SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Cavalcade of Sports Media, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 33-0766069
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
12268 Via Latina 17th Floor Del Mar, CA 92914
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (858)481-2207
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Common Stock
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Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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(Title of class)
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TABLE OF CONTENTS
PART I
PAGE
Item 1 Description of Business 4
Item 2 Management's Discussion and Analysis or Plan of Operation 10
Item 3 Description of Property 20
Item 4 Security Ownership of Certain Beneficial Owners and Management 22
Item 5 Directors, Executive Officers, Promoters and Control Persons 25
Item 6 Executive Compensation 26
Item 7 Certain Relationships and Related Transactions 26
Item 8 Description of Securities 26
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters 27
Item 2 Legal Proceedings 29
Item 3 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
Item 4 Recent Sales of Unregistered Securities 30
Item 5 Indemnification of Directors and Officers 32
FINANCIAL STATEMENTS
See attached Financial Statements
EXHIBIT INDEX
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No. Description of Exhibit
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3.1 Certificate of Incorporation of Tren Property Corp., filed July 29, 1997 in
Delaware.
3.2 Articles of Incorporation of Gemma Global, Inc., filed July 22, 1997 in
Nevada.
3.3 Reorganization Agreement between Tren Property Corp. and Edward E. Litwak,
dated January 1, 1998.
3.4 Certificate of Amendment to the Certificate of Incorporation of Tren
Property Corp., changing its corporate name to Gemma Global, Inc. and
increasing capital structure, filed February 23, 1998 in Delaware.
3.5 Certificate of Ownership and Merger of Gemma Global, Inc. (a Nevada
Corporation) with and into Tren Property Corp. (a Delaware Corporation),
filed February 23, 1998 in Delaware.
3.6 Articles/Certificate of Merger of Gemma Global, Inc. (a Nevada Corporation)
with and into Gemma Global, Inc. formerly Tren Property Corp. (a Delaware
Corporation) filed March 4, 1998 in Nevada.
3.7 Articles of Incorporation of Gemma Global, Inc., filed March 5, 1998 in
Nevada.
3.8 Articles/Certificate of Merger (re-domestication) of Gemma Global , Inc.
(Delaware) with and into Gemma Global, Inc. (Nevada) filed April 21, 1998.
3.9 Articles of Amendment to the Articles of Incorporation of Gemma Global,
Inc., changing name to Pioneer2000, Inc. and increasing capital structure,
filed March 4, 1999 in Nevada.
3.10 Certificate of Incorporation of Cavalcade of Sports Network, Inc., filed
June 22, 1998 in New York.
3.11 Articles of Incorporation of Global Group International, Inc., filed March
23, 1999 in Nevada.
3.12 Certificate of Designation, Powers, Preferences and Rights of 1999-Global
Group Series of Convertible Preferred Stock, filed December 14, 1999 in
Nevada.
3.13 Articles of Amendment to the Articles of Incorporation of Pioneer2000,
changing corporate name to Cavalcade or Sports Media, Inc., filed December
17, 1999 in Nevada.
3.14 Articles of Merger of Cavalcade of Sports Network, Inc. (New York) with and
into Cavalcade of Sports Media, Inc. (Nevada), filed December 22, 1999 in
Nevada.
3.15 Certificate of Merger of Cavalcade of Sports Network, Inc. with and into
Cavalcade of Sports Media, Inc., filed December 30, 1999 in New York.
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3.16 Bylaws of the Registrant.
4.1 Subordinated Capital Note, Sample Copy
4.2 Promissory Note
10.1 Indemnification Agreement with Edward E. Litwak
10.2 Indemnification Agreement with Nicolas Lagano, Jr.
10.3 Indemnification Agreement with Carol Conners
10.4 Indemnification Agreement with Michael Haynes
10.5 Indemnification Agreement with Don Parson
10.6 Indemnification Agreement with Dennis Murphy
10.7 Indemnification Agreement with Edwin Rue
10.8 License Agreement with Jennifer Gucci
10.9 License Agreement with Gemma Gucci
10.10 Assignment of License Agreements to Gemma Global, Inc.
10.11 Gemma Global, Inc. Assignment of License Agreements to Global
International, Inc.
23.1 Consent of Auditors
27 Financial Data Schedule
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Office
Cavalcade of Sports Media Inc. ("we", "us" or "the Company") currently maintains
its principal office at 12868 Via Latina, Del Mar, CA 92014. Our telephone
number at that office is (858) 481-2207 and our facsimile number is also (858)
481-2207.
Organization and Historical Background
We were originally organized as a business corporation under the laws of the
State of Delaware on July 22, 1997 as Tren Property Corporation, Inc. Tren
Property Corporation, Inc. was formed as a shoe manufacturing, sales and
distribution company. On July 22, 1997, a corporation was formed in Nevada
called "Gemma Global, Inc." which our founder, Edward Litwak organized to
exploit certain trade name licenses obtained from Jennicor, LLC. Those licenses
were intended to use for the design, manufacture and sale of an inexpensive line
of shoes with a "Gucci" name. At the time of incorporation, Mr. Litwak assigned
the License Agreements to Gemma Global, Inc. in exchange for all 10,000 shares
of the corporation's Common Stock. Effective January 1, 1998, Mr. Litwak
exchanged his 10,000 shares of the Gemma Global, Inc. Common Stock for 10,000
shares of our Common Stock in a so-called "B Reorganization", which is a
tax-free exchange of stock-for-stock under Section 368(a)(1)(B) of the Internal
Revenue Code. As a result of that stock exchange, Gemma Global, Inc. became a
wholly-owned subsidiary of Tren Property Corp. On February 23, 1998 , we amended
our Certificate of Incorporation to change our corporate name to Gemma Global,
Inc.
On February 28, 1998, our wholly owned subsidiary, Gemma Global, Inc. (Nevada),
was merged with and into Gemma Global, Inc. (Delaware), leaving the Delaware
corporation as the surviving entity.
On March 5, 1998, Articles of Incorporation were filed for a new Gemma Global,
Inc. in the State of Nevada as our wholly owned subsidiary. On April 21, 1998,
Gemma Global, Inc.(Delaware) was merged with and into Gemma Global, Inc.,
(Nevada) for purposes of redomesticating Gemma Global, Inc. in Nevada.
On March 17, 1999, Gemma Global, Inc. amended its Articles of Incorporation to
change its corporate name to Pioneer2000, Inc., and to increase its capital
structure. The reason for our name change was to reflect our broadened business
plan, with a view to spinning off the shoe bushiness, which still was not fully
developed and underway due to a lack of financial support. Global Group
International, Inc., our then wholly owned subsidiary, was formed on March 23,
1999 as the spin-off vehicle. We designated a series of preferred stock for the
newly formed Global International, Inc. called the 1999- Global Group Series in
preparation for the spin-off, which designation provided that its preferred
shares were convertible to shares of Common Stock of Global Group International.
In September of 2000, all holders of 1999-Global Group Series of Preferred Stock
elected to converth their shares to Commonn Stock of Global International , Inc.
which is convertible to shares of Common Stock of Global Group International. At
about that time, a New York company called Cavalcade of Sports Network, Inc.
presented us with an opportunity to redirect our business and at a Board of
Directors meeting in September of 1999 our Board resolved that it was in our
best interest, and in the best interest of our shareholders, to enter the
nostalgic sports
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broadcasting business. On December 17, 1999, we amended our Articles of
Incorporation to change our name to Cavalcade of Sports Media, Inc., and on
December 22, 1999, Cavalcade of Sports Network, Inc., a New York corporation,
was merged with and into the Company, leaving Cavalcade of Sports Media, Inc.,
the Nevada corporation, as the survivor. A mirror Certificate of Merger was
filed in New York on December 30, 1999.
We are engaged in the nostalgic sports entertainment business, and will provide
around the clock broadcasting from our library of nostalgic sports film and
footage (referred herein sometimes as "nostalgic content") 24 hours per day, 7
days per week to our subscribers, transmitted via: (i) direct broadcast
satellite (DBS); (ii) TVRO (Television Receive Only, or C-Band); and (iii)
existing cable networks. Our nostalgic content will be marketed to sports fans
wishing to add our channel to their existing home dish programming package or
cable programming package.
Our program format will feature both college and professional sports, as well as
international sports competitions of many varieties, with emphasis on the more
popular sports, such as baseball, football, basketball, hockey and boxing.
Business Plan
Our general business plan is to provide a thorough array of nostalgic sports
programming to our subscribing viewers, 24 hours per day, 7 days a week. Our
sports channel will be marketed directly to home satellite dish owners and cable
viewers on a subscription basis. We have already acquired approximately 480
hours of nostalgic content in the public domain and transferred such content to
Beta-SP format for broadcasting. By year end 2001, we project that our content
holdings will exceed 4,500 hours. It is our objective to ultimately acquire and
transfer 10,000 hours of nostalgic content for ongoing broadcasting. Although we
will offer sports footage of almost every variety, we will have a strong
emphasis on popular sports, such as baseball, football, basketball, hockey and
boxing.
We anticipate that much of our revenue will be generated from existing home dish
owners and cable subscribers wishing to add our network or channel to their
individual packages. Our nostalgic sports channel will be marketed through a
variety of selling and advertising methods, primarily by companies that are in
the business of combining packages of channels for cable and home-dish owners
and subscribers. These companies are often called "packagers", and they
generally offer a variety of program packages designed for a potential
subscriber's viewing preferences.
The Market
Television Sports
The market for television sports is growing rapidly, which is reflected by the
increase in the number of sports channel subscribers over the past decade and
the increased cost of advertising on televised broadcasts, both on regular and
cable networks. We believe this dramatic rise in advertising rates on sports
related events and programs is a strong indication of expanding viewership and
interest in sports content.
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Another indication of ongoing expansion in the sports and sports entertainment
fields is that virtually all of the long established sports franchises continue
to rise in price and value. New leagues and new organizations are continuing to
form. With the strong and growing interest in sports viewership on television,
we believe that our historical and nostalgic type of sports content, offered at
reasonable rates, will be enthusiastically received by a growing market of
satellite and cable viewing sports fans.
It is our observation that among sports fans, there is a strong emotional
attachment to nostalgic or historical sports programs. Sports commentators and
historians have often said that men mark their rites of passage from childhood
into adulthood with milestone events, often revolving around sports. In our
evaluation of sports content, we believe that we have identified a strong
special interest area in nostalgic sports that is not presently being exploited.
The Satellite Home Dish Market
We believe that there is a strong potential market among existing satellite home
dish owners. These owners are already paying a premium for a greater number of
channels than are available on the cable or television networks. In the United
States alone, the number of home dishes has reportedly increased from 3.5
million in 1993 to more than 15 million currently. Of the approximate 15 million
dishes, the vast majority, estimated at about 14 million, are direct broadcast
satellite ("DBS") dishes. DBS describes a satellite service with frequency
allocation and wide spacing between satellites that generally permits higher
powered transmissions than other satellite services and allows for reception
with a small, 18-24 inch satellite dish). DBS usage is projected to reach over
20 million by the year 2002 at a rate of over 15% per year. The DBS subscriber
base has grown significantly since 1998, according to numerous sources,
including a recent cover story in USA Today (see article by David Lieberman,
DirectTV Stays Step Ahead of Cable, USA Today, August 14, 2000, Section B, page
1.)
The three satellite leaders in the DBS industry, DirectTV, Primestar and
Echostar, have been enjoying rapid and steady growth over the past four years.
EchoStar Communications Corp.'s Dish Network signed its 4 millionth customer in
early April of 2000, and it continues to sign approximately 100,000 new
subscribers each month. DirectTV claims on its website that it has more than
9,000,000 subscribers.
The rapid growth of the home dish market has lead to a proportional increase in
the need for programming. Those in the business of selling home dishes have
steadily been adding programming choices and new channels to their repertoires
for their expanding customer bases, and the search for new content is
continuous. Since the relatively recent advent of the more affordable 18" dish
and the accompanying programming packages, sales of satellite dishes have
increased dramatically. Based on the rising subscription levels of sports-only
channels, we believe that a significant portion of home dish purchasers have
made their purchase expressly for watching sports.
