<PAGE> 1
As filed with the Securities and Exchange Commission on December 1, 2000,
Registration Statement No. 333-36666
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIDKID DISTRIBUTION, INC.
(Name of Small Business Issuer in its Charter)
----------------
<TABLE>
<CAPTION>
Florida 7812 65-0810941
------- ---- ----------
<S> <C> <C>
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
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4950 West Prospect Road
Fort Lauderdale, Florida 33309
(954) 745-0077
(Address and telephone number of principal executive offices)
------------------------
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)
------------------------
Copies to:
James M. Schneider, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33309
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
<PAGE> 2
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. [ ]
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
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Title of Each Amount
Class of Securities To Be Offering Price Registration
To Be Registered Registered Per Security Offering Price Fee
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.005
Par value 3,052,840(1) $0.30(2) $915,852.00 $241.78
-------------------------------------------------------------------------------------------------
Total Amount Due $241.78
=================================================================================================
</TABLE>
(1) Shares of common stock of the registrant being distributed to
shareholders of emailthatpays.com, Inc.
(2) Based upon the estimated fair market value of the registrant's
common stock on September 29, 1999 solely for the purpose of calculating the
registration fee pursuant to Rule 457 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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<PAGE> 3
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold by the holders until the registration
statement filed with the Securities and Exchange Commission is effective. This
preliminary 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.
SUBJECT TO COMPLETION DATED DECEMBER 1, 2000
PROSPECTUS
VIDKID DISTRIBUTION, INC.
Dividend Distribution of
3,052,840 SHARES OF COMMON STOCK
---------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
To the shareholders of emailthatpays.com, Inc. of record on September
29, 1999.
The distribution is made on the basis of one Vidkid share of common
stock for each emailthatpays share of common stock held by the participating
emailthatpays' shareholders on the record date.
There is currently no public market for Vidkid's common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is December __, 2000
<PAGE> 4
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus summary............................................................
Risk factors..................................................................
We have a history of losses due to cost of sales and operating
expenses exceeding revenues........................................
The loss of Steven Adelstein or Gus Guilbert, Jr. could
adversely affect our business......................................
We are dependent on a limited number of projects which makes us more
vulnerable if these projects are not successful....................
Distribution of shares to be a taxable event............................
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.................................................
</TABLE>
We have 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.
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<PAGE> 5
PROSPECTUS SUMMARY
We are 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.
We currently generate revenues from the programs we distribute
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.
We own 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. Our marketing strategy is to leverage the Howdy Doody name to establish
video sales revenues, television exposure and to enhance our brand within the
broadcast industry.
Our executive offices are located at 4950 West Prospect Road, Fort
Lauderdale, Florida 33309, and our telephone number is 954-745-0077.
THE OFFERING
<TABLE>
<S> <C>
Common stock issued
in the distribution 3,052,840 shares
Common Stock outstanding
After the offering 4,434,420 shares
</TABLE>
3
<PAGE> 6
SUMMARY FINANCIAL DATA
The following summary of our financial information has been derived
from our consolidated financial statements that are included in this prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Fiscal Years Ended
Year Ended December 31
----------------------
Nine Months Ended
September 30, 2000
------------------ 1999 1998
(unaudited) ---- ----
<S> <C> <C> <C>
Revenues $ 768,034 $ 1,103,553 $ 358,597
---------
Operating expenses $ 834,932 $ 1,760,517 $ 830,266
---------
Net loss $(155,007) $ (159,088) $(601,270)
---------
Net loss per share $ (.03) $ (.05) $ (.20)
---------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
September 30, 2000
(unaudited)
-----------
<S> <C>
Current assets $ 92,441
-----------
Current liabilities $ 589,291
-----------
Working capital deficit $ (496,850)
-----------
Total assets $ 2,055,945
-----------
Long-term debt $ 275,000
Shareholder's equity $ 1,191,654
-----------
</TABLE>
RISK FACTORS
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:
- $155,007 for the nine months ended September 30, 2000
(unaudited).
- $159,088 for the fiscal year ended December 31, 1999.
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- $601,270 for the fiscal year ended December 31, 1998.
At September 30, 2000, we had a total deficit since organization of
$1,605,987 and a working capital deficit of $496,850.
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.
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.
THE DISTRIBUTION OF OUR SHARES COULD BE A TAXABLE EVENT TO YOU.
We have not requested a ruling from the Internal Revenue Service to the
effect that the distribution of our shares will or will not result in taxable
gain or income to the shareholders of emailthatpays and that the distribution of
our shares 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 our shares on the date of
distribution. Since an active trading market for our 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 of our common
stock readily in order to offset any potential tax liability as a result of the
distribution.
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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
Emailthatpays is undertaking this distribution under the terms of an
agreement and plan of merger and reorganization entered into in September 1999.
We believe a significant portion of our development efforts have been
accomplished, and we have developed appropriate guidelines and procedures for
the establishment and operation of our television production and other
entertainment lines of business. The effect of this distribution will be to make
us a public company.
We expect that public trading in the Vidkid common stock to begin on
the OTC Bulletin Board shortly following the date of this prospectus, but cannot
assure you that a public market will develop. Even if a trading market develops,
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.
SECURITIES TO BE DISTRIBUTED
The distribution is for a total of 3,052,840 shares of our common
stock.
These shares represent approximately 69% of our outstanding 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 our common stock in the
distribution.
If you were a record owner of emailthatpays' common stock as of the
record date of September 29, 1999, your Vidkid common stock will be registered
in book-entry form in the records of our transfer agent. After the date of this
prospectus, we 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.
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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 our
transfer agent, StockTrans, Inc.
DISTRIBUTION RATIO
Emailthatpays' shareholders participating in the distribution will
receive one share of our common stock for every one share of emailthatpays'
common stock. Various emailthatpays shareholders who converted debt obligations
into emailthatpays' common shares and common shares issued in connection with
the agreement and plan of merger and reorganization will not participate in the
spin-off.
