SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File Number 0-15435
FIRST ENTERTAINMENT HOLDING CORP.
---------------------------------
(Exact name of Company as specified in its charter)
NEVADA 84-0974303
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5495 Marion Street, Denver, CO 80216
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(Address of principal executive offices) (Zip code)
Company's telephone number, including area code (303) 382-1500
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(Former name, former address and former fiscal year, if changed
since since last report.)
Indicate by check whether the Company (1) has filed 1) Yes X
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the 2) Yes X
preceding 12 months (or for such shorter period that
the Company was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Number of Shares
Class Outstanding at August 15, 2000
----- ------------------------------
Common stock, $.008 par value 27,295,570 shares
Class A Preferred Stock, $.001 par value 10,689 shares
Class B Preferred Stock, $.001 par value 0 shares
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FIRST ENTERTAINMENT HOLDING CORP.
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of June 30,2000
(Unaudited) and December 31, 1999 3
Consolidated Statements of Operations (Unaudited)
for three months and six months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements (Unaudited) 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II - OTHER INFORMATION
Items 1 through 6 19
SIGNATURE 23
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FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,427 $ 85,783
Accounts receivable trade, net
of allowance for doubtful accounts of $8,740 68,562 135,664
Related party receivables 17,271 46,609
Inventories 19,137 20,247
Prepaid expenses and other current assets 31,497 23,577
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141,894 311,880
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PROPERTY AND EQUIPMENT
Equipment and furniture 367,827 701,607
Building and leasehold improvement 388,214 590,924
Land -- 125,000
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756,041 1,417,531
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Less accumulated depreciation 371,432 749,799
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384,609 667,732
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OTHER ASSETS
License, net of accumulated
amortization -- 647,814
Web site and content development costs,
net of accumulated amortization of $2,000
and $0, respectively 43,000 --
Net assets held for sale 509,121 --
Other 2,100 26,231
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554,221 674,045
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TOTAL ASSETS $1,080,724 $1,653,657
===========================================================================
"See accompanying notes to consolidated financial statements."
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<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
June 30, December 31,
2000 1999
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit):
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 199,333 $ 296,163
Accrued liabilities 285,098 206,479
Accrued interest 428,588 448,826
Deferred revenues -- 13,000
Notes payable and current portion of long-term debt 415,106 917,373
Notes payable, related parties 26,500 7,080
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Total current liabilities 1,354,625 1,888,921
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LONG TERM DEBT, NET OF CURRENT PORTION 177,621 242,076
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COMMITMENTS AND CONTINGENCIES
CLASS A PREFERRED STOCK, 1,500,000 shares
Authorized, 10,689 shares issued and outstanding,
Liquidation value $15,000 10 10
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized
5,000,000 shares
Class B preferred stock no shares
issued and outstanding -- --
Class C preferred stock no shares
issued and outstanding -- --
Common stock, $.008 par value; authorized
50,000,000 shares; 18,747,411 and 12,480,835
shares issued and outstanding 149,981 99,847
Capital in excess of par value 22,448,964 18,751,618
Accumulated (deficit) (22,686,466) (19,009,413)
Deferred compensation -- 319,402
Stock held in Escrow (364,058) --
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(451,532) (477,350)
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TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) $ 1,080,724 $ 1,653,657
==================================================================================
"See accompanying notes to consolidated financial statements."
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<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Live entertainment $ 362,794 $ 372,188 $ 866,011 $ 833,667
Radio -- -- -- --
Internet 101,038 -- 110,068 --
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463,832 372,188 976,079 833,667
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COSTS AND EXPENSES:
Cost of sales - live entertainment 362,584 362,382 777,567 742,785
Cost of sales - radio -- -- -- --
Cost of sales - internet 1,654,412 -- 2,157,097 --
Depreciation and amortization 30,932 11,821 53,881 22,958
Management and administrative fees,
affilates 47,000 50,000 117,500 92,218
Selling, general and administrative 581,576 802,655 1,964,609 995,352
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2,676,504 1,226,858 5,070,654 1,853,313
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OPERATING LOSS (2,212,672) (854,670) (4,094,575) (1,019,646)
OTHER INCOME (EXPENSE)
Interest expense (16,725) (18,090) (22,865) (33,838)
Balzac settlement -- -- 358,000 --
Other (19,388) 22,040 319 6,523
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LOSS BEFORE MINORITY INTEREST (2,248,785) (850,720) (3,759,121) (1,046,961)
MINORITY INTEREST IN NET LOSS -- -- -- --
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LOSS BEFORE DISCONTINUED OPERATIONS (2,248,785) (850,274) (3,759,121) (1,046,961)
INCOME FROM DISCONTINUED OPERATIONS 46,355 12,720 82,068 37,993
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NET INCOME (LOSS) $ (2,202,430) $ (837,554) $ (3,677,053) $ (1,008,968)
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PER SHARE DATA: Basic and Diluted
Net Income (loss) per share,
continuing operations, Basic and Diluted (0.14) $ (0.08) (0.27) $ (0.10)
Net Income (loss) per share, minority interest * * * *
Net Income (loss) per share, discontinued operations * * 0.01 *
Net Income (loss) per common share,
Basic and Diluted (0.14) $ (0.08) (0.26) $ (0.10)
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 15,270,179 10,530,332 14,093,586 10,058,472
=========================================================================================================================
* Less than $.01 per share
"See accompanying notes to consolidated financial statements"
5
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<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months For the six months
ended June 30, ended June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(3,677,053) $(1,008,968)
Adjustments to reconcile net
income (loss) to net cash
from operations
Depreciation and
amortization 93,694 64,322
Common stock issued
for services 3,032,420 360,533
Common stock options 319,402 52,172
Other (6,662) 3,717
Changes in operating assets and liabilities
(Increase) decrease in
Receivables 7,038 (4,196)
Inventories 1,110 (2,211)
Increase (decrease) in
Accounts payable (86,673) (141,263)
Accrued liabilities 105,855 (29,729)
Deferred revenue (13,000) --
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: (223,869) (90,623)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - net (209,861) (13,020)
Investments and other -- (6,556)
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (209,861) (19,576)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (22,627) (46,342)
Proceeds from debt, related party 25,000 --
Proceeds from issuance of common stock 351,001 241,000
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 353,374 194,658
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<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH (80,356) 84,459
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 85,783 109,450
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,427 $ 193,909
==========================================================================================
Supplemental Schedule of Noncash
Investing and Financing Activities
Accounts payable converted to common stock $ -- $ 92,372
==========================================================================================
Note payable issued for leasehold improvements $ -- $ 150,000
==========================================================================================
Common stock isued for services $ 3,032,420 $ 360,533
==========================================================================================
Common stock options issued for services $ 319,402 $ 652,172
==========================================================================================
Common stock issued for life insurance premiums $ -- $ 30,000
==========================================================================================
"See accompanying notes to consolidated financial statements."
