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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
[ ] Transition report pursuant to Section 13 or 15(D) of the Securities
Exchange Act of 1934 (No Fee Required)
COMMISSION FILE NUMBER: 0-16545
MPTV, INC.
(Name of small business issuer in its charter)
Nevada 88-0222781
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3 Civic Plaza, Suite 210
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
(714) 760-6747
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
(Title of each class)
None
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
Common Stock, $.05 par value
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 is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained 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 amendment to this Form 10-KSB [ ].
The issuer had no revenues for its fiscal year ended December 31,
1996.
As of July 10, 1997, 223,920,708 shares of Common Stock, $.05 par
value per share, were outstanding. The aggregate market value, held by
non-affiliates, of shares of the Common Stock, based upon the average of the bid
and asked prices for such stock on that date, was approximately $3,069,235.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
MPTV, Inc. ("MPTV" or the "Company") is engaged in the timeshare and
related entertainment industries. Through its wholly-owned subsidiary,
Consolidated Resort Enterprises, Inc. ("CRE"), the Company plans to develop and
market timeshare resort properties. The Company's principal asset is a
multi-million dollar resort property, called "Lake Tropicana", located in Las
Vegas, Nevada adjacent to the MGM Grand Hotel/Casino and Theme Park. MPTV has
interests in other properties in California, Florida and Hawaii, and intends to
develop additional other properties elsewhere. [The preceding sentence
constitutes a forward looking statement (hereinafter identified as "FLS"). Each
of the forward looking statements in this Annual Report on Form 10-KSB is
subject to various factors that could cause actual results to differ materially
from the results anticipated in such forward looking statement, as more fully
discussed in this Item 1 under "Forward Looking Statements".] The Company plans
to market its network of timeshare resorts in part through custom infomercials
created through its video and television marketing capabilities.
The resort timeshare industry is one of the fastest growing vacation
and real estate industries, according to the American Resort Development
Association ("ARDA"), an industry-wide trade association. With the entry of
major corporations such as Disney, the Marriott Corporation, Hilton Corporation,
Hyatt Corporation and Sheraton, the U.S. resort timeshare industry now has the
name recognition and capability to reach a vastly larger number of potential
purchasers.
Management believes that timeshare resorts appeal to the growing
number of family-oriented consumers, who seek value in resort accommodations
with access to activities for all ages. Interval ownership developers utilize a
variety of marketing resources to reach these potential purchasers.
Historically, most timeshare purchasers have initially been contacted through
telemarketing and other forms of direct marketing through in-person tours of the
resorts. Management's experience is that these methods generally involve costs
averaging 20-24% of the sales price of the respective timeshare unit.
The Company's strategy seeks to capitalize on the synergy between
its resort timeshare and video production and marketing capabilities to create a
network of interval ownership resorts throughout the western United States and
market them through nationally syndicated infomercials. Management believes that
this strategy will provide a large number of prospective purchasers with access
to the Company's entire resort network and expanding marketing opportunities
while maintaining or improving historical margins (FLS).
The Company plans to implement this strategy through the following
components:
- Development and Marketing of Lake Tropicana Resort. The
Company is currently renovating the Lake Tropicana
resort. Development of the resort began in 1994;
however, due to liquidity and other financial concerns,
the first phase of renovation has been delayed and has
yet to be completed. See Item 6 - "Management's
Discussion and Analysis or Plan of Operation."
Management currently anticipates that phase one of the
renovation will be completed in September 1997, subject
to obtaining required permits and financing, and that
the remainder of the renovation will occur in a number
of phases over a period of 12 months (FLS). The phases
will include complete renovation of all 176 living units
and major common area improvements. Marketing of
timeshare units in Lake Tropicana commenced in July
1997.
- Acquisition of Additional Timeshare Resort Properties.
Management believes that providing prospective
purchasers with a variety of timeshare resort
opportunities is critical to the cost-effective
maximization of sales opportunities. In furtherance of
this strategy, the Company signed a letter of intent in
1997 (superseding a letter of intent signed in 1994) to
acquire an existing timeshare resort in Kailua-Kona,
Hawaii. The letter of intent provides that the resort
will be acquired from current owners of individual
condominiums. As this property is an existing timeshare
resort and has all required permits (subject, in certain
cases, to the posting of bonds), the Company anticipates
that it will be able to commence sales, subject to
availability of funds (of which there can be no
assurance), in 1997 (FLS). In addition, in
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February 1994, MPTV entered into a general partnership
to develop, market, sell and manage a timeshare resort
in the Palm Springs, California area. Marketing of these
timeshare interests is expected to commence after August
1997, subject to the Company's ability to meet financial
and other requirements set forth in the general
partnership agreement (FLS). There can be no assurance
that the Company will be able to meet such requirements.
See "-Timeshare Operations - Rancho Mirage Vacation
Resort Partnership." Management will continue to
investigate and evaluate potential timeshare resort
acquisitions, redevelopments and conversions throughout
the western United States.
- Use of Infomercials and Other Video Promotions to Expand
Marketing Opportunities. Management recognizes that a
significant factor in sales of timeshare units is the
ability to reach a large number of prospective
purchasers in the most economical manner. MPTV currently
intends to merchandise specific vacation timeshare
opportunities to designated television markets through
celebrity-hosted infomercials (FLS). These half-hour
infomercials will feature the Company's timeshare resort
properties as well as vacation packages offered by third
parties, and will permit interested viewers to call a
24-hour, toll-free number for further information.
Management believes that by targeting specific markets,
featuring only one venue per show and using contemporary
direct response marketing methods, its infomercials will
be more economical and efficient than the traditional
and time-consuming marketing methods utilized by the
majority of developers in the resort timeshare industry
(FLS). The Company has financed the production by a
third party of "Destination Paradise", an infomercial
which has been test marketed on national cable stations
as well as approximately 20 broadcast markets.
Management considers the test market results to be
positive, and intends to proceed to broadcast
"Destination Paradise" in additional markets (FLS).
CRE was organized by James Vellema, its principal shareholder, in
October 1992 to provide a vehicle through which to acquire the property known as
Lake Tropicana from Glen Ivy Resorts, Inc., a national timeshare development
company that was in a Chapter 7 bankruptcy proceeding. The Company acquired the
Lake Tropicana project in 1993 through a joint venture with an unaffiliated
third party in which CRE held the majority joint venture interest. In June 1993
the acquisition was complete, and Lake Tropicana was acquired subject to its
then existing financing. Subsequently, in February 1994, the Company purchased
the minority joint venture interest, and now owns 100% of Lake Tropicana. See
Item 2 - "Description of Property," Item 6 "Management Discussion and Analysis
of Financial Condition and Results of Operations" and Note 2 of Notes to
Consolidated Financial Statements.
Following the acquisition in 1993 of Lake Tropicana, Mr. Vellema
sought to acquire a publicly registered corporation to provide greater access to
capital to facilitate the conversion of Lake Tropicana to timeshare and through
which to conduct a national timeshare development business. He located MPTV
during the fall of 1993.
MPTV, Inc. had been incorporated in the state of Nevada in October
1986 by persons who are unrelated to Mr. Vellema, under the name "United
Shoppers of America". MPTV, Inc. originally operated a satellite telecasting
home shopping network designed to offer a balanced program of family-oriented
entertainment, plus a variety of products that could be ordered through a
tollfree telephone number. The home shopping network was subsequently
discontinued by its then mangers, but it retained certain assets related to the
development and production of television infomercials. The parties conducted
negotiations during the fall of 1993.
In December 1993 CRE completed a "reverse" merger in which the
owners of CRE exchanged their shares of CRE for 75% of the outstanding common
stock of MPTV and became the principal shareholders of MPTV. See Item 11 -
"Security Ownership of Certain Beneficial Owners and Management". As a result,
CRE became a wholly-owned subsidiary of MPTV. In the merger, most officers and
directors of MPTV resigned (with the exception of one director).
From December 1993 until November 1994, MPTV restructured its
operations by divesting those aspects that were incompatible with a timeshare
development business. To assist in the restructuring, CRE filed a Chapter 11
reorganization petition. The reorganization proceeding was commenced in order to
position CRE to restructure the underlying financing for the Lake Tropicana
property which it had acquired subject to financing, and to pursue certain
claims against two of the junior mortgage holders on the property. The
proceeding was discharged when all claims were satisfied. During that time
management also negotiated a settlement of certain litigation with a former
principal stockholder of MPTV and negotiated to acquire a part interest in a
Palm Springs California timeshare conversion project and a timeshare
development project in Hawaii. See Item 3 - "Legal Proceedings".
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During December 1996, the Company, through CRE, secured a loan of
$7,600,000 from Kennedy Financial, Inc. which it applied to pay certain
previously existing promissory notes secured by deeds of trust and to pay
certain of the costs of remodeling the Lake Tropicana property. This financing
was essential because provisions of the previous first trust deed, which was in
place on Lake Tropicana when CRE acquired title, prohibited the sale of
timeshare intervals in the property. As a result of this refinancing the Company
can now proceed to develop and sell timeshare intervals. The Company is seeking
additional financing to complete development and marketing of the Lake Tropicana
project. See Item 6 - "Management's Discussion and Analysis or Plan of
Operation".
Timeshare Operations
Lake Tropicana Resort/Nevada
The Company's Lake Tropicana timeshare resort is located in Las
Vegas, Nevada. It currently consists of 176 apartment units located in 22
separate buildings, and upon completion of renovation will feature swimming
pools, a tennis court, a spa and recreational center, waterfalls and lush
landscaping throughout the project (FLS). The 176 units are comprised of 96
two-bedroom units averaging 880 square feet, 56 one-bedroom units averaging 660
square feet and 25 studio units, with dividers, averaging 420 square feet. The
Company currently maintains insurance on Lake Tropicana that management
considers adequate for comparable properties in similar stages of development.
The units are presently rented as apartments on a monthly or weekly
basis, averaging a 90% occupancy of the available units. The Company intends to
continue the rental of apartments on an "as is" basis until all units have been
renovated and dedicated to the interval ownership concept.
The Lake Tropicana project is located on Harmon Avenue in Las Vegas,
Nevada, which management believes is currently the fastest growing tourist
destination in the United States. It is located near the billion-dollar MGM
Grand Hotel/Casino and the new Hard Rock Hotel, as well as other major hotels.
Despite the large number of hotels in Las Vegas, which continues to increase as
developers announce new major projects, there is a regular deficiency in the
number of available rooms for visitors. In addition, the increasing popularity
of Las Vegas as a family vacation destination creates a need for more spacious
accommodations with self-contained cooking and dining facilities. The high
exchange demand for a Las Vegas based timeshare creates a valuable resource out
of vacation ownership at the Lake Tropicana Resort.
The Lake Tropicana project is intended to appeal to family-oriented
visitors to Las Vegas. The planned renovation program includes major common area
improvements such as landscaping, parking and a decorative security wall, as
well as construction of a reception area and activity center and installation of
a new roof and porches, the rebuilding of the main pool and construction of two
additional pools and a tennis court (FLS). The Company also anticipates
undertaking a complete renovation of the timeshare units, including kitchens,
bathroom fixtures, air conditioning, wall and floor coverings and complete
furniture and fixture packages (FLS).
In April 1994, the Company commenced phase one of the project, which
involved renovation of the first 16 timeshare units and the construction of a
sales facility. Due to liquidity and other financial concerns, phase one of the
renovation was delayed. Management currently anticipates completion of this
phase in September 1997, subject to obtaining of required permits and financing,
and that the remainder of the renovation will occur in a number of phases over
12 months (FLS). See "- Governmental Regulation" and Item 2 - "Description of
Property". After completing phase one of the renovation, the Company plans to
commence phases two and three, which will include the renovation of
approximately one-half of the 176 timeshare units. Architects retained by the
Company are currently preparing plans for the purpose of soliciting fixed bids
for remaining phases of the renovations.
A timeshare owners association has been incorporated and management
expects that it will provide the services required by its owners, including the
payment of master association assessments. The Company acts as the managing
agent for this association, and will receive a management fee for its services.
See Item 12 - "Certain Relationships and Related Transactions". Timeshare owners
will be required to pay annual assessments on their units, thus providing
funding for services and any required maintenance or repairs.
Rancho Mirage Vacation Resort Partnership
Effective February 15, 1994 and subject to certain terms and
conditions (see below), the Company entered into a general partnership (the
"Rancho Mirage Partnership") with GGS Hotel Holdings California, Inc., and
certain other affiliates of GGS Co., Ltd. of Tokyo (collectively, "GGS") for the
development, marketing, sales and
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management of a timeshare resort, Rancho Mirage Vacations in Cathedral City,
California (in the Palm Springs area). This 96-unit resort is comprised of 24
studio units, 60 one-bedroom units and 12 two-bedroom units, and also contains a
pool, spa and meeting area. Each unit also includes a full membership in the
Rancho Mirage Country Club (owned by GGS); while using his or her week at the
resort, a timeshare owner has full privileges at the Club, and during other
times may utilize certain facilities for a nominal charge.
