<PAGE>
U.S. SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 0-22174
AMERICAN ENTERTAINMENT GROUP, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 83-0277375
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
160 BEDFORD ROAD, SUITE 306, TORONTO, ONTARIO, CANADA M5R 2K9
- ----------------------------------------------------- --------
(Address of principal executive offices) Zip Code
Issuer's telephone number, including area code (416) 920-1919
--------------
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---- ----
The number of shares outstanding of Registrant's common stock, as of the latest
practicable date, May 6, 1996, was 18,317,163, after giving effect to a 1993
reverse - split of Registrant's common stock.
Total number of sequentially numbered pages in this document: 16
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS PAGE NO.
--------
Condensed Consolidated Balance Sheets-
March 31, 1996 and December 31, 1995 1-2
Condensed Consolidated Statements of
Operations Three Month periods Ended
March 31, 1996 and March 31, 1995 3
Condensed Consolidated Statement of Changes
in Stockholders' Equity-Quarter Ended
March 31, 1996 4
Condensed Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1996 and March 31, 1995 5-6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11-13
PART II. OTHER INFORMATION 12-15
Signatures 16
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A Development Stage Company
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current Assets:
Cash $ -- $ 315
Trade accounts receivable -- --
Inventory 7,728 7,801
Prepaid expenses and deposits 7,980 6,711
---------- ----------
Total current assets $ 15,708 14,827
---------- ----------
Property and equipment, at cost
Office furniture and equipment 16,976 16,976
Computer equipment 9,854 9,854
---------- ----------
26,830 26,830
Less Accumulated Depreciation 12,596 11,315
---------- ----------
Net property and equipment 14,234 15,515
---------- ----------
Other assets:
Film library ownership 1,847,478 1,847,478
Other assets 5,542 6,324
---------- ----------
Total other assets 1,530,020 1,853,802
---------- ----------
$1,882,962 $1,884,144
---------- ----------
</TABLE>
See Notes to Financial Statements
- 1 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A Development Stage Company
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
LIABILITIES and STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current Liabilities:
Bank Indebtedness $ 65,627 $ --
Current portion of long-term debt 622,859 612,982
Short term note payable 82,500 --
Accounts payable 465,651 535,611
Accrued expenses 725,139 585,336
----------- ----------
Total current liabilities 1,961,776 1,733,929
----------- ----------
Long Term Debt:
Note payable 155,303 155,303
----------- ----------
Stockholders' equity:
Common stock, no par value:
authorized 700,000,000 shares;
issued 15,027,163 and
14,629,843 shares 4,987,619 4,903,289
Common stock to be issued -- --
Unearned compensation (13,900)
Foreign currency
translation adjustment (13,381) (12,369)
Deficit accumulated during
the development stage (5,208,355) (4,882,108)
----------- ----------
Total stockholders' equity
(deficit) (234,117) (5,088)
----------- ----------
$ 1,882,962 $ 2,063,455
----------- ----------
</TABLE>
See Notes to Financial Statements
- 2 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A Development Stage Company
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
SINCE MARCH 31, MARCH 31,
INCEPTION 1996 1995
<S> <C> <C> <C>
Sales $ 36,932 $ -- $ 20,000
Cost of Sales 14,317 -- 614
------------ ---------- ------------
Gross Profit 22,615 -- 19,386
------------ ---------- ------------
Operating Expenses:
Selling, general
and administrative
expenses $ 5,037,468 $ 315,898 $ 559,369
Interest 160,517 10,349 11,482
------------ ---------- ------------
Total operating
expenses 5,197,985 326,247 570,851
------------ ---------- ------------
Loss from continuing
operations $ (5,175,370) $ (326,247) $ (551,465)
Discontinued Operations
(Loss) from operations
of discontinued
subsidiary (32,985) -- --
------------ ---------- ------------
NET LOSS $ (5,208,355) $ (326,247) $ 551,465
