FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number ____
UNITED NATIONAL FILM CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
Colorado 84-1092589
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6363 Christie Avenue (510) 653-7020
Emeryville, CA 94608
(Address of Principal Executive Offices) (Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
The number of shares outstanding of the issuer's Common Stock, $.001 par value,
as of June 30, 1999 was 6,186,983 shares.
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UNITED NATIONAL FILM CORPORATION
INDEX
Page
Number
PART I -
Item 1.
Business History 3
Description of Business 4
Industry Profile 4
Item 2.
Products 4
Item 3.
Legal Proceedings 4
Item 4.
Submission of Matters to a Vote of Security Holders 4
PART II
Item 5.
Market Price for Registrant's Common Equity and
Related Stockholder Matters. 5
Item 6
Selected Financial Data. 5
Item 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 8 - Financial Statements 9
Auditor's Report and financial statements F-1 to F-11
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 21
PART III
Item 10.
Directors and Executive Officers 21
Item 11
Executive Compensation 21
Item 12
Security Ownership of Management 22
Item 13
Related Transactions, Changes in Securities 22
PART IV
Item 14
Exhibits, and
Reports on Form 8-K. 22
Signature 23
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PART 1.
Item 1. Business History
United National Film Corporation (the "company"), formerly known as
Riverside Capital, Inc. was formed under the laws of the State of
Colorado on July 19, 1988, in order to evaluate, structure and
complete a merger with, or acquisition of, prospects consisting
of private companies, partnerships or sole proprietorships.
On February 28, 1989, the Company completed a public offering of
20,500,000 Units at an offering price of $.01 per unit. Each Unit
consisted of one share of the Company's no par value common stock and
three Class A Common Stock purchase Warrants. Each A Warrant entitled
the holder to purchase, at a price of $.02, one share of Common Stock
and one Class B Common Stock purchase Warrant until December 22, 1992.
Each B Warrant entitled the holder to purchase one share of Common Stock
at $.05 per share until December 22, 1992. The proceeds to the Company
from its initial public offering were approximately $159,090.
On March 2, 1989, the company made a $20,000 investment in Escalante
Capital, Inc. ("Escalante") a wholly owned subsidiary of the Company.
Escalante did not engage in any business activity and has been
dissolved.
On June 19, 1989, the Company purchased an eighty percent (80%) interest
in Fortune Mint, Inc. ("Fortune") for $75,000 in cash, subsequently
selling all of its interest in Fortune to Heavenly Hot Dogs ("Heavenly")
for a 90 day promissory note for $75,000 and 7,000,000 restricted shares
of Heavenly common stock. Heavenly defaulted on its note and the
agreement to sell Fortune to Heavenly was terminated.
Due to financial difficulties, Fortune closed down its activities and is
no longer manufacturing its mints. As of September 7, 1990, the Company
no longer owned any interest in Fortune and has written off its
investment.
On March 18, 1992, the Company acquired all of the issued and
outstanding shares of United National Film Corporation in exchange for
an aggregate of 407,250,000 (after giving effect to a one for two reverse
split) authorized but unissued shares of the common stock, no par value, of
Riverside Capital Inc. United National Film corporation assisted
Riverside Capital, Inc. in a business combination which resulted in the
shareholders of United National Film Corporation owning together
approximately 90% of the then issued and outstanding shares of Riverside
Capital, Inc.'s common stock and Riverside Capital, Inc. holding 100% of
the issued and outstanding shares of United National Film Corporation's
common stock. No cash was acquired by either corporation in this merger.
On February 5, 1998, the Company entered into a Stock Purchase and
Exchange Agreement with Titus Productions, Inc. ("Titus") which provides
for the recapitalization of the Company. Pursuant to the Agreement, the
Company acquired all of the capital stock of Titus and the common voting
shares of Mr. Conrad Sprenger and Mr. Richard L. Bare in exchange for
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the distribution of the shares to Mr. Deno Paoli, Mr. Ted Mortarotti and
Ms. Jody Mortara. Following the completion of the exchange, Mr. Paoli owned
approximately 36.6% and Mr. Mortarotti and Ms. Mortara each owned
approximately 18.3% of the issued and outstanding shares of the Company.
On September 14, 1998, the Company purchased the worldwide rights from
Arthur L. Stashower in the feature film entitled "Molly and Lawless
John", starring Sam Elliott. In consideration thereof 40,000 shares of
company common stock were issued and an agreement to pay $50,000 on
January 15, 1999. Mr. Stashower was acting in his own capacity prior to
being nominated to the Board of Directors. Mr. Stashower, now the
Company's President, has deferred payment until the Company has
completed its financing plans.
