U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------
FORM 10-KSB
(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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19196
----------------------------------
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 561/659-3832
(Address of principal executive offices. Issuer's telephone number.)
-----------------------------------------
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,
1998: 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.
[X]
State issuer's revenues for its most recent fiscal year. $250,853.
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
15, 1999 was approximately $-0-.
The number of shares outstanding of the issuer's Common Stock, $ 0.0001 par
value, as of December 31, 1998 was 262,690.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> CELEBRITY ENTERTAINMENT, INC.
FORM 10-KSB
For the Year Ended December 31, 1998
INDEX
HEADING PAGE
PART I
Item 1. Description of Business 3
Item 2. Description of Property 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders
10
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 10
Item 6. Management's Discussion and Analysis or
Plan of Operation 11
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 14
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act 14
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners
and Management 17
Item 12. Certain Relationships and Related Transactions 19
Item 13. Exhibits and Reports on Form 8-K 20
SIGNATURES 25
<PAGE>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 operated the Resort until it was sold
in November, 1998.
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").
On March 12, 1997, each share of the Company's outstanding and treasury
stock was reclassified and converted into one-fiftieth of one share of Common
Stock (the "1997 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 (561) 659-1660.
Business
The Resort
The Resort offered extensive outdoor recreational activities including
camping sites for 125 RV's, fishing, golf and swimming. The resort was sold in
November, 1998.
Investment in Oil and Gas Development
During 1997, the Company concluded its business relationship with a
start-up corporation (the "Corporation") with regard to the exploration,
development and production of oil and gas pursuant to a mineral lease on
approximately 9,500 acres near Breckenridge, Texas (the "Lease"). The Company
had previously loaned certain amounts to the Corporation which had obtained
rights to the Lease, as part of negotiations concerning a possible business
combination. Additionally, the Corporation had purchased 140,000 shares of
the
Company's common stock. In connection with a settlement agreement completed
in
September 1997 among the Company, the Corporation and certain individuals (the
"Settlement Agreement"), the Company paid certain amounts to certain parties
and
entities and undertook the obligation to continue to pay amounts over a
schedule
of eight to 20 months. Additionally, the Corporation returned the stock to
the
Company. As a result of the Settlement Agreement, the Company acquired the
undivided rights to the Lease. Pursuant to the requirements of the Lease, the
Company provided the financing for the drilling of two oil and gas wells on
the
Lease property in August 1997 and January 1998. One of the wells will not
deliver any production and was capped. The other well demonstrated evidence
of
the possibility of oil and gas reserves and production from this well
commenced during April 1998. Among other requirements and obligations, the
Lease contains a continuous drilling provision so that the Company must drill
a new well every 120 days in order to maintain its rights to the Lease. The
Company did not continue to drill additional wells on the Lease property and
consequently the Lease expired in September 1998. The Company is in
negotiations with several established oil and gas entities who have expressed
interest in purchasing the Company's existing well and a renewal lease with
the landowners, which the Company is also presently negotiating to secure with
the landowners. However, there is no assurance that either the production of
mineral reserves will return net profits to the Company or that a transaction
can be consummated with a purchaser of the production and a renewal of the
Lease with the landowners. The Company has engaged professionals and experts
in the energy industry who are providing their services to the Company for the
management and supervision of the production activities and the negotiation
for renewed lease rights and obligations. At the end of 1998 the Company was
uncertain of any future economic benefit from the investment in the oil and
gas investment and wrote down its value to zero.
ITEM 2. DESCRIPTION OF PROPERTY, EXECUTIVE OFFICE AND LEASE
The Company maintains an executive office on Palm Beach and pays rent of
$2,904 per month on a month-to-month lease basis.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings:
1. Litigation commenced in the Supreme Court of New York, County of
New
York by Maslo Fund Ltd., Walsh Investments Limited and Madison Trading, Inc.
alleging breach by the Company of certain convertible debentures; damages
sought
in the amount of $715,000 plus costs. The Company effected a settlement with
the parties and the action was dismissed in November 1998.
2. Garnishment action brought by Francis G. Walsh et al. seeking to
garnish funds allegedly owed by the Company to David Jakobot et al., in Palm
Beach County Circuit Court. This action seeks to direct to certain third
parties payment of sums allegedly owed by the Company to David Jakobot et al.
The Company is vigorously defending this action and does not anticipate that
it will incur any loss or damage as a result of this action, other than legal
expenses. If the Company is unsuccessful in defending the legal action,
damages could be assessed against the Company in the amount of not less than
$190,000.
3. Litigation commenced by U.C. Financial in the United States
District
Court, Southern District of New York alleging breach of convertible
debentures.
