SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION 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: 000-25415
TWIN FACES EAST ENTERTAINMENT CORP.
(Exact name of registrant as specified in our charter)
Nevada 22-3374562
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 E. Flamingo Rd., Suite #111-A
Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (702) 866-5858
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The number of shares of Common Stock, $0.001 par value, outstanding on
March 1, 2000, was 4,534,349 shares, held by approximately 45 stockholders.
<PAGE>
This form 10KSB contains forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements are
necessarily based on certain assumptions and are subject to significant risks
and uncertainties. These forward-looking statements are based on management's
expectations as of the date hereof, and the Company does not undertake any
responsibility to update any of these statements in the future. Actual future
performance and results could differ from that contained in or suggested by
these forward-looking statements as a result of factors set forth in this
Form 10KSB (including those sections hereof incorporated by reference from
other filings with the Securities and Exchange Commission), in particular as
set forth in the "Management's Discussion and Analysis" under Item 6.
In this Form 10KSB references to "we," "us," and "our" refer to TWIN
FACES EAST ENTERTAINMENT CORP.
PART I
ITEM 1. BUSINESS
General
Overview
Twin Faces East Entertainment Corporation, a Nevada corporation (the
"Company") is a development stage company formed in 1997. The Company was
incorporated under the laws of the State of Delaware on December 5, 1997 and
reincorporated under the laws of the State of Nevada on June 17, 1998. The re-
incorporation in the State of Nevada was the result of Nevada's policy of
encouraging incorporation in that State and, in furtherance of that policy,
has adopted comprehensive, modern and flexible corporate laws, which are
periodically updated and revised to meet changing business needs. In
addition, Nevada continues to pursue a position of no corporate taxation.
We have been plagued with insufficient capital from formation. This
lack of capital has prevented the Company from developing its product base
which is essentially the production and marketing of films and related
products.
Business of the Company
We are in the development stage as a producer of entertainment and
educational related programming and technology, which originated through the
efforts of Dr. Michael Smolanoff, a director and officer of the Company.
Our products include; (i), documentary films of Dr. Albert Einstein, and (ii)
feature film and television scripts.
The Einstein Properties are the result of Dr. Smolanoff's acquisition of
the films from Peter A. Buckey. Peter A. Buckey, the son of one of Albert
Einstein's oldest and closest friends, provides a rare insight into Albert
Einstein's private life, opinions, and foibles that are now folded into
unique and rare videos. The Company owns original 16mm film footage of rare
moments such as the family vacation when Einstein wrote that fateful letter
to Franklin D. Roosevelt that led to the Manhattan Project. Peter was
Einstein's driver, and companion initiating extensive dialogue, keeping
copious notes, and storing and recording priceless memories.
"Pages From A Rabbit Journal"T, a children's book and future film script
was created by Dr. Smolanoff. The story is of The Rabbit Family's adventures
in their travels through the forest with many character developments along
the path of their journey. The story has been turned into a series of twenty-
two minute animated video episodes, each a cliff-hanger and with a positive
children's message. The initial video episode, will serve as a pilot for a
television series which is contracted through Nightwing Entertainment Group,
Inc. to be shown on Fox Children's Network and/or Nickelodeon. In addition,
Channel America, through a contract with Nightwing Entertainment Group, Inc.
has agreed to show between 13 to 65 episodes of the series. Further, an
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agreement is in place with Nightwing Entertainment Group, Inc. that provides
for Congress Home Video to distribute a minimum of twelve of each episode
into approximately 22,000 video stores nationwide.
Properties for Future Development
In addition to the Einstein film, and Pages From a Rabbit Journal, the
Company has acquired, from Dr. Smolanoff, various other entertainment books
and programming. We plan to release these other products as our business
expands and cash flows are adequate to launch new products. We have not
established definitive time frames or costs of launching these new products.
"Hidden Treasures of the World"T. This is a series of one hour, made for
television, specials showcasing specific geographic locations in the world
where billion dollar plus treasure discoveries were made. The first
documentary "St. Lavra" from Kiev Russia is complete and ready for
distribution.
"Jungle Bunch"T. "The Adventures of the Jungle Bunch"T is a children's
story for animation that follows the adventures of five young animals
searching for their families. These five babies are brought together as a
result of a terrible storm, which separates them from their families. It is
a continuing series that focuses on the concept of teamwork, which is
somewhat unique in the children's story. This teaches our children in an
entertaining and receptive environment to overcome their differences and work
together for a common goal. This series is made for television and home video
placement.
"Bixbee"T. This is an animated CD ROM game that could easily evolve into
a television special. Your child can be scanned into this interactive
program for fun and adventures with "Bixbee"T.
"The Town That Arrested Santa Claus"T. A fully illustrated children's
story with a merry cast of Christmas characters in the newly discovered
village of Forgottenville. Children of all ages will delight in this unique
classic tale, rich with the true meaning and tradition of Christmas. Santa
and Forgottenville's citizens are almost tricked by Dr. S., until a young
child comes to Santa's rescue. This is anticipated to become a Christmas
classic and will be available in book, audio cassette and to become a
television animated special.
"A Real Man". A script written by Johnnie King to be produced by the
Company.
Properties Eliminated from the Company Development Program.
We eliminated ReadSpeak as the consequence of a settlement agreement
entered into which resulted from litigation over the ReadSpeak technology.
(see "Item 3 - Legal Proceedings")
Research and Development
From inception in December of 1997 through present, we have devoted a
majority of our time on research and development. During our development
stage period from December 5, 1997 through December 31, 1999, we incurred
operating expenses of $944,386 against revenues of $749, which resulted in an
operating loss of $943,637.
Marketing
Management believes that, in the foreseeable future, cash generated from
operations will be inadequate to support full marketing roll out and ongoing
product development, and that we will thus be forced to rely on additional
debt and/or equity financing. Management is confident that it can identify
sources and obtain adequate amounts of such financing. We intend to enter
into a cooperative arrangement with distributors, whereby we will receive
marketing and sales benefits from the professional staff of such
<PAGE>
distributors. To date, we have not established any such arrangements, other
than the Nightwing Entertainment, Inc. and Channel America, Inc. agreements,
both of which are further defined in this filing. In the event we are
unsuccessful in generating equity capital, then the Company will be unable to
continue with product development and/or marketing. The lack of equity
capital could in turn cause the Company to become insolvent.
Governmental Approval, Regulation and Environmental Compliance
Other than general business licensing requirements, we are unaware of
any governmental approval necessary for our operations in the entertainment
industry. In addition, we are unaware of existing or probable governmental
regulations on the entertainment industry. We anticipate that we will have no
material costs associated with compliance with either federal, state or local
environmental law.
Risks Associated with Operations
Our long-term success is partially predicated on the strength of
obtaining the necessary patents, trademarks, and copyrights to protect our
intellectual property.
Our principal competition consists of entities within the entertainment
and technology industries, which are well established. Our ability to compete
against these more established and more financially stable companies is
premised upon our ability to developing products that are currently
unavailable in the entertainment industry.
Another uncertainty is the dependence on key personnel familiar with our
products. The loss of Dr. Smolanoff could have an adverse effect on our
continued product development and business operations.
