<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, 1997.
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, or
toll free 1-800-358-1919 --------------
--------------
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, April 30, 1997, was 3,213,864.
Total number of sequentially numbered pages in this document: 17
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996 1-2
Condensed Consolidated Statements of
Operations - Three Month periods Ended
March 31, 1997 and March 31, 1996 3
Condensed Consolidated Statement of Changes
in Stockholders' Equity- Three Months Ended
March 31, 1997 4 & 4B
Condensed Consolidated Statement of Cash Flows-
Three Months Ended March 31, 1997 and
March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11-12
PART II. OTHER INFORMATION 13-16
Signatures 17
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
CASH $ 444,557 $ 802
DUE FROM THIRD PARTY 2,996,947 3,549,647
INVENTORY -- --
PREPAID EXPENSES AND DEPOSITS 16,517 8,442
---------- ----------
TOTAL CURRENT ASSETS 3,458,021 3,558,891
PROPERTY AND EQUIPMENT, AT COST
OFFICE FURNITURE AND EQUIPMENT 16,597 16,898
COMPUTER EQUIPMENT 9,854 9,854
---------- ----------
26,451 26,752
LESS ACCUMULATED DEPRECIATION 17,724 16,566
---------- ----------
NET PROPERTY AND EQUIPMENT 8,727 10,186
---------- ----------
OTHER ASSETS:
FILM LIBRARY OWNERSHIP 1,000,000 1,000,000
OTHER ASSETS 3,141 3,983
---------- ----------
TOTAL OTHER ASSETS 1,003,141 1,003,983
---------- ----------
$4,469,889 $4,573,060
---------- ----------
---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS
- 1 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES:
NOTE PAYABLE TO A BANK $ 2,996,947 $ 3,549,647
CURRENT PORTION OF LONG-TERM DEBT 800,279 790,402
CONVERTIBLE DEBENTURES PAYABLE 500,000 --
ACCOUNTS PAYABLE 274,330 363,068
ACCRUED EXPENSES 518,582 774,711
----------- -----------
TOTAL CURRENT LIABILITIES 5,090,138 5,477,828
----------- -----------
STOCKHOLDERS' EQUITY:
COMMON STOCK, NO PAR VALUE:
AUTHORIZED 700,000,000 SHARES;
ISSUED 3,211,864 AND 2,409,853 SHARES 7,944,010 6,882,014
COMMON STOCK TO BE ISSUED 66,800 458,426
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (52,538) (54,014)
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (7,311,721) (6,621,435)
----------- -----------
646,551 664,991
LESS: SUBSCRIBTION RECEVIABLE (1,266,800) (1,569,759)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (620,249) (904,768)
----------- -----------
$ 4,469,889 $ 4,573,060
----------- -----------
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
- 2 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
CUMULATIVE
SINCE
INCEPTION MARCH 31, 1997 MARCH 31, 1996
SALES $ 36,932 $ -- $ --
COST OF SALES 22,118
---------- ---------- ----------
GROSS PROFIT 14,814 -- --
---------- ---------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE
EXPENSES 6,481,006 680,409 315,898
WRITE-DOWN OF FILM LIBRARY
OWNERSHIP TO MARKET VALUE 847,478 -- --
INTEREST 200,335 9,877 10,349
---------- ---------- ----------
TOTAL OPERATING EXPENSES $(7,528,819) $ (690,286) $ (326,247)
---------- ---------- ----------
OPERATING LOSS (7,514,005) (690,286) (326,247)
OTHER INCOME 235,269 -- --
---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS (7,278,736) (690,286) (326,247)
DISCONTINUED OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS (32,985) -- --
---------- ---------- ----------
NET LOSS $(7,311,721) $ (690,286) $ (326,247)
---------- ---------- ----------
---------- ---------- ----------
LOSS PER SHARE:
LOSS FROM CONTINUING OPERATIONS (6.48) (2.47) (2.20)
LOSS FROM DISCONTINUED OPERATIONS (0.03) -- --
---------- ---------- ----------
NET LOSS (6.51) (2.47) (2.20)
---------- ---------- ----------
