SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File No. 0-20236
CENTURY TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
COLORADO 65-0395829
- ------------------------------------ ---------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
201 North Robertson Boulevard, Beverly Hills, California 90211
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(310) 275-9063
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of business of:
Common Stock (.00001 Par Value) 13,563,652
- ----------------------------- ---------------------------------
CLASS Outstanding at September 30, 1996
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONTENTS
PAGE 1 - 2 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT
PAGE 3 - CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30,
1996 AND DECEMBER 31, 1995
PAGE 4 - CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
PAGE 5 - CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIENCY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
PAGE 6 - CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
PAGES 7 -21 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS
OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
PAGES 22-24 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATION
PAGE 25 - PART II -OTHER INFORMATION
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
To the Board of Directors of:
Century Technologies, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Century
Technologies, Inc. and Subsidiaries as of September 30, 1996, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the nine months ended September 30, 1996, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these consolidated financial statements is the representation of the management
of Century Technologies, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
As discussed in Notes 3, 5 and 12, the Company filed a lawsuit to rescind the
agreements for the purchase and/or licensing of feature films. The Company has
determined that the related assets have been impaired and has expensed the
unamortized balances.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 of the
consolidated financial statements, the Company has only recently commenced
operations and does not have sufficient liquid assets with which to pay expenses
when they arise, which raises substantial doubt about its ability to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
<PAGE>
Century Technologies, Inc. and Subsidiaries
Page Two
The financial statements for the year ended December 31, 1995, were audited by
us and we expressed an unqualified opinion on them in our report dated August
19, 1996, except for Note 10 which is dated September 16, 1996, but we have not
performed any auditing procedures since that date.
WEINBERG, PERSHES & COMPANY, P.A.
Boca Raton, Florida
November 13, 1996
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------
ASSETS
------
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- ------------
Cash $ 58,644 $ 131,801
Furniture, fixtures and
equipment, net 13,704 2,095
Option for rights to television
program 15,000 -
----------- ------------
TOTAL ASSETS $ 87,348 $ 133,896
------------ =========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
LIABILITIES
Notes payable, stockholders $ 1,560,318 $ 1,385,318
Loan from related party 300,000 -
Accounts payable 104,125 63,164
Accrued interest, stockholders 105,807 23,000
Capital lease obligation 8,889 -
----------- ------------
TOTAL LIABILITIES 2,079,139 1,471,482
----------- -----------
STOCKHOLDERS' DEFICIENCY
Preferred stock, no par value;
10,000,000 shares authorized;
1,406,667 and 1,763,334 issued
and outstanding, respectively 4,102,667 5,102,667
Common stock, $.00001 par
value; 200,000,000 shares
authorized; 13,563,652 and
13,381,985 issued and outstanding,
respectively 136 135
Capital in excess of par 2,092,382 1,091,383
Accumulated deficit (8,186,976) (7,531,771)
----------- ------------
TOTAL STOCKHOLDERS'
DEFICIENCY (1,991,791) (1,337,586)
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 87,348 $ 133,896
------------------------ =========== ============
Read accountants' review report and notes to
consolidated financial statements.
3
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the For the For the For the
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1996 1995 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 7,510 $ 7,510 $ - $ -
------------- ------------- ------------- -------------
EXPENSES:
General and administrative 224,929 579,232 75,821 289,807
Interest 38,007 82,807 - -
Depreciation and amortization 414 676 70 210
------------- ------------- ------------- -------------
Total Expenses 263,350 662,715 75,891 290,017
------------- ------------- ------------- -------------
NET (LOSS) $ (255,840) $ (655,205) $ (75,891) $ (290,017)
============= ============= ============= =============
NET LOSS PER SHARE OF COMMON STOCK $ (.02) $ (.05) $ (.01) $ (.04)
- ---------------------------------- ============= ============= ============= =============
Weighted Average Number of Common Shares
Outstanding 13,563,652 13,463,537 7,706,152 6,480,503
============= ============== ============= =============
</TABLE>
Read accountants' review report and notes
to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OR DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
----------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
----------------------- ---------------------- CAPITAL IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT EXCESS OF PAR DEFICIT TOTALS
---------- ------------ ----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,763,334 $ 9,102,667 6,019,485 $ 59 $ - $ (5,067,336) $ 4,035,390
