book character created by Larry
D. Faw. The character is "Hafro", another character from the "Earth Warrior"
series. Clarke received $100 cash plus he will receive a $5,000 consultant fee
if the art is utilized plus a pro rata percentage from 5% allocated to Talent
Pool.
There is a separate Assignment of Artistic Property Agreement between
Fawnsworth International Pictures Corporation and Ricardo Colon for the
ownership rights of original art for the comic book character "Un-named". Colon
received $100 cash plus he will receive a $5,000 consultant fee if the art is
utilized plus a pro rata percentage from 5% allocated to Talent Pool.
There is a separate Assignment of Artistic Property Agreement between
Fawnsworth International Pictures Corporation and Marco Antonio Nazario for the
ownership rights of original art for the comic book character created by Larry
D. Faw. The character is "Sunspot", another character from the "Earth Warrior"
series. Clarke received $100 cash plus he will receive a $5,000 consultant fee
if the art is utilized plus a pro rata percentage from 5% allocated to Talent
Pool.
There is a separate Assignment of Artistic Property Agreement between
Fawnsworth International Pictures Corporation and Melissa Polizzi for the
ownership rights of original art for 3 comic book characters created by Larry
D. Faw. The characters are "Marilise", "Lilian", and "Renata", triplet
characters from the "Earth Warrior" series. Polizzi received $100 cash plus she
19
<PAGE> 38
NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS - continued
will receive a $5,000 consultant fee if the art is utilized plus a pro rata
percentage from 5% allocated to Talent Pool.
There is a separate Assignment of Rights and Profit Participation Agreement
between Fawnsworth International Pictures Corporation and Larry D. Faw for the
licensing rights of the literary property "Earth Warriors", which consists of
12 characters. This Agreement is for a 5 year period ending October 9, 1998.
Faw received no cash but did receive 50,000 shares of Poc-It Comics,
Incorporated on March 29, 1994. If the rights are utilized, Faw will receive
$15,000 for print format, $50,000 for motion picture and/or other multi-media
plus 5% of the net profits attributable to this entertainment franchise.
There is a separate Agreement between the Company and Harry B. Knights, the
author of "The Nicholas Stories", who serves as Senior Vice-President of the
Company and Chief Operations Officer of Zweig Knights Publishing Corporation, a
subsidiary of the Company. The contractual obligation to Harry B. Knights was
met by issuing to him 1,250,000 shares of Preferred A and 1,250,000 of shares
of Preferred B stock of Zweig Knights Publishing Corporation plus 100,000
shares of restricted common stock of the Company in April 1994. Additionally,
Harry B. Knights received a cash consulting fee of $5,000 on the 1997
production of "The Nicholas Stories".
There is a separate pass-through Agreement between Harry B. Knights which is
contingent upon the publication and/or cinematic adaptation of any of these
intellectual properties. He is to receive a consultant fee and a profit
participation in each of these properties.
On July 1, 1995, the Company entered into a joint venture with Quagga
Television Partners Limited Partnership for the production and distribution of
low budget motion pictures and television programming. Larry D. Faw is the
Managing Partner of Quagga Television Partners and is the largest contributor
as a limited partner. Quagga Television Partners furnished the majority of the
funding for the production of Zoo Toonz. Quagga Television Partners owns a
library of video footage of exotic animals for the creation of animal music
videos. As of this date, Quagga Television Partners has not licensed use of
this footage.
The Company has entered into a series of Joint Venture Agreements with Lisa
Moody/Tin Woman Music, Inc. for the creation of music for the first generation
of Zoo Toonz. Larry D. Faw and Quagga Television Partners Limited Partnership
have contributed capital for these joint ventures. To date, 5 contractual
arrangements have been made for the creation of 27 songs for the Zoo Toonz
project. The songwriter has been prepaid for the creation of these songs and
separate funds have been expended for the production of Recording Masters. A
contingent liability passes through to the Company for any profits associated
with the useage of these songs, if the songs are utilized.
The Company had entered into an Agreement for the use of 2 puppets, Clyde and
Alfred, for the utilization in volume one of Zoo Toonz, with John C. Cummings,
Jr. Additional puppet footage was shot at Disney-MGM Studios, however, the
footage was unacceptable. Due to contractual
20
<PAGE> 39
NOTE 12 -- ADDITIONAL CONTINGENT PAYMENTS - continued
restrictions placed on the Company by Disney for Volume one of Zoo Toonz, the
release and distribution was cancelled. The Joint Venture Agreement was
terminated by John C. Cummings, Sr. on October 2, 1996.
