As filed with the Securities and Exchange Commission on May __, 2000,
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIDKID DISTRIBUTION, INC.
(Name of Small Business Issuer in its Charter)
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FLORIDA 7812 65-0810941
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
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4950 West Prospect Road
Fort Lauderdale, Florida 33309
(954) 745-0077
(Address and telephone number of principal executive offices)
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Steven Adelstein, President
Vidkid Distribution, Inc.
4950 West Prospect Road
Fort Lauderdale, Florida 33309
(954) 745-0077
(Name, address and telephone number of agent for service)
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Copies to:
James M. Schneider, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis under Rule 415 under the Securities Act of 1933,
as amended, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, please
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering. [
]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of Each Amount
Class of Securities To Be Offering Price Registration
To Be Registered Registered Per Security Offering Price Fee
- --------------------------------------------------------------------------------
Common Stock, $.005
PAR VALUE 3,052,840(1) $.30(2) $915,852.00 $241.78
- --------------------------------------------------------------------------------
Total Amount Due $241.78
(1) Shares of common stock of the registrant being distributed to
shareholders of Realm Production and Entertainment,
Inc.
(2) Based upon discount market value as of September 29, 1999, of the
common stock of Realm Production and Entertainment, Inc., solely for the purpose
of calculating the registration fee pursuant to Rule 457 (f)(1) of the
Securities Act of 1933, as amended.
The registrant will amend this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Commission, acting under Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED MAY ___, 2000
PROSPECTUS
VIDKID DISTRIBUTION, INC.
Dividend Distribution of
3,052,840 SHARES OF COMMON STOCK
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To the shareholders of emailthatpays.com, Inc. (formerly Realm Production
and Entertainment, Inc.) of record on September 29, 1999.
On the basis of one Vidkid share of common stock for each emailthatpays
share of common stock.
--------------------
The Vidkid shares involve a high degree of risk. You should consider
carefully the information contained in the section entitled "Risk Factors"
beginning on page 7.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May __, 2000.
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INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED OR WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
STATE.
TABLE OF CONTENTS
PAGE
Where You Can Find More Information ..........................................
Cautionary Statements ........................................................
Summary.......................................................................
Risk Factors..................................................................
The Distribution..............................................................
Federal Income Tax Consequences...............................................
Dividend Policy...............................................................
Capitalization................................................................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...................................................
Business......................................................................
Management....................................................................
Certain Transactions..........................................................
Principal Shareholders........................................................
Description of Securities.....................................................
Certain Market Information....................................................
Legal Matters.................................................................
Experts.......................................................................
Index to Financial Statements.................................................
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WHERE YOU CAN FIND MORE INFORMATION
Vidkid Distribution, Inc. filed with the Securities and Exchange Commission
a registration statement on Form SB-2 to register the shares of Vidkid common
stock to be distributed to the emailthatpays shareholders.
The registration statement and the exhibits and schedules may be inspected
and copied (at prescribed rates) at the Public Reference Room of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549.
Please call 1-800-SEC-0330 for further information on the public reference rooms
in other locations. Also, you can review this information at the Commission's
Electronic Data Gathering Analysis and Retrieval System (EDGAR), which is
available to the public through the COMMISSION'S WEB SITE: HTTP://WWW.SEC.GOV.
This prospectus does not contain all of the information set forth in the
registration statement and exhibits. Statements contained in this prospectus
regarding the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement
being qualified in its entirety by such reference. Vidkid will provide without
charge to each person who receives this prospectus, upon written or oral request
of such person, a copy of any of the information that is incorporated by
reference (excluding exhibits to the information that is incorporated by
reference unless the exhibits are themselves specifically incorporated by
reference) by contacting Vidkid at 4950 West Prospect Road, Fort Lauderdale,
Florida 33309, Attention: Steven Adelstein, telephone: (954) 745-0077.
Vidkid has not authorized any dealer, salesperson or other person to give
any information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction where it is unlawful. The information in
this prospectus is current as of _____________, 2000.
CAUTIONARY STATEMENTS
This prospectus contains statements relating to future results of Vidkid
(including certain projections and business trends) that are "forward-looking
statements". Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to, changes
in political and economic conditions, integration of acquisitions and
competitive pricing pressures.
To avoid confusion, "Vidkid", "we" or "us" means Vidkid Distribution, Inc.
and "emailthatpays" means emailthatpays.com, Inc.
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The purpose of this distribution is to make Vidkid a public company and to
allow emailthatpays to pursue a different business purpose than the business of
Vidkid. Each shareholder of emailthatpays will receive one share of Vidkid, on a
share-for-share basis. In other words, for each share of emailthatpays common
stock held, the holder will receive one share of Vidkid common stock.
Emailthatpays will not receive any consideration from the recipients of the
Vidkid common stock. The distribution will occur on or about _______________,
2000. The distribution of Vidkid shares may be taxable as ordinary income. To
review the tax consequences in more detail, see "Federal Income Tax
Consequences". The actual trading value of the Vidkid common stock is unclear,
and will depend on many factors. Until an ordinary trading market develops, the
market price for Vidkid common stock may fluctuate significantly. We recommend
that you obtain current market quotations prior to deciding whether to invest in
Vidkid common stock.
If you were a record owner of the Vidkid common stock as of the record date
(September 29, 1999), your Vidkid common stock will be registered in book-entry
form in the records of Vidkid's transfer agent. After the distribution, Vidkid
will deliver certificates to you, upon your written request. If you own your
emailthatpays common stock in street name, your Vidkid common stock will be
credited to your brokerage account. Contact your broker for more information.
We expect that public trading in the Vidkid common stock to begin on the
Over-the-counter Bulletin Board shortly following the distribution, but cannot
assure you that a public market will develop.
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, PAYING PARTICULAR ATTENTION TO
THE SECTION ENTITLED RISK FACTORS AND THE CONSOLIDATED FINANCIAL STATEMENTS.
Vidkid is engaged in the business of:
* Developing and producing children's made-for-television movies
and series;
* Marketing and sales of various children's programming; and
* providing video and post-production and distribution services.
Currently, Vidkid generates revenues from the programs it distributes
primarily through the following channels:
* television markets, including network, syndicated and cable, both
in the United States and abroad; and
* non-television markets, including videocassette sales and rentals.
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Vidkid owns worldwide broadcast and video distribution rights to 130
color episodes of The New Howdy Doody Show, a popular children's show produced
in the 1970's (the "Library"). Vidkid's marketing strategy is to leverage the
Howdy Doody name to establish video sales revenues, television exposure and to
enhance its brand within the broadcast industry.
Vidkid's executive offices are located at 4950 West Prospect Road, Fort
Lauderdale, Florida 33309, and its telephone number is (954) 745-0077.
SUMMARY FINANCIAL DATA
The following summary of our financial information has been derived
from our consolidated financial statements that are included in this prospectus.
See "Consolidated Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
YEAR ENDED DECEMBER 31
1999 1998
---- ----
Revenues $ 1,103,553 $ 358,597
Operating expenses $ 1,760,517 $ 830,266
Net loss $ (159,088) $ (601,270)
Net loss per share $ (.05) $ (.20)
DECEMBER 31, 1999
Current assets $ 84,356
Current liabilities $ 660,056
Working capital deficit $ (575,700)
Total assets $ 2,121,024
Long-term debt $ 114,307
Shareholder's equity (deficit) $ 1,346,661
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DISTRIBUTION
Emailthatpays will distribute 3,052,840 Vidkid shares to its
shareholders on a one-for-one share basis; each emailthatpays shareholder will
receive one share of Vidkid common stock for each emailthatpays share held. The
Vidkid shares will represent approximately 69% of the outstanding Vidkid common
stock. Emailthatpays will own no Vidkid shares after the distribution. The
shareholders of emailthatpays will pay no consideration nor will they be able to
surrender or exchange shares of Vidkid common stock or take any other action to
receive shares of common stock in the distribution. Emailthatpays will not
receive any cash or other proceeds in connection with the distribution.
The record date for the distribution is the close of business on
September 29, 1999. The distribution is expected to occur at the close of
business on or about _____________, 2000. At this time, the distribution agent
will begin mailing account statements reflecting ownership of shares of Vidkid
common stock to holders of emailthatpays as of the close of business on the
record date.
Stock certificates of affiliates of emailthatpays and Vidkid, their
officers, directors and principal shareholders, will be legended in order to
reflect restrictions on disposition required by securities laws, and appropriate
stop-transfer instructions will be noted in respect to the shares with Vidkid's
transfer agent, StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, PA
19003-2318. Distribution of the Vidkid shares will not be registered under the
state securities laws of any jurisdiction in which the distribution is being
made pursuant to exemptions provided under such laws. Shareholders of
emailthatpays receiving Vidkid shares who wish to make a later disposition of
these shares and their broker-dealers will be required to establish the
existence of a secondary trading exemption under the applicable state securities
laws prior to any such disposition. We recommend that shareholders of
emailthatpays provide these broker-dealers with a copy of this prospectus in
conjunction with any contemplated sale of Vidkid shares. Neither Vidkid nor
emailthatpays can offer any assurance that an active market for the Vidkid
shares will develop at the conclusion of the distribution.
Emailthatpays is effecting the proposed distribution in order to be
able to create a more direct benefit to its shareholders in the event it is
successful in implementing its business plan of developing and distributing
intellectual properties. Emailthatpays has also recently shifted its business
focus to Internet-related operations, and believes that its shareholders and
Vidkid's shareholders will derive more benefit from the newly-created,
streamlined business entities. In the opinion of emailthatpays and Vidkid, a
significant portion of the development efforts of Vidkid have been accomplished,
and Vidkid has developed appropriate guidelines and procedures for the
establishment and operation of its television production and other entertainment
lines of business.
A copy of this prospectus is being mailed to each emailthatpays
shareholder of record as of the record date. The Vidkid shares will be
distributed to the shareholders of emailthatpays as soon as practicable
following the effective date of the registration statement of which this
prospectus is a part, but in any event not later than 60 days from that date.
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FEDERAL INCOME TAXES
Neither emailthatpays nor Vidkid has requested a ruling from the
Internal Revenue Service regarding whether the distribution of the shares will
result in a taxable gain or income to the recipients of the shares.
Emailthatpays and Vidkid believe the distribution will be a taxable event to
emailthatpays' shareholders.
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO
INVEST IN OUR COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATION COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY OF THESE RISKS. ANY OF
THESE RISKS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND
YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE A HISTORY OF LOSSES DUE TO COST OF SALES AND OPERATING EXPENSES
EXCEEDING REVENUES. IF WE DO NOT DEVELOP PROFITABLE OPERATIONS, WE WILL NEED TO
TERMINATE OUR OPERATIONS. AS A RESULT, INVESTORS MAY LOSE THEIR ENTIRE
INVESTMENT.
We have a history of operating losses. Losses have totaled:
* $159,088 for the year ended December 31, 1999.
* $601,270 for the fiscal year ended December 31, 1988.