On January 20, 1999, the Company entered into an agreement with "Winner
Take All" a California Limited Partnership to acquire all the assets of
the Partnership consisting of all rights, title and interest to the
screenplay "Winner Take All", which included all beneficiary agreements.
The consideration paid for the acquisition was the issuance of 105,000
Shares of Common Stock divided among the limited partnership in
accordance with their respective interests. Deno Paoli, one of the
General Partners, abstained from voting and did not receive stock or
cash for his consideration.
On June 9, 1999, a joint venture agreement was entered into with the
company known as "Animation and Effects" to produce a series entitled
"Snappy Sings". The joint venture will own all the rights to "Snappy
Sings" including all copyrights. Ten per cent (10%) of future revenues
will go to Animation and Effects and ninety per cent (90%) of the future
revenues to the Company until the sum received by the Company equals the
amount to be advanced by the Company. Thereafter revenues will be shared
forty per cent (40%) to Animation and Effects and sixty per cent (60%)
to the Company. The Company plans to finance this production through a
private placement, a partnership, a Limited Liability Company, or a
loan. The agreement is subject to the ability of the Company to finance
the project.
Description of Business:
The Company plans to produce high quality, low budget pictures in the
one million dollar to four million dollar range. They will also produce
a collection of videotapes of an animated series called "Snappy."
The Company has a number of options to finance the projects it intends
to produce: (1) Secure an advance payment by selling the distribution
rights to a company skilled in marketing independent films; (2) Foreign
sales (There are upwards of fifty viable territories from $5,000 to
$100,000 minimum asking price for the right to exhibit); (3) through
private placements, partnerships, and joint ventures. There can be no
assurance that additional financing will be available on acceptable
terms, if at all.
Industry Profile:
The motion picture industry is a $26 billion per year business in the
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United States and Canada - (Screen Digest and Motion Picture Almanac.)
Statistics now show that 50% of the average picture revenue is made
overseas (Movie Business.) The international market extends beyond the
theatrical exhibition to new commercial video formats. The European
Common Market represents 100 million more customers than the United
States. New delivery systems into the home are growing along with the
VCR market, so that estimates project that VCRs are in 50% of European
Common Market homes, cable TV in nearly 40%, and satellite delivery in
over 25% of the Common Market homes. Because of the new global market
and the changes in distribution and financing from the overseas market,
American studios have shifted emphasis; they have essentially become
banker-wholesalers more than the production companies. Independent
companies have become the new movie and video makers and provide most of
the product.
Technological changes are occurring at a rapid pace. Television brought
movies into the home and videocassettes became a new source of income.
Now a whole new market is beginning to emerge on the Internet. Each new
technological change brings new and potential sources of income.
Item 2. Products:
The Company is continuing its development and preparation of two scripts
for production. The first property is "Specific Intent" (originally titled
"Winner Take All"). The second property entitled, "Gerry Was Her Code
Name", is based on a true story of a teenage girl. Also ready for
production is a series of animated videotapes entitled, "Snappy Sings".
These tapes are directed at children and teach them how to read music
and sing through the animated character "Snappy."
The acquired feature film "Molly and Lawless John" starring Sam Elliott
is planned for redistribution at a later date.
Item 3. Legal Proceedings:
There are no legal proceedings pending or threatened against the
Company.
Item 4. Submission of Matters to a Vote of Security Holders:
On January 20, 1999 The Company entered into an Agreement with "Winner
Take All" a California Limited Partnership to acquire all the assets of
the Partnership consisting of all rights, title and interest to the
screenplay "Winner Take All", which included all beneficiary agreements.
The consideration paid for the acquisition was the issuance of 105,000
Shares of Common Stock divided among the Limited Partnership in
accordance with their respective interest. Deno Paoli, one of the
General Partners, abstained from voting and did not receive stock or
cash.
The foregoing transaction has been approved by a majority of the
Security Holders.
There are no matters pending which will require the vote of the Security
Holders.
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Item 5. Market Price for Registrant's Common Equity and Related
Stockholder Matters:
The Registrant's shares were traded on the over the counter market until
September 1991. Since that time, no quotations have been reported by the
National Quotation Bureau, Inc. Presently no established public trading
market exists for the Company's securities. Holder of common stock are
entitled to receive such dividends as may be declared by the
Registrant's Board of Directors. No dividends have been paid with
respect to the Registrant's common stock and no dividends are
anticipated to be paid in the foreseeable future.