A Contingent Production Joint Venture was entered into by the Company with Marc
Rose and Radio Cinema for the creation of various products and merchandise
which could be created from the distribution and cinematic adaptation of a
series of radio shows entitled "Dry Smoke and Whispers". This contingent
agreement may be terminated.
On June 17, 1996, the Company purchased the patents and trademarks for "Uncle
Tuffy's French Security Window". The purchase was made between the Company and
Paul Piterski, the inventor and patent owner for $2,000 in cash plus 5% of the
gross profits attributable to the sale, licensing, or other profits due to the
Company for the exploitation of this patented product.
In July 1996, the Company placed a $10,000 option on the right to purchase
literary properties written by science fiction writer Andre Norton. The
properties which were optioned were "The Wraiths of Time" and "A New Property
Adaptation From The Screenplay of The Wraiths of Time". The option still
exists, however, original funding was to be realized from the public offering
of Quagga Entertainment Corporation's D-504, which expired. Publishing
Corporation, has entered into an Agreement to be a corporate general partner in
ZK Partners Limited Partnership. This Partnership is currently being formed for
the financing of an animation for "The Nicholas Stories", and is currently in
the development stage.
NOTE 13 -- EMPLOYEE INCENTIVE STOCK OPTION PLAN
On March 1, 1993, the Board of Directors adopted in Outline Form an Employee
Incentive Stock Option Plan for future full time employees and officers. Under
the Proposed Outline, the Company may issue options exercisable at the current
market value (110% of current market value only to 10% or greater stockholders)
up to $100,000 annually. The Proposed Plan was extended from March 1, 1998, to
terminate on March 1, 2002.
Under the Proposed Plan, any person owning 10% of the voting power of the
Company is restricted from exercising his/her options to three years after the
receipt of such grant. Additional stipulations are as follows: (1) options
terminated or expired revert back into the Plan, (2) unpurchased option shares
remain in the Plan, (3) options are only exercisable by the optionee or his/her
estate, (4) options are not transferable, (5) carryover amounts from one year
to the next year can not exceed 50% of the option, and (6) option shares are
restricted until SEC registration.
The Company has reserved 500,000 shares of common stock for issuance under the
Proposed Plan.
No options have been granted under the Proposed Plan from inception to date.
21
<PAGE> 40
NOTE 14 -- INCOME TAXES
The Company and its subsidiaries have filed separate corporate income tax
returns since each corporation's inception through December 31, 1999. As of
December 31, 1999, there have been no timing differences in the recognition of
revenue and expense for financial reporting and income tax purposes. As of
December 31, 1999, the Company and its subsidiaries each have available net
operating loss carryforwards for federal and state income tax purposes (which
are the same amount) that will be available to offset future taxable income of
the Company. If unused, net operating loss carryforwards expire after 15 years
(20 years after 1997). The loss carryforwards are summarized as follows:
<TABLE>
<CAPTION>
Year Year Studio City All
Incurred Expires Holding Corp. Subsidiaries Combined
-------- ------- ------------- ------------ --------
<S> <C> <C> <C> <C>
1991 2006 $ 15,596 $ 19,859 $ 35,455
1992 2007 24,000 33,999 57,999
1993 2008 63,543 9,866 73,409
1994 2009 158,468 13,706 172,174
1995 2010 309,995 6,583 316,578
1996 2011 496,761 61,450 558,211
1997 2012 451,666 120,840 572,506
1998 2018 489,105 34,378 523,483
1999 2019 556,889 92,762 649,651
</TABLE>
NOTE 15 -- RENTALS UNDER OPERATING LEASES
The Company's leasing operations consist principally of the leasing of
broadcast television equipment, various computer, video and sound equipment
under operating leases that expire over the next three to five years. Due to a
cross default by a joint venture partner, a portion of the equipment under two
of the leases was reposessed by the lessor for late payment (see note 18
regarding "Zoo Toonz"). The Company has continued making monthly payments on
all lease obligations and expects to satisfy all obligations and obtain full
use of all equipment under lease.
