SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
Commission File No. 0-9311
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
(Name of small business issuer as specified in its charter)
Delaware 87-0269260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15840 Ventura Boulevard, Suite 310, Encino, California 91436
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (818) 386-2323
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Revenues for the fiscal year ended December 31, 1996 totaled $1,001,300.
As of December 31, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $-0-.
As of December 31, 1996, the registrant had outstanding 6,035,627 shares of
Common Stock.
Exhibit index page number: 15
Total sequentially numbered pages in this document: 24
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PART I
ITEM 1. BUSINESS
General
The Company is a licensor and distributor of television programs and feature
films produced by others, principally for the television market (including free
and pay television, cable and satellite) and the home video market (including
video cassette and laser disc). The Company's current "library" of programs
includes documentaries and educational and special interest programming (the
"Properties").
The Company expanded its activities to exploit the increasing worldwide demand
for television programming and home video products resulting from the
fractionalization of the television viewing audience. A shift has occurred from
mass audiences dominated by a few, free broadcast networks to niche audiences
served by diverse cable television services, home videocassette and other
products.
In order to capitalize on this evolution, the Company implemented a plan,
developed in 1996, to expand and diversify the Company's business into areas of
domestic and foreign licensing by seeking to acquire a significant number of
newer Properties to its Library designed to appeal to a specific segmented
audience. In this regard, it executed a distribution agreement with Burrud
Productions, Inc., in April 1997. See "Burrud Agreement."
The Company was incorporated in the State of Delaware on January 23, 1992. The
Company is the product of a reorganization, in July 1996, of two previously
unaffiliated companies, Miller & Benson International, Ltd. ("M&B") and Digital
Technologies Group, Inc. ("DTG"). In accordance with the reorganization, the
company's name was changed to Digital Technologies Media Group, Inc. Unless the
context indicates otherwise, the term "Company" refers to the operations of DTG
prior to and following the reorganization of DTG and M&B. See "Business -
Reorganization."
Acquisition of Feature Films and Television Programming
The Company continuously monitors the industry for available Properties and
attempts to acquire rights to Properties which it believes are saleable to
various markets. Before acquiring the rights to a specific Property, the Company
analyzes the viability of the Property for licensing or distribution in light of
its projected costs and revenues and attempts to target the Property's audience
appeal. In determining the desirability of acquiring rights to Properties, the
Company examines their content, quality, theme, participating talent (e.g.
actors and directors), plot, format and other criteria to determine the
Properties' suitability for the commercial broadcast, cable, satellite, pay
television, and home video markets. In acquiring finished programming,
management typically views a product in its entirety to evaluate its commercial
viability; in weighing commercial viability, the Company will consider the
degree to which it is entitled to edit the programming.
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In order to obtain licensing or distribution rights with respect to Properties,
the Company enters into a licensing or distribution arrangement with the
copyright holder or another distributor (who has a license from the copyright
holder). The rights may be limited to specific media (e.g. broadcast television,
cable or home video) or to particular geographic areas and, in general, are
exclusive rights to such media and/or geographic areas. The rights are generally
limited to a specified period of time, ranging from two to ten years. In
acquiring rights, the Company may pay a non-refundable initial fee or advance
and/or commit to expend a certain amount of funds on promotion. In most cases,
the producer or distributor licensing the Property to the Company is entitled to
receive the revenues from the Company's distribution activities, after the
Company has been paid a specified distribution fee (which is a set percentage of
revenues) as well as recouped its advance and specific recoupable marketing and
other expenses.
To enhance the Company's position in a dynamic marketplace, given the financial
terms and available rights, the Company seeks to acquire distribution rights in
as many media and territories with respect to Properties as is practicable. This
permits a single Property to be marketed by more than one of the Company's
divisions and subsidiaries and may permit the Company to exploit new
technological developments.
International Operations
The Company exploits rights to Properties in the international marketplace;
marketing Properties to broadcasters and others in over 25 countries. This area
of operations has been the Company's primary revenue source.
The Company's international library contains documentaries and television
series. Many of the Company's recent acquisitions for international distribution
consists of documentaries and light entertainment programs from independent
producers, a number of which have aired on networks or cable operations such as
HBO Asia and Canal Plus in Europe.
Notable Properties currently distributed or scheduled to be distributed by the
Company in the international marketplace include the well received reality-based
series "UFO Diaries" and "Miracles and Other Wonders." "UFO Diaries" consists of
13 half-hour episodes based on firsthand UFO encounters around the world.
"Miracles and Other Wonders" is composed of 13 one-hour episodes featuring
re-enactments of strange and unusual phenomena that changed the lives of
ordinary people. The Company distributes additional product that contains both
historical and cultural information on a wide variety of subject matter.
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Marketing
In acquiring the rights to various film and television Properties, the Company
analyzes the viability of the Properties for distribution to the various
marketplaces in an effort to target the Properties' audience appeal. After such
analysis, the Company markets the Properties to the various media in a selective
manner. The Company and its key personnel have established contacts with many
broadcasters and home video companies worldwide. The Company also presents
certain of its Properties to foreign and domestic broadcasters and home video
companies who are in attendance at the various international and domestic
television programming conventions such as NATPE, MIP, MIPCOM, and the Los
Angeles Screenings.
In connection with its distribution of Properties to the international
marketplace, the Company licenses Properties for exhibition primarily via pay,
basic cable and broadcast television, and also via home video publishers. The
Company enters into license agreements with ultimate exhibitors, i.e. television
networks, television stations and cable and satellite systems operators, as well
as sub-distributors. The Company does not directly distribute video cassettes
internationally, rather, it licenses video cassette distribution rights to
subdistributors.
The Company's license agreement with a customer typically grants the customer an
exclusive license to either exhibit or distribute a specific program for a
specified term, territory and medium, and, in the case of a license to a pay
television channel or a broadcast or cable television operator, the right to
exhibit the Property for a specified number of times. Upon the execution of the
license agreement, the Company typically delivers a copy of the master of the
film or television program in a format appropriate to the customer's needs. The
Company believes that it has an excellent reputation for offering its customers
high quality reformatted Properties from the Company's Library. In consideration
for the granting of the license to a specific film or, in the case of a license
granted to a distributor or pay-perview television exhibitor, is a percentage of
revenues from the licensee's distribution or exhibition of the Property and may
include an advance of the fee which is then recoupable from what otherwise would
have been payable to the Company. In the case of a license granted directly by
the Company to a broadcast network or cable television operator, the Company
usually receives a set license fee that is not dependent upon the amount of
revenue achieved by the channel, network or operator from the exhibition of the
licensed Property.
Most of the concepts and advertising copy regarding art work for trade show
displays is created entirely by the Company, which usually commissions outside
parties to assist in the generation of the artwork in terms of printing and
production.
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Foreign Sales
Revenues from foreign markets were $674,000 and $76,000 in the years ended
December 31, 1996 and 1995, respectively. The Company is subject to various
risks inherent in foreign trade which could have a significant impact on the
Company's ability to market its Properties competitively. These risks include
economic or political instability and artificial ceilings placed on the demand
for the Company's Properties in foreign markets by foreign governments'
implementation of local content and quota requirements prohibiting or limiting
the quantity of foreign-made feature films and television programs which may be
exhibited or broadcast in one or more foreign countries.
