SECURITIES AND EXCHANGE COMMISSION
Washington ,D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 Commission File Number 0-15435
FIRST ENTERTAINMENT HOLDING CORP.
(Formerly First Entertainment, Inc)
(Exact name of Company as specified in its charter)
NEVADA 84-0974303
(State or other jurisdiction I.R.S. Employer of
incorporation or organization) Identification No.)
7887 E. Belleview, Suite 1114 Englewood, CO 80111
(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (303) 228-1650
First Entertainment, Inc.
1999 Broadway, Suite 3135 Denver, CO 80202
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check whether the Company (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 Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
1) Yes X 2) Yes X
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
Number of Shares Issued and
Class Outstanding at September 30, 1998
Common stock, $.008 par value 8,803,837 shares
Class A Preferred Stock, $.001 par value 10,689 shares
Class B Preferred Stock, $.001 par value 77,547 shares
FIRST ENTERTAINMENT HOLDING CORP.
(Formerly First Entertainment, Inc and Subsidiaries)
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of March 31,1998
(Unaudited) and December 31, 1997
Consolidated Statements of Operations (Unaudited)
for three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
SIGNATURE
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
</CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 38,554 $18,049
Accounts receivable trade, net
of allowance 34,737 97,271
Accounts receivable officer 23,322 25,524
Note receivable 20,235 20,335
Stock subscription, receivable 25,000
Inventories 24,889 23,377
Other 29,066 22,127
- ----------------------------------------------------------------
170,802 231,683
- ----------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 763,042 760,593
Building and leasehold improvement 532,257 532,257
Land 125,000 125,000
- ----------------------------------------------------------------
1,420,299 1,417,850
Less accumulated depreciation and
Amortization 884,045 874,067
- ----------------------------------------------------------------
536,254 543,783
- ----------------------------------------------------------------
OTHER ASSETS
License, net of accumulated
amortization 772,771 788,401
Note receivable 61,105 61,105
Other 3,760 3,760
- ----------------------------------------------------------------
837,636 853,266
- -----------------------------------------------------------------
TOTAL ASSETS $1,544,692 $1,628,732
===============================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
</CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(Deficit):
CURRENT LIABILITIES
Accounts payable $ 146,881 $ 172,575
Accrued interest 402,411 394,340
Accrued liabilities 168,345 168,902
Notes payable and current
portion of long term debt 835,126 850,376
Note payable related party 3,000 3,000
Net liabilities of discontinued
operations 36,409 53,051
- ------------------------------------------------------------------
Total current liabilities 1,592,173 1,642,244
- ------------------------------------------------------------------
LONG TERM DEBT, NET OF
CURRENT PORTION 435,004 431,120
- ------------------------------------------------------------------
MINORY INTEREST - -
- ------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value;
authorized
5,000,000 shares;
Class A preferred stock,
10,689 shares issued and outstanding 10 10
Class B preferred stock, 91,147
shares issued and outstanding 91 91
Class C preferred stock no
shares issued
Common stock, $.008 par value; authorized
50,000,000 shares; 6,943,821
and 6,412,304 shares issued
and outstanding 55,551 51,299
Capital in excess of par value 15,141,533 14,947,898
Accumulated deficit (15,679,670) (15,443,929)
- ------------------------------------------------------------------
(482,485) (444,632)
- -------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT) $ 1,544,693 $ 1,628,732
==================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
</CAPTION>
For the three months For the three months
ended March 31, ended March 31,
1998 1997
<S> <C> <C>
REVENUE:
Live Entertainment $ 318,338 $ 427,915
Radio 194,587 167,347
Video 65 37,402
Other 10,518 4,048
- ---------------------------------------------------------------
523,506 636,712
- ---------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales -
live entertainment 268,288 337,767
Cost of products sold -
Radio 149,266 119,345
Cost of products sold -
video 20 1,537
Depreciation and
amortization 26,211 73,877
Selling, general and
administrative 293,193 441,770
- ---------------------------------------------------------------
736,978 974,296
- ---------------------------------------------------------------
OPERATING LOSS FROM
CONTINUING OPERATIONS (213,472) (337,584)
OTHER INCOME (EXPENSE)
Interest expense (22,332) (24,807)
Other 63 40,291
- ---------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS BEFORE
MINORITY INTREST (235,741) (322,100)
MINOITY INTREST IN LOSS
OF SUBSIDIARY 0 0
- ---------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS (235,741) (322,100)
DISCONTINUED OPERATIONS