The following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1999:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ --------
<S> <C>
2000 $53,084
2001 44,199
2002 2,177
Later Years -0-
-------
$99,460
=======
</TABLE>
22
<PAGE> 41
NOTE 16 -- CHANGING ECONOMIC CONDITIONS AND SUBSEQUENT EVENTS
From September 1995 to September 1996 Studio City Incorporated Holding entered
into a "First Right of Refusal/Space Lease Agreement" with The Walt Disney
Company on product produced on the Disney-MGM Studios by Studio City. The
Company entered into a one year space lease/first right of refusal/production
agreement to expend a minimum of $1,200,000 at the studio for its projects. The
Company entered into this agreement with Disney based on an agreement with a
New York investment banker taking a contractual (dated August 28, 1995) equity
position of $1,200,000 in Quagga Entertainment Corporation, the production arm
which was located with the Company at Disney/MGM Studios. Quagga Entertainment
Corporation was to achieve total capitalization in 1996 of $8,500,000 based on
a registered public offering in Connecticut. The Company was also qualified to
sell the offering in the state of New York as a registered broker/dealer. The
Company was represented by an investment banker/consultant in Connecticut, who
contractually committed to raising Quagga's capital needs through a registered
D-504 offering. Also, the Company had the option to create and market a "red
herring" D-506 private placement. The Company chose "Shadow Raven", a
low-budget feature motion picture, to be the first project. However, due to
expanded costs associated with the contingent joint venture production
partners, the project was postponed until sufficient capitalization was
realized. Quagga's D-504 offering was registered in Connecticut on April 12,
1996. The investment banker was to commence the financial marketing of the
offering, but failed to do so. The New York equity investor could not meet the
contractual commitment. As a result, the D-504 offering expired on April 12,
1997 and the "red herring" D-506 was withdrawn as a viable funding plan.
Accordingly, the offering costs of $32,051 have been expensed during 1997. With
the lack of alternative financing available to the Company, the contract with
Walt Disney Company expired on September 15, 1996 along with the contingent
joint venture production partnerships.
In April 1997, the Company expanded its operations by relocating to Tampa,
Florida into a facility that provides a small soundstage, office operations,
and edit suite. This new organization of its operations in Tampa is anticipated
to increase revenue production, while providing low costs to the Company for
its own projects.
NOTE 17 -- MERGER
On June 29, 1996, CVT Corporation of America restated and amended its articles
of incorporation to allow for a name change, the creation of Class A and B
Preferred Stock, the reorganization of operations, and limiting the liability
of its Directors and Officers. CVT Corporation changed its name to Studio City
Holding Corporation (a New York Corporation). 10,000,000 shares of Class A
Preferred Stock with special voting powers were created and 25,000,000 shares
of Class B Preferred Stock with preferential dividends and various rights were
created. The Company adopted a new set of By-Laws which streamlined its
operations as a public company and adopted a set of procedures which limited
the liability of its Directors and Officers.
23
<PAGE> 42
NOTE 17 -- MERGER - continued
On July 1, 1996, Studio City Incorporated Holding (a Florida Corporation) and
its subsidiaries merged with and into Studio City Holding Corporation (a New
York Corporation) in a statutory merger. The merger transaction was executed in
a "like kind" stock exchange, share for share of common stock of Studio City
Incorporated Holding for common stock of Studio City Holding Corporation. On
October 24, 1996, Studio City Incorporated Holding was dissolved, with the
surviving entity being Studio City Holding Corporation. All of the assets and
liabilities of Studio City Incorporated Holding and its subsidiaries were
merged with and into Studio City Holding Corporation.
As per the Merger Agreement, Larry D. Faw, principal stockholder of Studio City
Incorporated Holding, was required to convert 100,000,000 shares of voting
common stock of Studio City Incorporated Holding into 10,000,000 shares of
Studio City Holding Corporation Class A Preferred Stock and was also required
to convert 10,000,000 shares of common stock into 1,000,000 shares of Class B
Preferred Stock.
On October 29, 1997, the Company called for a name change and exchange of
shares from both former CVT stockholders and Studio City Incorporated Holding
stockholders. This exchange was executed in a "like-kind" share for share
exchange. Additionally, all of the stockholders in the Merged Entity had the
option to convert any, all, or none of their shares of common stock into Class
B Preferred Stock at a ratio of 10 shares of common for 1 share of Class B
Preferred Stock.
NOTE 18 -- PENDING LITIGATION
When the merger occurred, there were no significant changes in the operations
of the Company and its subsidiaries. Studio City Holding Corporation and its
subsidiaries continued its operations as the merged entity. When the merger
occurred, there were no significant changes in the operations of the Company
and its subsidiaries. Studio City Holding Corporation and its subsidiaries
continued its operations as the merged entity.
