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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from _________ to _________
Commission File Number: BDC 814-178
FIRST COLONIAL VENTURES, LTD.
(Name of small business issuer in its charter)
UTAH 87-0421903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6033 WEST CENTURY BOULEVARD, SUITE 280, LOS ANGELES, CA 90045
(Address of principal executive offices)
Issuer's telephone number: (310) 642-0200
6151 WEST CENTURY BOULEVARD, SUITE 1018, LOS ANGELES, CA 90045
(Former address, if changed since last report)
Securities registered under Section 12 (b) of the Exchange Act:
NONE
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange during the past 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 / / No /X/
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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: / /
Issuer's revenues for its most recent fiscal year: $180,000
The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the average bid and asked price of such common equity
as of May 5, 1999 was $ 659,114 at March 31, 1999, based on the average bid and
ask prices during the quarter ended March 31, 1999.
The issuer had 9,415,919 shares of common stock outstanding as of March 31,
1999.
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format: Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business
(1) First Colonial Ventures, Ltd. (the "Registrant") is a Business
Development Company ("BDC") which is a form of closed-end, non-diversified
investment company under the Investment Company Act of 1940 (the "Investment
Company Act"). A BDC generally must maintain 70% of its assets in new,
financially troubled or otherwise qualified companies and offer significant
managerial assistance to such companies. A BDC is not subject to the full
extent of regulation under the Investment Company Act. The Registrant primarily
is engaged in the business of investing in and providing managerial assistance
to developing companies which, in its opinion, would have a significant
potential for growth. The Registrant's investment objective is to achieve
long-term capital appreciation, rather than current income on its investments.
There is no assurance that the Company's investment objective will be achieved.
The Registrant was organized under the laws of the State of Utah in 1985 for the
purpose of acquiring a participating interest in one or more businesses.
Through its year ended December 31, 1994, the Registrant conducted business
through various wholly-owned subsidiaries until electing in 1995 to become a
BDC. In January 1995, the Registrant elected to become an Investment Company
pursuant to the Investment Company Act of 1940. In June 1995, the Registrant
terminated its Investment Company election and elected to become a BDC, as
defined in the Small Business Investment Incentive Act of 1980, which Act is an
amendment to the Investment Company Act of 1940. The election resulted in the
Registrant becoming a specialized type of investment company. Consistent with
this change in type of business entity, during the year ended December 31, 1995,
the Registrant changed its method of financial reporting and valuation of
investments from cost to fair value.
The 1987 acquisition of Contemporary Resources, Inc. ("CRI") by the Registrant
was accounted for as a reverse acquisition. Therefore, through December 31,
1994, the Registrant presented consolidated financial statements with the equity
section including the outstanding common stock of the Registrant and the
accumulated deficit of CRI. However, in conjunction with the 1995 change in
type of entity and change in accounting method, the financial statements of the
Registrant for December 31, 1995, include only the accounts of the Registrant,
First Colonial
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Ventures, Ltd., because pursuant to industry practice, wholly-owned subsidiaries
which are neither investment companies or business development companies are not
consolidated.
Registrant's Board of Directors declared a 1 for 100 reverse stock split in
October 1991, and a 1 for 20 reverse stock split in December 1995. All common
share amounts stated herein have been restated to give effect to these stock
splits.
On May 1, 1987, the Registrant acquired 100% of the outstanding capital stock of
Contemporary Resources, Inc., a California corporation that was formerly known
as A.J.H. Corporation, Inc., dba Michaud ("CRI"), in a stock purchase
transaction pursuant to which the Registrant issued 120,000 shares of its Common
Stock. CRI is engaged in the distribution of disposable items to the airline
and hotel industries. The Registrant accounted for this acquisition as a
reverse purchase.
The acquisition was treated as an acquisition of the net assets of the
Registrant by CRI. As a result of the reverse acquisition, the equity section
of the December 31, 1994, and prior consolidated financial statements reflected
the outstanding common stock of the Registrant and the accumulated deficit of
CRI since its inception.
The bank with which CRI had its credit line agreement was seized by the FDIC on
January 31, 1992. At the time of the seizure, CRI had an outstanding balance of
$1,491,000 which was $491,000 over its $1,000,000 credit limit, although the
bank had approved the extended credit and CRI was in the process of obtaining an
increase in the line of credit. Subsequent to the seizure, the FDIC ceased
issuing advances to CRI under the credit line.
The FDIC refusal to issue credit line advances to CRI for inventory and
receivables, coupled with the inability of CRI to find suitable replacement
financing until October 1994, ultimately caused a cash flow shortage leading to
CRI being unable to fulfill certain large contracts and unable to accept certain
large orders. The result was a decline in CRI gross revenues from $8,269,800 in
1993 to $5,327,200 in 1994, $1,979,600 in 1995, and $1,036,600 for 1996. CRI
lost substantially all of its airline business during this decline. CRI's
remaining business was substantially hotel related.
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Final settlement was reached between CRI and the FDIC in early 1996 whereby the
balance owed was agreed to be $541,300 and whereby the FDIC agreed to accept
CRI's March 1996 payment of $54,000 in full settlement of the debt.
Accordingly, CRI recorded a gain of $487,300 during 1996 for settlement of the
debt.
In July 1997, CRI entered into an asset sale agreement with one of its major
vendors for the sale of the CRI hotel business. The buyer is familiar with the
CRI product line and with CRI customers. Under the agreement, the buyer is
required to: (1) use remaining CRI inventories, at cost, to fulfill orders from
former CRI customers, and (2) pay a royalty to CRI for sales to former CRI
customers which were recorded as backlog as of the closing and for sales to new
customers brought to the buyer by CRI.
CRI will continue in the amenity and specialty product business, but is barred
from competing with the buyer for hotel business.
CRI has an asset-based line of credit which had a balance due of $779,510 as of
the closing. The credit line is guaranteed by the Registrant, Murray W.
Goldenberg, President of the Registrant, and Leslie I. Handler, a director of
the Registrant. CRI believes that proceeds from collection of its accounts
receivable, liquidation of non-hotel inventory, and payments from the buyer for
inventory and royalties will be sufficient to pay the line of credit.
On October 15, 1993, the Registrant and its then newly-formed, wholly-owned
subsidiary, Flower Environments, Inc., a Nevada corporation ("FEI"), entered
into an Asset Purchase Agreement to acquire certain assets that it intended to
utilize to commence the operation of a flower display irrigation equipment
business. The agreement provided for the payment of $10,000 and the issuance of
50,000 shares of the Registrant's restricted stock to the seller.
In conjunction with the Asset Purchase Agreement, the Registrant also entered
into a Consulting agreement with the prior owner of the assets purchased. The
Consulting agreement was to expire in April 1995, and provided for base
compensation for the years ending December 31, 1994 and 1995 of $84,000 and
$32,000, respectively. The consulting agreement was terminated July 25, 1994.
FEI operated the business however projections were never realized and losses
were incurred. Therefore, under an asset sale agreement the business was
subsequently sold in November 1994 for a short-term receivable of $50,000, cash
of $25,000, and a non-interest bearing note of $150,000 which was recorded at
present
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value of future cash flows of $92,200. The buyer resold the business assets to
a foreign purchaser during 1995. At December 31, 1995, the short-term
receivable had not been paid and the note was in default. Both amounts were
still unpaid at December 31, 1996. The foreign buyer has not paid the original
buyer because certain international patents which were a part of the sale have
not yet been obtained. The original buyer has not paid FEI because the foreign
buyer is withholding payment. Although FEI expected to receive payment during
1997, the Registrant has written down its investment in FEI to zero because the
receivables are delinquent.
On July 13, 1995, the Registrant acquired a 100% interest, consisting of an
assignment of a lease, in the oil and gas rights to property located in Concho
County, Texas, in exchange for common stock. The Registrant assigned its rights
in the lease to FEI which intends to find a partner or otherwise raise the
capital necessary to drill wells, extract and sell the oil and natural gas
located on the property. No business activity was conducted during 1996 or 1997
with respect to the oil and gas lease.
During 1996, FEI was re-named First Colonial Real Estate, Ltd. ("FCREL").
On August 10, 1994, the Registrant acquired the rights to 50% of the stock of
Sherwood Properties, Inc. ("Sherwood"), a non-public Nevada company incorporated
in February 1995, in exchange for common stock. Sherwood was formed to hold 50%
of the stock of a Mississippi corporation that owns, subject to a land sale
contract, certain residential lots and is a joint venture partner in the
construction and sale of homes on the lots.
The Mississippi corporation has been unable to raise the cash necessary to pay
certain 1995 installments required by the land sale contract, accordingly, that
contract is in default. The contract provides the sellers with the option to
cancel the contract should default occur. The sellers have indicated a
willingness to continue to work with the Mississippi corporation and have not
taken any steps to cancel the contract. The Registrant has written down its
investment in Sherwood to zero until the Sherwood financial condition improves
and the land sale contract is no longer in default. Sherwood conducted no
operations during 1996 or 1997.
In December 1994 the Registrant acquired a 50% interest in Gulf Coast Hotels,
Inc. ("Gulf Coast") in exchange for common stock. Gulf Coast has a contract to
acquire 1.435 acres of waterfront
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real estate in Biloxi, Mississippi for the purpose of constructing a commercial
high rise hotel and condominium. The property has 250 feet of frontage along
the Gulf of Mexico. Gulf Coast has been unable to raise the approximately
$1,000,000 necessary to complete the down payment, and although the seller has
provided extensions, the contract was in default at December 31, 1995 and
continues to be in default. For these reasons, the Registrant has written down
its investment in Gulf Coast to zero until the Gulf Coast financial condition
improves. Gulf Coast conducted no operations during 1996 or 1997.
Also in July 1995, the Registrant acquired 50% of the stock of First Colonial
Funds, Ltd., a non-public Nevada business development company, and 25% of the
stock of First Colonial Fund's subsidiary, Colonial Funds, Limited, a non-public
Commonwealth of the Bahamas off-shore fund with investments in various
companies, in an exchange of common stock. During 1996, the Colonial Funds,
Limited stock was acquired by the Registrant's wholly-owned investee, YPE, Inc,
to conform with BDC requirements. Due to its 50% ownership of First Colonial
Funds, Ltd., which owns 75% of Colonial Funds, Limited, and its 100% ownership
of YPE, Inc., which owns 25% of Colonial Funds, Limited, the Registrant controls
62.5% of Colonial Funds, Limited. The most significant asset owned by both
First Colonial Funds, Ltd. and Colonial Funds, Limited, at December 31, 1996 and
1997, was shares of the Registrant.
During 1996 the Registrant decided to discontinue its relationship with First
Colonial Funds, Ltd. which had also acted as manager for Colonial Funds,
Limited. Although final agreement has not been reached, in June 1997 First
Colonial Funds, Ltd. relinquished its shares in Colonial Funds, Limited in
exchange for the First Colonial Funds, Ltd. shares held by the Registrant.
Accordingly, YPE, Inc. became 100% owner of Colonial Funds, Limited.
During March 1996, in exchange for 400,000 shares of its common stock the
Registrant acquired a 10% interest in a non-public Florida corporation, And In
Justice For All, Inc., which operates a nation-wide membership organization
providing its members with access to attorney services at discounted rates.
During 1997, the Registrant agreed to increase its investment in And In Justice
For All, Inc. to a total of 15%. The agreement required the Registrant to issue
an additional 515,235 shares of its common stock and required And In Justice For
All, Inc. to assume the Registrant's convertible debenture payable of $210,000
plus accrued interest of approximately $55,000. The agreement
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further provides that And In Justice For All, Inc. has the option to reacquire
the additional 5% interest from the Registrant for a fixed price of $266,666 at
any time prior to July 31, 1999.
