UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the Fiscal Year ended:
December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
Commission File No. 0-15435
FIRST ENTERTAINMENT HOLDING CORP.
(Name of Small Business Issuer as Specified in its Charter)
Nevada 84-0974303
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7887 E. Bellview, Suite 1114
Englewood, CO 80111
(Address of Principal Executive Offices,Including Zip Code)
Registrant's telephone number, including area code: (303) 228-1650
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.008 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (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
Check if there are no disclosure of delinquent filers in
response to Items 405 of Regulation S-B in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference n Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $
2,232,933
As of February 28, 1999, there were 10,046,795 shares of common
stock (the Registrant's only class of voting stock)
outstanding. The aggregate market value of the 9,046,758
shares of common stock of the Registrant held by nonaffiliates
on February 28, 1999 was approximately $2,685,982 (based on the
mean of the closing bid and asked prices).
Documents incorporated by reference: None
INDEX TO FORM 10-KSB
PART I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of
Security Holders
PART II
Item 5 Market for Common Equity and Related
Stockholder Matters
Item 6 Management's Discussion and Analysis or
Plan of Operation
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and
Control Persons
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners
and Management
Item 12 Certain Relationships and Related Transactions
PART IV
Item 13 Exhibits, Lists and Reports on Form 8K
A) Exhibits
B) Reports on Form 8-K
PART I
Item 1. Description of Business
On December 15, 1997, First Entertainment, Inc. changed its state of
incorporation from Colorado to Nevada and changed its name to First
Entertainment Holding Corp. (the Company or FEHC). The Company
was originally incorporated under the laws of Colorado on January 17,
1985.
Currently, the Company is a multi-media entertainment conglomerate,
holding controlling interests in five distinct segments, two active and
three non operating. The two active segments, which are overviewed by
the parent company, FEHC, are known as "Radio," and "Live
Entertainment. The non operating segments are known as "Film",
"Retail" and "Internet". Initially, the Company's business
consisted of the production of pre-recorded travel guides and special
interest videos. In 1987, the Company entered the radio broadcasting
business by acquiring Quality Communications, Inc., a Wyoming
corporation pursuant to which the Company operates the radio segment of
its business. In 1992, the Company acquired a controlling interest in
First Films, Inc. ("FFI"), a publicly held Colorado corporation, under
which its film and live entertainment operations are undertaken. In
December 1996, the Company commenced operations of selling infomercial
products in freestanding unmanned kiosks in major retail malls
including U.S. Military bases. This segment was known as the "retail"
segment. In January, 1998 the Company determined to discontinue the
operations of the "retail" segment as a result of lower than expected
sales. In December 1997, the Company acquired an interest in Global
Internet Corp. (Global Internet). Global Internet is a development
stage company whose planned business activity was to commence
operations of an internet gaming site. The investment in Global
Internet was written off as of December 31, 1997 and as of December 31,
1998 Global Internet had not yet commenced its planned principal
operations.
Radio
In October 1987, the Company entered the radio broadcasting business
through the acquisition of Quality Communications, Inc. ("Quality
Communications"), a Wyoming corporation. The Company, through
Quality Communications, operates a radio station, 100.7, "The Fox",
located in Gillette, Wyoming.
In November 1993, the Company changed the music format of the radio
station formerly known as KGWY, or Y-100, from a top-40 station to a
format known as the "Heart of Rock." In February, 1995 the format was
changed again to contemporary country. The changes have had a positive
effect on its market share and gross revenues. Independent market
surveys show the radio station has approximately 44% of the market in
Gillette, Wyoming. In 1996, the radio station started promoting
concerts using up and coming country and western singers. The radio
station was a venue to promote the concerts and add an additional
source of revenue for the radio station.
Live Entertainment
FFI acquired 100 percent of the outstanding stock of Comedy Works, Inc.,
a Colorado corporation, on September 13, 1990 in an exchange for
200,000,000 shares of common stock. Comedy Works was incorporated in
1982 and has operated one comedy club from its Larimer Square, Denver,
Colorado location since that time. Comedy Works Larimer Square
typically has ten shows per week and has averaged over 2,000 customers
per week for the past fifteen years.
The goal of Comedy Works is to produce first-rate shows in the theater
environment. Revenues are generated through both ticket sales at the
door and beverage and food sales at tables. The club is open to the
public only for shows, which last from 1 to 2 hours each, and number as
many as three per night. Non-show times are devoted to preparing and
producing a show that changes completely each week, and to promoting and
marketing the nightclub.
Video
Initially, the Company entered the pre-recorded videocassette product
market through the design, production and distribution of pre-recorded
videocassette travel guides and later expanded into production and
distribution of special interest videocassette productions. The
Company is no longer active in the video market.
Retail
In December 1996, the Company commenced operations of its retail
segment through its subsidiary, "The Best of As Seen On TV, Inc."
(ASOTV). The segment consisted of selling the most common and most
popular infomercial products in free standing un-manned kiosks in
retail outlets throughout the United States. The Company opened its
first four unmanned locations in December, 1996, in Pearl Harbor,
Andrews Air Force Base and Bolling Air Force Base in Washington, D.C.
and Lechmere's in Cambridge, Massachusetts. In March 1997, the Company
terminated its unmanned kiosk operations when the leases to its first
four locations were not renewed. Sales volumes at the unmanned kiosk
locations were not sufficient to maintain profitable operations. The
Company turned its efforts to operating manned kiosks in major retail
malls. Each manned kiosk was approximately 250 square feet and sold
the top 50 selling infomercial products. Commencing August, 1997, the
Company opened six manned kiosk locations in six retail malls located
in the Denver metropolitan area. The sales volumes for the manned
kiosks were less than projected and in January 1998, the Company
determined to discontinue the operations of ASOTV due to operating
losses and lack of working capital to further develop the concept.
The result of operations of ASOTV for the years ended December 31, 1998
and 1997 are disclosed as discontinued operations.
The assets of ASOTV were written down to their estimated net realizable
value resulting in a write down of $490,000 which is included in the
accompanying statement of operations for the year ended December 31,
1997 as part of the loss from discontinued operations.
Internet Activities
On May 1, 1997, the Company entered into an agreement with Global
Casino, Inc. (Global Casino) to acquire 1,500,000 shares of common
stock of Global Internet Corp. owned by Global Casino and a $375,000
note receivable from Global Internet owed to Global Casino in exchange
for 30,000 shares of FEHC Class B Convertible Stock (Class B Stock).
Each share of Class B stock is convertible into 12.5 shares of FEHC
restricted common stock. The acquisition of Global Internet required
the approval of the shareholders of FEHC. On December 5, 1997 the
shareholders of FEHC approved (i) the increase in the authorized shares
of FEHC common stock and (ii) the acquisition of Global Internet Corp.
For accounting purposes control of Global Internet did not change until
December 5, 1997 and, as such, December 5, 1997 is considered the
acquisition date.
In June 1997, FEHC issued 14,080 shares of Class B convertible
preferred stock to two officers of Global Internet, in exchange for
$176,000 of accrued but unpaid compensation. Global Internet owed the
two officers compensation under the terms of long term employment
agreements. For accounting purposes the Class B convertible preferred
shares issued were recorded on December 5, 1997, the date the
shareholders of FEHC approved an increase in the authorized shares of
common stock.
Global Internet was in the process of developing a virtual internet
casino and had a Web Site Development and Maintenance Agreement
(Development Agreement) with Electronic Data Systems (EDS) and DDB
Needham to develop the web site for approximately $1,200,000, of which
$300,000 had been expended to date on the web site development. FEHC
was unable to obtain the financing needed to complete the web site
development and the Development Agreement was terminated.
In December, 1997 Global Transaction Services, Ltd, a wholly owned
subsidiary of FEHC, was issued an internet gaming license from the
Commonwealth of Dominica to establish and operate a computer based
gaming business operating exclusively as an off-shore business. The
license is for a period of five years. In order to maintain the
license, operations must commence within one year and continue without
significant interruption throughout its term.
In accordance with the terms of an agreement dated December 15, 1997,
if funding of at least $1 million was not received by Global Internet
by February 28, 1998, FEHC agreed to sell to Anthony Kay, president of
Global Internet, all of the shares of Global Transaction Services, Ltd.
for $17,000. Anthony Kay resigned as an officer and director of Global
Internet in March, 1998.
On March 2, 1998, Global Internet was notified of its default under the
December 15, 1997 agreement and the shares of Global Transaction
Services, Ltd which holds the gaming license, were sold to Anthony Kay.
On July 30, 1998, the Company repurchased all of the issued and
outstanding shares of Global Transaction Services Ltd. from Anthony Kay
by issuing 50,000 shares of common stock of FEHC.
The ability of the Company to obtain the necessary financing to
commence operations of a virtual internet casino is uncertain and as
such the Company's investment in Global Internet was determined by
management to be impaired. Included in the accompanying consolidated
statements of operations for the year ended December 31, 1997 is an
impairment write-off of approximately $558,000 representing the
Company's investment in Global Internet.
Other Business Developments
Balzac
In April 1996, the Company acquired certain assets from Balzac, Inc., a
private company which manufactures and distributes toys, including a
product line of toy balls. The assets and rights acquired consisted of
the following: inventory of toy balls, the exclusive license to sell
Balzac products in Australia and various other rights.
During 1996, a dispute arose between the Company and Balzac where
Balzac asserted a violation of the Purchase Agreement.
In April 1997, Balzac and the Company entered into a Settlement
Agreement whereby Balzac repurchased the exclusive Australian License
for $800,000 and agreed to 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 is to be repaid over
forty months at 8% per annum by liquidating a minimum of 25,000 shares
of common stock of FEHC per quarter held by Balzac, Inc. The Company
would be paid any portion of the sales price per share up to $1.00 and
Balzac would retain any portion of the sales price over $1.00 per
share. Any unsold stock after 40 months will become the property of
FEHC. The ability of Balzac to sell all 1,000,000 shares held by
Balzac at a price of $1.00 to repay its obligation was determined by
management to be unlikely. The common stock of FEHC has traded at
below $1.00 since August, 1997 and on February 5, 1998, the Company was
delisted from NASDAQ. As of December 31, 1997 the note receivable from
Balzac was determined to be impaired and was written down to its net
realizable value of $81,340 resulting in an impairment loss of
approximately $902,000. During 1998, the note receivable was
determined to be further impaired and was written down to its net
realizable value of $42,000 resulting in an additional impairment of
$39,340. Subsequent to year end the Company was informed by Balzac
that it had filed Chapter 11 Bankruptcy proceedings. Management
determined the note receivable was unlikely to be collected and the
remaining $42,000 was written off as of December 31, 1998.
Letters 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. In
December, 1998 the Board of Directors determined not to pursue this
opportunity and the letter of intent was terminated.
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 occurred; (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.
The definitive agreement with SportsNet, Inc. was terminated as of
March 19, 1999 as SNI had not yet completed its financing of $1,000,000
as required by the agreement.
Global Games
On March 17, 1999 the Company signed a letter of intent with Global
Games Corp. (Global Games) for the licensing of Globals Games' sports
book software and related technology. Under the terms of the agreement
Global Games will receive a percentage of the net gaming revenue for
the licensing of its software to the Company. Consummation of this
transaction is subject to the completion of a definitive agreement and
approval by the Board of Directors of both companies. Under the letter
of intent, Global Games will provide all technical service and support.
The gaming site will be operated from the Commonwealth of Dominica and
will be accessible on a play for fun basis from North America. The
Company is unable to predict if or when the agreement will be signed
and the transaction will be consummated.
On March 20, 1999, the Company signed a letter of intent with EMNet
Corp ("EMNet") to form a joint venture and create a significant
Internet based website business for "Comedy" products based around the
affiliation and content derived from a circuit of the leading comedy
clubs in America. Revenue streams would be generated through providing
Internet marketing services to member clubs, producing regular
sponsored live exclusive programming on the Internet and develop a pay-
per-view model, and through the sale of comedy CD's and direct
downloads, associated merchandise and admissions to live performances
at member clubs. The closing of this transaction will be subject to
negotiating a definitive agreement, approval by the Board of Directors
of both companies, completion of a detailed business plan, completion
of the required agreements with America On Line ("AOL") and the
signing of a minimum of 5 member clubs.
