SECURITIES AND EXCHANGE COMMISSION
Washington ,D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999 Commission File Number 0-15435
FIRST ENTERTAINMENT HOLDING CORP.
(Exact name of Company as specified in its charter)
NEVADA 84-0974303
(State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization)
5495 Marion Street, Denver, CO 80216
(Address of principal executive office (Zip code)
Company's telephone number, including area code (303) 228-1650
7887 Bellview, Suite 1114 Englewood, CO 80111
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check whether the Company (1) has filed 1) Yes X
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the 2) Yes X
preceding 12 months (or for such shorter period that
the Company was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
Number of Shares
Class Outstanding at July 31, 1999
Common stock, $.008 par value 11,488,988 shares
Class A Preferred Stock, $.001 par value 10,689 shares
Class B Preferred Stock, $.001 par value 0
FIRST ENTERTAINMENT HOLDING CORP.
FORM 10-QSB/A2 QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheet as of June 30,1999
(Unaudited) and December 31, 1998
Consolidated Statements of Operations (Unaudited)
for three months and six months ended June 30, 1999 and 1998
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
SIGNATURE
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
</CAPTION>
June 30, December 31,
1999 1998
<S> <C> . <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 193,909 $ 109,450
Accounts receivable trade, net
of allowance 108,681 101,568
Note receivable, officer 12,093 15,010
Inventories 16,943 14,732
Prepaid and other current 26,817 28,508
- ---------------------------------------------------------------------
358,443 269,268
- ---------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Equipment and furniture 722,345 709,325
Building and leasehold improvement 682,257 532,257
Land 125,000 125,000
- ---------------------------------------------------------------------
1,529,602 1,366,582
Less accumulated depreciation 872,864 845,810
- ---------------------------------------------------------------------
656,738 520,772
- ---------------------------------------------------------------------
OTHER ASSETS
License, net of accumulated
Amortization 673,373 725,684
Web site development costs 99,917
Other 2,100 4,126
- --------------------------------------------------------------------
775,390 729,810
- --------------------------------------------------------------------
TOTAL ASSETS $ 1,790,571 $ 1,519,850
====================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
</CAPTION>
June 30, December 31,
1999 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Deficit):
CURRENT LIABILITIES
Accounts payable $ 140,029 $ 188,920
Accrued liabilities 169,356 142,458
Accrued interest 432,938 430,107
Notes Payable and current portion
of long-term debt 959,144 993,384
Notes payable, related parties 3,000 3,000
Net liabilities of discontinued operations 58,551 57,305
- --------------------------------------------------------------------
Total current liabilities 1,763,018 1,815,174
- --------------------------------------------------------------------
LONG TERM DEBT, NET OF CURRENT PORTION 325,597 187,699
- --------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized
5,000,000 shares;
Class A preferred stock, 10,689 shares issued
and outstanding 10 10
Class B preferred stock 0 and 11,760
shares issued and outstanding 0 12
Class C preferred stock no shares issued 0 0
Common stock, $.008 par value; authorized
50,000,000 shares; 10,996,395 and 9,610,170
shares issued 87,972 76,882
Capital in excess of par value 17,254,539 15,924,087
Accumulated (deficit) (17,492,982) (16,484,014)
Deferred compensation (147,583) 0
- ---------------------------------------------------------------------
(298,044) (483,023)
- ---------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT) $ 1,790,571 $ 1,519,850
====================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the For the
three months six months
ended ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUE:
Live Entertainment $ 372,188 $ 284,540 $808,130 $602,878
Radio 202,179 208,819 385,164 403,406
Video - 148 - 213
Other 44,532 14,123 81,106 24,639
- ------------------------------------------------------------------------
618,899 507,630 1,274,400 1,031,136
- ------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales - live
Entertainment 362,382 268,802 742,785 537,090
Cost of sales - radio 153,462 127,716 278,955 276,982
Cost of products sold - video - 25 - 45
Impairment writedowns 15,000 -
Depreciation and amortization 33,245 25,606 64,622 51,818
Management and
administrative fees, Affilates 50,000 60,000 92,218 122,000
Selling, general and
Administrative 825,228 191,878 403,142 423,071
- ------------------------------------------------------------------------
1,424,317 674,028 2,224,722 1,411,006
- ------------------------------------------------------------------------
OPERATING LOSS FROM CONTINUING
OPERATIONS (805,418) (166,038) (950,322)(379,870)
OTHER INCOME (EXPENSE)
Interest expense (32,693) (22,508) (60,420) (44,839)
Other 577 24 1,774 87
- -----------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS,
BEFORE MINORITY INTEREST (837,534) (188,882)(1,008,968)(424,622)
MINORITY INTEREST IN NET LOSS
- -----------------------------------------------------------------------
LOSS FROM CONTINUING
OPERATIONS (837,534) (188,882)(1,008,968)(424,622)
DISCONTINUED OPERATIONS
Income (Loss) from
discontinued operations (532) (532)
- -----------------------------------------------------------------------
NET INCOME (LOSS) $(837,534)$(189,414)$(1,008,968)$(425,154)
========================================================================
PER SHARE DATA: Basic and Diluted
Net Income (loss) per share,
continuing operations,
Basic and Diluted (.08) $ (.03) (.10) $ (.06)
Net Income (loss) per share,
discontinued operations * * * *
Net Income (loss) per
common share,
Basic and Diluted (.08) $ (.03) (.10) $ (.06)
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 10,530,322 6,887,906 10,058,472 6,887,906
========================================================================
<CAPTION>
* Less than $.01 per share
"See accompanying notes to consolidated financial statements"
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
</CAPTION>
For the six months For the six months
ended June 30, ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (1,008,968) $ (425,154)
Adjustments to reconcile net
income (loss) to net cash
from operations
Depreciation and
Amortization 64,322 51,818
Impairment writedowns 15,000
Common stock issued
for services 360,533 370,519
Common stock options 652,172 66,888
Changes in operating assets
and liabilities
(Increase) decrease in
Receivables (4,196) 92,347
Inventories (2,211) (24,761)
Other current assets 1,691 (3,295)
Other assets 2,026 (129)
Increase (decrease) in
Accounts payable (141,263) (155,912)
Accrued liabilities (29,729) (19,650)
Cash provided by
discontinued operations 29,555
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES: (90,623) (17,774)
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - net (13,020) (3,718)
Investments and other (6,556)
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (19,576) (3,718)
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on debt (46,342) (23,532)
Proceeds from issuance of common stock 241,000 115,200
- -------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 194,658 91,668
- -------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 84,459 70,176
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 109,450 18,049
- -------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 193,909 $ 88,225
===================================================================
<CAPTION>
"See accompanying notes to consolidated financial statements."