During August 1996, in exchange for shares of its common stock equal to $350,000
the Registrant acquired a one-third interest in a non-public California
corporation, TND/Medical International, Inc., which owns and operates, subject
to a third-party management agreement, a magnetic resonance imaging center
located in San Diego, California. At December 31, 1996, $220,000 of the
purchase price was unpaid.
On September 1, 1996 , the Registrant reached an agreement in principal with
members of Acclaim Studios, LLC, a California limited liability company, for the
acquisition of certain assets and liabilities of Acclaim in exchange for 180,000
shares of the Registrant's unregistered common stock which shares have not yet
been issued. During November 1996, the Registrant formed a non-public,
wholly-owned Nevada corporation, First Colonial Studios, Inc., dba Acclaim,
("Acclaim") which acquired certain assets and liabilities consisting of
substantially all of the operations of Acclaim Studios, LLC, operating in Studio
City, California, in the business of video production and post production.
During May 1997, in exchange for 1,000,000 shares of its common stock, the
Registrant acquired all of the outstanding common stock of Dryden Energy, Inc.,
a Utah corporation ("Dryden"), which was a wholly-owned subsidiary of a
non-public Texas corporation, Pilares Oil & Gas, Inc., ("Pilares"). Dryden owns
an assignment of six oil, gas and mineral leases pertaining to properties
located in Coleman County, Texas. The acquisition agreement required Pilares to
reopen the six capped natural gas wells on the property, drill ten new wells,
and operate the project. The six capped wells have been reopened and four are
operating. The Registrant has issued approximately 710,000 shares and under the
agreement "Dryden" has retained 520,000 of the 710,000 shares against future
performance by Pilares.
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Transactions with Turbo, Inc:
Effective March 31, 1992, Turbo, Inc., a Nevada corporation ("Turbo"), then a
newly-formed, wholly-owned subsidiary of Gerant Industries, Inc.
("Gerant")(formerly known as L.A. Entertainment, Inc.), acquired 100% of the
outstanding common stock of CRI from the Company. In exchange, the Company
received 49% of the
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outstanding common stock of Turbo and a $500,000 note made by Turbo in favor of
the Company. The note accrued interest at 10% per annum, and was payable on
demand. As a condition of the acquisition, the $500,000 note was to be
collateral to secure the intercompany debt of the Company to CRI. On May 22,
1992, the Company liquidated its $500,000 debt to CRI by assigning the $500,000
note to CRI. Also, the Company agreed to convert the subordinated note due from
CRI of $550,000 to contributed capital.
As incentive for the Company to exchange its 100% interest in CRI for a 49%
interest in Turbo, Gerant agreed to capitalize Turbo at $1,500,000 by issuing
4,383,710 shares of its restricted common stock to Turbo valued at the fair
market value of $.31 per share. In conjunction with this transaction, Gerant
was required to register the shares of common stock for sale to the public by
December 31, 1992, failing which the acquisition agreement would be
automatically rescinded.
Effective June 30, 1992, the Company and Gerant sold their aggregate 100%
shareholder interest in Turbo (the parent of CRI) for a combined 80% equity
interest in Lucky Chance Mining Company, Inc., a publicly-held Arizona
Corporation ("Lucky"), with Turbo thus becoming a wholly-owned subsidiary of
Lucky. Lucky had filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code on August 22, 1989, and operated as
debtor-in-possession. Lucky confirmed its Second Amended Plan of Reorganization
on June 8, 1992, and the Order Confirming Debtor's Second Amended Plan of
Reorganization was entered by the Bankruptcy Court on June 17, 1992. Lucky
subsequently merged with and into Turbo, resulting in Turbo being the surviving
public company ("New Turbo"). Daniel Lezak, Gerant's President and Director, was
Lucky's President and controlling shareholder from July 1989 through June 30,
1992. Murray W. Goldenberg, the President of the Company, CRI and Turbo, was
subsequently appointed as the President of New Turbo.
Effective September 30, 1992, Gerant completed its obligation to provide
$500,000 of additional funding to New Turbo by issuing 2,285,715 shares of its
restricted common stock at the then fair market value of $.22 per share, in
exchange for which Gerant was to receive 10,000,000 shares of New Turbo's
restricted common stock.
In conjunction with the aforedescribed transactions, New Turbo received an
aggregate of 7,124,425 shares of common stock of Gerant valued at $2,000,000.
On or about March 31, 1993, New Turbo sold 3,000,000 shares of such common stock
for $216,000.
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During June 1993, New Turbo sold an additional 250,000 shares of such common
stock for $20,000.
As of December 31, 1992, Gerant had not registered the shares of common stock
issued to Turbo. This failure resulted in the automatic rescission of the
original agreement effective March 31, 1992. Subsequent to December 31, 1992,
in response to requests from Gerant, the Company negotiated with Gerant
concerning a possible restructuring of the original agreement, but no agreement
could be reached. Therefore, in the opinion of the Company's management, the
original agreement was never consummated, the December 31, 1992 rescission was
effective, and CRI continues to be a wholly-owned subsidiary of the Company.
On April 6, 1994, Gerant filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code.
On August 26, 1994 Gerant filed suit against Murray W. Goldenberg, First
Colonial Ventures, Ltd., CRI and Turbo, Inc. The adversary proceeding in the
bankruptcy court was dismissed with prejudice on February 22, 1995 and without
prejudice as to their right to file a new action in a court other than the
bankruptcy court.
On March 1, 1996, a new complaint was filed, however, prior to trial the matter
was settled on June 26, 1996, at a cost of $30,000 to the Registrant.
(4) Although the Registrant does not directly compete with any single company,
individual or organization, the Registrant is subject to substantial competition
from business development companies, venture capital firms, new product
development companies, marketing companies and diversified manufacturers, most
of whom are larger than the Registrant and have significantly larger net worth
and financial and personnel resources than the Registrant. In addition, the
Registrant competes with companies and individuals engaged in the business of
providing management consulting services.
(5) The Registrant does not require raw materials.
(6) The Registrant's business is not dependent upon a single customer, or a few
customers, the loss of any one or more of which would have a material adverse
effect on the Registrant.
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(7) The Registrant holds no patents or trademarks, and has no interest in any
franchises, concessions, royalty agreements or labor contracts.
(9) Effect of existing or probable government regulations on the business.
The Registrant is a close-end, non-diversified investment company under the
Investment Company Act and has elected to become a business development company
under that act. The Registrant's investment objective is to achieve long-term
capital appreciation, rather than current income, on its investment. There can
be no assurance that this objective will be realized. The Registrant's
investment decisions are made by its management in accordance with policies
approved by its board of directors. The Registrant does not have a registered
investment advisor. In addition, the Registrant does not operate pursuant to a
written investment advisory agreement that must be approved periodically by
shareholders. The Registrant relies solely upon its management, particularly
its officers on a day to day basis, and also on the experience of its directors,
in making investment decisions.
In accordance with this objective, the Registrant consults with its investees
with respect to obtaining capital and offers managerial assistance to selected
businesses that, in the opinion of the Registrant's management, have a
significant potential for growth.
In addition to acquiring investment positions in new and developing companies,
the Registrant also seeks investees in more mature privately and publicly-held
companies which the Registrant believes could be further developed or
revitalized, some of which may be experiencing financial difficulties.
The Registrant plans to take advantage of other opportunities to maintain and
create independent companies with a significant potential for growth. The
Registrant's priorities for the future will be to (1) maximize the value and
liquidity of its present investees, (2) increase its cash flow, sources of
income tax benefits and intermediate term value through the acquisition of
securities or assets of more established companies, (3) make new investments in
more mature companies, and (4) to a lesser degree, make a few small higher risk
investments in new and developing companies.
The Registrant has no fixed policy as to the business or industry group in which
it may invest or as to the amount or type of
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securities or assets that it may acquire. 1995 was the Registrant's first year
as a BDC, and the Registrant made investments in new and developing companies
whose securities had no established public market. These companies were unable
to obtain significant capital on reasonable terms from conventional sources.
However, in future years the Registrant anticipates seeking out and evaluating
investments in more mature companies. The Registrant endeavors to assist its
investee companies and management teams in devising realistic business
strategies and obtaining necessary financing.
The Registrant does not currently intend to pay cash dividends.
The Registrant believes that the key to achieving its objectives is finding and
supporting business executives who have the ability, entrepreneurial motivation
and experience required to build independent companies with a significant
potential for growth. In the Registrant's view, it is more difficult to locate
and attract capable executives than to identify, select and finance promising
investment opportunities.
Business development is by nature a high-risk activity that can result in
substantial losses. The companies in which the Registrant invests and will
invest, especially in the early stages of an investment, often lack effective
management, face operating problems and incur substantial losses. However, the
Registrant is seeking out and evaluating investments in more mature companies.
Potential investees include established businesses which may be experiencing
severe financial or operating difficulties or may, in the opinion of management,
be ineffectively managed or have the potential for substantial growth or
reorganization into separate independent companies.
The Registrant attempts to reduce the level of its investment risks through one
or more of the following:
(i) carefully investigating potential investees;
(ii) financing only what it believes to be practical business
opportunities as contrasted with research projects;
(iii) selecting effective, entrepreneurial management for its investees;
(iv) providing active managerial assistance and support to investees;
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(v) obtaining, alone or with others, actual or working control of its
investees;
(vi) supporting the investees in obtaining necessary financing and
arranging major contracts, joint ventures or mergers and acquisitions where
feasible; and
(vii) maintaining sufficient capital resources to make follow-up
investments where necessary, appropriate and feasible.
Investment Policies:
The Registrant has elected to be regulated as a business development company and
is subject to the provisions of Sections 55 through 65 of the Investment Company
Act made applicable to business development companies by Section 59 of the
Investment Company Act. In accordance with those provisions, the Registrant's
investment policies are defined and subject to certain limitations.
Furthermore, under Section 58 of the Investment Company Act, the Registrant may
not withdraw its election to be so regulated without the consent of a majority
of its stockholders. If the Registrant were to withdraw its election to be
regulated as a BDC, it may be subject full regulation under of the Investment
Company Act as if it were a closed-end investment company.
The Registrant has no fixed policy as to the business or industry group in which
it may invest or as to the amount or type of securities or assets that it may
acquire. However, the Registrant, at this time, is seeking out and evaluating
investments in more mature companies. During 1995, the Registrant invested in
assets that are not qualifying assets under Section 55 of the Investment Company
Act; however, such unqualified investment was inadvertent. The Registrant does
not intend to fall below the 70% requirement as set forth in Section 55.
The Registrant endeavors to achieve its objectives in accordance with the
following general policies:
(i) The Registrant acquires securities through negotiated private
placement transactions directly from the investee company, its affiliates, or
third parties, or through open market transactions.
(ii) The Registrant attempts to acquire, consistent with the Registrant's
capital resources, a large or controlling interest in
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its investees through purchases of equity securities with loans, guarantees, and
common stock of the Registrant.
(iii) The Registrant may make additional or "follow-on" investments in or
loans to its investees when appropriate to sustain the investees or to enhance
or protect the Registrant's existing investment.
(iv) The Registrant determines the length of time it will retain its
investment by evaluating the facts and circumstances of each investee and its
relationship with such investee. The Registrant anticipates retaining
investments for a relatively long period, generally many years, with the result
that portfolio turnover will be low. Investments are retained until, in the
opinion of the Registrant, the investee company has a demonstrated record of
successful operations and there is a meaningful public market for its securities
which reflects the investment value the Registrant sought (or such a market can
be readily established) or until the Registrant decides that its investment is
not likely to result in future long-term capital appreciation.