Loss from discontinued operations (15,810)
- ----------------------------------------------------------------
NET INCOME (LOSS) $ (235,741) $ (337,910)
================================================================
PER SHARE DATA-Basic and Diluted:
Net Income (loss) per share
continuing operations $ (.04) $ (.06)
Net Income (loss) per
share, discontinued operations * *
- -----------------------------------------------------------------
Net Income (loss) per
common share $ (.04) $ (.06)
=================================================================
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 6,594,877 5,679,205
=================================================================
<CAPTION>
* Less than $.01 per share
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
</CAPTION>
For the three months For the three months
ended March 31, ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (235,741) $ (337,910)
Adjustments to reconcile
net income (loss)
to net cash from operations
Depreciation and amortization 26,211 73,877
Common stock issued for services 169,838 324,199
Changes in operating assets
and liabilities
(Increase) decrease in
Receivables 89,836 (9,900)
Inventories (1,512) (4,176)
Other current assets (6,939) 1,872
Increase (decrease) in
Accounts payable (25,694) (58,101)
Accrued Liabilities 7,514 6,999
Cash used in discontinued
operations (443)
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: 23,070 (12,671)
- --------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - net (2,449) (23,730)
Investments and other
Cash used in discontinuing
operations
- --------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,449 (23,730)
- --------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (11,366) (8,778)
Proceeds from issuance of common
stock of subsidiary 11,250 98,351
Cash used in discontinuing
operations 0 0
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (116) 89,573
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
</CAPTION>
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH 20,505 46,892
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 18,049 62,856
- ------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 38,554 $ 109,748
===================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
(Formerly First Entertainment, Inc and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies:
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with instructions
to Form 10-QSB and Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
accompanying financial information is Unaudited but includes all
adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary to present fairly the information
set forth. The consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements
which are included in the Annual Report on Form 10-KSB of the Company
for the fiscal year ended December 31, 1997.
The results for the interim period are not necessarily indicative of
results to be expected for the fiscal year of the Company ending
December 31, 1998. The Company believes that the three month report
filed on Form 10-QSB is representative of its financial position and
its results of operations and changes in cash flows for the periods
ended March 31, 1998 and 1997.
New Accounting Standards
In June 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 131 Disclosures about
Segments of an Enterprise and Related Information (SFAS 131) and
issued Statement of Financial Accounting Standard No. 130 Reporting
Comprehensive Income (SFAS 130) the financial Accounting Standards
Board (FASB.) SFAS 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supercedes Statement of Financial
Accounting Standard No. 14 Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards of the way that
public companies report information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. It also establishes standard for disclosures regarding
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which
separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, the standards may have on future financial
statement disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these standards.
In February 1998, the FASB issued SFAS No. 132, Employers
Disclosures about Pensions and Other Post-retirement Benefits which
standardizes the disclosure requirements for pensions and other post-
retirement benefits and requires additional information on changes in
the benefit obligations and fair values of plan assets that will
facilitate financial analysis. SFAS No. 132 is effective for years
beginning after December 15, 1997 and requires comparative information
for earlier years to be restated, unless such information is not
readily available. Management believes the adoption of this statement
will have no material impact on the Companys financial statements.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). SFAS No. 133 established standards for
recognizing all derivative instruments including those for hedging
activities as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value. This
Statement is effective for fiscal years beginning after June 30, 1999.
The Company has not yet determined the effect of SFAS No. 133 on its
financial statements.