Business Strategy
Our objective is to utilize the Einstein film, Pages From a Rabbit
JournalT and other scripts owned by the Company to begin generating
revenues. Our ability to generate revenues from current products is
conditional upon our ability to enter into agreements for the production and
distribution of the products. In some cases we will be required to provide
capital required for filming, editing, and other costs associated in
providing the materials required for the production and distribution of the
products. We currently do no have sufficient capital to cover our portion
of the costs which more than likely will cause some delay in the production
and distribution of our film products.
We have entered into an agreement with Nightwing Entertainment, Inc. to
act as an authorized agent and distributor for the Company in reference to
Pages From a Rabbit JournalT. Nightwing Entertainment, Inc. has entered into
an agreement with Channel America Television Network, Inc. for the purposes
of utilizing the Company's Pages From a Rabbit JournalT for television
network programming. The contract provides for a minimum of 13 telecasts and
a maximum of 65 at a purchase price of $250,000 per episode.
Our plan of strategy is to continue to pursue agreements such as the
Nightwing Entertainment, Inc. and Channel America Television Network, Inc.
agreements for additional scripts of the Company. In addition, we have been
in discussions with various documentary agents, publishers, and studios for
the marketing of the Einstein Properties. There is no assurance that we will
be able to obtain such agreements, or if such agreements are obtained,
whether they will be profitable to the Company.
<PAGE>
Competition
We compete with numerous other entertainment and film production
companies. Many of these competitors have substantially greater resources
than we do. Should a larger and better financed company decide to directly
compete with us, and be successful in its competitive efforts, our business
could be adversely affected.
Developing and Changing Market
The market for films and entertainment products and peripheral
technologies is continually evolving and changing. We do not believe that
these risks are material at this time; however, there can be no assurance
that our assessment of the market place is correct, nor that our products
will continue to be accepted in the future.
Intellectual Property
Many of the processes and much of the know-how of importance to our
technology depends upon the non-patentable technology, knowledge, and
experience of our technical personnel and collaborators. To help protect our
rights, we require employees, collaborators, and significant consultants and
advisors with access to confidential information, to enter into
confidentiality agreements. There can be no assurance that these agreements
will provide adequate protection for our trade secrets, know-how or
proprietary information in the event of any unauthorized use or disclosure.
In addition, our success and ability to compete is dependent, in part, upon
our proprietary technology. We rely on a combination of copyrights, trade
secret laws and non-disclosure agreements to protect our proprietary
technology.
Our success will depend to a significant degree on our ability to
obtain and maintain copyright protection for Pages from a Rabbit JournalT,
the Einstein properties and the "St. Lavra" documentary properties. There
can be no assurance that we will obtain any copyright protection covering
the products we plan to market, or that any copyrights that may be issued to
us will provide substantial protection or be of commercial benefit to us.
We also seek to protect our intellectual property rights by limiting
access to the distribution of our software, documentation and other
proprietary information. There can be no assurance that the steps taken by us
in this regard will be adequate to prevent misappropriation of our technology
or that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technologies.
Employees
As of December 31, 1999, the Company had only three paid employees. We
are dependent upon Michael Smolanoff, President of the Company, and Stan
Teeple, VP and Secretary/Treasurer. Mr. Smolanoff and Mr. Teeple both plan
to spend the majority of their full time effort to the operations of the
Company. Therefore, the Company will need to hire full time operational
staff as its operations commence.
The Company's future success also depends on its ability to attract and
retain other qualified personnel, for which competition is intense. The
loss of Mr. Smolanoff, Mr. Teeple or the Company's inability to attract and
retain other qualified employees could have material adverse effect on the
Company.
Risks Associated with Year 2000 Problem
Many existing computer programs use only two digits to identify a year
in such program's date field. These programs were designed and developed
without consideration of the impact of the change in the century for which
four digits will be required to accurately report the date. If not corrected,
many computer applications could fail or create erroneous results by or
following the year 2000 ("Year 2000 Problem"). The companies or governments
operating such programs may not have corrected many of the computer programs
containing such date language problems. It is impossible to predict what
computer programs will be affected, the impact any such computer disruption
will have on other industries or commerce, or the severity or duration of a
computer disruption.
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We do not have operations and do not maintain computer systems other
than Year 2000 compliant systems. Before we enter into any business venture,
we may inquire as to the status of any company's Year 2000 Problem, the steps
such company has taken or intends to take to correct any such problem and the
probable impact on such company of any computer disruption. However, there
can be no assurance that we will not enter into a business venture with a
company that has an uncorrected Year 2000 Problem or that any planned Year
2000 Problem corrections will be sufficient. The extent of the Year 2000
Problem of a company may be impossible to ascertain and any impact on us will
likely be impossible to predict. At the present time we have not been
negatively impacted by a Year 2000 Problem.
Additional Information
We intend to provide an annual report to its security holders, and to
make quarterly reports available for inspection by its security holders. The
annual report will include audited financial statements.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade
Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles,
California 90036. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549, at prescribed rates. For further information,
the SEC maintains a website that contains reports, proxy and information
statements, and other information regarding reporting companies at
(http://www.sec.gov).
ITEM 2. PROPERTIES
The Company currently subleases 600 square feet of executive office
space at 1850 E. Flamingo Rd., Suite 111A, Las Vegas, Nevada 89119, on a
month to month basis at a cost of $800 per month starting June 1, 1999. The
space is for general administration and is sufficient for the current needs
of the Company. We anticipate that we will require additional space in the
future but does not anticipate any difficulty in obtaining such space in its
immediate vicinity at favorable rates.
ITEM 3. LEGAL PROCEEDINGS
On November 22, 1999, Twin Faces East Entertainment Corporation filed a
complaint against Daniel Covell in the U.S. District Court, District of New
Jersey.
In an effort to avoid protracted litigation, Twin Faces East
Entertainment, Inc. ("the company") entered into a settlement agreement with
ReadSpeak, Inc. to end the litigation in ReadSpeak, Inc. vs. Twin Faces East
Entertainment (United States District Court, Southern District of New York -
Case No. 99 Civ. 8602 (DLC) (DFE)). The parties agreed to a cross
irrevocable and unconditional release of claims, counterclaims, demands,
damages, etc., in exchange for the Company; (i) paying the sum of $5,000,
(ii) the Company acknowledging that ReadSpeak, Inc. owns the patent rights to
US Patent No. 5,741,136, and ReadSpeak, Inc. has the sole and exclusive
rights to the trademark "ReadSpeak," (iii) that the Company accepts the
validity of the above patent, and (iv) the Company agrees to the entry of a
permanent injunction wherein the Company will not utilize ReadSpeak
technology.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of our fiscal
year ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is traded in the over-the-counter securities market
through the National Association of Securities Dealers Automated Quotation
Bulletin Board System, under the symbol "TFAC". The following table sets
forth the quarterly high and low bid prices for our Common Stock during our
last two fiscal year, as reported by the National Quotations Bureau. The
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.