7
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FIRST ENTERTAINMENT HOLDING CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
------------------------------
General
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The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The accompanying financial information is unaudited but includes all
adjustments (consisting of normal recurring accruals), which, in the opinion of
management, are necessary to present fairly, the information set forth. The
consolidated financial statements should be read in conjunction with the notes
to the consolidated financial statements that are included in the Annual Report
on Form 10-KSB of the Company for the fiscal year ended December 31, 1999.
The results for the interim period are not necessarily indicative of results to
be expected for the fiscal year of the Company ending December 31, 2000. The
Company believes that this six-month report filed on Form 10-QSB is
representative of its financial position and its results of operations and
changes in cash flows for the periods ended June 30, 2000 and 1999.
In March 2000, the Board of Directors approved the name change of the Company to
F2 Network, Inc. The name change is subject to shareholder approval.
Going Concern
-------------
During the period from inception (January 17, 1985) to June 30, 2000, the
Company has incurred cumulative net losses of approximately $22,686,000 and, as
of June 30, 2000, had an excess of current liabilities over current assets of
approximately $1,213,000 and was in default on certain notes payable. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
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 of limited
liquidity for the stock or otherwise, 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 $3,032,000 for the six months ended June 30, 2000. Net
cash used in operations was approximately $224,000 for the six months ended June
30, 2000 and, unless operations become profitable, the Company may not have
sufficient cash for use in operations through December 31, 2000.
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.
8
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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.
However, the Company has received proceeds from the sale of restricted common
stock of $351,000 through June 30, 2000.
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. Management is currently considering the
sale on certain of the Company's assets to meet its current cash flow needs. The
Company has signed a letter of intent to sell its radio operations. There are no
arrangements in place for any other asset sales and no assurance can be given
that the letter of intent will generate a finalized agreement or that any sales
will be available at all or on terms acceptable to the Company.
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
$3,032,000 for the six months ended June 30, 2000. Net cash used in operations
was approximately $224,000 for the six months ended June 30, 2000, and unless
operations become more profitable, the Company may not have sufficient cash for
use in operations through December 31, 2000.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
New Accounting Standards
------------------------
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 adoption of this statement had no impact on
the Company's consolidated financial statements.
NOTE B - BUSINESS DEVELOPMENTS
------------------------------
Balzac, Inc.
------------
In April 1996, the Company acquired certain assets of Balzac, Inc. ("Balzac") a
private company that 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. Subsequent to December 31, 1998 Balzac informed the
Company that it had filed Chapter 11 Bankruptcy proceedings. As a result of
these events, the Company had written off its entire investment in Balzac.
In August 1999, Balzac filed an adversary proceeding with the bankruptcy court,
Adversary No. 99-2237, claiming that we caused damage to Balzac by failing to
register the resale of shares of common stock underlying warrants to be issued
to Balzac pursuant to agreements between us and Balzac entered into in April
9
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1997. Balzac sought damages of at least $3,268,356 plus interest thereon. In
addition, we filed a counterclaim against Balzac and third party complaints
against two of Balzac's executive officers and directors and Alex Brown,
Incorporated. In the counterclaim and third party claims, we sought damages from
Balzac, Mr. Deutsch and Mr. Spector for tortious interference with contract and
bad faith, and for impairing our security interest in the shares held by Balzac
that were to be liquidated to pay amounts owed to us. We also sought damages
against Alex Brown based on our allegations that Alex Brown, Incorporated
interfered with this security interest, as well as breached a trust owed to us
in failing to liquidate the shares of the Company owned by Balzac.
We reached an agreement with Balzac to settle these disputes. Pursuant to this
agreement, which has been approved by the Bankruptcy Court, Balzac paid us
$358,000 in cash, which is included as a separate line item in the accompanying
statement of operations. We issued Balzac options to purchase 200,000 shares of
our common stock at $2.00 per share, 310,000 shares of common stock at $1.00 per
share, and 65,000 shares of common stock at $1.40 per share. These options
expire three years after issuance.
Choice Sports Network, Inc.
---------------------------
The Company signed a letter of intent to merge with Choice Sports Network, Inc.
(CHSP) with the intent to create a major sports and entertainment internet
company. Upon consummation of the merger, the agreement called for each
shareholder of First Entertainment Holdings to receive a number of shares of
common stock in CHSP having a weighted average trading price for the 20 days
preceding the closing date equal to $1.00 U.S. for each share of FTET held.