Item 6. Selected Financial Data:
The following table sets forth certain selected financial data with
respect to the Company and is qualified in its entirety by reference to
the financial statements filed herewith:
STATEMENT OF OPERATIONS
For the period ending June 30,
1999 1998
Revenues 7,432 50,000
Net Loss (67,665) (135,923)
Net Loss per Share (0.01) (0.03)
Weighted Average Shares
Used in Computation 5,849,900 4,584,986
BALANCE SHEET DATA
Year Ended June 30, 1999
Total Assets 65,413
Current Liabilities 55,000
Long Term Debt 1,500
Stockholders Equity 8,913
Item 7. Management's Discussion and Analysis of Financial Condition and
Result of Operation:
It has been the goal of the company to produce high quality, low budget
motion pictures with very little special effects and with story lines
where the actors' roles are important to its success. Although the
Company has assigned no book value to them, it controls a variety of
screenplays and television teleplays. The company will attempt to
finance the individual projects through private offering, Limited
Partnership, or by pre-selling the product on the overseas market. To
achieve this goal the company has assembled a new and experienced
management team (see Part II - Directors and Executive Officers) to
develop and implement the Company's business plan. This team has a
combined 70 years of experience in the motion picture industry,
providing extensive background in project acquisition and development,
experience in high quality low budget productions, strong
entrepreneurial skills, and a wealth of industry contacts and expertise.
The Company's goal is to fill a niche market only now realized as a
meaningful and sizable market. Recent successes of low budget
productions have prompted some of the large studios to get on the
bandwagon by acquiring or forming low budget divisions under different
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names.
The Company plans to expand into the animation market and has entered
into an agreement with "Animation and Effect" to begin production on a
series of animated programs. These programs will be financed by private
placements. While this series is in production the Company plans to
continue producing two feature films per year and ramp up to no more
than four per year thereafter. The company is taking steps to prepare
itself to serve the Internet market when feasible and avail itself of
all the technological opportunities. The company's goals are subject to
its ability to raise the necessary capital.
The Company will seek to acquire an Internet based, interactive,
entertainment company to complement the Company's efforts as well as to
provide a steady cash flow to aid in its day to day operations. It will
continue to seek acquisitions of small to medium sized distribution
companies to facilitate the distribution of the Company's project, along
with other films as with the recently acquired motion picture "Molly and
Lawless John". The management will continue to seek and purchase motion
picture products for future distribution. These acquisitions will be
financed by either stock or cash from the Company's working capital
sources.
During this reporting period the Company became concerned that certain
officers of the Company, respectively the Vice President and
Secretary/Treasurer lacked the experience necessary to discharge their
duties as directors and officers of the Company. It became apparent that
these individuals had misrepresented their expertise and that their
intentions were to further their own careers utilizing the Company and
at the Company's expense to accomplish that end. It was learned that
these officers had prepared an agreement which, if completed, would have
been binding upon the company. The terms and subject matter of the
agreement was never presented nor authorized by the Board of Directors
of the Company nor was the form of agreement prepared or reviewed by
Company Counsel. The Company was able to rescind the agreement without
any liabilities or expense. On a number of occasions financial
information was requested of the Secretary/Treasurer and was not
provided in a timely manner, or at all. Consequently, at the Annual
Meeting of Shareholders held on November 18, 1998, the two individuals
were replaced as Directors and two new Directors were elected. The Board
of Directors at its meeting following the Annual Meeting of Shareholders
elected new officers of the Company. The resignation of the
previous Vice President and Secretary/Treasurer was confirmed by a faxed
resignation received by the Company on February 16, 1999. The Company is
continuing to investigate the activities of these two individuals as
officers of the Company and representations made to the Company by
each of them which formed the basis of the Company's initial dealing
with them.
Year 2000
Many computer systems experience problems handling dates in and beyond the
year 2000. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. To the
Company's best knowledge, the Company does not anticipate any internal Year
2000 issues from its own information system, databases or programs.
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Additionally, it is our belief that the Company's hardware and software are
also Year 2000 compliant. There can be no assurance, however, that there will
not be a delay in, or increased costs associated with, the implementation of
any changes, and the Company's inability to implement such changes could have
an adverse effect on future results of operations or financial condition.
It is unknown how third parties, including customers, vendors, credit card
transaction processors and financial institutions, with which our management
information system interface will continue to properly interface with our
system and will otherwise be compliant on a timely basis with year 2000
requirements. This could adversely affect the Company's future revenues,
thought the impact is not known at this time.
