UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the Fiscal Year ended:
December 31, 1999
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)
5495 Marion Street, Denver, CO 80216
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (303) 382-1500
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 in 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. $ 2,527,237.
As of March 27, 2000, there were 13,565,077 shares of common
stock(the Registrant's only class of voting stock) outstanding. The
aggregate market value of the 12,908,663 shares of common stock of
the Registrant held by non-affiliates* on March 27,2000 was
approximately $13,115,202(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 March 27, 2000 was 13,565,077.
Transitional Small Business Disclosure Format (check one):
Yes
No X
*Without asserting that any of the issuer's directors or executive
officers, or any beneficial owner of five percent or more of the
issuer's common stock, 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
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, we changed our state of incorporation from
Colorado to Nevada and changed our name to First Entertainment Holding
Corp. We were originally incorporated under the laws of Colorado on
January 17, 1985. In March 2000, we determined to change our name
to "First 2 Media Network Inc.", subject to stockholder approval, which
has
not yet been obtained. We anticipate that the proposed name change
will be voted upon by the stockholders at a stockholders meeting
planned for April or May 2000.
Currently, we operate or hold controlling interests in three
active and two non-operating business segments. The three active
segments are known as "Radio", "Live Entertainment" and "Internet".
The non-operating segments are known as "Film", "Video", and
"Retail". Initially, our business consisted of the production of pre-
recorded travel guides and special interest videos. In 1987, we
entered the radio broadcasting business by acquiring Quality
Communications, Inc., a Wyoming corporation pursuant to which we
operate the radio segment of its business. In 1992, we acquired a
controlling interest in First Films, Inc. ("First Films"), a publicly
held Colorado corporation, under which our live entertainment
operations currently are undertaken and under which our film
production activities previously were undertaken. In December 1997,
we acquired a 50.8% interest in Global Internet Corp. Global Internet
is a development stage company whose planned business activity was to
operate 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. Since early 1999, we have been developing relationships
with Internet content providers, advertisers and gaming companies in
an attempt to create an Internet site with links to entertainment and
gaming content and to provide Internet site development to other
parties. In addition, we have been developing our own content in
order to establish an Internet portal emphasizing entertainment with
links to other web sites. The site is located at www.First
Entertainment.com. In December 1996, we 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, we determined to discontinue
the operations of the "retail" segment as a result of lower than
expected sales.
Radio
In October 1987, we entered the radio broadcasting business
through the acquisition of Quality Communications, Inc. "Quality
Communications", a Wyoming corporation. Through Quality
Communications, we operate a FM radio station, 100.7, The Fox, located
in Gillette, Wyoming.
In November 1993, the music format of the radio station was
changed 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. 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 to add an additional
source of revenue for the radio station.
In September 1999, we entered into an agreement with Brian Encke
to purchase an FM radio station to be built in Lead, South Dakota, and
the Federal Communications Commission ("FCC") permits necessary to
operate the station. The $300,000 purchase price is to be paid by
delivery of $20,000 in cash and a promissory note for $280,000, with
no interest, payable over a 15-year period in monthly installments of
$1,555.56. The purchase of the new station is to close after the FCC
grants its consent to the assignment of the permits to the Company and
all public comment periods expire. The FCC granted its consent on
December 9, 1999 and the public comment period expired in January 2000.
No negative comments were received and we closed the purchase of the
radio station, with the purchase price being paid in the manner
described above. Construction of the facilities necessary to operate
the station will be completed prior to the fall of 2001,if there are
no unexpected construction delays. We estimate that construction and
installation of the new station will cost approximately $250,000,
including $200,000 to acquire transmitting equipment, computers and
other studio equipment. We intend to fund $50,000 of the costs
related to the construction of the new station primarily from our
working capital. We intend to finance the $200,000 of estimated
equipment costs through lease financing transactions where a financial
institution purchases the equipment and leases it to us at a rate that
covers their acquisition costs and a profit or through other debt
financing such as bank loans, if available at acceptable rates and
terms.
Live Entertainment
First Films acquired 100 percent of the outstanding stock of
Comedy Works, Inc., a Colorado corporation, on September 13, 1990 in
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 nine shows per week and has averaged over
1,500 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.
Internet Activities
Since 1997, we have attempted to engage in Internet related
businesses. Through internal resources and relationships with other
entities, we developed an Internet portal focusing on entertainment.
The site, www.FirstEntertainment.com, includes original content
developed by us as well as links to other sites. We are also
developing relationships with electronic commerce partners and offers
web site development services and plans to add web site hosting
capabilities. Many of the letters of intent we entered into
prior to June of 1999 with potential Internet partners have not
led to definitive agreements and have been terminated.
Our Internet related businesses are conducted through our First 2
Market, Inc. subsidiary. All That Media, Inc., which was acquired in
June 1999, was merged into First 2 Market, Inc. in June 1999. At the
time we acquired it, All That Media was a newly-formed company that
specialized in intellectual property development, Internet portal
development and Internet advertising. We issued an option to purchase
a total of 500,000 shares of common stock for $.75 per share until
October 10, 2001 to the stockholders of All That Media for all the
outstanding stock of All That Media. Michael Marsowicz, the President
and 50 percent owner of All That Media, received 250,000 of these
options. Mr. Marsowicz subsequently was elected to our Board of
Directors in August 1999.
Also in June 1999, we acquired a start-up company named EDRON
Associates, Inc. by issuing options to its former stockholders to
purchase 300,000 shares of common stock at $1.03 per share for a
period of three years. EDRON was a start up company with little
revenue and no proprietary or intangible assets at the time of its
acquisition by us.
The following is a summary of our current Internet related
business.
Internet Portal.
We established an Internet portal at "www.FirstEntertainment.com".
We are attempting to develop this site into a stand-alone Internet site
focusing on the streaming of original audio and video content, live and
archived, in addition to other forms of multimedia entertainment, as
well as links to other sites. We have attempted to provide content on
the site internally, as we believe the public will be drawn to, and more
interested in, original content, as well as avoiding the expense from
obtaining content from outside sources. We believe that the comedy club
and radio station businesses provide a source for content that we are
currently leveraging. We generate revenues through advertising and
sponsorship on our web site as well as through "click fees" and
commission arrangements with operators of other web sites that are
accessed through our web site. The models being utilized are the
traditional Cost Per Thousand (CPM) and Cost per Stream (CPS).
We are also pursuing "pay-per-view" events utilizing entertainers
in the comedy and country music areas with which we have relationships
through the operation of the comedy club and radio station.
In an attempt to increase traffic over our web site, we have
entered into advertising agreements with Yahoo to place a banner ad and
link to our web site on sites operated by Yahoo. We paid Yahoo $136,000
for advertising through December 31, 1999. This advertising took place
during two periods and included placements of banner ads on Yahoo sites
and inserting advertisements in 2.5 million Yahoo e-mails and 7.5
million advertising impressions. The first program with Yahoo consisted
of 3,000,000 advertising impressions for $36,000. The second program
consisted of the additional 7.5 million impressions plus the 2.5 million
advertisements in e-mails for $100,000. This program was focused on
Yahoo subscribers who showed an interest in entertainment oriented
information as shown in Yahoo's databases. An impression consists of a
Yahoo customer calling up a web site on which our advertisement has been
placed. We have entered into additional advertising and traffic
campaigns that we except will significantly increase out traffic.
We have not yet realized positive cash flows and there is
no assurance we will be able to do so.
Web Site Development, Maintenance, and Interactive Media
Productions
We also occasionally offer web site development services to assist
other companies in designing and implementing a presence on the
Internet when our effort results in contracted advertising revenues on
our site. These services include maintaining and archiving web sites
to include multi-media, audio and video capabilities. These
capabilities allow us and our clients to broadcast information much like
a TV or radio station, including advertisements. We have not yet
received significant revenues from these activities. Web site
development and maintenance is a highly competitive business that is
labor intensive. There is no assurance that we will be able to attract
and retain qualified personnel to assist in web site development. We can
make no assurances that we will be able to do so at a cost that allows
us to operate this business profitably.
Possible Internet Gaming Activities.
We have reviewed the possibility of engaging in Internet gaming
activities. Currently, we offer games and links to games on
our web site. The games we offer do not involve wagering although
some sites reached through links on our site do offer wagering. We
have reviewed legal and other issues in connection with whether to
allow wagering on our web site and whether to continue providing links
to web sites that allow wagering. We will engage in these activities
or continue to offer links to sites that offer wagering only if we
determine that these activities will not violate applicable
laws. We have received no revenue from these relationships and
are considering removing them completely.
Video
Initially, we 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. We are no
longer active in the edited video market. We are attempting to sell
all the remaining footage in raw, unedited form for use in marketing
and Internet sites for travel-related companies.
Film
We previously engaged in film production activities through our
First Films subsidiary. These activities have been suspended.
Retail
In December 1996, we commenced operations of our retail segment
through our subsidiary, "The Best Of As Seen On TV, Inc." The
segment consisted of selling the most common and most popular
infomercial products in free standing unmanned kiosks in retail
outlets throughout the United States. We opened our 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, we terminated
our unmanned kiosk operations when the leases to our first four
locations were not renewed. Sales volumes at the unmanned kiosk
locations were not sufficient to maintain profitable operations.
We turned our 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, we
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, we determined to
discontinue the operations of The Best Of As Seen On TV due to
operating losses and lack of working capital to further develop the
concept.
The result of operations of The Best Of As Seen On TV for the
year ended December 31, 1998 are disclosed as discontinued operation.
Competition
Radio
Our radio station competes with seven other signals available
in the area. Two of these radio signals originate from Gillette,
Wyoming. We compete for listeners with these stations through our
music format, on-air talent and promotional activities. The ability
to charge higher advertising rates is dependent upon attracting
larger listener audiences.
Live Entertainment
Competition is intense in the comedy and music night club
entertainment industries. On a national level, we compete for
entertainers with many other comedy related companies that are better
capitalized, and may have greater visibility. 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, longer
than any other comedy club in the Denver area. We believe that Comedy
Works Larimer Square provides higher-quality acts than its local
competitors, reflected in the fact that it is able to charge
approximately twice the admission price of its local competitors.
The main competitors of Comedy Works Larimer Square are
individually-owned and located in shopping centers in the suburbs,
while Comedy Works is located in the downtown Denver area.
Internet
Internet related businesses are subject to intense competition.
Companies with greater financial resources than ours have not been
able to generate positive cash flow or profits from operating
Internet related businesses. In addition, because of the large
number of competitors, there is competition for Internet content and
qualified computer personnel. Through the use of "Head Hunters" and
word of month we have been able to attract, what we believe to be, the
best available talent to develop our Internet business. The cost of
this talent could lead to an increase in costs that could have a
material effect on our business expenses. We also compete with other
companies for incoming advertising to our Internet websites. Revenues
generated low cost of entering Internet related businesses may result in
additional competition in the future.