MPTV will serve as the managing partner of the Rancho Mirage
Partnership, and will provide management services to the Rancho Mirage resort
and to the related timeshare interval owners association, pursuant to the terms
and conditions of a general partnership agreement with GGS (the "General
Partnership Agreement"). The General Partnership Agreement also requires that
MPTV contribute $500,000 in working capital to the Partnership. The General
Partnership Agreement provides that GGS will maintain control of the resort
until it deems transfer of management to MPTV appropriate (not defined;
therefore, there can be no assurance that GGS will transfer such control). MPTV
will receive allocations of income, gain, loss, deductions and credits, as well
as distributions of net income before taxes (as defined in the General
Partnership Agreement) equal to its interest in the Partnership. Such interest
is currently set at 65% (35% for GGS); subject, however, to a 50%-50%
readjustment in the event that MPTV sells, assigns, transfers or otherwise
encumbers its Partnership interest. GGS will receive the following proceeds from
the sale of the timeshare resort intervals sold: (i) $816.99 per interval sold,
in consideration of the Club memberships contributed to the Partnership by GGS;
(ii) an aggregate of $6,200,000, pursuant to a schedule to be determined by MPTV
and GGS, for all unit releases of the timeshare interests; (iii) $30 per year
per interval sold, as the Club's maintenance fee (subject to adjustment in the
event that Club usage varies from the assumptions set forth in the General
Partnership Agreement); and (iv) a two percent management fee. MPTV will also
receive a two percent management fee. The General Partnership Agreement provides
that GGS may change, at any time and in its sole discretion, the allocation of
the distributions set forth in (i) and (ii) above.
The General Partnership Agreement also states that upon or at any
time after the sale of 25% of the total timeshare units at the Rancho Mirage
resort, GGS in its sole discretion may sell the resort facility to MPTV for a
purchase price of $3,000,000. The purchase price will be reduced in proportion
to the percentage of additional timeshare intervals sold at the time GGS elects
to sell. All timeshare resort intervals must be sold, and payment for the
release of all units received, no later than June 30, 1998. The General
Partnership Agreement is also subject to the approval of GGS' creditors and the
successful termination of the resort's current motel franchise relationship. At
December 31, 1996, GGS' creditors had approved the transaction, but the
transactions contemplated by the General Partnership Agreement had not been
consummated, pending the commencement of sales of timeshare interests (see
below). In addition, MPTV has not yet contributed the required working capital.
The parties may also dissolve the Rancho Mirage Partnership at any time;
however, to date neither party has effected a dissolution.
Management currently anticipates that replacement of existing
furniture, fixtures and equipment together with minor renovations, will be
required at the resort. GGS and MPTV are currently in the process of developing
a budget for the renovation and operation of the Rancho Mirage resort. Timeshare
permits for the resort have been approved subject to the posting of a required
bond. Management currently expects that sales of timeshare interests at the
resort will commence in 1997, subject to the availability, and MPTV's
contribution to the Partnership, of the required funds (FLS).
Kona Reefshare Resort/Hawaii
In June 1994, the Company signed a letter of intent to acquire the
Kona Reefshare resort timeshare program, an existing timeshare resort located in
Kailua-Kona on the island of Hawaii. This resort is located on the beach and
features 129 units, of which 12 have two bedrooms and the balance one bedroom.
Common areas include a swimming pool, spa and meeting areas. The Company
currently anticipates that minor refurbishing of the resort will be required
after consummation of the acquisition. The property currently possesses all
required local timeshare permits. While the 1994 letter of intent has expired,
the Company entered into a substantially similar letter of intent in 1997 (FLS).
The Kona Reefshare resort is expected to be acquired from current
owners of individual condominiums in increments of no fewer than five units. The
resort is currently managed by an unaffiliated third party. Management currently
anticipates that sales of timeshare interests at the resort will commence during
September 1997, and that final consummation of the acquisition of all available
condominium units will occur by the end of 1998 (FLS). However, the commencement
of sales and the acquisition of the condominium units will depend, among other
factors, on the acquisition of a sufficient number of units to Support sales
activities and the availability of adequate financing, of which there can be no
assurance. In connection with this transaction, in June 1994 MPTV entered into
an agreement to purchase the common stock of a company that has obtained a
permit to sell timeshare interests in Hawaii. James C. Vellema, the Company's
Chairman and Chief Executive Officer and a principal stockholder, was
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previously a principal shareholder of such company, but no longer holds an
interest in that firm personally. However, a portion of the consideration to be
paid by MPTV in this transaction involves the payment of certain liabilities
owed by Mr. Vellema to third parties. See Item 12 - "Certain Relationships and
Related Transactions".
Cocoa Beach and Claremont/Florida
On June 15, 1993 and May 17, 1994, the Company agreed to acquire a
total of 655 timeshare intervals at Ocean Landings at Cocoa Beach, Florida and
200 timeshare intervals at the Cities Sun Club in Claremont, Florida (in the
vicinity of Orlando). These intervals were acquired from an unrelated third
party in consideration for the issuance of an aggregate of 429,958 shares of the
Company's Common Stock, 351, 708 shares of which have been isued to date.
Although such stock was issued to the third party, the Company has never
received the deeds evidencing the timeshare interests. Management currently
anticipates that the deeds will be delivered at such time as the shares are
registered under the Securities Act or an exemption from such registration is
available or that the shares will be returned and cancelled by the Company. On
May 17, 1996 the last of such shares became eligible for resale under Rule 144
promulgated under the Securities Act. In the event that the Company receives the
timeshare deeds, of which there can be no assurance, it intends to offer the
timeshare interests for sale through a Florida broker, and will also utilize the
interests to fulfill timeshare exchange and rental requests in Florida.
Timeshare Resort Management
Through Continental Resort Services, Inc., a wholly-owned subsidiary
("CRS"), the Company intends to provide management and travel services at its
timeshare resorts. Such services will include housekeeping, maintenance,
reservations and accounting services, as well as various activities. For these
services, the Company will receive a management fee equal to approximately ten
percent of the gross annual assessment at each resort. See "Management -
Certain Relationships and Related Transactions".
Marketing and Sale of Timeshare Units
The marketing of timeshare units typically involves a variety of
techniques designed to maximize the number of prospective purchasers who visit
the subject property. Salespersons contact prospective purchasers through
telephone sales, forms of direct marketing and referrals from current interval
unit owners. These persons are then offered tours of the timeshare properties,
usually in conjunction with discounted tour packages, where they view the
property and are shown targeted, sophisticated video presentations featuring
celebrity endorsements. The resort's sales staff then conducts informal
interviews of the prospective purchasers. Industry sources estimate that
approximately 12% to 14% of the persons attending these tours purchase timeshare
interests.
The Company currently intends to market timeshare interests in the
Lake Tropicana project through similar on-site presentations ("tours") as well
as through infomercials. See "Infomercial and Video Production and Marketing".
Each tour will last approximately 90 minutes, and will combine viewing of the
project with a structured sales presentation. Management anticipates that
prospective buyers of the interval units will come from the large number of
visitors on packaged tours of Las Vegas. Prospective buyers will also be
solicited through booth locations in the Strip area of Las Vegas. The Company
will either enter into an arrangement with a timeshare sales contractor or
employ sales staff to provide sales services in Las Vegas with respect to the
timeshare interests. The Company also intends to enter into other arrangements
with brokers, or will employ sales staff, in California and Illinois to provide
sales services for the Lake Tropicana units, subject to receipt of appropriate
permits from the respective state agencies. To date, however, no specific
brokers have been selected. Management currently anticipates that it will
utilize similar marketing and sales methods at its other timeshare resorts;
however, no arrangements have yet been made.
The Company also intends to offer services to those timeshare owners
who wish to resell their interests. In the resort timeshare industry, resales
typically occur on an owner-to-owner basis and involve self-financing, and as a
result the market for timeshare interests is relatively illiquid. The Company
intends to provide financing from Stanford Investors Ltd. for resales of
timeshare interests at its resort properties, and believes that the availability
of such financing and the increased potential for resale will allow each resort
to maintain an active ownership base that will continue to pay annual
assessments (FLS).
Infomercial and Video Marketing and Production
The Company's infomercial and video production and marketing
capabilities are designed to provide a synergy to its timeshare resort
operations. Management believes that these video capabilities will enable the
Company to reach a larger number of prospective timeshare purchasers on a more
economical basis.
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-Infomercial Production and Marketing. The Company intends to
merchandise specific vacation timeshare opportunities to designated television
markets through celebrity-hosted infomercials (FLS). These half-hour
infomercials (FLS) will feature on-site locations at the Company's timeshare
resort properties as well as vacation packages offered by third parties. A third
party has produced a pilot show, called "Destination Paradise", hosted by Morgan
Brittany and featuring resort destinations.
The "Destination Paradise" infomercials will feature travel
packages, which will be acquired by barter and discounted purchases. Management
anticipates that the packages will include room nights at the subject resorts,
tickets from advertised airlines and automobile rentals. In addition, items such
as show tickets, gaming privileges and other activities will constitute "value
added" items in each package. Interested viewers will be encouraged to call a
24-hour, toll-free number for further information during and after each program,
and will then be presented with the marketing programs and promotions utilized
by the Company in its traditional marketing campaigns.
The Company intends to produce six "Destination Paradise"
infomercials. Management currently estimates that each episode of "Destination
Paradise" will involve a cost of $50,000 to $75,000 (FLS). MPTV has financed the
production of the first episode, and management anticipates that future episodes
will be financed from cash flow from operations. There can be no assurance that
sufficient financing or cash flow will exist to fund future episodes.
Management currently expects that the "Destination Paradise"
infomercials will be produced by an affiliated production company located in Las
Vegas.
-Timeshare Resort Videos. In addition to the "Destination Paradise"
infomercials, the Company also intends to produce (through an unaffiliated third
party) videos for marketing presentations at its timeshare resorts and at
off-site sales offices (FLS). New owners of timeshare interests will also
receive a video featuring the resort in which they have purchased an interest.
Competition
MPTV will compete with other timeshare and interval unit projects in
Las Vegas, the island of Hawaii and the Palm Springs area, as well as with hotel
and resort accommodations. Many of such competitors are more established and
have greater name recognition and financial, marketing and other resources than
the Company. The Company intends to compete on the basis of the quality of its
timeshare resorts and its infomercial marketing strategy, in addition to
reputation, price, location, design, service and amenities.
Governmental Regulation
MPTV is subject to regulation with respect to both the proposed
renovation of the Lake Tropicana project and the sale of interval ownership
units in Lake Tropicana and its other timeshare resorts. The Company has applied
for all permits required for the renovation of the Lake Tropicana project.
Permits are required in most states prior to commencing sales of
timeshare units. The Company currently intends to market timeshare units for
Lake Tropicana in Nevada and California. The requirements of the State of Nevada
have been met, pending the posting of bonds for the property owners association
assessments and planned renovation. The requirements of the State of California
have been substantially met, pending the posting of bonds and issuance of the
Nevada permit. The Company anticipates that such final permits will be obtained
in Nevada by August 1997, and in California by September 1997, subject to
receipt of funds to support the required bonds (FLS). The Company has received
permission from the State of Nevada to take reservations for sales under a
preliminary permit issued on June 13, 1997.
The Lake Tropicana project is also subject to certain federal and
state environmental laws and regulations, including those affecting the required
removal and mitigation of asbestos in the buildings. All construction plans and
estimates provide for full compliance with these regulations.
Employees
At December 31, 1996, the Company had 13 full-time employees. All of
these employees are engaged in, or directly support, the Company's activities
with respect to the Lake Tropicana project. The Company considers relations with
its employees to be good. None of the Company's employees is covered by a
collective bargaining agreement.
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Forward Looking Statements
The forward looking statements contained in this Annual Report on
Form 10-KSB, including those contained in Item 6 - "Management's Discussion and
Analysis or Plan of Operation", are subject to various risks, uncertainties and
other factors that could cause actual results to differ materially from the
results anticipated in such forward looking statements. Included among the
important risks, uncertainties and other factors are those hereinafter
discussed.
MPTV has suffered recurring losses from operations and shows a need
for additional funding that raises substantial concerns about its ability to
continue as a going concern. The Company has incurred cumulative net losses of
$31,928,219 since its inception, and is also in default on certain of its
secured and unsecured notes payable. In the event that the Company cannot
refinance or renegotiate these notes, it may be subject to collection actions
and foreclosure proceedings on its property currently being held for timeshare
development. MPTV requires capital to conduct its timeshare unit development and
marketing activities, and for operating expenses, interest and note obligations.
The Company's ability to continue as a going concern is dependent upon its
ability to obtain outside financing through the issuance of either equity or
debt securities and, ultimately, upon future development of profitability
through sales of timeshare units at Lake Tropicana. While the Company is
currently attempting to raise funds through a private placement of debt
securities, there can be no assurances that such private placement will be
successfully consummated or, if so, that it will meet all future capital
requirements of the Company. If additional funds are required, the Company may
offer additional or other securities for sale or attempt to secure financing
from banks or other financial institutions. If significant indebtedness is then
outstanding (which shall, however, be subordinated to the first lien of the
Notes in the property which collateralizes the Notes), the Company's ability to
obtain additional financing will be adversely affected. If and to the extent the
Company incurs indebtedness, debt service requirements will have a negative
effect on earnings. Further, if the Company is unable to service its
indebtedness and to renew or refinance such obligations on a continuing basis,
its ability to operate profitably will be materially threatened. No assurance
can be given that the Company will be able to obtain additional funds from any
source on satisfactory terms, if at all.
The availability of equity and debt financing to the Company is also
affected by, among other things, domestic and world economic conditions and the
competition for funds as well as the Company's perceived ability to service such
obligations should such financing be consummated. Rising interest rates might
affect the feasibility of debt financing that is offered. Potential investors
and lenders will be influenced by their evaluations of the Company and its
prospects and comparisons with alternative investment opportunities. There can
be no assurance that the Company will be able to obtain financing on acceptable
terms, if at all.
Shares of the Company's freely tradeable Common Stock may have been
improperly issued without registration under Federal and state securities laws.