------------ ---------- ------------
LOSS PER SHARE:
Loss from continuing
operations (.59) (.22) (.05)
Loss from discontinued
operations (.01) -- --
------------ ---------- ------------
NET LOSS $ (.60) $ (.22) $ (.05)
------------ ---------- ------------
------------ ---------- ------------
Weighted average
shares outstanding 8,681,752 14,759,143 10,996,460
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
See Notes to Financial Statements
- 3 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
A DEVELOPMENT STAGE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN DEFICIT
OUTSTANDING COMMON CURRENCY ACCUMULATED
------------------------ STOCK TO BE UNEARNED TRANSLATION DURING THE
SHARES AMOUNTS ISSUED COMPENSATION ADJUSTMENT DEVELOPMENT STAGE
---------- ---------- ----------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 23, 1992 (Inception)
Issuance of common stock 4,280,000 150 -- -- -- --
NET LOSS -- -- -- -- -- (89,500)
---------- ---------- --------- -------- -------- -----------
Balance at December 31, 1992 4,280,000 150 -- -- -- (89,500)
Issuance of common stock 4,069,140 2,719,197 -- -- -- --
Common stock issued in reverse
acquisition (Note B) 700,000 -- -- -- -- --
Common stock subscribed -- -- 62,066 -- -- --
Foreign currency translation adjustment -- -- -- -- (40) --
NET LOSS -- -- -- -- -- (1,608,553)
---------- ---------- --------- -------- -------- -----------
Balance at December 31, 1993 9,049,140 2,719,347 62,066 -- (40) (1,698,053)
Issuance of common stock 1,451,179 696,094 (8,449) -- -- --
Common stock subscribed -- -- 70,000 -- -- --
Unearned compensation related to
issuance of stock for services -- -- -- (75,000) -- --
Amortization of unearned compensation -- -- -- 33,333 -- --
Foreign currency translation adjustment -- -- -- -- (1,876) --
NET LOSS -- -- -- -- -- (1,342,562)
---------- ---------- --------- -------- -------- -----------
Balance at December 31, 1994 10,500,319 3,415,441 123,637 (41,667) (1,916) (3,040,635)
Issuance of common stock 4,129,524 1,487,848 -- -- -- --
Common stock subscribed -- -- (123,637) -- --
Unearned compensation related to
issuance of stock for services -- -- -- (13,900) -- (13,900)
Amortization of unearned compensation -- -- -- 41,667 -- --
Foreign currency translation adjustment -- -- -- -- (10,453) --
NET LOSS -- -- -- -- -- (1,841,473)
---------- ---------- --------- -------- -------- -----------
Balance at December 31, 1995 14,629,843 4,903,289 -- (13,900) (12,369) (4,882,108)
Issuance of common stock 397,320 84,330 -- -- -- --
Unearned compensation related to
issuance of stock for services -- -- -- 13,900 -- --
Common stock subscribed -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- (1,012) --
NET LOSS -- -- -- -- -- (326,247)
---------- ---------- --------- -------- -------- -----------
Balance at March 31,1996 15,027,163 $4,987,619 $ -- $ -- $(13,381) $(5,208,355)
---------- ---------- --------- -------- -------- -----------
---------- ---------- --------- -------- -------- -----------
</TABLE>
<TABLE>
<CAPTION>
SUBSCRIPTIONS
RECEIVABLE TOTAL
-------------- ------------
<S> <C> <C>
Balance at April 23, 1992 (Inception)
Issuance of common stock (150) --
NET LOSS -- (89,500)
--------- -----------
Balance at December 31, 1992 (150) (89,500)
Issuance of common stock (12,745) 2,706,452
Common stock issued in reverse
acquisition (Note B) -- --
Common stock subscribed (61,586) 500
Foreign currency translation adjustment -- (40)
NET LOSS -- (1,608,553)
--------- -----------
Balance at December 31, 1993 (74,461) 1,006,859
Issuance of common stock (56) 697,589
Common stock subscribed (70,000) --
Unearned compensation related to
issuance of stock for services -- (75,000)
Amortization of unearned compensation -- 33,333
Foreign currency translation adjustment -- (1,876)
NET LOSS -- (1,342,562)
--------- -----------
Balance at December 31, 1994 (144,537) 310,323
Issuance of common stock 1,487,848
Common stock subscribed (144,537) 20,900
Unearned compensation related to
issuance of stock for services -- (13,900)
Amortization of unearned compensation -- 41,667
Foreign currency translation adjustment -- (10,453)
NET LOSS -- (1,841,473)