RECORD DATE
The record date for the distribution was the close of business on
September 29, 1999. A copy of this prospectus is being mailed to each
emailthatpays shareholder of record as of the record date.
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 our common stock to holders of
emailthatpays' common stock as of the close of business on the record date.
DISTRIBUTION AGENT; TRANSFER AGENT AND REGISTRAR
StockTrans, Inc. will initially serve not only as the distribution
agent for the distribution, but also the transfer agent and registrar for our
common stock. The address of StockTrans, Inc. is 7 East Lancaster Avenue,
Ardmore, PA 19003-2318, and its telephone number is (610) 649-7300.
POSSIBLE STATE RESTRICTIONS ON SALES OF THE VIDKID'S COMMON STOCK
The distribution of our common stock and subsequent resales by our
shareholders will be required to be undertaken in compliance with the laws of
each jurisdiction in which these shareholders reside. Distribution of our shares
of common stock will not be registered under the state securities laws of any
jurisdiction in which the distribution is being made in reliance on 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
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disposition. We recommend that shareholders provide these broker-dealers with a
copy of this prospectus in conjunction with any contemplated sale of the shares
of our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 which
can be read and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. This prospectus is
part of that registration statement. Information about the operation of the
Public Reference Room may be obtained by calling 1-800-SEC-0330. The
registration statement is also available to the public from commercial document
retrieval services, or via EDGAR on the SEC's web site at www.sec.gov.
Before the date of this prospectus we have not been required to file
reports with the SEC under the Securities Exchange Act of 1934. Upon
effectiveness of the registration statement, we will begin filing quarterly,
annual and other reports with the SEC. These reports will be available from
commercial document retrieval services or via EDGAR. We intend to furnish our
shareholders with annual reports, which will include financial statements
audited by independent accountants, and other periodic reports as we may choose
to provide, or as we are required by law.
FEDERAL INCOME TAX CONSEQUENCES
We believe that, although the distribution of our shares of common
stock is referred to as a "spin-off" under federal securities laws, for federal
income tax purposes it will be taxed as a dividend under Section 301 of the
Internal Revenue Code. As a result, non-corporate shareholders could be required
to report taxable gain or income based on the fair market value of our common
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 our common shares on the date of the distribution. Since
we will have minimal tangible assets and limited existing operations on the date
of distribution, we believe 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 our common 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 the dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors.
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<PAGE> 11
CAPITALIZATION
Our capitalization will not be modified as a result of the
distribution. This table sets forth our capitalization as of September 30, 2000,
but gives no effect to 375,000 shares reserved for issuance upon exercise of
immediately exercisable warrants to purchase common stock at September 30, 2000.
<TABLE>
<CAPTION>
September 30, 2000
------------------
(unaudited)
<S> <C>
Short-term debt: $ 79,878
-----------
Long-term debt: 275,000
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 (1,605,987)
-----------
Total shareholders' equity 1,191,654
===========
Total capitalization $ 1,546,532
===========
</TABLE>
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
We were formed in July 1997 and we engage 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.
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<PAGE> 12
We acquired the 130 color episode library of The New Howdy Doody Show
during February 1998. Through September 1999, we operated as a wholly-owned
subsidiary of emailthatpays. In September 1999, emailthatpays decided to
spin-off Vidkid. On September 29, 1999, emailthatpays began the spin-off of its
historical entertainment assets, including 80% of BRT, a television studio and
editing facility, by contributing these assets and all liabilities to us.
The spin-off will be effected by a distribution to participating
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 resulting in the issuance
of a total of 3,052,840 shares of our common stock. Various emailthatpays'
shareholders who converted debt obligations into emailthatpays' common shares
and common shares issued in connection with the agreement and plan of merger and
reorganization did not participate in the spin-off.
For accounting purposes, we reported the distribution as a "reverse
spin-off" under generally accepted accounting principles. The information
contained in this prospectus indicates our results of operations and financial
condition that would have been reported for the periods indicated had the
distribution occurred on the first day of the periods discussed.
Our plans include developing efficiencies and generating additional
revenue as a result of the acquisition of BRT. We expect to begin marketing the
Howdy Doody library and we have signed two video distribution agreements
representing the distribution of a limited portion of the Howdy Doody library
until May 2001. The marketing efforts for broadcast rights, both domestic and
international, will begin in the first part of fiscal year 2001. We plan to
license the broadcast to individual stations for domestic airing and license
country by country for international rights. We have begun production on a
computer animated feature film designed for worldwide television and other
non-theatrical distribution. The completion of the 90-minute made for television
animated feature is anticipated to be completed in the fourth 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. In addition to distribution through film, video and television markets,
we anticipate generating additional revenue from character development.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1999
Revenues for the three months and nine months ended September 30, 2000
were $323,615 and $768,034, respectively, as compared to revenues for the three
months and nine months ended September 30, 1999 of $194,373 and $879,891,
respectively. The decrease in revenues for the nine months ended September 30,
2000 was due to our termination of unprofitable production and editing
engagements. Additionally, we have curtailed the operations of our production
department and are currently focusing on providing post-production editing
services for other production businesses and others. Revenues for the three
months ended
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September 30, 2000 increased $129,242, or approximately 67% from the comparable
period in fiscal 1999. During the three month ended September 30, 2000 we
performed production and editing services amounting to approximable $103,000 for
a company related through common ownership.
For the three months and nine months ended September 30, 2000, cost of
sales amounted to $15,244 and $64,976, respectively, as compared to $21,276 and
$67,773, respectively, of net sales for the comparable period in fiscal 1999.
The decrease in cost of sales is attributable to the curtailing of our
production department.
Amortization of production costs for the three months and nine months
ended September 30, 2000 were $30,000 and $60,000, respectively, as compared to
$0 and $100,000 for the three months and nine months ended September 30, 1999,
respectively. This decrease is due to our continuing assessment and write-off of
intellectual properties in various stages of development.
Salaries and fringe benefits were $115,206 and $355,936 for the three
months and nine months ended September 30, 2000, respectively, as compared to
$147,356 and $523,603, for the three months and nine months ended September 30,
1999, respectively. The decrease was directly attributable to the curtailing of
our production department through the elimination of approximately three
production jobs.