At December 31, 1999, we had a total deficit since organization of
$1,450,980 and a working capital deficit of $575,700.
We have only a limited history of operating our video production and
distribution business. We may not be able to reduce our losses or operate
profitably. Investors must understand that our production projects and
facilities may not ever generate sufficient revenues.
As a result of these conditions, our independent certified public
accountants included an explanatory paragraph in their report dated March 6,
2000. Their report indicated that these conditions raised substantial doubt
about our ability to continue as a going concern.
THE LOSS OF STEVEN ADELSTEIN OR GUS GUILBERT, JR. COULD ADVERSELY AFFECT OUR
BUSINESS.
Our continued success will depend to a large extent on the efforts and
abilities of Steven Adelstein, our chairman of the board and president and Gus
Guilbert, our executive vice president and director. The loss of either of these
individuals could have a material adverse effect on our business.
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ENTERTAINMENT INDUSTRY
The production and distribution of entertainment intellectual
properties, including television programs, music or other properties, involves a
substantial degree of risk. The success of an entertainment property depends
upon subjective factors, such as the personal tastes of the public and critics
and available alternative forms of entertainment. These factors do not
necessarily bear a direct correlation to the costs of production and
distribution. There is a risk that some or all of our projects will not be
successful, resulting in costs not being recouped and losses being incurred.
INTENSE COMPETITION FROM EXISTING AND NEW ENTITIES MAY ADVERSELY AFFECT OUR
REVENUES AND PROFITABILITY.
The children's programming and music markets are in general rapidly
evolving, intensely competitive and have increasingly fewer barriers to entry.
We expect competition to intensify in the future. We compete for the services of
actors, creative and technical personnel, creative material and in the case of
television programming, for a limited number of time slots. Many of our
competitors, including major television networks, have significantly greater
financial, technical, distribution, marketing and other resources and have
greater name recognition. These competitors may be able to adapt more quickly to
new or changing opportunities, technologies and client requirements and may be
able to undertake more extensive promotional activities, and adopt more
aggressive pricing policies. We may not be able to compete effectively with
current or future competitors.
LABOR FACTORS IN THE ENTERTAINMENT INDUSTRY MAY SUBSTANTIALLY AFFECT OUR
OPERATIONS
We are aware that the cost of producing and distributing entertainment
programming has increased substantially in recent years. This is due, among
other things, to the increasing demands of creative talent as well as
industry-wide collective bargaining agreements. Many of the script writers,
performers, directors and technical personnel in the entertainment industry who
will be involved in our productions are members are guilds or unions that
bargain collectively on an industry-wide basis. We have found that actions by
these guilds or unions can result in increased costs of production and can
occasionally disrupt production operations.
WE MAY HAVE DIFFICULTY IN OBTAINING PRODUCTION FINANCING AND THE TERMS OF SUCH
FINANCING MAY GREATLY AFFECT THE PROFITABILITY OF OUR PROJECTS
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Our limited financial resources may require, as to any of our
production projects, that we obtain a portion of our production financing from
third parties. This is a common practice in the entertainment industry. In order
to obtain financing for television production, we may be required to forgo not
only a degree of control over production, but also a share of the profits that
could be derived from a production. This could well result in our receiving
lower revenues in the event we have any successful productions. In addition, we
cannot assure you that Vidkid will be able to obtain financing or be able to
interest third parties in funding our projects. However, even if we are
successful in obtaining third party financing for our projects, the terms
available may not provide us with a sufficient level of revenues from our
projects.
BECAUSE WE ARE A SMALL COMPANY WITH LIMITED FINANCIAL RESOURCES AND RECOGNITION
IN THE ENTERTAINMENT INDUSTRY, WE WILL PROBABLY EXPERIENCE PROBLEMS IN MARKETING
OUR PROJECTS
We expect to have difficulty developing market acceptance for our
existing and proposed projects and television productions. We will have to make
major efforts in marketing our productions which will require significant
expenditures to inform potential sponsors of the benefits of our projects and
for us to achieve name recognition. We cannot assure you that Vidkid will be
able to penetrate existing markets on a wide scale basis or position our
products to appeal to the educational or children's markets. In addition, we
will need to rely on arrangements with distributors and other strategic partners
for the marketing of our projects. Given these obstacles, we cannot assure you
that we will be able to successfully market our products and that any of our
projects will produce revenues that make our projects worthwhile.
WE ARE DEPENDENT ON A LIMITED NUMBER OF PROJECTS WHICH MAKES US MORE VULNERABLE
IF THESE PROJECTS ARE NOT SUCCESSFUL
Vidkid is dependent on a limited number of projects that are expected
to represent a substantial percentage of future revenues in the immediate years
to come. If any major project is not successful, this will likely have a
material negative effect on our operating results and financial condition since
we are able to undertake only a limited number of projects at a given time. In
addition, if we are unsuccessful in the initial projects, it will make it more
difficult for us to obtain financing or to successfully market additional
projects in years to come. We cannot assure you that any of our current projects
will be successful and that they will generate sufficient revenues to make us
profitable.
IT IS DIFFICULT TO GAGE THE PERSONAL TASTE OF THE PUBLIC AND CRITICS WHO MAKE IT
DIFFICULT TO DETERMINE WHICH PROJECTS TO UNDERTAKE.
The production and distribution of films and television programs is
highly risky because of the difficulty of projecting public acceptance of the
projects. The success of an individual feature film or television program
depends on many subjective factors such as the personal taste of the public and
critics and what forms of entertainment are currently in vogue. The success of a
project is not always the result of the cost of production and distribution
arrangements. Consequently, it is extremely difficult to evaluate whether any
projects will be successful. Investors in the Company need to realize that
several of our projects will not be successful which will result in costs not
being recouped and losses being incurred.
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FINANCIAL INTEREST AND SYNDICATION RULES.
The Federal Communications Commission repealed its financial interest
and syndication rules, effective as of September 21, 1995. Those rules, which
were adopted in 1970 to limit television network control over television
programming and thereby foster the development of diverse programming sources,
had restricted the ability of the three established, major U.S. television
networks (i.e., ABC, CBS and NBC) to own and syndicate television programming.
We believe that there has been an increase in in-house productions of
programming for the networks' own use and potentially a decrease of programming
from independent suppliers such as us.
LOCAL CONTENT AND QUOTA REQUIREMENTS.
Our television programming may be subject to local content and quota
requirements, and/or other limitations, in international markets which prohibit
or limit the amount of programming produced outside of the local market. Such
restrictions, or new or different restrictions, could have an adverse impact on
our operations in the future should we be unable to perform under those
requirements or limitations.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND THE MARKET PRICE OF THE
SHARES MAY FLUCTUATE.
There has been no market for our common stock prior to this offering.
At best, only a limited market is expected to develop for our common stock.
Because of this limited market, the price of our common stock after the
distribution may fluctuate widely. We expect our common stock to be traded on
the Over-the-counter Bulletin Board and we cannot guarantee that a trading
market for our common stock will develop or, if a market does develop, the depth
of the trading market for the common stock or the prices at which the common
stock will trade.
WE COULD HINDER OR PREVENT A CHANGE IN CONTROL BY ISSUING PREFERRED STOCK.
Our certificate of incorporation authorizes the issuance of "blank
check" preferred stock by our board of directors. If issued, the preferred stock
could adversely affect the voting power or other rights of our stockholders or
be used, to discourage, delay or prevent a change in control, which could have
the effect of discouraging bids for us and prevent stockholders from receiving
maximum value for their shares. Although we have no present intention to issue
any shares of preferred stock, we cannot assure you that we will not do so in
the future.
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DISTRIBUTION OF SHARES TO BE A TAXABLE EVENT
Neither emailthatpays nor Vidkid has requested a ruling from the
Internal Revenue Service to the effect that the distribution of the shares will
or will not result in taxable gain or income to the shareholders of
emailthatpays and will be taxed as a dividend for federal income tax purposes.
Consequently, non-corporate shareholders could be required to report taxable
income or gain based on the fair market value of the shares on the date of
distribution. Since an active trading market for the shares may not develop
which could provide shareholders with a sufficient degree of liquidity, it is
possible that shareholders may not be able to sell their shares readily in order
to offset any potential tax liability as a result of the distribution.
BECAUSE OF THE PENNY STOCK RULES, IT MAY BECOME DIFFICULT TO SELL YOUR SHARES
We expect to include our shares on the OTC Bulletin Board. For the
immediate future, our shares will become subject to the penny stock rules under
the Securities Exchange Act of 1934. We will continue to be subject to these
rules until the price of our stock exceeds $5.00, or we maintain minimum
tangible net worth of at least $2 million or average revenues of $6,000,000.
The penny stock rules require broker-dealers to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission
prior to a transaction in a penny stock. This document provides information
about penny stocks and the risks in the penny stock market. The broker-dealers
must also provide the customer the following:
* current bid and offer quotations for the penny stock,
* the compensation of the broker-dealer and its salesperson in the
transaction, and
* monthly account statements showing the market value of each penny
stock held in the customer's account.
The broker dealer must give the quotations and compensation information
to the customer, orally or in writing, prior to completing the transaction. They
must give this information to the customer, in writing, before or with the
customer's confirmation.
In addition, the penny stock rules require that, prior to a transaction
in a penny stock, the broker and/or dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser.
The broker and/or dealer must receive the purchaser's written agreement to the
transaction. These disclosure requirements may reduce the level of purchases in
our common stock and trading activity in the secondary market for Vidkid's
common stock. If our common stock becomes subject to the penny stock rules, it
will be more difficult for you to sell the common stock. This may reduce the
value of your shares.
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus are forward-looking
and may involve a number of risks and uncertainties. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause our actual results to differ materially from those contemplated by the
statements. We caution you that these forward-looking statements are only
predictions. We cannot assure you that the future results predicted, whether
expressed or implied, will be achieved. The forward-looking statements are based
on current expectations, and we are not obligated to update this information.
THE DISTRIBUTION
SECURITIES TO BE DISTRIBUTED
Emailthatpays will distribute to its shareholders 3,052,840 shares of
Vidkid common stock.
The Vidkid shares will represent approximately 69% of the outstanding
Vidkid common stock. After the distribution, emailthatpays will own no shares of
Vidkid common stock.
No consideration will be paid by shareholders of emailthatpays nor will
they be required to surrender or exchange shares of emailthatpays common stock
or take any other action to receive shares of Vidkid common stock in the
distribution.
DISTRIBUTION RATIO; FRACTIONAL SHARES
One share of Vidkid common stock for every one share of emailthatpays
common stock.
RECORD DATE
The record date for the distribution is the close of business on
September 29, 1999.
DISTRIBUTION DATE
The distribution is expected to occur at the close of business on the
distribution date, i.e., on or about ___________, 2000. On or about the
distribution date, the distribution agent will commence mailing account
statement reflecting ownership of shares of Vidkid common stock to holders of
emailthatpays common stock as of the close of business on the record date.