The Company being an entertainment company is often required to defend its
rights and licenses for intellectual properties that the Company either owns or
serves as a joint venture partner. This type of litigation is common in the
entertainment industry, and considering that the Company owns numerous
intellectual properties and owns various types of licenses and joint
participations in intellectual properties, it can safely be assumed that the
Company will be required to defend its rights, presently and in the future.
Currently, the Company and its subsidiary, Poc-It Comics, Incorporated, are
defending their rights in the production and distribution of an entertainment
franchise based on a comic book story entitled "Shadow Raven". The principals
are currently attempting to resolve their issues in negotiation.
24
<PAGE> 43
NOTE 18 -- PENDING LITIGATION - continued
Secondly, the Company and its subsidiary, Quagga Entertainment Corporation, are
defending a challenge to the Companies' rights associated with a joint venture
to create, produce, distribute and exploit an intellectual property entitled
"Zoo Toonz", a joint venture where the timeliness of the creation of finished
products are in question. Litigation is pending in this matter, and, it has
been determined that the products will be completed without the assistance of
the joint venture partner. The Company and its financial partners will seek to
recoup all of its investment.
NOTE 19 -- LOANS FROM MINORITY STOCKHOLDERS
During 1998 and 1999, various minority stockholders loaned the Company money.
These unsecured, short-term (less than one year) loans accrue interest at 10%
per annum. The total amounts outstanding are $888,784 and $328,000 as of
December 31, 1999 and 1998 respectively. Accrued interest payable on these
loans are $74,631 and $10,653 as of December 31, 1999 and 1998 respectively.
NOTE 20 -- EQUITY SECURITIES SUBJECT TO RESCISSION
Common stock was issued during 1996, 1997 and 1998 without compliance with
registration requirements of the federal and state securities laws. As a
result, these securities may have rescission rights. Accordingly, the potential
rescission liability has been classified outside of permanent stockholders'
equity, under the caption "Equity Securities Subject To Rescission". This
amount is $432,176 as of December 31, 1996, $913,599 as of December 31, 1997,
$1,003,100 as of December 31, 1998, and 1999. The likelihood of the exercising
of these rescission rights is considered to be remote, and therefore, interest
has not been accrued and included as an additional liability amount. But the
interest is considered to be a contingent liability of the Company and based on
a 10% annual interest rate, amounts to approximately $36,000 as of December 31,
1996, $98,000 as of December 31, 1997, $198,000 as of December 31, 1998 and
$298,000 as of December 31, 1999. When the rescission rights expire, the
respective amounts will be reclassified as permanent equity.
25
<PAGE> 1
Exhibit 10.1
AGREEMENT FOR TRADING STOCK
This Agreement, made and entered into by and between Wellsprings Investment,
Inc., a Nebraska Corporation, hereinafter referred to as "Wellsprings" and SCA
Global Resources, Incorporated, a Florida Corporation, hereinafter referred to
as "SCA", for the purpose of trading 10,000 shares of stock in M & C Oil, Inc.,
a Nebraska Corporation, owned by Wellsprings, it being all of the stock of that
corporation, for 10,000 shares of common non-voting shares in SCA.
The parties agree as follows:
1. Wellsprings shall endorse the stock certificates of M & C Oil, Inc., a
Nebraska Corporation, owned by it to SCA and shall provide SCA with all
documents in its possessions as required in order to inform SCA of the holdings
of M & C Oil, Inc. This shall include, but not be limited to, the stock record
book and all Leases and any other holdings of M & C Oil, Inc.
2. SCA shall issue 10,000 shares of non-voting common stock in SCA to the
following persons as directed by a joint meeting of the stockholders and board
of directors of Wellsprings, to wit: 3,334 shares of common non-voting stock in
SCA to Jerry D. Christensen, 3,333 shares of common non-voting stock in SCA to
Brent M. Christensen, 3,333 share of common non-voting stock in SCA to Mark L.
Blevins.
3. SCA further agrees that, as a part of this Agreement, they will hold harmless
Wellsprings, and the present stockholders of Wellsprings from any debts,
liabilities or obligations of M & C Oil, Inc., present and past. They further
agree that M & C Oil, Inc., is in the process of receiving a refund check from
Mid-Continent Casualty Company and, when the check is received, it shall be
endorsed by M & C Oil, Inc., to Wellsprings Investment, Inc., and remain the
property of Wellsprings.