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Background of Broadcast Satellites: DBS and TVRO
DBS
DBS is broadcast by medium and high-powered satellites operating in the
microwave KU band. These high powered, high frequency satellites make it
possible for the signals to be picked up on a small dish of 18 inches. Digital
compression makes it possible to have many channels on a single satellite. Among
the current DBS systems that are operating in the U.S. are DSS, DISH Network,
and Primestar. The DSS and DISH Network systems both have 18 inch satellite
dishes. Primestar has a 3-foot satellite dish. One of the big advantages of DBS
systems is that the small dish does not have to move.
TVRO
The first satellite television systems for the consumer were TVRO (Television
Receive Only) satellite systems. TVROs (sometimes referred to as Big Dish TV,
Full view, C Band Satellite TV, and BUD) began sprouting up all over the U.S. in
the late 1970s and early 1980s, and are characterized by big dishes that are
usually 6-12 feet across. TVRO systems receive television signals from C-Band
satellites. A C-Band satellite has 24 channels (transponders) on each satellite.
There are over 20 C-Band satellites that may be received in the continental
United States. A TVRO satellite system must have a movable dish in order to
access the signals from so many satellites. Even though most news and
advertising involves the small dish DBS systems, TVRO is still in use. The
biggest variety of programming in satellite television is available through
TVRO. Cable TV programming is available to the TVRO owner, along with
programming that is usually not available to cable TV subscribers.
Competition
We believe that there are two major areas of competition for our business. They
are: (i)cable sports networks, both national and regional, and (ii) satellite
packages that rely on sports to sell hardware.
The cable sports networks fall into two distinct categories: those that are
available on basic cable service, such as ESPN, ESPN2 and TURNER, and those
which are premium channels, such as MSG, SPORTSCHANNEL, PRIME NETWORK. Basic
service is free, and premium services are paid for by viewers. Satellite service
presents a third area of direct competition.
Basic Service
The basic service networks carry mostly sports events of the major league
variety, and also have commentators, or "talking heads" providing sports, news
and interview programs. There is virtually no historic or nostalgic element to
this type of programming. The thrust of this programming lies in current events.
These basic services are advertiser-supported, which means that the only
revenues generated by basic service networks are derived from advertising fees.
Premium Service
The premium channels rely on exclusive programming of major league home teams in
their immediate marketing areas. Fans of other teams and other sports are not
considered in the
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programming formats of these premium channels. As with basic service, there is
no nostalgic element to this programming. These services rely on viewer
subscriptions, coming directly from the consumer.
Satellite Service
Companies that offer satellite dish program/viewing packages are concerned
initially with software sales. Providers of this service tend to be more willing
to give away hardware to sell the software, with the rationale that the hardware
is a one time sale, but the software (i.e., programming) can be sold again and
again. With satellite service, there are ongoing "use" revenues, and in
addition, consumers may continually purchase new programming, thereby increasing
revenues to satellite service providers.
The success of this approach is well documented. The growth of the satellite
dish business and the attendant growth of the dish programming business has been
steady and rapid. The sales of 18" home dishes have grown from an insignificant
number to well over 15 million to date, and growing at a rate of 15% per year.
Scheduled Programming
Our 24 hour per day, seven day per week programming schedule will include a
12-hour broadcast of predefined sports programming offered twice daily via cable
networks and satellite transmission.
The programs will be categorized by short form and long form programs. The short
form will consist of half-hour and one-hour programs, stripped (without
commercial interruptions) on a five day per week basis. These programs generally
consist of previously televised programs or events from the 1950's, 1960's and
early 1970's, shown exactly as they were seen on the air during their original
runs. The long form programs will consist of complete games of the featured
sport of the evening. Basketball and football (both college and professional)
baseball and hockey, will be broadcast as complete and unedited shows, exactly
as they were played at the time.
Scheduling will be similar to the broadcast and cable networks presently on the
air, in that subscribers will be able to find his or her favorite program at the
same time of day and day of the week.
Pricing Structure
Our sports channel will be offered to subscribers for between three dollars and
four dollars per month for cable viewers and TVRO (C-Band) renters or owners,
and thirty to forty cents per month to existing DBS renters or owners. Our
service will be considered an add-on to existing cable and satellite program
packages. Additionally, we will offer specials on a pay-per view basis.
Advertising and Promotion
We will promote Cavalcade of Sports Media, Inc. as a high quality, low cost
compliment to
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programming already in the marketplace. Our content and format are geared to
sports fans young and old, and we will use a combination of advertising and
marketing media to reach our target market.
A primary source for new subscribers will be existing DBS owners. Presently, we
are in negotiation with several satellite companies, looking toward establishing
a cross promotional arrangement. Additionally, we are pursuing business
alliances with programming packagers that already deal with a strong viewing
customer base. Programming packagers consistently offer enhancements or add-ons
to their existing cable-users or satellite owners or renters, and many such
companies even provide hardware and software packages.
Our programming schedule for our subscribers will be planned up to three months
in advance, and will be mailed out to our subscribers as part of their monthly
dish or cable guide. Additionally, local newspaper advertising in major markets,
radio and television coverage and talk show coverage is planned.
Our objective is to use advertising to generate direct sales, and to actively
and aggressively pursue programming packagers. Additionally, as our business
develops, we will hire a customer service staff that will also function as an
outbound telemarketing department. Calls will be made to dish owners and cable
subscribers to offer free weekend promotions to prospective subscribers.
Television Production Studio
We have recently signed an agreement with Steel Productions, Inc., a television
production and post production recording facility located in Manhattan. We will
use the studio facilities to record and produce banners, introductions, station
identification promotions, etc.
Future Developments
With the development and proliferation of high-speed computer down loaders, we
plan to offer our programming services via webcast; essentially providing our
entire programming network on the Internet. This service will be offered on a
pay-per-view basis. We believe this medium will be readily accepted in the
marketplace as a real-time delivery version of our programming services.
Revenue Generation
Generation of revenue will come from subscriptions, which we will generate from
multiple sources. Primarily, we expect to sell subscriptions into three
definitive markets: (i) to new or existing DBS owners; (ii) to new or existing
TVRO (C- Band) transmission via satellite; (iii) to new or existing cable
subscribers. Additionally we will generate revenue through sponsors and
advertising on cable networks.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-Looking Information
This document contains forward-looking statements about us, our current and
planned products, our current and proposed marketing and sales, and our
projected results of operations. There are a large variety of factors which
could cause actual events and results to differ materially from the projected
events and anticipated results expressed. Therefore such projected events and
anticipated results are not warranties or guaranties that such events will occur
or that we will achieve such results. All statements other than statements of
historical fact included in this document, including, without limitation, the
statements under "Management's Discussion and Analysis or Plan of Operation",
regarding our strategies, plans, objectives, expectations, and future operating
results are forward looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable at this
time, we cannot guarantee that such expectations of future results will prove to
have been correct. Actual results could suffer materially based upon a number of
factors including, but not limited to, the state of the economy, competition,
unanticipated business opportunities, availability of financing, market
acceptance, government regulation, dependence on key personnel, limited public
market and liquidity, shares eligible for future sale, and other risks that may
apply to us.
The following discussion and analysis should be read in conjunction with our
financial statements and summary of selected financial data for Cavalcade of
Sports Media, Inc. This discussion should not be construed to imply that the
results discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment from our Management.
We are in the development stage and are seeking to acquire and market retired
sporting footage and events, which have been transferred to digital or Beta-SP
format, for delivery to consumers and businesses via satellite and cable
transmission. The risks specifically discussed are not the only factors that
could affect future performance and results. In addition the discussion in this
registration statement concerning us, our business and our operations contain
forward-looking statements. Such forward-looking statements are necessarily
speculative and there are certain risks and uncertainties that could cause
actual events or results to differ materially from those referred to in such
forward- looking statements. We do not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that silence by our
Management over time means that actual events or results are occurring as
estimated in the forward-looking statements herein.
As a development stage company, we have yet to earn revenues from operations. We
may experience fluctuations in operating results in future periods due to a
variety of factors including, but not limited to, market acceptance of our
sports channel and nostalgic content, our ability to acquire and deliver high
quality products at a price lower than currently available to consumers, our
ability to obtain additional financing in a timely manner and on terms favorable
to us, our ability to successfully attract customers at a steady rate and
maintain customer satisfaction, our promotions, branding and sales programs, the
amount and timing of operating costs and capital expenditures relating to the
expansion of our business, operations and infrastructure and the implementation
of marketing programs, key agreements, and strategic alliances, the number of
products offered by us, the number of cancellations we experience, and general
economic conditions specific to the transferring of previously televised
material onto Beta-SP, the broadcasting of nostalgic content, and the
entertainment industry.
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Revenues
We have generated no operating revenues from operations from our inception. We
believe we will begin earning revenues from operations within the next twelve
months as we transitions from a development stage company to that of an active
growth and acquisition stage company.
Costs and Expenses
From our inception July 29, 1997 through September 30, 2000, we have not
generated any operating revenues. We have incurred expenses of $ 1,233,999
during this period. These expenses were associated principally with compensation
to employees, consultants, product development costs and professional services.
Liquidity and Capital Resources
As of September 30, 2000, we had a working capital deficit of $ 1,302,297. As a
result of our operating losses from our inception through September 30, 2000, we
generated a cash flow deficit of $ 435,473 from operating activities. Cash flows
used in investing activities was $ 619,437 during the period July 29, 1997
through September 30, 2000. We met our cash requirements during this period
through the private placement of $ 513,636 of common stock, $ 252,000 from the
issuance of capital notes, and $ 293,454 from other loan proceeds.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.
We believe that our existing capital resources will be sufficient to fund our
current level of operating activities, capital expenditures and other
obligations through the next 12 months. However, if during that period or
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations liquidity and financial condition.
Product Research and Development
We do not anticipate performing research and development for any products during
the next twelve months.
Acquisition or Disposition of Plant and Equipment
We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months. We do not anticipate the acquisition of any
significant property, plant of equipment during the next 12 months, other than
computer equipment and peripherals used in our day-to-day operations. We believe
we have sufficient resources available to meet these acquisition needs.
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Number of Employees
From our inception through the period ended September 30, 2000, the we have
relied on the services of outside consultants for services and had no employees.
In order for us to attract and retain quality personnel, we anticipate we will
have to offer competitive salaries to future employees. We anticipate an
employment base of five (5) to ten (10) full and part time employees during the
next 12 months. As we continue to expand, we will incur additional cost for
personnel. This projected increase in personnel is dependent upon our generating
revenues and obtaining sources of financing. There is no guarantee that we will
be successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.
Initially, we will employ only four individuals: Ed Litwak, our President and
Director; Chen-Kang Pu, our Vice President of Satellite Services; Joseph
Swierczewski, our Vice President of Computer Service, and an Administrative
Assistant to be later named. Dennis Murphy, who is on our Advisory Board of
Directors, will initially be involved in our day to day operation, lending his
expertise and advise to our developing business.
Present
Department/Job Function Number of Employees
----------------------- -------------------
Management (hands-on) 3
Administrative 1
TOTAL 4
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether or to what extent any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common stock.
Cautionary Factors that may Affect Future Results
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.
1. Limited Operating History Anticipated Losses; Uncertainty of Future Results -
Although we were incorporated in July 1997, we have recently changed our
business plan from that of a shoe manufacturer and distributor to that of a
nostalgic sports channel. Therefore, we have a limited operating history upon
which an evaluation of us and our prospects can be based. We feel that our
decision to change direction was in the best interest of our present and future
shareholders, however,
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we are in a position of a company with very limited operating history.