YEAR 2000 PROBLEM. The Company is aware of the issues associated
with the programming code in existing computer systems as the millenium
(Year 2000) approaches. The Year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in some
way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize properly date
sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data
or cause a system to fail. The Company has determined to purchase new
accounting software which is Year 2000 compatible. The new software
will be in place by December 31, 1998 and will cost less than $10,000.
2. Stockholders Equity
Balzac, Inc.
In April 1996, the Company acquired certain assets of Balzac, Inc.
(Balzac) a private company which manufactures and distributes toys,
including a product line of toy balls. The assets and rights acquired
consisted of: an exclusive license for Australia, inventory of Balzac
toys and various other rights.
The exclusive license agreement for Australia was acquired for $800,000
and was payable within five years based upon a formula of 60% of net
profits from the sale of Balzac products in Australia. The inventory
and other assets were acquired by issuing 1,100,000 shares of the
Companys restricted common stock valued at $1.6 million.
During 1996, a dispute arose between the Company and Balzac and Balzac
asserted a violation of the Purchase Agreement. Balzac seized the
inventory valued at $1 million, which was collateral on the fixed
obligation due under the Australian Licensing Agreement, to satisfy the
$800,000 obligation under the licensing agreement.
The Company asserted that Balzac had no right under the Purchase
Agreement or License Agreement to seize the inventory and apply the
proceeds against the note payable under the Licensing Agreement.
In April 1997, Balzac and the Company entered into an agreement whereby
Balzac will buy back the Australian Licensing Agreement for $800,000
and will repay the Company $200,000 which was the difference between
the value of the seized inventory and the obligation under the
licensing agreement. The $1,000,000 will be repaid over forty months
at 8% annum.
For the year ended December 31, 1997 the Company wrote the note
receivable down by $902,119 to its net realizable value.
During the quarter ending March 31, 1998, the Company issued 359,850
shares of common stock for consulting services valued at approximately
$147,638 of which $16,800 was for prior accrued services. The common
stock issued for consulting services was registered in an S-8
registration statement and were free trading upon issuance. In
addition, the Company issued 130,000 shares of restricted common stock
in lieu of payment life insurance premiums for certain officers and
consultants. In addition, the Company sold 41,667 shares restricted
common stock in a private placement offering resulting in net proceeds
of $11,250.
3. Income Taxes
The tax effects of temporary differences and carryforward amounts that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities as of December 31, 1997 and 1996 are:
<TABLE>
Deferred tax assets: 1997 1996
<S> <C> <C>
Net operating loss carryforwards $ 5,466,000 $ 4,195,000
Property and Equipment (6,000) 42,000
Stock Bonuses 95,000
Litigation Settlement 102,000 43,000
Discontinued operations 181,000
Other 88,000 25,000
- ---------------------------------------------------------------------
Total gross deferred tax assets 5,469,000 4,400,000
Less valuation allowance (5,469,000) (4,400,000)
- ----------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment
- ----------------------------------------------------------------------
Net deferred taxes $ -0- $ -0-
=====================================================================
</TABLE>
A valuation allowance has been established to reflect managements
evaluation that it is more likely than not that all of the deferred tax
assets will not be realized.
The valuation allowance increased $1,069,000 in 1997 and $561,000 in
1996.
As of December 31, 1997, net operating loss carryforwards were
approximately $14 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates though 2017.
4. Letter of Intent
In June, 1998 FEHC signed a non-binding letter of intent with Intelek,
LLC (Intelek) to form a joint venture with Intelek for the purpose
of developing and promoting entertainment sites on the internet.
FEHC will invest in the first joint venture will invest in and receive
50% of the revenues from new sources of internet traffic from multiple
adult entertainment sites presently being operated by Intelek. FEHC
would invest $250,000 and issue 250,000 shares of its restricted common
stock to Intelek, Inc. FEHC would receive a preferential payment of
the first $250,000 from the new sources of revenue thereafter, FEHC
would receive 50% of all revenues received from new sources of internet
traffic developed. Upon receipt of $250,000 FEHC would be obligated to
issue an additional 250,000 shares of restricted stock.