After additional due diligence, and due to lack of funding required to be
provided to the Company by CHSP, Company allowed the letter of intent to expire.
W3, Inc.
--------
The Company formed W3, Inc. as a wholly-owned subsidiary, to acquire and operate
a radio station in Lead, South Dakota. In February 2000, the Company agreed to
issue 252,818 shares of restricted common stock to be held in escrow as security
for a $280,000 note payable from W3, Inc. The note payable was part of the
$300,000 consideration in exchange for the licenses, rights and certain other
assets. The station is not yet operating. The note, which has no stated interest
rate, is payable in monthly installments of $1,556 beginning in March 2000. W3,
Inc. was late with one of its payments on the note and the noteholder threatened
a lawsuit to accelerate the repayment of the note so the entire amount of the
note would be due immediately. W3, Inc. is attempting to work with the
noteholder to resolve matters and have made subsequent payments on time.
American Communications Enterprises, Inc
----------------------------------------
In April 2000, we entered into a letter of intent to sell all the assets related
to our radio business to American Communications Enterprises, Inc. ("ACE").
These assets include the Gillette, Wyoming radio station as well as the
construction permit from the FCC for the new radio station in Lead, South Dakota
and all the tangible and intangible assets related to those stations. Subject to
entering into a definitive agreement and other conditions, the letter of intent
provides that ACE has will pay $2,990,000 in the form of ACE common stock for
these assets. The purchase price will be reduced by the amount of liens,
mortgages and other encumbrances against the radio stations as far as the
construction costs associated with placing the Lead, South Dakota radio station
on the air. An additional $10,000 in cash is to be paid at the closing in
addition to the portion of the purchase price being paid in shares of ACE common
stock. Although we are working with ACE to reach a definitive agreement, there
is no assurance that a definitive agreement will be reached or that the
transaction will be completed. The letter of intent provides that we will not
attempt to sell the radio stations to any other parties prior to August 6, 2000
10
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while we negotiate the definitive agreement. The letter of intent also provides
that we will refund the $10,000 earnest money deposit if the sale of the radio
stations has not occurred by October 6, 2000 and we are unable to demonstrate
that we are ready, willing and able to complete the transaction and all the
conditions to closing have been satisfied. We continue to negotiate with ACE on
a definitive agreement. If this transaction is consummated, the Company expects
to record a gain of approximately $2,000,000.
If this sale is not completed, the Company intends to seek other opportunities
to sell the radio operations. Accordingly, the net assets of the radio
operations have been reflected on the accompanying consolidated balance sheet as
assets held for sale. The components of the net assets held for sale as of June
30, 2000 are as follows:
Current assets $ 99,733
Property and equipment, net 392,500
Other assets, net 638,675
Current liabilities (495,768)
Long-term liabilities (126,019)
---------
Net assets held for sale $ 509,121
=========
Summary operating results for the six months ended June 30, 2000 are as follows:
Revenues $ 412,857
Costs and expenses (330,789)
---------
Net income $ 82,068
=========
NOTE C - STOCKHOLDERS' EQUITY
-----------------------------
During the six months ending June 30, 2000, the Company, in a private placement
offering, sold 609,232 shares of common stock, and options to purchase 325,998
shares of common stock at exercise prices from $0.50 to $0.65, resulting in net
proceeds of $351,000.
Also during the six months ending June 30, 2000, the Company issued 5,404,526
shares of common stock for consulting services and employee compensation valued
at approximately $3,032,000.
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 a total of 3,050,000 shares of common stock at prices ranging from $0.21 per
share to $0.53 per share. The exercise price was 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 was contingent on the closing bid price of the Company's
common stock of at least $1.00 on the last trading day for 1999 and the exercise
of options for 950,000 shares was contingent upon the execution of two separate
definitive agreements by December 31, 1999. In September 1999, the Board of
Directors determined to cancel 2,075,000 options issued in March 1999. Mr.
Goldberg, a director at that time, opposed this resolution by the Board. Mr.
Goldberg's counsel has stated that it is Mr. Goldberg's position that the
Company does not have the right to cancel options previously issued to Mr.
Goldberg and that Mr. Goldberg does not intend to relinquish those options. Of
the total 2,075,000 options cancelled, 1,000,000 were issued to Mr. Goldberg.
11
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In May 1999, the Board of Directors authorized the issuance of stock options to
each Board of Director as Director compensation. Each Director has options to
purchase 250,000 shares of common stock at $1.34 become exercisable on each of
January 1, 2000, January 1, 2001 and January 1, 2002. For the options to vest,
each current Director must be a Director on the anniversary dates noted above.
In August 1999, a new director was elected to the Board of Directors and he was
granted options to purchase 250,000 shares of common stock at $1.89 per share
become exercisable on each of January 1, 2000, 2001 and 2002. These options have
been rescinded.
During the six months ended June 30, 2000 the Company issued options to purchase
425,000 shares of common stock to its employees. The options, which vest through
December 2001, may be exercised at prices from $0.31 to $0.63 through 2002.
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.
For the six months ended June 30, 2000, the Company recognized compensation of
$873,000 for 1,270,000 options granted during that period that were accounted
for in accordance with SFAS 123 and APB 25 and $319,000 of compensation related
to options issued in prior periods. The options may be exercised from $0.50 to
$2.00 through 2005.
