SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB(A)
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1996
Commission File number: 33-41063-A
ART, MUSIC & ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2960590
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State or Other Jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
4400 W. Sample Road, Suite 140, Coconut Creek, FL 33073
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(Address of principal Executive Offices Zip Code)
Registrant's telephone number, including area code:(954-971-9100)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, $.001 Par Value per Share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( ) No (X)
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $631,395
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Transitional Small Business Disclosure Format:
Yes X No
----- -----
As of December 31, 1996, 3,641,801 shares of common stock and 206,467 shares of
preferred stock were outstanding. The aggregate market value of the Stock held
by non-affiliates of Art, Music & Entertainment, Inc. was none.
Documents incorporated by reference: (1) The Company's Registration
Statement on Form S-18 (33-41063-A).
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Part I
Item 1. Business.
General
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Art, Music & Entertainment, Inc., ("the Company" or "AM&E") a Florida
corporation was organized in May 25, 1988 as Cornerstone Capital, Inc. and the
name was changed on September 22, 1990 to Chatham International, Inc. It
completed an initial public offering which commenced on November 14, 1991,
comprised of 16,268 shares of Common Stock and One Zero Coupon U.S.
Treasury-Backed Obligation ("USTBO") with a maturity value of $1,000 at a price
of $1,000. The Registrant offered a maximum of 3,000 units and a minimum of 75
units on a best efforts basis. The underwriter for the offering was Boe and
Company formerly known as SBV Securities, Inc. A total of 98 units was sold and
net proceeds were $67,770. The Company closed its offering May 14, 1992.
The Company intended upon completion of the public offering, to commence
operations as an export management company and provide a range of business
services and assistance to manufacturers desiring to do business in foreign
markets. The Company was unsuccessful in its efforts. The Company is presently
in the developmental stage.
Description of Company
- ----------------------
Art, Music and Entertainment, Inc. (AM&E) is a company focused on the
interrelated business areas of art, music and entertainment.
In April 1996, Art, Music and Entertainment merged with Chatham International,
Inc. Chatham had acquired over 2,000 hours of television air time consisting of
6 hours per day from 12:00 A.M. to 6:00 A.M., 7 days per week plus one promotion
hour on Friday and Sunday evenings for 365 days on the American Independent
Network. The companies merged in order to combine the products of AM&E with the
television marketing possibilities of Chatham International, Inc. The Company
changed its name to Art, Music and Entertainment, Inc. on April 5, 1996.
As of December 31, 1996, the company has 3,641,801 shares of common stock
outstanding, with no warrants or options outstanding, and 206,467 shares of
preferred stock.
The Company's primary revenue activity in 1997 is expected to be generated by
the use of its unique products, the ticket sales for the 1997 Annual Award
ceremony, and sale of its variety of unique and exclusive products to large
wholesalers, and the licensing of current musical and video inventory to
wholesale and retail distributors. A contract for the purchase of art from the
current inventories of the International Jazz Hall of Fame Production Company
exists with an Oriental wholesale distributor from China, which purchased
$325,148 worth of art during 1996 and has plans for additional purchases in
1997. The first order was shipped in December 1996.
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The Company utilized most of 1996 to further develop its business plan and
acquire the following companies, and develop business plans of each. All
subsidiaries were acquired under a stock exchange agreement which utilized a
$10.00 per share value for its stock.
a. International Jazz Hall of Fame Production Company, Inc. - 3/1/96
b. Marin Movies, Inc. - 3/5/96
c. Classical Music Collection, Inc. - 3/5/96
d. Octopus Entertainment, Inc. - 3/5/96
e. Spellbinder Productions, Inc. - 3/5/96
On March 5, 1996, the Old AME entered into an Agreement and Plan of
Reorganization with the International Art Group, Inc., ("Art Group") under the
terms of which the Old AME acquired all of the outstanding capital stock of Art
Group in exchange for 486,754 shares of Class H Convertible Preferred Stock of
the Old AME. Art Group is not conducting operations and is reportedly the owner
of an exclusive license from the government of the United States to publish and
distribute the only official artwork to commemorate the Quincentennial (500th
anniversary) of the discovery of America. In December 1996, the Company and the
former shareholder of International Art Group, Inc., rescinded and canceled the
merger, and 486,754 shares of the Company's Class H Preferred Stock issued to
effect the merger were returned to the Company. Revenues of $140,400 from sales
of certain of the artwork during 1996 remain with the Company.
Old AME executed an Agreement and Plan of Reorganization on March 1, 1996 with
the International Jazz Hall of Fame Production Co. Inc. ("Jazz"). The terms of
the agreement provided for the Old AME to acquire all of the outstanding common
shares of Jazz in exchange for 44,666.68 common shares and 22,807 Class I Voting
Convertible Preferred Shares of the Old AME. Jazz was conducting operations and
is the owner of lithographs of certain jazz artists. During 1996, the Company
realized $184,748 from sales of the jazz lithographs, and $29,247 from its
production of a Jazz Hall of Fame induction ceremony. In January 1997, the
Company and the Class I Convertible Preferred Shareholders agreed to exchange
such convertible preferred stock for 230,000 shares of the restricted common
shares of the Company, which shares were issued in October 1997.
On March 5, 1996, the Old AME signed an Agreement and Plan of Reorganization
with Marin Movies, Inc. ("Marin"). The provisions of the agreement provide for
Old AME to acquire all of the outstanding common stock of Marin in exchange for
2,800 shares of Class G Convertible Preferred Stock of the Old AME. Marin is not
conducting operations and is the owner of master videos of 300 public domain
movies. In January 1997, the Company and the Class G Convertible Preferred
Shareholders agreed to exchange such convertible preferred stock for 28,000
shares of the restricted common shares of the Company, which shares were issued
in October 1997.
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An Agreement and Plan of Reorganization with Classical Music Collection, Inc.
("Classical") was executed by the Old AME on March 5, 1996. Under the terms of
the agreement the Old AME acquired all of the outstanding common stock of
Classical in exchange for 11,333.34 of the Old AME's common shares and 1,760 of
the Old AME's Class F Voting convertible Preferred shares. Classical is not
conducting operations and is the owner of certain master music recordings. In
January 1997, the Company and the Class F Convertible Preferred Shareholders
agreed to exchange such convertible preferred stock for 7,967 shares of the
restricted common shares of the Company, which shares were issued in October
1997.
All of the outstanding common stock of Octopus Entertainment, Inc., ("Octopus")
was acquired by the Old AME on March 5, 1996 under an Agreement and Plan of
Reorganization of same date. The outstanding common stock of Octopus was
acquired for 1,000 Class E Voting Convertible Preferred Stock of the Old AME.
Octopus is not conducting operations and its sole assets are the ownership of
two trade names and certain "big-band" sheet music. In January 1997, the Company
and the Class E Convertible Preferred Shareholders agreed to exchange such
convertible preferred stock for 10,000 shares of the restricted common shares of
the Company, which shares were issued in October 1997.
Also on March 5, 1996, the Old AME executed an Agreement and Plan of
Reorganization with Spellbinder Productions, Inc. ("Spellbinder"), under which
the Old AME acquired all of the outstanding common stock of Spellbinder in
exchange for 9,533.34 common shares and 100,600 Class C Voting Convertible
Preferred shares of the Old AME. Spellbinder is not conducting operations, and
its sole asset is the music and related hardware for a music and illusionary
show copyrighted in 1990. In January 1997, the Company and the Class C
Convertible Preferred Shareholders agreed to exchange such preferred stock for
100,000 shares of the restricted common shares of the Company, which shares were
issued in October 1997.
The Company renegotiated in January 1997 with the former owners of the various
assets acquired by the respective classes of convertible preferred stock,
culminating in October 1997 with the exchange of all of the classes of issued
preferred stock for restricted common shares of the Company. The number of the
restricted common shares issued for each class of preferred shares is as
follows:
Retired Class G Preferred for 28,000 shares of common
Retired Class I Preferred for 230,000 shares of common
Retired Class F Preferred for 7,967 shares of common
Retired Class E Preferred for 10,000 shares of common
Retired Class C Preferred for 100,000 shares of common
Retired Class A Preferred for 380,000 shares of common
In addition, the Company agreed with the Class C Convertible Preferred
Shareholders to fund the project represented by such shares with $1,800,000 and
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also agreed to pay annual royalties for five years ranging from 5% to 10% of the
gross revenues derived from the project. The royalties are capped at a maximum
of $8,000,000.
Television Broadcast Time
- -------------------------
The Parent Company, AM&E is focusing its primary operations in 1997 on
television program broadcast time through the sale and utilization of 54,913 -
30 second commercial spots which AM&E owns. AM&E acquired six hours per day of
broadcast time from midnight to six a.m., 7 days per week plus one promotional
hour on Friday and Sunday evenings for 365 days on the American Independent
Network ("AIN").
AIN is one of the largest networks in the country based on the number of
stations to which they are broadcasting. By the summer of 1997 AIN plans to be
broadcasting its programming on approximately 200 stations to close to 40
million households. AM&E intends to create revenue by selling its commercial
spots and its time slots for programming.
The current price for these national 30 second advertising spots is
approximately $900 per 30 seconds. The Company has over 54,913 of these
available in calendar 1997. Half hour time slots, which can be used for
programming and infomercials, are priced at approximately $10,000 and the
company has over 4,400 of these slots available to utilize or sell.