Licenses
The 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 our radio station 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 delay the reissuance process or
result in a denial of the reissuance of the license. 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.
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
We have found that our 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, we employ three executives. We contract the
accounting, management information systems and administrative
functions to a company owned by Douglas Olson, our President and one
of our directors, and to other independent consultants.
Radio Station
The radio station 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.
Internet
This division has twenty-five full-time employees and five part-
time employee.
Licenses
The 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 our radio station 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 delay the reissuance process or result in a denial of
the reissuance of the license. 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.
Item 2. Description of Property
First Entertainment Holding Corp.
Our executive offices are located at 5495 Marion Street, Denver,
Colorado 80216. This space is provided to us by Creative Business
Services as part of the arrangement between Creative Business Services
described in "Item 12. Certain Relationships And Related Transactions".
In August 1998, we subleased our prior executive office space in an
effort to further reduce our operating overhead. We have not been
relieved of our obligation as the primary lessee under our prior office
lease as a result of the sub-lease. The primary lease expires in August
2002 and provides for monthly rent of $6,824.
Radio Station
We have facilities in Gillette, Wyoming that house our radio
station, 100.7 FM, The Fox. In April 1996, we 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
The Comedy Works is located at Larimer Square in Denver, CO, and
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, were the total of (1) 8% of gross sales of
alcoholic beverages, (2) 6% of gross sales of food related products
and (3) 4% of gross sales relating to door admission.
Lease payments for the period January 1, 1999 to December 31,
2003 are 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,
1999 was approximately $88,150.
Internet
Our Internet related businesses are conducted out of offices
located at 2500 East Hallandale Beach Blvd., Suite 605, Hallandale,
Florida 33009. These offices consist of approximately 3,000 square
feet and are leased pursuant to the terms of a 36 month lease which
terminates in July 31, 2002. Monthly rent is approximately $3,000.
Item 3. 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.
In May 1997, David Spolter and Faige Spolter ("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 Spolter $150,000; $25,000 was paid upon execution 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.
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 us and A.B.
Goldberg 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 decree with the
SEC. 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:
*That Mr. Goldberg received compensation of approximately
$350,000 that was not disclosed in our public filings.
*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.
* 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.
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. As of March 29, 2000, no answer had been filed in this matter.
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, 1999.
Item 5. Market for our Common Equity and Related Stockholder Matters
Our 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 we were notified that as of the close of business that day, our
stock would be delisted from NASDAQ for failure to meet the minimum
bid requirement. Effective February 6, 1998 our stock began trading
on the OTC Bulletin Board. The following table sets forth the high and
low bid quotation for our common stock for each quarterly period in
1999 and 1998. As of March 23, 2000, there were approximately 1,149
shareholders of record of our common stock. Holders of common stock
are entitled to receive such dividends as they may be declared by the
our Board of Directors. No dividends are anticipated to be paid in
the foreseeable
future.
<TABLE>
Bid Price
High Low
1999
<S> <C> <C>
First Quarter $ 1.31 $ .1562
Second Quarter 2.0156 .6406
Third Quarter 4.125 1.2188
Fourth Quarter 1.34 .9688
1998
First Quarter $ .75 $ .25
Second Quarter .71 .20
Third Quarter .77 .21
Fourth Quarter .48 .12
</TABLE>
Item 6. Management's Discussion and Analysis or Plan of
Operation
Fiscal 1999 as Compared to Fiscal 1998
Our net loss was $2,525,000 in 1999; an increase of $1,743,000
compared to the $782,000 loss reported in 1998. General and
administrative costs increased by $1,036,000, reflecting higher
compensation, and professional and consulting fees. Our Internet
business reported a net loss of $706,000, representing start up costs
incurred during the second half of 1999. Our Live
Entertainment segment reported a $141,000 net profit in
1999, $66,000 less than the prior year result. Our radio segment
reported a $181,000 net profit, a $58,000 improvement over 1998.
NET REVENUES: Total revenues were $2,527,000 in fiscal 1999, a
$357,000 (+16%) increase over the $2,169,000 reported in fiscal 1998.
Revenue improved by $303,000 (+22%) in Live Entertainment and the
Radio segment's revenue grew by $36,000 (+4%). The Internet business,
which began development of its portal site during the third quarter of
1999, reported revenues totaling $23,000.
COST OF SALES: Cost of sales increased by $1,154,000. Startup expenses
incurred by the Internet business increased cost of sales by $729,000.
Internet business costs are primarily comprised of compensation
($323,000), professional and consulting fees ($140,000) and
advertising expense ($222,000). Cost of sales in Live Entertainment
increased by $369,000 (+33%), of which $237,000 is compensation cost
for entertainers and employees. The Radio segment's cost of sales
increased by $55,000 (+10%), driven by higher costs for maintenance,
repair, copying and postage, compensation and professional fees.
IMPAIRMENT WRITEDOWNS: There were no impairment writedowns in fiscal
1999. In 1998, a note receivable valued at approximately $81,000 was
written down to its estimated net realizable value of $0.
DEPRRECIATION AND AMORTIZATION: Depreciation and amortization
increased from $104,000 in 1998 to $130,000 in 1999. The $26,000
increase is primarily due to the amortization of a $150,000 leasehold
improvement project at the Comedy Club.
MANAGEMENT AND ADMINISTRATIVE FEES PAID TO AFFILIATE: We subcontract
administration and accounting services from Creative Business
Services, Inc., which is wholly owned by our President. Total fees of
$225,000 in fiscal 1999 were unchanged from the prior fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general and
administrative expenses increased by $1,035,000 from $712,000 in 1998
to $1,747,000 in 1999. The largest component was employee compensation
expenses, which increased by $871,000. This includes $857,000
resulting from issuance of stock and options. Professional and
consulting fees increased by $205,000 over last year. In general, the
remaining administrative expense accounts remained consistent between
years.
Compensation expense for employees and consultants included in
selling, general and administrative expenses in 1999 included $389,000
of cash payments, $348,000 of payments made through the issuance of
shares of common stock and $797,000 attributable to options granted and
compensation expense recorded pursuant to APB No. 25. In 1998, cash
compensation was $78,000, stock compensation was $361,000 and
compensation attributable to the issuance of common stock options was
$67,000.
Total consulting compensation, including accounting, investment banker
and legal fees (cash and stock) included in the above totals increased
from $189,000 in 1998 to $319,000 in 1999, a $130,000 increase. This
increase was due to primarily to an increase in legal fees of $127,000
as a result of our litigation with Balzac, our investigation by the
SEC, and for costs related to the our internet business.
The increase in compensation expense for employees and officers of
$216,000 is due primarily to the startup of our internet operations in
the second half of the year, as well as the addition of corporate
officers.
Compensation expense recorded as a result of granting common stock
options increased by $730,000 due to an increase in the number of
shares granted from 300,000 in 1998 to 1,150,000 in 1999.
Additionally, the price of the Company's common stock on the date of
the related option grant (the date at which the compensation expense
is recorded) increased from an average of $0.22 in 1998 to $0.97 in
1999.
INTEREST EXPENSE: Net interest expense in 1999 totaled $114,000, a
decrease of $9,000 from the prior year. Notes payable and long-term
debt was $1,166,000 in 1999, a net reduction of $18,000. We paid off
two notes totaling $231,000 in 1999, which required that we borrow
$125,000 to finance part of the payoff. Additionally, to finance
leasehold improvements in the Comedy Club, we borrowed $150,000.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared
assuming that the we will continue as a going concern. The opinion of
our independent auditor delivered in connection with our Financial
Statements for fiscal 1999 and 1998 contains an explanatory paragraph
relative to the going concern uncertainty. As discussed in Notes A and
E to the consolidated financial statements, we have suffered recurring
losses from operations, have a working capital deficiency of
approximately $1,537,000, have negative net worth of approximately
$483,000, and are in default on approximately $363,000 of our notes
payable as of December 31, 1999. In February 1998, we were delisted
from NASDAQ for failure to meet the minimum bid price. The delisting
from NASDAQ has impaired our ability to raise equity financing. These
conditions raise substantial doubt about our 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 our ability to continue as a going
concern include continued raising of equity financing, restructuring
of our 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 our
ability to properly fund certain business segments, to make them
profitable or to expand current business segments. We must generate
additional revenues from our Internet business. The Radio and Live
Entertainment business segments will not generate sufficient operating
income to cover SG&A and other overhead costs. We will continue to
evaluate additional business opportunities that do not require
immediate working capital infusion.
We have been successful in 1999 and in 1998 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 1999, we issued 1,298,665 shares of
common stock for services valued at $1,044,000 or an average of $.80 per
share. Net cash used in operations was approximately $460,000 in 1999.
In 1998, we issued 1,199,766 shares of common stock for services valued
at $449,906 or an average of $.37 per share. Capital expenditures needed
to increase sales and profitability by the existing radio operations
and live entertainment business segments are minimal. Completion of
the new radio station during fiscal 2000 is estimated to total
$550,000, $300,000 for the required licenses and rights and $250,000
for the tower, antenna and related hardware. The $300,000 has been
funded through a $20,000 cash payment and a $280,000 note payable
collateralized by 252,218 shares of the Company's stock to be held in
escrow. The internet business will require at least an additional
$150,000 for software, servers, and related equipment.
During 1999 and 1998, we were successful in raising approximately
$220,000 and $213,000, respectively, in equity financing through
private placement offerings. During 1999 and 1998, we received $797,000
and $100.00 from the exercise of common stock options and warrants.
A valuation allowance offsetting our 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 Compliance
Year 2000 compliance is the ability of computer hardware and
software to respond to the problems posed by the fact that computer
programs traditionally have used two digits rather than four digits to
define an applicable year. As a consequence, any of our computer
programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing interruption of
operations, including temporary to perform accounting functions and
processing credit card payment and delays in the receipt of payments
from credit card companies purchasers of oil and gas production, if
any. We reviewed our computers and software as well as other
equipment that utilize imbedded computer chips, such as cash
registers, facsimile machines and telephone systems. No systems have
been determined to be Year 2000 Non-Compliant. Substantially all of
the internal accounting function has been outsourced to a related
party company. We have been assured by the related party company that
its accounting software and computers, file servers and other network
systems are Year 2000 Compliant and that services should not be
interrupted. To date, we have not encountered any Year 2000 problems
with our systems or those of our customers and suppliers. In the
event we encounter Year 2000 problems, we have identified alternative
vendors to supply us and will rely on manual record keeping
procedures. We do not believe that the cost of Year 2000 compliance
will be material.