4. The parties further agree that the trading of the stock shall be completed
within thirty (30) days after this Agreement is approved, at which time the
records and stock in M & C Oil, Inc., shall become the property of SCA.
5. Incorporated herein is a copy of the minutes of a Joint Special Meeting of
the Stockholders and Board of Directors of Wellsprings Investment, Inc.,
allowing the said transfer of stock from SCA to be made direct to the persons as
directed by the Minutes of that meeting.
Dated this 22nd day of November, 1999.
<PAGE> 2
WELLSPRING INVESTMENT, INC.,
a Nebraska Corporation
By: ss//Jerry D. Christensen
President
SCA GLOBAL RESOURCES, INCORPORATED
A Florida Corporation,
By: ss//Larry D. Faw as President
President
STATE OF NEBRASKA
SS.
COUNTY OF PHELPS
Before me, a Notary Public qualified in said county, personally came Brent M.
Christensen, President of Wellsprings Investment, Inc., a Nebraska Corporation,
known to me be the identical person who signed the foregoing instrument, and
acknowledged the execution thereof to be this voluntary act and deed and the
voluntary act and deed of said corporation.
Witness my hand and notary seal on November , 1999.
ss.//
Notary Public
(Seal)
STATE OF FLORIDA
ss.
COUNTY OF MARION
Before me, a Notary Public qualified in said county, personally came Larry D.
Faw, President of SCA Global Resources, Incorporated, a Florida corporation,
known to me to be identical person who signed the foregoing instrument, and
acknowledged the execution thereof to be his/her voluntary act and deed and the
voluntary act and deed of said corporation.
Witness my hand and notary seal on November 22, 1999.
ss/Elizabeth Bartum
Notary Public
(seal)
ELIZABETH BARTUM
MY COMMISSION #CC684223
EXPIRES: September 29, 2001
Bonded Thru Notary Public Underwriters
<PAGE> 1
Exhibit 10.2
THE HAMMER TRUST
AN IRREVOCABLE BUSINESS ROYALTY TRUST
This indenture created on this 26th day of November, 1999, under the laws of the
state of Florida, by and between the Principals, STUDIO CITY HOLDING
CORPORATION, a New York corporation, with a registered office of 153 Stevens
Avenue, Suite Seven, Mount Vernon, New York and PROBLEM SOLVERS, INCORPORATED,
with a registered office of 105 S. Main Street, Erie, Kansas and said Studio and
PSI mutually agree to establish an irrevocable business royalty trust to be name
"THE HAMMER TRUST - AN IRREVOCABLE BUSINESS ROYALTY TRUST" under the covenants
established and upon the conditions and for the purposes set forth in this trust
document. Studio and PSI further agree that this document except as modified in
writing executed by the Principals (or their successors) is complete and
constitutes the full and complete agreement of the Principals.
1. NAME OF TRUST: The name of this irrevocable business royalty trust is "THE
HAMMER TRUST - AN IRREVOCABLE BUSINESS ROYALTY TRUST" (hereinafter the TRUST).
2. PRINCIPALS: The Principals of this agreement are limited to two entities,
namely, STUDIO CITY HOLDING CORPORATION, (hereinafter "Studio") and PROBLEM
SOLVERS, INCORPORATED, (hereinafter "PSI"), and each Principal shall be
represented by a designated and authorized representative.
A. Studio as a Principal to this agreement hereby designates by full corporate
authority, Larry D. Faw, president of Studio, as its authorized representative
and he shall have the full and direct authority to represent Studio and he is
further empowered to execute this trust document.
B. PSI as a Principal to this agreement hereby designates by full corporate
authority, Hurschel Buscher, president of PSI, as its authorized representative
and he shall have the full and direct authority to represent PSI, as its
authorized representative and he shall have the full and direct authority to
represent PSI and he is further empowered to execute this trust document.
C. Either Principal expressing a desire or necessity to sell or otherwise
dispose of their residual interests in the TRUST shall offer to the other
Principal the first right of refusal to acquire such residual interest being
sold or otherwise disposed of prior to offering same to any other party
excepting as noted in paragraph E below;
D. If the other Principal rejects the offer to acquire the offered residual
interests than either Principal shall be free to find a successor in interest
who must meet the following criteria:
-1-
<PAGE> 2
(1) the successor Principal must not be affiliated with any business enterprise
which would damage the reputation or business effectiveness of the TRUST;
(2) the successor Principal must certify under oath that the integrity of the
TRUST will be maintained;
(3) the successor Principal may be required to post a "cash" or "assets" bond
for the benefit of the TRUST and/or the non-selling Principal to guarantee the
continued operations of the TRUST as originally intended and set forth in this
document.