The Company plans on utilizing a portion of this air time to sell its own
products from its subsidiaries, Octopus Productions, Marin Movies, IJHFPC, and
Classical Music. Each subsidiary has products that the Company intends to sell
using this air time and its ability to reach large groups of consumers
repeatedly. AM&E will use familiar television marketing techniques for product
promotion and sales.
AM&E, through its relationship with AIN, expects to expand its broadcast
coverage using its thousands of hours of programming owned by subsidiaries. This
large exclusive library is expected to be a valuable resource year after year
through rebroadcasting of the same programming. (See description in
"Subsidiaries" section).
Subsidiaries
------------
1. The Company's International Jazz Hall of Fame Production Company
("IJHFPC") completed its annual awards ceremony in Tampa, Florida on June 13-14,
1996, with dozens of famous Jazz Giants in attendance, including Al Jarreau,
Wynton Marsalis, James Moody, Steve Allen, Lionel Hampton, Rosemary Clooney, and
the Count Basie Orchestra to mention a few. The video production from this
annual event is being completed. The broadcast quality production is expected to
air on television in late 1997 or early 1998.
The IJHFPC has an exclusive 20 year contract with the Charlie Parker Foundation
and the International Jazz Hall of Fame to package and market its jazz
recordings, videos, jazz festivals, cruises, and signed and numbered, limited
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edition lithographs of famous jazz artists. These products will be marketed
through traditional channels, membership development, Internet sales and
television advertising.
2. Spellbinder Productions, Inc. is a production company whose purpose is
to market the Spellbinder musical extravaganza on a world wide tour beginning in
Japan. The show consists of all original music, illusion, pyrotechnics and
choreographed special effects that are closely woven into the Spellbinder tale
of mystery and magic. A trial single show in Las Vegas, had a sold out audience
of 7,000 people. The principals involved have worked with international
performing artists.
3. Classical Music Collection, Inc. is the brainchild of John Allen and
Gareth Harris, each with extensive experience in the recording business. They
have hand-picked what they consider to be the finest collection of classical
music performances by some of the acknowledged world's masters from the public
domain for packaging. Over 200 major classical works on 100 compact discs will
be marketed through a unique, and tested, networking marketing program.
4. Marin Movies, Inc. possesses a film library of more than 300 classic
motion picture titles in the public domain. Sound and picture quality have been
remastered, making this entire library reproducible onto video tape. Broadcast
quality is excellent and syndication to cable operators, networks and
independent television stations is planned within the next four years.
5. Octopus Entertainment, Inc. has exclusive jazz recordings for 5 CD's
using some of the country's top performers. Downbeat Award winner Nick Brignola,
Music Director for the Joan Rivers Show, Howard Shear, recording artists Jeff
Berlin and Kenny Drew Jr., and others make this 8 piece group a recognizable
powerhouse in the jazz world.
The Company has unreleased jazz recordings, videos and art which have not yet
been made available to the public. Although there is no guarantee that the sales
of these products will be successful, the Company believes that the products are
of the highest quality and that they represent the type of products which can be
successfully sold with traditional marketing techniques.
Description of Individual Subsidiaries
--------------------------------------
SpellBinder Productions, Inc.
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Spellbinder has a rock & roll musical event show design and script that presents
a new Rock & Roll Band playing original material, with the theatrical illusions,
in a rock and roll concert setting. The imagery, costumes, and music are
presented by actors and musicians to entertain the audience.
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The story centers around the "The SpellBinder" who possesses magical powers
which he uses to fight the evil black magic of his arch enemy, "Blackthorn the
Sorcerer." While the war between good and evil rages on stage, the band tells
the story through its original emotionally charged songs. Perhaps the most
innovative ingredients in this magnificent show are the spectacular magical
illusions involving exotic animals and pyrotechnics, which are choreographed to
flow with the rhythm of the music. The Company believes that this blend of
dramatic theater, high energy rock & roll music and magical illusions will
present "Spell Binder" as the newest genre of live theater.
In a trial run, a smaller concept version of the show titled "Sorcery" was
performed at the Aladdin Hotel in Las Vegas. The show drew a sold out crowd of
seven thousand people and earned its investors over $90,000.00 in one night.
Paul Haynes, creator and star of the show, is also co-founder with partner Ken
Whitaker, of "Creative Illusions", a Las Vegas based company engaged in the
design, development and building of original illusions for professional
magicians and illusionists such as David Copperfield, Siegfried & Roy, and
Tiffany, and countless magicians around the world.
Instead of attempting to break into the American market first, the SpellBinder
marketing plan calls for the worldwide tour to begin in Japan in the first
quarter of 1998, then continue the tour in Europe, and eventually culminating in
the U.S.; but only after having won worldwide recognition. While on tour in
Japan and Europe, use of publicity and promotion should provide recognition for
SpellBinder in America. Japan was chosen to begin the tour because of the
previous success of the Siegfried and Roy Japanese Tour several years ago.
Although well known in Las Vegas, they were virtually unknown in Japan. However,
the Japanese people's interest in magic and illusion overcame lack of name
recognition.
Spellbinder produced no revenues in 1996.
Classical Music Collection, Inc. ("CMI")
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Classical Music Collection is a compilation of over 200 major classical public
domain works presented on 100 compact discs. The Company will only accept
recordings and performances of the highest quality, and will produce on its own
label, some of the greatest orchestras, musicians and vocalists of all time.
Containing music such as Herbert Von Karajan and the Berlin Philharmonic
Orchestra's legendary performances of Beethoven's nine symphonies and Luciano
Pavarotti's unrivaled performance in Puccini's La Boheme, the Classic Collection
is created with the new listener as well as the classical lover in mind.
The Company has designed a multi-level network marketing program unique in the
industry, and gives an incentive to organizations within the classical
fraternity to endorse its product to their members. Early market tests for CMI's
Network program have indicated that the Company may be able to market CMI
products using this system.
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The Company's management team is headed up by John Allen and Gareth Harris. John
has been in the record business since 1969, working with major record companies
such as Columbia (EMI), RCA and Polygram. They have produced, managed and/or
promoted a multitude of artists as varied as "Dionne Warwick" and "The Crystals"
to "Patrick Moraz (Moody Blues)" and Tommy Makem and Liam Clancy".
Both John Allen and Gareth Harris have had extensive experience within the
fields of production and marketing of classical music. They have been jointly
responsible for production of over a hundred classical titles, with John Allen
as Executive Producer and Gareth Harris as the Managing Director of one of the
largest record companies of the world, BMG/RCA.
Classical Music Collection produced no revenues in 1996.
International Jazz Hall of Fame Production Company, Inc. ("IJHFPC")
- -------------------------------------------------------------------
IJHFPC was created to be the exclusive marketer of records, CD's, videos,
memorabilia, etc. for the Charlie Parker Memorial Foundation and the
International Jazz Hall of Fame.
The Company is the exclusive producer of all Hall of Fame Induction Ceremonies
and Lifetime Achievement Awards as well as Jazz festivals and tributes (ex.
Basie, Armstrong, Lionel Hampton) on a national basis. The Company's
International Jazz Hall of Fame Production Company (IJHFPC) completed its annual
awards ceremony in Tampa, Florida on June 13-14, 1996 with many famous
performers in attendance, including presenters, Al Jarreau and Wynton Marsalis.
Steve Allen was the Master of Ceremonies.
Awards presented at this past year's International Jazz Hall of Fame included
Dave Brubeck, Ray Brown, Benny Carter, Rosemary Clooney, Lou Donaldson, Harry
"Sweets" Edison, Frank Foster, Al Grey, Lionel Hampton, Al Hirt, Illinois
Jacquet, Milt Hinton, and James Moody. Posthumous awards were presented included
Julian "Cannonball" Adderley, Caleb "Cab" Calloway, Paul Desmond, Billy
Eckstine, Stan Getz, Billie Holiday, Charles Mingus, Jack Teagarden, Sara
Vaughan, and Dinah Washington.
IJHFPC has created and is in possession of approximately 4,500 hand-signed
lithographs commemorating the jazz greats, including a tribute to Lionel Hampton
and his Golden Men of Jazz and the Frank Sazz's lithograph of Count Basie, with
a potential market value of over $2.5 million.
The IJHFPC has an exclusive 20 year contract with the Charlie Parker Foundation
and the International Jazz Hall of Fame to package and market its jazz
recordings, videos, jazz festivals, cruises and art. These products will be
marketed through traditional channels, membership development, Internet sales
and television advertising.
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The Company is presently negotiating with the cities Tampa as well as other
cities in Florida to construct and manage a new IJHF facility. This will be
developed as a tourist attraction (similar to the Rock & Roll Hall of Fame in
Cleveland).
IJHFPC produced $214,000 in revenues in 1996.
Marin Movies, Inc.
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Marin Movies possesses a catalog of more than 300 public domain classic motion
picture titles. It contains features, shorts, classic television shows,
westerns, documentaries, foreign films, and cartoons, including some of the
finest films ever made. The sound and picture quality have been re-mastered with
modern technology to create prints formatted for television as "first generation
masters", that are better than the originals. (First generation masters are
reproducible, making this library superior to 99% of the libraries of this type
in existence).
The catalog contains cartoons such as Betty Boop, Mighty Mouse, Little Lulu,
Woody Woodpecker, Popeye, Felix the Cat; Children's Features such as Our Gang
Comedy, Heidi, The Inspector General, Long John Silver and Feature Films that
include Birth of a Nation, Beneath the Twelve Mile Reef, Africa Screams, His
Girl Friday, The Man With the Golden Arm and many, many more.