Burrud Agreement
On April 7, 1997, the Company entered into a Distribution Agreement
("Agreement") and Letter of Intent to Merge ("Merger") with Burrud Productions,
Inc. Under the terms of the Agreement, the Company will act as the exclusive
distributor for almost all of the Burrud properties for domestic and
international television, non-theatrical and home-video markets. The term of the
Agreement is for one year plus one renewal year, provided gross sales of no less
than $500,000 are produced during year one. Advances of $320,000 must be paid by
the Company as follows: $65,000 within 30 days, $65,000 within 60 days, $65,000
within 90 days, $65,000 within 120 days, and the balance of $60,000 as needed
for reversion of selected programs. The Company will receive as distribution
fees 20 percent of gross for domestic sales and 35 percent of international
gross sales. There is no assurance that the Company will be able to provide the
advance monies necessary on the dates required in order to maintain the
distribution rights. Furthermore, there is no assurance that if the Company
performs on its advance payment obligations that it can distribute the Burrud
properties on a profitable basis.
The Letter of Intent provides, among other things, for the acquisition of Burrud
for approximately $7,200,000 payable as follows: a) $50,000 upon commencing the
acquisition documentation and due diligence, b) $1,000,000 upon closing, c)
$787,500 in a Convertible Promissory Note and $5,600,000 of the Company's Common
Stock. The price per share of the Common Stock shall be the average price per
share during the period the stock is trading prior to the closing, minus a 25
percent discount. If the average price per share deviates by more than 50
percent, either up or down, from a $2.00 per share price, either party may
terminate the acquisition. Currently, the Company's stock is not trading nor
does the Company have the financial ability to comply with any of the Letter of
Intent provisions. There is no assurance that in the future the Company will be
able to meet any of the requirements of the Letter of Intent in order to acquire
Burrud.
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AHN, Inc. Agreement
Effective January 1, 1997, the Company entered into an agreement with AHN, Inc.
("AHN") whereby the Company acquired all rights, title and interest to AHN's
Great Leaders, Great Nations and Great Events Library. In lieu of royalty
payments, the Company will issue to AHN 30,000 shares of its Common Stock valued
at $60,000. In the event that the average price per share of the Company's
Common Stock is less than $2.00 per share from the first trading day to the 15th
trading day on the Over-the-Counter Market, the Company is obligated to issue
additional shares necessary to fulfill the $60,000 value. Currently, the
company's Common Stock is not trading. There is no assurance that the Company's
stock will begin trading, or if it does begin to trade, that it will trade at
$2.00 per share.
Government and Other Regulation
United States television stations and networks as well as foreign governments
may impose restriction on the content of motion pictures which may restrict in
whole or in part exhibition on television or in a particular territory. There
can be no assurance, therefore, that current or future restrictions on the
content of the Company's films may not limit or affect the Company's ability to
exhibit certain of such motion pictures in such media or markets.
Reorganization
Miller & Benson International, Ltd. ("M&B") was issued an Order of Final Decree
by the United States Bankruptcy for the Central District of California on May
12, 1993. M&B remained dormant until it entered into a Stock Exchange Agreement
with Digital Technologies Group, Inc. ("DTG") and its shareholders (the "DTG
Agreement") on June 28, 1996. In accordance with the DTG Agreement, M&B
exchanged 4,401,127 shares of its common stock for all of the issued and
outstanding capital stock of DTG. The aggregate of 4,401,127 shares of M&B
common stock issued to the DTG shareholders represented approximately 81.5% of
the M&B outstanding common stock at the Closing Date. In accordance with the DTG
Agreement, M&B changed its name to Digital Technologies Media Group, Inc.
Employees
Currently, the Company and its subsidiary have five employees, one of which is
part-time.
Competition
Success in entertainment programming distribution is largely dependent upon a
company's ability to acquire distribution rights to programming at attractive
prices and upon the subsequent performance of this programming in the
marketplace. The Company faces significant competition both in obtaining
distribution rights and in selling productions. Competition for distribution
rights is based primarily on the amount of royalty advances which companies are
willing to offer to producers and the producer's perception of the Company's
marketing capabilities and its commitment to marketing the property. The Company
is in competition with major entertainment companies, as well as smaller film
distribution companies, almost all of which have far greater financial resources
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and distribution capabilities than the Company. There can be no assurance that
the Company will continue to acquire properties and distribute such properties
successfully in the future.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices, consisting of approximately 1,421
square feet, are located at 15840 Ventura Boulevard, Suite 310, Encino,
California 91436. The Company occupies these offices pursuant to a lease with a
term of one year, commencing November 1, 1996, at a monthly rate of $2,560. The
Company believes that its office space is adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
On October 29, 1996, the Company entered into two Stipulations and Orders to pay
$6,843.24 to Kayla Block and $23,626.20 to Samuel Epstein, respectively. Both
Stipulations required the Company to make six, monthly payments beginning
November 6, 1996 and ending April 6, 1997. If there is a default in any payment,
the entire remaining balance becomes immediately due and payable, with interest
at 10 percent per annum. As of April 15, 1997, no payments have been made on
either Stipulation.
On August 1, 1996, a judgment in the amount of $5,000 was entered against the
Company in favor of Stewart Dell pursuant to a default of a settlement
agreement. As of April 15, 1997, no payments have been made on the judgment.
On February 14, 1997, the Company entered into a Stipulation for Entry of
Judgment in favor of a prior landlord in the amount of $300,000 minus amounts
received by the landlord, if any, from re-letting of the subject premises. The
Company shall pay $5,000 on or before April 25, 1997, and commencing May 15,
1997, and on the 15th day of each month thereafter, to and including June 15,
1999, the sum of $2,000 per month. The total payments required is $57,000.
All of the above events are accrued on the Company's financial statements for
the year ended December 31, 1996.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to shareholders during the fourth quarter of the
fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is not traded on any market and has not traded for
the past nine years.
(a) Holders:
The approximate number of holders of record of Common Shares as of
March 30, 1997, was 3,393.
(b) Dividends:
The Company has not paid cash dividends on its common stock since its
inception. At the present time, the Company's anticipated working
capital requirements are such that it intends to follow a policy of
retaining any earnings in order to finance the development of its
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following discussion and analysis should be read together with the financial
statements and notes thereto included elsewhere herein.
General
The Company is the product of a reorganization of two previously unaffiliated
companies, Digital Technologies Group, Inc. ("DTG"), which was organized in
April 1995, and Miller & Benson International, Ltd. ("M&B"), which was
reincorporated in Delaware in January, 1992, subsequent to the confirmation of
its Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code. For
approximately nine years prior to July 1996, M&B had no operating business. In
July 1996, DTG and M&B completed a reorganization (the "Reorganization") in
which all of the then outstanding shares of common stock of DTG were exchanged
for 4,401,127 shares of the common stock of M&B. As a result of the
Reorganization, DTG became a wholly owned subsidiary of M&B. M&B changed its
name to "Digital Technologies Media Group, Inc." and the shareholders of DTG
immediately prior to the Reorganization became the owners of approximately 81.5%
of the outstanding shares of M&B common stock. The Reorganization has been
accounted for as a reverse acquisition as if DTG issued 4,401,127 shares of its
common stock to acquire the net assets of M&B at the time of the Reorganization.
Unless the context indicates otherwise, the term "Company" refers to the
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operations of DTG prior to and following the Reorganization. For further
information regarding the Reorganization, see Note 7 of Notes to Consolidated
Financial Statements.
Results of Operations
The following table sets forth, for the periods indicated, the percentage of net
sales from operations and represented by certain items included in the
Consolidated Statements of Operations and Accumulated Deficit.