Legal and accounting fees were $23,359 and $89,784, for the three
months and nine months ended September 30, 2000, respectively, as compared to
$29,422 and $68,289 ,for the three months and nine months ended September 30,
1999, respectively. These increases is attributable to increased legal fees
incurred in connection with the filing of the registration statement of which
this prospectus is a part.
Consulting fees were $0 for the three months and nine months ended
September 30, 2000, respectively. as compared to $19,984 and $90,425, for the
three months and nine months ended September 30, 1999, respectively. These
decreases are primarily the result of the decrease in our use of consulting
services.
Rent expense was $12,500 and $83,851 for the three months and nine
months ended September 30, 2000, respectively, as compared to $33,315 and
$116,500, respectively, for the comparable periods in fiscal 1999. Sub lease
rental income amounted to approximable $22,500 for the nine months ended
September 30, 2000 and $9,000 for the three months ended September 30, 2000. No
sublease rental income was received during 1999.
Other selling, general and administrative expenses, which include
contract labor, travel and entertainment, insurance and other expenses, were
$36,841 and $136,548 for the three and nine months ended September 30, 2000,
respectively, as compared to $67,542 and $253,656 for the three and nine months
ended September 30, 1999, respectively. These decreases are
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primarily attributable to our consolidation of various administrative functions
and further cost reductions.
Interest expense was $9,705 and $23,133 for the three months and nine
months September 30,2000, respectively, as compared to $21,960 and $91,491 for
the three months and nine months ended September 30, 1999, respectively. The
decrease was directly attributable to the settlement of debt and the related
accrued interest of approximable $686,000 in 1999.
As a result of these factors, we incurred losses before extraordinary
items of $155,007 or ($.03) per share for the nine months ended September 30,
2000 as compared to a loss of $398,495 or ($.13) per share for the nine months
ended September 30, 1999. For the three months ended September 30, 2000, we had
net income before extraordinary item of $35,974 or $.01 per share as compared to
net income before extraordinary item of $38,633 or $.01 per share for the three
months ended September 30, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues for the year ended December 31, 1999 were $1,103,553 as
compared to revenues for the year ended December 31, 1998 of $358,597. This
increase is attributable to the fact that between October 1, 1998 and March
1999, Vidkid purchased 80% of BRT. Revenues would have been approximately
$1,184,000 for the year ended December 31, 1998 had the acquisition of BRT
occurred as of the beginning of fiscal 1998. The overall decrease in revenues
was due to our termination of unprofitable production engagements.
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 our sale of
Howdy Doody videos for $59,024 with the remaining balance attributable to the
fact that between October 1, 1998 and March 1999, Vidkid purchased 80% of BRT.
Amortization of production costs for the year ended December 31, 1999
was $160,029 as compared to $125,938 for the year ended December 31, 1998. This
increase is due to our 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. Salaries and fringe
benefits would have amounted to approximately $754,000 for the year ended
December 31, 1998 had the acquisition of BRT occurred as of the beginning of
fiscal 1998. During 1999, we reduced our salary and fringe benefit costs by
reducing its head count and consolidating certain administrative functions. We
expect salaries and fringe benefits to continue to decrease in fiscal 2000 due
to further employee cut backs.
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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.
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 we relocated
to our new production facility in Fort Lauderdale, Florida. Our rent expense is
expected to increase by the annual rent increase. This increase is not expected
to have a material impact on our results of operations.
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. We anticipate a reduction of other selling, general and
administrative expenses in fiscal 2000 due to the consolidation of certain
administrative functions, and further cost reductions.
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. We expect a substantial decrease in
interest expense in fiscal 2000 due to the settlement of debt of approximately
$585,000 in 1999.
As a result of these factors, we reported a net loss of $159,088 or
($.05) per share for the year ended December 31, 1999 as compared to a net loss
of $601,270 or ($.20) per share for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had shareholders' equity of approximately
$1,191,654. Since our inception, we have incurred losses of approximately
$1,606,000. Our operations and growth have been funded by capital contributions
from our parent company prior to the record date. These capital contributions
were funded by loans to our parent company from third parties, the sale of
common stock by our parent company with gross proceeds of approximately
$1,000,000 and the issuance of preferred stock by our parent company that
resulted in net proceeds to us of approximately $375,000. These funds were used
for working capital, capital expenditures, and the acquisition of the Howdy
Doody library.
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<PAGE> 16
Additionally, during 1999, loans and accrued interest payables
amounting to $686,840 were settled and the investor dismissed all causes of
action and claims against BRT. As a result, BRT recorded an extraordinary gain
amounting to $686,840 on the accompanying statement of operations.
We have no other material commitments for capital expenditures. Other
than cash generated from our operations, we have no external sources of
liquidity. We believe that we have sufficient liquidity to meet all of our cash
requirements for the next 12 months and that subsequent cost reductions and
increased marketing efforts will provide sufficient cash flows to meet our
operating needs and grow our regional market share.
Net cash used in operations during the nine months ended September 30,
2000 was $87,732 as compared to $178,910 in the comparable period during fiscal
1999. The difference is primarily attributable to the loss from operations in
1999.
Net cash provided by investing activities during the nine months ended
September 30, 2000 was $150,490 compared to net cash used in investing
activities of $59,915 for the nine months ended September 30, 1999. This
difference was primarily attributable to the sale of property and equipment
during fiscal 2000 resulting in net proceeds to us of approximable $196,000.
Net cash used in financing activities for the nine months ended
September 30, 2000 was $30,899 as compared to net cash provided by financing
activities of $171,151 for the nine months ended September 30, 1999. The
difference was primarily attributable to decreased capital contributions from
our former parent company.
BUSINESS
GENERAL
We are in the business of developing and producing children's
intellectual properties, including television programs, and distributing these
properties. We own 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. Our marketing strategy is to leverage the Howdy Doody name to
establish video sales revenues, television exposure and to enhance our brand
within the broadcast industry.