VALUATION POLICY GUIDELINES
The Registrant's Board of Directors is responsible for the valuation of the
Registrant's assets in accordance with its approved guidelines. The
registrant's Board of Directors is responsible for (1) recommending overall
valuation guidelines and (2) the valuation of specific investments.
There is a range of values which are reasonable for an investment at any
particular time. Fair value is generally defined as the price at which the
investment in question could change hands, assuming that both parties to the
transaction are under no unusual pressure to buy or sell and both have
reasonable knowledge of all the relevant facts. To increase objectivity in
valuing the securities, the Registrant uses the best information available
including the following criteria.
The Registrant uses four basic methods of valuation for its investments and
there are variations within each of these methods. The Registrant's Board of
Directors has determined that the Registrant's four basic valuation methods
constitute fair value. As an investee evolves, its progress usually requires
changes in the Registrant's method of valuing the investee's securities. The
Registrant's investment is separated into its component parts (such as debt,
preferred stock, common stock or warrants), and each component is valued
separately to arrive at total value. The
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Company believes that a mixture of valuation methods is often essential to
represent fairly the value of the Registrant's investment position in an
investee. For example, one method may be appropriate for the equity securities
of a company while another method may be appropriate for the senior securities
of the same company.
The cost method values an investment based on its original cost to the Company,
adjusted for the amortization of original issue discount, accrued interest and
certain capitalized expenditures of the Company. While the cost method is the
simplest method of valuation, it is often the most unreliable because it is
applied in the early stages of an investee's development and is often not
directly tied to objective measurements. The original cost may be adjusted by
the Board of Directors in good faith taking into account such factors as
available financial information of the investee, the nature and duration of any
restrictions as to resale and other factors which influence the market in which
a security is purchased or sold. All investments are carried at cost until
significant positive or adverse events subsequent to the date of the original
investment call for a change to another method. Some examples of such events
are: (1) a major recapitalization; (2) a major refinancing; (3) a significant
third-party transaction; (4) the development of a meaningful public market for
the investee's common stock; and (5) material positive or adverse changes in the
investee's business.
The appraisal method is used to value an investment position based upon a
careful analysis of the best available outside information when there is no
established public or private market in the investee company's own securities
and it is no longer appropriate to use the cost method. Comparisons are made
using factors (such as earnings, sales or net worth) that influence the market
value of similar public companies or that are used in the pricing of private
transactions of comparable companies. Major discounts are considered when
private companies are appraised by comparing them to similar public companies.
Liquidation value may be used when an investee is performing substantially below
plan and it's continuation as an operating entity is in doubt. Under the
appraisal method, the differences among companies in terms of the source and
type of revenues, quality of earnings, and capital structure, are carefully
considered.
An appraisal value can be defined as the price at which the investment in
question could change hands, assuming that both parties to the transaction are
under no unusual pressure to buy or sell and both have reasonable knowledge of
all the relevant facts.
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In the case of start-up companies where the entire assets may consist of only
one or more of the following: a marketing plan, management or a pilot operation,
an evaluation may be established by capitalizing the amount of the investment
that could reasonably be obtained for a predetermined percentage of the company.
Valuations under the appraisal method are considered to be more subjective than
the cost, public market or private market methods.
The private market method uses third-party transactions (actual or proposed) in
the investee's securities as the basis for valuation. This method is considered
to be an objective measure of value since it depends upon the judgment of a
sophisticated, independent investor. Actual firm offers are used as well as
historical transactions, provided that any offer used was seriously considered
and well documented and adjusted (if applicable) by the Board of Directors in
good faith taking into account such factors as available financial information
of the investee, the nature and duration of any restrictions as to resale and
other factors which influence the market in which a security is purchased or
sold.
The public market method is the preferred method of valuation when there is an
established public market for the investee's common stock, since that market
provides the most objective basis for valuation. In determining whether the
public market is sufficiently established for valuation purposes, the Registrant
examines the trading volumes, the number of shareholders and the number of
market makers. Under the public market method, as well as under the other
valuation methods, the Registrant discounts investment positions that are
subject to significant legal, contractual or practical restrictions and
appropriate adjustments may be made by the Board of Directors in good faith
taking into account such other factors as available financial information of the
investee, the nature and duration of any restrictions as to resale and other
factors which influence the market in which a security is purchased or sold.
When an investee's common stock is valued under the public market method, common
stock equivalents such as presently exercisable warrants or options are valued
based on the difference between the exercise price and the market value of the
underlying common stock. Although the Registrant believes that a public market
could be created for the options and warrants of certain of its investees,
thereby possibly increasing the value of these rights for their arbitrage value,
the Registrant does not reflect this possibility in its valuation.
MANAGERIAL ASSISTANCE
16
<PAGE>
The Registrant believes that providing managerial assistance to its investees is
critical to its business development activities. "Making available significant
managerial assistance" as defined in the Investment Company Act with respect to
a business development company such as the Registrant means (a) any arrangement
whereby a business development company, through its directors, officers,
employees or general partners, offers to provide, and, if accepted, does so
provide, significant guidance and counsel concerning the management, operations,
or business objectives and policies of a portfolio company; or (b) the exercise
by a business development company of a controlling influence over the management
or policies of a portfolio company by the business development company acting
individually or as a part of a group acting together which controls such
portfolio company. The Registrant is required by the Investment Company Act to
make significant managerial assistance available at least with respect to
investee companies that the Registrant treats as qualifying assets for purposes
of the 70% test. The nature, timing and amount of managerial assistance
provided by the Registrant vary depending upon the particular requirements of
each investee company.
The Registrant may be involved with its investees in recruiting management,
product planning, marketing and advertising and the development of financial
plans, operating strategies and corporate goals. In this connection, the
Registrant may assist clients in developing and utilizing accounting procedures
to efficiently and accurately record transactions in books of account which will
facilitate asset and cost control and the ready determination of results of
operations. The Registrant also seeks capital for its investees from other
potential investors and occasionally subordinates its own investment to those of
other investors. The Registrant introduces its investees to potential
suppliers, customers and joint venture partners and assists its investees in
establishing relationships with commercial and investment bankers and other
professionals, including management consultants, recruiters, legal counsel and
independent accountants. The Registrant also assists with joint ventures,
acquisitions and mergers.
In connection with its managerial assistance, the Registrant may be represented
by one or more of its officers or directors on the board of directors of an
investee. As an investment matures and the investee develops management depth
and experience, the Registrant's role will become progressively less active.
However, when the Registrant owns or on a pro forma basis could acquire a
substantial proportion of a more mature investee company's equity,
17
<PAGE>
the Registrant remains active in and will frequently initiate planning of major
transactions by the investee. The Registrant's goal is to assist each investee
company in establishing its own independent and effective board of directors and
management.
The following is a summary description of the Investment Company Act as applied
to business development companies. This description is qualified in its
entirety by reference to the full text of the Investment Company Act and the
rules adopted thereunder by the SEC.
The Small Business Investment Incentive Act of 1980 modified the provisions of
the Investment Company Act that are applicable to a company, such as the
Registrant, which elects to be treated as a "Business Development Company"
("BDC"). The Registrant elected to be treated as a business development company
in July 1995. The Registrant may not withdraw its election without first
obtaining the approval of a majority of its outstanding voting securities.
A BDC must be operated for the purpose of investing in the securities of certain
present and former "eligible portfolio companies" and certain bankrupt or
insolvent companies and must make available significant managerial assistance to
its investee companies. An eligible portfolio company generally is a United
States company that is not an investment company (except for wholly-owned SBIC's
licensed by the Small Business Administration) and (1) does not have a class of
securities included in the Federal Reserve Board's over-the-counter margin list,
(2) is actively controlled by the business development company and has an
affiliate of the business development company on its board of directors, or (3)
meets such other criteria as may be established by the SEC. Control, under the
Investment Company Act, is presumed to exist where the business development
company owns 25% or more of the outstanding voting securities of the investee.
The Investment Company Act prohibits or restricts the Registrant from investing
in certain types of companies, such as brokerage firms, insurance companies,
investment banking firms and investment companies. Moreover, the Investment
Company Act limits the type of assets that the Registrant may acquire to
"qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the Registrant's assets consists of qualifying
assets. The effect of the regulation is to require that at least 70% of a
business development company's assets be maintained in qualifying assets.
Qualifying assets include: (1) securities of companies that were eligible
portfolio
18
<PAGE>
companies at the time the Registrant acquired their securities, (2) securities
of bankrupt or insolvent companies that are not otherwise eligible portfolio
companies, (3) securities acquired as follow-on investments in companies that
were eligible at the time of the Registrant's initial acquisition of their
securities but are no longer eligible, provided that the Registrant has
maintained a substantial portion of its initial investment in those companies,
(4) securities received in exchange for or distributed on or with respect to any
of the forgoing, and (5) cash items, government securities and high-quality
short-term debt. The Investment Company act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can
be purchased in order for the securities to be considered to be qualifying
assets.
At December 31, 1995, the Registrant may not have complied with Section 55 of
the Investment Company Act with respect to the 70% test as a result of its
investment in Colonial Funds, Limited. Any non-compliance was inadvertent and
the Registrant took corrective action by transferring the investment to YPE,
Inc., Registrant's wholly-owned investee.
Colonial Funds, Limited is a Commonwealth of the Bahamas corporation operating
as an off-shore fund. This investment does not satisfy the requirements of a
"Qualifying Asset" because Colonial Funds, Limited is not organized in the
United States.
During August 1996, the Registrant entered into a recession agreement with
Colonial Funds, Limited for the purpose of correcting the non-compliance so that
the form of this investment would comply with the requirements of a qualifying
asset. The Registrant returned the shares of Colonial Funds, Limited Class B
common stock and received and canceled the shares which it had issued for such
stock. Concurrently, the Registrant acquired a 100% interest in YPE,Inc., a
non-public Nevada corporation, in exchange for 3,333,333 shares of FCVL common
stock which YPE, Inc. exchanged for 25,000 Class B common shares of Colonial
Funds, Limited.
Registrant believes any non-compliance with Section 55 has been corrected.
The Registrant is permitted by the Investment Company Act, under specified
conditions, to issue multiple classes of senior debt and a single class of
preferred stock if its asset coverage, as defined in the Investment Company Act,
is at least 200% after the issuance of the debt or the preferred stock. The
Registrant
19
<PAGE>
currently has no policy regarding issuing multiple classes of senior debt or a
class of preferred stock.
The Registrant may issue in limited amounts, warrants, options and rights to
purchase its securities to its directors, officers and employees (and provide
loans to those persons for the exercise thereof) in connection with an executive
compensation plan if certain conditions are met. These conditions include the
authorization of such issuance by a majority of the Registrant's voting shares
and the approval of a majority of the independent members of the Board of
Directors and a majority of the directors who have no financial interest in the
transaction. The issuance of options, warrants or rights to directors who are
not also officers requires the prior approval of the SEC.
The Registrant may sell its securities at a price that is below the prevailing
net asset value per share only upon the approval of the policy by the holders of
a majority of its voting securities, including a majority of the voting
securities held by non-affiliated persons, at its last annual meeting or within
one year prior to the transaction. In addition, the Registrant may repurchase
its Common Stock, subject to the restrictions of the Investment Company Act.
The Registrant at this time does not contemplate selling its securities at a
price below prevailing net asset value per share or repurchasing its Common
Stock.