NOTE D - SOFTWARE, WEB SITE AND RICH MEDIA CONTENT DEVELOPMENT COSTS
--------------------------------------------------------------------
The Company utilizes American Institute of Certified Public Accountants
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", to account for software and similar
costs. In accordance with SOP 98-1, the Company expenses costs incurred in the
preliminary project stage and, thereafter, capitalizes costs incurred in
developing or obtaining internal use software. Certain related costs, such as
maintenance and training, are expensed as incurred. The Company capitalizes
certain direct costs of developing the portion of its website and rich media
content. Capitalized software costs will be amortized over a period of not more
than 3 years after the software is placed into operation. Capitalized software
costs are subject to impairment evaluation in accordance with SFAS 121.
NOTE E - RELATED PARTY TRANSACTIONS
-----------------------------------
The Company outsources certain administrative, management and accounting
functions to a company that was, until July 2000, wholly-owned by a current
director and president of the Company. Monthly fees for such services were
$21,000 for the period January 1, 1998 through August 31, 1999; thereafter the
fees were reduced to $14,000. During the six months ended June 30, 2000, the
fees were $23,500 per month. Total fees paid by cash and by the issuance of
common stock for the six months ended June 30, 2000 were approximately $117,500.
Effective July 1, 2000, the officer sold the Company to his sister.
Another entity, 43% of which is owned by the same director and president,
performs other administrative functions for the Company on an as-needed, hourly
basis. The Company also leases computer equipment from this related entity and
has amounts due to this entity of $5,580 as of June 30, 2000. Total fees paid by
cash and by the issuance of common stock for the six months ended June 30, 2000
were approximately $2,000.
12
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In March 2000, the Company's president loaned the Company $25,000 at 9%. The
note payable is not collateralized and due on demand.
In 1998, Mr. Goldberg was advanced approximately $25,000 that was being repaid
in monthly repayments of approximately $1,000 with a balance of $10,710 as of
December 31, 1999. Also as of December 31, 1999, Mr. Goldberg is in possession
of certain of the Company's equipment with an approximate net book value of
$9,000. Additionally, the Company has recorded a separate receivable of $3,314
due from Mr. Goldberg. See also the discussion in Note C related to options
issued to Mr. Goldberg and later canceled by the Board of Directors. Mr.
Goldberg's counsel has stated that it is Mr. Goldberg's position that the
Company does not have the right to cancel options previously issued to Mr.
Goldberg and that Mr. Goldberg does not intend to relinquish those options.
NOTE F - LITIGATION
-------------------
The Company knows of no other litigation pending, threatened, or contemplated,
or unsatisfied judgments against it, or any proceedings of which the Company or
any of its subsidiaries is a party, except as specified below. The Company knows
of no other 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 disclosed in Note B and as specified below.
On March 27, 2000, we filed a complaint in the District Court for Arapahoe
County, Colorado against Mr. Goldberg, the Securities Investor Protection
Corporation, and the U.S. Internal Revenue Service. In the Complaint, we alleged
that, during Mr. Goldberg's tenure as an officer and director, Mr. Goldberg
engaged in fraudulent activities, breached his fiduciary duties, and acted
negligently, all of which resulted in our suffering damages. In the Complaint,
we are seeking compensatory and punitive damages from Mr. Goldberg, the return
of Company property, and a declaration that stock options granted to Mr.
Goldberg were fraudulently obtained, were void, and that Mr. Goldberg must repay
us for the options that he exercised before we became aware of the true facts
after granting the options in March 1999. The SIPC and IRS were included as
Defendants in this matter because the SIPC holds a judgment against Mr. Goldberg
that it is attempting to collect and has claimed an interest in the stock
options that we are seeking to void, and the IRS has assessed a tax lien against
Mr. Goldberg that it is seeking to collect. A third party, Sterling Consulting
Corp., has indicated that it will seek to intervene in this matter because it is
attempting to collect on a debt owed by Mr. Goldberg. Mr. Goldberg has filed an
Answer denying our claims. Mr. Goldberg has not asserted any counterclaims
against us in this matter. The IRS has sought to remove this matter to the U.S.
District Court for the District of Colorado, but the IRS has not determined
whether it will participate in this matter or seek to be dismissed. SIPC has
moved to be dismissed from this matter because it believes that its interests
are adequately protected in the Denver District Court matter described in the
next paragraph; we have not opposed SIPC's motion to be dismissed.
SIPC's attempts to collect its judgment against Mr. Goldberg are pending in the
District Court, City and County of Denver, State of Colorado. The primary
parties to that case are SIPC, as real party in interest, and Mr. Goldberg, as
defendant. We first became involved in this matter on September 20, 1999, when
an order was issued directing us to turn over to that court any of Mr.
Goldberg's property which we held. We responded to the order by stating that we
did not hold any property belonging to Mr. Goldberg; however, we also informed
the court that Mr. Goldberg may claim we owe him options as described above, and
that we dispute his claims to options. In January 2000, the court issued another
order which referred to our dispute with Mr. Goldberg over the options and which
directed that if, after our dispute with Mr. Goldberg was resolved, it was
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determined that we did owe securities to Mr. Goldberg, those securities should
be deposited with the court. We intend to fully comply with the court's orders
as soon as our dispute with Mr. Goldberg is resolved. However, after the court
issued the January 2000 order, SIPC filed a motion seeking to hold us in
contempt because SIPC felt that we did not adequately respond to the September
1999 order. SIPC filed this motion despite the fact that (1) we did not have any
of Mr. Goldberg's property or even any tangible evidence of property that Mr.
Goldberg may claim, and (2) we did provide to SIPC's counsel and to the court
the minutes of Board meetings during which the Board discussed the issuance and
cancellation of options as described above. SIPC's motion for a contempt order
was denied at a hearing of the court on May 3, 2000, and an additional hearing
was scheduled before the Denver District Court on June 22, 2000 to determine
whether any March 11, 1999 options belong to Mr. Goldberg and should be turned
over to the court. On June 23, 2000, the Court ordered us to provide a letter to
the Court indicating that the March 11, 1999 options existed in order to avoid a
contempt citation. We provided the required letter and have appealed the Court's
decision.