The Company is also assessing and addressing the possible effects on the
Company's operations of the year 2000 readiness of key distributors,
suppliers, customers, vendors and financial services organizations. The
Company's reliance on suppliers and distributors means that their failure to
address year 2000 issues could have a material impact on the Company's
operations and financial results. However, the potential impact and related
costs are not know at this time. We have not established a contingency plan
in the event that we are unable to correct the Year 2000 problem and as of
the date of this report, have no plans to do so.
Results of Operation:
The following is a discussion of the results of operations from the date
of inception through June 30, 1999. The company is not providing any
comparisons of its results of operation because the Company is still in
the development stages, and such comparison would not be meaningful.
Net Sales:
Although the Company commenced operations on February 28, 1989, there
has been no significant income generating activity to date. The Company
records income at the time the monies are received from the distributor
of the film. Revenues from being the provider of contract production
services are recognized using the percentage of completion method,
recognizing revenue relative to the proportionate progress on such
contracts as measured by the ratio which projects costs incurred by the
Company to date bear to the total anticipated costs advanced under such
contracts, and are deferred and not recognized as revenue until
obligations under such contracts are performed. To date the Company has
not produced any projects that would generate income. The source of
funds for the Company through June 30, 1999 has been from the
Acquisition of Titus Production, Inc., contract production work in the
amount of $50,000, which Deno Paoli has sourced for the Company, and from
loans from Officers of the Company.
Cost of Revenues:
There were no production expenditures for the company during this
reporting period.
Marketing and Sales Expenses:
There were no marketing and sales expenses during this reporting period.
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Non-cash imputed compensation expense:
The Company issued 590,000 shares of common stock pursuant to several
consulting agreements and 30,000 shares of common stock to the Directors
for services rendered.
General Administrative Expenses:
General and administrative expenses not otherwise attributable to
product development and marketing expenses consist primarily of
compensation, fees for professional services, and other general
corporate purposes. General and administrative expenses incurred by the
Company through June 30, 1999 were $17,399. The Company expects general
and administrative expenses to significantly increase in future periods
as a result of, among other things, increased hiring and expansion of
facilities.
Interest Income:
There was no interest income through June 30, 1999
Liquidity and Capital Resources:
The Company's principal sources of liquidity were cash and cash
equivalents from its accounts. The following Capital Expenditures for
the period ending June 30, 1999 are as follows: The Company anticipates
a substantial increase in its capital expenditures in l999-2000 fiscal
period due to commencement of production on its first animation project
and its first film project. The Company is actively engaged in financing
activities to raise the necessary capital to begin production. The
Company's ability to grow will depend in part on the Company's ability
to expand its market penetration into the overseas market. In connection
herewith, the Company may need to raise additional capital in the
foreseeable future from public or private equity or debt sources in
order to avail itself of unanticipated opportunities. If additional
funds are raised through issuance of equity securities, the percentage
ownership of the Company's then existing shareholders will be reduced.
Moreover, shareholders may experience additional and significant
dilution, and such equity securities may have rights, references or
privileges senior to those of the Company's Common Stock. There can be
no assurances that additional financing will be available on terms
acceptable to the Company. The company may be unable to implement its
business, sales or marketing plan, respond to competitive forces or take
advantage of perceived business opportunities, which inability could
have a material adverse effect on the Company's business, prospects,
financial conditions and results of operations.
Item 8 - Financial Statements
Auditor's Report and financial statements
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UNITED NATIONAL FILM CORPORATION
AND SUBSIDIARY
(A Development Stage Enterprise)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page #
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Balance Sheets as of June 30, 1999 F-3
Statements of Operations
for the year ended June 30, 1999 F-4
Statements of Changes in Stockholders' Equity
for the years ended June 30, 1999 F-5
Statements of Cash Flows
for the year ended June 30, 1999 F-6
Notes to Consolidated Financial Statements F-7-11
F-1
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INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
United National Film Corporation
We have audited the accompanying consolidated balance sheet of United National
Film Corporation and Subsidiary as of June 30, 1999 and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years ended June 30, 1999 and 1998. 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 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 evaluating 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 United National Film
Corporation and Subsidiary as of June 30, 1999 and the results of its
operations, changes in stockholders' equity and cash flows for the years
ended June 30, 1999 and 1998 in conformity with generally accepted
accounting principles.
/S/Feldman Sherb Horowitz & Co., P. C.
FELDMAN SHERB HOROWITZ & CO., P.C.