OVERVIEW
In July 1997, we were formed to own, distribute and produce children's
intellectual properties. In the first quarter of 1998, we acquired the Howdy
Doody library. In conjunction with our spin-off from emailthatpays, we acquired
80% of the outstanding stock of BRT, a video
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<PAGE> 17
production facility located in Fort Lauderdale, Florida. We generate revenues
from the programs we distribute primarily through three channels:
- 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
We were organized by emailthatpays in July 1997. In October 1998
emailthatpays acquired 72.5% of the capital stock BRT in exchange for 50,000
shares of its common stock, and contemporaneously transferred this 72.5%
interest in BRT to Vidkid as part of an internal reorganization. In March 1999,
emailthatpays acquired an additional 7.5% interest in BRT in exchange for 5,859
shares of its common stock, and also transferred this interest to us, bringing
our ownership interest in BRT to 80%. On October 22, 1999, under the terms of an
agreement and plan of merger and reorganization dated as of September 17, 1999,
emailthatpays' approved our spin-off, which included the assets and operations
of Vidkid and BRT, as a dividend through the distribution of 3,052,840 shares of
our common stock to the participating shareholders of emailthatpays as of
September 29, 1999. emailthatpays retained the assets and operations of its
other subsidiary which is an emerging "permission-based" email marketing
service. In conjunction with the agreement and plan of merger and
reorganization, certain shareholders of emailthatpays waived any right to
participate in or receive any interest in Vidkid pursuant to the spin-off.
Various emailthatpays' shareholders who converted debt obligations into
emailthatpays' common shares and common shares issued in connection with the
agreement and plan of merger and reorganization will not participate in the
spin-off.
The consolidated book value of emailthatpays on September 30, 1999 was
approximately $2,693,290, or approximately $1.26 per share, which included the
book value of Vidkid. On September 30, 1999 the book value of Vidkid as a
separate subsidiary was approximately $1,393,620, or approximately $0.47 per
share.
THE HOWDY DOODY LIBRARY
In August 1997, we entered an agreement with Madison Sports and
Entertainment, Inc., to purchase from Madison the broadcast and video rights to
130 color episodes of the Howdy
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Doody library produced in the 1970's. The asset purchase agreement provided that
we would pay Madison Sports and Entertainment, Inc. a total of $475,000 for the
broadcast and video rights, with $150,000 payable in cash at closing and the
balance payable based upon 40% of the net positive cash flow from all sources
relating to the purchased rights to the Howdy Doody library. In October 1997, we
began 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, we were
notified of the existence of a dispute between Madison and John J. Drury, the
Howdy Doody library's executive producer over the actual ownership rights to the
Howdy Doody 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.
In May 1998, Mr. Drury prevailed in the litigation at the lower court
level. In September 1998, we entered into an amended agreement with Mr. Drury
and Buffalo Bob Enterprises, Inc., setting the terms under which we would
purchase the rights from Mr. Drury. Madison appealed the lower court's ruling
naming Mr. 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
entered into a settlement agreement and paid $130,000, representing the
remainder of the purchase price for the Howdy Doody library episodes then due
Madison Sports and Entertainment, Inc., to Mr. Drury. In July 1999, we continued
the process of cleaning, digitizing and editing the Howdy Doody library
episodes, which is estimated to be completed in the third quarter of 2000. In
August 1998, we signed a video distribution agreement with Fast Forward
Marketing, to distribute a limited portion of the Howdy Doody library episodes
to the retail markets until July 2001. Additionally, in June 1999, we signed a
video distribution agreement with Tapeworm Video Distributors, Inc. representing
a limited portion of the Howdy Doody library until May 2001.
We anticipate that 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
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 are equipped
with Sony BetaCamSP, 1", 3/4", and Hi8mm video formats. This
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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 like 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.
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 the fourth 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 including 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
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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.
Special factors related to our 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.
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 need to realize that various of our
projects will not be successful which will result in costs not being recouped
and losses being incurred.
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.
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
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event we have any successful productions. In addition, we cannot assure you that
we 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.
We are currently 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.
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 we 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.
GOVERNMENT REGULATION
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, such as 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.
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. These
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.
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COMPETITION
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.
LEGAL PROCEEDINGS:
In June 1999, we filed a complaint against Norman Titcomb, the former
100% owner, currently 20% owner, of BRT. The complaint is titled Vidkid
Distribution, Inc. vs. Norman Titcomb and was filed in the Circuit Court of the
17th Judicial Circuit, Broward County Florida, under case number 99-010698 CACE
(12). We are alleging among other counts, misrepresentations to us in the
purchase and sale of BRT. An answer has been filed and discovery is proceeding.
In November 1999, we filed a complaint against Madison Sports and
Entertainment and other parties, alleging, among other counts,
misrepresentations to us in the purchase and sale of the Howdy Doody Library.
The complaint is titled Vidkid Distribution, Inc. vs. Madison Sports and
Entertainment Group, Inc., Gary Langan Goodenow, Kevin M. Ward, and Joseph
Assad, and was filed in the Circuit Court of the 17th Judicial Circuit, Broward
County Florida under case number 99-018793 CACE (21). Additionally, we allege
that the defendants interfered with various arrangements and agreements we had
with vendors to sell the 50th Anniversary Video Box Set. Although we were not
named in the lawsuit between 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 September 30, 2000, we employed 10 people, seven of which are
support staff, and three 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.
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PROPERTIES
We maintain our 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 our 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 our directors and
executive officers:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Steven Adelstein Chairman of the Board, Chief Executive Officer and President
Gus Guilbert, Jr. Director, Treasurer, Secretary, Executive Vice President and
President of BRT
James Purpuro Director, Executive Vice President of BRT
Michael Greene Director, Vice President of BRT
Todd Adelstein Director
</TABLE>
All directors hold office until the next meeting of our shareholders 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, 53 years old, has served as our chairman of the
board, chief executive officer, president and director since July 1997. From May
1995 until October 1999 Mr. Adelstein served as chairman of the board, chief
executive officer and president of emailthatpays. 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., 40 years old, has been our executive vice president,
treasurer and secretary since July 1997 and a director since October 1999. Since
October 1999, he has served as president of our subsidiary BRT. From May 1995
until October 1999 Mr. Guilbert served as executive vice president, treasurer
and secretary of emailthatpays. 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
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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.