Competition
Radio
100.7, "The Fox" competes with seven other signals available in the
area. Two of these radio signals originate from Gillette, Wyoming.
The Company presently enjoys the largest share of the market, estimated
to be 44 percent.
Live Entertainment
Competition is intense in the comedy and music night club entertainment
industries. On a national level, the Company competes for entertainers
with companies that are better capitalized, highly visible and have
longer operating histories and larger staffs in their respective
locations. None of the national comedy clubs have locations in Denver,
Colorado. Comedy Works Larimer Square has been in business in Denver,
Colorado for 17 years and the Company believes it to be the highest
revenue-producing comedy club in the area. The Company believes that
Comedy Works Larimer Square provides higher-quality acts than its local
competitors, reflected in the fact that it charges approximately twice
the admission price of its local competitors. The main competitors of
Comedy Works Larimer Square are both individually-owned and located in
shopping centers in the suburbs, while Comedy Works is located in the
downtown Denver area.
Licenses
The Federal Communications Commission (FCC) issues radio broadcasters a
license to operate within their assigned frequency for seven years.
These licenses, upon application, are renewable for additional seven
year periods. The FCC issued KGWY its original license on October 1,
1983, to operate at a frequency of 100.7 MHz, 24 hours a day, at
100,000 watts of effective radiated power. It was subsequently
reissued in October of 1990 and 1997. During the renewal process the
public has an opportunity to express its opinion of how well the
particular station is servicing its broadcast area. Extreme public
negativity during this period can hold up the reissuance process. In
addition, frequent violations of FCC rules and regulations can be cause
for the denial of the station's license renewal.
The FCC allots a certain number of frequencies for each broadcast area,
based upon community need, population factors and the determination of
the economic viability of another station in the designated region.
Currently there are no other licenses available in the Gillette area.
It is possible to request that the FCC reconsider opening up further
frequencies through its rule making body, but this can be a time
consuming process. All sales of stations and subsequent transfers of
licenses must be approved by the FCC.
In December, 1997 the Commonwealth of Dominica issued an internet
gaming license to Global Transaction Services, Ltd, which allows the
Company to establish and operate a computer based gaming business
operating exclusively as an offshore business. The license is for a
period of five years and operations must commence within one year and
continue without significant interruption throughout its term.
Operations had not commenced by December, 1998. The Commonwealth of
Dominica has extended the date to commence operation to March 31, 1999
before the license will expire.
Seasonality
Radio
Although revenues are spread over the entire calendar year, the first
quarter generally reflects the lowest and the fourth quarter generally
reflects the highest revenues for each year. The increase in retail
advertising each fall in preparation for the holiday season, combined
with political advertising, tends to increase fourth quarter revenues.
Live Entertainment
The Company has found that its highest-revenue months are from July 15
to October 15 of each year. From approximately May 15 to July 15 of
each year, business is typically down 30 percent below average,
primarily because customers prefer outdoor activities at that time of
year. During the holiday season, management has found a slight
increase due to once-a-year customers, on vacation or hosting visiting
friends or relatives.
Employees
First Entertainment Holding Corp
Currently, FEHC, the Holding Company, employs one executive and one
administrative person. The Holding Company contracts the accounting,
management information systems and administrative function to a company
owned by the former president and to other independent consultants.
Radio
The Company employs approximately eight full-time employees and five
part-time employees. The full-time employees, are engaged mainly in
the administrative radio operations and sales. The part-time employees
are engaged in the on-air activities as on-air personalities.
Live Entertainment
This division has five full-time employees and approximately 26 part-
time employees. Full-time employees are management staff and part-time
employees are waitresses, bartenders, and door personnel.
Retail
This division has no employees as of December 31, 1998 since the
business has been discontinued.
Item 2. Description of Property
First Entertainment Holding Corp.
The Company's executive offices are located at 7887 E. Bellview, Suite
1114, Englewood, CO 80111 and are leased under the terms of a 14-month
lease, which terminates in October 1999. Monthly rental is
approximately $1,100. In August, 1998 the Company subleased its prior
executive office space in an effort to further reduce its operating
overhead. The Company has not been relieved of its obligation as the
primary lessee under its prior office lease as a result of the sub-
lease.
Radio
The Company has facilities in Gillette, Wyoming which house the radio
station, 100.7, The Fox. In April, 1996 the Company purchased the
land and building which houses the radio station for $300,000 and the
land under which the FM tower sits for $125,000.
Live Entertainment
Comedy Works Larimer Square leases its premises under the terms of a
new 10 year lease, which expires January 31, 2008.
Lease payments in the first year of the lease term, January 1, 1998 to
December 31, 1998, shall be the total of (i) 8% of gross sales of
alcoholic beverages, (ii) 6% of gross sales of food related products
and (iii) 4% of gross sales relating to door admission.
Lease payments for the period January 1, 1999 to December 31, 2003
shall be based on percentage rent as computed above but shall not be
less than 75% of the average percentage rent paid during the three year
period January 1, 1996 to December 31, 1998. Lease payments for the
period January 1, 2004 to January 31, 2008 shall not be less than 75%
of the average on percentage rent paid during the three year period
January 1, 2001 to December 31, 2003. Average annual percentage rent
paid during the period January 1, 1996 to December 31, 1998 was
$84,140.
Item 3. Legal Proceedings
First Entertainment
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 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.
as collateral on the note 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. In addition, any principal and interest
amounts shall be due immediately 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.
During 1997 and 1998, the Company, certain officers and directors of
the Company and other unrelated parties received requests for
information from the U.S. Securities and Exchange Commission ("SEC")
related to an investigation begun by the SEC during 1997 into various
matters. The Company has since been notified by the Central Regional
Office of the SEC that it plans to recommend to the Commission that an
enforcement action be instituted against the Company, its president and
a former director for failure to make required filings and failure to
report certain information required by the securities laws. The
Company believes it has made all required filings to date and believes
it has disclosed all information required by the securities laws. There
can be no assurance as to the final outcome of the investigation or the
impact, if any, on the operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a security holders vote during
fiscal year ended December 31, 1998.
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
The Company's common stock was traded on NASDAQ in the over-the-counter
market and since October 1988, had been included in NASDAQ. On
February 5, 1998 the Company was notified that as of the close of
business that day, the Company's stock would be delisted from NASDAQ
for failure to meet the minimum bid requirement. Effective February 6,
1998 the Company's stock is trading on the OTC Bulletin Board. The
following table sets forth the high and low bid quotation for the
Company's common stock for each quarterly period in 1998 and 1997. As
of February 28, 1999, there were approximately 1,150 shareholders of
record of the Company's common stock. Holders of common stock are
entitled to receive such dividends as they may be declared by the
Company's Board of Directors. No dividends are anticipated to be paid
in the foreseeable future.
<TABLE>
Bid Price
High Low
<S> <C> <C>
1998
First Quarter $ .75 $ .25
Second Quarter .71 .20
Third Quarter .77 .21
Fourth Quarter .48 .12
1997
First Quarter $ 2.22 $ .75
Second Quarter 1.47 .84
Third Quarter 1.25 .72
Fourth Quarter .91 .66
</TABLE>
Item 6. Management Discussion and Analysis or Plan of Operation
Fiscal 1998 as Compared to Fiscal 1997
The Company had a net loss from continuing operations of
approximately$752,000 in 1998 and $2.9 million in 1997.
Overall revenues decreased approximately $91,000 or 4%, from $2.3
million in 1997 to $2.2 million in 1998. Live entertainment revenues
decreased 3% from $1.39 million in 1997 to $1.35 million in 1998. The
Comedy Club has been successful in bringing in highly recognized
headliners, some of which performed special engagements during the week
when attendance is less than on weekends. Despite decreased
attendance, food sales and liquor sales have increased however there
has been an overall decrease in live entertainment revenue. The
decrease is attributable to admission revenues. Overall, the industry
has seen a decline in attendance at comedy clubs nationwide, although
the Denver comedy club has been able to retain attendance. With the
decrease in live entertainment sales in 1998, cost of sales has also
decreased 6% from $1.2 million in 1997 to $1.1 million in 1998. The
largest component of cost of sales, live entertainment, is labor,
including entertainers' compensation, which decreased from $655,472 in
1997 to $590,864 in 1998. All of the $65,000 decrease in labor costs
is attributable to a decrease in entertainers' compensation .
Radio sales have increased 4% from $772,000 in 1997 to $804,000 in 1998
primarily due to an increase in ad sales of $28,000 and an increase in
trade show income of $8,000. Although, concert income decreased
$28,000 in 1998 radio ad-sales increased $28,000. The radio station in
Gillette, Wyoming is a country music format and began promoting
concerts in 1995 for up and coming country music performers. Revenue
from concerts was $28,000 in 1998 and $56,000 in 1997. The radio
station still has the largest audience share in Gillette, Wyoming.
Cost of ad-sales has increased by $25,000, or 5% from 1997 to 1998
primarily due to the increase in revenues of $32,000. The single
largest component of cost of radio sales is labor which was $290,000 in
1998 and $280,000 in 1997. The radio station has been successful in
increasing radio revenues without adding additional employees. The
radio station is continuing in its efforts to manage its costs and as
such has substantially reduced its operating overhead.
Video sales in 1997 represents the sale of video distribution rights in
the U.S. for $50,000. The Company is no longer active in the video
distribution market.
Other revenue decreased from $112,000 in 1997 to $75,000 in 1998.
Other revenue consists primarily of T-shirt, coupon books, cigarette
sales and booking agent fees. Other revenues in 1997 includes $62,500
from a third party paid to the Company to buy-out its office space.
The unrelated third party needed additional office space and was
willing to pay the Company an incentive to move including the costs of
moving. In September 1998, the Company moved to new office space.
Other income in 1998 includes $47,000 in rental income from the
subleasing of office space which commenced September 1, 1998.
Excluding the $62,500 from other revenue in 1997 and excluding the
$47,000 from other revenue in 1998, other income in 1997 was $49,800 as
compared to $28,000 in 1998.
Impairment write downs represents the write down of the Balzac note
receivable of approximately $81,400 in 1998 and $902,000 in 1997 to its
estimated net realizable value of $0 and $81,340, respectively and a
write down of the Company's investment in Global Internet of $557,899
in 1997 to its estimated net realizable value of $0.
Depreciation and amortization decreased from $141,000 in 1997 to
$104,000 in 1998. The decrease of $ 37,000 is primarily due to the
fact that more assets are becoming fully depreciated in 1998 than in
1997.
Management and administrative fees from affiliates decreased 6% from
$240,000 in 1997 to $225,000 in 1998. The underlying agreement, which
provides for services valued at $20,000 per month was reduced to
$14,000 per month effective September 1, 1998.
Selling, general and administrative expenses (SG&A) decreased from
$1.53 million in 1997 to $787,000 in 1998, a decrease of approximately
$745,000. The Company made a concerted effort to reduce SG&A during
1998 and 1997 which resulted in significant savings. There were
certain transactions which had an adverse effect on SG&A for 1998 and
1997. Legal fees were approximately $170,000 in 1997 compared to
$118,000 during 1998. Compensation and consulting fees were
approximately $361,000 for 1998 compared to $568,000 for 1997. NASDAQ
fees and shareholder expense decreased $16,000 from 1997 to 1998.
Travel and entertainment expense also decreased $20,000 between 1997
and 1998. Included in SG&A in 1997 was compensation resulting from the
issuance of stock options and warrants totaling $434,000 as compared to
$66,000 in 1998. In addition, in 1997 SG&A included a charge of
$10,000 resulting from litigation settlements which did not occur in
1998.
