SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB/A#3
AMENDMENT NO. 3 TO
(mark one)
[ X ] ANNUAL REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19196
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CELEBRITY ENTERTAINMENT, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-2880337
(State of or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 400, Palm Beach, Florida 33480 407/659-3832
(Address of principal executive offices. Issuer's telephone number.)
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act as of December 31,
1995: Common Stock, $0.0001 par value per share.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the issuer 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 disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not 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. [ ]
State issuer's revenues for its most recent fiscal year. $142,052.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average closing bid and ask prices of such stock on April
12, 1996 was approximately $5,927,257.
The number of shares outstanding of the issuer's Common Stock, $ 0.0001 par
value, as of December 31, 1995 was 2,366,753 and the number of shares of its
Preferred Stock, $ 0.01 par value, outstanding as of December 31, 1995 was
1,064,000.
Traditional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
CELEBRITY ENTERTAINMENT, INC.
FORM 10-KSB/A#3
For the Year Ended December 31, 1995
INDEX
HEADING PAGE
PART I
Item 1. Description of Business 1
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Common Equities and Related
Stockholder Matters 10
Item 6. Management's Discussion and Analysis or
Plan of Operation 11
Item 7. Financial Statements 16
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 16
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial Owners
and Management 20
Item 12. Certain Relationships and Related Transactions 21
Item 13. Exhibits and Reports on Form 8-K 22
SIGNATURES 25
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Celebrity Entertainment, Inc. (Formerly Celebrity Resorts, Inc. and
hereinafter referred to as the "Company") was organized pursuant to the laws of
the State of Delaware on July 27, 1987 under the name of Celebrity Fish Camps
and RV Parks, Inc. for the purpose of owning, developing, marketing and
operating a destination resort community and fish camp (the "Resort") on Orange
Lake near Ocala, Florida. The Company operates the Resort and currently focuses
its operations on sales of site and facilities usage of Resort facilities by RV
owners and outdoor sports people, and organization of rallies by RV owners and
other special interest groups.
On June 9, 1993, pursuant to the terms of a certain Stock Purchase
Agreement and Plan of Reorganization, the Company acquired all of the
outstanding capital stock of Production Services International, Inc., a
development-stage Delaware corporation ("PSI"). The Company acquired all of the
issued and outstanding capital stock of PSI in exchange for the issuance of
8,053,436 shares (pre-1993 Reverse Split, defined below, or 80,535, giving
effect to the 1993 and 1995 Reverse Splits) of the Company's Common Stock. PSI
was organized on December 10, 1991 for the purpose of performing and providing
production management services and facilities leasing to companies that are
engaged in the production of filmed entertainment projects. PSI was principally
engaged in providing television and motion picture production services. In
November 1994, as a result of cost overruns on a television series produced by
PSI, production activity on the series and development activities on PSI's other
television projects were terminated. Consequently, as of December 31, 1994 the
Company abandoned the operations of PSI and wrote off its investment in PSI.
As a result of such abandonment of its subsidiary and the lack of net income
from the Company's other operations, the Company during 1995 continued to
experience a liquidity problem and was unable to meet all of its financial
obligations as they became due. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. See "Management's
Discussion and Analysis of Financial Condition or Plan of Operation" and Note 1
to the Company's Financial Statements included elsewhere herein.
On November 3, 1993, the Company changed its name from Celebrity Resorts,
Inc. to Celebrity Entertainment, Inc. Also on November 3, 1993 each share of
the Company's outstanding and treasury common stock was reclassified and
converted into one-twentieth of one share of Common Stock (the "1993 Reverse
Split").
On August 3, 1995, each share of the Company's outstanding and treasury
stock was reclassified and converted into one-fifth of one share of Common Stock
(the "1995 Reverse Split").
The principal executive offices of the Company are located at 214
Brazilian Avenue, Suite 400, Palm Beach, Florida 33480 and its telephone number
is (407) 659-3832.
Business
The Resort
The Resort offers extensive outdoor recreational activities including
fishing, golfing and swimming. The Company believes that the Resort
successfully creates an environment where a broad base of guests can share the
Resort facilities with one another. Management intends to expand the facilities
and increase the number of sites and housing units at the Resort. Special
promotions, such as fishing and golf tournaments, fishing clinics, outdoor music
festivals, and theme-based rallies are scheduled throughout the season.
Management believes that the quality of fishing, golf and recreational
activities and the standards maintained in the operation of the Resort
facilities will continue to attract new and repeat visitors.
As indicated above, the Company is still in the process of completing the
Resort. The Company expects that, when fully completed, the Resort will include
sites to accommodate approximately 300 recreational vehicles ("RV's"),
approximately 50 semi-permanent mobile cabins ("Park Models"), approximately 50
free standing housing units ("Housing Units"), camping facilities and a variety
of ancillary amenities, including a restaurant, swimming pool, baseball field,
golf course, miniature golf course, tennis courts, basketball and other athletic
courts, outdoor game areas, hiking trails, a clubhouse and general store and
other resort facilities. The Company employs a recreational staff to organize
activities for children, adults and families, such as barbecues, arts and crafts
projects, dances, exercise classes, parties, tournaments and a broad range of
games. The Company also provides year-round maintenance and security staff at
the Resort.
At December 31, 1995, the Resort operated 108 RV and Park Model sites
which are fully equipped with water, sewer and electric hook-ups, 125 RV sites
with water and sewer hook-ups only, and 11 Housing Units. The support and
athletic facilities currently completed and available for use include: (i) a
lodge with six bedrooms and three baths; (ii) a main building with a reception
area, three offices, restrooms, an exercise/aerobics room, a small meeting room
and a central dining/social room (which has the capacity to hold up to two
hundred persons) with a commercial kitchen attached; (iii) a country store with
convenience food and automotive supplies; (iv) a gift shop; (v) a bait and
tackle shop; (vi) a marina and boat house with fishing boats; (vii) a nine-hole
golf course with driving range and putting green; (viii) horseshoe pits; (ix)
picnic facilities including an oversized gas/wood barbecue; (x) volleyball and
shuffleboard courts; and (xi) nature walk paths and bike trails. The Company
plans to complete during 1996 electric hook-ups to 30 of the existing 125
partially completed RV sites, the construction of and partial hook-ups (water
and sewer) for an additional 50 RV sites, an additional 9 Housing Units, and a
bath house, baseball field, tennis courts and archery range. The Company will
attempt to raise the funds to accomplish this expansion; however, no assurances
can be given that the Company will be successful. See "Management's Discussion
and Analysis" or Plan of Operation.
The Resort is centrally located near Orange Lake, approximately 11 miles
north of Ocala, Florida, 13 miles south of Gainesville, Florida, approximately
20 miles from Silver Springs in Ocala, Florida, 1-1/2 hours from Universal
Studios in Orlando, Florida and 1-1/2 hours from Sea World in Florida. Orange
Lake covers approximately 22,000 acres with undercover which is
characteristically ideal for bass and other game fish. It is connected to a
smaller lake by a waterway, Cross Creek.
Seasonality
The Resort historically experiences seasonal use of its facilities.
Presently the principal period of active use during the year is November through
May, which period accounts for approximately 70% of all revenue generate by the
Resort. The Company's plans to expand the facilities of the Resort include the
projection that, as a result thereof, greater use will prevail year-round so
that the higher-use season would be defined as October through July. As a
result, the lower-use season would be reduced to two or three months of the
year, which months are likely to be summer months.
Resort Climate
Generally, the nature and success of a fishing and golfing-oriented resort
is dependent in considerable part upon prevailing conditions at the resort
property, including climate. To the extent that dramatic climatic changes, such
as hurricanes, or extended unseasonable weather, may adversely affect the Resort
property or the viability of fishing in Orange Lake, the Company's ability to
market use of the Resort may be adversely affected and attendance at the Resort
may be impaired. The Resort is not located in a hurricane, tornado or flash
flood area and has not historically experienced dramatic climatic changes. To
the extent that Florida experiences hurricanes, such storms have historically
had a more material impact on coastal areas and not on inland areas such as the
area in which the Resort property is located. Based on historic data, the
average temperature at the Resort property will tend to be approximately 78
degrees in the winter (December-March), 81 degrees in the spring (April-May), 86
degrees in the summer (June-August) and 80 degrees in the fall (September-
November). Although Orange Lake has experienced growth of vegetation from time
to time, such growth has not materially adversely affected fishing, but has
reduced the number of pleasure craft on Orange Lake. The Company does not
anticipate that any growth of vegetation would be so substantial as to preclude
or materially affect fishing or the use of pleasure craft on Orange Lake in the
future. While management does not anticipate the occurrence of climatic events
which would adversely effect the business or operations of the Resort, there can
be no assurance that such events will not occur.
Marketing Strategy
The Company directs its marketing efforts to RV owners and other
individuals who have an active interest in family-oriented outdoor recreational
activities. The Company also targets individuals seeking to vacation in
Florida, including those persons who wish to visit such family vacation spots as
Disney World, Epcot Center, Universal Studios, Cape Canaveral, Sea World and
Silver Springs. In its marketing effort, the Company emphasizes its proximity
to these and other resort facilities, and to such central Florida cities as
Gainesville and Orlando. The Company varies its marketing strategies in order
to respond to changes in the awareness and appreciation of the Resort, regional
marketing characteristics and the economic climate.