<TABLE>
1999
Average Bid Average Ask
<S> <C> <C>
July $0.87 $1.09
August $1.20 $1.33
September $1.22 $1.36
October $1.10 $1.32
November $0.74 $1.00
December $0.59 $0.84
</TABLE>
Note: We started trading in 1999
As of March 1,2000, we had approximately 45 stockholders of the
4,534,349 shares outstanding
We have never declared or paid dividends on our Common Stock. We intend
to follow a policy of retaining earnings, if any, to finance the growth of
the business and do not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of future dividends on the
Common Stock will be the sole discretion of the Board of Directors and will
depend on our profitability and financial condition, capital requirements,
statutory and contractual restrictions, future prospects and other factors
deemed relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Financial Statements and the notes thereto appearing elsewhere in this
document.
RISK FACTORS AND CAUTIONARY STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and events could differ materially from
those projected, anticipated, or implicit, in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this report.
With the exception of historical matters, the matters discussed herein
are forward looking statements that involve risks and uncertainties. Forward
looking statements include, but are not limited to, statements concerning
anticipated trends in revenues and net income, the date of introduction or
completion of our products, projections concerning operations and available
cash flow. Our actual results could differ materially from the results
discussed in such forward-looking statements primarily as the result of
insufficient cash to pursue production and marketing efforts. The following
discussion of our financial condition and results of operations should be
read in conjunction with our financial statements and the related notes
thereto appearing elsewhere herein.
<PAGE>
Overview
The Company, which was organized in December 1997, is a Development
Stage Company, focusing its development efforts on film production. The
Company has a limited operating history and has not generated revenues from
the sale of any products. The Company's activities have been limited to
capital raising , corporate structuring, and arranging production schedules
and marketing of existing scripts. Consequently, the Company has incurred
the expenses of start-up. Future operating results will depend on many
factors, including the ability of the Company to raise adequate working
capital, demand for the Company's services and products, the level of
competition and the Company's ability to deliver services and products while
maintaining quality and controlling costs.
Results of Operations
Period from December 5, 1997 (Inception) to December 31, 1999
The first year of operation for the Company achieved three main goals.
The formation of the Company's organization to pursue its business strategy
and the transfer of intellectual properties to the Company from its
predecessor, Michael Smolanoff, and establishing contacts with the capital
markets to assist the Company with the required capital to commence
production and marketing.
Revenues. The Company is a development stage enterprise as defined in
SFAS #7, and has yet to generate any revenues. The Company is devoting
substantially all of its present efforts to: (1) developing technology and
other programs, (2) developing its market, and (3) obtaining sufficient
capital to commence full operations.
Pre-Operating Expenses. Pre-Operating expenses for the period from
December 5, 1997 to December 31, 1999 were $944,386, of which $287,248 was
accrued to be paid to Michael Smolanoff for his services as President,
Stanley L. Teeple for his services as Executive Vice President and Johnnie
King.
Plan of Operation
During the next 12 months the Company plans to focus its efforts on its
agreement with Nightwing Entertainment, Inc. in commencing the broadcast of
its Pages From a Rabbit journal through Channel America Television Network,
Inc. In addition we will continue to pursue agreements such as the Nightwing
Entertainment, Inc. and Channel America Television Network, Inc. agreements
for additional scripts owned by the Company. We are also working on the
production of a new feature film, "A Real Man", written by Johnnie King;
however actual production will not commence until the Company has sufficient
capital for production and marketing.
Liquidity and Capital Resources
Cash and cash equivalents may be increasing primarily due to
commencement of operations and receipt of equity capital. The receipt of
funds from Private Placement Offerings and loans obtained through private
sources by the Company are anticipated to offset the near term cash
equivalents of the Company. Since inception, the Company has financed its
cash flow requirements through issuance of common stock, and minimal cash
balances. As the Company expands its activities, it may continue to
experience net negative cash flows from operations, pending receipt of sales
revenues. Additionally the Company may be required to obtain additional
financing to fund operations through Common Stock offerings and bank
borrowings, to the extent available, or to obtain additional financing to
the extent necessary to augment its working capital.
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The Company believes, that existing capital and anticipated funds from
operations will not be sufficient to sustain operations and planned expansion
in the next twelve months. Consequently, the Company will seek additional
financing in order to sustain operations. There can be no assurance such
additional funds will be available or that, if available, such additional
funds will be on terms acceptable to the Company. In either case, the
financing could have negative impact on the financial conditions of the
Company and its Shareholders.
The Company anticipates that it will incur operating losses in the next
twelve months. The Company's lack of operating history makes predictions of
future operating results difficult to ascertain. The Company's prospects
must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets. Such risks for
the Company include, but are not limited to, an evolving and unpredictable
business model and the management of growth. To address these risks, the
Company must, among other things, obtain a customer base, implement and
successfully execute its business and marketing strategy, continue to
develop and upgrade its technology and products, provide superior customer
services and order fulfillment, respond to competitive developments, and
attract, retain and motivate qualified personnel. There can be no assurance
that the Company will be successful in addressing such risks, and the
failure to do so can have a material adverse effect on the Company's
business prospects, financial condition and results of operations.
Initial financing is only to provide funds to prove the business
concept and to finish the development of products. Additional funds will be
necessary to take the product to market. The Company hopes to enter into
additional funding arrangements through strategic partnerships, merger,
equity offering or debt offering. Nothing has been secured as of this time.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 through F-17 of this Form 10-KSB
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No Changes to Report
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of shareholders and serve for one
year or until their successors are elected and qualify. Officers are elected
by the Board, and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
<TABLE>
Name Age Title
<S> <C> <C>
Michael Smolanoff 55 Chief Executive Officer, President, Director
Stan Teeple 50 Executive VP, Secretary, Treasurer, Director
Hyman Shwartzberg, MD 32 Director
Bruce Taffet 51 Director
</TABLE>
<PAGE>
Duties, Responsibilities and Experience
Michael Smolanoff- Michael Smolanoff has been President and a Director of the
Company since its inception. From 1993 to present, Dr. Smolanoff has been
self employed selling scripts, articles, and music. Dr. Michael Smolanoff has
over 30 years of experience in creative development fields. He is a
Juilliard graduate and past professor at Rutgers University and Philadelphia
Music Academy. He has written and produced a plethora of music albums,
concerts, children's programs, and works for the theatre. He is listed in
the International Who's Who of music, Who's Who in America, Men of
Achievement, Outstanding Young Men of America, and the Dictionary of
Distinguished Americans. He is the creator and developer of the "Tales of a
Rabbit Journal" and responsible for contract development to place this
animated series with the Fox Kids Network as well as distribution agreements
for placement into retail video stores nationwide. He is a member of the
National Academy of Television Arts and Sciences, and the American Society of
Composers, Authors and Publishers.
Stanley L. Teeple- Stan Teeple is Executive Vice President, Secretary and
Treasurer from March, 1997 to present. From 1979 until present, Mr. Teeple
has been President and Chief Executive Officer of Stan Teeple, Inc., a
consulting firm specializing in business. Stan has recently joined Dr.