WEIGHTED AVERAGE 1,123,754 2,793,478 1,475,914
---------- ---------- ----------
---------- ---------- ----------
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, 1997
<TABLE>
<CAPTION>
DEFICIT
COMMON FOREIGN ACCUMULATED
COMMON STOCK STOCK CURRENCY DURING THE NOTES/
OUTSTANDING TO BE UNEARNED TRANSLATION DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS ISSUED COMPENSATION ADJUSTMENT STAGE RECEIVABLE TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 23, 1992
(INCEPTION)
ISSUANCE OF COMMON STOCK 428,000 $ 150 -- -- -- $ -- $ (150) --
NET LOSS (89,500) (89,500)
---------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 428,000 $ 150 $ -- -- -- $ (89,500) $ (150) $ (89,500)
ISSUANCE OF COMMON STOCK 406,914 2,719,197 -- -- -- -- (12,745) 2,706,452
COMMON STOCK ISSSUED IN
REVERSE ACQUISITION
(NOTE B) 70,000 -- -- -- -- -- -- --
COMMON STOCK SUBSCRIBED -- -- 62,066 -- -- -- (61,586) 500
NET LOSS -- -- -- -- -- (1,608,553) -- (1,608,553)
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 904,914 $2,719,347 $ 62,066 -- $ (40) $(1,698,053) $ (74,461) $ 1,006,859
ISSUANCE OF COMMON STOCK 145,118 696,094 (8,449) -- -- -- (56) 697,589
COMMON STOCK SUBSCRIBED -- -- 70,000 -- -- -- (70,000) --
UNEARNED COMPENSATION RELATED
TO ISSUANCE OF STOCK FOR
SERVICES -- -- -- (75,000) -- -- -- (75,000)
AMORTIZATION OF UNEARNED
COMPENSATION -- -- -- 33,333 -- -- -- 33,333
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT -- -- -- -- (1,876) -- -- (1,876)
NET LOSS -- -- -- -- -- (1,342,562) -- (1,342,562)
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 1,050,032 $3,415,441 $ 123,637 $(41,667) $ (1,916) $(3,040,635) $ (144,537) $ 310,323
ISSUANCE OF COMMON STOCK 412,953 1,487,848 -- -- -- -- -- 1,487,848
COMMON STOCK SUBSCRIBED -- -- (123,637) -- -- -- (144,537) 20,900
UNEARNED COMPENSATION RELATED
TO ISSUANCE OF STOCK FOR
SERVICES -- -- -- (13,900) -- (13,900) -- (13,900)
AMORTIZATION OF UNEARNED
COMPENSATION -- -- -- 41,667 -- -- -- 41,667
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT -- -- -- -- (10,453) -- -- (10,453)
NET LOSS -- -- -- -- -- (1,841,473) -- (1,841,473)
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 1,462,985 $4,903,289 -- $(13,900) $(12,369) $(4,882,108) -- $ (5,088)
ISSUANCE OF COMMON STOCK 946,868 1,978,725 -- -- -- -- (1,200,000) 778,725
UNEARNED COMPENSATION RELATED
TO ISSUANCE OF STOCK FOR
SERVICES -- -- -- 13,900 -- -- -- 13,900
COMMON STOCK SUBSCRIBED -- -- 458,426 -- -- -- (369,759) 88,667
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT -- -- -- -- (41,645) -- -- (41,645)
NET LOSS -- -- -- -- -- (1,739,327) -- (1,739,327)
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 2,409,853 $6,882,014 $ 458,426 $ -- $(54,014) $(6,621,435) $(1,569,759) $ (904,768)
</TABLE>
- 4 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
A DEVELOPMENT STAGE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1997
<TABLE>
<CAPTION>
DEFICIT
COMMON FOREIGN ACCUMULATED
COMMON STOCK STOCK CURRENCY DURING THE NOTES/
OUTSTANDING TO BE UNEARNED TRANSLATION DEVELOPMENT SUBSCRIPTIONS
SHARES AMOUNTS ISSUED COMPENSATION ADJUSTMENT STAGE RECEIVABLE TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 2,409,853 $6,882,014 $ 458,426 $-- $(54,014) $(6,621,435) $(1,569,759) $ (904,768)
ISSUANCE OF COMMON STOCK 802,011 1,061,996 1,061,996
UNEARNED COMPENSATION RELATED
TO COMMON STOCK SUBSCRIBED (391,626) 302,959 (88,667)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT 1,476 1,476
NET LOSS (690,286) (690,286)
----------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1997 3,211,864 $7,944,010 $ 66,800 $-- $(52,538) $(7,311,721) $(1,266,800) $ (620,249)
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