DISTRIBUTION AGENT; TRANSFER AGENT AND REGISTRAR; WARRANT AGENT
StockTrans, Inc. will initially serve not only as the distribution
agent for the distribution; but also the transfer agent and registrar for the
Vidkid common stock. The address of StockTrans, Inc. is 7 East Lancaster Avenue,
Ardmore, PA 19003-2318, and its telephone number is (610) 649-7300.
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POSSIBLE STATE RESTRICTIONS ON SALES OF THE VIDKID'S COMMON STOCK
The distribution of the common stock of Vidkid and subsequent resales
by Vidkid shareholders will be required to be undertaken in compliance with the
laws of each jurisdiction in which these shareholders reside. Distribution of
the Vidkid shares will not be registered under the state securities laws of any
jurisdiction in which the distribution is being made pursuant to exemptions
provided under these laws. Shareholders receiving shares and desiring to resell
or otherwise dispose of the shares and their broker-dealers will be required to
establish the existence of a secondary trading exemption under the applicable
state securities laws prior to any such disposition. We recommend that
shareholders provide these broker-dealers with a copy of this prospectus in
conjunction with any contemplated sale of shares.
FEDERAL INCOME TAX CONSEQUENCES
Management of Vidkid and emailthatpays believe that, although the
distribution of Vidkid's shares is referred to as a "spin-off" under federal
securities laws, for federal income tax purposes it will be taxed as a dividend
in accordance with Section 301 of the Internal Revenue Code (the "Code"). Thus,
non-corporate shareholders could be required to report taxable gain or income
based on the fair market value of the Vidkid shares on the date of distribution
and corporate shareholders could be required to report taxable gain or income
based on the lesser of the fair market value or the adjusted basis of the Vidkid
shares on the date of the distribution. Since Vidkid will have minimal tangible
assets and limited existing operations on the date of distribution, management
believes that the fair market value of the shares on the record date will be
limited for federal income tax purposes. Each shareholder may be required to
report his or her allocable share of the fair market value as a taxable
dividend. The shareholders' basis in Vidkid shares received will be the taxable
dividend realized on the distribution.
DIVIDEND POLICY
We expect to retain all earnings generated by our operations for the
development and growth of our business, and do not anticipate paying any cash
dividends to our shareholders in the foreseeable future. The payment of future
dividends on the common stock and the rate of such dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors.
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999.
Our capitalization will not be modified as a result of the distribution.
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This table sets forth Vidkid's debt and equity capitalization as of
December 31, 1999 on a historical basis and excludes 375,000 shares reserved for
issuance upon exercise of immediately exercisable warrants to purchase common
stock at December 31, 1999. The information in the table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the consolidated financial statements and notes
included elsewhere in this prospectus.
DECEMBER 31, 1999
SHORT-TERM DEBT: $ 146,470
---------------
LONG-TERM DEBT: $ 114,307
---------------
Shareholders' equity:
Common stock, $.005 par value;
10,000,000 shares authorized; 4,434,420
shares issued and outstanding $ 22,168
Preferred stock, $.005 par value;
1,000,000 shares authorized;
no shares issued and outstanding 0
Additional paid-in capital 2,775,473
ACCUMULATED DEFICIT (1,450,980)
----------------
TOTAL SHAREHOLDERS' EQUITY 1,346,661
----------------
TOTAL CAPITALIZATION $ 1,607,438
================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and
financial condition of Vidkid should be read in conjunction with the
consolidated financial statements included elsewhere in this prospectus.
RESULTS OF OPERATIONS
Vidkid was formed in July 1997 and is engaged in the development and
production of children's made for television movies and series, the marketing
and sale of various children's programming and providing video and
post-production and distribution services to third parties. Vidkid acquired the
130 color episode library of "The New Howdy Doody Show" during February 1998.
Through September 1999, Vidkid operated as a wholly-owned subsidiary of Realm
Production and Entertainment, Inc. On September 29, 1999, emailthatpays
commenced the spin-off of its entertainment assets, including 80% of BRT Video,
Inc., a television studio and editing facility, by contributing these assets and
all liabilities to Vidkid.
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The spin-off will be effected by a distribution to emailthatpays'
shareholders of record at the close of business on September 29, 1999. For each
share of emailthatpays common stock held on the record date, the holder will
receive one share of Vidkid common stock. Accordingly, 3,052,840 shares of
Vidkid's common stock are to be issued to emailthatpays shareholders. The
spin-off will effectively be completed when Vidkid becomes a separate and
distinct company. Certain emailthatpays shareholders who converted debt
obligations into emailthatpays' common shares and common shares issued in
connection with the merger did not participate in the spin-off.
Due to the fact that the remaining assets of the emailthatpays were
transferred to Vidkid in connection with the distribution, the distribution was
reported for accounting purposes as a "reverse spin-off" under generally
accepted accounting principles. The information contained in this prospectus
indicates the results of operations or financial condition of Vidkid that would
have been reported for the periods indicated had the distribution occurred on
the first day of the periods discussed.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Net sales for the year ended December 31, 1999 were $1,103,553 as
compared to sales for the year ended December 31, 1998 of $358,597. This
increase is attributable to the fact that on October 1, 1998, Vidkid purchased
72.5% of BRT.
In 1999, cost of sales was attributable to BRT and was $88,625 or 8% of
net sales for the year ended December 31, 1999. Cost of sales aggregating
$107,381 for the year ended December 31, 1998 was attributable to Vidkid's sale
of Howdy Doody videos for $59,024 with the remaining balance attributable to the
fact that on October 1, 1998, Vidkid purchased 72.5% of BRT.
Amortization of production costs for the year ended December 31, 1999
was $181,971 as compared to $125,938 for the year ended December 31, 1998. This
increase is due to Vidkid's continuing assessment and write-off of intellectual
properties in various stages of development.
Salaries and fringe benefits were $648,737 for the year December 31,
1999 as compared to $341,136 for the year ended December 31, 1998. The increase
was directly attributable to the acquisition of BRT.
Legal and accounting fees were $50,748 for the year ended December 31,
1999 as compared to $47,698 for the year ended December 31, 1998. The increase
is attributable to an increase in accounting and auditing fees, primarily
attributable to the acquisition of BRT.
Consulting fees were $120,819 for the year ended December 31, 1999 as
compared to $77,716 for the year ended December 31, 1998. The increase is
primarily attributable to the acquisition of BRT and investment banking fees.
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Rent expense was $158,290 for the year ended December 31, 1999 as
compared to $58,073 for the year ended December 31, 1998. The increase was
directly attributable to the acquisition of BRT and the fact that Vidkid and BRT
relocated to their new production facility in Fort Lauderdale, Florida.
Other selling, general and administrative expenses, which include
contract labor, travel and entertainment, insurance and other expenses, were
$306,841 for the year ended December 31, 1999 as compared to $85,831 for the
year ended December 31, 1998. The increase is primarily attributable to the
acquisition of BRT.
Interest expense was $100,403 for the year ended December 31, 1999 as
compared to $22,480 for the year ended December 31, 1998. The increase was
directly attributable to the acquisition of BRT. BRT has various loans and
capitalized lease obligations outstanding.
As a result of the foregoing factors, Vidkid incurred losses of
approximately $159,088 or ($.05) per share for the year ended December 31, 1999
as compared to a loss of approximately $601,270 or ($.20) per share for the year
ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, Vidkid had stockholders' equity of approximately
$1,347,000. Since its inception, it has incurred losses of approximately
$1,450,000. Vidkid's operations and growth have been funded by advances from its
parent company prior to its spin off. These advances were funded by loans from
third parties, the sale of common stock with gross proceeds of approximately
$1,000,000 and the issuance of preferred stock that resulted in net proceeds to
Vidkid of approximately $375,000. These funds were used for working capital,
capital expenditures, and the acquisition of the Howdy Doody library.
In September 1997, BRT and a private investor entered into an informal
agreement whereby the investor would advance $1,500,000 for expansion and
renovation of a new facility in exchange for a 49% equity interest in BRT. The
parties to this agreement intended to engage an independent appraiser to
determine the value of the stock and, therefore, the portion of the $1,500,000
that would be attributable to equity financing. The balance of the advanced
funds would be evidenced by a note payable bearing interest at prime plus 1%.
Between October 1997 and December 31, 1997, the investor advanced $435,000 of
the $1,500,000. In early 1998 the investor advanced an additional $150,000.
Thus, by the end of February 1998, the investor had advanced an aggregate of
$585,000. On October 14, 1998, BRT filed suit against the investor in the
Circuit Court in Broward County, Florida alleging breach of contract and fraud
against the investor. On August 6, 1999, BRT dismissed its complaint against the
investor and they in turn dismissed all causes of action against BRT. As a
result of this resolution, the Company retained the advances totaling $585,000
and the investor did not receive any securities of BRT or Vidkid.
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Vidkid has no other material commitments for capital expenditures. Vidkid
believes that it has sufficient liquidity to meet all of its cash requirements
for the next twelve months and that subsequent cost reductions and increased
marketing efforts will provide sufficient cash flows to meet their operating
needs and grow its regional market share. Vidkid believes, however, that
additional funding will be necessary to expand the production business.
Net cash used in operations in 1999 was $168,423 compared to $426,651 in
the 1998 period. The difference is primarily attributable to the loss from
operations in 1998.
Net cash used in investing activities in 1999 was 141,254 compared to net
cash used in investing activities of $291,003 in 1998. This difference was
attributable to decreased investments in capitalized production costs.
Net cash provided by financing activities in 1999 was $247,021 as compared
to net cash provided by financing activities of $780,129 in 1998. The difference
was attributable from decreased capital contributions from emailthatpays.
BUSINESS
GENERAL
Vidkid is in the business of developing and producing children's
intellectual properties, including television programs, and distributing these
properties. Vidkid generates revenues from the programs it distributes primarily
through the following channels:
* television markets, including network, syndicated and cable, both in
the United States and abroad; and
* non-television markets, including videocassette sales and rentals.
VIDKID OWNS WORLDWIDE BROADCAST AND VIDEO DISTRIBUTION RIGHTS TO 130
COLOR EPISODES OF THE NEW HOWDY DOODY SHOW, a popular children's show produced
in the 1970's. Vidkid's marketing strategy is to leverage the Howdy Doody name
to establish video sales revenues, television exposure and to enhance its brand
within the broadcast industry.
OVERVIEW
In July 1997, Vidkid was formed to own, distribute and produce
children's intellectual properties. In the first quarter of 1998, we acquired
the Howdy Doody Library consisting of the broadcast and video rights for
worldwide distribution of 130 color episodes, which were produced in the early
1970's. In October 1998, we acquired 72.5% of BRT Video, Inc. (in March 1999 we
acquired an additional 7.5% for a total of 80%). BRT is a video production
facility located in Fort Lauderdale, Florida. Vidkid generates revenues from the
programs it distributes primarily through three channels:
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* markets, including networks, syndicated and cable television both
in the United States and abroad
* non-television markets, including video cassettes both from sales
and rentals
* after-market licensing, including merchandising, clothing and
other forms of products, including music.