In today's marketplace this catalog has earning power from two markets.
Initially, this catalog enables AM&E to have sufficient programming for a
startup television network. Typically, in syndication, smaller cable networks
may pay up to $5,000 for the rights to air a program twice on a non-exclusive
basis. Therefore, the same program can be syndicated to many cable operators,
networks and independent television stations in the Untied States and abroad.
The secondary market is home video, for which these films can either be licensed
or a complete line of home video tapes can be put out by AM&E.
Syndication rights are estimated to generate revenues and home video rights are
expected to generate revenues within the first four years, and AM&E will have
all of these titles available for programming at its disposal. This important
catalog can continue to earn AM&E revenue for decades to come.
Marin produced no revenues in 1996.
Octopus Entertainment, Inc.
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Octopus Entertainment, Inc. has an exclusive product line. The primary asset
consists of the Octopus Jazz recording series. The Octopus Group was formed with
the idea of becoming the world's greatest jazz octet utilizing such talent as
the Downbeat Award winner Nick Brignola, Howard Shear, who was the past music
director for the Joan Rivers Show, Kenny Drew, Jr., who was the winner of the
1990 Great American Piano Competition, Jeff Berlin, who was previously bassist
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with the group Yes, and Kendall Kay, a world renowned percussionist, among
others. Each performer has extensive recording and concert experience. The music
consists of all original arrangements which are exciting and fresh and yet
center primarily on jazz and popular music standards. All arrangements are by
Howard Shear who has written music for many movies.
A twelve CD series is planned with five already recorded and near completion.
Sales per CD are expected to top 100,000 copies each, with 3 CD's to be released
in late 1998. The first year of the planned 5 year marketing campaign will begin
in late 1997 or early 1998.
Octopus produced no revenues in 1996.
Services
- --------
None.
Competition
- -----------
The Company will be in competition with many companies of much greater
experience, financial resources, and long established businesses in the music
and entertainment industry. Art, Music & Entertainment, Inc. has unique
products, however, they are also products which must compete in their respective
markets. Although many companies produce and sell similar products to those of
AM&E, there are no competitors with identical products.
Employees and Consultants
- -------------------------
The Company presently has no paid employees, and its Chairman of the
Board/President, Norman Brander and Secretary, Sheryl B. Salvadore serve on an
as needed basis. These officers intend to devote only such time as necessary to
the business affairs of the Company. Norman Brander and Sheryl B. Salvadore are
not paid employees of the Company, however Mr. Brander has a contract for his
consulting services at $2,000 per month from June 1, 1996. Additional services
and staff were provided on an as needed basis by Norman Brander and Volume
Cruises, Inc. (Mr. Brander's company), at a charge of $20,000 per month from
June 1, 1996.
Blackhawk Financial Group, Inc. provides business consulting services to the
Company to acquire properties and assets, and to assist in business promotion.
David B. Howe is the principal of Blackhawk. The contract provides for Blackhawk
to receive $12,500 monthly for its services. The contract commenced June 1,
1996, and is terminable on notice.
Presently, none of the officers receive salaries (except consulting fees paid
Mr. Brander), however, they are reimbursed for their expenses incurred in their
services as officers. There is no provision for any additional bonuses or
benefits. The Company anticipates that in the near future it may enter into
employment agreements with its officers. Although Directors do not receive
compensation for their services they may be reimbursed for expenses incurred in
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attending Board meetings. The officers and directors did not receive salaries
during 1996. Norman Brander has a bonus royalty compensation agreement based
upon sales of products consisting of 1% of sales from the Jazz Hall of Fame. No
monies have yet been paid to Mr.
Brander under such royalty agreement.
Item 2. Properties.
The Company maintains its corporate office at 4400 W. Sample Road, Suite 140,
Coconut Creek, FL 33073 under a contract arrangement with the Company's
President, Norman Brander and Volume Cruises, Inc. This space is deemed adequate
for the foreseeable future.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders within period covered by
this report, through solicitation of proxies or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The outstanding registered securities of Art, Music & Entertainment, Inc. are
not now presently traded on any exchange.
Common Stock Common Stock
1995 Bid High Bid Low
- ----------------------------------------------------------------
1st Quarter n/a n/a
2nd Quarter n/a n/a
3rd Quarter n/a n/a
4th Quarter n/a n/a
Common Stock Common Stock
1996 Bid High Bid Low
- ----------------------------------------------------------------
1st Quarter n/a n/a
2nd Quarter n/a n/a
3rd Quarter n/a n/a
4th Quarter n/a n/a
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The Company anticipates its shares will trade over the counter by market makers
who have not as yet quoted a specific bid or ask price. Quotations, if made,
represent only prices between dealers and do not include retail markups,
markdowns or commissions and accordingly, may not represent actual transactions.
The Company estimates that as of December 31, 1996, there are approximately 87
stockholders of the Company's shares.
No dividends have been declared or paid by the Company and the Company presently
intends to retain all future earnings, if any, to finance the expansion and
development of its business.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Condition
- -------------------
During fiscal year 1996, the Company continued to be a development stage entity
but posted some sales and revenues.
Financial Condition and Changes in Financial Condition
- ------------------------------------------------------
Start up business operations were conducted and $631,395 in revenues were
generated in the fiscal year 1996. No revenues were generated in 1995 or 1994.
The Company at year end had $12,365 in cash compared with $514 in cash at
December 31, 1995, compared with $219 at December 31, 1994. The Company at year
end needed cash from sales of products or television ad time to provide capital,
or loans from any sources, for significant business growth in its chosen
business areas.
On April 5, 1996 the Company entered into a merger agreement with an entity
having the name of Art, Music, and Entertainment, Inc., and changed its name
from Chatham International, Inc. to Art, Music and Entertainment, Inc. Under the
terms of the agreement, the Company was the surviving entity and it issued on a
one for one basis, 66,533 common and 615,721 preferred shares for the similar
outstanding shares of the merged entity. Further, the preferred shares issued by
the Company in connection with the merger bear the same designations, rights,
and preferences as those of the merged entity. For financial statement purposes,
the merger was accounted for as of March 31, 1996 as a purchase. Also, for
financial reporting purposes, the acquisitions discussed below, all of which
were acquired on March 1 and 5, 1996, respectively, were accounted for as a
purchase by Art, Music & Entertainment, Inc., ("Old AME").
The Company issued preferred shares of various classes to acquire companies with
assets. In 1997 all preferred stock was cancelled and common shares were issued
in lieu thereof.
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Assets acquired are as follows (with values ascribed by management):
Pre-paid television time $4,584,850
Jazz Artists Lithographs 2,178,272
----------
Sub-total 6,763,122
Public domain movies 60,000
Music recordings 140,000
Trade names & sheet music 10,000
Illusionary show (Spellbinder) 78,000
----------
Sub-total 288,000
Total $7,051,122
==========
These items are treated as unrealized assets under the accounting prescribed in
Staff Accounting Bulletin 48, and a reduction in shareholders equity has been
taken in the "Shareholders Equity" section of the Balance Sheet for the
$6,763,122 while the $288,000 of value of Spellbinder ascribed by management was
not recognized because the valuations were not adequately supported.
The foregoing items were acquired by the Company by the issuance of common and
various classes of preferred stock (which preferred was subsequently cancelled
and common stock was substituted therefore). The values assigned to each item
represent a combination of carrying cost, an estimate by management, and
valuation by an industry knowledgeable person. Management believes that the
values assigned are reasonable.
Liquidity and Capital Assets.
- -----------------------------
The Company's primary source of liquidity since inception has been from funds
raised during its initial capitalization and sales. In 1996 the Company's cash
position increased from $514 as of December 31, 1995 to $12,365 at December 31,
1996. The increase in cash resulted primarily from sales of art and television
advertising time. The Company acquired intangible assets, art, and music and
entertainment rights, through its acquisition of subsidiaries. The liquidity of
such assets is questionable without significant investment in advertising.
Results of Operations 1996 compared to 1995
- -------------------------------------------
$631,395 in revenues were generated in 1996 compared to none in 1995.
Expenses consisted of $20,000 in doubtful amounts, consulting, management fees
and overhead reimbursement of $321,073, $14,542 in advertising 7,956 in rent,
$11,211 in telephone expenses and legal and accounting of $30,101. Cost of sales
was $263,959 and gross profit was $367,436. In 1995 expenses consisted of rent
of $6,922, telephone of $6,254, office supplies of $1,450 and miscellaneous
general expenses. There was no revenue in 1995.
12
<PAGE>
During the fiscal year ended December 31, 1996, the Company incurred
$33,942 in general and administrative expenses for a total net operating loss of
($71,389). In 1995, the Company incurred $15,809 in general and administrative
expenses, for a total net operating loss of ($15,809).
Results of Operations 1995 Compared to 1994
- -------------------------------------------
No revenues were generated in 1995. Expenses consisted of $394 in bank charges,
$1,450 in office supplies, $6,922 in rent, $789 in licenses and $6,254 in
telephone expenses. In 1994 expenses consisted of rent of $4,798, telephone of
$6,512, travel costs of $303, consulting fees of $638, office supplies of $1,301
and legal and accounting fees of $768, and miscellaneous general expenses.