- 4B -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
AND SUBSIDIARIES
A DEVELOPMENT STAGE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
CUMULATIVE
SINCE MARCH 31, MARCH 31,
INCEPTION 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(7,311,721) $(690,286) $(326,247)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 31,584 2,301 2,063
INTEREST PORTION OF AMOUNT DUE FOR
FILM LIBRARY 79,095 9,877 9,877
COMMON STOCK ISSUED FOR SERVICES 2,744,448 438,004 84,330
FOREIGN CURRENCY TRANSLATION (52,538) 1,476 (1,012)
CHANGES IN:
TRADE ACCOUNTS RECEIVABLE & INVENTORY -- -- --
PREPAID EXPENSES & DEPOSITS (16,517) (8,075) --
ACCOUNTS PAYABLE AND OTHER 1,448,907 20,833 82,547
----------- --------- ---------
NET CASH USED BY OPERATING ACTIVITIES (3,076,742) (225,870) (148,442)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF INFOMERCIAL & OTHER FILM RIGHTS (120,000) -- --
PURCHASE OF PROPERTY AND EQUIPMENT (26,830) -- --
DECREASE IN OTHER ASSETS 957,106 -- --
----------- --------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 810,276 -- --
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF COMMON STOCK 2,172,317 169,625 --
INCREASE IN SHORT-TERM NOTES PAYABLE 115,000 -- 82,500
REPAYMENT OF LONG-TERM DEBT (126,294) -- --
INCREASE IN DUE TO OFFICER 50,000 -- --
PROCEEDS FROM CONVERTIBLE DEBENTURES 500,000 500,000 --
----------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,711,023 669,625 82,500
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH 444,557 443,755 (65,942)
CASH, AT THE BEGINNING OF THE PERIOD -- 802 315
----------- --------- ---------
CASH AT THE END OF THE PERIOD $ 444,557 $ 444,557 $ (65,627)
----------- --------- ---------
----------- --------- ---------
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
AMERICAN ENTERTAINMENT GROUP, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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, 1997, the results of operations, changes
in stockholders' equity and cash flows for the three month periods ended
March 31, 1997 and 1996. 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, 1996.
2. COMMON STOCK
Common shares issued during the three month period ending March 31, 1997,
include 99,500 shares issued for cash or equivalent consideration in the
amount of $169,625 and 219,002 shares issued in lieu of cash payment for
various consulting services provided and valued at $438,004.
At March 31, 1997, a total of approximately 2,773,000 options were
outstanding at option prices per share of $1.00 cents to $20.00.
At March 31, 1997, a total of 132,000 warrants were outstanding at prices
per share of $10.00 to $27.50.
During the period no warrants expired.
3. SUBSEQUENT EVENTS
On March 22, 1996, the Banque Nationale de Paris (Canada) (BNP) provided
financing to American Entertainment Limited (AEL), a wholly-owned Canadian
subsidiary of the Company, of a $5,000,000 US revolving line of credit to
be used to finance the accounts receivable and contract amounts receivable
of VIP Phone Club, Inc. (VIP), a private Delaware corporation, which was
part of an affiliated group, which, in November, 1995 and in January, 1996,
had assigned its accounts receivable and contract accounts receivable to
AEL. Additionally, the Company and AEL had granted a license to VIP to
- 6 -
<PAGE>
make available to VIP's telephone subscribers the titles contained in the
Company's film library. In December, 1996, the Company received a
notification from (BNP) of a default in the loan between VIP and BNP, of
which AEL is the debtor and the Company one of the guarantors. At that
time, the Company acknowledged this default on the part of VIP and agreed
to cooperate with BNP in securing the collection of the outstanding loan
balance.