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
us. 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 like Arvida, Disney,
American Express, Pratt & Whitney, and North American Philips. Mr. Greene has
been chairman and CEO of Classic Video Theater, a Nasdaq listed company, and
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. Since July 1998, Mr. Adelstein has been employed by First Union National
Bank as a licensed financial specialist. 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.
LIMITATIONS ON DIRECTORS' LIABILITIES
Our articles 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 circumstances involving wrongful acts, for example 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
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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 the 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 the
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.
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 shareholders, 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 us to Steven Adelstein, our
chairman and chief executive officer, and Gus Guilbert, Jr., our 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 our executive officers had annual
compensation in excess of $100,000 except for Mr. Adelstein.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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.
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 (S/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.
EMPLOYMENT AGREEMENTS
Mr. Adelstein's five year employment agreement with us provides that he
devote substantially all of his business efforts to us 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. In
addition, Mr. Adelstein is entitled to receive additional payments
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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 us provides that he
devote his full time business efforts to us as our executive vice president.
Under the terms of the agreement, Mr. Guilbert receives a base annual salary of
$42,000 for the period ending December 31, 2000. Mr. Guilbert is entitled to a
bonus at the discretion of the board of directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 2000 we issued a $275,000 principal amount promissory note to
A.U.W., Inc., a company of which Mr. Steven Adelstein is president and a 22%
shareholder. A.U.W., Inc. is owned $167,500 of the principal amount of the note
and is acting as trustee under the note for the following related parties:
<TABLE>
<S> <C>
Phillip Adelstein $ 25,000
Gus Guilbert, Jr. 25,000
Tammi Adelstein 25,000
Steve Shinder 32,500
--------
$107,500
========
</TABLE>
The parties are all officers, directors or relatives of Steven Adelstein
and Todd Adelstein. The proceeds of these notes were used to pay off amounts due
to a third party for the Howdy Doody library and are collateralized by the Howdy
Doody library. This note, which is due on August 31, 2000, bears interest at an
annual rate of 9.6% payable quarterly in the form of issuance of restricted
shares of our common stock 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 library and are due and payable on June 30, 2005. For the nine
months ended September 30, 2000, we any imputed interest on these notes at an
annual rate of 12%.
In addition, we have accounts payable to related parties and a
shareholder listed below. These debts were incurred at times during 1999. The
highest amount outstanding was $35,261. These funds were used for working
capital purposes. As of September 30, 2000, the payables to these related
parties amounted to $12,300.
<TABLE>
<S> <C>
Todd Adelstein $ 8,039
Tammi Adelstein 4,261
-------
$12,300
=======
</TABLE>
While we were a wholly-owned subsidiary of emailthatpays loans were
advanced by Steven Adelstein, in the amount of $19,800, Gus A. Guilbert, Jr., in
the amount of $6,500, and AUW, Inc., an affiliate of Steven Adelstein, in the
amount of $120,174, which had been used for
25
<PAGE> 28
working capital purposes. The total debt of $146,474 was exchanged for 1,331,580
shares of our 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, we consider the exchange to have been completed on
a fair basis to us.
During the three month period ended September 30, 2000, we performed
production and editing services amounting to approximable $103,000 for The
Netdigest.com, Inc. Officers of VidKid control approximately 30% of the common
stock of Netdigest. In payment of this amount, we received cash of $52,369 and
84,385 shares of common stock of Netdigest valued at $50,631, or $.60 per share,
based on a simultaneous offering conducted by Netdigest.
PRINCIPAL AND SELLING 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 (i) immediately prior to the
distribution assuming that emailthatpays was the owner of the shares of common
stock to be distributed and (ii) upon the distribution. Except as indicated,
each shareholder named has sole voting and investment power for his, her or its
shares. Unless otherwise stated, the address of each of the person set forth
below is 4950 West Prospect Road, Fort Lauderdale, Florida 33309.
<TABLE>
<CAPTION>
Prior to distribution After distribution
--------------------- ------------------
Names and address of No. of shares % of No. of shares % of
beneficial owner owned owned owned owned
<S> <C> <C> <C> <C>
Steven Adelstein 1,422,490 31.0% 1,546,407 33.7%
Gus Guilbert, Jr 159,090 3.5% 214,247 4.7%
James Purpuro 25,000 * 38,359 *
Mike Greene 16,666 * 21,666 *
Todd Adelstein 0 * 340,000 7.7%
Realm Holdings, Inc. 0 * 560,000 12.6%
648 Post Road
Wakefield, RI 02879
FAC Enterprises, Inc. 0 * 300,000 6.8%
4960 South Virginia Ave.,
Suite 4300, Reno NV 89502
emailthatpays.com, Inc. 3,052,840 68.8% 0 n/a
428 West Sixth Avenue
Vancouver, B.C., Canada V5Y 1L2
All officers and directors
as a group (5 people) 1,623,246 34.3% 2,160,679 45.6%
</TABLE>
26
<PAGE> 29
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 the
security, or the power to dispose of the 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.
Before the distribution, Steven Adelstein's holdings include beneficial
ownership of 1,092,490 shares of common stock owned by AUW, Inc. and immediately
exercisable warrants to purchase 150,000 shares of common stock at an exercise
price of $0.25. After the distribution, his holdings include 1,216,407 common
shares owned by AUW, Inc. together with the warrants. He is president and a 22%
shareholder of AUW, Inc.
Mr. Guilbert's holdings include immediately exercisable warrants to
purchase 100,000 shares of common stock at an exercise price of $0.25. After the
distribution, his holdings also include beneficial ownership of 6,800 common
shares owned by Tenor Guilbert, his son.
Mr. Purpuro's holdings include immediately exercisable warrants to
purchase 25,000 shares of common stock at an exercise price of $0.25, but do 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, but do 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.