In addition to administrative remedies which may be pursued by governmental
agencies, the recipients of these shares of Common Stock may seek recovery of
the purchase price of the stock plus interest through a rescission offer, the
amount of which cannot be presently determined, and could have a material
adverse impact on the Company's financial position and liquidity. The Company
intends to prepare and file a registration statement with the Securities and
Exchange Commission to register these shares. There can be no assurance,
however, that such filing will provide an adequate remedy. Until resolved, the
impact of such issuances on the Company's ability to raise additional capital
through the future issuances of Common Stock is unknown.
In the year ended December 31, 1996, the Company issued a
significant number of shares of its Common Stock for cash and services rendered.
Management became aware in May 1996 that these issuances of Common Stock caused
the total number of issued and outstanding shares to exceed the 50,000,000
shares then authorized in the Company's Articles of Incorporation. The Company's
Board of Directors immediately approved an increase in the number of shares
authorized to 100,000,000, and received consents approving such increase from
holders of in excess of a majority of the then-outstanding shares of Common
Stock. The Company subsequently filed an amendment to its Articles of
Incorporation effecting such increase. Management subsequently determined,
however, that the above-referenced increase was not sufficient to provide the
Company with the required ability to raise capital or compensate consultants and
employees for services rendered to the Company; in addition, the Company's
transfer agent indicated that the Company had recently issued shares of Common
Stock in excess of the currently authorized number of shares. Accordingly, the
Company's Board of Directors determined that it would be in the best interest of
the Company to increase the number of authorized shares of Common Stock to
200,000,000. The Company has filed definitive proxy material with the Securities
and Exchange Commission, and has solicited and received the consent of its
stockholders for such increase and the ratification of the excess issued.
However, the recipients of such excess shares may seek recovery of the purchase
price of the stock plus interest through a rescission offer, the
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<PAGE> 9
amount of which cannot be presently determined. There can be no assurance that
the ratification of such increase and the excess issuances will provide an
adequate remedy for the holders of such excess shares.
On April 19, 1996, The NASDAQ Stock Market, Inc. ("NASDAQ"), which
manages the NASDAQ SmallCap Market Exchange (the "Exchange") on which the
Company's Common Stock was formerly listed and traded, informed management that
the Company had failed to meet certain listing maintenance requirements and had
not filed its Annual Report on Form 10-KSB within the required time frame.
NASDAQ gave the Company until May 20, 1996 to file such Annual Report and to
submit a plan detailing how the Company intended to meet the listing maintenance
requirements in the future. The Company filed the Annual Report and submitted
the required plan. On June 12, 1996, the Company received a letter from NASDAQ
informing the Company that its Common Stock was scheduled to be delisted from
the Exchange effective with the close of business on Wednesday, June 26, 1996
for failure to meet certain continuing listing requirements. Although the
Company currently satisfies the market float, number of market makers and asset
requirements, it does not meet the net worth or share price criteria. The
Company requested that NASDAQ conduct an oral hearing to reconsider the decision
to delist the Common Stock, and such hearing was held on July 12, 1996 (the
delisting was stayed pending the outcome of the hearing). Management
subsequently received a letter, dated July 17, 1996 from NASDAQ, informing the
Company that its securities were to be deleted from the Exchange effective July
18, 1996. The Company has requested that the NASDAQ Listing and Review Committee
review this decision, but the request will not operate as a stay to the deletion
of the Common Stock. In the meantime, the Common Stock is listed and traded on
the OTC Bulletin Board. There can be no assurance as to the outcome of the
pending review.
As a result of such delisting, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Common Stock. In addition, subsequent to such delisting, if the trading
price of the Common Stock was less than $5.00 per share, trading in the Common
Stock would also be subject to the requirements of Rule 15c2-6 and/or Rule 15g-9
promulgated under the Exchange Act. Under such Rules, broker/dealers who
recommend such low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchase and receive the purchaser's written consent prior
to the transaction. The Securities Enforcement Remedies and Penny Stock Reform
Act of 1990 also requires additional disclosure in connection with any trades
involving a stock defined as a "penny stock" (generally, according to recent
regulations adopted by the Securities and Exchange Commission, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exemptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this offering to
sell their securities in the secondary market.
The Company's timeshare resorts do not provide an exclusive solution
for potential purchasers, and such purchasers may choose alternative timeshare
resorts or vacation destinations. Many of the Company's competitors have much
greater financial resources than the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal executive offices occupy 1,741 square feet
of space in Newport Beach, California. The facility is subject to a
month-to-month lease, and the current monthly rent is $2,711.00. The Company
believes that this space is adequate for its immediate needs, and that it will
be able to obtain additional space as necessary.
MPTV's Lake Tropicana timeshare resort is located in Las Vegas,
Nevada. The resort currently consists of 176 apartment units located in 22
separate buildings, and features swimming pools, a tennis court, a spa and
recreational center, waterfalls and lush landscaping throughout the project. The
Lake Tropicana resort is currently encumbered by the following deeds of trust:
(i) a first deed of trust held by Kennedy Financial, Inc., securing a note in
the principal amount of $7,600,000, bearing interest at 15% per annum; (ii) a
second deed of trust held by Marrcshare Financial, Inc. securing a note in the
principal amount of $934,000 at December 31, 1996, bearing interest at a rate of
8% per annum; and (iii) a third deed of trust held by Pacific D.N.S., Inc. (the
Company's former joint venture partner), securing a note in the principal amount
of $1,813,393 at December 31, 1996, bearing interest at a rate of 8% per annum.
The Marrcshare Financial, Inc. and Pacific D.N.S., Inc., notes contain certain
provisions for payments to be made in conjunction with each timeshare interval
sold. See Item 6 - "Management's Discussion and Analysis or Plan of Operation"
and Note 6 of Notes to Consolidated Financial Statements.
The planned renovation program for the Lake Tropicana project is
intended to appeal to family-oriented visitors to Las Vegas and includes major
common area improvements such as landscaping, and a new reception
8
<PAGE> 10
building, as well as installation of a new roof and porches, the rebuilding of
the main pool and construction of two additional pools and a tennis court. The
Company also anticipates undertaking a complete renovation of the timeshare
units, including kitchens, bathroom fixtures, air conditioning, wall and floor
coverings and complete furniture and fixture packages. Management currently
estimates that timeshare unit renovations will cost approximately $38,000 per
unit, while common area renovations will require an additional $1,500,000 (FLS).
The entire renovation project will require six phases and approximately
$7,000,000 to $8,000,000 to complete (FLS), of which approximately $1,000,000
(excluding capitalized interest paid in cash of $1,400,000) has been expended to
date. In April 1994, the Company commenced phase one of the project, which
involves renovation of the first 16 timeshare units and the construction of a
sales facility. Due to liquidity and other financial concerns, phase one of the
renovation was delayed. Management currently anticipates completion of this
phase in September 1997, subject to obtaining of required permits and financing,
and that the remainder of the renovation will occur in a number of phases over a
period of 12 months (FLS). See " - Governmental Regulation". After completing
phase one of the renovation, the Company plans to commence phases two and three,
which will include the renovation of approximately one-half of the 176 timeshare
units.
Funds spent to date for phase one of the renovation and project
carrying costs have been derived from equity private placements conducted by the
Company, issuances of Common Stock to vendors and incurrence of debt.
See Note 8 of Notes to Consolidated Financial Statements. The Company has
received a commitment to refinance the existing notes secured by first and
second deeds of trust on the project, which financing would provide partial
releases of condominiums. These release provisions facilitate the phasing of the
Lake Tropicana project for conveyance to timeshare purchasers. The Company then
intends to utilize the proceeds from timeshare sales (derived from the $100
million end-loan financing of timeshare receivables, for which the Company has
received a letter of commitment, subject to the completion of definitive
documents and due diligence procedures, from Stanford Investors Ltd.) plus cash
flow from operations, to fund the remainder of the renovations (FLS). However,
there can be no assurance that the Company will receive financing adequate to
complete renovations, whether through refinancing of the existing debt or
through financing of timeshare receivables. In the event that the Company does
not receive financing, it would be unable to complete the renovation of Lake
Tropicana, which would seriously impair the Company's ability to sell timeshare
units in the project. If the Company is unable to sell timeshare units in Lake
Tropicana, the potential value of Lake Tropicana as a rental property would be
substantially lower than the potential value if sold in timeshare intervals.
Furthermore, sales of timeshare units require registration or other regulatory
compliance in the State of Nevada and certain other states where such units may
be sold. The Company has completed the process of complying with applicable
regulations to sell interval units in Lake Tropicana in Nevada, except for the
posting of bonds to activate the public permit. The Company currently maintains
insurance on Lake Tropicana that management considers adequate for comparable
properties in similar stages of development.
In 1993, the Company acquired 100 acres of undeveloped real estate
located near Monticello, Minnesota, from a former consultant to the Company and
his affiliated corporation. In 1996, the property was sold to a third party for
stock in such third party and assumption of debt.
On June 15, 1993 and May 17, 1994, the Company agreed to acquire a
total of 655 timeshare intervals at Ocean Landings at Cocoa Beach, Florida and
200 timeshare intervals at the Cities Sun Club in Claremont, Florida (in the
vicinity of Orlando). These intervals were acquired from an unrelated third
party in consideration for the issuance of an aggregate of 429,958 shares of the
Company's Common Stock, 351,708 shares of which have been isued to date.
Although such stock was issued to the third party, the Company has never
received the deeds evidencing the timeshare interests. Management currently
anticipates that the deeds will be delivered at such time as the shares are
registered under the Securities Act or an exemption from such registration is
available or that the shares will be returned and cancelled by the Company. On
May 17, 1996, the last of such shares became eligible for resale under Rule 144
promulgated under the Securities Act of 1933, as amended; however, in the event
that the Company receives the timeshare deeds, of which there can be no
assurance, it intends to offer the timeshare interests for sale through a
Florida broker, and will also utilize the interests to fulfill timeshare
exchange and rental requests in Florida.
ITEM 3. LEGAL PROCEEDINGS.
On March 14, 1994, Albert C. Gannaway, Jr., the founder and former
officer, director and principal stockholder of the Company, and Gannaway
Productions, Ltd. (collectively, "Gannaway") filed a Complaint in the Superior
Court of Orange County, California against the Company and Messrs. Rasmussen
(the Company's former Chairman and Chief Executive Officer and a current
Director) and Vellema. The Complaint sought to enforce the terms of a settlement
agreement allegedly entered into by the Company and Gannaway in 1993 to resolve
certain asserted or potential claims by Gannaway that (i) he was entitled to
additional shares of the Company's Common
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<PAGE> 11
Stock to be received pursuant to an option or, in the alternative, a lower
option price; (ii) the Company was indebted to Gannaway for prior loans, cost
advances or wages in excess of the amounts shown on the Company's books and
records; and (iii) certain duplicating or other equipment being used by the
Company belonged to Gannaway, and demanded damages for an alleged breach of
video distribution agreements, an accounting under said agreements and
rescission of the distribution agreements.
The parties entered into a settlement agreement effective March 1,
1996 (the Settlement Agreement"). Pursuant to the terms of the Settlement
Agreement, Gannaway will receive the sum of $600,000 to be paid over the term of
four years beginning with an initial payment of $25,000 to be paid on March 1,
1996; $15,000 on April 1, 1996; $15,000 on May 1, 1996; $15,000 on June 1, 1996;
$35,000 on July 1, 1996; and $35,000 on August 1, 1996. The Company is currently
in default with respect to the May, June, July and August payments. From August
1, 1996 to August 1, 1999, Gannaway will receive (i) monthly payments equal to
$65.00 per timeshare interval sold in the preceding month and (ii) semi-annual
payments in an amount calculated by amortizing the remaining balance of $460,000
over the term at 12% interest per annum. The entire balance will be due and
payable on or before August 1, 1999. The Settlement Agreement also provides that
MPTV will transfer its video production assets in Florida and the Club Carib
weeks to Gannaway, and the litigation will be conditionally dismissed with
prejudice (provided that the court retains jurisdiction to enter final judgment
upon default). Mutual general releases shall be exchanged by all parties with
respect to all claims and counterclaims.
On January 8, 1996, the Circuit Court of the Ninth Judicial District
in Orange County, Florida, entered a final judgment in the amount of $282,433.36
against the Company in the matter known as Neely v. MPTV, Inc., Successor to
United Shoppers of America, Inc. (Case No. CI93-7554). The case was filed in
December 1993 by a former consultant to the Company's predecessor, and contained
claims for breach of contract and recovery of unpaid wages. The Company has
appealed the judgment, and the appeal was denied. The Company intends to
vigorously pursue a negotiated settlement of this matter.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
In the fourth quarter of fiscal 1996, MPTV solicited the consent of
its stockholders to an increase in the number of authorized shares of Common
Stock to 200,000,000 and the ratification of the shares issued in excess of the
prior authorized number. The Company received consents from holders of a
majoiryt of the then-outstanding shares of Common Stock.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until July 18, 1996, MPTV's Common Stock was traded under the
symbol "MPTV" in the Nasdaq SmallCap Market. Since that date, the Common Stock
has been traded on the OTC Bulletin Board. The following table sets forth the
range of high and low bid prices per share of the Common Stock for each of the
periods indicated, as provided by National Quotation Bureau, Inc. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
----------
High Low
---- ---
1996
<S> <C> <C>
First Quarter 1/8 2/32
Second Quarter 5/32 2/32
Third Quarter 2/32 1/32
Fourth Quarter 1/32 1/32
1995
First Quarter 3/4 15/32
Second Quarter 21/32 3/8
Third Quarter 9/16 7/32
Fourth Quarter 1/4 1/8
</TABLE>
10
<PAGE> 12
At December 31, 1996, MPTV had approximately 482 holders of record
of its Common Stock.
The Company currently anticipates that all of its earnings will be
retained for use in the operation of its business, and the Company has no
present intention to pay any cash dividends on the Common Stock in the
foreseeable future.