Our prospects must be evaluated with a view to the risks encountered by a
company in an early stage of development, particularly in light of the
uncertainties relating to the new and evolving distribution methods with which
we intend to operate and the acceptance of our business model. We will be
incurring costs to: (i) acquire and market our programming; (ii) to establish
marketing relationships; (iii) to acquire more nostalgic sports content; and
(iv) to build an organization. To the extent that such expenses are not
subsequently followed by commensurate revenues, our business, results of
operations and financial condition will be materially adversely affected. We,
therefore, cannot insure that we will be able to immediately generate sufficient
revenues. We expect negative cash flow from operations to continue for the next
12 months as we continue to develop and market our business. If cash generated
by operations is insufficient to satisfy our liquidity, we may be required to
sell additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to our
stockholders. Our initial operations may not be profitable, since time will be
required to build our business to the point that our revenues will be sufficient
to cover our total operating costs and expenses. Our reaching a sufficient level
of sales revenues will depend upon a large number of factors, including
availability of sufficient working capital, the number of paid subscriptions we
receive, our ability to deliver content, customer acceptance of our nostalgic
concept, customer perception of value (as compared with premium or other
satellite packages), and our sales receivables. (See "Description of Business")
2. Liquidity and Working Capital Risks; Need for Additional Capital to Finance
Growth and Capital Requirements. We have had limited working capital and we are
relying upon capital notes (borrowed funds) to operate. We will seek additional
funds and seek to raise additional capital from public or private equity or debt
sources to: (i) provide working capital to meet our general and administrative
costs until net revenues make the business self-sustaining; (ii) make
acquisitions of additional film and film libraries; and (iii) exploit and expand
such acquisitions. We cannot guarantee that we will be able to raise any such
capital on terms acceptable to us or at all. Such financing may be upon terms
that are dilutive or potentially dilutive to our stockholders. If alternative
sources of financing are required, but are insufficient or unavailable, we will
be required to modify our growth and operating plans in accordance with the
extent of available funding.
3. Broad Discretion in Application of Proceeds - We have allocated all of the
estimated net proceeds to working capital and general corporate purposes.
Accordingly, we will have broad discretion as to the application of such
proceeds and we may use a substantial portion of such proceeds for compensation.
4. Need for Additional Financing - We will more than likely need additional
financing to cover our working capital requirements. We may encounter difficulty
obtaining additional funds and even if financing were to become available, we
cannot guarantee that it would be available on satisfactory terms.
5. New Business - We are a new business and you should consider factors which
could adversely affect our ability to generate revenues, which include, but are
not limited to, maintenance of positive cash flow which depends on our ability
both to raise capital and to obtain additional financing as
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required, as well as the level of competition.
6. Potential fluctuations in quarterly operating results
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the level of use of reproduced films, the demand for digital or
Beta-SP format sporting event films; seasonal trends in both film viewing, the
amount and timing of capital expenditures and other costs relating to the
expansion of our film processing operations; price competition or pricing
changes in the industry; technical difficulties or system downtime; general
economic conditions, and economic conditions specific to the Film Industry. Our
quarterly results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting treatment can
have a material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that our operating results will fall below
our expectations or those of investors in some future quarter.
7. Achieving Market Acceptance - The broadcasting business is highly
competitive. We have selected a particular market niche for broadcast content
(vintage or nostalgic sports programming), based upon available recorded
materials in the public domain, the size of the viewing market for nostalgic
sports programming, and the growing satellite dish market. Achieving market
acceptance for our programming will require substantial marketing efforts and
expenditure of significant funds to create awareness and demand by potential
customers. There is no guarantee that we will have available funds or other
resources necessary to achieve such acceptance.
8. Competition - The business of selling televised programming is extremely
competitive. Our Company must, in general, compete with many networks and
companies offering many programming events and packages, using various
advertising methods, such as television and radio, with the programming
offerings running a very wide range of prices. Consumers may choose from many
premium packages depending on their local cable provider, and may select from
any number of satellite companies. We are seeking to establish a specific niche
within that large spectrum. Our programming is targeted to the sports fan who is
willing to spend a little more money on a monthly basis in order to receive a
greater quantity and quality of sports viewing content. As a new company, we
will face competition from those longer-established and better financed
businesses with their established customer bases and their name recognition and
their credibility. We can provide no guarantee that we can successfully compete
against such competition. Our competition includes companies that offer video,
audio, data, programming and other entertainment services, including cable
television, wireless cable, direct-to-home satellite, DBS companies and
companies that are developing new technologies. Many of our competitors have
access to substantially greater financial and marketing resources than we have.
We believe that quality and variety of programming, quality of picture and
service, and cost are the key bases of competition.
9. Government Regulation - Our business is subject to federal regulation under
the Federal Communications Commission. Additionally, our business operations
will be subject to all government regulations normally incident to conducting
any business (e.g., occupational safety and health acts, workmen's compensation
statutes, unemployment insurance legislation, income tax and
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social security laws and regulations, environmental laws and regulations,
consumer safety laws and regulations, etc.) as well as to governmental laws and
regulations applicable to small public companies and their capital formation
efforts. Although we will make every effort to comply with applicable laws and
regulations, there is no guarantee of our success in these efforts, and we
cannot predict the affect of those regulations on our proposed business
activities.
10. Dependence Upon Management - Our future performance and success are
dependant upon the efforts and abilities of our Management. To a very
significant degree, we are dependent upon the continued services of Mr. Edward
Litwak, our founder and formerly our consultant, and now our President and
Chairman of our Board of Directors. We have replaced our consulting agreement
with Mr. Litwak, which would have ended on December 31, 2003, with a five-year
employment agreement which ends December 31, 2004, but which is subject to a
five-year extension at our option. If we lost the services of Mr. Litwak or
other key employees before we could get a qualified replacement, that could
materially adversely affect our business. At present, we do not have employment
contracts with any other of our officers or members of Management. We do not
maintain key man life insurance on any of our Management.
11. Lack of Independent Directors - We cannot guarantee that our Board of
Directors will have a majority of independent directors in the future. In the
absence of a majority of independent directors, our executive officers, who are
also principal stockholders and directors, could establish policies and enter
into transactions without independent review and approval thereof. This could
present the potential for a conflict of interest between us and our stockholders
generally and the controlling officers, stockholders or directors.
12. Limitation of Liability and Indemnification of Officers and Directors - Our
officers and directors are required to exercise good faith and high integrity in
our Management affairs. Our Articles of Incorporation provide, however, that our
officers and directors shall have no liability to our shareholders for losses
sustained or liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of loyalty, did
not act in good faith, engaged in intentional misconduct or knowingly violated
the law, approved an improper dividend or stock repurchase, or derived an
improper benefit from the transaction. Our Articles and By-Laws also provide for
the indemnification by us of the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our
business or conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner which they reasonably believe
to be in, or not opposed to, the best interests of the Company, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations. To further implement the permitted indemnification, we have entered
into Indemnity Agreements with our officers and directors. (See "Indemnification
of Directors and Officers")
13. Continued Control by Current Officers and Directors - The present officers
and directors own 61.24% of the outstanding shares of Common Stock, and
therefore are in a position to elect all of our Directors and otherwise control
the Company, including, without limitation, authorizing the sale of equity or
debt securities of the Company, the appointment of officers, and the
determination of officers' salaries. Shareholders have no cumulative voting
rights. (See "Security Ownership of Certain Beneficial Owners and Management")
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14. Management of Potential Growth - We anticipate rapid growth which will place
a significant strain on our managerial, operational, and financial systems
resources. To accommodate our current size and manage growth, we must continue
to implement and improve our financial strength and our operational systems, and
expand, train and manage our sales and distribution base. There is no guarantee
that we will be able to effectively manage the expansion of our operations, or
that our facilities, systems, procedures or controls will be adequate to support
our expanded operations. Our inability to effectively manage our future growth
would have a material adverse effect on us.
15. Lack of Public Market - There has been no public market for any of our
securities. We will attempt to have our Common Stock listed on the National
Association of Securities Dealers OTC Bulletin Board. Such a listing will
require us to be a reporting company to the Securities and Exchange Commission
and we must find an authorized NASD broker/dealer prepared to act as a
market-maker for our Common Stock. There is no guarantee that we will find such
a market-maker or obtain a listing for the Common Stock. Regardless of the
market, any market for our Common Stock that may develop in all likelihood would
be a limited one, and, if a market does develop, the price of the Common Stock
may be volatile. The market price of our Common Stock could fluctuate
substantially due to a variety of factors, including market perception of our
ability to achieve our planned growth, our quarterly operating results or those
of other companies engaged in selling broadcasting content, the trading volume
in our Common Stock, changes in general conditions in the economy, the financial
markets, or other developments affecting us or our competitors. We have not
taken any efforts to register the Common Stock for trading in any state,
although we will be a registered issuer in the State of New York. Other than
resale to New York residents conducted for a bona fide investment account,
individually or in some fiduciary capacity of the selling shareholder, all sales
and resales may be made only according to an exemption from applicable state
security registration requirements. There is no guarantee that any such
exemption will be available.
16. Effect of Issuance of Preferred Stock - Our authorized capital consists of
100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. The
Board of Directors, without any action by our shareholders, is authorized to
designate and issue shares of Preferred Stock in such series as it deems
appropriate and to establish the rights, preferences and privileges of such
shares, including dividends, liquidation and voting rights. The rights of
holders of shares of Preferred Stock that may be issued may be superior to the
rights granted to the holders of the existing shares of Common Stock. The
ability of the Board of Directors to designate and issue such undesignated
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding us and the issuance of additional shares having preferential rights
could adversely affect the voting power and other rights of holders of Common
Stock.
17. Non Arm's-Length Transactions - The shares of Common Stock issued to our
present shareholders were issued at prices arbitrarily established by us and
should not be considered to have been negotiated at arm's length. (See "Certain
Relationships and Related Transactions")
18. Dividend Policy - In order to expand, we will need the maximum working
capital. Therefore, we do not expect to declare or pay any dividends in the
future, but instead we intend to retain all earnings, if any, to expand our
operations. The payment of dividends, if any, is in the discretion of our Board
of Directors and will depend upon our earnings, if any, in the future, our
capital
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requirements and financial condition, and other relevant factors. (see "Dividend
Policy")
19. Risks Relating to Low-priced Stocks - Trading in our Common Stock, if any
develops, may be subject to the requirements of certain rules promulgated under
the Securities Exchange Act of 1934, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
"penny stock" because of a market price of less than $5.00. Such rules require
the delivery, before any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker- dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction before sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our Common Stock which could
severely limit the market liquidity of our Common Stock.
20. Technology used in our businesses could become obsolete The satellite
television, cable and terrestrial broadcast industries are in a rapid and
continuing state of change as new technologies develop. Similarly, the markets
for conditional access systems, broadcast control software and interactive
television applications are characterized by rapid technological change,
evolving industry standards and frequent product enhancements. Many digital
broadcasters are seeking more sophisticated software that will afford them
greater flexibility in delivering content such as films, sports events, Internet
Web pages and other information to viewers, and will enable them to offer
interactive services, video-on-demand and pay-per-view events to their
subscribers. Our continued success will depend, in part, upon our ability to
acquire more content, and to market our content in new technological
environments in a timely and cost-effective manner. We can make no promise that
we will be able to keep pace with competing technological developments.
21. Competition could reduce the market share of our businesses and harm their
financial performance Competitors to satellite and other pay-TV businesses
comprise a broad range of companies engaged in communications, entertainment and
services, including satellite, cable and digital terrestrial television
distributors, television networks, telecommunications providers and home video
products companies, as well as companies developing new technologies and other
suppliers of news, information and entertainment. Competition from these
companies has increased over the past several years and we expect the industry
to undergo significant changes, including continued consolidation in the cable
and broadband markets, the growth of digital cable systems and the expansion of
digital broadcasting. In addition, the expansion of our platforms to include
interactive applications will bring them into competition with new providers.
Other providers may deliver competing interactive services to televisions,
personal computers or wireless devices. We cannot assure you that our businesses
will be able to compete successfully against current and prospective providers
of competing services.
22. We are not certain that we will be able to acquire enough hours of footage.
In order to to operate our nostalgic sports channel on a 24 hour per day, 7 day
per week basis, we will need approximately 4,300 hours of content for the first
two years. Although we believe that we will have at least 4,500 hours by the end
of 2001, there is no guarantee that we will achieve this, and if we are
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not successful in achieving this level of acquisition, we may be forced to
repeat programs more often, which could lead to a drop off in the rate of
subscriptions to our channel, or cancellation of existing subscriptions.