After the distribution, Mr. Todd Adelstein's holdings include 340,000
shares of common stock held as a joint tenant with Tammi Adelstein, his sister.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our articles 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
shareholders, but are not entitled to vote cumulatively. Holders of common stock
have no preemptive rights. All of the
27
<PAGE> 30
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 articles of incorporation authorizes our board of directors, without
shareholder 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.
If issued, the preferred stock could adversely affect the voting power
or other rights of our shareholders or be used, to discourage, delay or prevent
a change in control, which could have the effect of discouraging bids for us and
prevent shareholders 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.
TRANSFER AGENT
The transfer agent and registrar for our common stock is StockTrans,
Inc., 7 East Lancaster Avenue, Ardmore, PA 19003-2318.
CERTAIN MARKET INFORMATION
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 OTC 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.
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 under the registration statement of which this
prospectus is a part.
In general, Rule 144 permits a shareholder who has beneficially owned
restricted shares of 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
The Nasdaq Stock Market or an exchange, the average weekly trading volume over a
defined period of time, assuming compliance by the issuer with the reporting
requirements of Rule 144. 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
28
<PAGE> 31
limitation. Any sales of shares by shareholders under Rule 144 may have a
depressive effect on the price of an issuer's common stock.
Special considerations related to penny stocks
Assuming a trading market for our common shares develops, we anticipate
that 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 SEC 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 our 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.
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.
29
<PAGE> 32
EXPERTS
The financial statements as of December 31, 1999 have been included in
the registration statement in reliance upon the report of Feldman Sherb & 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.
30
<PAGE> 33
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
Index for Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants ....................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheet
December 31, 1999 .............................................. F-3
Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998 ................. F-4
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 ................. F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 ................. F-6
Notes to Consolidated Financial Statements ............................... F-7-16
Consolidated Balance Sheet (Unaudited)
September 30, 2000 ............................................. F-17
Consolidated Statements of Operations (Unaudited)
For the Nine and Three Months Ended September 30, 2000 and 1999. F-18
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 ................. F-19
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999 .......... F-20
Notes to Consolidated Financial Statements ............................... F-21-23
</TABLE>
F-1
<PAGE> 34
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.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
March 6, 2000
New York, New York
F-2
<PAGE> 35
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
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
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 36
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 160,029 125,938
Amortization of Goodwill 21,942 --
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>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 37
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>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 38
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 Production Costs 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 $ --
=========== ===========
Write-off of goodwill in connection with acquisition $ 21,942 $ --
=========== ===========
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>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 39
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 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, 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 Spin-off was treated as a reverse spin-off
for financial statement purposes because substantially all of EmailthatPays'
assets and operations were held by the Company after the spin-off. Therefore,
the spin-off has been reflected, for financial statement presentation, as if the
Company was a new company consisting of its historical operations. 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.
GOODWILL
Goodwill, which represented the cost in excess of net assets of business
acquired were recorded and were to be amortized over a five-year period. The
Company periodically evaluates the carrying amount of goodwill to recognize and
measure the possible impairment of these assets. Based on the recoverability
from cash flow methods, the Company believed that goodwill was impaired and,
accordingly recorded amortization of goodwill amounting to $21,942.
(See Note 2).
F-7
<PAGE> 40
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. The Company has signed two video
distribution agreements 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 fiscal year 2000. The Company
plans to license the broadcast to individual stations for domestic airing and
license country by country for international rights. The Company has commenced
production on a computer animated feature film designed for worldwide television
and other non-theatrical distribution. The completion of the 90-minute made for
television animated feature is anticipated to be completed in 4th quarter of
2001. The Company has produced a three minutes promotional video tentatively
entitled "Star Pirates" and is currently in pre-production of character and
environmental designs. In addition to distribution through film, video and
television markets, the Company anticipates additional revenue from character
development. Although the Company is self-funding its projects, the Company may
need 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.
REVENUE RECOGNITION
During 1999 and 1998, revenues generated through the Company's subsidiary, BRT,
accounted for approximately 98% and 78% of net revenues in 1999 and 1998,
respectively. Revenues from BRT's post-production facility and other production
projects are recorded when services are performed. Remaining revenues were from
the sale a "Howdy Doody" box set and recorded upon shipment.
ACCOUNTING FOR PRODUCTION COSTS AND DISTRIBUTION RIGHTS
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.
F-8
<PAGE> 41
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)
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.
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> 42
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. 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. 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. The remained 20% of BRT is owned by a minority interest. Due to the fact
that losses applicable to the minority interest in BRT exceeded the minority
interest in the equity capital of BRT, no minority interest is reflected on the
balance sheet. On September 29, 1999, EmailthatPays spun-off its 80% share of
BRT Video, Inc. by contributing these assets and all liabilities to the Company.
Accordingly, 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.
F-10
<PAGE> 43
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 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
==========
During 1998, the EmailthatPays issued 332,500 shares of common stock at the fair
market value price of $1.80 in connection with the acquisition of the Howdy
Doody Library. The aggregate amount of shares issued by EmailthatPays amounted
to $598,500 and is included above in "films completed and not released".
Remaining capitalized production costs consist of production costs, production
salaries, and story rights and scenario costs connected with the Company's
production projects.
F-11
<PAGE> 44
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:
<TABLE>
<CAPTION>
<S> <C>
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
-------
41,538
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
=======
</TABLE>
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 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.
Accordingly, BRT recorded an extraordinary gain amounting to $686,840 on the
accompanying statement of operations.
F-12
<PAGE> 45
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> 46
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 Carry forward $ 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 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.
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 $ (159,088)
Pro forma $ (170,088)
Net Loss per Share
As reported $ (.05)
Pro forma $ (.05)
F-14
<PAGE> 47
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)
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 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.
CAPITAL CONTRIBUTIONS
Capital contributions represent funds and net assets contributed by
Emailthatpays, Inc. to the Company prior to the spin-off.
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.
F-15
<PAGE> 48
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1999 and 1998
NOTE 10 - COMMITMENTS (CONTINUED)
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.