Issuance of common stock as
incentive for note - - 37,500 - 37,500 - 37,500
Issuance of common stock for
services - unrelated parties - - 600,000 7 62,005 - 62,012
- related parties - - 2,550,000 26 101,974 - 102,000
Issuance of common stock for
cash - - 3,750,000 38 164,962 - 165,000
Issuance of stock to acquire
interest in General
Partnership - - 400,000 4 15,996 - 16,000
Exercise of stock options
at $.02 per share - - 25,000 1 499 - 500
Adjustment for licensing
of film library (1,000,000) (4,000,000) - - 708,447 3,831,235 539,682
Net loss for the year
ended December 31, 1995 - - - - - (6,295,670) (6,295,670)
---------- ------------ ----------- ---------- ------------- ------------ ------------
BALANCE, DECEMBER 31, 1995 1,763,334 5,102,667 13,381,985 135 1,091,383 (7,531,771) (1,337,586)
Unaudited:
Issuance of common stock
per employment agreement - - 25,000 - 1,000 - 1,000
Return of shares issued - - (200,000) (2) 2 - -
Settlement of lawsuit (356,667) (1,000,000) 356,667 3 999,997 - -
Net (loss) for the period
ended September 30, 1996 - - - - - (655,205) (655,205)
---------- ------------ ----------- ---------- ------------- ------------ ------------
BALANCE, SEPTEMBER 30,
1996 (UNAUDITED) 1,406,667 $ 4,102,667 13,563,652 $ 136 $ 2,092,382 $ (8,186,976) $ (1,991,791)
- ---------------------- ========== ============ =========== ========== ============= ============ ============
</TABLE>
Read accountants' review report and notes
to consolidated financial statements
5
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1996 1995
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $ (655,205) $ (290,017)
Adjustments to reconcile net (loss) to net cash
(used in) operations:
Depreciation and amortization 676 210
Stock issued for services 1,000 85,000
Changes in:
Accrued interest 82,807 -
Due from related party - 23,209
Accounts payable 40,961 (17,965)
Accrued expenses - 127,955
------------ -------------
Cash Flows Provided by (Used In) Operating Activities (529,761) (71,608)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,142) -
Investment in partnership - (50,000)
Option for rights to television program (15,000) -
----------- ----------
Cash Flows (Used In) Investing Activities (18,142) (50,000)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, stockholders 175,000 950
Proceeds from sale of common stock - 90,000
Proceeds from notes payable, related party - 30,000
Payments on capital lease (254) -
Note from related party 300,000 -
------------ ----------
Cash Flows Provided by Financing Activities 474,746 120,950
------------ -------------
NET CHANGE IN CASH (73,157) (658)
CASH, beginning of period 131,801 3,925
------------ -------------
CASH, END OF PERIOD $ 58,644 $ 3,267
============ =============
</TABLE>
Read accountants' review report and notes
to consolidated financial statements
6
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Organization
------------
Century Technologies, Inc. (the Company) was incorporated under the
laws of Colorado on December 3, 1986. The Company was in the
development stage as defined in Financial Accounting Standards Board
Statement No. 7 through September 1996. During the development stage
period, activities has been limited to raising capital. Effective
September 1996, the Company started generating distribution revenue
and is now considered an operating company. (See Note 13)
In July 1993, the Company formed two wholly-owned subsidiaries.
World Gaming Network, Inc. and Century Productions. As of September
30, 1996, there has been no significant activity by either
subsidiary.
In early 1996, the Company unilaterally rescinded all of its
existing contracts for its acquisitions of broadcast time and
feature films. Subsequently, the Company filed a lawsuit seeking
damages and a declaratory judgement as to the Company's right to
rescind these agreements (See Notes 3, 5 and 12).
On November 9, 1995, the former President and Secretary/ Treasurer
resigned.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Income Taxes
------------
The Company has adopted the liability method of accounting for
income taxes pursuant to Statement of Financial Accounting Standards
No. 109. Under this method, deferred income taxes are recorded to
reflect the tax consequences in future years of temporary
differences between the tax basis of the assets and liabilities and
their financial amounts at year-end. The Company has a deferred tax
asset of approximately $2,700,000 at September 30, 1996. A valuation
allowance has been recognized for the full amount of the deferred
Read accountants' review report.
7
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------------------
tax asset since there is no assurance of future taxable income. For
financial reporting, start-up costs are expensed as incurred; for
tax purposes they are capitalized and will be amortized over five
years.
Reclassification
----------------
Certain amounts in the prior year consolidated financial statements
have been reclassified for comparative purposes to conform with the
current period. These reclassifications had no effect on results of
operations or accumulated deficit as previously reported.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation and
amortization expense is generally provided on a straight-line basis
using estimated useful lives of 5-10 years for equipment and 7-15
years for leasehold improvements. Maintenance and repairs are
expensed as incurred; major renewals and betterments are
capitalized. When items of property and equipment are sold or
retired the related cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in the results of
operations.