ITEM 3. DESCRIPTION OF PROPERTY
Offices
Presently, we maintain our principal office at 12868 Via Latina, Del Mar, CA
92014, which is the home of our President. Our telephone number at that office
is (858) 481-2207 and our facsimile number is also (858) 481-2207. The office
space, which is provided to us rent free, has approximately 2,200 square feet,
consisting of 2 separate offices, a conference room, a small kitchen and a
bathroom. We expect to continue this arrangement for the short term until we
have sufficient working capital. We consider the loaned premises adequate for
our purposes for the immediate future. Within the next 18 months, we plan to
move the office into a larger space.
Film Library
Our film library consists of approximately several hundred tapes, many of which
have been transferred to Beta SP format and some of which are in the process of
being of transferring. As of the date of this filing, we hold approximately 480
hours of previously televised sports material, including a wide range of sports
not limited to those listed below. By year end 2001, we project that our library
holdings will exceed 4500 hours. Our objective is to build this library to
10,000 hours of content by 2003. Mr. Litwak is presently in negotiation with
several individuals and entities for the purchase of approximately 1,200
additional hours of nostalgic content.
In our estimation, in order to broadcast fresh content, we will need to have a
minimum of 4,300 of broadcast-able (already transferred) content hours. At a
rate of 84 hours per week, this would provide approximately 52 weeks worth of
content. It is unlikely that viewers would expect a continuous 12 month period
of new broadcasting content, since that is rare, if nonexistent, in
broadcasting. We believe, therefore, that viewers would not be disappointed if
content is shown more than once throughout the year. It is our opinion that
4,300 hours is more than sufficient for a full two years of broadcast
programming. We believe that our library will exceed that number of hours by the
end of 2001, so we do not anticipate a problem in keeping to our objective.
Our film library is being stored at Stock Video, a video production and storage
facility in Boston, Massachusetts, where we are renting an environmentally
controlled space of approximately 1,800 square feet.
The Transfer Process
During the past year, we have been steadily acquiring film in various formats
from sources including, but not limited to, individuals, collectors, museums and
other entities. We have chosen to transfer our footage from their original
formats to a more sturdy Beta-SP format, which is suitable for
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broadcasting and good for long term preservation of the footage. The process of
transferring is conducted both in house and at outside transferring facilities.
The process is costly, ranging from $450 to $650 per transfer. The process does,
however, yields a higher quality, more durable medium for broadcasting. We
consider all of our film and tape holdings to be in the public domain, and
therefore hold no licenses to any of the recorded materials, as we believe the
securing of such rights is not legally necessary.
For reviewing film quality prior to duplication or transfer, we use a film
analyzer, which we own, to determine whether such transfer would render an
acceptable result. We are in the process of moving our film analyzer from New
York to California.
Film Holdings as of December 8, 2000
Following is a summary of our holdings, organized by sport. This library is
growing continually, and a more accurate summary of our holdings can be obtained
by calling our President, Ed Litwak, at (858) 481-2207.
Sport Approximate number Approximate number
of Programs of Hours
Baseball 75 55
(Games/Commentary)
Basketball 26 18
(Games/Commentary)
Football 150 105
(Games/Commentary
both college and professional)
Boxing 43 48
Golf 25 20
Wrestling 32 21
Bowling 52 52
Talk Shows/General Sports Programming
(Wide World of Sports, etc.) 63 87
Indy Auto Racing 14 9
Swimming 8 5
Track &Field 13 6
Tennis 18 12
Water skiing, roller derby
miscellaneous 88 44
-- --
TOTAL 607 482
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Many of our shows feature well know broadcasters from previously televised
sporting events such as Russ Hodges, Jack Drees, Mell Allen, Red Barber, Vin
Scullly, Chris Schenkel.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of December 1, 2000 with
respect to the beneficial ownership of our Company's Common Stock by each person
who, to our knowledge at that date, was the owner of 5% or more of the
outstanding shares and by each person who is an officer or a director of the
Company, and by all officers and directors of the Company as a group, together
with the percentages of outstanding shares of Common Stock held by them.
Percentage
Name and Address Number as of
of Shareholder of Shares 12/01/001
Nicholas J. Lagano, Sr. 1,001,000 9.2%
3111 Ocean Parkway
Brooklyn, NY 11235
Karen M. Prentice 5,642,881(2) 0%(2)
16 Winthrop Street
Milton, MA 02186
Edward E. Litwak 5,642,891(2) 52%(2)
12868 Via Latina
Del Mar, CA 92014
Donald P. Parson 12,000 .11%
230 Park Avenue
New York, NY 10169
Fred Renig 1,181,000 10.9%
4 Yacht Club Cove
Staten Island, NY 10308
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Clifford Slavin 625,100 5.75%
38 Wheatley Road
Old Westbury, NY 11568
Robert Kaplan 625,100 5.75%
12 Pond Place
Oyster Bay Cove, NY 11771
Olde Monmouth Capital, Inc. 850,838 7.83%
77 Memorial Parkway
Atlantic Highlands, NJ 07716
Robert Stulman 0 0%
12868 Via Latina
Del Mar, CA 92014
All Executive
Officers and Directors
as a group (4 persons) 6,643,891(2) 61.2%
-------------------------
1 Based upon 10,863,124 shares issued and outstanding.
2 Shares listed under Karen Prentice and Edward Litwak are duplicate entries.
Karen Prentice was the president and a director of Gemma Global, Inc., our
predecessor. She is also the daughter of Edward Litwak. Although the shares
are in the name of Karen Prentice. Edward Litwak may have a beneficial
interest in these shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
The following table sets forth the names and ages of the members of our Board of
Directors and our executive officers and the positions with the Company held by
each.
Name Age Office
Edward E. Litwak 59 President/CEO, Treasurer,
Director
Donald P. Parson 57 Director
Nicholas J. Lagano, Sr. 70 Director
Robert Stulman 65 Secretary
Our directors hold office until the next annual meeting of shareholders of the
Company or until
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successors are elected and qualified. Our officers hold office until the first
meeting of directors following the annual meeting of shareholders and until
their successors are elected and qualified, subject to earlier removal by the
Board of Directors
Edward E. Litwak. Mr. Litwak has been our President since December of 1998 and a
director since our incorporation in 1997. Prior to becoming President, Mr.
Litwak served as a consultant to the Company which was previously headed by his
daughter, Mrs. Prentice. From June 1, 1995 to the present, Mr. Litwak has been
President of Satellite Today, a cable network in development. From January 1,
1997 until December 1998 Mr. Litwak also served as the licensing agent for
Jennicor, LLC. From March 1, 1994 to June 1, 1995 he was Chairman of Merchandise
Entertainment Television Holdings, Inc. From June 1, 1991 to June 30, 1994 he
was President of Designers International, Inc. Mr. Litwak also served as Sports
Directions Director for a program series entitled the JeanNate Grand Prix. Mr.
Litwak attended Cornell University where he majored in business.
Donald P. Parson. Donald P. Parson is a member of our Board of Directors, having
joined us on September 19, 2000. For the past six years, beginning in 1994, he
has been of counsel to Satterlee Stephens Burke & Burke LLP. Mr. Parson has and
has practiced corporate, financial, business and banking law since 1968.
Mr. Parson has previously served as counsel to several brokerage firms and in
the formation of four New York and Connecticut chartered banks. He is a director
of two mutual funds, Philadelphia Fund, Inc. and Eagle Growth Shares, Inc., and
Home Diagnostics, Inc., a medical device company.
Mr. Parson is a Chairman of the Board of Visitors of Syracuse College of Law,
and a member of its National Capital Campaign. He is a director of The Rojtman
Foundation, a substantial private art foundation in New York City, and NICE
(Northern Ireland Childrens Enterprise) which operates two homes for educating
young people in Northern Ireland.
Mr. Parson is a member of the American Bar Association and the New York State
Bar Association, admitted to practice in New York and before the United States
Supreme Court, the United States Court of Appeals, Second Circuit, and the
United States District Court, Southern District of New York. He earned his
undergraduate degree B.A.) from Duke University, his law degree (J.D.) from
Syracuse College of Law, and his masters degree (LL.M.) from New York
University.
Nicholas J. Lagano, Sr. Mr. Lagano is one of our Directors, serving in that
capacity since September of 1997. From 1977 to the present he has been
associated with Blimpie's of New York, serving as CEO and President for most of
that period.
Robert Stulman. Mr. Stulman is Secretary to our Company, having served in that
capacity since September of 1997. He has been associated with us during our
pre-incorporation period, from January 1, 1997 through March of 1999. From 1991
to December 31, 1996 he was Vice President in charge of Importing Footwear for L
J. Global, Inc. in New York City. Mr. Stulman's day to day involvement has been
substantially curtailed since we ceased to be involved in the shoe business in
September of 1999.
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Chen-Kang Pu ("Gus"). Gus is Vice President of Satellite Service, serving in
that capacity since November of 2000. Presently, Gus is also the Satellite
Communications Manager for Merchandise Entertainment Television (MET) based in
San Diego, California, serving in that capacity since February of 1995.
Previously, from 1993 to 1995, Gus worked as a multimedia specialist for
International Telecommunications, Inc, where he developed multimedia
applications and hardware, planned and secured the entire satellite transmission
from GE Americom, Keysotone Communications and Pac Bell, as well as the signal
encryption system from TV/COM International. Gus has worked with TV from Taiwan
and ATV from Hong Kong. Gus received his Masters degree from the Interactive
Telecommunication Program at New York University in 1991.
Jospeh Swierczewski. Mr. Swierczewski is Vice President of Computer Services and
Operations, serving in that capacity since November of 2000. From October of
1994 to the present, he has been Vice President of Computer Services for
Merchandise Entertainment Television (MET) in San Diego, California. From 1975
though 1994, he was Senior Vice President and Chief Information Officer with
Garden Way (Troy-Built), Hanover House as a computer systems consultant to
Warner Brothers. There, Mr. Swierczewski managed the computer, customer service
telemarketing and credit/order processing operations of the company. He was also
responsible for the daily operations of Value Television (VTV).
Mr. Swierczewski is a graduate of the University of New Haven, where he received
his Bachelor of Science degree in Engineering.
Board of Advisors
We have formed a Board of Advisors with a strong background in the areas of
entertainment and sports. We believe that their individual and collective
expertise will assist us making certain decisions, and will open up
opportunities for us to further our business development. The members of the
Board of Advisors are:
Carol Connors. Carol Connors is an accomplished composer, lyricist, writer, and
has been nominated for ten major awards (Oscars Emmy's, Grammy's, Golden
Globes). She wrote the lyrics for the "Gonna Fly Now", the theme from the
Academy Award Wining "Rocky", and has also written songs for many other film and
television productions. Ms. Conners has recently written theme songs for the
nations of Jamaica and Singapore. Ms. Conner's accomplishments are substantial,
and her expertise in the entertainment business is extensive.
Michael Haynes. Michael Haynes was inducted into the NFL Hall of Fame on July
26, 1997. He began his career as a three-year All-WAC star at Arizona State as a
Sun Devil, and played for the New England Patriots. He then played for seven
seasons with the Los Angeles Raiders. In the NFL, Mr. Haynes was an all-pro
choice in 1978, 1982, 1984 and an All-AFC pick eight times.
Edwin Ruh. Mr. Ruh is founder and CEO of Adventure Assets (which can be reviewed
at www.adventas.com), an Internet-based sports and entertainment studio that
develops, capitalizes and manages original sports and entertainment projects
through a $400 million Sports and Entertainment Technology Equity Fund and
exploits emerging e-commerce technologies to create a hybrid form of
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online finance and entertainment. From 1995 to 1998, Mr. Ruh was Managing
Director of Gerken Capital Associates, a private investment bank, and General
Partner to the Sino-Asia Industrial Equity Fund, a $200 million
direct-investment equity fund.
From 1987 to 1995, Mr. Ruh was the senior Vice President in the International
Structured Finance Division of The Fuji Bank, Limited. As the founding member of
the bank's North American project finance operation, Mr. Ruh was responsible for
directing the bank's activities in financial advisory, equity funding, private
placement, securitization, and privatization services, in addition to serving as
head of the bank's worldwide sports and entertainment business.