In accordance with the Investment Company Act, a majority of the members of the
Registrant's Board of Directors must not be "interested persons" of the
Registrant as that term is defined in the Investment Company Act. Generally,
"interested persons" of the Registrant include all affiliated persons of the
Registrant and members of their immediate families, any "interested person" of
an underwriter or of an "investment advisor" to the Registrant, any person who
has acted as legal counsel to the Registrant within the last two years, or any
broker or dealer, or affiliate of a broker or dealer.
Most of the transactions involving the Registrant and its affiliates (as well as
affiliates of those affiliates) which were prohibited without the prior approval
of the SEC under the Investment Company Act prior to its amendment by the Small
Business Investment Incentive Act now require the prior approval of a majority
of the Registrant's independent directors and a majority of the directors having
no financial interest in the transactions. The effect of the amendment is that
the Registrant may engage in certain affiliated transactions that would be
prohibited absent SEC approval in the case of investment companies
20
<PAGE>
which are not business development companies. However, transactions involving
certain closely affiliated persons of the Registrant, including its directors,
officers and employees, still require the prior approval of the SEC. In
general, "affiliated persons" of a person include: (a) any person who owns,
controls or holds with power to vote, more than five percent of the Registrant's
outstanding Common Stock (b) any director, executive officer or general partner
of that person, (c) any person who directly or indirectly controls, is
controlled by, or is under common control with, that person, and (d) any person
five percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote, by such other person.
Such persons generally must obtain the prior approval of a majority of the
Registrant's independent directors and, in some situations, the prior approval
of the SEC, before engaging in certain transactions involving the Registrant or
any company controlled by the Registrant. The Investment Company Act generally
does not restrict transactions between the Registrant and its investee
companies.
Finally, notwithstanding restrictions imposed under federal securities laws, it
is anticipated that the Registrant will acquire securities of investee companies
pursuant to stock purchase agreements or other agreements that may further limit
the Registrant's ability to distribute, or sell or transfer such securities;
and, as a practical matter, even if such transfers are legally or contractually
permissible, there may be no market, or a very limited market, for the
securities and economic conditions may make the price and terms of a sale or
transfer unattractive.
OTHER SECURITIES LAW CONSIDERATIONS
In addition to the above-described provisions of the Investment Company Act,
there are a number of other provisions of the federal securities laws which
affect the Registrant's operations. for example, restrictions imposed by the
federal securities laws, in addition to possible contractual provisions, may
affect adversely the ability of the Registrant to sell or otherwise distribute
its portfolio securities.
Most if not all securities which the Registrant acquires as venture capital
investments will be "restricted securities" within the meaning of the Securities
Act of 1933 ("Securities Act") and will not be permitted to be resold without
compliance with the Securities Act. Thus, the Registrant will not be permitted
to resell portfolio securities unless a registration statement has been declared
effective by the SEC with respect to such securities
21
<PAGE>
or the Registrant is able to rely on an available exemption from such
registration requirements. In most cases the Registrant will endeavor to obtain
from its investee companies "registration rights" pursuant to which the
Registrant would be able to demand that an investee company register the
securities owned by the Registrant at the expense of the investee company. Even
if the investee company bears this expense, however, the registration of the
securities owned by the Registrant is likely to be a time-consuming process, and
the Registrant always bears the risk, because of these delays, that it will be
unable to resell such securities, or that it will not be able to obtain an
attractive price for the securities.
Sometimes the Registrant will not register portfolio securities for sale but
will seek to rely upon an exemption from registration. The most likely
exemption available to the Registrant is section 4(1) of the Securities Act
which, in effect exempts sales of securities not involving a distribution of the
securities. This exemption will likely be available to permit a private sale of
portfolio securities, and, in some cases, a public sale, if the provisions of
Rule 144 under the Securities Act are satisfied. Among other things, Rule 144
requires that securities be sold in "broker transactions", and imposes a
two-year holding period prior to the sale of restricted securities.
(10) During the last three years the Registrant spent no amounts on
Registrant-sponsored or customer-sponsored research and development activities.
(11) The Registrant is not subject to any federal, state or local provisions
which have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment.
(12) As of December 31, 1997, the Registrant has 1 full time employee and
several part time employees. CRI has a total of four full-time employees,
certain of which also provided services to the Registrant. None of the CRI's
employees are subject to a collective bargaining agreement, and the Company has
not experienced any slow-downs, strikes or work stoppages due to labor
difficulties. The Company considers its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
(a) OFFICE
22
<PAGE>
The Registrant's executive and administrative office is located at 6033 West
Century Boulevard, Suite 280, Los Angeles, California 90045. The Registrant
leases this space, consisting of approximately 1,789 square feet, on a one year
lease. Currently, the monthly rental is $2,325.70.
2. OIL AND GAS INTERESTS
Through its wholly-owned investee, FCREL, the Registrant owns an interest in
exploratory oil and gas property in Concho County, Texas, which is currently
inactive, and operating oil and gas property located in Coleman County, Texas.
(3) (c) RESIDENTIAL REAL ESTATE SUBDIVISION
Through its 50% owned investee, Sherwood, the Registrant owns an interest in a
residential sub division consisting of raw land sub divided into lots located
near Biloxi, Mississippi.
These lots are available for sale and, in conjunction with a joint venture
agreement, the design and construction of custom homes on the lots are also
available.
Through December 31, 1996, no lots were sold and no homes were constructed on
the property.
ITEM 3. LEGAL PROCEEDINGS
During the year ended December 31, 1997, neither the Company nor its
subsidiaries were a party to or the subject of any material legal proceedings,
except as described below.
For information regarding the Company's dispute with Gerant Industries, Inc.,
see "ITEM 1. DESCRIPTION OF BUSINESS - Transactions with Turbo, Inc."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security holders during
the years ended December 31, 1996 or 1997.
23
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information:
The equity securities of the Company have been quoted on the National Quotation
Service Pink Sheets since January, 1986, however the stock was unpriced from
July 1989 to October 1994. On October 18, 1994 the Company completed the
documentation necessary to resume trading. The Company's equity securities were
originally issued in units. Each unit consisted of (1) 100 shares of common
stock, (ii) 100 A warrants to purchase 100 shares of common stock at 0.02 per
share exercisable any time within one year of the effective date of the
offering, (iii) 100 B warrants to purchase 100 shares of common stock at 0.03
per share exercisable any time within one year of the effective date of the
offering, and (iv) 50 C warrants to purchase 50 shares of common stock at 0.04
per share exercisable at any time within two years of the effective date of the
offering. After the offering the company extended the exercise period for the A
and B warrants to December 10, 1987 and for the C warrants to December 10, 1988.
By March 1986, all of the A and B warrants had been exercised.
The following table sets forth the range of high and low bid prices during each
quarter for the Registrant's common stock for the years ending December 31,
1996, and December 31, 1997. These over-the-counter market quotations may
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions. The 1997 information was obtained on May
4, 1999 from Blumberg Financial Services
<TABLE>
<CAPTION>
1996
----
Common Stock Bid Ask
------- -------
<S> <C> <C>
Q1-96 1 7/8 3
Q2-96 2 7/8 3 1/4
Q3-96 1 3/8 2
Q4-96 1/2 3
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
1997 BID PRICE :
-------------------
HIGH LOW AVERAGE
------ ----- -------
<S> <C> <C> <C>
Q1-97 $1.5000 0.5000 1.1058
Q2-97 $1.1250 0.6250 0.8654
Q3-97 $1.1250 0.3750 0.6971
Q4-97 $1.0000 0.5000 0.7596
</TABLE>
<TABLE>
<CAPTION>
Approximate Number
of Record Holders
Title of Class (as of March 31, 1999)
-------------- ----------------------
<S> <C>
Common Stock,
$.001 Par Value 1600
---------------
</TABLE>
(c) Dividends:
The Company has never paid cash dividends on its common stock. The declaration
and payment of dividends is within the discretion of the Company's board of
directors and will depend, among other factors, on earnings and debt service
requirements, as well as the operating and financial condition of the Company.
At the present time, the Company's anticipated working capital requirements are
such that it intends to follow a policy of retaining earnings in order to
finance the development of its business. Accordingly, the Company does not
expect to pay a cash dividend within the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Plan of Operation
Not Applicable
(b) Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations - Although significant management assistance is rendered
to various investees, the Registrant does not charge management fees until an
investee is operating according to plan.
25
<PAGE>
Investment expenses for the years ended December 31, 1996 and 1997 were
$316,000 and $1,938,140, respectively. These expenses were high in 1997 due to
the loss realized by discontinuing the Acclaim operations.
The Registrant's net investment loss after taxes was $ 1,758,940 and $316,817
for the years ended December 31, 1997 and 1996.
In addition, unrealized losses on investments in the amounts of $3,000 and
$3,025,000 for the years ended December 31, 1996 and 1997, respectively, were
recorded in connection with the valuations of the Registrant's investments in
Contemporary Resources, Inc., First Colonial Studios, Inc., Dryden Energy Inc.,
and TND/Medical International, Inc.
Financial Condition - December 31, 1996 and 1995. The Registrant's qualifying
investments at fair value totaled $3,522,000 and $3,147,900 at December 31, 1996
and 1995. The increase in qualifying investments was substantially due to the
acquisitions of Acclaim, And In Justice For All, and TND/Medical of $941,200,
offset by the decrease in YPE of $881,600.
The Registrant's non-qualifying investment at fair value in First Colonial
Funds, Ltd. was zero at December 31, 1996 and $750,000 at December 31, 1995.
Notes receivable from the sale of common stock were $1,691,600 and $529,200 at
December 31, 1996 and 1995, respectively, as intitally reported. The 1996
balance was restated to zero in 1997.
Liabilities totaled $1,894,500 and $1,121,213 at December 31, 1996 and 1997,
respectively.
Registrant had substantial working capital deficits at both December 31, 1996
and 1997.
The following transactions involving shares of Registrant's common stock
occurred during the years ended December 31, 1996 and 1997:
On January 4, 1996, the Registrant effected a 1 for 20 reverse stock
split. All disclosures pertaining to shares of common stock have been restated
to reflect the January 4, 1996 stock split.
During 1994, pursuant to Regulation S the Registrant issued 190,000 shares
subject to a stock purchase agreement and accounted for the shares at December
31, 1994, as common stock subscribed.
26
<PAGE>
During July 1995, 179,238 of those shares were issued to an unaffiliated
corporation as consideration for the oil and gas lease subsequently assigned to
FCREL. The remaining 10,762 shares were issued subject to a stock subscription
agreement in the amount of $140,000 which was paid during 1995 and 1996.
During April 1995, pursuant to Section 4(2) the Registrant issued 200,000
restricted shares subject to a stock purchase agreement. In January 1996, these
shares were returned to the Company and canceled.
During July 1995, pursuant to Section 4(2) the Registrant issued 3,333,333
restricted shares to Colonial Funds, Limited in exchange for 25,000 shares Class
B common stock of Colonial Funds. This transaction was canceled in 1996 and the
shares were issued to YPE, Inc. to comply with BDC requirements.
During September 1997, pursuant to Section 4(2) the Company issued 180,000
shares to Acclaim Studios, LLC, to conclude the purchase of Acclaim assets
discussed in Note 1.
During September 1997, pursuant to section 4(2) the Company issued 600,000
shares to Contemporary Resources, Inc., at a price of approximately $1 per
share in partial payment of the Company's debts to CRI.
During September 1997, pursuant to Section 4(2) the Company issued 150,000
shares to the private investor holding the demand note discussed in Note 7.
These shares were to be used by the investor as partial payment of the note.