During the fiscal year ended December 31, 1995, the Company incurred $15,809 in
general and administrative expenses and $2,832 in interest expense for a total
net loss of $18,641. In 1994, the Company incurred $15,128 in general and
administrative expenses, and $1,268 in interest expense, for a total net loss of
$16,396.
At present, the Company has new business operations, but has not established
consistent revenue streams. The reported financial information herein may not be
indicative of future operating results.
Item 7. Financial Statements and Supplemental Data.
Attached hereto and filed as part of this Form 10-K are the financial statements
required by Regulation SB. Please refer to pages F-1 through F-16.
Item 8. Changes in and Disagreements on Accounting and Financial Disclosure.
In connection with audits of two most recent fiscal years and any interim period
preceding resignation, no disagreements exist with any former accountant on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure, which disagreements if not resolved to the
satisfaction of the former accountant would have caused him to make reference in
connection with his report to the subject matter of the disagreement(s).
Part III
Item 9. Directors and Executive Officers of the Registrant and Compliance with
Section 16(a).
The directors and executive officers of the Company as of December 31, 1996, are
as follows:
13
<PAGE>
Name Age Position Held
- ---- --- -------------
Norman Brander 53 President/Director
Sheryl B. Salvadore 40 Secretary/Director
Norman Brander, age 53, attended University of New Haven, CT. He was Senior Vice
President of Stellar, Inc. (a travel, leisure and entertainment company) from
1992-1994. He has been President/Director of Art, Music & Entertainment, Inc.
since 1994 to the present. Mr. Brander also was the Executive Producer for the
1993 Charlie Parker Lifetime Achievement Awards as well as Executive Producer on
the NCL - Norway Jazz Theme Cruise. In 1994 he also produced a two week Jazz
Festival featuring Lionel Hampton and His Golden Men. Most recently Mr. Brander
was the Executive Producer of the 1996 International Jazz hall of Fame Induction
and Award Ceremonies.
Sheryl B. Salvadore, age 40, received her AA degree from Hillsborough Community
College, then went on to take additional business and accounting courses from
University of Tampa and University of South Florida. She is Secretary of AM&E
and President of Gotham City Productions, Inc.
None of the above individuals have a criminal history or have had any adverse
securities actions taken against them.
Directors of the Company hold office until the next annual meeting of the
shareholders and until their successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors at the first
meeting after each annual meeting of the Company shareholders and hold office
until their death, or until they shall resign or have been removed from office.
Section 16(a) Reporting Delinquencies
- -------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership of equity securities of the
Company with the Securities and Exchange Commission and NASDAQ. Officers,
directors and greater-than 10% shareholders are required by the Securities and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) filings.
No reports were necessary because the Company had filed a Form 15b2 in 1992
to suspend reporting.
14
<PAGE>
<TABLE>
<CAPTION>
Item 10. Executive Compensation.
The Company recorded a total of $14,000 consulting to the executive
officers as a group for services contributed to the Company in all capacities
during the 1996 fiscal year. No one executive officer received, or has accrued
for his benefit, in excess of $60,000 for the year. No cash bonuses were or are
to be paid to such persons.
The Company does not have any employee incentive stock option plans.
There are no plans pursuant to which cash or non-cash compensation was paid
or distributed during the last fiscal year, or is proposed to be paid or
distributed in the future, to the executive officers of the Company. No other
compensation not described above was paid or distributed during the last fiscal
year to the executive officers of the Company. There are no compensatory plans
or arrangements, with respect to any executive office of the Company, which
result or will result from the resignation, retirement or any other termination
of such individual's employment with the Company or from a change in control of
the Company or a change in the individual's responsibilities following a change
in control.
SUMMARY COMPENSATION TABLE OF EXECUTIVES
----------------------------------------
Annual Compensation Awards
=================================================================================================================================
Name and Year Consulting Bonus Other Annual Restricted Securities
Principal Fees ($) or ($) Compensation ($) Stock Underlying
Position Salary Award(s)($) Options/SARs
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Norman 1994 0 0 0 0 0
Brander,
President --------------------------------------------------------------------------------------------------------------
1995 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
1996 14,000 0 0 0 0
=================================================================================================================================
Sheryl B. 1994 0 0 0 0 0
Salvadore,
Secretary --------------------------------------------------------------------------------------------------------------
1995 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
1996 0 0 0 0 0
=================================================================================================================================
Thomas L. 1994 0 0 0 0 0
McCrimmon --------------------------------------------------------------------------------------------------------------
1995 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
1996 0 0 0 0 0
=================================================================================================================================
Bertram E. 1994 0 0 0 0 0
Cutler --------------------------------------------------------------------------------------------------------------
1995 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
1996 0 0 0 0 0
=================================================================================================================================
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants Table (None)
Aggregated Option/SAR Exercises in Last Fiscal Year an FY-End Option/SAR value
(None)
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
------------------------------------------
(Except for compensation of Officers who are also Directors which Compensation is listed in Summary
Compensation Table of Executives)
Cash Compensation Security Grants
========================================================================================================
Name Annual Meeting Consulting Number Number of
Retainer Fees ($) Fees/Other of Securities
Fees ($) Fees ($) Shares Underlying
(#) Options/SARs(#)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A. Director, Norman Brander 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------
B. Director, Sheryl B. Salvadore 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------
Item 11. Security Ownership of Management and Beneficial Owners.
The following table sets forth information, as of December 31, 1996, with
respect to the beneficial ownership of the Company's $.001 par value common
stock (or Preferred Convertible Stock which would represent 5% or more of the
Company's common stock) by each person known by the Company to be the beneficial
owner of more than five percent of the outstanding common stock, and by current
officers and directors of the Company.
a.) Officers and Directors
Stock Title Name and Address Amount of Beneficial Percentage
of Class of Beneficial Owner Ownership of Class
- -------- ------------------- --------- --------
Common Norman Brander 23,333 less than 1%
President and Director
4400 W. Sample Road, #140
Coconut Creek, FL 33073
Common Sheryl B. Salvadore 0 0%
Secretary/Treasurer/Director
4400 W. Sample Road, #140
Coconut Creek, FL 33073
All Officers and 23,333 less than 1%
Directors as a Group
(2 Persons)
16
</TABLE>
<PAGE>
b) Beneficial Owners of 5% or more of equity in the Company.
Thomas L. McCrimmon 2,133,525 59%
3816 W. Linebaugh Ave., #408
Tampa, FL 33624
Bertram E. Cutler 1,120,000 31%
3816 W. Linebaugh Ave., #408
Tampa, FL 33624
Item 12. Certain Relationships and Related Transactions.
The Company has utilized the office space and related facilities of one of its
founders and has reimbursed such founder for certain expenses under an
information agreement. Such founder is also a major shareholder of the Company.
The incorporator and former sole shareholder of Old AME Norman Brander also
owned 50% of the outstanding common shares of Jazz and Marin; but, is a
diminimus shareholder of the Company. Consulting and office use fees of
approximately $116,000 were paid to Mr. Brander and his company, Volume Cruises,
during 1996.
As of December 31, 1996, the Company established an allowance for doubtful
receivables in the amount of $20,000 with a corresponding charge to operations,
for an advance of $20,000 made to the former owner of a subsidiary, and the
present owner of 2,800 shares of the Company's Class G Preferred Stock. During
1996, payments totaling $6,900 were made to the former owners of certain of the
subsidiary companies and owners of the assets acquired for management fees.
The Company leases space on a month to month basis, beginning May 1, 1996, for
its administrative offices from an individual with whom the Company has a
financial consulting contract. The monthly rental amount is $461.97.
The financial consulting agreement provides for a total payment of $250,000
during the three year period ending July 13, 1998, plus a maximum of $30,000 of
expenses during such period. during 1996, payments were made under the agreement
and to related principals totaled approximately $129,000.
In February, 1996, the Company sold $52,000 of its prepaid television time to a
corporation , one of whose principals is the trustee of the trust which sold the
television time and certain other assets to the Company. The entity which
purchased the television time was also paid $7,900 for certain computer
services.
17
<PAGE>
<TABLE>
<CAPTION>
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following exhibits and financial statement schedules are filed as
exhibits to this Report:
1. Financial Statements of the Registrant are included under Item 8 hereof as
Pages F-1 through F-16.