--------- -----------
Balance at December 31, 1995 -- (5,088)
Issuance of common stock -- 84,330
Unearned compensation related to
issuance of stock for services -- 13,900
Common stock subscribed -- --
Foreign currency translation adjustment -- (1,012)
NET LOSS -- (326,247)
--------- -----------
Balance at March 31,1996 $ -- $ (234,117)
--------- -----------
--------- -----------
</TABLE>
- 4 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDARIES
A Development Stage Company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE SINCE MARCH 31, MARCH 31,
INCEPTION 1996 1995
---------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(5,208,355) $(326,247) $(551,465)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 22,755 2,063 3,428
Amortization of unearned compensation 13,900 13,900 (41,667)
Interest portion of amount due
for film library 56,978 9,877 --
Common stock issued for services 1,878,774 84,330 162,500
Foreign currency translation (13,381) (1,012) (412)
Changes in:
Accounts receivable -- -- (49,743)
Other current assets (15,712) (1,200) 2,009
Accounts payable and other 1,389,214 69,847 167,839
----------- --------- ---------
Net cash used by operating activities (1,875,827) (148,442) (306,687)
----------- --------- ---------
Cash flows from investing activities:
Purchase of Infomercial rights (120,000) -- (3,750)
Decrease (Increase) Other Assets 110,549 -- --
Purchase of property and equipment (26,830) -- (488)
----------- --------- ---------
Net cash used by investing activities (36,281) -- (4,238)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock
(net of stock issue costs of $ 4,000) 1,775,275 -- 386,500
Increase in short term notes payable 197,500 82,500 --
Repayment of long-term debt (126,294) (--) (40,137)
----------- --------- ---------
Net cash provided by
financing activities 1,846,481 82,500 346,363
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH (65,627) (65,942) 2,848
Cash, at the beginning of the period -- 315 32,590
----------- --------- ---------
Cash (Indebtedness) - end of the period $ (65,627) $ (65,627) $ 35,438
----------- --------- ---------
----------- --------- ---------
</TABLE>
(see Notes to Financial Statements)
- 5 - (continued)
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A Development Stage Company
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE SINCE MARCH 31, MARCH 31,
INCEPTION 1996 1995
---------------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $150,168 $10,349 $11,482
-------- ------- -------
-------- ------- -------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Three months ended March 31, 1996
The Company agreed to issue 397,320 shares of the Company's common
stock, valued at $84,330 in lieu of cash payment for consulting professional
fees.
Three months ended March 31, 1995
The Company agreed to issue 325,000 shares of the Company's common
stock, valued at $162,500 in lieu of cash payment for consulting fees.
The Company transferred $52,699 of long term debt to short term.
Short term notes payable, convertible debt and accrued interest
aggregating $365,100 were converted to 730,200 common shares.
- 6 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC
A DEVELOPMENT STAGE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. FINANCIAL STATEMENTS
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments, which include
only normal recurring accruals, necessary to present fairly the Company's
financial position as at March 31, 1996, the results of operations, changes
in stockholders' equity and cash flows for the three month periods ended
March 31, 1996 and 1995. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
2. COMMON STOCK
Common shares issued during the three month period ending March 31, 1996,
include no shares issued for cash consideration and 397,320 shares issued
in lieu of cash payment for various consulting services provided and valued
at $84,330.
At March 31, 1996, a total of approximately 10,420,000 options were
outstanding at option prices per share of $ .50 to $2.00.
At March 31, 1996, a total of 4,159,539 warrants were outstanding at prices
per share of $1.00 to $3.00.
During the period no warrants expired.