Certified Public Accountants
New York, New York
October 7, 1999
F-2
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UNITED NATIONAL FILM CORPORATION
AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
JUNE 30,1999
ASSETS
CURRENT ASSETS:
Cash $ 912
TOTAL CURRENT ASSETS $ 912
FILM COSTS AND PRODUCTION RIGHTS 64,500
65,412
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued Expenses $ 5,000
Note payable 50,000
TOTAL CURRENT LIABILITIES 55,000
LOAN FROM SHAREHOLDER 1,500
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par, 3,000,000 shares
authorized, 100,000 shares issued and outstanding 1,000
Common stock - $.001 par, 30,000,000 shares
Authorized, 6,186,983 shares issued and outstanding 6,187
Paid in capital 205,313
Accumulated deficit (203,588)
TOTAL STOCKHOLDERS' EQUITY 8,912
$ 65,412
F-3
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UNITED NATIONAL FILM CORPORATION
AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year ending June 30
<S> <C> <C>
1999 1998
REVENUE $ 7,432 50,000
COST OF REVENUES 6,000 34,500
GROSS PROFIT 1,432 15,500
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 11,097 11,423
NON-CASH IMPUTED COMPENSATION EXPENSE 58,000 140,000
69,097 151,423
NET LOSS (67,665) (135,923)
BASIC LOSS PER SHARE (0.01) (0.03)
WEIGHTED AVERAGE SHARES OUTSTANDING 5,849,900 4,584,986
</TABLE>
F-4
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UNITED NATIONAL FILM CORPORATION
AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDING JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
January 6, 1998 -
Formation of Titus 100000 $1000 4000000 $4000 $(5000) $ 0 $ 0
Stock issued pursuant
To Exchange Agreement 0 0 61983 62 ( 62) 0 0
Stock issued for
Services 0 0 1400000 1400 138600 0 140000
Net loss 0 0 0 0 0 (135923) (135923)
Balance, June 30,1998 100000 $1000 5461983 $5462 $133538 $(135923) $ 4077
Stock issued for
Services 580,000 580 57420 58000
Stock issued pursuant
To agreement to acquire
Screenplays 145,000 145 14355 14500
Net Loss (67665) (67665)
Balance, June 30, 1999 100000 $1000 6186983 6187 205313 (203588) (8912)
</TABLE>
F-5
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UNITED NATIONAL FILM CORPORATION
AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDING JUNE 30
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (67,665) (135,923)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Non-cash imputed compensation expense 58,000 140,000
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable 4,682 318
Total adjustments 62,682 140,318
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITES (4,983) 4,395
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan from shareholder 1,500 0
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,500 0
NET INCREASE (DECREASE) IN CASH (3,483) 4,395
CASH AT BEGINNING OF PERIOD 4,395 0
CASH AT END OF PERIOD $ 912 4,395
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
During the period ended June 30, 1999 and 1998, the Company issued
580,000 and 1,400,000 shares of common stock, respectively, with a total
value of $58,000 and $140,000, respectively, in exchange for consulting fees.
See notes to consolidated financial statements
F-6
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UNITED NATIONAL FILM CORP. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS DESCRIPTION
United National Film Corp. and Subsidiary ("Company") is a Colorado
corporation. The Company through its subsidiary Titus Production, Inc.
("Titus") is engaged in the acquisition and development of properties for,
and the production of, television series, television specials, made-for-home
television motion pictures and feature length motion pictures for domestic
and international distribution.
In February 1998, pursuant to a stock purchase and exchange agreement, the
Company acquired all of the capital stock of Titus, a Nevada Corporation
formed on January 6, 1998 in exchange for 4,000,000 shares of common and
100,000 shares of preferred stock of the Company.
Prior to this, the Company had no operations. The acquisition of Titus is
being accounted for as a reverse acquisition under the purchase method of
accounting since the shareholders of Titus obtained control of the
consolidated entity. Accordingly, the merger of the two companies is recorded
as a recapitalization of Titus, with Titus treated as the continuing entity.
The historical financial statements presented are those of Titus.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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.
Film Costs and Program Rights:
Film costs and program rights ("project cost") which include acquisition and
development costs such as story rights, scenario and scripts, direct
production costs including salaries and costs of talent, production overhead
and post-production costs are stated at the lower of cost or market and are
deferred and amortized by the "individual-film-forecast-computation method"
as required by Statement of Financial Standards No. 53.
Fair Value of Financial Instruments:
The carrying amounts reported in the balance sheet for cash, accounts and
notes payable and accrued expenses approximate fair value based on the short
term maturity of these instruments.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
F-7
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Revenue Recognition:
The Company's business is to derive revenues primarily from providing
production services to third parties and exploiting projects originally
developed by the Company in which it retains an ownership interest. Revenues
from being a provider of contract production services are recognized using
the percentage of completion method, recognizing revenue relative to the
proportionate progress on such contracts as measured by the ratio which
project costs incurred by the Company to date bear to the total anticipated
costs of each project. Amounts advanced under such contracts are deferred
and not recognized as revenue until obligations under such contracts are
performed. Revenue from licensing company-owned projects is recognized when
the film is delivered and available for showing, costs are determinable,
the fee is known and collectibility is reasonably assured.