Loss Per Common Share
---------------------
Loss per common share is computed by dividing net loss applicable to
common stock by the weighted average number of common stock and
Read accountants' review report.
8
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------------------
common stock equivalents assumed outstanding during the period. The
preferred stock, warrants and common stock options were
anti-dilutive and were not included in the calculation of the
weighted average common shares outstanding.
Use of Estimates in the Preparation of
--------------------------------------
Consolidated Financial Statements
---------------------------------
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Statement of Cash Flows
-----------------------
For purposes of this statement, the Company considers all highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Significant Concentration of Credit Risk
----------------------------------------
The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The
maximum loss that would have resulted from the risk totalled -0- and
$60,000 for September 30, 1996 and December 31, 1995 respectively,
for the excess of the deposit liabilities reported by the bank over
the amounts that would have been covered by federal insurance.
NOTE 2 - GOING CONCERN
- -----------------------
The accompanying consolidated financial statements have been
prepared on a going-concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
Read accountants' review report.
9
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 2 - GOING CONCERN (CONTINUED)
- -----------------------------------
normal course of business. The Company has generated cumulative
operating losses and has minimal cash to operate at September 30,
1996. The Company's continuation as a going-concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain financing as may be
required, and ultimately attain profitable operations. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts
that might be necessary should the Company be unable to continue as
a going concern. See Note 14 relating to sale of a majority interest
in the Company.
NOTE 3 - FEATURE FILMS, FEATURE FILM LICENSE RIGHTS AND BROADCAST
- ------------------------------------------------------------------
TIME RIGHTS
-----------
A. Impairment
-------------
On December 2, 1992, the Company acquired the rights to $4,000,000
in broadcast time on Channel America, a national television network
formed by 93 low-power and full-power affiliates across the United
States. As consideration for the transfer, the Company issued
1,000,000 shares of its preferred stock valued at $2.80 per share or
$2,800,000 for the broadcast time. The preferred stock was able to
be converted to common stock after two years at the then current
market price, provided, however, that the conversion amount will not
equal more than 7 1/2% of the issued and outstanding shares of the
Company. The Company could have redeemed the preferred stock at any
time prior to conversion for $4,400,000.
If the stock was not redeemed, the preferred stockholder had a right
to receive the first $200,000 of net earnings as a dividend and 5%
of the net earnings per year thereafter. On October 22, 1994, the
parties agreed to extend the conversion date of the preferred stock
to March 31, 1996. No preferred stock has been converted. On October
22, 1994, $2,300,000 in broadcast time which the Company owned, was
exchanged for licensing rights to 165 feature films. The term of the
license rights was 10 years. During those 10 years, the Company had
the right to unlimited exhibitions and reproductions and could have
Read accountants' review report.
10
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 3 - FEATURE FILMS, FEATURE FILM LICENSE RIGHTS AND BROADCAST
- ------------------------------------------------------------------
TIME RIGHTS (CONTINUED)
-----------------------
assigned any and all rights acquired. As of December 31, 1995, the
Company had determined that the value of the film and broadcast time
has been impaired and has expensed the remaining unamortized
balance. The 1,000,000 shares of preferred stock valued at
$2,800,000 is still reflected in equity pending the outcome of the
lawsuit (See Note 12).
On December 2, 1992, the Company acquired license rights for 100
feature films. The license period was for 10 years for the
television and home video media. The license fee was $20,000 per
film for total consideration of $2,000,000 payable on December 2,
1994 with interest at 7% per year, payable at maturity,
collateralized by the film license rights. This agreement was
subsequently divided into two separate agreements and two separate
notes of $1,000,000 each. On December 29, 1993, the two $1,000,000
notes plus accrued interest of $151,667 were converted to 713,334
shares of its preferred stock ($3.02 per share). These shares were
convertible into common stock at $3.00 per share after three years
and were callable at any time. Upon conversion, the note holder
represented to the Company that one of the $1,000,000 promissory
notes was lost. In February 1993, unbeknownst to the Company, the
note holder transferred all rights, title and interest in one of the
notes to a third party who filed a lawsuit against the Company for
non payment on the note. In April 1996, the Company settled the
lawsuit by issuing the third party 356,667 shares of the Company's
common stock and cancelling 356,667 shares of convertible preferred
stock. As of December 31, 1995, the Company had determined that the
value of the License Rights had been impaired and has expensed the
remaining unamortized balance (See Note 12).