In June 2000, the seller of the radio station we are purchasing threatened a
lawsuit to require immediate repayment of the $280,000, 15-year note we
delivered as payment because we were late with a monthly payment. We have made
subsequent payments on time and are attempting to work with the seller to
resolve this dispute.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
The following is a discussion and comparison of our financial condition and
results of operations as of and for the three and six months ended June 30,
2000. This discussion should be read in conjunction with the financial
statements, the notes to the financial statements, and the other financial data
included elsewhere in this filing.
The three months ended June 30, 2000 compared with the three months ended June
30, 1999.
------------------------------------------------------------------------------
Our net loss increased from $838,000 in 1999 and to $2,202,000 in 2000.
This $1,364,000 increase is primarily the result of the costs and expenses
incurred in our Internet operations, which were not started until June 28, 1999,
totaling $1,654,000. This total includes compensation related to the issuance of
common stock options issued for services, and cash compensation.
Total revenues increased from $372,000 in 1999 to $463,000 in 2000, a
$91,000 (or 24%) increase. Revenue from our Internet division was $101,000 in
the 2000 period. We commenced our Internet division on June 28, 1999. For the
quarter ended June 30, 2000, this division has focused on completing and
altering its team of Internet engineers, programmers, web site developers,
content developers, and sales and marketing staff, as well as concentrating on
establishing strategic relationships with e-commerce partners, traffic partners
and content development. Costs and expenses for the quarter ended June 30, 2000
for the Internet division totaled $1,654,000. This total consists of $1,197,000
in salaries, contract labor and related expenses, $152,000 in advertising costs,
$58,000 in professional fees, and $247,000 in other operating costs that include
internet hosting, telecommunications, rent, and travel and entertainment, and
other expenses.
The goal of this division is to continue to expand the multimedia Internet
entertainment through the exploitation of our existing assets in an Internet
model, in addition to the growth of our retail website development, advertising,
marketing, rich media development, e-commerce and syndicated affiliate programs.
In addition, we are constantly identifying companies with compatible Internet
e-commerce and for rich media development capabilities or business models that
through strategic alliances, mergers or acquisitions, could help us reach our
ultimate goal much sooner.
We are continuing to modify an analysis of the working capital needed to
develop our Internet business. Working capital needs include retail website,
development, advertising and marketing, rich media development, affiliate
program development and e-commerce development. Currently, working capital is
not sufficient to fund the Internet division and its needs for additional staff
for the next year. We have been issuing stock to Internet division employees and
consultants to fund salaries, wages and consulting fees thereby reducing the
requirement for working capital.
Live entertainment revenue decreased by $9,000 during the three months
ended June 30, 2000 compared to the three months ended June 30, 1999 due to a
decrease in attendance. Cost of sales - live entertainment remained consistent
from June 30, 1999 to June 30, 2000 at $362,000 for each quarter.
Radio revenue, which is presented as discontinued operations in the
accompanying statement of operations, increased from $202,000 in 1999 to
$216,000 in 2000. This $4,000 (or 7%) increase is primarily the result of an
increase in advertising revenues of $18,000, due to a combination of increased
ad spots and an increase in rates. This increase is offset by a decrease in
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<PAGE>
concert income of $10,000, as no concerts were held during the three months
ended June 30, 2000. Cost of sales - radio decreased from $153,000 in 1999 to
$137,000 in 2000. This $16,000 (or 12%) decrease is due primarily to the
decrease in concert expenses.
Depreciation and amortization on the accompanying statement of operations
increased from $12,000 in 1999 to $31,000 in 2000. The total increase of $19,000
is primarily due to additions to property and equipment of $160,000 in 1999 and
$165,000 in 2000. In February 1999, the comedy club completed a $150,000
remodeling project. The remodeling costs are being amortized over the nine-year
life of the lease. During 2000, the Company acquired computer and other
equipment for its Internet division.
Management and administrative fees - affiliate decreased from $50,000 in
1999 to $47,000 in 2000. This $3,000 (or 7%) decrease is due to a change in the
monthly charges from $22,000 per month in the prior year to $23,500 per month in
the current year. Effective June 1, 2000, the affiliated entity was sold and the
related charges are included in general and administrative expenses, not in this
line item.
General and administrative costs decreased from $803,000 in 1999 to
$582,000 in 2000. This $221,000 (or 27%) decrease is primarily attributable to a
decrease in compensation costs related to the issuance of options accounted for
in accordance with SFAS 123 and APB25.
Interest expense as presented on the accompanying statement of operations
decreased from $18,000 in 1999 to $17,000 in 2000. This decrease is due to
scheduled principal amortization. There has been no significant change in the
Company's debt structure. The Company does not have variable interest rate debt,
therefore the expense is anticipated to remain consistent.
The six months ended June 30, 2000 compared with the six months ended June 30,
1999.
------------------------------------------------------------------------------
Our net loss increased from $1,009,000 in 1999 to $3,677,000 in 2000. This
$2,668,000 increase is primarily the result of the previously mentioned higher
expenses in our Internet division. Costs and expenses in 2000 of our Internet
operations, which were not started until June 28, 1999, totaled $2,157,000. This
total includes compensation related to the issuance of common stock options
issued for services, and cash compensation.