Consummation of this agreement is subject to a number of conditions
including the negotiation of a definitive agreement, completion of due
diligence, approval of the transaction by the Board of Directors of
both companies and approval of any necessary governmental authorities.
Due to the contingencies involved, FEHC is unable to predict if or when
the transaction will be consummated.
In July 1998 FEHC signed a non-binding letter of intent with SportsNet,
Inc. (SNI) to operate an internet gaming site from the sovereign nation
of the Commonwealth of Dominica pursuant to an International Gaming
License issued December 20, 1997, to a subsidiary of the Company.
On September 15, 1998, the Company entered into a definitive agreement
with SportsNet, Inc. (SNI) The effective date of the Agreement will be
ten days after the following two events have occrued; (i) SNI has
completed a financing of not less than $1,000,000 and (ii) the Company
has entered into a contract with a credit card processor for
participants in the Games satisfactory to both the Company and SNI.
The Agreement, if and when it becomes effective, would continue in
effect as long as the Company has a valid internet gaming license
issued by the Commonwealth of Dominica or would terminate upon
revocation of such license by the Commonwealth of Dominica.
SNI will at its sole cost and expense provide to FEHC and install all
hardware, system software, graphical user interfaces, will license or
cause SNI subcontractors to license all firewall and encryption
capability necessary to assure integrity of all data transmitted by and
among FEHC, SNI and participants. SNI will also license to FEHC, in
object code format on a non-exclusive basis, that computer software
incorporating a certified random number generator, game logic and
reporting package necessary for FEHC to offer internet lottery and
casino games of blackjack, video poker and slots. SNI will also
maintain and monitor a backup site in the event the primary gaming site
fails. SNI will also undertake to develop new games including, but not
limited to, roulette, baccarat, paigow and craps.
The Company at its sole cost and expense will be responsible for
providing physical facilities, communications installation, lines and
,maintenance necessary to accommodate and interface with computer
hardware located in Dominica. In addition, the Company must provide
adequate insurance coverage for the equipment owned by the Company and
SNI. The Internet Gaming License issued by the Commonwealth of
Dominica requires the Company to hire five (5) people at the prevailing
wage for the term of the license and pay 5% of gross revenues derived
from the internet gaming revenue but not less than $25,000 per year.
FEHC will pay 50% of the Gross Operating Margin to SNI.
SNI will ensure by technical means and means relating to the acceptance
of wagers, eliminate access to the site by participants located in the
United States and any other jurisdiction which notifies FEHC that
providing such access to the games to participants within such
jurisdiction violates that jurisdiction laws governing gaming.
5. Other
In February 1998, the Company was delisted from NASDAQ for failure to
meet the minimum bid price. The delisting has impaired the Company's
ability to raise equity financing.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
Results of Operation March, 1998 vs. March, 1997
For the quarter ended March 31, 1998 the Company incurred a loss from
continuing operations of approximately $236,000 as compared to a loss
from continuing operations of approximately $322,000 for the quarter
ended March 31, 1997. The decrease in the net loss for the quarter
ended March 31, 1998 as compared to March 31, 1997 is the primarily
result of a decrease in general and administrative expenses.
Overall, revenues decreased by approximately $113,000, from $637,000 in
1997 as compared to $523,000 in 1998. Most of the decrease is from
live entertainment revenue which decreased $110,000 and video sales of
$37,000. Radio sales increased by approximately $27,000. The decrease
in live entertainment revenues was due to decreased attendance as a
result of fewer big name acts in the first quarter of 1998. The first
quarter of 1997 was our most profitable quarter to date for live
entertainment. Although big name headliners usually draw more
attendance, their cost is also substantially higher. In 1997 the
Company was not as successful in increasing attendance due to big name
headliners therefore they were reduced for 1998. In addition, big name
headliners are not as available for club acts in 1998. Radio sales
increased due to a strong economy in Gillette and video sales decreased
$37,000 due to the sale of the U.S. marketing rights to the Company's
exclusive distributor in 1997. The Company no longer distributes any
videotapes.