During the three months ended December 31, 1996, the Company issued
an aggregate of 46,380,168 shares of Common Stock to certain consultants, in
consideration for services rendered, 14,761,685 shares to investors for cash
consideration and 517,410 shares to satisfy certain debt. Such issuances were
deemed to be exempt from registration under the Securities Act, in reliance upon
Section 4(6) of the Securities Act as transactions by an issuer with accredited
investors. The recipients of securities in each such transaction represented and
warranted their status as accredited investors, and that they intended to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof. All recipients had adequate access to
information about the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read together with
the Consolidated Financial Statements and Notes thereto included elsewhere
herein.
General
MPTV is engaged in the timeshare resort and related entertainment
industries. Through its wholly-owned subsidiary, CRE, the Company plans to
develop and market timeshare properties. MPTV's principal asset is a
multi-million dollar resort property, called "Lake Tropicana", located in Las
Vegas, Nevada adjacent to the new MGM Grand/Hotel/Casino and Theme Park. The
Company plans to market its network of timeshare resorts in part though custom
infomercials created through its video and television marketing capabilities
(FLS).
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
At December 31, 1996, MPTV was in the development stage, with no
significant operating revenues to date. Although management of the Company is in
the process of obtaining necessary permits and approvals for development of the
Lake Tropicana timeshare resort, and minimal architectural and construction
activity occurred in 1996, the timeshare resort is not currently considered
under active development. Once such permits and financing are obtained,
management expects to complete the first phase of renovation in September 1997
(FLS). Complete renovation will occur in subsequent phases over a period of
approximately twelve (12) months (FLS). Marketing of timeshare units in Lake
Tropicana commenced in July 1997. Revenue from rentals of the Lake
Tropicana Apartments are considered incidental to the business of development
and sale of timeshare intervals and these are netted against related expenses in
the accompanying Consolidated Statements of Operations for the years presented
therein. Other revenues are unrelated to the business activities currently in
development.
The Company's expenses in excess of incidental revenues decreased to
$141,279 in the year ended December 31, 1996 from $206,175 in the year ended
December 31, 1995, a decrease of 31.5%. Such expenses, consisting of the cost of
apartment rental activities net of rental income, decreased due to depreciation
expense for the Company's Lake Tropicana timeshare resort in 1995. Salaries and
related benefit expense of the Company increased slightly by 6.6% to $681,900 in
fiscal 1996 from $639,426 in fiscal 1995, due to certain additional advances to
an officer. See Item 10 - "Executive Compensation" and Item 12 - "Certain
Relationships and Related Transactions".
Consulting fees paid by the Company decreased in the year ended
December 31, 1996 to $2,195,152, from $3,110,741 in the comparable period in
1995, a decrease of 29.4%. The decrease is attributable to a lessened need for
consulting and promotional services, due primarily to suspension of the
conversion of apartments to timeshare units at Lake Tropicana while permits and
additional financing are being obtained.
The Company's general and administrative expenses in fiscal 1996
increased by 17.3%, to $1,812,199, from similar expenses of $1,545,440 in fiscal
1995, due to several factors. The primary factors contributing to the increase
are legal, accounting and professional fees attributable to the infrastructure
necessary to operate as a public company since the Reverse Acquisition in
December 1993, including the increased effort expended to forestall the
delisting of the Company's Common Stock from the NASDAQ SmallCap Market.
MPTV also incurred interest expense of $1,960,394 in fiscal 1996 as
compared to $1,570,517 in fiscal 1995. Interest costs incurred for the
development of Lake Tropicana timeshares were capitalized to property held for
timeshare development during periods of active development based on qualifying
assets. The project ceased to
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<PAGE> 13
be under active development for accounting purposes in April 1995. During the
years ended December 31, 1996 and 1995, the Company capitalized interest
totalling $0 and $459,884, respectively.
Due to the factors set forth above, as well as to the payment in
fiscal 1995 of a $750,000 committment fee for timeshare financing and a $628,000
provisions for litigation settlements (see Item 3 - "Legal Proceedings"), MPTV
incurred a net loss of $5,570,790 for the year ended December 31, 1996, as
compared to $8,409,377 for the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
At December 31, 1995, MPTV was in the development stage, with no
significant operating revenues to date. Revenues from the sale of timeshare
units are expected in late 1996 (FLS). Revenue from rentals of the Lake
Tropicana Apartments are considered incidental to the business of development
and sale of timeshare intervals and these are netted against related expenses in
the accompanying consolidated statements of operations for the years presented
therein. Other revenues are unrelated to the business activities currently in
development.
The Company's expenses in excess of incidental revenues increased to
$206,175 in the year ended December 31, 1995 from $116,172 in the year ended
December 31, 1994, an increase of 77.5%. The increase was due to depreciation
expense for the Company's Lake Tropicana resort in 1995. Salaries and related
benefit expense of the Company decreased by 30.2% to $639,426 in fiscal 1995
from $916,264 in fiscal 1994, due to the resignation of the Company's former
Chief Executive Officer and the reduction in compensation paid under his
employment agreement in October 1994, as well as certain advances receivable
from an officer, director and principal stockholder totalling $262,000 at
December 31, 1993 and reserved as uncollectible in 1994.
Consulting fees paid by the Company increased significantly in the
year ended December 31, 1995, to $3,110,741 from $669,837 in the comparable
period in 1994, an increase of 364.4%. The increase was due primarily to the
retention of additional consultants to provide architectural, construction
prospect lists and other services. See Note 9 of Notes to Consolidated Financial
Statements. The Company also incurred one-time expenses in the year ended
December 31, 1995, in the amounts of $628,863 for settlement of litigation and
$750,000 for a commitment fee for retail timeshare financing, respectively. See
Item 3 - "Legal Proceedings" and Note 9 of Notes to Consolidated Financial
Statements.
The Company's general and administrative expenses in fiscal 1995
increased by 6.3%, to $1,545,440, from similar expenses of $1,453,492 incurred
in fiscal 1994, due to several factors. The primary factors contributing to the
increase are legal, accounting and professional fees attributable to the
infrastructure necessary to operate as a public company since the Reverse
Acquisition in December 1993, as well as the incurrence of additional salaries
in anticipation of commencement of timeshare development and sales.
MPTV also incurred interest expense of $1,570,517 in fiscal 1995 as
compared to $5,133 in fiscal 1994. Interest costs incurred for the development
of Lake Tropicana timeshares were capitalized to property held for timeshare
development during periods of active development based on qualifying assets. The
project ceased to be under active development for accounting purposes in April
1995. During the years ended December 31, 1995 and 1994, the Company capitalized
interest totalling $459,884 and $1,477,049, respectively.
Due to the factors set forth above, MPTV incurred a net loss, before
minority interest, of $8,409,377 for the year ended December 31, 1995 as
compared to $3,126,864 for the year ended December 31, 1994. The minority
interest in loss of consolidated subsidiary represents the 45% interest of
Pacific D.N.S. in the Lake Tropicana joint venture prior to MPTV's acquisition
of such interest on February 24, 1994. The impact of the minority interest
resulted in a net loss of $2,996,364 in the year ended December 31, 1994, and
had no impact in fiscal 1995.
Liquidity and Capital Resources
The Company's consolidated financial statements at December 31, 1996
and for the year then ended have been presented on the basis that the Company is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Continuation of
the Company as a going concern is dependent upon the Company raising additional
financing and achieving and sustaining profitable operations. Because of the
uncertainties regarding the Company's ability to achieve these goals, no
assurance can be given that the Company will be able to continue in existence.
Based on the Company's interest in Lake Tropicana, and the potential to raise
additional debt and/or equity financing (see below), management believes that
there will be sufficient capital available to complete existing contracts and
projects (FLS). The financial statements do not include
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<PAGE> 14
any adjustments relating to the recoverability of recorded assets amounts or the
amounts of liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Lake Tropicana resort is currently encumbered by the following
deeds of trust: (i) a first deed of trust held by Kennedy Financial, Inc.,
securing a note in the amount of $7,600,000 bearing interest at 15% per annum;
(ii) a second deed of trust held by Marrcshare Financial, Inc. securing a note
in the principal amount of $934,000 at December 31, 1996, bearing interest at a
rate of 8% per annum; and (iii) a third deed of trust held by Pacific D.N.S.,
Inc. (the Company's former joint venture partner), securing a note in the
principal amount of $1,813,393 at December 31, 1996, bearing interest at a rate
of 8% per annum. The Marrcshare Financial, Inc. and Pacific D.N.S., Inc. notes
contain provisions for payments to be made in conjunction with each timeshare
interval sold with principal payments to be made at the rates of $125 and $406,
respectively, on each interval sold.
Management currently estimates that Lake Tropicana timeshare unit
renovations will cost approximately $38,000 per unit, while common area
renovations will require an additional $1,000,000 (FLS). The entire renovation
project will require six phases and approximately $7,000,000 to $8,000,000 to
complete (FLS), of which approximately $1,000,000 (excluding capitalized
interest paid in cash of $1,400,000) has been expended to date.
Funds for phase one of the renovation and project carrying costs
have been derived from equity private placements conducted by the Company,
issuances of Common Stock to vendors and incurrence of debt. See Note 8 of Notes
to Consolidated Financial Statements. The Company has deposited a portion of
thes funds with the holder of one of its deeds of trust, to be held in trust for
the development of the Lake Tropicana project. The Company has also received a
commitment to refinance the existing notes secured by first and second deeds of
trust on the project (see below), which financing would provide partial releases
of condominiums. These release provisions facilitate the phasing of the Lake
Tropicana project for conveyance to timeshare purchasers. The Company then
intends to utilize the proceeds from timeshare sales (derived from the $100
million end-loan financing of timeshare receivables, for which the Company has
received a letter of commitment, subject to the completion of definitive
documents and due diligence procedures, from Stanford Investors Ltd.) plus cash
flow from operations, to fund the remainder of the renovations (FLS). However,
there can be no assurance that the Company will receive financing adequate to
complete renovations, whether through refinancing of the existing debt or
through financing of timeshare receivables. In the event that the Company does
not receive financing, it would be unable to complete the renovation of Lake
Tropicana, which would seriously impair the Company's ability to sell timeshare
units in the project. If the Company is unable to sell timeshare units in Lake
Tropicana, the potential value of Lake Tropicana as a rental property would be
substantially lower than the potential value if sold in timeshare intervals or
condominiums. Furthermore, sales of timeshare units require registration or
other regulatory compliance in the State of Nevada and certain other states
where such units may be sold. The Company has completed the process of complying
with applicable regulations to sell interval units in Lake Tropicana in Nevada,
except for the posting of bonds to activate the public permit.
The Company has entered into a firm commitment underwriting
agreement with J.E. Liss and Co., Inc. for a private placement of 12% senior
secured notes in the aggregate principal amount of $6,800,000 (with an
additional $3,200,000 in principal amount which may be sold on a best efforts
basis). Proceeds from the private placement will be used to refinance a portion
of the Lake Tropicana debt and for working and development capital (FLS). There
can be no assurance that any funds will be raised from the private debt
placement.
During the year ended December 31, 1996, the Company had net
negative cash flow of $188,455. This net negative cash flow was composed of
positive cash flow of $3,364,774 from financing activities offset by negative
cash flows of $428,400 from investing activities and $3,124,829 from operating
activities. Such financing activities consisted primarily of proceeds from the
issuance of notes payable, less significant repayments made on notes payable.
During the fourth quarter of 1996 the Company issued additional
shares of its common stock in exchange for certain services including loan
guaranties obtained in connection with refinancing certain loans secured by the
Lake Tropicana property. During December 1996, the Company through its CRE
subsidiary secured a $7,600,000 loan from Kennedy Funding, Inc. secured by a
first deed of trust on the Lake Tropicana property; it applied the proceeds to
pay certain loans that had been secured by a deed of trust on its Lake Tropicana
property and to also pay certain of the costs of remodeling the Lake Tropicana
property. This refinancing resulted in the removal of deed of trust provisions
which had prohibited the sale of timeshare intervals in the Lake Tropicana
property. As a result of this refinancing, the Company is remodeling the
property and preparing its marketing program for sales of timeshare intervals.
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Inflation
The Company believes that the relatively moderate rates of inflation
in recent years have not had a significant effect on its operations; however,
higher inflation could unfavorable affect the cost of funds needed to develop
and sell timeshare units.
New Accounting Standards
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123 "Accounting For Stock Based Compensation"
("No. 123"). No. 123 requires the Company to disclose the fair value effects of
stock based compensation to employees, although the Company will not have to
record the instruments (options, etc.) at fair value in the financial
statements. No. 123 requires the Company to adopt the standard in 1996.
ITEM 7. FINANCIAL STATEMENTS.
See pages F-1 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective January 17, 1997, Corbin & Wertz, MPTV's independent
certified public accountants, resigned and MPTV's Board of Directors approved a
change in independent certified accountants from Corbin & Wertz to Sarna &
Company.