Additionally, we are operating the video post house primarily for third
parties, which includes audio and video editing, both linear and non linear,
graphics, including 2D and 3D for logos, special effects and animation.
ORGANIZATION AND DISTRIBUTION
Vidkid was organized by Realm Production and Entertainment, Inc. in
July 1997. As discussed previously, the purpose of the distribution was to make
Vidkid a public company and to allow emailthatpays to pursue a different
purpose. To that end, emailthatpays and a wholly-owned subsidiary entered into
an agreement and plan of merger and reorganization on October 22, 1999 with
emailthatpays. Under to the merger, the shareholders of emailthatpays received
one share of common stock of emailthatpays in exchange for each share of
emailthatpays' common stock. In connection with the merger, in September 1999,
Realm's board of directors also approved as a dividend the distribution of 100%
of the stock of Vidkid to the shareholders of emailthatpays as of September 29,
1999. In conjunction with the merger, the shareholders of the acquired
subsidiary waived any right to participate in or receive any interest in Vidkid
as a result of the Vidkid distribution. Subsequently, emailthatpays changed its
name to emailthatpays.com, Inc.
THE HOWDY DOODY LIBRARY
In August 1997, Vidkid entered an agreement with Madison Sports and
Entertainment, Inc., to purchase from Madison the broadcast and video rights to
130 color episodes of the HD Library produced in the 1970's. In October 1997, we
commenced the marketing efforts of 20 episodes for a special limited edition
50th Anniversary Video Box Set for distribution during 1999 with particular
intent to coordinate with Buffalo Bob Smith's 50th anniversary. In January 1998,
Vidkid was notified of the existence of a dispute between Madison and John J.
Drury, the HD Library's Executive Producer, over the actual ownership rights to
the HD Library. Because of this litigation, which did not name us as a party, we
were advised not to distribute any portion of the library until the litigation
was determined.
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In May 1998, Drury prevailed in the litigation at the lower court
level. In September 1998, Vidkid entered into an amended agreement with Drury
and Buffalo Bob Enterprises, Inc., which set the terms under which Vidkid would
purchase the rights from Drury. Madison appealed the lower court's ruling naming
Drury as the owner of the broadcast and video rights, but the District Court of
Appeals of the State of Florida, 4th District upheld the lower court's ruling in
May 1999. As a result of the appellate court's ruling, we paid the remainder of
the purchase price for the HD Library episodes to Drury. In July 1999, we
continued the process of cleaning, digitizing and editing the HD Library
episodes, which is estimated to be completed in the second quarter of 2000. In
August 1998, Vidkid signed a video distribution agreement with Fast Forward
Marketing, to distribute a limited portion of the HD Library episodes to the
retail markets until July 2001. Additionally, in June 1999, Vidkid signed a
video distribution agreement with Tapeworm Video Distributors, Inc. representing
a limited portion of the HD Library until May 2001.
The marketing efforts for broadcast rights, both domestic and
international, will begin in the latter part of this year. We plan to license
the broadcast to individual stations for domestic airing and license country by
country for international rights.
EDITING, POST-PRODUCTION AND PRODUCTION SERVICES
Between October 1998 and March 1999, we acquired 80% of the outstanding
stock of BRT Video, Inc. BRT is primarily engaged in providing television and
radio production services to advertising agencies, independent producers and
corporations, requiring national and local television and radio commercials,
sales and marketing materials, as well as personnel training videos. The
facility contains the following:
$ Digital Video Editing: BRT has two digital video editing rooms using
Sony's D2 format digital video master recorders, Video Gainesville composite
digital switchers and Pinnacle digital video effects generators. The editing
suites accept a variety of broadcast source material and is equipped with Sony
BetaCamSP, 1", 3/4", and Hi8mm video formats. This highly specialized equipment
is operated by equally specialized personnel for primary use in the production
of broadcast media.
$ Digital Audio Editing: This suite uses up-to-date, computerized
digital audio workstation, incorporating hardware and software by Digidesign.
The room has an array of sound effects generator and a comprehensive sound
library to facilitate today's production requirements. Additionally, this room
combines with the digital video editing suites to provide sound-to-picture
capability such as foley effects or custom music scoring.
$ Animation: The animation department consists of a network of
multi-processor, Intel- based Intergraph computer workstations, running the
latest version software from 3D Studio Max and their related special effects
plug-ins. This department's capabilities range from simple 2D logo generation to
more complex 3D modeling and visualization, as well as the ability to network
projects across all computers in the facility.
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We are engaged in the development and the production of original
computer animated programs designed for worldwide television and other
non-theatrical distribution. We are completing a 90-minute made for television
animated feature anticipated to BE COMPLETED IN 4TH quarter of 2001. We have
produced a three minutes promotional video tentatively entitled "Star Pirates"
and are currently in pre-production of character and environmental designs.
The creation of original computer animated programs involves a
three-phase process of pre-production, production and post production
activities. The pre-production stage begins with the creation of a concept and
story. During pre-production, a script and music are written and voice tracks
are recorded. Additionally, we prepare model sheets for each character and
create storyboards and environments and begin color-coding. During the
production phase, hand drawings based on storyboards are produced by creating
meshes, textures and colors within the computer. The post production phase
involves adding voices, music and special effects, while animating movement
within the computer or using sophisticated motion capture equipment in a sound
stage. The result of the post production process is a digital video, broadcast
master in which the animation, music and sound effects are synchronized.
* Graphics: This department's main function is to provide output of
still, graphic images to the digital video editing suites. Using leading
industry desktop software such as Adobe PhotoShop, Corel Draw and Pinnacle
Type-Deko, along with high resolution output hardware, the graphic department
enables the client's simple logos and titles to be superimposed over their video
material.
* Customization and Duplication: Upon completion of the client projects
using the above production services, the digital video masters are now ready for
the customization and duplication department. Here, market specific information
(such as a local telephone number) is added and television station specific
formatting and duplication occur. Using Inscriber CG Supreme software and a
specialized computer workstation with three graphic overlay boards, a single
client master can be replicated with two separate telephone numbers on four
different formats simultaneously, all in one pass. This specialized process
allows us to facilitate large volumes of our client's television commercials
with same day customization and shipping to stations.
* Production: For our in-house productions and clients who do not have
field production capability, we have arrangements with local equipment rental
facilities and contractors. These include camera operators, lighting directors
and producers, who are engaged to provide the initial production services in
order to complete the projects in our post production environment.
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LEGAL PROCEEDINGS:
In June 1999, we filed a complaint against Norman Titcomb (Vidkid
Distribution, Inc. vs. Norman Titcomb, in the Circuit Court of the 17th Judicial
Circuit, Broward County Florida, Case No. 99-010698 CACE (12)), the former 100%
owner (currently 20% owner) of BRT Video, Inc. We are alleging among other
counts, misrepresentations to us in the purchase and sale of BRT Video, Inc.
An answer has been filed and discovery is proceeding.
In November 1999, we filed a complaint against Madison Sports and
Entertainment and other parties (Vidkid Distribution, Inc. vs. Madison Sports
and Entertainment Group, Inc., Gary Langan goodenow, Kevin M. Ward, and Joseph
Assad, in the Circuit Court of the 17TH Judicial Circuit, Broward County
Florida, Case No. 99-018793 CACE (21)), alleging, among other counts,
misrepresentations to us in the purchase and sale of the Howdy Doody Library.
Additionally, we allege that the defendants interfered with certain arrangements
and agreements we had with vendors to sell the "50th Anniversary Video Box Set".
Although we were not named in the lawsuit between the Madison and the executive
producer to determine the actual owner of the Howdy Doody Library, Madison sent
correspondence to our vendors which effectively resulted in the interference
with the marketing and sale of the box set. Ultimately, the executive producer
prevailed in the litigation and therefore, we believe the defendants wrongfully
caused us damages.
EMPLOYEES
As of December 31, 1999, Vidkid and subsidiaries employed 10 people, 7
of which are support staff, and 3 of which are management personnel. We believe
our relations with our employees are generally good and we have no collective
bargaining agreements with any labor unions.
PROPERTIES
Vidkid maintains their executive offices within the leased premises of
BRT consisting of approximately 16,000 square feet located at 4950 West Prospect
Road, Fort Lauderdale, Florida 33309. The lease requires Vidkid's subsidiary,
BRT, to pay approximately $12,500 per month and terminates in October 2007
subject to BRT's option to renew the lease for a period of ten years.
MANAGEMENT
The following table sets forth the names and ages of Vidkid's
directors, executive officers and key employees:
NAME POSITION AGE
Steven Adelstein Chairman of the Board,
Chief Executive Officer and President 52
Gus Guilbert, Jr. Director, Treasurer, Secretary, Executive
Vice President and President of BRT 39
James Purpuro Director, Executive Vice President of BRT 35
Michael Greene Director, Vice President of BRT 55
Todd Adelstein Director 25
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All Directors hold office until the next meeting of shareholders of
Vidkid and until their successors are elected and qualified. Officers hold
office until the first meeting of Directors following the meeting of
shareholders and until their successors are elected and qualified subject to
earlier removal by the Board of Directors. No member of management serves in any
capacity with emailthatpays.
Steven Adelstein, 52 years old, has served as our chairman of the
board, chief executive officer, president and director since May 1995. From
February 1993 to February 1995, Mr. Adelstein served as executive producer of
"Jelly Bean Jungle", a children's television series syndicated in over 85% of
the U.S. markets and in many foreign territories. Between September 1969 and
June 1972, Mr. Adelstein was employed as a Certified Public Accountant with
Peat, Marwick, Mitchell and Company. Mr. Adelstein has served as President of
AUW, Inc., a venture capital company, since April 1993. Mr. Adelstein is the
father of Todd Adelstein, one of our directors.
Gus Guilbert, JR., 39 years old, has been our executive vice president,
treasurer and secretary since August 1997 and a director since October 1999.
Since October 1999, he has served as president of our subsidiary BRT Video, Inc.
In 1993, Mr. Guilbert became an independent consultant and representative for
D/Vision Pro computer editing systems, in which capacity he continues to serve.
Between 1990 and 1993, Mr. Guilbert served as Music Producer for Miami based
Video Publishing Group where he scored and edited music for television and film,
and ultimately became an on-line video editor using various broadcast formats.
Mr. Guilbert is a respected production professional knowledgeable in computer
animation, music and television production, as well as broadcast mastering. Mr.
Guilbert holds an Audio Engineering License in multi-track recording and MIDI
music programming.
James Purpuro, 35 years old, has been a member of our board of
directors since October 1999 and executive vice president of BRT and Senior
Editor in charge of all post production creative services from 1994 to September
1999. In 1987 Mr. Purpuro graduated from Villanova University with a degree in
Broadcast Management. From 1989 to 1993 he was Director of Commercial Production
at WBBH-TV, an NBC affiliate in Fort Myers, Florida. Mr. Purpuro also ran the
Creative Services Department for the Waterman Broadcasting Corp., owner of
several radio and television stations.