Smolanoff for development of the various assets and interests in the
marketplace. Stan attended Business School at the University of Colorado and
has a strong national brands corporate background. In Stan's 20 plus year
career as a management consultant, sales and marketing consultant, and
turnaround specialist counts among his business specialties, entertainment,
intellectual property licensing, food manufacturing, the travel industry and
retailing of everything from apparel to fast food. His recent client list
includes, United Artists Theatre Circuit, General Mills, Inc., United
Airlines, Inc., Kellogg's USA, Warner Lambert and Premiere Innovations, Inc.
Bruce Taffet Bruce Taffet has been a Director of the Company since April
1998. From 1979 until present Mr. Taffet has worked as an executive with
United Artists Theatre Circuit. From 1995 until present, Bruce has been
Executive Vice President of Concessions, Marketing, and Purchasing for United
Artists. Mr. Taffet has approximately 30 years experience in the
entertainment industry. Starting in 1969, Bruce was the owner/operator of the
Orkin Taffet Theatres in Jackson, Mississippi. Mr. Taffet has served as an
officer or director with the National Association of Theatre Operators,
National Association of Concessionaires, Variety Club of America, The 2%
Club, and MPP Pioneers.
Hyman Shwarzberg, MD. Hyman Shwarzberg, MD, a Director of the Company since
April 1998, is a physician, entrepreneur and investor. From 1994 until
present Dr. Shwarzberg has served as Assistant Professor and Director of
Radiology at Mount Sinai Medical Center-Queens Hospital Center Affiliate in
New York. Dr. Shwarzberg is a graduate of Yeshiva University Undergraduate
School and a graduate of Albert Einstein College of Medicine.
Contract Support Staff
Mark Simon is part of our freelance production team in charge of animation.
He has many production credits including most recently with Universal Studios
doing the feature work on "101 Dalmatians".
Jim R. Houba Jr. Mr. Houba had his beginning as a freelance illustrator
primarily for advertising and production companies in the New York area. He
is a specialist in airbrush with acrylics technology and has taken products
and concepts from creative through the development process to finished
product. He is a graduate of Rowan College with an Art Major. He has been
on the creative and development staff for such Twin Faces East properties as
"Jungle Bunch"T, "Bixbee"T, "NCMEC Child I.D. Kit"T. His prior engagements
include design layouts for clothing lines, including the 1986 Olympics,
murals, and various advertising assignments.
Buffy Saint Marie is another of our freelance talent specializing in
narration and character voices. She has won an Academy Award for "Officer
and a Gentleman" and numerous additional industry awards. She is the
narrator for our "Pages From A Rabbit Journal"T.
Len Morris has been directing, producing, and editing film and video
productions for over 20 years. His programs have been syndicated, shown on
ABC, NBC, PBS, HBO, and distributed on home video and in educational markets.
His awards and accolades for film and made for television would span pages
but include a Cine Golden Eagle, Cindy Award, and nominations from Cable Ace
Award, a Major Armstrong Award, and Best Documentary of the Year Award.
<PAGE>
John Lord was a producer and writer at NBC for over 14 years. He has
corporate experience as a Vice President with Air Time International and has
collaborated with Solvinfilm of Moscow on several movie packages. His
television and film credits include history, geography, current events,
documentaries, live production special events, and winning Golden Eagle
Awards and four Christopher Awards. He also an accomplished and published
writer of many books, journals, and articles.
LIMITATION OF LIABILITY OF DIRECTORS
Pursuant to the Nevada General Corporation Law, our Articles of
Incorporation exclude personal liability for our Directors for monetary
damages based upon any violation of their fiduciary duties as Directors,
except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or any transaction from which a Director receives
an improper personal benefit. This exclusion of liability does not limit any
right which a Director may have to be indemnified and does not affect any
Director's liability under federal or applicable state securities laws. We
have agreed to indemnify our directors against expenses, judgments, and
amounts paid in settlement in connection with any claim against a Director if
he acted in good faith and in a manner he believed to be in our best
interests.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not have a Compensation Committee. Michael
Smolanoff, President, oversaw the compensation of our executive officers.
Board of Director's Report on Executive Compensation
General. As noted above, our Board of Directors does not have a
Compensation Committee and, accordingly, during the fiscal year ended
December 31, 1999, the Board of Directors, through the President, reviewed
and approved the compensation of our executive officers.
Overall Policy; Significant Factors. During fiscal 1999, the
compensation decisions made by the Board of Directors in respect of our
executive orders were influenced by three major factors. First, our start-up
nature brings with it all of the normal capital requirements to sustain
growth, therefore certain stock compensation was granted in lieu of salaries,
commissions and for services rendered. This practice may be extended into
the future on a case by case basis and accordingly filed with the Securities
and Exchange Commission. Finally, as we continue to mature, certain
additions to the executive staff will be required. As we are required to
seek talent in outside market, we will be required to provide a competitive
compensation package.
As overall policy, however, the Board continues to believe that long-
term compensation tied to the creation of stockholder value should constitute
a significant component of the compensation to be earned by our executive
officers. In this respect, it will be the Board's policy to attempt to
restrain base cash compensation (subject to competitive pressures), while
providing the incentive for Management to increase stockholder value by
providing such officers with significant numbers of market-price stock that
will not confer value upon the officers unless and until the Company's share
price rises. The Board of Directors expects that stock options will
constitute a significant component of the compensation package provided to
executive officers.
<PAGE>
The Board believes that cash bonuses are, at times, appropriate based
upon the performance of the Company's business compared to our internal
expectations and general business conditions.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Name and Principal
Position Salary Other Annual Restricted
Year (1) Bonus Compensation stock Options
<S> <C> <C> <C> <C> <C> <C>
Michael Smolanoff 1999 91,624 3,000(3) 200,000
Stan Teeple 1999 91,624 4,800(3) 200,000
Bruce Taffet 1999 6,250 100,000 50,000(2)
Hyman Swartzberg 1999 50,000(2)
</TABLE>
(1) This balance includes an additional 40,000 shares issued to each officer
valued .625 per share. Both Stan Teeple and Michael Smolanoff, pursuant
to employment agreements dated May 1, 1998, normally accrue salary at a
rate of $8,000 per month until funds are available for payment. The
accrual for the current year was reduced for both to $91,624 each.
(2) Out of the Non-employee Director's Plan, although no shares have been
issued, certain Non-employee Directors may have certain vested shares.
(3) Stan Teeple and Michael Smolanoff receive a $600 per month vehicle
allowance per month. The payment for Stan Teeple has been accruing since May
of 1998. The accrual fro both officers were reduced for the current year.
Stock Option Plan
The following descriptions apply to stock option plans, which we have
adopted; however, no options have been granted as of this date.
The Stock Option Plans provide for the issuance of both qualified
(incentive) and non-qualified stock options to employees, officers,
directors, consultants and independent contractors of the Company. Qualified
stock options may be granted at an exercise price equal to the fair market
value per share of the Company's common stock on the date of grant. Non-
qualified stock options may be granted at an exercise price not less than
eighty-five percent of the fair market value per share of the Company's
common stock on the date of grant. Each option granted will be exercisable
for a term not more than ten years after the date of grant, and may be fully
vested at the date of grant.