The independent auditors' reports issued by Corbin & Wertz on MPTV's
consolidated financial statements for the years ended December 31, 1995 and 1994
did not contain an adverse opinion or disclaimer of opinion, and such reports
were not modified for any departure from generally accepted accounting
principles or for any limitation of audit scope. The report of Corbin & Wertz
for the year ended December 31, 1994 contained an explanatory paragraph
regarding uncertainty about MPTV's ability to continue as a going concern. The
report of Corbin & Wertz for the year ended December 31, 1995 contained
explanatory paragraphs regarding uncertainty about (1) MPTV's ability to
continue as a going concern, (2) the amounts for which MPTV may be liable as a
result of sales of equity securities in violation of Federal and state
securities laws, and (3) the potential delisting of MPTV from the Nasdaq
SmallCap Market. During the above-referenced years ended December 31, 1995 and
1994, there were no disagreements with Corbin & Wertz on matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which would have caused Corbin & Wertz to reference such matters in
their reports, except that during the year ended December 31, 1995, management
of MPTV capitalized interest on MPTV's property held for timeshare development
in reliance on Statement of Financial Accounting Standards No. 34. Corbin &
Wertz determined that such capitalization was not appropriate due to the
relatively inactive state of redevelopment of the Lake Tropicana Apartments
(property held for timeshare development). Management resolved the disagreement
by expensing a substantial portion of the interest capitalized during 1995 in
the fourth quarter of 1995.
Corbin & Wertz was requested to read a draft of MPTV's Quarterly Report on Form
10-QSB for the nine months ended September 30, 1996. In connection with such
reading, Corbin & Wertz requested in writing that management of MPTV consider
expanding certain disclosures and making certain adjustments to conform to
generally accepted accounting practices. Specifically, Corbin & Wertz suggested:
- Expanded disclosure of potential violations of Federal
securities laws with respect to the issuance of certain
shares of Common Stock;
- Disclosure of the nature of the services provided to
MPTV for approximately 58,000,000 shares of Common Stock
valued at approximately $2.9 million (Corbin & Wertz
believed that a table reflecting the total shares and
services would assist the users of the financial
statements to better understand the nature and benefit
of these services provided to MPTV);
- Expensing interest capitalized to property held for
timeshare development during the nine months ended
September 30, 1996;
14
<PAGE> 16
- Disclosure of the "as is" value of the Lake Tropicana
Apartments (approximately $6,000,000) which may be
realized in the event the timeshare development does not
proceed and/or foreclosure on such property occurs by
the senior secured lenders;
- Disclosure of the nature of the increase in other
assets/prepaid expenses and an assessment of whether
such amounts are properly capitalized; and
- Disclosure of the write-off of the land held for sale
aggregating $360,000.
Management of MPTV reviewed the correspondence from Corbin & Wertz
and determined that the Form 10-QSB accounting treatments and disclosures were
adequate.
In accordance with the rules of the Securities and Exchange
Commission, MPTV requested Corbin & Wertz to furnish MPTV with a letter to the
Commission, which letter was filed as an exhibit to a Current Report on Form 8-K
dated January 17, 1997.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The following table provides certain information regarding the
Company's directors and executive officers at December 31, 1996:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James C. Vellema 58 Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
Hurley C. Reed 60 President, Chief Operating Officer
and a Director
Raymond Rasmussen(1) 48 Director
</TABLE>
- ----------
(1) Mr. Rasmussen resigned effective March 17, 1997.
James C. Vellema has served as Chairman of the Board and Chief
Executive Officer of MPTV since November 1994, and as Chief Financial Officer
since December 1993. He served as President and a Director of the Company from
December 1993 through October 1994. He also serves as the President and a
Director of CRE, which he founded in October 1992. From July 1989 to October
1992, Mr. Vellema served as President and a founder of Tamarack
Holdings/Reefshare, which developed and marketed timeshare intervals in certain
resort properties. From 1978 to 1989, he served as a business consultant in the
areas of product development and association management for Glen Ivy Financial
Group, Inc., a developer of 12 resort projects in the Western United States and
Hawaii. From 1972 to 1978, Mr. Vellema was the President of Donner Financial
Inc., a company involved in non-hotel timeshare development and sales.
Hurley C. Reed has served as President and Chief Operating Officer
of MPTV since November 1994, and as a Director of MPTV since December 1993. From
December 1993 through October 1994, he served as Executive Vice President of the
Company. Since August 1993, Mr. Reed has also served as the Executive
Vice-President of CRE, where he has been responsible for financial controls and
development functions. From 1987 to 1993, Mr. Reed served in various executive
management positions at Glen Ivy Financial Group, Inc. Mr. Reed initiated and
developed the Glen Ivy Management Company which controlled 22 resorts and 30
associations with an annual budget of $25 million serving 50,000 timeshare
owners. Mr. Reed's last position at Glen Ivy was Executive Vice-President and
Chief Operating Officer. For the period 1984 to 1986 Mr. Reed was Eastern
Regional Director for North American Companies and was responsible for five
major resorts in the Eastern United States. From 1966 to 1984, Mr. Reed served
as a senior executive with Owens Illinois, where he was involved in the
development of a headquarters building and a large scale high-value woodlands
portfolio. In 1976 Mr. Reed was promoted to Chief Executive Officer at Owens.
Mr. Reed received his MBA degree from the University of Illinois.
15
<PAGE> 17
Raymond H. Rasmussen has served as a Director of MPTV since March
1993. From March 1993 through October 1994, he also served as Chairman of the
Board and Chief Executive Officer of the Company. Since 1991, he has also served
as Chairman/Chief Executive Officer of Anova Corp, a Minneapolis-based publicly
held holding company with international interests. He served as Chairman/Chief
Executive Officer of Select Gas, Inc., a publicly held oil and gas company from
1990 to 1992, and as Chairman/Chief Executive Officer of Braxton Industries,
Inc., a publicly held railroad tie recycling company, from 1982 to 1989. He has
also served as CEO and President of various privately held companies.
There are no family relationships among the officers or directors.
There are no understandings or agreements between the directors and officers,
other than in their capacity as such, pursuant to which such persons were named
as an officer or director. All directors will serve until the next annual
meeting of the stockholders or until their respective successors have been
elected and shall qualify.
Compliance with Section 16 of the Securities Exchange Act
Section 16 of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and holders of 10% or more of the
Company's Common Stock to file reports of ownership (Form 3) and changes in
ownership (Forms 4 and 5) with the Securities and Exchange Commission ("SEC")
and to furnish the Company with copies of all such reports filed with the SEC.
The Company does not have any information which indicates that any director,
executive officer or 10% shareholder of the Company during the year ended
December 31, 1996, did not timely report transactions as required under the
Securities Exchange Act of 1934, with the exception of the Forms 4 to be filed
by Mr. Vellema evidencing certain purchases of MPTV Common Stock on the open
market. In making the foregoing disclosure, the Company has relied solely on its
review of copies submitted to it of Forms 3, 4 and 5 filed by such persons with
the SEC with respect to the year ended December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation
for the Company's fiscal year ended December 31, 1996, awarded to, earned by or
paid to the individuals serving as Chief Executive Officer of the Company during
such year and to certain other executive officers of the Company (collectively,
the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
---------------------------------------- ------
Securities
Underlying
Name and Principal Positions Year Salary Bonus Other Options/SARs(#)
- ---------------------------- ---- ------ ----- ----- ---------------
<S> <C> <C> <C> <C> <C>
James C. Vellema, 1996 $325,000 -- $140,000(2) --
Chairman of the Board and Chief 1995 $198,077 -- $ 97,000(3) 150,000
Executive and Financial Officer(1) 1994 $212,500 -- -- 150,000
Hurley C. Reed, 1996 $195,000 -- $ -- --
President (4) 1995 $142,500 -- $ 11,000(5) 50,000
1994 $135,000 -- -- 50,000
</TABLE>
- ----------
(1) Mr. Vellema became Chairman and Chief Executive Officer of MPTV in
November 1994.
(2) Includes approximately $140,000 of advances paid pursuant to Mr.
Vellema's employment agreement; excludes approximately $53,000 paid to
Mr. Vellema's spouse under a consulting agreement. See Note 7 of Notes
to Consolidated Financial Statements.
(3) Includes approximately $97,000 of advances paid pursuant to Mr.
Vellema's employment agreement; excludes approximately $45,000 paid to
Mr. Vellema's spouse under a consulting agreement. See Note 7 of Notes
to Consolidated Financial Statements.
(4) Mr. Reed became President of the Company in November 1994.
(5) Includes approximately $11,000 of advances paid pursuant to Mr. Reed's
employment agreement.
16
<PAGE> 18
Option Grants in Last Fiscal Year
No options were granted to any of the Named Executive Officers in
the year ended December 31, 1996.
Fiscal Year Option Exercises and Fiscal Year-End Option Values
Shown below is information regarding unexercised stock options held
by the Named Executive Officers at December 31, 1996. No stock options were
exercised by the Named Executive Officers during 1996.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options At In-the-Money Options At
Name Fiscal Year End (#) Fiscal Year End ($)
- ---- ------------------- -------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. Vellema 150,000 -- $ 0 --
Hurley C. Reed 50,000 -- $ 0 --
</TABLE>
Employment Agreements
Effective January 1, 1994, James C. Vellema entered into a two-year
employment agreement (subject to automatic renewal on a year-to-year basis
unless cancelled) to serve as MPTV's Chief Operating Officer. The agreement
provides for annual compensation of $300,000, in the form of a draw against
commissions of 1.5% on all retail timeshare sales of the Company and 1% of the
Company's pre-tax net earnings. Mr. Vellema may also receive a bonus at the
discretion of the Board of Directors. As of December 31, 1996, MPTV had advanced
an aggregate of approximately $903,000 to Mr. Vellema, slightly in excess of the
maximum amount permitted under the employment agreement. In connection with the
employment agreement, Mr. Vellema was granted two-year options to purchase an
aggregate of 150,000 shares of MPTV Common Stock at a price of $2.50 per share
(the option price was lowered by the Board of Directors in November 1994 to
$0.50 per share, and the expiration date of the options was extended in 1995 to
December 31, 1997).
Effective January 1, 1994, Hurley C. Reed entered into a two-year
employment agreement (subject to automatic renewal on a year-to-year basis
unless cancelled) to serve as MPTV's Executive Vice President. The agreement
provides for annual compensation of $207,000, plus commissions of 0.5% on all
retail timeshare sales of the Company and 1.5% of the Company's pre-tax net
earnings. Mr. Reed may also receive a bonus at the discretion of the Board of
Directors. In connection with the employment agreement, Mr. Reed was granted
two-year options to purchase an aggregate of 50,000 shares of MPTV Common Stock
at a price of $2.50 per share (the option price was lowered by the Board of
Directors in November 1994 to $0.50 per share, and the expiration date of the
options was extended in 1995 to December 31, 1997).
Under each of the aforementioned employment agreements, MPTV is
required to pay compensation to each respective employee following termination
as follows: each such terminated employee must be paid a lump sum equal to his
monthly salary for each month remaining in the term of the employment agreement,
plus an additional lump sum ($75,000 for Mr. Vellema and $50,000 for Mr. Reed).
17
<PAGE> 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at December 31, 1996 by (i)
each person known by the Company to beneficially own five percent or more of the
Common Stock; (ii) each current Director of the Company; (iii) the Named
Executive Officers; and (iv) all current Directors and executive officers as a
group. Each person has sole voting and investment power with respect to the
shares of Common Stock shown, except as otherwise indicated.
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Name and Address of Beneficial Owners(1) Owned Class
- ---------------------------------------- ----- -----
<S> <C> <C>
Reinhold Pfahler 9,130,000 5.6%
Harlan Erickson 9,037,263 5.6%
Kenneth Oberlin 8,916,000 5.5%
James C. Vellema and Kathryn M. Vellema, joint tenants 4,428,280(2) 2.7%
Hurley C. Reed 50,000(3) *
Raymond Rasmussen 532,000(4) *
All Directors and executive officers as a group 5,010,280(2)(3)(4) 3.1%
(three persons)
</TABLE>
- ----------
*Less than one percent
(1) Unless otherwise indicated, the address of each of the persons listed above
is MPTV, Inc., 3 Civic Plaza, Suite 310, Newport Beach, California 92660.
(2) Includes options to purchase 150,000 shares, all of which are exercisable
within 60 days of December 31, 1996.
(3) Comprised of options to purchase 50,000 shares, all of which are
exercisable within 60 days of December 31, 1996.
(4) Includes options to purchase 525,000 shares, all of which are exercisable
within 60 days of December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CRS acts as the managing agent for the timeshare owners association
incorporated at the Company's Lake Tropicana timeshare resort. CRS will receive
a management fee for such services equal to approximately ten percent of the
gross annual assessment at the resort; however, no such fee was paid during the
year ended December 31, 1996. Management also anticipates providing similar
services to, and receiving similar fees from, its other resorts.
In June 1994, MPTV entered into an agreement with James C. Vellema
and an unrelated individual to purchase all of the outstanding common stock of
Reefshare, Ltd. ("Reefshare") in exchange for a number of restricted shares of
MPTV Common Stock to be determined. Reefshare currently owns a permit to sell
timeshare interests in the State of Hawaii. In order to consummate this
transaction, the Company must pay approximately $500,000 of liabilities owed
by the sellers (including Mr. Vellema) to certain third parties and satisfy in
full a $262,000 note receivable (see below). As of December 31, 1996, such
payment had not occurred.
Since December 1994, MPTV has advanced $402,000 to James C. Vellema.
Of this amount, $262,000 has been due since December 15, 1994. These amounts are
payable upon demand by the Company. See Note 7 of Notes to Consolidated
Financial Statements.