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Michael Greene, 55 years old, has been a member of our board of
directors since October 1999 and vice president of BRT since April 1998. Mr.
Greene is director and president of his consulting company Chrysalid, Inc., in
which capacity he has served since September 1996 and devotes about 50% of his
time to Vidkid. From 1994 to August 1996, Mr. Greene served as principal of
Greene, Hollister, Inc., a nationally-recognized transformation consulting
company. Mr. Greene has consulted in the areas of communications, team
development, strategic planning, training, sales, and marketing to companies
such as Arvida, Disney, American Express, Pratt & Whitney, and North American
Philips. Mr. Greene has been Chairman and CEO of Classic Video Theatre (a NASDAQ
listed company); Director of Operations and Programming for the Amaturo Group
(one of the premier broadcasting companies in the country).
Todd Adelstein, 25 years old, has served as a director since October
1999. Mr. Adelstein is currently employed by First Union National Bank as a
licensed Financial Specialist, which position he has held since July 1998. From
August 1997 to July 1998, Mr. Adelstein served as Corporate Account Manager for
Enterprise Leasing, where he managed sales and fleet services for several
offices. Mr. Adelstein graduated from Indiana University in 1997 with a BS/BS in
Public Financial Management along with an Accreditation and Certificate in
Business Administration. Todd Adelstein is the son of Steven Adelstein, our
president and chairman.
Each director will hold office until the next meeting of shareholders
at which his class of directors is to be elected or until his successor is duly
appointed and qualified.
LIMITATION ON DIRECTORS' LIABILITIES
Our certificate of incorporation limits, to the maximum extent
permitted under Florida law, the personal liability of directors and officers
for monetary damages for breach of their fiduciary duties as directors and
officers, except in certain circumstances involving certain wrongful acts, such
as a breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Florida Law permits us to indemnify officers, directors or employees
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement in connection with legal proceedings if the officer, director or
employee acted in good faith and in a manner he reasonably believed to be in or
not opposed to our best interest, and, with respect to any criminal act or
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Indemnification is not permitted as to any matter as to which the person is
adjudged to be liable unless, and only to the extent that, the court in which
such action or suit was brought upon application that, despite the adjudication
of liability, but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper. Individuals who successfully defend this type of action are entitled to
indemnification against expenses reasonably incurred in connection therewith.
Our by-laws require us to indemnify directors and officers against, to
the fullest extent permitted by law, liabilities which they may incur under the
circumstances described in the preceding paragraph.
We plan to maintain standard policies of insurance under which coverage
is provided to our directors and officers against loss arising from claims made
by reason of breach of duty or other wrongful act and to us with respect to
payments which may be made by us to these officers and directors according to
the above indemnification provision or otherwise as a matter of law.
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In addition, we plan to enter into indemnification agreements with our
directors and executive officers. Under these agreements, we will indemnify each
director and officer to the fullest extent permitted by law for any acts
performed, or for failures to act, on our behalf or on behalf of another person
or entity for which that director or officer is performing services at our
request. We will not indemnify a director or officer for any breach of loyalty
to us or our stockholders, or if the director or officer does not act in good
faith or for acts involving intentional misconduct, or for acts of omissions
described in the laws of Florida, or for any transaction for which the director
or officer derives an improper benefit. We will indemnify for expenses related
to indemnifiable events, and will pay for these expenses in advance. Our
obligation to indemnify and to provide advances for expenses are subject to the
approval of a review process with a reviewer to be determined by our board. The
rights of directors and officers will not exclude any rights to indemnification
otherwise available under law or under our certificate of incorporation.
CASH COMPENSATION
The following table shows, for each of the three years ended December
31, 1999, the cash and other compensation paid by Vidkid to Steven Adelstein,
its Chairman and Chief Executive Officer, and Gus Guilbert, Jr., its Executive
Vice President, Treasurer, Secretary and Chief Financial Officer. Based on the
difficulty of allocating the amounts, compensation includes those payments
received from emailthatpays. None of the executive officers of the Company had
annual compensation in excess of $100,000 except for Mr. Adelstein.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation* Compensation
<S> <C> <C> <C> <C> <C>
Steven Adelstein 1999 $120,000 $-0- $18,000 $-0-
1998 $120,000 $-0- $18,000 $-0-
1997 $105,000 $-0- $15,000 $-0-
Gus Guilbert, Jr. 1999 $42,000 $-0- $ 6,000 $-0-
1998 $36,000 $-0- $ 1,200 $-0-
1997 $30,000 $-0- $ 1,200 $-0-
</TABLE>
- ---------------------------
* Represents an additional compensation to cover auto lease and servicing,
medical plan payments and disability program payments.
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OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended December
31, 1999 to each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
NAME GRANTED(#) FISCAL YEAR ($/SHARES) DATE
<S> <C> <C> <C> <C>
Steven Adelstein 150,000 40% $0.25 12/31/05
Gus A. Guilbert, Jr. 100,000 26.6% $0.25 12/31/05
</TABLE>
In addition, options to purchase 75,000 shares were issued to James
Purpuro exercisable at $0.25 per share through October 1, 2005 and options to
purchase 50,000 shares were issued to Michael Greene exercisable at $0.25
through October 1, 2005. There was no public trading market for the underlying
shares of common stock at the time of the grant, although the bid price for
emailthatpays on October 1, 1999 was $0.44.
EMPLOYMENT AGREEMENTS
Mr. Adelstein's five year employment agreement with Vidkid provides
that he devote substantially all of his business efforts to Vidkid as president
and chief executive officer. Under the terms of the agreement, Mr. Adelstein
receives a base annual salary of $120,000 for the year ended December 31, 2000,
at which time the term of the agreement expires. In addition, Mr. Adelstein is
entitled to receive additional payments equal to 2.5% of gross receipts from all
merchandise agreements between Vidkid and outside merchandisers, and health and
disability insurance. Mr. Adelstein is subject to a one year non-compete
agreement commencing at the end of the term of the employment agreement.
Mr. Guilbert's three year employment agreement with Vidkid provides
that he devote his full time business efforts to Vidkid as our executive vice
president. Under the terms of the agreement, Mr. Guilbert receives a base annual
salary of $42,000 for the period ended July 2000, at which time the term of the
agreement expires. Mr. Guilbert is entitled to a bonus at the discretion of the
board of directors.
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CERTAIN TRANSACTIONS
Vidkid has notes payable to related parties and stockholders. The notes
were issued September 1, 1999. The proceeds of these notes were used to pay off
amounts due to a third party for the "Howdy Doody" tape library and bear
interest at an annual rate of 9.6% payable quarterly in the form of issuance of
restricted common shares of the Company valued at $.25 per share, or cash, as
determined by the board of directors in its sole discretion. These notes are
collateralized by the "Howdy Doody" tape library and are due and payable on
August 31, 2002. As of December 31, 1999, notes payable to these related parties
amounted to $88,500. For the year ended December 31, 1999, Vidkid any imputed
interest on these notes at an annual rate of 12%. The parties are all relatives
of Steven Adelstein, and Todd Adelstein is also a director of Vidkid:
Phillip Adelstein $ 25,000
Todd Adelstein 6,000
Tammi Adelstein 25,000
Steve Shinder 32,500
------
$ 88,500
======
In addition, Vidkid has other notes payable to related parties and a
stockholder. These notes were issued at various times during 1999. The highest
amount outstanding was $28,792. These notes are used for working capital
purposes. These notes are non-interest bearing, non-collateralized, and are
payable on demand. As of December 31, 1999, notes payable to these related
parties amounted to $23,337.
AUW, Inc. $ 13,152
Tammi Adelstein 10,185
--------
$ 23,337
========
While Vidkid was a wholly-owned subsidiary of emailthatpays loans were
advanced by Steven Adelstein ($19,800), Gus A. Guilbert, Jr. ($6,500) and AUW,
Inc., an affiliate of Steven Adelstein ($120,174), which had been used for
working capital purposes. The total debt of $146,474 was exchanged for 1,331,580
shares of Vidkid common stock or at a rate of $0.11 per share. At the time of
the exchange on August 17, 1999, the common stock of emailthatpays had a bid
price of $0.215 per share as quoted on the OTC Bulletin Board. While no
independent directors were serving to evaluate the transaction, given the price
of the emailthatpays common stock, management considers the exchange to have
been completed on a fair basis to Vidkid.
26
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of our common
stock by all shareholders that hold 5% or more of the outstanding shares of our
common stock, each director and executive officer. Except as indicated, each
shareholder named has sole voting and investment power for his, her or its
shares. As of March 31, 2000, there were 4,434,420 shares of common stock issued
and outstanding. Unless otherwise stated, the address of each of the person set
forth below is 4950 West Prospect Road, Fort Lauderdale, Florida 33309.
Names and Address of Number of shares Percentage of shares
Beneficial Owner Beneficially Owned Beneficially Owned
Steven Adelstein 1,546,407 33.7
Gus Guilbert, Jr. 214,247 4.7
James Purpuro 38,359 *
Mike Greene 21,666 *
Todd Adelstein 340,000 7.7
Realm Holdings, Inc. 560,000 12.6
648 Post Road
Wakefield, RI 02879
FAC Enterprises, Inc. 300,000 6.8
4960 South Virginia Ave.,
Suite 300, Reno NV 89502
All officers and directors
as a group (5 people) 2,160,679 45.6%
In general, a person is considered a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose of such security. A person is also considered
to be a beneficial owner of any security of which the person has the right to
acquire beneficial ownership within sixty (60) days.
Steven Adelstein's holdings include beneficial ownership of 1,216,407
common shares owned by AUW, Inc. of which he is president and a 22% shareholder.
Also includes immediately exercisable warrants to purchase 150,000 shares of
common stock at an exercise price of $0.25.
Mr. Guilbert's holdings include beneficial ownership of 6,800 common
shares owned by Tenor Guilbert (son of Gus Guilbert, Jr.). Also includes
immediately exercisable warrants to purchase 100,000 shares of common stock at
an exercise price of $0.25.
Mr. Purpuro's holdings include immediately exercisable warrants to
purchase 25,000 shares of common stock at an exercise price of $0.25. Does not
include warrants to purchase 25,000 shares of common stock at an exercise price
of $0.25 per share commencing October 1, 2000 and warrants to purchase an
additional 25,000 shares at $0.25 beginning October 1, 2001.
Mr. Greene's holdings include immediately exercisable warrants to
purchase 16,666 shares of common stock at an exercise price of $0.25. Does not
include warrants to purchase 16,666 shares of common stock at an exercise price
of $0.25 exercisable commencing October 1, 2000 and warrants to purchase an
additional 16,667 shares at $.25 beginning October 1, 2001.
27
<PAGE>
Todd Adelstein's holdings are comprised of 340,000 shares of common stock
held as a joint tenant with Tammi Adelstein, his sister.
Realm Holdings, Inc.'s ownership consists of 560,000 shares of common
stock.