On October 26, 1993, the Company acquired title to five feature
films. As consideration, the Company issued 50,000 shares of its
preferred stock valued at $151,000 to the sole shareholder of a
company that owned the Company's preferred stock. These shares were
convertible into common stock at $3.00 per share after three years
and were callable at any time. As of December 31, 1995, the Company
Read accountants' review report.
11
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 3 - FEATURE FILMS, FEATURE FILM LICENSE RIGHTS AND BROADCAST
- ------------------------------------------------------------------
TIME RIGHTS (CONTINUED)
-----------------------
had determined that the value of the films has been impaired and the
Company has expensed the unamortized balance (See Note 12).
During 1993, the Company acquired two feature films and video
production equipment for 36,000 shares of common stock valued at
$50,000 and $58,000, respectively. As of December 31, 1995, the
Company has abandoned the equipment and has written off the two
feature films (See Notes 4 and 12).
On September 20, 1994, the Company acquired the licensing rights to
one feature film for $2,000. This licensing right was fully
amortized in 1995, since no revenues have or will be generated.
On November 30, 1994 the Company purchased a Spanish language
library of 640 feature films from a stockholder of the Company. As
consideration, the Company issued a $1,800,000 note payable and
issued 1,000,000 shares of the Company's $4.00 convertible preferred
stock for total consideration of $5,800,000. A predecessor cost
adjustment of $4,916,800 was charged during 1994 to stockholders'
equity. The feature film balance of $883,200 was outstanding as of
December 31, 1994. On October 2, 1995, a new agreement was executed
calling for a down payment of $200,000 and a balance of $1,600,000
was to be paid over 10 years from the proceeds received under the
licensing rights. The original contract, note and preferred stock
were cancelled effective October 2, 1995. The terms of the new note
call for no interest to be charged. The Company had adjusted the
stream of payments to its net present value of $1,215,318 using an
8.5% interest rate. As of December 31, 1995, the Company had
determined that the value of the licensing rights has been impaired
and has expensed the remaining $883,200 of feature film cost (See
Notes 5 and 12).
Read accountants' review report.
12
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 3 - FEATURE FILMS, FEATURE FILM LICENSE RIGHTS AND BROADCAST
- ------------------------------------------------------------------
TIME RIGHTS (CONTINUED)
-----------------------
B. Investment in Partnership
-----------------------------
On March 11, 1994, the Company entered into a letter of intent to
form a general partnership (WSN) with an unrelated party (Web
Broadcasting Systems, Inc. or "WBS") which was to operate and
distribute a graphic and text sports cable programming network. The
Company finalized this agreement and agreed to invest $1,000,000
into WSN and loan $2,000,000 to WSN with interest at 7.5% per annum
due in five years. WBS agreed to sell its wire service software,
hardware and technology to WSN for $1,000,000 and 400,000 shares of
the Company's common stock. As part of the resignation of the former
president (See Note 1) president assumed the Company's
general partnership interest and all liabilities related to this
agreement and in March 1996, WSN returned 200,000 of the 400,000
shares of the Company's common stock (See Note 7).
C. Options for Rights to Television Programs
---------------------------------------------
The Company paid $15,000 during 1996 for an option to obtain
world-wide exploitation rights for a television program.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of September 30,
1996 and December 31, 1995:
September 30, December 31,
1996 1995
---------- ----------
Office furniture
and equipment $ 14,380 $ 2,095
Less accumulated
depreciation (676) -
---------- ----------
$ 13,704 $ 2,095
========== ==========
Read accountants' review report.
13
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT (CONTINUED)
- --------------------------------------------
In 1995, the Company expensed $60,462 of obsolete and idle equipment
which consisted primarily of theater projection and film editing
equipment.
Depreciation was $676 for the nine months ended September 30, 1996.
NOTE 5 - NOTES PAYABLE
- -----------------------
On November 30, 1994, the Company purchased a Spanish language
library of 640 feature films. As consideration, the Company issued
1,000,000 shares of $4 convertible preferred stock and a $1,800,000
note payable. In October 1995, the agreement, note and preferred
stock were cancelled and a new agreement was executed. The Company
paid a down payment of $45,000 and owed an additional down payment
of $155,000 if within 60 days of the execution of the agreement the
licensee received proper chain of title. It is the Company's
position that it has not been provided proper chain of title. The
total consideration to be paid was $1,800,000 including the
down-payment. The 1,600,000 portion was to be paid from revenues
collected over a period of 10 years. This outstanding balance has
been reduced to its net present value using an interest rate of
8.5%. The Company considers the films to be impaired and has
expensed the unamortized balance. See Note 3 for additional
information on impairment of these assets.