April 1, 1995(Inception) Year Ended
to Dec. 31, 1995 Dec. 31, 1996
---------------- -------------
Net Sales 100.0% 100.0%
Cost of Sales 110.0 75.9
------ ------
Gross Profit (Loss) (10.0) 24.1
Operating Expenses 644.9 62.0
------ ------
Operating Income (654.9) (37.9)
Interest Expense 232.2 1.4
Miscellaneous Expense 98.2 0.8
------ ------
Net Loss (986.3)% (40.1)%
Net sales for the 12 months for 1996 increased by $925,000, from $76,000 for the
nine months of 1995 to $1,001,300 in 1996. The increase is attributable to
greater licensing activities. In addition, due to difficulty in receiving
producer approval and customer acceptance of product, principally in 1995, the
1995 net sales were greatly curtailed.
Cost of sales for 1996 increased by $676,353 from $83,883 in 1995 to $760,236 in
1996. As a percentage of net sales, cost of sales decreased from 110%, in 1995,
to 75.9% in 1996. The decrease in cost of sales as a percentage of net sales is
primarily attributable to the larger revenue base, more favorable producer
royalty arrangements, and lower selling expenses associated with producing such
revenue.
Operating Expenses, including general and administrative expenses, for 1996
increased by $131,000, or 26%, from 1995. As a percentage of net sales, these
expenses decreased from 644.9%, in 1995, to 62% in 1996. The increase in dollar
amount of these expenses is primarily attributable to an increase in management
compensation and a settlement for delinquent rent from early termination of a
lease of the Company's former corporate offices.
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Liquidity and Capital Resources
Initially, the Company funded its operations through borrowings from private
investors, of which all but two investors subsequently converted such loans into
common stock of the Company in connection with the reverse acquisition in July
1996.
Since its inception, the Company has experienced losses from operations of
$750,061 for the period ended December 31, 1995 and $387,157 for the year ended
December 31, 1996. The Company has negative working capital of approximately
$654,000. Accordingly, the Company requires additional sales and collections
and/or it needs to raise additional capital to meet its operating needs and to
satisfy its outstanding liabilities. If the Company is unable to acquire
additional cash resources, either from current operations or new financing, it
may be unable to continue as a going concern. The report of the Company's
independent auditor indicates that the Company has minimal cash available to
meet its future operating requirements and that, therefore, there is a
substantial doubt regarding the Company's ability to continue as a going
concern.
In the event of unanticipated developments during the next few months, or to
satisfy future funding requirements, the Company may attempt to fund its
operations through a private offering of securities. Additional financing may
not be available when needed or on terms acceptable to the Company. If adequate
financing is not available, the Company may be required to delay, scale back or
eliminate certain of its proposed plans, to relinquish rights to certain of its
products, or to license or sublicense to third parties the right to distribute
programs the Company would otherwise seek to develop itself. If the Company is
required to take such action, there can be no assurance that the Company will be
able to continue to operate as a going concern.
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ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included as a separate section following
the signature page to this Form 10-KSB and are incorporated herein by reference:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditor........................................F-1
Consolidated Balance Sheet...........................................F-2
Consolidated Statements of Operations for the years
ended December 31, 1995 (Restated) and 1996........................F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1995 and 1996...................................F-5
Consolidated Statements of Shareholders' Deficit for the
years ended December 31, 1995 and 1996.............................F-7
Notes to Financial Statements........................................F-8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth in names, ages and positions of the directors and
executive officers of the Company as of March 31, 1997. A summary of the
background and experience of each of these individuals is set forth after the
table.
Name Age Position
---------------- ---- -----------------
Arthur Newberger 58 President, Chief Executive Officer,
Chief Financial Officer and Director
David Kekich 54 Secretary and Director
Mr. Newberger has served as President, Chief Executive Officer and Director of
the Company since May 1, 1995. Mr. Newberger was instrumental in the Company's
acquisition of programs for T.V. and other assets from Communication Services,
Inc. In November 1996, he was appointed Chief Financial Officer. Mr. Newberger
has 35 years of experience in the international and domestic entertainment
industry. He was one of the first independent promoters of live, rock music
concerts in the United States. As a senior corporate officer for major agencies
such as ICM and Ashley Famous, he was responsible for guiding the careers of
many famous artists and groups. Subsequently, Mr. Newberger founded Newberger
Entertainment Group ("NEG") in order to capitalize on his years of experience
and high level contacts in the entertainment industry. Under his direction, NEG
successfully established itself as a respected, independent distributor of both
film and television product. From 1993 to 1995, Mr. Newberger served as
President of the Television Distribution Division of Hemdale International
Television, Inc., which purchased NEG in 1994. Mr. Newberger was also associated
with Communications Services, Inc. See "Certain Transactions."
Mr. Kekich has served as a Secretary and Director of the company since April
1995. Mr. Kekich is currently President and founder of Red Tree International, a
marketing and financial consulting company located in Johnstown, Pennsylvania.
From 1985 to 1992, Mr. Kekich was engaged in the public securities markets as a
result of his forming and registering three "blind pool" companies. Mr. Kekich
holds a Bachelor of Science Degree from Pennsylvania State University and has
been licensed in the insurance and real estate fields in the State of
California.
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Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and directors,
and persons who beneficially own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten percent
shareholders are required by Exchange Act regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that, other than as disclosed
below, during the fiscal year ending December 31, 1996, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
Messrs. Newberger and Kekich failed to report timely on Form 3s that they had
become directors and officers of the Registrant at the close of the
reorganization in July 1996. Procedures and controls have been instituted to
assure future compliance with Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's President
(the Chief Executive Officer of the Company, the only named executive officer
whose total salary and bonus exceeded $100,000 for services rendered in all
capacities to the Company during the fiscal year ended December 31, 1996 and
1995.
Name and
Principal Position Fiscal Long Term Other
Compensation Year Salary Bonus Compensation Awards
- ------------------ ------- ------ ----- ------------ -------
Arthur Newberger 1996 $135,000 -0- -0- 145,000 shs(1)
President and CEO 1995 $ 52,000(2) -0- -0-
(1) In November 1996, Mr. Newberger was issued 145,000 shares of Common Stock
valued at $.08 per share or an aggregate of $11,600.
(2) Reflects compensation received from May 1995, when Mr. Newberger became
an officer of the Company, to fiscal year ended December 31, 1995.
The Company does not pay directors' fees. The Company has no employment
contracts or stock option plans.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of the
Company on December 31, 1996 by each director and Named Executive Officer, by
all directors and executive officers as a group and by all persons known by the
Company to be the beneficial owners of more than five percent of the Company's
Common Stock.
Number of Shares Percent of
Name and Address Beneficially Held Ownership
---------------- ----------------- ----------
Arthur Newberger 145,000(1) 2.4
15840 Ventura Blvd., Suite 310
Encino, CA 91436
David Kekich 1,225,000(2) 20.3
Arkad Group, LLC
247 Shekomeko Blvd.
Johnstown, PA 15905
CSI Ventures, S.A. 2,160,000(1) 35.8
P. O. Box 17298
Encino, CA 91416
B. D. Brooke & Co. 600,000(3) 9.9
955 So. Virginia, #116
Reno, Nevada 89502
Madera International, Inc. 500,000 8.3
23548 Calabasas Road, Suite 205
Calabasas, CA 91302
All directors and executive 1,370,000(1) 22.7
officers (as a group, 2 persons)
(1) Arthur Newberger, an officer and director of the Company, is the President
and principal shareholder of CSI Ventures, S.A.
(2) Mr. Kekich, an officer and director of the Company, is Manager and a
minority Member of the Arkad Group, LLC which owns 1,080,000 shares.