E. Should a third party non-principal express an interest in acquiring ownership
of the entire residual interests of the TRUST, it shall be the sole
responsibility of each Principal to entertain any such offer to purchase their
proportional interests subject to the restrictions listed in paragraph D above
3. TERM: The duration of the TRUST is perpetual (without a definite date of
termination).
4. PURPOSE: This TRUST is established for the direct benefit of the Principals
allowing each to receive the maximum benefit from the development and
exploitation of assets from which both Principals shall receive a 50/50 split
("PROFIT PARTICIPATION") in perpetuity.
5. AUTHORITY: The TRUST shall have the right to have and to hold any asset as
provided by the principals initially and may receive additional assets from time
to time. Trustees shall have the power and authority as set for hereinafter.
6. TRUSTEES: Each Principal shall have the authority to appoint one (1) Trustee
to represent that Principal in the management and operations of this TRUST. A
Trustee may be removed at any time, with or without cause, by the Principal
making the appointment. Should a dispute result in an impasse, the Trustees
shall submit the dispute to the Principals for their consideration and decision.
Should the Principals not be able to resolve the impasse, the presenting problem
may be submitted to non-binding mediation/arbitration or legal action may be
taken by either Principal. Trustees need not furnish a personal bond but the
TRUST may provide for the bonding and payment thereof a bond in any amount
deemed appropriate by the Principals.
A. Studio appoints as it initial Trustee, Larry D. Faw whose mailing address is
P.O. Box 367, Oxford, Florida 34484, phone 352-347-3947, fax 352-347-3947
B. PSI appoints as it initial Trustee, Hurschel Buscher whose mailing address is
P.O. Box 105, Erie, Kansas 66733, phone 316-244-5115 fax 316-244-3487.
C. Should a Trustee resign, die or be removed by the Principal appointing said
Trustee, then it will be the direct responsibility of said Principal whose
Trustee, resigned, died, or was removed to appoint a successor Trustee within
thirty (30) days of the death of said Trustee or within ten (10) days of the
resignation or removal of said Trustee. The power to appoint a Trustee or
successor Trustee resides solely with the Principal (or assign, heir,
administrator, executor, or successor) making the original appointment. All
successor Trustees shall have the same power and duties of their predecessor(s)
unless otherwise modified.
-2-
<PAGE> 3
D. Should both Trustees resign, die or are removed simultaneously by the
Principals, then the Principals shall have the power to act as Trustees and
continue the TRUST until such time as successor Trustees may be appointed.
Either Principal may authorize, in writing, the other to act for the mutual
benefit of both for a period of time so designated in writing.
E. The absence of designated Trustees shall not operate or be construed to
defeat or terminate this TRUST. This TRUST may be terminated only by mutual
written consent of the Principals or their successors in title.
F. The Trustees shall execute their duties and account to the beneficiaries of
the TRUST for all assets and monies received by the Trustees when properly and
lawfully required. Should either of the Trustees resign there shall be a proper
accounting by said Trustee of all assets and monies received by said Trustee.
Neither Trustee shall be held accountable for the acts or defaults of the other.
Further, the Trustees shall not be held accountable for the acts or defaults of
the other. Further, the Trustees shall not be held accountable or personally
liable for any business judgment error in the execution of their duties.
G. The Trustees, in managing the TRUST assets and earnings, with written
authorization by the Principals, shall not be confined to usual and customary
investments for Trustees (so-called "legal investments") but instead, the
Trustees are at liberty to make other and different investments that in their
judgment, may seem proper and fitting and said Trustees shall not be personally
liable or held accountable for any depreciation in the value of any investment,
and the losses, if any, shall fall solely on those beneficiaries of the TRUST.
Further, if the Trustees shall pay more than par value for any investment, they
shall not be obligated to establish a "sinking fund" from the income of such
investment(s), for the repayment to the Principals of the sum so paid over and
above par, but the entire income of the investment(s) shall be disbursed and
paid as provided for in this document and supplements thereto.
H. The Trustees shall be entitled to compensation pursuant to a written
agreement, which may be modified from time to time, by the Principals.