</CAPTION>
</TABLE>
<TABLE>
Supplemental Schedule of Noncash
Investing and Financing Activities 1999 1998
<S> <C> <C>
Accounts payable converted to common stock $ 92,372 $ 41,739
===================================================================
Accounts payable issued for Web site
Development $ 90,000 0
===================================================================
Note payable issued for Leasehold
Improvements $ 150,000 $ 150,000
===================================================================
Common stock issued for services $ 360,533 $ 370,519
===================================================================
Common stock options issued
for services $ 652,172 $ 66,888
===================================================================
Common stock issued for life
insurance premiums $ - $ 30,000
==================================================================
</TABLE>
FIRST ENTERTAINMENT HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies:
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with instructions to
Form 10-QSB and Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying
financial information is Unaudited but includes all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are necessary to present fairly the information set forth.
The consolidated financial statements should be read in conjunction with
the notes to the consolidated financial statements which are included in
the Annual Report on Form 10-KSB of the Company for the fiscal year
ended December 31, 1998.
The results for the interim period are not necessarily indicative of
results to be expected for the fiscal year of the Company ending
December 31, 1999. The Company believes that the three month and six
month report filed on Form 10-QSB is representative of its financial
position and its results of operations and changes in cash flows for the
periods ended June 30, 1999 and 1998.
In June 1999, the Company amended and refiled its Form 10KSB for the
year ended December 31, 1998 restating certain amounts in 1998 and 1997
due to an accounting error discovered in 1997. This Form 10-QSB
includes the restated balances from December 31, 1998. The restatement
did not impact the net loss for the three months or six months ended
June 30, 1999.
The Company grants common stock and stock options to employees and
non-employees. The Company applies APB Opinion 25, "Accounting for
Stock Issued to Employees", and related Interpretations in accounting
for all stock option plans. Following the guidance of APB Opinion 25,
compensation cost has been recognized for stock options issued to
employees 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 No. 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 No.
123. To provide the required pro forma information, the Company
estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model.
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. The Board concluded that No. Opinion 25 applies only to
compensation that involves stock of the employer corporation issued to
officers and other employees of the corporation. Opinion 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 Opinion 25
accounting treatment to options granted to outside directors for their
services as directors, provided those options meet the criteria in
Opinion 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-employees directors
under FAS 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 increase net income
by approximately $223,037 and $295,993 for the three and six months
ended June 30, 1999, respectively.
New Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" is effective for financial statements with
fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted SFAS No.
130 for 1998 and it did not have a material effect on its financial
position or result of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" is effective for
financial statements with fiscal years beginning after December 15,
1997. The new standard requires that public business enterprises
report certain information about operating segments in complete sets
of financial statements of interim and annual periods issued to
shareholders. It also requires that public business enterprises
report certain information about their products and services,
geographic areas in which they operate and their major customers. The
Company has adopted SFAS No. 131 in 1998; but, it did not have a
material effect onits results of operation for 1998 and 1997.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" is
effective for financial statements with fiscal years beginning after
December 31, 1997. Earlier application is permitted. The new
standard revises employers' disclosures about pension and other post
retirement benefit plans but does not change the measurement or
recognition of those plans. SFAS No. 132 standardizes the disclosure
requirements for pensions and other post retirement benefits to the
extent practicable, requires additional information on changes in the
benefit obligations and fair values of the plan assets that will
facilitate financial analysis, and eliminates certain disclosures
previously required but no longer useful. The Company adopted SFAS
No. 132 in 1998 and it did not have a material impact on its results
of operation.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 established standards for
recognizing all derivative instruments including those for hedging
activities as either assets or liabilities in the statement of
financial position and measuring those instruments at fair value.
This Statement is effective for fiscal years beginning after June 30,
1999. The Company has not yet determined the effect of SFAS No. 133
on its financial statements.
The FASB recently issued Statement of Financial Accounting Standards
No. 134. "Accounting for Mortgage Backed Securities Retained after the
Securitization of Mortgage Loans Held by Mortgage Banking
Enterprises." (SFAS No. 134) SFAS No. 134 establishes new reporting
standards for certain activities of mortgage banking enterprises that
conduct operations that are substantially similar to the primary
operations of mortgage banking enterprises. This statement is
effective for the fiscal quarter beginning after December 15, 1998.
Management believes the adoption of this statement will have no impact
on the Company'sconsolidated financial statements.
"YEAR 2000 PROBLEM". The Company is aware of the issues associated
with the programming code in existing computer systems as the
millenium (Year 2000) approaches. The "Year 2000" problem is
pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to
00. The issue is whether computer systems will properly recognize
properly date sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company has determined
to purchase new accounting software which is Year 2000 compatible and
has evaluated all other computer and computer related systems to
ensure they will operate beyond December 31, 1999. The new software
will be in place by December 31, 1999 and will cost less than $10,000.
2. Impairment Writedowns
Balzac, Inc.
In April 1996, the Company acquired certain assets of Balzac, Inc.