(3) The shares of B. D. Brooke and Co. are held by Mr. Ely Mandell, a former
officer and director of the Company, as custodian for his three minor
children, and he disclaims any direct or indirect beneficial ownership of
such shares. In addition, Mr. Mandell owns, in his own name, 145,000 shares
of the Company's Common Stock.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 1995, Digital Technologies Group, Inc. ("DTG") a wholly owned
subsidiary of the Registrant, acquired from Communications Services
International ("CSI"), a foreign corporation, certain assets including film
distribution rights to several television series and some accounts receivables
in exchange for a $3,000,000 Promissory Note, secured by the assets purchased
and guaranteed by Mr. Kekich, an officer and director of DTG. In conjunction
with the acquisition of assets from CSI, Arthur Newberger, an officer and
minority shareholder of CSI, became President and Chief Executive Officer of
DTG. In November 1995, the $3,000,000 Promissory Note was converted into
preferred stock of DTG. Upon the acquisition by the Registrant of DTG, in July
1996, CSI received 2,160,000 shares of the Registrant's common stock in exchange
for the DTG Common Stock and Mr. Newberger became President and Chief Executive
Officer of the Registrant. Other than this one transaction, the Registrant has
not had any further business on financial relationships with CSI. In July 1996,
Mr. Newberger organized CSI Ventures, S.A. ("CSIV") and transferred his minority
ownership in CSI to CSIV. In December 1996, CSIV acquired the 2,160,000 shares
of the Registrant owned by CSI in exchange for CSIV's ownership in CSI.
Ely Mandell had been a director and Chief Financial Officer of the Company from
June 1996 until he resigned in November 1996. As part of a severance pay
package, Mr. Mandell was issued 145,000 shares of the Company"s Common Stock
valued at $.08 per share.
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PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
a. LISTING OF EXHIBITS
2.1 Plan and Agreement of Reorganization, dated June 28, 1996, among Miller
& Benson International, Ltd., Digital Technologies Group, Inc. and
certain shareholders of Digital Technologies Group, Inc.(1)
3.1 Articles of Incorporation of the Registrant, as amended.(1)
10.1 Letter of Intent dated April 7, 1997, between the Registrant and Burrud
Productions, Inc.
10.2 Agreement dated December 10, 1996 between the Registrant and American
History Network.
___________________
(1) Incorporated by reference to the Registrant's Current Report on Form
8-K dated August 14, 1996.
b. REPORTS ON FORM 8-K
A report on Form 8-KA was filed on October 18, 1996.
15
<PAGE>
Exhibit 10.1
DTMG/BURRUD MERGER OUTLINE
1. NECESSARY DATA:
A. NET WORTH OF DTMG
B. INITIAL ANTICIPATED STOCK PRICE
C. NET WORTH OF BURRUD
D. DUE DILIGENCE ON BOTH CO.S
1. ON DTMG, REVIEW LIBRARYS/ FINANCIAL STATEMENTS/SECURITIES FILINGS
2. DISTRIBUTION AGREEMENT TERMS:
A. BURRUD PROPERTY- ALL EXISTING PROGRAMS PER ATTACHED SCHEDULE.
B. TERRITORY- EXCLUSIVE FOR INTERNATIONAL TELEVISION, NON-THEATRICAL
AND HOME VIDEO. EXCLUSIVE FOR DOMESTIC TELEVISION, NON-THEATRICAL
HOME VIDEO. PARTIES ARE TO COLLABERATE RE DOMESTIC POSSIBLE
SALES. BURRUD CONSENT REQUIRE ON ALL SALES.
C. TERM- ONE YEAR COMMENCING 4/l/97, PLUS ONE RENEWAL YEAR PROVIDED GROSS
SALES OF NO LESS THAN $500,000 DURING YEAR ONE. 2 YEARS ON
REVERSIONED PROGRAMS FROM THE COMPLETION DATE OF THE PILOT
EPISODES.
D. ADVANCE- DTMG ADVANCE TO BURRUD $200,000. IN ADDITION TO ADVANCE
AGAINST LICENSE FEES, DTMG TO ADVANCE-TO BURRUD A MININUM OF $120,000
TO BE USED TO REVERSION PROGRAMS. $60,000 TO BE USED TO REVERSION 3
WILDLIFE ADVENTURE PROGRAMS, AND $60,000 TO REVERSION 3 PROGRAMS TO
BE AGREED UPON. ADVANCES TO BE PAID AS FOLLOWS: $65,000 WITHIN 30
DAYS, S65,000 WITHIN 60 DAYS, $65,000 WITHIN 90 DAYS AND $65,000 WITHIN 120
DAYS. IF FUNDS ARE RECEIVED FROM SALES WHICH EXCEED THE PAYMENT
SCHEDULE, ADVANCE PAYMENTS WILL BE ACCELERATED SO THAT BURRUD
RECEIVES ALL FUNDS UNTIL THE ADVANCES ARE MET. THE ABOVE PAYMENTS
INCLUDE S15,000 EACH MONTH TOTALING $60,000 TOWARD REVERSION COSTS
FOR WILDLIFE ADVENTURE. THE REMAINING REVERSION ADVANCE $60,000
CAN BE PAID AS NEEDED.
E. DISTRIBUTION FEES-(I) DOMESTIC=20% OF GROSS SALES. (2)
INTERNATIONAL=35% OF GROSS SALES.
F. ANY SUB-DISTRIBUTOR FEES ARE TO BE PAID FROM THE ABOVE
DISTRIBUTION FEES. ACCOUNTINGS QUARTERLY WITH COPIES OF ALL LICENSE
AGREEMENTS AND PAYMENT IF DUE. DISTRIBUTION AND MARKETING
EXPENSES TO BE PRE-APPROVED.
G. THE ABOVE DISTRIBUTION TERMS WILL BE BINDING UNTIL A MORE FORMAL
DISTRIBUTION AGREEMENT HAS BEEN EXECUTED.
3. MERGER AGREEMENT TERMS:
A. UPON THE MERGER, BURRUD IS MERGED INTO DTMG AS A SUBSIDIARY CO. OR
DIVISION.
Exhibit 10.1, page 1
16
<PAGE>
B. DTMG PAYS TO BURRUD $50,000 OPTION MONEY, REFUNDABLE IF MERGER
FAILS BECAUSE BURRUD WITHDRAWS OR IS AT FAULT FOR FAILED MERGER.
PAYMENT TO BE MADE AS BURRUD IS REQUIRED TO COMMENCE THE
CERTIFICATION OF ITS FINANCIALS FOR 3 YEARS IF NEEDED, AND PERFORMS ITS
DUE DILIGENCE.(MONEY TO DEFRAY BURRUD COSTS). OPTION PERIOD TO BE
AGREED UPON BUT NOT TO EXCEED 6 MONTHS. IF DTMG HAS COMMENCED ITS
APPLICATION PROCESS TO BE LISTED ON NASDAQ AND HAS COMMENCED ITS
UNDERWRITING WITHIN THE FIRST THREE MONTHS, AND THESE EVENTS
HAVEN'T BEEN COMPLETED WITHIN 6 MONTHS, THEN THE OPTION PERIOD MAY
BE EXTENDED AN ADDITIONAL 3 MONTHS.
C. BURRUD TO SPIN OFF THE ITEMS LISTED IN PART IV OF THE BURRUD NET
WORTH ANALYSIS, REMOVING THEM FROM BURRUD ASSETS BEFORE THE
MERGER. THESE ASSETS CAN BE TRANSFERRED TO DTMG POST MERGER IF BOTH
PARTIES AGREE.