Mr. Ruh holds a Masters of Public Administration from Harvard University;
Masters Degrees in Business Administration and Public Policy from the Heinz
School, Carnegie Mellon University; a Master's Certificate in Materials Science
from the University of Michigan; and a Bachelor of Science in Biomedical
Engineering from Pennsylvania State University. Mr. Ruh is a member of the World
Sports Humanitarian Hall of Fame; the Mayflower Society and the Board of
Trustees, Bay Head Chapel. He also is a volunteer with many charitable and
philanthropic organizations, including the Orton Dyslexic Society and the
Special Olympics. From 1979 to 1981, he toured on the United States Tennis
Association professional circuit.
Dennis Murphy. Dennis Murphy has been credited with creating and developing the
World Hockey Association (WHA) and the American Basketball Association (ABA).
These organizations were merged with their respective professional leagues, the
National Hockey League (NHL) and the National Basketball Association (NBA). He
also established World Team Tennis (WTT) and Roller Hockey Association (RHI),
both of which are currently operating.
ITEM 6. EXECUTIVE COMPENSATION
Compensation of Directors
None of our directors receives compensation for services as a director. However,
directors will be reimbursed expenses of attendance at meetings of the Board. In
exchange for joining our Board of Directors, we plan to issue Don Parson 12,000
shares of our Common Stock.
Compensation of Management
Except for our Employment Agreements with our President, Edward Litwak, we do
not currently have any employment agreements. Mr. Litwak receives $60,000 a year
but this will increase to $120,000 a year if and when our Common Stock commences
public trading. Neither Edward Litwak nor any other members of Managment have
received stock options or other such non-cash compensation.
Compensation of Advisors
None of our advisors receives compensation for services as an advisor. However,
advisors will be reimbursed expenses of attendance at meetings of the Board of
Advisors. In exchange for joining our
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Board of Advisors, we plan to issue each member 5,000 shares of our Common
Stock.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
When we decided to change our business direction and enter the nostalgic sports
channel business, we incorporated Global Group International, Inc. in order to
have a logical entity to which we could assign our licenses to exploit the Gucci
name, and to spin-off the shoe business. It was our objective to give the
original group of investors and the original Board of Directors control of the
shoe business, so we designated a series of preferred stock (1999-Global Group
Series) and issued 855,000 shares to those original investors and board members.
The 1999-Global Group Series, as provided in our designation, converted to
shares of Common Stock of Global Group International, Inc. Nick Lagano and
Edward Litwak, directors of our Company, as well as others who are not directors
or principal shareholders have been issued shares of Common Stock of Global
Group International, Inc. as a result of their conversion. There are presently
no shares of our Preferred Stock issued and outstanding.
ITEM 8. DESCRIPTION OF SECURITIES
Our authorized capital structure consists of shares of Preferred Stock and
Common Stock, both having a par value of one tenth of one cent ($.001) per
share. The authorized classes, and the amount or number of each which are
authorized and outstanding as of the date of this registration statement, are as
follows:
Class Authorized Outstanding
Capital Notes 1,000,000 $ 352,000
Preferred Stock 10,000,000 0
Common Stock 100,000,000 10,863,124 shares
Capital Notes
In January of 2000, our Board of Directors approved the use of Capital Notes to
raise needed capital. We have sold $352,000 of our "2000 Convertible
Subordinated Notes", in amounts ranging from $1,000 to $100,000. The holder of a
2000 Convertible Subordinated Note will receive interest at the rate of 12%
calculated from the date of issuance to the earlier of maturity or payment if
full if paid before maturity. The principal sum remaining and all accrued
interest is due and payable in full on December 31, 2000, unless converted at
the Holder's option. Holders may choose to convert their Capital Notes to Common
Stock thirty days following the effectiveness of this registration statement at
a rate of $1.25 per share. In the event that Capital Notes are not converted to
Common Stock or paid on or before December 31, 2000, interest will be accrued on
the principal sum and all accrued unpaid interest to December 31, 2000 at the
rate of 18% per annum calculated from January 1, 2001 to the date of payment in
full.
25
<PAGE>
Preferred Stock
Of our 10,000,000 authorized shares, we have designated only one series of our
Preferred Stock, called the 1999-Global Group Series of Convertible Preferred
Stock, of which there are 855,000 shares authorized, and all of which have been
issued, and have converted to shares of Global International, Inc., as pursuant
to the Certificate of Designation. We have no current plans for authorizing any
other series. The remaining 9,145,000 shares of Preferred Stock authorized are
undesignated as to preferences, privileges and restrictions. As shares are
issued, our Board of Directors must establish a series of the shares to be
issued and designate the preferences, privileges and restrictions applicable to
that series. We expect to use the Preferred Shares to make acquisitions, but
there are no acquisitions under negotiation at this time.
Common Stock
Our Articles of Incorporation provide for the issuance of 100,000,000 shares of
Common Stock, having a par value of $.001 per share. Common Stock shareholders
are entitled to cast one vote for each share at all shareholders' meetings for
all purposes, including the election of directors. Holders share equally on a
per share basis in dividends that may be declared by the Board of Directors out
of funds legally available after dividend distributions to Holders of Preferred
Stock. Upon liquidation or dissolution, any assets remaining after payment of
creditors and after distribution of accrued and unpaid dividend to holders of
Preferred Stock will be available for distribution to holders of our Common
Stock. Shares of Common Stock are not redeemable, and have no conversion rights.
The Common Stock does not have cumulative voting rights, which means that the
holders of more than fifty percent of the Common Stock voting for election of
directors can elect one hundred percent of our directors if they choose to do
so. The Company, which is recently organized and has no earnings, has not paid
any dividends on its Common Stock and it is not anticipated that any dividends
will be paid in the foreseeable future. Dividends upon Preferred Shares (if and
when issued) must have been paid in full for all past dividend periods before
distribution can be made to the holders of Common Stock. In the event of a
voluntary or involuntary liquidation, all of our assets and funds remaining
after payments to the holders of any issued and outstanding Preferred Stock will
be divided and distributed among the holders of Common Stock according to their
respective shares. No holder of Common Stock has any preemptive or other right
to subscribe for or purchase any part of any new or additional issue of Common
Stock or securities convertible into Common Stock.
Dividend Policy
We have just begun operations, have had only limited revenues, have not had any
earnings or net profits, and have not paid any cash dividends on our Common
Stock. Our Board of Directors has no present intention of declaring any cash
dividends, as we expect to re-invest all profits in the business for additional
working capital for continuity and growth. The declaration and payment of
dividends in the future will be determined by our Board of Directors considering
the conditions then existing, including our earnings, financial condition,
capital requirements, and other factors.
26
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
No Public Market. There is no public market for our Common Stock. Once this
Registration Statement becomes effective, we will attempt to have an authorized
market maker apply to have the shares listed on the National Association of
Securities Dealers OTC Bulletin Board, and/or on the National Quotations Bureau
Pink Sheets and Electronic Pink Sheets. We are uncertain that we will find such
a market maker or obtain such a listing. Even if we secure trading in our Common
Stock we are not certain that any trading market developed will be sustained.
Furthermore, any trading is likely to be sporadic, in small volumes, and at
fluctuating prices.
Shares Eligible for Resale. Our Company, under its original name of "Tren
Property Corp.", made a stock distribution under Rule 504 on October 27, 1997
and issued 11,553,100 shares of our Common Stock. However, following the 1 for
1,000 reverse stock split and the rounding up of fractional shares to a full
share, a total of 12,667 shares were issued and outstanding. Approximately 5,940
of such 12,667 shares are now eligible for resale under Rule 144. Those shares
were issued to affiliates and were therefore restricted at the time of issuance,
but are now eligible for resale under Rule 144. The remaining 6,727 shares are
eligible for resale because they were issued under Rule 504.
On June 25, 1998, we issued 10,000 shares (now 10 shares) of Common Stock to Mr.
Litwak to acquire his original Nevada corporation, also named "Gemma Global,
Inc."; all of those shares were restricted due to Mr. Litwak's status as an
affiliate of the Company, but are now eligible for resale.
Also in 1998 (after adjustment for the subsequent 1 for 1,000 reverse stock
split, as applicable) we issued 8,333,333 shares of our Common Stock in private
placements. Of these, 5,642,881 shares are held by affiliates and 2,690,462
shares are held by non-affilliates. The shares held by non affiliates will be
free from the volume limitations of Rule 144 by December 28, 2000 while the
remaining shares held by affiliates, although held for more than two years, will
remain subject to the resale and transfer volume limitations of Rule 144. In
addition, in an offering under Rule 504 of Regulation D made in December of
1998, we issued a total of we issued a total of 1,112,500 shares of Common Stock
to three professionals and consultants in exchange for their legal and
consulting services. Since these shares were issued under Rule 504 they are free
trading and eligible for sale at this time.
On February 22, 1999, we commenced an offering of shares of our Common Stock at
an offering price of $1.00 per share (the "1999 Offering") pursuant to Rule 504
of Regulation D. As a result of that offering, from February 1, 1999 to March
31, 1999, we issued 4,000 shares for total proceeds of $4,000, and 180,000
shares to a consultant in payment for its services. These issuances were
considered exempt under Section 3(b) of the Securities Act and Rule 504 of
Regulation D promulgated thereunder. Since these shares were issued under Rule
504 they are eligible for sale at this time.
On November 12, 1999, the Company issued 1,000,000 of its shares of Common Stock
to two individuals in repayment of a $100,000 loan made to the Company. These
issuance were considered exempt by reason of Section 4(2) of the Securities Act
of 1933.
27
<PAGE>
On May 17, 2000, the Company issued 25,000 shares of its Common Stock to an
individual for consulting services. These shares will not be eligible for resale
until May 17, 2001, and at that time, will be subject to the volume restrictions
of Rule 144.
Prior to the merger of Cavalcade of Sports Network, Inc. (New York) with the
Company, various persons had sold sports film footage to that New York
corporation in exchange for cash and Common Stock of the public company with
which Mr. Steven Bass, then the President of Cavalcade of Sports Network, Inc.,
had previously intended to merge. As a part of the termination of the original
proposed merger and to clarify the title to the footage, the Company agreed to
exchange its shares for the shares of the other company and to return the
received shares to the other company for cancellation. From March 21, 2000 to
June 16, 2000, the Company issued 105,564 shares to approximately 17 persons.
The shares of the other company received in exchange were returned to that
issuer for cancellation. These issuances were considered exempt by reason of
Section 4(2) of the Securities Act of 1933.
From July 25, 2000 through December 1, 2000, the Company issued a total of
90,060 in private placements. None of these issuances were made to affiliates,
therefore these shares will be eligible for resale one year from the date of
issuance, subject to the volume restrictions of Rule 144.
In general, under Rule 144 as currently in effect, subject to the satisfaction
of certain other conditions,
28
<PAGE>
a person or persons, including an affiliate of the Company, whose shares are
aggregated or who has owned restricted shares beneficially for at least one year
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
or the average weekly trading volume during the four calendar weeks preceding
the sale. A person, or persons whose shares are aggregated, who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned his or her stock for at least
two years is entitled to sell such stock pursuant to Rule 144 (k) without regard
to the limitations described above. Persons deemed to be affiliates must always
abide by the volume limitations and other requirements or Rule 144, even after
the applicable holding periods have expired. We are unable to estimate the
number of shares that will be sold under Rule 144, since the amount of
restricted shares sold will depend on the prevailing market price for our Common
Stock, the personal circumstances of the affiliates who own the restricted
shares, and other factors. Any future sale of substantial amounts of shares in
the open market may adversely affect the market price of our Common Stock.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings. We are not aware of any
legal proceedings pending, threatened or contemplated, against any of our
officers or directors, respectively, in their capacities as such.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Our Company was originally organized on July 29, 1997 in the State of Delaware
as Tren Property Corp., which was the shoe sales subsidiary of a public holding
company. Subsequently, on October 27, 1997, the subsidiary distributed
11,553,100 shares of Tren Property Corp.'s Common Stock to the shareholders of
the holding company in a distribution under Rule 504 of Regulation D. As a
result of that distribution, Tren Property Corp. became an independent company.