2. Financial Statement Schedules - None
3. Exhibits:
Exhibit # Description Location/Page Number
- --------- ----------- --------------------
<S> <C> <C>
3.1 Articles of Incorporation Exhibit to Registration
Statement filed November
14, 1991 by Registrant on Form S-18
3.2 Bylaws of Registrant Exhibit to Registration
Statement filed November
14, 1991 by Registrant on Form S-18
10.1 Articles of Amendment to Articles Exhibit listed under hardship exemption
of Incorporation of Art, Music as provided in Rule 202 of Regulation
& Entertainment, Inc. and Cert. of S-T. Hardship Exemption grant date:
Designation, Preferences, Rights and 5/27/97
Limitation of Classes C, E, F, G, H, I
Convertible Preferred Stock
10.2 Articles of Incorporation of Art, Music Exhibit listed under hardship exemption
& Entertainment with attachments as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.3 Articles of Amendment to Articles of Exhibit listed under hardship exemption
Incorporation of Chatham International, as provided in Rule 202 of Regulation
Inc. S-T. Hardship Exemption grant date:
5/27/97
10.4 Articles of Incorporation of Cornerstone Exhibit listed under hardship exemption
Capital, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
18
<PAGE>
10.5 Articles of Incorporation of International Exhibit listed under hardship exemption
Jazz Hall of Fame Production Co., Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.6 Articles of Incorporation of Exhibit listed under hardship exemption
Octopus Entertainment, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.7 Articles of Amendment to Articles of Exhibit listed under hardship exemption
Incorporation of Octopus Entertainment, as provided in Rule 202 of Regulation
Inc. S-T. Hardship Exemption grant date:
5/27/97
10.8 Articles of Incorporation of Marin Exhibit listed under hardship exemption
Movies, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.9 Articles of Amendment to Articles of Exhibit listed under hardship exemption
Incorporation of Marin Movies, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.10 Articles of Incorporation of Classical Exhibit listed under hardship exemption
Music Collection, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.11 Articles of Amendment to Articles of Exhibit listed under hardship exemption
Incorporation of Classical Music as provided in Rule 202 of Regulation
Collection, Inc. S-T. Hardship Exemption grant date:
5/27/97
10.12 Articles of Incorporation of Spellbinder Exhibit listed under hardship exemption
Productions, Inc. and Articles of as provided in Rule 202 of Regulation
Amendment to Articles of Incorporation S-T. Hardship Exemption grant date:
5/27/97
10.13 Bylaws of Art, Music & Exhibit listed under hardship exemption
Entertainment, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
19
<PAGE>
10.14 Certificate of Name Change Exhibit listed under hardship exemption
as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.15 Articles of Amendment to Articles of Exhibit listed under hardship exemption
Incorporation of Chatham International, as provided in Rule 202 of Regulation
Inc. S-T. Hardship Exemption grant date:
5/27/97
10.16 Agreement and Plan of Reorganization Exhibit listed under hardship exemption
of AM&E, Inc. and IJHFPC as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.17 Agreement and Plan of Reorganization of Exhibit listed under hardship exemption
AM&E, Inc. and Marin Movies, Inc. as provided in Rule 202 of Regulation
S-T. Hardship Exemption grant date:
5/27/97
10.18 Agreement and Plan of Reorganization Exhibit listed under hardship exemption
of AM&E, Inc. and Classical Music as provided in Rule 202 of Regulation
Collection, Inc. S-T. Hardship Exemption grant date:
5/27/97
10.19 Agreement and Plan of Reorganization Exhibit listed under hardship exemption
of AM&E, Inc. and Octopus as provided in Rule 202 of Regulation
Entertainment, Inc. S-T. Hardship Exemption grant date:
5/27/97
10.20 Agreement and Plan of Reorganization Exhibit listed under hardship exemption
of AM&E, Inc. and Spellbinder as provided in Rule 202 of Regulation
Productions, Inc. S-T. Hardship Exemption grant date:
5/27/97
10.21 Merger Agreement of Chatham Exhibit listed under hardship exemption
International, Inc. and Art, Music as provided in Rule 202 of Regulation
& Entertainment, Inc. S-T. Hardship Exemption grant date:
5/27/97
(b) Reports on Form 8-K. There were no reports on Form 8-K for the twelve month
period ended December 31, 1996.
(c) Proxy Statements. There were no proxy statements or annual reports sent to
stockholders during the period covered herein.
20
</TABLE>
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant had duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized, in the city of Tampa,
State of Florida on this 25th day of November, 1997.
Art, Music & Entertainment, Inc.
- --------------------------------
By: /s/ Norman Brander
-----------------------------
Norman Brander, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Norman Brander President/Director November 25, 1997
- -----------------------
Norman Brander
/s/ Sheryl B. Salvadore Secretary/Director November 25, 1997
- -----------------------
Sheryl B. Salvadore
21
<PAGE>
ART, MUSIC & ENTERTAINMENT, INC.
(formerly Chatham International, Inc.)
(a development stage company)
Consolidated Financial Statements
December 31, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Art, Music and Entertainment, Inc.
Coconut Creek, Florida
We have audited the accompanying consolidated balance sheet of Art, Music
and Entertainment, Inc. (formerly Chatham International, Inc.) (a development
stage company), as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1995, and for the period from May 25, 1988 (date of organization)
to December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of Art,
Music and Entertainment, Inc. (formerly Chatham International, Inc.) (a
development stage company), as of December 31, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995,
and for the period from May 25, 1988 (date of organization) to December 31,
1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in the
notes to the financial statements, the Company is in the development stage, and
will require funds from profitable operations, from borrowings, and/or from sale
of equity securities to execute its business plan. These factors raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from this uncertainty.
<PAGE>
During 1996, the Company acquired certain assets in exchange for various
classes of preferred stock, which preferred stock was exchanged for restricted
common shares of the Company in October 1997. Management of the Company ascribed
an estimated value to the acquired assets, based in certain instances upon
subsequent sales, and in other instances upon an appraisal(s) by an industry
knowledgeable person or appraiser, or a combination of both. In one situation,
the seller of an acquired asset had a fifty percent ownership of the asset, and
is also a shareholder, director, and officer of the Company. Because of
inadequate and independent substantiation of the ascribed asset values, certain
of such amounts have been deducted from stockholders' equity for financial
reporting purposes, while others were not assigned a carrying amount in the
financial statements. To the extent that assets which were ascribed a value are
sold, the related costs will be charged to operations.
Tampa, Florida /s/ Alessandri & Alessandri
October 31, 1997 -----------------------------------
<PAGE>
ART, MUSIC, AND ENTERTAINMENT, INC., AND SUBSIDIARIES
(formerly Chatham International, Inc.)
(a development stage company)
CONSOLIDATED BALANCE SHEET
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 18,433
Show Deposit 6,000
---------
Total Current Assets 24,433
---------
OTHER ASSETS
Deferred Expenses 71,293
Television Network Time $4,584,850
Jazz Artists Lithographs 2,178,272
----------
6,763,122
Less - Deduction from Stockholders'
Equity (See Note 6) (6,763,122)
------------------------
Total Other Assets 71,293
---------
TOTAL $ 95,726
=========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash Overdraft $ 6,068
Notes Payable 41,624
Accounts Payable and Accrued Liabilities 43,943
---------
Total Liabilities 91,635
---------
STOCKHOLDERS' EQUITY
Preferred Stock - $.001 par value; 10,000,000
shares authorized; 206,467
shares issued with a preference value of $20,646,700 6,880,700
Common Stock - $.001 par value; 100,000,000
shares authorized; 3,641,801
shares issued and outstanding 3,642
Paid in Capital 87,743
Deduction for Other Assets (See Note 6) (6,763,122)
Retained Earnings (Deficit) (204,872)
---------
Total Stockholders' Equity 4,091
---------
TOTAL $ 95,726
=========
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ART, MUSIC, AND ENTERTAINMENT, INC., AND SUBSIDIARIES
(formerly Chatham International, Inc.)
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM ORGANIZATION (MAY 25, 1988)
TO December 31, 1996, AND FOR THE YEARS ENDED
December 31, 1996 and 1995
- -------------------------------------------------------------------------------------------------------------
Cumulative from
date of inception
1996 1995 to December 31, 1996
--------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND SALES $ 631,395 $ 631,395
COST OF REVENUES AND SALES 263,959 -- 263,959
--------------------------------------------------------------
GROSS PROFIT 367,436 0 367,436
--------------------------------------------------------------
OPERATING EXPENSES:
Doubtful Amounts 20,000 -- 34,469
Consultants & Management Fees 321,073 -- 341,423
Legal & Accounting 30,101 -- 42,630
Advertising 14,542 -- 14,542
Telephone 11,211 6,254 26,242
Rent 7,956 6,922 42,670
Other General and Administrative 33,942 2,633 65,776
--------------------------------------------------------------
TOTAL OPERATING EXPENSES 438,825 15,809 567,752
--------------------------------------------------------------
NET INCOME (LOSS) FROM OPERATIONS (71,389) (15,809) (200,316)
OTHER INCOME AND (EXPENSE):
Interest Income 2,333 -- 4,021
Interest Expense (3,417) (2,832) (8,577)
--------------------------------------------------------------
TOTAL OTHER INCOME AND (EXPENSE): (1,084) (2,832) (4,556)
--------------------------------------------------------------
NET INCOME (LOSS) ($ 72,473) ($ 18,641) ($ 204,872)
==============================================================
Earnings per Common Share ($ 0.02) ($ 0.01)
===================================
Weighted Average Number of Common Shares 3,624,350 3,555,268
===================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ART, MUSIC, AND ENTERTAINMENT, INC., AND SUBSIDIARIES
(formerly Chatham International, Inc.)
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Retained
Preferred Stock Deduction for Common Stock Paid in Earnings
Shares $ Other Assets Shares $ Capital (Loss)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 0 $ 0 3,575,268 $ 3,575 $ 87,810 ($ 132,399)
Merger with Art, Music, and
Entertainment, Inc. 693,221 55,556,100 66,533 67 (67)
Rescission of Merger with
International Art Group, Inc. (486,754) (48,675,400)
Other Assets (6,763,122)
Net Income (Loss) (72,473)
----------------------------------------------------------------------------------------------
Balance, December 31, 1996 206,467 $ 6,880,700 ($ 6,763,122) 3,641,801 $ 3,642 $ 87,743 ($ 204,872)
==============================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ART, MUSIC, AND ENTERTAINMENT, INC., AND SUBSIDIARIES
(formerly Chatham International, Inc.)