Income Taxes:
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities
using the enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
Net Loss Per Common Share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share",
which established new standards for computation of earnings per share. SFAS
128 requires the presentation on the face of the income statement of "basic"
earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income (loss)
available to common shareholders by the weighted average number of
outstanding common shares. The calculation of diluted earnings per share is
similar to basic earning per share except the denominator includes dilutive
common stock equivalents such as stock options and convertible debentures.
Common stock options and the common shares underlying the convertible
debentures are not included as their effect would be anti-dilutive.
Impairment of Long-Lived Assets:
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), during the period. SFAS 121 requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. The adoption of SFAS 121 did not impact the financial statements of
the Company.
Accounting for Stock Options:
The Company adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock Based Compensation". SFAS 123 encourages
the use of a fair-value-based method of accounting for stock-based awards
under which the fair value of stock options is determined on the date of the
grant and
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<PAGE>
expensed over the vesting period. Under SFAS 123, companies may, however,
measure compensation costs for those plans using the method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting for
Stock Issued to Employees." Companies that apply APB No. 25 are required
to include pro forma disclosures of net earnings and earnings per share as if
the fair-value-based method of accounting had been applied. The Company
elected to account for such plans under the provisions of APB No. 25
3. STOCKHOLDERS' EQUITY
The Company had authorized 800,000,000 shares of no par value common stock.
The Company had 466,928,742 shares of common stock issued and outstanding at
June 30, 1997. On February 5, 1998 the Company consummated a Stock Purchase
and Exchange Agreement with Titus under which the Company acquired Titus and
the previous shareholders of Titus obtained control of the Company. The
Agreement provided for the recapitalization of the Company through the
following transactions:
a. reverse split the common stock of the Company at the ratio of 1000:1;
b. issuance of 4,000,000 shares (post split) of common stock of the Company
to the shareholders of Titus.
c. issuance of 100,000 shares of non-voting convertible preferred stock
(convertible into common voting stock at the ratio of 20:1) to the
shareholders of Titus.
d. the issuance of 1,000,000 shares of common stock pursuant to several
consulting agreements, with such shares being registered in accordance with
the Securities and Exchange Act of 1933 on Form S-8.
The Company also issued 400,000 shares to various other consultants.
Accordingly, as a result of the reverse split, the acquisition of Titus and
issuance of common stock to the consultants total issued and outstanding
common shares were 5,461,983 at June 30, 1998.
Contemporaneously with the exchange transaction, the Company acquired and
canceled 404,950 shares of Company common stock held by two shareholders.
On February 10, 1998, the Company's shareholders approved an amendment to
the Company's certificate of incorporation to increase the authorized number
of common shares from 800,000 to 30 million and preferred shares to 3 million.
The par value is $.001 per share for common stock and $.01 per share for
preferred stock.
On February 10, 1998, the Company designated the 100,000 shares of issued
preferred stock, par value $.01, and "Series A Convertible Voting Preferred
Stock" (the "Series A Preferred Stock"). The Series A Preferred Stock has
no dividend rights. The holders have the right to convert each share of
Series A Preferred Stock into 20 shares of common stock. Accordingly, each
share of Series A Preferred Stock is entitled to 20 votes.
In September 1998, the Company entered into an agreement to purchase the
distribution rights to a screenplay titled, "Molly and Lawless John" from
an unrelated third party for 40,000 shares of the Company's common stock,
valued at $.10 per share, and $50,000.
F-9
<PAGE>
In November 1998, the Company's Board of Directors approved the issuance of
580,000 shares of common stock, which included 30,000 shares to the Company's
three directors to various consultants for services rendered during the year.
These shares have been valued at $.10 per share and have been accounted for
as non-cash compensation expense.
In March 1999, the Company entered into an agreement to purchase a screenplay
titled "Special Intent" (originally titled "Winner Take All") from Winner
Take All Ltd. ("WTA"), a California Partnership, in exchange for 105,000
shares of the Company's common stock. These shares have been valued at $.10
per share and have been used in computing the basis for the acquisition.
The CEO of the Company is also a general partner of WTA.
