UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB/A
[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 June 1, 1999, there were 10,406,395 shares of common stock
(the Registrant's only class of voting stock) outstanding. The
aggregate market value of the 8,520,282 shares of common stock of the
Registrant held by non-affiliates* on June 1, 1999 was approximately
$9,542,716(based on the mean of the closing bid and asked prices).
Documents incorporated by reference: None
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's Common Stock as
of June 1, 1999, was 10,406,395.
Transitional Small Business Disclosure Format (check one): Yes
No X .
*Without asserting that any of the issuer's directors or executive
officers, or the entity that owns 831,125 shares and 499,900 options, or
the entity that owns 290,000 shares and 1,500,000 options, is an
affiliate, the shares of which they are beneficial owners have been
deemed to be owned by affiliates solely for this calculation.
INDEX TO FORM 10-KSB/A
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 freestanding 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. Global Casinos also received
warrants to purchase 1,500,000 shares of common stock of the Company
for $1.25 per share unless they were registered in a registration
statement by May 1, 1998 at which time the exercise price is reduced
to $1.00 per share. The warrant expires May 1, 2002. 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 was 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 that 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 Balzac informed the Company 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 Global 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 of the Company.
Consummation of this transaction is subject to the completion to 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 nightclub
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 its
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 $3.1 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 represent 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 include $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
$1.79 million in 1997 to $787,000 in 1998, a decrease of
approximately $1 million. 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 $692,000 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.
As discussed in Note C to the financial statements, an error resulting
in the understatement of general and administrative expenses and net
loss of $258,000 for the year ended December 31, 1997 was discovered by
the Company in 1999. Accordingly, an adjustment has been made to
general and administrative expense for 1997 and to capital in excess of
par and retained deficit as of December 31, 1998 and 1997.
Gordon, Hughes & Banks, LLP
March 17,1999, except for Note C as to which
The date is June 11, 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
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 15,924,086 15,205,897
Accumulated (deficit) (16,484,014) (15,701,929)
- -----------------------------------------------------------------------
(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 1,790,049
- ----------------------------------------------------------------------
2,884,360 5,382,206
- ----------------------------------------------------------------------
OPERATING (LOSS) FROM CONTINUING
OPERATIONS (651,427) (3,058,115)
- -----------------------------------------------------------------------
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) (3,152,242)
MINORITY INTEREST IN NET (LOSS) OF SUBSIDIARY 11,473
- ----------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATIONS (751,941) (3,140,769)
- -----------------------------------------------------------------------
DISCONTINUED OPERATIONS
(Loss) from discontinued operations,
including provision for operating losses
during phaseout period (30,144) (731,453)
- -----------------------------------------------------------------------
NET (LOSS) $ (782,085) $ (3,872,222)
=======================================================================
NET (LOSS) PER COMMON SHARE, CONTINUING
OPERATIONS BASIC AND DILUTED $ (.10) $ (.52)
=======================================================================
NET INCOME (LOSS) PER COMMON SHARE,
DISCONTINUED OPERATIONS $ - $ (.12)
=======================================================================
NET (LOSS) PER COMMON SHARE,
Basic and Diluted $ (.10) $ (.64)
=======================================================================
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' Equity (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
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
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
========================================================================
Common Stock Capital In Accumulated
Shares Amount Excess of (Deficit)
Par Value
<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 692,025
Amortization
of deferred
compensation
Net loss (3,872,222)
- ------------------------------------------------------------------------
BALANCES,
DECEMBER 31,
1997 6,412,304 $ 51,299 15,205,897 ($15,701,929)
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) (782,285)
- ------------------------------------------------------------------------
BALANCES
DECEMBER 31,
1998 9,610,170 $76,882 15,924,806 ($16,484,014)
========================================================================
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 692,025
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) $ (3,872,222)
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 1,368,240
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 $ 1,368,240
========================================================================
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.