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> 49
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash .................................................................. $ 37,464
Accounts Receivable (net of allowance for doubtful accounts of $22,500) 41,247
Prepaid Expenses and Other ............................................ 6,436
Due from Related Parties .............................................. 7,294
-----------
Total Current Assets .............................................. 92,441
-----------
Property and Equipment, Net ............................................... 744,815
-----------
OTHER ASSETS:
Marketable Equity Securities .......................................... 216,469
Security Deposits ..................................................... 26,680
Capitalized Production Costs .......................................... 975,540
-----------
1,218,689
-----------
Total Assets ...................................................... $ 2,055,945
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Loans Payable ...................................... $ 33,641
Current Portion of Notes Payable - Related Parties ................... 9,456
Current Portion of Capital Lease Obligations .......................... 36,781
Accounts Payable and Accrued Expenses ................................. 383,696
Accrued Salaries ...................................................... 36,274
Deferred Revenues ..................................................... 66,368
Due to Officers ....................................................... 23,075
-----------
Total Current Liabilities ......................................... 589,291
NOTES PAYABLE - RELATED PARTIES ........................................... 275,000
-----------
Total Liabilities ................................................. 864,291
-----------
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 ................................................... (1,605,987)
-----------
Total Stockholders' Equity ........................................ 1,191,654
-----------
Total Liabilities and Stockholders' Equity ........................ $ 2,055,945
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-17
<PAGE> 50
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES ................................................. $ 323,615 $ 194,373 $ 768,034 $ 879,891
COST OF SALES ............................................ 15,244 21,276 64,976 67,773
----------- ----------- ----------- -----------
GROSS PROFIT ............................................. 308,371 173,097 703,058 812,118
----------- ----------- ----------- -----------
OPERATING EXPENSES
Amortization of Production Costs ..................... 30,000 -- 60,000 100,000
Depreciation and Amortization ........................ 34,500 64,500 103,500 193,500
Salaries and Fringe Benefits ......................... 115,206 147,356 355,936 523,603
Legal and Accounting ................................. 23,359 29,422 89,784 68,289
Consulting Fees ...................................... -- 19,984 -- 90,425
Phones and Utilities ................................. 10,286 11,385 29,670 34,153
Rent (Net of Sub-Lease Rental Income in 2000) ........ 12,500 33,315 83,851 116,560
Other Selling, General and Administrative ............ 36,841 67,542 136,548 253,656
Gain on Sale/Disposal of Equipment ................... -- -- (24,357) --
----------- ----------- ----------- -----------
Total Operating Expenses ......................... 262,692 373,504 834,932 1,380,186
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS ..................................... 45,679 (200,407) (131,874) (568,068)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest Income ...................................... -- -- -- 64
Interest Expense ..................................... (9,705) (21,960) (23,133) (91,491)
----------- ----------- ----------- -----------
(9,705) (21,960) (23,133) (91,427)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM .......... 35,974 (222,367) (155,007) (659,495)
BENEFIT FROM INCOME TAXES ................................ -- 261,000 -- 261,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .............. 35,974 38,633 (155,007) (398,495)
EXTRAORDINARY ITEM:
Settlement of Debt (Net of Income Taxes of $261,000) . -- 425,840 -- 425,840
----------- ----------- ----------- -----------
NET INCOME (LOSS) ........................................ $ 35,974 $ 464,473 $ (155,007) $ 27,345
=========== =========== =========== ===========
BASIC AND DILUTED:
Net Income (Loss) Per Common Share:
Income (Loss) Before Extraordinary Item .. $ 0.01 $ 0.01 $ (0.03) $ (0.13)
Extraordinary Gain from Settlement of Debt -- 0.14 -- 0.14
----------- ----------- ----------- -----------
$ 0.01 $ 0.15 $ (0.03) $ 0.01
=========== =========== =========== ===========
Weighted Common Shares Outstanding ................. 4,434,420 3,068,191 4,434,420 3,057,957
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
<PAGE> 51
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<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, 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
Net Loss for the Nine Months Ended September 30, 2000 -- -- -- (155,007) (155,007)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 ............................ 4,434,420 $ 22,168 $ 2,775,473 $(1,605,987) $ 1,191,654
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
<PAGE> 52
VIDKID DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .......................................... $(155,007) $ 27,346
Adjustments to Reconcile Net Income (Loss) to Net Cash Flows
Used in Operating Activities:
Depreciation and Amortization ....................... 103,500 193,500
Amortization of Production Costs .................... 60,000 100,000
Extraordinary Gain from Debt Extinguishment - Net ... -- (425,840)
Benefit from Income Taxes ........................... -- (261,000)
Common Stock Issued for Services .................... -- 5,500
Common Stock Received for Services .................. (150,101) --
Gain on Sale of Equipment ........................... (24,357) --
(Increase) Decrease in:
Accounts Receivable ............................... 25,261 92,249
Prepaid Expenses and Other ........................ 5,807 5,087
Due from Related Parties .......................... (7,294) --
Increase (Decrease) in:
Accounts Payable and Accrued Expenses ............ (75,116) 93,674
Accrued Salaries ................................. 106,500 (9,426)
Due to Officers .................................. 23,075 --
--------- ---------
Net Cash Flows Used in Operating Activities .................... (87,732) (178,910)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Equipment ............................ 195,714 --
Acquisition of Property and Equipment ...................... (37,324) (15,270)
Increase in Capitalized Production Costs ................... (7,900) (44,645)
--------- ---------
Net Cash Flows Proveded by (Used in) Investing Activities ...... 150,490 (59,915)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Capital Contributions ........................ -- 109,529
Principal Repayments of Capital Lease Obligations .......... (70,621) (64,458)
Proceeds from Issuance of Notes Payable - Related Parties .. 47,619 133,107
Proceeds from Issuance of Notes Payable .................... -- --
Principal Repayments of Notes Payable ...................... (7,897) (7,027)
--------- ---------
Net Cash Flows Provided by (Used in) Financing Activities ...... (30,899) 171,151
--------- ---------
Net Increase (Decrease) in Cash ................................ 31,859 (67,674)
Cash - Beginning of Year ....................................... 5,605 68,261
--------- ---------
Cash - End of Year ............................................. $ 37,464 $ 587
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................... $ -- $ --
========= =========
Income Taxes ................................................ $ -- $ --
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reclassification of Accrued Salaries to Debt ................... $ 125,000 $ --
========= =========
Common Stock Received for Future Services ...................... $ 66,368 $ --
========= =========
Issuance of Common Stock in Exchange for Reduction in Debt ..... $ -- $ 146,474
========= =========
Common Stock issued for Services ............................... $ -- $ 5,500
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
<PAGE> 53
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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.