We intend for issuance an aggregate of 1,100,000 shares of Common Stock
under a Stock Option Plan (the "Stock Option Plan") and Non-Employee
Directors' Plan described below (the "Directors' Plan") which has been
adopted by us. These plans are intended to encourage directors, officers,
employees and consultants of the Company to acquire ownership of Common
Stock. The opportunity is intended to foster in participants a strong
incentive to put forth maximum effort for our continued success and growth,
to aid in retaining individuals who put forth such efforts, and to assist in
attracting the best available individuals to the Company in the future.
<PAGE>
Officers (including officers who are members of the Board of Directors),
directors (other than members of the Stock Option Committee (the "Committee")
to be established to administer the Stock Option Plan and the Directors'
Plan) and other employees and consultants of the Company and our subsidiaries
(if established) will be eligible to receive options under a the planned
Stock Option Plan. The Committee will administer the Stock Option Plan and
will determine those persons to whom options will be granted, the number of
options to be granted, the provisions applicable to each grant and the time
periods during which the options may be exercised. No options may be granted
more than ten years after the date of the adoption of the Stock Option Plan.
Each option granted under the Stock Option Plan will be exercisable for
a term of not more than ten years after the date of grant. Certain other
restrictions will apply in connection with this Plan when some awards may be
exercised. In the event of a change of control (as defined in the Stock
Option Plan), the date on which all options outstanding under the Stock
Option Plan may first be exercised will be accelerated. Generally, all
options terminate 90 days after a change of control.
Directors Plan
The Directors' Plan is intended to:
* Enable us to secure persons of requisite business experience to serve on
the Board of Directors,
* To motivate directors to enhance our future growth by furthering their
identification with our interests and our stockholders, and
* To assist in retaining directors.
The Directors' Plan provides for the grant of stock options to persons
who are members of the Board of Directors and who at the time they joined the
Board of Directors were not employees of the Company or any of our affiliates
("Non-Employee Directors"). The Committee will administer the Directors'
Plan. Each of the Non-Employee Directors will receive an option to purchase
shares of Common Stock. Such options will vest in three equal annual
installments commencing on the first anniversary of such Non-Employee
Director's election. Options granted under the Directors' Plan may not be
exercised more than five years after the date of grant. No option may be
granted more than ten years after the date of the adoption of the Directors'
Plan. In the event of a change of control (as defined in the Directors'
Plan), the date on which all options outstanding under the Directors' Plan
may first be exercised is accelerated. Generally, all options will terminate
90 days after a change of control.
Director's Compensation
At the date of this filing, there were no formal Director's Compensation
programs. The Board of Directors does, however, reserve the right to
implement such a plan as appropriate for retaining our current members and in
attracting outside directors. Directors are reimbursed for their reasonable
out-of-pocket expenses incurred on Company business. From time to time
directors may be provided with stock options.
Other Significant Benefit Arrangements
Employees Stock Option Plan. At the date of this filing there are no
formal Employee Stock Option Plans. However, Management will ask the Board of
Directors to review the possible implementation of such a program as
Management believes employees' ownership interest in the company is positive
both in terms of employee morale and in personnel retention.
Profit Sharing 401(k) Plan. No segment of the Company currently
provides a 401(k) plan for any of our employees. It is, however, expected to
be a matter for our Board of Directors to review as Management believes such
programs are beneficial both to our employees themselves and as a means of
attracting and retaining quality personnel.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners.
The following table sets forth certain information as of December 31, 1999
with respect to the beneficial ownership of Common Stock by (i) each person
who to the knowledge of the Company, beneficially owned or had the right to
acquire more than 10% of the Outstanding Common Stock, (ii) each director of
the Company and (iii) all executive offices and directors of the Company as a
group.
<TABLE>
Percent
Of
Number Class
Name of Beneficial Owner (1) of Shares (2) Options
<S> <C> <C> <C>
Michael Smolanoff 1,239,507 28% 200,000
121 Red Hill Road
Holmdel, NJ 07733
Stan Teeple 1,088,000 25% 200,000
8112 S. Farm Brook Dr.
Sandy, Utah 84093
Bruce Taffet 149,000 3% 50,000
5644 Irish Pat Murphy Dr.
Parker, Co 80134
Hyman Shwartzberg 24,000 1% 50,000
621 Montgomery St.
Brooklyn, NY 1125
All Directors & Officers as a Group 2,500,507 57% 500,000
</TABLE>
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security). In addition,
for purposes of this table, a person is deemed, as of any date, to have
"beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date.
(2) Figures are rounded to the nearest percentage.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Contribution Agreement. Pursuant to the terms and conditions of the
Contribution Agreement, entered into by and between the Company and Michael
Smolanoff, dated March 15, 1998, Michael Smolanoff contributed, in exchange
for 1,764,000 common shares of the Company, all Michael Smolanoff's right,
title and interest to the following agreements: License Agreement dated
August 8, 1996, between Rabbit Liability Company and Spring Ford Knitting
Company; and, License Agreement dated November 25th, 1996, between Pages from
a Rabbit's Journal and Channel America Television Network, Inc.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
1. Financial Statements:
A. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1. Independent Auditors Report F-1
2. Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Deficit F-4
Statements of Cash Flows F-5
Statements of Cash Flows Continued F-6
Notes to Financial Statements F-7 - F-17
All schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
2. During the fiscal year 1999, the Company filed the following 8-Ks.
A) 8-K filed October 5, 1999
B) 8-K filed July 29, 1999
C) 8-K filed June 30, 1999
3. Subsequent to the end of the fiscal year, the Company filed
the following reports on Form 8-K
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
March 30, 2000 TWIN FACES EAST ENTERTAINMENT CORPORATION
(Registrant)
By: /s/ Michael Smolanoff
Michael Smolanoff
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
Date
/s/ Michael Smolanoff CEO, President March 30, 2000
Michael Smolanoff
/s/ Stan Teeple Exec. VP, Secretary/Treasurer March 30, 2000
Stan Teeple
/s/ Hyman Shwartzberg Director March 30, 2000
Hyman Shwartzberg, MD
/s/ Bruce Taffet Director March 30, 2000
Bruce Taffet
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
Twin Faces East Entertainment Corporation
We have audited the accompanying balance sheets of Twin Faces East
Entertainment Corporation (a development stage company) as of December 31,
1999 and 1998, and the related statements of operations, stockholders'
deficit, and cash flows for the year ended December 31, 1999 and the period
from December 5, 1997 (inception) through December 31, 1998. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in 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 financial statements referred to above present fairly,
in all material respects, the financial position of Twin Faces East
Entertainment Corporation (a development stage company) as of December 31,
1999 and 1998, and the results of its operations and cash flows for the year
ended December 31, 1999 and period from December 5, 1997 (inception) through
December 31, 1998.