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM ORGANIZATION
(MAY 25, 1988) TO December 31, 1996,
AND FOR THE YEARS ENDED
December 31, 1996 and 1995
- --------------------------------------------------------------------------------------------------------------
Cumulative from
date of inception
1996 1995 to December 31, 1996
-----------------------------------------------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income (Loss) From Operations: ($ 72,472) (18,641) ($204,872)
Adjustments to reconcile income to net cash
used in operating activities:
Rescission of Merger (93,468) -- (93,468)
Common Stock issued for services -- -- 15,900
Cancellation of common stock -- -- (4,110)
Increase (Decrease) in Assets and Liabilities:
Inventory 197,394 -- 197,394
Prepaid Expenses & Deposit (62,143) -- (62,143)
Payables & Accruals 50,012 -- 50,012
-----------------------------------------------------
Net Cash From (To) Operating Activities 19,322 (18,641) (101,287)
-----------------------------------------------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Repayment of Loan (9,770) -- (9,770)
Proceeds from Notes Payable 8,367 18,936 49,894
Proceeds from sale of common stock -- -- 79,596
-----------------------------------------------------
Net Cash From (To) Financing Activities (1,403) 18,936 119,720
-----------------------------------------------------
Increase (Decrease) in Cash 17,919 295 18,433
Cash Balance, Beginning of Year/Period 514 219 0
-----------------------------------------------------
Cash Balance, End of Year/Period $ 18,433 $ 514 $ 18,433
=====================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest NONE
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Preferred shares (77,500) having a preference of $7,750,000 were issued for
television time of like amount and 66,533 common shares and 615,721 preferred
shares were issued for assets totaling $51,244,100. In December 1996, a total of
486,754 preferred shares representing $48,675,400 were returned to the Company
in a Rescission of the merger of International Art Group, Inc. In 1995 the
Company issued 3,335,000 (net cancellation of 165,000 common shares) common
shares for services rendered.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ART, MUSIC & ENTERTAINMENT, INC., AND SUBSIDIARIES
(formerly Chatham Interntional, Inc.)
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM ORGANIZATION
(MAY 25, 1988) TO DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
Common Stock Paid In Retained
Shares $ Capital Earnings
-----------------------------------------------------------------------
Balance, May 25, 1988
(date of organization)
<S> <C> <C> <C> <C>
Proceeds from issuance of common stock 269,000 $ 269 $ 17,591
Net Income 54
-----------------------------------------------------------------------
Balance, December 31, 1989 269,000 269 17,591 54
Net Loss (2,866)
Proceeds from issuance of common stock 165,000 165 1,485
Common Stock issued for services 90,000 90 810
-----------------------------------------------------------------------
Balance, December 31, 1990 524,000 524 19,886 (2,812)
Common Stock issued for services 20,000 20 980
Net Loss (8,878)
-----------------------------------------------------------------------
Balance, December 31, 1991 544,000 544 20,866 (11,690)
Proceeds from sale of common stock 16,268 16 67,753
Common Stock issued for services 180,000 180 8,820
Write off of deferred offering costs (7,684)
Net Loss (53,955)
-----------------------------------------------------------------------
Balance, December 31, 1992 740,268 740 89,755 (65,645)
Cancellation of common stock (165,000) (165) (3,945)
Common Stock issued to founders 3,000,000 3,000 2,000
Net Loss (31,717)
-----------------------------------------------------------------------
Balance, December 31, 1993 3,575,268 3,575 87,810 (97,362)
Net Loss (16,396)
-----------------------------------------------------------------------
Balance, December 31, 1994 3,575,268 3,575 87,810 (113,758)
Net Loss (18,641)
-----------------------------------------------------------------------
Balance, December 31, 1995 3,575,268 $ 3,575 $ 87,810 ($ 132,399)
=======================================================================
See Notes to Financial Statements.
</TABLE>
<PAGE>
ART, MUSIC, AND ENTERTAINMENT, INC.
(formerly Chatham International, Inc.)
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION:
- ----------------------
Arts, Music, and Entertainment, Inc., ("Company") (formerly Chatham
International, Inc.) was organized originally as Cornerstone Capital, Inc.,
under the laws of the State of Florida as a corporation on May 25, 1988. On
September 22, 1990 the Company changed its' name to Chatham International, Inc.
On April 5, 1996 the Board of Directors of the Company authorized the name of
the Company to be changed from Chatham International, Inc., to Art, Music, and
Entertainment, Inc., in connection with a merger, discussed elsewhere herein,
with an entity of the same name. Such change was filed with the Secretary of
State of Florida on July 18, 1996.
The Company is in the development stage, and activities have included the
arranging of an offering of common stock and warrants to the public, and the
business of import/export management. Although the Company has realized certain
sales and revenues during 1996, it will require additional funds from profitable
operations, financing, and/or equity infusions to conduct business operations
and execute its business plan(s).
The art, music, and entertainment industries in which the Company is
operating are highly volatile and competitive. Accordingly, the Company is
exposed to significant risk in competing against other entities who have greater
resources and experience.
NOTE 2 - BASIS OF ACCOUNTING:
- -----------------------------
The consolidated financial statements of the Company and its subsidiaries,
have been presented on the basis that they are a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has recently acquired certain assets
solely through a merger(s) and issuance of various classes of preferred stock,
and it is dependent upon the raising of cash via operations, loans, or equity
transactions to fund its operations. There is no assurance that the Company will
be successful in raising the cash needed to support its operations. No
adjustments have been recorded with respect to these uncertainties.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
<PAGE>
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumption that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheet and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Film, Show, & Music Trade Names - Film, show, and music trade name rights
relate to the items and/or rights. The costs will be amortized over the
estimated amount of future usage, unless an item is contracted for a limited
amount of usage, in which case the cost will be amortized over the contract
period.
Cash and Cash Equivalents - For purposes of the Statement of Cash Flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Revenue Recognition - Revenues are recorded when the Company's products are
shipped to customers. For one time shows in which the Company acts as a
promoter, the revenues are recorded when the event occurs.
Income Taxes - As of December 31, 1996 the Company has approximately
$205,000 of tax loss carry forwards. The provision (benefit) for income taxes is
based on the pre-tax earnings (loss) reported in the financial statements,
adjusted for transactions that may never enter into the computation of income
taxes payable. A deferred tax liability or asset is recognized for the estimated
future tax effect attributable to temporary differences in the recognition of
income and expenses for financial statement and income tax purposes. A valuation
allowance is provided in the event that the tax benefits are not expected to be
realized. At December 31, 1996, the valuation allowance was equal to the benefit
from the tax loss carry forwards, because there is no assurance that the benefit
will be realized.
NOTE 4 - MERGERS:
- -----------------
On April 5, 1996 the Company entered into a merger agreement with an entity
having the name of Art, Music, and Entertainment, Inc., and changed its name
from Chatham International, Inc., to Art, Music, and Entertainment, Inc. Under
the terms of the agreement, the Company was the surviving entity, and it issued,
on a one for one basis, 66,533 common and 615,721 preferred shares, for the
similar outstanding shares of the merged entity. Further, the preferred shares
issued by the Company in connection with the merger bear the same designations,
rights, and preferences as those of the merged entity. For financial statement
purposes, the merger was accounted for as of March 31, 1996 as a purchase. Also,
for financial reporting purposes, the acquisitions discussed below, all of which
were acquired on March 1 and 5, 1996, respectively, were accounted for as a
purchase by Art, Music & Entertainment, Inc., ("Old AME"). Neither Old AME nor
any of the acquired entities had conducted operations as of the date of
acquisition. (Also see Note 15 Subsequent Events).
<PAGE>
The merged entity, Art, Music & Entertainment, Inc., ("Old AME") was formed
on December 16, 1994 under the laws of the State of Florida. Since December 16,
1994 the Old AME had not conducted operations and had not prepared a business
plan. Rather, the Old AME had been seeking other entities to acquire or with
which to merge to provide the Old AME with product lines.
On March 5, 1996, the Old AME entered into an Agreement and Plan of
Reorganization with the International Art Group, Inc., ("Art Group") under the
terms of which the Old AME acquired all of the outstanding capital stock of Art
Group in exchange for 486,754 shares of Class H Convertible Preferred Stock of
the Old AME. Art Group is not conducting operations and is reportedly the owner
of an exclusive license from the government of the United States to publish and
distribute the only official artwork to commemorate the Quincentennial (500th
anniversary) of the discovery of America. In December 1996 the Company and the
former shareholder of International Art Group, Inc., rescinded and canceled the
merger, and 486,754 shares of the Company's Class H Preferred Stock issued to
effect the merger were returned to the Company. Revenues of $140,400 from sales
of certain of the artwork during 1996 remain with the Company.
Old AME executed an Agreement and Plan of Reorganization on March 1, 1996
with the International Jazz Hall of Fame Production Co Inc. ("Jazz"). The terms
of the agreement provided for the Old AME to acquire all of the outstanding
common shares of Jazz in exchange for 44,666.68 common shares and 22,807 Class I
Voting Convertible Preferred Shares of the Old AME. Jazz is not conducting
operations and is the owner of lithographs of certain jazz artists. During 1996,
the Company realized $184,748 from sales of the jazz lithographs, and $29,247
from its production of a Jazz Hall of Fame induction ceremony. In January 1997,
the Company and the Class I Convertible Preferred Shareholders agreed to
exchange such convertible preferred stock for 230,000 shares of the restricted
common shares of the Company, which shares were issued in October 1997 (See Note
15 - Subsequent Events).