7. INITIAL CONTRIBUTIONS: Each Principal shall make an initial contribution to
the TRUST AS follows:
A. Studio will contribute:
(1) Cash of one thousand dollars and no cents ($1,000.00);
(2) A promissory demand note made payable to TRUST for an amount of two million
five hundred thousand dollars ($2,5000,000.00) which shall be redeemed by Studio
upon the sale of Studio common stock in a public or private offering which shall
commence during the calendar year of 2000;
-3-
<PAGE> 4
(3) One million five hundred thousand shares of common stock in Studio having a
designated value of five dollars ($5.00) per share;
(4) One million two hundred thousand shares of Class B preferred shares in
Studio with a designated value of fifty dollars ($50.00) per share; and
(5) Additional assets and/or cash and/or stock and/or corporate bonds in Studio
and/or stock in a subsidiary of Studio may also be contributed at any time.
B. PSI will contribute:
(1) Cash of one thousand dollars and no cents ($1,000.00); and be credit for
(2) Two million three hundred thirty-three thousand three hundred forty
(2,333,340) shares of Class B Preferred Stock of SCA Global Resources,
Incorporated (hereinafter "SCA") issued to the TRUST for PSI's efforts in
obtaining an agreement for a swap of common stock between SCA and
shareholders of M & C Oil, Inc. and the transfer of approximately
$60,000,000 dollars of oil and gas reserves. The Class B Preferred Stock SCA
has a designated value of twenty dollars ($20.00) per share; and
(3) Additional assets and/or cash and/or stock and/or corporate bonds and/or
stock in another corporation may also be contributed at any time.
C. The Trustees may, at any time for the direct benefit of the trust, sell any
or all of their holdings of Class B Preferred shares subject to any existing
restrictions.
(1) SCA Class B Preferred shares are convertible at the ratio of one (1) Class B
Preferred share for ten (10) shares of common SCA stock. Should the Trustees
elect to effect a conversion of Preferred to common the TRUST shall be
required to hold the common stock for a minimum period of two (2) years.
(2) Studio Class B Preferred shares are convertible at the ratio of one (1)
Class B Preferred share for ten (10) shares of common Studio stock. Should
the Trustees elect to effect a conversion of Preferred to common the TRUST
shall be required to hold the common stock for a minimum period of three (3)
years.
8. DISTRIBUTIONS: The Principals shall receive equal distributions as follows:
A. Studio and PSI shall each receive fifty percent (50%) of all cash
distributions.
B. Studio and PSI shall receive fifty percent (50%) of any other type of
residual interest which is appropriated for the benefit of the TRUST and its
Principals.
9. RESTRICTIVE COVENANTS: The Principals and their suceesor(s) shall be bound
by the following covenants:
A. Either or both, Studio and PSI, may elect in their separate and sole
discretion to provide as com-
-4-
<PAGE> 5
pensation to brokers, underwriters, or any other third party, a right in that
third party to receive a percentage of that Principal's net profit, i.e., cash
distribution.
B. Neither Principal nor their successor(s) may obligate or otherwise pledge
their residual interests in the TRUST to any person, association, corporation,
or other organization which is not a Principal in the TRUST without the
knowledge and expressed written consent of the other Principal. If such a breach
occur, the offending Principal will have thirty (30) days after written notice
from the other Principal or either Trustees to cure such breach. If such breach
continues beyond the thirty (30) days then the offending Principal violating
this covenant shall pay to the non-offending Principal a cash sum the greater of
either one-half (1/2) the value of the offending Principal's residual rights
prior to the offence or one million dollars ($1,000,000.00), as part of the
liquidated damages and not as a penalty. Said payment shall be non-dischargable
in bankruptcy proceedings.
C. No Principal or beneficiary has the right to interfer in the operations of
the TRUST nor to interfer with the Trustees in their execution of their duties.
D. Principals and Trustees of this TRUST expressly agree to be bound by rules of
confidentiality and non-circumvention limiting any discussion and/or disclosure
of any and all aspects of the Trust document and the operations of the TRUST and
its affiliated business operations to others not Principals, Trustees, or
Employees/Consultants/Advisors.
10. AMENDMENTS: The tenents of the TRUST may be amended from time to time under
the following circumstances:
A. Either Trustee may draft a proposal which meets all stated requirements and
arrange a meeting with the other Trustee and both Principals to discuss the
proposal.
B. Each Principal and the other Trustee shall be provided with a copy the
proposal at least thirty (30) days prior to the arranged meeting excepting in
the case of a bonafied emergency.
C. Each Principal and/or Trustee may request an independent legal opinion of the
proposal.