Other income at March 31, 1998 and1997 represents rent income, T-shirt,
coupon books and cigarette sales. Unaffiliated company rent income
increased by approximately $1,500 for the quarter ended March 31, 1998.
Cost of sales live entertainment decreased as a result of a decrease in
revenues but the percent of cost of sales to sales increased from 79%
in 1997 to 84% in the first quarter of 1998. Overall attendance
decreased but the labor cost remained the same which resulted in a
lower gross profit.
Cost of goods sold radio, increased approximately $ 30,000 comparing
1998 to 1997. The cost of sales radio as compared to radio sales was
77% in 1998 and 71% in 1997. The Company is aggressively pursuing
additional advertising revenues in 1998 and increasing is promotions to
obtain a larger market share.
In 1998, depreciation and amortization decreased substantially as
compared to 1997. March 1997, included approximately 15,000 in
amortization of licensing right acquired from Balzac which were sold
back to Balzac in the second quarter of 1997. Many fixed assets are
almost fully depreciated and deprecation of property and equipment was
$44,000 in the first quarter of 1997 as compared to $8,000 in the first
quarter of 1998.
General and administrative costs decreased approximately $149,000 in
1998 as compared to 1997. The decrease is primarily attributable to a
reduction in consulting services of approximately $154,000.
Interest expense decreased slightly in 1998 over 1997 even though notes
payable increased by $218,000 approximately $275,000 in notes payable
is due to litigation settlements in which interest does not accrue
until July 1998.
Liquidity and Capital Resources
As of March 31, 1998, and December 31, 1997 the Company had a working
capital deficit of approximately $1.4 million. Despite a loss of
approximately $236,000, net cash was provided from operating activities
of $23,000 primarily due to common stock issued for services of
$170,000. The Company has been able to issue common stock for services
thereby reducing the need for working capital and collections of
receivables was up nearly $90,000 in the first quarter of 1998.
The Company's ability to continue as a going concern will largely
depend on its ability to generate working capital through debt or
equity financing and profitable operations. Working capital
deficiencies have hindered the Companies ability to fund certain
business segments. Working capital is needed to further develop both
existing lines of business and any new lines of business. The
likelihood of obtaining the necessary equity financing is uncertain at
this time.
The Company has been successful in 1998 and in 1997 financing some of
its operations through the issuance of common stock in exchange for
services. In 1998, the Company issued 459,850 shares of Common Stock
valued at $169,837 or an average of $.37 per share. In 1997 the
Company issued 200,500 shares of common stock for services valued at
$292,000 or $1.46 per share. In February 1998 the Company was delisted
from NASDAQ which has adversely affected the price of the stock. Of
the total costs and expenses of $737,000 in 1998 and $974,000 in 1997,
$170,000 was paid in stock in1998 and $324,000 was paid in stock in
1997. Stock issued as a percentage of revenue was 23% in 1998 and 51%
in 1997.
Commencing with the new lease for the Comedy Works space in Larmier
Square effective January 1, 1998 Comedy Works has begun a significant
remodeling project. The remodeling is expected to be completed by mid-
October, 1998. The seating capacity will be increased by approximately
40 seats from 285 to 325. The increase in seating capacity is expected
to increase revenues for those shows which have typically sold out in
prior years. The total remodeling costs are approximately $300,000 of
which $100,000 is to be paid by the landlord (lessor) as tenant
improvements and $200,000 will be paid by Comedy Works. The landlord
(lessor) has agreed to finance the $200,000 at 12% per annum over 10
years.
If the Company is successful in negotiating a definitive agreement
related to the pending letter of intent, between $250,000 and $500,000
in financing will be needed to complete the Company's obligation under
the agreement. The Definitive Agreement with SportsNet, Inc. requires
the Company to provide all physical facilities and communications
installation in the Commonwealth of Dominica necessary to accommodate
and interface with the required computer hardware to be supplied by
SportsNet, Inc.