3. SUBSEQUENT EVENTS
On April 2, 1996, the Company accepted the resignation of Dirk Peper as
Vice President, Finance & Chief Financial Officer.
- 7 -
<PAGE>
4. OTHER MATTERS
The accompanying financial information contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses in recent years. In addition, the Company has used
substantial amounts of working capital in its operations. Further, at
March 31, 1996, current liabilities exceed current assets by $1,946,068.
In view of these trends, the Company is in the process of seeking
additional working capital through various private placements. Although
there is no guarantee, management believes that actions presently being
taken to provide working capital can be effectively implemented and will
allow the Company to continue as a going concern.
5. COMMITMENTS AND CONTINGENCIES
Based upon the Company's film library, the Company has entered into several
agreements pertaining to the development and commercial exploitation of the
film library. The Company has commenced the marketing and sale of its film
library product to both mass market and general retailers. The Company
also plans to sell videos of motion pictures derived from its films by
means of joint ventures with broadcasters and by Video-on-Demand telephone-
linked-transmission.
On September 13, 1995, the Company entered into a Letter of Intent to
acquire all of the business interest, both personal and corporate, of Mr.
Peter A. Wray. These interests consist of computerized software for image
and animation (and integrated processes in connection therewith) relative
to the creation and manipulation of motion pictures and associates uses.
Pursuant to an Agreement entered into between the Company and Peter A. Wray
dated January 15, 1996, all of Mr. Wray's interest regarding the foregoing,
in a company known as Imaginetics Inc. has been purchased by the Company in
consideration of the sum of $US 500,000 which sum is evidenced by a
Promissory Note payable in preferred shares of the Company.
On October 17, 1995, the Company entered into a Letter of Intent to acquire
certain cartoon cels pertaining to "Teenage Mutant Ninja Turtles", as well
as other cartoon characters. These cels were to be acquired from a private
individual owner for the proposed purchase price of $5,000,000 consisting
of $50,000 in cash and the remainder in the form of the company's common
stock valued at $5.00 per share. This purchase, which was to close on or
before December 15, 1995, was subject to appropriate due diligence by the
parties, including a valuation opinion as to the cels. Although this
Letter of Intent has expired, a further Letter of Intent was entered into
between the Company and Future Arts Limited, which is dated March 15, 1996.
The Letter of Intent dated March 15, 1996, sets forth the terms related to
the purchase of cartoon cels relating to "Care Bears". The purchase of the
cels is payable by way of a promissory note in the principal sum of $US
5,000,000, which note is further payable in preferred shares of the
Company. The new scheduled closing of the transaction is July 20, 1996.
- 8 -
<PAGE>
Pursuant to Agreements entered into between the Company and its wholly
owned subsidiary, AEG Entertainment Limited, (AEL) and The VIP Phone Club,
Inc. respectively dated November 28, 1995, November 29, 1995, January 30,
1996, and February 27, 1996, the Company via its subsidiary AEL granted a
license to The VIP Phone Club, Inc. (VIP Phone), a Delaware corporation of
Baltimore, Maryland, to market, sell and distribute the company's film
library consisting of 5,000 vintage motion picture and television series
episodes. These Agreements were contingent upon the company and AEL
arranging financing with an international banking source regarding VIP
Phone's accounts receivable. A commitment regarding a revolving line of
credit in the sum of $US 5,000,000 was received by AEL from Banque
Nationale de Paris (Canada) (BNP) on February 21, 1996, and the
transactions respecting both the financing and the licensing were completed
on March 22, 1996.
On February 4, 1995, the Company entered into an Agreement with MediaLinx
Interactive Inc. for the purpose of delivery for test purposes of the
product of its library by telephone communication to television sets
(Video-on-Demand). MediaLinx Interactive Inc. (MediaLinx) is a company
established for the purpose of delivering to the public goods and services
by telephone transmission within Canada to television sets (Video-on-
Demand). The Company is a participant in such test and will supply a
limited amount of titles for such purpose.