D. Should the proposal negate the stated purposes and tenants as described in
this document, either Principal shall have the right to veto the proposal or
request the proposal be rewritten to remove any negation.
E. After any corrections, discussion, and/or revisions to the proposal there
must be a unanimous approval by the Principals in writing before such proposal
is adopted and becomes effective to amend the TRUST in any fashion. It shall
then be the duty of the Trustees to insure the completion of the necessary
paperwork to effect the proposal.
-5-
<PAGE> 6
11. ADDITIONAL POWERS OF TRUSTEES: The Trustees may from time to time,
A. provide a portion up to eighty percent (80%) of the TRUST assets base as a
foundation for the creation of financial vehicles to non-principal third party
participants in the form of bonds or other financing instruments. Due diligence
to avoid violating this document shall be exercised by the Trustees in such
transaction but nothing within this document shall be construed to prevent the
exercise of this power;
B. retain and pay from TRUST income and/or assets, accountants and/or advisors
from any field deemed necessary to carry out the purposes and intent of this
document;
C. order payment of their compensation in accordance with the written agreement
of the Principals in effect;
D. order and pay for any equipment, supplies, materials, etc. to maintain and/or
expedite communications and/or travel deemed by the Trustees to be necessary for
the execution of the Trustees' duties;
E. enter into joint ventures or other types of business arrangements which are
deemed by the Trustees to be advantageous to the TRUST and/or its Principals.
12. TRUST RECORDS: The Trustees shall maintain for the benefit of the TRUST and
its Principals, books of account and records of the TRUST, as defined under the
statutes of the state of Florida.
A. All books of accounts and other records of the TRUST shall be kept in the
principal place of business of the TRUST and each Trustee and each Principal
shall at all times have access to, and may inspect and copy any of the books and
records of the TRUST.
B. Studio has agreed to initially obtain and provide securities and tax counsel
for the benefit of the TRUST the costs of which shall ultimately be the
responsibility of the TRUST.
C. Studio has agreed to obtain and provide an initial system of accounting and
certified audits for the operations of the TRUST the costs of which shall
ultimately be the responsibility of the TRUST.
13. TERMINATION: This TRUST, although perpetual by design, may be terminated
upon the mutual written agreement and consent of the participating Principals or
their successors.
14. EXECUTION AND ACCEPTANCE: This document is executed by the Principals in
multiples with an executed original being given to each Principal, each
initially appointed Trustee and one to be placed in the official records of the
TRUST. Further, the initially appointed Trustees with their signatures below
accept their appointments and responsibilities and agree to receive and hold for
the benefit of the TRUST and its Principals the initial contributions as stated
in paragraph 7 above.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Principals' duly authorized agents affix their
signatures to this TRUST document to become effective upon the receipt by the
Trustees of the initial contributions referred to in paragraph 7 above.
For STUDIO CITY HOLDING CORPORATION
(corporate seal)
/s/Larry D. Faw as President
Larry D. Faw, President
For PROBLEM SOLVERS, INCORPORATED
(corporate seal)
/s/Hurschel Buscher
Hurschel Buscher, President
-7-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF STUDIO CITY HOLDINGS
Fawnsworth International Pictures Corporation
Poc-It Publishers, Incorporated
Poc-It Comics, Incorporated
CVT Corporation of America
Zweig Knights Publishing Corporation
The International Children's Television Network, Incorporated
Studio City Amusements, Inc.
Non-Existent Major League Fantasy Sports Association, Incorporated
Zingrr N-2-Aktiv Television Network, Inc.
Quagga Entertainment Corporation
Accinematron Releasing Corporation
The Magic Shop, Inc.
Zollipe Cyberspace Corporation
Zzoonzuit, Inc.
Xenomorph Digital Post, Inc.
Pro-Sports Entertainment Group, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES 2
AND 3 OF THE COMPANY'S 1999 AUDITS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 55,843
<SECURITIES> 0
<RECEIVABLES> 5,170
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 53,312
<DEPRECIATION> (40,480)
<TOTAL-ASSETS> 211,642
<CURRENT-LIABILITIES> 0
<BONDS> 0
1,003,100
1,383
<COMMON> 61,077
<OTHER-SE> (3,794,729)
<TOTAL-LIABILITY-AND-EQUITY> 211,642
<SALES> 45,591
<TOTAL-REVENUES> 45,591
<CGS> 129,810
<TOTAL-COSTS> 129,810
<OTHER-EXPENSES> 361,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,841
<INCOME-PRETAX> (649,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (649,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (649,651)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