Notwithstanding the foregoing, on April 8, 1997, the Company informed BNP
that due to the conduct of BNP respecting both the loan to VIP and its
Receiver thereof, the Company and AEL by operation of law have been
released respectively from said guarantee of the Company and the loan to
AEL. In response to this notice, BNP denied the Company's allegations,
commenced an action in the Ontario Courts against the Company and AEL for
payment of the outstanding loan balance, and filed a motion in the Courts
of Ontario (Toronto) asking that a Receiver be appointed over the property
and assets for both the Company and AEL. The Company believes that there
is no basis for such a Receiver to be appointed and has opposed this
motion. The matter has been adjourned on the consent of BNP, the Company,
and AEL until May 21, 1997. In the interim, the parties have agreed to
allow the accounting firm of Price Waterhouse to act as a Monitor to
perform a business review of the operations of the Company and AEL. The
Company believes, given the facts and circumstances of the case, that BNP
should not be entitled to have a Receiver appointed over the Company's
property and assets. However, there can be no guarantee of the outcome of
this case at this time.
On March 21, 1997 the Company sold a total of $500,000 of 7% Convertible
Debentures, each Debenture certificate with a $10,000 face value, to two
corporations, each residents of Canada, pursuant to Regulation S. The
Debentures are convertible into the common stock of the Company beginning
45 days after March 21, 1997 at the lesser of (a) the market price on
Closing, or (b) 70% of the market price on the Conversion Date. The market
price is defined as the average closing bid price of the common stock on
the five trading days immediately preceding the Closing or Conversion Date,
as may be applicable. On May 7, 1997, notice was received to convert
$60,000 into 60,172 shares of the Company.
On March 27, 1997, the Company agreed to acquire Telephonetics Overseas
Corporation (TOC). The Agreement of March 27, 1997 is subject to a further
definitive Agreement to be executed on or before May 31, 1997. Under such
Agreements, the Company will acquire all the issued and outstanding shares
of TOC for the acquisition price of $1,250,000 payable in shares in the
common stock of the Company valued at $4.00 per share.
TOC holds rights and licenses from Telephonetics International Inc., (TII)
to market and sell world wide TII's On Hold media technology, hardware and
programming. For over a decade TII has been a joint marketing alliance
partner and exclusive supplier to AT&T (now Lucent Technologies) for Simply
Magic Productions for Magic On-Hold. Additionally, on closing, the Company
will fund, a maximum of $200,000 less any credits
- 7 -
<PAGE>
due to the Company. If necessary, and in accord with an agreed TOC
Business Plan, the Company will fund an additional $300,000 during the 1997
calendar year. Present TOC management will continue after closing which is
scheduled to occur on or before June 15, 1997. The Company's management is
of the opinion that the TOC acquisition will garner both substantial
revenues and net profits for AETG.
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, 1997, current liabilities exceed current assets by $1,632,117.
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 its development and commercial exploitation. 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 February 4, 1995, the Company entered into an Agreement with MediaLinx
Interactive Inc. of Toronto, Canada 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. of
(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.
On March 22, 1996, the Banque Nationale de Paris (Canada) (BNP) provided
financing to American Entertainment Limited (AEL), a wholly-owned Canadian
subsidiary of the Company, of a $5,000,000 US revolving line of credit to
be used to finance the accounts receivable and contract amounts receivable
of VIP Phone Club, Inc. (VIP), a private Delaware corporation, which was
part of an affiliated group, which, in November, 1995 and in January, 1996,
had assigned its accounts receivable and contract accounts receivable to
AEL. Additionally, the Company and AEL had granted a license to VIP to
make available to VIP's telephone subscribers the titles contained in the
Company's film library. In December, 1996, the Company received a
notification from (BNP) of a default
- 8 -
<PAGE>
in the loan between VIP and BNP, of which AEL is the debtor and the Company
one of the guarantors. At that time, the Company acknowledged this default
on the part of VIP and agreed to cooperate with BNP in securing the
collection of the outstanding loan balance.
Notwithstanding the foregoing, on April 8, 1997, the Company informed BNP
that due to the conduct of BNP respecting both the loan to VIP and its
Receiver thereof, the Company and AEL by operation of law have been
released respectively from said guarantee of the Company and the loan to
AEL. In response to this notice, BNP denied the Company's allegations,
commenced an action in the Ontario Courts against the Company and AEL for
payment of the outstanding loan balance, and filed a motion in the Courts
of Ontario (Toronto) asking that a Receiver be appointed over the property
and assets for both the Company and AEL. The Company believes that there
is no basis for such a Receiver to be appointed and has opposed this
motion. The matter has been adjourned on the consent of BNP, the Company,
and AEL until May 21, 1997. In the interim, the parties have agreed to
allow the accounting firm of Price Waterhouse to act as a Monitor to
perform a business review of the operations of the Company and AEL. The
Company believes, given the facts and circumstances of the case, that BNP
should not be entitled to have a Receiver appointed over the Company's
property and assets. However, there can be no guarantee of the outcome of
this case at this time.