The Company is in settlement negotiations with the plaintiff and anticipates a
settlement to be concluded during 1999. The Company is defending the legal
action which, if unsuccessful, could result in damages to be assessed against
the Company
in an amount of not less than $700,000.
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 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
Period of Quotation High Low
1998 - The stock has not been trading.
1997
First Quarter $ 3 1/2 $ .03
Second Quarter 2 1/2 .03
Third Quarter - -
Fourth Quarter - -
(1) Quotes have been restated to adjust for the 1995 (1:5) and 1997 (1:50)
Reverse Splits.
As of December 31, 1997 and 1998, there were 262,690 shares of Common
Stock
outstanding. As of the same dates, there were approximately 275 holders of
record of the Common Stock, 285 holders of record of Common Stock Warrants and
10 holders of record of Common Stock Options. The number of beneficial holders
of Common Stock totaled 1,074 as of the same dates.
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.
As of May 6, 1997, the Company's Common Stock is no longer quoted on the
Nasdaq Smallcap Market reporting system. The Company hopes to fulfill the
requirements necessary to have the Common Stock quoted on the OTC Bulletin
Board
soon after the filing of this Form 10-KSB with the Securities and Exchange
Commission. A broker-dealer has tentatively agreed to act as principal
market-
maker for the Company's stock, which is necessary in order to have the stock
quoted on the OTC Bulletin Board. The Company anticipates that such quotation
will commence in the near future; however, there can be no assurance that such
will occur. The Company further anticipates reapplication for quotation on
the
Nasdaq Smallcap reporting system as soon as it is able to meet the initial
listing criteria.
Item 5: Other Information.
Certain Relationships and Related Transactions
During 1998, the Company was loaned a total of $685,971 by
Princeton Media Group, Inc. ("PMG"), whose Chairman and a director
is James J. McNamara, Chairman and President of the Company. This amount was
in addition to funds loaned to the Company by PMG during 1997 totaling
$284,017. Accrued interest totaled $44,288. The loan to the Company accrued
interest at prime rate and was payable on demand. The loan was written off by
both parties as of December 31, 1998. During 1998, the Company loaned a total
of $218,021 to Mr. McNamara. The Company had previously loaned an aggregate
of $472,500 to Mr. McNamara during 1997. The loan to Mr. McNamara was forgiven
during November 1998 in connection with the sale of the Company's Resort. The
funds used by the Company to make the above-described loan were the proceeds
from the exercise of stock options issued by the PMG to an entity wholly
controlled by J. William Metzger, the only other director of the Company, in
connection with consulting services rendered to the Company by Mr. Metzger
during 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
Statements contained in this Form 10-KSB regarding the Company's future
prospects or profitability constitute forward-looking statements and as such,
must be considered with caution and with the understanding that various
factors
could cause actual results to differ materially from those in such
forward-looking statements. Such factors include but are not limited to (i)
the
inability of the Company to complete a business combination or acquisition,
and/or (ii) the securing of financing sufficient to fund such business
combination, acquisition, settlement of outstanding debt and litigation.
General
The Company currently operates one oil and gas well. Management is
investigating possible acquisitions of new operations to restore shareholder
value.
Results of Operations
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997:
Revenues for the fiscal year ended December 31, 1998, amounted to
$250,853
compared to $257,735 for the fiscal year ended December 31, 1997. Revenues
were
derived from memberships paid in full, dues and resort operations. The
decrease
in revenues resulted from the sale of the resort in November, 1998.
Selling, general and administrative expenses were $1,121,673 for the
fiscal year ended December 31, 1998, compared to $1,619,141 for the fiscal
year
ended December 31, 1997, a decrease of $497,468. The decrease is due
principally to the sale of the resort in November, 1998.
During the fiscal year ended December 31, 1998, interest expense of
$350,137 was charged to operations, compared with $253,003 during the fiscal
year ended December 31, 1997. The increase was due to additional borrowings
in 1998.
During 1998 the Company earned $47,608 in dividends and interest, a
decrease over the $501,250 interest income in 1997. The decrease of $453,642
is
due primarily to $490,000 in dividends received on the Company's preferred
stock
investment in the prior year.
At December 1, 1998, unused net operating losses for income tax purposes,
expiring in various amounts from 2005 through 2013, of approximately
$14,000,000
may be available for carryforward against future years' taxable income.
However,
as a result of the consummation of several common stock transactions, 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 $5,000,000 has been offset by a valuation allowance dueto it
being more likely than not that the deferred tax asset will not be realized.
Liquidity and Capital Resources
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Operating Activities
Cash decreased $119,271 from $121,536 at December 31, 1997 to $2,265 at
December 31, 1998. Net cash used for operating activities was $766,637 for
the year ended December 31, 1998 compared with cash used for operating
activities of $1,107,046 during the year ended December 31, 1997. The
decrease
of $340,409 was due primarily to the reduction in 1997 of stock and stock
options granted for consulting fees, together with a reduction in charges
related to issuance of the Company's securities.