At December 31, 1996, Colonial Funds, Limited held 1,884,422 shares of the
Company's common stock issued pursuant to Regulation E and subject to stock
purchase agreements. At December 31, 1996, notes receivable from sale of common
stock were notes payable from Colonial Funds, Limited to the Company pertaining
to Company shares held by Colonial Funds, Limited and pertaining to transactions
not yet completed by Colonial Funds, Limited. During 1997 no shares were sold
by the Company to Colonial Funds, Limited, and there were no notes receivable
from colonial Funds, Limited as of December 31, 1997.
During February 1996, pursuant to Regulation E the Registrant issued
3,200,000 shares to Colonial Funds, Limited subject to a stock purchase
agreement in the amount of $2,400,000.
27
<PAGE>
During February 1996, pursuant to Regulation E the Registrant issued
2,100,000 shares to Colonial Funds, Limited subject to a stock purchase
agreement in the amount of $2,100,000.
ITEM 7. FINANCIAL STATEMENTS
The financial statements for the years ended December 31, 1996 and 1997 are
listed under Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with accountants during the most recent
two fiscal years.
On November 27, 1996 the Registrant filed Form 8-K reporting dismissal of
accountants Beckman Hollander & Associates and appointment of accountant J. Paul
Kenote, P.C.
On April 25, 1999 the registrant filed Form 8-K reporting the retirement of
Accountant J. Paul Kenote, P.C. and the appointment of Accountant Timothy L.
Steers, LLC.
On May 1, 1997 the Registrant filed Form 8-K reporting acquisition of First
Colonial Studios, Inc.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSON; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table and text sets forth the names and ages of all directors
and executive officers of the Company and their positions and offices with the
Company as of December 31, 1996. All of the directors will serve until the next
annual meeting of the shareholders and until their successors are elected and
qualified, or until their earlier death, retirement, resignation or removal.
Officers serve at the discretion of the Board of Directors. A brief description
of the business experience of each director and executive officer during the
past five years and an indication of directorships held by each director in
other companies subject to the reporting requirements under the federal
securities laws is also provided.
28
<PAGE>
<TABLE>
<CAPTION>
Name Age Position(s) Director Since
- ---- --- ----------- --------------
<S> <C> <C> <C>
Murray W. Goldenberg 56 President,
Treasurer,
Secretary,
and Director September 1, 1987
Leslie I. Handler 57 Director August 27, 1991
Douglas A. Pearson 53 Director October 18, 1993
David L. Mitchell 43 Director May 24, 1996
Michael A. Sunstein 53 Director May 24, 1996
</TABLE>
There are no family relationships among directors and executive officers.
Biographies of Directors and/or Officers:
Murray W. Goldenberg - President, Treasurer, Secretary and Director -
Murray W. Goldenberg has been Secretary, Treasurer and a director of the Company
since September 1, 1987, and President of the Company since October 1, 1988.
Mr. Goldenberg has been a financial consultant to numerous troubled companies in
various industries, including the garment and heavy equipment manufacturing
industries. Mr. Goldenberg has also acted as a trustee in bankruptcy. Mr.
Goldenberg is a Chartered Accountant under the laws of Canada and the Province
of Manitoba.
Leslie I. Handler - Director - Leslie I. Handler has been a Director of the
Company since August 27, 1991. From 1988 to 1992, Mr. Handler was president of
Far West Commercial Finance Company, Los Angeles, California, the asset-based
lending subsidiary of Far West Federal Bank, Portland, Oregon. Mr. Handler is
an experienced senior manager with more than 30 years of experience with
asset-based lending organizations. Since 1993, Mr. Handler has been a consultant
to the banking industry.
Douglas A. Pearson - Director - Douglas A. Pearson has been a Director of
the Company since October 18, 1993. Since 1988, Mr. Pearson has owned and
operated Massey & Co. Ltd., a Calgary, Alberta-based company whose principal
activity is management. Mr. Pearson is an senior manager with 25 years
experience in the banking industry in the United States.
29
<PAGE>
David L. Mitchell - Director - David L. Mitchell has been a director of the
Company since May 24, 1996. Since 1974, Mr. Mitchell has owned and operated
ground and air transport companies, and a specialty products company, and since
1987, Mr. Mitchell has owned and operated a real estate
broker/developer/principal business.
Michael A. Sunstein - Director - Michael A. Sunstein has been a director of
the Company since May 24, 1996. From 1968 to 1976, Mr. Sunstein was employed by
Kaufman and Broad Homes, Inc. where he became the President of Midwestern
Operations. In 1976, Mr. Sunstein owned and operated a residential real estate
development business. In 1989, Mr. Sunstein founded Tri-National Development
Corporation and is currently a director and Chief Executive Officer.
Tri-National is a publicly traded developer and manager of international resort
related real estate projects.
Compliance with Section 16(a) of the Exchange Act:
The Company does not have any class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
Accordingly, during the year ended December 31, 1993, no Forms 3,4, or 5 and
amendments thereto were required to be furnished to the Company pursuant to Rule
16(a) - 3(e).
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Principal
Principal Annual All Other
Position Year Compensation Compensation
- -------- ---- ------------ ------------
<S> <C> <C> <C>
Murray W. Goldenberg 1997 $165,000
President 1996 165,000
1995 162,000
(1)
Leslie I. Handler, 1997 8,275
Director 1996 - (2)
1995 -
</TABLE>
30
<PAGE>
(1) During the year ended December 31, 1994, Mr. Goldenberg and his family were
issued 1,400,511 shares of the Company's common stock valued at $.001 per share
in exchange for the issuance of their continuing personal guarantee and the
hypothecation of their residence for CRI's bank line of credit.
(2) During the year ended December 31, 1994, Mr. Leslie I. Handler and his
family were issued 1,400,511 shares of the Company's common stock valued at
$.001 per share in exchange for the issuance of their continuing personal
guarantee and the hypothecation of their residence for CRI's bank line of
credit.
Compensation Arrangements:
During the year ended December 31, 1996, Murray W. Goldenberg was
compensated pursuant to a month-to-month consulting agreement. Compensation to
Mr. Goldenberg pursuant to this consulting agreement will be approximately
$165,000 for the year ending December 31, 1997, exclusive of any bonus that may
be paid.
Board of Directors:
Directors of the Company receive no compensation for serving as Directors
of the Company. During the year ended December 31, 1996, there were no meetings
of the Board of Directors. All necessary board approvals and actions were
obtained by unanimous written consent. The Directors met on May 28, 1997. The
Company had no audit, nominating or compensation or committees performing
similar functions during the year ended December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
of or direct the disposition of) with respect to a security through any
contract, arrangement, understanding, relationship or otherwise, subject to
community property laws.
As of December 31, 1995, the company had authorized 500,000,000 shares of its
common stock, $.001 par value (the "common stock"), 15,516,264 shares of which
were issued, and 10,000,000 shares of its preferred stock, no par value, none of
which were issued. The
31
<PAGE>
Company's Board of Directors has the authority, without approval of the
shareholders, to issue all or any portion of the authorized shares of preferred
stock in one or more series, and to determine the preferences as to dividends,
redemption and liquidation, conversion rights, and other rights of such series,
which may carry rights superior to those of the common stock. The holders of
shares of preferred stock shall not have any voting rights except as
specifically required by law.
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of March 31, 1999. Listed below are (a) the
name and address of each beneficial owner of more than five percent (5%) of the
Company's common stock known to the Company, the number of shares of common
stock beneficially owned by each such person or entity, and the percent of the
Company's common stock so owned; and (b) the number of shares of common stock of
the Company beneficially owned, and the percentage of the Company's common stock
so owned, by each director and by all directors and officers of the Company as a
group. Each such person or entity has sole voting and investment power with
respect to the shares of common stock, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the shares of common
stock, except as otherwise indicated.
<TABLE>
<CAPTION>
Amount and
Name and Nature of Percent of
Address of Beneficial Shares of
Beneficial Owner Ownership Common Stock
- ---------------- --------- ------------
<S> <C> <C>
Murray W. Goldenberg 23,707(1) *
President, Treasurer,
Secretary and Director
6151 W. Century Blvd #1018
Los Angeles
California 90045
Leslie I. Handler 24,902 *
Director
1108 Via Zumaya
Palos Verdes Estates
California 90274
Douglas A. Pearson 0 *
32
<PAGE>
Director
#407-3420 50th Street N.W.
Calgary, Alberta
Canada T3A 2E1
All Directors and 48,609 *
Officers as a Group
(3 persons)
YPE, Inc. 1,866,668 19.82
6151 W. Century Blvd #1018
Los Angeles
California 90045
First Capital Services, Inc. 2,250,000 23.90%
2300 Glades Road, Suite 450
West Tower
Boca Raton, FL 33431
Contemporary Resources, Inc. 600,000 6.37%
6151 W. Century Blvd. Ste. 1018
Los Angeles, CA 90045
</TABLE>
* Less than 1%
(1) This does not include 30,000 shares owned by Mr. Goldenberg's three adult
children, and 53595 shares owned by Mr. Goldenberg's wife, Patricia as to which
Mr. Goldenberg has neither voting nor investment power and disclaims beneficial
ownership.
Changes in Control:
There are no contractual or other arrangements currently in effect or
contemplated that may later result in a change in control of the Company.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
33
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
3(i)(1) Articles of Incorporation - March 25, 1985 (1)
3(i)(2) Amendment to Articles of Incorporation-August 12,1985 (1)
3(i)(3) Amendment to Articles of Incorporation-September 3,1985(1)
3(i)(4) Amendment to Articles of Incorporation-February 3,1992(1)
3(ii) Bylaws (1)
10.1 Lease Agreement between Airport Center Associates Limited Partnership,
a Connecticut limited partnership, as Landlord, and contemporary Resources,
Inc., a California corporation, as Tenant (1)
10.2 Amendment to Lease Agreement between Airport Center Associates Limited
Partnership, a Connecticut limited partnership, and Contemporary Resources,
Inc., a California corporation - July 31, 1993 (1)
10.3 Promissory Note from Contemporary Resources, Inc. to Independence
Bank - February 20, 1991 (1)
10.4 Asset Purchase Agreement among John E. Ferris, Flower Environments,
Inc., a Nevada corporation, and First Colonial Ventures, Ltd., a Utah
corporation - October 15, 1993 (1)
10.5 Consulting Agreement among First Colonial Ventures, Ltd., a Utah
corporation, Flower Environments, Inc., a Nevada corporation, and John E.
Ferris - October 15, 1993 (1)
21 Subsidiaries of the registrant (1)
(b) Reports on Form 8-K:
1) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1992, and incorporated herein
by reference.
2) Filed October 26, 1995, for change in accountants dismissing
Kellogg & Andelson and appointing Beckman Hollander & Associates.
34
<PAGE>
3) Filed February 21, 1996, to amend the 8-K filed on October 26,
1995.
4) Filed May 1, 1997, for acquisition of specific assets and
liabilities comprising substantially all of the operations of Acclaim Studios,
LLC, a California limited liability company, by Registrant's non-public,
wholly-owned investee, First Colonial Studios, Inc., a Nevada corporation.
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.
FIRST COLONIAL VENTURES, LTD.
(Registrant)
Date: June 4, 1999
By: /s/ Murray W. Goldenberg
------------------------
Murray W. Goldenberg
President
35
<PAGE>
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated:
June 4, 1999
/s/ Murray W. Goldenberg
- ------------------------
Murray W. Goldenberg, C.A. Chairman
President, Treasurer,
Secretary and Director
(Chief Executive, Financial
and Accounting Officer)
June 4, 1999
/s/ Leslie I. Handler Director
- ---------------------
Leslie I. Handler
June 4, 1999
/s/ Douglas A. Pearson Director
- ----------------------
Douglas A. Pearson
36
<PAGE>
FIRST COLONIAL VENTURES, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Title Page F-2
Contents F-3
Report of Independent Auditor F-4
Balance Sheets F-5
Statements of Operations F-6
Statement of Changes Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to the Financial Statements F-9,F-22
</TABLE>
F-1
<PAGE>
FIRST COLONIAL VENTURES, LTD
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH
REPORT OF INDEPENDENT AUDITOR
F-2
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Years ended December 31, 1997 and 1996
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditor........................................................................ 1
Financial Statements:
Balance sheets.................................................................................... 2
Statements of operations.......................................................................... 3
Statements of changes in stockholders' equity (deficit)........................................... 4
Statements of cash flows.......................................................................... 5
Notes to financial statements..................................................................... 6 - 19
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To the Stockholders
First Colonial Ventures, Ltd.