Total revenues increased from $834,000 in 1999 to $976,000 in 2000, a
$142,000 (or 17%) increase. Live entertainment revenue increased by $32,000 due
to an increase in attendance in the first quarter and an increase in liquor and
food pricing. Cost of sales - live entertainment increased from $743,000 in 1999
to $778,000 in 2000, a $35,000 (or 5%) increase. The largest component of this
$19,000 (or 2%) increase is labor costs and related costs and benefits,
including entertainers' salaries of the entertainers.
Radio revenue, which is included in discontinued operations, increased from
$385,000 in 1999 to $413,000 in 2000. This $28,000 (or 7%) increase is primarily
the result of an increase in advertising revenues due to a combination of an
increase in advertisers and an increase in rates. Cost of sales - radio, which
is also included in discontinued operations decreased from $279,000 in 1999 to
$265,000 in 2000. This $14,000 (or 5%) decrease was due to a $10,000 transmitter
repair in 1999 due to a lightning strike. The remaining decease was due to a
decrease in music licensing fees.
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We commenced our Internet division on June 28, 1999. For the quarter ended
June 30, 2000, this division has focused on completing its team of Internet
engineers, programmers, web site developers, content developers, and sales and
marketing staff. We are now concentrating on establishing strategic
relationships with e-commerce partners, traffic partners and content
development. Costs and expenses for the six months ended June 30, 2000 for the
Internet division totaled $2,157,000. This total is comprised of $1,559,000 in
salaries, contract and consulting labor and related expenses, $212,000 in
advertising expenses, $111,000 in professional fees; and $275,000 in other
operating costs that include internet hosting, telecommunications, rent, and
travel and entertainment expenses.
Depreciation and amortization increased from $23,000 in 1999 to $54,000 in
2000. This $31,000 increase is primarily due to additions to property and
equipment of $160,000 for 1999 and $211,000 in 2000. In February 1999, the
comedy club completed a $150,000 remodeling project. The remodeling costs are
being amortized over the nine-year life of the lease. During the six months
ended June 30, 2000, the Company acquired computer and other equipment for its
Internet division.
Management and administrative fees - affiliate increased from $92,000 in
1999 to $117,000 in 2000. This $25,000 (or 27%) increase is due to a change in
the monthly charges from $18,000 per month in the prior year to $23,500 per
month in the current year. Effective June 1, 2000, the affiliated entity was
sold and the related charges are included in general and administrative
expenses, not in this line item; accordingly only two months are included in the
second quarter.
General and administrative costs increased from $995,000 in 1999 to
$1,965,000 in 2000. This $970,000 increase is primarily attributable to an
increase in compensation costs related to stock options that are accounted for
in accordance with SFAS 123 and APB 25. Also, wages increased $285,000 and
public relations increased $90,000.
Interest expense decreased from $34,000 in 1999 to $23,000 in 2000. This
decrease is due to scheduled principal amortization. There has been no
significant change in the Company's debt structure. The Company does not have
variable interest rate debt, therefore the expense is anticipated to remain
consistent.
Liquidity and Capital Resources.
--------------------------------
As of June 30, 2000, we had a working capital deficit of $1,213,000.
Despite a loss of $3,677,000, net cash used in operating activities was only
$224,000 primarily due to common stock options granted and common stock issued
for services of $3,032,000. We have been able to issue common stock for
services, thereby reducing the need for working capital.
Our ability to continue as a going concern will largely depend on our
ability to extend existing debt obligations, generate working capital through
debt or equity financing and profitable operations. Working capital deficiencies
have hindered our ability to fund certain business segments. Working capital is
needed to further develop both existing lines of business and new lines of
business. The likelihood of obtaining the necessary equity financing is
uncertain at this time (see the discussion of recent sales of unregistered
securities, below).
We have been able for the six months ended June 30, 2000 to finance some of
our operations through the issuance of common stock in exchange for services. In
2000, we issued 5,404,526 shares of common stock valued at $3,032,000 or an
average of $0.56 per share. In 1999, we issued 189,775 shares of common stock
valued at approximately $89,000 or an average of $0.47 per share.
17
<PAGE>
Commencing with the new lease for the Comedy Works space in Larimer Square
in Denver, Colorado, effective January 1, 1998, Comedy Works began a significant
remodeling project. The remodeling was completed in February 1999. The total
remodeling costs were $300,000 of which $150,000 were paid by the landlord
(lessor) as tenant improvements, and Comedy Works paid $150,000. The landlord
(lessor) has agreed to finance our portion of the remodeling cost payable
monthly at 12% per annum over 10 years. The monthly payments are $2,300.
Working capital is needed for marketing the Internet site. Although we have
not yet determined the marketing budget, we currently anticipate spending
$45,000 per month on both traditional and Internet advertising. We also
purchased a radio station in Lead, South Dakota. The agreement required a
$20,000 non-refundable down payment, with the remaining $280,000 payable monthly
over 15 years upon the approval of the transfer of the license by the FCC. As of
February 10, 2000, all steps, including the expiration of the time for public
objections, necessary to transfer the license had been completed. We estimate
that we will require approximately $250,000 for construction and equipment to
commence operations, which we expect to finance through working capital and
equipment leasing or other forms of debt financing.
We also have increased our staff related to Internet web development,
Internet advertising and marketing. The monthly obligation for salaries and
overhead is approximately $50,000. First 2 Market, the Internet segment
subsidiary, does not yet generate significant revenues. Currently, we have
limited working capital and do may have sufficient working capital to meet our
existing debt obligations and other working capital needs contemplated under
various definitive agreements.
Through June 30, 2000, we raised $351,000 in private placement equity
financing through the sale of common, but there can be no assurance that we
would be successful in raising the additional equity financing needed as
contemplated under the letters of intent or the definitive agreements executed
by the Company. In some cases, we have not yet completed our due diligence
procedures, which include an analysis of the working capital needed.