On December 21, 1994, the Company borrowed $15,000 under a
promissory note from one of its stockholders. Repayment was to be
made within 90 days with interest at 8% per year. This note was
assumed by the former president in October 1995.
In 1995 and 1996, the Company borrowed $170,000 and $175,000,
respectively, from various stockholders payable within one year with
interest at 8.5%. The total balance owed to these stockholders as of
September 30, 1996 is $345,000.
As of September 30, 1996, the Company was advanced $300,000 from a
related party. Subsequently, this note was cancelled and the funds
were issued as partial payment for the majority acquisition of the
Company (See Note 13).
Read accountants' review report.
14
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 6 - CAPITAL LEASES
- ------------------------
The Company has entered into a lease agreement for the acquisition
of a copy machine. Future minimum lease payments as of September 30,
1996 are as follows:
1997 $3,048
1998 3,048
1999 2,793
------
TOTAL $8,889
======
NOTE 7 - RELATED PARTY TRANSACTIONS
- ------------------------------------
On February 3, 1995, the Company borrowed $2,500 from a stockholder
under a promissory note. Repayment was to be made within three
months from the date of the note together with accrued interest
computed at the rate of 9% per year. The note was convertible, at
the option of the holder, into restricted preferred shares of the
Company at the conversion rate of one restricted share for each
$5.00 of unpaid principal and accrued interest. In 1995 the note was
assumed by the former president of the Company.
On March 3, 1995, the Company issued one of its former directors
25,000 shares of its common stock valued at $25,000 as compensation
for services.
On March 6, 1995, the Company borrowed $25,000 from one of its
former directors under a promissory note. Repayment was to be made
within three months from the date of the note, together with accrued
interest computed at the rate of 8% per year. As additional
inducement for the loan, the Company issued options to acquire
25,000 shares of its common stock exercisable at $.02 per share.
These options were exercised in 1995 and the note was assumed by the
former president.
In June and August 1995, the Company borrowed $12,500 from one of
its directors under three promissory notes. Repayment was to be made
within three months from the date of the notes together with accrued
interest computed at the rate of 8% per year. The note was assumed
by the former president.
Read accountants' review report.
15
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
- -------------------------------------------------
On September 29, 1995, the Company issued a director 50,000 shares
of common stock valued at $2,000 for his three years of service on
the Board of Directors.
On September 29, 1995, the Company issued to the former president
1,500,000 shares of its common stock valued at $60,000 for services
rendered.
On October 27, 1995, the Company authorized the issuance of
1,000,000 shares of common stock valued at $40,000 to the current
president in accordance with his employment agreement.
On November 7, 1995, notes totalling $12,500 due to a former officer
were converted to common stock at $1.00 per share.
During the two month period ended December 31, 1995, the Company
leased office space from its current president on a month to month
basis.
On February 26, 1996, the Company issued to an employee, as called
for in his employment agreement, 25,000 shares of the Company's
common stock valued at $.04 per share.
NOTE 8 - STOCKHOLDERS' EQUITY
- ------------------------------
During 1994, the Company issued options to acquire 150,000 shares of
its common stock to an officer/ stockholder. The options were
exercisable at 85% of the fair market value of the stock on the date
of grant or $.20 per share through May 1997. As part of the
officer's terminations, these options were cancelled.
In January 1994, the Company sold 12,500 shares of common stock for
$5,000 in a private sale.
On February 16, 1994, the Company granted options to purchase
400,000 shares of its common stock to an unrelated financial
consultant as compensation for future services. The options are
exercisable at the option of the holder over a period of five years
Read accountants' review report.
16
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -------------------------------------------
at $.625 per share at any time between February 16, 1994 and
February 16, 1999 in blocks of 50,000 shares. No options have been
exercised to date.
In February 1994, the Company issued 2,500 shares of its common
stock to an employee as additional compensation. The Company also
granted the employee options to purchase an additional 2,500 shares
of its common stock at $.10 per share which are exercisable after 30
days of employment. As of December 31, 1995, these options have
expired.
On June 26, 1995, the Company entered into an agreement with a
public relations firm whereby the firm would provide marketing and
promotional services in exchange for 550,000 shares of the Company's
common stock, valued at $.10 per share. This agreement was cancelled
in late 1995.
On August 30, 1995, the Company sold 2,250,000 shares of its common
stock in a private sale at $.04 per share for a total of $90,000 for
the purpose of the acquisition of WSN and working capital (See Note
3).