The Company has established an on-site sales facility. Prospective
visitors may be invited to attend a sales presentation via the Company's direct
mail solicitations, personal referral, or other marketing methods. Prospective
visitors may also be invited to travel to the Resort to tour the facilities with
a salesperson. During 1995, the Company refocused its marketing efforts so as
to encourage destination use of the Resort, whereby visitors remain at the
Resort for extended periods of time, as well as promotion of the Resort as an
organizer and host of rallies and other group functions. In addition, the
Company is establishing associations with other resorts in order to provide its
visitors with a network of affiliated recreational resorts throughout the region
and the country.
The Company's on-site facilities are subject to regulation under federal
and state consumer protection and consumer credit laws and are typically subject
to review by consumer protection agencies having broad discretionary authority.
Should the Company fail to control its sales techniques, regulatory enforcement
action by the federal or state regulatory body could result. The Company
believes that it is in compliance with the applicable federal and state consumer
protection and consumer credit laws. The Company has and will continue to
structure its sales practices to preclude or reduce regulation under federal and
state laws.
The principal goal of marketing is to promote destination use of the
Resort and rallies and other group functions. Daily/nightly reservations or
facilities use is a secondary goal, since long-term and group use of the Resort
account for the majority of the revenue generated by the Resort. The marketing
effort is comprised of advertising and sales. Advertising is implemented
through the use of display ads in RV and vacation publications, direct mail
solicitations to RV owners and a Company-produced periodical magazine, Trav'l,
which features notices of planned Resort activities and articles of interest to
RV owners and campers. The goal of advertising is to present the Resort to
potential individual and group visitors. On-site efforts are directed to
promotion of facilities usage and over 90% of all sales revenue results from on-
site personal sales efforts. Special incentives, such as free use of some
facilities or additional nights' use of water, sewer and electric hook-ups at no
charge are used to induce on-site visitors to continue to visit and use the
Resort facilities and/or to commit to longer-term stays.
During 1995, the Company expanded its marketing efforts by increasing the
number of promotions and events involving dealers who offer Park Models and RV s
for sale, and visitors who are members of regional or national RV and camping
organizations. The Company is currently implementing a plan pursuant to which
its magazine, Trav'l, and other literature are distributed though an informal
network of RV and Park Model dealers with the focus on such efforts concentrated
on the Southeastern and Midwestern regions of the United States.
Representatives of the Company regularly contact RV and Park Model dealers and
organizations to assist in the planning and promotion of rallies during which
visitors are invited to use the Resort during particular periods (usually one
week each). In connection with these rallies, the Company offers special price
schedules and promotes planned events.
The Company also promotes corporate retreats at the Resort facility, which
provide executives, managers and personnel of companies and organizations the
opportunity to visit the Resort for a scheduled period of time to participate in
and make use of golf, fishing, social gatherings, business meetings and other
activities related to their business. The Resort marketing director continues
to pursue contacts with candidates for this program and it is anticipated that
increased response and use of the Resort will result from this approach during
1996.
Membership; Membership Rights and Obligations; Fees
The Company previously marketed memberships which entitled members to
utilize an RV site or to use Company-owned RV's and Housing Units for a
daily/nightly or weekly fee. This type of membership does not convey any
ownership interest in the Company, the Resort, the Resort Property or its
facilities, nor does it entitle members to use specific RV sites or campsites
within the Resort. During 1995, due to reduced public interest in purchasing
memberships, the Company ceased sales of memberships, although it continues to
honor existing memberships. Existing members pay annual dues of $299 to
maintain their membership. Memberships are not transferable during the initial
two years after purchase thereof except to a family member or by operation of
law. Thereafter, memberships may be transferred by sale, gift, or inheritance
but may not be transferred more than once. Memberships expire upon the death of
the member or such member's permitted transferee. The Company does not permit
transfers at a price higher than the purchase price paid by the original member
plus a 10% transfer charge payable to the Company. All transfers, sales,
inheritances or gifts of memberships are subject to the Company's prior consent.
Transferees are accepted as lifetime members and issued lifetime membership
cards admitting them to the Resort only after the Company has consented to the
transfers and the transferees have executed new membership contracts which
provide for annual dues at the then-current level for new memberships. The
Company does not have any present intention to repurchase memberships or
locate purchasers for members who wish to sell their memberships. Each
membership entitles the member to use an RV site or to utilize a Company owned
Park Model for a daily/nightly or weekly usage fee. There are no restrictions
on how many times a member may visit the Resort during any given year. However,
to allow all members reasonable access to the Resort, a member is permitted to
stay at the Resort for a maximum of up to 14 consecutive days, after which the
member may not stay at the Resort for the immediately subsequent seven days,
unless vacancy of other sites permits an extended stay. As of December 31,
1995, there were 210 memberships to the Resort.
The Company believes that the Florida statutes governing timeshares are
not applicable to the Resort memberships and that current maintenance of its
Resort memberships are not limited thereby. Government regulations promulgated
by various other states may include provisions which, among other things, affect
the manner in which the Company may maintain memberships and regulate the
transferability of memberships. The Company undertakes to comply with all such
applicable regulations.
Membership Agreements
The Company's members have each executed a membership agreement defining
their rights and obligations with respect to use of the Resort facilities (the
"Membership Agreements"). Under the Membership Agreements, members are required
to pay annual maintenance fees, subject to annual increases. The Company
structures its membership fees such that members' fees and/or dues are less than
the fees charged on a per-night basis to non-members seeking to use the Resort
facilities.
Membership Financing Arrangements
The Company previously sold some of its memberships pursuant to
installment sales agreements which permitted a purchaser to finance a portion of
his or her membership cost over time. The installment payments consist of
principal and interest with the payment terms and the rate of interest
determined by the then prevailing interest rates, the size of the down payment
and the term of the financing. The Company has contracted with a finance
company. for the management and collection of fees pursuant to these installment
sales agreements.
Additional Visitor Privileges
The Company has entered into an agreement with Resort Parks International,
an association of privately-owned campgrounds and RV sites located throughout
the United States, that affords its network of members for a nominal fee
(currently $40 annually) and subject to certain limitations, the right to
utilize facilities at all campgrounds and RV sites that are members of the
Resort Parks International network. Pursuant to the terms of such agreement,
members of the Resort Parks International network of campgrounds are entitled to
utilize the Resort facilities for a nominal fee.
Employees
The Company had a total of 10 full-time employees at December 31, 1995.
Environmental Regulation
The Company has no knowledge of any federal, state or local environmental
compliance regulations which materially affect operations of the Resort and the
Company has not been required to expend material amounts of capital to comply
with environmental protection statutes. While it is impossible to predict the
application and impact, if any, of any future environmental regulations and laws
on the operations and development of the Resort, the Company does not anticipate
that expenditures related to compliance with any such future laws or regulations
will be material. There can be no assurance, however, that the Company will be
able to comply with such laws and regulations.
Competition
In connection with the resort business, the Company competes with other
companies who operate destination resorts and who market memberships usable at
multiple destination campground locations. The majority of such companies are
well-established in the industry and have substantially greater financial and
marketing resources and name recognition than the Company and operate a greater
number of resort campgrounds. The Company has entered into a relationship which
will permit its RV unit owners to utilize other RV locations. The Company
believes that its ability to compete successfully for visitor usage is based in
part on the attractiveness and location of the Resort and its reputation in the
RV and outdoor sports community as offering premium facilities. Although there
are currently six parks and fish camps operating on Orange Lake, management
believes that none individually offers facilities comparable to those which the
Company presently offers and will be able to offer upon completion of the Resort
facilities. The Company believes that, currently, the largest of such other
camps can accommodate a maximum of 30 RV's.
The Company also competes with other resort facilities and theme parks in
Central Florida which are far better established, are better known and have
greater financing and marketing capabilities than the Resort. Such other
facilities include, among others, Disney World, Universal Studios, Silver
Springs, Cypress Gardens and Cape Canaveral. The Company intends to increase
its efforts in marketing the Resort facilities to vacationers visiting such
other resorts.
Production Services International, Inc.
On June 15, 1993, the Company acquired the outstanding common stock of
Production Services International, Inc. ( PSI ), a motion picture and television
production company, in exchange for 402,672 shares of the Company's common
stock. At June 15, 1993, PSI's liabilities exceeded its assets (at their fair
market value) by $150,558, and the excess of the purchase price over the
deficiency in the net assets acquired equaled $553,230. This goodwill amount was
being amortized over seven years.
The management of the Company recognized that the financial condition of
PSI at December 31, 1994 was such that the Company was not able to exercise
control over the operations of its subsidiary, PSI, and that unless immediate
financing were obtained under conditions acceptable to the distributor of PSI s
principal television series production (the "Series"), bankruptcy of PSI was
inevitable. On March 6, 1995, the Company's board of directors approved a
formal plan to discontinue the operations and settle the liabilities of PSI by
liquidating the assets of PSI. As of December 31, 1994, the Company abandoned
its investment in PSI and deconsolidated the assets, liabilities and operations
of the PSI subsidiary on its financial statements. The total acquisition cost
of PSI was valued at $402,672, which amount was written off as of December 31,
1994 in connection with the abandonment of the Company's investment in PSI's
operations.