Subsequently, our founder, Mr. Edward E. Litwak, on behalf of himself and
certain associates, purchased 8,392,480 shares of Tren Property Corp.'s Common
Stock from its primary stockholders. A total of 1,649,740 shares remained held
by former officers, directors and affiliates, 1,510,880 shares were held by
approximately 600 shareholders. The distribution by Tren Property Corp. was
considered exempt from registration by reason of Rule 504 of Regulation D.
Previously, on July 22, 1997, our founder, Edward E. Litwak, had organized a
Nevada corporation named "Gemma Global, Inc." to exploit certain trade name
licenses obtained from Jennicor, LLC. At the time of incorporation, Mr. Litwak
assigned the License Agreements to Gemma Global, Inc. in
29
<PAGE>
exchange for all 10,000 shares of the corporation's Common Stock. Effective
January 1, 1998, Mr. Litwak exchanged his 10,000 shares of the Gemma Global,
Inc. Common Stock for 10,000 shares of our Common Stock in a so-called "B
Reorganization", which is a tax-free exchange of stock-for-stock under Section
368(a)(1)(B) of the Internal Revenue Code. As a result of that stock exchange,
Gemma Global, Inc. became a wholly-owned subsidiary of Tren Property Corp. The
issuance of the 10,000 shares was considered exempt from registration by reason
of Section 4(2) of the Securities Act of 1933.
We then merged the Nevada subsidiary, Gemma Global, Inc., into Tren Property
Corp. and changed the name of that Delaware company to Gemma Global, Inc. Next,
we re-domiciled the surviving company in Nevada by merging it into a new Nevada
corporation, also named Gemma Global, Inc. As a result of those mergers, Tren
Property Corp. became a Nevada corporation named "Gemma Global, Inc." which
owned the Jennicor, LLC licenses. The re-domiciliation was considered exempt
from registration by reason of Section 3(a) (9) of the Securities Act of 1933.
On December 16, 1998 we effected a 1000 for 1 reverse stock split. We rounded up
all fractional shares to a full share. As a result of the reverse stock split
and rounding up, there were only 12,667 shares then issued and outstanding.
On December 22, 1998 Mr. Edward Litwak converted $15,000 of his advances to the
Company to equity and purchased 8,333,333 shares of our Common Stock, at a
conversion price of. $0.0018 per share. Mr. Litwak directed that the Company
issue the 8,333,333 shares of our Company's Common Stock to 45 individuals,
consisting of certain existing members of management and other shareholders, in
exchange for their services. These issuances were considered exempt from
registration by reason of Section 4(2) of the Securities Act of 1933.
Also on December 22, 1998 the Company directed that 850,000 shares be issued to
Olde Monmouth Capital Co., Inc., and 262,500 shares be issued to Fox Law
Offices, P.A., all at the par value of $.001 per share in payment for services.
These issuances were made pursuant to Rule 504 of Regulation D and were
considered exempt from registration by reason of Section 3(b) of the Securities
Act and Rule 504 promulgated thereunder.
We commenced an offering of shares of our Common Stock at an offering price of
$1.00 per share (the "1999 Offering") pursuant to Rule 504 of Regulation D. As a
result of that offering, from February 1, 1999 to March 31, 1999, we issued
4,000 shares for total proceeds of $4,000, and 180,000 shares to a consultant in
payment for its services. These issuances were considered exempt under Section
3(b) of the Securities Act and Rule 504 of Regulation D promulgated thereunder.
On November 12, 1999, the Company issued a total of 1,000,000 shares of Common
Stock to two individuals in payment of a $100,000 loan made to the Company.
These issuances were considered exempt by reason of Section 4(2) of the
Securities Act.
On May 17, 2000, the Company issued 25,000 shares of its Common Stock to an
individual for services. This issuance was considered exempt by reason of
Section 4(2) of the Securities Act of 1933.
30
<PAGE>
Prior to the merger of Cavalcade of Sports Network, Inc. (New York) with the
Company, various persons had sold sports film footage to that New York
corporation in exchange for cash and Common Stock of the public company with
which Mr. Steven Bass, then the President of Cavalcade of Sports Network, Inc.,
had previously intended to merge. As a part of the termination of the original
proposed merger and to clarify the title to the footage, the Company agreed to
exchange its shares for the shares of the other company and to return the
received shares to the other company for cancellation. From March 21, 2000 to
June 16, 2000, the Company issued 105,564 shares to approximately 17 persons.
The shares of the other company received in exchange were returned to that
issuer for cancellation. These issuances were considered exempt by reason of
Section 4(2) of the Securities Act of 1933.
On July 25, 2000, the Company issued 1,000 shares of its Common Stock to an
individual in payment for services. This issuance was considered exempt from
registration by reason of Section 4(2) of the Securities Act of 1933.
Between August 10, 2000 and October 13, 2000, the Company issued 61,060 to
consultants in payment for services. These issuances were considered exempt from
registration by reason of Section 4(2) of the Securities Act of 1933.
On August 21, 2000, the Company issued 5,000 shares of its Common Stock as
additional consideration for the making of the $100,000 loan. This issuance was
considered exempt by reason of Section 4(2) of the Securities Act of 1933.
On October 30, 2000, the Company issued a total of 20,000 shares of its Common
Stock to seven individuals and entities in exchange for their production,
advertising, song-writing and consulting services. These issuances were
considered exempt by reason of Section 4(2) of the Securities Act of 1933.
On November 9, 2000, the Company issued 2,500 shares of its Common Stock to a
consultant in exchange for production services. This issuance was considered
exempt by reason of Section 4(2) of the Securities Act of 1933.
On December 1, 2000, the Company issued 500 shares to a consultant in exchange
for its services. This issuance was considered exempt by reason of Section 4(2)
of the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada Corporation Law
Section 78.7502 of the Nevada General Corporation Law contains provisions
authorizing indemnification by the Company of directors, officers, employees or
agents against certain liabilities and expenses which they may incur as
directors, officers, employees or agents of the Company or of certain other
entities. Section 78.7502(3) provides for mandatory indemnification, including
attorney's fees, if the director, officer, employee or agent has been successful
on the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein. Section
31
<PAGE>
78.751 provides that such indemnification may include payment by the Company of
expenses incurred in defending a civil or criminal action or proceeding in
advance of the final disposition of such action or proceeding upon receipt of an
undertaking by the person indemnified to repay such payment if he shall be
ultimately found not to be entitled to indemnification under the Section.
Indemnification may be provided even though the person to be indemnified is no
longer a director, officer, employee or agent of the Company or such other
entities. Section 78.752 authorizes the Company to obtain insurance on behalf of
any such director, officer employee or agent against liabilities, whether or not
the Company would have the power to indemnify such person against such
liabilities under the provisions of the Section 78.7502.
The indemnification and advancement of expenses provided pursuant to Sections
78.7502 and 78.751 are not exclusive, and subject to certain conditions, the
Company may make other or further indemnification or advancement of expenses of
any of its directors, officers, employees or agents. Because neither the
Articles of Incorporation, as amended, or By-laws of the Company otherwise
provide, notwithstanding the failure of the Company to provide indemnification
and despite a contrary determination by the Board of Directors or its
shareholders in a specific case, a director, officer, employee or agent of the
Company who is or was a party to a proceeding may apply to a court of competent
jurisdiction for indemnification or advancement of expenses or both, and the
court may order indemnification and advancement of expenses, including expenses
incurred in seeking court- ordered indemnification or advancement of expenses if
it determines that the petitioner is entitled to mandatory indemnification
pursuant to Section 78.7502(3) because he has been successful on the merits, or
because the Company has the power to indemnify on a discretionary basis pursuant
to Section 78.7502 or because the court determines that the petitioner is fairly
and reasonably entitled indemnification or advancement of expenses or both in
view of all the relevant circumstances.
Articles of Incorporation and By-Laws
The Articles of Incorporation and By-laws of the Company, as amended, of the
Company empower the Company to indemnify current or former directors, officers,
employees or agents of the Company or persons serving by request of the Company
in such capacities in any other enterprise or persons who have served by the
request of the Company is such capacities in any other enterprise to the full
extent permitted by the laws of the State of Nevada.
Pursuant to Nevada law and the Company's Articles of Incorporation and By-laws,
officers and directors of the Company (and former officers and directors) are
entitled to indemnification from the Company to the full extent permitted by
law. The Company's Articles of Incorporation and By-laws generally provide for
such indemnification for claims arising out of the acts or omissions of the
Company's officers and directors in their capacity as such, undertaken in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe that his conduct was unlawful. The conditions
and extent of indemnification are set forth in the Articles of Incorporation and
By-laws of the Company and in the Indemnity Agreements between the Company and
each officer and director. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to officers, directors or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such
32
<PAGE>
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Limitation On Liability
As permitted by Nevada law, the Company's Articles of Incorporation provide that
a director of the Company shall not be personally liable for monetary damages
for a breach of fiduciary duty as such, except for liability (i) for any breach
of the director's duty of loyalty, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, or (iii)
for any transaction from which the director derived an improper personal
benefit. This provision is intended to afford the Company's directors additional
protection from, and limit their potential liability from, suits alleging a
breach of their duty of care. The Company believes this provision will assist it
in the future in securing the services of directors who are not employees of the
Company. As a result of the inclusion of such a provision, shareholders may be
unable to recover monetary damages against directors for actions taken by them
which constitute negligence or gross negligence or which are in violation of
their fiduciary duties although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to shareholders for any particular case, shareholders may
not have any effective remedy against the challenged conduct.
Indemnity Agreement
In order to induce and encourage highly experienced and capable persons to serve
as directors and officers, we have entered into an Indemnity Agreement with each
director and officer presently serving us and will provide the same agreement to
future directors and officers as well as certain agents and employees. The
Agreement provides that we shall indemnify the director and/or officer, or other
person, when he or she is a party to, or threatened to be made a party to, a
proceeding by, or in the name of, the Company. Expenses incurred by the
indemnified person in any proceeding are to be paid to the fullest extent
permitted by applicable law. The Agreement may at some time require us to pay
out funds which might otherwise be utilized to further our business objectives,
thereby reducing our ability of to carry out its projected business plans.
Director's and Officer's Liability Insurance
At present, we do not have any liability insurance for the benefit of its
officers and directors. Because of the expected cost of such insurance, we have
no present plans to obtain such insurance.
SEC Position on Indemnification for Security Act Liability
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, we
have been advised that is the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than our payment of expenses
incurred or paid by a director, officer or controlling
33
<PAGE>
person of the Company in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we 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 of whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized
Cavalcade of Sports Media, Inc.
Registrant
Date: December 4, 2000 By: /s/ Edward E. Litwak
-----------------------------
Edward E. Litwak, President
/s/ Edward E. Litwak
----------------------------- December 4, 2000
Edward E. Litwak, CEO
/s/ Edward E. Litwak
-----------------------------
Edward E. Litwak, CFO
34
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1999 AND 1998
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
CAVALCADE OF SPORTS MEDIA, INC.
(A Development Stage Company)
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
Index to Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page No
<S> <C>
Report of Independent Certified Public Accountants F-3
Consolidated Balance Sheet at December 31, 1999 and 1998 F-3 to F-4
Consolidated Statements of Losses for the two years ended December 31,
1999 and 1998, and for the period July 29, 1997 (date of inception) to
December 31, 1999 for the two years ended December 31, 1999 and 1998,
and for the period July 29, 1997 (date of inception) to December 31, 1999 F-5
Consolidated Statements of Deficiency in Stockholders' Equity for the two
years ended December 31, 1999 and 1998, and for the period July 29, 1997
(date of inception) to December 31, 1999 F-6
Consolidated Statements of Cash Flows for the two years ended December 31,
1999 and 1998, and for the period July 29, 1997 (date of inception) to
December 31, 1999 F-7
Notes to Consolidated Financial Statements F-8 to F-17
INTERIM CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Statement of Losses for the nine months ended September 30, 2000
and 1999 and for the period July 29, 1997 (date of inception) to September 30,
2000 F-18
Condensed Balance Sheet as of September 30, 2000 and December 31, 1999 F-19
Condensed Statement of Cash Flows for the nine months ended September 30,
2000 and 1999 and for the period July 29, 1997 (date of inception) to
September 30, 2000 F-20
Condensed Notes to Financial Statements at September 30, 2000 F-21
</TABLE>
<PAGE>
Stefanou & Company, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1360 Beverly Road
Suite 305
McLean, VA 22101-3621
703-448-9200
703-448-3515 (fax)
Philadelphia, PA
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cavalcade of Sports Media, Inc.