("Balzac") a private company which manufactures and distributes toys,
including a product line of toy balls. The assets and rights acquired
consisted of: an exclusive license for Australia, inventory of Balzac
toys and various other rights.
During 1996, a dispute arose between the Company and Balzac and Balzac
asserted a violation of the Purchase Agreement.
In April 1997, Balzac and the Company entered into an agreement
whereby
Balzac will buy back the Australian Licensing Agreement for $800,000
and
will repay the Company $200,000 which was the difference between the
value of the seized inventory and the obligation under the licensing
agreement. The $1,000,000 will be repaid over forty months at 8%
annum.
The $1,000,000 was to be repaid to the Company through sale, by
Balzac,
of 1,000,000 shares of the Company's common stock owned by Balzac.
The ability of Balzac to sell all 1,000,000 shares held by Balzac at a
price of $1.00 to repay its obligation was determined by management to
be unlikely. As of December 31, 1997 the note receivable from Balzac
was determined to be impaired and was written down to its net
realizable
value of $81,344 resulting in an impairment loss of $902,018. As of
December 31, 1998 the note receivable was determined to be further
impaired and was written down to its net realizable value of $42,000
resulting in a loss of $39,340. Subsequent to December 31, 1998 the
Company was informed by Balzac that it had filed Chapter 11 Bankruptcy
proceedings. Management determined the note receivable was unlikely
to
be collected and the remaining $42,000 was written off as of December
31, 1998.
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. The shares sold
by
Balzac pursuant to the Court Order are the shares subject to the
April,
19997 Agreement between Balzac and the Company. As of July 19,1999
Balzac is still in possession of 90,1000 shares of the Company's
common
stock and warrants to purchase 500,000 shares of common stock at $1.00
per share.
Pursuant to the Bankruptcy Court Order, the proceeds from the sales of
the common stock is held in subject to a later determination by the
Bankruptcy Court as to the respective extent, priority and validity of
claims to the proceeds. The Company believes that it is a secured
creditor and has secured rights to the proceedings from the sale of
the
common stock. The ultimate disposition of the Company's claim will
depend on the outcome of bankruptcy proceeds, which is uncertain at
this
time.
3. Stockholders Equity
On April 26, 1999 the Board of Directors approved the name change of
the Company to FirstEntertainment.com. The name change is subject to
shareholder approval.
During the quarter ending March 31, 1999, the Company issued 489,225
shares of common stock for consulting services valued at approximately
$222,640 of which $92,372 was for prior accrued services and $41,508
was for prepaid services. The common stock issued for consulting
services was registered in an S-8 registration statement. In
addition, the Company sold 50,000 shares restricted common stock in a
private placement offering resulting in net proceeds of $30,000.
During the quarter ended June 30, 1999 the Company issued 130,000
shares of common stock for services valued at $271,773. The Company
also received proceeds of $211,000 from the exercise of stock options
resulting is the issuance of 570,000 shares of common stock.
In March, 1999 the Board of Directors authorized the issuance of
options to the president, each member of the Board of Directors and a
consultant to purchase up to 3,050,000 shares of common stock at
prices ranging from $.21 per share to $.53 per share. The exercise
price is equal to the closing bid price for the Company's common stock
on the date of the grant. The exercise of options for 1,200,000
shares is contingent on the closing bid price of the Company's common
stock of at lease $1.00 on the last trading day for 1999 and the
exercise of options for 950,000 shares is contingent upon the
execution of two separate definitive agreements that the Company is
currently negotiating with. As of August 13, 1999 only one definitive
agreement has been executed and therefore options for 475,000 shares
have been vested and options for 475,000 shares are contingent upon
execution of a definitive agreement. The options for the 475,000 will
expire if a definitive agreement is not signed by December 31, 1999.
In May 1999, the Board of Directors authorized the issuance of stock
options to each Board of Director as Director compensation. Each
Director has options to purchase 250,000 shares of common stock at
$1.00 on January 1, 2000, January 1, 2001 and January 1, 2002. For
the options to vest each current Director must be a Director on the
anniversary dates noted above. In August 1999, a new director was
elected to the Board of Directors and he was granted options to
purchase 250,000 shares of common stock at $1.89 per share on January
1, 2000, 2001 and 2002.
As of June 30, 1999 options to purchase 7,380,000 shares of common
stock are outstanding of which 3,705,000 have vested. In addition, as
of June30, 1999 there are warrants outstanding to purchase 2,299,900
shares ofcommon stock at $1.00 per 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. Options
issued to Directors who are not officers or employees are accounted
for under SFAS 123.
For the six months ended June 30, 1999 the Company recognized
compensation of $652,172 for options granted during that period and
deferred compensation of $147,583 for options which are attributable
to future compensation.
4. Income Taxes
The tax effects of temporary differences and carryforward amounts that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities as of December 31, 1998 and 1997 are:
<TABLE>
Deferred tax assets: 1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 6,009,000 $ 5,466,000
Property and Equipment (8,000) (6,000)
Litigation Settlement 102,000
Discontinued operations (15,000) 181,000
Other 24,000 88,000
- ------------------------------------------------------------------
Total gross deferred tax assets 6,010,000 5,469,000
Less valuation allowance (6,010,000) (5,469,000)
- ------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment
- -------------------------------------------------------------------
Net deferred taxes $ -0- $ -0-
</TABLE>
A valuation allowance 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.
The valuation allowance increased $541,000 in 1998 and $1,069,000 in
1997.
As of December 31, 1998, net operating loss carryforwards were
approximately $16 million. Utilization of certain portions of this
amount is subject to limitations under the Internal Revenue Code.
Carryforward amounts expire at various dates though 2018.
5. Other Business Developments
SportsNet, Inc.