Grobstein, Horwath & Company LLP
Sherman Oaks, California
March 15, 2000
<PAGE>
<TABLE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Balance Sheets
Assets
December 31
<S> <C> <C>
Current Assets 1999 1998
Cash $ 2,506 $ 5,578
Total Current Assets 2,506 5,578
Deferred Offering Costs (Notes 3 and 8) -- 85,625
Net Equipment, (Notes 1 and 4) 753 1,029
Total Assets $ 3,259 $92,232
</TABLE>
<TABLE>
Liabilities and Stockholders' Deficit
<S> <C>
Current Liabilities
Accrued salaries and benefits (Note 5) $287,248 $132,800
Other accrued expenses 61,648 --
Stockholders' advances (Note 6) 173,297 39,748
Total Current Liabilities 522,193 172,548
Commitments and Contingencies (Note 10)
Stockholders' Deficit
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding (Note 7) -- --
Common stock, $.001 par value, 20,000,000
shares authorized, 4,384,349 and 3,411,060
shares issued and outstanding, respectively
(Notes 8, 9 and 10) 4,384 3,411
Additional paid-in capital 420,319 208,022
Deficit accumulated during the
development stage (Notes 1 and 2) (943,637) (291,749)
Total Stockholders' Deficit (518,934) (80,316)
Total Liabilities and Stockholders' Deficit $ 3,259 $92,232
</TABLE>
<PAGE>
<TABLE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Operations
December 5, 1997
Year Ended (Inception) to December 5, 1997
December 31, December 31,
(Inception) to
1999 1998 December 31, 1999
<S> <C> <C> <C>
Pre-Operating Revenue
Interest income $ 262 $ 487 $ 749
Pre-Operating Expenses
Professional services $260,688 $ 22,983 $ 283,671
Salaries and benefits 195,748 128,000 323,748
Travel 48,533 55,916 104,449
Automobile 32,838 25,423 58,261
Transportation 27,248 17,017 44,265
Miscellaneous 18,552 5,406 23,958
Insurance 17,952 -- 17,952
Telephone 15,155 9,473 24,628
Office and postage
(Note 10) 14,928 12,510 27,438
Entertainment and meals 12,008 4,635 16,643
Pre-production costs 8,500 9,050 17,550
Advertising (Note 1) -- 1,823 1,823
Total pre-operating
expenses 652,150 292,236 944,386
Loss Before Income Taxes (651,888) (291,749) (943,637)
Provision for Income
Taxes (Notes 1 and 11) -- -- --
Net Loss (651,888) (291,749) (943,637)
Dividends on Preferred
Stock -- -- --
Net Loss Available to
Common Stockholders $(651,888) $(291,749) $(943,637)
Net Loss Per Common
Share (Note 1) $ (0.17) $ (0.16)
Weighted Average Number of
Common Shares Outstanding 3,822,024 1,813,390
</TABLE>
<PAGE>
<TABLE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Stockholders' Deficit
December 5, 1997 (Inception) through
December 31, 1999
Deficit
Common Stock Accumulated Total
Shares IssuedAdditional During the Stockholders'
And Paid-In Development Equity
Outstanding Amount Capital Stage (Deficit)
<S> <C> <C> <C> <C> <C>
Issuance of common stock
for cash - March through
September 1998 88,115 $88 $94,330 $ -- $94,418
Issuance of common stock
for intellectual property rights
contributed to the Company -
June 1998 (Note 8) 1,764,000 1,764 (1,764) -- --
Issuance of common stock
for services rendered by
stockholders on behalf of the
Company - June 1998 (Note 8) 1,236,000 1,236 97,054 -- 98,290
Four-for-one stock split -
October 1998 (Note 8) 9,264,345 9,264 (9,264) -- --
Stock retired - October 1998
(Note 8) (9,000,000)(9,000) 9,000 -- --
Issuance of common stock
for cash - November 1998 1,600 2 3,098 -- 3,100
Issuance of common stock for
services rendered by stockholders
on behalf of the Company - November
through December 1998 (Note 8) 57,000 5 15,568 -- 15,625
Net loss for the period from
December 5, 1997 (inception)
through December 31, 1998 -- -- -- (291,749) (291,749)
Balance, December 31, 1998 3,411,060 3,411 208,022 (291,749) (80,316)
Issuance of common stock for
cash - February 1999 44,400 44 21,826 -- 21,870
Application of deferred offering
costs - (Notes 1 and 8) -- -- (85,625) -- (85,625)
Issuance of common stock for
services provided by vendors
on behalf of the Company -
July 1999 through December
31, 1999 (Note 8) 660,000 660 120,115 -- 120,775
Issuance of common stock for
services provided by stockholders
on behalf of the Company -
February 1999 through
December 31, 1999 (Note 8) 268,889 269 155,981 -- 156,250
Net loss for the year ended
December 31, 1999 -- -- -- (651,888) (651,888)
Balance, December 31, 1999 4,384,349 $ 4,384 $ 420,319 $ (943,637)$(518,934)
========= ====== ======== ========= =========
</TABLE>
<PAGE>
<TABLE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Cash Flows
December 5, 1997
Year Ended(Inception) to December 5, 1997
December 31 December 31, (Inception) to
1999 1998 December
31,1999
<S> <C> <C> <C>
Operating Activities
Net loss $ (651,888) $ (291,749) $ (943,637)
Adjustments to reconcile net loss to
net cash used in operating activities:
Non cash portion of pre-operating
expenses 277,025 28,290 305,315
Depreciation 276 73 349
Sources and (uses) of cash from
changes in operating assets and
liabilities:
Accrued salaries and benefits 154,448 132,800 287,248
Other accrued expenses 61,648 -- 61,648
Net Cash Used in Operating
Activities (158,491 (130,586) (289,077)
Investing Activities
Expenditures for property and
equipment -- (1,102) (1,102)
Financing Activities
Stockholders' advances 133,549 113,007 246,556
Repayment of stockholders' advances -- (73,259) (73,259)
Proceeds from issuance of
common stock 21,870 97,518 119,388
Net Cash Provided by
Financing Activities 155,419 137,266 292,685
Net (Decrease) Increase in Cash (3,072) 5,578 2,506
Cash at Beginning of Period 5,578 -- --
Cash at End of Period $ 2,506 $ 5,578 $ 2,506
</TABLE>
<PAGE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Continued)
Supplemental Disclosures of Cash Flow Information and Non Cash Investing and
Financing Activities
December 31, 1999
Cash paid for interest and taxes during the year ended December 31, 1999 was
$0 and $0, respectively.
The Company issued 928,889 shares of common stock at par value and credited
additional paid-in capital for $277,025 in exchange for services rendered on
behalf of the Company.
December 31, 1998
Cash paid for interest and taxes during the period December 5, 1997
(inception) through December 31, 1998 was $0 and $0, respectively
The Company issued 1,764,000 shares of common stock at par value in exchange
for intellectual property rights contributed to the Company.
The Company issued 1,293,000 shares of common stock at par value and
credited additional paid-in capital for $113,915 in exchange for services
rendered on behalf of the Company, including $85,625 of deferred offering
costs.
<PAGE>
TWIN FACES EAST ENTERTAINMENT CORPORATION
(A Development Stage Company)
Notes to Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 1 - Organization and Summary of Significant Accounting Policies
Formation and Development Stage Activity
Twin Faces East Entertainment Corporation (the "Company") was incorporated
under the laws of the State of Delaware on December 5, 1997, and has adopted
a December 31st fiscal year end. Results of operations for the period from
December 5, 1997 through December 31, 1997 were not material. On June 17,
1998, the Company reincorporated in the State of Nevada.