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, 1999 and 1998 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, 1999 and 1998 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 $1.6 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 2000 and there is no assurance that the Company will
have the cash to pay the debts when they become due, or alternatively,
to raise additional equity funding or to successfully restructure the
debts, both of which have happened in the past. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are discussed
in Note A. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Gordon, Hughes & Banks, LLP
March 13, 2000
Englewood, Colorado
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 and 1998
</CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 85,783 $ 109,450
Trade accounts receivable, net of allowance
for doubtful accounts of $8,740 and $2,500,
respectively 135,664 101,568
Officer receivables 46,609 15,010
Inventories 20,247 14,732
Prepaid expenses and other current assets 23,577 28,508
- --------------------------------------------------------------------------
311,880 269,268
- --------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 701,607 709,325
Building and leasehold improvements 590,924 532,257
Land 125,000 125,000
- --------------------------------------------------------------------------
1,417,531 1,366,582
Less accumulated depreciation and amortization 749,799 845,810
- --------------------------------------------------------------------------
667,732 520,772
- --------------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated amortization
of $608,568 and $545,697, respectively 647,814 725,684
Other 26,231 4,126
- --------------------------------------------------------------------------
674,045 729,810
- --------------------------------------------------------------------------
TOTAL ASSETS $ 1,653,657 $ 1, 519,850
==========================================================================
<CAPTION>
See accompanying report of independent certified public accountants and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
December 31, 1999 and 1998
</CAPTION>
1999 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 296,163 $ 188,920
Accrued liabilities 206,479 142,458
Accrued interest 448,826 430,107
Deferred revenues 13,000 -
Notes payable and current portion of
long-term debt 917,373 993,384
Notes payable, related parties 7,080 3,000
Net liabilities of discontinued operations - 57,305
- --------------------------------------------------------------------------
1,888,921 1,815,174
- --------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 242,076 187,699
- --------------------------------------------------------------------------
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' (DEFICIT)
Preferred stock, $.001 par value;
authorized 5,000,000 shares;
Class B preferred stock, 1,000,000 shares
authorized, none and 13,040
shares issued and outstanding - 13
Class C preferred stock, 1,000,000 shares
authorized no shares issued and outstanding - -
Common stock, $.008 par value; authorized
50,000,000shares; 12,480,835 and 9,610,170
shares issued and outstanding 99,847 76,882
Capital in excess of par value 18,751,618 15,924,086
Deferred compensation (319,402) -
Accumulated (deficit) (19,009,413) (16,484,014)
- ---------------------------------------------------------------------------
(477,350) (483,033)
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $1,653,657 $ 1,519,850
==========================================================================
<CAPTION>
See accompanying report of independent certified public accountants and
notes to consolidated financial statements.
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
For the Years Ended December 31, 1999 and 1998
1999 1998
<S> <C> <C>
REVENUE
Live entertainment $ 1,668,529 $1,365,262
Radio 835,596 804,004
Internet 23,112 -
- --------------------------------------------------------------------------------
2,527,237 2,169,266
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales, live entertainment 1,505,233 1,135,734
Cost of sales, radio 606,911 551,502
Cost of sales, internet 728,945 -
Impairment writedowns 14,999 81,340
Depreciation and amortization 130,229 104,160
Management and administrative fees, affiliate 224,565 224,850
Selling, general and administrative 1,744,735 711,512
- --------------------------------------------------------------------------------
4,958,317 2,809,098
- --------------------------------------------------------------------------------
OPERATING (LOSS) FROM CONTINUING OPERATIONS (2,431,080) (639,832)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense (114,362) (104,725)
Other, net 20,043 (7,384)
- --------------------------------------------------------------------------------
(94,319) (112,109)
- --------------------------------------------------------------------------------
(LOSS) FROM CONTINUING OPERATION (2,525,399) (751,941)
- --------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
(Loss) from discontinued operations, including
provision for operating losses during phase-out
period - (30,144)
- --------------------------------------------------------------------------------
NET (LOSS) $(2,525,399) $(782,085)
================================================================================
NET (LOSS) PER COMMON SHARE, CONTINUING
OPERATIONS BASIC AND DILUTED $ (0.23) $ (0.10)
NET INCOME (LOSS) PER COMMON SHARE,
DISCONTINUED OPERATIONS $ - $ -
- --------------------------------------------------------------------------------
NET (LOSS) PER COMMON SHARE, Basic and Diluted $ (0.23) $ (0.10)
================================================================================
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING BASIC AND DILUTED 11,072,403 7,967,926
================================================================================
<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 Changes In Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999 and 1998
</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, 1998 10,689 $ 10 91,127 $ 91 -
Preferred Stock issued for
Acquisition of property 16,000 16
Common stock issued for
Cash, net of offering costs
Consulting services
Accounts payable
Life insurance premiums
Conversion from preferred stock (94,107) (94)
Business acquisition
Exercise of warrant
Common stock options and
Warrants issued
Net (loss)
- --------------------------------------------------------------------------------
BALANCES
DECEMBER 31, 1998 10,689 10 13,040 13 -
- --------------------------------------------------------------------------------
Common stock issued for
Cash, net of offering costs
Cash, exercise of options
and warrants
Consulting services and compensation
Preferred stock conversion (13,040) (13)
Common stock options issued
Net (loss)
- ---------------------------------------------------------------------------------
BALANCES
DECEMBER 31, 1999 10,689 $10 $- - $- -
==================================================================================
<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 Changes In Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999 and 1998
</CAPTION>
Capital In
Common Stock Excess of Accumulated
Shares Amount Par Value (Deficit)
<S> <C> <C> <C> <C>
BALANCES,
JANUARY 1, 1998 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) (782,085)
- --------------------------------------------------------------------------------
BALANCES
DECEMBER 31, 1998 9,610,170 76,882 15,924,086 (16,484,014)
- --------------------------------------------------------------------------------
Common stock issued for
Cash, net of offering costs 280,000 2,240 217,760
Cash, exercise of options
and warrants 1,145,000 9,160 460,840
Consulting services and
compensation 1,298,665 10,389 1,033,645
Preferred stock
conversion 147,000 1,176 (1,163)
Common stock options
Issued 1,116,450
Net (loss) (2,525,399)
- --------------------------------------------------------------------------------
BALANCES
DECEMBER 31, 1999 $12,480,835 $99,847 $18,751,618 $(19,009,413)
================================================================================
<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 Changes In Stockholders' Equity (Deficit)
For the Years Ended December 31, 1999 and 1998
</CAPTION>
Deferred
Compensation Total
<S> <C> <C>
BALANCES,
JANUARY 1, 1998 $- $(444,622)
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 (483,033)
- --------------------------------------------------------------------------------
Common stock issued for
Cash, net of offering costs 220,000
Cash, exercise of options
and warrants 470,000
Consulting services and
compensation 1,044,034
Preferred stock
conversion -
Common stock options
Issued (319,402) 797,048
Net (loss) (2,525,399)
- --------------------------------------------------------------------------------
- -
BALANCES
DECEMBER 31, 1999 $ (319,402) $(477,350)
================================================================================
=
<CAPTION>
See accompanying report of independent certified public accountants and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (2,525,399) $ (782,085)
Adjustments to reconcile net (loss) to net cash
used in operations
Depreciation and amortization 130,229 104,160
Impairment and other write downs 14,999 81,340
Issuance of stock, common stock options
and warrants for services 1,841,082 466,631
Trade accounts receivable (34,096) 16,307
Officer receivables (31,599) 15,010
Inventories (5,515) 8,645
Accounts payable 51,439 66,408
Accrued liabilities 82,741 22,823
Deferred revenue 13,000 -
Other 5,628 (2,575)
Cash provided by discontinued operations - 4,354
- -------------------------------------------------------------------------------
NET CASH, PROVIDED BY (USED IN)
OPERATING ACTIVITIES (457,491) 6,168
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (238,622) (27,754)
- -------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (238,622) (27,754)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on notes payable and
long-term debt (300,726) (100,413)
Proceeds from notes payable and long-term debt 283,172 -
Proceeds from exercise of options 470,000 -
Proceeds from issuance of common and
preferred stock, net 220,000 213,400
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 672,446 112,987
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (23,667) 91,401
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 109,450 18,049
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 85,783 $ 109,450
================================================================================
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
</CAPTION>
Interest paid $ 82,493 $ 68,135
===============================================================================
Income taxes paid $ - $ -
===============================================================================
Accounts payable and accrued expense
converted into common stock $ - $ 50,163
===============================================================================
Issuance of preferred stock
for acquisitions $ - $ 45,000
===============================================================================
Common stock and options and warrants
issued for services $1,841,082 $ 529,043
===============================================================================
Common stock issued for life insurance premiums $ - $ 39,000
===============================================================================
Common stock issued for preferred stock
conversion $ 13 $ 529,043
===============================================================================
Fully Depreciated Assets Written Off $ 167,095 $1,504,503
===============================================================================
<CAPTION>
See accompanying report 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, 1998, 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. Its radio
station, 100.7 "The Fox", operates in Gillette, Wyoming. In January
1998, the Company discontinued its retail segment operations.
During the period from inception (January 17, 1985) to December
31, 1999, the Company incurred cumulative net losses of approximately
$19,009,000. Additionally, as of December 31, 1999,the Company had an
excess of current liabilities over current assets of approximately
$1,537,000
and is in default on certain notes payable. 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.
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. Specifically, management intends to increase revenues
through its internet subsidiary. The Company received proceeds from
the sale of common and preferred stock, and the exercise of common
stock warrants and options, of approximately $690,000 during the year
ended December 31, 1999.
Currently, 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. The value of services
paid by issuance of stock was approximately $1,044,000 for the year
ended December 31, 1999. Net cash used in operations was approximately
$460,000 for the year ended December 31, 1999. The Company may not
have sufficient cash for use in operations through December 31, 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. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. The Company owns the
following subsidiaries:
<TABLE>
Name of Subsidiary Percentage Owned
<S> <C>
Quality Communications, Inc. 100%
First 2 Market, Inc. 100%
First Films, Inc. 80%
Global Internet Corp. 50.3%
The Best of As Seen on TV, Inc. 58%
W3, Inc. 100%
</TABLE>
The minority interest in First Films, Inc., Global Internet Corp., and
The Best of As Seen on TV, Inc. has been reduced to zero due to losses
in the respective subsidiaries. First Films, Inc. owns 100% of Comedy
Works, Inc. and Comedy Core, Inc. Cumulative losses applicable to the
minority interest in these subsidiaries exceed the minority interest in
the equity capital of these subsidiaries. Such cumulative excess (and
any further losses applicable to the minority interests are charged
against the Company's interest), as there is no obligation of the
minority interest to make good such losses. Current and future earnings
in those subsidiaries are credited to the extent of such losses
previously absorbed by the Company.
All significant intercompany accounts and transactions have been
eliminated.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash
equivalents.