On March 1, 1995, certain creditors of PSI (the "Petitioning Creditors")
filed an involuntary petition with the United States Bankruptcy Court, Middle
District of Florida, Orlando Division, requesting an order for relief under
Chapter 11 of the Bankruptcy Code (the "Petition"). The Petition asserted
claims of amounts owed as a result of the television Series which ceased
production in November, 1994. During 1995, PSI and the Petitioning Creditors
reached a settlement regarding the issues connected with the production and
distribution of the Series. As part of the terms of the settlement, PSI's
ownership interest in the television series was relinquished to the distributor
of the Series, mutual releases and waivers of all other claims were exchanged,
and the Petition was withdrawn. The Company agreed to assist PSI in providing
$250,000 as payment to the Petitioning Creditors and further to assist PSI in
establishing a fund to satisfy the remaining claims from other creditors of the
Series. During 1995, PSI pursued an effort to identify and quantify all
outstanding claims of indebtedness related to PSI's operations and formulated a
proposed cash settlement of all such claims. A substantial majority of
creditors was identified and agreed to the proposed settlement, pursuant to
which the Company paid or accrued an aggregate of $432,000 during 1995. The
Company will continue to assist in the completion of this settlement plan during
1996. By assisting in this settlement, the Company believes that any potential
material exposure to the Company as a result of the discontinuation of the
Series will have been substantially mitigated and possibly eliminated.
As a result of the discontinuation of PSI, no net assets or liabilities of
PSI are included in the accompanying financial statements.
Current Plans
The Company is experiencing a liquidity problem and must obtain financing
in addition to expected revenues from operations in order to pay its past due
obligations and meet its current obligations as they come due. Management is
seeking to obtain working capital from several alternate sources, including
borrowings from lenders and/or loans based on the Resort property as collateral
and through a possible business combination with another company.
Since November 1994, the Company has pursued negotiations with
representatives of a number of unrelated companies in order to complete a
business combination which would provide additional revenues and net income to
the Company and a public offering of securities, the proceeds of which would be
used to reduce the liabilities of the Company and expand the Resort operations.
This would result in the reduction of CEI's liabilities and provide expected
income in the upcoming year of the Company's operations. However, there can be
no assurance that any proposed acquisition or financing will be effected. Any
such acquisition and public offering is subject to the acquiring entity's
acceptance of the financial statements, the state of the general securities
markets and of the specific market for the Company's securities, and any
necessary regulatory review.
The Company believes that such plans for additional funding and a possible
business combination, which have been formulated to overcome its financial
difficulties, have the reasonable capability of removing the threat to the
continuation of its business. Although management believes material progress
has been achieved toward acquiring additional funding, as of the date of this
filing there remains substantial doubt concerning the Company's ability to
continue as a going concern.
ITEM 2. DESCRIPTION OF PROPERTY
The land upon which the Resort is located consists of approximately 110
acres of property (the "Resort Property") owned by the Company. The Resort is
centrally located near Orange Lake, approximately 11 miles north of Ocala,
Florida, 13 miles south of Gainesville, Florida, 20 miles from Silver Springs in
Ocala, Florida, 1-1/2 hours from Universal Studios in Orlando, Florida and 1-1/2
hours from Sea World in Florida. Orange Lake covers approximately 22,000 acres
with undercover which is characteristically ideal for bass and other game fish.
It is connected to a smaller lake by a waterway, Cross Creek.
The Resort Property is encumbered by a mortgage securing indebtedness owed
to AmSouth Bank. The note bears a fixed interest rate of 9% with monthly
payments of $5,650 and the remaining principal and interest due in May 1997 in
the amount of $420,462. There are no prepayment penalties. As of December 31,
1995, the principal amount due under the mortgage was $457,335. Real estate
taxes on the property are approximately $37,000 per year. The Company believes
the insurance maintained on the Resort property is adequate.
ITEM 3. LEGAL PROCEEDINGS
On March 1, 1995, the Distributor and two production suppliers, all
creditors of PSI (the "Petitioning Creditors"), filed an involuntary
petition against PSI with the United States Bankruptcy Court, Middle
District of Florida, Orlando Division, requesting an order for relief under
Chapter 11 of the Bankruptcy Code (the "Petition"). The Petition asserted
claims of amounts owed as a result of the television Series which ceased
production in November, 1994. During 1995, PSI and the Distributor reached a
settlement regarding the issues connected with the production and distribution
of the Series. As part of the terms of the settlement, PSI's ownership interest
in the television series was relinquished to the Distributor, mutual releases
of liability were exchanged between PSI and the Distributor, and the petitioning
creditors (which included the Distributor) withdrew the Petition. The Company
agreed to assist PSI in providing $250,000 as payment to the Distributor and the
other petitioning creditors and further to assist PSI in establishing a fund to
satisfy the remaining claims from other creditors of the Series. During 1995,
PSI pursued an effort to identify and quantify all outstanding claims of
indebtedness related to PSI's operations and formulated a proposed cash
settlement of all such claims. A substantial majority of creditors were
identified and agreed to the proposed settlement, pursuant to which the Company
paid or accrued an aggregate of $432,000 during 1995. The Company will continue
to assist in the completion of this settlement plan during 1996. By assisting
in this settlement, the Company believes that any potential material exposure to
the Company as a result of the discontinuation of the Series will have been
substantially mitigated and possibly eliminated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Common Stock for the periods
indicated as reported by the NASDAQ Smallcap Market. Such quotations reflect
inter-dealer prices, but do not include retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions.
Common Stock (1)
Bid Asked
Period of Quotation High Low High Low
1995
First Quarter 2-13/32 15/16 3-7/8 1-1/4
Second Quarter 2-31/32 1-1/4 3-7/8 1-17/32
Third Quarter 3-3/4 1-17/32 3-29/32 1-1/2
Fourth Quarter 3 1-1/8 3-5/32 1-3/8
1994
First Quarter (2) 21 10 36 16
First Quarter (3) 21-1/4 8-3/4 25 10-5/8
Second Quarter (3) 19-3/8 14-3/8 22-1/2 16-7/8
Third Quarter (3) 16-7/8 13-1/8 18-1/8 14-3/8
Fourth Quarter (3) 13-3/4 2-3/16 10 2-1/2
(1) Quotes have been restated to adjust for the 1995 Reverse Split.
(2) Reflects closing bid and asked quotations for the period January 1, 1994
through February 18, 1994, the last date on which the Common Stock was
quoted in the National Quotation Bureau, Inc. "pink sheets."
(3) Reflects high and low bid and asked quotations for the period February 18,
1994 (the date the Common Stock was listed for trading on NASDAQ) through
March 31, 1994, the last day of the first quarter.
As of December 31, 1995, there were 2,366,753 shares of Common Stock
outstanding. As of the same date, there were approximately 247 holders of
record of the Common Stock, 291 holders of record of Common Stock Warrants and
12 holders of record of Common Stock Options. The number of beneficial holders
of Common Stock totalled 1257 as of the same date.
The Company has not paid any cash dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in the Company's business and will
continue to be utilized to fund its operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
The Company is principally engaged in the development, ownership,
marketing and operation of a destination resort community and fishing camp
located on Orange Lake near Ocala, Florida.
The Company's Financial Statements for the fiscal year ended December 31,
1995 do not include the accounts of its previously owned subsidiary, Production
Services International, Inc. ("PSI"), which the Company discontinued at December
31, 1994 and also do not include its previously owned subsidiary, Celebrity
Football, Inc. ("CFI") which was dissolved as of August 13, 1993.
The Company recognizes revenues related to sales of memberships on the
date that the membership contract is paid in full. Until such time, all partial
payments received on memberships are recorded as deferred membership revenues on
the Company's balance sheet. Any receivable related to the original membership
agreement is netted against the deferred membership revenues.
Results of Operations
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
The Company was in the development stage until April 1992, at which time
it began operations. Revenues for the fiscal year ended December 31, 1995,
amounted to $142,052 compared to $200,035 for the fiscal year ended December 31,
1994. Revenues were derived from memberships paid in full, dues and resort
operations. The decrease in revenues resulted from fewer special events, a
reduction in membership sales and the stabilized use of the resort facilities at
the
current membership level. The Company experienced a reduced interest in
memberships by the public and, as a result, revenues from memberships declined
for the year ended December 31, 1995.
<PAGE>
There were no costs and expenses of revenues for the fiscal year ended
December 31, 1995, compared to $9,184 recorded during the fiscal year ended
December 31, 1994. The decrease is attributable principally to a redefinition of
previous costs of sales categories to general and administrative expenses
together with the reduction of merchandise sold in the resort's general store.
Selling, general and administrative expenses were $2,322,135 for the
fiscal year ended December 31, 1995, compared to $977,378 for the fiscal year
ended December 31, 1994, an increase of $1,344,757. The increase is due
principally to costs associated with issuances of the Company's securities in
connection with various consulting arrangements.
During the fiscal year ended December 31, 1995, interest expense of
$2,763,578 was charged to operations, compared with $92,515 during the fiscal
year ended December 31, 1994 and the increase of $2,671,063 was due principally
to costs associated with the Company's financing arrangements.
During the fiscal year ended December 31, 1995, loss from discontinued
operations decreased to $431,916, compared with $2,151,445 in 1994. This
decrease of $1,719,529 was due to the fact that the Company abandoned its
investment in PSI during 1994 and continued settlement arrangements with
creditors of PSI during 1995.
Unused net operating losses for income tax purposes, expiring in various
amounts from 2005 through 2010, of approximately $9,477,000 are available at
December 31, 1995 for carryforward against future years' taxable income.
However, as a result of the consummation of several common stock transactions
during the year, these net operating losses may be limited under the provisions
of Section 382 of the Internal Revenue Code of 1986, as amended. The tax benefit
of these losses of approximately $3,566,000 has been offset by a valuation
allowance due to it being more likely than not that the deferred tax assets will
not be realized.