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
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 2,699,900 and 2,409,375 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 revise employers' disclosures about pension and other post
retirement benefit plans but do 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 RESTATEMENT OF FIANCIAL INFORMATION
- -------------------------------------------
The Company has restated its consolidated financial statements for
the year ended December 31, 1997. This action was taken as a result
of the Company identifying that it had not accounted for stock
warrants issued to Global Casino's in May 1997. The 1997
consolidated financial statements have been restated to account for
warrants issued to Global Casinos in accordance with SFAS 123
resulting in compensation expense of $258,000. All material
adjustments necessary to correct the financial statements have been
recorded. The impact of this adjustment on the Company's
consolidated financial results as originally reported is summarized
below:
<TABLE>
1997
----
As Reported As Restated
----------- -----------
<S> <C> <C>
Revenues $ 2,324,091 $ 2,324,091
- ----------------------------------------------------------------
Costs and Expense 5,124,206 5,382,206
Operating Loss from
Continuing Operations (2,800,115) (3,058,115)
- -----------------------------------------------------------------
Net Loss $(3,614,222) $(3,872,222)
- -----------------------------------------------------------------
Net Loss Per Share, continuing
operations, Basic and Diluted $(.48) $ (.52)
=================================================================
Net Loss Per Share, Basic and
Diluted $ (.60) $ (.64)
=================================================================
Accumulated Deficit at
End of Year $(15,443,928) $ (15,701,929)
=================================================================
Stockholders' Deficit, at
End of Year $(444,632) $(444,632)
=================================================================
</TABLE>
NOTE D 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.
Global Casino also received warrants to purchase 1,500,000 shares
of the Company's common stock at $1 per share. The warrant expires
May 1, 2002. 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 nor for the exercise of the warrants.
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 E 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>
<S> <C> <C>
1998 1997
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>
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>
<S> <S> <S>
December 31,
-----------
1998 1997
---- ----
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
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:
<TABLE>
<S> <C>
1999 $ 993,384
2000 5,726
2001 56,484
2002 5,020
2003 5,120
Thereafter 115,349
-------
Total $1,181,083
==========
</TABLE>
(1) The Notes payable to First National Bank of Gillette 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.
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 have 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 were $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:
<TABLE>
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding & Contractual Exercise
From To Exercisable Life in Years Price
- -------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ .40 $ .40 300,000 0.50 $ .40
$ .50 $ 1.25 100,000 2.50 $ .87
-------------------------------------
400,000 1.00 $.5175
====================================================================
</TABLE>
Options issued to non-employees in 1998 and 1997 resulted in
compensation expense of $66,888 and $78,617 respectively, under
SFAS 123.
NOTE H 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 connection with the acquisition of Global Internet on May 1,
1997 Global Casino's was issued warrants to purchase 1,500,000
shares of common stock of the Company for $1.00 per share. The
warrants expire on May 1, 2002.
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.
<TABLE>
<S> <C>
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)
</TABLE>
NOTE I 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>
<S> <C> <C>
Deferred tax assets: 1998 1997
---- ----
Net operating loss carryforwards $ 6,009,000 $5,554,000
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 5,557,000
Less valuation allowance (6,010,000) (5,557,000)
---------------------------------------------------------------
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 $1,157,000
in 1997.
The following summary reconciles the income taxes at the statutory
rate of 37% in 1998 and 1997 with the actual taxes:
<TABLE>
<S> <C> <C>
1998 1997
---- ----
Benefit computed at the statutory
rate-continuing operations $ (232,000) $ (1,068,000)
Discontinued operations (7,000) (89,000)
Valuation allowance 239,000 1,157,000
------------------------------------------------------------------
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 J 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 K 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:
<TABLE>
Minimum Rent SubleaseRent Net
<C> <C> <C> <C>
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
</TABLE>
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 L 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 M 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>
<S> <C> <C>
1998 1997
---- ----
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 $ 692,025
</TABLE>
NOTE N 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 Balzac informed the Company 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 O 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 P 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 Global 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 of the Company.
Consummation of this transaction is subject to the completion to 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.
NOTE Q SEGMENT INFORMATION
- -----------------------------
Financial information by industry segments for the years ended
December 31, 1998 and 1997 is summarized as follows:
<TABLE>
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
Identifiable 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
Other
Segments Elimations Consolidated
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $ 75,0494 $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 3,323,854
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 represent 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:
[C] [C] [C] [C]
Tenure as
Officer
Name Age Position or Director
- -------------------------------------------------------
A. B. Goldberg 51 Director April 1993
to present
President
And Commencing
Chief February
Executive 1995
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 Catalan 57 Director March 1992
to August
1998
Cindy Jones 43 Secretary
And April 1994
Treasurer to November
1998
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 Universitys 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, or 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 June 1, 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.