Inventories
Inventories are stated at the lower of cost or market value (first-
in, first-out basis). Inventories are comprised of liquor and related
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. These methods approximate economic service value
expiration of the assets.
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 periods 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 Statement of Financial
Accounting Standards 121 (SFAS 121).
Software 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 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 will capitalize direct
costs of developing the portion of its website that will be used for
internal corporate communications. 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.
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 their
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.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
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 under
agreements with vesting terms extending beyond one year. Deferred
compensation is initially offset against stockholders' equity and
amortized to expense over the term of the related agreement.
Stock Award and Stock Option Plans
The Company grants common stock and stock options to employees and
non-employees. The Company applies Accounting Principles Board (APB)
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees",
and related Interpretations in accounting for all stock option plans.
Following the guidance of APB 25, compensation cost has been
recognized for stock options issued to employees and directors 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.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), 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 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.
In certain instances, the Company issues common stock for invoiced
services, to pay creditors and in other similar situations. Payments
in equity instruments to non-employees for goods or services are
accounted for by the fair value method, which relies on the valuation
of the service at the date of the transaction, or public stock sales
price, which ever is more reliable as a measurement.
The Financial Accounting Standards Board (Board) issued an Exposure
Draft, Accounting for Certain Transactions involving Stock
Compensation. In the exposure draft, the Board concluded that APB 25
applies only to compensation that involves stock of the employer
corporation issued to officers and other employees of the corporation.
APB 25 does not apply to compensation that involves stock options or
awards granted to independent members of an entity's board of directors.
However, at an August 11, 1999 meeting, the Board decided to permit APB
25 accounting treatment to options granted to outside directors for
their services as directors, provided those options meet the criteria in
APB 25.
In applying the provisions of these pronouncements, the Company
initially relied on the guidance presented in the Exposure Draft.
Accordingly the Company recorded deferred compensation and
compensation expense for options issued to non-employee directors
under SFAS 123. As a result of the reversal of the Board's initial
position, the Company is restating its quarterly financial statements
to account for stock options issued to non-employee directors under
APB 25. The effect of the change is to reduce previously reported
selling, general and administrative expenses and net loss by
approximately $318,000 for the three quarters ended September 30,
1999.
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 rates.
Accordingly, the fair value approximates their reported carrying
amounts at December 31, 1999 and 1998.
Mortgage Notes
Estimates are 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:
<TABLE>
December 31, 1999 December 31,1998
Carrying Fair Carrying Fair
Financial Liabilities Amount Value Amount Value
<S> <C> <C> <C> <C>
Notes Payable and
Mortgage Notes $1,166,529 $1,166,529 $1,181,083
$1,181,083
</TABLE>
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, net of returns.
The Company recognizes revenue on website design projects based on
hourly billing and/or on a percentage of completion method for fixed
bid projects. The Company's customers may elect to update and/or
expand their websites and clients are billed monthly on a time and
materials basis for these services. Additional sources of ongoing
revenue may include revenue from sale of merchandise over customers'
websites and revenue from the hosting and maintenance of client
websites. The Company receives and records a percentage of gross
revenue from merchandise and service sales immediately upon completion
of these sales.
Deferred revenues primarily represent billings on projects that are
deferred initially, and recognized ratably over the term of the
contracts earned. Revenues on percentage-of-completion projects are
recognized in the ratio that costs incurred bear to total estimated
contract costs. Changes in job performance, estimated profitability
and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are
determined.
In determining percentage-of-completion, contract costs include all
labor costs and those indirect costs related to contract performance.
General and administrative costs are charged to expense as incurred.
Profits on short-term contracts are recorded upon substantial
completion of each contract. Revenues from time and material contracts
are recognized as the work is performed.
At the time a loss on a contact becomes known, the entire amount of
the estimated loss on both short and long-term contracts is accrued.
An asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," would represent revenues recognized in excess
of amounts billed. The liability, "billings in excess of costs and
estimated earnings on uncompleted contracts,"would represent
billings in excess of revenues recognized. No amounts have been
recorded due to their nominal value.
Net Loss Per Share
As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
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 the
years ended December 31, 1999 and 1998, stock options and stock
warrants were not included in the computation of diluted earnings per
share because their effect was anti-dilutive; therefore, basic and
fully diluted earnings per share are the same for those years.
Use of Estimates
The preparation of these consolidated 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.
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 prior year consolidated financial statements
have been reclassified in order to conform to the current year
presentation. The reclassifications had no effect on financial
condition or results of operations.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) is effective for financial statements
with fiscal years beginning after December 15, 1998. SFAS 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 130 for 1999; the adoption did
not have any effect on the Company's its financial position or results
of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131) is
effective for financial statements with fiscal years beginning after
December 15, 1998. 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 adopted SFAS 131 in 1999; the adoption did not
have any effect on the Company's financial position or results of
operations.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" (SFAS
132) is effective for financial statements with fiscal years beginning
after December 31, 1998. The new standard revises employers'
disclosures about pension and other post retirement benefit plans but
does not change the measurement or recognition of those plans. SFAS
132 standardizes the disclosure requirements for pensions and other
post retirement benefits, 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 132
in 1999; the adoption did not have any effect on the Company's
financial position or results of operations.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) is effective
for fiscal years beginning after June 30, 1999. SFAS 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. The Company adopted SFAS 133 in 1999; the adoption did not
have any effect on the Company's financial position or results of
operations.
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 134) is
effective for the fiscal quarter beginning after December 15, 1999.
SFAS 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. Management believes the adoption of this statement will
have no impact on the Company's consolidated financial statements.
NOTE C ACQUISITIONS
All That Media
In June 1999, the Company acquired a newly formed development company
called "All That Media". The consideration for the acquisition consisted
of options given to All That Media's shareholders for 500,000 shares of
the Company's common stock at $.75 per share. The options expire on
October 10, 2001. The value of the options pursuant to SFAS 123 was
$355,000, which has been recorded as compensation in the accompanying
statement of operations as All That Media was a start-up company with no
revenue, proprietary rights or any other assets for which the
acquisition costs could be attributable to pursuant to APB 16.
All That Media was a company that specialized in rich media
development, internet portal development and internet advertising.
Prior to acquisition, the Company had contracted with the All That
Media for web site development, internet portal development and
internet advertising for the various new internet businesses the
Company intended to commence.
In June 1999, the Company acquired a start-up retail website
development company called EDRON Associates by issuing options to its
shareholders to purchase 300,000 shares of common stock of the Company
at $1.03 per share. The options are exercisable for a period of two
years. While EDRON was a start-up company with little revenue, it had
significant relationships with local internet service providers for
hosting and site development. The value of the options pursuant to
SFAS 123 was $102,000, which has been recorded as compensation in the
accompanying statement of operations as EDRON was also a start-up
company with no revenue, proprietary rights or any other assets for
which the acquisition costs could be attributable to pursuant to APB
16.
Concurrent with the acquisition of EDRON the Company formed a new
entity called First 2 Market, Inc. (F2M) and both EDRON and All That
Media were merged into F2M. The value of the options to acquire EDRON
pursuant to SFAS 123 was $152,400 of which $114,300 has been recorded
as compensation in the accompanying statement of operations and
$38,100 has been recorded as deferred compensation in the accompanying
balance sheet. EDRON was a start-up company with little revenue and no
proprietary or intangible assets for which the acquisition costs could
be attributable to pursuant to APB 16.
NOTE D DISCONTINUED OPERATIONS
In January 1998, the Company determined to discontinue the operations
of "The Best of As Seen on T.V." (ASOTV) due to losses and lack of
working capital to further develop the concept. Revenues from
discontinued operations were $54,300 for 1998.
Summarized balance sheet data for the discontinued operations as of
December 31, 1998 is as follows:
<TABLE>
1998
<S> <C>
Total assests-cash $ 1,246
Total liabilities-current (58,551)
- ---------------------------------------------------------------------
Net assets (liabilities) of
Discontinued operations $(57,305)
=====================================================================
</TABLE>
The remaining liability as of December 31, 1999 is included in accounts
payable in the accompanying consolidation balance sheet.
NOTE E NOTES PAYABLE AND LONG-TERM DEBT
The Company is in default under the terms of approximately $376,000 of
its debt obligations for non-payment. Substantially all of the Company's
assets are pledged as collateral to one or more debt obligations. Notes
that are in default are classified as current liabilities. Notes payable
and long-term debt is summarized as follows:
<TABLE>
December 31, 1999 1998
<S> <C> <C>
Notes payable, First National Bank Gillette (1)$ 455,165 $ 380,483
Note payable to the State of Wyoming(2) 300,000 300,000
Notes payable, lessor(3) 141,607 -
Mortgage note payable(4) 134,716 139,947
Mortgage note payable(5) 52,646 53,243
Note payable, creditor (6) 19,224 19,224
Notes payable, litigation(7) - 231,501
Various notes payable,individuals and companies(8)63,171 56,685
- ----------------------------------------------------------------------------
1,166,529 1,181,083
Less current portion 924,453 993,384
- ----------------------------------------------------------------------------
Long-term debt $ 242,076 $ 187,699
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Future maturities of debt as of December 31, 1999 are as follows:
</CAPTION>
<S> <C>
2000 $ 922,953
2001 32,256
2002 32,356
2003 32,456
2004 32,556
Thereafter 113,952
- ---------------------------
Total $ 1,166,529
===========================
</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 payments of $8,857. 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 and inventory and to
provide working capital necessary to establish a video duplicating
facility. As of December 31, 1999, 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, lessor of the comedy club facility. The $150,000
note payable bears interest at 12% and is due in 108 monthly
installments of $2,278 commencing February 1, 1999.
(4) Note payable, trust; interest at 9.5%; monthly principal and
interest of $1,500; final payment due October 2012; collateralized by
real property.
(5) 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.
(6) 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.
(7) Notes payable due to two individuals in connection with
litigation settlements. A note, originally for $125,000 and carrying
interest at 9.5% per annum, was due March 31, 1999 and was secured by
two parcels of land in Gillette, Wyoming on which the Company's radio
station operations are located. The second note, originally 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 was secured by the stock of the Company's
wholly owned subsidiary, Quality Communications, Inc, which operates
the Company's radio station. These notes were paid during 1999.
(8) Various notes payable in default; due to various individuals,
companies and related parties, with interest rates ranging from 10 to
21 percent per annum.
The weighted average interest rate on short-term borrowings was 12.40%
and 13.49% for 1999 and 1998, respectively.
NOTE F STOCKHOLDERS' DEFICIT
Common Stock
The Company 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 to determine the
rights and preferences of each series.
During 1999 and 1998, the Company issued 1,298,665 and 1,116,016
shares of common stock for consulting and other services valued at
$1,044,034 and $339,743 (including $268,000 and $225,000 in services
from related parties, respectively). The average price per share was
$0.80 and $0.36, respectively. Through February 28, 2000, the Company
issued an additional 179,741 shares of common stock for compensation
and consulting services valued at approximately $236,000.