D. PURCHASE PRICE TO BE $8,000,000, MINUS BURRUD OBLIGATIONS WHICH ARE
CURRENTLY APPROX 600,000, MINUS THE 200,000 IN ADVANCES AGAINST INCOME
AND THE 50,000 IN EXPENSE TOWARD MERGER COSTS. THE PURCHASE PRICE IS
TO BE ALLOCATED BY AGREEMENT BETWEEN THE PARTIES. THE PRICE TO BE
PAID 75% IN DTMG STOCK AND 25% IN CASH AND CONVERTABLE PROMISSORY
NOTE. $1M CASH AND THE BALANCE BY THE NOTE. APPROX 5.6M WILL BE THE
AMOUNT OF THE STOCK PORTION OF THE PRICE. DTMG SHARE PRICE FOR THE
PURCHASE IS TO BE THE AVERAGE PRICE PER SHARE COMPUTED DURING THE
PERIOD THE STOCK IS TRADING BEFORE THE MERGER MINUS 25%. PROVIDED, IF
THE STOCK AVERAGE DEVIATES BY MORE THAN 50% FROM A $2.00 PRICE, THE
PARTIES WILL NOT BE OBLIGATED TO CONSUMATE THE MERGER.
E. AGREEMENT TO MERGE COMPANYS BASED ON THE HAPPENING OF CERTAIN
EVENTS:
1. DTMG HAS SUFFICIENT FUNDS TO PAY BURRUD THE 1M IN CASH, HAS THE
FINANCIAL ABILITY TO ACTIVELY PRODUCE PROGRAMMING, AND HAS THE
FINANCIAL CAPACITY TO COMMIT TO THE PROMISSORY NOTE WHICH IS TO BE
PAYABLE IN 24 MONTHS WITH INTEREST AT 7%, AND SECURED BY THE BURRUD
LIBRARY WITH ANY ENHANCEMENTS TO THE LIBRARY.
2. DTMG HAS SECURED AN UNDERWRITING AND IS APPROVED FOR TRADING
ON NASDAQ, BOTH UTILIZING THE BURRUD ASSETS IN ITS PROFORMA
STATEMENTS.
F. THE COMPANYS MERGE OPERATIONS AT THE END OF 97 OR UPON
THE MERGER IF IT OCCURS AFTER 12/97, WITH POSSIBLY A WEST LOS ANGELES HEAD-
QUARTERS.
G. BURRUD'S PRODUCTION AND OTHER ACTIVITIES PRE-MERGER ARE TO BE
CONSISTENT WITH DTMG BUSINESS PLAN.
H. BURRUD OR GREEN TO GO ON DTMG BOARD NOW. BOTH ON BOARD AFTER
MERGER. BURRUD TO RECEIVE AN EMPLOYMENT AGREEMENT UPON MERGER
TO BE AGREED UPON.
I. GREEN TO RECEIVE RETAINER OR SALARY UPON MERGER FOR LEGAL OR
OTHER SERVICES IF NEEDED.
Exhibit 10.1, page 2
17
<PAGE>
J. BURRUD TO HAVE PIGGY-BACK RIGHTS, SUBJECT TO GOOD-FAITH EFFORTS TO
OBTAIN UNDERWRITER APPROVAL.
K. PARTIES CONSIDER DTMG FUNDING ONE OR TWO BURRUD PILOT IDEAS FOR
NEW PROGRAMMING AS SOON AS FUNDS ARE AVAILABLE.
L. THE MERGER TERMS ARE SUBJECT TO REVIEW AND APPROVAL BY TAX
COUNSEL. THE PARTIES ARE TO ACCOMMODIATE AS NEEDED TO SATISFY TAX
AND/OR SECURITY CONSIDERATIONS. SUBJECT ALSO TO GOOD FAITH APPROVAL
OF EACH PARTIES DUE DILIGENCE INVESTIGATION.
M. OTHER CUSTOMARY TERMS TO BE AGREED UPON.
N. PARTIES ARE TO CONSIDER UNDERWRITING AT THIS TIME.
IF THE ABOVE IS ACCEPTABLE, PLEASE INITIAL AND RETURN SO THAT WE WILL HAVE AN
UNDERSTANDING OF THE BASIC TERMS OF OUR AGREEMENT. THIS OUTLINE IS ONLY INTENDED
TO SERVE AS AN UNDERSTANDING OF THE DEAL POINTS REGARDING THE TERMS OF THE
MERGER UNTIL MORE FORMAL AGREEMENTS CAN BE PREPARED, BUT IS TO CONTROL THE TERMS
OF DISTRIBUTION.
DMTV BY ART NEWBERGER: /s/ Arthur Newberger
----------------------
BURRUD PRODUCTIONS INC. BY JOHN BURRUD: /s/ John Burrud
----------------------
Exhibit 10.1, page 3
18
<PAGE>
BURRAD
INVENTORY
Page 1
SERIES
Title Format Genre
Adventure World 8 - 1/2 hour Human Adventure
America's Wonders: 12 - 1 hour Exploration
The National Parks
Holiday 39 - 1/2 hour World Exploration
Islands in the Sun 40 - 1/2 hour World Exploration
Jean-Michel Cousteau Presents 13 - 1/2 hour Ocean Exploration
Stories of the Sea**
New! Animal World 105 - 1/2 hour Wildlife
Safari to Adventure 160 - 1/2 hour Wildlife
Treasure 38 - 1/2 hour Human Adventure
Treasure! (1990) 13 - 1/2 hour Human Adventure
(With Phillip Michael Thomas)
True Adventure 38 - 1/2 hour Human Adventure
Vagabond 39 - 1/2 hour World Exploration
Wanderlust 116 - 1/2 hour World Exploration
Wildlife Adventure 78 - 1/2 hour Wildlife
Wonderful World of Women 59 - 1/2 hour World Exploration
- -----------------------------
**Unapix controls distribution
16902 Bolsa Chica Street, Suite 203, Huntington Beach, California 92649
(714)846-7174 - Fax(714)846-4814
Exhibit 10.1, page 4
19
<PAGE>
BURRUD
INVENTORY
Page 2
SPECIALS
Title Format Genre
Amazing World 4 - 1 hour World Exploration
Baja-Great New Adventure 1 hour World Exploration
Beyond Bizarre 3 - 1 hour Human Interest/Reality
Big Cats 1 hour Wildlife
Is There An Ark? 1 hour Wildlife
Making of Tarawa 1/2 hour W.W. II Factual
Peter Gaulke's Strange Wilderness 5 - Comedy shorts Comedy
Return to Tarawa 1 hour W.W. II Factual
Sea World-Just For 1 hour Wildlife
The Fun Of It
Seals, Whales & Dolphin Tales 1 hour Wildlife
Shark! The Silent Savage 1 hour Wildlife
Sharks Of A Different Color 1 hour Wildlife
Surfing Champions 1 hour Surfing Factual
This Nation Israel 1 hour Human Adventure
Tora! Tora! Tora! 1 hour Making of the Feature
Valley of the Dolls 1 hour Making of the Feature
What a Way To Go 1 hour Human Adventure
Where Did All The Animals Go? 1 hour Wildlife
16902 Bolsa Chica Street, Suite 203, Huntington Beach, California 92649
(714)846-7174 - Fax(714)846-4814
Exhibit 10.1, page 5
20
<PAGE>
BURRUD
INVENTORY
Page 3
FEATURES
Title Format Genre
Wildlife
The Carnivores 2 Hour Wildlife
Creatures of the Amazon 2 Hour Wildlife
Dangerous Creatures 2 Hour Wildlife
Great American Wilderness 2 Hour Wildlife
The Last Ark 2 Hour Wildlife
Mysterious Miniature World 2 Hour Wildlife
Predators of the Sea 2 Hour Wildlife
Secret World of Reptiles 2 Hour Wildlife
The Amazing Apes 2 Hour Wildlife
Vanishing Africa 2 Hour Wildlife
Human Adventure
Curse of the Mayan Temple 2 Hour Human Adventure
Devil's Mountain 2 Hour Human Adventure
Man Against the Sea 2 Hour Human Adventure
Montezuma's Lost Gold 2 Hour Human Adventure
The Treasure Chase 2 Hour Human Adventure
16902 Bolsa Chica Street, Suite 203, Huntington Beach, California 92649
(714)846-7174 - Fax(714)846-4814
Exhibit 10.1, page 6
21
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP,INC.