Through September 30, 1998 the Company was successful in raising
approximately $213,000, net of offering costs in equity financing in a
private offering, but there can be no assurance that he Company would
be successful in raising the additional equity financing needed to
finance either acquisitions contemplated under the letter of intent or
the definitive agreement.
A valuation allowance offsetting the Company's net deferred tax asset
has been established to reflect management's evaluation that it is more
likely than not that all of the deferred tax assets will not be
realized.
YEAR 2000 PROBLEM. The Company is aware of the issues associated
with the programming code in existing computer systems as the millenium
(Year 2000) approaches. The Year 2000 problem is pervasive and
complex as virtually every computer operation will be affected in some
way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize properly date
sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data
or cause a system to fail. The Company has determined to purchase new
accounting software which is Year 2000 compatible. The new software
will be in place by December 31, 1998 and will cost less than $10,000.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 1, 1997 and require comparative
information for earlier years to be restated. Because of the recent
issuance of these standards, management has been unable to fully
evaluate the impact of SFAS 131, if any, on future financial statement
disclosures. The Company adopted SFAS 130 and restated all prior
periods. Results of operations and financial position, however will be
unaffected by the implementation of these standards.
PART II - OTHER INFORMATION
- ---------------------------------------------
Item 1: Legal Proceedings
FEHC knows of no litigation pending, threatened, or contemplated, or
unsatisfied judgments against it, or any proceedings of which FEHC or
any of its subsidiaries is a party, except as specified below. FEHC
knows of no legal actions pending or threatened, or judgment entered
against any of its officers or directors or any of its subsidiaries in
their capacities as such, except as specified below.
In January, 1996 the Company, AB Goldberg, Harvey Rosenberg and several
other related and unrelated third parties were named as defendants in a
lawsuit filed by Sterling Consulting Corporation as Receiver for Indian
Motorcycle Manufacturing, Inc.(IMMI) The Complaint alleges
interference by defendants in the business of IMMI, conflicts of
interest of AB Goldberg, breach of fiduciary duty, unjust enrichment,
and bankruptcy fraud.
In July 1996, The Company filed suit against the Receiver alleging
intentional interference of contracted relationships and breach of
licensing agreements.
In February 1997, the Company agreed to terms of a Settlement Agreement
with the Receiver whereby the Company would relinquish all rights to
the Indian Motorcycle Trademark and paid the Receiver approximately
$114,000. (see Item 1, Other Business Developments)
In March 1997, the Company commenced legal proceedings against Image
Marketing Group, Inc. and Harvey Rosenberg, Burt Katz (a director of
the Company) and Michael Katz, individually, for collection of
approximately $700,000 in advances to Image Marketing. Image Marketing
Group, Inc was purchased by the Company from Burt Katz, Michael Katz
and Harvey Rosenberg in September 1994. From September 1994 to
November 1995 the Company advanced Image approximately $700,000. In
November, 1995, the Company determined to discontinue the operations of
Image due to substantial losses and demanded repayment of the advances
to Image. Image was unable to repay the advances, therefore the
Company commenced legal proceedings against Image and its former
shareholders. In July 1997, a settlement was reached with Image
Marketing Group, Harvey Rosenberg, Burt Katz and Michael Kat whereby
144,410 shares of FEHC common stock held by the defendants were
returned to FEHC. The shares returned were cancelled and returned to
treasury.
In 1997,the Company commenced legal proceedings against HK Retail
Concepts for breech of contract. The claims are for unspecified
damages at this time. The Suit was filed in Denver District County
Court in May, 1997 and is awaiting a trial date.
In May 1997, David Spolter and Faige Spolter (Spolter) filed a lawsuit
against FEHC in the Superior Court of the State of California. The
plaintiffs alleged various federal and state securities violations and
sought recovery of their $75,000 investment plus damages. On July 1,
1998 Spolter and FEHC entered into a settlement agreement whereby FEHC
agreed to pay Spolter $150,000. $25,000 was paid upon execution of the
Settlement Agreement and the remaining $125,000 shall be payable in
monthly installments of $5,000 a month until July 15, 1999 at which
time all unpaid principal and interest shall become due and payable.