Abandoned Operations
The management of the Company recognized that the financial condition of
PSI at December 31, 1994 was such that the Company was not able to exercise
control over it and that unless immediate financing for production of the Series
was obtained under conditions acceptable to the Distributor, bankruptcy of PSI
was inevitable. On March 6, 1995, the Company's board of directors approved a
formal plan to discontinue the operations and settle the liabilities of PSI by
liquidating the assets of PSI. As of December 31, 1994, the Company abandoned
its investment in PSI and deconsolidated the assets, liabilities and operations
of the PSI subsidiary on its financial statements. PSI's operating activities
were de-consolidated from the Company's financial statements as of the period
ended December 31, 1994.
Liquidity and Capital Resources
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
The cessation of membership sales in response to reduced interest by the
public in purchasing memberships has resulted in a reduction in cash flows from
operations for the current and future years.
Cash increased $8,974 from $2,278 at December 31, 1994 to $11,252 at
December 31, 1995. Net cash used for operating activities was $690,805 for the
year ended December 31, 1995 compared with cash used for operating activities of
$2,737,366 during the year ended December 31, 1994. The decrease in cash used
for operating activities of $2,046,561 was due primarily to stock and stock
options issued as payment of finders' fees, consulting fees and amounts due to
officers as well as a reduction in accounts payable and accrued expenses.
During the year ended December 31, 1995 cash was used for investing
activities in the amount of $12,213 compared to net cash provided by investing
activities in the amount of $1,144,031 during the year ended December 31, 1994.
The decrease in cash provided by investing activities related primarily to the
decrease in production costs related to the discontinuation of PSI.
During the years ended December 31, 1995 and December 31, 1994, the
Company had net cash flows provided by financing activities of $711,992 and
$1,590,251 respectively, as a result of proceeds from the sale of securities and
repayments of notes.
The Company, from time to time, receives proceeds from the exercise of
outstanding common stock options and warrants, which proceeds are used as
working capital. During 1995, the Company received $400,325 from such
exercises.
The Resort Property is encumbered by a mortgage securing indebtedness owed
to AmSouth Bank. The note bears a fixed interest rate of 9% with monthly
payments of $5,650 and the remaining principal and interest due in May 1997 in
the amount of $420,462. There are no prepayment penalties. As of December 31,
1995, the principal amount due under the mortgage was $457,335. Real estate
taxes on the property are approximately $37,000 per year.
During 1995, the Company entered into a Financing Agreement and Letter of
Intent (the "Financing Agreement") with representatives of a private financing
group (the "Financing Group"). Pursuant to the terms of the Financing
Agreement, the Company issued to the Financing Group a promissory note in the
principal amount of $200,000 payable on December 1, 1995 in return for the
Financing Group's payment of $200,000 in cash to the Company. This note has
been paid in full. In addition, the Financing Group purchased 200,000 shares of
the Company's common stock in return for a cash payment of $100,000 to the
Company, and 800,000 of the Company's common shares together with 475,000 of
the Company's Class A 8% Convertible preferred shares, payment for which was
made by a secured promissory note payable to the Company. The Company's shares
issued in connection with these transactions are not currently registered for
sale, but a registration statement including these shares is currently under
review. Also, options were granted to officers and directors of the Company in
exchange for indebtedness. In connection with additional funding which the
Financing Group has agreed to provide, the Company has granted to the Financing
Group options to purchase additional common stock of the Company.
During 1995 the Company engaged in relationships with certain consultants
who are providing services to the Company relating principally to investment
banking consultation regarding possible business combinations between the
Company and other companies, and expanding the Company's relationships with
possible market-makers. In return for such services, the Company granted to
such consultants shares and options to purchase shares of the Company's common
stock, which shares were registered pursuant to a filing on Form S-8, which the
Company completed during 1995 and which provided for a total of 500,000 shares
to be granted together with options to be granted for an additional 500,000
shares. As of the date hereof all of such common shares and options have been
granted, and all of such options have been exercised. The Company anticipates
that the efforts of the consultants will result in improved market support for
the Company's publicly-traded securities as well as expanded opportunities for
possible business combinations.
Although management believes material progress has been achieved toward
acquiring the necessary funding to meet the Company's existing obligations as
well as contemplated capital requirements, as of the date of this filing
management anticipates that approximately $750,000 of additional financial
capital is required and, consequently, there is substantial doubt concerning the
Company's ability to continue as a going concern.
Management's Plans
The Company intends to complete the development of the Resort Property
during the 1995-97 resort seasons, at a total cost of approximately $300,000.
During 1995, the Company refocused its marketing efforts so as to encourage
"destination" use of the Resort, whereby visitors remain at the Resort for
extended periods of time, as well as promotion of the Resort as an organizer and
host of rallies and other group functions. It is anticipated that revenues will
increase as a result of such marketing efforts, and that such increase will
generate cash flow from operations sufficient to finance approximately one-half
of the completion of the Resort.
The Company is experiencing a liquidity problem and must obtain financing
in addition to expected revenues from operations in order to pay its past due
obligations and meet its current obligations as they come due. Management is
seeking to obtain working capital from several alternate sources, including
borrowings from lenders and/or loans based on the Resort property as collateral
and through a possible business combination with another company.
The Company and the Financing Group are currently seeking an appropriate
candidate for a proposed business combination with the Company. If such
proposed business combination is effected, it is anticipated that a public
offering or other sale of securities would be completed, the proceeds from
which, in part, would be used to reduce the liabilities of CEI and expand CEI's
resort operations and the combining company's operations. This would result in
the reduction of CEI's liabilities and provide expected income in the upcoming
year of the Company's operations. However, there can be no assurance that any
proposed business combination will be effected. Any such business combination
and related public offering is subject to the combining entity's acceptance of
the Company's financial statements, the state of the general securities markets
and of the specific market for the Company's securities, and any necessary
regulatory review of the securities to be issued in connection with the
combination.
The Company believes that such financing plans, which have been
formulated to overcome its financial difficulties, have the reasonable
capability of removing the threat to the continuation of its business during the
twelve month period subsequent to December 31, 1995. Although management
believes material progress has been achieved toward acquiring additional funding
and toward effectuating a business combination, there remains substantial doubt
concerning the Company's ability to continue as a going concern.
Recent Accounting Pronouncements
The FASB has issued SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets Being Disposed of, which provides guidance
on how and when impairment losses are recognized on long-lived assets. This
statement, when adopted, is not expected to have a material impact on the
Company.
The FASB has issued SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value based method of accounting for
stock-based compensation plans. This statement provides a choice to either
adopt the fair value based method of accounting or continue to apply APB Opinion
No. 25, which would require only disclosure of the pro forma net income and
earnings per share, determined as if the fair value based method had been
applied. The Company plans to continue to apply APB Opinion No. 25 when
adopting this statement, and accordingly, this statement is not expected to have
a material impact on the Company.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and schedules are included in this
Annual Report on Form 10-KSB following Item 13:
Index to Financial Statements
Celebrity Entertainment, Inc.
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statement of Operations F-5
Statement of Stockholders' Equity F-6
Statement of Cash Flows F-7
Summary of Significant Accounting Policies F-8
Notes to Financial Statements F-10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
The directors and executive officers of the Company as of December 31,
1995 are listed below.
Name Age Position Held
James J. McNamara 46 President, Chief Executive Officer and
Director
J. William Metzger 46 Executive Vice President, Chief
Financial Officer, Controller,
Secretary, Treasurer and Director
David J. Critchfield 44 Director
Each of the Company's directors has been elected to serve until the next
annual meeting of the stockholders of the Company and until each of their
respective successors has been elected and qualified or until death,
resignation, removal or disqualification. Vacancies in the existing Board are
filled by a majority vote of the remaining directors on the Board. The
Company's executive officers are appointed by and serve at the discretion of the
Board.
Biographies of the directors and executive officers of the Company are set
forth below:
James J. McNamara has been the President, Chief Executive Officer and a
director of the Company since June 1993, at which time the Company acquired PSI,
which was formed by Mr. McNamara in 1991. During 1993-1994 Mr. McNamara created
and executively produced 61 half-hour episodes of "The NEWZ" television series
for PSI. Mr. McNamara has been involved in the music and entertainment business
since 1971. Mr. McNamara first became involved in the motion picture business
in 1979 when he assumed management of "Hardly Working," a motion picture which
had encountered severe financial and production related problems. Largely as a
result of Mr. McNamara's efforts, "Hardly Working" was distributed by Twentieth
Century-Fox and became one of the highest grossing independently-produced
pictures of 1981. From 1981 through 1985, Mr. McNamara developed various motion
picture properties while maintaining offices at Twentieth Century-Fox in Los
Angeles and commencing centralization of his operations in Palm Beach, Florida.
In 1986, Mr. McNamara formed Entertainment, Inc., a Florida corporation which
became the managing general partner of Premiere, Ltd., a limited partnership
formed to develop motion pictures and television projects. Premiere, Ltd.
developed a portfolio of projects including "Super Force," a half-hour action-
adventure television series produced in association with Viacom Enterprises,
which also distributed the series worldwide in first-run syndication. From 1988
until 1991, Mr. McNamara created and executively produced 48 episodes of "Super-
Force." Premiere, Ltd. is no longer actively engaged in the development of
motion picture and television projects. Premiere ceased to operate as a going
concern in October 1991 due to cash flow difficulties experienced by Premiere.
Mr. McNamara is a director of DeNovo Corporation, an Ontario, Canada corporation
quoted on the Nasdaq Smallcap market which is engaged in the publishing and
distribution of several lifestyle and entertainment periodicals. Mr. McNamara
holds no directorships in any other companies with a class of securities
registered on a national exchange or which are required to file annual,
quarterly or other periodic reports with the Commission. During the past five
years, Mr. McNamara has principally been involved in the creation and production
of television projects and the management of the Company.