6. OPERATIONS
Based upon the Company's film library, the Company has entered into several
agreements pertaining to the development and commercial exploitation of the
film library. The Company has commenced the marketing and sale of its film
library product to both mass market and general retailers. The Company
also plans to sell videos of motion pictures derived from its films by
means of joint ventures with broadcasters and by Video-on-Demand telephone-
linked-transmission.
On September 13, 1995, the Company entered into a letter of Intent to
acquire all of the business interest, both personal and corporate, of Mr.
Peter A. Wray. These interests consist of computerized software for image
and animation (and integrated processes in connection therewith) relative
to the creation and manipulation of motion pictures and associates uses.
Pursuant to an Agreement entered into between the Company and Peter A. Wray
dated January 15, 1996, all of Mr. Wray's interest regarding the foregoing,
in a company known as Imaginetics Inc. has been purchased by the Company in
consideration of the sum of $US 500,000 which sum is evidenced by a
Promissory Note payable in preferred shares of the Company.
On October 17, 1995, the Company entered into a Letter of Intent to acquire
certain cartoon cels pertaining to "Teenage Mutant Ninja Turtles", as well
as other cartoon characters. These cels were to be acquired from a private
individual owner for the proposed purchase price of $5,000,000 consisting
of $50,000 in cash and the remainder in the form of the company's common
stock valued at $5.00 per share. This purchase, which was to close on or
before December 15, 1995, was subject to appropriate due
- 9 -
<PAGE>
diligence by the parties, including a valuation opinion as to the cels.
Although this Letter of Intent has expired, a further Letter of Intent was
entered into between the Company and Future Arts Limited, which was dated
March 15, 1996.
"The Letter of Intent dated March 15, 1996, sets forth the terms related to
the purchase of cartoon cels relating to "Care Bears". The purchase of the
cels is payable by way of a promissory note in the principal sum of $US
5,000,000, which note is further payable in preferred shares of the
Company". The new scheduled closing of the transaction is July 20, 1996.
Pursuant to Agreements entered into between the Company and its wholly
owned subsidiary, AEG Entertainment Limited, (AEL) and The VIP Phone Club,
Inc. respectively dated November 28, 1995, November 29, 1995, January 30,
1996, and February 27, 1996, the Company via its subsidiary AEL granted a
license to The VIP Phone Club, Inc. (VIP Phone), a Delaware corporation of
Baltimore, Maryland, to market, sell and distribute the company's film
library consisting of 5,000 vintage motion picture and television series
episodes. These Agreements were contingent upon the company and AEL
arranging financing with an international banking source regarding VIP
Phone's accounts receivable. A commitment regarding a revolving line of
credit in the sum of $US 5,000,000 was received by AEL from Banque
Nationale de Paris (Canada) (BNP) on February 21, 1996, and the
transactions respecting both the financing and the licensing were completed
on March 22, 1996.
On February 4, 1995, the Company entered into an Agreement with MediaLinx
Interactive Inc. for the purpose of delivery for test purposes of the
product of its library by telephone communication to television sets
(Video-on-Demand). MediaLinx Interactive Inc. (MediaLinx) is a company
established for the purpose of delivering to the public goods and services
by telephone transmission within Canada to television sets (Video-on-
Demand). The Company is a participant in such test and will supply a
limited amount of titles for such purpose.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a development stage company and as such has not yet
commenced full operations. Consolidated revenue for the three months
ended March 31, 1996, was $ NIL. In the three month period ended March
31, 1995, the company had revenue of $20,000.
The main thrust of the Company's activities for the balance of the year
will be in sales of products derived from its film libraries through
various means to both distributors and retailers. The Company also
plans to sell its product via joint ventures and licensing arrangements
regarding general broadcast, cable and satellite generated television
stations.
- 10 -
<PAGE>
Gross profit for the three months ended March 31, 1996, and March 31,
1995 was $ NIL and $19,386 respectively.
Selling, general and administrative expenses for three months ended
March 31, 1996 were $326,247, an decrease of $244,604 or 43% from the
three month period ended March 31, 1995.