Investing Activities
During the year ended December 31, 1998 cash was provided by investing
activities in the amount of $1,669,878 compared to net cash used by investing
activities in the amount of $641,810 during the year ended December 31, 1997.
The increase in cash provided by investing activities related primarily to the
return on the investment in preferred stock of a related party in the amount
of
$1,298,234 and related dividends $346,762, offset by the increase in loans to
the Corporation for oil and gas exploration in the amount of $991,222.
Financing Activities
During the years ended December 31, 1998 and December 31, 1997, the
Company had net cash flows provide by (used in) financing activities of
$(1,022,512) and
142,262, respectively, primarily from debt repayments.
Management's Plans
As shown in the accompanying financial statements, the Company has
experienced significant operating losses and negative cash flow from
operations
in recent years and has an accumulated deficit of $2,954,845 at December 31,
1998. The Company reported a net loss of $3,678,741 and has negative working
capital of $2,966,275. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans to improve the financial position and operations,
with
the goal of sustaining the Company's operations for the next twelve months and
beyond, include the following possibilities:
1. Completing a transaction which will secure new operations in the Company;
2. Completing successful settlement negotiations with the Company's debenture
holders;
3. Completing a transaction for the renewal of the Company's lease on the oil
and gas property and the resulting sale of the Company's oil and gas well
and/or the renewed lease.
Though management believes the Company will secure additional capital
and/or attain one or more of the above goals, there can be no assurance that
any
acquisition, financing or other plan will be effected. Any acquisition or
securities offering is subject to the Company's due diligence, the state of
the
general securities markets and of the specific market for the Company's
securities, and any necessary regulatory review.
Recent Accounting Pronouncements
See "Summary of Significant Accounting Policies" footnote to the
Company's
Financial Statements for information relating to recent accounting
pronouncements.
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
Report of Independent Certified Public Accountants
Balance Sheet
Statement of Operations
Statement of Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
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,
1998 are listed below.
Name Age Position Held
James J. McNamara 50 President, Chief Executive Officer
and
Director
J. William Metzger 50 Executive Vice President, Chief
Financial Officer, Controller,
Secretary, Treasurer and 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. Mr. McNamara has been involved in
the
media, music and entertainment industry 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. During 1993-1994 Mr. McNamara created and
executively produced 61 half-hour episodes of "The NEWZ" television series for
PSI. Mr. McNamara is chairman and chief executive officer of Princeton Media
Group, Inc. an Ontario, Canada corporation. Mr. McNamara is Chairman of the
Board of National Auto Credit, Inc., a company with headquarters in Cleveland,
Ohio whose stock trades on the OTC Bulletin Board. 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, the management of PMG, the management of NAC, 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.
As of December 31, 1998, 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 (SEC) and Nasdaq.
Officers,
directors and greater-than-10% shareholders are required by the SEC
regulations
to furnish the Company with copies of all Section 16(a) forms they file.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last two fiscal years by the
Company's Chief Executive Officers.
<PAGE>
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 ($) ($) tion
($) ($)
($)
James J. 1998 60,781 - - -
- - - -
McNamara 1997 57,887 - - -
- - - -
CEO
J. William 1998 60,781 - - -
- - - -
Metzger 1997 57,887 - - -
- - - -
Exec. V-P
</TABLE>
Stock Options
No options were granted to any of the named executive officers during
1998
or 1997.
<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. 0 0 2,000 0
0 0
McNamara
J. William 0 0 2,000 0
0 0
Metzger
</TABLE>
<PAGE>
Mr. McNamara and Mr. Metzger are each a party to an employment agreement
with the Company providing for their services until December 31, 1999 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 3,496(1) 1.3 %
J. William Metzger
214 Brazilian Avenue, Suite 400
Palm Beach, FL 33480 3,266(2) 1.2 %
All Officers and Directors
As A Group (2 persons) 6,762(3) 2.5 %
(1) Includes 1,496 shares directly owned and 2,000 shares beneficially owned
pursuant to options currently exercisable.
(2) Includes 1,266 shares directly owned and 2,000 shares beneficially owned
pursuant to options currently exercisable.
(3) Includes 2,762 shares directly owned and 4,000 shares beneficially owned
pursuant to options currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 the Company acquired an interest through the purchase of 8%
cumulative convertible preferred stock in Princeton Media Group, Inc.
("PMG")and
in 1997 all of the stock was completely redeemed and related dividends were
paid. James J. McNamara is the Chief Executive Officer and Chairman of PMG
and
is the President, Chief Executive Officer and Chairman of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered
by this report.
Exhibits:
Exhibit
Number Exhibit
All Exhibits are incorporated herein by reference if not attached hereto.