Del Mar, California
We have audited the accompanying consolidated balance sheet of Cavalcade of
Sports Media, Inc. (a development stage Company) as of December 31, 1999 and
1998 and the related consolidated statements of losses, deficiency in
stockholders' equity, and cash flows for the years then ended and for the period
July 29, 1997 (date of inception) to December 31, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cavalcade of
Sports Media, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the two years ended, and from July 29, 1997
(date of inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ STEFANOU & COMPANY, LLP
-----------------------
Stefanou & Company, LLP
Certified Public Accountants
McLean, Virginia
October 25, 2000
F-3
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
BALANCE SHEET
DECEMBER 31, 1999 and 1998
ASSETS 1999 1998
---- ----
CURRENT ASSETS:
Cash and equivalents $ 37,795 $2,225
-------- ------
Total current assets 37,795 2,225
OTHER ASSETS:
Film library 271,000 --
Other investment 5,000 --
-------- ------
276,000 --
-------- ------
$313,795 $ 2,225
======== =======
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued expenses $200,522 $ 35,843
Other accrued liabilities (Note D) 380,000 --
Advances from officers (Note F) 261,729 141,675
------- -------
Total current liabilities 842,251 177,518
COMMITMENTS AND CONTINGENCIES (NOTE E)
DEFICIENCY IN STOCKHOLDERS' EQUITY (NOTE D)
Preferred stock, par value, $.001 per share; 10,000,000
shares authorized; 855,000 issued at December 31 1999 and
none issued at December 31, 1998 855 --
Common stock, no par value, $.001 per share; 100,000 ,000
shares authorized in 1999; 20,000,000 shares authorized in
1998; 10,642,500 issued at December 31, 1999; 9,457,396
shares issued at December 31, 1998 10,642 9,458
Additional paid-in-capital 139,913 19,097
Deficit accumulated during development stage (679,866) (203,848)
--------- ---------
Deficiency in stockholders' equity (528,456) (175,293)
--------- ---------
$313,795 $ 2,225
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
CONSOLIDATED STATEMENTS OF LOSSES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Period from
July 29, 1997
(date of
inception)
through
December 31,
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues: $ -- $ -- $ --
Cost and expenses:
Selling, general and administrative 212,109 203,848 415,957
Impairment loss 266,794 266,794
----------- ----------- ------------
478,903 203,848 682,751
Other Income 2,885 -- 2,885
----------- ----------- ------------
Operating loss (476,018) (203,848) (679,866)
=========== =========== ============
Income (taxes) benefit -- -- --
----------- ----------- ------------
Net loss $ (476,018) $ (203,848) $ (679,866)
=========== =========== ===========
Loss per common share (basic and assuming dilution) $ (.05) $ (.04) $ (.20)
=========== =========== ===========
Weighted average common shares outstanding 10,050,500 4,735,578 3,543,114
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 and 1998
Preferred Stock Common Stock Additional
Shares Amount Shares Amount Paid-in-Capital
<S> <C> <C> <C> <C> <C>
Shares issued at date of inception (July 29,
1997 to founder in exchange for
contribution of organization costs, as
restated (Note D) -- $ -- 12,657 $ 12 $ 11,541
--
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 as restated
-- -- 12,657 12 11,541
Share issued in exchange for Gemma Global,
Inc., as restated (Note D) -- -- 10 -- --
Shares issued to consultants in exchange
for services -- -- 1,112,500 1,113 889
Shares issued in exchange for shareholder
debt 8,333,333 8,333 6,667
Net loss -- (203,848) -- (203,848)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 9,458,500 9,458 19,097
Shares issued for cash in connection with
private placements -- -- 1,004,000 1,004 102,996
Shares issued to consultants in exchange
for services -- -- 180,000 180 17,820
Shares issued in exchange for services
(Note D) 855,000 855 -- -- --
Repurchase of shares -- -- -- -- --
Issuance of shares in connection with
acquisition of Cavalcade of Sports Network,
Inc. (Note B) -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 855,000 $ 855 10,642,500 $ 10,642 $ 139,913
========== ========== ========== ========== ==========
Deficit
Accumulated
During Development Treasury
Stage Stock Total
----- ----- -----
<S> <C> <C> <C>
Shares issued at date of inception (July 29,
1997 to founder in exchange for
contribution of organization costs, as
restated (Note D) $ -- $ -- $ 11,553
Net loss -- -- --
---------- ---------- ----------
Balance at December 31, 1997 as restated
-- -- 11,553
Share issued in exchange for Gemma Global,
Inc., as restated (Note D) -- -- --
Shares issued to consultants in exchange
for services -- -- 2,002
Shares issued in exchange for shareholder
debt -- 15,000
Net loss (203,848) -- (175,293)
---------- ---------- ----------
Balance at December 31, 1998 (203,848) -- (175,293)
Shares issued for cash in connection with
private placements -- -- 104,000
Shares issued to consultants in exchange
for services -- -- 18,000
Shares issued in exchange for services
(Note D) -- -- 855
Repurchase of shares -- (2,821) (2,821)
Issuance of shares in connection with
acquisition of Cavalcade of Sports Network,
Inc. (Note B) -- 2,821 2,821
Net loss (476,018) -- (476,018)
---------- ---------- ----------
Balance at December 31, 1999 $ (679,866) $ -- $ (528,456)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Period from July 29,
1997 (date of
inception) through
December 31,1999
----------------
1999 1998
---- ----
Increase (decrease) in cash and equivalents
<S> <C> <C> <C>
Cash flows from operating activities
Net loss for the year $ (476,018) $ (203,848) $ (679,866)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Common stock issued in exchange for services 18,000 13,555 31,555
Preferred stock issued in exchange for services 855 -- 855
Increase (decrease) in:
Accounts payable and accrued expenses 164,679 35,843 200,522
Advances from officer 120,054 141,675 261,729
Other advances 380,000 -- 380,000
------------ --------- ------------
Net cash provided by operating activities 207,570 (12,775) 194,795
Cash flows used in investing activities
Acquisition of film library (271,000) -- (271,000)
Investment (5,000) -- (5,000)
------------ --------- ------------
Net cash used in investing activities (276,000) -- (276,000)
Cash flows provided (used) in financing activities:
Proceeds from issuance of notes payable and other
Proceeds from issuance of common stock, net 104,000 15,000 119,000
------------ --------- ------------
Net cash, provided (used) in financing activities 104,000 15,000 119,000
------------ --------- ------------
Net (decrease) increase in cash and equivalents 35,570 2,225 37,795
Cash and equivalents at beginning of period 2,225
------------ --------- ------------
-- -- 2,225
------------ --------- ------------
Cash and equivalents at end of period $ 37,795 $ 2,225 $ 40,020
============ ========= ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ -- $ -- $ --
============ ========= ============
Common stock issued for services $ 18,000 $ 13,555 $ 31,555
Preferred stock issued in exchange for services 855 -- 855
Common stock issued in exchange for debt -- 15,000 15,000
Acquisition:
Assets acquired 415,030 -- 415,030
Accumulated deficit -- -- -
Liabilities assumed (412,209) -- (412,209)
Common stock issued (2,821) -- (2,821)
------------ --------- ------------
Net cash paid for acquisition $ -- $ -- $ --
============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE A-SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
Cavalcade of Sports Media, Inc. (the "Company") is in the development stage and
its efforts have been principally devoted to developing a sports entertainment
business, which will provide 24 hours per day broadcasting from a library of
nostalgic sports programming and footage to paid subscribers. To date the
Company has generated no sales revenues, has incurred expenses, and has
sustained losses. Consequently, its operations are subject to all risks inherent
in the establishment of a new business enterprise. For the period from inception
through December 31, 1999, the Company has accumulated losses of $679,866.
The consolidated financial statements include the accounts of Cavalcade of
Sports Media, Inc. and its wholly-owned subsidiaries, Cavalcade of Sports
Network, Inc. and Global Group International, Inc. Significant intercompany
transactions have been eliminated in consolidation.
Revenue Recognition
The Company will follow a policy of recognizing subscriber fee income as revenue
in the period the service is provided.
Film Library
The Company's film library is stated at cost, less accumulated amortization. For
financial statement purposes, amortization of the film library is provided using
the straight-line method over their estimated useful. The straight-line method
of depreciation is also used for tax purposes. Amortization will be for the
estimated useful life of 3 years, starting once films are ready for
distribution. Amortization will follow the Film Forecast Method presented in
SFAS Number 53 "Financial Reporting by Producers and Distributors of Motion
Picture Films.
Advertising
The Company follows the policy of charging the costs of advertising to expenses
incurred.
F-9
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998 AND 1997
NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statements of Financial Standards
No. 109, "Accounting for Income Taxes". Under this method deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be removed or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of operations in the period
that includes the enactment date.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the fair value of
acquired companies and is being amortized on a straight-line basis over forty
years.
Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell.
F-10
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.
Stock Based Compensation
The Company accounts for stock transactions in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees." In accordance with statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the Company has adopted the proforma disclosure requirements.
Liquidity
As shown in the accompanying financial statements, the Company incurred a net
loss of $ 476,018 during the year ended December 31, 1999 and $ 203,848 during
the year ended December 31, 1998. The Company's current assets exceeded its
current liabilities by $ 804,456 as of December 31, 1999.
Comprehensive Income
The Company does not have any items of comprehensive income in any of the
periods presented.
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS 131")
in the year ended December 31, 1998. SFAS establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS 131 also establishes standards
for related disclosures about products and services and geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. The information disclosed herein,
materially represents all of the financial information related to the Company's
principal operating segment.
F-11
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)
Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings per share has
been calculated based upon the weighted average number of common shares
outstanding. Stock options and warrant's have been excluded as common stock
equivalents in the diluted earnings per share because they are either
antidilutive, or their effect is not material. There is no effect on earnings
per share information for the year ended December 31, 1999 relating to the
adoption of this standard.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pension and Other -Post Employment Benefits ("SFAS
132") in the year ended December 31, 1999. SFAS No. 132 establishes disclosure
requirements regarding pension and post employment obligations. SFAS No. 132
does not effect the Company as of December 31, 1999.
In March 1998, Statement of Position No. 98-1 was issued, which specifies the
appropriate accounting for costs incurred to develop or obtain computer software
for internal use. The new pronouncement provides guidance on which costs should
be capitalized, and over what period such costs should be amortized and what
disclosures should be made regarding such costs. This pronouncement is effective
for fiscal years beginning after December 15, 1998, but earlier application is
acceptable. Previously capitalized costs will not be adjusted. The Company
believes that it is already in substantial compliance with the accounting
requirements as set forth in this new pronouncement, and therefore believes that
adoption will not have a material effect on its financial condition or operating
results.
In April 1998, Statement of Position No. 98-5 was issued which requires that
companies expense defined previously capitalized start-up costs including
organization costs and expense future start-up costs as incurred. Adoption of
this statement does not have an effect on the Company's financial condition or
operating results.
The Company adopted Statement of Financial Standards No. 133, Accounting for
Derivative Instruments and for Hedging Activities ("SFAS No. 133") in the year
ended December 31, 1999. SFAS No. 133 requires that certain derivative
instruments be recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is also provided
to determine when hedge accounting treatment is appropriate whereby hedging
gains and losses are offset by losses and gains related directly to the hedged
item. SFAS No. 133's impact on the Company's consolidated financial statements
is not expected to be material as the Company has not historically used
derivative and hedge instruments.
F-12
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE A-SUMMARY OF ACCOUNTING POLICIES (continued)
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (" SAB 101"), Revenue Recognition in Financial Statements,
which will become effective December 31, 2000. The Company does not expect the
standard to have a material effect on its financial condition or operating
results.
NOTE B- ACQUISITION
In December 1999 the Company acquired in an exchange for 2,821,440 shares of
common stock, Cavalcade of Sports Network, Inc., in a transaction accounted for
using the purchase method of accounting. From its inception and up to its
acquisition by the Company, Cavalcade of Sports Network, Inc. did not operate a
business, and as such did not have any revenue producing activities, employees,
market distribution system, sales force, customers, production techniques and or
trade names.