Notes payable and long term debt was $1,284,500 in 1997 and $1,184,100
in 1998. The average outstanding balance of long term debt was
$1,173,000 in 1997 as compared to $1,234,300 in 1998. The increase in
interest expense between 1997 and 1998 is because overall the weighted
average balance in notes payable in 1997 was less than in 1998. At
December 31, 1997 the Company accrued $275,000 as the result of a
litigation settlement subsequent to year-end. These amounts did not
accrue interest during 1997. Interest on the litigation settlements in
1998 was $15,400.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The opinion
of the Company's independent auditor delivered in connection with the
Company's financial Statements for fiscal 1998 and 1997 also contain an
explanatory paragraph relative to the going concern uncertainty. As
discussed in Notes A and E to the consolidated financial statements, the
Company has suffered recurring losses from operations, has a working
capital deficiency of approximately $1.5 million, has negative net worth
of approximately $483,000, and is in default on nearly $386,000 of its
notes payable as of December 31, 1998. In February, 1998 the Company
was delisted from NASDAQ for failure to meet the minimum bid price. The
delisting from NASDAQ has impaired the Company's ability to raise equity
financing. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Management's plans with regard to the Company's ability to continue as a
going concern include continued raising of equity financing,
restructuring of its debt obligations, evaluating mergers and
acquisitions to improve market share or operational synergies and
improving efficiency of operations. For several years, losses from
operations have resulted in significant cash deficiencies and have
hindered the Company's ability to properly fund certain business
segments, to make them profitable or to expand current business
segments. The Company must generate additional revenues that must come
from sources other than the existing business segments. The existing
business segments will not generate sufficient operating income to cover
SG&A and other overhead costs. Therefore new business opportunities
will be needed for the Company to continue in the long term. The
Company is always evaluating additional business opportunities but is
limited due to its lack of working capital.
The Company has been successful in 1998 and in 1997 in financing
operations through issuance of common stock in settlement of accounts
payable and in exchange for services. This form of payment has reduced
the cash requirements of the Company. In 1998, the Company issued
986,016 shares of common stock for services valued at $360,743 or $.36 a
share. In 1998, the Company also issued 130,000 shares of common stock
for life insurance premiums. In 1997, the Company issued 751,600 shares
of common stock for services valued at $676,215 or an average of $.90
per share. In 1997, the Company issued 440,000 shares of its common
stock in settlement of accrued bonuses of $270,800 and in 1998 issued
83,750 shares of common stock in settlement of accounts payable. Of the
total costs and expenses of $2.8 million in 1998 and $5.1 million in
1997, $402,000 was paid by stock in 1998 and $676,000 was paid by stock
in 1997. Stock issued for services as a percentage of revenues was
17.9% in 1998 and 29% in 1997. Capital expenditures needed by existing
business segments to increase sales and profitability are minimal.
During 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 the Company would be
successful in raising the additional equity financing. As of December
31, 1998 the Company has cash and cash equivalents of approximately
$110,000 which it believes is not sufficient to meet its existing
obligations through December 31, 1999 even if the Company can continue
to be successful in issuing common stock for services as it has done in
prior years. The Company has a note payable due March 31, 1999 in the
amount of $125,000. The note is secured by property in Gillette,
Wyoming on which the Company's radio station operations are located. In
March, 1999 the Company received a verbal commitment from the First
National Bank of Gillette to loan the Company the $125,000 to pay off
the note.
The Company also has a note payable due July 31, 1999 in the amount of
$66,000 and unless the terms are extended or the Company raises
sufficient funding to pay the note when it comes due, the Company may
default on the note.
A valuation allowance offsetting the Company's total 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 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 software and
computers which are Year 2000 compliant. The new software will be in
place by December 31, 1998 and will cost less than $10,000.
Substantially all of the internal accounting function has been
outsourced to a third party company. The Company has been assured from
the third party company that their accounting software and computers,
file servers and other network systems are Year 2000 Compliant and that
services should not be interrupted.
RECENT ACCOUNTING PRONOUNCEMENTS.
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 130, entitled "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 131, entitled
"Disclosure about Segments of Enterprise and Related Information"
(SFAS 131). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive Income is defined to include certain changes in equity but
not 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
displayed with the same prominence as other financial statements. SFAS
131 supersedes Statement of Financial Accounting Standards No. 14,
entitled "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 revises standards of the way 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
standards for disclosures regarding products and services, geographic
areas and major customers. SFAS 131 defines operating segments as
components of a company for 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 segment
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. The Company adopted SFAS 130 and 131
and restated all prior periods. The adoption of SFAS 130 and 131 did
not have a material effect on its results of operations for 1998 and
1997.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosure
about Pensions and Other Postretirement Benefits" which standardizes
the disclosure requirements for pensions and other postretirement
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. The
adoption of this statement had no impact on the Company's 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 establishes 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.
The FASB recently issued Statement of Financial Accounting Standards No.
134. "Accounting for Mortgage Backed Securities Retained after the
Securitzation of Mortgage Loans Held by Mortgage Banking Enterprises."
(SFAS No. 134) SFAS No. 134 establishes new reporting standards for
certain activities of mortgage banking enterprise that conduct
operations that are substantially similar to the primary operations of a
mortgage banking enterprise. This statement is effective for the fiscal
quarter beginning after December 15, 1998. Management believes the
adoption of this statement will have no impact on the Company's
consolidated financial statements.
Item 7. Financial Statements
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets..
Consolidated Statements of Operations..
Consolidated Statements of Stockholders' (Deficit).
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
First Entertainment Holding Corp.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of First
Entertainment Holding Corp. and Subsidiaries as of December 31, 1998 and
1997 and the related consolidated statements of operations, stockholders'
(deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Entertainment Holding Corp. and Subsidiaries as of December 31, 1998 and
1997 and the results of operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Notes A and E to the consolidated financial statements, the Company has
suffered recurring losses from operations, has a working capital
deficiency of approximately $1.5 million and is in default on a
substantial portion of its debt. The Company has limited cash to pay for
operations. In addition, substantial amounts of debt become due in 1999
and there is no assurance that the Company will have the cash to pay the
debts when they become due, or, alternatively, to raise additional equity
funding or to successfully restructure the debts, both of which have
happened in the past. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regards to these matters are discussed in Note A. The consolidated
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Gordon, Hughes & Banks, LLP
March 17,1999
Englewood, Colorado
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
</CAPTION>
December 31, 1998 and 1997
1998 1997
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 109,450 $ 18,049
Trade accounts receivable, net of
allowance for doubtful
accounts of $2,500 and $3,885,
respectively 101,568 97,271
Note receivable, other 20,335
Note receivable officer 15,010 25,524
Stock subscription, receivable 25,000
Inventories 14,732 23,377
Prepaids and other current 28,508 22,127
- ---------------------------------------------------------------------
269,268 231,683
- ---------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 709,325 760,593
Building and leasehold improvements 532,257 532,257
Land 125,000 125,000
- ---------------------------------------------------------------------
1,366,582 1,417,850
Less accumulated depreciation
and amortization 845,810 874,067
- ---------------------------------------------------------------------
520,772 543,783
- ---------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated amortization
of $545,697 and $482,980, respectively 725,684 788,401
Note receivable 61,105
Other 4,126 3,760
- -------------------------------------------------------------------
729,810 853,266
- --------------------------------------------------------------------
TOTAL ASSETS $ 1,519,850 $1,628,732
====================================================================
<CAPTION>
See accompanying reports of independent certified public accountants
and notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
</CAPTION>
December 31, 1998 and 1997
1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 188,920 $ 172,575
Accrued liabilities 142,458 168,902
Accrued interest 430,107 394,340
Notes payable and current portion
of long-term debt 993,384 850,376
Notes payable, related parties 3,000 3,000
Net liabilities of discontinued operations 57,305 53,051
- ----------------------------------------------------------------------
1,815,174 1,642,244
- ----------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 187,699 431,120
- ----------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' (DEFICIT)
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class A preferred stock, 1,500,000
shares authorized, 10,689 shares
issued and outstanding, liquidation
value $15,000 10 10
Class B preferred stock, 1,000,000
shares authorized, 13,040 and 91,147
shares issued and outstanding 13 91
Class C preferred stock, 1,000,000
shares authorized no shares issued and
outstanding
Common stock, $.008 par value; authorized
50,000,000 shares; 9,610,170 and 6,412,304
shares issued and outstanding 76,882 51,299
Capital in excess of par value 15,666,086 14,947,897
Accumulated (deficit) (16,226,014) (15,443,929)
- ----------------------------------------------------------------------
(483,023) (444,632)
- ----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 1,519,850 $ 1,628,732
======================================================================
<CAPTION>
See accompanying reports of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
REVENUE
Live entertainment $ 1,353,667 $ 1,389,533
Radio 804,004 771,992
Video 213 50,239
Other 75,049 112,327
- ------------------------------------------------------------------
2,232,933 2,324,091
- --------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales, live entertainment 1,135,734 1,211,509
Cost of sales, radio 551,502 526,215
Cost of products sold, video 44 13,239
Impairment write downs 81,340 1,460,018
Depreciation and amortization 104,160 141,176
Management and administrative fees, affiliate 224,850 240,000
Selling, general and administrative 786,730 1,532,049
- ------------------------------------------------------------------
2,884,360 5,124,206
- -------------------------------------------------------------------
OPERATING (LOSS) FROM CONTINUING OPERATIONS (651,427) (2,800,115)
- --------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (104,725) (95,333)
Other, net 4,211 1,206
- -------------------------------------------------------------------
(100,514) (94,127)
- -------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (751,941) (2,894,242)
MINORITY INTEREST IN NET (LOSS) OF SUBSIDIARY 11,473
- -------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATIONS (751,941) (2,882,769)
- --------------------------------------------------------------------
DISCONTINUED OPERATIONS
(Loss) from discontinued operations,
including provision for operating losses
during phaseout period (30,144) (731,453)
- --------------------------------------------------------------------
NET (LOSS) $ (782,085) $ (3,614,222)
====================================================================
NET (LOSS) PER COMMON SHARE, CONTINUING
OPERATIONS BASIC AND DILUTED $ (.10) $ (.48)
===================================================================
NET INCOME (LOSS) PER COMMON SHARE,
DISCONTINUED OPERATIONS $ - $ (.12)
====================================================================
NET (LOSS) PER COMMON SHARE,
Basic and Diluted $ (.10) $ (.60)
===================================================================
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING BASIC AND DILUTED 7,967,926 6,026,319
====================================================================
<CAPTION>
See accompanying reports of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' (Deficit)
For the Years Ended December 31, 1997 and 1996
</CAPTION>
Class A Class B Class C
Preferred Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
JANUARY 1,
1997 10,689 $10 0 0 125,000 $125
Preferred stock
issued for:
Cash, net of
offering costs 47,067 47
Cancellation of
treasury stock
Cancellation of
preferred stock
in connection with
litigation
settlement (125,000) (125)
Common stock
issued for:
Consulting
services
Exercise of
stock options
Accrued Bonuses
Accounts Payable
Business
Acquisition 44,080 44
Common stock
options and
Warrants issued
Amortization of
deferred
compensation
Net loss
- --------------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 10,689 $10 91,147 $91 0 $0
Preferred
Stock issued
for:
Acquisition
of property 16,000 16
Common stock
issued for:
Cash, net of
offering costs
Consulting
services
Accounts
payable
Life insurance
premiums
Conversion from
preferred stock (94,107) (94)
Business
acquisition
Exercise of
warrant
Common stock
options and
Warrants
issued
Net (loss)
- ------------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 10,689 $10 13,040 $13 0 $0
=====================================================================
Capital In
Common Stock Excess of Accumulated
Shares Amount Par Value (Deficit)
<S> <C> <C> <C> <C>
BALANCES,
JANUARY 1,
1997 5,292,238 $42,338 $13,460,958 $(11,829,707)
Preferred stock
issued for:
Cash, net of
offering costs 262,703
Cancellation of
treasury stock (221,534) (1,772) (483,052)
Cancellation of
preferred stock
in connection with
litigation
settlement (124,875)
Common stock
issued for:
Consulting
Services 751,600 6,013 670,202
Exercise of
stock options 150,000 1,200 73,800