2.1 Restated Financing Agreement and Letter of Intent dated June 30, 1995,
filed as Exhibit 2.1 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, File No. 0-19196, filed with the
Securities and Exchange Commission on April 15, 1996.
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 on July 28,
1995, filed as Exhibit 3.7 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995, File No. 0-19196, filed
with the Securities and Exchange Commission on April 15, 1996.
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 on July 28, 1995, filed as Exhibit 3.8 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995, File No.
0-19196, filed with the Securities and Exchange Commission on April 15,
1996.
3.9 Certificate of Amendment of Certificate of Incorporation of the Company
filed in the office of the Secretary of State of Delaware on July 28,
1995, filed as Exhibit 3.9 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, File No. 0-19196, filed with the
Securities and Exchange Commission on April 15, 1996.
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, filed as
Exhibit
4.2 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, File No. 0-19196, filed with the Securities and
Exchange Commission on April 17, 1995.
4.3 Form of Warrant Agreement among the Company, I.A. Rabinowitz & Co., and
American Stock Transfer & Trust Company, as warrant agent, filed as
Exhibit 4.3 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994, File No. 0-19196, filed with the Securities
and Exchange Commission on April 17, 1995.
4.4 Specimen Common Stock Purchase Warrant, filed as Exhibit
4.4 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, File No. 0-19196, filed with the Securities and
Exchange Commission on April 17, 1995.
4.5 Form of Class A Preferred Stock Warrant, filed as Exhibit
4.5 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, File No. 0-19196, filed with the Securities and
Exchange Commission on April 17, 1995.
4.6 Form of Representative's Unit Purchase Warrant, filed as Exhibit
4.6 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994, File No. 0-19196, filed with the Securities and
Exchange Commission on April 17, 1995.
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 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.
4.10 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.
4.11 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.
4.12 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).
10.8 Letter of Intent between the Company and Energex, Inc., filed as Exhibit
10.8 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996 (File No. 0-19196).
10.9 Agreement between Passport America and the Company dated February 14,
1995.
10.10 Settlement Agreement among the Company, Energex Oil, Inc.; Douglas Ross
Pedrie; First American of Breckenridge, Inc.; David A. Jakobot; and
Rhonda
Salters Jakobot, dated September 3, 1997, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the period ended September
30, 1997 (File No. 0-19196).
27.1 Financial Data Schedule.
<PAGE> 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 15th day of April, 1999.
CELEBRITY ENTERTAINMENT, INC.
By: /s/ James J. McNamara
James J. McNamara
President and 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 April 15, 1999
James J. McNamara Officer and Director
/s/ J. William Metzger Executive Vice President, April 15, 1999
J. William Metzger Chief Financial Officer,
Controller, Secretary,
Treasurer and Director
<PAGE>Report of Independent 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, 1998 and the related statements of operations, stockholders'
equity
and cash flows for the two years then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards.
Those standards require that we plan and perform the audit to obtain
reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the 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 audit provides 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, 1998 and the results of its operations and its cash flows for
the two years then ended 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 2 to the
financial statements, the Company has experienced significant operating
losses,
has an accumulated deficit and has negative working capital at December 31,
1997. 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 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Holyfield Associates, PA
Holyfield Associates, PA
West Palm Beach, Florida
April 14, 1999
<PAGE> Celebrity Entertainment, Inc.
Balance Sheet
December 31, 1998
Assets
Current Assets:
Cash $ 2,265
Total current assets 2,265
Property and equipment:
Furniture and fixtures, cost 30,573
Less: accumulated depreciation and amortization ( 19,143)
Total property and equipment, net 11,430
Other assets:
Investment in oil and gas lease, net 1,716,221
Less: allowance for impairment in value ( 1,716,221)
Total assets $ 13,695
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 330,998
Accrued expenses
190,000
Notes payable - debenture settlement 320,534
Convertible debentures payable 1,640,000
Note payable 60,000
Note payable - officer 69,346
Accrued interest payable 357,662
Total current liabilities 2,968,540
Stockholders' equity:
Preferred stock, $0.01 par value: 2,000,000 shares authorized
Designated as Class A 8% convertible:
1,525,000 shares designated; 1,064,000 shares issued
($5,320,000 total liquidation preference) 10,640
Common stock, $0.0001 par value: 25,000,000 shares authorized;
262,690 shares issued 26
Additional paid-in capital 18,312,117
Accumulated deficit (20,777,628)
Celebrity Entertainment, Inc.
Balance Sheet
December 31, 1998
Less treasury stock, 10,100 shares common
and 475,000 shares preferred, at cost (500,000)
Total stockholders' equity (deficit) ( 2,954,845)
Total liabilities and stockholders' equity $ 13,695
See accompanying notes to financial statements.