On September 15, 1998, the Company entered into a definitive agreement
with SportsNet, Inc. (SNI) The effective date of the Agreement was to
have been ten days after the following two events; (i) SNI has
completed
a financing of not less than $1,000,000 and (ii) the Company has
entered
into a contract with a credit card processor for participants in the
Games satisfactory to both the Company and SNI. The Agreement, if and
when it becomes effective, will continue in effect as long as the
Company has a valid internet gaming license issued by the Commonwealth
of Dominica or will terminate upon revocation of such license by the
Commonwealth of Dominica.
As of March 19, 1999, SNI had not completed a financing of $1,000,000
and the Company terminated the definitive agreement
Global Games Corp.
On March 17, 1999 the Company signed a letter of intent with Global
Games Corp. (Global Games) for the licensing of Global Games' sports
book software and related technology. Under the terms of the
agreement
Global Games will receive a percentage of the net gaming revenue for
the
licensing of its software of the Company. Consummation of this
transaction is subject to the completion to a definitive agreement,
approval by the Board of Directors of both companies, entering into an
agreement with a credit card processor and confirmation of the
extension
of the Company's internet gaming license issued by the Commonwealth of
Dominica in December, 1997. Under the letter of intent, Global Games
will provide all technical service and support. The gaming site will
be
operated from the Commonwealth of Dominica and will be accessable on a
play for fun basis from North America. The Company is committed to
maintaining strict compliance with all existing and pending federal,
state and local legislation regarding Internet gaming and would ensure
operation of the site in strict compliance of local, state and federal
laws. The Company was awaiting a legal opinion from outside legal
counsel regarding structure for sublicensing internet gaming software
to
unrelated entities which will operate an internet site which would
accept wagers. In July, 1999 the letter of intent was terminated.
EMNet Corp.
On March 20, 1999, the Company signed a letter of intent with EMNet
Corp
("EMNet") to form a joint venture and create a significant Internet
based website business for "Comedy" products based around the
affiliation and content derived from a circuit of the leading comedy
clubs in America. Revenue streams would be generated through
providing
Internet marketing services to member clubs, producing regular
sponsored
live exclusive programming on the Internet and develop a pay-per-view
model, and through the sale of comedy CD's and direct downloads,
associated merchandise and admissions to live performances at member
clubs.
Under the terms of the letter of intent EMNet would be responsible for
supplying all necessary internet requirements including but not
limited
to i) building and maintaining the "Comedy" website, ii) providing an
account executive to drive the business online, run the AOL
advertising
and promotion and live entertainment programming, iii) develop and
implement the online advertising and iv) provide all necessary
technology requirements.
The Company would be responsible for supplying all necessary content
for
the website which shall include but not be limited to i) providing a
minimum of five member comedy clubs as members sufficient to provide
critical mass, ii) a high profile comic to host the site as
spokesperson, iii) a series of live events which could be broadcast on
Internet radio or video cast and iv) supply comedy news and other
content.
The closing of this transaction will be subject to negotiating a
definitive agreement by May 31, 1999 and commencing business by June
30,
1999, approval by the Board of Directors of both companies, completion
of a detailed business plan, completion of the required agreements
with
America On Line ("AOL") and the signing of a minimum of 5 member
clubs. The Company is unable to predict if or when the agreement will
be signed and the transaction will be consummated. As of the date of
this filing no definitive agreement has been reached with EMNet nor
are
the parties currently negotiating a definitive agreement.
Softec Systems Caribbean, Inc,
On March 23, 1999 a wholly owned subsidiary of the Company, Kensington
Investments, Inc., entered into an agreement with Softec Systems
Caribbean Inc, (Softec) a wholly owned subsidiary of Starnet
Communications International Inc., to license its internet casino
software to the Company.
The Company will be supplied with a customized, full service Internet
gaming system, including virtual casino games, a sportsbook with real-
time odds feed from Las Vegas and Europe, and simulated horse and dog
racing. The Company's customers will be able to place wagers via a
secure, on line financial transaction system. Softec will supply all
hardware, software, that is Year 2000 complaint, and an appropriate
connection to the Internet with sufficient bandwidth to properly
operate
the licensed software.
The Agreement commenced March 30, 1999 upon payment of $10,000 by the
Company. The Company is required to pay Softec a one time set up fee
of
$100,000, of which $10,000 was paid upon signing of the Agreement,
$10,000 is due May 30, 1999 and $10,000 is due for eight consecutive
months commending August 30, 1999. The Company shall pay Softec a
licensing fee ranging from 25% of net monthly revenue to 12.5 % of net
monthly revenue but not less than $25,000 a month. The Company has not
made the payment required on May 30,1999.
The Agreement shall be in effect for one year and shall be
automatically
renewed indefinitely with additional one year terms unless the Company
gives written notice of termination at least 45 days prior to the end
of
any one year period.
The Company is responsible for obtaining and maintaining all necessary
licenses, as required by the Antigua Free Trading Zone, Antigua, West
Indies, for all the operations of an Internet Casino and an Internet
Sportsbook operation.
As of August 13, 1999 the Company's subsidiary has not yet been issued
its internet gaming license from Antigua, West Indies, which is
required
to commence wagering on its internet site.
Since the Company has not received an opinion from outside legal
counsel
regard internet gaming the Company has decided to sell its internet
gaming operations. As of the day of this filing no agreement has been
reached with any third party for the sale of its internet gaming
operations.
Dimension On Line
On April 5, 1999 the Company signed a letter of intent with South
Florida publisher Skarco Press for the acquisition of the exclusive
internet rights to their Young Jewish Lifestyle Publications,
Dimensions
Magazine.
Published six times a yearly, Dimensions is a distinctive and
contemporary glossy magazine reach South Florida's upscale Jewish
population.
In July, 1999 the Agreement with Skarco Press was terminated.
Global Games-Bingo
On April 29, 1999, the Company entered into a letter of intent with
Global Games Corp. to form a 50/50 joint venture to acquire certain
Bingo software.