On October 11, 1995, the Company sold 1,500,000 shares of its common
stock under a Regulation S filing at $.05 per share for a total of
$75,000.
On October 16, 1995, the Company issued 400,000 shares of its common
stock as part of the agreement with WSN relating to the general
partnership. In November 1995, the Company's investment in the
general partnership was transferred to the former President and in
March 1996 WSN returned 200,000 shares (See Note 3). The stock was
recorded at a value of $16,000.
On October 27, 1995, the Company issued 1,000,000 shares of common
stock valued at $40,000 to its current president in accordance with
an employment agreement (See Note 11).
On November 7, 1995, the Company issued 50,000 shares of the
Company's common stock to a consultant in lieu of payment for
services valued at $7,013.
Read accountants' review report.
17
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -------------------------------------------
On February 26, 1996, the Company issued to an employee, as called
for in his employment agreement, 25,000 shares of the Company's
common stock valued at $.04 per share.
STOCK OPTIONS ISSUED BUT UNEXERCISED
------------------------------------
NUMBER OF SHARES EXPIRATION DATE EXERCISE PRICE
---------------- --------------- --------------
400,000 February 14, 1999 .62
50,000 December 20, 2000 .25
50,000 December 20, 2001 .50
50,000 December 20, 2002 .75
50,000 December 20, 2003 1.00
50,000 December 20, 2004 1.25
100,000 January 2, 2001 .30
500,000 January 1, 2001 .15
500,000 January 1, 2002 .20
500,000 January 1, 2003 .25
1,000,000 January 1, 2004 .30
1,000,000 January 1, 2005 .50
----------------
4,250,000
=================
NOTE 9 - STOCK OPTION PLANS
- ----------------------------
1992 Incentive Stock Option Plan
--------------------------------
During 1992, the Board of Directors adopted the "1992 Incentive
Stock Option Plan" reserving 500,000 shares of the Company's common
stock for said plan. It is a qualified plan under Section 422 of the
Internal Revenue Code of 1986, as amended.
The purchase price of each share of common stock placed under option
shall not be less than 100% of the fair market value on the date the
option is granted unless the optionee owns more than 10% of the
voting stock of the Company, then the purchase price shall be 110%
of the fair market value. The option period shall not be more than
10 years (five years for 10% stock holders) from the date of grant
and will expire one year from the date of optionee's termination. To
date, no options have been granted.
Read accountants' review report.
18
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
- ----------------------------------------
The Board of Directors further adopted the "1992 Non- Statutory
Stock Option Plan" reserving 1,000,000 shares of the Company's
common stock which shall not be a qualified plan under the Internal
Revenue Code of 1986, as amended.
The purchase price of each share of common stock placed under option
shall be not less than 100% of the fair market value on the date the
option is granted. The option period shall not be more than 10 years
from the date of grant and will expire one year from the date of
optionee's termination. To date, no options have been granted.
NOTE 10 - EMPLOYEE STOCK COMPENSATION PLAN
- ------------------------------------------
The Board of Directors elected to adopt the 1994 Employee Stock
Compensation (ESC) Plan effective September 12, 1994. The board
authorized the issuance of 1,000,000 shares of $.00001 par value
common stock issuable upon awards under the ESC Plan and such number
of shares is to be formally reserved solely for the purpose of this
plan. 500,000 of these shares are to be registered under the
Securities Act of 1993, as amended, under cover of a registration
statement on Form S-8. During September and October 1994, 205,000
shares were issued to an attorney for legal fees of $71,750 and 295
shares were issued for $29,000 in consulting services. No stock has
been awarded under the ESC Plan during the year ended December 31,
1995 or the nine months ended September 30, 1996.
NOTE 11 - COMMITMENTS
- ---------------------
On January 3, 1994, the Company entered into five year employment
agreements with its former president and former secretary/treasurer.
In 1994, the Company issued 73,296 shares of its common stock to
these two former officers for $48,775 of accrued salaries due to the
Read accountants' review report.
19
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 11 - COMMITMENTS (CONTINUED)
- ---------------------------------
former president and $19,050 of accrued salaries due to the former
secretary/treasurer. The employment agreements for these former
officers were terminated November 9, 1995. As of December 31, 1995,
there was no compensation or other amounts owed to the former
officers.
On October 27, 1995, the Company entered into an employment
agreement with its current Chief Executive Officer/president. The
agreement calls for an annual salary of $100,000 plus 20% of net
after tax earnings of the Company. As part of this agreement, the
Company issued the executive 1,000,000 shares of common stock. As
additional compensation, the president has been granted stock
options totalling 3,500,000 shares at exercise prices ranging from
$.15 to $.50 to be exercised at a specific amount each year.