<PAGE> Celebrity Entertainment, Inc.
Statements of Operations
<TABLE>
<S> <C>
<C>
Years ended December 31,
1998 1997
Revenues:
Resort operations $
250,853 $ 257,735
Selling, general and administrative expenses
1,121,673 1,619,141
Operating loss ( 870,820)
(1,361,406)
Other income (expenses):
Interest income
47,608 11,250
Dividend income
- - 490,000
Interest expense (350,137)
( 253,003)
Loss on disposition of assets
(1,942,920) -
Loss on disposition of stock (
4,982) -
Loss on impairment of value
of oil and gas lease
(1,251,221) -
Total other income(expenses)
(3,501,652) 248,247
Loss before extraordinary income
(4,372,472) (1,113,159)
Extraordinary income - forgiveness of debt
693,731 323,755
Net loss $( 3,678,741)
$ ( 789,404)
Basic and diluted loss per share:
Loss before extraordinary item $ ( 19.08)
$ ( 5.13)
Extraordinary income
2.65 .95
Net loss $ ( 16.43)
$ ( 4.18)
</TABLE>
See accompanying notes to financial statements.<PAGE>
<TABLE>
Celebrity
Entertainment, Inc.
Statements of Stockholders'
Equity
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
Treasury Stock Additional
Preferred Stock Common
Stock Common Preferred Paid-In
Shares Amount Shares
Amount Shares Shares Amount Capital
Balance, December 31, 1997 1,064,000 $ 10,640 262,690 $
26 10,100 475,000 $ 500,000 $ 18,312,117
Valuation of warrants - - -
- - - - - -
Net loss - - -
- - - - -
- -
Balance, December 31, 1998 1,064,000 $ 10,640 262,690 $
26 10,100 475,000 $ 500,000 $ 18,312,117
Accumulated Stock Subscriptions Unrealized Gain
Deficit Receivable On Investment
Balance, December 31, 1997 $
(17,098,887) $ - $ 29,200
Valuation of warrants
- - $ - $(29,200)
Net loss (
3,678,741) $ - -
Balance, December 31, 1998 $
(20,777,628) $ - $ -
See accompanying notes to financial statements.
</TABLE>
<PAGE><TABLE>
Celebrity Entertainment, Inc.
Statements of Cash Flows
<S>
<C> <C>
Years ended December 31,
1998 1997
Cash flows from operating activities:
Loss before extraordinary item $(
3,678,741) $ (1,113,159)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization
96,215 124,928
Write off of oil and gas lease
1,251,221 -
Forgiveness of debt (
693,731) -
Loss on disposition of asset
1,942,920 -
Stock issued in payment of consulting
fees 167,460
Change in current assets and liabilities
(Increase) decrease in:
Prepaid expenses and accounts receivable
32,065 ( 17,759)
Note receivable - related
party - (472,500)
Increase (decrease in:
Accounts payable and accrued expenses
31,228 162,642
Deferred membership
revenues - ( 35,886)
Accrued interest payable
252,186 -
Note payable - related
party - ( 69,720)
Due to related
party - 106,946
Net cash used for operating activities (
766,637) (1,107,046)
Cash flows from investing activities:
Purchase of property and equipment (
1,644) (11,964)
Advance on note receivable - officer (
214,449) -
Proceeds on note payable - related party
685,971 -
Proceeds on sale of assets
1,200,000 -
Redemption of investment in affiliated
company 1,298,234
Dividends on investment in affiliated
company 346,762
Investment in oil and gas exploration
venture ( 991,222)
Net cash provided by (used for) investing activities
1,669,878 641,610
Cash flows from financing activities:
Proceeds of notes payable
54,582 266,000
Repayments of notes payable
(1,077,094) ( 9,676)
Settlement of convertible
securities
(113,662)
Net cash provided by (used in) financing activities
(1,022,512) 142,262
Increase (decrease) in cash and cash equivalents
(119,271) ( 322,974)
Cash and cash equivalents, beginning of year
121,536 444,510
Cash and cash equivalents, end of year $
2,265 $121,536
Celebrity Entertainment, Inc.
Statements of Cash Flows
Supplemental cash flow information:
Interest paid $
119,630 $ 95,925
Income taxes paid
$ - $ -
Noncash Investing and financing activities:
Note payable issued in settlement of debentures
$ $ 971,000
Common stock issued in settlement of debentures
$ $ 10,000
</TABLE>
<PAGE>
In 1997, the Company received a total of $490,000 in dividends in the
redemption of its
investment in an affiliated company of which $143,238 was in the form of
stock
of the affiliate. The investment in oil and gas venture includes $260,000 of
accrued expenses. A note receivable subscribing to common stock totaling
$1,321,500 was canceled in exchange for cancellation of the stock. The
Company
received warrants valued at $29,200 in conjunction of settlement of its
investment in an affiliated company.