On March 5, 1996 the Old AME signed an Agreement and Plan of Reorganization
with Marin Movies, Inc. ("Marin"). The provisions of the agreement provide for
Old AME to acquire all of the outstanding common stock of Marin in exchange for
2,800 shares of Class G Convertible Preferred Stock of the Old AME. Marin is not
conducting operations and is the owner of master videos of 300 public domain
movies. In January 1997, the Company and the Class G Convertible Preferred
Shareholders agreed to exchange such convertible preferred stock for 28,000
shares of the restricted common shares of the Company, which shares were issued
in October 1997 ( See Note 15 - Subsequent Events).
An Agreement and Plan of Reorganization with Classical Music
Collection, Inc., ("Classical") was executed by the Old AME on March 5, 1996.
Under the terms of the agreement the Old AME acquired all of the outstanding
common stock of Classical in exchange for 11,333,34 of the Old AME's common
shares and 1,760 of the Old AME's Class F Voting Convertible Preferred shares.
Classical is not conducting operations and is the owner of certain master music
recordings. In January 1997, the Company and the Class F Convertible Preferred
Shareholders agreed to exchange such convertible preferred stock for 7,967
shares of the restricted common shares of the Company, which shares were issued
in October 1997 (See Note 15 - Subsequent Events).
<PAGE>
All of the outstanding common stock of Octopus Entertainment, Inc.,
("Octopus") was acquired by the Old AME on March 5, 1996 under an Agreement and
Plan of Reorganization of same date. The outstanding common stock of Octopus was
acquired for 1,000 Class E Voting Convertible Preferred Stock of the Old AME.
Octopus is not conducting operations and its sole assets are the ownership of
two trade names and certain "big-band" sheet music. In January 1997, the Company
and the Class E Convertible Preferred Shareholders agreed to exchange such
convertible preferred stock for 10,000 shares of the restricted common shares of
the Company, which shares were issued in October 1997 (See Note 15 - Subsequent
Events).
Also on March 5, 1996, the Old AME executed an Agreement and Plan of
Reorganization with Spellbinder Productions, Inc. ("Spellbinder"), under which
the Old AME acquired all of the outstanding common stock of Spellbinder in
exchange for 9533.34 common shares and 100,600 Class C Voting Convertible
Preferred shares of the Old AME. Spellbinder is not conducting operations, and
its sole asset is the music and related hardware for a music and illusionary
show copyrighted in 1990. In January 1997, the Company and the Class C
Convertible Preferred Shareholders agreed to exchange such preferred stock for
100,000 shares of the restricted common shares of the Company, which shares were
issued in October 1997 (See Note 15 - Subsequent Events).
NOTE 5. DEFERRED EXPENSES:
- --------------------------
Deferred expenses consist of amounts paid for jazz artists and recordings
of their performances which the Company expects to convert to a saleable
product(s).
NOTE 6 - OTHER ASSETS:
- ----------------------
Other assets consist of the following:
Pre-paid television time $4,584,850
Jazz Artists Lithographs 2,178,272
----------
Sub-total 6,763,122
--------- ----------
Public domain movies 60,000
Music recordings 140,000
Trade names & sheet music 10,000
Illusionary show 78,000
----------
Sub-total 288,000
----------
Total $7,051,122
----------
The foregoing items were acquired by the Company by the issuance of various
classes of preferred stock. The carrying values assigned to each item represents
an estimate by management, based upon a valuation by an industry knowledgeable
person, in certain instances, and sales for those items for which sales were
experienced. Although management believes that its estimate of the values
assigned are reasonable, the estimates were not independently nor adequately
determined. Accordingly, the $6,763,122 representing the value ascribed to
<PAGE>
certain jazz art and prepaid television network time have been included as an
deduction element of stockholders' equity in the balance sheet because the
Company has recognized revenues from sales of the items, and thus there are some
indications of value. The $288,000 of value ascribed by management to other
assets, as indicated above, have not been assigned a carrying value in the
consolidated balance sheet.
The prepaid television time was acquired by the issuance of 77,500 shares
of the Company's Class A Convertible Preferred Stock which carries a preference
and stated value of $100 per share. Management assigned an estimated value to
the prepaid television time, which value was based upon a limited number of
sales of the television time and advertising spots as reported by the network.
Due to the absence of sufficient data and an independent analysis of the
television time, the carrying amount ascribed to the television time by
management has been deducted from stockholder's equity for financial reporting
purposes. The Company expects to use the television time to market its own
products; however, it also expects to sell any spots which it may not require.
NOTE 7 - NOTES PAYABLE:
- -----------------------
A founder and major shareholder of the Company has from time to time,
loaned funds to the Company under a number of notes payable of varying amounts.
As of December 31, 1996, the notes totaled $41,624, including accrued interest.
All of the notes payable bear interest at the rate of 10% per annum and are
either currently due or past due.
NOTE 8 - COMMON AND PREFERRED STOCK:
- ------------------------------------
Common Stock - The Company has been authorized to issue 100,000,000 shares
of common stock with a par value of $.001 per share. During 1993, the Company
authorized the issuance of 3,000,000 shares to two persons, who are the founders
and major shareholders of the Company, for services rendered. Also, during 1993,
a total of 165,000 shares issued for services by an individual, who was formerly
an officer, were canceled. The 3,000,000 shares were issued by the transfer
agent in July 1996. The 165,000 shares were canceled by the Company and the
transfer agent, and the Company retains the responsibility for defense of the
canceled common shares. For financial statement purposes, these issued and
canceled shares have been reflected as of the date of issuance and cancellation
in 1993 in accordance with the respective actions of the Board of Directors.
At December 31, 1996, there were 3,641,801 common shares outstanding.
Common shares receive dividends when dividends are declared by the Board of
Directors of the Company. Each share has one vote.
Preferred Stock - The Articles of Incorporation, as amended, of the Company
authorize the issuance 100,000,000 preferred shares with a par value of $.001
per share. As of December 31, 1996 the following classes of preferred stock were
designated and outstanding.
<PAGE>
Class of
Voting Convertible Preferred
----------------------------
Preference
Amount
Shares $
-------- ------------
Class A 77,500 $ 7,750,000
Class B
Class C 100,600 10,060,000
Class D
Class E 1,000 100,000
Class F 1,760 176,000
Class G 2,800 280,000
Class I 22,807 2,280,700
-------- -------------
206,467 $20,646,700
--------
Less amount to reduce to estimated
asset values ascribed by
management 13,478,000
------------
$ 7,168,700
------------
The unamortized amount of the ascribed value for the Class A and Class I
preferred stock shown above have been deducted as an element of stockholder's
equity in the consolidated balance sheet, while the above values indicated for
the remaining classes of preferred stock have been assigned no carrying value in
the consolidated balance sheet.
Class A Voting Preferred Stock - The Board of Directors voted to establish
the Class A series of preferred stock and directed that such series have one
vote per share, and which may be redeemed annually by the Company to the extent
of 3% of the after tax annual net earnings of the Company either in cash or
common stock, and a preference and stated value of $100 per share. The
redemption in the form of common stock shall be at the rate of 70% of the
average bid price for the last fifteen trading days of the year. In January,
1996, the Company issued 77,500 shares of the Class A Preferred Stock to acquire
certain television time. In January 1997, the Company and the Class A
convertible preferred shareholders agreed to exchange such preferred stock for
380,000 shares of the restricted common shares of the Company, which shares were
issued in October 1997.
Class C Voting Preferred Stock - The Board of Directors established this
series with 100,600 shares authorized, with a stated value of $100 per share.
The Class C has one vote per share; is equal in liquidation with the other
preferred stock classes; may be redeemed annually by the Company to the extent
of 20% of the annual net income of Spellbinder at the rate of $100 per share;
or, the redemption maybe in common stock at the rate of 70% of market price. The
Company issued 100,600 of these shares to acquire Spellbinder. In January 1997,
the Company and the Class C convertible preferred shareholders agreed to
exchange the convertible preferred stock for 100,000 shares of the restricted
common shares of the Company, which shares were issued in October 1997. In
connection with the exchange of shares the Company agreed to fund $1,800,000
within one year from January 1997, and also agreed to pay annual royalties under
a five year royalty agreement ranging from 5% to 10%per annum of gross revenues
derived from the Spellbinder project, with the maximum of royalties to be paid
capped at $8,000,000.
<PAGE>
Class E Voting Preferred Stock - This series was established by the Board
of Directors with 6,500 shares with a $100.00 per share value. The Class E has
the same rights and privileges as Class C, except that the annual redemption
amount is 20% of the annual net income of Octopus. The Company issued 1,000
shares to Octopus. In January, the Company and the Class E convertible preferred
shareholders agreed to exchange the convertible preferred stock for 10,000
shares of the restricted common shares of the Company, which shares were issued
in October 1997.
Class F Voting Preferred Stock - This series was established by the Board
of Directors with 1,760 shares with a $100.00 per share value. The Class F has
the same rights and preferences as Class C, except that the annual redemption
amount is 20% of the net annual income in excess of $270,000 of Classical. The
Company issued 1,760 shares to Classical. In January 1997, the Company and the
Class F convertible preferred shareholders agreed to exchange such convertible
preferred stock for 7,967 shares of the restricted common shares of the Company,
which shares were issued in October 1997.