The total purchase price and carrying value of the net assets acquired of
Cavalcade of Sports Network, Inc. were as follows:
Working capital $ 35,207
Film library 271,000
Investment 5,000
Goodwill 213,794
Liabilities assumed (522,180)
---------
$ 2,821
=========
The Company has recorded the carryover basis of the net assets acquired, which
did not differ materially from their fair value and its operating results have
been included in the Company's consolidated financial statements since the date
of purchase.
Subsequent to the acquisition, the Company's management's determined the
estimated future cash flows from the asset acquired would be less than the
carrying amount of the goodwill. Accordingly, the unamortized goodwill
associated with the acquisition of these assets was written off in accordance
with Statement of Financial Accounting Standards No. 121.
F-13
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE C-INCOME TAXES
Financial Accounting Standard No. 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statement or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Temporary differences between taxable income reported for financial
reporting purposes and income tax purposes are insignificant.
At December 31, 1999, the Company has available for federal income tax purposes
a net operating loss carryforward of $ 679,867, expiring the year 2014, that may
be used to offset future taxable income. The Company has provided a valuation
reserve against the full amount of the net operating loss benefit, since in the
opinion of management based upon the earnings history of the Company, it is more
likely than not that the benefits will not be realized. Due to significant
changes in the Company's ownership, the Company's future use of its existing net
operating losses may be limited.
Components of deferred tax assets as of December 31, 1999 are as follows:
Non current:
Net operating loss carryforward $230,843
Valuation allowance (230,843)
--------
Net deferred tax asset $ --
========
NOTE D-CAPITAL STOCK
The Company's predecessor was Tren Property Corp., an inactive company with no
significant operations incorporated under the laws of the State of Delaware in
July 1997. In February 1998, Tren Property Corp. changed its name to Gemma
Global, Inc. ("Gemma").
In April 1998, the shareholders of Gemma exchanged all of their outstanding
shares on a share for share basis for shares of the common stock of Gemma
Global, Inc., an inactive company with no significant operations, organized
under the laws of the State of Nevada ("Company"). The Company's sole asset was
a License Agreement granting the Company the right to manufacture and distribute
women's shoes (see Note E).
F-14
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE D-CAPITAL STOCK (continued)
In December 1998, the Company's Board of Directors approved a one (1) share for
one thousand (1,000) share reverse stock split. The accompanying financial
statements have been restated to give effect for the reverse split.
In March 1999, the Company was renamed Pioneer 2000, Inc. In December, 1999 the
Company was renamed Cavalcade of Sports Media, Inc.
The Company has authorized 100,000,000 shares of common stock , with a par value
of $.001 per share. The Company has also authorized 10,000,000 shares if
preferred stock, with a par value of $.001 per share.
In, 1999, the Company authorized and issued a a series of 855,000 shares of the
Company's preferred stock as convertible preferred stock ("1999 Global Group
Series") in exchange for services provided on behalf of the Company. The holders
of the convertible preferred stock shall only be entitled to receive dividends
from earnings of the Company's wholly-owned subsidiary, Global Group
International, Inc. Global International, Inc.'s principal asset is the License
Agreement to manufacture and distribute women's' shoes (see Note E). Such
dividends shall be equal to ten percent (10%) of the subsidiary's earnings on a
quarterly basis. Earnings are defined as net income after taxes. Any earned, but
unpaid dividends shall be accrued. In the event of liquidation, dissolution, or
winding up of the Company, the holders of the 1999 Global Group Series
convertible preferred stock shall be entitled to receive out of assets of the
Company, solely the common stock of Global Group, International, Inc.
In connection with the acquisition of Cavalcade of Sports Network, Inc., the
Company assumed a $ 380,000 liability representing advances by private investors
to Cavalcade of Sports Network, Inc. Subject to the Company registering its
common stock, the Company has agreed to offer shares of the Company's common
stock to the investors in exchange for the advances based upon the price per
share of the registration.
NOTE E-COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space on a month-to-month basis in Del Mar,
California.
F-15
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE E-COMMITMENTS AND CONTINGENCIES (continued)
Consulting Agreements
The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. directors and officers. The Agreements are
generally for a term of 12 months from inception and renewable automatically
from year to year unless either the Company or Consultant terminates such
engagement by written notice.
License Agreement
In January, 1998, the Company's sole director, officer and shareholder assigned
to the Company various License Agreements in exchange for 10 shares of the
Company's issued and outstanding common stock. The agreements grant the Company
the right to manufacture and distribute women's shoes in exchange for a minimum
annual royalty equal to the greater of 6% of net sales or $25,000 per year. The
agreements expire in 2017. The Company is currently in default under the terms
of the License Agreement.
NOTE F-RELATED PARTY TRANSACTIONS
From the Company's inception in July 1997, the Company's Officer, Director and
principal shareholder has advanced funds to the Company for working capital
purposes. No formal repayment terms or arrangements exist. The amount of the
advances due the officer at December 31, 1999 and 1998 were $261,729 and
$141,675, respectively.
NOTE G-LOSSES PER SHARE
The following table presents the computation of basic and diluted losses per
share:
1999 1998
---------- ----------
Loss available for common shareholders $ (476,018) $(203,848)
Basic and fully diluted loss per share $ (.05) $ (.04)
Weighted average common shares outstanding 10,050,500 4,735,578
========== =========
Net loss per share is based upon the weighted average of shares of common stock
outstanding. In December 1998, a one (1) for one thousand (1,000) reverse stock
split of the Company's common stock was effected (See Note D). Accordingly, all
historical weighted average share and per share amounts have been restated to
reflect the reverse stock split.
F-16
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC.
(A developmental stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
NOTE H- SUBSEQUENT EVENT
Subsequent to the date of the accompanying financial statements, the Company
received $ 252,000 of proceeds from a private placement of the Company's capital
notes payable.
On September 18, 2000, the holders of the Company's preferred stock elected to
convert their shares to common stock of Global Group International, Inc. As a
result of the conversion, the Company's interest in Global Group International,
Inc. was reduced from 100% to less than 1%.
F-17
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF LOSSES
(UNAUDITED)
<TABLE>
<CAPTION>
For The Period July
29, 1997 (Date of
Three Months Ended Nine Months Ended Inception) to
September 30, September 30, 1999 September 30, 2000 September 30, 1999 September 30,
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues: $ -- $ -- $ -- $ -- $ --
Operating Expenses:
Selling, General &
Administrative 342,964 30,843 550,352 208,758 1,233,103
Interest Expense 22 -- 41 -- 41
Depreciation Expense -- -- -- -- --
----------- --------- ---------- ----------- -------------
Operating
Expense 342,986 30,843 550,393 208,758 1,233,144
Other Income -- -- 1,881 2,885 4,766
Interest
Income -- -- 130 -- 130
----------- --------- ---------- ----------- -------------
Operating loss (342,986) (30,843) (548,382) (205,873) $(1,228,248)
Income taxes
(benefit) -- -- -- -- --
Net loss $ (342,986) $(30,843) $(548,382) $ (205,873) $ (1,228,248)
Losses per common share
(basic and assuming
dilution) $ (0.03) $ (0.00) $ (0.05) $ (.02) $ (0.12)
=========== ========== ========= ========== ===========
Weighted Average shares
Outstanding:
Basic and diluted 10,839,064 9,642,500 10,731,360 9,573,079 10,578,036
</TABLE>
The accompanying notes are an integral part of these financial statements
F-18
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 2000
(Unaudited) December 31, 1999
-----------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 4,180 $ 37,795
-------- --------
Total current assets
4,180 37,795
Other assets:
Film library
614,437 271,000
Other investment
5,000 5,000
-------- --------
Total other assets
619,437 276,000
$623,617 $313,795
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 281,023 $ 200,522
Other accrued liabilities
380,000 380,000
Capital Notes 252,000 --
Advances from officers
293,454 261,729
Note payable
100,000 --
----------- ----------
Total current liabilities 1,306,477 842,251
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Deficiency in Stockholders' equity:
Preferred stock, par value, $0.001 per share; 10,000,000 shares
authorized; none issued at September 30, 2000 and 855,000
issued at December 31, 1999 -- 855
Common stock, par value, $0.001 per share; 100,000,000 shares
authorized in 1999; 10,839,064 Issued at September 30, 2000;
10,642,500 issued at December 31, 1999 10,839 10,642
Additional paid-in-capital 534,549 139,913
Retained earnings
(1,228,248) (679,866)
----------- ---------
(682,860) (528,456)
--------- ---------
$ 623,617 $ 313,795
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30, For the Period July 29,
-------------- -------------- 1997(Date of Inception)
2000 1999 to September 30, 2000
---- ---- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from operating activities $ (548,382) $ (93,681) $ (1,228,248)
Adjustments to reconcile net income to net cash:
Common Stock issued in exchange for Services 134,583 -- 166,138
Conversion of preferred stock (855) -- --
Change in: Receivables -- -- --
Prepaid expenses and other assets -- -- --
Accounts payable and accrued expenses 180,501 -- 761,023
----------- ------------ ----------------
Stock issued for merger consulting fees -- -- --
Net cash from operating activities (234,153) (93,681) (301,087)
----------- ------------ ----------------
Cash flows used in investing activities:
Acquisition of Film Library (83,187) -- (354,187)
Investment -- -- (5,000)
----------- ------------ ----------------
Net cash used in investing activities (83,187) -- (359,187)
Cash flows (used in)/provided by financing activities:
Proceeds from issuance of Common Stock -- -- 119,000
Proceeds from issuance of Capital Notes 252,000 -- 252,000
Proceeds from loans from stockholders 31,725 94,054 293,454
Repayment of loans from stockholders -- -- --
----------- ------------ ----------------
Net cash used in financing activities 283,725 94,054 664,454
Net increase in cash and cash equivalents (33,615) 373 4,180
Cash and cash equivalents at beginning of period 37,795 2,225 --
----------- ------------ ---------------
Cash and cash equivalents at end of period $ 4,180 $ 2,598 $ 4,180
=========== =========== ===============
Supplemental Information:
Cash paid during the period for interest $ -- $ -- $ --
Cash paid during the period for taxes -- -- --
Common Stock issued for services 134,583 -- 166,138
Common Stock issued for film library 260,250 -- 260,250
Conversion of Preferred Stock 855 -- 855
Preferred Stock issued for services -- -- 855
Common Stock issued in exchange for debt -- -- 15,000
Acquisition:
Assets acquired -- -- 415,030
Accumulated deficit -- -- --
Liabilities assumed -- -- (412,209)
Common Stock Issued
-- -- (2,821)
----------- ------------ ----------------
Net cash paid for acquisition $ -- $ -- $ --
=========== ============ ================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-20
<PAGE>
CAVALCADE OF SPORTS MEDIA, INC
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-SB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from developmental stage operations for the nine-month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. The unaudited condensed financial
statements should be read in conjunction with the consolidated financial
adjustments and footnotes thereto, included in the Company's SEC Form 10-SB.
NOTE B - BASIS OF PRESENTATION
Cavalcade of Sports Media, Inc. (the "Company") is in the development stage and
its efforts have been principally devoted to developing a sports entertainment
business, which will provide 24 hours per day broadcasting from a library of
nostalgic sports programming and footage to paid subscribers. To date the
Company has generated no sales revenues, has incurred expenses, and has
sustained losses. Consequently, its operations are subject to all risks inherent
in the establishment of a new business enterprise.
The condensed financial statements include the accounts of Cavalcade of Sports
Media, Inc. and its wholly-owned subsidiaries, Cavalcade of Sports Network, Inc.
and Global Group International, Inc. Significant intercompany transactions have
been eliminated in
consolidation.
On September 18, 2000, the holders of the Company's preferred stock elected to
convert their shares to common stock of Global Group International, Inc. As a
result of the conversion, the Company's interest in Global Group International,
Inc. was reduced from 100% to less than 1%. Accordingly, subsequent to that
date, the Company discontinued accounting for Global Group International, Inc.
as a wholly owned subsidiary. The conversion did not have a material effect on
the Company's financial condition or operating results.
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