See accompanying notes to financial statements.
Celebrity Entertainment, Inc.
Notes to financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Celebrity Entertainment, Inc. (the "Company"), a Delaware corporation,
developed
and operated a destination resort community featuring golf, fishing and
recreational activities until it was sold in November, 1998.
The Company's wholly-owned subsidiary manages the development of an oil and
gas lease in Texas. Operations of the subsidiary began during the second
quarter of 1998 and, accordingly, the Company is presenting consolidated
financial statements including the assets, liabilities and results of
operations of the subsidiary.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives (5 to 7 years) of the assets using the straight-line
method for financial reporting and accelerated methods for income tax
purposes.
On November 3, 1998, the Company sold the resort property for $1.2 million.
Proceeds were used to satisfy mortgage liens of $625,000 and in settlement of
other liens and claims of approximately $800,000. The property had a basis of
approximately $2.9 million. The Company incurred a loss on sale of
approximately $1.7 million.
Net Loss Per Common Share
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." This statement
requires the presentation of basic and diluted earnings per share and replaced
the presentation of primary and fully diluted earnings per share prescribed by
APB Opinion 15. The Company has computed basic and diluted (loss) per share
using the weighted average number of common shares outstanding, since common
stock warrants, and the effect of assuming the conversion of the outstanding
convertible securities were antidilutive in both years.
The following table sets forth the computation of basic and diluted loss per
share:
1998 1997
Loss before extraordinary item $(4,372,472) $(1,113,159)
Less: preferred dividends ( 638,400) ( 638,400)
Loss to common shareholders
before extraordinary income (5,010,872) (1,751,559)
Extraordinary income - forgiveness of debt 693,731 323,755
Net loss $(4,317,141) $(1,427,804)
Weighted average common shares outstanding 262,690 341,375
Basic and diluted loss per share:
Loss per share before extraordinary income $( 19.08) $( 5.13)
Extraordinary income 2.65 .95
Net loss $( 16.43) $( 4.18)
Revenue Recognition
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.
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.
Financial Instruments and Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of
credit risk consist principally of cash and accounts receivable. The Company
maintains significant cash deposits primarily in one financial institution.
The
company performs periodic evaluations as part of its investment strategy.
Concentrations of credit risk with respect to accounts receivable are limited
due to the relatively insignificant amount of receivables.
The carrying values of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable, accrued expenses, and debentures
payable.
Cash and Cash Equivalents
Cash and cash equivalents are all cash balances and highly liquid investments
with original maturities of three months or less.
Year 2000 Reporting
On August 4, 1998, the SEC issued expanded requirements for disclosure
regarding the international computer programming problems whereby certain
computer programs will not be able to properly recognize the date in the year
2000. Management believes the Company has no material exposure from the year
2000 problem. The Company's management information systems advisor reports
that because the Company's system was originally designed to be unaffected by
year 2000 problem, the Company has no exposure to the problem within its own
system. The Company has consulted major vendors and suppliers whose
non-compliance with correction of the problem could cause material damage to
the Company and has determined that such vendors and suppliers have plans in
place that will circumvent year 2000 problems that could affect the Company.
Recent Accounting Pronouncements
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive Income,"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which are effective for fiscal years beginning after December
15,
1997. These Statements will have no effect on the Company's financial
position
or results of operations.
2. Going Concern and Management's Plans
As shown in the accompanying financial statements, the Company has experienced
significant operating losses and negative cash flow from operations in recent
years and has an accumulated deficit of $20,777,628 at December 31, 1998.
During
the year ended December 31, 1998 the Company generated revenues from resort
operations; however, it reported a net loss of $3,678,741 and has negative
working
capital of $2,966,275. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans to improve the financial position and operations with
the goal of sustaining the Company's operations for the next twelve months and
beyond include the following possibilities:
1. Completing a transaction which will secure new operations in the Company;
2. Completing successful settlement negotiations with the Company's debenture
holders;
3. Completing a transaction for the renewal of the Company's lease on the oil
and gas property and the resulting sale of the Company's oil and gas well
and/or the renewed lease.
Though management believes the Company will be able to secure
additional capital
and/or attain one or more of the above goals, there can be no assurance that
any
acquisition, financing or other plan will be effected. Any acquisition or
securities offering is subject to the Company's due diligence, the state of
the
general securities markets and of the specific market for the Company's
securities, and any necessary regulatory review.