During 1999 and 1998, the Company sold 280,000 and 771,667
shares of restricted common stock in a private placement offering
resulting in net proceeds of $220,000 and $168,000, respectively.
During 1999 and 1998, the Company also received $797,048 and $100,
respectively, from the exercise of 1,145,000 and 100 common stock
options and warrants.
Preferred Stock
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, 1999 the holders of the Class A Preferred Stock
have not demanded redemption. The 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, 1999. At December 31,1999, 10,689 shares
of Class A preferred are outstanding.
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 were subordinated to Class A shares.
In 1998, the Company sold 16,000 shares of Class B Convertible
Preferred Stock. During 1999, the remaining outstanding Class B
Preferred Stock was converted into common stock. As a result, there
are no shares of Series B Preferred Stock outstanding as of December
31, 1999.
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.
At December 31, 1999, no shares of Class C Preferred stock are
outstanding.
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 1999
and 1998, the Company issued other non-qualified stock options to non-
employees under terms and at prices deemed appropriate by the Board of
Directors.
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 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 as anticipated agreements were
not completed and the number of options granted were too high. There
is no effect on the Company's consolidated financial statements as the
related amounts are only required to be disclosed in the pro forma
information provided below. Mr. Goldberg, a director, 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.
Also in March 1999, the Company issued options to purchase
100,000 and 300,000 shares of common stock at $0.21 and $0.51 per
share, respectively, to third party individuals. The exercise price
was equal to the closing bid price for the Company's common stock on
the date of grant.
In May 1999, the Board of Directors authorized the issuance of
stock options to each member of the Board of Director as Director
compensation. Each Director received options to purchase 250,000
shares of common stock at $1.34 on January 1, 2000, January 1, 2001
and January 1, 2002 (a total of 3,000,000 options). 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 $1.94 per share on January 1, 2000, 2001 and
2002. On January 4, 2000, the Directors cancelled these options in
exchange for options to purchase 50,000 shares until January 4, 2003.
These options are exercisable at $0.61 per share, which was the
closing price on the date of grant. Two Directors agreed to this
request; Mr. Goldberg did not. There is no effect on the Company's
financial statements as a result of the issuance and cancellation of
these options as the related amounts are disclosed in the pro forma
information provided below.
Also in May 1999, the Company issued options to purchase 100,000
and 500,000 shares of common stock at $1.50 and $0.75 per share,
respectively in exchange for consulting services. The services related
to the 500,000 options were never provided and the options cancelled.
As disclosed earlier, in June 1999 the Company granted options to
purchase 500,000 and 300,000 shares of common stock at $0.75 and $1.03
in the acquisition of All That Media and EDRON, respectively.
Also in June 1999, the Company granted options to purchase
500,000 shares at $0.83 per share through December 31, 2000 to a
consulting entity. The services related to the 500,000 options were
never provided and the options cancelled.
In July 1999, the Company granted options to purchase 200,000
shares at $1.59 per share through July 1, 2004 to the Company's
Secretary and another employee. These options were canceled on January
4, 2000 and replaced with new options to purchase 50,000 shares at
$0.61 per share for three years.
On July 7, 1999 the Company signed an agreement with Coleman and
Company Securities, Inc. (Coleman) to act as the Company's exclusive
investment advisor, exclusive private placement agent and investment
banker for a period of one year. As compensation for these services
Coleman received options to purchase 500,000 shares of the Company's
common stock at $.875 per share and would receive a commission of 13%
for any public or private placement financing. The options are
exercisable for a period of five years and would have certain
registration rights for a period of two years. In addition, Coleman
would earn a fee in connection with a merger, acquisition or sale of
the Company.
Also in July 1999, the Company issued options to purchase 100,000
shares of common stock at $1.63 to an unrelated entity as
compensation. The exercise price was equal to the closing bid price
for the Company's common stock on the date of grant.
Also on January 4, 2000, options to purchase 250,000 shares of
common stock at $0.61 were granted to the three officers who are also
directors. These options expire on January 4, 2005. Of this total,
50,000 options become exercisable when the average closing price of
the stock is at least $2.25 for 10 consecutive days. Another 75,000
become exercisable when the Company achieves annual revenues of
$4,250,000. The remaining 125,000 options vest when the Company
achieves earnings per share of $0.05 per share. (unaudited)
Also on January 4, 2000, 3,375,000 options were granted to
officers that become exercisable only in the event of a change in
control of the company. These options are exercisable for $0.61 per
share. (unaudited)
On January 25, 2000, the Directors approved the grant of options
for 75,000 shares each to three Directors and 56,250 shares each to
two officers. The exercise price of these options is $1.33, the
closing price of the Company's common stock on the date of grant.
These options are exercisable thorough January 25, 2005 and vest only
if the common stock trades at a price of $4.50 or higher for 10
consecutive days between January 25, 2000 and July 1, 2001.
(unaudited)
Also on January 25, 2000, options to purchase 100,000 shares
were granted to an outside director. These options vest at the rate
of 25,000 shares per quarter during 2000. The exercise price is $1.33
per share. (unaudited)
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, 1998 109,375 $ 2.91 1999-2002
Granted 300,000 0.41 1999
Expired/Rescinded (9,375) 1999
- ------------------------------------------------------------------------
Balance, December 31, 1998 400,000 0.52 1999-2002
- ------------------------------------------------------------------------
Granted 10,200,000 0.83 2005
Exercised (732,500) 0.41 1999
Expired/Rescinded (3,105,000) 0.83 1999
- ------------------------------------------------------------------------
Balance December 31, 1999 6,672,500 $ 0.96 1999-2004
- ------------------------------------------------------------------------
Granted (unaudited) 5,287,500 1.00
Expired/Rescinded (unaudited) (3,200,000) 1.34
- ------------------------------------------------------------------------
Balance January 25, 2000
(unaudited) 8,850,000 $ 0.98 1999-2002
========================================================================
</TABLE>
The following table summarized information about stock options
outstanding and exercisable as of December 31, 1999:
<TABLE>
Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding & Contractual Exercise
From To Exercisable Life in Years Price
<S> <C> <C> <C> <C>
$0.21 $ 0.21 1,337,500 2.00 $ 0.21
$0.75 $ 0.875 1,000,000 3.00 $ 0.81
$1.00 $ 1.03 3,300,000 4.50 $ 1.00
$1.59 $ 2.00 1,125,000 4.50 $ 1.85
- ---------------------------------------------------------------------------
6,762,500 4.00 $ 0.96
===========================================================================
</TABLE>
Options issued to non-employees in 1999 and 1998 resulted in
compensation expense of $797,048 and $66,888, respectively.
Common Stock Purchase 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 1998 under SFAS 123. In 1999,
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, was for consideration of future
consulting services and expired in July 1999. The issuance of these
warrants to the Underwriter resulted in compensation expense of
$33,434 in 1998 under SFAS 123.
In connection with the acquisition of Global Internet on May 1, 1997,
Global Casino 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 the Company's common stock at
a rate of one share of the Company's 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 the
Company's 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 for stock
options issued to non-employees and for disclosure purposes. 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 approximately 110%, risk free interest rate of 6%, and
expected lives of 5 years for the stock award. If compensation costs
had been determined based on the fair value at the grant date for
stock option and stock warrant grants to employees, consistent with
the method in SFAS 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 years ended December 31,
1999 and 1998:
<TABLE>
1999 1998
<S> <C> <C>
Net (loss) from continuing operations, as reported ($2,525,399) ($782,085)
Net (loss) from continuing operations, pro-forma ($4,897,294) ($848,973)
Net (loss) per share, continuing operations,
basic and diluted, as reported ($0.23) ($0.10)
Net (loss) per share, continuing operations,
basic and diluted, pro-forma ($0.44) ($0.11)
</TABLE>
NOTE G 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, 1999 and 1998 are:
<TABLE>
1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,831,000 $ 4,159,000
Property, equipment, other assets, net (12,000) (8,000)
Discontinued operations - (15,000)
Other 10,000 24,000
- ------------------------------------------------------------------------------
Total gross deferred tax assets 4,829,000 4,160,000
Less valuation allowance (4,829,000) (4,160,000)
- ------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
==============================================================================
</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 $669,000 in 1999 and $541,000 in
1998.
The following summary reconciles the income taxes at the statutory
rate of 37% in 1999 and 1998 with the actual taxes:
<TABLE>
1999 1998
<S> <C> <C>
Benefit computed at the statutory rate-continuing operations $(669,000) $(232,000)
Discontinued operations - (7,000)
Valuation allowance 669,000 239,000
- -----------------------------------------------------------------------------------
Provision for income taxes $ - $ -
===================================================================================
</TABLE>
As of December 31, 1999, net operating loss carryforwards were
approximately $12,880,000. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates through 2014.
NOTE I RELATED PARTY TRANSACTIONS
The Company outsources substantially all administrative, management
and accounting functions to a company wholly-owned by a current
director 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. Total annual fees paid by cash and
by the issuance of common stock for 1999 and 1998 were approximately
$225,000.
Another entity, 43% of which is owned by the same director, performs
other administrative functions for the Company on an as-needed,
hourly basis. The Company also leases computer equipment from the
related entity and has amounts due to this entity of $5,580 as of
December 31, 1999.
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 F 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 J COMMITMENTS
Lease Commitments
The Company has long-term operating lease agreements for office space,
building and certain equipment. Future minimum lease payments required
under long-term leases in effect at December 31, 1999 are as follows:
<TABLE>
Minimum Rent Sublease Net
<S> <C> <C> <C>
2000 $ 183,913 $ 81,888 $ 102,026
2001 176,979 81,888 95,091
2002 134,104 54,592 79,512
2003 68,220 - 68,220
2004 68,220 - 68,220
Thereafter 204,660 - 204,660
- ---------------------------------------------------------------------------
Total $ 836,096 $218,368 $617,729
===========================================================================
</TABLE>
Rent expense for continuing operations was $221,276 and $191,795 in
1999 and 1998. Sublease rentals were $91,920 in 1999 and $27,296 in
1998. Rent expense for discontinued operations was $7,449 in 1998.
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 requires payments of $6,824 per month for 48 months
commencing September 1, 1999. Both the primary lease and the sublease
expire August 2002.
NOTE K LITIGATION
The Company knows of no 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 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. However, the Company has a dispute with
Mr. Goldberg, as discussed in Note I.
NOTE L OTHER BUSINESS DEVELOPMENTS
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 1998, 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. In early 1999, 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. Pursuant to a
Bankruptcy Court Order dated April 13, 1999 Balzac sold 885,000
shares of the Company's common stock between May 1999 and July 1999
receiving proceeds of approximately $2,056,000.