J. William Metzger has been Executive Vice President, Chief Financial
Officer, Controller, Secretary, Treasurer and a director of the Company since
June 1993 at which time the Company acquired PSI. Mr. Metzger assisted Mr.
McNamara in the "Hardly Working" project and was chiefly responsible for the re-
editing, completion and promotion of the film. He has worked with Mr. McNamara
since that time as a development executive in the offices at Twentieth Century-
Fox and as Executive Vice-President of Entertainment, Inc. and PSI and as a
control person of Premiere. Mr. Metzger holds no directorships in any other
company with a class of securities registered on a national exchange or which is
required to file annual, quarterly, or other periodic reports with the
Commission. During the past five years, Mr. Metzger has principally been
involved in the production of television projects and the management of the
Company.
David J. Critchfield has been a director of the Company since May, 1995.
He has been the Secretary and Treasurer of TeleMatrix, Inc., a privately-held
telephone manufacturer and retailer based in Coral Springs, Florida, since its
inception in November, 1992. From 1990 until 1992 he served as Vice President
and Secretary/Treasurer of TeleConcepts, Inc., a publicly traded company
involved in the telecommunications industry. From 1985 through 1990, Mr.
Critchfield was Treasurer and Controller of Petro 85, Inc., an oil and gas
drilling and production company located in Kansas.
Because of personal and other business demands, Mr. Donald R. Hessler
resigned from the Board of Directors as of March 7, 1995. Mr. David J.
Critchfield was appointed to fill a vacancy on the Board on May 30, 1995. Mr.
Critchfield will serve until the next annual meeting of stockholders or until
his successor is elected and qualified.
As of December 31, 1995, no committees of the Board of Directors had been
established.
Compliance with Section 16(a) of the Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership of equity securities of the
Company with the Securities and Exchange Commission and NASDAQ. Officers,
directors and greater-than-10% shareholders are required by the Securities and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) forms that they file.
As of December 31, 1995, the Company had not received required Forms 4 or
5 from Messrs. McNamara and Metzger.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three fiscal years by the
Company's Chief Executive Officer during the last fiscal year and the Company s
most highly compensated executive officers who served as such during fiscal 1995
whose total annual salary and bonus exceeded $100,000. The Company had one
Chief Executive Officer during fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Year Salary Bonus Compensa- Awards SARs (#) Payments (#) sation
Position ($) (1) ($) tion ($) ($)
($) (1)
James J.
McNamara 1995 26,250(2) - 103,511(3) - 50,000(4)(5) - -
CEO 50,000(5)(6)
1994 3,342 - - - 250,000(7) - -
42,925(2)
1993 - - - - - - -
J. William
Metzger 1995 26,250(2) - 103,511(3) - 50,000(4)(5) - -
50,000(5)(6)
1994 3,342 - - - 125,000(7) - -
42,925(2)
Chief Executive 1993 - - - - - - -
Officer(1)
</TABLE>
(1) Mr. McNamara became Chief Executive Officer of the Company in June 1993.
His compensation for his services as Chief Executive Officer of the Company
commenced as of the closing of the Company's Public Offering in January 1994.
(2) Earned but not paid.
(3) This figure represents the fair market value of common stock received upon
cashless exercise of stock option for forgiveness of indebtedness, minus the
amount of indebtedness forgiven.
(4) Exercise price $0.50 per share. Currently outstanding, expiring 9/1/98.
(5) All options indicated were granted in consideration of Messrs. McNamara's
and Metzger's waiving earned but unpaid salary in the amount of $42,925 each for
1994 and $26,250 each for 1995.
(6) Exercise price $2.50 per share. Currently outstanding, expiring 9/1/98.
(7) Cancelled by agreement.
Stock Options
The following table sets forth certain information with respect to options
exercised during fiscal 1995 by the executive officers named in the Summary
Compensation Table, and with respect to unexercised options held by such
individuals at the end of fiscal 1995.
Option/SAR Grants in Last Fiscal Year
[S] [C] [C] [C] [C]
Individual Grants
% of
Total
Options/
Number of SARs
Securities Granted
Underlying to Exercise
Options/SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Share) Date
James J. 100,000 33.3% $0.50 9/98
McNamara 50,000 16.7% 2.50 9/98
J. William 100,000 33.3% $0.50 9/98
Metzger 50,000 16.7% 2.50 9/98
<TABLE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
<S> <C> <C> <C> <C> <C> <C>
Name Shares Number of Securities Value of
Acquired On Value Underlying Unexercised in the
exercise (#) Realized Options/SAR's at FY- Money Options/SAR's
End (#) at FY-End ($)
Exercisable Unexercisable Exercisable Unexercisable
James J. 50,000 $102,500 100,000 0 $100,000 0
McNamara
J. William 50,000 $102,500 100,000 0 $100,000 0
Metzger
</TABLE>
Mr. McNamara and Mr. Metzger are each a party to an employment agreement
with the Company providing for their services until December 31, 1998 at a
current annual salary of $55,125 each with a 5% annual escalation.
Directors are not compensated for their services as members of the Board
of Directors of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of the date hereof, certain information
with respect to the beneficial ownership of outstanding shares of the Company's
common stock by: (i) each person known by the Company to be the beneficial
owner of five percent or more of its outstanding common stock, (ii) each
director and named executive officer of the Company individually and (iii) all
executive officers and directors of the Company as a group.
Name and Address of Common Percent of
Beneficial Owner Stock Common Stock Owned
James J. McNamara
214 Brazilian Avenue, Suite 400
Palm Beach, FL 33480 174,786(1) 7.1 %
J. William Metzger
214 Brazilian Avenue, Suite 400
Palm Beach, FL 33480 174,786(1) 7.1 %
David J. Critchfield
214 Brazilian Avenue, Suite 400
Palm Beach, FL 33480 0 0%
All Officers and Directors
As A Group (3 persons) 349,572 13.6 %
(1) Includes 74,786 shares directly owned and 100,000 shares beneficially owned
pursuant to options currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the financing transaction completed on June 30, 1995
described above, Mr. McNamara and Mr. Metzger forgave an aggregate of $138,350
of accrued salary and benefits owed to them by the Company, and agreed to the
cancellation of 375,000 then outstanding options to purchase common stock. In
exchange, they received 50,000 options each to purchase common stock at an
exercise price of $0.50, which were deemed simultaneously exercised for
forgiveness of debt; 50,000 options each to purchase common stock at an exercise
price of $0.50 which remain outstanding; and 50,000 options each to purchase
common stock at an exercise price of $2.50 which remain outstanding. The
outstanding options have an expiration date of 9/1/98.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
None.
Exhibits:
Exhibit
Number Exhibit
2.1* Restated Financing Agreement and Letter of Intent dated June 30, 1995.
3.1* Certificate of Incorporation of the Company, filed as Exhibit 3.01 to the
Company's Registration Statement on Form S-1, File No. 33-40203.
3.2* Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware January 28,
1988, filed as Exhibit 3.02 to the Company's Registration Statement on
Form S-1, File No. 33-40203.
3.3* Amended and Restated By-Laws of the Company, filed as Exhibit 3.3 to the
Company's Registration Statement on Form S-2, File No. 33-69744.
3.4* Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware April 27, 1990,
filed as Exhibit 3.02 to the Company's Registration Statement on Form S-1,
File No. 33-40203.
3.5* Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware February 18,
1993, filed as Exhibit 3.5 to the Company's Registration Statement on Form
S-2, File No. 33-69744.
3.6* Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware (November 3,
1993) and filed as an exhibit to the Company's Form 10-QSB, File No. 0-
19196, filed with the Securities and Exchange Commission on November 19,
1993.
3.7* Certificate of Correction of Certificate of Designation of the Company
filed in the office of the Secretary of State of Delaware (July 28, 1995).
3.8* Certificate of Increase of Number of Shares of Class A Convertible 8%
Stock of the Company filed in the office of the Secretary of State of
Delaware (July 28, 1995).
3.9* Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware (July 28, 1995).
4.1* Specimen Common Stock Certificate, filed as Exhibit 4.01 to the Company s
Registration Statement on Form S-18, File No. 33-33035A.
4.2* Specimen Class A Convertible Preferred Stock Certificate.
4.3* Form of Warrant Agreement among the Company, I.A. Rabinowitz & Co., and
American Stock Transfer & Trust Company, as warrant agent.
4.4* Specimen Common Stock Purchase Warrant.
4.5* Form of Class A Preferred Stock Warrant.
4.6* Form of Representative's Unit Purchase Warrant.
4.7* Warrant of (ITI) Glendale, Inc. relating to 100,000 shares of Common
Stock, filed as Exhibit 4.7 to the Company's Registration Statement on
Form S-2, File No. 33-69744.
4.8* Warrant of David A. Johnson relating to 100,000 shares of Common Stock,
filed as Exhibit 4.8 to the Company's Registration Statement on Form S-2,
File No. 33-69744.
4.9* Related documents dated July 23, 1993 (the "July 93 Agreements") by and
among the Company, Abingdon Farms, Inc. ("AFI") and David A. Johnson,
filed as Exhibit 4.9 to the Company's Registration Statement on Form S-2,
File No. 33-69744 including:
a) Agreement to Sell Securities, between AFI and David A. Johnson
relating to the sale of 100,000 Common Stock Purchase Warrants and
94,288 shares of Common Stock;
b) Promissory Note in principal amount of $194,718 made by AFI in favor
of Mr. Johnson;
c) Letter from Mr. Johnson to First Union National Bank of Florida;
d) Letter from Mr. Johnson to the Company;
e) Two letters from the Company to Mr. Johnson;
f) Letter from the Company to Mr. Johnson; and
g) Letter from AFI to Mr. Johnson.