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.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying consolidated
financial statements for the interim periods are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the periods presented. These financial
statements should be read in conjunction with the financial statements for the
year ended December 31, 1999 and notes thereto contained in the Report on Form
SB-2, as amended, of Vidkid distribution, Inc. (the "Company") as filed with the
Securities and Exchange Commission. The results of operations for the nine
months ended September 30, 2000 are not necessarily indicative of the results
for the full fiscal year ending December 31, 2000.
F-21
<PAGE> 54
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 2 - INCOME (LOSS) PER 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.
NOTE 3 - SHAREHOLDERS' EQUITY
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.
CAPITAL CONTRIBUTIONS
Capital contributions represent funds and net assets contributed by
Emailthatpays, Inc. to the Company prior to the spin-off.
NOTE 4 - FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133), which establishes accounting and reporting standards
for all derivative instruments. SFAS 133 was to be effective for fiscal years
beginning after June 15, 1999. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137 as an amendment
to SFAS 133 and deferred the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. The Company currently has no derivative
instruments and, therefore, the adoption of SFAS 133 is not expected to have an
impact on the Company's financial position or results of operations.
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.
F-22
<PAGE> 55
VIDKID DISTRIBUTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
NOTE 5 - MARKETABLE EQUITY SECURITIES
Marketable equity securities are classified into one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
acquired and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold to maturity. All other securities not included in the
trading and held-to-maturity categories are available-for-sale securities.
Management determines the appropriate classifications of marketable equity
securities at the time they are acquired and evaluates the continuing
appropriateness of the classification at each balance sheet date. At September
30, 2000, the Company held only available-for-sale securities, which are
reported at fair value with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' deficit. At September 30,
2000, available-for-sale securities consisted of 460,615 restricted common share
of theNETdigest.com, Inc., a company related through common ownership.
NOTE 6 - RELATED PARTY TRANSACTIONS
Certain shareholders of the Company and a company related through common
ownership from time to time, advanced funds to the Company for operations. These
amounts are non-interest bearing, non-collateralized, and are payable on demand.
As of September 30, 2000, amounts due to officers of the Company amounted to
$23,075.
The Company advanced funds from time to time to companies related through common
ownership. These amounts are non-interest bearing, non-collateralized, and are
payable on demand. As of September 30, 2000, amounts due from these related
companies amounted to $7,294.
During the three months ended September 30, 2000, the Company performed
production and editing services for a company related through common ownership
amounting to approximately $103,000.
F-23
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act contains provisions entitling
Vidkid's 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 the director
breaches a duty. Vidkid's 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, like
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
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 the indemnification and advancement of
expenses is permitted under the 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.
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.
II-1
<PAGE> 57
<TABLE>
<S> <C>
Registration fee under $ 94
the Securities Act of 1933 94*
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 206*
--------
Total $ 51,300
--------
</TABLE>
-------------
*Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1997, Vidkid issued 100 shares of its common stock to
emailthatpays, its parent company, for a nominal consideration as part of the
organization of Vidkid. emailthatpays was an accredited investor. 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. These individuals were
sophisticated investors who had sufficient financial resources and the ability
to ascertain appropriate information regarding Vidkid. 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.
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.
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF DOCUMENT
<S> <C>
3.1 Articles of Incorporation*
</TABLE>
II-2
<PAGE> 58
<TABLE>
<S> <C>
3.2 Articles of Amendment to the Articles of Incorporation*
3.3 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 for 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.*
10.6 Agreement and Plan of Merger and Reorganization*
10.7 Asset Purchase Agreement dated August 14, 1997 between Madison Sports and
Entertainment, Inc. and Vidkid Distribution, Inc.*
10.8 Settlement Agreement between John J. Drury, National Media, Inc., Buffalo Bob
Enterprises, Inc. Vidkid Distribution, Inc. and Realm Production and Entertainment, Inc.*
10.9 Stock Purchase Agreement dated October 1, 1998 between Realm Production &
Entertainment, Inc., Norman Titcomb and BRT Video, Inc.*
10.10 Promissory Note in the principal amount of $275,000*
21 Subsidiaries of the Registrant*
23.1 Consent of Feldman Sherb Horowitz & Co., P.C. Certified Public Accountants **
23.2 Consent of Atlas Pearlman, P.A. is included in Exhibit 5
27.1 Financial Data Schedule**
* previously filed
** filed herewith
</TABLE>
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.
II-3
<PAGE> 59
(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.
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> 60
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 Amendment
No. 3 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fort Lauderdale, Florida on November
30, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven Adelstein Chairman of the Board, Principal November 30, 2000
----------------------
Steven Adelstein Executive Financial and Accounting
Officer and President
/s/ Gus A. Guilbert Director, Executive Vice President, November 30, 2000
----------------------
Gus A. Guilbert, Jr. Treasurer and Secretary
/s/ James Purpuro Director November 30, 2000
----------------------
James Purpuro
/s/ Michael Greene Director November 30, 2000
----------------------
Michael Greene
/s/ Todd Adelstein Director November 30, 2000
----------------------
Todd Adelstein
</TABLE>
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF DOCUMENT
<S> <C>
23.1 Consent of Feldman Sherb Horowitz & Co., P.C. Certified Public
Accountants
27 Financial Data Schedule (for SEC use only)
</TABLE>