The Company leased office space from an unrelated entity under a
month-to-month operating lease for $857 per month. Rent expense was
$6,207 for the year ended December 31, 1995. In November 1995, the
Company moved its operations and the lease was terminated.
On February 21, 1996, the Company was informed that an informal
inquiry of the business had been initiated by the Enforcement Branch
of the United States Securities and Exchange Commission. The Company
has supplied the Commission with all documents as requested. The
Company's Board of Directors have authorized and instructed
management to comply with the requests of the Commission which the
Company has done.
On September 13, 1996, the staff of the Securities and Exchange
Commission notified the Company that the Division of Enforcement
intended to recommend that the Commission institute a cease and
desist order against the Company based on allegations that the
Company violated various sections of the Securities laws. The
concerns of the Securities and Exchange Commission are with prior
management.
Read accountants' review report.
20
<PAGE>
CENTURY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
NOTE 12 - LITIGATION
- --------------------
On August 19, 1996, the Company filed a lawsuit against two
companies and an individual related to the two companies regarding
the Company's acquisition and licensing of certain feature films and
acquisition of broadcast time rights. The Company's position is that
it was fraudulently induced to enter into various purchase and
licensing agreements for certain feature films and broadcast time
rights by the two companies and individual by falsely representing
and warranting to the Company that they owned the media rights to
the feature films and all broadcast time rights under the contracts
and the authority to license the media rights and/or convey title,
to such films and sell the broadcast time rights. It is the
Company's position that the defendants did not own the media rights
and/or title to the films and broadcast time rights and did not have
the authority to license or sell the rights conveyed under the
agreement. As part of the various agreements, the defendants agreed
to deliver documentation to the Company which demonstrates
transferors' ownership interest. The Company asserts that the
defendants not only failed to provide the Company with the
documentation, but never intended to provide such documentation (See
Notes 3 and 5).
NOTE 13 - SALE OF MAJORITY INTEREST
- -----------------------------------
On November 1, 1996, the Company signed an agreement with Affinity
Entertainment, Inc. to allow Affinity to purchase a majority
interest in the Company. Under the terms of the agreement, the
Company sold 37,500,000 units to Affinity in consideration of
$3,000,000 in cash, forgiveness of debt and a promissory note. Each
unit consists of one share of common stock and one warrant to
purchase one additional share of common stock at $2.00 expiring
December 31, 2001. As of the date of this report, Affinity has paid
$600,000 of the purchase price including cancellation of the note
payable (See Note 5).
Read accountants' review report.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 0F FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
General
In November 1995, the Company's officers and directors tendered their
resignations, and new management took control of the Company. Management intends
to establish specific direction for the Company in the business of distributing
and producing entertainment programming including feature films and license
rights to libraries already held by the Company.
As part of the agreement between the Company and prior management, the
former president assumed certain notes payable and the rights and liabilities of
an agreement between the Company and Web Broadcasting Systems ("Web"). As
consideration to the Company, Web returned 200,000 common shares to the Company
in March 1996, and the Company expensed $50,000 already advanced to the
partnership.
From inception the Company had been considered a development stage
corporation. In September of 1996 upon commencement of generating revenues the
Company became an operating entity in the business of co-producing original
product and distribution of features and television programming to all media
worldwide including network syndication and cable television in the U.S.
marketplace.
Results of Operations
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30,
1995
The following is a discussion of material changes in the consolidated
results of operations of Century Technologies, Inc. which occurred in the three
months ended September 30, 1996 and the nine months ended September 30, 1996
For the first time since its inception the Company, having been taken over
by new management in November 1995, experienced revenues of $7,510 for the three
months and six months ended September 30, 1996 compared to $0 for the equivalent
periods in 1995.
For the three months ended September 30, 1996, the Company experienced a
net loss from operating activities of $255,840 compared to $75,891 for the same
period in 1995. The Company experienced a net loss from operating activities of
$655,205 for the nine month period ended September 30, 1996 compared to
$290,017 for the same period in 1995. These increases in losses were primarily
due to increases in general and administrative expenses discussed below.
22
<PAGE>
General and Administrative Expenses
For the three months ended September 30, 1996 and the nine months ended
September 30, 1996, general and administrative expenses were $224,929 and
$579,232 respectively compared to $75,821 and $289,807 for the corresponding
periods in 1995. These increases were primarily due to hiring additional
employees by the Company and general operating expenses as the Company gears up
to commence operations.