18
<PAGE> 20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of
this Report:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Company's Articles of Incorporation.(1)
3.1(a) Certificate of Amendment to Articles of Incorporation.*
3.2 Company's Revised Bylaws.(1)
10.1 Company's Incentive Stock Option Plan dated December 7, 1986.(2)
10.6 Stock Purchase Agreement, dated December 20, 1993, by and among the Company, CRE, James
C. Vellema and the Donald G. Saunders and Bonnie Saunders 1987 Family Trust.(3)
10.7 Form of Employment Agreement, dated January 1, 1994, between the Company and Raymond
H. Rasmussen.(4)
10.8 Employment Agreement, dated January 1, 1994, between the Company and James C. Vellema.(4)
10.9 Employment Agreement, dated January 1, 1994, between the Company and Hurley C. Reed.(4)
10.10 General Partnership Agreement, dated February 15, 1995, by and among the Company, GGS
Hotel Holdings California, Inc. and N.J.F. Palm Springs Co., Ltd.(4)
10.11 Agreement for Purchase and Sale of Joint Venture Interest, dated as of December 25, 1993, by
and between the Registrant, CRE and Pacific D.N.S., Inc.(5)
10.12 Agreement for Purchase and Sale of Stock, dated as of March 22, 1995, by and among Las Vegas
Entertainment Network, Pacific D.N.S., Inc., CRE and the Registrant.(4)
10.13 Agreement for Purchase and Sale of Stock, dated as of June 29, 1994, by and among B.I.B.M.,
Inc., James C. Vellema and Kathryn M. Vellema and the Registrant.(4)
10.14 Consulting Agreement and Warrant Agreement between the Company and Fenway Group.*
10.15 Underwriting Agreement between the Company and J.E. Liss, Inc.*
10.16 Consulting Agreement between the Company and Pidimenko.*
10.17 Partnership Agreement, dated November 10, 1995, between the Company and Robert V. Jones
Corp.*
10.18 Loan Agreement between the Company and Kennedy Financial, Inc.*
22.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement on Form S-18 (File
No. 33-10983-LA).
(2) Incorporated by reference to Post-Effective Amendment to the Registration
Statement on Form S-18.
(3) Incorporated by reference to Current Report on Form 8-K, filed with the
Commission on January 4, 1994.
(4) Incorporated by reference to Annual Report on Form 10-KSB for the year
ended December 31, 1994.
19
<PAGE> 21
(5) Incorporated by reference to Current Report on Form 8-K, filed with the
Commission on March 14, 1994.
(b) Report on Form 8-K.
Not applicable.
20
<PAGE> 22
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
with
INDEPENDENT AUDITORS' REPORT THEREON
<PAGE> 23
Item 7 - Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . F-2
Consolidated Financial Statements:
Consolidated Balance Sheets. . . . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . . . . F-4
Consolidated Statements of Stockholders'
(Deficit) Equity . . . . . . . . . . F-5 to F-6
Consolidated Statements of Cash Flows . . . . . . . . F-7 to F-8
Notes to Consolidated Financial Statements . . . . . . F-9 to F-19
</TABLE>
F-1
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
MPTV, Inc.
We have audited the accompanying consolidated balance sheet of MPTV, Inc.
("MPTV"), a development-stage company, and subsidiaries as of December 31, 1996,
and the related consolidated statements of operations, stockholders' deficit and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of MPTV's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
financial statements of MPTV, Inc. and subsidiaries as of December 31, 1995 and
as of December 31, 1994 were audited by other auditors whose reports dated May
7, 1996 and April 14, 1995 on those statements included explanatory paragraphs
that raised substantial doubt about the company's ability to continue as a going
concern. In addition, the auditor's reports contained paragraphs explaining the
improper issuance of stock and MPTV's failure to maintain NASDAQ SmallCap
listing requirements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 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 MPTV, Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1996.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the notes to
consolidated financial statements, MPTV is in the development stage and has
incurred cumulative net losses of $31,928,219 since its inception. As discussed
further in the notes to the consolidated financial statements, shares of freely
tradable common stock have been improperly issued without registration under
Federal and state securities laws. Management has initiated corrective action
with regards to these issuances. However, in addition to administrative remedies
which may be pursued by governmental agencies, the recipients of these shares of
common stock may seek recovery of the purchase price of the stock plus interest
through a rescission offer, the amount of which cannot be presently determined.
Accordingly, no provision for any rescission offer or government action that may
occur has been reflected in the accompanying consolidated financial statements.
MPTV has also failed to meet certain listing maintenance requirements
established by NASDAQ Stock Market, Inc. ("NASDAQ"), and has had its stock
delisted from the NASDAQ SmallCap Market Exchange. Furthermore, MPTV is in
default on certain of its debt obligations and requires significant additional
amounts of capital for its timeshare development and marketing activities to
take place. MPTV has minimal cash reserves and requires continual capital
infusements to pay operating expenses, interest, and note payable obligations.
These factors and capital deficiencies raise substantial doubt about MPTV's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Sarna & Company
Westlake Village, California
April 5, 1997
F-2
<PAGE> 25
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash $ 35,341 $ 223,796
Cash restricted-construction deposits 624,400 220,000
Land held for sale -- 360,000
Property held for timeshare development 16,098,289 16,170,614
Property and equipment 38,702 77,274
Deferred financing costs, net of accumulated
amortization of $1,046,328 -- 252,562
Other receivables 254,352 --
Other assets 81,656 35,229
Due from related parties 157,423 --
------------ ------------
Total assets $ 17,290,163 $ 17,339,475
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Liabilities
Notes payable $ 11,597,996 $ 11,818,361
Other notes payable 5,180,582 1,584,000
Accrued interest 706,761 1,923,653
Other accrued liabilities 641,154 1,156,945
Accounts payable and accrued expenses 404,734 470,864
Due to related parties 201,371 223,189
------------ ------------
Total liabilities 18,732,598 17,177,012
============ ============
Commitments and contingencies (see notes)
Stockholders' (deficit) equity:
Common stock, $.05 par value, 200,000,000
shares authorized, 162,406,691 issued
1996 and 34,487,390 issued 1995 8,120,335 1,874,370
Additional paid-in capital 22,365,449 23,529,022
Services to be rendered -- (38,500)
Stock subscription receivable -- (45,000)
Accumulated deficit (31,928,219) (25,157,429)
------------ ------------
Total stockholders' (deficit) equity (1,442,435) 162,463
------------ ------------
Total liabilities and stockholders'
(deficit) equity $ 17,290,163 $ 17,339,475
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 26
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
Revenues $ --- $ --- $ ---
------------ ------------ ------------
<S> <C> <C> <C>
Costs and expenses:
Excess of expenses over
revenues from incidental
operations 141,279 206,175 116,172
Reorganization items -- -- 14,596
Salaries and related benefits 681,900 639,426 916,264
Consulting fees 2,195,152 3,110,741 669,837
Provision for litigation
settlements -- 628,863 --
Commitment fee for timeshare
financing -- 750,000 --
General and administrative 1,812,199 1,545,440 1,453,493
Interest 1,960,394 1,570,517 5,132
Other income (20,134) (41,785) (48,630)
------------ ------------ ------------
Loss before extraordinary item
and minority interest (6,770,790) (8,409,377) (3,126,864)
------------ ------------ ------------
Minority interest in
consolidated subsidiary -- -- 130,500
------------ ------------ ------------
Net loss (6,770,790) $ (8,409,377) $ (2,996,364)
============ ============ ============
Net loss per share $ (0.09) $ (0.37) $ (0.25)
============ ============ ============
Weighted average shares
outstanding 80,955,316 22,871,368 12,221,575
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 27
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Number Additional Services Stock Total
of Common Paid In to be subscription Accumulated Stockholders'
Shares Stock Capital Rendered Receivables Deficit (Deficit)Equity
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 9,994,004 499,700 13,407,279 -- -- (13,751,688) 155,291
Common stock issued for cash 2,145,817 107,291 2,244,508 -- -- -- 2,351,799
Common stock issued for
services 1,021,595 51,080 681,572 (104,500) -- -- 628,152
Common stock issued for
timeshare project costs 320,400 16,020 464,580 -- -- -- 480,600
Common stock issued for
note receivable 96,375 4,819 187,931 -- (192,750) -- --
Common stock issued for
purchase of minority
interest 400,000 20,000 1,848,645 -- -- -- 1,868,645
Net loss -- -- -- -- -- (2,996,364) (2,996,364)
----------- ---------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1994 13,978,191 698,910 18,834,515 (104,500) (192,750) (16,748,052) 2,488,123
----------- ---------- ----------- ----------- ----------- ----------- -----------
Common stock issued for
services rendered 10,128,577 506,428 2,141,249 -- -- -- 2,647,677
Common stock issued for
payment of loan fees
and interest 1,720,000 86,000 758,800 -- -- -- 844,800
Common stock issued for cash 4,376,096 218,805 686,143 -- -- -- 904,948
Common stock issued for
timeshare project costs 2,570,000 128,500 641,626 -- -- -- 770,126
Common stock issued for
exercise of warrants 4,029,526 201,477 527,655 -- -- -- 729,132
Provision for uncollectible
stock note -- -- (192,750) -- 192,750 -- --
Services provided for stock
previously issued -- -- -- 66,000 -- -- 66,000
Collection of stock receivable -- -- -- -- (45,000) -- (45,000)
Common stock issued for
satisfaction of liabilities 685,000 34,250 131,784 -- -- -- 166,034
Net loss -- -- -- -- -- (8,409,377) (8,409,377)
----------- ---------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 37,487,390 1,874,370 23,529,022 (38,500) (45,000) (25,157,429) 162,463
----------- ---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
Continued F-5
<PAGE> 28
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY - CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Number Additional Services Stock Total
of Common Paid In to be subscription Accumulated Stockholders'
Shares Stock Capital Rendered Receivables Deficit (Deficit)Equity
----------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock retired (34,483) (1,724) (9,881) -- -- -- (11,605)
Common stock issued for
services and compensation 104,908,022 5,245,401 (875,843) 38,500 45,000 -- 4,453,058
Common issued for cash 19,261,685 963,084 (299,899) -- -- -- 663,185
Common stock issued for
satisfaction of liabilities 784,077 39,204 22,050 -- -- -- 61,254
Net loss -- -- -- -- -- (6,770,790) (6,770,790)
----------- ---------- ------------ ----------- ----------- ------------ -----------
Balances, December 31, 1996 162,406,691 $8,120,335 $ 22,365,449 $ -- $ -- $(31,928,219) $(1,442,435)
=========== ========== ============ =========== =========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 29
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(6,770,790) $(8,409,377) $(2,996,364)
Noncash items
included in net loss:
Depreciation and
amortization 558,562 807,854 273,853
Minority interest in loss
of joint venture -- -- (130,500)
Common stock issued for
services rendered 4,369,558 2,899,336 600,652
Notes payable issued for
services rendered 91,371 82,500 --
Common stock issued for
loan fees -- 844,800 --
Provision for loss of land
held for sale -- 130,668 --
(Increase) decrease in
operating assets:
Land held for sale 360,000 -- --
Property held for timeshare
development (263,675) (307,004) (1,183,934)
Property and equipment (38,572) -- --
Other receivables 389,348 -- --
Increase (decrease) in
operating liabilities:
Accrued interest (1,216,892) 561,807 417,304
Other accrued liabilities (515,791) -- --
Accounts payable and accrued
liabilities (66,130) 911,399 353,831
Due to related parties (21,818) -- --
----------- ----------- -----------
Cash used by operating
activities: (3,124,829) (2,478,017) (2,665,158)
----------- ----------- -----------
Cash flows from investing
activities:
Construction deposits (404,400) (220,000) --
Other assets (24,000) 44,526 129,487
Purchase of furniture and
equipment -- (8,573) --
----------- ----------- -----------
Cash (used for) provided by
investing activities: (428,400) (184,047) 129,487
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
Continued F-7
<PAGE> 30
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from issuance of
notes payable 10,981,500 1,329,500 ---
Principal repayments on
notes payable (8,271,835) (70,059) (36,509)
Net advances from (to)
affiliates, net 3,529 (21,910) 49,400
Proceeds from the issuance
of common stock net 651,580 1,634,086 2,351,799
----------- ----------- -----------
Cash provided by (used for)
financing activities: 3,364,774 2,871,617 2,364,690
----------- ----------- -----------
(Decrease) increase in cash (188,455) 209,553 (170,981)
Cash, beginning of year 223,796 14,243 185,224
----------- ----------- -----------
Cash, end of year $ 35,341 $ 223,796 $ 14,243
=========== =========== ===========
Supplemental cash flow
information-
Cash paid for interest $ 1,708,078 $ 830,473 $ 288,137
=========== =========== ===========
</TABLE>
Supplemental disclosure of noncash investing and financing activities -
See notes to consolidated financial statements for noncash transactions relating
to common stock issued for consulting services, timeshare unit project costs
and expenses, satisfaction of certain notes payable, deferred finance costs and
acquisitions.
See Notes to Consolidated Financial Statements
F-8
<PAGE> 31
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of MPTV, INC,
Consolidated Resort Services, INC. and W.J.N. & Associates, INC. (collectively
referred to as "MPTV" or as the "Company"). All material intercompany balances
have been eliminated. Certain limited reclassification and format changes have
been made to prior years amounts to conform to the current year presentation.
The consolidated financial statements are presented in accordance with generally
accepted accounting principals which require management to make estimates
regarding asset valuations and their realization, the outcome of litigation, and
other matters that affect the reported amounts and disclosure of contingencies
in the financial statements. Estimates, by their nature, are based on judgement
and available information. As such, actual results could differ materially from
those estimates.
The consolidated financial statements of MPTV have been prepared assuming that
MPTV will continue as a going concern, which contemplates, among other things,
the realization of assets and the satisfaction of liabilities in the normal
course of business. MPTV has incurred cumulative net losses of $31,928,219 since
its inception on October 1992. MPTV is also in default on certain of its secured
and unsecured notes payable. In the event that MPTV can not refinance or
renegotiate these notes, it may be subject to collection actions and foreclosure
proceedings on its property currently being held for timeshare development. The
company requires capital for its timeshare development and marketing activities
to take place. MPTV also requires capital for operating expenses, interest and
note obligations. MPTV has at certain times, issued shares of its common stock
without proper registration under Federal and state securities laws. The
company's ability to raise additional capital through the future issuances of
common stock is unknown. The successful refinancing of the Company's debt, the
securing of additional financing, the successful development of the Company's
properties, the successful completion of its marketing program and its
transition, ultimately, to the attainment of profitable operations are necessary
for the company to continue operations. The ability to successfully resolve
these factors raise substantial doubt about the Company's ability to continue as
a going concern.