In February 2000, management of the Company reached an agreement
with Balzac to settle these disputes. Pursuant to this agreement,
which has been approved by approved by the Bankruptcy Court, Balzac
paid the Company $358,000 in cash and the Company issued Balzac
options to purchase 200,000 shares of the Company's common stock at
$2.00 per share, 310,000 shares of common stock at $1.00 per share,
and 65,000 shares at $1.40 per share. These options expire three
years after issuance.
Uproar Entertainment
In May 1999 the Company entered into an agreement with Uproar
Entertainment (Uproar) for the production and maintenance of a web
site and the sale of Uproar products on the web site. The Company
shall design and construct, at its own expense, a web site and provide
hosting and marketing for the site and will offer Uproars products for
sale. Uproar will be responsible for fulfilling and shipping all sales
order generated through the web site. The Company will pay $8.00 per
CD and $6.00 per cassette ordered to Uproar. The Company will receive
all proceeds from the sale of products on the web site and remit to
Uproar on a monthly basis the cost of products sold. The agreement
shall be for a period of five years and is renewable by mutual consent
of both parties.
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. 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.
NOTE N SEGMENT INFORMATION
Financial information by industry segments for the years ended
December 31, 1999 and 1998 is summarized as follows:
<TABLE>
Video (2) Live Other
Radio Internet(2) Entertainment Segments
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1999
Revenue $835,596 $ 23,112 $ 1,668,529 $ -
Revenue, affiliates - - - 163,956
Operating income (loss)
from continuing
operations 228,685 (705,833) 163,297 (2,117,229)
Identifiable assets 1,177,387 73,505 601,503 1,060,981
Depreciation and
Amortization 76,344 2,832 27,828 23,225
Capital expenditures 26,956 30,010 177,601 4,055
Interest Expense 48,069 120 22,293 43,880
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated $804,004 $213 $1,365,262 $ -
Revenue, affiliates 175,956
Operating income (loss),
continuing operations 173,883 169 211,336 (1,025,051)
Total assets 1,240,090 960,980 444,095 1,272,840
Depreciation and
Amortization 78,619 - 6,597 18,944
Capital expenditures 3,705 24,049 - -
Interest Expense 50,417 23,771 4,316 26,221
</TABLE>
<TABLE>
Eliminations Consolidation
<S> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1999
Revenue $ - $ 2,527,237
Revenue, affiliates (163,956) -
Operating income (loss)
from continuing
operations - (2,431,080)
Identifiable assets (1,259,719) 1,653,657
Depreciation and
Amortization - 130,229
Capital expenditures - 238,622
Interest Expense - 114,362
FOR THE YEAR ENDED
DECEMBER 31, 1998
Revenue unaffiliated (213) $ 2,169,266
Revenue, affiliates (175,956) -
Operating income (loss),
continuing operations (169) (639,832)
Total assets (2,398,155) 1,519,850
Depreciation and
Amortization - 104,160
Capital expenditures - 27,754
Interest Expense - 104,725
</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.
(2) The Company had no video operations in 1999. Its Internet
operations started in 1999. The amounts for the year ended December
31, 1998 pertain to the video segment; the amounts included for the
year ended December 31, 1999 pertain to the internet segment.
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:
<TABLE>
Tenure as Officer
Name Age Position or Director
<S> <C> <C> <C>
Doug Olson 50 President, Chief February 1999 to present
Operating Officer
And Director
Howard Stern 44 Chief Executive February 1999 to present
Officer, Chairman of
The Board, and
Director
Wende Curtis 35 Secretary February 1999 to present
A.B. Goldberg 51 Director April 1993 to present
Michael Marsowicz 36 Chief Technology August 1999 to present
Officer and Director
Philip Puccio 55 Director October 1999 to present
William Rubin 38 Director November 1998 to present
Daniel Stansky 52 Chief Financial December 1999 to present
Officer
</TABLE>
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.
The following sets forth background information concerning the
above Directors and Executive Officers:
Douglas Olson has served as our President since August 1999, as
Chief Operating Officer since November 1999, and as a director
since February 1999. Mr. Olson previously served as our President
and a director from March 1993 to February 1995 and as Chief
Executive Officer from August 1999 until November 1999. Since
February 1995, Mr. Olson has been the President and owner of
Creative Business Services, Inc., which provides accounting and
management information services. We outsource our accounting
function to Creative Business.
Wende Curtis has served as our Secretary since February 1999.
Since June 1993, Ms. Curtis also has served as the President and
General Manager of our Comedy Works, Inc. subsidiary. Ms. Curtis
received a B.A. degree from Colorado State University, Fort
Collins, Colorado, in 1987.
Abraham "A.B." Goldberg has served as a director since April
1998. From February 1995 until August 1999, he served as President
and Chief Executive Officer. Mr. Goldberg previously served as a
producer of First Films and as Executive Producer and Financial
Consultant since January 1987. 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.
Howard Stern has served as a Director since February 1999, as
Chairman of the Board since August 1999, and as our Chief Executive
Officer since November 1999. He has been in the life insurance
business since his junior year in college at the University of
Pittsburgh in 1975.
In July 1993, Mr. Stern joined The New York Life Insurance Company as a
registered representative where he was responsible for a variety of
sales, training and administrative duties and was active in product
development. Mr. Stern achieved the position of Council Vice President
in 1996. He achieved the position of Council President in 1998.
In October 1998, Mr. Stern ended his relationship with the
New York Life Insurance Company. He then started and was employed by H.
Stern Consulting as a consultant providing consulting, training and
seminars for the insurance industry. He also signed a Career Agent's
contract with MassMutual Life Insurance Company and was involved in
selling registered and non-registered products.
Mr. Stern 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 Advanced
Association of Life Underwriters (AALU), National Association of
Life Underwriters (NALU), Broward County Life Underwriters, and a
member of the American Society of CLUs, (BCLUA).
Mr. Stern is a panel member of the National Association of
Securities Dealers (NASD) Arbitration Board. He currently is
licensed in 20 states for the sale of Life Insurance and Variable
Products. He is an approved insurance continuing education
instructor in 48 states and in 1998 taught 8 classes nationally for
the American College.
William "Bill" Rubin has served as a director since November
1998. He has been a commercial loan officer for Enterprise Social
Investment Corporation since 1992, and has served as a vice
president with various financial institutions. Mr. Rubin's
responsibilities included underwriting and originating construction
and real estate current employment loans, workout and restructuring
of real estate loans, and 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.
Michael Marsowicz has served as our Chief Technology Officer
since July 1999 and as a director since August 1999. During 1998
and 1999, Mr. Marsowicz served as Chief Technology Officer for
Maxnet, Inc., Virtual Financial Holdings, and the Presentation
Network, all of which were involved in the technology industry.
From 1995 until 1998, Mr. Marsowicz was the Chief Technology
Officer of Net Health Care. Mr. Marsowicz previously served in
technical support positions at New York Life from 1993 until 1995.
Philip Puccio has served as a director since October 1999. Mr.
Puccio also serves as President and Chief Executive Officer of
Coleman and Company Securities, Inc., where his responsibilities
include complete management of that firm and all its personnel.
Mr. Puccio has been engaged in the securities industry for over 30
years. From 1975 until 1985, Mr. Puccio served a director and
Executive Vice President at Drexel, Burnham, Lambert and Company.
From 1985 until 1989, Mr. Puccio served as Managing Director of
World Wide Sales and Equity Trading for Dillon, Read and Co. From
1989 until 1991, Mr. Puccio served as Managing Director and Senior
Vice President of World Wide Sales and Trading for Prudential
Securities, Inc. In 1991, Mr. Puccio retired from active
management and became a consultant to brokerage firms that required
expertise in developing trading and sales divisions. Mr. Puccio
retired from the securities industry in 1994 and devoted himself to
managing personal and outside capital until accepting his current
position with Coleman and Company Securities, Inc. in early 1998.
Daniel Stansky has served as Chief Financial Officer since
December 1999. During 1998 and 1999, Mr. Stansky served as Chief
Operating Officer and Chief Financial Officer of Summus, Ltd., a
technology development firm know for wavelet based image
identification and data compression solutions. From 1995 until
1998, Mr. Stanksy was Vice President Finance/IT of Anchor
Continental, inc. a wholly owned subsidiary of Coating Technologies
International, Inc. Prior to Anchor Continental, Mr. Stansky held
financial management positions with Rogers Corporation, Armour Dial
Corporation , and Marathon Oil. Mr. Stansky holds an MBA from the
University of Michigan and a BS in Economics from the University of
Pennsylvania's Wharton School.
No family relationship exists between or among any of the persons
named above. None of our 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
- -------------------------------
Summary Compensation Table
The following table sets forth in summary form the compensation
received during each of the last three completed years by our current
and former Chief Executive Officers. No executive officer's
compensation exceeded $100,000 during the year ended December 31,
1999. The figures in the following table are for fiscal years ended
December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
Summary Compensation Table
</CAPTION>
Annual Compensation Long term
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Restricted Underlying All Other
Principal Annual Stock Options LTIP Compensation
Position Compen- Award(s) SARs(#) Payouts ($)(5)
Year Salary Bonus sation ($) ($)(3) ($)(4)
($) ($)(1)($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard
Stern
Chief
Executive
Officer, 1999 12,500 - - - - - 75,000
And 1998 - - - - - - -
a Director 1997 - - - - - - -
Douglas
Olson,
President,
Chief
Operating
Officer,
Former
Chief
Executive
Officer, 1999 12,000 - - - - - 84,000(10)
And a 1998 - - - - - - 85,250(10)
Director 1997 - - - - - - 90,323(10)
A.B.
Goldberg
Former
Chairman
of
The Board,
Former
President,
Former
Chief
Executive
Officer,
and a 1999 - - 97,500 - - - -
Director 1998 14,500 - 47,500(7) 76,500(8) - - 47,550
Director 1997 24,500 - 72,000(7) - - - 84,000
</TABLE>
(1) The dollar value of bonus (cash and non-cash) paid during the
year indicated.
(2) Consists of compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits, securities
or property.
(3) The sum of the number of shares of common stock to be received
upon the exercise of all stock options granted.
(4) We do not have in effect any plan that is intended to serve as
incentive for performance to occur over a period longer than one
fiscal year.