The decrease of $244,604 in selling, general and administrative
expenses for the period ended March 31, 1996, over the period ended
March 31, 1995 is attributed partly to the issuance of shares in lieu
of cash payment for various consulting services provided, as well as
substantial decreases in expenses resulting from discontinuation of
operations of its main subsidiary.
Interest expense for the three month periods ended March 31, 1996 and
1995, was $10,349 and $11,482 respectively.
Since commencement, the Company has devoted the majority of its efforts
to researching and refining its marketing activities with a view to
developing comprehensive business and merchandising plans, that in
management's opinion, when fully implemented, will result in the
successful sale and distribution of the Company's goods and services to
the general public.
The Company has successfully acquired a film library consisting of
5,000 motion pictures, television series episodes and motion picture
serial chapters. The Company's ability to acquire further film
libraries will be dependent upon the availability of its financial
resources to do.
The major cost components associated with the Company's video sales
revenue (with the exception of its media cost), are variable in nature,
and the Company believes that sufficient revenues will be obtained in
order to meet both media costs and the Company's general overhead. The
Company's fixed costs for the coming year are estimated to be
approximately $1,500,000.
The Company has no material commitments for capital expenditures in the
next twelve months. Such capital requirements that the Company does
have in the next twelve months, relate to its Business Plan.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, cash and cash equivalents were $ NIL compared to
$35,438 at March 31, 1995.
The Company expects to require additional capital of approximately
$1,500,000 during the remainder of this fiscal year and throughout the
next fiscal year, which it will use for all of its operating divisions.
The Company expects to generate such capital through a combination of
public offerings, private placements, bank operating lines of credit,
and cash flow, if any.
- 11 -
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On December 30, 1993, the Company filed a lawsuit in the District Court
for the City and County of Denver, State of Colorado against Bradwell
Midwest Limited and Bradley Sears, a former officer and director of the
Company. Mr. Sears was alleged to have deliberately misrepresented his
abilities, experience, and credentials and thereby unlawfully procured
697,030 shares of the Company. This suit sought the rescission of the
697,030 common shares issued to Bradwell Midwest Limited by the Company
and a declaratory judgement to that effect. This suit also claimed
damages for misrepresentation and fraud against the defendants
respecting their conduct related to the issuance of the said shares.
On January 10, 1994, without answering the lawsuit filed in Colorado,
Bradwell Midwest Limited and Bradley Sears brought an original lawsuit
covering the same matter in U.S. District Court, Northern District of
Illinois, Eastern Division. The Company, Corporatel International,
Inc., and Messrs. Wagman and Sherman were named as defendants in this
case. This action was based upon the same transactions as the action
brought by the Company against Bradwell Midwest Limited and Mr. Sears.
Based upon these transactions, Bradwell and Mr. Sears alleged breach of
contract, conversion, fraud, and RICO, among other allegations. The
plaintiffs sought $4.5US Million, plus treble damages under the RICO
claim. On March 6, 1996, the Federal Court in Illinois dismissed the
RICO, conversion and fraud claims against all defendants. In respect
to all other matters, a settlement was completed effective March 20,
1996, between the Plaintiffs, the Company and all other defendants,
except Harve Sherman, the Company's former President and director.
On September 26, 1995, the Company filed a lawsuit in the US District
Court, Northern District of Texas, Dallas Division, against Securities
Transfer Corporation (the Company's stock transfer agent), Harve
Sherman, Steve Waxman, Chaos Corporation, Max Sherman Trust, Richview
Holdings Limited, and Janice Fox. Messrs. Sherman and Waxman are
former officers and directors of the Company, the remaining parties,
except for Securities Transfer Corporation, are related persons and
entities to Messrs. Sherman and Waxman.