The consolidated financial statements of MPTV do not include any adjustments
that may result from the outcome of these aforementioned uncertainties.
DEVELOPMENT STAGE COMPANY
MPTV meets the guidelines of SFAS No. 7 and as such is classified as a
development - stage company. As a means of surviving its development stage, MPTV
is in a continual stage of issuing stock and renegotiating debt.
PRO FORMA COMPENSATION EXPENSE
MPTV accounts for costs of stock-based compensation in accordance with APB No.
25, "Accounting for Stock Issued to Employees" rather than the fair value based
method in SFAS No. 123, "Accounting for Stock Based Compensation". Stock options
issued by MPTV during 1996 and previous years carry exercise prices that are six
and above times the Company's current share trading price. Until the company can
resolve its going concern problems, exercise of any of these options within the
next five years is unlikely. Accordingly, no pro forma compensation expense is
reported in these financial statements.
Continued F-9
<PAGE> 32
MPTV, INC. AND SUBSIDIARIES
(A Development-Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Improper Issuances of Common Stock
Shares of freely tradable common stock have been issued without proper
registration under Federal and state securities laws. Management has initiated
corrective action with regards to these issuances. However, in addition to
administrative remedies which may be pursued by governmental agencies, the
recipients of these shares of common stock may seek recovery of the purchase
price of the stock plus interest through a rescission offer, the amount of which
cannot be presently determined. Accordingly, no provision for any rescission
offer that may occur has been reflected in the accompanying consolidated
financial statements. Management of MPTV intends to file the necessary
registration statements to register these shares. There can be no assurances
that the filings of these registration statements will provide an adequate
remedy.
The NASDAQ SmallCap Market Exchange
On April 19, 1996, The NASDAQ Stock Market, Inc. ("NASDAQ"), which manages the
NASDAQ SmallCap Market Exchange (the "Exchange") on which the Company's common
stock is listed and traded, informed management that the Company had failed to
meet certain listing maintenance requirements. The company has since been
informed that it was delisted from the Exchange.
Property Held For Timeshare Development
Property held for timeshare development, commonly referred to as, the Lake
Tropicana Apartments in Las Vegas, Nevada, are currently being rented on a
month-to-month basis until such time the property can be developed and sold as
timeshare units. During the periods in which the apartments are rented, the
property is being depreciated using a life of 30 years. The Lake Tropicana
Apartments (the "Timeshare Property") is stated at the lower of cost or net
realizable value and includes direct and indirect costs, as well as allocated
interest incurred in connection with the acquisition and development of the
underlying properties.
Although management is in the process of obtaining necessary permits and
approvals, and some minimal architectural and construction activity has occurred
during 1995 and 1996, the Timeshare Property is not deemed to be actively under
development for accounting purposes. Management is seeking the necessary
financing to facilitate to continuation of active development. There can be no
assurances that active development of the Timeshare Property will resume.
In the determination of net realizable value for the purposes of assessing the
appropriateness of the carrying values reflected for the Timeshare Property,
management has assumed that all necessary financing needs will be met and that
timeshare development will continue. Given the financial concerns of the
Company, MPTV may not be able to achieve these goals. Should MPTV not be able to
successfully develop the Lake Tropicana Apartments into timeshare units, the net
realizable value of the Timeshare Property would be substantially below its
carrying value at December 31, 1996. Appraisals indicate that the "as is" fair
market value (a valuation based on the current use of the property without
consideration of its development into timeshare units) of the Lake Tropicana
Apartments is approximately $6,000,000.
Continued F-10
<PAGE> 33
MPTV, INC AND SUBSIDIARIES
(A Developmental - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Capitalized Interest
Interest is capitalized to the timeshare property during periods of active
development based on qualifying assets, using a method which approximates the
effective interest rate method. The project ceased to be under active
development for accounting purposes in April 1995. Interest incurred, including
the amortization of deferred financing costs, in 1995 and 1994 totaled
$2,030,401 and $1,482,182, respectively. Interest capitalized in 1995 and 1994
totaled $459,884 and $1,477,049, respectively. Interest capitalized in 1996 was
$0.
Property and Equipment
Property and equipment are being depreciated on a straight-line basis over five
to seven years. Expenditures for maintenance and repairs are charged to
operations, as incurred, while betterments are capitalized.
Construction Deposits
Pursuant to an agreement with the holder of a trust deed note payable the
Company has made deposits to such note holder, to be held in trust, for the use
in the development of the Lake Tropicana Apartment into timeshare units.
Deferred Finance Costs
Cost incurred during 1995 and 1994 in connection with certain of the Company's
financing arrangements are deferred and amortized over the term of the note
using the effective interest method. Amortization of deferred financing costs
for the years ended December 31, 1995, 1994 and since inception totaled
$505,123, $541,205 and $1,046,328, respectively, of which $505,123, $0 and
$505,123, respectively, has been reflected as interest expense and $0, $541,205
and $541,205, respectively, has been capitalized to properly held for timeshare
development. No deferred finance costs were recorded in 1996.
Revenue Recognition
The Company will recognize revenues from sales of timeshare units upon the
execution of a contract and receipt of a down payment of at least 10%, and when
proceeds are assured and all conditions precedent to closing have been performed
by the parties. Costs applicable to the sale of timeshare property will be
allocated to individual intervals on the basis of their relative sales value.
Rental revenues are recognized as earned. The Company earns rental revenues from
apartments leased, primarily on a month-to-month basis from the Lake Tropicana
Apartments (see "Incidental Operations" below).
Incidental Operations
The net cost of incidental operations consisting of the costs of apartment
rental activities, net of rental income, are reflected as an expense in the
accompanying consolidated statements of operations.
Income Taxes
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
Statement 109, a liability method is used whereby deferred tax assets and
Continued F-11
<PAGE> 34
MPTV, INC. AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
liabilities are determined based on temporary differences between bases used for
financial reporting and income tax reporting purposes. Income taxes are provided
based on tax rates in effect at the time such temporary differences are expected
to reverse. A valuation allowance is provided for certain deferred tax assets if
it is more likely than not, that the Company will not realize the tax assets
through future operations.
Fair Value of Financial Instruments
Financial Accounting Standards Statement No. 107, "Disclosures About Fair Value
of Financial Instruments," requires the Company to disclose, when reasonably
attainable, the fair values of its assets and liabilities which are deemed to be
financial instruments. The Company's financial instruments consist primarily of
its secured and unsecured notes payable and certain investments. Management has
determined that it is not practicable to estimate fair value of its secured and
unsecured notes payable because of the complexity of the debt arrangements and
the lack of an active market with which to obtain reasonable comparables for the
terms and interest rates of such debt. When applicable, the fair market value of
investments have been determined using available market trading data.
Per Share Information
The Company computes per share information by dividing the net loss for the
period presented by the weighted average shares outstanding during such period.
The effect of common stock equivalents would be antidilutive for all periods and
is not included in the net loss per share calculations.
NOTE 2 - JOINT VENTURES AND ACQUISITIONS
Acquisition of Minority Interest in Joint Ventures
On February 24, 1994, MPTV acquired the 45% minority interest in the "Venture"
from Pacific DNS, for an aggregate purchase price of $3,737,291 consisting of an
8% promissory note for $1,868,645, collateralized by a deed of trust on the Lake
Tropicana Apartments and guaranteed by MPTV and 400,000 shares of the Company's
common stock valued at $1,868,645 (see below). MPTV agreed to register said
shares under the Securities Act of 1933, as amended, no later than October 31,
1994. If these shares were not registered by that date, Pacific had the right to
cancel the transaction, and return the shares for Pacific's joint venture
interest purchased by MPTV. In the event that the proceeds to Pacific DNS from
the sale of the shares were less than $1,868,645, MPTV agreed to issue to
Pacific DNS, and register pursuant to the Securities Act of 1933, that number of
additional shares which, if registered and sold, would yield proceeds, together
with those received from the sale of the original shares, equal to $1,868,645.
Accordingly, the value of the 400,000 common shares was based on the guaranteed
value referred to above upon registration and sale of such securities.
On March 22, 1995, the Company agreed to purchase the 400,000 common shares from
Pacific DNS for $1,868,645. The Company's purchase consideration will be a
non-interest bearing note with a maturity date of August 1, 1998, with a
principal reduction requirement of $205 for each timeshare interval sold. The
purchase of the shares is contingent upon terms and conditions, one of which is
the consummation of the refinancing. As a result, the shares of common stock are
reflected as outstanding and the purchase obligation has not been accrued in the
accompanying consolidated balance sheet.
continued F-12
<PAGE> 35
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 2 - JOINT VENTURES AND ACQUISITIONS, Continued
OTHER VENTURES
On February 15, 1994, the Company entered into partnership agreement with GGS
Hotel Holdings California and certain other parties (together referred to as
"GGS"), to convert 96 lodging units located in Cathedral City, California, into
timeshare units. The Company must provide $500,000 in working capital to the
partnership, as well as the expertise and management to develop and market the
properties. The partnership agreement provides for the allocation of profits and
losses based on ownership interest. The Company has not contributed the capital
necessary to the partnership. GGS must obtain a partial security interest
release in order for timeshare units to be sold which has been obtained. The
parties retain the right to dissolve the partnership at any time. No dissolution
by either party has been effected to date. A sales facility is being established
in preparation of the commencement of sales.
In June 1993, as subsequently amended on May 17, 1994, the Company entered into
an arrangement to acquire 855 timeshare units located in Florida for 429,958
shares of its common stock, 351,708 of which were issued in May, 1994, all of
which are subject to registration under the Securities Act of 1933. The Company
has been unable to register such shares and, as a result, the transaction was
not completed by the parties. The shares were issued to the seller, however,
these shares are not considered outstanding in the accompanying consolidated
statement of stockholders' equity as no valid consideration has been received by
the Company. Management believes that the transaction will be completed or the
shares will be returned and canceled by the Company.
Related Party Venture
On June 29, 1994, the Company entered into a stock purchase agreement with an
officer and an unrelated individual to acquire all the outstanding common stock
of Reefshare, Ltd. ("Reefshare") for an amount of restricted common stock of
MPTV. Reefshare is to obtain a permit to sell timeshares in Hawaii. As further
consideration, the Company is to pay certain liabilities aggregating
approximately $500,000 to certain unrelated parties and is to satisfy in full
the note receivable from officer. Certain other liabilities secured by real
estate will also be assumed. The transaction is to be consummated at a time
mutually agreeable by all parties and upon satisfaction of the $500,000 of
indebtedness to third parties and the satisfaction of the note receivable from
officer, neither of which has occurred as of December 31, 1996.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Property and equipment $ 79,306
Less accumulated depreciation (40,604)
- ----------------------------- ---------
Net property and equipment $ 38,702
-------------------------- =========
</TABLE>
NOTE 4 - NOTES PAYABLE
Notes payable at December 31, 1996 consist of the following:
Note payable, secured by deed of trust on MPTV's timeshare property (Lake
Tropicana Apartments), accruing interest at 15% per annum, due in monthly
interest only installments of $95,000,
maturing November 1999 (see below) $ 7,600,000
Continued F-13
<PAGE> 36
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - NOTES PAYABLE, Continued
Note payable, (interest payments delinquent)
secured by deed of trust on MPTV's timeshare
property (Lake Tropicana Apartments) accruing
interest at 8% per annum. Due in monthly interest
only installments of $6,196 maturing December 1997 2,129,350
Note payable, secured by deed of trust,
accruing interest at 8% per annum,
maturing January 14, 1997 1,868,646
-----------
Total notes payable $11,597,996
===========
Note payable in the amount of $7,600,000 refinanced existing first, second and
third notes payable, each secured by a deed of trust. This refinance was
completed in order to obtain release provisions for individual timeshare units
as they are sold. These release provisions are critical to the commencement of
timeshare sales and the conveyance of the accompanying timeshare deeds to each
purchaser.
NOTE 5 - OTHER NOTES PAYABLE
Other notes payable at December 31, 1996 consists of numerous unsecured loans,
that accrue annual interest at rates that vary between 8% and 12% per annum.
These notes mature monthly throughout 1997 and are in a continual state of
extension and renegotiation.
Notes payable to stockholders $ 5,122,249
Note payable other entity,
judgement perfected against
MPTV. (in negotiation) 58,333
-----------
Total other notes payable $ 5,180,582
===========
NOTE 6 - ACCRUED INTEREST
Accrued interest on notes payable at December 31, 1996 is as follows:
Note payable secured by first trust deed, current $ 0
Note payable secured by second trust deed 74,348
Note payable secured by third trust deed 149,492
Other notes payable 482,921
-----------
Total accrued interest $ 706,761
===========
NOTE 7 - RELATED PARTY TRANSACTIONS
A summary of related party transactions at December 31, 1996 is as follows:
Continued F-14
<PAGE> 37
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - RELATED PARTY TRANSACTIONS, Continued
Due From
Advances receivable officer/shareholder,
unsecured, accruing no interest, due
upon demand $ 140,000
Advances related entities, accruing no
interest, due upon demand 17,423
------------
Total due from related parties $ 157,423
============
Due to
Note payable stockholders,
unsecured, payable upon
demand $ 77,000
Note payable director, unsecured,
accruing interest at 10% per
annum, due upon demand 33,000
Note payable officer, unsecured,
accruing interest at 10% per
annum, due upon demand $ 91,371
------------
Total due to related parties $ 201,371
============
OTHER TRANSACTIONS
As of December 31, 1996, the Company has advanced as notes receivable $402,000
to an officer/stockholder. Of this amount, $262,000 has been due since December
15, 1994. Management provided a reserve for this amount, in its entirety, during
1994 and this reserve is reflected as "salaries and related benefits" in the
accompanying consolidated statements of operations. This note in the amount of
$262,000 has no carrying value on the accompanying consolidated balance sheet as
of December 31, 1996.