Accrued Bonuses 420,000 3,360 254,240
Accounts Payable 20,000 160 13,040
Business
Acquisition 386,856
Common stock
options and
Warrants issued 434,025
Amortization of
deferred
compensation
Net loss (3,614,222)
- --------------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 6,412,304 $51,299 $14,947,897 ($15,443,929)
Preferred
Stock issued
for:
Acquisition
of property 44,984
Common stock
issued for:
Cash, net of
offering costs 771,667 6,173 162,127
Consulting
Services 986,016 7,888 352,855
Accounts
Payable 83,750 670 49,493
Life insurance
premiums 130,000 1,040 37,960
Conversion from
preferred stock 1,176,333 9,411 (9,317)
Business
Acquisition 50,000 400 13,100
Exercise of
Warrant 100 1 99
Common stock
options and
Warrants
Issued 66,888
Net (loss) (782,085)
- ------------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 9,610,170 $76,882 $15,666,086 ($16,226,014)
=====================================================================
Deferred Treasury Total
Compensation Stock
<S> <C> <C> <C>
BALANCES,
JANUARY 1,
1997 $(45,807) $(484,824) $1,143,093
Preferred stock
issued for:
Cash, net of
offering costs 262,750
Cancellation of
treasury stock 484,824
Cancellation of
preferred stock
in connection with
litigation
settlement (125,000)
Common stock
issued for:
Consulting
Services 676,215
Exercise of
stock options 75,000
Accrued Bonuses 257,600
Accounts Payable 13,200
Business
Acquisition 386,900
Common stock
options and
Warrants issued 434,025
Amortization of
deferred
compensation 45,807 45,807
Net loss (3,614,222)
- -------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 $0 $0 ($444,632)
Preferred
Stock issued
for:
Acquisition
of property 45,000
Common stock
issued for:
Cash, net of
offering costs 168,300
Consulting
services 360,743
Accounts
Payable 50,163
Life insurance
premiums 39,000
Conversion from
preferred stock 0
Business
Acquisition 13,500
Exercise of
Warrant 100
Common stock
options and
Warrants
Issued 66,888
Net (loss) (782,085)
- ------------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 $0 $0 ($483,023)
=====================================================================
<CAPTION>
See accompanying report of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (782,085) $ (3,614,222)
Adjustments to reconcile net (loss)
to net cash used in operations
Depreciation and amortization 104,160 141,176
Impairment write downs 81,340 1,460,018
Assets write downs included in
discontinued operations 445,596
Litigation settlement 150,000
Loss on disposition of property
and equipment 9,322
Issuance of stock for services and common
stock options and warrants, net 466,631 1,110,240
Amortization of deferred compensation 45,807
Minority interest in net loss of subsidiary (11,473)
Changes in operating assets and liabilities:
Receivables 31,317 (6,742)
Inventories 8,645 366
Other assets (6,747) (7,711)
Accounts payable 66,408 40,207
Accrued liabilities 22,823 (48,305)
Cash provided by discontinued operations 4,354
- ----------------------------------------------------------------------
NET CASH, PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,168 (295,043)
- ---------------------------------------------------------------------
<CAPTION>
See accompanying reports of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENTHOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
INVESTING ACTIVITIES
Capital expenditures (27,754) (20,620)
Advances to related parties (10,000)
Cash used in discontinued operations (41,786)
- -------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (27,754) (72,406)
- -------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on debt (100,413) (51,380)
Proceeds from issuance of stock
of subsidiary 50,000
Proceeds from issuance of common and
preferred stock, net 213,400 337,750
- ------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 112,987 336,370
- -----------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 91,401 (31,079)
- -----------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 18,049 49,128
- -----------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 109,450 $ 18,049
===============================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 68,135 $ 25,798
================================================================
Income taxes paid $ 0 $ 0
================================================================
<CAPTION>
See accompanying reports of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
</CAPTION>
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Accounts payable and accrued expenses
converted into common stock $ 50,163 $ 270,800
===================================================================
Issuance of preferred stock
for acquisitions $ 13,500 $ 386,900
===================================================================
Note Payable issued in exchange for
preferred stock $ 0 $ 125,000
====================================================================
Common stock and options and
warrants issued for services $ 427,631 $ 1,110,240
===================================================================
Common stock issued for life
insurance premiums $ 39,000 0
====================================================================
<CAPTION>
See accompanying reports of independent certified public accountants
and notes to consolidated financial statements.
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A NATURE OF BUSINESS AND GOING CONCERN
On December 15, 1997, First Entertainment, Inc. changed its state of
incorporation from Colorado to Nevada and changed its name to First
Entertainment Holding Corp. (the "Company" or "FEHC"). The change
was effected by a merger of First Entertainment, Inc. into First
Entertainment Holding Corp, a newly formed Nevada Corporation. Upon
completion of the merger, the Colorado Corporation ceased to exist.
The transaction was accounted for on a basis similar to a pooling of
interests with no change in the historical financial statements of the
Company. The newly formed Corporation had no operations prior to the
merger.
The Company was originally incorporated as a Colorado corporation on
January 17, 1985. The Company and its subsidiaries are involved in
entertainment through several media; its live entertainment segment
owns and operates a comedy club in Denver, Colorado and its radio
station, 100.7 "The Fox", operates in Gillette, Wyoming. In January
1998, the Company determined to discontinue the operations of its
retail segment.
During the period from inception (January 17, 1985) to December 31,
1998, the Company has incurred cumulative net losses of approximately
$16 million and, as of December 31, 1998, had an excess of current
liabilities over current assets of approximately $1.5 million and is in
default on approximately $386,000 notes payable. The Company has a note
payable due March 31, 1999 in the amount of $125,000. Although the
Company does not have the funds to pay this note it has received a
verbal commitment from the First National Bank of Gillette to provide
the financing to pay off the note. . The Company also has a note payable
due July 31, 1999 in the amount of $66,000 and unless the terms are
extended or the Company raises sufficient funding to pay the note when
it comes due, the Company may default on the note. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. The Company is dependent upon obtaining additional
financing, and/or extending its existing debt obligations, and/or
obtaining additional equity capital and ultimately achieving profitable
operations. The Company has no arrangements in place for such equity or
debt financing and no assurance can be given that such financing will be
available at all or on terms acceptable to the Company. Any additional
equity or debt financing may involve substantial dilution to the
interests of the Company's shareholders as well as warrants and options
holders. If the Company is unable to obtain sufficient funds to satisfy
its cash requirements, it may be forced to curtail operations, dispose
of assets or seek extended payment terms from its vendors. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Management's plans with regard to the Company's ability to continue as a
going concern include continued raising of equity financing in the U.S.
and/or international markets, restructuring of its debt obligations and
undertaking mergers or acquisitions to improve market share or
operational synergies and improving efficiency of operations. There are
no assurances that any of these events will occur or that the Company's
plan will be successful.
The Company does not have sufficient revenues to generate income from
operations; therefore, it is necessary for the Company to increase
revenues either by expansion or by acquisition or significantly reduce
its operating costs. The Company has been able to issue stock for
management and accounting services, thereby reducing the need for cash
to pay for operating expenses. If the Company would be unable to issue
stock for services, because there would be no liquidity for the stock,
this would have a severe impact upon the Company and its ability to
operate. The value of services paid by issuance of stock was
approximately $400,000 in 1998 and $676,000 in 1997. Net cash provided
by operations was $6,168 in 1998 and, unless operations become more
profitable, the Company most likely will not have sufficient cash for
use in operations through December 31, 1999.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expense during the reporting periods. Actual
results could differ from those estimates.
Inventories Inventories are stated at the lower of cost or market
value (first-in, first-out basis). Inventories are comprised of liquor
supplies.
Property and Equipment Production equipment, furniture and other
equipment are recorded at cost and depreciated using straight-line and
declining balance methods over the estimated useful lives of the assets,
ranging from three to fifteen years.
Leasehold improvements are recorded at cost and are amortized on a
straight-line basis over their estimated useful lives, but not in excess
of the lease term.
The cost and related accumulated depreciation and amortization of assets
sold or retired are removed from the appropriate asset and accumulated
depreciation and amortization accounts and the resulting gain or loss is
reflected in operations.
Maintenance and repairs are charged to operations as incurred and
expenditures for major improvements are capitalized.
License, Goodwill and Intangibles Broadcast licenses, goodwill and
intangibles, recorded at cost, are amortized on a straight-line basis
over a period of 10 to 20 years.
Periodically the Company reviews the recoverability of its intangible
assets based on estimated undiscounted future cash flows from operating
activities compared with the carrying value of the intangible assets.
Should the aggregate future cash flows be less than the carrying value,
a write-down would be required measured by the difference between the
discounted future cash flow and the carrying value of the intangible
assets under SFAS No. 121.
Long Lived Assets Long lived assets and identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the
expected undiscounted future cash flow from the use of the assets and
its eventual disposition is less than the carrying amount of the assets,
an impairment loss is recognized and measured using the asset's fair
value or discounted cash flows.
Revenue Recognition. Broadcast and ad fees are recorded as revenue when
the broadcast or ad is aired. Live Entertainment revenues are
recognized at the time of the performance, generally nightly. Retail
sales are recognized at the time the merchandise is sold and are net of
returns.
Net Loss Per Share As of December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings per
Share" (SFAS No. 128). This pronouncement provides a different method
of calculating earnings per share than was used in accordance with
Accounting Board Opinion (APB No. 15), "Earnings per Share". SFAS No.
128 provides for the calculation of "Basic" and "Dilutive" earnings
per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of the entity. For all prior periods,
weighted average and per share information has been restated in
accordance with SFAS No. 128. The adoption of SFAS No. 128 did not
effect earnings per share calculations for the year ended December 31,
1997. For the years ended December 31, 1998 and 1997, total stock
options and stock warrants of 1,199,900 and 908,375 were not included in
the computation of diluted earnings per shares because their effect was
anti-dilutive, therefore basic and fully diluted earnings per share are
the same.
Concentration of Risk Financial instruments which potentially expose
the Company to concentration of credit risk consist primarily of cash
equivalents and accounts receivable with the Company's various
customers. The Company establishes an allowance for doubtful accounts
based on factors surrounding the credit risk of specific customers,
historical trends and other information.
The Company maintains all cash in bank deposit accounts which at times
may exceed federally insured limits. The Company has not experienced
losses in such accounts.
Reclassifications Certain balances in the 1997 consolidated financial
statements have been reclassified in order to conform to the 1998
presentation. The reclassifications had no effect on financial
condition or results of operations.
Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"). Temporary
differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that
will result in taxable or deductible amounts in future years.
Deferred Compensation Deferred compensation results from granting
stock options at option prices less than the fair market value of the
stock on the date of grant, under agreements with terms extending beyond
one year. Deferred compensation is initially charged to stockholders'
equity and amortized to expense over the term of the related agreement.
Cash Equivalents The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
Financial Instruments The following methods and assumptions were used
to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value;
Accounts Receivable, Accounts Payable and Accrued Liabilities Fair
values of accounts receivable, accounts payable, and accrued
liabilities are assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair value or they are receivable or
payable on demand.
Notes Payable These notes substantially bear interest at a floating
rate of interest based upon the lending institutions' prime lending
rate. Accordingly, the fair value approximates their reported
carrying amount at December 31, 1998 and 1997.
Mortgage Notes Estimated based upon current market borrowing rates
for loans with similar terms and maturities.
The estimated fair values of the Company's financial instruments for
continuing operations are as follows:
December 31, 1998 December 31, 1997
Financial Liabilities Carrying Fair Carrying Fair
Notes Payable Amount Value Amount Value
and Mortgage Notes $1,181,083 $1,181,083 $1,281,496 $1,281,496
Stock Option and Award Plans The Company applies APB Opinion 25,
"Accounting for Stock Issued to Employees", and related
Interpretations in accounting for all stock option plans. Following the
guidance of APB Opinion 25, compensation cost has been recognized for
stock options issued to employees as the excess of the market price of
the underlying common stock on the date of the grant over the exercise
price of the Company's stock options on the date of the grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
Company to provide pro forma information regarding net income as if
compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. To provide the required pro forma information, the
Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option-pricing model.