Interest expenses were $38,007 and $82,807 for the three months ended
September 30, 1996 and nine months ended September 30, 1996 compared to $0 and
$0 for the corresponding periods in 1995.
In February the Company paid $10,000 for an exclusive option to finance
production of a series of television programs in consideration of worldwide
exploitation rights for the series. The Company paid an additional $5,000 in
August to extend the initial option period to February 1, 1997. The series is
presently untitled and is scheduled to be produced in 1997.
Write Off of Film Library
The difference in assets against liabilities predominantly reflects the
write-off in the prior year of assets relating to various feature libraries,
lists of titles and two packages containing two and five titles, respectively.
Prior to becoming involved with the Company, current management was led to
believe that these titles were in proper order and that previous management had
performed the necessary due diligence to establish the proper chain of title in
order to conclude licensing deals and market the titles. Upon conducting its own
due diligence review regarding the chain of title of the features, the Company
was compelled to cancel or rescind all transactions entered into by previous
management regarding feature films and broadcast air time as of December 31,
1995. This action resulted in reductions in the Company assets of $5,386,200 and
$500,000 respectively. The write-off of the film library and related assets also
accounts for the significant increase in net loss and net loss per common share.
In addition, management has chosen to proceed conservatively by continuing
to reflect liabilities relating to the transactions until the successful
disposition of a lawsuit filed in August 1996 by the Company against an
individual and two affiliated companies in connection with such transactions.
As of December 31, 1995, the Company also decided to dispose of $60,462 in
obsolete theatrical and film editing equipment which would have been
prohibitively expensive to repair and operate.
23
<PAGE>
Liquidity and Capital Resources
For the nine months ended September 30, 1996, the Company experienced cash
flows from financing activities of $474,746 of which $175,000 were proceeds from
notes payable due stockholders, advances of $300,000 from a related party and
the balance of ($254) representing payments on a capital lease.
In November 1995, the Company announced that it had been named as a
defendant in a lawsuit styled FERATON ANSTALT VS. CENTURY TECHNOLOGIES, INC.
alleging that the Company owed $1,000,000 plus interest on a promissory note
that it had issued to another party. In April 1996, the Company announced th at
it had issued 356,000 shares of its restricted common stock in exchange for the
dismissal of the suit. The Company in turn canceled 356,000 of preferred stock
which had previously been issued in replacement of the note.
Also in April 1996, the Company announced that it had rescinded or
canceled all agreements entered into by previous management with an individual
and two of his affiliated companies. These agreements pertained to various film
titles and license rights and broadcast air time and were subject to provision
of documentation supporting chain of title and ownership which were never
produced. The Company filed suit in August 1996 in order to effectuate the
rescissions and for damages.
In June 1996, the Company entered into a letter of intent with Affinity
Entertainment, Inc., a producer of television programming and movies, to
purchase a majority interest in the Company with the expectation of receiving
financing as part of such investment. As of October 25, 1996, Affinity had
advanced $400,000 on an unsecured basis to the Company in order to fund the
Company's operations. On November 1, 1996, the Company announced that it had
signed a definitive agreement to complete its sale of a majority interest in the
Company to Affinity. Under the terms of the agreement, Century sold 37,500,000
units to Affinity for a total consideration consisting of $3 million in cash,
forgiveness of debt and a promissory note. Each unit consists of one share of
common stock and one warrant to purchase one additional share of common stock at
$2.00 expiring December 31, 2001.
In September 1996 the Company emerged from the development stage into an
operating entity and started generating revenue through distribution activities.
The Company anticipates that distribution sales, sales of restricted common
stock, investments through co-productions and loans together with the funds made
available through the agreement with Affinity will be more than adequate to meet
its cash flow requirements for fiscal year 1996.
24
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits: Exhibit 27:
Financial data schedule (Electronic filing only)
Reports on Form 8-K:
The Company filed Form 8-K report dated November 14, 1996 (Item 5
and Item 7).
25
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTURY TECHNOLOGIES, INC.
By: /s/Peter B. Newgard
---------------------
Peter B. Newgard
President and Chief
Executive Officer
Date: 11/14/96
---------
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CENTURY TECHNOLOGIES, INC. FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 59
<PP&E> 14
<DEPRECIATION> 0
<TOTAL-ASSETS> 87
<CURRENT-LIABILITIES> 2,079
<BONDS> 0
0
4,103
<COMMON> 0
<OTHER-SE> (6,095)
<TOTAL-LIABILITY-AND-EQUITY> 87
<SALES> 8
<TOTAL-REVENUES> 8
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> (655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (655)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