On March 21, 1997 the Company sold a total of $500,000 of 7% Convertible
Debentures, each Debenture certificate with a $10,000 face value, to two
corporations, each residents of Canada, pursuant to Regulation S. The
Debentures are convertible into the common stock of the Company beginning
45 days after March 21, 1997 at the lesser of (a) the market price on
Closing, or (b) 70% of the market price on the Conversion Date. The market
price is defined as the average closing bid price of the common stock on
the five trading days immediately preceding the Closing or Conversion Date,
as may be applicable. On May 7, 1997, notice was received to convert
$60,000 into 60,172 shares of the Company.
On March 27, 1997, the Company agreed to acquire Telephonetics Overseas
Corporation (TOC). The Agreement of March 27, 1997 is subject to a further
definitive Agreement to be executed on or before May 31, 1997. Under such
Agreements, the Company will acquire all the issued and outstanding shares
of TOC for the acquisition price of $1,250,000 payable in shares in the
common stock of the Company valued at $4.00 per share.
TOC holds rights and licenses from Telephonetics International Inc., (TII)
to market and sell world wide TII's On Hold media technology, hardware
and programming. For over a decade TII has been a joint marketing alliance
partner and exclusive supplier to AT&T (now Lucent Technologies) for Simply
Magic Productions for Magic On-Hold. Additionally, on closing, the Company
will fund, a maximum of $200,000 less any credits due to the Company. If
necessary, and in accord with an agreed TOC Business Plan, the Company will
fund an additional $300,000 during the 1997 calendar year.
- 9 -
<PAGE>
Present TOC management will continue after closing which is scheduled to
occur on or before June 15, 1997. The Company's management is of the
opinion that the TOC acquisition will garner both substantial revenues and
net profits for AETG.
6. OPERATIONS
Based upon the Company's film library, the Company has entered into several
agreements pertaining to its development and commercial exploitation. 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 February 4, 1995, the Company entered into an Agreement with MediaLinx
Interactive Inc. of Toronto, Canada 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.
On March 22, 1996, the Banque Nationale de Paris (Canada) (BNP) provided
financing to American Entertainment Limited (AEL), a wholly-owned Canadian
subsidiary of the Company, of a $5,000,000 US revolving line of credit to
be used to finance the accounts receivable and contract amounts receivable
of VIP Phone Club, Inc. (VIP), a private Delaware corporation, which was
part of an affiliated group, which, in November, 1995 and in January, 1996,
had assigned its accounts receivable and contract accounts receivable to
AEL. Additionally, the Company and AEL had granted a license to VIP to
make available to VIP's telephone subscribers the titles contained in the
Company's film library. In December, 1996, the Company received a
notification from (BNP) of a default in the loan between VIP and BNP, of
which AEL is the debtor and the Company one of the guarantors. At that
time, the Company acknowledged this default on the part of VIP and agreed
to cooperate with BNP in securing the collection of the outstanding loan
balance.
Notwithstanding the foregoing, on April 8, 1997, the Company informed BNP
that due to the conduct of BNP respecting both the loan to VIP and its
Receiver thereof, the Company and AEL by operation of law have been
released respectively from said guarantee of the Company and the loan to
AEL. In response to this notice, BNP denied the Company's allegations,
commenced an action in the Ontario Courts against the Company and AEL for
payment of the outstanding loan balance, and filed a motion in the Courts
of Ontario (Toronto) asking that a Receiver be appointed over the property
and assets for both the Company and AEL. The Company believes that there
is no basis for such a Receiver to be appointed and has opposed this
motion. The matter has
- 10 -
<PAGE>
been adjourned on the consent of BNP, the Company, and AEL until May 21,
1997. In the interim, the parties have agreed to allow the accounting firm
of Price Waterhouse to act as a Monitor to perform a business review of the
operations of the Company and AEL. The Company believes, given the facts
and circumstances of the case, that BNP should not be entitled to have a
Receiver appointed over the Company's property and assets. However, there
can be no guarantee of the outcome of this case at this time.