FAC Enterprises, Inc.'s ownership consists of 300,000 shares of common
stock.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our certificate of incorporation authorizes us to issue up to
10,000,000 shares of common stock, par value $.005 per share, 4,434,420 shares
are issued and outstanding as of the date of this prospectus. Upon completion of
this offering, there will be 4,434,420 shares of common stock issued and
outstanding.
Holders of common stock are entitled to receive dividends as may be
declared by our board of directors from funds legally available for these
dividends. Upon liquidation, holders of shares of common stock are entitled to a
pro rata share in any distribution available to holders of common stock. The
holders of common stock have one vote per share on each matter to be voted on by
stockholders, but are not entitled to vote cumulatively. Holders of common stock
have no preemptive rights. All of the outstanding shares of common stock are,
and all of the shares of common stock to be issued in connection with this
offering will be, validly issued, fully paid and non-assessable.
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors,
without stockholder approval, to issue up to 1,000,000 shares of preferred
stock, par value $.005 per share, to establish one or more series of preferred
stock and to determine, with respect to each of these series, their preferences,
voting rights and other terms. Upon completion of this offering, no shares of
preferred stock will be outstanding, and our board has no present intention to
issue any additional shares.
TRANSFER AGENT
The transfer agent and registrar for common stock is StockTrans, Inc.,
7 East Lancaster Avenue, Ardmore, PA 19003-2318.
28
<PAGE>
CERTAIN MARKET INFORMATION
As of the date of this Prospectus, 4,434,420 shares of our common stock
are outstanding. Of these shares, 1,381,580 shares will be "restricted
securities," as this term is defined under the Securities Act, exclusive of the
Common Stock to be distributed pursuant to the registration statement of which
this prospectus is a part.
In general, Rule 144 permits a shareholder who has beneficially owned
restricted shares of Common Stock for at least one year to sell without
registration, within any three-month period, a number of shares not exceeding
the greater of 1% of the then outstanding shares of common stock or, if the
common stock is quoted on NASDAQ, the average weekly trading volume over a
defined period of time, assuming compliance by the issuer with certain reporting
requirements of Rule 144. Furthermore, if the restricted shares of common stock
are held for at least two years by a person not affiliated with the issuer (in
general, a person who is not an executive officer, director or principal
shareholder of the issuer during the three-month period prior to resale), the
restricted shares can be sold without any volume limitation. Any sales of shares
by shareholders under Rule 144 may have a depressive effect on the price of an
issuer's common stock.
LEGAL MATTERS
Atlas Pearlman, P.A., Fort Lauderdale, Florida, will opine as to the
validity of the common stock offered by this prospectus and legal matters for
us.
EXPERTS
The financial statements as of December 31, 1999 have been included in
the registration statement in reliance upon the report of Feldman Sherb Horowitz
& Co., P.C., independent certified public accountants, appearing in the
registration statement, and upon the authority of this firm as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We intend to furnish our stockholders annual reports, which will
include financial statements audited by independent accountants, and all other
periodic reports as we may determine to furnish or as may be required by law,
including Sections 13(a) and 15(d) of the Exchange Act.
29
<PAGE>
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the securities offered by this prospectus.
This prospectus does not contain all the information set forth in the
registration statement and the accompanying exhibits, as permitted by the rules
and regulations of the SEC. For further information, please see the registration
statement and accompanying exhibits. Statements contained in this prospectus
regarding any contract or other document which has been filed as an exhibit to
the registration statement are qualified in their entirety by reference to these
exhibits for a complete statement of their terms and conditions. The
registration statement and the accompanying exhibits may be inspected without
charge at the offices of the SEC and copies may be obtained from the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 OR AT ITS
REGIONAL OFFICES LOCATED AT 7 WORLD TRADE CENTER, 13TH Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the SEC. Electronic reports and other
information filed through the Electronic Data Gathering, Analysis and Retrieval
System, known as EDGAR, are publicly available on the SEC's website,
http://www.sec.gov.
30
<PAGE>
[BACK COVER PAGE]
You should rely only on the information contained in this prospectus.
Vidkid has not authorized anyone to provide prospective investors with any
different or additional information. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act contains provisions Vidkid
directors and officers to indemnification from judgments, settlements,
penalties, fines, and reasonable expenses (including attorney's fees) as the
result of an action or proceeding in which they may be involved by reason of
having been a director or officer of Vidkid. In its Articles of Incorporation,
Vidkid has included a provision that limits, to the fullest extent now or
hereafter permitted by the Florida Act, the personal liability of its directors
to Vidkid or its shareholders for monetary damages arising from a breach of
their fiduciary duties as directors. Under the Florida Act as currently in
effect, this provision limits a director's liability except where such director
breaches a duty. Vidkid Articles of Incorporation and By-Laws provide that
Vidkid shall indemnify its directors and officers to the fullest extent
permitted by the Florida Act. The Florida Act provides that no director or
officer of Vidkid shall be personally liable to Vidkid or its shareholders for
damages for breach of any duty owed to Vidkid or its shareholders, except for
liability for (i) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (ii) any unlawful payment
of a dividend or unlawful stock repurchase or redemption in violation of the
Florida Act, (iii) any transaction from which the director received an improper
personal benefit or (iv) a violation of a criminal law. This provision does not
prevent Vidkid or its shareholders from seeking equitable remedies, such as
injunctive relief or rescission. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have any
effective remedy against actions taken by directors or officers that constitute
negligence or gross negligence.
The Articles of Incorporation also include provisions to the effect
that (subject to certain exceptions) Vidkid shall, to the maximum extent
permitted from time to time under the law of the State of Florida, indemnify and
upon request shall advance expenses to, any director or officer to the extent
that such indemnification and advancement of expenses is permitted under such
law, as may from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 as amended may be permitted to directors, officers and controlling
persons of Vidkid pursuant to any charter provision, by-law, contract,
arrangement, statute or otherwise, Vidkid has been advised that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities made hereby. Vidkid is
responsible for the payment of all expenses in connection with the distribution.
Registration fee under
the Securities Act of 1933 $_______*
Blue Sky filing fees and expenses 1,000
Printing and engraving expenses 10,000
Legal fees and expenses 25,000
Accounting fees and expenses 15,000
Miscellaneous _______
Total $ ________
*Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1997, Vidkid issued 100 shares of its common stock to Realm
Production and Entertainment, Inc., its parent company, for a nominal
consideration as part of the organization of Vidkid. The transaction was exempt
under Section 4(2) of the Securities Act of 1933. Thereafter, in preparation for
the spin-off of the shares covered by this registration statement to the
shareholders of emailthatpays, Vidkid undertook a forward split of 30,528.4 for
each share of common stock of Vidkid.
In September, 1999, Vidkid issued 1,331,580 shares of its common stock
in full satisfaction of debt in the amount of $146,474 or $0.11 per share to two
members of management of Vidkid and an affiliate. The transaction was exempt
from registration under the Securities Act pursuant to Section 4(2) of that Act.
In September 1999, Vidkid issued 50,000 shares of common stock, valued
at $0.11 per share in exchange for professional services provided by an attorney
and an accountant in connection with the BRT Settlement. Inasmuch as the two
service providers were sophisticated professionals, who had sufficient financial
resources and the ability to ascertain appropriate information relevant to
Vidkid, the transaction was exempt from registration under Section 4(2) of the
Securities Act.
II-2
<PAGE>
In October 1999, Vidkid issued options to purchase 375,000 shares of
its common stock exercisable at $0.25 per share and expiring October 2005 to
four member of its management. Inasmuch as each of the members of management
were sophisticated and has access to relevant information relevant to Vidkid,
the transaction was exempt from registration under Section 4(2) of the
Securities Act.
ITEM 27. EXHIBITS:
EXHIBITS DESCRIPTION OF DOCUMENT
3.1 Articles of Incorporation
3.2 By-Laws
4.1 Warrants issued to Steven Adelstein, Gus A. Guilbert, Jr., James
Purpuro and Michael Greene 5.0 Opinion of Atlas Pearlman, P.A. as to
the validity of the securities being registered
10.1 Lease facilities at 4950 West Prospect Road, Fort Lauderdale, Florida
10.2 Employment Agreement with Steven Adelstein
10.3 Employment Agreement with Gus A. Guilbert, Jr.
10.4 License Agreement with Fast Forward Marketing, Inc.
10.5 Agreement with Tapeworm Video Distributors, Inc.
27.1 Financial Data Schedule
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement which includes any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(d) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's Annual Report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Fort Lauderdale, Florida on May, ___, 2000.
VIDKID DISTRIBUTION, INC.
BY: /S/ STEVEN ADELSTEIN
-------------------------
Steven Adelstein
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Form SB-2 registration statement has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ STEVEN ADELSTEIN Chairman of the Board, Principal May ___, 2000
- ------------------------ Executive Financial and Accounting
Steven Adelstein Officer and President
/S/ GUS A. GUILBERT, JR. Director, Executive Vice President, May ___, 2000
- ------------------------ Treasurer and Secretary
Gus A. Guilbert, Jr.