A valuation allowance offsetting our 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.
During the period from inception (January 17, 1985) to June 30, 2000, we
incurred cumulative net losses of approximately $22,686,000 and, as of June 30,
2000, had an excess of current liabilities over current assets of approximately
$1,609,000 and are in default on certain notes payable. These conditions raise
substantial doubt about our ability to continue as a going concern. We are
dependent upon obtaining additional financing, and/or extending our existing
debt obligations, and/or obtaining additional equity capital and ultimately
achieving profitable operations. We have 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 us. Any additional equity or debt
financing may involve substantial dilution to the interests of our shareholders
as well as warrants and options holders. If we are unable to obtain sufficient
funds to satisfy our cash requirements, we may be forced to curtail operations,
dispose of assets or seek extended payment terms from our vendors. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
18
<PAGE>
Our plans with regard to the 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
our plan will be successful.
To this end, the Company signed a letter of intent to merge with Choice
Sports Network, Inc. (CHSP) with the intent to create a major Sports and
Entertainment Internet Company. Upon consummation of the merger, the agreement
called for each shareholder of First Entertainment Holdings to receive a number
of shares of common stock in CHSP having a weighted average trading price for
the 20 days preceding the closing date equal to $1.00 U.S. for each share of
FTET held. After additional due diligence, and due to lack of funding required
to be provided to the Company by CHSP, we allowed the letter of intent to
expire.
We do not have sufficient revenues to generate income from operations;
therefore, it is necessary for us to increase revenues either by expansion or by
acquisition or significantly reduce our operating costs. We have been able to
issue stock for management and accounting services, thereby reducing the need
for cash to pay for operating expenses. If we were 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 $3,032,000 for the six months ended
June 30, 2000. Net cash used in operations was approximately $224,000 for the
three months ended June 30, 2000 and, unless operations become more profitable,
we may not have sufficient cash for use in operations through December 2000.
PART II - OTHER INFORMATION
---------------------------
Item 1: Legal Proceedings
We know of no litigation pending, threatened, or contemplated, or
unsatisfied judgments against us, or any proceedings of which we or any of our
subsidiaries is a party, except as specified below. We know of no legal actions
pending or threatened, or judgment entered against any of our officers or
directors or any of our subsidiaries in their capacities as such, except as
specified below.
During 1997 and 1998, we, some of our officers and directors 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. On August 2, 1999, the SEC filed a civil complaint
against A.B. Goldberg and us in the U.S. District Court in Denver, Colorado. The
SEC alleges in its complaint that we failed to disclose compensation paid to Mr.
Goldberg in our 1995 and 1996 annual reports and in a registration statement and
our proxy statement filed us in 1997. In response to this allegation, we have
disclosed these amounts in the "Executive Compensation" section below. The SEC
also alleges that we failed to timely file some of our periodic reports. The SEC
sought a permanent injunction against future violations of securities laws by
us. On October 22, 1999, we entered into a consent order with the SEC. In the
second week of August, the Board held an emergency meeting and Mr. Goldberg
resigned as an officer. Mr. Goldberg later resigned as a director. He currently
holds no position with the Company. Without admitting or denying the allegations
made by the SEC, we agreed not to engage in violations of the securities laws in
the future. As a result of entering into the consent decree, the civil complaint
against us was dismissed. The SEC also made the following allegations concerning
Mr. Goldberg:
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o That Mr. Goldberg received compensation of approximately $350,000 that was
not disclosed in our public filings.
o That Mr. Goldberg attempted to conceal the compensation by directing the
payment of money and stock through his wife, including the issuance of
stock that allegedly was not approved by our Board Of Directors.
o That Mr. Goldberg failed to properly disclose his securities holdings in
the Company and changes in those holdings. The SEC seeks a permanent
injunction, disgorgement, civil money penalties, and an officer and
director bar against Mr. Goldberg. Mr. Goldberg has informed us that he
intends to vigorously defend the claims made against him.
Pursuant to an agreement entered into with Balzac, Inc. in April 1997, Balzac
Inc. was indebted to us in the amount of $985,000, together with accrued
interest. Beginning in April 1997, this amount (which at that time was $1
million) was to be repaid over 40 months at 8% per annum by liquidating a
minimum of 25,000 shares of common stock of the Company per quarter up to a
maximum of one million shares held by Balzac, Inc. We were to be paid any
portion of the sales price per share up to $1.00 and Balzac was to retain any
portion of the sales price over $1.00 per share. Any of the one million shares
not sold after 40 months were to become our property.
In February 1999, an involuntary bankruptcy petition was filed against
Balzac, Inc. by some of its creditors. The bankruptcy petition was filed in the
United States Bankruptcy Court for the Southern District of New York, Case No.
99 B 40646, under Chapter 11 of the Bankruptcy Code. Between March and July
1999, Balzac sold approximately 885,000 shares. The entire $2.06 million of
proceeds from those sales are being held by the Bankruptcy Court pending
resolution of the various claims for those proceeds.
In August 1999, Balzac filed an adversary proceeding with the bankruptcy
court, Adversary No. 99-2237, claiming that we caused damage to Balzac by
failing to register the resale of shares of common stock underlying warrants to
be issued to Balzac pursuant to agreements between us and Balzac entered into in
April 1997. Balzac sought damages of at least $3,268,356 plus interest thereon.