Recent Accounting Pronouncements:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" is effective for financial statements with fiscal
years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-
purpose financial statements. The Company adopted SFAS No. 130 for 1998
and it did not have a material effect on its financial position or
result of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" is effective for
financial statements with fiscal years beginning after December 15,
1997. The new standard requires that public business enterprises report
certain information about operating segments in complete sets of
financial statements of interim and annual periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, geographic areas
in which they operate and their major customers. The Company has
adopted SFAS No. 131 in 1998; but, it did not have a material effect on
its results of operation for 1998 and 1997.
Statement of Financial Accounting Standards No. 132, Employers'
Disclosures about Pension and Other Post Retirement Benefits is
effective for financial statements with fiscal years beginning after
December 31, 1997. Earlier application is permitted. The new standard
revises employers' disclosures about pension and other post retirement
benefit plans but does not change the measurement or recognition of
those plans. SFAS No. 132 standardizes the disclosure requirements for
pensions and other post retirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations
and fair values of the plan assets that will facilitate financial
analysis, and eliminates certain disclosures previously required but no
longer useful. The Company adopted SFAS No. 132 in 1998 and it did not
have a material impact on its results of operation.
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.
The FASB recently issued Statement of Financial Accounting Standards No.
134. Accounting for Mortgage Backed Securities Retained after the
Securitization of Mortgage Loans Held by Mortgage Banking Enterprises.
(SFAS No. 134) SFAS No. 134 establishes new reporting standards for
certain activities of mortgage banking enterprises that conduct
operations that are substantially similar to the primary operations of
mortgage banking enterprises. This statement is effective for the
fiscal quarter beginning after December 15, 1998. Management believes
the adoption of this statement will have no impact on the Company's
consolidated financial statements.
NOTE C ACQUISITIONS
Power Media
In July, 1996, the Company issued 770,000 shares of its restricted
common stock, valued at $408,100, in exchange for 18,000 of the 25,000
then issued and outstanding shares of Power Media Communications
International, Inc. (Power Media), or 72% ownership. Power Media was a
substantially dormant company that had developed the concept of selling
infomercial products in kiosks primarily located in retail malls.
The acquisition of Power Media in 1996 was accounted for as a purchase
and the purchase price in excess of net assets acquired was allocated to
goodwill. Amortization of goodwill was computed on a straight line
basis over 10 years until its write-off in 1997.
In November 1996, a new entity was formed called "The Best Of As Seen
on TV", Inc. ("ASOTV") for the purpose of acquiring all of the issued
and outstanding common stock of Power Media and to provide original
incorporators with ownership in ASOTV. The original incorporators of
ASOTV were issued 464,000 shares of ASOTV for par value ($.001 per
share), which included 220,800 shares issued to NMG, LLC, an entity
owned by the wife of the president of the Company. ASOTV then issued
1,010,000 shares of common stock to the Company for their 18,000 shares
of Power Media and issued 325,600 shares to an unrelated party for the
remaining 7,000 shares of Power Media and $150,000. In November 1996,
ASOTV sold 100,000 shares of its common stock for $50,000. In July
1997, the Company issued 100,000 shares of its common stock in exchange
for 100,000 shares of ASOTV owned by NMG, LLC. As a result of the above
transactions, ASOTV owned 100% of Power Media and the Company owned
approximately 58% of ASOTV as of December 31, 1998 and 1997.
In March 1997, the Company terminated its unmanned kiosk operations,
which it started in November 1996, when the leases to its first four
locations were not renewed. Sales volumes at the unmanned kiosk
locations were not sufficient for profitable operations. The Company
turned its efforts to operating manned kiosks in major retail malls.
Each kiosk was approximately 250 square feet and sold the top 50
selling infomercial products. Commencing August, 1997, the Company
opened six manned kiosk locations in six retail malls located in the
Denver metropolitan area. The sales volumes for the manned kiosks were
less than projected and the operations were terminated January 31,
1998. Although the Company believes the concept is viable, it
currently does not have the working capital necessary to further
develop the concept. The results of operations of ASOTV for the years
ended December 31, 1998 and 1997 are disclosed as discontinued
operations.
Global Internet Corp
On May 1, 1997, the Company entered into an agreement with Global
Casino, Inc. (Global Casino) to acquire 1,500,000 shares of common
stock of Global Internet Corp. ("Global Internet") owned by Global
Casino and a $375,000 note receivable from Global Internet owed to
Global Casino in exchange for 30,000 shares of FEHC Class B Convertible
Preferred Stock (Class B Stock). The 1,500,000 shares of common stock
represents 50.3% of the issued and outstanding common stock of Global
Internet. Each share of Class B stock is convertible into 12.5 shares
of FEHC restricted common stock. At the time FEHC entered into the
Agreement, FEHC did not have a sufficient number of authorized but
unissued shares of common stock to allow for the conversion of the
preferred stock to common stock.
In addition, the acquisition of Global Internet required the approval
of the shareholders of FEHC. On December 5, 1997 the shareholders of
FEHC approved (i) the increase in the authorized shares of FEHC common
stock and (ii) the acquisition of Global Internet Corp. For accounting
purposes control of Global Internet did not change until December 5,
1997. December 5, 1997 is considered the acquisition date. The
acquisition has been accounted for as a purchase and the excess of
purchase price over net assets acquired was allocated to goodwill. The
operations of Global Internet from December 5, 1997 have been
consolidated with those of the Company.
In June 1997, FEHC also issued 14,080 of Class B convertible preferred
stock to two officers of Global Internet, in exchange for $176,000
accrued but unpaid compensation. Global Internet owed the two officers
compensation under the terms of long term employment agreements. For
accounting purposes, the Class B convertible preferred shares issued
were recorded on December 5, 1997, the date the shareholders of FEHC
approved an increase in the authorized shares of common stock.
Global Internet was in the process of developing a virtual internet
casino and had a Web Site Development and Maintenance Agreement
(Development Agreement) with Electronic Data Systems (EDS) and DDB
Needham to develop the web site for approximately $1,200,000, of which
$300,000 had been expended to date on the web site development. FEHC
was unable to obtain the financing needed to complete the web site
development and the Development Agreement was terminated.
The ability of the Company to obtain the necessary financing to
commence operations of a virtual internet casino is uncertain and as
such the Company's investment in Global Internet was determined by
management to be impaired. Included in the accompanying consolidated
statements of operations for the year ended December 31, 1997 is an
impairment write-off of approximately $558,000 representing the
Company's investment in Global Internet.
NOTE D DISCONTINUED OPERATIONS
In January 1998, the Company determined to discontinue the operations
of ASOTV due to losses and lack of working capital to further develop
the concept. Accordingly, the assets of ASOTV were written down to
their estimated net realizable value resulting in a write down of
$490,000 included in the accompanying statement of operations for the
year ended December 31, 1997.
Revenues from discontinued operations were $54,300 and $174,800 for
1998 and 1997, respectively.
Summarized balance sheet data for the discontinued operations as of
December 31, 1998 and 1997 is as follows:
<TABLE>
1998 1997
<S> <C> <C>
ASSETS
Cash $ 1,246 $ 9,289
Accounts receivable 6,983
Inventory 66,482
Other 100
- -----------------------------------------------------------------------
Total current assets 1,246 82,854
Goodwill
Property, plant and equipment, net 8,673
- -----------------------------------------------------------------------
Total Assets 1,246 91,527
- -----------------------------------------------------------------------
LIABILITIES
Current liabilities 58,551 144,578
- ------------------------------------------------------------------------
Total Liabilities 58,551 144,578
- ----------------------------------------------------------------------
Minority Interest 0 0
- ---------------------------------------------------------------------
Net assets (liabilities) of
discontinued operations $ (57,305) $ (53,051)
======================================================================
</TABLE>
NOTE E NOTES PAYABLE AND LONG-TERM DEBT
The Company is in default under the terms of approximately $386,000 of
its debt obligations for non-payment. Substantially all of the Company's
assets are pledged as collateral to one or more obligations. Notes that
are not in compliance are classified as current liabilities. Notes
payable and long term debt is summarized as follows:
<TABLE>
December 31,
1998 1997
<S> <C> <C>
Notes payable, First National
Bank Gillette (1) $ 380,483 $ 422,152
Note payable to the State of Wyoming(2) 300,000 300,000
Notes payable, litigation (7) 231,501 275,000
Mortgage note payable(3) 139,947 144,665
Mortgage note payable(4) 53,243 53,883
Note payable, creditor(5) 19,224 19,224
Various notes payable individuals and
companies(6) 56,685 66,572
- --------------------------------------------------------------------------
1,181,083 1,281,496
Less current portion 993,384 850,376
- --------------------------------------------------------------------------
Long-term debt $ 187,699 $ 431,120
==========================================================================
</TABLE>
Future maturities of debt as of December 31, 1998 are as follows:
1999 $ 993,384
2000 5,726
2001 56,484
2002 5,020
2003 5,120
Thereafter 115,349
- ----------------------------------
Total $ 1,181,083
==================================
(1) The Notes payable to First National Bank of Gillette are are
renewed annually in November. Currently the notes bear interest at
9% per annum and require monthly principal and interest of $6,500.
The notes are collateralized by substantially all the assets of the
radio station in Gillette, Wyoming except for the real estate.
(2) In February 1989, the Company borrowed $300,000 from the State of
Wyoming for the purpose of purchasing equipment, inventory and to
provide working capital necessary to establish a video duplicating
facility. As of December 31, 1998, the Company had not yet
established an operating duplicating facility and was in violation
of several of the compliance requirements of this note. Although
the note, by its original terms, was not due until March 1, 1999,
the State of Wyoming deemed the note to be currently due as a
result of the violations of the compliance requirements. The note,
with default interest at 16.5 percent, is due in daily installments
of $150, and is collateralized by the Company's master tape
library. No principal and interest payments have been made nor has
the State of Wyoming demanded payment on the note.
(3) Note payable, trust; interest at 9.5%; monthly principal and
interest of $1,500; final payment due October 2012; collateralized
by real property.
(4) Note payable to mortgage company; interest at 8.015% per annum;
monthly principal and interest payments of $403 for 59 months with
a balloon payment of $52,300 due May 15, 2000; collateralized by
real estate.
(5) Note payable to a trade creditor dated October 21, 1993;
interest at 10 percent; due on May 1, 1996; collateralized by the
Company's master tape inventory and subordinated to previously
filed liens.
(6) Various notes payable in default; due to various individuals and
companies with interest rates ranging from 10 to 21 percent per
annum.
(7) Notes payable due to two individuals in connection with
litigation settlements subsequent to December 31, 1997. The first
note for $125,000 bears interest at 9.5% per annum and is due March
31, 1999 and are secured by two parcels of land in Gillette, Wyoming
on which the Company's radio station operations are located. The
second note for $150,000 bears interest at 10% per annum and is
payable in installments of $25,000 for the first month and $5,000
per month thereafter until July 15, 1999 at which time all unpaid
principal and interest are due. This note is secured by the stock
of FEHC wholly owned subsidiary, Quality Communications, Inc, which
operates the Company's radio station.
The weighted average interest rate on short-term borrowings was
13.49 for 1998 and 1997, respectively.
NOTE F STOCKHOLDERS' EQUITY
On December 15, 1997 First Entertainment, Inc. (FEI) (a Colorado
Corporation) was merged into First Entertainment Holding Corp. (FEHC)
(a Nevada Corporation) following a special shareholders meeting on
December 5, 1997 in which the shareholders approved a name change and a
change in the state of incorporation from Colorado to Nevada. As a
result of the merger, all of the issued and outstanding shares of FEI
were exchanged for the same amount of shares of FEHC. FEHC is the
surviving corporation and, effective with the merger, FEI ceased to
exist. FEHC has authorized capital stock consisting of 50,000,000
shares of common stock, $.008 par value and 5,000,000 shares of
preferred stock, $.001 par value. The Board of Directors has the
authority to issue preferred shares in series and determine the rights
and preferences of each series.