The Company has been in the development stage since its inception. The
Company plans to engage in the marketing of various entertainment
properties, including intellectual films and children's animated programming
to networks in the United States. Operations are expected to commence
during the year ended December 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The carrying value of cash, accrued officers' salaries and benefits, other
accrued expenses and stockholders' advances approximate fair value due to
the short maturities of such instruments.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of
The Company applies the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of," which requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicates that the carrying amount of the
asset may.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 1 - Organization and Summary of Significant Accounting Policies
(Continued)
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
(continued)
not be recoverable. Recoverability of assets to be held and used in the
future is measured by a comparison of the carrying amount of the asset to
the future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. No assets
were considered impaired as of December 31, 1999 or 1998.
Advertising Costs
Advertising costs are expensed as incurred. There were no advertising costs
for the year ended December 31, 1999.
Equipment
Equipment is stated at cost. Additions and betterments are charged to the
property accounts, while maintenance and repairs, which do not enhance the
useful life of the respective assets, are expensed as incurred.
Depreciation is provided on the straight-line method based on the estimated
useful lives of the assets, which is five years.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax bases of assets
and liabilities. Such deferred income tax asset and liability computations
are based on enacted law and rates applicable in periods in which the
differences are expected to reverse. If necessary, a valuation allowance is
established to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the year
and the change in deferred income tax assets and liabilities during the
year.
Earnings Per Share
Earnings per common share are computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share."
Basic earnings per common share are computed based on the weighted average
number of common shares and dilutive common share equivalents outstanding
during the period. Fully diluted loss per common share was not presented as
the inclusion of potential common shares to be issued would be anti-
dilutive.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 1 - Organization and Summary of Significant Accounting Policies
(Continued)
Stock Options
The Company applies the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which requires
expanded disclosures of stock-based compensation arrangements with employees
and encourages (but does not require) compensation cost to be measured based
on the fair value of the equity instrument awarded. Companies are
permitted, however, to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded.
Accordingly, the Company applies Accounting principles Board Opinion No. 25
to its stock-based compensation awards to employees.
Recently Issued Accounting Pronouncements
The Company does not believe that any recently issued accounting
pronouncements will have a material effect on future financial position or
results of operations.
Year 2000 Transition
The Company has completed all year 2000 readiness work and has experienced
no significant problems.
NOTE 2 - Development Stage Activities
The Company has been in the development stage since its inception. As shown
in the accompanying financial statements, the Company has incurred a net
loss since its inception, which has resulted in a deficit accumulated during
the development stage of $943,637. Capital and advances from stockholders
are the Company's only current source of funds. As such, the Company's
continued existence is dependent upon obtaining sufficient investor interest
and financing in order to commence development of its entertainment industry
business, and achieving future profitable operations.
Management is currently in discussion with various private lending sources
who are contemplating substantial funding in the form of debt with various
options as to the form of repayment, including common stock with
restrictions on sale. Management believes that funding from one of these
sources will occur in the year 2000, which will allow the Company to pay its
outstanding obligations and commence development of its entertainment
industry business.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 3 - Deferred Offering Costs
Costs incurred in connection with the Company's various securities offerings
as discussed in Note 8 were deferred as of December 31, 1998 and were
subsequently charged against stockholders' equity upon completion of the
securities offerings in 1999.
NOTE 4 - Equipment
Equipment consists of the following:
<TABLE>
December 31,
1999 1998
<S> <C> <C>
Computer equipment $ 1,102 $1,102
Less accumulated depreciation (349) (73)
$ 753 $1,029
</TABLE>
Depreciation expense was $276 and $73 for the year ended December 31, 1999,
and the period from December 5, 1997 (inception) through December 31, 1998,
respectively.
NOTE 5 - Accrued Salaries and Benefits
Accrued salaries and benefits include amounts payable to the following
officers and employees:
<TABLE>
December 31,
1999 1998
<S> <C> <C>
Michael Smolanoff, Chief Executive
Officer and President $ 133,624 $ 64,000
Stanley L. Teeple, Executive Vice
President, Secretary and Treasurer 140,224 68,800
Other employees 13,400 --
$ 287,248 $ 132,800
</TABLE>
Management intends to pay the accrued salaries and benefits with anticipated
new funds to be received in the year 2000 (See Note 2).
<PAGE>
Notes to the Financial Statements (continued)
NOTE 6 - Stockholder Advances
The advances are non-interest bearing and are expected to be repaid with
anticipated new funds to be received in the year 2000 (See Note 2).
NOTE 7 - Preferred Stock
Under the terms of the Company's original articles of incorporation, the
Company was permitted to issue up to 1,500 shares of no par value common
stock. The Company's reincorporation in the State of Nevada on June 17,
1998 provided for the issuance of up to 20,000,000 shares of $.001 par value
common stock, and up to 5,000,000 shares of $.001 par value preferred stock.
The preferred stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the
provisions of the Company's Certificate of Incorporation and limitations
imposed by law, the Board of Directors is expressly authorized to adopt
resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change
the voting powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights, dividend rates, terms of
redemption, redemption prices, conversion rights and liquidation preferences
of the shares constituting any class or series of the preferred stock, in
each case without any further action or vote by the stockholders. As of
December 31, 1999, there were no preferred shares outstanding.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of preferred stock pursuant to the Board
of Director's authority described above may adversely effect the rights of
holders of common stock. For example, preferred stock issued by the Company
may rank prior to the common stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of common stock. Accordingly, the issuance of
shares of preferred stock may discourage bids for the common stock at a
premium or may otherwise adversely effect the market price of the common
stock.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 8 - Common Stock
During the year ended December 31, 1998, 1,293,000 shares of common stock
were issued to the founding stockholders, the Company's securities counsel
and other financial advisors for various promotional and professional
services provided on behalf of the Company. All stock was issued for
approximately the fair market value of the consideration received.
In October 1998, the Company effected a four-for-one stock split.
Concurrent with the stock split, the founding stockholders voluntarily
retired 9,000,000 shares of common stock at the common stock's par value.
During the year ended December 31, 1998, 1,764,000 shares of common stock
were issued in exchange for certain intellectual property rights contributed
by the Company's Chief Executive Officer. Under generally accepted
accounting principles, contributed intangibles shall be valued at the
contributor's cost, which is currently not determinable. Accordingly, the
contributed property rights were valued at the common stock's par value.
In March 1998, the Company completed an exempt placement of securities of
2,860 shares of common stock and 2,860 warrants pursuant to Rule 504 of
Regulation D of the Securities and Exchange Commission ("Regulation D").
Each warrant permits the holder to purchase one share of the Company's
common stock at a price of $5.00 per share during a period beginning on
March 27, 1998 and ending March 27, 2003. In June 1998, the Company
completed an exempt placement of securities of 40,000 shares of common
stock, pursuant to Regulation D. In September 1998, the Company completed
an exempt placement of securities of 45,255 shares of common stock, pursuant
to Regulation D. In November 1998, the Company completed an exempt
placement of securities of 57,000 shares of common stock, pursuant to
Regulation D. On February 1, 1999, the Company commenced offering for sale
up to 500,000 shares of common stock pursuant to Regulation D at a price of
$.5625 per share, and sold 133,289 shares of common stock through February
15, 1999. Upon the close of the offering, the balance of deferred offering
costs was charged to additional paid-in capital.