5. STOCK OPTION PLAN
In February 1998, the Company adopted an incentive stock option plan pursuant
to which qualified and non-qualified stock options up to an aggregate of
1,000,000 shares of common stock will be made available to selected
employees, consultants, officers and directors. Options may be either
incentive stock options or non-qualified stock options, except that only
employees may be granted incentive stock options. Options vest at the
discretion of the Board of Directors. The maximum term of an option is ten
years. The 1998 Stock Option Plan will terminate in February, 2008, though
options granted prior to termination may expire after that date. In Fiscal
1998, there were no grants or vesting of stock options. In Fiscal 1999,
compensation cost for the Stock Option Plans has been determined based on
the fair value at the grant dates for awards under the Stock Option Plans,
the Company's net loss and net loss per share would have increased to the
pro forma amounts indicated below:
Fiscal 1999
As Pro
Reported Forma
Net loss $ (67,665) $(71,665)
Basic and diluted net loss per share $ (0.01) $ (0.01)
The fair value of each option grant is estimated on the date of grant using
the Black Scholles option-pricing method with the following weighted average
assumptions used for grants in 1999: dividend yield 0%, expected volatility
50.0%, risk-free interest rate 5.70%, expected life in years 5.
The weighted average fair value of stock options granted during the year
ended June 30, 1999 was $0.04.
A summary of the status of the Stock Option Plans at June 30, 1999 and 1998
and the changes during the years then ended is presented below:
1999 1998
Weighted Weighted
Shares Average Shares Average
Underlying Exercise Underlying Exercise
Options Price Options Price
Outstanding at beginning of year - - - -
Granted 500,000 $ 0.17 - -
Exercised - - - -
Outstanding at end of year 500,000 $ 0.17 - -
Exercisable at end of year 500,000 $ 0.17 - -
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5. FILM COSTS AND PROGRAM RIGHTS
Components of film costs and program rights consist of the following:
June 30, 1999
Screenplays $ 64,500
5. NOTE PAYABLE
Pursuant to the acquisition of the screenplay titled, "Molly and Lawless
John", a note was issued for $50,000 which was due on January 15, 1999. Terms
of the note are currently being renegotiated.
6. LOANS TO SHAREHOLDER
In April 1999, a non-interest bearing loan was made to the Company from the
Chief Executive Officer in the amount of $1,500.
7. INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). Adoption of this statement
did not have a material effect of the Company's financial statements. SFAS
109 requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the financial statement and tax
basis of assets and liabilities, and for the expected future tax benefit to
be derived from tax loss and tax credit carry forwards. SFAS 109 additionally
required the establishment of a valuation allowance to reflect the likelihood
of realization of deferred tax assets.
Years ended June 30,
1999 1998
Statutory federal income tax (benefit) $ (22,000) $ (48,000)
Effect of permanent difference 20,000 48,000
(Benefit) not recognized (2,000) -
Tax provision $ - $ -
The Company has no tax loss carry forwards as of June 30, 1999.
8. JOINT VENTURE AGREEMENT
In June 1999, a joint venture agreement was entered into with the Company
known as "Animation and Effects" to produce a series entitled "Snappy Sings".
The joint venture will own all the rights to "Snappy Sings", including all
copyrights. Ten per cent (10%) of future revenues will go to Animation and
Effects and ninety per cent (90%) of future revenues to the Company until
the sum received by the Company equals the amount advanced by the Company.
Thereafter revenues will be shared forty per cent (40%) to Animation and
Effects and sixty per cent (60%) to the Company. The Company plans to
finance this production through a private placement, a partnership, a
Limited Liability Company, or a loan. This agreement is subject to the
ability of the Company to finance the project.
F-11
<PAGE>
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
PART II.
Directors and Executive Officers:
The company has obtained a team of seasoned executives in the
entertainment industry. The management team is comprised of Mr. Deno
Paoli, as Chairman and Chief Executive Officer. Mr. Paoli has over 30
years of experience in the film industry as a producer and director and
has held senior executive management positions. Mr. Paoli served as
producer of the film "Code Name Zebra" by Pacific West Cinema Group;
served as President of Vagabond Productions, Inc. which produced such
films as "Santee" with Glenn Ford, and served as producer and director
with World Production. Mr. Paoli served as President of Variety
International Pictures, Inc. where he was responsible for all company
business including film production and distribution.
Mr. Arthur Stashower will serve as President and Chief Operating Officer
of the Company. Mr. Stashower is an attorney who has spent his entire
career of over 40 years practicing in the entertainment industry. He
served as an executive in the television industry as well as with United
Artists Corporation. He has also been an executive in a talent agency.
In his law practice Mr. Stashower has represented individuals and
companies involved in all aspects of the entertainment industry,
including actors, directors, writers, producers, production companies,
foreign sales agencies and others. He has been production counsel for
numerous motion pictures, movies of the week and mini series. Mr.