The joint venture was to operate a web site, hosted in Canada, where
participants can play for free and win prizes which will be provided
by advertisers. In addition, the joint venture was to license software
to other unrelated entities who would offer bingo for money on the
internet. The joint venture would have received licensing fees from
the licensing of the software to these third parties. Under the
proposed letter of intent the Company would have acquired a 50%
interest in the software by issuing 300,000 shares of its common stock.
The software would then have been contributed to the joint venture. In
addition, Global Games Corp would have contributed its internet gaming
license granted by the Commonwealth of Dominica.
The letter of intent with Global Games for the formation of a Bingo
Software joint venture was terminated in July, 1999.
On August 2, 1999 the Company entered into a limited use software
license agreement whereby the Company would be permitted to use the
software to allow Bingo to be played for free on the internet.
Revenues
generated from advertising on the Bingo for free web site would be
split
whereby the Company would receive 75% and Global Games Corp would
receive 25%. In addition, the Company would issue 10,000 shares for
consulting fees related to software set-up and installation.
ET&T
On May 3, 1999 the Company entered into a joint venture agreement with
eConnect and Electronic Transaction Technologies (ET&T) to bring to
market its patented ATM smart card devices for electronic e-commerce
transactions, taking internet transactions from credit to cash.
The name of the joint venture is Intragate.com and the sole purpose
shall be to develop and exploit the e-commerce cash transfer technology
and to arrange for necessary financing.
In accordance with the joint venture agreement each joint venture
partner shall contribute a best efforts financing commitment for up to
50% of the costs to develop, produce, and exploit the technology which
is estimated to be $200,000. In addition, ET&T will contribute its
rights, title and interest in and to the technology. The joint venture
net profits and losses shall be allocated 50% to each joint venture
partner.
The Company was granted a non-exclusive license to use the ET&T
technology for e-connect sites that the Company owns, operates or
licenses and all fees associated with the non-exclusive license shall
be
waived.
As part of the Agreement the Company granted an option to ET&T to
purchase 500,00 shares of the Company's common stock at $.83 per share
and ET&T has granted an option to the Company to purchase 500,00 shares
of ET&T at $.63 per share. Both options shall expire on December 31,
2000.
As of the date of this filing the joint venture has had no activity in
either development, exploitation or fund raising activities.
Uproar Entertainment
On May 5, 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. As of the date of
this
filing the web site had not yet been completed.
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.
All That Media
On May 10, 1999 the Company entered into an agreement with a newly
formed media company called "All That Media" to acquire a controlling
interest in that All That Media by issuing a option to its shareholders
that allow the former shareholders to purchase 500,000 shares of common
stock of the Company at $.75 per share. The option to acquire All That
Media was exercisable commencing January 1, 2000 and will expire April
30, 2000. In June, 1999 the Company exercised its option to acquire
"All That Media". The consideration for the acquisition was the
option given to its 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 FAS 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 intellectual property
development, internet portal development and internet advertising. The
Company had contracted with the principals of All That Media for web
site development, internet portal development and internet advertising
for the various new internet businesses the Company intended to
commence. The minimum costs to the Company contemplated under the
contract was $5,000 a month.
In June 1999, the Company acquired a start-up company called EDRON
Associates by issuing options to its former shareholders to purchase
600,000 shares of common stock of the Company at $1.03. The options
are
exercisable for a period of two years.
Included in the 600,000 options noted above are 300,000 options which
are contingent upon EDRON achieving revenue of $50,000 a month for
three
consecutive months.
Concurrent with the acquisition of EDRON the Company formed a new
entity
called First 2 Market, Inc. and both EDRON and All That Media were
merged into First 2 Market. The value of the options to acquire EDRON
pursuant to FAS 123 was $204,000 of which $102,000 has been recorded as
compensation in the accompanying statement of operations and $102,000
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.
The results of operations of both All That Media and EDRON Associates
was diminimus to the results of operations of the Company therefore
their results have not been included in the accompanying statement of
operations since the date of acquisition June 28, 1999.
Poker Races Joint Venture
On May 16, 1999 the Company signed a letter of intent with Poker Races
(a partnership) to form a joint venture. The closing of this
transaction is subject to completion of due diligence procedures,
negotiation and execution of a definitive joint venture agreement and
approval of the transaction by the Board of Directors of the Company
and
the partners of Poker Races.
In accordance with the letter of intent, the Company would be obligated
to provide a prominent link on the Company's home page linked to a URL
designated by Poker Races. The Company will promote and advertise
Poker Races throughout the Company's portal and related sites. Poker
Races would be obligated to provide all software to play Poker Races
and track all financial transactions. All profits and expenses shall
be allocated 25% to the Company and 75% to Poker Races.
As of the date of this filing the Poker Races software is still being
beta tested and no definitive agreement has been negotiated or
executed.
Air Travel E-Commerce
On May 24, 1999 the Company entered into an agreement with Air Travel
Discounts, Inc. (ATD) to provide the business of selling travel over
the
internet.
Per the terms of the Agreement, ATD will include content and products,
the domain name, airdisc.com, and would fulfill and process all orders
generated through the web site. The Company would provide banner
advertising from its internet site promoting ATD. Commissions earned
from fulfillment originated from the Company's sites will be allocated
75% to ATD and 25% to the Company.
As of the date of this filing ATD has not provided the content and
products as required by the Agreement, as such the agreement is not in
effect.
Healthnet International
On May 18, 1999 the Company entered into a letter of intent with
Healthnet International, Inc. (Healthnet) to provide health related
products over the internet.
Under the terms of the letter of intent, Healthnet would be responsible
for a health related e-commerce site, pricing and commissions for all
health related products. The Company would provide space on the
Company Go2Market web page, and banner advertising on the Company's web
pages.