On February 4, 1997, the Company, via its wholly owned subsidiary Comex
Interactive Network Limited, entered into an Agreement with Pelmorex Inc.
of Toronto, Canada respecting the sale over the next two years of 104
episodes of Classic Movies on Radio. The series is based on the Company's
Audio Classic Movies which will bring to the North American public, via
radio, vintage movies derived from the Company's film library.
On March 27, 1997, the Company agreed to acquire Telephonetics Overseas
Corporation (TOC). The Agreement of March 27, 1997 is subject to a further
definitive Agreement to be executed on or before May 31, 1997. Under such
Agreements, the Company will acquire all the issued and outstanding shares
of TOC for the acquisition price of $1,250,000 payable in shares in the
common stock of the Company valued at $4.00 per share.
TOC holds rights and licenses from Telephonetics International Inc., (TII)
to market and sell world wide TII's On Hold media technology, hardware
and programming. For over a decade TII has been a joint marketing alliance
partner and exclusive supplier to AT&T (now Lucent Technologies) for Simply
Magic Productions for Magic On-Hold. Additionally, on closing, the Company
will fund, a maximum of $200,000 less any credits due to the Company. If
necessary, and in accord with an agreed TOC Business Plan, the Company will
fund an additional $300,000 during the 1997 calendar year.
Present TOC management will continue after closing which is scheduled to
occur on or before June 15, 1997. The Company's management is of the
opinion that the TOC acquisition will garner both substantial revenues and
net profits for AETG.
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, 1997, was $ NIL. In the three month period ended March 31, 1997,
the company had revenue of $ NIL.
- 11 -
<PAGE>
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.
Additionally, the Company's activities will focus upon various acquisitions
and mergers.
Gross profit for the three months ended March 31, 1997, and March 31, 1996
were $ NIL.
General and administrative expenses for three months ended March 31, 1997,
were $690,286, an increase of $364,039 or 111% from the three month period
ended March 31, 1996.
The increase of $364,039 in general and administrative expenses for the
period ended March 31, 1997, over the period ended March 31, 1996, is
attributed mainly to the issuance of shares in lieu of cash payment for
various consulting services provided, in the amount of $438,000, an
increase of $354,000 over the period ended March 31, 1996, as well as
approximately $58,000 in costs to arrange the Convertible Debentures.
Interest expense for the three month periods ended March 31, 1997 and 1996,
was $9,877 and $9,877 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.
At the date hereof, and subject to the pending TOC transaction, 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.
- 12 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash balance was $444,557 compared to $ NIL cash balance
at March 31, 1996.
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.
On March 21, 1997 the Company sold a total of $500,000 of 7% Convertible
Debentures, each Debenture certificate with a $10,000 face value, to two
corporations, each residents of Canada, pursuant to Regulation S. The
Debentures are convertible into the common stock of the Company beginning
45 days after March 21, 1997 at the lesser of (a) the market price on
Closing, or (b) 70% of the market price on the Conversion Date. The market
price is defined as the average closing bid price of the common stock on
the five trading days immediately preceding the Closing or Conversion Date,
as may be applicable. On May 7, 1997, notice was received to convert
$60,000 into 60,172 shares of the Company.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.;
- 13 -
<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.
On March 22, 1996, the Banque Nationale de Paris (Canada) (BNP) provided
financing to American Entertainment Limited (AEL), a wholly-owned Canadian
subsidiary of the Company, of a $5,000,000 US revolving line of credit to
be used to finance the accounts receivable and contract amounts receivable
of VIP Phone Club, Inc. (VIP), a private Delaware corporation, which was
part of an affiliated group, which, in November, 1995 and in January, 1996,
had assigned its accounts receivable and contract accounts receivable to
AEL. Additionally, the Company and AEL had granted a license to VIP to
make available to VIP's telephone subscribers the titles contained in the
Company's film library. In December, 1996, the Company received a
notification from (BNP) of a default in the loan between VIP and BNP, of
which AEL is the debtor and the Company one of the guarantors. At that
time, the Company acknowledged this default on the part of VIP and agreed
to cooperate with BNP in securing the collection of the outstanding loan
balance.