4.10* Letter Agreement dated August 27, 1993 by and between the Company, AFI and
David A. Johnson, transferring all of AFI's rights and obligations in the
7/23/93 Agreements to IDIICO, filed as Exhibit 4.10 to the Company s
Registration Statement on Form S-2, File No. 33-69744.
4.11* Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Special Rights and the Qualifications,
Limitations, Restrictions, and other Distinguishing Characteristics of
Preferred Stock of the Company, filed in the Secretary of State of
Delaware's office on July 31, 1990, filed as Exhibit 4.11 to the Company s
Registration Statement on Form S-2, File No. 33-69744.
4.12* Amended Certificate of Designation, Number, Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and the
Qualifications, Limitations, Restrictions, and other Distinguishing
Characteristics of Preferred Stock of the Company, filed in the Secretary
of State of Delaware's office on February 18, 1993, filed as Exhibit 4.12
to the Company's Registration Statement on Form S-2, File No. 33-69744.
4.13* Form of Certificate of Designation Setting Forth the Preferences, Rights
and Limitations of Preferred Stock, which will designate the Class A
Preferred Stock, filed as Exhibit 4.13 to the Company's Registration
Statement on Form S-2, File No. 33-69744.
4.14* Form of New Common Stock Certificate (Post 1993 Reverse Split), filed as
Exhibit 4.14 to the Company's Registration Statement on Form S-2, File No.
33-69744.
10.1* 1992 Stock Option Plan of the Company, filed as Exhibit 10.14 to the
Company's Registration Statement on Form S-2, File No. 33-69744.
10.2* Agreement between the Company and Resort Parks International, Inc., filed
as Exhibit 10.15 to the Company's Registration Statement on Form S-2, File
No. 33-69744.
10.3* Form of Celebrity Resorts, Inc. Membership Agreement, filed as Exhibit
10.16 to the Company's Registration Statement on Form S-2, File No. 33-
69744.
10.4* Form of Celebrity Resorts, Inc. Promissory Note (for membership sales),
filed as Exhibit 10.21 to the Company's Registration Statement on Form S-
2, File No. 33-69744.
10.5* Note and Mortgage Modification and Agreement Regarding Closing of Loan
dated as of May 2, 1994 by and between the Company and AmSouth Bank of
Florida, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1994 (File No. 0-19196).
10.6* Employment Agreement between James J. McNamara and the Company dated as of
January 27, 1994 filed as Exhibit 10.24 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994 (File No. 0-19196).
10.7* Employment Agreement between J. William Metzger and the Company dated as
of January 27, 1994 filed as Exhibit 10.25 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1994 (File No. 0-19196).
11.1* Statement Regarding Computation of Earnings Per Share.
27 Financial Data Schedule.
________________
* Previously filed.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, this 20th day of December, 1996.
CELEBRITY ENTERTAINMENT, INC.
By: /s/ James J. McNamara
James J. McNamara
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ James J. McNamara President, Chief Executive June 27, 1996
James J. McNamara Officer and Director
/s/ J. William Metzger Executive Vice President, June 27, 1996
J. William Metzger Chief Financial Officer,
Controller, Secretary,
Treasurer and Director
Celebrity Entertainment, Inc.
Financial Statements
Years Ended December 31, 1995 and 1994
Report of Independent Certified
Public Accountants F-2
Financial statements
Balance sheet F-3 - F-4
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Summary of significant accounting policies F-8 - F-9
Notes to financial statements F-10 - F-20
Report of Independent Certified Public Accountants
The Board of Directors
Celebrity Entertainment, Inc.
Palm Beach, Florida
We have audited the balance sheet of Celebrity Entertainment, Inc. as of
December 31, 1995 and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celebrity Entertainment, Inc.
at December 31, 1995 and the results of its operations and its cash flows for
the years ended December 31, 1995 and 1994 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has experienced significant operating
losses, has an accumulated deficit and has negative working capital at
December 31, 1995. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do no
include any adjustments that might result from the outcome of this
uncertainty.
/S/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
April 8, 1996
Celebrity Entertainment, Inc.
Balance Sheet
December 31, 1995
Assets
Current:
Cash $ 11,252
Prepaid expenses 6,670
Total current assets 17,922
Land 670,780
Buildings and improvements 2,854,748
Equipment 154,625
Furniture and fixtures 33,377
3,713,530
Less accumulated depreciation 523,387
3,190,143
$ 3,208,065
See accompanying summary of significant accounting policies and notes to
financial statements.
Celebrity Entertainment, Inc.
Balance Sheet
December 31, 1995
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (Note 3) $ 277,590
Accounts payable 364,890
Accrued expenses 70,623
Deferred membership revenues (Note 4) 53,073
Current maturities of long-term debt (Note 5) 30,087
Total current liabilities 796,263
Long-term debt, less current maturities (Note 5) 429,530
Total liabilities 1,225,793
Commitment and contingencies (Note 9)
Stockholders' equity (Note 6):
Preferred stock, $.01 par value; 2,000,000 shares
authorized
Designated class A convertible;
1,525,000 shares designated,
1,064,000 shares outstanding 10,640
Common stock, $.0001 par value; 25,000,000 shares
authorized, 2,366,753 shares outstanding 237
Additional paid-in capital 12,827,004
Accumulated deficit (10,063,435)
2,774,446
Less notes receivable arising from
issuance of preferred and common stock 792,174
Total stockholders' equity 1,982,272
$ 3,208,065
See accompanying summary of significant accounting policies and notes to
financial statements.
Celebrity Entertainment, Inc.
Statements of Operations
<TABLE>
<S> <C> <C>
Year ended December 31, 1995 1994
Revenues:
Resort membership sales $ 24,500 $ 97,818
Resort operations 117,552 102,217
Total revenues 142,052 200,035
Cost of sales 9,184
Gross profit 142,052 190,851
Selling, general and administrative expenses 2,322,135 977,378
Operating loss (2,180,083) (786,527)
Other income (expenses):
Interest income 4,740 10,186
Interest expense (2,763,578) (92,515)
(2,758,838) (82,329)
Loss from continuing operations (4,938,921) (868,856)
Discontinued operations (Note 2):
Gain on abandonment of television
production subsidiary 750,773
Loss from discontinued operations of
television production subsidiary (431,916) (2,902,218)
Income (loss) from discontinued operations (431,916) (2,151,445)
Net loss (5,370,837) (3,020,301)
Preferred stock dividends (66,120) (47,120)
Net loss applicable to common stock $ (5,436,957) $ (3,067,421)
Loss from continuing operations per common share $ (4.38) $ (2.71)
Loss from discontinued operations $ (.38) $ (6.35)
Net loss per common share $ (4.76) $ (8.92)
Weighted average number of
common shares outstanding 1,142,545 338,655
</TABLE>
See accompanying summary of significant accounting policies
and notes to financial statements.
<TABLE>
Celebrity Entertainment, Inc.
Statements of Stockholders' Equity
Notes
Receivable
<S> <C> <C> <C> <C> <C> <C> <C> Arising from
Additional Issuance of
Preferred Stock Common Stock Paid-In Accumulated Preferred and
Shares Amount Shares Amount Capital Deficit Common Stock
Balance, December 31, 1993 - $ - 1,456,844 $ 145 $ 4,789,023 $ (1,672,297) $ -
1-for 5 reverse stock split (Note 6) - - (1,164,475) (116) 116 - -
Sale of preferred stock 345,000 3,450 - - 871,968 - -
Conversion of bridge loans
into preferred stock 200,000 2,000 - - 98,000 - -
Exercise of preferred stock warrants 44,000 440 - - 263,560 - -
Exercise of common stock warrants - - 76,000 8 468,117 - -
Sale of common stock - - 40,384 4 213,121 - -
Issuance of common stock warrants in
payment of consulting fees (Note 6) - - - - 70,313 - -
Issuance of common stock warrants in
payment of issuance costs (Note 6) - - - - 203,750 - -
Net loss - - - - - (3,020,301) -
Balance, December 31, 1994 589,000 5,890 408,753 41 6,977,968 (4,692,598)
Sale of preferred stock 475,000 4,750 - - 95,250 - (100,000)
Sale of common stock - - 1,023,000 102 2,167,648 - (400,000)
Issuance of common stock in
payment of consulting fees - - 835,000 84 2,204,430 - (292,174)
Issuance of common stock options in
payment of officers' salaries - - - - 214,063 - -
Issuance of common stock options in
payment of rent - - - - 82,500 - -
Issuance of common stock in
payment of debt to officers - - 100,000 10 257,021 - -
Issuance of common stock options in
payment of commission on debt
issuance - - - - 828,124 - -
Net loss - - - - - (5,370,837) -
Balance, December 31, 1995 1,064,000 $ 10,640 2,366,753 $ 237 $ 12,827,004 $ (10,063,435) $ (792,174)
See accompanying summary of significant accounting policies and notes to financial statements.
</TABLE>
<TABLE>
Celebrity Entertainment, Inc.