I have audited the accompanying balance sheet of First Colonial Ventures, Ltd.
as of December 31, 1997, and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for the year then ended. 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 audit. The financial statements of First Colonial Ventures, Ltd. as of
December 31, 1996, were audited by other auditors whose report, dated August 13,
1997, included an emphasis paragraph on the Company's ability to continue as a
going concern.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of First Colonial Ventures,
Ltd. as of December 31, 1997 and the results of its operations and its cash
flows for the year then ended in accordance with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company has a working capital deficit, a net capital
deficiency, and a net loss for the year that raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Timothy L. Steers, CPA, LLC
- -------------------------------
April 26, 1999
Portland, Oregon
F-4
<PAGE>
FIRST COLONIAL VENTURES, LTD
Balance Sheets
<TABLE>
<CAPTION>
December 31
--------------------------------
1997 1996
-------------- ---------------
ASSETS
<S> <C> <C>
Investments at fair value $ 200,000 $ 3,522,006
Other investments at fair value - -
Cash 689 2,872
Other assets 12,680 8,275
-------------- ------------
$ 213,369 $ 3,533,153
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Notes payable $ 297,428 $ 487,563
Accounts payable and accrued liabilities 264,454 178,457
Related party debt 285,611 1,057,456
Management fee payable to officer 273,720 171,000
-------------- -------------
Total liabilities 1,121,213 1,894,476
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock ; $.001 par value; authorized 500,000,000 shares;
outstanding 11,686,182 shares in 1997 (10,716,182 shares in 1996) 11,646 10,716
Preferred stock; no par value; authorized 10,000,000 shares - -
Additional paid in capital 9,508,554 8,963,252
Notes receivable from issuance of common stock - (1,691,633)
Accumulated deficit:
Prior to becoming a Business Development Company (3,508,063) (3,508,063)
Net realized investment losses (2,604,112) (845,172)
Net unrealized investment losses (4,315,869) (1,290,423)
--------------- ------------
Total stockholders' equity (deficit) (net asset value
per share - ($.07) in 1997 and $.31 in 1996) (907,844) 1,638,677
--------------- ----------
$ 213,369 $ 3,533,153
-------------- ------------
-------------- ------------
</TABLE>
F-5
See accompanying notes.
<PAGE>
FIRST COLONIAL VENTURES, LTD
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Revenues: $ 180,000 $ -
Investment expense:
Loss on investment 1,488,992 -
Salaries & consulting fees 190,020 187,200
Other general & administrative expenses 121,003 52,345
Legal & accounting fees 88,344 21,133
Depreciation expense 6,320 -
Interest 43,461 55,339
-------------- -----------
Investment expenses 1,938,140 316,017
-------------- -----------
Net investment loss before provision for income taxes (1,758,140) (316,017)
Provision for income taxes 800 800
-------------- -----------
Net investment loss (1,758,940) (316,817)
Unrealized loss on investments (3,025,446) (2,979)
-------------- -----------
Net loss $ (4,784,386) $ (319,796)
-------------- -----------
-------------- -----------
Net loss per share $ (.437) $ (.045)
-------------- -----------
-------------- -----------
</TABLE>
F-6
See accompanying notes.
<PAGE>
FIRST COLONIAL VENTURES, LTD
Statement of Changes Stockholders' Equity
For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated Deficit
------------------------------------------- Total
Additional Pre-BDC Accumulated Unrealized stockholders'
Common Preferred paid-in accumulated investment Investment equity
stock stock capital deficit loss loss (deficit)
---------- ---------- ----------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 4,466 $ - $ 7,144,540 $(3,508,063) $ (528,355) $ (1,287,444) $ 1,825,144
Common stock issued -
6,250,099 shares, net of
notes receivable 6,250 - 127,079 - - - 133,329
Net loss for the year ended
December 31, 1996 - - - - (316,817) (2,979) (319,796)
------- ------- ----------- ------------- ------------ ----------- ---------
Balance at December 31, 1996 10,716 - 7,271,619 (3,508,063) (845,172) (1,290,423) 1,638,677
Common stock issued -
930,000 shares 930 - 749,400 - - - 750,330
Collections on notes
receivable - - 1,085,260 - - - 1,085,260
Capital contributed - - 402,275 - - - 402,275
Net loss for the year ended
December 31, 1997 - - - - (1,758,940) (3,025,446) (4,784,386)
------- ------- ----------- ------------- ------------ ----------- ---------
Balance at December 31, 1997 $11,646 $ - $ 9,508,554 $(3,508,063) $(2,604,112) $ (4,315,869) $ (907,844)
------- ------- ----------- ------------- ------------ ----------- ---------
------- ------- ----------- ------------- ------------ ----------- ---------
</TABLE>
F-7
See accompanying notes.
<PAGE>
FIRST COLONIAL VENTURES, LTD
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,784,386) $ (319,796)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on investment 1,488,992 -
Unrealized loss on investments 3,025,446 2,979
Depreciation 6,320 -
Changes in assets and liabilities:
Other assets (10,725) 3,250
Accounts payable and accrued liabilities 208,582 75,061
---------------- ---------------
(65,771) (244,464)
Cash flows from investing activities:
Increase in related party debt - 227,021
Repayment of related party debt (21,845) (500,000)
Investment in qualifying assets, net (1,402,432) (374,075)
Divestiture of non-qualifying assets - 750,000
---------------- ---------------
(1,424,277) 102,946
Cash flows from financing activities:
Collections on notes receivable on sale of common stock 1,085,260 -
Capital contributed 402,275
Proceeds from issuance of common stock 330 133,329
---------------- ---------------
1,487,865 133,329
---------------- ---------------
Net decrease in cash (2,183) (8,189)
Cash at beginning of year 2,872 11,061
---------------- ---------------
Cash at end of year $ 689 $ 2,872
---------------- ---------------
---------------- ---------------
Supplemental disclosure of cash flow information -
cash paid for interest $ 23,596 $ 28,172
---------------- ---------------
---------------- ---------------
Non-cash investing and financing activities:
Common stock issued in exchange for related
party debt $ 750,000 $ -
---------------- ---------------
---------------- ---------------
Common stock issued in exchange for notes
receivable $ - $1,162,421
---------------- ---------------
---------------- ---------------
Notes payable assumed by investment company $ 210,000 $ -
---------------- ---------------
---------------- ---------------
</TABLE>
F-8
See accompanying notes.
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: First Colonial Ventures, Ltd. (the "Company" or "FCVL") was
incorporated under the laws of the State of Utah on March 25, 1985. The
Company acquires ownership interests in business opportunities.
On January 10, 1995, FCVL elected to become an Investment Company pursuant
to the Investment Company Act of 1940. On June 27, 1995, FCVL elected to
become a "Business Development Company" (a "BDC") as that term is defined
in the Small Business Investment Incentive Act of 1980, which Act is an
amendment to the Investment Company Act of 1940. The election resulted in
FCVL becoming a specialized type of investment company.
BASIS OF REPORTING: The financial Statements include only the accounts of
FCVL because, pursuant to industry practice, an investee of a business
development company is not consolidated unless such investee is a small
business investment company or a wholly-owned business development company.
BUSINESS DEVELOPMENT COMPANY CONSIDERATIONS: As a BDC, FCVL may only
acquire "Qualifying Assets" unless, at the time the acquisition is made,
qualifying assets represent at least 70% of the value of FCVL's total
assets (the 70% test). The principal categories of qualifying assets
relevant to the business of the Company are:
(1) Securities purchased in transition not involving any public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An eligible portfolio company is defined to include
any issuer that (a) is organized and has its principal place of
business in the United States, (b) is not an investment company other
than a Small Business Investment Company wholly-owned by the BDC, and
(c) does not have any class of publicly traded securities with respect
to which a broker may extend margin credit.
(2) Securities received in exchange for or distributed with respect to
securities described in (1), above, or pursuant to the exchange of
options, warrants or rights relating to such securities.
(3)Cash, cash items, government securities, or high quality debt securities
(within the meaning of the 1940 Act) maturing in one year of less from the
time of investment.
In addition, to treating securities described in (1) and (2), above, as
Qualifying Assets for the purpose of the 70% test, a BDC must make
available to the issuer of those securities significant managerial
assistance. Making available significant managerial assistance means, among
other things, (i) any arrangement whereby the BDC, through its directors,
officers or employees, offers to provide, and if accepted, does provide,
significant guidance and counsel concerning the management, operations or
F-9
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS DEVELOPMENT COMPANY CONSIDERATIONS (CONTINUED): business objectives and
policies of a portfolio company, or (ii) in the case of an SBIC, making loans to
a portfolio company. Managerial assistance is made available to the portfolio
companies by FCVL's directors and officers who are highly experienced in
providing managerial assistance to small businesses.
CASH AND CASH CONCENTRATIONS: For purposes of the statement of cash flows, the
Company considers cash equivalents to be highly liquid instruments with original
due dates within three months of the date purchased. In addition, consistent
with the reporting requirements of a BDC, financial statement account categories
such as investments and notes receivable, which relate to the Company's activity
as a BDC, are included as operating activities in the statement of cash flows.
FCVL and its investment companies place their cash in financial institutions
and, at various times throughout the year, cash held in these accounts have
exceeded Federal Deposit Insurance Corporation limits. Neither the Company nor
any of its investment companies experienced any losses as a result of these cash
concentrations.
INVESTMENT VALUATION: The fair value method provides for FCVL's Board of
Directors to be responsible for the valuation of the Company's investments,
including notes receivable and interest receivable. Fair value is the value that
could reasonably or expected to be realized in a current arm's length sale.
Investments are carried at fair value using the following four basic methods of
valuation:
(1) Cost - The cost method is based on the original cost to the Company
adjusted for amortization of original issue discounts, accrued interest for
certain capitalization expenditures of the investment company. Other
adjustments are considered as determined to be appropriated by the Board of
Directors in good faith, taking into consideration such factors as
available financial information of the investment company, the nature and
duration of any restrictions as to resale, and other factors which
influence the market in which a security is purchased and sold. Such method
is to be applied in the early stages of an investment company's development
until significant positive or adverse events subsequent to the date of the
original investment require a change to another method.
(2) Private market - The private market method used or proposed third party
transactions in the investment company's securities as a basis for
valuation, utilizing actual firm offers as well as historical transactions,
provided that any offer used is seriously considered and well documented by
the investment company. Adjusted are considered by the Board of Directors
in good faith taking into consideration such factors as available financial
information of the
F-10
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION (CONTINUED):
(2) Private market (continued) - investment company, the nature and
duration of any restrictions as to resale, and other factors which
influence the market in which a security is purchased and sold.
(3) Public market - The public market is the preferred method of valuation
when there is an established public market for the investment
company's securities. In determining whether the public market method
is sufficiently established for valuation purposes, the Company
examines the trading volume, the number of shareholders and the number
of market makers in the investment company's securities, along with
the trend in trading volume as compared to the Company's proportionate
share of the investment company's securities.