A total of 1,500,000 shares of preferred stock has been designated as
Class A, 7% cumulative, non-participating convertible preferred stock,
and had a mandatory redemption on November 18, 1996. As of December
31, 1998 the holders of the Class A Preferred Stock have not demanded
redemption.
Liquidation preference is approximately $15,000. Each class A share
may be converted into two shares of common stock. The Class A
Preferred Stock has not been redeemed as of December 31, 1998.
A total of 1,000,000 shares of preferred stock has been designated as
Class B, 6% cumulative dividend, paid quarterly, if and when declared,
redeemable by the Corporation at face value and each share of class B
is convertible into 12.5 shares of common stock. The rights of the
Class B shares shall be subordinate to Class A shares.
A total of 1,000,000 shares of preferred stock has been designated as
Class C, non-dividend and each share is convertible into common stock
at a conversion price equal to the average 30 day bid price of the
common stock on the date of conversion. The rights of the Class C
shares shall be subordinate to Class A and Class B shares.
In connection with the acquisition of Global Internet Corporation, the
Company entered into an agreement with two officers of Global Internet
on June 16, 1997 whereby the Company issued 14,080 shares of Class B
convertible preferred stock in exchange for $176,000 of debt owed to
the two officers by Global Internet.
In 1997, the Company issued 751,600 shares of common stock for
consulting and other services valued at $676,215 (includes $252,000 in
services from related parties) or an average of $.90 per share. In
1997, the Company also issued 440,000 shares of common stock in
settlement of accrued bonuses to consultants and employees and accounts
payable totaling $270,800. Stock bonuses accrued for related parties
was $168,000.
In 1997, the Company sold 47,067 shares of Class B Convertible
Preferred Stock for $262,750, which was net of offering costs of
$39,750. The Company also issued 150,000 shares of common stock upon
exercise of common stock options receiving proceeds of $75,000.
In 1997, the Company cancelled 221,534 shares of common stock held as
treasury of which 144,409 represented shares returned to the Company in
connection with a litigation settlement with Image Marketing Group;
50,000 represented the cancellation of common stock held by a bank as
collateral on a note payable and 27,125 represented shares previously
held by First Films, Inc.
In 1998, the Company sold 16,000 shares of Class B Convertible
Preferred Stock and 771,667 shares of common stock for $213,300 which
is net of offering costs.
In 1998, the Company issued 1,116,016 shares of common stock for
consulting and other services valued at $399,743 (includes $225,000 in
services from related parties) or an average of $.36 per share.
Common Stock Options In June 1994, the Company adopted a Non-
Qualified Stock Option Plan, under which the Company's Board of
Directors are authorized to issue options to purchase up to 62,500
shares of the Company's common stock to qualified employees, officers
and directors of the Company. The option price may be changed at the
discretion of the Board of Directors. No options have been issued
under this plan. During 1998 and 1997, the Company has also issued
other non-qualified stock options to non-employees under terms and at
prices deemed appropriate by the Board of Directors.
The following is a summary of the number of shares under option:
<TABLE>
Weighted
Average
Non-Qualifying Exercise Expiration
Stock Options Price Dates
<S> <C> <C> <C>
Balance, January 1, 1997 95,000 $ 3.49
Granted 400,000 .79 1999-2002
Exercised (100,000) .50
Expired/Rescinded (285,625) 2.39
- ----------------------------------------------------------------
Balance, December 31, 1997 109,375 $ 2.91 1998-2002
- -----------------------------------------------------------------
Granted 300,000 $ .40 1999
Exercised
Expired (9,375) 3.49
- -----------------------------------------------------------------
Balance December 31, 1998 400,000 $.5175 1999-2002
=====================================================================
</TABLE>
The following table summarized information about stock options outstanding
and exercisable as of December 31, 1998:
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding & Contractual Exercise
From To Exercisable Life in Years Price
$ .40 $ .40 300,000 0.50 $ .40
$ .50 $ 1.25 100,000 2.50 $ .87
- -----------------------------------------------------------------
400,000 1.00 $ .5175
=================================================================
Options issued to non-employees in 1998 and 1997 resulted in compensation
expense of $66,888 and $78,617 respectively, under SFAS 123.
NOTE G COMMON STOCK WARRANTS
In connection with a settlement agreement between the Company and
Balzac, Inc, a warrant was issued to Balzac to purchase 500,000 shares
of the Company's common stock at $1.00 per share.
The warrant, issued at fair market value, is exercisable for a period
of five years and expires April, 2002.The issuance of these warrants to
Balzac resulted in compensation expense of $315,453 in 1997 under SFAS
123. In 1998, Balzac exercised their option to purchase 100 shares of
common stock.
In connection with the private sale of Class B convertible preferred
stock, the Company granted to the Underwriter a warrant to purchase
300,000 shares of the Company's common stock at $1.00 per share. The
warrant, issued at fair market value, is for consideration of future
consulting services and expires July, 1999. The issuance of these
warrants to the Underwriter resulted in compensation expense of $33,434
in 1997 under SFAS 123.
In addition, the two officers of Global Internet have the option, for
a period of five years, to exchange any or all of their 600,000 shares
of common stock of Global Internet into FEHC common stock at a rate of
one share of FEHC for four shares of Global Internet. In addition,
for each share exchanged the officers of Global Internet will receive
one warrant to purchase one share of FEHC common stock at $1.25 a
share.
The Company has elected to continue with the accounting treatment for
stock options and warrants issued to employees under APB 25, which is
an intrinsic value-based method, and has adopted SFAS 123, which is a
fair-value based method of accounting for stock options. The Company
estimates the fair value of each stock award at the grant date by
using the Black-Scholes option-pricing model with the following
weighted average assumptions, dividend yield of 0%, expected
volatility of .1%, risk free interest rate of 6%, and expected lives
of 5 years for the stock award. No options were issued to employees
in 1998. Had compensation costs been determined based on the fair
value at the grant date for stock option and stock warrant grants to
employees consistent with the method of SFAS No. 123, the Company's
net loss from continuing operations and net loss per share from
continuing operations would have increased as indicated below for the
year ended December 31, 1997.
Net (loss) from continuing operations, as reported ($2,882,769)
Net (loss) from continuing operations, pro-forma ($2,898,513)
Net (loss) per share, continuing operations basic
and diluted, as reported ($.48)
Net (loss) per share, continuing operations
basic and diluted, pro-forma ($.48)
NOTE H 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, 1998 and 1997 are:
<TABLE>
Deferred tax assets: 1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 6,009,000 $5,466,000
Property, equipment, other assets, net (8,000) (6,000)
Litigation settlement 102,000
Discontinued operations (15,000) (181,000)
Other 24,000 88,000
- -------------------------------------------------------------------------
Total gross deferred tax assets 6,010,000 5,469,000
Less valuation allowance (6,010,000) (5,469,000)
- -------------------------------------------------------------------------
Net deferred tax assets $ 0 $ 0
========================================================================
</TABLE>
A valuation allowance has been recorded equal to the net deferred tax
asset, as management was not able to determine if it is more likely than
not that the deferred tax assets will be realized.
The valuation allowance increased $541,000 in 1998 and $1,069,000 in
1997.
The following summary reconciles the income taxes at the statutory rate
of 37% in 1998 and 1997 with the actual taxes:
<TABLE>
1998 1997
<S> <C> <C>
Benefit computed at the statutory
rate-continuing operations $ (232,000) $ (980,000)
Discontinued operations (7,000) (89,000)
Valuation allowance 239,000 1,069,000
- -----------------------------------------------------------------------
Provision for income taxes $ 0 $ 0
============================================================================
</TABLE>
As of December 31, 1998, net operating loss carryforwards were
approximately $16 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates through 2018.
NOTE I RELATED PARTY TRANSACTIONS
The Company contracts out substantial administrative, management and
accounting functions to a company wholly owned by the former president
and a current director of the Company. Monthly fees for such services
were $21,000 for the period January 1, 1997 through August 31, 1998,
thereafter the fees were reduced to $14,000. Total annual fees paid by
cash and by the issuance of common stock for 1998 and 1997 were
$225,000 and $252,000 each year, respectively.
In July 1997, the Company acquired 100,000 shares of common stock of
ASOTV from NMG, LLC, an entity owned by the wife of the president, in
exchange for 100,000 shares of common stock of the Company. The value
of the common stock issued to NMG, LLC, $50,000, has been classified as
officer compensation in the accompanying consolidated statements of
operations.
Consulting fees were paid to the wife of the President for the year
ended December 31, 1997 in the amount of $5,500. The amounts paid to
the wife of the President have been classified as officer compensation
in the accompanying consolidated statement of operations.
In 1997 and 1998, the President was advanced approximately $25,000
which is being repaid in monthly installment of approximately $1,000.
NOTE J COMMITMENTS
Lease Commitments The Company has long-term operating lease agreements
for office space, building and certain equipment. Future minimum lease
payments required under long-term leases in effect at December 31, 1998
are as follows:
Minimum Rent Sublease Rent Net
1999 $165,109 $81,888 $83,221
2000 153,541 81,888 71,653
2001 147,414 81,888 65,526
2002 115,769 54,592 61,177
2003 63,105 63,105
Thereafter 257,679 257,679
Rent expense for continuing operations was $191,795 and $176,765 in
1998 and 1997. Rent expense for discontinued operations was $7,449 in
1998 and $77,365 in 1997.
Commencing September, 1998 the Company subleased its executive space
under the terms of a four year sublease. The Company has not been
relieved of its primary obligation due under the original lease with
the lessor. Monthly payments due under the lease are $6,394. The
sublease calls for payments of $6,824 per month for 48 months
commencing September 1, 1998. Both the primary lease and the sublease
expire August 2002.
In January, 1997 the Company completed its expansion of the comedy club
which included significant leasehold improvements. The lessor agreed
to finance the leasehold improvement totaling $150,000. The $150,000
note payable bear interest at 12% and is due in 108 monthly
installments of $2,278 commencing February 1, 1999.
NOTE K LITIGATION
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 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 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 cancel the Class C Convertible Preferred Shares.
During 1997 and 1998, the Company, certain officers and directors of
the Company and other unrelated parties received requests for
information from the U.S. Securities and Exchange Commission (SEC)
related to an investigation begun by the SEC during 1997 into various
matters. The Company has since been notified by the Central Regional
Office of the SEC that it plans to recommend to the Commission that an
enforcement action be instituted against the Company, its president and
a former director for failure to make required filings and failure to
report certain information required by the securities laws. The
Company believes it has made all required filings to date and believes
it has disclosed all information required by the securities laws. There
can be no assurance as to the final outcome of the investigation or the
impact, if any, on the operations of the Company.
NOTE L FOURTH QUARTER ADJUSTMENTS
During the fourth quarters of 1998 and 1997, the Company recorded the
following year-end
adjustments, which it believes are material to the results of that
quarter:
<TABLE>
1998 1997
<S> <C> <C>
Write-down of assets, including goodwill
of discontinued operations of ASOTV to
net realizable value $ 490,000
Impairment write down of Balzac note
Receivable $ 81,000 $ 902,000
Impairment write down of Global Casino's
Investment $ 558,000
Compensation for issuance of common
stock options and warrants $ 434,025
</TABLE>
NOTE M SETTLEMENTS AND RESCISSIONS
Balzac, Inc.
In April 1996, the Company acquired certain assets from 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.
During 1996, a dispute arose between the Company and Balzac and Balzac
asserted a violation of the Purchase Agreement. obligation under the
Licensing Agreement.
In April 1997, Balzac and the Company entered into an agreement whereby
Balzac would buy back the Australian Licensing Agreement for $800,000
and would 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 was to be repaid over forty months
at 8% per annum. The $1,000,000 was to be repaid to the Company
through the sale, by Balzac, of 1,000,000 of the Company's shares of
common stock owned by Balzac.