Statements of Cash Flows
<S> <C>
Year ended December 31, 1995 1994
Cash flows from operating activities:
Net loss $ (5,370,837) $ (3,020,301)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 115,921 128,866
Gain on abandonment of television production subsidiary - (750,773)
Stock issued as payment of finder's fees for debt 2,484,372 -
Stock issued as payment of consulting fees 1,512,015 70,313
Stock issued as payment of debt to officers 207,031 -
Stock options issued as payment of officer salaries 128,213 -
Stock options issued as payment of office rent 82,500 -
Change in current assets and liabilities:
Membership accounts receivable - 3,209
Accounts receivable - (23,897)
Inventory - 4,690
Prepaid expenses (197) 1,462
Accounts payable and accrued expenses 147,510 897,781
Deferred membership revenues 2,667 9,505
Management fees payable - (58,221)
Net cash used for operating activities (690,805) (2,737,366)
Cash flows from investing activities:
Purchase of property and equipment (12,213) (57,155)
Decrease (increase) in production costs - 1,194,653
Decrease (increase) in other assets - 6,533
Net cash provided by (used for) investing activities (12,213) 1,144,031
Cash flows from financing activities:
Proceeds of notes payable 275,850 86,675
Repayments of notes payable (46,743) (400,000)
Proceeds (repayments) of bridge loans - (250,000)
Proceeds (repayments) of notes payable to affiliates - (221,927)
Repayments of long-term debt (28,941) (121,248)
Decrease (increase) in note receivable officer - 45,000
Proceeds from the issuance of preferred stock - 1,302,751
Proceeds from the exercise of preferred stock warrants - 264,000
Proceeds from the exercise of common stock warrants - 570,000
Proceeds from the issuance of common stock 511,826 315,000
Net cash provided by financing activities 711,992 1,590,251
Decrease in cash 8,974 (3,084)
Cash, beginning of year 2,278 5,362
Cash, end of year $ 11,252 $ 2,278
</TABLE>
See accompanying summary of significant accounting policies and
notes to financial statements.
Celebrity Entertainment, Inc. and Subsidiary
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Celebrity Entertainment, Inc. ("CEI" or the "Company" ), a Delaware
corporation, developed and operates a destination resort community
featuring golf, fishing and recreational activities. CEI markets
memberships in the resort which entitle members to the use of resort
facilities at reduced rates. On November 3, 1993, CEI changed its
name from Celebrity Resorts, Inc. to Celebrity Entertainment, Inc.
Income from the resort is seasonal, and on an annual basis, the
Company is required to seek additional financing to pay long-term
debt obligations and the resort's on-going operations, including
payroll, creditors and taxes. Income from the resort operations is
not sufficient to sustain the Company's operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
over the estimated useful lives (5 to 31.5 years) of the assets
using the straight-line method for financial reporting and
accelerated methods for income tax purposes.
Net Loss Per Common Share
The net loss per common share is computed using the Common Share
weighted average number of common shares outstanding during each
period after giving effect to the 1-for-5 reverse stock split
described in Note 6. Common stock equivalents have not been included
since the effect would be antidilutive.
Revenue Recognition
Memberships sold represent the right to use the resort facilities
upon continuous payment of monthly membership installments, dues and
usage fees. Memberships generally require an initial payment of 10%
upon signing of the contract with the balance payable in monthly
installments over three to five years. The initial payment and all
monthly payments are deferred and recognized as revenues in the
period when the membership fee is paid in full. In the event of a
default in the payment of monthly payments, the member forfeits all
amounts collected by the Company at the time of default, and any
such amounts that were deferred are recognized as revenue. Revenues
from usage fees are recognized on a daily basis as the resort
facilities are used. Dues revenues are deferred and recognized on a
prorata basis over the dues period which ranges from one month to
one year.
Income Taxes
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"), which requires recognition of estimated income
taxes payable or refundable on income tax returns for the current
year and for the estimated future tax effect attributable to
temporary differences and carryforwards. Measurement of deferred
income tax is based on enacted tax laws including tax rates, with
the measurement of deferred income tax assets being reduced by the
amount of tax benefits not expected to be realized.
Reclassifications
Certain items in the financial statements of the prior year have
been reclassified to conform to the 1995 presentation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Recent Accounting Pronouncements
The FASB has issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed of," which
provides guidance on how and when impairment losses are recognized
on long-lived assets. This statement, when adopted, is not expected
to have a material impact on the Company.
The FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of
accounting for stock-based compensation plans. This statement
provides a choice to either adopt the fair value based method of
accounting or continue to apply APB Opinion No. 25, which would
require only disclosure of the pro forma net income and earnings
per share, determined as if the fair value based method had been
applied. The Company plans to continue to apply APB Opinion No. 25
when adopting this statement, and accordingly, this statement is
not expected to have a material impact on the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Going Concern and Management's Plans
As shown in the accompanying financial statements, CEI has
experienced significant operating losses which have resulted in a
deficit of $10,063,435. During the year ended December 31, 1995,
CEI generated revenues from resort operations; however, it reported
a loss from continuing operations of $4,938,921 and has
negative working capital of $778,341. These conditions raise
substantial doubt about the Company's ability to continue as a
going concern.
CEI is in discussions with a representative of a privately-held
company who has provided a verbal commitment to complete a merger
of such company with CEI. Based on the historical performance of
the subject company's operations, such a business combination could
result in an increase in annual revenues and net income to CEI.
Upon the completion of the proposed business combination, it is
anticipated that a public offering of securities would be
completed, the proceeds from which, in part, would be used to
reduce the liabilities of CEI and expand CEI's resort operations.
However,there can be no assurance that any proposed acquisition will
be effected. Any such acquisition and public offering is subject to
the acquiring entity's acceptance of the financial statements, the
state of the general securities markets and of the specific market
for the Company's securities, and any necessary regulatory review of
the securities to be issued in connection with the merger.
Certain creditors and note holders have informed the Company that
the obligations of the Company to pay them may be exchanged for a
number of the Company's securities.
The Company believes that such financing plans, which have been
formulated to overcome its financial difficulties, have the
reasonable capability of removing the threat to the continuation
of its business during the twelve month period subsequent to
December 31, 1995. Although management believes material progress
has been achieved toward acquiring additional funding and toward
effectuating a business combination, there remains substantial
doubt concerning the Company's ability to continue as a going
concern.
2. Business Acquisition and Discontinued Operations
On June 15, 1993, the Company acquired the outstanding common stock
of Production Services International, Inc. (PSI) in exchange for
402,672 shares of the Company's common stock. The acquisition of
PSI was accounted for using the purchase method of accounting.
Accordingly, (a) the results of PSI's operations were included in
the statement of operations from the date of acquisition and (b)
the total acquisition cost has been allocated to the assets and
liabilities of PSI based on their relative estimated fair values at
the date of purchase. At June 15, 1993, PSI's liabilities exceeded
its assets (at their fair market value) by $150,558, and
accordingly, the excess of the purchase price over the deficiency
in the net assets acquired equaled $553,230. This goodwill amount
was being amortized over seven years.
Operations of PSI Discontinued
On March 1, 1995, certain creditors of PSI filed a petition with the
United States Bankruptcy Court in the middle district of Florida in
Orlando, requesting an order for relief under Chapter 11 of the
Bankruptcy Code. The petition asserted claims of amounts owed as a
result of a television series which ceased production in November
1994. Such claims are for amounts in excess of the accounts payable
and PSI is negotiating with the three creditors who initiated the
filing toward a settlement of their claims. This petition was
withdrawn in favor of a workout plan developed by the Company.
During the year ended December 31, 1995, the Company, at the advice
of counsel, entered into a settlement agreement with PSI's three
major creditors to satisfy $250,000 of existing PSI liabilities.
The Company has also agreed to satisfy liabilities to other
creditors of PSI of approximately $182,000. No other liabilities
are expected to be paid on behalf of PSI.
On March 6, 1995,the Company's Board of Directors approved a formal
plan to discontinue the operations and settle the liabilities of
PSI by liquidating the assets of PSI.
As a result of the petition for bankruptcy against PSI and the
Company's related inability to maintain control over PSI, the
Company abandoned its investment in PSI and deconsolidated the
assets, liabilities and operations of the PSI subsidiary on its
financial statements in 1994.
Summarized results of operations of PSI were as follows:
Year ended December 31, 1995 1994
Revenues $ - $ 4,212,961
Loss from discontinued operations $ 431,916 $ 2,151,445
3. Notes Payable
Notes payable consist of various uncollateralized notes payable to
third parties totaling $73,257 and to stockholders totaling
$204,333 and bear interest ranging from 7.5% to 10%, some of which
matured on or before December 31, 1995. Notes payable
aggregating $73,257 are past due. Notes payable for $32,000 are
convertible at the election of the holder into the Company's common
stock at conversion prices ranging from $1.00 to $1.50 per share.
4. Deferred Membership Revenues
Deferred membership revenues are summarized as follows:
December 31, 1995
Membership contracts sold to date which
have not been fully paid $ 83,705
Less membership notes receivable 30,632
$ 53,073
Notes receivable from the sale of new individual memberships are
collectible in monthly installments over periods of 36 to 60 months
with interest at 14%.
The Company has contracted with a finance company for the management
and collection of the notes receivable for which services it pays a
nominal fee.
5. Long-Term Debt
Long-term debt consists of a mortgage note payable to a bank which
is collateralized by land in Ocala, Florida and an equipment loan
with a remaining balance of $2,282. The mortgage note bears
interest at 9% and is payable in monthly payments of $5,650,
including principal and interest to May 1997 with balance due on
June 2, 1997. The equipment loan is due on July 6, 1996.
Principal payments required to be made in future years are as
follows:
Year ending December 31, Amount
1996 $ 30,087
1997 429,530
459,617
The fair value of debt at December 31, 1995 approximated the
carrying value based on the borrowing rates currently available
to the Company for debt with similar terms and maturities.