Consummation of this transaction is subject to a number of conditions
including completion of due diligence procedures, completion of a
definitive agreement, completion of a web site by Healthnet and
approval of the transaction by the Board of Directors of both
companies.
As of the date of this filing Healthnet has net yet completed the
construction of its web site nor has a definitive agreement been
negotiated.
Meta-Brands
On June 6, 1999 the Company entered into an agreement with Meta-Brands
to develop and launch an internet project known as "Wrencher", a
multi-dimensional entertainment meta-world for the automobile industry.
In August, 1999 both the Company and Meta-Brands agreed to terminate
the agreement by mutual release.
Fighting Bull
On June 14, 1999 the Company and Fighting Bull Technologies, LLC (FTB)
entered into a letter of intent whereby FTB would license 3D software
to create a virtual internet community. The Company would test and
market the 3-D technology.
Consummation of this transaction is subject to a number of conditions
consisting of completion of the development of the 3-D technology,
completion of a definitive agreement, completion of a licensing
agreement and approval by the Board of Directors of both Companies.
As of the date of this filing no licensing or definitive agreement have
been completed.
E-Commerce Partners
In May and June, 1999 the Company signed agreements with various e-
commerce partners whereby the Company would provide a link from its web
site to the e-commerce partners web site. The Company would also
provide space on its Go2Market web page that would represent banner
advertising for the e-commerce partner. The Company would retain a
portion of the revenues from the orders fulfilled by the e-commerce
partners from traffic originating from the Company's web site. All e-
commerce partner agreements are for a period of one year.
Because of low traffic volumes and click throughs originating from the
Company's site the revenues generated from these e-commerce partners is
diminumus as of June 30, 1999.
Coleman and Company Securities, Inc.
On July 7, 1999 the Company signed an agreement with Coleman and
Company Securities, Inc. 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 would receive a commission
of 13% for any public or private placement financing and a warrant to
purchase 500,000 shares of the Company's common stock at $.875 per
share. The warrants 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.
First 2 Interviews
On July 7, 1999 the Company entered into an agreement with Krutchie,
Inc. whereby Krutchie would provide a minimum of 2 edited celebrity
interviews for the Company's web site on a weekly basis. The agreement
is for a period of two years. As compensation, Krutchie will receive
options to purchase 100,000 shares of common stock at $1.63. The
option is exercisable for a period of two years and will carry piggy-
back registration rights for a period of six months from the date of
the agreement.
E-Commerce Web-Site Development
In July 1999 the Company signed an agreement with Smith-Gardner, a
developer of e-commerce software to build web sites for Smith-Gardner
clients that license their e-commerce software. The web site will be
built by the Company's subsidiary, First 2 Market, at market rates.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
Results of Operation June, 1999 vs. June, 1998
For the six months ended June 30, 1999 the Company incurred a loss from
continuing operations of approximately $950,000 as compared to a
loss from continuing operations of approximately $425,000 for the six
months ended June 30, 1998. The increase in the net loss for the six
months ended June 30, 1999 as compared to June 30, 1998 is primarily the
result of compensation related to the issuance of common stock options.
The loss from continuing operations for the three months ended June 30,
1999 of approximately $15,838,000 as compared to $189,000 for the three
months ended June 30, 1998 is due to compensation related to the
issuance of common stock options.
Overall, revenues increased by approximately $243,000, from $1,031,000
in 1998 to $1,274,000 in 1999. Most of the increase is from live
entertainment revenue which increased $202,000 and other income
increased $57,000. Radio sales decreased by approximately $18,000. The
increase in live entertainment revenues was due to increased attendance
as a result of more big name acts in the first quarter of 1999.
Although big name headliners usually draw more attendance, their cost is
also substantially higher. Big name headliners were not as available
for club acts in 1998 as compared to 1999.
For the three months ended June 30, 1999 radio sales decreased by
approximately $111,000 as compared to the quarter ended June 30, 1998.
Live entertainment revenues increased $88,000 and other income increased
$30,000.
The Company no longer distributes any videotapes, therefore sales are
minimal.
Radio sales is comprised of radio advertising, concert income, trade
show income and super saver advertising income. In 1998, total radio
revenue was $403,400 of which radio advertising was $326,000 or 80% of
the total radio sales. In 1999, total radio revenue was $385,200 of
which radio advertising was $330,800 or 86% of the total radio sales.
Radio advertising sales increased $4,000 or 1.5% in 1999 compared to
1998. The primary reason for the overall reduction in radio revenue of
approximately $18,000 in 1999 compared to 1998 was a reduction of
concert income in the first quarter which was $13,800 in 1998 and $0 in
1999. No concerts were scheduled for the first quarter of 1999.
For the three months ended June 30, 1999 radio sales decreased by
approximately $6,000 compared to 1998. Radio advertising was $170,800
for the quarter ended June 30, 1999 as compared to $130,000 for the
quarter ended June 30, 1998.
Other income at June 30, 1999 and 1998 represents rent income, T-shirt,
coupon books and cigarette sales. The primary reason for the increase
in other income is sublease income which commenced September, 1998. In
the first quarter of 1999, sublease income was $28,000 as compared to $0
for the first quarter of 1998. In the second quarter of 1999, sublease
income was 56,000 as compared to $0 for the second quarter of 1998.
Cost of sales live entertainment increased as a result of an increase in
revenues and the percent of cost of sales to sales increased from 89% in
1998 to 92% in the second quarter of 1999. Although attendance
increased, the labor cost also increased which resulted in a lower gross
profit. Labor costs, which includes entertainers salaries, increased
from $273,000 in 1998 to $392,300 in 1999. Labor costs as a % of
revenues was 45% in 1998 and 49% in 1999.
Cost of goods sold radio, increased approximately $ 2,000 comparing 1999
to 1998. The cost of sales radio as compared to radio sales was 72% in
1999 and 69% in 1998.