The ability of Balzac to sell all 1,000,000 shares held by Balzac at a
price of $1.00 to repay its obligation was determined by management to
be unlikely. As of December 31, 1997 the note receivable from Balzac
was determined to be impaired and was written down to its net
realizable value of $81,344 resulting in an impairment loss of
$902,018. As of December 31, 1998 the note receivable was determined
to be further impaired and was written down to its net realizable value
of $42,000 resulting in a loss of $39,340. Subsequent to year end the
Company was informed by Balzac that it had filed Chapter 11 Bankruptcy
proceedings. Management determined the note receivable was unlikely to
be collected and the remaining $42,000 was written off as of December
31, 1998.
NOTE N OTHER BUSINESS DEVELOPMENTS
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 occurred; (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, will continue in
effect as long as the Company has a valid internet gaming license
issued by the Commonwealth of Dominica or will terminate upon
revocation of such license by the Commonwealth of Dominica.
As of March 19, 1999, SNI had not completed a financing of $1,000,000
and the Company terminated the definitive agreement
NOTE 0 SUBSEQUENT EVENTS
In March, 1999 the Board of Directors authorized the issuance of
options to the president, each member of the Board of Directors and a
consultant to purchase up to 3,050,000 shares of common stock at prices
ranging from $.21 per share to $.53 per share. The exercise price is
equal to the closing bid price for the Company's common stock on the
date of the grant. The exercise of options for 1,200,000 shares is
contingent on the closing bid price of the Company's common stock of at
lease $1.00 on the last trading day for 1999. The exercise of options
for 1,000,000 shares is contingent upon the execution of definitive
agreements with two prospective companies that the Company is currently
negotiating with. If definitive agreements are not executed by
December 31, 1999 the options for 1,000,000 shares expire.
On March 17, 1999 the Company signed a letter of intent with Global
Games Corp. (Global Games) for the licensing of Globals Game's sports
book software and related technology. Under the terms of the agreement
Global Games will receive a percentage of the net gaming revenue for
the licensing of its software to the Company. Consummation of this
transaction is subject to the completion of a definitive agreement and
approval by the Board of Directors of both companies. Under the letter
of intent Global Games will provide all technical service and support.
The gaming site will be operated from the Commonwealth of Dominica and
will to accessible on a play for fun basis from North America. The
Company is unable to predict if or when the agreement will be signed
and the transaction will be consummated.
On March 20, 1999, the Company signed a letter of intent with EMNet
Corp (EMNet) to form a joint venture and create a significant
Internet based website business for Comedy products based around the
affiliation and content derived from a circuit of the leading comedy
clubs in America. Revenue streams would be generated through providing
Internet marketing services to member clubs, producing regular
sponsored live exclusive programming on the Internet and develop a pay-
per-view model, and through the sale of comedy CD's and direct
downloads, associated merchandise and admissions to live performances
at member clubs. The closing of this transaction will be subject to
negotiating a definitive agreement, approval by the Board of Directors
of both companies, completion of a detailed business plan, completion
of the required agreements with America On Line ("AOL") and the
signing of a minimum of 5 member clubs.
NOTE P SEGMENT INFORMATION
<TABLE>
<CAPTION>
Financial information by industry segments for the years ended December
31, 1998 and 1997 is summarized as follows:
</CAPTION>
Live
Radio Video Entertainment
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $ 804,004 $ 213 $1,353,667
Revenue affiliated
Operating income (loss),
continuing operations 173,883 169 231,442
Total assets 1,240,090 960,980 444,095
Depreciation and
Amortization 78,619 6,597
Capital expenditures 3,705 24,049
Interest Expense 50,417 23,771 4,316
FOR THE YEAR ENDED
DECEMBER 31, 1997
Revenue unaffiliated $ 771,992 $50,239 $1,389,533
Revenue affiliated
Operating income (loss),
continuing operations 104,000 (31,732) 193,471
Total assets 1,317,535 0 337,063
Depreciation and
Amortization 87,100 35,525 4,105
Capital expenditures 10,144 0 5,224
Interest Expense 54,577 33,206 4,625
</TABLE>
<TABLE>
Other
Segments(1) Eliminations Consolidated
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $ 75,049 $2,232,933
Revenue affiliated 175,956 (175,956)
Operating income (loss),
continuing operations (1,056,761) (651,427)
Total assets 1,193,262 (1,357,597) 1,519,850
Depreciation and
Amortization 18,944 104,160
Capital expenditures 27,754
Interest Expense 26,221 104,725
FOR THE YEAR ENDED
DECEMBER 31, 1997
Revenue unaffiliated $ 112,327 $ 0 $2,324,091
Revenue affiliated 175,956 (175,956)
Operating income (loss),
continuing operations (3,065,854) (2,800,115)
Identifiable assets 1,318,719 (1,344,585) 1,628,732
Depreciation and
Amortization 14,446 141,176
Capital expenditures 5,252 20,620
Interest Expense 3,394 95,333
</TABLE>
(1) Other segments represents the operations of the parent company which
is primarily responsible for incurring general and administrative
expenses. Identifiable assets are essentially investments in
subsidiaries which are eliminated in consolidation.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with Gordon, Hughes & Banks LLP with regard
to matters of accounting principle or disclosure.
PART III
Item 9. Directors , Executive Officers , Promoters and Control Persons
Information concerning the Directors and Executive Officers of the
Company is as follows:
Tenure as Officer
Name Age Position or Director
A. B. Goldberg 51 Director April 1993 to present
President and Commencing February 1995
Chief Executive Officer to present
William Rubin 38 Director November 1998 to present
Doug Olson(1) 50 Director February 1999 to present
Howard Stern(1) 44 Director February 1999 to present
Dr. Theodore Jacobs 66 Director November 1996 to August 1998
Dr. Nick Catalano 57 Director March 1992 to August 1998
Cindy Jones 43 Secretary and April 1994 to November 1998
Treasurer
Wende Curtis 35 Secretary February 1999 to present
All of the Directors' terms expire at the next annual meeting of
shareholders or when their successors have been elected and qualified.
The Officers of the Company serve at the pleasure of the Board of Directors.
(1) These directors were elected February 22, 1999.
The following sets forth background information concerning the above
Directors and Executive Officers:
Abraham "A.B." Goldberg has been employed by First Films as Executive
Producer and Financial Consultant since January 1987. Mr. Goldberg
served as Executive Producer for "Almost Blue" and "The Amityville
Curse." In addition, he served as Executive Producer for "Mind
Killer," "Night Vision" and "Lone Wolf." Mr. Goldberg has been an
independent consultant and has advised several film companies,
beginning in 1977 with Innovations/ECA, which produced "The Buddy Holly
Story" starring Gary Busey and "Under The Rainbow" starring Chevy Chase
and Carrie Fisher. He also advised Robert Halmi Productions, a New
York-based production company which was merged with Hal Roach Studios
and later acquired by Quintex Entertainment. Mr. Goldberg served as
President of Harvard Financial Group, an independent investment
consulting firm, from November 1976 through April 1982. Since April
1982, Mr. Goldberg has consulted with a variety of businesses,
including First Films. Mr. Goldberg earned a Bachelor's Degree in
Finance from the University of Colorado, Boulder, Colorado in 1969 and
attended the University of Denver College of Law. Mr. Goldberg was
elected President and Chief Executive Officer in February 1995.
Douglas Olson Mr. Olson was a former President and Director of the
Company from March, 1993 to February, 1995. Since February, 1995 Mr.
Olson has been the President and owner of Creative Business Services,
Inc. (CBS) which provides accounting and management information
services. The Company outsources its accounting function to CBS.
Howard Stern Howard has been in the Life Insurance business since his
junior year in college at the University of Pittsburgh in 1975. A
Bronze, Silver and Gold Award winner with Northwestern Mutual, Howard
became a provisional applicant to the Million Dollar Round Table at the
age of 21. He became a Life and Qualifying Member in 1994 and has
consistently qualified for the Top of the Table for the last five
years.
In July of 1993 Howard joined The New York Life Insurance Company where
he was extremely active in product development. As a charter member of
New York Life's Chairman's Cabinet, his awards and accomplishments
included the Professional Experienced Agent Award in 1993 & 1995, New
York Life's Agent of the Year in 1995 & 1997, the Seymour Smoller
Distinguished Service Award in 1996, and the Fort Lauderdale Individual
Life Leader in 1994, 1995, 1997 and 1998.
Howard achieved the position of Council Vice President in 1997,
finishing second among all New York Life agents nationally, and in 1998
became Council President. Howard was a 1998 faculty member of NYLIC
University's "Leader For Life" Program.
On October 8, 1998, Howard ended his relationship with the New York
Life Insurance Company and signed a Career Agent's contract with
MassMutual Life Insurance Company.
Howard has served as a consultant to several life insurance companies,
both domestically and abroad, on the development of Variable Products
marketing and training, and has been a featured speaker at industry
functions. He is a member of the (AALU) Advanced Association of Life
Underwriters, (NALU) National Association of Life Underwriters, (BCLUA)
Broward County Life Underwriters, and a member of the American Society
of CLUs.
Howard is a panel member of the (NASD) National Association of
Securities Dealers Arbitration Board. He is currently licensed in 20
states for the sale of Life Insurance and Variable Products. He is an
approved "CE" Instructor in 48 states and in 1998 taught 8 classes
nationally for the American College.
William "Bill" Rubin is a commercial loan officer having served as a
vice president with various financial institutions. Mr. Rubin's
responsibilities included underwriting and originating construction and
real estate loans, workout and restricting of real estate loans
management of loan portfolios in excess of $150 million. Mr. Rubin
earned a BBA in Finance and Accounting from Southern Methodist
University in 1983. Mr. Rubin serves as a director for Assets
Management.
Dr. Nick Catalano is presently serving in his twenty-fourth year as
professor of English Literature, Communications and music at Pace
University, New York City. He is also the University's director for
the Performing Arts. Over the past several years, he has been a
writer/producer for several television network shows, including The
Bill Cosby Show, PBS documentaries, Doug Hennings' The World of
Illusion, and TV specials for Richard Belzer on HBO. Dr. Catalano has
produced travelogue videos for Video Trips on Greece, the Greek
Islands, Utah, St. Martin and is currently completing the Hamptons. In
addition, he is the founder of "The Big Apple Comedy Showcase" at Pace
University, now in its 18th year. It is the oldest college comedy
series in the country. Mr. Catalano resigned effective August 29,
1998.
Dr. Theodore Jacobs, M.D. graduated from New York Medical College in
1955 where he was honored by achieving the highest award to a
graduating medical student. Dr. Jacobs was Board Certified in Internal
Medicine in 1962 and Re-Certified in 1977. Since 1963, Dr. Jacobs has
worked in private practice in Internal Medicine in an office in Las
Vegas, Nevada. Dr. Jacobs has served as a member of the Nevada State
Board of Medical Examiners, serving for fifteen years as president from
1980 to 1995. Dr. Jacobs is currently a Clinical Professor of
Medicine, University of Nevada School of Medicine and Member, Advisory
Board to the Dean of the School of Medical Sciences, University of
Nevada/Reno. Dr. Jacobs is a member of the Board of Directors of
Nevada Dance Theater, Las Vegas Symphonic and Chamber Music Society and
the Nevada Opera Theater. Dr. Jacobs has received numerous awards for
outstanding achievement and contributions to his profession and
community. Dr. Jacobs was a member of the Board of Directors of Power
Media Communications International, Inc. Dr. Jacobs resigned effective
August 7, 1998.
Cynthia Jones served as the corporate controller for the Company from
1982 to 1995. She currently serves as corporate controller for
Creative Business Services, Inc. Ms. Jones resigned in November 1998.
No family relationship exists between or among any of the persons named
above. None of the Company's Directors are directors of any other
company that has a class of equity securities registered under, or
required to file reports pursuant to, Section 15(d) of the Securities
Act of 1933 or Section 12 of the Securities Exchange Act of 1934, or
any company registered as an investment company under the Investment
Company Act of 1940. There are no arrangements or understandings
between any of the named directors or officers and any other persons
pursuant to which any director or officer was selected or nominated as
a director or officer.