/S/ JAMES PURPURO Director May ___, 2000
- ------------------------
James Purpuro
/S/MICHAEL GREENE Director May ___, 2000
- ------------------------
Michael Greene
/S/TODD ADELSTEIN Director May ___, 2000
- ------------------------
Todd Adelstein
II-5
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
CONTENTS
Report of Independent Certified Public Accountants...........................2
Consolidated Financial Statements:
Consolidated Balance Sheet.................................................3
Consolidated Statements of Operations......................................4
Consolidated Statement of Changes in Stockholders' Equity..................5
Consolidated Statements of Cash Flows......................................6
Notes to Consolidated Financial Statements................................7-16
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Vidkid Distribution, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have audited the accompanying Consolidated Balance Sheet of Vidkid
Distribution, Inc. and Subsidiaries as of December 31, 1999 and the related
Consolidated Statements of Operations, Changes in Stockholders' Equity, and Cash
Flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vidkid
Distribution, Inc. and Subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
Vidkid Distribution, Inc. and Subsidiaries will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company's need
to generate cash from operations and obtain additional financing raises
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are discussed in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
March 6, 2000
New York, New York
F-2
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS:
Cash $ 5,605
Accounts Receivable
(net of allowance for doubtful accounts of $22,500) 66,508
PREPAID EXPENSES AND OTHER 12,243
------------
TOTAL CURRENT ASSETS 84,356
------------
PROPERTY AND EQUIPMENT, NET 982,348
------------
OTHER ASSETS:
Security Deposits 26,680
CAPITALIZED PRODUCTION COSTS 1,027,640
------------
1,054,320
------------
TOTAL ASSETS $ 2,121,024
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Loans Payable $ 36,788
Current Portion of Notes Payable - Related Parties 23,337
Current Portion of Capital Lease Obligations 86,345
Accounts Payable and Accrued Expenses 458,812
Accrued Salaries 54,774
------------
Total Current Liabilities 660,056
Notes Payable - Related Parties 88,500
Capital Lease Obligations 21,057
Loans Payable 4,750
------------
Total Liabilities 774,363
------------
STOCKHOLDERS' EQUITY:
Preferred Stock ($.005 Par Value; 1,000,000 Shares Authorized)
No Shares Issued and Outstanding ) -
Common Stock ($.005 Par Value; 10,000,000 Shares Authorized;
4,434,420 Shares Issued and Outstanding) 22,168
Additional Paid-in Capital 2,775,473
Accumulated Deficit (1,450,980)
------------
Total Stockholders' Equity 1,346,661
------------
Total Liabilities and Stockholders' Equity $ 2,121,024
===========
F-3
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998
----------- ----------
<S> <C> <C>
REVENUES $ 1,103,553 $ 358,597
COST OF SALES 88,625 107,381
---------- -------
GROSS PROFIT 1,014,928 251,216
---------- -------
OPERATING EXPENSES
Amortization of Production Costs and Goodwill 181,971 125,938
Depreciation and Amortization 249,500 64,590
Salaries and Fringe Benefits 648,737 341,136
Legal and Accounting 50,748 47,698
Consulting Fees 120,819 77,716
Phones and Utilities 43,611 29,284
Rent 158,290 58,073
OTHER SELLING, GENERAL AND ADMINISTRATIVE 306,841 85,831
-------- -------
TOTAL OPERATING EXPENSES 1,760,517 830,266
---------- -------
LOSS FROM OPERATIONS (745,589) (579,050)
---------- ---------
OTHER INCOME (EXPENSES):
Interest Income 64 260
INTEREST EXPENSE (100,403) (22,480)
---------
(100,339) (22,220)
--------- --------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (845,928) (601,270)
BENEFIT FROM INCOME TAXES 261,000 -
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (584,928) (601,270)
EXTRAORDINARY ITEM:
SETTLEMENT OF DEBT (NET OF INCOME TAXES OF $261,000) 425,840 -
---------- -----------
NET LOSS $ (159,088) $ (601,270)
=========== ===========
BASIC AND DILUTED:
Net Loss Per Common Share:
Loss Before Extraordinary Item $ (0.17) $ (0.20)
EXTRAORDINARY GAIN FROM SETTLEMENT OF DEBT 0.12 -
---------- ----------
$ (0.05) $ (0.20)
=========== ==========
WEIGHTED COMMON SHARES OUTSTANDING 3,393,504 3,052,840
=========== ==========
</TABLE>
F-4
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
COMMON STOCK $.005 Par ADDITIONAL TOTAL
--------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
Shares Amount CAPITAL DEFICIT EQUITY
--------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,052,840 $ 15,260 $ 1,014,572 $ (690,622) $ 339,210
Capital Contributions - - 1,491,436 - 1,491,436
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 1998 - - - (601,270) (601,270)
---------- --------- ----------- ----------- ----------
Balance at December 31, 1998 3,052,840 15,260 2,506,008 (1,291,892) 1,229,376
Capital Contributions - - 124,399 - 124,399
Shares Issued in Exchange for Services 50,000 250 5,250 - 5,500
Shares Issued in Exchange for Debt 1,331,580 6,658 139,816 - 146,474
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 1999 - - - (159,088) (159,088)
---------- --------- ----------- ----------- ----------
BALANCE AT DECEMBER 31,1999 4,434,420 $ 22,168 $ 2,775,473 $ (1,450,980) $ 1,346,661
========== ========= ============ ============= ===========
</TABLE>
F-5
<PAGE>
VIDKID DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (159,088) $ (601,270)
Adjustments to Reconcile Net Loss to Net Cash Flows
Used in Operating Activities:
Depreciation and Amortization 249,500 64,590
Amortization of Film Costs and Goodwill 160,000 125,938
Stock Issued for Services 5,500 -
Extraordinary Gain from Debt Extinguishment -Net (425,840) -
Benefit from Income Taxes (261,000) -
(Increase) Decrease in:
Accounts Receivable 88,674 (39,281)
Prepaid Expenses and Other (1,078) (3,991)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 170,135 (2,637)
Accrued Salaries 4,774 30,000
-------- ---------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (168,423) (426,651)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (15,219) (52,542)
INCREASE IN CAPITALIZED PRODUCTION COSTS (126,035) (238,461)
--------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (141,254) (291,003)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Capital Contributions 124,399 767,936
Principal Repayments of Capital Lease Obligations (76,085) (3,894)
Proceeds from Issuance of Notes Payable - Related Parties 252,626 5,685
Proceeds from Issuance of Notes Payable - 10,402
Principal Repayments of Notes Payable (53,919) -
-------- --------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 247,021 780,129
-------- -------
Net Increase (Decrease) in Cash (62,656) 62,475
CASH - BEGINNING OF YEAR 68,261 5,786
-------- -------
CASH - END OF YEAR $ 5,605 $ 68,261
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 15,171 $ 22,480
========= ========
Income Taxes $ - $ -
========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
ISSUANCE OF COMMON STOCK IN EXCHANGE FOR REDUCTION IN DEBT $ 146,474 $ -
========== ========
ISSUANCE OF COMMON STOCK IN CONNECTION WITH ACQUISITION $ - $ 125,000
========== =========
ISSUANCE OF COMMON STOCK RELATED TO CAPITALIZED FILM COSTS $ - $ 598,500
========== =========
STOCK ISSUED FOR SERVICES $ 5,500 $ -
========== =========
Details of Acquisition:
Fair value of assets $ - $1,227,934
LIABILITIES - (1,227,934)
---------- -----------
NET CASH PAID FOR ACQUISITION $ - $ -
========== ===========
</TABLE>
F-6
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Vidkid Distribution, Inc. (the Company) was formed in July 1997 and is engaged
in (i) the development and production of children's made for television movies
and series; (ii) the marketing and sale of various children's programming; and
(iii) providing video and post-production and distribution services to third
parties. The Company acquired the 130 color episode library of "Howdy Doody"
during February 1998. Through September 1999, the Company operated as a wholly
owned subsidiary of EmailthatPays.com,Inc. (EmailthatPays). In July 1999,
EmailthatPays decided to spin-off the Company. On September 29, 1999,
EmailthatPays began the spin-off of its historical entertainment assets,
including 80% of BRT Video, Inc. (BRT), a television studio and editing facility
by contributing these assets and all liabilities to the Company.
The spin-off of the Company will be effected by a distribution to EmailthatPays'
shareholders of record at the close of business on September 29, 1999. For each
share of common stock of EmailthatPays held on the record date determined prior
to the reverse stock split declared by EmailthatPays, the holder will receive
one share of common stock of the Company. Accordingly, 3,052,840 shares of the
Company's common stock were issued to EmailthatPays shareholders. The spin-off
will effectively be completed when the Company becomes a separate and distinct
company. Certain EmailthatPays shareholders who converted debt obligations into
EmailthatPays common shares and common shares issued in connection with the
merger did not participate in the spin-off.
Due to the fact that the remaining assets of the EmailthatPays are transferred
to the Company in connection with the distribution, the Distribution was
reported for accounting purposes as a "reverse spin-off" under generally
accepted accounting principles. The information contained herein indicates the
results of operations or financial condition of the Company that would have been
reported for the periods indicated had the Distribution occurred on the first
day of the periods discussed.
The Company maintains its principal business operations in Fort Lauderdale,
Florida.
BASIS OF PRESENTATION
The consolidated statements include the accounts of Vidkid Distribution, Inc.
and its wholly owned and majority-owned subsidiaries. All significant
inter-company balances and transactions have been eliminated.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheet for cash,
accounts and other receivables, accounts payable and accrued liabilities,
capital lease obligations, and notes payable approximates fair market value due
to the immediate or short-term maturity of these financial instruments.
F-7
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. At December 31, 1999, the Company
had a working capital deficiency of $664,200 and losses since inception of
$1,450,980. These conditions raise substantial doubt about the ability of the
Company to continue as a going concern.
Management's plans include developing efficiencies and additional revenue as a
result of the acquisition of BRT, a company that provides video, audio and
editing post-production facilities. The Company owns 130 color episodes of
"Howdy Doody", a popular children's program aired in the 1970's, which the
Company expects to begin marketing to cable outlets. The Company has commenced
production on a computer animated feature film. In addition to distribution
through film, video and television markets, the Company anticipates additional
revenue from character development. The Company also needs financing to complete
its plans and will pursue obtaining funding through private placements of debt
or equity offerings. However, there is no assurance that the aforementioned
events will occur and be successful.
ACCOUNTING FOR PRODUCTION COSTS AND DISTRIBUTION RIGHTS
During 1999 and 1998, revenues were primarily attributable to its BRT division
and revenue is recorded when services are performed
The Company generally capitalizes all costs incurred to produce children's
intellectual properties, excluding any interest expense funded under the
production loans. Such costs also include the actual direct costs of production,
certain exploitation costs and production overhead. Capitalized exploitation or
distribution costs include those costs that clearly benefit future periods such
as video prints and prerelease and early release advertising that is expected to
benefit the program in future markets. These costs, as well as participation and
talent residuals, are amortized each period on an individual video or television
program basis in the ratio that the current period's gross revenues from all
sources for the program bear to management's estimate of anticipated total gross
revenues for such video or program from all sources. Revenue estimates are
reviewed quarterly and adjusted where appropriate and the impact of such
adjustments could be material.
Production costs are stated at the lower of unamortized cost or estimated net
realizable value. Losses, which may arise because costs of individual videos or
television series exceed anticipated revenues, are charged to operations through
additional amortization.
The Company has entered into agreements with outside entities to exclusively
distribute other children's intellectual properties. Under the term of these
Agreements, the Company advances funds for the "pilot" development, production
and marketing costs in accordance with the specific agreements. To date, no
revenue has been recognized under these agreements.
F-8
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is the Company's policy to write off capitalized production costs associated
with the intellectual properties if, in management's opinion, the capitalized
costs are in excess of net realizable value. Accordingly, for the years ended
December 31, 1999 and 1998, management wrote-off film costs of $160,000 and
$125,938, respectively, for the Company's intellectual properties.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost less accumulated
depreciation and amortization. The Company provides for depreciation on a
straight-line basis over the following estimated useful lives: equipment,
furniture and fixtures, 5 to 7 years. Leasehold costs are being amortized on a
straight-line basis over a ten-year period, the lease term.
When assets are retired or otherwise disposed of, the costs and accumulated
depreciation are removed from the respective accounts and any related gain or
loss is recognized. Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements that extend the useful lives of assets
are capitalized.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for deferred
income taxes. Under this method, deferred tax assets and liabilities are
established based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
The Company provides a valuation allowance against deferred tax assets if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates and assumptions.
LOSS PER COMMON SHARE
Basic earnings per share is computed by dividing net loss by weighted average
number of shares of common stock outstanding during each period. Diluted loss
per share is computed by dividing net loss by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive
securities outstanding during each period. Diluted loss per common share is not
presented because it is anti-dilutive.