(5) The amounts shown in this column represent amounts that are
alleged by the SEC to be compensation for Mr. Goldberg in the lawsuit
described in the "Legal Proceedings" section of this prospectus. The
amounts alleged by the SEC to constitute compensation include the
following: (a) a total of $148,300 alleged to have been paid by
Creative Business to Munchkintown, a company owned by Mr. Goldberg's
wife, including approximately $30,000 alleged to have been paid in
1995, approximately $72,000 alleged to have been paid in 1996, and
approximately $46,300 alleged to have been paid in 1997, and (b)
payments alleged to have been made by Michael Payne to Mr. Goldberg
through Munchkintown of $42,300 in May 1995 and $21,671 made in July
1995. Other amounts alleged to have been paid to Mr. Goldberg in the
SEC complaint are included under the headings "Other Annual
Compensation" and "Restricted Stock Awards" and are described in
footnotes (7) and (8), respectively, below. In addition to the
amounts shown in the above table, the SEC alleged in its complaint
that the Company failed to disclose as compensation total payments of
$73,971.25 from Michael Payne to Mr. Goldberg through Munchkintown in
1995 and a payment of $1,500 to Mr. Goldberg through Munchkintown by
Foremont, Inc. in 1995.
(6) Mr. Goldberg resigned from his positions as President, Chief
Executive Officer and Chairman Of The Board on August 9, 1999. At
that time, Douglas Olson was elected President and Chief Executive
Officer and Howard Stern was elected as Chairman Of The Board. Mr.
Stern was elected as Chief Executive Officer in November 1999.
(7) Does not include a $20,000 loan made to Mr. Goldberg by another
director in June 1999.
(8) Includes payments to Mr. Goldberg's wife and an entity owned by
Mr. Goldberg's wife in the amount of $5,500 for 1997 and $12,000 for
1996. See below, "Item 12. Certain Relationships and Related
Transactions".
(9) Consists of the value of common stock transferred to NMG, LLC,
which is owned by Mr. Goldberg's wife. See below "Item 12. Certain
Relationships and Related Transactions".
(10) Consists of salary received from Creative Business Services, Inc.
See below, "Item 12. Certain Relationships and Related Transactions".
As of December 31, 1999, we had no group life, health,
hospitalization, medical reimbursement or relocation plans in effect
which discriminate, in scope, terms, or operation, in favor of our
officers or directors and that are not generally available to all
salaried employees. Further, we have no pension plans or plans or
agreements which provide compensation in the event of termination of
employment or change in control.
Employee Retirement Plans, Long-Term Incentive Plans, and Pension Plans
Other than our stock option plans, we have no employee retirement
plan, pension plan, or long-term incentive plan to serve as incentive
for performance to occur over a period longer than one fiscal year.
Compensation of Directors
During the year ended December 31, 1999, no compensation was paid
to our directors. We reimburse directors for out-of-pocket expenses
incurred by them in connection with our business.
Employment Contracts And Termination Of Employment And Change-In-
Control Arrangements
We do not have any written employment contracts with any of our
officers or other employees. We have no compensatory plan or
arrangement that results or will result from the resignation,
retirement, or any other termination of an executive officer's
employment or from a change-in-control or a change in an executive
officer's responsibilities following a change-in-control.
Option Grants
On March 11, 1999, we issued options to our directors and some
consultants to purchase 1,000,000 shares of common stock at $.21 per
share until March 11, 2002, which vested immediately. In addition,
contingent options for a total of 950,000 shares were issued to
directors if an Internet gaming licensing agreement was executed with
Starnet Communications and a definitive software licensing agreement
was executed with Global Games Holdings. These agreements were
subsequently executed. Options earned from the March 11, 1999
issuance are as follows:
* A.B. Goldberg - 1,000,000
* Doug Olson - 250,000
* Howard Stern - 250,000
* Bill Rubin - 250,000
On September 14, 1999, the Board of Directors determined to
reduce the number of shares that may be purchased pursuant to these
options granted to our directors by 875,000. Mr. Goldberg opposed this
resolution of the Board. Mr. Goldberg's counsel has stated that it is
Mr. Goldberg's position that we do not have the right to cancel
options previously issued to Mr. Goldberg and that Mr. Goldberg does
not intend to relinquish those options. On November 17, 1999, the
Board clarified its option cancellation of September 14, 1999 based on
the fact that both of the agreements for which the cancelled options
had been granted either had been or would be cancelled without having
resulted in any business for the Company. Mr. Goldberg's counsel also
objected to and denied the effectiveness of this action. In October
1999, a committee of the Board, based on information contained in the
SEC's complaint described above in "Item 3. Legal Proceedings" that
was not available to the Board in March 1999, cancelled the remainder
of the options granted to Mr. Goldberg in March 1999. See "Item 12.
Certain Relationships And Related Transactions".
At the meeting of the Board of Directors held on March 18, 1999,
the Board approved the issuance of options to purchase common stock
for each of our directors, as well as a consultant to the Company.
The options are exercisable at a price of $.53 per share until March
18, 2002. Options to purchase an aggregate of 1,200,000 shares were
issued. The options are contingent upon our common stock trading at a
price of at least $1 per share on December 31, 1999. In September
1999, the of directors determined to cancel all these options. Mr.
Goldberg opposed this resolution of 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.
Our common stock did not trade at a price of at least $1 per share on
December 31, 1999 so that these options have terminated.
In May 1999, we granted options to purchase 750,000 shares to
each of our directors. 250,000 of these options become exercisable on
each of January 1, 2000, 2001 and 2002 if the recipient continues to
be a director on those respective dates. These options are
exercisable at a price of $1.34 per share until January 1, 2005. In
July, 1999, the Board agreed that the 250,000 options issued to Mr.
Goldberg that were to become exercisable on January 1, 2000 would
become exercisable immediately. In October 1999, a committee of the
Board, based on information contained in the SEC's complaint described
above in "Item 3.Legal Proceedings" that was not available to the
Board in July 1999, determined that the options to purchase 250,000
shares that were allowed to vest in July 1999 should not have been
allowed to vest. Because Mr. Goldberg was a director on January 1,
2000, these options currently are treated by the Company as vested.
See "Item 12. Certain Relationships and Related Transactions". On
January 4, 2000, we cancelled the options granted to directors in May
1999 in exchange for options to purchase 50,000 shares until January
4, 2003. These options are exercisable at $.61 per share, which was
the closing bid price on the date of grant. Mr. Rubin and Mr. Puccio
agreed to this exchange. Mr. Goldberg has not agreed.
Also on January 4, 2000, we approved grants of options to
purchase 250,000 shares for $.61 per share to each officer who also is
a director. The recipients of these options were Howard Stern,
Douglas Olson and Michael Marsowicz. These options expire on January
4, 2005. These options become exercisable as follows:
<TABLE>
Shares Becoming Exercisable Triggering Event
<S> <C>
50,000 When the average closing price of
the common stock is at least
$2.25 for 10 consecutive business
days.
75,000 When the Company achieves annual
revenues of $4.25 million.
125,000 When the Company achieves
earnings per share of $.05.
</TABLE>
Also on January 4, 2000, we approved grants of options to
purchase 187,500 shares for $.61 per share to each of Daniel Stansky,
our Chief Financial Officer, and Robert Fuchs, our marketing director.
These options expire on January 4, 2005. These options are
exercisable as follows:
<TABLE>
Shares Becoming Exercisable Triggering Event
<S> <C>
37,500 When the average closing price of
the common stock is at least
$2.25 for 10 consecutive business
days.
56,250 When the Company achieves annual
revenues of $4.25 million.
93,750 When the Company achieves
earnings per share of $.05.
</TABLE>
On January 4, 2000, we also rescinded option grants previously
made in July 1999 to Wende Curtis, our Secretary, and another
employee. The rescinded options were each for 25,000 shares at $1.59
per share until July 1, 2004. These options were replaced with new
options to purchase 50,000 shares for $.61 per share for three years.
All the options terminated and replaced in January 2000 were made
with the acceptance of the option holders, except that Mr. Goldberg
objects to any termination of his options.
On January 4, 2000, we approved options for our officers that
become exercisable only in the event of a change-in-control of the
Company. These options are exercisable for $.61 per share, which was
the closing bid price for our common stock on January 4, 2000. These
options were granted as follows:
* Howard Stern - 750,000
* Douglas Olson - 750,000
* Michael Marsowicz - 750,000
* Daniel Stansky - 562,500
* Robert Fuchs - 562,500
On January 25, 2000, we approved grants of options as follows:
* Howard Stern - 75,000
* Douglas Olson - 75,000
* Michael Marsowicz - 75,000
* Daniel Stansky - 56,250
* Robert Fuchs - 56,250
These options are in effect until January 25, 2005. The exercise
price for these options is $1.33 per share, which was the closing bid
price for the common stock on January 25, 2000. These options become
exercisable only if our common stock trades at a price of $4.50 or
higher for 10 consecutive business days between January 25, 2000 and
July 1, 2001.
Also on January 25, 2000, we approved the grant of options to
purchase 100,000 shares to William Rubin, an outside director. These
options become exercisable at the rate of 25,000 shares per quarter
during 2000. The exercise price is $1.33 per share.
Item 11. Security Ownership of Certain Beneficial Owners
- --------------------------------------------------------
and Management
- --------------
The following table sets forth information regarding ownership of
the common stock as of February 10, 2000 by: (1) each person known
by us to be the beneficial owner of more than 5 percent of the
outstanding common stock; (2) each director; and (3) all executive
officers and directors as a group.
<TABLE>
Name and Address
of Beneficial Owner Beneficial
Ownership (1) Percent
of Class
<S> <C> <C>
A. B. Goldberg
2805 East Long Court
Littleton, CO 80121 1,150,000 (2) 9.0%
Doug Olson
5495 Marion Street
Denver, CO 80216 701,966 (3)(4) 6.8%
Howard Stern
500 Corporate Drive
Suite 200
Ft. Lauderdale, FL 33334-3603 175,099 (3) 2.2%
William Rubin
313 East Fort Ave.
Baltimore, MD 21230 125,000 (3) 2.0%
Michael Marsowicz
2500 E. Hallandale Beach Blvd.
Hallandale, FL 33009 375,000 (3)(5) 2.0%
Philip C. Puccio
c/o Coleman and Company Securities, Inc.
575 Lexington Avenue
New York, NY 10022 550,000 (6) 4.0%
Officers and Directors
as a Group (8 persons) 2,543,750 (2)(3) 22.8%
(4)(5)(6)
(7)
Global Casinos, Inc.
5373 N. Union Blvd., Suite 100
Colorado Springs, CO 80918 1,500,000 (8) 11.1%
<CAPTION>
* Less than one percent.
</CAPTION>
</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) A.B. Goldberg is a director of the Company. Consists of the
following: options to purchase 900,000 shares for $.21 per share
until March 11, 2002 that the Board Of Directors has cancelled but
that Mr. Goldberg asserts are still exercisable, and options to
purchase 250,000 shares for $1.34 per share until January 1, 2005
that became exercisable on January 1, 2000. These transactions are
described in the "Executive Compensation Option Grants" and
"Transactions Between The Company And Related Parties" sections of
this prospectus. All Forms 4 and 5 required to be filed for Changes
in Beneficial Ownership and Annual Statement of Beneficial Ownership
have not been filed by this director.