EXHIBIT 10.2
December 10, 1996
Gentlemen:
This letter will serve as a deal memo wherein American History Network ("AHN.")
and Digital Technologies Media Group, Inc. ("DTMG") have agreed that DTMG is
acquiring all rights, title and interest to the following series:
GREAT LEADERS
John F. Kennedy
The Roots of Jesus
Mandela: The Man
The True Malcolm X Speaks
Nixon About Nixon
The Life & Times of Ronald Reagan
GREAT NATIONS
Aboriginol: Triumph of the Nomads
China: The History and The Mystery
Egypt: A Gift to Civilization
Japan: The Land of the Rising Sun
Mayan: History of the Mayas
The Rise & Fall of the Soviet Union
The History and functions of the United Nations
GREAT EVENTS (1960-1969)
As compensation for DTMG's acqusition of same, AHN will receive 30,000 shares of
DTMG's stock. Said stock is valued at $60,000.00. In the event the stock is
valued at less that $60,000.00 (said determination to be made by the average
daily trading price from first trading day through 45th trading day), DTMG will
compensate AHN with additional stock as needed to fulfill the $60,000.00 valued
price. In the event the stock is valued over $60,000.00, AHN will retain any
overages Continued, Page Two December 10, 1996
Exhibit 10.2, page 1
22
<PAGE>
Continued, Page Two
December 10,1996
AHN shall furnish DTMG With all original elements and Materials, including, but
not limited to master tapes, scripts, publicity materials, and key artwork upon
DTMG's request.
There shall be no royalties due on any sales to any party whatsoever, including
AHN, for prior, future or current sales.
This letter shall be followed by a more formal agreement which will contain the
standard terms and conditions of the industry for transactions of this nature.
Until such time, however, this letter will serve as a true and binding agreement
between AHN and DTMG with regard to DTMG's acquisition of the afore-mentioned
series.
Please indicate your acceptance of this deal memo by signing where indicating
below and returning a fully executed copy to my attention.
Sincerely,
/s/ Arthur Newberger
- ----------------------
Arthur R. Newberger
President/CEO
ACCEPTED AND AGREED:
American History Network
By: __________________
Its: __________________
Date: __________________
Exhibit 10.2, page 2
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
Date: April 21, 1997 By: /s/ Arthur Newberger
------------------------
Arthur Newberger
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Arthur Newberger President, Chief Executive
- -------------------- Officer and Director April 21, 1997
Arthur Newberger
/s/ David Kekich Secretary and Director April 21, 1997
- --------------------
David Kekich
24
<PAGE>
JAY J. SHAPIRO, C.P.A.
A Professional Corporation
16501 Ventura Boulevard
Suite 650
Encino, California 91436
Tel. (818) 990-4878 Fax (818) 990-4944
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Digital Technologies Media Group, Inc.:
I have audited the accompanying consolidated balance sheet of Digital
Technologies Media Group, Inc. (the "Company"), as of December 31, 1995
(restated) and 1996, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the nine-month period from April 1,
1995 (Inception) to December 31, 1995 (restated) and the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period April 1, 1995 (Inception) to December 31, 1995
and the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
The Company has a significant cash flow problem and the 1995 financial
statements have been restated due to facts regarding certain Company assets
which were discovered after the issuance of my previous report (See Note 1).
April 3, 1997
Jay J. SHAPIRO, C.P.A.
A professional corporation
F-1
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995 AND 1996
1995
(Restated-
See Notes
1 and 2) 1996
--------- ---------
ASSETS: 3,536
Cash
Accounts receivable- net of $16,000
and $22,000 allowance for doubtful accounts 20,300 108,000
--------- ---------
Total Current Assets 20,300 111,536
Fixed assets - net of accumulated
depreciation of $3,300 and $7,300 12,356 12,832
--------- ---------
TOTAL ASSETS $32,656 $123,943
========= =========
LIABILITIES & STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable $ 45,572 $163,000
Other liabilities (Note 8) 107,000 155,000
Payroll tax obligations (Note 8) 32,817 64,157
Notes payable (Notes 5 and 6) 9,000 29,625
Unearned revenue 57,500 24,000
Royalties payable 60,000 297,000
--------- ---------
Total Current Liabilities 311,889 732,782
--------- ---------
Convertible Debt (Note 5) 291,000 0
Contingencies and Commitments
(Notes 1,4, 5, 6 and 8)
Stockholders' Deficit (Notes 2, 5, 6 and 7):
F-2
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET, CONTINUED
AS OF DECEMBER 31, 1995 AND 1996
Capital Stock:
Common stock, $.01 par value; authorized
25,000,000 shares; 4,359,501 and
6,035,627 shares issued and outstanding
in 1995 and 1996, respectively 31,423 48,182
Additional paid-in-capital 148,205 479,454
Preferred stock, $1.00 par value; authorized
15,000,000 shares; no shares outstanding
Accumulated deficit (750,061) (1,136,475)
--------- ---------
Total Stockholders' Deficit (570,233) (608,839)
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' DEFICIT $32,656 $123,943
========= =========
F-3
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD FROM APRIL 1, 1995 (INCEPTION)
TO DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996
Restated
1995 1996
Revenue:
Domestic $ 327,300
Foreign $ 76,000 674,000
--------- ---------
Total 76,000 1,001,300
--------- ---------
Cost of Sales:
Selling expenses (23,883) (122,236)
Royalties ( 60,000) (638,000)
--------- ---------
( 83,883) (760,236)
--------- ---------
Gross Profit (Loss) ( 7,883) 241,064
Operating Expenses:
Administrative ( 91,697) ( 42,717)
Rent (Note 8) ( 36,036) (115,281)
Compensation (Note 8) (219,000) (325,000)
Travel & entertainment ( 53,085) ( 47,287)
Professional fees (Note 7) ( 90,375) ( 91,000)
--------- ---------
(490,193) (621,285)
--------- ---------
Operating Loss (498,076) (380,221)
Other Expense:
Interest expense (Notes 2 and 5) (176,529) ( 14,675)
Miscellaneous (Notes 7 and 8) ( 74,656) 8,539
--------- ---------
(251,185) ( 6,136)
--------- ---------
Net Loss Before Taxes (749,261) (386,357)
Tax Expense - California ( 800) ( 800)
--------- ---------
Net Loss (750,061) (387,157)
========= =========
Loss Per Share (Note 3) ($0.27) ($.07)
===== =====
Weighted Average Shares (Note 3) 2,795,000 5,567,000
========= =========
F-4
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTH PERIOD FROM APRIL 1, 1995 (INCEPTION)
TO DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996
1995 1996
---- ----
Operating Activities:
Net Loss ($750,061) ($387,157)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation and amortization 3,300 4,000
Provision for bad debts and discount
on long-term receivables 16,000 6,000
Accrued royalties 60,000 232,400
Provision for contingencies 207,000 48,000
Changes in operating assets and liabilities:
(Increase) in:
Accounts receivable (36,300) (93,700)
Increase (Decrease) in:
Deferred revenue 57,500 (33,500)
Accounts payable
and other liabilities 149,117 202,820
--------- ---------
Total Adjustments 456,617 366,020
--------- ---------
Net cash provided (used) by
operating activities (293,444) 21,137
Investing Activities:
Purchase of business property (15,656) (4,476)
--------- ---------
Net cash used in investing activities (15,656) (4,476)
--------- ---------
Financing Activities:
Convertible debt issuance 275,000
Loans payable 34,100 1,875
Dividend to preferred shareholder (15,000)
--------- ---------
Net cash provided (used) by
financing activities 309,100 (13,125)
--------- ---------
Increase in cash 0 3,536
Net cash- beginning of period 0 0
--------- --------
Net cash-end of period $ 0 $ 3,536
========= ========
Supplemental cash flow information:
Interest paid $10,529 0
========= ========
Income taxed paid $ 800 $ 800
========= ========
F-5
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
NINE MONTH PERIOD FROM APRIL 1, 1995 (INCEPTION)
TO DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996
A note of $3,000,000 was subsequently converted to preferred stock in 11/95 and
then common stock in May, 1996. Net interest on the note of $129,950 and a
preferred stock dividend of $30,000 was reinvested in common stock. The
convertible debt of $256,000 and related accrued interest and warrants were
converted to 41,626 common shares as of June 30, 1996. A million shares of
common stock were exchanged for M&B shares and $20,000 in net tangible assets
were acquired in this merger. The Company also issued 634,500 common shares in
1996 for services rendered.