(4) Appraisal - The appraisal method is used to value an investment
position after analysis of the best available outside information
where there is no established public or private market in the
investment company's securities.
INCOME TAXES: Income taxes are accounted for using an asset and liabilities
approach. Under this method, deferred income tax assets and liabilities are
computed annually for differences between the financial statement carrying
amounts and their tax bases that will result in taxable or deductible
amounts in the future using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the year in
deferred tax assets and liabilities.
NET LOSS PER SHARE: Net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding during the period.
The weighted average number of common stock shares outstanding was
10,958,682 for 1997 (7,035,942 for 1996). Preferred stock is not considered
to be a common stock equivalent.
SIGNIFICANT RISKS AND UNCERTAINTIES: The process of preparing financial
statements in conformity with generally accepted accounting principles
requires the use of estimates and assumptions regarding certain types of
assets, liabilities, revenues and expenses. Management of the Company has
made certain estimates and assumptions regarding the valuation of
investment companies. Such estimates and assumptions primarily relate to
unsettled transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may differ from
estimated amounts.
F-11
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS: Certain amounts in the 1996 financial statements have
been reclassified to conform to the 1997 presentation.
2. OPERATIONS
The Company's continued existence is dependent upon its ability to obtain
profitable operations from its investments and additional capital. During
the last six years, the Company's wholly-owned subsidiaries have
experienced losses from continuing operations, negative working capital and
losses from discontinued operations.
The Company's investments in Sherwood and Gulf Coast and TND Medical
involve contracts that are in default. The Company's investment in its oil
and gas properties involve contracts which are in default and leases which
expired in January 1998. These investments are not liquid, they are not
producing income for the Company, and they require substantial additional
capital before they might be in a position to produce income. Furthermore,
the Company may loose its entire investment in these assets if substantial
additional capital is not obtained.
While management anticipates that cash flow from operations will be
sufficient to meet obligations and liabilities as they mature, there is no
assurance that the Company will be successful in generating sufficient cash
from operations to avoid depletion of its capital resources. Management is
negotiating to obtain additional sources of capital needed by the Company's
various investment company's, however there is no assurance that the
Company will be successful in obtaining additional capital. The financial
statements do not reflect adjustments relating to the recoverability and
classification of recorded asset amounts, or the amounts and
classifications of liabilities that would be necessary should the Company
not be able to continue in existence.
3. NOTES RECEIVABLE FROM SALE OF COMMON STOCK
Notes receivable from the sale of common stock represented amounts
receivable from Colonial Funds, Limited, from shares of the Company's
common stock issued pursuant to Regulation E and sold to Colonial Funds,
Limited. Colonial Funds, Limited., is the wholly owned subsidiary of YPE,
Inc., a wholly owned investment of the Company.
During 1997, the Company collected a total of $1,085,260 from Colonial
Funds, Limited. A provision for doubtful collections of the remaining
balance of $606,373 has been provided in the accompanying financial
statements as of December 31, 1997.
F-12
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS
Investments consisted of the Company's interest in qualifying assets as
follows:
<TABLE>
<CAPTION>
Cost and/
Shares or equity Fair Value
------ --------- ----------
<S> <C> <C> <C>
At December 31, 1997:
Wholly-owned portfolio companies:
Contemporary Resources, inc. -
Common stock, at appraised value 13,700 $ 773,115 $ -
First Colonial Real Estate, Inc.:
Common stock, at appraised value 10,000 10,130 -
Advances, at cost 218,085 -
Baja Pacific International, Inc. -
Common stock, at appraised value 10,000 7,600 -
YPE, Inc. -
Common stock, at appraised value 10,011 3,367 -
First Colonial Studios, Inc.:
Common stock, at appraisal value 500 690,000 -
Advances, at cost 147,478 -
First Colonial Productions, Inc.:
Common stock, at appraisal value 1,000 25,000 -
Advances, at cost 268,105 -
Dryden Energy, Inc.:
Common stock, at appraisal value 7,000 1,802,241 -
Advances, at cost 960 -
Controlled (50%) portfolio companies:
Sherwood Properties, Inc.:
Common stock, at appraisal value 12,500 1,919 -
Advances, at cost 73,000 -
Gulf Coast Hotels, Inc.:
Common stock, at appraisal value 1,875 209,782 -
Advances, at cost 85,000 -
Other portfolio companies:
TND / Medical International, Inc. -
Common stock, at appraisal value 666,666 350,000 -
And In Justice For All, Inc. -
Common stock, at appraisal value 650,000 376,426 200,000
Gerant Industries, Inc. -
Common stock, at appraisal value 2,500 4,356 -
---------- ---------
Total investments at December 31, 1997 $5,363,219 $200,000
---------- ---------
---------- ---------
</TABLE>
F-13
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Cost and/
Shares or equity Fair Value
------ --------- ----------
<S> <C> <C> <C>
At December 31, 1996:
Wholly-owned portfolio companies:
Contemporary Resources, inc. -
Common stock, at appraised value 13,700 $ 773,115 $ 649,952
First Colonial Real Estate, Inc.:
Common stock, at appraised value 10,000 10,130 -
Advances, at cost 218,085 -
Baja Pacific International, Inc. -
Common stock, at appraised value 10,000 7,600 7,500
YPE, Inc. -
Common stock, at appraised value 10,011 3,367 3,367
First Colonial Studios, Inc.:
Common stock, at appraisal value 500 690,000 690,000
Advances, at cost 1,187 1,187
Dryden Energy, Inc.:
Common stock, at appraisal value 300,000 1,620,000 1,620,000
Controlled (50%) portfolio companies:
Sherwood Properties, Inc.:
Common stock, at appraisal value 12,500 1,919 -
Advances, at cost 73,000 -
Gulf Coast Hotels, Inc.:
Common stock, at appraisal value 1,875 209,782 -
Advances, at cost 50,000 -
Other portfolio companies:
TND / Medical International, Inc. -
Common stock, at appraisal value 666,666 350,000 350,000
And In Justice For All, Inc. -
Common stock, at appraisal value 450,000 200,000 200,000
Gerant Industries, Inc. -
Common stock, at appraisal value 2,500 4,356 -
---------- ----------
Total investments at December 31, 1996 $4,212,541 $3,522,006
---------- ----------
---------- ----------
</TABLE>
CONTEMPORARY RESOURCES, INC. ("CRI"): The Company acquired 100% of the
common stock of CRI on May 1, 1987. CRI is a distributor of specialty and
disposable items including glassware, china, flatware, toiletries, and
amenity kits to the airline, hotel and cruise line industries.
F-14
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
CONTEMPORARY RESOURCES, INC. ("CRI") (CONTINUED): The Federal Deposit Insurance
Company (the "FDIC") seized the bank with which CRI had its credit line
agreement on January 31, 1992. The FDIC ceased issuing advances to CRI under the
credit line. This event coupled with the inability of CRI to find suitable
replacement financing until October 1994, ultimately caused a cash flow shortage
leading to CRI loosing nearly 90% of its business by 1996.
During June 1997, CRI sold its hotel line of business under an agreement which
requires the purchaser to first sell inventory held by CRI, and which required
the purchaser to pay a royalty to CRI for backlog and new sales made to CRI's
existing customers. Under the agreement, CRI continued in the amenity and
specialty product businesses, but may not compete with the buyer in the hotel
business. CRI planned to use the agreement to collect sufficient cash through
sale of its inventories and royalties to liquidate its bank loans which are also
guarantees by FCVL and two of the its directors.
Because this process will take some time, the value to the Company's investment
in CRI was reduced to zero at December 31,1997.
FIRST COLONIAL REAL ESTATE, INC. ("FCREL"): During September 1993, the Company
established Flower Environments, Inc., to develop and market flower display
irrigation equipment. Flower Environments, Inc. was incorporated under the laws
of the State of Nevada and was a wholly owned subsidiary of the Company. In
November 1994, the Company sold substantially all of the assets of Flower
Environments, Inc. and renamed the corporation as FCREL.
On July 13, 1995, the Company acquired a 100% interest, consisting of assignment
of leases, in oil and gas rights located in Concho County, Texas referred to as
the Paint Rock property, in exchange for common stock. The Company transferred
its rights in the leases to FCREL, which intended to find a partner or raise the
capital necessary to drill wells, extract and sell the natural gas located on
the property.
In December 1997, the Paint Rock lease agreements were transferred to Dryden
Energy, Inc., a wholly owned subsidiary of the Company, to consolidate energy
activities within one investment company.
Fair value of this investment was determined by the Company based upon the
Statement of Reserve Values prepared by a petroleum geologist in November 1995,
after considering deductions for costs to open the wells and federal income
taxes. Realization of this investment would have required the Company to obtain
the capital necessary to open four wells and lay pipeline on the property. In
addition, gas production from the wells and gas prices would have a significant
effect upon the realization of the investment. No business activity was
conducted during 1997 or
F-15
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
FIRST COLONIAL REAL ESTATE, INC. ("FCREL") (CONTINUED): 1996 with respect to the
oil and gas leases. The Company was unable to obtain financing and was unable to
renew the lease, which expired in January 1998. Therefore, the investment was
reduced to zero at December 31, 1997.
YPE, INC. (YPE): In August 1995, the Company acquired 100% of the common stock
of YPE, a dormant Colorado corporation. YPE acquired 100% of the ownership of
Colonial Funds, Ltd. as a result of the transactions described below.
FIRST COLONIAL FUNDS, LTD.: In July 1995, the Company exchanged its common
stock for 50% of the common stock of First Colonial Funds, Ltd., a Nevada
private business development company, and 100% of the class B common stock
of First Colonial Funds, Ltd's subsidiary, Colonial Funds, Limited. First
Colonial Funds, Ltd. owned 100% of the class A common stock of Colonial
Funds, Limited.
In May 1997, the Company exchanged its' 50% interest in the common stock of
First Colonial Funds, Ltd. for the class A common stock of Colonial Funds,
Limited owned by First Colonial Funds, Ltd. As a result of this
transaction, the Company terminated its relationship with First Colonial
Funds, Ltd.
COLONIAL FUNDS, LIMITED: In July 1995, the Company acquired 100% of the
class B common stock of Colonial Funds, Limited. Colonial Funds, Limited is
a Commonwealth of the Bahamas offshore fund with investments in various
companies.
During August 1996, the Company entered into a recession agreement with
Colonial Funds, Limited for the purpose conforming to BDC requirements.
Under the recession agreement the Company returned the class B common stock
of Colonial Funds, Limited it owned and those shares were reissued to YPE,
Inc.
In May 1997, the class A common stock of Colonial Funds, Limited that were
acquired by the Company in its exchange with First Colonial Funds, Ltd.
were cancelled resulting in YPE, Inc. becoming the sole owner of Colonial
Funds, Limited.
At December 31, 1997, the Company reduced the value of its investment in YPE to
zero.
FIRST COLONIAL STUDIOS, INC., DBA ACCLAIM ("ACCLAIM"): The Company incorporated
Acclaim during November 1996 under the laws of the State of Nevada. Acclaim was
formed for the purpose of acquiring substantially all of the operating assets
and liabilities of Acclaim Studios, LLC under an asset purchase agreement
F-16
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
FIRST COLONIAL STUDIOS, INC., DBA ACCLAIM ("ACCLAIM") (CONTINUED): . The
purchase agreement became effective in June 1997. Acclaim Studios, LLC is a
State of California limited liability company which operated in the
business of audio and video production and post-production from two
locations, one in Studio City, California and another in West Los Angeles,
California. During 1997, the Studio City location was closed and relocated
to the West Los Angeles location in a move to reduce fixed overhead costs.