6. Stockholders' Equity
Issuance of Common Stock and Options
At the Company's annual meeting of stockholders on February 27,
1992, the stockholders approved a stock option plan in which up to
1,000,000 common shares may be subject to options and/or stock
appreciation rights. These options and/or stock appreciation rights
may be granted to key employees, officers, directors and consultants
of the Company at the discretion of the Board of Directors. Changes
in options outstanding are summarized as follows:
Option Price
Shares per Share
Balance, December 31, 1994 75,000 $14.05
Granted - -
Expired (75,000) $14.05
Balance, December 31, 1995 - -
As of December 31, 1994, the Company had an outstanding stock option
to the underwriter of the Company's initial public offering
permitting the holder to purchase 3,438 units (each unit consists
of four shares of common stock and six warrants) at $96.00 per unit.
These options expired on August 14, 1995.
On June 30, 1995, the Company issued 800,000 shares of common stock
(4,000,000 shares before the reverse stock split) at a price of $.50
per share and 475,000 shares of Class A convertible 8% preferred
stock at a price of $.21 per share as a part of a financing
agreement with a stockholder in order for the stockholder to provide
a loan to the Company in the amount of $200,000. As an additional
part of the financing agreement, the Company issued to the
stockholder an option to purchase 400,000 shares of common stock
(2,000,000 shares before the reverse stock split) at an exercise
price of $.50 per share. The fair market value of the Company's
common stock at the date of issuance of these shares and option was
approximately $2.57 per share. The Company's Class A convertible 8%
preferred stock was delisted by the National Association of Security
Dealers in 1995 and therefore has no available current market value.
The Company accepted a note from the stockholder for the purchase of
the common and preferred stock shares in the amount of $500,000. The
difference between the fair market value and the consideration
received on the issuance the shares of common stock and the option
amounted to $2,484,372 and was recorded as interest expense.
On June 30, 1995, the Company issued 100,000 shares of common stock
(500,000 shares before the reverse stock split) to the officers of
the Company in repayment of a note payable in the amount of $50,000.
The officers of the Company also agreed to forego collection of
accrued salaries in the amount of $138,350 ($85,850 related to 1994)
and the cancellation of options to purchase 375,000 shares of common
stock which were granted in 1995 in exchange for an option to purchase
200,000 shares of common stock (1,000,000 shares before the reverse
stock split) at an exercise price of $.50 per share for 100,000
shares and $2.50 per share for 100,000 shares. The fair market
value of the Company's common stock at the date of
issuance of these shares and option was approximately
$2.57 per share. The difference between the fair market value and
the consideration received on the issuance of the shares relating to
the exchange of debt amounted to $207,031 and was recorded as
interest expense, and the shares relating to the exchange of
officers' salaries amounted to $214,063, of which $128,213 was
recorded as salaries expense in 1995.
During 1995, the Company issued 835,000 shares of common stock for
total consideration of $692,500 as a part of consulting services
rendered to the Company. The fair market value of the Company's
common stock at the date of issuance of these shares was $2,204,515.
The difference between the fair market value and the consideration
received on the issuance of these shares amounted to $1,512,015 and
was recorded as consulting services expense.
During 1995, the Company's landlord was granted the right to receive
30,000 shares of common stock in consideration for past rent. The
fair market value of the Company's common stock at that date was
$2.75 per share. Accordingly, the Company recorded $82,500 in
additional rent expense for 1995.
On June 30, 1995, the Company sold for cash 200,000 shares of
common stock 1,000,000 shares before the reverse stock split)
to an unrelated third party at a price of $.50 per share.
Common Stock Warrants
At December 31, 1995, the Company had 65,925 common stock warrants
outstanding. Information relating to these warrants is summarized
as follows:
Number of Exercise
Expiration Date Warrants Price
September 1996 64,400 $ 23.75
April 1997 1,525 23.60
During 1994, the Company's Board of Directors approved a reduction
of the exercise price of the 64,400 warrants expiring in September
1996 from $20 per warrant to $4.75 per warrant ($23.75 per warrant
on a post-split basis). The new exercise price reflected the market
value of the Company's common stock at the date of the exercise
price reduction.
Stock Split
The Company declared a 1-for-5 reverse common stock split effective
August 3, 1995. The loss-per-share calculation and all common share
information contained in these financial statements have been
retroactively adjusted to give effect to the stock split.
Preferred Stock
On January 27, 1994, the Company completed a public offering of its
securities. The offering was for 345,000 units consisting of 345,000
shares of $.01 par value Class A convertible 8% preferred stock and
690,000 Class A preferred stock purchase warrants. Each share of
Class A preferred stock is convertible into 2/5 of a share of the
Company's common stock at the election of the holder at any time
after January 27, 1995. The Class A preferred stock is redeemable
(subject to certain conditions) at the discretion of the Company at
a redemption price of $7.50 per share. Beginning January 1, 1995,
each share of Class A preferred stock will entitle the holder to
receive cumulative preferential dividends which will accrue and be
payable on an annual basis at 8% of the redemption price. The Class
A preferred stock purchase warrants are detachable from the Class A
preferred stock and entitle each holder to purchase one share of
Class A preferred stock at an exercise price of $6 per share through
January 1997. The public offering generated proceeds of $1,302,751,
net of public offering expenses of approximately $422,249. A portion
of the net proceeds was used to retire $400,000 payable under a bank
line of credit, $250,000 of bridge loans payable, $40,000 of notes
payable to affiliates, $39,150 of accrued interest and $200,000 of
accounts payable. The remainder of the net proceeds were to be used
to fund the Company's continuing operations, including $360,000 to
be used for PSI's television and film production projects. At
December 31, 1995, the Company had 1,064,000 shares of Class A
convertible preferred stock outstanding.
Preferred Stock Warrants
At December 31, 1995, the Company had 876,000 Class A preferred
stock purchase warrants outstanding. The warrants entitle each
holder to purchase one share of Class A preferred stock at an
exercise price of $6 per share through January 1997.
In connection with the Company's January 27, 1994 preferred stock
offering, 30,000 unit purchase warrants were issued to the
underwriter of the public offering. The unit purchase warrants are
exercisable into 30,000 shares of Class A convertible 8% preferred
stock and 60,000 Class A preferred stock purchase warrants.
Bridge Loan Conversion
During 1994, $100,000 of bridge loans were converted into 200,000
units consisting of 200,000 shares of $.01 par value Class A
convertible 8% preferred stock and 200,000 Class A preferred stock
purchase warrants.
Shares Reserved
At December 31, 1995, the Company has reserved common stock for
future issuance under all of the above arrangements totaling
1,695,525 shares.
7. Income Taxes
The components of the net deferred assets consist of the following:
1995
Deferred tax assets:
Net operating loss carryforwards $ 3,566,196
Other 38,560
Gross deferred income tax assets 3,604,756
Valuation allowance (3,604,756)
Total deferred income tax assets -
Deferred income tax liability:
Gain on abandonment of subsidiary -
Net deferred income tax assets $ -
Unused net operating losses for income tax purposes, expiring in
various amounts from 2005 through 2010, of approximately $9,477,000
are available at December 31, 1995 for carryforward against future
years' taxable income. However, as a result of the consummation of
several common stock transactions during the year (Note 6), these
net operating losses may be limited under the provisions of Section
382 of the Internal Revenue Code of 1986, as amended. The tax
benefit of these losses of approximately $3,566,000 has been offset
by a valuation allowance due to it being more likely than not that
the deferred tax assets will not be realized.
8. Supplemental Cash Flow Information
Year ended December 31, 1995 1994
Cash paid for interest $ 54,200 $ 147,826
Noncash financing and investing activities:
Offset of additional paid-in capital
for deferred offering costs - 427,332
Conversion of bridge loans into
preferred stock - 100,000
Conversion of notes payable to
affiliate to notes payable - 15,054
Issuance of common stock warrants in
payment of issuance costs - 203,750
Common stock issued as finder's
fees for debt 2,484,372 -
Issuance of common stock options in
payment of consulting fees 1,512,015 70,313
Note receivable from issuance of
preferred and common stock 792,174 -
Common stock issued in settlement
of stockholder debt 207,031 -
Common stock options issued in
exchange for officers' salaries 128,213 -
Payment of office rent through
issuance of common stock options 82,500
9. Commitment and Contingencies
Litigation
The Company is involved in legal and administrative proceedings and
claims of various types. While any litigation contains an element of
uncertainty, based upon the opinion of the Company's legal counsel,
management presently believes that the outcome of each such
proceedings or claim which is pending or known to be threatened, or
all of them combined, will not have a material adverse effect on the
Company's financial position or results of operations.
Employee Agreements
The Company has entered into employment agreements with certain key
executives that expire at the end of 1998. The agreements provide
for base compensation as follows:
Year ending December 31, Amount
1996 $ 100,000
1997 100,000
1998 100,000
$ 300,000
10. Fourth Quarter Adjustment
During the fourth quarter of 1995, the Company recorded certain
stock transactions (Note 6) that resulted in consulting expenses
being recorded in the amount of $781,718.
11. Subsequent Event
Subsequent to December 31, 1995, the Company sold additional shares
of common stock through a Regulation S offering for a gross offering
of $860,000 and received net proceeds of approximately $390,000.
A portion of these funds was used to retire the note payable to a
stockholder and the related accrued interest (see Note 3). The
remaining proceeds were advanced to this stockholder.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,252
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,922
<PP&E> 3,713,530
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0
10,064
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</TABLE>