A substantial portion of the Company's assets are fully depreciated and
additions to property and equipment was $160,000 for 1999. In February,
1999 the comedy club completed a major remodeling project which costs
$150,000. The remodeling costs are being amortized over the life of the
lease, approximately 9 years. As a result of the depreciation
associated with the remolding costs depreciation expense for 1999
increased over 1998.
Management and administration fees, affiliate represents fees paid to a
related party for accounting and administrative functions which are
outsourced to the related company. Monthly fees were approximately
$20,000 a month in 1998 and $14,000 a month in 1999.
General and administrative costs increased approximately $608,000 in
1999 as compared to 1998. The increase is primarily attributable to
compensation costs of $652,000 associated with options issued March,
1999 accounted for in accordance with SFAS 123 and APB 25. The increase
in compensation costs associated with the issuance of common stock
options is partially offset by $39,000 in life insurance expense in 1998
that was not incurred in 1999.
Interest expense increased 1999 over 1998 as a result of an increase in
notes payable of approximately $275,000 due to litigation settlements in
April and July, 1998 and an increase in notes payable of 150,000 in
February, 1999 associated with leasehold improvements at Comedy Works
in which interest did not accrue until after the first quarter of 1998
for the litigation settlements but were in effect for the entire six
months of 1999.
Liquidity and Capital Resources
As of March 31, 1999, the Company had a working capital deficit of
approximately $1.4 million. Despite a loss of approximately $1.3
million, net cash used in operating activities was only $91,000
primarily due to common stock options granted and common stock issued
for services of $1.0 million. The Company has been able to issue common
stock for services thereby reducing the need for working capital.
The Company's ability to continue as a going concern will largely depend
on its ability to extend existing debt obligations, generate working
capital through debt or equity financing and profitable operations.
Working capital deficiencies have hindered the Companies ability to fund
certain business segments. Working capital is needed to further develop
both existing lines of business and new lines of business contemplated
by the various letters of intents and agreements entered into in the
first quarter of 1999. The likelihood of obtaining the necessary
equity financing is uncertain at this time.
The Company has been successful in 1999 and in 1998 in financing some of
its operations through the issuance of common stock in exchange for
services. In 1999, the Company issued 319,775 shares of common stock
valued at $360,500 or an average of $1.13 per share. In 1998, the
Company issued 1,087,866 shares of common stock valued at $370,500 or an
average of $.34 per share. In February 1998 the Company was delisted
from NASDAQ which had adversely affected the price of the stock for most
of 1998. Of the total costs and expenses of $1.4 million in 1998 and
$2.5 million in 1999, $370,500 was paid in stock in1998 and $360,500 was
paid in stock in 1999. Stock issued as a percentage of revenue was 36%
in 1998 and 15% in 1999.
Commencing with the new lease for the Comedy Works space in Larmier
Square effective January 1, 1998 Comedy Works began a significant
remodeling project. The remodeling was completed in February, 1999.
The seating capacity was increased by approximately 20 seats from 285 to
305. The increase in seating capacity is expected to increase revenues
for those shows which have typically sold out in prior years. The total
remodeling costs were approximately $300,000 of which $150,000 was paid
by the landlord (lessor) as tenant improvements and $150,000 was paid by
Comedy Works. The landlord (lessor) has agreed to finance the Company's
portion of the remodeling cost payable monthly at 12% per annum over 10
years. The monthly payments are approximately $2,300.
The Company had a note payable in July, 1999 that was paid in full and
has a note payable for approximately $88,000 and has a note payable due
October, 1999 of approximately $125,000. As a result of the definitive
agreement with Softec, the Company is obligated to pay $90,000 to Softec
in $10,000 increments commencing May, 1999. Additionally, working
capital is needed for marketing the internet gaming site, although the
Company has not yet determined the marketing budget. The Agreement
signed with Uproar Entertainment requires the Company to design,
construct, host, market and manage the web site. Working capital is
needed to complete their obligation under the Uproar Agreement. The
Company is also negotiating to purchase a radio station in Leeds, South
Dakota. The Agreement, if consummated, would require a $20,000 non-
refundable down payment, with the remaining $280,000 payable monthly
over 15 years. The Company estimates that it will require approximately
$150,000 in equipment to commence operations.
The Company has also increased its staff related to internet web
development, internet advertising and marketing. Commencing June 28,
1999 the monthly obligation for salaries and overhead is approximately
$45,000. First 2 Market, the internet segment subsidiary, does not yet
generate significant revenues and is not expected to be profitable until
the fourth quarter of 1999. In July 1999 the Company paid $36,000 to
Yahoo for an advertising banner which provided traffic to the Company's
web site. In addition, the Company has committed to additional banner
advertising with YAHOO of $100,000 in the third and fourth quarter of
1999. The banner adverting with YAHOO is expected to bring a
significant increase in traffic to the Company's web site which
management believes will increase click thorughs to our e-commerce
partners.
Currently, the Company has limited working capital and does not have
sufficient working capital to meet its existing debt obligations and
other working capital needs contemplated under the various definitive
agreements executed in the first quarter of 1999. In addition, working
capital of approximately $170,000 is needed to commence operations of
the new radio station. If the Company is successful in negotiating
definitive agreements related to pending letters of intent, additional
working capital would also be needed to commence operations.
In 1999 through June 30, 1999, the Company raised $241,000 in equity
financing and subsequent to June 30, 1999 has raised an additional
$370,000 in equity financing, but there can be no assurance that the
Company would be successful in raising the additional equity financing
needed as contemplated under the letters of intent or the definitive
agreements executed in the first and second quarters of 1999. In some
cases, the Company has not yet completed its due diligence procedures
which includes an analysis of the working capital needed. For those
letters of intent in which the Company is still performing due diligence
and other evaluation procedures it is not possible to estimate the
working capital needed to consummate these agreements and execute the
business plan.