3. Investments
Oil and Gas Lease
During 1997, the Company concluded its business relationship with a
start-up corporation (the "Corporation") with regard to the exploration,
development and production of oil and gas pursuant to a mineral lease on
approximately 9,500 acres near Breckenridge, Texas (the "Lease"). The Company
had previously loaned certain amounts to the Corporation which had obtained
rights to the Lease, as part of negotiations concerning a possible business
combination and had purchased for a note 140,000 shares of the
Company's common stock. In connection with a settlement agreement completed
in
September 1997 among the Company, the Corporation and certain individuals (the
"Settlement Agreement"), the Company paid certain individuals and
entities and undertook the obligation to continue to pay amounts over a
schedule
of eight to 20 months. Additionally, the Corporation returned the stock to
the
Company in cancellation of the note. As a result of the Settlement
Agreement,
the Company acquired the undivided rights to the Lease, pursuant to which the
Company provided the financing for the drilling of two oil and gas wells on
the
Lease property in August 1997 and January 1998. One of the wells demonstrated
evidence of the possibility of oil and gas reserves. The second well will not
deliver any production and was capped. The continuous drilling obligation
was not maintained at September 1998 and consequently the Company's rights
pursuant to the lease terminated. The Company is negotiating with third
parties for new lease terms and for the sale of the Company's interests in the
oil and gas project.
Investment in oil and gas lease $1,716,221
Less: allowance for impairment (1,716,221)
5. Convertible Debentures, Forgiveness of Debt, and Long-term Debt
During 1996, the Company initiated private placements of convertible
debentures
to non-U.S. persons under Regulation S issued by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
The resulting gross proceeds from all the debentures sold were $3,842,800,
$648,026 of which were paid in investment brokerage commissions and related
fees. The debentures bear interest at 8% per year and are due March 28,
1998.
They are convertible at any time beginning 45 days after issuance into common
shares at a conversion price equal to the lower of: (a) 65% or 85% of the
average closing bid price of the Company's common stock for the five business
days immediately preceding the conversion date, or (b) 90% of the average
closing bid price of the Company's common stock for the five business days
immediately preceding the date of subscription to the debenture.
In March 1997, at a meeting of the Emerging Issue Task Force (EITF), the SEC
expressed its views on the accounting for convertible debt with a
nondetachable
conversion feature where the conversion feature is "in the money" (that is, a
conversion discount) at the date the security is issued (EITF Topic D-60).
The SEC stated that the conversion discount should be valued and recognized at
the date of issue as additional paid-in capital. The value being determined is
the difference between the conversion price and the quoted market price of the
common stock into which the security is convertible, multiplied by the number
of
shares into which the security may be converted. For debt securities, the
value
of the conversion discount and any related issue costs should be charged to
interest expense from the date of issue to the date the security first becomes
convertible. If the stated maturity of such debt is not substantive, the
conversion discount and related issue costs should be amortized over this
relatively short period. Further, if the security is converted before the
discount or issue costs are fully amortized, the unamortized portions of the
discount or costs should be charged to interest expense in the period of
conversion, rather than to additional paid-in capital as was generally
accepted
accounting practice.
Change in Method
In 1996, upon the issue of the 8% convertible debt securities, the Company had
recognized the value of the discount ($1,936,119 in the manner prescribed by
the SEC) and was amortizing the discount and related issue costs over the term
of the debt using the interest method. Upon conversion of the debt, the
Company
had charged shareholders' equity for any remaining unamortized discount and
costs.
As a consequence of the above, in April 1997, the Company revised its method
of accounting for the conversion discount and issue costs to conform with the
SEC's position and wrote off all of the remaining discount and costs to the
1996 statement of operations. Also, the Company charged to 1996 operations
the
discount and cost originally charged to shareholders' equity on the
conversion
of debt during 1996. This resulted in a noncash writeoff of debt discount
and debt issue costs of $2,584,145 in 1996.
In 1997 and 1998, settlement of a portion of the convertible debentures
resulted in
forgiveness of debt as follows:
1998 1997
Debentures redeemed $561,000 $1,380,000
Less: settlement notes issued ( 971,534)
Less: other consideration issued (300,000) ( 84,711)
Forgiveness of debt $261,000 $ 323,755
The settlement notes bearing interest at 8% are due in 1999.
6.Certain Relationships and Related Transactions and Forgiveness of Debt
During 1998, the Company was loaned a total of $685,971 by Princeton Media
Group, Inc. ("PMG"), whose Chairman and a director is James J. McNamara,
Chairman and President of the Company. This amount was in addition to funds
loaned to the Company by PMG during 1997 totaling $284,017. Accrued interest
totaled $44,288. The loan to the Company accrued interest and was payable on
demand. The loan was written off by both parties as of December 31, 1998.
During 1998, the Company loaned a total of $218,021 to Mr. McNamara. The
Company had previously loaned an aggregate of $472,500 to Mr. McNamara during
1997. The total amount owed by Mr. McNamara to the Company was forgiven during
November 1998 in connection with the sale of the Company's Resort.