The Company has entered into management agreements with two officer/directors
which provide for certain compensation, incentives and stock options, effective
January 1, 1994, which automatically renew for successive twelve-month periods
unless the officer/director gives 30 days written notice of intention not to
renew. One agreement provides for annual salaries in the amount of $207,000. In
addition, this agreement provides for additional compensation based on timeshare
unit sales at a rate of 0.5% of profits. The second agreement with the Company's
CEO and board of directors member provides for compensation computed at 1.5% of
gross timeshare unit sales and 1.0% of the Company's pre-tax earnings during the
period of this officer's employment. This officer may also draw advances of up
to $300,000 annually against these future earnings. As of December 31, 1996,
MPTV has advanced a total of approximately $973,000 to this officer/stockholder
since the company's inception. These payments exceed the $300,000 annual limit
on such advances as stipulated in the employment agreement. All but $140,000 of
this amount has been charged to operations in the year the monies were advanced.
During 1996 consulting services approximating $53,000 were provided to MPTV by a
related company. This amount has also been charged to expense as incurred.
Continued F-15
<PAGE> 38
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock
During 1996 and 1995, the Company raised funds through certain private
placements of the Company's common stock. In addition, certain shares were
issued under Regulation S of the Securities Act of 1933. During 1996 and 1995,
the company issued 124,953,784 and 3,876,096 shares respectively, at per share
prices ranging from $0.10 to $0.37. The gross proceeds from the issuance of such
shares totaled $963,084 and $904,948 respectively, excluding certain shares
issued for commissions. No significant cash was paid that related to these
placements of the Company's common stock. During the year ended December 31,
1996, the company also retired 11,605 shares of its common stock.
In April 1995, the Company entered into a commitment with a finance company to
provide financing for future retail sales of its timeshare units upon completion
of its development activities. The Company paid a commitment fee of 1,500,000
shares of its common stock valued at $750,000; the value of such shares is
included in "commitment fee for timeshare financing" in the accompanying
consolidated statement of operations for 1995. In addition, in connection with a
previously proposed refinancing arrangement with a lender which was aborted in
August 1995, the Company issued 127,500 shares valued at $34,800. Other
issuances of common stock for loan related fees in 1995 include 92,500 shares
valued at $60,000.
During 1996 and 1995, the Company issued 784,077 and 685,000 shares
respectively, of its common stock, valued at $61,254 for 1996 and $166,034 for
1995 in satisfaction of certain liabilities.
From time to time, the Board of Directors have authorized certain shares of its
common stock to be issued for services rendered by the Company's consultants.
During 1995, the Company issued 10,128,577 shares of its common stock at values
ranging from $0.66 per share in January 1995 to $0.20 per share in December 1995
with an aggregate value of $2,647,677 in connection with various consulting and
financial services agreements.
In 1995 and 1994, the Company settled certain construction and development
payables with unrelated parties through the issuance of 2,570,000 shares and
320,400 shares, respectively, of its common stock valued at $770,126 and
$480,600, respectively. All amounts in 1994 and $509,462 in 1995 were
capitalized to "property held for timeshare under development" in the
accompanying consolidated balance sheet. The difference between the value of the
1995 shares issued of $770,126 and the amount capitalized of $509,462, totaling
$260,664, was charged to "provision for litigation settlements" in the
accompanying consolidated statement of operations.
STOCK OPTIONS AND WARRANTS
Since 1994 the Company has continuously issued stock options and warrants to
facilitate meeting financing requirements and as incentives for employee and
consultant performance. Warrants and options outstanding at December 31, 1996
amount to 45,853,338 shares with exercise prices ranging from $0.12 to $0.80 per
share and with exercise dates through July 1, 1998. The exercise of any or all
of these options would cause the annual loss per outstanding share of common
stock to decrease.
Continued F-16
<PAGE> 39
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 9 - PROVISION OF INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 represents the minimum state income tax expense of the Company, which is
not considered significant.
A reconciliation of estimated federal income taxes to the provision for income
taxes for the various years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Federal benefit $ 1,894,000 $ 2,859,000 $ 1,019,000
State benefit, net 334,200 504,000 179,000
Less change in valuation
account (realization
of benefit) (2,228,200) (3,363,000) (1,198,000)
----------- ----------- -----------
Total provision for
income taxes $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
Because of the "change in ownership" provisions of the Tax Reform Act of 1986,
the utilization of the Company's net operating loss carry forwards prior to the
merger on December 20, 1993 are subject to annual limitation of approximately
$2,000,000. Net operating loss carry forwards for Federal and state tax
reporting purposes are approximately $19,000,000, $14,000,000 and $7,000,000 for
the years 1996, 1995 and 1994 respectively. These carry forwards expire through
2011.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office space under a noncancelable operating lease
expiring May 1997 (currently being renegotiated). In connection with the lease
arrangement, the Company is obligated to make rental payments of $2,711 per
month. Future annual minimum rental commitments in the aggregate under this
noncancelable lease are $10,844 for the year ending December 31, 1997.
Litigation
The founder and former officer, director and principal (the "Plaintiff") of MPTV
filed a Complaint against the Company to enforce a settlement, MPTV issued
328,800 shares of its common stock, subject to certain registration rights. The
Company had not registered such shares. The Company filed a counter claim with
intentions of disproving all allegations by the Plaintiff. In February 1996, the
Company settled with the Plaintiff agreeing to pay $600,000 in damages, with
$140,000 to be paid in specified increments through August 1, 1996. The
remaining $460,000 is to accrue interest at 12% per annum, is to be paid in full
on or before August 1, 1999, and is to be paid at the greater of monthly
payments equal to $65 per timeshare interval sold or semi-annual payments
derived from a 5-year full amortization of the $460,000. The Company recorded a
provision for loss totaling $256,000 relating to this settlement in the 1995
consolidated statement of operations. The Company has reflected the entire
$600,000 settlement obligation in other accrued liabilities on the consolidated
balance sheets at December 31, 1996 and 1995.
Continued F-17
<PAGE> 40
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - COMMITMENTS AND CONTINGENCIES, Continued
In March 1996, the Company received an unfavorable judgment in litigation with a
former consultant related to a compensation dispute. The judgment provides for
the Company to pay the former consultant approximately $282,000. The Company
filed a motion for a rehearing and received an order from the court denying said
motion. The Company has appealed the judgment and the appeal was denied. The
Company intends to vigorously pursue settlement through negotiation, management
has recorded a provision for loss totaling $112,000 relating to this settlement
in the 1995 consolidated statement of operations.
Sale of Timeshare Receivables
On March 8, 1995, the Company entered into a commitment for the sale or
financing of the receivables secured by timeshare units originated by the
Company. In connection with the commitment, the Company would be able to obtain
advances of 90% of the principal balance of timeshare notes receivable up to
$100 million through December 31, 1997, with provisions for extension by written
consent of the Parties. The notes must have stated interest rates of 14% to 15%
per annum. The ultimate transaction is dependent on the parties reaching a
definite agreement and the performance of certain due diligence procedures.
Management expects this agreement to be effective upon the close of the proposed
debt refinancing arrangement.
Pursuant to the terms of this agreement, the Company issued 1,500,000 shares of
restricted common stock under rule 144 of the Securities Act of 1933, as
amended, valued at $750,000 representing the fee for this agreement. The
1,500,000 shares of common stock are subject to registration rights over the
period in which the lender finances the timeshare receivables.
Consulting Agreements
The Company has entered into a variety of consulting agreements which have terms
for up to a year, certain of which are renewable. The agreements provide for the
delivery of assorted services relating to the development, marketing, sale and
financing of the timeshare project. Certain of the agreements require the
monthly payment of consulting fees in the form of cash or stock.
Development Contracts
In 1993, the Company entered into two contracts to provide architectural and
engineering services, and construction services for the redevelopment of its
Lake Tropicana Apartments into timeshare units. The total billings under the
contracts through June 1994 was approximately $725,000, at which time
performance under the contracts was ceased by the contractors. The Company
satisfied these initial obligations primarily throughout the issuance of common
stock in 1995 and 1994.
In September 1995, the Company entered into new contracts aggregating
approximately $300,000 for the continued redevelopment of the project.
Substantially all of the services related to these additional contracts were
provided and satisfied in 1995 through the issuance of shares of common stock.
Furthermore, the Company was required to maintain a construction deposit of
$220,000 for the benefit of these contractors. These funds will be used to pay
such contractors when they are engaged to perform additional work in 1996.
Continued F-18
<PAGE> 41
MPTV, INC AND SUBSIDIARIES
(A Development - Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 11 - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company recorded significant adjustments
to its consolidated financial statements. Management is currently evaluating the
requirements of the SEC for interim reporting, and management may file
amendments to its Forms 10-QSB previously filed during 1996.
Significant adjustments include the following:
<TABLE>
<S> <C>
Reversal of forgiveness of debt $ 1,200,000
Reversal of interest capitalized 409,072
Recordation additional liabilities 50,000
Provision for loss on assets 299,477
Recordation of additional depreciation expense
on the Timeshare Property 48,000
Accrual of additional interest expenses 223,840
Recordation of consulting service expenses 984,094
-------
$ 3,214,483
=========
</TABLE>
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Company has issued a significant number of
shares of its common stock for cash and services rendered.
F-19
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 12 or 15(d) of the
Securities Exchange Act of 1934, the Registrant certifies that it has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newport Beach, State of California on the 14th day of
July, 1997.
REGISTRANT:
MPTV, INC.
By: /s/ JAMES C. VELLEMA
-------------------------------
James C. Vellema
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James C. Vellema and Hurley C. Reed, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments to this Report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agent, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES C. VELLEMA Chief Executive Officer, Chief Financial July 14, 1997
- ----------------------------- Officer (Principal Executive Officer and
James C. Vellema Principal Financial and Accounting
Officer) and Chairman of the Board
/s/ HURLEY C. REED President and a Director July 14, 1997
- -----------------------------
Hurley C. Reed
- ----------------------------- Director July __, 1997
Harlan Erickson
</TABLE>
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Company's Articles of Incorporation.(1)
3.1(a) Certificate of Amendment to Articles of Incorporation.
3.2 Company's Revised Bylaws.(1)
10.1 Company's Incentive Stock Option Plan dated December 7, 1986.(2)
10.6 Stock Purchase Agreement, dated December 20, 1993, by and among the Company, CRE, James C.
Vellema and the Donald G. Saunders and Bonnie Saunders 1987 Family Trust.(3)
10.7 Form of Employment Agreement, dated January 1, 1994, between the Company and Raymond H.
Rasmussen.(4)
10.8 Employment Agreement, dated January 1, 1994, between the Company and James C. Vellema.(4)
10.9 Employment Agreement, dated January 1, 1994, between the Company and Hurley C. Reed.(4)
10.10 General Partnership Agreement, dated February 15, 1995, by and among the Company, GGS Hotel
Holdings California, Inc. and N.J.F. Palm Springs Co., Ltd.(4)
10.11 Agreement for Purchase and Sale of Joint Venture Interest, dated as of December 25, 1993, by and
between the Registrant, CRE and Pacific D.N.S., Inc.(5)
10.12 Agreement for Purchase and Sale of Stock, dated as of March 22, 1995, by and among Las Vegas
Entertainment Network, Pacific D.N.S., Inc., CRE and the Registrant.(4)
10.13 Agreement for Purchase and Sale of Stock, dated as of June 29, 1994, by and among B.I.B.M., Inc.,
James C. Vellema and Kathryn M. Vellema and the Registrant.(4)
10.14 Consulting Agreement and Warrant Agreement between the Company and Fenway Group.*
10.15 Underwriting Agreement between the Company and J.E. Liss, Inc.*
10.16 Consulting Agreement between the Company and Pidimenko.*
10.17 Partnership Agreement, dated November 10, 1995, between the Company and Robert V. Jones Corp.*
10.18 Loan Agreement between the Company and Kennedy Financial, Inc.*
22.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement on Form S-18 (File
No. 33-10983-LA).
(2) Incorporated by reference to Post-Effective Amendment to the Registration
Statement on Form S-18.
(3) Incorporated by reference to Current Report on Form 8-K, filed with the
Commission on January 4, 1994.
(4) Incorporated by reference to Annual Report on Form 10-KSB for the year
ended December 31, 1994.
(5) Incorporated by reference to Current Report on Form 8-K, filed with the
Commission on March 14, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 1996 AND FOR THE YEAR THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 35,341
<SECURITIES> 0
<RECEIVABLES> 254,352
<ALLOWANCES> 0
<INVENTORY> 16,098,289<F1>
<CURRENT-ASSETS> 16,758,030
<PP&E> 38,702
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,290,163
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 8,120,335
<OTHER-SE> 22,365,449
<TOTAL-LIABILITY-AND-EQUITY> 17,290,163
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 141,279
<OTHER-EXPENSES> 4,689,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,960,394
<INCOME-PRETAX> (6,770,790)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,770,790)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,770,790)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<FN>
<F1>Consists of property held for timeshare development.
</FN>
</TABLE>