In addition, we filed a counterclaim against Balzac and third party complaints
against two of Balzac's executive officers and directors and Alex Brown,
Incorporated. In the counterclaim and third party claims, we sought damages from
Balzac, Mr. Deutsch and Mr. Spector for tortious interference with contract and
bad faith, and for impairing our security interest in the shares held by Balzac
that were to be liquidated to pay amounts owed to us. We also sought damages
against Alex Brown based on our allegations that Alex Brown, Incorporated
interfered with this security interest, as well as breached a trust owed to us
in failing to liquidate the shares of the Company owned by Balzac.
We reached an agreement with Balzac to settle these disputes. Pursuant to
this agreement, which has been approved by the Bankruptcy Court, Balzac paid us
$358,000 in cash and we issued Balzac options to purchase 200,000 shares of our
common stock at $2.00 per share, 310,000 shares of common stock at $1.00 per
share, and 65,000 shares of common stock at $1.40 per share. These options
expire three years after issuance. The transfer of the shares underlying these
options is covered by this prospectus.
On March 27, 2000, we filed a complaint in the District Court for Arapahoe
County, Colorado against Mr. Goldberg, the Securities Investor Protection
Corporation, and the U.S. Internal Revenue Service. In the Complaint, we alleged
that, during Mr. Goldberg's tenure as an officer and director, Mr. Goldberg
engaged in fraudulent activities, breached his fiduciary duties, and acted
20
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negligently, all of which resulted in our suffering damages. In the Complaint,
we are seeking compensatory and punitive damages from Mr. Goldberg, the return
of Company property, and a declaration that stock options granted to Mr.
Goldberg were fraudulently obtained, were void, and that Mr. Goldberg must repay
us for the options that he exercised before we became aware of the true facts
after granting the options in March 1999. The SIPC and IRS were included as
Defendants in this matter because the SIPC holds a judgment against Mr. Goldberg
that it is attempting to collect and has claimed an interest in the stock
options that we are seeking to void, and the IRS has assessed a tax lien against
Mr. Goldberg that it is seeking to collect. A third party, Sterling Consulting
Corp., has indicated that it will seek to intervene in this matter because it is
attempting to collect on a debt owed by Mr. Goldberg. Mr. Goldberg has filed an
Answer denying our claims. Mr. Goldberg has not asserted any counterclaims
against us in this matter. The IRS has sought to remove this matter to the U.S.
District Court for the District of Colorado, but the IRS has not determined
whether it will participate in this matter or seek to be dismissed. SIPC has
moved to be dismissed from this matter because it believes that its interests
are adequately protected in the Denver District Court matter described in the
next paragraph; we have not opposed SIPC's motion to be dismissed.
SIPC's attempts to collect its judgment against Mr. Goldberg are pending in
the District Court, City and County of Denver, State of Colorado. The primary
parties to that case are SIPC, as real party in interest, and Mr. Goldberg, as
defendant. We first became involved in this matter on September 20, 1999, when
an order was issued directing us to turn over to that court any of Mr.
Goldberg's property which we held. We responded to the order by stating that we
did not hold any property belonging to Mr. Goldberg; however, we also informed
the court that Mr. Goldberg may claim we owe him options as described above, and
that we dispute his claims to options. In January 2000, the court issued another
order which referred to our dispute with Mr. Goldberg over the options and which
directed that if, after our dispute with Mr. Goldberg was resolved, it was
determined that we did owe securities to Mr. Goldberg, those securities should
be deposited with the court. We intend to fully comply with the court' orders as
soon as our dispute with Mr. Goldberg is resolved. However, after the court
issued the January 2000 order, SIPC filed a motion seeking to hold us in
contempt because SIPC felt that we did not adequately respond to the September
1999 order. SIPC filed this motion despite the fact that (1) we did not have any
of Mr. Goldberg's property or even any tangible evidence of property that Mr.
Goldberg may claim, and (2) we did provide to SIPC's counsel and to the court
the minutes of Board meetings during which the Board discussed the issuance and
cancellation of options as described above. SIPC's motion for a contempt order
was denied at a hearing of the court on May 3, 2000, and an additional hearing
was scheduled before the Denver District Court on June 22, 2000 to determine
whether any March 11, 1999 options belong to Mr. Goldberg and should be turned
over to the court. On June 23, 2000, the Court ordered us to provide a letter to
the Court indicating that the March 11, 1999 options existed in order to avoid a
contempt citation. We provided the required letter and have appealed the Court's
decision.
In June 2000, the seller of the radio station we are purchasing threatened
a lawsuit to require immediate repayment of the $280,000, 15-year note we
delivered as payment because we were late with a monthly payment. We have made
subsequent payments on time and are attempting to work with Mr. Encke to resolve
this dispute.
In May 1997, David Spolter and Faige Spolter filed a lawsuit against us 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, we entered into a settlement agreement
whereby we agreed to pay the Spolters $150,000; $25,000 was paid upon execution
21
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of the Settlement Agreement and the remaining $125,000 was payable in monthly
installments of $5,000 a month until July 15, 1999 at which time all unpaid
principal and interest was due and payable. On July 15, 1999, we paid the
remaining principal and interest and the note has been paid in full.
In 1997, Sharon K. Doud filed a civil action against us, A.B. Goldberg and
Quality Communications. The lawsuit was filed in the District Court for the
Sixth Judicial District of Wyoming (Civil Action No. 21289) and alleged 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 whereby we were 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. The promissory note and accrued interest were paid in
full on April 2, 1999.
Item 2: Changes in Securities
None
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
22
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Company has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
First Entertainment Holding Corp.
DATE: August 21, 2000 /s/ Doug Olson
--------------
Doug Olson
President
DATE: August 21, 2000 /s/ Howard B. Stern
-------------------
Howard B. Stern
Chief Executive Officer
23