The funds used by the Company to make the above-described loan were the
proceeds
from the exercise of stock options issued by the PMG to an entity wholly
controlled by J. William Metzger, the only other director of the Company, as
compensation for consulting services rendered to the Company by Mr. Metzger
during 1998.
Settlement of these and other transactions with creditors resulted in
additional forgiveness of debt of $432,731.
7. Other Related Party Transactions
As detailed in Note 3, in 1996 the Company purchased preferred stock for $1.4
million of a company related by common directorship and in 1997 the stock was
fully redeemed and dividends of $490,000 plus warrants valued at $29,200 as of
December 31, 1997 were received.
At December 31, 1997, the Company had a note payable to an officer in the
amount of $106,948 bearing interest at prime beginning January 1, 1998. During
1998 this loan was reduced by $37,602 and it has an outstanding balance of
$69,346 at December 31, 1998.
8. Stockholders' Equity
Stock Splits
The Company declared 1-for-5 and 1-for-50 reverse common stock splits
effective
August 3, 1995 and March 12, 1997, respectively. The loss-per-share
calculation
and all common share information contained in these financial statements have
been retroactively adjusted to give effect to these stock splits.
Stock Option Plan
Under a 1992 stock option plan the Company is authorized to grant options
and/or
stock appreciation rights up to a maximum of 4,000 common shares to key
employees, officers, directors and consultants of the Company at the
discretion
of the Board of Directors. The Company made no grants of options to employees
during 1997. At December 31, 1997 there were 4,000 options outstanding to
purchase shares at $25 per share expiring September 1, 1998.
Issuance of Common Stock, Options and Treasury Stock
Notes Receivable arising from Issuance of Common Stock
During 1996 the Company sold 140,000 shares of common stock to the Corporation
in exchange for a $1,312,500 secured promissory note. As detailed in Note 3,
in
1997 the note and the related stock were canceled.
Common Stock Warrants
At December 31, 1996, the Company had 31 common stock warrants outstanding
with
an exercise price of $1,180 per warrant. They expired in April, 1997.
Preferred Stock
In 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 1/125 (2/5
of a share before the 50 to 1 1997 reverse common stock split) a share of the
Company's common stock at the election of the holder at any time after January
27, 1995 (8,512 shares of common stock assuming complete conversion). 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. The
liquidation preference of Class A preferred stock is $5.00 plus the
accrued and unpaid dividend to the payment date. The holder of each share of
Class A preferred stock has voting rights equal to 1/125 of a share of common
stock. 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.
As described above, the company repurchased 475,000 shares of preferred stock
as part of a settlement of a $500,000 stock subscription.
Preferred Stock Dividends
Beginning on January 1, 1995 the holders of the Class A preferred stock will
receive a cumulative dividend on January 1 of each year of 8% of the
redemption
value of the preferred stock, if dividends are declared by the Board of
Directors. Such dividends, whether declared or not, will be paid in the event
of a partial or complete liquidation of the Company, any redemption of
preferred
stock or upon the conversion of preferred stock to common stock. These
dividends accrued were $638,400 and $353,400 in 1997 and 1996, respectively.
Cumulative dividends in arrears aggregate $1,313,550 and $675,150 at December
31, 1997 and 1996, respectively.
In connection with the Company's 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 stock and 60,000 Class A
preferred stock purchase warrants. None of the preferred stock purchase
warrants have been exercised as of December 31, 1997.
9. Income Taxes
The Company provides for income taxes as required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The components
of
the net deferred tax assets consist of the following at December 31, 1997 and
1998:
1997
1998
Deferred tax assets:
Net operating loss carryforwards $4,204,500
$4,744,500
Bad debts 182,000
182,000
Consulting fees paid with stock options 73,500
73,500
Gross deferred income tax assets 4,460,000
5,000,000
Valuation allowance (4,460,000)
(5,000,000)
Net deferred income tax assets $ -
$ -
The change in the valuation allowance for deferred tax assets was an increase
of
$62,333 during 1997. The following summary reconciles differences from taxes
at
the federal statutory rate with the effective rate:
Year ended December 31, 1997 1998
Federal income taxed at statutory rates (34.0%) (34.0%)
Losses without tax benefits 34.0% 34.0%
Income taxes at effective rates 0% 0%
Unused net operating losses for income tax purposes, expiring in various
amounts
from 2005 through 2013, of approximately $14,000,000 are available at December
31, 1998 for carryforward against future years' taxable income. However, as a
result of the consummation of several common stock transactions, 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 $5,000,000 has been offset by a valuation allowance due to it
being more likely than not that the deferred tax assets will not be realized.
10. Commitment and Contingencies
Litigation
The Company is currently negotiating settlement of claims of approximately
$1.5 million related to convertible debentures.
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