Item 10. Executive Compensation
Only one executive officer received compensation in excess of $100,000
during the fiscal year ended December 31, 1997. Compensation does not
include minor business-related and other expenses paid by the Company
for its officers during fiscal year 1998 and 1997, nor the personal
usage of a Company automobile. Such amounts in the aggregate do not
exceed $10,000. The Company's Chief Executive Officer, A.B. Goldberg
received compensation of $14,500, and $148,000 for 1998, and 1997,
respectively. Mr. Goldberg does not serve as the Company's Chief
Executive Officer on a full-time basis and provides services to other
companies. Amounts paid to the wife of A.B. Goldberg in the amount of
$5,500 for 1997 have been recorded as officer compensation. In
addition, the value of common stock transferred to NMG, LLC in
connection with litigation settlement are classified as officer
compensation (See Footnote I).
From time to time, the Company has granted shares of its common stock
as additional compensation to its officers and key employees for their
services, as determined by the Company's Board of Directors. During
1998 and 1997, no shares were granted to officers or key employees.
As of December 31, 1998, the Company had no group life, health,
hospitalization, medical reimbursement or relocation plans in effect
which discriminate, in scope, terms, or operation, in favor of officers
or directors of the Company and that are not generally available to all
salaried employees. Further, the Company has no pension plans or plans
or agreements which provide compensation on the event of termination of
employment or change in control of the Company.
The Company does not pay members of its board of Directors any fees for
attendance or similar remuneration, but reimburses them for any out-of-
pocket expenses incurred by them in connection with Company business.
Summary Compensation Table
<TABLE>
Annual Compensation Long term
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Restricted Underlying All
Other
Principal Annual Stock Options LTIP
Compen-
sation
Position Compen- Award(s) SARs(#) Payouts ($)
Year Salary Bonus sation ($) ($) ($)
($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A.B.
Goldberg 1998 $14,500
President
and 1997 $24,000 $47,500 $76,500
Chief
Executive
Officer
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding ownership
of the Common Stock of the Company as of February 28, 1999 by (I) each
person known by the Company to be the beneficial owner of more than 5
percent of the outstanding common stock of the Company; (ii) each
director of the Company; and (iii) all executive officers and directors
of the Company as a group.
Names and Addresses Beneficial Percent
of Beneficial Owner Ownership of Class
Balzac, Inc. 975,000 9.7%
11107 Broadway, Suite 1510
New York, NY 10010
Creative Business Services, Inc.(2) 498,366 5.0%
5495 Marion Street
Denver, CO 80216
A. B. Goldberg (1) 22,338 .2%
7887 E. Belleview, Suite 1114
Englewood, CO 80111
Doug Olson 498,366 5.0%
5495 Marion Street
Denver, CO 80216
Howard Stern 130,000 1.3%
500 Corporate Drive
Suite 200
Ft. Lauderdale, FL 33334-3603
William Rubin (3) 349,333 3.5%
313 East Fort Ave.
Baltimore, MD 21230
Officers and Directors 1,000,037 10%
as a Group (2 persons)
(1) Include shares owned by Nannette Goldberg, wife of A.B. Goldberg
Director of Company and shares owned by his mother and his two
children. There are no stock options issued or outstanding to A. B.
Goldberg. All Forms 4 and 5 required to be filed for Changes in
Beneficial Ownership and Annual Statement of Beneficial Ownership have
not been filed by this director.
(2) Includes shares owned by Doug Olson, president and sole shareholder
of Creative Business Services.
(3) Includes 6,347 shares of Class B convertible preferred stock
convertible into 79,337 shares of common stock.
Form 4 and 5 required to be filed for Changes in Beneficial Ownership
and Annual Statement of Beneficial Ownership have not been timely filed
by the President and by those directors who have resigned August, 1998.
(See Item 9)
Item 12. Certain Relationships and Related Transactions
Commencing April 1995, the Company contracted out some administrative,
management and accounting functions of the Company to a company wholly
owned by the former president and director of the Company. Monthly
fees for such services were $21,000 for the period January
1,1997through August 31,1998, thereafter the fees were reduced to
$14,000. Total annual fees paid by cash and by the issuance of common
stock for 1998 and 1997 were $225,000 and $252,000 each year,
respectively.
In July 1997, the Company acquired 100,000 shares of common stock of
ASOTV from NMG, LLC, an entity owned by the wife of the president, in
exchange for 100,000 shares of common stock of the Company. The value
of the common stock issued to NMG, LLC, $50,000, has been classified as
officer compensation in the accompanying consolidated statements of
operations.
Consulting fees were paid to the wife of the President for the year
ended December 31, 1997 in the amount of $5,500. The amounts paid to
the wife of the President have been classified under officer
compensation in the accompanying consolidated statements of operations.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith pursuant to
Rule 601 of Regulation S-K or are incorporated by reference to previous
filings.
Exhibit
Table No Document Reference
(2) Plan of acquisition, reorganization,
arrangement, liquidation, None
or succession
(3) Articles of Incorporation and Bylaws (A)
(4) Instruments defining the rights of security holders, including
(B) indentures
(9) Voting trust agreement None
(10) Material contracts (C)
(13) Annual or quarterly reports, Form 10-QSB None
(16) Letter on change in certifying accountant (F)
(18) Letter on change in accounting principles None
(21) Subsidiaries of the registrant (D)
(22) Published report regarding matters submitted
to a vote of security holders None
(23) Consent of experts and counsel (E)
(24) Power of attorney None
(27) Financial Data Schedule (6)
(28) Information from reports furnished to state insurance None
regulatory authorities
(99) Additional exhibits None
(A) A complete copy of the Company's Articles of Incorporation as
currently in effect and all amendments thereto was filed as Exhibit
89.3.1 to the Registrant' Form 10-K for the fiscal year ended December
31, 1989, and a complete copy of the Company's Bylaws as currently in
effect was filed as Exhibit 86-3(c) to the Company's Registration
Statement on Form S-18 (Registration No. 33-9163-D) and are
incorporated herein by reference thereto.
(B) The Company hereby agrees to furnish a copy of the form of its
convertible subordinated debentures to the Commission upon request.
(C) The following material contracts are filed herewith or incorporated
herein by reference thereto:
Document Title Reference Commission Filing
Stock Option Agreement 86-10(a) Registration Statement
on Robert Beattie on Form S-18 (33-9163-D)
Host Agreement - Annette Funnicello 86-10(b) Registration Statement
on Form S-18 (33-9163-D)
Host Agreement - Jill St. John 86-10(c) Registration Statement
on Form S-18 (33-9163-D)
Host Agreement - James Farentino 86-10(d) Registration Statement
on Form S-18 (33-9163-D)
Host Agreement - Tony Randall 86-10(e) Registration Statement
on Form S-18 (33-9163-D)
Video Distribution Agreement - 86-10(f) Registration Statement
Lightning Video (Vestron) on Form S-18 (33-9163-D)
Trademark License Agreement - 86-10(g) Registration Statement
Rand McNally & Company on Form S-18 (33-9163-D)
Stock Option Agreement 86-10(h) Registration Statement
Peter TenEyck on Form S-18 (33-9163-D)
November 4, 1987 amendment to 87-10(a) Registration Statement
Vestron Distribution Agreements on Form S-18 (33-9163-D)
January 29, 1988 amendment to 87-10(b) Registration Statement
Trademark License Agreement on Form S-18 (33-9163-D)
Selluloid Agreement dated March 4, 1988 87-10(d)Registration Statement
on Form S-18 (33-9163-D)
Children as Teachers of Peach 87-10(e) Registration Statement
Agreement dated June 6, 1988 on Form S-18 (33-9163-D)
Eastman's Outdoor World and Western 87-10(f) Registration Statement
American Films, Inc. dated March 17, 1988 on Form S-18 (33-9163-D)
Sturgis Exclusive Licensing and Use 87-10(g) Registration Statement
Agreement dated July 1987 on Form S-18 (33-9163-D)
Best Film and Video Corporation 87-10(h) Registration Statement
Distribution Agreement dated December on Form S-18 (33-9163-D)
7, 1987
Gillette,Wyoming Office Lease Agreement 87-10(i)Registration Statement
on Form S-18 (33-9163-D)
KGWY-FM Tower Lease 87-10(j) Registration Statement
on Form S-18 (33-9163-D)
December 15, 1988 Atlantis Video 89-10(a) Form 10-K for the year
License Agreement ended December 31, 1988
Iowa Radio Stations Asset Purchase 89-10(b ) Form 10-K for the year
Agreement dated April 18, 1989 ended December 31, 1988
January 31, 1989 License Agreement with 89-10(c) Form 10-K for the year
Adler Video Marketing, Ltd. ended December 31, 1988
Stock Option Agreement - Ray Ricci 89.10.1 Form 10-K for the year
ended December 31, 1989
Stock Option Agreement - Ray Ricci 89.10.2 Form 10-K for the year
ended December 31, 1989
Stock Option Agreement - Keller, Wing, 89.10.3 Form 10-K for the year
Godbolt and Polakovic ended December 31, 1989
Stock Option Agreement - Dennis Dowd 89.10.4 Form 10-K for the year
ended December 31, 1989
Rand McNally Video Trip Guide to Ohio 89.10.5 Form 10-K for the year
Agreement, dated January 11, 1990 ended December 31, 1989
Wyoming Radio Station Letter of Intent 89.10.6 Form 10-K for the year
dated March 28, 1990 ended December 31, 1989
Settlement Agreement with Miller & 89.10.7 Form 10-K for the year
Weiss, P.C., dated March 30, 1990 ended December 31, 1989
Distributor Agreement with Adler Video 89.10.8 Form 10-K for the year
Marketing, Ltd. ended December 31, 1989
Post-Production Services Agreement 93-10.1 Form 10-K for the year
ended December 31, 1993
Settlement Agreement with DCC and 93.10.2 Form 10-K for the year
Marshall Blonstein ended December 31, 1993
Agreement with Rand McNally and Company 93.10.3 Form 10-K for the year
ended December 31, 1993
Promissory note with Keller, Wing & Godbolt 93.10.4 Form 10-K for the
year ended December 31, 1993
Distribution/licensing agreement with 93.10.5 Form 10-K for the year
Woodknapp and Company ended December 31, 1993
Amendment to Articles of Incorporation 93.10.6 Form 10-K for the year
Name change ended December 31, 1993
Amendment to Articles of Incorporation 93.10.7 Form 10-K for the year
increase authorized shares ended December 31, 1993
Stock Option Agreement Robert Young 93.10.8 Form 10-K for the year
ended December 31, 1993
Letter of Intent Polton Corporation 93.10.9 Form 10-K for the year
ended December 31, 1993
Promissory note sample bridge lenders 93.10.10 Form 10-K for the
year ended December 31, 1993
Subscription Agreement 93.10.11 Form 10-K for the year
ended December 31, 1993
(D) Not required since the information is ascertainable from the
Company's financial statements filed herewith.
(E) A list of all subsidiaries of the Company was filed as Exhibit 89-
22(a) to the Company's Form 10-K for the year ended December 31,
1988 and is incorporated herein by reference thereto.
(b) Reports on Form 8-K
One report on Form 8-K was filed by the Registrant during the last
quarter of the period covered by this report.
Form 8-K dated November 9, 1998; Item 5.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST ENTERTAINMENT HOLDING CORP
Dated: March 26, 1999 By/s/ A.B. Goldberg
A. B. Goldberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Dated: March 26, 1999 /s/ A.B. Goldberg __________
A. B. Goldberg
President and Principal Executive Officer
Dated: March 26,1999 /s/ Wende Curits
Wende Curtis
Secretary
Dated: March 26, 1999 /s/ William Rubin
William Rubin
Director
Dated: March 26, 1999 /s/ Doug Olson
Doug Olson
Director
Dated: March 26, 1999 /s/ Howard Stern
Howard Stern
Director
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