During the year ended December 31, 1999, 928,889 shares of common stock were
issued to stockholders for various promotional and professional services
provided on behalf of the Company. All stock was issued for approximately
the fair market value of the consideration received.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 9 - Stock Option Plans
The Company has reserved for issuance an aggregate of 500,000 shares of
common stock for issuance under its 1998 Stock Option Plan and Non-Employee
Directors' Plan (the "Directors' Plan"). On January 1, 2000, the Company's
Board of Directors adopted the 2000 Stock Option Plan which provides for
issuance of an additional 600,000 shares of common stock on similar terms to
its 1998 Stock Option Plan (collectively referred to as the "Stock Option
Plans"), as described below. Generally, all options terminate ninety days
after a change in control of the Company.
Stock Option Plans - The Stock Option Plans provide for the issuance of both
qualified (incentive) and non-qualified stock options to employees,
officers, directors, consultants and independent contractors of the Company.
Qualified stock options may be granted at an exercise price equal to the
fair market value per share of the Company's common stock on the date of
grant. Non-qualified stock options may be granted at an exercise price not
less than eighty-five percent of the fair market value per share of the
Company's common stock on the date of grant. Each option granted will be
exercisable for a term not more than ten years after the date of grant, and
may be fully vested at the date of grant.
Directors' Plan - Each non-employee director will receive an option to
purchase 50,000 shares of common stock. The options of non-employee
directors will be exercisable according to the Stock Option Plans, except
that options granted under the Directors' Plan may not be exercised more
than five years after the date of grant.
<PAGE>
<TABLE>
Notes to the Financial Statements (continued)
NOTE 9 - Stock Option Plans (Continued)
December 5, 1997
Year Ended (inception) to
December 31, 1999 December 31, 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at
beginning of period -- -- -- --
Granted 500,000 $ 0.65 -- --
Exercised -- -- -- --
Lapsed or cancelled -- -- -- --
Outstanding at end
of period 500,000 $ 0.65 -- --
Options exercisable
at end of period 500,000 --
Options available for
future grant 600,000 500,000
Weighted average
minimum fair value
of options granted
during the period $ 0.517 --
</TABLE>
<PAGE>
Notes to the Financial Statements (continued)
NOTE 9 - Stock Option Plans (Continued)
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", under which no compensation cost for stock
options is recognized for stock options awards granted at or above fair
market value. Had compensation expense for the Company's Stock Option Plan
been determined based upon fair values at the grant dates for awards under
those plans in accordance with Statement of Financial Accounting Standards
No. 123 ("SFAS 123") "Accounting for Stock-Based Compensation", the
Company's net loss available to common stockholders would have been
increased to the proforma amounts indicated below. Additional stock option
awards are anticipated in future years.
<TABLE>
December 5, 1997
Year Ended (inception) to
December 31, 1999 December 31, 1998
<S> <C> <C>
Net loss available to
common stockholders:
As reported $(650,638) $(291,749)
Pro forma $(909,238) $(291,749)
</TABLE>
The weighted average minimum fair value of options granted during the two
years in the period ended December 31, 1999 estimated on the date of grant
were determined using the Black-Scholes option-pricing model and the
following assumptions: dividend yield of 0%, expected volatility of 109%,
risk-free interest rate range of 5.81% to 6.09% depending on the grant date,
and an expected life of five years.
The following table presents summarized information about stock options
outstanding as of December 31, 1999.
<TABLE>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Outstanding Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
<S> <C> <C> <C> <C> <C>
$ 0.25 300,000 4.50 years $ 0.25 300,000 $ 0.25
$1.00 200,000 4.90 years $ 1.25 200,000 $ 1.25
</TABLE>
<PAGE>
Notes to the Financial Statements (continued)
NOTE 10 - Commitments and Contingencies
Agreement for Services
In August 1999, the Company entered into an agreement with an independent
contractor to be provided certain services related to ongoing public
relations activities utilizing various internet-based forums. The
consideration paid for such services were 275,000 shares of the Company's
common stock subject to restrictions on sale pursuant to Rule 144 of the
Securities Act of 1933 (the "Section 144 Stock"), 50,000 warrants
exercisable at a price of $3.00 per share and 50,000 warrants exercisable at
a price of $5.00 per share. The Company was dissatisfied with the services
provided by the independent contractor and terminated the agreement in
January 2000.
The Company is currently negotiating for the return of the 275,000 shares of
Section 144 stock in exchange for an unspecified cash payment. The Company
and the independent contractor have not yet reached a formal agreement
regarding the cash payment. At December 31, 1999, the Company has accrued
$15,000 which represents management's best current estimate of the ultimate
settlement cost.
Employment Contracts
The Company has entered into employment contracts with certain officers.
The contracts are for a period of five years each. In consideration, the
officers have agreed that they would not directly or indirectly compete
against the Company for a period of one year following any termination of
employment.
Facilities
The Company currently utilizes a small amount of office space at one
location which is provided by a director on a month-to-month basis at $800
per month. Rent expense for the year ended December 31, 1999 and the period
December 5, 1997 (inception) through December 31, 1998 was $6,394 and $0,
respectively.
Litigation
In November 1999, the Company filed an action against Daniel Covell for the
recision of an agreement whereby the defendant was issued 200,000 shares of
Section 144 Stock, and the return of the stock certificate. A formal answer
from the defendant has not yet been received. However, defense counsel has
informally indicated there may be counter claims.
<PAGE>
Notes to the Financial Statements (continued)
NOTE 11 - Income Taxes
The principal temporary difference between financial and income tax
reporting is the period in which accrued salaries and benefits are
deductible for income tax reporting purposes.
The tax effects of deductible temporary differences which give rise to
significant portions of deferred tax assets are as follows:
<TABLE>
Current federal deferred tax assets:
December 31,
1999 1998
<S> <C> <C>
Accrued salaries and benefits $ 98,000 $ 52,000
Net operating loss carryforward 80,000 62,000
Gross deferred tax assets 178,000 114,000
Valuation allowance (178,000) (114,000)
$ -- $ --
</TABLE>
The Company had available unused federal net operating loss carryforwards of
approximately $234,000 as of December 31, 1999 and $83,000 as of December
31, 1998, which may be applied to reduce future taxable income in the years
ending through 2018 and 2014, respectively. Deferred income tax assets have
been fully offset by a valuation allowance, as realization is not assured.
There is no current provision for either federal or state income
taxes for the year ended December 31, 1999 and the period from
December 5, 1997 (inception) through December 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 2,506
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,506
<PP&E> 1,102
<DEPRECIATION> 349
<TOTAL-ASSETS> 3,259
<CURRENT-LIABILITIES> 522,193
<BONDS> 0
0
0
<COMMON> 4,384
<OTHER-SE> 208,022
<TOTAL-LIABILITY-AND-EQUITY> 3,259
<SALES> 0
<TOTAL-REVENUES> 262
<CGS> 0
<TOTAL-COSTS> 652,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (651,888)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (651,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (620,088)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