The note bears interest of 10% per annum. FEHC agreed to pledge all of
its stock of its wholly owned subsidiary, Quality Communications, Inc.
and to provide a security interest in all assets of Quality
Communications, Inc. In the event of default, the amount due shall be
$180,000 plus interest at 10% from June 1, 1998, less amounts
previously paid. Any unpaid amounts shall be due and payable upon sale
of the radio station in Gillette, Wyoming.
In 1997, Sharon K. Doud filed a civil action against FEHC, AB Goldberg
and Quality Communications for breach of contract, fraud and
misrepresentation for failure to convert Class C Convertible Preferred
Stock into 91,240 shares of common stock. In April, 1998 a settlement
agreement was reached between FEHC and Sharon Doud whereby FEHC was
required to pay $6,150 in legal fees, issue a promissory note in the
principal sum of $125,000 bearing interest at 9.5% per annum due March
31, 1999 and the Class C Convertible Preferred Shares were cancelled.
In June 1996, Frank P. D'Alessio, a former director of the Company,
commenced an action against A.B. Goldberg, president and director of
the Company, Nannette Goldberg, wife of A.B. Goldberg, Sara Goldberg,
mother of A.B. Goldberg, Cohig & Associates, Neidiger Tucker Brunner,
Inc, Hanifin, Inhoff, Inc., Southwest Securities, Inc., Paul Davis and
Mike Zenhari in the United States District Court fir the District of
Colorado.
The suit alleges that the plaintiff (Mr. D'Alessio) was defrauded by
the defendants pursuant to security transactions involving shares of
common stock purchased by plaintiff in Video Communications and Radio,
Inc. (now First Entertainment Holding Corp.). The defendants have
strenuously denied any violations of any state or federal statutory or
common law.
On October 1, 1996 the plaintiff and the defendants entered into a
Settlement Agreement and Mutual Release. The Settlement Agreement
required A.B. Goldberg to deliver to the plaintiff 150,000 shares of
common stock of First Entertainment Holding Corp. by August 1, 1997,
and such shares will be registered in a Form S-3 filed with the
Securities and Exchange Commission. In addition, Mr. Goldberg was to
deliver to plaintiff a certified or cashier's check in the amount of
$20,000 by May 5, 1997.
On November 19, 1996 50,000 shares of common stock of FEHC were
transferred to Mr. D'Alessio from Mr. Michael Payne. In July 1996 Mr.
Payne was issued 554,000 shares of common stock in exchange for his
shares of common stock of Power Media (see Footnote C). In July 1997
100,000 shares of common stock of FEHC were issued to NMG, LLC, an
entity owned by the wife of the President of the Company, in exchange
for 100,000 shares of ASOTV. (see Footnote C) On July 29, 1997 the
100,000 shares of common stock acquired by NMG, LLC were transferred to
Mr. D'Alessio.
The value off the common stock transferred to Mr. D'Alessio $76,500 has
been classified as officer compensation in the accompanying
consolidated statements of operations.
Item 2: Changes in Securities
None
Item 3: Defaults upon Senior Securities
None
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) Exhibits
None
(B) Reports on Form 8-K
February 5, 1998 Item 5. Other Events
Delisting from NASDAQ
April 10, 1998 Item 4. Change in Registrants Certifying
Accountants
Resignation of BDO Seidman, LLP
August 12, 1998 Item 4. Change in Registrants Certifying
Accountants
Appointment of Gordon, Hughes &
Banks, LLP
Item 6. Resignation of Director
Resignation of Dr. Theodore Jacobs
September 11, 1998 Item 6. Resignation of Director
Resignation of Dr. Nicholas
Catalano
SIGNATURES
Pursuant to the requirements of the Exchange Act , the Company has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
First Entertainment Holding Corp.
DATE: December 1, 1998 /s/ A.B. Goldberg
A.B. Goldberg
President
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<PERIOD-START> Jan-01-1998
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