F-9
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company uses SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 -
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal quarters beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. This statement amends SFAS No. 52 - "Foreign Currency
Translation", and supersedes SFAS No. 80 - "Accounting for Future Contracts",
No. 105 - "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk", No. 107 - "Disclosure about Fair Value of Financial Instruments". The
Company adopted SFAS No. 133 in fiscal 2000. Management believes that the impact
of SFAS No. 133 will not be significant to the Company.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, ("SAB 101""). SAB 101 requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services have
been rendered, (3) the fee is fixed and determinable, and (4) collectibility is
reasonably assured. The Company is required to comply with SAB 101 transactions
entered into on or after February 1, 2000, but does not expect it to have a
material impact on the Company's consolidated financial position or results of
operation.
NOTE 2 - ACQUISITION
On October 1, 1998, EmailthatPays acquired 72.5% of the outstanding stock of BRT
in exchange for 50,000 shares of EmailthatPays stock with a fair value of
$125,000. BRT provides video, audio and editing post-production services and
facilities to the Company and to third parties including local television
stations, independent producers and cable broadcasters. EmailthatPays accounted
for this acquisition using the purchase method of accounting. The purchase price
exceeded the fair value of net assets assumed by approximately $425,000. The
excess was applied to leasehold improvement and costs and is being amortized on
a straight-line basis over 10 years, the life of the lease. The results of
operations of BRT are included in the accompanying financial statements from
October 1, 1998 (date of acquisition) to December 31, 1998 and for the year
ended December 31, 1999. During March 1999, EmailthatPays exchanged 5,859 shares
of its common stock for an additional 7.5% of BRT Video, Inc. EmailthatPays
accounted for this additional acquisition of 7.5% using the purchase method of
accounting. The purchase price exceeded the fair value of net assets assumed by
approximately $21,942. The excess was applied to goodwill and was being
amortized on a straight-line basis over five years. In December 1999, management
determined that goodwill was impaired and recorded wrote-off goodwill amounting
to $21,942.
F-10
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 2 - ACQUISITION (CONTINUED)
The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of EmailthatPays and BRT had occurred as of the
beginning of fiscal 1998:
1998
----------------
Net Sales $ 1,184,172
Net Loss $ (956,340)
Net Loss per Share $ (.38)
Pro forma data does not purport to be indicative of the results that would have
been obtained had these events actually occurred at the beginning of the periods
presented and is not intended to be a projection of future results
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 1999, property and equipment and related accumulated
depreciation consisted of the following:
Video and Audio Equipment $509,596
Office Furniture and Equipment 84,949
Truck 19,207
Leasehold Improvements and Costs 691,847
1,305,599
----------
Less: Accumulated Depreciation (323,251)
----------
Total $982,348
==========
For the years ended December 31, 1999 and 1998, depreciation expense amounted to
$249,500 and $64,590, respectively.
NOTE 4 - CAPITALIZED PRODUCTION COSTS
Capitalized production costs consisted of the following:
Films completed and not released $ 783,662
Films in process 214,858
STORY RIGHTS AND SCENARIOS 29,120
-------------
$ 1,027,640
=============
F-11
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 5 - LOANS PAYABLE
At December 31, 1999, loans payable consisted of the following:
Revolving credit agreement with a bank aggregating $30,000.
The agreement bears interest at the bank's prime rate plus
3% (11.50% at December 31, 1999) and is payable on demand.
The loan contains certain covenants that require, among other
matters, that the Company obtain the consent of the lender before
incurring any additional debts, except for indebtedness for
trade credit in the ordinary course of the Company's business. $ 25,914
Notes payable to bank, payable in 36 monthly installments of
$1,012 including interest at 12.85% per annum payable on or
before April 22, 2001. The loan contains certain covenants
that require, among other matters, that the Company obtain
the consent of the lender before incurring any additional debts,
except for indebtedness for trade credit in the ordinary course
of the Company's business. 15,624
LESS: Current Portion 36,788
-------
$ 4,750
=======
Long-term debt maturing at December 31 for the next five years and thereafter is
as follows:
2000 (included in current liabilities) $ 36,788
2001 4,750
---------------
$ 41,538
===============
In September 1997, BRT and an investor entered into an informal agreement
whereby the investor would advance $1,500,000 for expansion and renovation of a
new facility in exchange for a 49% ownership interest in BRT. The parties to the
agreement intended to engage an independent appraiser to determine the value of
the stock and thus the portion of the $1,500,000 that would be attributable to
equity financing. The independent appraisal was never completed and accordingly,
the Company treated all funds received as advances. The balance of the advanced
funds would be evidenced by a note payable bearing interest at prime plus 1%.
Between October 1997 and December 31, 1997, the investor advanced $435,000. In
early 1998 the investor advanced an additional $150,000. Thus, by the end of
February 1998, the investor had advanced $585,000. In addition to advances
totaling $585,000, BRT has recorded accrued interest amounting to $101,840 as of
September 30, 1999. On August 6, 1999, the investor dismissed all causes of
action and claims against BRT. Accordingly, BRT recorded an extraordinary gain
amounting to $686,840 on the accompanying statement of operations.
F-12
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
The Company has notes payable to related parties and a stockholder of the
Company. These notes bear interest at a rate of 9.6% payable quarterly in the
form of issuance of restricted common shares of the Company valued at $.25 per
share, or cash, as solely determined by the board of directors. These notes are
collateralized by the "Howdy Doody" tape library and are due and payable on
August 31, 2002. As of December 31, 1999, notes payable to these related parties
amounted to $88,500. For the year ended December 31, 1999, the Company imputed
interest on these notes at an annual rate of 12%.
The Company has notes payable to related parties and a stockholder of the
Company. These notes are non-interest bearing, non-collateralized, and are
payable on demand. As of December 31, 1999, notes payable to these related
parties amounted to $23,337. For the year ended December 31, 1999, the Company
imputed interest on these notes at an annual rate of 12%.
NOTE 7 - CAPITAL LEASE OBLIGATION
BRT has entered into various leases for its video production equipment that meet
the requirements of a capital lease. The total capitalized cost of the equipment
as of December 31, 1999 is $622,634. These amounts represents the present value
of the minimum lease payments during the lease term and was determined using
BRT's estimated borrowing rate at the inception of the lease. The Company's
borrowing rate was used because the lessor's implicit interest rate was not
readily determinable.
The following is a schedule of non-cancelable future minimum lease payments
required under these leases:
2000 $ 91,869
2001 21,057
--------
Total minimum lease payments 112,926
Less amount representing interest (5,524)
--------
Present value of net minimum lease payments 107,402
Less current obligations due under capital leases (86,345)
--------
Long-term obligations due under capital leases $ 21,057
=========
NOTE 8 - INCOME TAXES
Current income taxes are computed at statutory rates on pretax income. Deferred
taxes would be recorded based on differences in financial statements and taxable
income. At December 31, 1999, the Company had elected to carry forward net
operating losses for federal and state income tax purposes of approximately
$1,400,000 that are available to reduce future taxable income through 2014. As
utilization of such operating losses for tax purposes is not assured, the
deferred tax asset has been fully reserved through the recording of a 100%
valuation allowance. These operating losses may be limited to the extent an
"ownership change" occurs.
F-13
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 8 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income (loss) before provision
for income taxes is as follows:
1999 1998
--------------- --------------
Tax benefit computed at statutory rates $ (60,000) $ (228,000)
Income tax benefit not utilized 60,000 228,000
--------------- --------------
NET INCOME TAX BENEFIT $ - $ -
=============== ==============
The components of the deferred tax asset as of December 31, 1999 are as follows:
Deferred Tax Asset:
Net Operating Loss Carryforward $ 532,000
LESS: VALUATION ALLOWANCE (532,000)
--------------
NET DEFERRED TAX $ -
==============
NOTE 9 - STOCKHOLDERS' EQUITY
WARRANTS
On October 1, 1999, the Company granted warrants to four officers and directors
to acquire an aggregate of 375,000 restricted shares of common stock at an
exercise price of $.25 per share. The warrants have been granted to these
officers at a price equal to the market value of the shares at date of grant,
and expire on December 31, 2005. The fair value of the warrant grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%; expected volatility of 50%;
risk-free interest rate of 6%, and an expected live of 5 years.
F-14
<PAGE>
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
As permitted by SFAS No. 123, the Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. Had the Company determined compensation cost based of the fair
value at the grant date for its warrants under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
1999
---------------
Net Loss
As reported $ (115,088)
Pro forma $ (126,713)
Net Loss per Share
As reported $ (.03)
Pro forma $ (.04)
COMMON STOCK
During September 1999, the Company issued 1,331,580 shares of its common stock
in full satisfaction of certain indebtedness amounting to $146,474. These shares
were valued at approximately $.11 per share, the fair values.
During September 1999, the Company issued 50,000 shares of common stock for
professional services rendered. These shares were valued at $.11 per share, the
approximate fair values, and charged to operations.
The spin-off of the Company was effected by a distribution to EmailthatPays'
shareholders of record at the close of business on September 29, 1999. For each
share of common stock of EmailthatPays held on the record date determined prior
to the reverse stock split declared by EmailthatPays, the holder received one
share of common stock of the Company. Accordingly, the Company issued 3,052,840
shares of common stock. All common shares and per share data have been
retroactively adjusted to reflect this spin off.
PREFERRED STOCK
The Company authorized the board of directors, without stockholder approval, to
issue up to 1,000,000 shares of preferred stock, par value $.005 per share, to
establish one or more series of preferred stock and to determine, with respect
to each of these series, their preferences, voting rights and other terms. As of
March 2000, no shares of preferred stock were outstanding.
F-15
<PAGE>
NOTE 10 - COMMITMENTS
OPERATING LEASE
The Company leases office and production space in Fort Lauderdale, Florida,
pursuant to an operating lease. The lease generally provides for fixed monthly
rental payments of approximately $12,000 through October 2007, subject to annual
increases. For the years ended December 31, 1999 and 1998, rent expense amounted
to $154,718 and $59,073, respectively.
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
At December 31, 1999, the future minimum annual rental payments under the
non-cancelable operating lease is as follows:
YEAR
2000 $ 111,164
2001 116,728
2002 122,562
2003 128,694
2004 135,122
Thereafter 420,128
-------------
$ 1,034,398
=============
EMPLOYMENT AGREEMENTS
In January 1996, EmailthatPays entered into a five (5) year employment agreement
with its President for an annual base salary of $120,000 for 1998, 1999 and
2000, plus normal benefits, plus 2.5% of gross receipts actually collected by
the Company specifically pertaining to merchandising of its intellectual
properties. The Company has agreed to adopt this employment agreement through
termination.
EMPLOYMENT AGREEMENTS
In August 1997, EmailthatPays entered into a three- (3) year employment
agreement with an employee for an annual base salary of $30,000 for fiscal 1998,
$36,000 for fiscal 1999, and $42,000 through July 2000. The agreement entitles
the employee to an annual bonus based on performance as determined by the Board
of Directors. The Company has agreed to adopt this employment agreement through
termination.
F-16
<PAGE>
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