Stashower is a graduate of the University of Michigan and received both
his undergraduate and law degrees there, graduating from the prestigious
University of Michigan Law School as a member of the Order of the Coif
and in the top 5% of his class.
The third member of the management team is Mr. Peter D. Finch who is
Vice President and Chief Financial Officer. Mr. Finch will be
responsible for all financial aspects of the Company. He will work
closely with the Company auditors of Feldman Sherb Horowitz & Co., P.C.
of New York. Mr. Finch attended UCLA majoring in Math Physics and San
Diego State University where he received a degree in Accounting. Mr.
Finch served in the U.S. Army as a Captain with services in Southeast
Asia working on Classified Warfare Missions. Returning to civilian life
he worked as a manager in the audit department of Arthur Young & Company
and supervised audits of Fortune 1000 companies. Since 1978 he has
worked in private practice providing business, tax and computer advice
to various corporations.
Item 11 - Executive Compensation
During the fiscal reporting year applicable hereto, the Company has not paid
any salary to its officers. Arthur Stashower has been granted options to
21
<PAGE>
purchase 500,000 shares of common stock in the Company. The rights to these
options will vest in accordance with his employment agreement. The effect
on the Company is discussed in Financial Footnote number 5. Directors do
not receive compensation for their services as Directors but may be
reimbursed for their expenses in attending Directors meetings.
Item 12 - Security Ownership of Management
The following table sets forth, as of the date of this report, the stock
ownership of each officer and director individually and all directors and
officers of the Registrant as a group.
Mr. Deno Paoli 2,000,000 36.6%
Ms. Jody Mortara 1,000,000 18.3%
Mr. Ted Mortarotti 1,000,000 18.3%
As a Group 4,000,000 73.2%
Item 13. Related Transactions, Changes in Securities.
On February 10, 1998, the Company entered into a Stock Purchase and Exchange
Agreement with Titus Productions, Inc. ("Titus") et al. which provided for the
recapitalization of the Company through the adoption of a resolution to:
a) reverse split the common stock of the Company at the ratio of 1000:1;
b) issue 2,000,000 shares (post split) of the Company to Mr. Deno Paoli and
issue 2,000,000 shares (post split) of the Company to Mr. Ted Mortarotti and
Ms. Jody Mortara in equal proportions;
c) issue 50,000 shares of non-voting convertible preferred stock
(convertible into common voting stock at the ratio of 20:1) to Mr. Deno Paoli
and issue 50,000 shares of non-voting convertible preferred stock
(convertible into common voting stock at the ratio of 20:1) to Mr. Ted
Mortarotti and Ms. Jody Mortara in equal proportions;
d) acquire 1,000,000 shares of Titus Productions, Inc. (being all of the
issued and outstanding shares of Titus);
e) acquire all of the common voting shares of the Company owned by Mr.
Conrad Sprenger and Mr. Richard L. Bare and cancel such shares at no cost to
the Company; and
f) issue and register 1,000,000 shares of common voting stock to Donald R.
Yu et alia pursuant to the provisions of a Consulting Agreement and in
accordance with the Securities and Exchange Act of 1933 on Form S-8.
Pursuant to the Agreement, the Company acquired all of the capital stock of
Titus and the common voting shares of Mr. Conrad Sprenger and Mr. Richard L.
Bare in exchange for the distribution of the shares to Mr. Deno Paoli and Ms.
Jody Mortara. After the exchange, Mr. Deno Paoli owned approximately
36.6% of the issued and outstanding shares of the Company. Mr. Ted Mortarotti
and Ms. Jody Mortara each owned approximately 18.3% of the issued and
outstanding shares of the Company.
Following the completion of all of the foregoing transactions, the number of
shares outstanding of the issuer's Common Stock was 6,186,983.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Exhibits
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<PAGE>
None
(b) Financial Statement Schedules
None
(c) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED NATIONAL FILM CORP.
By: /s/ Deno Paoli
President
Date: October 13, 1999
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1999 OF UNITED
NATIONAL FILM CORPORATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 913
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 913
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,413
<CURRENT-LIABILITIES> 55,000
<BONDS> 0
0
1,000
<COMMON> 6,187
<OTHER-SE> 1,725
<TOTAL-LIABILITY-AND-EQUITY> 65,413
<SALES> 7,432
<TOTAL-REVENUES> 7,432
<CGS> 6,000
<TOTAL-COSTS> 6,000
<OTHER-EXPENSES> 69,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> ( 67,665)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 76,665)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
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