A valuation allowance offsetting the Company's net deferred tax asset
has been established to reflect management's evaluation that it is more
likely than not that all of the deferred tax assets will not be
realized.
"YEAR 2000 PROBLEM". The Company is aware of the issues associated
with the programming code in existing computer systems as the millennium
(Year 2000) approaches. The "Year 2000" problem is pervasive and
complex as virtually every computer operation will be affected in some
way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize properly date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a
system to fail. The Company has determined to purchase new accounting
software which is Year 2000 compatible. The new software will be in
place by December 31, 1999 and will cost less than $10,000.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" is effective for financial statements with fiscal
years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-
purpose financial statements. The Company adopted SFAS No. 130 for 1998
and it did not have a material effect on its financial position or
result of operations.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" is effective for
financial statements with fiscal years beginning after December 15,
1997. The new standard requires that public business enterprises report
certain information about operating segments in complete sets of
financial statements of interim and annual periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, geographic areas
in which they operate and their major customers. The Company has
adopted SFAS No. 131 in 1998; but, it did not have a material effect on
its results of operation for 1998 and 1997.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pension and Other Post Retirement Benefits" is
effective for financial statements with fiscal years beginning after
December 31, 1997. Earlier application is permitted. The new standard
revises employers' disclosures about pension and other post retirement
benefit plans but does not change the measurement or recognition of
those plans. SFAS No. 132 standardizes the disclosure requirements for
pensions and other post retirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations
and fair values of the plan assets that will facilitate financial
analysis, and eliminates certain disclosures previously required but no
longer useful. The Company adopted SFAS No. 132 in 1998 and it did not
have a material impact on its results of operation.
The FASB has recently issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 established standards for
recognizing all derivative instruments including those for hedging
activities as either assets or liabilities in the statement of financial
position and measuring those instruments at fair value. This Statement
is effective for fiscal years beginning after June 30, 1999. The
Company has not yet determined the effect of SFAS No. 133 on its
financial statements.
The FASB recently issued Statement of Financial Accounting Standards No.
134. "Accounting for Mortgage Backed Securities Retained after the
Securitization of Mortgage Loans Held by Mortgage Banking Enterprises."
(SFAS No. 134) SFAS No. 134 establishes new reporting standards for
certain activities of mortgage banking enterprises that conduct
operations that are substantially similar to the primary operations of
mortgage banking enterprises. This statement is effective for the
fiscal quarter beginning after December 15, 1998. Management believes
the adoption of this statement will have no impact on the Company's
consolidated financial statements.
PART II - OTHER INFORMATION
- ---------------------------------------------
Item 1: Legal Proceedings
FEHC knows of no litigation pending, threatened, or contemplated, or
unsatisfied judgments against it, or any proceedings of which FEHC or
any of its subsidiaries is a party, except as specified below. FEHC
knows of no legal actions pending or threatened, or judgment entered
against any of its officers or directors or any of its subsidiaries in
their capacities as such, except as specified below.
During 1997 and 1998, the Company, certain officers and directors of the
Company and other unrelated parties received requests for information
from the U.S. Securities and Exchange Commission ("SEC") related to an
investigation begun by the SEC during 1997 into various matters. On
August 2, 1999 The Commission sued First Entertainment Holding Corp
("First Entertainment") and its president, Abraham B. Goldberg
("Goldberg") charging that the Company and Goldberg fraudulently
failed to disclose approximately $350,000 in money and stock paid to
Goldberg.
The Commission alleges that from 1995 through 1997 Goldberg received
compensation of approximately $350,000 that was not disclosed in First
Entertainment's public filings. Specifically, the Commission alleges
that First Entertainment paid stock to certain consultants of First
Entertainment who paid kickbacks to Goldberg's wife, Nannette Goldberg.
Goldberg and his wife also each allegedly received consulting fees that
should have been disclosed. In addition, the Commission alleges that
Nannette Goldberg received $100,000 worth of First Entertainment stock
in 1997 without approval of the First Entertainment board. The
Commission alleges that material facts or omissions concerning
Goldberg's compensation were contained in First Entertainment's 1995 and
1996 annual reports and in registration statement and a proxy statement
filed by the company in 1997. Finally, the Commission also charges that
Goldberg failed to report his securities and changes in his securities
holdings.
The Commission alleges that First Entertainment violated the antifraud
and filing provisions of the securities laws, Section 17(a) of the
Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a),
and 14(a) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-
5, 12b-20, 12b-25,13a-1, 13a-13, 14a-3 and 14a-9. The Commission
alleges that Goldberg violated Section 17(a) of the Securities Act and
Sections 10(b), 14(a) and 16(a) of the Exchange Act and Rules 10b-5,
12b-20, 14a-3, 14a-9 and 16a-3 thereunder, and that Goldberg aided and
abetted First Entertainment's violations of Section 13(a) of the
Exchange Act and Rules 12-b-25, 13a-1 and 13a-13. The Commission filed
its complaint in federal court in Denver, Colorado, and seeks permanent
injunction against First Entertainment and Goldberg and seeks
disgorgement, civil money penalties, and an officer and director bar
against Goldberg.
The Company and Mr. Goldberg believes the Commissions allegations are
without merit and will vigorously defend this action.
Item 2: Changes in Securities
None
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
None
(B) Reports on Form 8-K
August 13, 1999
Item 6: Resignation of Directors
August 5, 1999
Item 5: Other Events
SIGNATURES
Pursuant to the requirements of the Exchange Act , the Company has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
First Entertainment Holding Corp.
DATE: April 18 ,2000 /S/ Doug Olson
Doug Olson, President
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<TOTAL-LIABILITY-AND-EQUITY>1791
<SALES> 1274
<TOTAL-REVENUES> 1274
<CGS> 1022
<TOTAL-COSTS> 2225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> (1009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1009)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