<TABLE>
Name and Address Beneficial Percent
of Beneficial Owner Ownership (1) of Class
- -------------------------------------------------------
<S> <C> <C>
A. B. Goldberg 1,022,338 (2)(3) 9.0%
7887 E. Belleview,
Suite 1114
Englewood, CO 80111
Doug Olson 682,000 (3)(4) 6.4%
5495 Marion Street
Denver, CO 80216
Howard Stern 270,000 (3)(5) 2.5%
600 Corporate Drive
Suite 200
Ft. Lauderdale, FL 33334-3603
William Rubin 525,400 (3)(6) 4.9%
1414 William St.
Baltimore, MD 21230
Wende Curtis 15,250 *
5495 Marion Street
Denver, CO 80216
Officers and Directors 2,514,983 20.7%
as a Group (5 persons)
Creative Business
Services, Inc. 682,000 (3)(4) 6.4%
5495 Marion Street
Denver, CO 80216
Balzac, Inc. 1,331,025 (7) 12.2%
11107 Broadway, Suite 1510
New York, NY 10010
Global Casinos, Inc. 1,790,000 (8) 14.7%
5373 N. Union Blvd., Suite 100
Colorado Springs, CO 80918
*Less than one percent.
</TABLE>
(1) Beneficial Ownership is defined in the regulations promulgated
by the U.S. Securities and Exchange Commission as having or sharing,
directly or indirectly (i) voting power, which includes the power to
vote or to direct the voting, or (ii) investment power, which includes
the power to dispose or to direct the disposition, of shares of the
common stock of an issuer. The definition of beneficial ownership
includes shares underlying options or warrants to purchase common
stock, or other securities convertible into common stock, that
currently are exercisable or convertible or that will become
exercisable or convertible within 60 days. Unless otherwise
indicated, the beneficial owner has sole voting and investment power.
(2) Includes shares owned by Nannette Goldberg, the wife of A. B.
Goldberg, and shares owned by his mother and his two children. A.B.
Goldberg is a director and the President and Chief Executive Officer
of the Company. Also includes currently exercisable options to
purchase 750,000 shares for $.21 per share until March 11, 2002. All
Forms 4 and 5 required to be filed for Changes in Beneficial Ownership
and Annual Statement of Beneficial Ownership have not been filed
timely by this director.
(3) Also includes options (the Contingent Options) that may become
exercisable within the next 60 days to purchase shares at $.21 per
share until March 11, 2002. The Contingent Options will become
exercisable at the time, if any that the Company enters into a
definitive software licensing agreement with Global Games Holdings.
The Company and Global Games Holdings are continuing to negotiate a
possible definitive agreement. However, there is no assurance that
any agreement will ever be reached. If a definitive agreement is not
entered on or before December 31, 1999, the Contingent Options will
terminate. Contingent Options have been issued to the following
persons, respectively, to purchase the following numbers of shares:
A.B. Goldberg, 250,000; Doug Olson, 75,000; Howard Stern, 75,000; Bill
Rubin, 75,000.
(4) Includes shares personally owned by Doug Olson, a director of the
Company, and shares owned of record by Creative Business Services,
Inc. (Creative). Mr. Olson is the President and sole shareholder
of Creative. Also includes currently exercisable options held by Mr.
Olson to purchase 175,000 shares for $.21 per share until March 11,
2002. These shares and options are included twice in the table. They
are listed as being held beneficially by both Creative and by Mr.
Olson.
(5) Includes currently exercisable options to purchase 175,000 shares
for $.21 per share until March 11, 2002.
(6) Includes 6,347 shares of Class B convertible preferred stock
currently convertible into 79,337 shares of common stock. Also
includes currently exercisable options to purchase 175,000 shares for
$.21 per share until March 11, 2002.
(7) This beneficial ownership was reported in a Schedule 13D/A and a
Schedule G, both of which were filed by Balzac, Inc. with the
Securities and Exchange Commission (the SEC) on June 8, 1999.
Includes 831,125 shares of common stock and currently exercisable
warrants to purchase 499,900 shares of common stock at $1.00 per share
until April 7, 2002. This Form 10KSB/A amends the Company's Form
10KSB filed with the SEC on March 30, 1999, which reported beneficial
ownership of the Company's common stock as of February 28,1999. On
February 28, 1999, Balzac, Inc.'s beneficial ownership was 14.0%
consisting of 975,100 shares of common stock and warrants to purchase
499,900 shares of common stock at $1.00 per share until April 7, 2002.
(8) Includes 290,000 shares of common stock and currently exercisable
warrants to purchase 1,500,000 shares of common stock at $1.00 per
share.
Forms 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 resigned in 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: June 15, 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: June 14, 1999 /s/ A.B. Goldberg
A. B. Goldberg
President and Principal Executive Officer
Dated: June 14,1999 /s/ Wende Curits
Wende Curtis
Secretary
Dated: June 14, 1999 /s/ William Rubin
William Rubin
Director
Dated: June 14, 1999 /s/ Doug Olson
Doug Olson
Director
Dated: June 14, 1999 /s/ Howard Stern
Howard Stern
Director
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