(3) Includes or consists of options to purchase 50,000 shares for
$.61 per share until January 4, 2005 if the Company achieves an
average closing common stock price of $2.25 per share for 10
consecutive business days and options to purchase an additional
75,000 shares for $1.68 per share until January 25, 2005 if the
common stock trades at $4.50 per share for 10 consecutive business
days.
(4) Includes shares personally owned by Doug Olson, President,
Chief Executive Officer and a director, and shares owned of record
by Creative Business Services, Inc. Mr. Olson is the President and
sole stockholder of Creative Business. Also includes 2,000 shares
owned by a company that is 40% owned by Mr. Olson and for which he
serves as a director.
(5) Includes currently exercisable options to purchase 250,000
shares for $.75 per share until October 10, 2001.
(6) Includes options to purchase 50,000 shares for $.61 per share
until January 4, 2003. Also includes 500,000 shares underlying
options to purchase common stock for $.875 per share until July 7,
2004. Phillip C. Puccio, a director of the Company, is the
President of Coleman and Company Securities, Inc. These options
were issued to Coleman and Company Securities, Inc. as consideration
for investment banking services provided to the Company.
(7) Also includes 29,349 shares and currently exercisable options to
purchase 50,000 shares held by Wende Curtis, Secretary, and options to
purchase
93,750 shares held by Daniel Stansky, Chief Financial Officer, that
may become exercisable within 60 days if certain conditions are met.
(8) Consists of currently exercisable warrants to purchase
1,500,000 shares of common stock at $1.00 per share.
Compliance with Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act of 1934 requires our directors,
executive officers and holders of more than 10% of our commons tock to
file with the SEC initial reports of ownership and reports of changes of
ownership of common stock and other of our equity securities. We
believe that during the year ended December 31,1999, our officers,
directors, and holders of more than 10% of our common stock complied
with all Section 16(a) filing requirements. In making these statements,
we have relied upon our review of the monthly statements of changes
filed with us by our officers and directors.
Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------
Commencing April 1995, we contracted out substantially all our
administrative, management and accounting functions to Creative
Business Services, Inc. Creative Business is wholly-owned by
Douglas R. Olson, our President and a director. Monthly fees for
such services were $21,000 for the period January 1, 1997 through
August 31, 1998, and thereafter the fees were reduced to $14,000
per month through July 1999. Commencing August 1999, the fees were
increased to $21,000 per month due to our increased activities.
These are paid in cash or shares of common stock based on market
prices. Total annual fees paid by cash and by the issuance of
common stock for 1999 and 1998 were $225,000 and $252,000,
respectively, with the 1999 figure consisted of 250,500 (of which
33,500 were unsold as of 12/31/99 shares of common stock and $41,386
cash and the 1998 figure consisted of 339,766 shares and $37,526 in
cash.
In July 1997, we acquired 100,000 shares of common stock of
The Best Of As Seen On TV from NMG, LLC, an entity owned by the
wife of A.B. Goldberg, a director and former president of the
Company, in exchange for 100,000 shares of common stock. The
100,000 shares of the common stock were used by Mr. Goldberg and
his wife to settle a lawsuit against them and other defendants,
including Mr. Goldberg's mother. The value of the common stock
issued to NMG, LLC of $50,000 has been classified as officer
compensation in the accompanying consolidated statements of
operations included in the "Financial Statements" section of this
filing.
Consulting fees were paid to the wife of A.B. Goldberg for the
year ended December 31, 1997 in the amount of $5,500. The amounts
paid to the wife of A.B. Goldberg have been classified under
officer compensation in the consolidated statements of operations
included in the "Financial Statements" section of this prospectus
and in the Summary Compensation Table included in the "Executive
Compensation" section of this filing.
Our Internet related businesses are conducted through our
First 2 Market, Inc. subsidiary. All That Media, Inc., which was
acquired by us in June 1999, was merged into First 2 Market, Inc.
in June 1999. At the time it was acquired by us, All That Media
was a newly-formed company that specialized in intellectual
property development, Internet portal development and Internet
advertising. We issued an option to purchase a total of 500,000
shares of common stock for $.75 per share until October 10, 2001 to
the stockholders of All That Media for all the outstanding stock of
All That Media. Michael Marsowicz, the President and 50 percent
owner of All That Media, received 250,000 of these options. Mr.
Marsowicz subsequently was elected as our Chief Technology Officer
in July 1999 and as a director in August 1999.
On July 7, 1999, we entered into an agreement with Coleman and
Company Securities, Inc. pursuant to which Coleman agreed to act as
our exclusive investment advisor, exclusive private placement agent
and exclusive investment banker. This agreement has a term of 12
months. As compensation, we issued Coleman options to purchase 500,000
shares of common stock at a purchase price of $.875 per share at any
time during the five-year period commencing on July 7, 1999. We
granted Coleman registration rights concerning the transfer of the
shares
of common stock that may be issued upon the exercise of these
warrants. We also agreed to pay Coleman an amount equal to 10% of
the funds raised by Coleman, a three percent non-accountable
expense allowance with respect to those funds, and placement agent
warrants with an exercise price no more favorable than that given
to investors in any private placement transaction in which Coleman
participates equal to 10 percent of the amount of equity raised by
Coleman. In addition, if we enter into a merger acquisition or
sale transaction with the party introduced by Coleman, we agree to
pay Coleman five percent of the first $2,000,000 of value of that
transaction, four percent of the following $2,000,000 of value,
three percent of the following $2,000,000 of value, two percent of
the following $2,000,000 of value, and one percent of the balance
of the value of the transaction. We also agreed to pay Coleman an
amount equal to 10 percent of the amount raised by us from
financing sources introduced by Coleman to us if those amounts are
raised within 24 months after the introduction. We granted Coleman
a right of first refusal to undertake any financing on behalf of
the Company within the term of the agreement. In September 1999,
subsequent to entering into the agreement with Coleman, we elected
Philip C. Puccio as a director. Mr. Puccio is the President and
Chief Executive Officer of Coleman.
The Board believes that the terms of the related party
transactions described above were as fair as those that we could
have obtained from unrelated third parties in arms-length
transactions.
On October 7, 1999, the Board Of Directors established a
Related Parties Transactions Committee consisting of four directors
primarily for the purpose of dealing with issues between the Company and
Mr. A.B. Goldberg concerning prior grants of options as described above
under "Item 10. Executive Compensation - Option Grants" and related to
reimbursement of Mr. Goldberg's expenses to defend against the
SEC's complaint described under "The Company - Legal Proceedings."
Mr. Goldberg is a director of the Company. From February 1995
until August 9, 1999, Mr. Goldberg was our Chief Executive Officer.
In July 1999, Howard Stern, one of our directors who had a personal
relationship with A.B. Goldberg prior to Mr. Stern's having joined the
Board in February 1999, made a personal loan to Mr. Goldberg of
approximately $20,000. No specific maturity date or other terms were
discussed at the time. Mr. Goldberg was the Chief Executive Officer as
well as a director of the Company at the time of the loan.
The Related Parties Transactions Committee held a meeting on
October 7, 1999 and determined, among other matters, that all
outstanding stock options previously granted to Mr. Goldberg are
null and void and/or cancelled. As indicated under "Item 10. Executive
Compensation-Option Grants", we previously cancelled, on a pro rata
basis, certain stock options previously granted to Mr. Goldberg and
the other directors of the Company (the "Prior Cancellations"). At
that time, Mr. Goldberg's counsel informed us that Mr. Goldberg
does not intend to relinquish those stock options even though the
other directors all indicated their intent to do so. We anticipate
that Mr. Goldberg may elect to litigate with us concerning the
Prior Cancellations as well as the stock options cancelled by the
Related Parties Transactions Committee. On March 27,2000, we commenced
a lawsuit against Mr. Goldberg. This lawsuit is described above under
"Item 3. Legal Proceeding."
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.
Number Description
3.1 Articles Of Incorporation (A)
3.3 Bylaws (A)
5.1 Updated opinion of Patton Boggs LLP
concerning the legality of the securities
being registered
10.1 Form of Agreement between the Company and
the stockholders of All That Media, Inc. (B)
10.2 Agreement dated July 7, 1999 between the
Company and Coleman and Company Securities,
Inc. (B)
10.3(a) Form of Agreement Advertising Insertion
Order between the Company and Yahoo, Inc.
(B)
103(b) Material Terms Of Advertising Insertion
Orders between the Company and Yahoo, Inc.
10.4 Asset Purchase Agreement Inc. dated
September 21, 1999 between W3, Inc. (a
subsidiary of the Company) and Brian M.
Encke. (B)
21 Subsidiaries of the Company
27 Financial Data Schedule
(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) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report.
Exhibit 21
<TABLE>
<CAPTION>
First Entertainment Holding Corp.
</CAPTION>
State
Name of Subsidiary of Incorporation Percentage Owned
<S> <C> <C>
Quality Communications, Inc. Wyoming 100%
First 2 Market, Inc. Florida 100%
First Films, Inc. Colorado 80%
Global Internet Corp. Colorado 50.3%
The Best of As Seen On TV, Inc. Colorado 58%
W3, Inc. Wyoming 100%
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST ENTERTAINMENT HOLDING CORP
Dated: March 30, 2000 By/s/ Howard B. Stern
Howard B. Stern, Chief
Executive Officer and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Company and in the capacities and on the dates indicated.
Dated: March 30, 2000 /s/Douglas Olson
Douglas Olson
President
Dated: March 30,2000 /s/Wende Curits
Wende Curtis
Secretary
Dated: March 30, 2000 /s/ William Rubin
William Rubin
Director
Dated: March 30, 2000 /s/ Phillip Puccio
Phillip Puccio
Director
Dated: March 30, 2000 /s/ Michael Marsowicz
Michael Marsowicz
Director
Dated: March 30, 2000 /s/ Howard B. Stern
Howard B. Stern
Director
Dated: March 30, 2000 /s/ Daniel Stansky
Daniel Stansky
Chief Financial Officer
And Principal Accounting Officer
<TABLE> <S> <C>
<S> <C>
<ARTICLE>5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 193
<ALLOWANCES> 8
<INVENTORY> 20
<CURRENT-ASSETS> 315
<PP&E> 1584
<DEPRECIATION> (911)
<TOTAL-ASSETS> 1653
<CURRENT-LIABILITIES> 1872
<BONDS> 242
<COMMON> 100
0
0
<OTHER-SE> (561)
<TOTAL-LIABILITY-AND-EQUITY> 1653
<SALES> 2541
<TOTAL-REVENUES> 2541
<CGS> 2840
<TOTAL-COSTS> 4955
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> (2509)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2509)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