The action requests the following relief:
a. That Defendant Securities Transfer Corporation be ordered to
maintain all restrictions and legends on the shares and share
certificates of the Company's shares controlled by the other Defendants,
pending further instructions from the Court;
b. That the Company's shares of Defendants Harve Sherman, Marcia
Sherman, Max Sherman Trust, Chaos Corporation, Richview Holdings,
Ltd., Steven Waxman and Janice Fox be ordered canceled and revoked.;
- 12 -
<PAGE>
c. In the alternative, that the transactions by which Defendants
obtained the Company's shares be rescinded, with any consideration paid
by each returned to each by the Company;
d. The Defendants Harve Sherman, Marcia Sherman and Steven Waxman
disgorge to the Company all profits earned by them on the short-swing
transactions alleged in this matter;
e. That Defendants Harve Sherman, Marcia Sherman and Steven Waxman
pay all costs of suit and a reasonable attorney fee to the Company; and
f. That the Company recover all other relieve to which it may be
entitled at law or in equity.
This action is presently in the preliminary stages of litigation. No
substantial discovery has taken place to date.
Otherwise, no legal proceedings of a material nature to which the
Company is a party were pending during the reporting period, and the
Company knows of no other legal proceedings of a material nature
pending or threatened or judgments entered against any director or
officer of the Company in his capacity as such.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
(i) On January 25, 1996, the Company issued a Form 8-K, a Report dated
January 25, 1996 relating the following:
* That the Company has entered into an Agreement to acquire 100% of
Imaginetics, Inc. (Imaginetics), a Nevada corporation which is in the
business of developing proprietary digital products for the motion
picture industry. That the transaction is valued at $US 500,000
payable by way of a Promissory Note in the principal sum of $US
500,000 which said Promissory Note is payable in preferred shares
of the Company.
* That the transaction has closed, subject to the delivery of certain
documents, and the receipt by the Company of a Fairness Opinion
regarding the evaluation of Imaginetics.
(ii) On February 22, 1996, the Company issued a form 8-K, a Report dated
February 22, 1996 relating the following:
* That the Banque Nationale de Paris (Canada) (BNP) has provided a
commitment to AEG Entertainment Limited (AEL) a wholly owned
Canadian subsidiary of the Company, to make available a $US 5,000,000
line of credit to be used to finance the accounts receivable of The
VIP Phone Club, Inc. (VIP Phone) a Delaware corporation which in
November, 1995 and January, 1996 assigned its accounts receivable to
AEL contingent upon the Company obtaining institutional bank financing
for the accounts receivable.
- 13 -
<PAGE>
* That in consideration of obtaining the financing the Company shall
receive a monthly fee equal to 3% of the monthly accounts receivable
financed by BNP.
* That the Company and AEL have granted a license to VIP Phone to make
available to VIP Phone's subscribers the titles contained in the
Company's film library.
(iii) That on March 22, 1996, the Company issued a Form 8-K, a Report dated
March 22, 1996 relating to the following.
* That on March 22, 1996, the Banque Nationale de Paris (Canada) (BNP)
provided financing to AEG Entertainment Limited (AEL), a wholly owned
Canadian subsidiary of the Company regarding a $US 5,000,000 revolving
line of credit to be used to finance the accounts receivable of The
VIP Phone Club, Inc. (VIP Phone).
* VIP Phone, in November, 1995 and in January, 1996, assigned its
accounts receivable to AEL contingent upon the Company obtaining
institutional bank financing for VIP Phone's accounts receivable.
The extension of credit by BNP fulfills that financing contingency.
* In consideration of obtaining the financing the Company is to receive
a monthly fee equal to 3% of the monthly accounts receivable financing
advanced by BNP to VIP Phone.
* That the Company and AEL have granted a license to VIP Phone to make
available to VIP Phone's telephone subscribers the titles contained in
the Company's film library.
(b) EXHIBITS
No exhibits are filed as part of this report.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN ENTERTAINMENT GROUP, INC.
(Registrant)
Date: May 9, 1996 /s JOEL WAGMAN
---------------------------------------
Joel Wagman
Chairman of the Board and
Chief Executive Officer
Date: May 9, 1996 /s SAMUEL C. PAUL
---------------------------------------
Samuel C. Paul
Treasurer and Chief Accounting Officer
-16-
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