Notwithstanding the foregoing, on April 8, 1997, the Company informed BNP
that due to the conduct of BNP respecting both the loan to VIP and its
Receiver thereof, the Company and AEL by operation of law have been
released respectively from said guarantee of the Company and the loan to
AEL. In response to this notice, BNP denied the Company's allegations,
commenced an action in the Ontario Courts against the Company and AEL for
payment of the outstanding loan balance, and filed a motion in the Courts
of Ontario (Toronto) asking that a Receiver be appointed over the property
and assets for both the Company and AEL. The Company believes that there
is no basis for such a Receiver to be appointed and has opposed this
motion. The matter has been adjourned on the consent of BNP, the Company,
and AEL until May 21, 1997. In the interim, the parties have agreed to
allow the accounting firm of Price Waterhouse to act as a Monitor to
perform a business review of the operations of the Company and
- 14 -
<PAGE>
AEL. The Company believes, given the facts and circumstances of the case,
that BNP should not be entitled to have a Receiver appointed over the
Company's property and assets. However, there can be no guarantee of the
outcome of this case at this time.
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) That on February 26, 1997, the Company issued a Form 8-K, a Report
dated February 26, 1997 stating that the Company had appointed to its
Board of Directors three new directors to fill existing vacancies on
the Board, as permitted by the Company's by-laws. The names of the
new directors are, Albert Gnat, Brian A. Grosman, and Lloyd Orlow.
(ii) That on March 25, 1997, the Company issued a Form 8-K, a Report dated
March 25, 1997 whereby the Company sold a total of $500,000 of 7%
Convertible Debentures to two corporations, each residents of Canada.
The Debentures are convertible into the common stock of the Company
beginning 45 days after March 21, 1997, at the lesser of the market
price on closing, or 70% of market price on conversion date. On May
7, 1997, notice was received to convert $60,000 into 60,172 shares of
the Company.
- 15 -
<PAGE>
(iii) That on May 1, 1997, the Company issued a Form 8K, a Report dated May
1, 1997, relating that on March 22, 1996, the Banque Nationale de
Paris (Canada) (BNP) provided financing to American Entertainment
Limited (AEL), a wholly-owned Canadian subsidiary of the Company, of a
$5,000,000 US revolving line of credit to be used to finance the
accounts receivable and contract amounts receivable of VIP Phone Club,
Inc. (VIP), a private Delaware corporation, which was part of an
affiliated group, which, in November, 1995 and in January, 1996, had
assigned its accounts receivable and contract accounts receivable to
AEL. Additionally, the Company and AEL had granted a license to VIP
to make available to VIP's telephone subscribers the titles contained
in the Company's film library. In December, 1996, the Company
received a notification from (BNP) of a default in the loan between
VIP and BNP, of which AEL is the debtor and the Company one of the
guarantors. At that time, the Company acknowledged this default on
the part of VIP and agreed to cooperate with BNP in securing the
collection of the outstanding loan balance.
Notwithstanding the foregoing, on April 8, 1997, the Company informed
BNP that due to the conduct of BNP respecting both the loan to VIP and
its Receiver thereof, the Company and AEL by operation of law have
been released respectively from said guarantee of the Company and the
loan to AEL. In response to this notice, BNP denied the Company's
allegations, commenced an action in the Ontario Courts against the
Company and AEL for payment of the outstanding loan balance, and filed
a motion in the Courts of Ontario (Toronto) asking that a Receiver be
appointed over the property and assets for both the Company and AEL.
The Company believes that there is no basis for such a Receiver to be
appointed and has opposed this motion. The matter has been adjourned
on the consent of BNP, the Company, and AEL until May 21, 1997. In
the interim, the parties have agreed to allow the accounting firm of
Price Waterhouse to act as a Monitor to perform a business review of
the operations of the Company and AEL. The Company believes, given
the facts and circumstances of the case, that BNP should not be
entitled to have a Receiver appointed over the Company's property and
assets. However, there can be no guarantee of the outcome of this
case at this time.
(b) EXHIBITS
No exhibits are filed as part of this report.
- 16 -
<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, 1997 /s Joel Wagman
--------------
Joel Wagman
Chairman of the Board and
Chief Executive Officer
Date: May 9, 1997 /s Samuel C. Paul
-----------------
Samuel C. Paul
Treasurer and Chief Accounting Officer
- 17 -
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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