Class G Voting Preferred Stock - This class of preferred stock was
established to acquire Marin. The class has the same rights and privileges as
Class C, except that the annual redemption amount is 20% of the annual net
income of Marin. The Company designated and issued 2,800 shares to Marin, with
such shares having a stated value of $100 per share. In January 1997, the
Company and the Class G convertible preferred shareholders agreed to exchange
such convertible preferred shares for 28,000 shares of the restricted common
shares of the Company, which shares were issued in October 1997.
Class H Voting Preferred Stock - The Board of Directors established this
class of preferred stock for the purpose of acquiring Art Group. The Class H has
the same rights and privileges of Class C, except that the annual redemption
amount is 20% of the annual net income of Art Group. The Company designated and
issued 486,754 shares to the Art Group, with such shares having a stated value
of $100 per share. On December 20, 1996, the Company and the former shareholder
of Art Group agreed to rescind and cancel the merger, and the aforementioned
486,754 shares of the Class H Preferred Stock were returned to the Company.
Class I Voting Preferred Stock - This series was designated by the Board of
Directors for the purpose of acquiring Jazz. The Class I has the same rights and
privileges of Class C, except that the annual redemption amount is 20% of the
annual net income of Jazz. The Company designated and issued 22,807 shares to
Jazz, with such shares having a stated value of $100 per share. In January 1997,
the Company and the Class I convertible preferred shareholders agreed to
exchange such convertible preferred shares for 230,000 shares of the restricted
common shares of the Company, which shares were issued in October 1997.
<PAGE>
NOTE 9 - PUBLIC OFFERING:
- -------------------------
The Company offered a maximum of 3,000 units to the public at a proposed
offering price of $1,000 per unit. Each unit consisted of 166 shares of the
Company's common stock, and a U.S. Treasury-backed Zero Coupon obligation which
will have a value of $1,000 at maturity. Each U.S. Treasury-backed Zero Coupon
obligation will be purchased from the offering proceeds at an estimated cost of
$200 by the underwriter of the proposed public offering, in the name of the unit
holder.
An offering price of $1,000 per unit has been arbitrarily determined by the
Company. The offering is on a best efforts all or none basis, for the first 75
units, which if not sold within 90 days of the effective date, plus any
extensions thereof, of the public offering, will be refunded to the purchasers
without interest. The balance of the offering of 2,925 units is on a best
efforts basis.
The Company entered into an agreement with SBV Securities, Inc.,
("Underwriter") which provided for the issuance and sale of the proposed public
offering. Subject to the sale of the minimum offering of 75 units, the agreement
provides for the Company to pay the Underwriter a $100 per unit sales commission
and an allowance equal to two and one-half percent of the gross offering price
of $1,000 per unit.
Ninety-eight units of the offering were sold in 1992. The Company received
net proceeds of $67,770, from the sales of the units after deduction of brokers'
commissions and the cost of the Zero Coupon Obligation, as discussed above.
The agreement also allowed the Underwriter to purchase a maximum of 49,800
warrants for a total price of $498.00. These warrants were exercisable over a
four year period commencing one year from the effective date of the proposed
public offering at an exercise price of $7.20 per share. Such warrants expired
in 1996.
The purpose of the offering was to provide funds to the Company to enter
the business of import/export management. As of December 31, 1995, the Company
had not realized revenues since the date of organization.
NOTE 10 - WARRANTS:
- -------------------
During 1989 the Company sold "units" to certain stockholders. Such units
consisted of one share of common stock and three warrants for the purchase of
one share of common stock each at an exercise price of $6.50 each for a period
of 18 months from the date of the prospectus. As of December 31, 1991 there were
warrants outstanding of 400,000. Such warrants have expired.
NOTE 11 - INCOME TAXES:
- -----------------------
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable United States statutory federal income
tax rate to pre-tax income as a result of the following differences at December
31, 1996.
<PAGE>
Income tax provision (benefit) - 34% $(24,641)
Increase (decrease) in rates resulting from
State income taxes (2,631)
Valuation allowance for recognized deferred
tax assets 27,272
--------
Effective tax rates $ -0-
--------
On a consolidated basis, the Company has deferred tax assets of
approximately $77,000. The deferred tax assets maybe reduced as a result of net
operating loss carryforwards which will not be available due to changes in
control caused by the mergers, and the issuance of substantial additional stock.
All of the deferred tax assets result primarily from unused net operating
losses.
The Company will need to realize significant profits to utilize the losses,
all of which may not be available as noted previously, and may be further
limited due to the organization, capitalization, and acquisition costs incurred.
Because of these uncertainties, a valuation allowance was established in the
same amounts as the deferred tax assets because the benefit is more likely than
not to be lost.
Accumulated net operating losses aggregating $205,000 expire in varying
amounts through 2011 as shown below.
2005 $ 3,000
2006 9,000
2007 54,000
2008 32,000
2009 16,000
2010 19,000
2011 72,000
NOTE 12 - RELATED PARTIES:
- --------------------------
The Company has utilized the office space and related facilities of one of
its founders, and has reimbursed such founder for certain expenses under an
informal agreement. Such founder is also a major shareholder of the Company. The
incorporator and former sole shareholder of Old AME also owned 50% of the
outstanding common shares of Jazz and Marin; but, is a diminimus shareholder of
the Company. Consulting and office use fees of approximately $116,000 were paid
to the latter during 1996.
As of December 31, 1996, the Company established an allowance for doubtful
receivables in the amount of $20,000 with a corresponding charge to operations,
for an advance of $20,000 made to the former owner of a subsidiary, and the then
owner of 2,800 shares of the Company's Class G Preferred Stock. During 1996,
payments totaling $6,900 were made to the former owners of certain of the
subsidiary companies and owners of the assets acquired for management fees.
<PAGE>
The Company leases space on a month to month basis, beginning May 1, 1996,
for its administrative offices from an individual with whom the Company has a
financial consulting contract. The monthly rental amount is $461.97.
The financial consulting agreement provides for a total payment of $250,000
during the three year period ending July 13, 1998, plus a maximum of $30,000 of
expenses during such period. During 1996, payments were made under the agreement
and to related principals totaled approximately $129,000.
In February, 1996 the Company sold $52,000 of its prepaid television time
to a corporation, one of whose principals is the trustee of the trust which sold
the television time and certain other assets to the Company. The entity which
purchased the television time was also paid $7,900 for certain computer
services.
NOTE 13 - REVENUES AND SALES:
- -----------------------------
Revenue and sales for the year ended December 31, 1996 are comprised as
follows:
Sales of:
Jazz lithographs $184,748
Christopher Columbus Trilogies 140,400
Television time 277,000
Revenues from Jazz Show 29,247
--------
Total $631,395
--------
The sales of the Jazz lithographs and the Christopher Columbus Trilogies
were made under a contract with an entity based in China. As indicated above,
$52,000 of the $277,000 of sales of television time were made to an entity
having a principal related to the entity providing financial consulting
services.
NOTE 14 - NOT USED
- ------------------
NOTE 15 - SUBSEQUENT EVENTS:
- ----------------------------
The Company renegotiated in January 1997 with the former owners of the
various assets acquired by the respective classes of convertible preferred
stock, culminating in October 1997 with the exchange of all of the classes of
issued preferred stock for restricted common shares of the Company. The number
of the restricted common shares issued for the each class of preferred shares is
indicated in the respective section of Notes 4 and 8 herein. In addition, the
Company agreed with the Class C Convertible Preferred Shareholders to fund the
project represented by such shares with $1,800,000, and also agreed to pay
annual royalties for five years ranging from 5% to 10% of the gross revenues
derived from the project. The royalties are capped at a maximum of $8,000,000.
<PAGE>
In May 1997, the Company entered into a license and marketing agreement
with the Charlie Parker Memorial Foundation and the International Jazz Hall of
Fame, Inc., for the exclusive right to license and market memorabilia,
recording, artworks, etc., eminating from a produced ceremonial event regarding
the International Jazz Hall of Fame Induction & Awards Ceremonies for a period
for twenty years, which period may be extended for and additional ten years. The
Charlie Parker Foundation is the owner of the registered service mark "The
International Jazz Hall of Fame".
The agreement has a term of twenty years with an option to renew for an
additional ten years. The Company has agreed to pay an annual amount of $5,000,
plus 8% of the gross proceeds of the sales and revenues from any event or
product sales for the license.
Also in May 1997, a subsidiary of the Company executed consulting
agreements with the president of the Company and the president of the Charlie
Parker Foundation for a term of twenty five years. Both presidents, or their
estates, are to be paid 1% of the gross income of the International Jazz Hall of
Fame Production Co., Inc., a subsidiary of the Company, for the period from the
death or terminantion (other than for cause) of the consultant to the end of the
aforementioned license agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,433
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,433
<PP&E> 71,293
<DEPRECIATION> 0
<TOTAL-ASSETS> 95,726
<CURRENT-LIABILITIES> 91,635
<BONDS> 0
0
6,880,700
<COMMON> 91,385
<OTHER-SE> (6,763,122)
<TOTAL-LIABILITY-AND-EQUITY> 4,091
<SALES> 631,395
<TOTAL-REVENUES> 631,355
<CGS> 263,959
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 438,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,417
<INCOME-PRETAX> 71,389
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,473)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