F-6
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
CONSOLIDATED STATEMENT
OF STOCKHOLDERS' DEFICIT
April 1, 1995
(Inception) to December 31, 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
--------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance 4/l/95 (Inception) 1,230,000 $ 128 $ 128
CSI rights acquisition (Note 2) 3,000,000 30,000 $ 20,000 50,000
CSI reinvestment of interest (Note 2) 129,500 1,295 128,205 129,500
Loss for period ($749,318) (749,318)
--------- ------- -------- ----------- ---------
Balance 12/31/95 4,359,500 31,423 148,205 (749,318) (569,690)
Conversion of convertible debt (Note 5) 41,626 416 276,834 277,250
Merger with M&B (Note 7) 1,000,000 10,000 10,000 20,000
Issuance to Company's employees and
consultants 634,500 6,343 44,415 50,760
Net loss for period (387,157) (387,159)
-------- ------- -------- ----------- ---------
Balance - 12/31/96 6,035,627 $48,182 $479,454 ($1,136,475) ($608,839)
========= ======= ======== =========== =========
</TABLE>
7
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Digital Technologies Group, Inc. (the "Acquirer" or "DTG") was organized in
April, 1995 under the laws of the State of Delaware for the purpose of funding
the development of television programming and to interface with new
technologies. The Company initially issued 1,207,500 shares of common stock with
a nominal value of $50.00. In May, 1995, DTG acquired certain rights to
distribute the film assets of Communications Services International ("CSI") for
convertible debt. (See Note 2).
Miller & Benson International Ltd. ("M&B"). a Delaware corporation, emerged from
bankruptcy in 1991 and is a dormant holding company with 5,401,127 shares
outstanding as of July 30, 1996 after a 1-for-100 stock split and acquisition of
DTG. This company had net tangible assets of $20,000 prior to the merger (See
Note 7).
The Company changed its name to Digital Technologies Media Group, Inc. as of
August 1, 1996 ("DTMG" or the "Company"), a Delaware corporation.
Company Business:
Effective with the consummation of the CSI distribution agreement, DTG commenced
licensing in September, 1995 in currently available territories. The Company's
customers consist of domestic and foreign sub-distributors and sales agents.
Basis of Presentation:
The consolidated financial statements reflect the assets, liabilities, and
operations of DTG due to accounting treatment as reverse merger by DTG. (See
Note 7). Certain 1995 amounts have been reclassified into 1996 format.
Going Concern:
As of December 31, 1996 the Company had minimal cash available to meet its
future operating requirements. The Company requires additional sales and
collections to meet its 1997 operating needs and to satisfy the liabilities
outstanding as of 12/31/96. The Company has negative working capital of
approximately $654,000. The Company's management is presently negotiating some
major market licenses and an acquisition of additional titles for distribution.
There can be no assurance of favorably consummating these negotiations at this
time.
F-8
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 1 (Cont'd)
Going Concern (Cont'd):
Management made that with major reductions in 1995 DTG operational costs
including non-recurring items ($200,000) associated with the Company's new
technologies personnel who were terminated in early 1996, lower interest
($150,000) due to CSI note conversion, and increased sales activity. As of
December 31, 1996 the Company still has an operating loss, including an accrual
of $53,000 for landlord settlement, of $393,000 and a stockholders' deficit of
$642,000. Therefore, there is a substantial doubt regarding the Company's
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Film Revenue and Royalty Expense Recognition:
Revenues from television license agreements are recognized as each film becomes
available for telecasting by the licensees. The Company defines availability as
when the films delivered are free of any conflicting licenses in respective
territory, and the licensee has fully accepted film materials. Royalty expense
is accrued based on earned revenue and the respective producer agreement.
Income Taxes:
The Company may have limitations regarding the use of its apparent net operating
loss as of June 30, 1996 due to the transaction described in Note 7.
Accounts Receivable:
Accounts receivable consist of the unpaid portion of license agreements received
from customers on a worldwide basis. The Company's management performs credit
evaluations of customers and reserves for any potential credit losses. The
standard procedure when entering into a licensing agreement requires a payment
upon signing and the balance to be paid over a period subsequent to delivery of
films licensed. A management evaluation of contracts existing as of 12/31/95
resulted in a $1.1 million reduction in accounts receivable and related revenue
due to several significant availability/delivery problems regarding the
Company's lack of control over film materials. These problems included
difficulty with specific producer approval and customer acceptance of film
product. Such facts were discovered subsequent to April, 1996, and the
collectible receivables are reflected in the restated 1995 consolidated
financial statements. During late 1996, the Company corrected this problem and
all receivables at 12/31/96 represent available and deliverable products to
Company customers.
F-9
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 1 (Cont'd)
Fixed Assets:
Depreciation of furniture and fixtures is being provided by utilization of the
straight-line method over the estimated useful lives of the assets is five
years.
As of December 31, fixed assets consist of:
1995 1996
------- -------
Computer equipment $8,500 $8,500
Other 7,156 11,632
------- -------
15,656 20,132
Less accumulated depreciation (3,300) (7,300)
------- -------
$12,356 $12,832
======= =======
Common Stock:
In November 1996, the Company issued 634,500 shares to its consultants and
employees. The imputed value of this transaction was $50,760.
Note 2 - CSI AGREEMENT:
In May 1995, the Company obtained certain distribution rights for a group of
television series and feature films, and certain accounts receivable ($50,000)
related to these products from Communication Services International,
Inc.("CSI"), a corporation incorporated in Republic of Panama in 1990. CSI is
reflected as a commonly-owned entity and all assets are recorded at CSI
determinable historical cost.
The Company issued to CSI $3,000,000 secured convertible debenture bearing
interest at 10%. Interest of $150,000 was paid to CSI and the funds were
reinvested into the Company's common stock, net of $20,500 outstanding
receivable due from CSI. On November 2, 1995, the note was converted to
convertible preferred stock with 6% dividend. On February 1, 1996 a dividend of
$45,000 was paid to CSI and $30,000 was reinvested into the comon stock. The
preferred stock was converted to 2,160,000 shares of common stock of May 1,
1996.