Subsequently, during August 1998, Acclaim ceased its activities and the
West Los Angeles location was closed.
Certain assets of Acclaim were sold on a financing lease, and certain other
assets were exchanged for stock. The investment in Acclaim at December 31,
1997 was reduced to zero.
FIRST COLONIAL PRODUCTIONS, INC. ("PRODUCTIONS"): During June 1997, the
Company formed Productions under the laws of the State of Nevada as a
wholly owned portfolio company. Productions acquired the customer list,
miscellaneous assets, and the leasehold improvements of Beverly Hills
Publishing, Inc., dba The Beverly Hills Video Group, a California
corporation which had operated a video production and post-production
business in West Los Angeles, California. Productions operated the business
from June 1997 through August 1998 when it was closed.
During March 1997, Productions acquired the assets of Golden Hill Studio,
Inc., a Florida corporation specializing in television and special event
productions for the Spanish language and which its creditors had seized. In
October 1998, the operations were ceased because they were unable to
achieve certain financial objectives and profitability.
Because Productions operated at a loss, a zero value was assigned at
December 31, 1997.
DRYDEN ENERGY, INC. ("DRYDEN"): In August 1997, the Company acquired 100%
of the outstanding common stock of Dryden a non-operating, non-public Texas
corporation which owned the rights to certain subleases for the oil, gas
and mineral rights for various properties located in Coleman County, Texas.
During 1997, Dryden's management company opened six of the ten previously
capped natural gas wells located on the properties, and commenced
extraction and sale operations. Also during 1997, Dryden acquired the Paint
Rock oil and gas leases from FCREL, so that energy related activities would
be consolidated in one investment company.
F-17
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
DRYDEN ENERGY, INC. ("DRYDEN")(CONTINUED): Also during 1997 due to lack of
financing, Dryden defaulted on payments due to its' management company in
connection with the acquisition of the subleases. Resolution of the default
is ongoing. As a result the Company's investment in Dryden was reduced to
zero as of December 31, 1997.
SHERWOOD PROPERTIES, INC. ("SHERWOOD"): On August 10, 1994, the Company
acquired the rights to 50% of the common stock of Sherwood, a company
incorporated under the laws of the State of Nevada. Sherwood was formed to
hold 50% of the stock of a Mississippi corporation that owns, subject to a
land sale contract, certain residential lots and is a joint venture partner
in the construction and sale of homes on the lots.
During 1996, the Mississippi corporation was unable to pay certain
installments required by the contract due to lack of cash. The land sale
contract contains a clause providing the sellers the option to cancel the
contract should default occur. The sellers have not exercised their option
to cancel the contract.
For these reasons, the Company has written down its investment in Sherwood
to zero until the Sherwood financial condition improves. There is no
assurance that the Mississippi corporation will be successful in raising
the capital necessary to cure the default, and Sherwood may loose its
investment if substantial capital is not obtained. Sherwood conducted no
operations during 1997 or 1996.
GULF COAST HOTELS, INC. ("GULF COAST"): In December 1994, the Company
purchased the rights to 50% of Gulf Coast, a company incorporated under the
laws of the State of Nevada. Gulf Coast was formed to purchase the rights
to approximately 1.4 acres in Biloxi, Mississippi and to develop a
high-rise condominium hotel on that site. Gulf Coast has been unable to
raise the approximately $1,000,000 necessary to complete the down payment.
The seller has provided extensions to Gulf Coast, however, the agreement is
in default.
During 1997, Gulf Coast entered into agreements to sell its interest in the
property and to become a minority partner in the development project
subject to the majority partners obtaining financing. During 1997, the
Company charged to expense an additional advance of $35,000 made to Gulf
Coast in connection with costs for a pending sale of the Gulf Coast
properties. Gulf Coast conducted no operations during 1997 or 1996.
For these reasons, the Company has written down its investments in Gulf
Coast to zero until Gulf Coast is successful in raising capital, and Gulf
Coast may loose its investment if substantial capital is not obtained.
F-18
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
TND/MEDICAL INTERNATIONAL, INC. ("TND"): During August 1996, the Company
acquired a one-third interest in TND, an entity incorporated under the laws
of the State of California. TND owns, subject to a third-party management
agreement, a magnetic resonance imaging center located in San Diego,
California.
TND was acquired for a price of $350,000 to be paid through insurance of
the Company's common stock. During 1996, the Company paid $10,000 cash and
issued 120,000 shares of common stock for which the Company received a
total of $130,000 credit toward the purchase price, and the remaining
unpaid $220,000 was recorded as a note payable. During 1997, the Company
did not have the cash to redeem the note payable in accordance with the
terms of the purchase agreement. The Company and TND have not determined
what course of action to take as a result of the Company's default.
Accordingly, the company reduced its carrying value of TND to zero at
December 31, 1997.
AND IN JUSTICE FOR ALL, INC., DBA LEGAL CLUB OF AMERICA ("LEGAL CLUB"):
During March 1996, the Company acquired a 10% interest in Legal Club, which
was incorporated under the laws of the State of Florida. Legal Club started
a new nationwide membership organization providing access to attorney
services at discounted rates.
Legal Club was acquired by exchanging 400,000 shares of the Company's
common stock. During 1997, Legal Club continued expanding its membership
and the Company entered into an agreement to increase its ownership in
Legal Club to 14.44%. The agreement also required the Company to issue an
additional 515,235 shares of the Company's common stock and required Legal
Club to assume the Company's convertible debenture payable, plus any unpaid
interest. The agreement further provides that Legal Club may reacquire the
additional 4.44% interest at a fixed price of $266,666 prior to July 31,
1999.
During 1998, Legal Club became a publicly traded company.
The value of the Company's investment in Legal Club at December 31, 1997
was determined based upon management's appraisal.
F-19
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
4. INVESTMENTS (CONTINUED)
Unrealized gain (loss) on investments consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Dryden $(1,803,201) $ -
CRI (649,952) 7,021
TND (350,000) -
Legal Club (176,426) -
Gulf Coast (35,000) -
Baja Pacific (7,500) -
YPE (3,367) -
Sherwood - (10,000)
---------- -------
Total unrealized loss on investments $(3,025,446) $ (2,979)
---------- -------
---------- -------
</TABLE>
5. OTHER INVESTMENTS
Other investments consisted of the Company's interest in non-qualifying
assets as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Cost and/
Shares or equity Fair Value
------ --------- ----------
<S> <C> <C> <C>
First Colonial Funds, Ltd.:
Common stock, at appraised value 50,000 $110,000 -
Advances, at cost - 4,304 -
--------- -------------
Total other investments $114,304 $ -
--------- -------------
--------- -------------
</TABLE>
6. NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Convertible debentures $ - $ 210,000
Loans payable to private investor, due on demand
with interest 2% over Bank
of America's prime rate. 297,428 277,863
------- -------
Total notes payable $ 297,428 $ 487,863
------- -------
------- -------
</TABLE>
F-20
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
7. RELATED PARTY DEBT
Related party debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Amounts advanced from CRI, non-
interest bearing and due on demand. $ 65,611 $ 837,456
Amounts payable to complete the
Company's investment in TND, was
due in 1997. 220,000 220,000
----------- ----------
Total related party debt $ 285,611 $1,057,456
----------- ----------
----------- ----------
</TABLE>
8. COMMON STOCK
During February 1996, pursuant to US Securities Regulation E, the Company
issued an aggregate of 5,300,000 shares of Colonial Funds, Limited common
stock subject to stock purchase agreements totaling $4,500,000.
During October 1994, the Company entered into agreements with two unrelated
individuals to grant them options to acquire an aggregate of 82,500 shares
of the Company's common stock at the price of $.001 per share. The options
were exercisable until October 2, 1998. The Company has reserved 82,500
shares of its common stock for issuance under the option agreements.
9. INCOME TAXES
Deferred income taxes consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 1,900,000 $ 846,000
Unrealized losses on investments 360,500 361,300
----------- ----------
2,260,500 1,207,300
Valuation allowance for deferred tax
assets (2,260,500) (1,207,300)
----------- ----------
Net deferred income taxes $ - $ -
----------- ----------
----------- ----------
</TABLE>
The Company had net operating loss carryovers as of December 31, 1997 of
approximately $2,173,000 available to offset future taxable income, if any.
In the event of ownership changes aggregating 50% or more in any three-year
period, the amount of loss carryovers that become available for utilization
in any year may be
F-21
<PAGE>
FIRST COLONIAL VENTURES, LTD.
Notes to Financial Statements
December 31, 1997
9. INCOME TAXES (CONTINUED): limited. If not utilized against future taxable
income, the tax loss carryovers will expire in the years 1998 thorugh 2009.
The consolidated tax returns of the Company are filed in the name of CRI as
a result of the original reverse purchase of the assets of FCVL in 1987 by
CRI.
10. LEGAL MATTERS
The president of the Company, along with several other individuals, has
been indicted by the United States District Court, Southern District of New
York alleging conspiracy, securities fraud, and wire-fraud. The president
denies the allegations and is vigorously defending the matter.
In addition, the United States securities and Exchange Commission is
conducting a private investigation of the Company in connection with its
financial reporting practices. The investigation has not yet been completed
and no formal allegations have been charged. The Company does not believe
it has violated any securities rules and regulations.
11. OTHER RELATED PARTY TRANSACTIONS
The Company pays a monthly management fee of $13,500 to its president
pursuant to a month-to-month consulting agreement.
12. SUBSEQUENT EVENTS
During 1998, the Company issued 2,250,000 shares of its common stock in
exchange for all of the assets of Golden Hill Studios, Inc., plus cash of
$120,000.
During 1998, the Company issued 300,000 shares of its common stock to TND.
These shares were cancelled during 1999.
During 1998, the Company issued 520,000 shares of its common stock to
Dryden for its use in raising additional equity capital.
During 1998, the Company acquired a 50% interest in Auckland Enterprises,
LLC for cash of $80,000. Auckland Enterprises, LLC operated a television
production company in Los Angeles, California. This investment was sold in
1999 for $130,000. The proceeds consisted of cash of $28,000 and a note
receivable of $102,000.
F-22
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 5363219
<INVESTMENTS-AT-VALUE> 200000
<RECEIVABLES> 0
<ASSETS-OTHER> 12680
<OTHER-ITEMS-ASSETS> 689
<TOTAL-ASSETS> 213369
<PAYABLE-FOR-SECURITIES> 220000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 687844
<TOTAL-LIABILITIES> 1121213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9508554
<SHARES-COMMON-STOCK> 11686182
<SHARES-COMMON-PRIOR> 10716182
<ACCUMULATED-NII-CURRENT> (2604112)
<OVERDISTRIBUTION-NII> 0
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<ACCUM-APPREC-OR-DEPREC> (4315869)
<NET-ASSETS> (907844)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 180000
<EXPENSES-NET> 1938940
<NET-INVESTMENT-INCOME> (1758940)
<REALIZED-GAINS-CURRENT> (1488992)
<APPREC-INCREASE-CURRENT> (3025446)
<NET-CHANGE-FROM-OPS> (4784386)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 970000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3319784)
<ACCUMULATED-NII-PRIOR> (845172)
<ACCUMULATED-GAINS-PRIOR> (1290423)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 180000
<INTEREST-EXPENSE> 43461
<GROSS-EXPENSE> 1938940
<AVERAGE-NET-ASSETS> 365417
<PER-SHARE-NAV-BEGIN> .31
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> (.07)
<EXPENSE-RATIO> 5.31
[AVG-DEBT-OUTSTANDING] 1507845
[AVG-DEBT-PER-SHARE] .129
</TABLE>