The Chief Executive Officer of the Company was a 3% shareholder of CSI. In July
1996, he formed CSI Ventures, S.A., a foreign corporation, by contributing this
stock interest in CSI. In December 1996, CSI Ventures S.A. exchanged its
investment for the 2,160,000 shares of the Company held by CSI. Accordingly, CSI
Ventures S.A.
is a 36% shareholder of the Company at December 31, 1996.
F-10
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 2 - CSI AGREEMENT (Cont'd)
The Company's management originally recognized this transaction as a purchase of
film properties. The convertible note was to be paid from the exploitation of
these properties. Such intention was supported by an independent film appraisal
of $4.3 million. However, the early 1996 problems described in Note 1 made the
collection of film revenue on a timely basis unlikely. The Company also has
uncertainty regarding its ability to continue at full operational level and the
effective control of CSI. Accordingly, the Company's management has restated the
1995 consolidated financial statements by eliminating the $3 million cost, the
related valuation assigned to common stock issued, and $60,000 in film
amortization expense.
As of December 31, 1996, there has been no 1996 activities with CSI. andthe
Company is the exclusive distributor of these CSI film products. The Company
remits the appropriate royalties to all producers based on cash collections of
film revenue and recoupment of certain distribution costs.
Note 3 - NET LOSS PER SHARE:
Net loss per share is computed using the weighted average number of shares of
common stock outstanding December 31, 1995 and 1996, assuming the M&B
merger in July, 1996, reinvestment of CSI interest and preferred dividend,
and issuance of shares to CSI and Company employees.
Note 4 - LEASE COMMITMENT:
The Company entered into a five-year lease agreement for 3,700 square feet of
office space with a term is beginning July 15, 1996. During 1995 and 1996 DTG
paid $26,036 and $58,400, respectively, in rent expense. The Company terminated
this lease in October, 1996 and entered into a one-year lease for new space at
$2,560 per month.
Note 5 - CONVERTIBLE SUBORDINATED DEBT AND WARRANTS EXERCISED:
The Company issued convertible debt with interest of 10.00% per annum amounting
to $275,000 in 1995 and $16,000 in accrued interest payable. Such debt, which
was secured by receivables, is due through 3/31/97. These notes are now
delinquent. The debtholders can convert their obligation to Company's common
stock at a price of $20.00 per share or 50% of the initial offering price.
Debtholders were also issued warrants to purchase up to 50,000 shares of common
stock at a cost of $.001 per share. All notes, accrued interest and warrants,
except for $18,750 in notes, were converted as of June 30, 1996 (See Note 7).
F-11
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 6 - STOCKHOLDER SETTLEMENTS
The Company entered into an agreement with a major stockholder for return of
800,000 shares held by him. The shares were cancelled effective December 31,
1995. Such agreement also provides for payment of past compensation net of
expense advances which have not been utilized and receivables were transferred
upon July 1996 foreclosure of a $25,000 note held by this stockholder. Such
amount is still unpaid and reflected in accounts payable. A major stockholder
and member of the Board of Directors is owed $9,000 at 12/31/95 and 12/31/96.
Note 7 - REVERSE ACQUISITION
Pursuant to a Stock Exchange Agreement dated June 28, 1996 among ("DTMG"), the
shareholders of DTMG and Miller & Benson International, Ltd. ("M&B"), M&B
acquired 100% of the outstanding capital stock of DTG in exchange for the
issuance of 4,000,000 post-split shares (including $159,950 in reinvested CSI
monies) of common stock to DTG for its shareholders and consultants and 401,127
shares of Company common stock to DTG secured convertible subordinated
debtholders ($301,127 including accrued interest at conversion) and exchange for
their outstanding warrant rights for 50,000 shares of DTMG common stock. The
4,401,127 total shares of common stock represented approximately 81.5% of the
issued and outstanding shares of M&B's common stock. As a result, the former
shareholders of DTMG may thus be deemed to have acquired control of M&B. For
accounting purposes, the acquisition of DTMG by M&B has been treated as a
reverse acquisition, with DTMG as the acquirer and the merger of M&B and its 1
million shares of previously issued common stock. All historical financial
statements prior to July 30, 1996 (closing) are those of DTMG.
M&B was a dormant public company whose activities during the past several years
have been limited to maintaining the corporate entity and evaluating business
opportunities. M&B's predecessor entity, Oil Securities, Inc., filed for
protection under Chapter 11 of the United States Bankruptcy Code on May 2, 1988
as debtor-in-possession. During the bankruptcy proceedings, M&B liquidated all
of its assets and settled or restructured all of its liabilities pursuant to a
plan of reorganization confirmed on June 25, 1991. In 1992 an Italian company
attempted an acquisition, but abandoned the transaction after a small
investment. On May 12, 1993, the bankruptcy proceedings were closed by the entry
of an order of final decree by the Bankruptcy Court. As of July 30, 1996, M&B
had no revenues, or income for the past three years and net tangible assets of
approximately $20,000 and 1 million shares of common stock outstanding. All M&B
liabilities were discharged at closing by the sale to outside parties of 166.667
shares of Madera International common stock which was obtained in exchange for
500,000 shares of M&B common stock in June, 1996.
F-12
<PAGE>
DIGITAL TECHNOLOGIES MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1995
AND YEAR ENDED DECEMBER 31, 1996
Note 7 - REVERSE ACQUISITION (cont'd):
Madera shares were sold for $23,000 cash in July, 1996 and the funds paid all
M&B outstanding liabilities and approximately $20,000 was made available for
costs associated with this transaction. All costs were paid by December 31,
1996. M&B had issued 88,033 shares as of July 30, 1996 to certain M&B officers
and consultants with reimbursement of $1,550 for past advances to M&B. Such
shares have an imputed value of $7,000.
Note 8 - CONTINGENCIES:
In 1995, the Company has accrued $50,000 relative to an asserted claim by the
California Franchise Tax Board for unpaid taxes including accrued interest and
penalties for the tax period ended December 31, 1984, $52,000 relative to past
DTG employment benefit claims which are being appealed by the Company, and
$5,000 for a lawsuit settled subsequent to December 31, 1995.
The Company is delinquent relative to certain Federal and California payroll tax
obligations and such obligation increased to $64,157 as of December 31, 1996.
Also, the Company paid $16,000 of unpaid 1995 compensation during the year.
The Company is in the process of settling with its former landlord regarding
1996 early lease termination. The settlement will entail the payments totaling
$53,000 over a two-year period beginning May, 1997. Such amount is accrued as of
December 31, 1996.
Note 9 - EXPORT SALES:
The Company earned 37% and 34% of its 1996 revenue in license revenue to Asia
and Europe, respectively.
Note 10 - SUBSEQUENT EVENTS:
In January, 1997, the Company issued 75,000 shares of common stock for legal and
consulting services. These services were accrued as accounts payable at December
31, 1996.
In April, 1997, a letter of intent was signed between the Company and film
producer. Such letter provides the Company will be the international distributor
for the producer after a cash advance of $320,000 beginning June, 1997. In
addition, the Company will pay $1.8 million and issue 3.7 million shares of
common stock in the future.
The Company entered into a commitment with a producer effective January 1, 1997
to provide $60,000 of "trading value" in the Company's common stock in exchange
for distribution rights for a group of television specials with no related
royalty obligation.
F-13
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> (3,536)
<SECURITIES> 0
<RECEIVABLES> 130,000
<ALLOWANCES> (22,000)
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